Chapter 4 of Trade and Competitiveness in Argentina, Brazil and Chile analyses in more detail the agro-food sector in A-B-C. Depending on the country, this sector represents between 40-50 per cent of exports, 10-15 per cent of GDP and 15-30 of employment. Primary agriculture consists of relatively homogeneous products with many small producers which individually cannot exercise market power. The food industry has become more concentrated and internationalised. Retail distribution is now a key component of the food chain, with monopsony power reinforced by buyer alliances.
The ability to compete in foreign markets in the agro-food sector depends increasingly not only on costs and quantities, but also on transport costs, inventory management, and other improvements in logistics. For the food industries, product differentiation is a main element of competition (both in terms of variety and quality). Overall, the ability to compete internationally is determined by the entire food chain, including the interaction between these various elements.
The analysis shows that A-B-C still have a large potential to expand both volumes and the product range in the agro-food sector. Argentina and Brazil, but not Chile, still have large amounts of permanent pasture that can be converted into arable cropland. A-B-C can increase land and labour productivity by investing in R&D, using new technologies, training workers and facilitating access to credit. Moreover, there are also opportunities to shift to higher-value products and differentiated primary products, such as organic agriculture, fresh fruits and different corn qualities. In this regard, Chile stands out relative to Argentina and Brazil in terms of product differentiation (e.g. wine industry). Even in the case of primary goods, Chile has strongly developed the service content of exports (e.g. logistics, branding). The Chilean success is due to a good synergy between a stable macroeconomic environment, strong FDI, upgraded infrastructure, integrated commercial networks (including small farmers), improved access to credit and the R&D adapted to niche markets.
In Argentina and Brazil there are also large unexploited opportunities to increase the export of processed food products, but international and domestic constraints need to be addressed. At the international level, the currently high tariff peaks and non-tariff barriers of many OECD countries reduce market access, particularly for high value-added food products. At the domestic level, framework conditions could be improved to attract more FDI, which is essential to participate in international production and distribution networks. Private initiatives for the development of new products and markets could be better supported by focusing on education, infrastructure investment and public R&D rather than subsidies. Moreover, coordination needs to be improved across the different actors in the food chain, permitting technology transfers and quality upgrading. Finally, investment in branding, including at the national level, should not be neglected in helping increase sales in international food markets.
High producer support in the OECD
(as percentage of the value of production, 2000-02)
Source: OECD PSE/CSE database, Paris 2003.
For further information contact the chapter co-author Jonathan Brooks at firstname.lastname@example.org.
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