Chile: Agri-food sector and Covid-19 crisis

By Carlos Furche

The health crisis facing humanity, which affects people and economies globally, is changing our daily lives, common sense and current priorities, and probably also our future post-pandemic. What seemed irrelevant yesterday maybe essential tomorrow.

Along with the urgency to prevent the collapse of health systems, for which it is essential that infections are not concentrated over a short period of time, food supply chains must be kept operational, otherwise, it will not be possible to sustain the measures taken to protect our health.

Until now, these chains have operated in fairly normal conditions, considering that they are interdependent systems with different actions and articulated functions. In effect, primary production depends on inputs. For example, fertilizer seeds and agrochemicals must flow adequately and in a timely manner, and workers must be able to carry out their tasks in safe conditions to protect their health against the pandemic. Financial flows and working capital enable the entire chain to be kept active.

Likewise, supply chains depend on the continued operation of processing, storage and distribution facilities, especially transport logistics. Logistics and distribution seem to be the most sensitive to restrictions imposed to protect the health of the population, and, therefore, greater coordination between national and especially regional authorities and actors in the chain is necessary.

Our country is a net food exporter, with agri-food shipments being only behind mining, and our trade balance has a considerable surplus, reaching surpluses of US$5,561 million in 2019, not including the forestry sector. Considering that our main destination markets are China, the United States and the European Union, and that we export fresh and processed wines, fruits and vegetables, products whose demand is elastic to the income of consumers, we must prepare ourselves to face a difficult period. Recent estimates by the WTO indicate that global trade flows could fall by 30%, and that the IMF and OECD estimate falls in global GDP of between 5% and 10% this year, all associated with a massive job losses around the world.

On the other hand, we are deficient, to varying degrees, in essential products for our food, especially wheat, corn, oilseed, rice, beef and, to a lesser extent, dairy products. Here, the challenge will be two-fold, to ensure that local production is maintained and will ideally increase in the coming season, making us less dependent on imports and ensuring that our supply of imported foods develops normally. Given that our main suppliers are neighboring countries, it is necessary to address this from through utilizing diplomatic channels, if necessary, and early purchase commitments, because, just as we have witnessed fierce competition for medical equipment, something similar could happen with food.

The agricultural sector employs 10% of the national workforce and creates numerous indirect jobs, which is key for most of the country's regions, except for mining companies in the north and the Metropolitan Region that concentrates on services. Post-pandemic revival can find a good ally in this sector, which is able to respond quickly to short and medium-term incentives with a high impact on employment and economic activity, especially in these regions.

Therefore, a comprehensive call from the government incorporating the private sector, academics and specialized international organizations is urgent, to analyze how to face short-term challenges, identify relevant restrictions and opportunities, and redefine medium and long-term strategies that will enable Chilean agriculture to adapt to the new conditions, which are likely to be marked by trade restrictions, changes to global food demand and the transformation of the paradigms of globalization to which the Chilean agri-food sector was once joined to successfully.

The original Spanish version of this piece is written by Carlos Furche, published on América Economía.

Carlos Furche is a former Minister of Agriculture of Chile, a former Deputy Minister of Foreign Trade and a former Director of the FAO Division of Agricultural Economic Development. He is also an agricultural engineer and has a Masters degree in Sociology. He works as an international consultant for the World Bank, Monetary Fund, IDB, among others.