Background introduction

Whenever the agrochemical company thinks about the South American agrochemical market, Brazil will first come to mind. A few years ago, Brazil became the world's largest agrochemical market, but for most market participants, this is a fairly elusive market, as it takes six to seven years to get a registration for the original drug in this country. time.

For companies considering entering the South American region, the second thing they think of is that there are considerable risks in the financial sector – such as currency instability and high inflation. For companies far away in India and China, they are unable to pay close attention to their business operations and discourage them from entering the market.

As an agrochemical market, Paraguay is definitely a gem, but this is rarely seen except for a few companies that already operate there. Paraguay is not only an important agrochemical market with a market value of 550 million U.S. dollars, but also a good channel for entering the South American Common Market Trade Group consisting of Paraguay, Uruguay, Bolivia, Argentina and Brazil.

Paraguay Agriculture
In Paraguay, the main crops driving demand for agrochemical products are soybeans, corn, wheat and cotton. Soybean acreage has been increasing as more marginal growing areas are being developed. The area planted with organic sugar cane and exotic crops such as Chia seeds is also increasing.

Paraguay Agrochemical Market

The value of the Paraguayan agrochemical market at the distributor level is approximately $550 million. As more crops are grown, especially soybean crops, it is expected to continue to grow in the agrochemical market.

Due to its open economy and membership in the South American Common Market Trading Group, some of the top 10 participants in the Paraguayan market are Brazilians. A good example is Tecnomyl, the largest participant to date, with a market share of about 30%.

South American Common Market Trading Group

The South American Common Market Trading Group, including Uruguay, Bolivia, Argentina and Brazil, has a combined gross domestic product of $3 trillion. The group allows the free flow of goods, services and production factors in its member countries.

The trading group is currently negotiating a deal agreement with the European Union that gives Paraguay a special and more favorable trading position within the group. For example, for goods that are transported across borders in a trade group's duty-free zone, goods manufactured in Paraguay need only contain 40% of the local content, while goods manufactured by other member states need to contain 50-60% of the local content.

The map shows the size of the members of the South American Common Market Trading Group and its agrochemical market

Advantages of Paraguay

(a) in general

Paraguay is not only a South American Common Market region, but also an oasis of true political and economic calm throughout the South American region. Unlike all other countries, its currency and inflation rate are relatively stable. Commercial transactions can also be conducted in US dollars, resulting in no or little foreign exchange risk. The average GDP growth rate over the past eleven years has been maintained at 4.8%, which is very commendable.

The tax rate for individuals, companies or imports is much lower than for other South American Common Market member countries. Labor and energy costs are also much lower than in other member states.

(b) For the agrochemical industry

Agrochemical raw drug products and raw materials entering Brazil and Argentina require an import tariff of up to 14%, but entry into Uruguay is tax-free.

Products manufactured or formulated by Paraguay that are tax-free to enter other member countries of the South American Common Market need to meet either of the following two criteria: (1) Imports to Paraguay must have been converted to produce different cargo codes, or ( 2) 60% of the cost of goods originates from the South American Common Market. An example of satisfying the condition (1) is to formulate the imported original drug into a terminal preparation product.

However, the above conditions do not apply to products manufactured in the South American Common Market included in the exception list. The products in the exception list include glyphosate, 2,4-D, paraquat, atrazine and cypermethrin. These products are subject to cross-border tariffs, unless they meet both of the above criteria, but the second standard is almost impossible to meet.

Potential as a base for the original drug production

Recently, China's non-patent agrochemical products have been facing unfavorable production conditions and tight supply. With its very favorable investment environment and stable political-economic situation, Paraguay can serve as a base for the production of some original pharmaceutical products to meet the needs of the local and the entire South American Common Market.

In fact, the required expertise and facilities are already in place in some local preparation plants. This is all about production economics. As China's rising costs and production and supply problems of key intermediates and drugs in the future become more tense, the production of the original drug in Paraguay will become more cost-effective. This bodes well for companies that want to operate more efficiently and profitably in the South American market.

If the ongoing trade war between the United States and China remains unresolved in the next two years, then this potential Paraguay original drug production base may become more attractive, as the products produced there may be directly supplied to the US market. Products made in China lose competitiveness due to high tariffs.

in conclusion

Paraguay is a unique country in South America. It has a very favorable investment environment, currency stability and relatively low inflation. It provides investors with a good opportunity to enter Paraguay and other South American Common Market countries efficiently and at low cost. For agrochemical companies considering entering the South American market, Paraguay is undoubtedly an unknown jewel.