Agriculture in Paraguay is building on its core strengths
The production of food commodities is where Paraguay excels. Government plans focus on reducing the impact of volatility on the agricultural industry through the use of technology, improved transport links and increased processing capacity.
The Government’s development of country-wide infrastructure projects will not just aid economic diversification – it will also benefit Paraguay’s core economic strength: agricultural production. And while there is consensus within the country about the need to diversify revenue streams, that consensus extends to a belief that Paraguay should also be aggressively expanding its agricultural production and exports. In short, the country needs to play to its strengths, and food commodities are where Paraguay excels.
A key government strategy is to lessen the volatility of the agricultural industry by reducing the direct impact of climate variation on the industry’s output. Better use of technology, for example, should even out annual yield variations – especially if implementation can be extended to the large number of small farms. “We are working on the production of little farms,” says Daniel Correa, deputy finance minister. “For example, we are working on projects to adopt irrigation technologies that – along with some other technologies that we can introduce – will stabilize production levels.”
While Correa admits that the rating agencies are right to highlight the economy’s dependence on agriculture, he is keen to accentuate the positive: “What they say is correct – we agree with that – but people should understand that Paraguay has a natural competitiveness in this sector,” he says. “If you compare Paraguay with other agricultural producers we have several areas of competitive advantage.” Correa points to the fact that 97% of Paraguay’s land is suitable for food production: levels of sunlight, temperature, hydrology and topography are favourable for food production. It is also one of the three main areas of the world (along with parts of Ukraine and centre-west Brazil/northern Argentina) that has land available to be utilised for the production of biomass – and Paraguay’s incremental land reserves are the world’s largest.
Industry and commerce minister Gustavo Leite agrees: “Our country is blessed with the natural advantages to produce food and so we have decided to develop as a food producer, but a very efficient one and one that is vertically integrated into the market.” Elite says Paraguay plans to open the industry up to foreign capital and expertise as it aims to move production up the value chain. “We need to move up-market.” he says. “We need to get new distribution channels and open up to Asia.”
Some analysts have suggested that there will be a decline in all commodity prices in the long run and therefore caution about Paraguay’s economic emphasis on food commodities. However, Correa dismisses this as a likely long-term trend: “Can you imagine what would happen if China – which is still growing and producing a huge middle class – increases its annual consumption of beef by one kilo per capita?” he asks. “That extra demand would be equivalent to the whole of Brazil’s current beef exports.”
Carlos Pedretti, general manager of beef producer Ganadera Alborada, says that the industry also benefits from its lack of bureaucracy and has ambitious growth plans. “In Paraguay, there are only three people sitting at the table to discuss beef policies: the president of the national cattlemen’s association, which represents all the cattlemen; the president of CPC, the national meatpackers’ chamber; and the president of Senacsa, the national veterinary authority. Compared to other countries, which often have 10 interested parties including industry groups and federal, state and local regulators and governments, this creates fast, effective and accountable decision-making that is hugely attractive to foreign investors looking at Paraguay’s meat industry.”
Pedretti says that he expects beef exports to be worth $582 million in the first half of 2014, which is four times the level in the same period of 2007. He expects total exports to increase from the current annual rate of $1.3 billion to $4 billion by 2020, adding 12,000 and providing extra fiscal revenues. The industry aims to increase both the size of its herd and revenues, by producing high-value, high-margin meat for new export markets with growing middle classes that consume better quality beef products.
Paraguay is now the world’s eighth largest exporter of beef but expects to grow at an annual rate of more than 5% up to 2020, which will take it to a projected ranking of fifth, behind beef ‘superpowers’ Brazil, India, Australia and the US. “More important than sheer scale is the industry’s shift from commodity exports to Russia to premium meat products exported to Latin American and other new markets,” says Pedretti. “Demand for commodity meat products grows exactly in line with global GDP where premium products always increase above GDP, as well as having much better margins.” The re-orientation is happening rapidly: in 2012 Russia accounted for 67% of meat exports but in the first half of 2014 this had fallen to 45%.
Paraguay is already a leading exporter of soybeans and soybean oil, the leading exporter of organic sugar, the fourth largest exporter of starch, the sixth largest exporter of corn and the tenth largest exporter of wheat. Ronaldo Dietze, president at Ecop, says that the opportunities available in the agricultural sector are unparalleled both outside and within Paraguay: “If Asuncion grows at 5% then the rest of the country, based on its agricultural production, should grow about 12%,” he says. “However, that growth will require lots of rural infrastructure projects to drive its potential, which in turn will help stabilize the wider macro-economy.” Diets says there is a lot of international interest in investing in either land or production – or both. He also says that it will be important for the industry to gain access to a Chilean port to facilitate exports to growing Asian food markets.
Ramon Jimenez, minister of public works, says the development of rural roads is critical to strengthening this export base. “We are planning investment of more than $1 billion in rural road development in the coming five years that will help the agricultural and meat production sectors, which is vital for our strategy for reducing poverty,” says Jimenez. “It will not only benefit the large producers, but also the small and family farmers as well.”
The government has also been behind the development of capacity to process both meat and grains, which adds jobs to the local economy and reduces exposure to the more volatile prices of raw commodities. That policy has been a success, according to Carlos Fernandez, president of the central bank: “Our major export used to be soy beans – the grain – now it is the processed oil. Cattle used to be a major export but now it is the processed meats. These are the ways that you can add value within the agriculture sector and, while you are not necessarily going to reduce or remove the potential for volatility, at least value has been created in the products that are being exported, which compensates for that volatility.”
Fernandez says the country will build on its strengths in this area: “We will continue to be an agricultural industry, which is a natural and logical approach to our economy: it’s where we have a huge advantage.”
An Article from Euromoney
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