Paraguay: A Hidden Gem in the Agricultural Market

Whenever agrichemicals players think of the South American markets, Brazil is the one that comes to mind. It became the world’s largest agrichemicals marketed a few years ago. Still, it is quite an elusive market for most players because obtaining technical-grade registration takes up to seven years.

The second thing that comes to mind for those players who have contemplated a market entry into this region is risk. The area is known for its unstable currency and high inflation rate. And for those in India and China, the long distance from home means not being able to keep a close eye on their business operations.

Few, except for a small number of agrichemicals players already operating there, understand the gem that Paraguay is. It is a significant and growing market of $550 million at the dealer level and a good conduit to the Mercosur trading bloc comprising Paraguay, Uruguay, Argentina, and Brazil.

With a GDP of U.S. $3 trillion, the Mercosur bloc allows for the free movement of goods, services, and factors of production. It is currently negotiating a trading deal with the European Union. It has accorded Paraguay a unique and more favourable trading position within the bloc. For instance, in terms of meeting the local content of given goods produced to move the goods across borders within the bloc duty-free, Paraguay-made goods need to have just 40% local content, while those made in the other member countries need 50% to 60%.

Paraguay’s Advantages

Paraguay is truly an oasis of political and economic calm within the Mercosur trading bloc and the entire South American region. Unlike the other countries, its currency and inflation rate have been relatively stable. Business transactions can be done in U.S. dollars, leading to little or no foreign exchange exposure. The average GDP growth rate over the past 11 years has been hovering at a commendable 4.8%.

Personal, corporate, or import tax rates are much lower than those in the other Mercosur member countries. The labour and energy cost are much lower than those in other member countries.

Specific to agrichemicals, technical grade products and raw materials enter Paraguay duty-free, unlike those shipped into Brazil and Argentina, which could incur import duties up to as much as 14%.

For manufactured or formulated products from Paraguay to enter the other Mercosur member countries duty-free, either one of these two criteria needs to be met; (1) the material imported into Paraguay must be transformed, resulting in a different tariff code, or (2) 60% of the cost of the goods is of Mercosur origin. An example of condition (1) would be an imported technical-grade product formulated into an end-use product.

However, the above conditions do not apply to an exclusion list of products made within Mercosur. This list includes Glyphosate, 2,4-D, Paraquat, Atrazine, and Cypermethrin. All products in this list are subject to cross-border duties unless they meet the above criteria, but the second criterion is almost impossible to meet.

Tech Manufacturing Potential

With China’s recent major disruption in generic agrichemicals production and supplies, Paraguay, with its very favourable investment climate and political-economic stability, could be a good location for the production of some technical grade products for not only the local market but the whole region as well.

The expertise and facilities are, in fact, already in place in at least a couple of the formulating plants operating there. It’s all a matter of production economics. With costs rising in China and more acute production disruptions shortly for critical intermediates and technicals, the swing is toward producing technicals in Paraguay cost-efficient. This bodes well for those players who want a more efficient and profitable operation in the South American markets.

If the ongoing tariff war between the U.S. and China remains unresolved over the next two years, Paraguay’s potential technical production base could become even more attractive. Products made there could be supplied into the U.S. market without the high tariff imposed on Chinese-made ones.

Paraguay is a unique country in South America in that it has a very favourable investment climate with a stable currency and a relatively low inflation rate. It offers investors cost-effective opportunities to tap into — not only the local market but those within the Mercosur bloc. It is an unknown gem for agrichemicals players contemplating an entry into South America.

Source: Agri-Business Global 

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

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