EXPORT SEEDLINGS.

Chile's crop of new international LATIN TRADE hunts the country's next big harvest.

WALK THE AISLES AT U.S. SUPERMARkets and Chilean exports are hard to avoid: fresh grapes govern the produce department, wines crowd the liquor lanes and cheap Chilean salmon--which many argue has shoved turkey off dinner tables-- dominates the ice at the fresh fish counter.

Now multimillion dollar exports, these goods just a decade ago were homegrown favorites with little clout abroad. Then domestic and foreign investors stepped in, transforming the products into major exports, pushing up sales abroad tenfold in as many years. Chile's steady march to higher value-added exports is hardly over, though. The hunt now is on to find second-tier products with the oomph to become the salmon surprise or cabernet ka-boom of 2010.

There are some interesting candidates--canned peaches, seeds, finished wood and tomato paste. Exports of those items increased during the past few years while some of Chile's longtime stars stumbled or flat-out withered thanks to depressed world demand. Exports of finished boards, for instance, doubled from around US$55 million in 1995 to $95 million in 1999. Vegetable seed exports climbed from a respectable $25 million to nearly $40 million in the same period. Tomato sauce and juice exports dipped during the period but not by much, ending 1999 at almost $100 million.

The second wave of export development is sprouting from seeds of Chile's pro-development policies and favorable investment rules in traditional agricultural areas. "Much of this growth is based on our natural resources, such as agricultural and ocean products," notes trade expert Marcelo Abrigo, head of research for Chile's Association of Non-Traditional Exports (Asexma). "Agriculture is growing but it hasn't yet consolidated. There is still room for investment."

Serving as the Northern Hemisphere's winter food basket is not a bad claim to fame. Chile has natural advantages in terms of weather, humidity and soil quality. But a level playing field really makes the difference, exporters say. Regulations are straightforward, allowing long-term investments to take root and grow, says Jean-Pierre Posa, CEO of Seminis, a Chilean seed exporter with annual sales of $26 million. "You don't have to bribe people to get things done, like in some countries," says Posa. "Chile also has good bilateral agreements. If I grow seeds in Peru, for example, I can bring the seed into Chile to be processed without having to pay duties, and vice versa."

Economic stability doesn't hurt, either The recession in 1999 saw the gross domestic product (GDP) drop 1.1%--the first economic decline since 1983--but output is expected to rebound a smart 6% in 2000. The Central Bank's May poll of financial leaders shows the business community expects GDP to beat that figure, while inflation should hit 4.1% in 2000 and level off to 3.5% in 2001. Exports, meanwhile, are expected to reach almost $18 billion in 2000, according to the poll.

LATIN TRADE talked with some CEOs of Chile's emerging export firms about their outlook for the coming decade:

Alberto Pentzke

Conservera Pentzke (canned peaches)

Christian Chaigneau

Juan Eduardo Undurraga

WHAT'S ALBERTO PENTZKE'S BIGGEST HEADACHE? GREEK PEACHES.

Despite its geographic distance and comparatively modest production, Chile has managed to compete in the U.S. market, pricing a box of 24 cans of peaches at US$18, says Pentzke. U.S. peach canners bring in the finished product at $20. Problem is, says Pentzke, the Greek peach industry takes advantage of European Union subsidies to dump peaches on foreign markets at cost--the same peaches at $10.50, shipping included.

"We're in a battle to survive. The Greeks are basically giving away their product," says Pentzke, whose grandfather, Ernesto Pentzke, founded the company in 1906. Imports overall account for only 5% of the U.S. market, but Chile relies on its northern customer to consume most of its fruit exports, peaches among them. "They can afford to wait until we bleed to death, then take over," grumbles Pentzke. "We don't care if the Europeans eat free Greek peaches, just don't export them."

Despite the competition, business is good: The company has plants in San Felipe and Coquimbo representing a combined $12 million investment and racks up $45 million a year in sales to Latin America, Europe and Japan. It employs 150 permanent employees and 1,100 more seasonal workers.

The Chilean peach industry accounts for around $30 million of the $575 million world canned-peach market and about half of the entire $64 million Chilean canned-fruit export business. If a Mexican zero-tariff agreement comes through, the long-term outlook will get brighter, says Pentzke. He sees eventual exports of up to $120 million for Chilean peaches.

WOOD HAS LONG BEEN A BIG BUSINESS IN CHILE, BUT BUCKLE UP, SAY Christian Chaigneau and Eduardo Undurraga, owners of Chilean wood broker Tradex, because things are beginning to get interesting. Changes in forestry laws in 1974 allowed major plantations to take hold, and the trees they planted--mostly soft pine ideal for pulp and finished-wood products--are maturing just now. Chaigneau cites government statistics that predict Chile's wood output will double in the next couple of years, from 20.2 million cubic meters in 2000 to 40 million cubic meters by 2003. Of that growth, half is, and will continue to be, finished wood, from boards and packing materials to kitchen cabinets and decorative molding for large, warehouse-size hardware stores around the world.

Tradex, which started in 1989 and has 12 employees, is the middle man, taking the raw materials from Chile's plantations and developing the products that arrive just in time at construction sites and to consumers abroad. Finished wood has been growing tremendously, according to Undurraga: In 1982, it was 2,900 cubic meters; in 1999 it hit 400,000 cubic meters.

Undurraga says his company wants to sell wood in the best form possible. "That means sending logs to Korea, packing and pallets to Central America and molding to the U.S. You can't close yourself to any market," he adds.

Tradex accounts for $23 million of Chile's $500 million annual wood exports. Japan and Korea take in a combined 20% of Tradex's exports, while Europe and the United States absorb 40% each. The roadblock to entering other countries has been monetary distortions, notes Chaigneau. The recent slide of the Euro put Tradex at as much as a 25% disadvantage compared to European products. But there's always a solution. "We have to Create our advantages," says Undurraga," by marketing and by providing better service."

Jean-Pierre Posa

Seminis (seeds)

WHEN SEMINIS DEBUTED AS THE CHILEAN SUBSIDIARY OF A U.S. seed firm in 1975, almost nobody was in the seed business in Chile, says CEO Jean-Pierre Posa. Twenty-five years later, Seminis has subsidiaries in Brazil, Argentina and Peru and exports $26 million of Chile's $150 million annual total seed export market. "We now grow more than a thousand different products," says Posa, including a tomato seed that goes for $ 15,000 a kilo.

There are some obstacles: Mechanization is lacking, for one. In the United States, a 400-hectare farm might employ eight people; in Chile, that farm needs 50 hands. "We're trying to encourage development, but it takes time," Posa says.

Where Chile does win is weather. Dry, temperate climes mean minimal losses from humidity and bugs, while producing seeds during the Northern Hemisphere's winter gives Chile a leg up on larger competitors. Seminis has 200 full-timers, but the seasonal crew can range up to 2,500 in summer, since some of the work includes hand pollinating.

"This is very much a niche market," says Posa. "In Chile they like striped, long watermelons, while in Brazil they have to be round and dark green." Seminis responds by cultivating seeds in different markets to meet each country's demands. It has onions in Argentina and melons in Peru to take advantage of varying climates as markets flourish. It probably won't be a billion-dollar business like salmon, Posa says, but it is growing fast and will likely continue to do so.

Arturo Vega

Iansafrut (tomato paste)

GROW IT, AND THEY WILL EAT IT. NOT MANY IN CHILE BELIEVED THAT 25 years ago, so the Chilean tomato business was limited to a small number of traditional valleys. But a few pioneering Chilean firms began to push tomato growing southward, culminating in lansa's 1990 investment in Talca, where the company encouraged sugar-beet farmers to rotate to tomatoes. The company added technical assistance and credits, insuring a steady supply of the raw material they needed to carve out a place in the tomato-paste market.

Now Iansafrut sends sealed bags of paste to restaurants around the globe. The Talca plant alone processes 300,000 tons of tomatoes a year to make 45,000 tons of paste, a good part of Chile's 120,000-ton-a-year output. Iansafrut CEO Arturo Vega sees the country's output climbing to 220,000 tons or more in the coming years, but some severe problems could hamper growth: Chile is competitive with California's tomato producers with a production cost of around $65 a ton, but European growers overproduce to meet EU quotas. If it's a good year, that extra production has to be dumped, for sometimes as little as 20% of cost, in markets in Africa and the Middle East.

Vega would like to see Chile become Latin America's natural producer, while the United States and Europe concentrate on their local markets. "Chile has to wait and simply improve costs," says Vega." In California, they can't improve on their water and fertilization costs. In Chile, we still have a lot of room to improve."