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

Published date01 March 2015
Date01 March 2015
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
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
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
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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