Measuring the Size of the Renewable Resource Sector: The Case of Chile

• Author: Alberto Valdés,William Foster
• DOI: http://doi.org/10.18278/wfp.2.1.2
• Published date: 01 March 2015
• Date: 01 March 2015

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World Food Policy - Volume 2, Number 1 - Spring 2015

William FosterA and Alberto ValdésA

Measuring the Size of the Renewable Resource Sector:

e Case of Chile

Introduction

Our perception of the economic

importance of the agriculture

and food system is dominated by

ocial statistics of the farm sector’s share

in gross domestic product (GDP). With

economic development, the apparent

size of primary agriculture decreases, not

only in relative terms but perhaps also

in absolute terms, oen leading many to

lament that farming is in decline. But the

interpretation of this apparent pattern

requires thinking about the question,

What is the real size of the agricultural

sector? Using the standardized format of

national accounts, the share of production

agriculture in the GDP or value added

(VA) is the most direct measure of the

sector’s size and its contribution to the

larger economy. e denition of what

is agriculture, however, has implications

for interpreting this measure. In national

accounts, agriculture is a primary

industry, where productive activities

take place on the farm, and the VA of

activities—however simple but beyond

the farm gate and which contribute to

the value of agricultural products and

employment—is attributed to other,

nonagricultural sectors.

A Department of Agricultural Economics, Ponticia Universidad Católica de Chile

As a percentage of national gross domestic product (GDP), farming is typically

small in middle-income and wealthier countries. But national accounts include

only on-farm activities, giving both the public and policymakers an impression

that the food sector is a minor actor in the economy. Much of past development

literature, using household expenditures, considered that farming generated few

positive externalities, with few backward and forward linkages to other sectors,

inviting the conclusion that stimulating agriculture was a low priority to boost

economic development, especially in Latin America. Using national accounts,

this study employs a concept of an expanded value added to capture agricultures

intersectoral linkages, yielding a more useful measure of sector size. In the case

of Chile, the expanded primary sector’s contribution is approximately double

that of simple national accounts, with forward links far exceeding backward. A

more rened division of labor and economic specialization, perhaps enhanced

by trade openness, appears to explain in part agriculture’s declining share in

national GDP and the growth of sectoral linkages.

Keywords: agricultural value added, national accounts, backward and forward

linkages, Chile

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Selection and packing of fresh

fruit, for example, if done o-farm, is

counted in manufacturing and the workers

deemed nonfarm employees, although in

common parlance—and in the minds of

economists unfamiliar with the details

of national accounting—such an activity

would be thought as part of the agricultural

sector. Similarly, with development and

an increasingly sophisticated food sector,

wine production, pasteurized and ultra-

high-temperature (UHT) milk, cheese,

eggs, and poultry processing, and other

such activities, are taken out of the primary

agriculture column in national accounts

and classied as manufactures. And many

activities producing intermediate inputs

for farming—fertilizers, energy and

traction, pesticides, and some machinery

and labor services—which were formerly

on-farm activities, are now provided

by nonagricultural sectors. e more

intensive is economic specialization in an

economy, the smaller agriculture appears

to be, certainly relative to the rest of the

economy, simply as a matter of accounting

denitions.

is purely accounting-based

perception of agriculture has reinforced

the assessment found in a signicant part

of the economic development literature,

especially related to Latin America, that

the agricultural sector generates few

positive externalities. e structuralist

school (famously represented by

Prebisch 1950; Singer 1957; Myrdal

1957), for example, contended that the

farm sector contributed little to the

rest of the economy via backward and

forward linkages (purchases and sales).

Without a signicant contribution to the

rest of the production system, various

development experts concluded that the

stimulation of the agricultural economy

should be a low priority in the pursuit of

economic development. Time has eroded

condence in this view, in large part due

to the disappointing performance of the

associated import-substitution strategy

that accompanied it and due to the better

understanding of the connection between

improving farm productivity and poverty

reduction in both rural and urban areas

(see, for example, the extensive treatment

in the World Bank’s World Development

Report 2008: Agriculture for Development).

More recently, research on the

links between the sector with the rest

of the economy have produced a body

of evidence that agricultural growth

would have signicant multiplier

eects, spreading through other sectors,

beyond their direct contribution to

GDP. In particular, research has shown

quantitatively that acceleration in the

growth of agricultural production in

much of Latin America had a signicantly

positive eect on employment and wages

of unskilled workers and through this

process helped reduce rural poverty

(see, for example, de Ferranti, et al. 2005;

Bravo-Ortega and Lederman 2005; World

Bank 2007).

e purpose of this study is to

present and apply a methodology to

measure an “expanded agricultural VA,”

i.e., a measure that incorporates the

net impact of the primary sector on the

VA of other sectors via backward and

forward linkages. e following section

discusses the importance of the strength

of forward and backward linkages of

primary agriculture to the rest of the

economy, illustrating the linkages with

evidence from the most recently available

Chilean intermediate use matrix on which

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