Fresh fruit leads Chile's export mix - Chile emerges as major supplier of fresh fruit to world market due to ample natural resources, consumer demand for fresh fruit during winter season in U.S. and Europe, and incentives in agricultural policies of Chilean government, encouraging trend toward diversification of exports and development of nontraditional crops - U.S. Dept. of Agriculture, Economic Research Service Report

Agricultural Outlook, April, 1992

The Chilean fruit sector has expanded dramatically in the past 30 years, and the country has become competitive in international fruit markets. Chile's success is due to a number of factors including shifting consumer preferences, abundant natural resources suitable for fruit production, and government policies that have allowed for marked changes in the agricultural sector.

Chile's emergence as a supplier of fresh fruit to the world market reflects a trend among Latin American exporters toward sales of horticultural products in order to diversify agriculture, provide employment, and generate foreign exchange.

Diversification in agriculture and exports helps provide insurance against debt crises by spreading export earnings over a broader array of commodities. If a country's foreign exchange earnings do not fluctuate widely about a mean or trend, the country can import goods and inputs without resorting to the costly practice of short-term borrowing. One way to overcome high variability of capital earnings is to diversify exports.

In recent years, developing economies of Latin America have encouraged agricultural exporters to diversify through a variety of incentives. These include exemption from export taxes, and tariffs on inputs granted to producers of nontraditional products.

Chile is among the developing economies taking advantage of these trends, pursuing a free market economy. This has allowed for diversification through the expansion of fruit production for export, especially to the U.S. and Western Europe. Chile has successfully diversified its agricultural sector to the extent that it is now a major fruit exporting nation. Many countries view Chile's diversification of agriculture as a model to be followed.

Building a Model Of Success

Before 1974, Chile's primary agricultural exports were traditional crops--beans, lentils, and wool. But beginning in the late 1960's and early 1970's, Chilean farmers planted apple orchards and tablegrape vineyards, and by 1975 Chile began exporting large quantities of these two nontraditional crops.

In 1974, Chile's fruit exports were a modest 57,000 metric tons, but by 1986 they had grown an extraordinary 1,182 percent to 674,000 tons. Over the same period, fresh fruits grew from 17 to 45 percent of the total value of Chile's agricultural exports.

Chile has surpassed its competitors--South Africa, Australia, New Zealand, and Argentina--to become the leading supplier of fresh fruit to North America and Europe during the Northern Hemisphere's winter months. Chile's major fresh fruit export is table grapes, with over 75 percent shipped to the U.S. Because Chile's grapes are in season during the U.S. winter, table grapes are now available year-round to the U.S. market. A large percentage of Chile's apples, another of its major exports, is shipped to Europe, but some are also shipped to the U.S. Chile is also a primary supplier of fresh pears to the U.S.

To avoid a new concentration of exports centered on table grapes and apples, Chile diversified into a wide range of other fruits. Chilean farmers have moved into production of pears, peaches, nectarines, and other stone fruit, as well as kiwi, berries, avocados, asparagus, and onions. Exports of these products are now expanding.

From Traditional to Nontraditional Exports

As exports diversify, aggregate export price and revenue variation are expected to decline. Variation in export prices and, consequently, export revenues, can be observed using a statistical measure known as a coefficient of variation (CV), which indicates levels of price instability in exports from developed and developing countries. The CV is defined as the variance over the mean of a data set. The lower the price CV, the lower the variation in export prices.

Over the period 1974-84, the CV's of field crops commonly associated with exports of the more developed countries, such as wheat, rice, soymeal, soybeans, and corn, range from 0.92 for corn to just over 19 for rice. These are relatively low, and indicate that export prices of these crops do not fluctuate a great deal.

By contrast, the CV's for crops commonly exported by less developed nations, such as coffee, sugar, bananas, beef, cotton, fishmeal, and cocoa, ranged from 10.6 for bananas to 216.8 for cocoa over the same period. The highest CV's were for cocoa, coffee, beef, and sugar--products commonly exported by Latin American countries. Such price variation contributes to large fluctuations in export revenues. The high price instability associated with traditional products has led to efforts to diversify exports.

CV's were also constructed for the prices of Chile's major agricultural exports--the traditional beans, wool, and lentils as well as the nontraditional apples and table grapes. The higher the CV, the greater the variation in export prices, and export revenues. If CV's were the only signals for diversifying, data from 1961 to 1967 indicate that apples and table grapes would lower the variation in revenue earned from agricultural exports.