Chile: Rising dollar may lead to record exports

Yesterday, the dollars exchange rate was at 614.3 pesos, 87.9 pesos more than at the end of 2013 when the dollar was at 526.40 pesos. The prospects for next year indicate that the dollar will remain above 600 pesos; a context that encourages exporters and the government, which sees this as a favourable scenario for foreign sales and the perfect dose to encourage economic activity.

In fact, yesterday Alberto Arenas, Minister of Finance, said the exchange rate and the exports were one of the four engines that would help the local business rebound. Other contributions will come from fiscal policy, considering that 50% of the budget will have been executed at the end of the first half of next year; public-private partnerships and the international context, which had a significant drop in oil prices in recent days.

The Ministry of Agriculture predicted exports would reach record amounts for individual items comprising the sector: fruit, with 4,800 million; forestry, with 3,000 million dollars, and milk, with 350 million.

In short, expectations are this branch of the economy will expand 5%.; a number within the range that the guilds linked to the agricultural world handle.

The head of research at the National Agricultural Society (SNA), Ema Budinich, said growth estimates for the sector were located around 4%, which compares favourably with the forecasts that state the GDP at the national level will grow between 2.5% and 3%.

However, the executive said, "the sector's growth is largely based on the low base of comparison with this year's results, which we estimate will fall by around 2%."

Budinich stated that,"the rise of the dollar is certainly an incentive for the Chilean forestry and agricultural sector, which is fully integrated into global markets." But, he added, it should be noted that this increase in the dollar has been liquefied by falling international prices for the segment of local producers that substitute imports (meat, milk and grains).

"Hence, we must analyse the full effect in order to analyse the impact of the rising exchange rate on the profitability of the farming businesses," he said.

The president of the Association of Exporters, Ronald Bown, said that while prospects with an exchange rate at 600 pesos were better than with an exchange rate at 500 pesos, the dollar wasn't the only factor influencing the sector. "Expectations weren't very optimistic in the previous years, which generated a lag in the investment for restructuring. Today, the fruit exports sector is catching up in this area," he said.

Asoex expects exports will increase between 10% and 12% next year. Despite this significant increase, Bown isn't sure the sector will be the engine of GDP. "It is true that we are facing, once again, the opportunity to become an engine of the economy, but we think they need to moderate these expectations, since making sudden jumps isn't possible for fruit exports, the orchards and the new plantations need time to start producing new fruits."

Contribution to the GDP
In its latest Monetary Policy, the Central Bank predicted that the total amount of shipments in 2015 would reach 79,650 million dollars, but economists believe this figure will be around 81,438 million dollars.

Felipe Alarcon, of Euroamerica, said, "it will be critical and, in fact, it already is critical. In 2015, the sector will boost the economy while the private sector will remain slow," he said.

Thus, the expert predicted, this sector will have a real growth between 3.5% and 4% and it will contribute around 0.7% and 1% of the GDP.

Felipe Bravo, Public Policy Assistant Manager of Banco Santander, stated the sector "should be growing about 4% with emphasis on non-copper shipments, agribusiness, and its contribution to the GDP should be between 1% and 1.5%.

Agriculture Minister Carlos Furche: "The agro-export sector will at least grow 5%"

The Minister of Agriculture, Carlos Furche, stated the sector would achieve this growth next year mainly because of the rising dollar.

He indicated that the current macroeconomic scenario was "particularly attractive for the sector: a high exchange rate and low interest rates, which favours exports, investment and expanding productive capacities," he said.

Therefore, he advises, "we must seize this good moment to make a qualitative leap in quality, safety, health and expansion of market prospects, because that will help the industry in the medium-long term."

The fruit sector will export $4,800 million dollars; the forestry sector, $3,000 million dollars, and the dairy sector, $350 million dollars; all record levels. Thus, exports in 2015 are expected to grow no less than 5%. "Projections indicate that by 2015 the agricultural and forestry sector will be one of the most dynamic sectors of the Chilean economy and, in that sense, it will make a significant contribution in terms of employment and investment," he said.

The minister mentioned that although there were serious drought conditions in the north of the country, the rest of Chile's main meteorological variables tended to normalize, notwithstanding specific events such as last weekend's rain that affected the production of cherries. Therefore, he stressed, "we'll have a very good year for livestock in the South because we had a rainy spring, which means we'll have more grass. Thus, the dairy sector will reach an amount that was unimaginable five or ten years ago."

In a longer-term perspective, the head of Agriculture stated that, "Chile has an extraordinary future as a producer of food. Thus, we have to continue working for the medium term. To achieve this, we need to face the challenges posed by the competition from third countries, the increasing demands of consumers, the need to generate inclusive dynamics for the development of the sector and improve their standards of sustainability."

The minister noted that, "Chile is among the top twenty global food exporters. However, to advance, Chile must have an agricultural production chain with technological innovation, diversify its markets and its production, improve its efficiency in the use of water resources, raise standards, especially in safety and quality, as well as its environmental and labour standards."

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