11. Costa Rica

Costa Rica’s agricultural support for producers (PSE) amounted to 4.9% of gross farm receipts in 2019-21, well below the OECD average and down from 8.2% in 2000-02. Agricultural support comes almost entirely (89%) from market price support (MPS), one of the most trade- and production-distorting forms of support, generated through border measures (tariffs) and domestic measures (minimum reference prices). Products with the most support include rice, poultry, pig meat and sugar. Border protection and price interventions inflated producer prices by 5% on average relative to international prices in 2019-21. The remaining producer support (10.9%) comes through payments for environmental services and input subsidies for agricultural equipment and machinery.

Spending on general services (GSSE) accounted for 1.3% of the value of agricultural production in 2019-21. This spending saw an increase of 0.3% since 2000-02 but remains well below the OECD average. In 2019-21, these expenditures were allocated to three areas: (1) the agricultural knowledge and innovation system, particularly extension services; (2) development and maintenance of irrigation and rural roads infrastructure; and (3) inspection and control. Total support to the sector (TSE) corresponded to 0.5% of GDP in 2019-21, a significant decline from 2000-02.

The Puente Agro initiative was implemented in 2021 as part of the National Strategy for Poverty Reduction, which provides support, through health services, education, housing, labour and social protection to families in rural areas who live in extreme poverty. The initiative aims to support farmers in improving their productive processes through the provision of equipment, inputs and technical assistance.

Under the legislation passed in 2021 that seeks to strengthen the central government’s budgetary control of decentralised bodies, the Ministry of Agriculture (MAG) exercises greater control and supervision in formulating and executing the budgets of agencies such as the National Animal Health Service (SENASA), the State Phyto-sanitary Service (SFE), the National Institute for Innovation and Transfer of Agricultural Technology (INTA) and the National Council of 4S Clubs (CONAC).

  • Costa Rica’s National Decarbonisation Plan 2018-2050 aims at net-zero emissions by 2050, with a maximum of 9.11 MtCO2eq net emissions by 2030. The Plan includes strategies for decarbonisation of all sectors, including agriculture. However the agricultural strategies focus on improving practices that impact emissions but do not include a sectoral specific mitigation target.

  • Most producer support comes through border protection for specific products – namely rice, poultry, pig meat and sugar – and minimum reference prices for rice. This support distorts both domestic markets and trade, and constrains competition, productivity and competitiveness. The government should consider gradually phasing out this support and replacing it with payments targeted to producers in need on a temporary basis.

  • The low quality and coverage of agricultural infrastructure is a significant bottleneck, preventing the sector from becoming more efficient and responsive to market signals. Investments are required to enhance productivity (e.g. irrigation and drainage) and facilitate access to markets (e.g. transportation, distribution, cold-chain facilities).

  • Limited capacity and resource misallocations constrain the effectiveness of Costa Rica’s extension services, which account for 20% of public expenditures to the sector. Given the importance of these to the agricultural sector, efforts should ensure that funding is used more efficiently, including providing training to extension services personnel on new production systems and management, streamlining and reducing the administrative burden for technical staff, and improving coordination between research agencies, extension services and farmers’ needs.

  • Small-scale producers suffer low productivity and poor access to credit and financial tools. In addition, stringent requirements impede small-scale farms from taking advantage of available credit sources from commercial banks. While avoiding moral hazard, credit programmes provided by the national development bank and agricultural organisations or co-operatives could expand to improve the financial infrastructure and access to credit for smallholders.

  • Costa Rica has a history of environmental protection and sustainable development policies such as improved farming and livestock practices through the Nationally Appropriate Mitigation Actions (NAMAs). Despite these, opportunities for improvement remain. The country should align climate change adaptation and mitigation with agricultural development objectives. Farmers’ awareness could be enhanced through coordination between R&D and technical assistance.

Costa Rica’s agricultural policy progressed through three distinct phases over time. From the 1960s to the 1980s, Costa Rica’s agricultural sector followed an import substitution path, supported by government market interventions, such as price control and agricultural import tariffs (Anderson and Valdés, 2008[1]).

From the mid-1980s to the mid-2000s, agricultural support policies evolved in line with Costa Rica’s outward-oriented growth strategy. Market intervention decreased significantly, combined with continued domestic reforms and increasingly trade liberalisation. Reforms involved elimination of price controls (except rice), removal of export taxes and reduction of import tariffs. Costa Rica fully integrated into international markets, and free trade agreements resulted in duty-free imports from many countries, although import tariffs still apply to some agricultural products (Anderson and Valdés, 2008[1]; OECD, 2017[2]).

Since the food price crisis of 2007-08, which fuelled food security concerns in the country, specific programmes have been aimed at increasing productivity of staple foods, particularly through extension services targeting small-scale farmers. Reforms to the rice price system took place in 2015 with the introduction of a minimum reference price, which works more as an indicative rice price. Costa Rica’s policies continue nevertheless to emphasise export-oriented agriculture and prioritise sustainability and smallholders (Table 11.2) (OECD, 2017[2]).

Producer support fluctuated between 7% and 12% of gross farm receipts over the last 20 years, based predominantly on market price support. MPS concentrates mostly on rice and livestock products, accounting for around 90% of the PSE. In contrast, budgetary support to producers is limited, with little change over time (Figure 11.4). Around 80% of total budgetary allocations to the sector are destined to general services. R&D, extension services, rural infrastructure, inspection and control account for 98% of total expenditures on general services in the last ten years. Costa Rica does not provide budgetary transfers to consumers.

The agricultural policy framework of Costa Rica is guided by the 2019-2022 Policy Guidelines for the Agricultural, Fishing and Rural Sector. This framework seeks to: 1) improve the social and economic well-being of people employed in agriculture; 2) achieve a mechanised, competitive, inclusive and sustainable agriculture with responsive, modern and co-ordinated public institutions and; 3) create a sector resilient to physical, biological, economic and social impacts. The guidelines also have a crosscutting axis of climate actions and disaster risk reduction in the production of goods and services by strengthening the capacities of public institutions and farmers.

The country maintains a wide range of border measures, in particular tariffs for several agricultural products (rice, poultry, pig meat, milk, sugar, etc.). Moreover, the country maintains a reference price for rice. This reference price is based on domestic production costs, processing costs, international prices, and defined by the National Rice Corporation (CONARROZ) with the supervision of the Ministries of Agriculture, Economy and Industry. This reference price imposes a burden on consumers, as domestic prices are higher than international prices.

Budgetary policy instruments predominantly focus on providing general services to agriculture, including extension services, R&D, and plant and animal health services, with a significant emphasis on environmental protection. The Agricultural Technology Research and Transfers Institute (INTA) manages agricultural R&D and innovation. Together with the MAG’s National Directorate of Agricultural Extension, INTA also operates technology transfer and extension services to farmers. The National Animal and Health Service (SENASA) and the National Phytosanitary Service (SFE) are in charge of animal and plant health services.

In addition, farmers receive a number of relatively small subsidies. These include payments for environmental services such as the use of green or living fences and terraces, organic production or soil condition improvements, implicit subsidies through credit at preferential interest rates, and some subsidies for fixed capital formation mostly directed to small-scale farmers.

Agriculture is a major contributor to greenhouse gas (GHG) emissions in Costa Rica, with 20.5% of national emissions in 2017, behind the energy sector’s 55% and ahead of land waste’s 14.8%. Costa Rica committed to a completely decarbonised economy by 2050. Costa Rica's contribution does not consider a comparative benchmark. The country’s goal is composed of two objectives: (1) maximum 9.11 MtCO2eq net emissions by 2030, with emissions per capita of 1.73 net tonnes by 2030; and (2) absolute maximum net emissions of 106.53 MtCO2eq for 2021-30. To accomplish this, Costa Rica will have to reduce 170 500 tonnes of GHG per year until 2030. To do so, the country created the National Decarbonisation Plan 2018-2050, which defines annual goals for reducing GHG emissions (GEI).

This plan contains actions for the agricultural sector in its Axis 8 (agriculture) and Axis 9 (cattle ranching). Axis 8 relates to the promotion of efficient agri-food systems that generate low-carbon goods for export and domestic markets. It suggests that the subsectors of coffee, livestock, sugar-cane, rice and banana need to apply technologies by 2030 that reduce emissions at the farm and processing levels, and that the sector needs to use advanced technology by 2050 for sustainable, competitive, low-carbon and resilient agriculture. Axis 9 relates to the consolidation of an eco-competitive livestock model based on productive efficiency and reduction of GHG emissions. This axis suggests that the livestock sector should implement a circular economy by 2025; that 70% of the livestock herd and 60% of the area dedicated to livestock should implement low-carbon technologies by 2030; and all livestock activities should use advanced technology low in emissions and be resilient to climate change by 2050.

Within this context, the Sectoral Office for Climate Actions and Decarbonisation (SOCAD) was created in 2019 in the Directorate of Extension Services (DNEA) within the MAG. It oversees Nationally Appropriate Mitigation Actions (NAMA) for livestock and coffee, and development of banana, rice and sugarcane NAMAs.

In 2021, SOCAD provided technical support and training to 35 coffee farms for the implementation of Good Agricultural Practices (GAP). For the livestock NAMA, SOCAD trained 200 DNEA officials to formulate diets for animal feed, monitor livestock farms, and implement NAMA measures, including: (1) rotational grazing, (2) silvopasture systems, (3) plants and animals adapted to national climates, (4) monitoring, reporting and verification (MRV) systems for data generation on carbon storage in soils and plant tissues, and (5) estimation of emissions from enteric fermentation and nitrous oxide.

Technical monitoring of 1 652 cattle farms took place in 2021, and NAMA actions were recorded in the DNEA’s online information system for subsequent measurements. With the support of the National Livestock Corporation, 25 school farms trained to disseminate NAMA measures, including: (1) silvopasture systems, (2) animal health, (3) traceability, (4) genetic improvement, (5) water distribution networks, and (6) monitoring, reporting and verification (MRV) systems for data reporting throughout the country. SOCAD continues to work on the pilot plans for the development of NAMAs for sugarcane, rice and bananas.

During 2021, DNEA-MAG supported investments with environmental benefit that encourage improvements in agricultural farms related mitigation and adaptation to climate change, and organic agriculture. Some of these investments were in the renovation of degraded pastures; fodder banks for improving nutrition in livestock; rotational grazing systems with live fences and electric fences using solar panels; organic waste-composting systems as a source of fertiliser; protected environment systems for annual crop production; and infrastructure and equipment for bio inputs production.

In 2021, as part of the National Strategy for Poverty Reduction that provides support to families in rural areas who live in extreme poverty, through health services, education, housing, labour and social protection; the Puente Agro initiative was implemented and aims to support farmers in improving productive processes through the provision of equipment, inputs, and technical assistance.

In order for the Ministry of Agriculture (MAG) to exercise greater control and supervision in the formulation and execution of budgets, recent legislation in 2021 seeks to strengthen the central government’s budgetary control of decentralised bodies. The MAG now exerts more control over the budgets of agencies such as the National Animal Health Service (SENASA), the State Phyto-sanitary Service (SFE), the National Institute for Innovation and Transfer of Agricultural Technology (INTA) and the National Council of 4S Clubs (CONAC).

The DESCUBRE programme, a public initiative linking farmers to markets, continued to focus on improvements and adjustments to the products’ quality, certification, post-harvest innovation, logistics, and other features, required for better access to export markets.

In 2021, the National Commission for Risk Prevention and Emergency Attention (CNE), as part of the project to assist producers of staple grains (rice) and beans affected by COVID-19, provided financial support for the purchase of seeds, fertilisers and herbicides to reactivate the production. The programme proved support to 2 708 small and medium-size rice and bean producers, accounting for approximately 5 415 hectares.

In 2021, Costa Rica continued with the dispute (that started in 2015) at the WTO, on avocados halt imports from Mexico arguing sanitary and phyto-sanitary problems (SPS). The WTO panel issued its final report on April 13, 2022 and determined that Costa Rica acted inconsistently with Article 1.1 of the SPS Agreement, suggesting that halt imports from Mexico were not based on SPS.

Costa Rica is a small country with a population of 5 million. The country’s long democratic tradition and political stability have underpinned its important economic progress – including the development of its agricultural sector. Agriculture still plays a relatively important role in the economy, contributing 11.9% to the country’s employment and 4.5% to GDP. Costa Rica has achieved higher standards of living and lower poverty rates than other countries in the region, with a per capita income of USD 21 032 (PPP) in 2020 (Table 11.3).

In 2021, GDP growth rebounded to 5%, after GDP contracted by 4% in 2020 due to the COVID-19 pandemic. Inflation has significantly declined since 2008, and has fluctuated between zero and 2% since 2015. Unemployment has increased in recent years reaching 17% in 2021 (Figure 11.5).

Costa Rica has developed a successful and dynamic agricultural export sector. The country is a net agro-food exporter, with a share of agro-food exports in total exports of 40.4% in 2020. Around 50% of Costa Rica’s agricultural exports are primary crops for final consumption, such as bananas and pineapples (Figure 11.6). The country is also an important exporter of processed products for final consumption (31%) in 2020. Around half (47%) of agro-food imports are processed products for final consumption.

Average Total Factor Productivity (TFP) growth was negative during 2010-19. Nonetheless, increasing use of primary factors and, to a lesser extent, variable inputs, have resulted in output growth of 2% p.a., almost in par with the global average. (Figure 11.7). Area expansion into less productive land, ongoing farm fragmentation and limited financial and physical infrastructure were among the key contributing factors to the TFP decline. Agriculture is the main user of water resources. Environmental regulations have led to the reforestation of large parts of the country, and 25% of Costa Rican territory is now under some form of stricter environmental protection. However, the country continues to have relatively high nutrient balances for nitrogen and phosphorus, and agriculture contributes with 20.5% of total GHG emissions (Table 11.4).

References

[1] Anderson, K. and A. Valdés (2008), Distortions to Agricultural Incentives in Latin America, World Bank, Washington DC, https://openknowledge.worldbank.org/handle/10986/6604.

[2] OECD (2017), Agricultural Policies in Costa Rica, OECD Publishing, Paris, https://doi.org/10.1787/9789264269125-en.

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