Paraguay: Bad Politics Could Put A Booming Agriculture Sector At Risk

Despite the political and economical instability facing South America, the small nation of Paraguay is experiencing growth.

This upturn is due to a record soy harvest alongside a number of infrastructure projects supporting predictions of the country’s economy to grow by more than 4.2 percent this year.

The crops

The most important part of the Paraguayan economy is its agricultural sector that is the world’s fourth-largest soy exporter. The 2016/17 soy crop yield is estimated to be more than 10 million tonnes and expectant to be worth $3 billion. These figures are very important to an economy that lacks in mineral resources while the nation has recently been affected by weather conditions that have destroyed 430,000 hectares of high-protein wheat sown this year.

The Minister of Finance, Santiago Peña, affirmed “What’s interesting about this [soy] harvest is the impact that it has on the whole supply chain and on other sectors. When we add up commerce, transportation and the financial sector, it’s going to be a very strong year.”

Paraguay has enjoyed an agricultural boom with the production of grain from 2 million metric tons in 1991 to an expected 17 million tons a year. It has been a process supported by investment in its agricultural sector.

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“We have managed to greatly increase agricultural production without occupying much more land. Production grew to over seven fold in the last twenty-six years, while the farmed area only doubled,” as stated by Hector Cristaldo, President of the Paraguayan Farmers Association.

The country is experiencing growth, as in May, economic activity grew nearly 5 percent year-on-year. A result prolonged by the support of greater investment into its infrastructure since the centre-right President, Horacio Cartes, won the election in April 2013. Paraguay in that same year joined the international bond markets but will not return to these markets this year since raising $500 million in debt.

Public dismay

Growing dismay amongst its agricultural communities has been reported by a proposed15 percent export tax on corn, soy and wheat exports that have acted as a catalyst formass protests. The Paraguayan government has argued that the agricultural sector contributes too little to the country when compared to other sectors.

Approximately, 2.6 million people live in rural zones and account for 30 percent of the population. While 2.6 percent of landowners, the small elite, hold 85.5 percent of Paraguay’s lands, of whom the state has been known to act in favour of. The government’s tax proposal would affect the incomes of farming populations, fearing they would become of the nation’s growing poverty epidemic while the proposal could pressurise the risks of pushing Paraguay’s agricultural boom into jeopardy. Alongside this, the government has vetoed a decision in August, after promising 2 days before that to subsidize small and medium farmers for the refinancing of agricultural debts, enraging farmers even further.

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Further rising tensions

With over 40 percent of its 6.8 million population living in poverty, Paraguay is still considered one of Latin America’s poorest countries. While growth is expected, the country is plagued with corruption and political unrest that threatens Paraguay’s fragile democracy.

Earlier this year between March and April, further protests were experienced when demonstrators set fire to Paraguay’s Congress building in response to President Horacio Cartes attempts to change a constitutional amendment that would enable Cartes to run for a re-election. The disruption ended with the Chamber of Deputies of Paraguay rejecting the constitutional amendment proposal. The strong public response against the government is a reflection of the nation’s murky past when it was under rulership by dictator Alfredo Stroessner between 1954-1989.

But despite the recent public outcry against the current President, results of next years April 2018 elections look like Paraguay will follow Latin America’s recent populist trend and continue with the conservative Colorado party. Paraguay’s Minister of Finance, Santiago Peña, will run for office as leader of the Colorado party that has ruled Paraguay for a combined 61 years, only losing recently in 2008 to the centre-left Christian Democratic Party led by the Fernando Lugo. The Colorado party is believed to win the next election as Peña has indicated he will have similar policies to Cartes.

The effect

While the President’s attempt at altering the amendment to run for president has been negated, other proposals such as the tax on the agriculture sector brings unnecessary uncertainty amongst Paraguay’s already dismayed farming population. This will also present a risk towards disturbing the country’s booming agricultural sector.

With the upcoming Presidential elections, the President’s current party believes an election victory is within their reach, again. But while the party continues to implement controversial policies, they risks disturbing Paraguay’s population, which could ultimately end in a surprising election result and disrupt the much needed economic growth.

 

Oliver Yorke is an Analyst at Global Risk Insights. As originally appears: http://globalriskinsights.com/2017/09/paraguays-agricultural-sector-much-risk/

 

This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.
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