South American Real Estate News

Paraguay’s Chaco Region – Its changing landscape from raw scrubland to productive pastures

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The Chaco Region of Paraguay

The Gran Chaco, located to the East of the Andes and to the West of the Paraguay River, is unevenly divided between Bolivia, Paraguay, Argentina, and Brazil. It stretches for about 1,500km North to South and about 700km East to West, encircling an area of about 250 thousand square kilometres.

To visualize its size, one can imagine the area of Ecuador (about 248 thousand square kilometres). Chaco was originally entirely covered with native raw scrublands but is now undergoing a transformation.

Part of the region is cursed with water scarcity and summer temperatures that can be around 40 degrees Celsius. Chaco’s soils are suitable for pastures, crop cultivation (in rotation), and perennial crops. The latter can be grown only under irrigation schemes. In general, the soils in this region are fertile. Still, because the water in the area is mainly scarce, the soil is prone to salinization if improper irrigation techniques are used.

The first significant influx of Europeans was the Mennonites. They arrived in Chaco sometime in the mid-1920s. They came from Russia and Eastern Europe via Saskatchewan and Manitoba in Canada or via Mexico and the USA. The arrival of the Mennonites within Chaco marks the beginning of settled agriculture and land development in the region. At the time, the Paraguayan government was interested in developing the economically idle Chaco area. It guaranteed the Mennonites several privileges: freedom from military service, concession on running their own German language schools, religious freedom, autonomous management of the colony’s affairs without interference from the government of Paraguay, and open immigration to allow more Mennonites to settle in the colony.

In exchange, Mennonites bought undeveloped land, formed self-governed colonies and started to pursue agricultural and developmental activities, turning Paraguay into their homeland. The current business success of the Mennonite settlement in Chaco didn’t come free of cost, though, as the early Mennonite settlers had to struggle with a harsh climate, lack of modern agricultural equipment, poorly developed transportation routes, and almost non-existent markets for their goods. Regardless of these initial obstacles, within the next eighty-plus years, the Mennonites could move Paraguayan Chaco from an area of non-existent agricultural production to one of Paraguay’s most important agricultural regions.

Today, in the city of Filadelfia, the capital of Boquerón Province, about five hours northwest of Paraguay’s capital, Asunción, there is a Mennonite-run hospital about to gain a new wing for an intensive care unit. The city has a booming service industry, Mennonite-run museums, impressive schools, restaurants, and clean streets, a rare find for Paraguay’s outback. There is a remarkable milk processing facility in Loma Plata, a highly mechanized processing factory for peanuts, and a water plant using a reverse osmosis system, all maintained internally by Mennonites without help from the Paraguayan government. The Mennonite colony in Chaco is blooming with well-maintained private households and farms.

Development-Chaco’s style

Paraguay’s Chaco region is experiencing the continued rapid land transformation that is currently described as the highest rate in the world (according to a reasonably fresh report by the University of Maryland on Global Forest Change). The Guyra Paraguay, an NGO, probably the best-informed source of current deforestation status in Paraguay, estimates that the rate of redevelopment in the entire country is at the level of 200-300 thousand hectares per year, with Chaco being at the top of this statistic.

Paraguay has the second lowest land valuation in Latin America, after Bolivia. For example: in Paraguay, an intensively operated soybeans farm has processing factory costs of about USD$6,000-10,000 per hectare; a cattle ranch costs USD$500-2,000 per hectare, and cattle land in the Chaco area (virgin land with unlogged forest) costs about USD$ 250-600 per hectare.

In addition, Paraguay has the region’s most favourable tax regime, 10% personal income tax, 10% VAT or IVA as it is called locally. These policies incentivize foreign investments into Paraguayan land. Brazilian ranchers are common but are not the only ones that buy land in the Chaco area. Other investors, such as Uruguayan or Western European large-scale farmers and ranchers.

Pasture Conversion

As the world’s population grows and the middle class become larger, the search for protein increases exponentially, as has the world’s growing demand for beef.  This phenomenon, however, is not new, and unless there is a new source of protein or people change their taste for beef, we face a growing demand for red meat. If there is a growing demand for beef, its price in the world market increases. This leads to an obvious incentive for an increase in the number of ranches and cattle, especially in areas where it is physically possible and profitable.  Judging by the worldwide status for the number of people reaching the middle-class level, the demand for beef will keep growing.

Government controls on land development

Does the Paraguayan government care about national forests? Yes, of course, it does. In 2013 the government extended the “Zero Deforestation Law”, which will hold for another 5 years until 2018. This law puts a moratorium on land conversions in the Paraguayan Atlantic Forest, located in the East part of Paraguay.

It does not affect forests in the Chaco area, located in the Western part of the country.

Paraguay now aspires to become the world’s fifth-biggest beef exporter (currently, it holds number eight in the world beef exports). It is almost certain that this planned growth in beef exports will have to result in an increased area designed for cattle ranches. This would, without a doubt, result in the further clearing of the Paraguayan scrubland. Since Paraguayan Chaco is already home to about 60% of the total Paraguayan cattle production. As the government of Paraguay is trying to increase their beef exports, Chaco will undoubtedly continue to be the logical option.

Agricultural and economic development have their costs. As economists say: “There is no free lunch.” It has always been this way, and thus far, nobody has been able to come up with a way to avoid losses to the natural environment while guaranteeing economic development.

We hope a balance can be kept between the needs and the wants.

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.

www.gatewaytosouthamerica.com

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