Chapter 2. Trends and evaluation of agricultural policies in Costa Rica

This chapter reviews the framework, key policy objectives and institutional arrangements for agricultural policy in Costa Rica. It provides an overview of relevant policy developments since the 1980s, after which it describes domestic agriculture-related policies, followed by an examination of trade policies relating to the agro-food sector. The subsequent section estimates support provided to agriculture and the cost that these policies impose on consumers and taxpayers. The main conclusions of the chapter are summarised in the final section.

  

2.1. Introduction

Over the past 30 years, Costa Rican agricultural policies have focused on the integration of the sector within international markets and the management of responses to external shocks, such as high commodity prices and natural hazards. Other objectives have included the sustainable use of natural resources, improvement of farmers’ living standards, strengthening of domestic market supply chains, and modernisation of agricultural institutions. In the wake of the food price crisis of 2007-08, Costa Rica has emphasised food security as an objective, requiring – in particular – the improvement of living conditions in rural areas and an increase in agricultural productivity. At the same time, Costa Rica has continued to promote agricultural exports as part of a trade liberalisation process.

There are a range of bodies involved in the governance of the agricultural sector in Costa Rica. The Costa Rican Agricultural Public Sector (APS) is composed of several institutions, including the Ministry of Agriculture and Livestock (MAG). The Minister of Agriculture is in charge of the design and implementation of agricultural policies in co-ordination with all APS institutions. Furthermore, the Minister sits on the Board of Directors of public-private entities called “corporaciones” which represent producers of some key agricultural products.

Costa Rica provides relatively low levels of agricultural support compared with other OECD members. Input subsidies are limited, and aimed at fixed capital formation and on-farm services, while budget transfers are relatively low and largely (around 80%) take the form of less-distorting general services to agriculture, including extension services, plant and animal health services and irrigation investments. There are also minor direct payments for environmental services. However, there are issues with the efficiency and impact of some of these government services. Moreover, although only 10.1% of gross receipts of agricultural producers in Costa Rica – as measured by the percentage Producer Support Estimate (%PSE), the ratio of policy-related transfers from taxpayers and consumers to gross farm revenues – were provided by support policies over 2013-15, compared with an OECD average of 17.6% for the same period, this support is highly distorting, consisting mainly of Market Price Support (MPS). MPS – for rice in particular, but also for poultry, sugar and pig meat – accounted for 97% of the PSE in 2013-15.

Tariffs are the main instrument for trade protection for Costa Rica’s agricultural sector, although they have declined since Costa Rica joined the WTO in 1995. Between 1995 and 2014, the Most Favoured Nation (MFN) average tariff for agricultural goods decreased by 31%. Nevertheless, agricultural tariffs remain high compared to total trade, or tariffs on industrial goods and petroleum. The average MFN tariff for agricultural goods in 2014, for example, was 11.5%, well above the average MFN tariff for total trade (5.8%) and industrial goods (4.8%) (WTO, 2016).

This chapter provides an overview of policies and support to the agriculture sector in Costa Rica. It has four sections. The first provides an overview of agricultural policy in Costa Rica, describing the main policy developments since the 1980s, identifying key current policy objectives and outlining the relevant public and private sector institutions and organisations (the institutional landscape). The second section discusses domestic policy measures that provide support to agriculture: policies that provide direct transfers to farmers – price support, input support or direct payments, which are used to calculate the Producer Support Estimate or PSE – and support to the agricultural sector as a whole, such as the extension of rural development services, used to calculate the OECD General Services Support Estimate (GSSE). Section 3 summarises key trade policies relating to the agro-food sector. The chapter concludes with an estimation of support to the agricultural sector – namely producers, consumers, general services and the sector as a whole – and a summary of key findings.

2.2. Overview of agricultural policy framework

Key policy developments since the 1980s

In the 1980s and 1990s, Costa Rica undertook major reforms in the agricultural sector, moving from an import substitution regime to a trade liberalisation model. Trade policy reforms aimed to integrate the sector within international markets through active participation in multilateral, regional and bilateral trade negotiations and the attraction of Foreign Direct Investment (FDI) to strategic sectors. The main policy objectives in the agricultural and food sector at this time were to strengthen the agricultural export sector in terms of growth, diversification and sophistication of exports and destination markets (SEPSA-MAG, 2015), to increase the stability of trade flows through better and more transparent international trade rules (COMEX, 2015), and to ensure the quality and food safety of key imports through improved phytosanitary and sanitary controls (SEPSA-MAG, 2015) (For more details, see Annex 2.A1.A).

Import-substitution through high levels of protection for the domestic market and taxation of the agricultural sector was replaced in the 1980s by open-market policies and reduced state intervention. For the first time, the agricultural sector was exposed to significant competition, forcing it to use available resources more efficiently and to become more productive. The transition from a closed to an open economy forced adjustments in exchange and interest rates, tariffs, credit, tax and salary structures. Macroeconomic policies, in particular, influenced agricultural prices, production costs, and growth patterns, as well as the structure of the agricultural sector. The implementation of structural adjustment programmes saw the introduction of deregulation, privatisation, and the reduction both of trade barriers and of the budget deficit.

In undertaking this change in strategy, the government argued that for a small country like Costa Rica to realise its growth potential, it was necessary to develop strong links with international markets. However, this was hindered by the high tariffs and other obstacles to trade that were characteristic of the Central American Common Market at the time. To support the process of openness and greater integration with international markets, Costa Rica signed the Uruguay Round (GATT-UR) agreements, joined the World Trade Organization (WTO), negotiated and signed Free Trade Agreements bilaterally and with regional blocs, and participated both in the restructuring of the Central American Common Market and in negotiations to develop a customs union at the sub-regional level.

Institutional reforms of the Agricultural Public Sector (APS) were also implemented in the 1980s and 1990s in order to promote competitiveness. These included limiting the power and size of public institutions and strengthening mechanisms for private stakeholder participation. Incentive schemes, such as the Tax Credit Certificates-CAT and Free Zone Regimes, were also developed in order to promote FDI. Other developments included the reduction of state monopolies on commodity imports and price deregulation for most domestic consumer goods.

As concerns emerged in the 1990s about the sustainability of natural resources and the environment, management of agri-environmental issues became a more prominent focus of policy. Formerly under the responsibility of the Ministry of Agriculture and Livestock, a new Ministry of Natural Resources, Energy and Mining (MIRENEN) – now the Ministry of Environment and Energy (MINAE) – was created. A range of policy instruments were developed to mitigate the negative impacts of agriculture on the environment; for instance, the Forestry Financing National Fund (FONAFIFO), which offers an ecosystem services payment to agricultural producers.

In the 1990s and the first half of the 2000s, the Costa Rican government continued to focus on export promotion. Following the food price crisis of 2007-08 and the concerns surrounding food security, national agricultural policy began to emphasise the domestic market and the strengthening of productivity. In 2010, specific strategies were developed for products that were considered to be important to the national diet. A value chain approach was taken for products like rice, beans, cocoa, onion, banana, pineapple, and milk products, and a programme to develop sustainable livestock production was introduced.

In 2014, in alignment with the national objective of poverty reduction, the focus of national agricultural policy broadened to include the improvement of living conditions in rural areas. The new approach attempts to address an important gap by going beyond the agricultural sector and integrating a range of sectors within a more holistic approach to rural development, with specific policies aimed at different stakeholder groups.1 Policies were introduced to improve the living conditions of small-scale rural producers, family farming, and disadvantaged social groups in rural areas, as well as programmes to address the needs of women farmers and rural youth. Furthermore, the second agricultural objective of increasing agricultural value-added through improvements in productivity and sustainability was directed mostly towards small and medium-scale farms by means of the strengthened provision of services. Yield targets were also set for certain staple crops such as rice, beans, potatoes and milk.

Agricultural policy objectives

In order to define a long-term agricultural and rural development strategy, a process of consultation and consensus-building was carried out in 2010 amongst different stakeholders in the agricultural and rural sectors (government, producers, academia and social actors) (MAG, 2011). The result of this process was the “State Policy for Costa Rican Agri-food Sector and Rural Development 2010-2021” (Política de Estado para el Sector Agroalimentario y el Desarrollo Rural Costarricense 2010-2021). Under these new policy guidelines, the agricultural sector is positioned as the basis of inclusive, modern, competitive and environmentally-responsible development. The guidelines cover four main policy pillars: (i) competitiveness, (ii) innovation and technological development, (iii) rural area management and family farming, and (iv) climate change and agro-environmental management (Figure 2.1).

Figure 2.1. State Policy for the Costa Rican Agri-food Sector and Rural Development 2010-2021
picture

Source: SEPSA (2015a), MAG (2011).

These guidelines, or policy framework, took into account Costa Rica’s international, multilateral and regional commitments – under the WTO, UN or ILO, the Central American Agricultural Policy (PACA) and the Central American Strategy for Territorial Development (ECADERT), for example – to ensure the coherence of national policies with international obligations.

The current government (2014-18) has continued these long-term guidelines for the agricultural sector, but has redefined its mid-term goals in line with new priorities established within its National Development Plan “Alberto Cañas Escalante” (NDP) for the 2015-18 period. The NDP’s main national goals are: a) reduction of poverty and social and territorial inequalities; and b) generation of greater economic growth, with more and better employment. The NDP also includes specific goals for different areas of the government at the sectoral level, including the specific plan for agriculture, the Agricultural and Rural Development Plan 2015-2018: “Plan Sectorial de Desarrollo Agropecuario y Rural 2015-2018”. This sectoral plan is part of the policy framework for the 2015-18 period (described below), and includes both specific goals2 and a budget estimation of the costs of related policy instruments.

With a view to implementing the goals of the sectoral plan for agriculture, the government has introduced a policy framework for the 2015-18 period, “Policies for the Agricultural Sector and Rural Territorial Development 2015-2018” (Políticas para el Sector Agropecuario y el Desarrollo de los Territorios Rurales, 2015-2018). This framework sets two objectives for the agricultural sector: a) to support the national goal of reducing poverty through actions that improve living conditions in rural areas, and b) to increase the value-added in agriculture through improvements in productivity and rural sustainability (Laws No. 7064 and No. 9036).

These sectoral objectives are in turn captured by five main policy guidelines (or “pillars”) for the agricultural sector (SEPSA, 2015a): a) food security, sovereignty3 and nutrition; b) the creation of opportunities for agricultural and rural youth; c) rural territorial development; d) adaptation to and mitigation of the effects of climate change on agriculture (MICCA); and e) the strengthening of the agricultural export sector. These five pillars are interconnected with the national objectives (Figure 2.2) set out in the NDP.

Figure 2.2. Agricultural sector: Relationship between national and sectoral objectives and policies
picture

Source: SEPSA (2015a).

Each of the five pillars contains different strategic areas and actions.4 A total of 184 different actions address the development and implementation of agricultural policies, making it difficult to evaluate and measure their effectiveness. Furthermore, many of these actions overlap not only within the Agricultural Public Sector (APS), but also within Ministry of Agriculture (MAG) itself, and with non-agricultural ministries and governmental institutions, all of which make for significant challenges in ensuring both effective implementation and policy coherence.

Institutional arrangements for agricultural policy management

The Agricultural Public Sector (APS), established by Law MAG-7064 in 1987, is comprised of eleven institutions which fall under the responsibility of the Minister for Agriculture. One of these institutions is MAG, which is responsible for the management of the APS and the formulation and implementation of agricultural policies, in addition to the agricultural extension system.5 The APS organisational chart can be found in Annex 2.A2.

Of the eleven institutions6 in the APS, five are under the direct control of the MAG: the National Institute of Innovation and Transfer of Agricultural Technology (INTA)7 , the National Animal Health Service (SENASA), the State Phytosanitary Service (SFE), the National Seed Office (ONS) and the National Council Club 4-S (CONAC). These institutions receive financial resources from MAG. Only two have their own board of directors: ONS and INTA; the remaining three are managed directly by MAG.

The other five institutions of the APS are decentralised and have an important degree of political independence. These are: The Rural Development Institute (INDER), the National Production Council (CNP), the National Irrigation and Drainage Service (SENARA), the Comprehensive Agricultural Marketing Programme (PIMA) and the Costa Rican Fishing Institute (INCOPESCA). PIMA and INDER are financially independent from MAG, but the others may receive transfers from it.

In addition to these eleven institutions, the APS has five administrative and co-ordination bodies: the Executive Secretariat for Agricultural Sector Planning (SEPSA), the National Agricultural Council (CAN), the Agricultural Sectoral Technical Committee (COTECSA), and the working bodies for public-private dialogue and consultation for joint solutions: the Joint National Forum, the Joint Regional Forum, and the Regional Agricultural Sector Committees (CSRA) (Annex 2.A2). The most important of these bodies is the CAN, a consultative advisory and sectoral co-ordination body that introduces and approves the agricultural sectoral plan. CAN is chaired by the Minister for Agriculture and includes CEO-level representatives from relevant public sector institutions and banks8 .

The Minister for Agriculture also chairs the National Joint Private-Public Forum and the Regional Joint Private-Public Forum. These stakeholder bodies comprise representatives of small and medium-size agricultural producer organisations, and are aimed at funding joint public-private solutions and promoting greater participation and representation of producer organisations in policy making (SEPSA-MAG, 2015).9 Details of each APS institution can be found in Annex 2.A2.

The agricultural private sector is comprised of a network of supply chain organisations. Some of these organisations are called “corporations” (corporaciones). The government is significantly involved in these bodies – all are governed by public law, and the Minister for Agriculture is a member of the Boards of Directors of four10 of the six corporations. The corporations emerged as a result of the government’s need for mechanisms for private sector participation in the execution of programmes – research and development partnerships in particular – and to streamline the provision of technical services and financial and marketing support to producers.

Key corporations are: ICAFE (coffee), LAICA (sugarcane), CORBANA (bananas and plantains), CORFOGA (livestock), CONARROZ (rice), and the National Horticultural Corporation (CHN, for horticulture) (Box 2.1). Corporations have an important role in negotiating policy and in the provision of services to agriculture, and some have also been responsible for the implementation of public agricultural policies (e.g. coffee programmes implemented by ICAFE). Although at the time of their creation, these organisations received some kind of government support, they are currently solely funded by their members.

Box 2.1. Main agricultural supply chain organisations in Costa Rica

Sector corporations (“corporaciones”):

National Rice Corporation (CONARROZ): Created under Law No. 8285 of 2002, CONARROZ protects and promotes domestic rice production. The objective of the corporation is to establish a system of relations between national rice producers and agribusiness. Among its functions are a) estimating the volume of paddy rice required to cover national monthly consumption and domestic production per crop in each region and communicating this information to the Ministry of Agriculture and Livestock and the Ministry of Economy and b) proposing prices for paddy rice and by-products, and participating in the import and marketing of quality agricultural inputs to ensure competitive prices for the producer. CONARROZ is financed by a 1.5% levy on the price of paddy or milled rice, set by the Ministry of Economy, of which 0.75% goes to the producer and 0.75% to the industry; and 1.5% of the Cost, Insurance and Freight (CIF) value of imported rice. Other sources of funding are the Selling Services Fund, fines, profits, and investment returns. CONARROZ invests 25% of its total revenues in research and extension.

Costa Rica Coffee Institute (ICAFE): ICAFE was established in 1933 in order to promote coffee production. By enforcing Law No. 2762, ICAFE promotes an ethical and unique production model for national coffee growers, millers, roasters and exporters, and supports national coffee production and milling. As well as national and international coffee marketing, the institute promotes the domestic and international consumption of Costa Rican coffee, researches and develops farming and industrial technology, and sets a fair and ethical reference price for Costa Rican coffee based on international market prices.

National Banana Corporation (CORBANA): CORBANA was created in 1971 under Law No. 4895. This corporation is funded by a levy charged to its members for each kilo of bananas sold on the international market. With this levy, CORBANA develops research programmes to improve the quality of banana plantations, and provides technology transfer to producers, in addition to marketing, packaging, extension and other services. Credit is also provided to farmers affected by natural disasters in the Caribbean region. A small proportion of this levy is given back to banana communities for public infrastructure, mostly roads.

Agricultural Industrial League of Sugarcane (LAICA): Created by Law No. 3579 of 1965, the purpose of LAICA is to organise, promote, protect and defend the interests of the Costa Rican sugar sector, to procure an equitable system of relations, and to ensure the optimum development and stability of the sector. It also commercialises alcohol, sugar, honey and other sugarcane products. The Minister for Agriculture and the Minister for Industry and Trade are members of the Board of Directors.

Livestock Development Corporation (CORFOGA): CORFOGA, which was created by Law No. 7837 of 1998, aims to encourage the development and modernisation of the bovine livestock sector, and to increase its productivity through the rational and sustainable use of resources. CORFOGA participates, together with the Ministry of Agriculture, in the development and implementation of policies, plans, programmes and projects to promote the bovine livestock sector. The corporation receives tax revenues of up to USD 3 for each animal killed or for the export of live animals, as well as per 200 kg of livestock imports. CORFOGA is also authorised to receive state donations of goods and services. The Board of Directors of CORFOGA is formed by six livestock producers, the minister or vice-minister of Agriculture, the representative of the largest slaughterhouse for domestic consumption and a representative of the Livestock Industry Association.

National Horticultural Corporation (CHN): The horticultural producers’ organisation, created in 1996 under Law No. 7628, seeks the equitable development of production, manufacturing and marketing in the horticultural sector. This corporation provides technical and financial assistance to producers.

Sector chambers (cámaras):

National Chamber of Pineapple Producers and Exporters (CANAPEP): CANAPEP is a non-profit private organisation legally formed in 2003 to represent pineapple producers and exporters from across the country. Its objective is to position Costa Rica as the best pineapple supplier in the international market through differentiated quality and the use of the most modern and best practices in agro-industrial production. Resources to finance its activities are obtained through membership fees.

Sugar Cane Chamber: This chamber represents the 13 sugar mills in operation in Costa Rica. Founded in 1949 in order to promote both the industry and good relations among cane growers, the chamber recommends measures to improve their workers’ welfare, and promotes initiatives that contribute to the sector’s development.

National Chamber of Palm Producers (CANAPALMA): Created in 1991 as a private, non-profit organisation, this chamber is the official spokesperson to various bodies, chambers and the government, with the objective of maximising productivity, reducing costs, transferring technology, and promoting sector competitiveness. The chamber unites 1 700 producers and is financed by affiliate contributions. CANAPALMA represents independent producers of oil palm, the producer organisation ASOPRO, and some co-operatives. It also co-ordinates efforts with the SFE on plant health issues (pest control problems). CANAPALMA promotes good agricultural practices among its members, and provides price information to its membership. Its board of directors is composed of seven industry representatives, a legal or treasury official, and an executive director, who are appointed for two years by the assembly of representatives. The chamber is based in Puntarenas Province.

National Chamber of Milk Producers (PROLECHE): Founded in 1965 as a trade union organisation for the improvement of national dairy activity, PROLECHE promotes the genetic improvement of livestock, and participates in analysis, discussions and decisions on dairy sector policies, and in negotiations of Free Trade Agreements. The chamber – which currently comprises more than 500 dairy producers, including industrial producers and co-operatives – collects, processes and analyses market information to ensure greater market transparency, and monitors the performance of prices of inputs for milk production. Among its most important projects are the creation of the National Network of Forages, the breeding and selection of herds project, the development of new value-added products, and the promotion of domestic consumption through the “Si a la leche” campaign. The chamber is an active member of the Central American Dairy Sector Federation (FECALAC) and the Pan-american Dairy Federation (FEPALE).

Costa Rican Chamber of Pork Producers (CAPORC): CAPORC, which represents pork producers, is a non-profit chamber founded in 1991 to promote and develop national pig production. CAPORC represents all producers in the country (small and large-scale) and serves as the interlocutor between producers and the government. CAPORC has participated in the construction of national legislation and negotiation of Free Trade Agreements (FTAs). The chamber represents 75% of national production, concentrated in 80 producers, but also operates programmes to promote and improve pig production amongst small and medium-scale producers. It is governed by a 12-member board of directors.

National Chamber of Poultry Producers (CANAVI): CANAVI represents the interests of poultry producers, in addition to researching and implementing measures to solve technical, economic and social problems related to poultry production and distribution. The chamber is a private, non-profit organisation, and participates in the development of policies that impact the sector. CANAVI has more than 350 partners, including producers of chicken meat, egg incubators, and producers of animal feed and other inputs. Of these 350 partners, CANAVI represents around 250 chicken producers with contract farming schemes with the processing industry. In total, CANAVI brings together companies representing approximately 90% of poultry meat production, and farm groups representing 65% of national egg production.

National Chamber of Coffee: This chamber aims to protect the interests of the coffee milling sector. Members are provided with technical information on issues that could affect their performance. The chamber is represented within ICAFE, as well as in other national associations managing private sector interests, and in government committees that work towards achieving environmentally sustainable production. 33 coffee millers are members of one of two sub-chambers: The National Coffee Exporters Chamber and the National Coffee Growers Chamber.

Chamber of Flower and Foliage Growers: This chamber, the main representative organisation for producers and exporters of flowers and foliage, represents the sector at international trade fairs, unites efforts to access new markets, establishes quality standards, defends the interests of the industry with regard to pricing and market issues, and positions products in international markets. It is a private non-profit organisation.

Umbrella associations:

National Chamber of Agriculture and Agribusiness (CNAA) (Camara Nacional de Agricultura y Agroindustria): CNAA is a non-profit organisation – created in 1946 under Law No. 20312 – which brings together producers, entrepreneurs and other entities of the agricultural, fisheries, aquaculture and agro-industrial sectors. The chamber is an umbrella organisation that currently brings together 65 partners representing all sub-sectors, grouped into 12 sub-groups: vegetables, grains, livestock, coffee, bananas and sugar cane, fisheries and aquaculture, fruits, beans, ornamental plants, and agribusiness.

Union of Small-scale Farmers (UPANACIONAL): UPANACIONAL is a national small-scale farmers’ union, founded in 1981, which comprises smallholder farmers from different sub-sectors. The union aims to improve the living conditions of its members by providing services, protecting farmers’ rights, seeking favourable legislation, and pursuing better producer prices for its members, amongst other activities.

National Farmers Organisation (Mesa Nacional Campesina): Together with UPANACIONAL, this organisation seeks to defend the interests and rights of farmers in the smallholder sector. It aims to strengthen the position of small-scale farmers by political union representation, constitutional and organisational co-ordination and management, and the implementation of development projects that target smallholder families.

Costa Rican Chamber for the Food Industry (CACIA): CACIA is an entrepreneurial non-profit organisation created in 1973. This chamber is organised by producers and processors from the agro-food industry.

Co-operatives:

The co-operative movement has a long tradition in Costa Rica, particularly within the agricultural sector. There are total of 101 co-operatives, 24% in coffee and 15% in sugar cane. These bodies usually handle the processing segment of the value chain and, in some cases, the distribution. Most provide services to producers such as credit and technical assistance. The two largest co-operatives are Dos Pinos (milk) and Coopemontecillos (beef).

Source: SEPSA (2015b).

Farmers can also belong to chambers or co-operatives. In contrast to the corporations, however, the government is not involved in the management of either of these bodies. Chambers can either represent specific sectors – e.g. pineapple production and export, represented by the National Chamber of Pineapple Producers and Exporters (CANAPEP) – or a broader set of stakeholders, such as the National Chamber of Agriculture and Agribusiness (CNAA), the Costa Rican Chamber Food Industry (CACIA), the Union of Small Scale Farmers (UPANACIONAL) and the National Farmers Organization (Mesa Nacional Campesina). Agriculture co-operatives have a strong tradition in Costa Rica, and include large-scale co-operatives such as Dos Pinos in the milk sector and Coopemontecillos for beef.

Although agricultural supply chain organisations wield significant influence in Costa Rica, less than 30% of all farmers belong to some type of agricultural organisation (Table 2.1). Of these, the majority are members of co-operatives (17.1 %), followed by associations or chambers (10%). Only 3% of farmers belong to some sort of farmer association. This again reflects the divergence between well-integrated value chains oriented to the export market, and less-organised traditional agriculture characterised by small and medium-scale farms that produce mostly for the domestic market. Policies to promote the organisation of smaller farmers and their integration into value chains could foster development of the sector.

Table 2.1. Farmer membership of agricultural organisations, 2014

Type of organisation

Number of farmers

Percentage of farmers

Corporations and chambers1

9 210

10%

Co-operatives2

15 905

17%

Umbrella associations

2 848

3%

Not belonging to any organisation

65 582

70%

Total

93 545

100%

Note: Individual farmers can belong to multiple organisations.

1. Including all organisations that either aim at the marketing and commercialisation of agricultural products, or advise producers on these issues.

2. Defined by Law No. 4179 de Asociaciones Cooperativas.

Source: INEC-Agricultural Census (2014).

Some farmer organisations like corporations have had positive impacts on the development of the supply chain – such as in the coffee and banana sectors – particularly with regard to provision of research, technical assistance and extension services, and product marketing. However, other corporations, which also provide services to their farmers, have contributed to concentrated market structures and limited competition. This is the case, for example, in the sugar and rice sectors. According to Law 7818, LAICA, the sugar producer association, can regulate all activities involved in the supply chain, from the purchase, import, export, storage to the commercialisation at retail level of sugar in Costa Rica (Annex 2.A5). The same situation is observed in the rice sector: CONARROZ (Law 8285) fully controls the rice market (Section 2.3). This lack of competition impedes the competitiveness of the sectors and reduces opportunities for smallholder producers.

Challenges facing the Agricultural Public Sector

The agricultural sector is subject to a highly complex legal system, with several hundred laws and ministerial decrees. The legal framework governing agriculture can be divided into three levels. First, there are national economic rules that have a free market orientation. A second group of legislative instruments includes those relating to social security, labour insurance, environmental issues, competition policies, and land taxation, which also influence the formal agricultural and agro-industrial sectors. Finally, sectoral legislation includes several outdated laws created in the 1950s. The result of this complex system is onerous bureaucratic requirements which seriously affect institutional efficiency and capacity.

Under law 7064 (FODEA) in Title II, the APS is created as a forum for the management, planning, co-ordination, implementation, monitoring and evaluation of public activities in support of national agricultural development. This sector is managed and co-ordinated by the Minister of Agriculture, in his/her dual role as Minister of MAG and Chief of the APS. However, the Minister, as Chief of the APS, faces a number of obstacles in the co-ordination of the activities of the various APS institutions. First, the connection between the Minister and the 17 APS institutions (11 public, 4 corporations and 2 specialised offices), is both complex and weak, limiting the alignment of actions, guidelines and even policy objectives. In some cases, this is also leading to duplication and increased transaction costs – for export health certificates (EHC) or the registration of agrochemicals, for example (Chapter 1). Second, despite the participation of the Minister – or his/her representative – on the boards of the APS institutions, the Minister’s powers over these bodies are actually quite limited. Some of the decentralised institutions are financed directly from the national budget through transfers from MAG, which promotes sector co-ordination. However, specific laws for each institution and the presence of boards, which grant them a level of functional independence, limit the influence of the Minister. In addition, some institutions generate their own resources by selling services, which gives them additional autonomy.

In addition to the Minister of MAG, only one co-ordinating body exists for the manifold APS agencies: the CAN, whose decisions are binding on all public sector institutions, and which brings together the leaders of all sector institutions. Results from discussions in this group vary, however – some actions are co-ordinated across groups, while others reflect the specific interests of each agency leader. Since 2014, efforts have been made to reactivate CAN, with the aim of improving co-ordination both within the APS and across other institutions and ministries. Overall, however, the complex organisational structure of the sector, with its fragmented authority and dispersed responsibility, coupled with the rigidities from institutional mandates created by law, poses challenges for co-ordinated action and the implementation of policies and reforms.

The APS budget increased over the 2004 to 2015 period (Figure 2.3). In 2010, resources increased markedly, as consequence of the implementation of the National Food Plan (2008-10), but returned to prior levels the following year, then subsequently increased, with a slight decline after 2013 reflecting fiscal tightening. As a share of public expenditure, however, outlays to the APS sector have stayed relatively steady, at around 1.1%, on average, of the national budget allocation over the past nine years (Contraloria General, 2016). Three APS institutions – MAG, INDER and CNP – receive the largest portion of budget funds, at approximately 75% of the overall APS budget in 2010-15. Budget management is complicated, given the different levels of financial and administrative autonomy of each agency and the different funding sources. Some agencies are funded by the federal government, others through their own resources, and others through a combination of both. Still other agencies are directly funded by state enterprises, as is the case of FANAL (a state-owned enterprise that produces alcoholic beverages), which finances CNP’s programmes.

Figure 2.3. Evolution of the Agricultural Public Sector (APS) and MAG budgets
picture

Source: SEPSA (2016b).

 https://doi.org/10.1787/888933451757

Over the past ten years, MAG has continued to receive, on average, 26% of the total APS budget, CNP around 30%, and INDER around 20%. This trend has not changed. Only a small allocation within the budgetary distribution is devoted to agricultural innovation systems, technology transfer and technical assistance programmes (under INTA), while resources for agricultural infrastructure, market information systems and a strategic information system for the sector are very limited (efforts such as the market information system, InfoAgro, have limited reach). Lastly, it should be noted that several decentralised institutions – such as INCOPESCA and PIMA – obtain resources from the services they provide, and as such are not solely reliant on the public budget. The budget displayed in Figure 2.4 includes both public income and income derived from charges, which represent, on average, around 11% of total income (SEPSA, 2016a).

Figure 2.4. Share of APS budget by institution, 2015
picture

Source: SEPSA (2016a).

 https://doi.org/10.1787/888933451763

The allocation of resources within MAG has been relatively constant over the past six years. A significant share of MAG’s resources (55%) is transferred to other APS institutions, mainly to cover their overhead costs. Around 13% is allocated to MAG’s administrative costs. Agricultural extension also receives a substantial share of the budget, at around 24%. Farmer subsidies receive limited and variable allocations from MAG, although there are other institutions that provide relatively minor subsidies to farmers (Section 2.5). The total budget for the Ministry in 2015 was almost CRC 53 billion (USD 99 million) (SEPSA, 2016a) (Table 2.2).

Table 2.2. MAG budget (in million current CRC)

Activities

2010

2011

2012

2013

2014

2015

MAG’s overhead/administrative cost, salaries, etc.

4 084 (10%)

4 440 (13%)

4 341 (11%)

4 877 (11%)

8 490 (18%)

8 505 (16%)

Transfers to other APS institutions to cover overhead/administrative costs, membership costs, etc.

22 037 (54%)

17 283 (52%)

24 011 (60%)

25 740 (58%)

24 184 (51%)

28 783 (55%)

Agricultural extension system

9 050 (22%)

9 524 (29%)

9 351 (23%)

10 443 (23%)

11 055 (23%)

11 722 (22%)

SEPSA

702 (2%)

770 (2%)

836 (2%)

870 (2%)

930 (2%)

1 012 (2%)

Some support programmes to farmers

4 985 (12%)

1 348 (4%)

1 415 (4%)

2 593 (6%)

2 794 (6%)

2 644 (5%)

Total

40 858

33 365

39 954

44 523

47 454

52 665

Source: SEPSA (2016a).

Budget execution rates, from approved and assigned budgets, average 80% across all APS institutions, with low levels of execution by some institutions (some as low as 50%) constraining the implementation of some policies (SEPSA, 2016a). The problem of budget execution often relates to the timeframe for national budget planning and the late arrival of resources to the institutions. Furthermore, implementation of some programmes is hampered by weak co-ordination – referred to earlier – and heavy bureaucracy between public agencies. As a consequence, several programmes are not implemented on time or at all (e.g. some INDER programmes), and services provided to farmers are limited and not always timely. Moreover, Costa Rica’s fiscal tightening since 2013 has further limited investment in the agricultural sector, including in research projects, innovation and technology transfer. Additionally, there is no systematic impact assessment and evaluation of public expenditures on agriculture.

Finally, MAG and some of its attached institutions suffer from a growing deficit in technical capacity, related in particular to the age of most of its employees – 32% of staff are eligible for retirement in the next three years – and the non-renewal of technical positions: only one new hire is permitted for every seven retirees. The inclusion of numerous administrative tasks within the responsibilities of technical personnel also limits the effectiveness of service provision, as extension staff time is often diverted away from core advisory tasks. Extension services also suffer from limited co-ordination between research and development (R&D), knowledge generation and farmers’ needs (SEPSA, 2016a).

2.3. Domestic policies

This section discusses domestic policy measures that provide support to agriculture. First, policies that provide direct transfers to farmers – such as price support, input support or direct payments – are considered, after which other policies that provide support to the agricultural sector as a whole are explored, such as extension services or rural development.

Price support measures

Although the majority of agricultural products do not receive price support, Costa Rica has maintained an administered minimum price for rice for decades. Reforms to the minimum price took place in 2015, when it became a reference minimum price; however, in reality, the reference price continues to function as a minimum price – although it should be noted that the reforms are still relatively recent. This minimum reference price is based on an analysis of domestic production costs carried out by the National Rice Corporation (CONAROZ) (Box 2.2). Rice is the most important staple food in the country, with an annual consumption of more than 50 kg per capita. Costa Rica currently produces around 60% of its national consumption and imports 40%, in volume terms (MAG, 2015).

Box 2.2. Minimum reference price for rice

Prior to 2015, the price for rice was fixed by the Ministry of Economy, Industry and Commerce (MEIC), based on a recommendation from CONARROZ, the rice farmer association. The price was established for producers, wholesalers and retailers, based on domestic production costs.

On February 27, 2015, this system of administered rice prices was converted into a minimum reference price through Executive Decree No. 38884-MEIC, and the WTO Committee on Agriculture (G/AG/GEN/126) was notified by the Ministry of Foreign Trade (COMEX) of these changes on May 26th the same year. The new minimum reference price for producers was CRC 22 139 for a 73.6 kilo bag of rice with 13% of humidity and 1.5% of impurities. The minimum reference price, which is calculated according to a new – and reportedly more transparent – method to determine prices for the entire supply chain (Table 2.3), is intended to be an indicative value that serves as a baseline for the subsequent negotiation of a contractual price between rice producers and processors, based on their own marketing conditions (place of delivery, payment and grain quality). As the reference price does not have the compulsory connotation of the previous scheme, the amendment implies an eventual dismantling of the domestic support mechanism for producers. That said, no removal deadline is envisaged for the reference price.

Table 2.3. How rice prices are estimated

Reference

Percentage of whole grain

Formula

A

50% to 89% whole grain

[%E * (2 VQ) + %Q (VQ)] * U

B

90% to 94% whole grain

[%E * (2.25 VQ) + %Q (VQ)] * U

C

95% to 100% whole grain

[%E * (2.50 VQ) + %Q (VQ)] * U

Where:

%E = Percentage of whole grain.

%Q = Percentage of broken grain.

VQ = Value of broken grain. Based on costs of the industrial sector, the broken grains value (VQ) is set to CRC 311.9626 per kilo for the 24 kg bag; and CRC 307.9297 per kg for 46 kg bag.

U = Profit margin. To calculate the price from the industry to the wholesale, the value of “U” is equal 1 as VQ already includes the profit. To calculate wholesale prices, the value of “U” is equal to 1.05 (5% profit margin). For the retail price the value of “U” is 1.1235 (7% of the retailer margin plus 5% of the wholesale margin, which is obtained by multiplying 1.07 and 1.05).

Source: MEIC (2015).

http://www.conarroz.com/UserFiles/File/DECRETO_PRECIO_ARROZ_N_38884_MEIC_alca12_27_02_2015.pdf.

The rice supply chain is co-ordinated by CONARROZ, which informs MAG when it is necessary to import rice to cover deficits arising from national demand, and supervises the distribution of import volumes between the rice industries in proportion to their participation in the domestic market. Import tariffs are also imposed on rice, at 36% in 2015 (COMEX, 2016c). Lastly, when technical studies indicate a surplus, CNP or CONARROZ are permitted to export rice, but this rarely occurs. After the food price crisis of 2007-08, the government implemented a set of policies11 that promoted staple food production, including rice; as a consequence, the number of commercial rice producers increased, from around 900 in 2007 to 1 500 in 2011. The land devoted to rice production also increased over the same period, from 47 000 hectares to 81 000 hectares. However, these policies were dismantled over 2011-12 and, by 2015, both the number of rice producers and the hectares had fallen to almost 2007 levels (938 producers and 58 000 hectares in 2015) (CONARROZ, 2008-15).

Costa Rica has one of the highest domestic rice prices in the world. According to the FAO Rice Market Monitor (2013), the average consumer price was the highest of 46 analysed countries. Consumers, particularly those with fewer resources, which include small-scale rice farmers, allocate a significant portion of their income to purchase this staple at a price higher than the international market price (Umaña, 2011; Hidalgo, 2014). Furthermore, beneficiaries tend to be a dwindling number of farmers and rice millers. This strongly indicates that the intended policy objectives of food security and improvement of the living conditions of the poorest are not being served by this policy.

Input support measures

Costa Rica provides limited input subsidies. There are some minor implicit credit subsidies, derived from preferential interest rates, delivered through the Development Bank System (SBD), INDER and ICAFE, and minor implicit insurance subsidies provided to producers by the National Insurance Institute (INS). Other subsidies are directed to fixed capital formation and on-farm services.

Agricultural credit represents only 2.5% of total loans provided though public or private banks in Costa Rica (SEPSA, 2015b). Around 14% of all farmers receive credit or financial services (INEC-Censo agropecuario, 2014). Agricultural producers in general have limited access to financial services due to stringent requirements, and are underserved by the commercial sector. This problem has been addressed to some extent by the creation of the SBD,12 a second-tier bank that provides funds to first-tier banks like Bancrédito, created in 2008 (under Laws No. 8634 and No. 9274) to channel financial resources to micro, small, and medium-scale enterprises from all sectors, agriculture included. In 2015, 47% of total loans allocated through SBD were provided to the agricultural sector. SBD provides different types of credit to farmers, including working capital and loans for marketing and investment or the acquisition of machinery and equipment. As SBD provides loans at preferential (below market) interest rates, an implicit subsidy is provided to farmers under this system, estimated at USD 3 million in 2015.

SBD allocations increased more than tenfold between 2009 (the first year of operation) and 2015, reaching over CRC 135 billion (USD 253 million) in 2015 (Banca de Desarrollo, 2016) (Figure 2.5). However, a rough estimation13 from SBD on the potential credit need for the agricultural sector could reach as high as around CRC 850 billion (USD 1.6 billion). With the reach of the SBD limited and private commercial banks continuing to have minimal involvement, agricultural credit remains insufficient.

Figure 2.5. Evolution of credit allocations by SBD, 2009-15
picture

Source: Banca de Desarrollo (2016)

 https://doi.org/10.1787/888933451778

Other relatively minor credit sources are INDER (created under Law No. 9036) and a Trust Fund (Law 9153) destined for coffee growers. INDER provides credit to small-scale farmers at preferential interest rates. The credit must be used on land acquisition or the development of productive projects in rural areas. In 2015, the implicit subsidy was around USD 45 000. In 2005 and 2012, INDER implemented debt write-offs – this cancelled debt amounted to a USD 3 million subsidy (Law 8434 and 9037). The trust fund provides credit to small-scale coffee producers for the renewal of coffee plantations and for the improvement of productive systems. In 2015, the subsidy from this trust fund was around USD 1.1 million.

Agricultural insurance is not widely present in Costa Rica. In 2015, insured land represented only 1.25% of the total agricultural area. Indeed, the only provider of agricultural insurance is the INS, a former public insurance company (INS, 2015). Historically, INS provided crop insurance to protect rice farmers – and, to a lesser degree, bean producers – against climate and biological hazards. Although there were no subsidies for premiums, INS was prevented by law from making profits from the sale of agricultural insurance, resulting in an implicit subsidy reflected in cheaper insurance rates for producers (Law No. 4461) (INS, 2015; INS 2016). The value of the implicit subsidy for 2015 was USD 58 000. The restriction of profit-making by the INS has now been abolished, however. Moreover, in 2015, a new programme called “Comprehensive Crop Insurance” was created by INS and MAG to promote the use of insurance among agricultural producers. This programme aims to identify agricultural practices that reduce the negative impacts of extreme weather events. The programme will cover coffee, sugar cane, potatoes, pineapple, cattle, poultry, pigs, vegetables (onions, cabbage, broccoli and carrots) and rice farms, and will introduce some premium subsidies (more details can be found in Chapter 3).

Costa Rica is working towards a risk management approach, though agricultural insurance is still in the early stages of development. In line with the “National Risk Management Policy 2016-2030”, the National Commission of Risk Prevention and Emergency Response (CNE) works closely with the agricultural sector to assess current risks, reduce risk exposure, and prepare for emergency response. Such efforts include monitoring of weather phenomena in high-risk areas and management of a public online portal to bring together data generated by universities and research centres. CNE also operates an early warning system with support from active community participation (Sancho, 2016). Moreover, in the event of a disaster, CNE provides some financial support to farmers; this includes access to financing (or extended loan periods) and provision of inputs, machinery and emergency cash payments. At the same time, agricultural insurance markets are underdeveloped in Costa Rica. For several decades, crop insurance was provided almost exclusively by INS – the former state insurance institution – to rice producers. In 2015, INS initiated efforts to expand its coverage, with a crop insurance product for several of Costa Rica’s main crops. Currently, only 1.3% of agricultural land is insured, but plans for expansion are under development.

Few subsidies for fixed capital formation are provided to farmers. A production diversification programme managed by MAG is only implemented in the Sixaola area, and provides subsidies for the purchase of machinery or equipment, with the aim of diversifying the production portfolio of small farms and promoting other sources of employment. Other transfers managed by MAG are also provided to farmers for investment in production projects. Farmers must contribute to the total cost of the project, and have to present a satisfactory project proposal in order to obtain the subsidy. Another programme managed by INDER provides subsidies for fixed capital formation to poor smallholders for the creation of auto-consumption production modules. SENARA meanwhile finances on-farm irrigation investments through the Irrigation of Small Areas programme (PARD). For small-scale and poor farmers, SENARA pays the total cost of the investment. For medium and large farms, SENARA makes a partial contribution. All of these programmes together amounted to USD 12 million in 2015 (SEPSA, 2016b).

Direct payment for environmental services

There are also several direct payments for environmental services, with four programmes currently administered by different institutions. The first, the Recognition of Environmental Benefits for Organic Production (RBAO), is a direct payment to organic producers for a maximum period of three years. It consists of a base amount per year per producer, as determined by a technical unit and formalised by an agreement between MAG and the organic producer. This programme, based on Law No. 8591 on the Development, Promotion and Development of Organic Farming Activity, is funded by 0.1% of revenues from a fuel tax. Transfers from this programme were USD 86 000 in 2015.

MAG also manages a small fund for the “Programme of recognition of environmental benefits” (Programa de reconocimiento de beneficios ambientales), for the use of “green or living” fences and terraces, and soil condition improvement. Individual small and medium-scale producers can receive approximately USD 100 each year, over three years. The subsidy under this programme amounted to USD 258 000 in 2015.

The Costa Rican Electricity Institute (ICE), a government-run electricity and telecommunications institution, provides electricity supplies and materials through the Basin Management Programme to farmers that develop activities and projects that ensure the sustainable use of natural, social and economic resources under an integrated and participatory approach. The programme (ICE-Basin) also includes training services, such as technical assistance, environmental education and outreach events. In 2015, the outlays for the Basin Management Programme totalled USD 368 000.

The National Forestry Financing Fund (FONAFIFO, Law No. 7575), implemented by the Ministry of Environment and Energy (MINAE), promotes forest environmental services, and has played an important role in the recovery of the country’s forest area. FONAFIFO finances the programme (PSA) that provides financial recognition to farmers for environmental services – both environmental protection and improvement. The following environmental services are recognised: a) the mitigation of greenhouse gas emissions (fixation, reduction, sequestration, storage and absorption); b) the protection of water for urban, rural or hydroelectric use; c) the protection of biodiversity for the conservation of ecosystems and new life-forms; d) the protection of natural scenic beauty for tourism and scientific purposes; and e) scientific, genetic improvement, research and sustainable use of pharmaceuticals. The budget is limited, however. In 2015, outlays for environmental services programmes (i.e. RBAO, ICE-Basin and FONAFIFO) in Costa Rica were equivalent to USD 1.2 million (SEPSA, 2016b).

Environmental measures

In addition to the above, MINAE manages four agendas related to environmental management: 1) the Coffee Agenda, which aims to promote environmental management in various economic sectors of the country – that is, to promote evaluation, measurement and monitoring through mechanisms and regulations which ensure that activities and projects are part of an overall vision of sustainable development; 2) the Energy Agenda, which seeks the rational and efficient use of energy resources; 3) the Green Agenda, which seeks to strengthen processes, programmes and projects on the conservation and sustainable use of terrestrial biodiversity; and 4) the Blue Agenda, which seeks to organise and promote appropriate government responses to maritime and coastal development problems (including the valuable wetlands), in order to protect and sustainably manage the country’s coastal marine resources. Details of environmental policies concerning agriculture can be found in Chapter 3.

General services provision

A significant share of public expenditure in the agricultural sector is directed to general services. At around 80% in 2015, this is double the OECD average (more details in Section 2.5). Outlays are allocated to extension services (MAG), agricultural research and development (INTA), irrigation investments (SENARA), animal and plant health (SENASA and SFE), rural development projects (INDER), marketing and promotion (CNP) and market information (CNP and InfoAgro). Extension services, development and the maintenance of irrigation infrastructure, rural development and inspection and control, are the main forms of support provided to general services.

Research and development and extension services

Agricultural research and development (R&D) is governed by the National Institute for the Innovation and Transfer of Agricultural Technology (INTA), which was created by Law No. 8149 in 2001. In addition to managing the agricultural R&D and innovation system, INTA operates programmes for technology transfer and extension services, all with the objective of improving productivity while ensuring sustainable agricultural production. INTA establishes its R&D and technology transfer programmes based on the priorities of the long-term strategic agricultural plan 2010-21 (Section 2.2). In 2015, INTA’s budget spend was around USD 6.5 million (INTA, 2016).

INTA’s budget currently represents only 1% of the total budget allocated to the agricultural sector (APS) (SEPSA, 2015b). INTA resources have varied over the years, as an important part of funding comes from contributions from other APS institutions (e.g. SFE, MAG, etc.). INTA has 197 employees, including researchers, but only 157 are currently working in INTA itself, as the rest have been moved to other institutions within the APS (e.g. 24 are working within MAG). Around 65% of INTA’s employees are older than 50 years, and by 2020, more than 50% will have retired (SEPSA, 2014). However, INTA does not have a generational replacement plan and, like other public institutions, is prevented from hiring more people by Article 12 of Presidential Directive 023-H, which aims to reduce the size of government. INTA also faces some regulatory issues regarding the training of its researchers, and requires additional investment in its limited physical facilities – offices, laboratories and experimental campuses, for example (INTA, 2016).

It should be noted, however, that several agricultural supply chain corporations (Section 2.2) operate their own research and technology transfer programmes, such as CONARROZ, ICAFE and CORBANA. In addition, SENARA carries out research, control and monitoring of water resources, and provides basic guidance for studies on water resources throughout the country (SEPSA, 2016b).

Agricultural extension services fall within the competence of MAG. The extension services programme, created in 1979 under Law No. 7064, promotes the development of processes for the transfer and adoption of sustainable and environmentally-friendly technology, as well as business management for agricultural value chains, with the objective of boosting competitiveness and sustainability, while generating value added, fair trade and the rational use of natural resources. The provision of these services does not involve direct payments to producers or processors. It conforms to government programmes that provide services such as general and specialised training, and includes extension and advisory services that facilitate the transfer of information and research results to producers (MAG, 2016).

The extension service has 468 employees distributed across the country. In 2015, around 22% of MAG’s budget (USD 21.5 million) was spent on extension services (SEPSA, 2016b). However, even though extension services are a key area of MAG responsibility, the effectiveness of these services is questionable. Extension services suffer from the fact that the time of many of its workers is absorbed by servicing administrative requirements rather than providing core extension activities. Furthermore, as noted above, the system lacks staff that are well-trained in new issues and – notwithstanding the fact that 32% of its staff is eligible to retire in the next three years – faces restrictions on the renewal of technical positions. Extension therefore faces challenges with maintaining technical capacity. Extension services also suffer from limited co-ordination regarding R&D responsibilities, particularly with those of the INTA (MAG, 2016).

Animal and plant health and quality and sanitary control

The National Phytosanitary Service (SFE) was created under Law 7664 in 1997, in order to prevent plant pests that could threat national production. SFE responsibilities include: 1) monitoring and controlling pests of economic importance and foreign pests which may pose a potential threat to domestic agricultural production; 2) promoting an integrated pest management system within a sustainable development approach; 3) regulating, monitoring and controlling chemical and biological substances for agricultural use, such as pesticides and fertilisers; and 4) controlling the maximum permitted residue levels (MRLs) of pesticides in fresh products. Furthermore, the SFE controls and certifies imports and exports of agricultural products in order to prevent phytosanitary measures from constituting unnecessary obstacles to international trade. Several services by SFE are paid for by farmers. Services provided free of charge to the sector in 2015 were equivalent to USD 6.6 million (SFE, 2016).

Animal health is supervised by the National Animal Health Service (SENASA), which was created in 2006 under Law 8495. SENASA is responsible for ensuring the safety of food of animal origin. It also registers, regulates and supervises veterinary medicines and animal feed. Additional responsibilities include animal quarantine, traceability, laboratories and veterinary services. As in the case of SFE, most of the services provided by SENASA are financed by farmers – however, free of charge services totalled USD 7.4 million in 2014 (SENASA, 2016). The main bottlenecks for SENASA are its limited infrastructure (i.e. laboratories) and human resources. For instance, around 20% of its workers are older than 59 years, and there is no generational replacement plan (SENASA, 2016). With limited resources, SENASA struggles to perform all tasks needed (e.g. farm inspection, specific extension services, the reduction of informality in animal production, etc.).

Costa Rica’s sanitary and phytosanitary services are comprehensive and considered by users and producers alike to be of high technical quality. (That said, some measures have attracted criticism from trading partners, see Section 2.4 below). One challenge, however, is ensuring co-ordination across the range of other agencies and ministries involved in these services, customs included.

Marketing and promotion

The CNP promotes special farmer fairs (Ferias del Agricultor) which seek to link producers and consumers. There are 76 farmer fairs which mostly market fruits and vegetables. These fairs take place in peripheral areas of urban centres, and represent only 5% of the national fresh food market. In 2015, the budget from CNP was USD 867 000 (CNP, 2016).

In addition, the Costa Rican agricultural sector maintains an information system called InfoAgro, which provides information on agricultural statistics, prices and markets, agricultural legislation, institutional framework and services, research and technology, agricultural news and training, etc. Resources allocated to this service in 2015 amounted to USD 530 000 (SEPSA, 2016b).

Costa Rica´s Export Promotion Agency (PROCOMER) is a public non-state entity, created under Act No. 7638 in 1996, which is tasked with the promotion of Costa Rican exports, including agricultural products. PROCOMER is responsible for: 1) the design and co-ordination of programmes related to exports and investments; 2) the provision of technical and financial support to the Ministry of Foreign Trade (COMEX); 3) the centralisation and streamlining of import and export procedures; and 4) the collation and analysis of external trade statistics. In 2013, PROCOMER created a country brand: Essential Costa Rica. This brand was conceived as a tool for the market positioning and differentiation of Costa Rican exports, as well as for the promotion of tourism and the attraction of investment. Services provided by PROCOMER have to be paid for by users, including agricultural producers (COMEX, 2016c).

Infrastructure-Irrigation

Agricultural infrastructure has been significantly neglected over the past 30 years, and limited large-scale irrigation works have been undertaken. More recently, however, renewed efforts are underway, and investments have substantially increased. Irrigation programmes are conducted by SENARA. There are two types of programmes: 1) off-farm programmes that involve large-scale irrigation, and 2) on-farm programmes involved in the construction of private irrigation and drainage projects. For the former, SENARA manages the Arenal Tempisque Irrigation District (DRAT), a large-scale public investment, under which farmers pay for the use of the infrastructure (at USD 120/ha per year). Products which benefit from this programme are rice, sugar cane, and pastures, and fish. SENARA also finances private irrigation investments through the Irrigation of Small Areas (PARD) programme (see section on input subsidies). Investments on off-farm infrastructure, particularly on the DRAT programme, increased substantially from USD 9.6 million in 2014 to USD 21 million in 2015 (SENARA, 2015).

Rural and territorial development

One of the pillars of the agricultural strategy – rural territorial development – is implemented by INDER. INDER, created under Law 9036, has two main broad areas of responsibility: 1) land management and regulation, covering land acquisition, assignment and titles, and ensuring rural settlement on land distributed by the state; and 2) territorial development management, under which it develops rural infrastructure projects, provides organisational and entrepreneurial management and rural credit – at preferential interest rates to finance services, agriculture, livestock, small-scale rural industries, trade, and ecotourism – and improves food nutrition and security through auto-consumption modules of organic agriculture. The funding of land projects, including rural settlement, totalled USD 12.5 million in 2015. Loans allocated between 2004 and 2015 totalled USD 5 million (INDER, 2016). INDER furthermore promotes the establishment of the Regional Boards of Territorial Development (CTDR), which elaborate development plans for specific areas. 27 territories have been identified, of which 18 have established their CTDR. Six of these have approved Zoning Plans.

The institute also manages programmes for the creation of non-farm job opportunities for women and rural youth (INDER, 2016). This aspect it is crucial, as not all smallholders will survive within the agricultural sector, this implies an important role for social policies in addressing the needs of those unable to adjust. Policies to address rural poverty cannot only focus on agriculture-led development, they need to be situated within broader rural development approach aimed at creating non-agricultural opportunities in rural areas and avoid mass migration to the cities (OECD, 2008, 2012).

One key bottleneck faced by INDER is the lack of an efficient co-ordination mechanism with other governmental institutions. As the institution in charge of territorial development, there is a need to articulate efforts and allocate resources in a timely manner – the execution of the annual budget of INDER can be as low as 50% – however, as is the case with other APS institutions, co-ordination mechanisms across related ministries such as education, health, infrastructure, social development, agriculture, and local governments are weak.

Water management policies

SENARA is responsible for the management of irrigation services in Costa Rica. As such, it sets water prices for agricultural uses. For instance, charges for the use of gravity-fed irrigation were set in 2014 at USD 114/ha/year and for pumping irrigation at USD 0.007/m3 (SENARA, 2016). A new Law for Water Resources is under discussion. Further information on the water pricing system can be found in Chapter 3.

Tax concessions

While there are no differentiated tax policies for the agricultural sector with regard to income taxes, sales tax or social security contributions, some tax concessions for agriculture do exist. Costa Rica maintains tax (VAT) exonerations (Law No. 6826) for some tax sales on staple food products, agricultural machinery, some veterinary products and agricultural inputs. Other measures relate to organic agricultural production (Law No. 8591), such as the provision of tax and financial incentives to micro, small and medium-scale organic farmers in order to promote the development of organic farming activities. In addition, a tax exemption is applied to activities included in the Free Trade Zone Regime (RZF) (Section 2.4), one of the main instruments for industrial and export promotion in Costa Rica. This includes exemptions for registered export companies. For agriculture and fisheries, the registered products are pineapple, orange juice, and tilapia. Finally, Law No. 9071, which regulates agricultural land taxes, provides for a land property tax differentiation between urban and rural land, and between different land uses (SEPSA, 2016a).

Consumer measures

There are no direct agriculture-related subsidies for consumers. That said, the government’s Institutional Supply Programme (PAI), which is managed by CNP, supplies public institutions – i.e. school cafeterias, hospitals and prisons – with agricultural products acquired mainly from small and medium-scale producers at market prices. PAI’s outlays in 2015 were USD 42 million (CNP, 2016). Costa Rica also has several social protection programmes. For instance, a cash transfer programme, which is operated by the Joint Social Welfare Institute (Instituto Mixto de Ayuda Social, IMAS), provides cash transfers, training and food to the poorest households in the country, including impoverished, small-scale farmers and rural poor populations (IMAS, 2016). In 2015, IMAS spent about USD 260 million on these types of social protection programmes (IMAS, 2016).

2.4. Trade policies affecting the agricultural sector

In the early 1990s, Costa Rica embarked upon a series of trade liberalisation measures. Reforms focused on the elimination of price controls, the removal of export taxes, and tariff reductions. In the agricultural sector, these reforms led to increased production of non-traditional products – not only in terms of volume, but also in the variety of products, such as pineapple, citrus, mango, roots and tubers, peach, flowers and ornamental plants flowers and palm oil. Costa Rica is now fully integrated into international markets and, while import tariffs continue to be applied on some agricultural products, many are either not applied or will be gradually phased out under Costa Rica’s numerous Free Trade Agreements (FTAs).

Overall reforms of the trade system

When Costa Rica began to liberalise trade in the 1990s, it did so under several multilateral, regional and bilateral trade agreements. In 1990, it joined the General Agreement on Tariffs and Trade (GATT) and subsequently, in 1995, the World Trade Organisation (WTO). This membership entailed tariff reductions, the removal of import licences for basic grains, new sanitary and quality standards, and changes to subsidies and support for producers. Over the same period, a number of important FTAs were also signed.

Export incentives, such as Tax Credit Certificates (CAT), were also adopted around the same time, and exports to markets outside Central America were promoted. The CAT was eventually phased out in 2012. Improvements were made in the institutional framework for price support, and the influence of the state in the economy was reduced by dismantling state enterprises or reducing their functions. All of these changes promoted the modernisation of agricultural production in order to enable it to compete in international markets.

The government also established the Free Trade Zone Regime (FTZ), one of the most successful policy tools that Costa Rica has to attract FDI. It consists of a set of incentives that the State grants to companies, foreign or domestic, that meet certain requirements and obligations set out under the Law No. 7210 and Executive Decree No. 34739-COMEX-H. The Regime, which continues to operate today, was created under the 1990 Law on Export Free Zones, and explicitly grants tax benefits and preferential port rates to companies operating under its auspices. Some examples are: the establishment of export companies in manufacturing, and the production, processing and marketing of non-traditional agricultural products – such as pineapple, orange juice and processed tilapia – for export. Meanwhile, the development of Costa Rica as a tourist destination aided the marketing of its agricultural products in foreign markets (SEPSA, 2015b).

These changes took place in parallel with three Structural Adjustment Programmes (SAPs)14 that allowed Costa Rica to obtain important external resources in exchange for commitments to substantial reforms to policies and national institutions, such as reductions both in the size of the public sector and the budget deficit. These commitments enabled the country to recover from an economic recession, restore the balance in macro variables (inflation, trade and the fiscal deficit), and facilitate the transition between import substitution and export promotion.

These reforms also strengthened private enterprises and producer organisations. At the same time, state interventions in the agricultural sector were further reduced. The SAPs promoted the reduction of interventions by the National Production Council (CNP) in grain markets and the elimination of price controls and profit margins in favour of free competition. Important reforms to the foreign exchange market were also made – initially, small devaluations favoured exporters; subsequently, with a greater degree of liberalisation, a managed float exchange rate system was introduced (COMEX, 2015).

Trade agreements

Costa Rica is active in the multilateral trading system. As a member of the WTO, it grants most-favoured-nation (MFN) treatment to all its trading partners. Costa Rica participated in the WTO Information Technology Agreement (ITA) and the negotiations on financial services, accepting the Fifth Protocol to the General Agreement on Trade in Services (GATS).

Costa Rica has also negotiated multiple FTAs, and is currently a signatory to 14 FTAs in force with 50 trading partners, both bilaterally and as a member of the Central American Common Market (CACM) (Table 2.4). These agreements include Costa Rica’s largest trading partners – the United States, European Union and China – and cover almost 93.4% of its exports and almost 83% of imports (COMEX, 2015). Several agricultural products – such as rice, poultry and dairy products and sugar – are excluded from most, but not all, agreements. Where these products are included, they tend to be subject to special treatment, such as extended phase-outs for protection or grace periods. A number of these extended phase-out periods are still in effect, but are due to end by 2025 (CAFTA-DR), or 2027 (European Union) at latest. See Annex 2.A4 for more details on the provisions related to agriculture – products subject to phase outs or exclusions, in particular – in the most important trade agreements.

Table 2.4. Costa Rica’s Free Trade Agreements

Agreement

Partners

Date of entry into force

General Treaty on Central American Economic Integration

El Salvador, Guatemala, Honduras and Nicaragua

Panama

23 September 1963

On 6 May 2013, Panama joined the Central American Economic Integration System

Free Trade Agreement between the Government of the Republic of Costa Rica and the Government of Canada (CCRFTA)

Canada

7 November 2002

Free Trade Agreement between the Government of the Republic of Costa Rica and the Community of Caribbean States (CARICOM)

Trinidad and Tobago

Guyana

Barbados

Belize

Jamaica

15 November 2005

30 April 2006

1 August 2006

10 March 2011

1 July 2015

Free Trade Agreement between Central America and Chile, and Deputy Bilateral Protocol signed between the Republics of Costa Rica and Chile

Chile

15 February 2002

Free Trade Agreement between the Government of the Republic of Costa Rica and the Government of the People’s Republic of China

China

1 August 2011

Free Trade Agreement between the Dominican Republic, Central America and the United States (CAFTA-DR)

Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and the United States

1 January 2009

Free Trade Agreement between the Government of the United Mexican States and the Republics of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua

Mexico

1995

1 July 2013 (updated)

Free Trade Agreement between Central America and Panama, and the Bilateral Protocol between Costa Rica and Panama to the Free Trade Agreement

Panama

24 November 2008

Free Trade Agreement between Central America and Dominican Republic

Dominican Republic

7 March 2002

Free Trade Agreement between the Government of the Republic of Costa Rica and the Government of the Republic of Peru

Peru

1 June 2013

Free Trade Agreement between the Republic of Costa Rica and the Republic of Singapore

Singapore

1 July 2013

Agreement establishing an Association between the European Union and its Member States, on the one hand, and Central America on the other (EU-CAAA)

EU-27

1 October 2013

Free Trade Agreement between the EFTA States and the Central American States

Norway

Switzerland, Liechtenstein

Iceland

19 August 2014

29 August 2014

5 September 2014

Free Trade Agreement between the Government of the Republic of Costa Rica and the Government of the Republic of Colombia

Colombia

1 August 2016

Not in force

Free Trade Agreement between the Government of the Republic of Costa Rica and the Community of Caribbean States (CARICOM)

Antigua and Barbuda, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname

Pending legislative approval in these countries

Under negotiation

Free Trade Agreement between Central America and the Republic of Korea

Republic of Korea

Source: COMEX (2016a), http://www.comex.go.cr/tratados/index.aspx.

Under all its FTAs, restrictions on imports and exports are prohibited, but Costa Rica may maintain controls on: (a) the import of crude oil, its fuels, derivatives, asphalt, and gasoline; (b) the exports of wood in logs and boards from forests; exports of hydrocarbons; quality export control of coffee; and (c) the import and export of ethanol and crude rums.

Regional trade agreements

Costa Rica participates in the Central America Common Market (CACM), together with El Salvador, Guatemala, Honduras, Nicaragua and Panama. CACM accounts for 7% of imports and 24% of total merchandise exports. CACM has adopted a number of regional regulations (2016), including the Central American Uniform Customs Code, and the Convention on the Central American Tariff and Customs Regime, as well as Central American regulations on customs valuation, rules of origin, unfair trade practices, safeguard measures, and the standardisation of Sanitary and Phytosanitary Measures (SPS) and technical regulations.

CACM has a common external custom duty, the Central America Import Tariff (ACI), which covers 6 978 items at the 8-digit level, excluding products traded with Panama. In 2015, the CACM countries were still in the process of harmonising ACI tariff lines; 93.4% of these consignments had been harmonised, and the remaining 6.6% mostly comprise vehicles (2.3%), agricultural products (2.7%) and industrial goods (1.7%). In 2010, CACM members launched the Computerized Central Tariff (AIC), which contains all tax and tax reductions for products entering the CACM. Non-tariff measures – such as technical regulations or SPS measures – are also included in the system.

Central American countries have adopted a number of customs reforms to facilitate trade in the last decade. Initiatives have been launched to reduce customs controls and facilitate the intra-regional movement of goods by applying a common customs valuation system and risk assessment, and introducing the electronic transmission of data. Harmonisation of customs procedures has also progressed. In 2007, the Framework Convention for the Establishment of the Customs Union was signed. The Convention, which was ratified by Costa Rica in 2009, includes three stages in the customs union process: 1) institutional strengthening, 2) trade facilitation, and 3) regulatory convergence (COMEX, 2015). In the context of this framework, technical regulations for various sectors – food, medicines and agricultural inputs – have been negotiated and enforced, facilitating the introduction of a sanitary register for authorised products, and the application of SPS measures in a more consistent manner.

Costa Rica also benefits from an FTA between CACM, the United States and the Dominican Republic (CAFTA-DR). In 2015, trade under this agreement represented 51% of all Costa Rican goods imports and exports (COMEX, 2016b). Costa Rica offers zero tariffs and immediate access to all imported goods from the Dominican Republic, with a few exceptions for agricultural products. Trade with all other member states – the United States included – falls under the Costa Rican Reduction Programme. The programme covers a 20-year-period, at the end of which, in 2025, 99.92% of Costa Rican tariffs will be eliminated for imports from the United States, with fresh potatoes being the only exception.

Bilateral trade agreements

The FTA between Costa Rica and the People’s Republic of China (hereafter “China”) entered into force in 2011, prompting significant growth in bilateral trade, both in terms of trade volume and the diversification of traded goods and services. A transition period applies to liberalisation. In 2011, prior to the entry into force of the FTA, 2.2% of Costa Rica’s tariff lines were duty-free for imports from China. 91% of Costa Rica’s tariffs on Chinese imports are scheduled to be removed in January 2026. The parties may apply bilateral safeguard measures during the transition period, however, and 591 dutiable tariff lines will still remain after 2026. Moreover, the treaty does not contain rules on subsidies, state aid and government procurement.

Since 1995, 98% of goods can be traded duty-free between Costa Rica and Mexico. The FTA between Central America and Panama, and the Costa Rica-Panama Bilateral Protocol, established a tariff liberalisation process between 2009 and 2025, with 98.2% of tariff lines to be duty-free at the end of the period – although 109 lines will remain dutiable, including pork and poultry, eggs, potatoes, onions, coffee and coffee extracts, rice, animal and vegetable oils and fats and sugar. For some products subject to liberalisation, tariff quotas are used on a temporary basis. FTAs between Costa Rica and Peru and Singapore entered into force on 1 June 2013 and 1 July 2013 respectively, followed by Colombia on 1 August 2016.

On 29 June 2012, Costa Rica signed the Association Agreement between Central America and the European Union (EU-CAAA). The Agreement, which entered into force on 1 October 2013, comprises three pillars which include political dialogue, co-operation, and trade. The EU-CAAA could improve access conditions for Costa Rican goods and services to the European Union. In particular, it strengthens and improves the unilateral preferences granted by the EU through its Generalised System of Preferences (GSP), and opens new opportunities for numerous other products – such as sugar, meat, cassava and textiles – to enter the European market.

Import policy measures

Tariffs

Tariffs are the main instrument for trade protection in Costa Rica’s agricultural sector, although these have declined since Costa Rica joined the WTO in 1995. Between 1995 and 2014, the MFN average tariff for agricultural goods decreased by 31%. The largest decrease could be observed between 1996 and 2001 (-11%) and a smaller decrease between 2000 and 2014 (-8%) (Figure 2.6).

Figure 2.6. Most Favoured Nation (MFN) tariff, simple average (%), 1995-2014
picture

Source: TRAINS-WITS Database (2016).

 https://doi.org/10.1787/888933451782

Nevertheless, agricultural tariffs are high compared to tariffs on total trade, industrial goods and petroleum. The average MFN tariff for agricultural goods in 2014 was 11.5% – more than twice the average MFN tariff for total trade and industrial goods. During the 2006-13 period, the only major change to Costa Rica’s tariff structure was an increase in the number of tariff lines as a result of amendments to the Harmonized System (HS) (Annex 2.A3).

The vast majority (91%) of applied MFN tariffs are in the range of 0-15%, of which over half are less than 10% (Figure 2.7). Around 41% of applied MFN tariffs are between 10% and 15%. MFN tariffs of over 50% are rare, and constitute less than 2% of all tariffs. Final bound tariffs are generally higher, with 83% between 25% and 50%. Agricultural products are mainly imported duty-free (38%), or with tariffs of lower than 15% (51%). However, remaining tariffs on agricultural imports are amongst the highest, with applied MFN tariff of 151% for poultry, 66% for dairy products, 46% for both pork meat and sugar, and 36% for rice, among others.

Figure 2.7. Frequency distribution of agricultural final bound and MFN applied tariff lines and imports by tariff rates, 2014
picture

Source: WTO Tariff Profile of Costa Rica (2016), http://stat.wto.org.

 https://doi.org/10.1787/888933451795

Almost all imports from the CACM (Panama excluded) enter Costa Rica duty-free, with the exception of sugar and coffee. Tariff preferences are meanwhile granted to imports from Canada, Chile, China, Mexico, the United States, Panama, the Dominican Republic and the CARICOM15 countries. Table 2.5 contains a snapshot of Costa Rica’s preferential tariffs at the beginning of 2013. The transitional periods for the full tariff liberalisation agreed under the FTAs with Chile, Canada, CAFTA-DR, China, and Central America and Panama have not yet ended (COMEX, 2015).

Table 2.5. Summary analysis of Costa Rica’s preferential tariffs, 2013

Total

Agricultural products (WTO definition)

Non- agricultural products (WTO definition)

Average1

Duty-free lines

Average1

Duty-free lines

Average1

Duty-free lines

MFN

6.9

2.8

14

-

5.5

3.4

CACM

Guatemala, Honduras, Nicaragua

-

99.8

0.3

98.8

-

100

El Salvador2

0.1

99.8

0.3

98.5

-

100

CARICOM3

Barbados

1.1

93

4.8

77.9

0.4

96

Belize

1

93.6

4

81.3

0.4

96

Guyana

1.1

93.1

4.4

78.7

0.4

95.9

Trinidad and Tobago

1

93.4

4.3

79.9

0.4

96

CAFTA-DR

United States

1.3

75.4

4.9

49.3

0.6

80.4

Dominican Republic

0.8

96.3

4.4

82.8

0.1

98.9

Bilateral FTAs

Canada

1.3

81

6.3

48.7

0.4

87.3

Chile

1.1

94.6

6

74.9

0.1

98.5

China

3.9

62.2

8.8

45.8

2.9

65.4

Mexico

0.8

97.7

4.8

86.7

-

99.8

Panama4

0.9

89

3.7

82.3

0.4

90.3

Dominican Republic

0.5

97.8

2.9

88.6

-

99.5

1. Calculations were made using the lower of the MFN and preferential rates.

2. In the case of El Salvador, five additional lines are not duty-free, which explains the differences in the figures compared to the other CACM countries.

3. In force in 2013 between Costa Rica and Trinidad and Tobago, Barbados, Belize and Guyana only.

4. Bilateral Protocol between Costa Rica and Panama, within the framework of the Central America-Panama Free Trade Agreement.

Source: WTO Secretariat, based on data provided by the Costa Rican authorities.

Tariff-rate quotas

Costa Rica has tariff quotas for 27 agricultural products,16 which are not managed through import licences but are allocated through a market mechanism that involves an administrative procedure. The tariff quotas are governed by the Regulation on Distribution and Allocation of Import Quotas, effective since 2003.17 COMEX allocates quotas based on historical record – 80% of the available volume is assigned to applicants that have already imported under the quota during the previous calendar year. The quota is issued in proportion to their participation in total imports under the quota. The remaining 20% is issued to new applicants on a pro rata basis. Apart from dairy products, use of the quotas has been low, as tariff quotas with better conditions were negotiated within FTAs for almost all products subject to WTO quotas. Costa Rica applies import tariff quotas for agricultural products from Canada, China, the United States, the Dominican Republic, Panama, the European Union, Peru and Colombia under the corresponding preferential trade agreements.

Import licences

Nevertheless, licences or authorisations – generally related to health and phytosanitary protection, public safety and environmental protection – are required to import certain goods. In most cases, import licences must be obtained through the Single Window for Foreign Trade (VUCE). Since its launch in 2011, the VUCE 2.0 System automates 100% of import and export procedures year-round in order to reduce time and costs for users.

Sanitary and phytosanitary (SPS) measures on imports and technical regulations

Since 2007, Costa Rica has adopted 125 technical regulations, most of which are related to products such as pesticides, fuels, medicines, textiles, cosmetics and food. Many of these regulations were issued under the General Treaty on Central American Economic Integration. Costa Rica has also continued to strengthen its infrastructure and institutional capacity to implement SPS measures, with the aim of facilitating trade as much as possible while protecting the country from pests and diseases. Efforts have been made to promote private sector participation in the formulation of SPS measures. Agreements have been reached on the equivalence of inspection systems with business partners in North America, and progress has been made in the harmonisation of SPS measures and procedures in place in Central America.

In 2014-16, several measures were taken regarding the imports of potatoes, avocados and pineapple for exports. In the case of potatoes from the United States, the temporary suspension of imports was prompted by the interception of a quarantine pest known as “zebra chip” in a shipment of potatoes (WTO notification: DSFE-12-2016 under G/SPS/N/CRI/122). Imports of Canadian potatoes were also suspended due to the presence of the pest “phytoplasma purple top wilt” in potato fields (WTO notification DSFE-12-2014, under G/SPS/N/CRI/152). In the case of avocados, the import measure restriction was applied in order to avoid the risk of the sun blotch disease (G/SPS/N/CRI/160 and G/SPS/N/CRI/162). These measures have been criticised by the relevant trading partners18 . Trading partners have also mentioned delays in the emission of sanitary import permits, warehouse specific space requirements for imports and other requirements resulting in lengthy trade processes.

Export policy measures

There are four main incentive regimes currently in force in Costa Rica: 1) the Free Zone Regime, 2) the Inward Processing Regime; and 3) the Drawback Regime – all granted by COMEX, acting in conjunction with the President of the Republic, and administered by PROCOMER – and 4) the Tourism Development Incentives Regime, granted and administered by the Costa Rican Tourism Institute (ICT). These incentive regimes apply equally to nationals and foreigners. With regard to the Free Zone Regime in particular, all links between exports and incentives were eliminated on 31 December 2015, in line with the WTO Agreement on Subsidies and Countervailing Measures and the extensions of the term for subsidies granted on exports.

2.5. Evaluation of support to agriculture

This section provides a quantitative evaluation of support allocated to Costa Rican agriculture between 1995 and 2015. This evaluation is based on OECD indicators of agricultural support, including the Producer Support Estimate (PSE), Consumer Support Estimate (CSE), Total Support Estimate (TSE), General Services Support Estimate (GSSE), and others (Box 2.3).

Box 2.3. OECD indicators of support to agriculture

INDICATORS OF SUPPORT FOR PRODUCERS

Producer Support Estimate (PSE): The annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, measured at the farm gate level, arising from policy measures that support agriculture, regardless of their nature, objectives or impacts on farm production or income.

Percentage PSE (%PSE): PSE as a share of gross farm receipts (including support).

Producer Nominal Assistance Coefficient (producer NAC): The ratio between the value of gross farm receipts (including support) and gross farm receipts valued at border prices (measured at farm gate).

Producer Nominal Protection Coefficient (producer NPC): The ratio between the average price received by producers at farm gate (including payments per tonne of current output), and the border price (measured at farm gate). The NPC is also available by commodity.

Producer Single Commodity Transfers (producer SCT): The annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, measured at the farm gate level, arising from policy measures directly linked to the production of a single commodity such that the producer must produce the designated commodity in order to receive the transfer.

Producer Percentage Single Commodity Transfers (producer %SCT): The commodity SCT as a share of gross farm receipts for the specific commodity.

INDICATORS OF SUPPORT TO CONSUMERS

Consumer Support Estimate (CSE): The annual monetary value of gross transfers from (to) consumers of agricultural commodities, measured at the farm gate level, arising from policy measures that support agriculture, regardless of their nature, objectives or impacts on consumption of farm products.

Percentage CSE (%CSE): CSE as a share of consumption expenditure (measured at farm gate) net of taxpayer transfers to consumers.

Consumer Nominal Assistance Coefficient (consumer NAC): The ratio between the value of consumption expenditure on agricultural commodities (at farm gate) and that valued at border prices (measured at farm gate).

Consumer Nominal Protection Coefficient (consumer NPC): The ratio between the average price paid by consumers (at farm gate) and the border price (measured at farm gate).

Consumer Single Commodity Transfers (consumer SCT): The annual monetary value of gross transfers from (to) consumers of agricultural commodities, measured at the farm gate level, arising from policy measures directly linked to the production of a single commodity.

INDICATORS OF SUPPORT TO GENERAL SERVICES FOR AGRICULTURE

General Services Support Estimate (GSSE): The annual monetary value of gross transfers to general services provided to agricultural producers collectively (such as research, development, training, inspection, marketing and promotion), arising from policy measures that support agriculture, regardless of their nature, objectives and impacts on farm production, income, or consumption. The GSSE does not include any transfers to individual producers.

Percentage GSSE (%GSSE): GSSE as a share of Total Support Estimate (TSE).

INDICATORS OF TOTAL SUPPORT TO AGRICULTURE

Total Support Estimate (TSE): the annual monetary value of all gross transfers from taxpayers and consumers arising from policy measures that support agriculture, net of associated budgetary receipts, regardless of their objectives and impacts on farm production and income, or consumption of farm products.

Percentage TSE (%TSE): TSE as a share of GDP.

A detailed description of the methodology applied by the OECD to estimate agricultural support (the “PSE Manual”), as well as comprehensive databases for OECD countries and a number of non-OECD countries are available at http://oe.cd/pse. The methodology applied in this study is consistent with that used in OECD reports that monitor and evaluate agricultural policies in other countries (OECD, 2016b). Box 2.4 provides basic information on how this methodology has been applied to the case of Costa Rica.

Box 2.4. Calculation of PSE for Costa Rica

Broadly speaking, the PSE has two main components: market price support and budgetary allocations.

1) Market Price Support

Market price support (MPS) is based on the measurement of the gap between a country’s domestic prices and international prices. This price gap results from a variety of policy measures that prevent domestic prices from aligning with international levels. These policies include trade measures such as import tariffs, import quotas, tariff quotas, SPS regime, export subsidies, export taxes, as well as quantitative restrictions on exports. Policies creating a price gap also include domestic measures, such as administered pricing, market interventions, or public stockholding. In emerging and developing economies, the gaps between domestic and international prices are also explained by factors that are not strictly policy-related, e.g. deficiencies in physical infrastructure, inadequate information and weak market institutions. Market price support is financed by consumers through higher prices. In the case of Costa Rica, the MPS is calculated on the basis of the following information:

Period covered: 1995-2015

Products covered: Rice, pineapples, bananas, coffee, sugar cane, palm oil, milk, beef, pigmeat, poultry (see Annex 2.A5 for more details on these products). These ten commodities account for 80% of the total value of gross agricultural output (GAO) in Costa Rica. The six crops accounted for 75% of the value of total crop production in 2015, the four livestock products represented on average 90% of total livestock production for the same year. For the purpose of the PSE estimations, seven products are treated as net exports (X): pineapples, bananas, coffee, sugar cane, palm oil, beef, milk; three products are treated as net imports (M): rice, poultry and pigmeat.

Producer prices: These are average prices received by producers at farm gate level. This information has been provided by SEPSA-MAG, sourced from different institutions and farmer corporations. Producer prices for rice, pineapple, banana, coffee, milk, beef and pigmeat were registered numbers. Producer prices for sugar cane, palm oil, and poultry were estimated by SEPSA.

External reference prices: Average export unit values registered at the border were used as the external reference price for pineapples, bananas, sugar cane, coffee, palm oil, and milk sourced by COMEX. For rice, average import unit values at the border were used. Import unit values for poultry were not sufficiently consistent across the period, which prompted the use of USA producer price-adjusted (added) with international transportation costs from the USA to Costa Rica. Lastly, for milk, the reference price used export unit values for both butter and skimmed milk powder. Data was provided by SEPSA and COMEX.

Marketing margins: Marketing margins are estimations of processing, handling and transportation costs for a given commodity. Marketing margin adjustment to the reference prices is required to make those prices comparable with domestic prices measured at the farm gate. For most of the products, margins were expressed as a percentage of the farm gate prices. For a few products, registered data on processing and transportation costs were used, as well as the difference between the farm gate and the wholesale price, ensuring that prices were expressed in the same weight terms. Data was provided by SEPSA.

Price gap estimates. The “zero price gap” was used when negative gaps were obtained, as the estimated negative price gaps reflect factors other than agricultural policies. This assumption was used for exported products like pineapples, bananas, coffee, sugar cane, palm oil, milk and beef. For pigmeat, the annual average tariff rate was used to estimate the price gap.

2) Budgetary Support

Budgetary support comes from government revenues. Budgetary information for 1995-2015 was provided by SEPSA and the Ministry of Finance, and covers federal budgetary expenditure undertaken by the APS. Information from other Ministries, such as MINAE, was also included. The implicit subsidy arising from preferential credit interest rates and insurance is also estimated.

Support to agricultural producers

Level of producer support

The percentage Producer Support Estimate (%PSE) is the OECD’s key indicator to measure support to agricultural producers. It expresses the monetary value of support transfers to agricultural producers as a percentage of producer gross receipts. As it is neither affected by inflation nor the size of the sector, it allows comparisons in the level of support to be made both over time and between countries. This indicator provides insights into the burden that agricultural support policies place on consumers (i.e. market price support) and taxpayers (budgetary transfers). Estimations suggest that market price support (MPS) is the primary source of support. Costa Rica’s %PSE for the 2013-15 period is estimated at 10.1%, indicating that 10.1% of gross receipts of agricultural producers is generated by support policies. MPS has been the main component of producer support (97% of PSE), while budgetary support has been low (3%).

A clear trend of increasing support through MPS can be observed in Figure 2.8 and Table 2.6. This reflects the use of price-setting mechanisms for rice and the use of tariffs on main products (e.g. rice, poultry, pigmeat). While such support runs counter to pro-market policies such as the FTAs signed in the last 10 years, the FTAs generally contain exceptions or special treatment for certain agricultural products.

Figure 2.8. Level and composition of Producer Support Estimate in Costa Rica, 1995-2015
picture

Source: OECD (2016a), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.

 https://doi.org/10.1787/888933451805

Table 2.6. Estimate of support to agriculture in Costa Rica, CRC million

1995-97

2013-15

2013

2014

2015

Total value of production (at farm gate)

452 886

2 568 361

2 452 966

2 640 897

2 611 221

of which: share of MPS commodities (%)

71.8

85.3

85.1

84.8

86.0

Total value of consumption (at farm gate)

217 443

1 257 102

1 219 301

1 284 947

1 267 058

Producer Support Estimate (PSE)

17 814

259 452

243 711

218 511

316 133

Support based on commodity output

16 203

250 503

236 314

210 319

304 876

Market Price Support1

16 203

250 503

236 314

210 319

304 876

Payments based on output

0

0

0

0

0

Payments based on input use

1 611

8 254

6 697

7 497

10 570

Based on variable input use

1 201

1 632

1 463

1 020

2 414

with input constraints

5

1 517

1 337

945

2 270

Based on fixed capital formation

235

5 070

3 809

4 892

6 510

with input constraints

58

2 731

2 364

2 861

2 968

Based on on-farm services

176

1 552

1 425

1 584

1 646

with input constraints

172

0

0

0

0

Payments based on current A/An/R/I, production required

0

0

0

0

0

Based on Receipts / Income

0

0

0

0

0

Based on Area planted / Animal numbers

0

0

0

0

0

with input constraints

0

0

0

0

0

Payments based on non-current A/An/R/I, production required

0

0

0

0

0

Payments based on non-current A/An/R/I, production not required

0

0

0

0

0

With variable payment rates

0

0

0

0

0

with commodity exceptions

0

0

0

0

0

With fixed payment rates

0

0

0

0

0

with commodity exceptions

0

0

0

0

0

Payments based on non-commodity criteria

0

663

694

642

652

Based on long-term resource retirement

0

663

694

642

652

Based on a specific non-commodity output

0

0

0

0

0

Based on other non-commodity criteria

0

0

0

0

0

Miscellaneous payments

0

31

6

52

35

Percentage PSE (%)

4.0

10.1

9.9

8.2

12.1

Producer NPC (coeff.)

1.04

1.11

1.11

1.09

1.13

Producer NAC (coeff.)

1.04

1.11

1.11

1.09

1.14

General Services Support Estimate (GSSE)

1 345

34 910

29 680

32 604

42 446

Agricultural knowledge and innovation system

126

16 688

16 281

16 780

17 002

Inspection and control

7

4 941

5 106

4 718

4 998

Development and maintenance of infrastructure

1 149

12 273

7 355

10 153

19 311

Marketing and promotion

64

715

672

726

746

Cost of public stockholding

0

0

0

0

0

Miscellaneous

0

294

266

227

389

Percentage GSSE (% of TSE)

7.1

11.9

10.9

13.0

11.8

Consumer Support Estimate (CSE)

-17 652

-258 365

-248 102

-223 790

-303 203

Transfers to producers from consumers

-16 110

-227 867

-218 169

-197 479

-267 952

Other transfers from consumers

-1 542

-30 498

-29 933

-26 310

-35 251

Transfers to consumers from taxpayers

0

0

0

0

0

Excess feed cost

0

0

0

0

0

Percentage CSE (%)

-8.3

-20.6

-20.3

-17.4

-23.9

Consumer NPC (coeff.)

1.09

1.26

1.26

1.21

1.31

Consumer NAC (coeff.)

1.09

1.26

1.26

1.21

1.31

Total Support Estimate (TSE)

19 160

294 362

273 391

251 115

358 580

Transfers from consumers

17 652

258 365

248 102

223 790

303 203

Transfers from taxpayers

3 049

66 495

55 222

53 636

90 628

Budget revenues

-1 542

-30 498

-29 933

-26 310

-35 251

Percentage TSE (expressed as share of GDP)

0.8

1.1

1.1

0.9

1.3

GDP deflator 2000-02 = 100

100

468

454

475

474

NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A = area planted), An = animal numbers, R = receipts, I = income.

MPS commodities for Costa Rica are rice, pineapple, bananas, coffee, sugar, palm oil, milk, beef, pigmeat and poultry meat. MPS is net of producer levies and Excess Feed Cost.

Source: OECD (2016a), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.

 https://doi.org/10.1787/888933451813

Table 2.7. Estimate of support to agriculture in Costa Rica, USD million

1995-97

2013-15

2013

2014

2015

Total value of production (at farm gate)

2 188

4 900

4 908

4 906

4 884

of which: share of MPS commodities (%)

71.8

85.3

85.1

84.8

86.0

Total value of consumption (at farm gate)

1 045

2 399

2 440

2 387

2 370

Producer Support Estimate (PSE)

87

495

488

406

591

Support based on commodity output

79

478

473

391

570

Market Price Support1

79

478

473

391

570

Payments based on output

0

0

0

0

0

Payments based on input use

8

16

13

14

20

Based on variable input use

7

3

3

2

5

with input constraints

0

3

3

2

4

Based on fixed capital formation

1

10

8

9

12

with input constraints

0

5

5

5

6

Based on on-farm services

1

3

3

3

3

with input constraints

1

0

0

0

0

Payments based on current A/An/R/I, production required

0

0

0

0

0

Based on Receipts / Income

0

0

0

0

0

Based on Area planted / Animal numbers

0

0

0

0

0

with input constraints

0

0

0

0

0

Payments based on non-current A/An/R/I, production required

0

0

0

0

0

Payments based on non-current A/An/R/I, production not required

0

0

0

0

0

With variable payment rates

0

0

0

0

0

with commodity exceptions

0

0

0

0

0

With fixed payment rates

0

0

0

0

0

with commodity exceptions

0

0

0

0

0

Payments based on non-commodity criteria

0

1

1

1

1

Based on long-term resource retirement

0

1

1

1

1

Based on a specific non-commodity output

0

0

0

0

0

Based on other non-commodity criteria

0

0

0

0

0

Miscellaneous payments

0

0

0

0

0

Percentage PSE (%)

4.0

10.1

9.9

8.2

12.1

Producer NPC (coeff.)

1.04

1.11

1.11

1.09

1.13

Producer NAC (coeff.)

1.04

1.11

1.11

1.09

1.14

General Services Support Estimate (GSSE)

7

66

59

61

79

Agricultural knowledge and innovation system

1

32

33

31

32

Inspection and control

0

9

10

9

9

Development and maintenance of infrastructure

6

23

15

19

36

Marketing and promotion

0

1

1

1

1

Cost of public stockholding

0

0

0

0

0

Miscellaneous

0

1

1

0

1

Percentage GSSE (% of TSE)

7.1

11.9

10.9

13.0

11.8

Consumer Support Estimate (CSE)

-86

-493

-496

-416

-567

Transfers to producers from consumers

-79

-435

-437

-367

-501

Other transfers from consumers

-8

-58

-60

-49

-66

Transfers to consumers from taxpayers

0

0

0

0

0

Excess feed cost

0

0

0

0

0

Percentage CSE (%)

-8.3

-20.6

-20.3

-17.4

-23.9

Consumer NPC (coeff.)

1.09

1.26

1.26

1.21

1.31

Consumer NAC (coeff.)

1.09

1.26

1.26

1.21

1.31

Total Support Estimate (TSE)

94

561

547

466

671

Transfers from consumers

86

493

496

416

567

Transfers from taxpayers

16

127

110

100

170

Budget revenues

-8

-58

-60

-49

-66

Percentage TSE (% of GDP)

0.8

1.1

1.1

0.9

1.3

GDP deflator 2000-02 = 100

100

468

454

475

474

NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient.

A = area planted, An = animal numbers, R = receipts, I = income.

MPS commodities for Costa Rica are rice, pineapple, bananas, coffee, sugar, palm oil, milk, beef, pigmeat and poultry meat. MPS is net of producer levies and Excess Feed Cost.

Source: OECD (2016a), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.

 https://doi.org/10.1787/888933451821

The average level of producer support in Costa Rica of 10.1% (for the 2013-15 period) is lower than the OECD average of 17.5%, and around the same as Mexico and Canada (10%) (Figure 2.9).

Figure 2.9. Producer Support Estimate in Costa Rica and selected countries, 2013-15
picture

1. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

2. The OECD total does not include the non-OECD EU member states.

Source: OECD (2016a), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.

 https://doi.org/10.1787/888933451835

Composition of producer support by policy category

In addition to the level of support, it is also necessary to analyse the way in which support is provided to farmers. For instance, support may be given through MPS or input subsidies, it may take the form of a payment per hectare or per animal, or compensation to producer income. These distinctions are important, as support delivered in these various ways has a different impact on agricultural production, trade and incomes. Market price support is directly linked to commodity output and can have a significant effect on production. For this reason, this type of support qualifies as trade-distorting. Moreover, MPS is less effective in increasing producer income than other types of support, such as direct payments to farmers that are less attached to commodity output. MPS also imposes additional costs on domestic consumers. Support which is not based on commodity output – such as payments per hectare, or direct income support – can be more effective in improving farmer incomes, or in achieving environmental or rural development objectives, while having less spill-over effects on international trade (OECD, 2008).

The aggregate value of MPS is the outcome of implicit taxation through negative price gaps for some commodities (a negative MPS) and price support of others (a positive MPS). Annual variations depend on movements in world prices, domestic prices and exchange rates, as well as changes in production levels. Major components of the MPS are the price differential (gap between domestic producer price and reference price) for rice, poultry, pig-meat, sugar and milk (Figure 2.10). The MPS represents around 97% of the PSE for Costa Rica.

Figure 2.10. Level and composition of Market Price Support (MPS) in Costa Rica, 1995-2015
picture

Source: OECD (2016a), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.

 https://doi.org/10.1787/888933451845

Budgetary support is very low, and accounted for only a small (3%) share of producer support or PSE. Around 80% of these budgetary transfers were allocated to GSSE for the 2013-15 period. Input subsidies or direct payments were relatively small (Figure 2.11).

Figure 2.11. Level and composition of budgetary transfers in Costa Rica, 1995-2015
picture

Source: OECD (2016a), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.

 https://doi.org/10.1787/888933451857

Commodity profile of producer support

Different levels of support across commodities are also reflected in the Producer Single Commodity Transfers (SCT), a measure of commodity-specific agricultural policies. This indicates the flexibility that policies accord to producers in their choices of product mixes. For example, a payment designated for only one specific commodity implies that in order to receive payment, a farmer must produce that commodity. The SCT can be expressed in relative terms as a percentage of gross receipts for a given commodity. A figure of 33%, for example, indicates that the value of transfers that are specific to that commodity is equivalent to one-third of gross farm receipts for that commodity. Figure 2.12 shows Costa Rican percentage SCTs (%SCT) for all ten products included in the PSE. These estimations principally reflect MPS. Poultry, pigmeat, rice and sugar have the highest percentage SCT, reflecting border and price measures.

Figure 2.12. Producer Single Commodity Transfers (SCTs) by commodity in Costa Rica, 2013-15
picture

Source: OECD (2016a), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.

 https://doi.org/10.1787/888933451865

Support provided to consumers of agricultural products

The Consumer Support Estimate (CSE) measures the cost to consumers arising from market price support policies and is measured at the farm gate level. A negative CSE indicates an implicit tax on consumers – i.e. they pay higher domestic prices than international prices – while a positive CSE suggests an implicit support – i.e. consumers pay domestic prices lower than the international price. In the OECD methodology, the consumer is understood to be the first buyer of these products. In the absence of consumer support policies, CSE generally mirrors MPS in broad terms. Similar to the PSE, the CSE can be expressed in relative terms as a percentage of consumption expenditures (%CSE). The average percentage CSE for Costa Rica is estimated at -20.6% in 2013-15, indicating that policies to support agricultural prices increased consumption expenditure by 20.6% on aggregate (Figure 2.13). Comparing across countries, this aggregate tax on consumers in Costa Rica is well above the OECD average of -7%.

Figure 2.13. Consumer Support Estimate (CSE) in Costa Rica and selected countries, 2013-15
picture

Note: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Source: OECD (2016a), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.

 https://doi.org/10.1787/888933451875

Support to general services for agriculture

In addition to support provided to producers individually, the agricultural sector is assisted through the financing of activities that provide general benefits, such as agricultural research and development, training, inspection, marketing and promotion, and public stockholding. The General Services Support Estimate (GSSE) indicator measures this support. The provision of common – as opposed to individual – benefit is what distinguishes the general services support from that measured by the PSE. Expenditures on general services for agriculture in Costa Rica constitute 80% of total budgetary expenditures on the sector, considerably above the OECD average of 20%. For the period 2013-15, about 48% of total GSSE outlays were allocated to agricultural knowledge and innovation systems (more specifically, 33% to extension services and 15% to R&D). Development and maintenance of infrastructure (in particular, irrigation and farm restructuring) accounted for 32% of total GSSE outlays, and inspection and control services accounted for 14%. Together, these three categories represent 94% of the total GSSE budget (Figure 2.14).

Figure 2.14. Level and composition of General Services Support Estimate (GSSE) in Costa Rica, 1995-2015
picture

Source: OECD (2016a), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.

 https://doi.org/10.1787/888933451884

Support provided to the agricultural sector as a whole

The Total Support Estimate (TSE) is the broadest indicator of support, representing the sum of transfers to agricultural producers both individually (PSE) and collectively (GSSE), in addition to direct budgetary transfers to consumers. Expressed as a percentage of GDP, the percentage TSE (%TSE) provides an indication of the cost that support to the agricultural sector places on the overall economy. Its value depends on the degree to which the agricultural sector is supported in a country, the size of this sector and its importance relative to the overall economy. Figure 2.15 shows the composition of the TSE for the period 1995-2015, where levels of MPS have contributed the most (85%), and where budgetary transfers have been relatively small (15%). Of the budgetary transfers, GSSE is the predominant category, at 80%. The share of general services in TSE at 12% is in line with the average for OECD countries (12%) (OECD, 2016c).

Figure 2.15. Level and composition of Total Support Estimate (TSE) in Costa Rica, 1995-2015
picture

Source: OECD (2016a), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.

 https://doi.org/10.1787/888933451891

The level of total support (TSE) provided to agriculture in the 2013-15 period was the equivalent of 1.1% of GDP, twice the OECD average of 0.66%. This is lower than in Indonesia, China, Turkey, Korea or Colombia, but much higher than in Chile, Mexico or Brazil. Costa Rica’s total agricultural support represents a significant cost to the economy and society as a whole (Figure 2.16).

Figure 2.16. Total Support Estimate in Costa Rica and selected countries, 2013-15
picture

Note: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Source: OECD (2016a), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.

 https://doi.org/10.1787/888933451902

2.6. Summary and policy issues

  • Costa Rica’s agricultural policies from the 1960s to the 1980s – as elsewhere in Latin America – followed a policy of import substitution. However, since the mid-1980s, agricultural support policies have evolved in line with Costa Rica’s outward-oriented growth strategy. The level of state intervention in the markets has significantly declined, and the country has undertaken major agricultural reforms, moving from an import substitution to a trade liberalisation model. The main policy objectives in the agricultural and food sectors during this period were the growth and strengthening of agricultural exports via, for example, the diversification of products and the development of destination markets. Since the food price crisis of 2007-08, food security has also become an important objective, and specific strategies have been developed to increase the productivity of main staples – particularly in the case of small-scale farms – while continuing to emphasise export-oriented agriculture.

  • Key objectives for the agricultural sector under the policy framework for 2015-18 are to support the national goal of reducing poverty though actions that improve living conditions in rural areas, and to increase the value-added in agriculture through the improvement of productivity and rural sustainability. These objectives contain five pillars that encompass: (i) food security, sovereignty and nutrition; (ii) opportunities for agricultural and rural youth; (iii) rural territorial development; (iv) adaptation and mitigation of climate change; and (v) strengthening of the export sub-sector.

  • The institutional arrangements for the agricultural sector are complex. The Costa Rican Agricultural Public Sector (APS) is composed of several institutions, including the Ministry of Agriculture and Livestock (MAG). MAG is in charge of the design and implementation of agricultural policies in co-ordination with all APS institutions; however, co-ordination between the MAG and the 15 institutions that belong to the APS is weak. This fragmented institutional structure impedes the alignment of actions, guidelines and even policy objectives. In some cases, it is also resulting in overlapping tasks and increasing transaction costs, e.g. for the registration of inputs and agrochemicals. These co-ordination issues have developed, in part, because some of the institutions were established by laws defining their objectives, functions and management, which limits flexibility; and partly because they generate their own resources from the sale of their services, thus gaining relative independence. MAG consequently struggles to efficiently co-ordinate the numerous institutions of the APS. Overall, the complex organisational structure of the sector, with its fragmented authority and dispersed responsibility, coupled with rigidities from institutional mandates created by law, poses challenges for the implementation of substantive reforms.

  • In addition to the APS, a wide range of sectoral and public-private bodies operate within the Costa Rican agricultural sector. Some, such as corporaciones (“corporations”), have had positive impacts in the coffee and banana sectors, particularly with regard to the development of the supply chain, the provision of research and technical assistance or extension services and product marketing. While initially created with some government support, these organisations are currently financed solely by their members.

  • Corporations have an important role in the negotiation of policies and the provision of services to agriculture, and some have been responsible for the implementation of public agricultural policies, such as the coffee programmes implemented by ICAFE. However, other corporations, which also provide services to their farmers, have contributed to concentrated market structures and limited competition. This is the case, for example, in the sugar and rice sectors. According to Law 7818, LAICA, the sugar producer association, can regulate all activities involved in the supply chain, from the purchase, import, export, storage to the commercialisation at retail level of sugar in Costa Rica. The same situation is observed in the rice sector: CONARROZ (Law 8285) fully controls the rice market. This lack of competition impedes the competitiveness of the sectors and reduces opportunities for smallholder producers.

  • Only a small allocation within the budgetary distribution is devoted to agricultural innovation systems, technology transfer and technical assistance programmes (INTA), while resources for agricultural infrastructure, market information systems and a strategic information system for the sector are very limited. Moreover, the absence of systematic impact assessments of public expenditures in agriculture – particularly in the provision of services – makes it difficult to determine whether the budget is being allocated to those areas in which it has the greatest impact. Finally, investment levels in the agricultural sector have been further constrained by the intensification of budgetary restrictions since 2013, in line with Costa Rica’s fiscal situation.

  • In addition, low levels of budget execution by some institutions are contributing to broader challenges in implementation. The problem is explained, in part, by the timeframe of national budget planning and the late receipt of resources by certain institutions. Implementation is also hampered by weak co-ordination and heavy bureaucracy among public agencies, resulting in some programmes not being implemented on time or indeed not at all, as is the case for some INDER programmes. Services provided to farmers are limited and not always timely.

  • MAG and some of its affiliated institutions also suffer from a growing deficit in technical capacity, especially due to an ageing workforce and the non-renewal of contracts for technical positions. Extension services, for instance, lack people that have been well-trained in new issues. They also suffer from limited co-ordination between R&D, knowledge generation and farmers’ needs.

  • The creation of the Banking Development System in 2008 has injected significant financial resources into the sector. Nevertheless, bank financing remains insufficient, and the involvement of private commercial banks continues to be limited. Agricultural insurance – provided by the state insurance institution (INS) – remains limited, notwithstanding recent efforts to expand it in 2015. Despite the opening of the insurance market, the participation of private insurers remains virtually non-existent. Implicit subsidies provided through the zero profit mandate imposed on any agricultural transaction by the INS were abolished in 2015.

  • Costa Rica has also continued to strengthen its infrastructure and institutional capacity to implement sanitary and phytosanitary (SPS) measures, with the aim of facilitating trade while protecting the country from pests and diseases. However, recent measures on imports of potatoes and avocados have been criticised by the trading partners concerned and ensuring co-ordination among institutions involved in the SPS measures remains important.

  • Costa Rica has made considerable efforts to liberalise its trade. Costa Rica currently has 14 FTAs in force with 50 trading partners, both bilaterally and as a member of the Central American Common Market (CACM). These agreements include Costa Rica’s largest trading partners – the United States, European Union and China – and cover almost 93.4% of its exports and almost 83% of imports. Several agricultural products – such as rice, poultry, dairy products and sugar – are excluded from most, but not all, agreements. Where they are included, they tend to be subject to special treatment, such as extended phase-outs of protection or grace periods, although these are due to end by 2025 (CAFTA-DR) or 2027 (European Union) at latest. Agricultural products are mainly imported duty-free (38%), or with tariffs of lower than 15% (51%). However, remaining tariffs on agricultural imports are amongst the highest; with applied MFN tariff of 151% for poultry, 66% for dairy products, 46% for both pork meat and sugar and 36% for rice, among others.

  • Costa Rica’s preferential treatment of rice producers, which consists of tariffs and a reference price, does not appear to be contributing towards the objectives of helping to address rural poverty and ensuring food security. Beneficiaries tend to be relatively few farmers and rice millers, while consumers – including the impoverished rice farmers that are in fact net buyers of rice, and rural poor populations – are obliged to pay considerably more than international prices for an important staple.

  • The level of producer support, as measured by the Producer Support Estimate (PSE), generated an average of 10.1% of gross receipts of agricultural producers in 2013-15. This level is lower than OECD average (17.5%), but higher than levels for Brazil, Chile, Mexico or the United States.

  • Producer support is predominantly based on the most distorting form of support, market price support (MPS), which accounts for 97% of the PSE in 2013-15. MPS is mostly due to the reference minimum price given to rice, and to tariffs applied to key agricultural products (including rice, poultry, sugar and pigmeat). These three products contribute the most to the MPS.

  • Whereas market price support is high, input subsidies are low and destined to mostly small-scale famers for fixed capital formation, on-farm services, and payments based on environmental criteria. Relatively small implicit subsidies are also provided through preferential interest rates.

  • Around 80% of total expenditures are provided to general services to the sector (GSSE). This is the least-distorting form of agricultural support, as it is not linked to production or input use, and the benefits flow to the sector as a whole as opposed to individuals. Outlays on agricultural knowledge and innovation systems (49%), mostly on extension services (33%); the development and maintenance of infrastructure (34%), particularly irrigation and rural roads; and animal and plant health inspection and control (14%) all dominate the GSSE.

  • The average percentage Consumer Support Estimate (CSE%) in Costa Rica in 2013-15 was equivalent to -20.6%, indicating that policies to support agricultural prices increased consumption expenditure by 20.6% in aggregate. Consumers of agricultural products are therefore taxed through high domestic agricultural prices.

  • Finally, the total value of transfers arising from support to agriculture in Costa Rica was equivalent to 1.1% of GDP in 2013-15. The OECD average for the same period was around 0.66%. National agricultural policies – market price support in particular – therefore impose a significant burden on the Costa Rican economy.

References

Banca de Desarrollo (2016), Agricultural banking sector information provided by Banca de Desarrollo for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

CANAPEP (2016), “General Information on the Pineapple Sector”, Written contribution provided by CANAPEP for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

CANAVI (2016), “General Information on the Poultry Sector”, Written contribution provided by CANAVI for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

CAPORC (2016), “General Information on the Pigmeat Sector”, Written contribution provided by CAPORC for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

CAPROLE (2016), “General Information on the Milk Sector”, Written contribution provided by CAPROLE for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

CNP (2016), Sector information provided by CNP for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

COMEX (2016a), Estadisticas COMEX, Tratados, www.comex.go.cr/tratados/index.aspx. August 2016.

COMEX (2016b), Estadísticas COMEX, www.comex.go.cr/estadisticas/exportaciones.aspx.

COMEX (2016c), Sector information provided by the Ministry of Foreign Trade for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

COMEX (2015), Sector information provided by the Ministry of Foreign Trade for the OECD Review of Agricultural Policies: Costa Rica. October 2015.

CONAPALMA (2016), “General Information on the Palm Oil Sector”, Written contribution provided by CONAPALMA for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

CONARROZ (2016), “General Information on the Rice Sector”, Written contribution provided by CONARROZ for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

CONARROZ (2008-15), Informe Annual Estadístico, Unidad de Inteligencia de Mercados, Años: 2008, 2009, 2010, 2011, 2012, 2013, 2014 y 2015, San José, Costa Rica.

Contraloria General (2016), Sistema de Información sobre Planes y Presupuestos, https://cgrweb.cgr.go.cr/apex/f?p=102:2:0::NO.

CORBANA (2016), “General Information on the Banana Sector”, Written contribution provided by CORBANA for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

CORFOGA (2016), “General Information on the Meat Sector”, Written contribution provided by CORFOGA for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

FAO (2013), “Rice Market Monitor”, www.fao.org/economic/est/publications/rice-publications/rice-market-monitor-rmm/en/.

Hidalgo, J.C. (2014), “Growth Without Poverty Reduction: The Case of Costa Rica”, Economic Development Bulletin, No. 18, www.comex.go.cr/estadisticas/intercambio_comercial.aspx.

IMAS (2016), Estadisticas IMAS, www.imas.go.cr/biblioteca/estadisticas_sipo.html, July 2016.

INDER (2016), General Information on INDER, Written contribution provided by INDER for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

INEC (2014), Censo Nacional Agropecuario XI, Instituto Nacional de Estadística y Censos (INEC), San José, CR.

INS (2016), “General Information on Agricultural Insurance”, Written contribution provided by INS for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

INS (2015), “General Information on Agricultural Insurance”, Written contribution provided by INS for the OECD Review of Agricultural Policies: Costa Rica, October 2015.

INTA (2016), “General Information on INTA”, Written contribution provided by INTA for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

LAICA (2016), “General Information on the Sugar Sector”, Written contribution provided by LAICA for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

MAG (2016), “General information on Extension Services”, Written contribution provided by MAG for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

MAG (2015), Sector information provided by the Ministry of Agriculture and Livestock for the OECD Review of Agricultural Policies: Costa Rica, October 2015.

MAG (2011), Politica de Estado para el Sector Agroalimentario y el Desarrollo Rural Costarricense 2010-2021, Sector AgroAlimentario, San José, Costa Rica.

MEIC (2015), “Precio de Referencia del Arroz en Granza; y el Precio Máximo y Mínimo de Todas las Calidades de Arroz Pilado Que Se Comercializan en el Territorio Nacional”, Decretos N° 38884-MEIC, www.inec.go.cr/wwwisis/documentos/Gaceta/Decreto%20Ejecutivo%20No.%2038884-MEIC.pdf.

OECD (2016a), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), https://doi.org/10.1787/agr-pcse-data-en.

OECD (2016b), OECD’S Producer Support Estimate and Related Indicators of Agricultural Support Concepts, Calculations, Interpretation and Use (The PSE Manual), March 2016, www.oecd.org/tad/agricultural-policies/full%20text.pdf

OECD (2016c), Agricultural Policy Monitoring and Evaluation 2016, OECD Publishing, Paris, https://doi.org/10.1787/agr_pol-2016-en.

OECD (2015), OECD Review of Agricultural Policies: Colombia 2015, OECD Publishing, Paris, https://doi.org/10.1787/9789264227644-en.

OECD (2012), Agricultural Policies for Poverty Reduction: A Synthesis, OECD Publishing, Paris, https://doi.org/10.1787/9789264167698-en.

OECD (2008), OECD Review of Agricultural Policies: Chile 2008, OECD Publishing, Paris, https://doi.org/10.1787/9789264042247-en.

Sancho, F. (2016), “Role of Policies in Supporting Adaptation to Climate Change of the Agricultural Sector”, Background Report.

SENARA (2015), “General Information on SENARA”, Written contribution provided by SENARA for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

SENASA (2016), “General Information on National Animal Health Service”, Written contribution provided by SENASA for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

SEPSA (2016a), Sector information provided by SEPSA from the Ministry of Agriculture and Livestock for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

SEPSA (2016b), Sector information provided by SEPSA from the Ministry of Agriculture and Livestock for the PSE calculations of the OECD Review of Agricultural Policies: Costa Rica, July 2016.

SEPSA (2015a), Políticas para el Sector Agropecuario y el Desarrollo de los Territorios Rurales 2015-2018 (Policies for the Agricultural Sector and Rural Territorial Development 2015-2018), San José, Costa Rica.

SEPSA (2015b), Sector information provided by SEPSA from Ministry of Agriculture and Livestock for the OECD Review of Agricultural Policies: Costa Rica, October 2015.

SEPSA (2014), “Situación y Desafíos de la Agricultura Costarricense”, Secretaría Ejecutiva de Planificación Sectorial Agropecuaria (SEPSA), San José, CR.

SEPSA-MAG (2011), Política de Estado para el Sector Agroalimentario y el Desarrollo Rural Costarricense 2010-2021 (State Policy for the Costa Rican Agri-food Sector and Rural Development 2010-2021), San José, Costa Rica.

SFE (2016), General Information on National Phytosanitary Service, Written contribution provided by SFE for the OECD Review of Agricultural Policies: Costa Rica, July 2016.

TRAINS-WITTS (2016), Database, http://wits.worldbank.org/.

Umaña (2011), “Food Policy Coherence for Sustainable Development: The Case of the Rice Sector in Costa Rica”, ATDF JOURNAL, Volume 8, Issue 1/2 2011, World Trade Institute/University of Bern and INCAE Business School.

WTO (2016), WTO Tariff Profile of Costa Rica (2016), http://stat.wto.org.

ANNEX 2.A1.A. Policy guidelines and strategic areas in the agricultural sector, 2015-18

Areas

Presidential Election Cycle

1990-94

1994-98

1998-2002

2002-06

2006-10*

2010-14

Trade Liberalisation

  • Integration into national, regional and international trade processes

  • International co-operation and investment promotion aimed at economic and social objectives

  • Competitiveness

  • Competitiveness

  • Competitiveness and generation of added value

  • Sustained increase in export supply

  • New marketing opportunities

  • Competitiveness in agricultural chains

  • Facilitation of agribusiness

  • Efficient management of markets

  • Infrastructure to support production

  • Funding and insurance

  • Health

  • Information Communication Technology (ICT) Management

Productive Promotion

  • Modernisation of productive activities for domestic consumption and export

  • Productive Reconversion Programme

  • Productive Reconversion

  • Information (InfoAgro, Web platform)

  • Boost for rural agribusiness.

  • Agricultural information, quality and safety

  • Business climate to allow producers and SMEs to successfully articulate to markets

  • Innovation and technological development

  • Development of capacities for innovation

Institutional Reform

  • Institutional modernisation

  • Strengthening of private participation

  • Institutional modernisation for efficient public management

  • Integration of services

  • Institutional modernisation of the agricultural sector and rural area

  • Joint Forum

  • Modernisation of institutional services

  • Institutional modernisation for greater efficiency

  • Any objective

Rural Development

  • Continuous improvement of farmers’ living standards

  • Marginalised sectors’ participation in production processes.

  • Rural Development Programme

  • Strengthening and development of rural areas

  • Social organisations and co-management

  • Land planning and settlement development.

  • Women and men producers

  • Rural Youth

  • Development of Indigenous territories

  • Promotion of local projects with high added value and jobs

  • Rural Territories Management

  • Family Farming

  • Rural Economy of the territories

Natural Resources

  • Sustainable exploitation of natural resources

  • Any objective

  • Any objective

  • Ecosystem management and biodiversity use

  • Irrigation and Drainage

  • Reduction of vulnerability

  • Comprehensive management of sustainable production

  • Climate change and agro-environmental management

Management

..

  • HR Training.

  • Sectoral co-ordination to improve efficiency

  • Strengthening of HR.

..

..

..

Source: SEPSA (2015b).

ANNEX 2.A1.B. Policy guidelines and strategic areas in the agricultural sector, 2015-18

Strategic areas and specific actions were established for each of the following policy guidelines, or “pillars”, of the policy framework for the 2015-18 period, “Policies for the Agricultural Sector and Rural Territorial Development 2015-2018”:

  • Pillar 1: Food Sovereignty and Food and Nutrition Security. a) Improve productivity, marketing and the generation of added value for the basic agricultural products that are consumed, by providing goods and services to improve the living conditions of small and medium-scale producers, and b) promote projects and productive entrepreneurship in non-traditional and autochthonous activities, with added value as nutritional and income generation and employment alternatives. Several specific goals to increase yields were set for main crops such as rice (from 3.8 tonnes/ha to 5.2), beans (from 0.7 tonnes/ha to 0.92), maize (from 2.5 tonnes/ha to 3.2), milk (from 28.1 kg/day/animal to 36.3), beef (from 146 kg/ha/year to 189.6 kg/ha/year), pigmeat (from 16.8 piglets/animal/year to 21.8), potatoes (from 25 tonnes/ha to 26.5) and onions (from 23 tonnes/ha to 24.4). Furthermore, a goal of increasing the agriculture’s contribution to GDP by 2%, from 6% in 2014 to 8% in 2018, was also established.

  • Pillar 2: Opportunities for agricultural and rural youth. Pillar 2 provides approaches to address the double exclusion problem of the rural youth – education and employment – and sets the objective of the development of capacities for the creation of employment and entrepreneurship opportunities for young people (SEPSA, 2014).

  • Pillar 3: Rural Territorial Development. Pillar 3 aims to promote the integration of the rural population into the dynamics of the country’s territorial development with investment projects that generate added value to the agricultural sector in order to improve the quality of life in rural areas.

  • Pillar 4: Adaptation and mitigation of Climate Change in Agriculture (MICCA). This pillar is intended to meet the commitments resulting from COP20 (Lima, 2014) and the recommendations of Rio+20 (Brazil, 2012) that acknowledge the effects of greenhouse gas (GHG) emissions on climate change and its implications for sustainable development and food security.

  • Pillar 5: Strengthening the agricultural export sector. This pillar reflects the importance of past structural changes in Costa Rica and the relevance given to open markets, particularly in the agricultural sector. It recognises that the process of economic opening should be oriented towards increasing the level of welfare of its producers and consumers. As such, the pillar’s strategic objective is to “improve aspects of productivity, quality, traceability, safety and compliance with social and environmental standards of existing and potential exportable products that allow better market positioning” (SEPSA, 2014).

ANNEX 2.A1.C. Policy guidelines and strategic areas in the agricultural sector, 2015-18
picture

Source: SEPSA (2015a).

ANNEX 2.A2. Description of agricultural institutions

Institutions are under direct control of the Ministry for Agriculture (MAG)

The National Seed Office (ONS) was created in 1978 (Law No. 6289), and is responsible for promoting the production and use of quality seeds for agricultural production, and for setting standards and control mechanisms for seed certifications and trade. Subsequently, Law No. 8631 for the Protection of New Varieties of Plants, and Law No. 8539 for accession to the International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA) were approved. The ONS receives its income from the state (41.7% in the 2015 budget); and from the sale of services (48.2% in 2015), such as the issuing of seed certifications, verification of quality standards for imported seeds, the maintenance of import and export records, and the registration of users.

The State Phytosanitary Service (SFE) was established in 1997 to manage and regulate agricultural trade, and to avoid and prevent plant pests and threats to food security. It ensures compliance with the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (the SPS Agreement), preventing barriers to trade; and provides access to information and import and export requirements for chemicals; laboratory analysis; and accreditation for certifiers, genetically modified organisms (GMOs) and wooden packaging.

The National Institute for Agricultural Innovation and Technology Transfer (INTA) was created in 2001 to generate and adopt technologies aimed at increasing the productivity and competitiveness of production systems and the sustainability of agricultural and natural resources. In addition, it contributes to increasing technology adoption in agriculture, through technology transfers. The priorities for the 2014-18 period are sensitive products, basic foods and climate change.

National Animal Health Service (SENASA), created in 2006, preserves, promotes, protects and restores animal health, and regulates and controls the safety of food of animal origin for consumers. It furthermore registers, regulates and supervises veterinary medicines and animal feeds. Finally, SENASA strives for compliance with and implementation of the various international agreements.

National Council Club 4-S (Law No. 2680, 1960) is a unit attached to the Ministry of Agriculture and Livestock which is in charge of co-ordination with organisations that develop civil participation and the self-improvement of rural children, youth and women.

Decentralised institutions

The National Production Council (CNP) was created in 1956 under Law No. 2053. Its objective is “the promotion of agricultural and industrial production, as well as the price stabilisation of items required for the food security of the country’s population and the raw materials required for the domestic industry” (CNP, 2014). Initially, CNP was a state tool for food security and guaranteed, through support prices, a secure market for small producers of corn, rice, beans and sorghum. It also owned public infrastructure for the collection, storage, transport and distribution of grain production. These functions were abandoned during the trade liberalisation period. Today, CNP focuses on the provision of support to agribusiness development and the management of the Institutional Supply Programme (PAI) that purchases food from small domestic producers for consumption in hospitals, schools, prisons and Public Nutrition Centres. The council is financed by 50% of the profits of Costa Rica’s National Liquor Factory (FANAL) and state transfers.

Institute of Rural Development (INDER) was created in 2012 by Law No. 9036, from the former Institute of Agrarian Development (IDA) that implemented the state policy for rural development in order to establish an institutional framework for sustainable rural development. INDER’s responsibilities are: a) Land management and regulation, for which it acquires, allocates and titles farmland, and supports rural settlements; and b) Territorial development management, for which it carries out infrastructure and social and rural management projects. INDER furthermore promotes the establishment of the Regional Boards of Territorial Development (CTDR), which elaborate development plans for specific areas.

The National Groundwater, Irrigation and Drainage Service (SENARA) was created in 1983 in order to develop and implement policies for the use and distribution of water for agricultural purposes. Its priorities are the management of the Arenal-Tempisque Irrigation District (DRAT) (30 000 ha), irrigation programmes for small areas (PARD), drainage and flood control, as well as groundwater management.

The objective of the Comprehensive Agricultural Marketing Programme (PIMA) (Law No. 6142 of 1977) is to promote and contribute to food system improvements through the development and sale of services for marketing agricultural products. The programme is aimed at marketing agents in order to meet the needs of customers involved in the agro-food chain, and thus contribute to Costa Rican food security. PIMA manages the National Centre for Food Supply and Distribution (CENADA) – a wholesale distribution market – and the Cold Chain and the Market Information System (SIMM). PIMA also promotes the creation of regional wholesale markets.

Figure 2.A2.1. Organigramme of the Agricultural Public Sector in Costa Rica
picture

Source: SEPSA (2014).

ANNEX 2.A3. Most favoured nation (MFN) tariff structure, 2006 and 2014

Lines

2006 (HS02)

2014 (HS12)

Total number of lines

8 840

10 065

Non-ad valorem tariffs (% of all tariff lines)

-

-

Tariff quotas (% of all tariff lines)1

1.0 (0.4)

1.5 (0.5)

Duty-free tariff lines (% of all tariff lines)

2.7

2.8

Average of lines exceeding zero (%)

7.1

7.1

Arithmetic average

6.9

6.9

Agricultural products

14.2

14.0

Non-agricultural products (including petroleum)

5.6

5.5

Agriculture, hunting and fishing (ISIC 1)

9.2

9.6

Mining (ISIC 2)

3.2

2.9

Manufacturing (ISIC 3)

6.8

6.7

Raw materials

7.6

8.4

Semi-processed products

4.4

4.4

Processed products

8.2

7.9

Domestic tariff “peaks” (% of all tariff lines)1

1.4

1.5

International tariff “peaks” (% of all tariff lines)2

1.4

1.5

Overall standard deviation of applied rates

9.5

9.6

“Nuisance” rates applied (% of all tariff lines)3

48.9

47.7

Bound tariff lines (% of all tariff lines)

100.0

100.0

1. Domestic tariff peaks are defined as rates exceeding three times the overall simple average of applied rates.

2. International tariff peaks are defined as rates above 15%.

3. “Nuisance” rates exceed zero but are 2% or less.

Source: COMEX (2015).

ANNEX 2.A4. Summary of main free trade agreements:Periods and exceptions

CAFTA - DR

  • Costa Rica granted immediate free trade to 68.5% of the subsections in the agricultural sector

  • An additional 23.5% of tariffs will be phased out within the next 15 years.

  • For the most sensitive products, longer phasing- out periods (20 years), grace periods or nonlinear concessions were agreed.

  • Only potatoes and fresh onions were excluded from the preferences.

  • Tax relief began in 2006.

  • In 2025, all agricultural products will have a zero tariff, with the exception of potatoes and onions.

  • Longest tariff phase-out will reach duty free in 2025. 2020 is the year when 15 years tariff-out phase would be duty free.

Pork

Phasing out: 15 years

Grace period of 6 years

Start of liberalisation: 7th year (2012), in nine equal annual stages.

Duty-free access within tariff quota is granted.

Duty-free by 2020.

Dairy

Phasing out: 20 years

Grace period of 10 years

Start of liberalisation: 11th year (2016), in ten equal annual stages.

Duty-free access within tariff quota for milk powder, butter, cheese, ice cream, milk-based drinks is granted.

Duty-free by 2025.

Chicken legs

Phasing out: 17 years

Grace period of 10 years

Start of liberalisation: 11th year (2016), in 7 annual non-linear stages.

Duty-free access within tariff quota is granted.

Duty-free by 2022.

Rice

Phasing out: 20 years

Grace period of 10 years

Tariff liberalisation from 11th year, in 10 annual nonlinear stages.

Duty-free access within tariff quotas (one for paddy rice, one for milled) is granted.

Duty-free by 2025.

Canada

  • Currently, 88% of agricultural subsections enjoy preferential tariff of 0% under this agreement. This is the current status of liberalisation.

  • The longest term negotiated (15 years) reached free trade from 1 January 2016 onward.

  • 10% of agricultural products in general are excluded from the preferences of the agreement.

  • An additional 2% will have preferential access in the form of contingents (wheat flour, vegetable oils derived from soybeans and other oilseeds). Imports that are outside the quota maintain the MFN tariff.

Excluded products

Beef, pork, poultry sector, dairy products, potato, tomato, onions, beans, rice, poultry sausages, prepared beans (Cap. 20).

Tariff-free access within quota is granted for pork and milk powder (under the WTO quota).

Chile

  • With the exception of the excluded products, all agricultural products are subject to preferential tariff of 0% under the FTA with Chile.

  • The longest term negotiated (16 years) reached free trade from 1 January 2015 onwards.

Excluded products

Poultry sector (including eggs), dairy products (except condensed and evaporated milk), vegetables (except sweet corn), wheat flour, soybeans and derivatives, vegetable oils (except palm oil), poultry sausages and meat preparations, onions, potatoes and prepared beans (Cap. 20), raw and refined sugar.

Peru

  • This treaty is in its third year of operation. In 2013, tariffs were removed from 64% of agricultural subsections.

  • 7% will be further liberalised from 1 January 2017 (5-year phase-out period) and an additional 10% from 2022 (10-year phase-out).

  • 10% of subsections reach free trade within a maximum period of 15 years (1 January 2027).

  • The remaining 9% will be excluded from the preferences of the agreement.

Products of 15-year phase-out

Fresh chicken, white corn, cornmeal, refined oils (soybean, olive, palm, rapeseed), sausages and meat preparations, sauces and similar preparations.

Excluded products:

Beef, pork, frozen chicken, dairy products, potato, tomato, onion, beans, coffee, rice, raw and refined sugar, unfilled pasta, beer, and animal feed.

European Union

  • This treaty has a unique list from Central America and the European Union. For some products, it starts from a virtual tariff (the highest tariff level applied between the countries in the region). This creates a grace period during which the country with the lowest tariff is not affected by the tax relief.

  • The longest phasing-out period agreed is 15 years, which will be reached in 2027.

  • 30% of subsections are already subject to free tariff.

  • 39% will liberalised within up to 15 years.

  • The remaining 31% are excluded from the preferences of the agreement.

Excluded products

Beef and edible offal; pork meat and edible offal; sector poultry (including eggs); dairy products; natural honey; potato, onion, tomato; beans; spice mixtures; corn (except pop type); rice, sorghum; wheat flour; soybeans; vegetable oils; sausages; sugar, raw and refined; sweets; cereals and bakery products, biscuits; fruit juices; sauces and similar preparations; ethyl alcohol; rum; animal feed; cigarettes and tobacco.

Duty-free access within the quota is granted for milk powder, cheeses, bacon and cured hams, and prepared pork (these last two instalments are regional).

Mexico

  • With the exception of the excluded products, all agricultural products already enjoy a preferential tariff of 0% under the FTA with Mexico.

  • During the negotiations with Central America, some raw materials for the food industry (custard powder and yogurt powder), poultry sausages, jams and jellies were liberalised.

Excluded products

Poultry sector (including eggs); dairy products (except sour cream and yogurt powder); potatoes and onions; bananas; coffee; poultry meats and preparations; raw and refined sugars; other sugars; ethyl alcohol, cigars and tobacco.

Source: COMEX (2015).

ANNEX 2.A5. PSE CROPS

Rice. Costa Rica is a net importer of rice. The United States is its main supplier, with a preferential tariff (36%) under quota. Imports are concentrated in paddy rice, and account for 40% of national consumption. Rice is grown by 4 467 producers across a total of 58 539 hectares. Around 20% of producers hold 80% of the area, demonstrating a large concentration. There are a total of 15 rice mills located near the main producing areas, especially in Guanacaste. Producers and mills are grouped under CONARROZ. The owners of the mills are also represented by ANINSA, a body focused on the interests of the rice industry (SEPSA, 2016; CONARROZ, 2016).

Pineapple. Costa Rica is a net exporter of pineapple. More than 95% of pineapple production is sold on the international market. In 2014, there were around 1 230 produces (INEC, 2014).

Banana. Costa Rica is a net exporter of bananas. Much of the Costa Rican banana production is destined for the North American market and the European Union, which are also the main export markets for pineapples. Bananas are produced by 15 924 producers across an area of 51 758 hectares. There are 12 exporters. Banana growers are organised under CORBANA, which advises the executive branch on the reference prices for bananas (FOB). The final price is established by executive decree. The last time that the minimum export price for bananas was set was on 18 March 2010 (CORBANA, 2016).

Coffee. Costa Rica is a net exporter of coffee. There are 26 527 coffee producers and 23 exporters. Around 85% of coffee produced is exported in the form of green coffee. The coffee industry operates 220 coffee mills. Coffee growers are organised under ICAFE, which issues certificates of origin and coffee quality (ICAFE, 2016).

Sugar. There are 4 880 sugar cane farms in Costa Rica; the total area planted in 2014 was 65 062 hectares. The sugar cane industry operates 15 mills, dispersed throughout the country, three of which are co-operatives. Sugar farms are represented by LAICA, which guides sugarcane production, determines quotas and administers sugar exports. LAICA also manages the sugar cane research programme, one of the most successful crop research programmes in the country. Costa Rica is an exporter of sugar, especially of high-quality raw sugar to the United States, Canada, Russia, Japan, among others. LAICA additionally fixes the annual quota of national sugar production and distribution among the mills, and manages the preferential sugar quota granted to Costa Rica under international conventions (LAICA, 2016).

Palm oil. The main destination of palm oil exports is Mexico and, to a lesser extent, Honduras, Nicaragua and Panama. Palm oil enters these markets with a tariff preference under existing trade agreements. By 2014, there were 2 169 farms and 66 420 hectares of palm oil. Most of producers are organised in co-operatives or producer associations (INEC, 2014). Four companies process the fruit. It is estimated that this activity generates 49 000 jobs. In 2015, 1 million tonnes of fresh fruit was produced, representing 250 573 tonnes of crude oil (CONAPALMA, 2016).

Cattle sector. There are a total of 37 000 farms on which cattle are raised. On 23 000 of these, cattle production is the main economic activity, according to the 2014 Census. The total cattle population is 1.3 million head in 1.5 million hectares of pasture and secondary wood lands. Around 43% of cattle farms specialise in beef production (raising and fattening), 46% fulfil a double purpose (beef and dairy), and 11% are specialised in dairy. The dairy sub-sector, meanwhile, includes around 128 local processors which produce between 200 and 1 000 litres per day of milk; seven mid-size processors which produce between 20 000 and 70 000 litres per day; and a large company, the Dos Pinos Co-operative, which collects around 80% of the national milk production – around one million litres per day. Around 1 400 producers are members of Dos Pinos, and 300 non-members deliver their milk to this co-operative. While the Costa Rican dairy sector is self-sufficient, small volumes of milk powder (for use in industrial processing) are mainly imported from the United States, Panama, Chile and Nicaragua. Central America and the Caribbean are the main export markets for Costa Rican dairy products such as milk, milk powder and yogurt (CAPROLE, 2016).

Costa Rica is a net exporter of beef, currently exporting to more than 20 markets (the United States, China and Central America). The main export product is frozen and chilled boneless meat. There are 23 slaughter houses in the country, three of which slaughter around 85% of animals. Four of these comply with USDA standards and are therefore registered for export (CORFOGA, 2016).

Pigmeat. There is a marginal trade in pork. The volume of imports represents less than 6% of domestic consumption. Imports mainly come from the US, Canada and Chile, all of which receive preferential tariffs under their respective free trade agreements. The pig sector includes two well-differentiated types of farms: six large operations and around 300 small-scale producers. This does not include farms that may have one to ten pigs. Large producers slaughter animals at beef slaughter houses which also have the necessary facilities for pigmeat. Small-scale producers meanwhile usually sell live animals to local butchers (CAPORC, 2016).

Poultry. There is a marginal trade of poultry. Imports represent 3% of national consumption. More than 50% of imports are turkey products. Around 12% is mechanically deboned meat (CDM), raw material for the sausage industry. The main supplier is the United States, which imports turkey meat, CDM chicken, chicken breasts and thighs. Chicken meat is mostly produced for domestic consumption. The poultry meat sector includes 200 hatchery farms and three plants. Plants and hatcheries operate under contract farming systems (CANAVI, 2016).

Notes

← 1. The policies concerned also fall under the responsibility responsibilities of other ministries such as Health, Education, Housing, Transport, etc.

← 2. Specific goals on increasing both yields and the contribution of agriculture to the economy are included within this plan (Annex 2.A1.B).

← 3. The definition of food sovereignty used in the Costa Rican policy framework (p. 23) is: “La soberanía alimentaria será entendida como el derecho que tiene el país de definir sus propias políticas y estrategias de producción sostenible, distribución, acceso, consumo y utilización biológica de los alimentos; así como promover legislación que garantiza el acceso a los recursos de producción para la pequeña y mediana agricultura; esto da prioridad a la producción nacional para la demanda local, respetando la diversidad cultural y la conservación de los sistemas productivos y la diversidad biológica. Para lograr este objetivo, el gobierno propone una política de fuerte apoyo a la pequeña y mediana agricultura productora de alimentos”. [Food sovereignty will be understood as the right of the country to define its own policies and strategies for the sustainable production, distribution, access, consumption and biological utilisation of food; and to promote legislation guaranteeing access to productive resources for small and medium agriculture; this prioritises national production for domestic demand, respecting cultural diversity and the conservation of productive systems and biodiversity. To achieve this goal, the government proposes a policy of strong support for small and medium-scale agriculture]. This definition is adapted from the FAO definition (SEPSA, 2015a).

← 4. An overview of the policy guidelines and strategic areas is provided in Annex 2.A1.B and 2.A1.C.

← 5. The Ministry of Agriculture (MAG) was created by Law No. 2656 of 1960, but its institutional history dates from the 19th century. Among its functions are: the design of sectoral policies, promotion of productivity and the competitiveness of agricultural production; formulation and implementation of information processes and technology advice; and the promotion of modernisation and adoption of new technologies.

← 6. This total includes MAG itself.

← 7. Within MAG’s institutional framework, the National Commission for Agricultural Research and Technology Transfer (CONITTA) and the Foundation for the Development and Promotion of Research and Transfer of Agro-Technology (FITTACORI) created the National System of Agricultural Research and Technology Transfer (SNITTA). This system aims to function as the financial arm to support projects related to research, technology transfer, training and dissemination of agricultural technology in the country. FITTACORI resources finance joint research agendas independent of the corporations between INTA and other entities, such as universities and research centres.

← 8. CAN includes the Minister for Agriculture, who chairs; the CNP Executive Chairman; the INDER Executive President; the Executive President of the Central Bank of Costa Rica (BCCR); the Minister for National Planning and Economic Policy (MIDEPLAN), the CEO of the National Bank of Costa Rica (BNCR), the INTA Executive Director, the SENASA Executive Director, the SFE Executive Director, and the SEPSA CEO.

← 9. The Minister for Agriculture delegates participation in several Boards to his or her vice-ministers. There are two ways to exercise stewardship, depending on the type of institution concerned. In the affiliated institutions, there is a direct reliance on the minister (e.g. at SFE or SENASA) to chair the Board of Directors. In the decentralised institutions, the minister participates in the Board and the development of the annual plans of these institutions, which are reviewed and approved by SEPSA.

← 10. These are ICAFE (coffee), LAICA (sugar), CORFOGA (livestock), CONARROZ (rice). The Minister for Agriculture – in his role as President of the APS – is also a member of the majority of the Boards of Directors of the agricultural decentralised institutions. The minister plays an important role in organisations related to the most relevant Costa Rican agricultural products. These private institutions are governed by public law.

← 11. Between 2008 and 2010, the government implemented the “National Food Plan” (Plan National de Alimentos 2008-2010). The plan included several measures – such as the provision of additional budgetary resources in the form of transfers and increased spending limits for some institutions – which resulted in the provision of additional services and some subsidies to farmers, rice producers in particular, in addition to the minimum prices and tariffs. Rice production also increased as a consequence of high international prices that, when transmitted to domestic prices, motivated farmers to produce more rice (SEPSA, 2016a).

← 12. The SBD is sourced through three funds: The National Trust for Development (Fideicomiso Nacional para el Desarrollo, FINADE), which derives its funds from the national budget; the Credit Fund for Development (Fondo de Crédito para el Desarrollo, FCD), which is financed by 17% of current account deposits of private banks; and the National Development Fund (FOFIDE), which receives 5% of public bank profits.

← 13. This rough estimation was based on the total number of farms registered in the agricultural census in 2014 and the average loan allocated by SBD in 2015.

← 14. SAPs were signed with the World Bank and subsequently supplemented by agreements with the International Monetary Fund (IMF) and the United States Agency for International Development (USAID).

← 15. Antigua and Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kitts and Nevis, Saint Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago.

← 16. Reported to the WTO Import Licensing Committee. WTO documents: G/LIC/N/2/CRI/2, on 20 October 2010; G/LIC/N/3/CRI/7, on 14 October 2010; and G/LIC/N/3/CRI/6, on 9 October 2009. The 27 products are: pigmeat; pieces and offal of poultry; birds not cut in pieces; fluid milk; milk powder; evaporated milk; condensed milk; yogurt and buttermilk; whey; butter and fats; fresh cheese and processed cheese; dehydrated cheddar cheese; other grated cheeses; blue cheese; other cheeses; eggs; common beans; yellow corn; white corn; rice; lard; poultry sausages; pigmeat preparations; sugar; ice creams; tobacco and jute fabrics.

← 17. Executive Decree No. 30900-COMEX-MAG, 20 December 2002, amended by the Executive Decrees No. 32237 of 2005, No. 35617 of 2009 and No. 36619 of 2011.

← 18. SFE is working on the final version of the analysis of pest risk for importation of Hass avocados from Mexico, taking into account information and comments received during the period given in the notification G/SPS/N/CRI/162. This review includes analysis of different options that would allow trade while guaranteeing the protection of national phytosanitary status.