Soy complex accounts for 10% of nation’s gross domestic product and the biggest share of its exports

by David McKee

Paraguay is a relatively poor, lightly populated, pastoral nation landlocked between South America’s two agricultural giants, Brazil and Argentina. Though it rarely receives international media attention, the country has been subjected like few others to the globalizing forces of increased soybean trade driven by the surge in Chinese demand for vegetable proteins and burgeoning biofuels production worldwide.

Paraguay ranks number four among soybean exporting countries after its two neighbors and the United States (U.S.). Current estimates for soy complex (beans, meal and oil) exports are 4.5 million tonnes out of a total production that should reach 6 million tonnes.

Expansion of soybean plantings in the last 10 years has been rapid and is still accelerating. In 2007, the total area planted was 2.4 million hectares, nearly a two-fold increase since the late 1990s, despite three consecutive years of bad harvests prior to the current one.

The impact on the country’s economy, rural lifestyles and ecosystems has been huge.

The soy complex now accounts for 10% of Paraguay’s gross domestic product (GDP) and the biggest share of exports. Some organizations battling the social dislocations and environmental harm caused by the widespread introduction of soy Brazil monoculture have taken to calling their country the "Patria Sojera" or "Soy Republic."

The major international grain and oilseed traders have led the integration of Paraguay into the world soybean economy. ADM, Bunge, Cargill and Louis Dreyfus all have a presence in the country, but it is Cargill that is by far the most important player. One of the world’s biggest privately held companies, Cargill owns the largest soybean plant in Paraguay with an annual crush of about 900,000 tonnes, two-thirds of the installed capacity in the country. The rest is divided among five local companies.

Relying on its own network of 40 country elevators and port facilities, the Paraguayan subsidiary Cargill Agropecuaria S.A. originates 1.3 million tonnes of soybeans and grain per year. Though Cargill processes 65% of the beans it originates, most of the soybean crop is exported.

Most is moved in barges down the Rio de la Plata to Uruguay, Argentina or Brazil for transshipping in ocean vessels. Some goes to oilseed extraction plants at ports in these countries, from which the meal and oil can be directly loaded for further export. Mainly because of the soybean
trade, Uruguay is Paraguay’s largest export customer, taking nearly 30% of the total value of its outward trade.

Cargill uses its network of country elevators also as distribution points for hybrid seeds and for the nitrogen and urea fertilizers that it imports.

Fertilizer sales on credit are a form of crop financing to soybean growers, but the company also offers cash financing and financial services such as futures and options to hedge prices.

Jumping from the back to the front end of the vertical integration spectrum, Cargill’s soy processing plants turn out downstream soy food ingredients and bottled vegetable oils that the company distributes. There are probably few countries where a single company has such complete control over the chain of value of a major commodity beginning with agricultural inputs and ending with the packaged product going to consumers. All of this was accomplished since 1978, when Cargill first set up a company in Paraguay to import hybrid seeds and enter the grain trade. It wasn’t until 1991 that Cargill acquired its first soybean crushing plant.

Today, Cargill is the country’s largest exporter by virtue of its number one position in the soy complex and as one of the leading grain exporters.

The flour milling industry picture is in stark contrast to that of soy. Faced with stagnant or declining per capita consumption and heavy competition from illegal imports of Argentine flour, Paraguay’s 44 industrial millers have seen their average capacity utilization fall to about 50%, according to Heinz Gerardo Doll, former president of the national millers association.

Total wheat grind is 450,000 tonnes per year. Though it is in the wheat flour milling business in both Brazil and Argentina, Cargill sold off its mill in Paraguay to an Argentine group. The largest flour production facility is a 275-tonne-per-day Colonia mill in Nuevo Campo.

Doll estimates that smuggled Argentine flour has taken about 25% of the market. Argentina generates a significant part of its treasury revenues by imposing an export tax of 25% on wheat and wheat flour exports as well as on other agricultural products. Given the 1,600-kilometer (1,000-mile) border between the two countries, this tax is easily avoided by smuggling, which in any case is an important part of Paraguay’s economy.

In a good year, Paraguay produces 1 million tonnes of wheat, half of which gets exported by road or rail to Brazil, one of the world’s major wheat importing countries. In 2006, a drought reduced the surplus for export to just 120,000 tonnes, but this year’s crop has rebounded, thanks to adequate rainfall.

Feed milling is relatively underdeveloped simply because most meat consumption has traditionally been pasture-fed beef. The country has 26 million hectares of land devoted to cattle, half of which is natural grasslands, and 35% forest and marsh. One of the things that could slow the expansion of soy area is the profitability of grazing cattle for beef production.

Beef exports amounted to U.S.$450 million in 2006 and set a record with $145 million in the first quarter of this year. Volume is forecast at 300,000 tonnes for the year. Over half of the 2006 exports went to Russia. This is another case where globalization is impacting the local economy. International trade now helps determine domestic prices of beef as well and has caused a stagnation or even decline in beef consumption among lower income groups.

However, the feed industry is being stimulated in two ways. Chicken production for local consumption is on the rise, increasing demand for compound feed. Also, increasingly sophisticated cattle operators are beginning to use special feed mixes for the two months of finishing before slaughter.

Doll estimates daily national feed production at 1,000 tonnes, though there are no official numbers due to the lack of a feed millers’ industry group. Most feed mills are affiliated with oilseed crushing plants or flour mills.

Maize exports of 1.7 million tonnes in 2007, half of which goes to Brazil’s internal market, in addition to abundant soy, provide a solid basis for expansion of feed and meat production.

As in Brazil, biofuels is an old phenomenon in Paraguay, where a 20% blend of ethanol from sugarcane has been used for decades. But now the blend is being increased to 24% by law, and at least 15 new biofuel projects are being considered by the government.

Fat from beef processing is being converted to fuel. Some farmers are even experimenting by planting castor beans and oil-rich jatropha for biodiesel. But it is clear the country will most notably benefit from the world biofuels boom through increased oilseed and grain exports at higher prices, as the U.S. in particular exports less wheat, maize and soybeans due to domestic ethanol production.

Paraguay is one country where it is easy to point out social dislocations caused by globalization. Massive soy plantations have replaced smaller cotton farms employing much seasonal labor, or subsistence farmers growing a variety of crops and planting fruit trees for shade, which are cut down when soy is planted.

Campesino organizations complain of forced land sales and violence. Many villages have nearly emptied because of the loss of livelihood and due to the toxic environment caused by spraying herbicides on soy fields, 80% of which are sown with Roundup Ready genetically modified varieties.

Much of the new soybean production is by Brazilian farmers who have moved into Paraguay bringing capital and knowhow, but also helping to create a class of landless peasants. Paraguay has by far the most unequal land distribution in South America, with 95% of the land in large private estates. Despite the boom in soy and beef, until recently Paraguay’s economy has not performed well as a whole, with an average annual growth rate of just 1.5 % for the years 1995 through 2005, well below annual population growth of 2.5%. Poverty levels as measured by the World Bank actually increased from 34% to 46% following a recession in 2001-02 but have gone down since. One can only hope that the high rates of economic growth in the last two years can be sustained, creating jobs in other sectors, and turning globalization into a positive for Paraguay’s poor.

David McKee is a grain industry consultant providing market research and other services to companies seeking to initiate business in new markets. He can be reached by e-mail at