producers with less widespread distribution networks as well as to increase export levels, CORFO’s Associative Development Projects (PROFOS, a program to strengthen the technology absorption and joint marketing capabilities of associations of independent small and medium-scale enterprises) and participating enterprises co-invested $11.5 million between 2005 and 2010 in a range of initiatives to learn how to best promote local wine regions, thereby developing a ready buyers’ market and strengthening customer loyalty, reducing the volatility of demand by making demand more priceinelastic.<sup>27</sup> (ii) Investments in **protection/enabling** . Chile’s ideal geographical isolation (desert in the North, mountains to the East, Antarctic to the South, and Pacific to the West) has historically protected it from viticultural hazards such as the phylloxera louse.<sup>28</sup> Chile’s government, through its Agriculture and Livestock Service (SAG), invested in rigorous zoo- and phyto-sanitary border control, to protect this natural low-risk factor underpinning its agricultural competitiveness. An example of KBC to protect vine production against disaster risks such as pests and diseases as well as climate change-induced drought and temperature variability is the co-investment of $1.2 million between 2004 and 2012 by the Fund for fostering Scientific and Technological Research (FONDEF, a program of Chile’s National Commission for Scientific and Technological Research CONICYT).<sup>29</sup> The co-investment resulted in a major study on adapting root stock and cultivar grafting to local conditions, generating the know-how to graft local vines on North American grapevine rootstocks and thereby providing resistance to parasites, ensuring local adaptation to changing water and temperature conditions, helping regulate the vigor of vine foliage to changing external conditions, and allowing lower-cost adaptation to other changing conditions such as soil salinity. Other protection against increasing drought as melt-water from the Andes diminishes was provided by investments in drip irrigation, which also enables more precise computer control of both watering and fertilizer, but required complementary investment in worker training.

(iii) Investments in **insurance** . An example of insurance-related KBC is an investment in 2003 in a detailed census of all winemaking enterprises to document and benchmark their existing storage capacity, in order to stimulate investment in storage capacity as a shock absorber of volatile world market wine prices together with exchange rate risk – allowing smoothing of export supply to markets depending on varying earnings potential from year to year. Investment in additional storage capacity also serves as insurance against risk of loss of product from leaking vats as a result of unpredictable earthquakes, minimizing the marketing risks associated with foreign customers not being assured of continuous delivery of product and possibly switching to other countries’ product. Finally, an example of investing in KBC to insure against the risk of future continued appreciation of the exchange rate by lowering local costs is the co-investment of $725,000 between 2008 and 2011 by the Foundation for Agrarian Innovation (FIA, a developmental agency of the Ministry of Agriculture) and participating enterprises in R&D and an

> 27 In addition to 21 PROFOs, these collaborative investments in marketing also included 18 additional local wine tourism regional development initiatives, and 4 regional export development initiatives (e.g. “for Asia”). The average private contribution to these collaborative marketing projects was 47%.

> 28 Phylloxera devastated European wine production in the 1860s and led to widespread unemployment. Over time, it even affected Argentina just across the Andes. Chile is the only winemaking country in the world free of phylloxera, and has not been affected to-date.

> 29 FONDEF does not fund research if there is not a substantial provision of resources by the private sector: in this case, FONDEF provided 29% of funding, with 12 wineries and 4 nurseries providing 38%, and the University of Talca providing the remaining 33%.

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