Chapter 4. Towards sustainable environment in Paraguay1

Paraguay is endowed with vast natural wealth in terms of biodiversity, energy, water sources and fertile land. This chapter examines the country’s performance in environmental outcomes as well as their impact on citizens’ well-being. Paraguay performs well in several environmental indicators, given its clean energy mix, low air pollution, and low greenhouse gas and carbon emissions. However, Paraguay’s territorial and development model is gradually increasing environmental pressure. Access to clean water, electricity and waste management are still not available for a large part of the population. Deforestation, explained by the current expansion of the agriculture and livestock sectors, remains one of the most urgent areas for environmental sustainability. Paraguay also faces challenges in land management and administration, which is linked to the concentration of land ownership and the rural-to-urban migratory flows. The chapter analyses the main constraints in Paraguay’s institutional framework and the capabilities to address these challenges in the future.

Geography has bestowed on Paraguay one of the most biodiverse ecosystems in the world. With access to a large tropical forest and a vast number of water endowments, the country provides abundant resources for agriculture and livestock development. One of the cleanest energy mixes in the region, based on the use of hydropower, has allowed Paraguay to manage to keep the economy’s carbon intensity at low levels and allowed the country to control air pollution. Total greenhouse emissions also remain relatively low. However, the current economic expansion, largely based on the use of land for agriculture and livestock development, has put increasing environmental pressure on the country. Deforestation remains one of the most critical issues in terms of environmental sustainability.

While costs are low by comparison with other countries, access to public services, including water, sanitation and waste management is still limited for a large part of the population, and regional disparities in the quality and distribution of these services persist. The rapid urbanisation process has increased pressure in Asunción and other cities, and shortages of water and its poor quality are major concerns for the authorities, particularly in urban areas. In rural areas, natural disaster prevention has gained importance after two recent episodes where agricultural production was affected.

To maintain the current economic momentum and guarantee that it benefits the entire population, Paraguay needs to incorporate the sustainable use of environmental resources and capabilities into its development agenda. There are considerable needs in terms of environmental protection that are not being met. The regulatory framework against deforestation is insufficient and is not being implemented, and more support to strengthen the institutional setting is needed, particularly at the local level. Waste management is another issue of concern, and is mostly based on landfilling as the primary disposal method. Improving land management will be fundamental to the implementation of a strategic plan for the environment.

The purpose of this chapter is threefold. First, it starts by assessing how well Paraguay is performing in terms of fundamental environmental outcomes, as well as their impact on citizens’ well-being. Second, it aims to identify the capacity constraints (in particular, institutional and economic) that may be leading to areas of poor performance in some of these indicators. Third, the chapter establishes some linkages between the environmental assessment and the potential barriers to Paraguay’s development agenda in the long term.

The move from the countryside: Recent trends

Urbanisation trends

Since the 1980s, Paraguay has experienced a high rate of urbanisation as a result of demographic trends and increasing migration from rural to urban areas. Asunción, the country’s capital, and the departments of Central y Alto Paraná house the largest proportion of the country’s urban population. Within these departments, most of the urban population is centralised in two areas: the metropolitan area of Asunción and the metropolitan area of Ciudad del Este. The population’s congregation around the capital, as in other countries in the region, is substantial. In 2012, when the latest census was carried out, the metropolitan area of Asuncion was home to 37% of the total national population (Figure 4.1). This overconcentration occurs in a limited area of 520 km², leading to environmental degradation and an inadequate supply of public services.

In terms of territorial population distribution, there are substantial differences among the country’s urban centres. Approximately 20% of the country’s urban population centres have only 1 000 to 2 000 inhabitants. This figure contrasts with the fact that a few cities – Asunción, Ciudad del Este, Luque, San Lorenzo and Capiatá – are home to large numbers of the population with over 200 000 individuals. Current disparities in the distribution of the population highlight the need for a more coherent territorial policy. The National Development Plan 2030 takes this challenge into consideration, and an assessment of the country’s territorial policy is one of the current priorities of the government. Defining a model of occupation and organisation of the territory and for a land management policy with an adequate population density that facilitates the efficient provision of public services will have, as will be presented in the chapter, a considerable impact on the country’s environmental performance.

In a context of high concentration in few densely populated areas, cities of a medium size could play an important role in redesigning Paraguay’s territorial policy. The country’s intermediate cities are composed of a group of diverse and dynamic towns with populations of between 15 000 and 60 000, located in the country’s Eastern region. Paraguay’s main intermediate cities include Caacupé, Carapeguá, Curuguaty, Filadelfia, Horqueta, Juan Eulogio Estigarriba, San Estanislao, San Juan Nepomuceno, San Ignacio, Santa Rita, Santa Rosa del Aguaray and Tomas Romero Pereira. Over the past decades, Paraguay’s intermediate population centres have shown a slow, but steady, growth in population. This is partly due to the growing agricultural sector in these places and their key role in the production of some of the country’s main commodities, in particular soybeans and meat. A better distribution of the population could allow for the decentralisation and more efficient provision of public services, while encouraging regional investment.

Main environmental outcomes in Paraguay

Water access and quality

Paraguay has a large supply of fresh water, thanks to its geographical characteristics. The country is divided by the Paraguay River into two regions: the East, with a semitropical humid climate, and the Chaco region, an alluvial plain with semi-arid lands and high temperatures. Because of the natural features of this type of geography, the East has more than 800 rivers and streams and rich underground water resources that can be tapped for agriculture and domestic purposes. With a 3 170 000 km² area, the La Plata’s drainage basin is the second largest in South America and home to several hydroelectric projects, among them Itaipú, the second largest in the world. Such a diverse ecosystem in the Eastern Region allows for a better settlement of the population (near main rivers and the La Plata basin).

However, in spite of the abundance of water sources, the way they are distributed and treated poses problems. By 2015, nearly 75% of the Paraguayan population had access to water withdrawals, according to the National Regulatory Agency for Water, and 20% of that share was located in the main economic departments of the country. The Chaco region and the Northern departments are among the most deprived departments in the country in terms of access to water (Figure 4.2, Panel A). Departments near the La Plata basin, such as Alto Paraná or Caazapá also report low levels of access.

There has been progress in water infrastructure during the past few decades, but there is still much room for improvement. The Chaco region faces significant challenges in updating and improving water infrastructure. Surface water, such as that from rivers, is almost non-existent in this part of the country and water from beneath the ground is brackish. At the moment, communities in the region use elevated tanks that are fed by rainwater which is distributed to different public stand pipes using windmills and gravity. However, this system has proven to be inefficient because of the presence of animals and humans in the neighbourhood, and the lack of systematic maintenance (WWF, 2017c). In spite of public investment in upgrading the infrastructures for water supply and cleaning, challenges persist in this area. In 2012, Paraguay reported a 40% increase in improved water sources with respect to 1990 (World Bank, 2017). Nevertheless, only 0.6% of the total renewable water available in the country was fresh water. Water quality becomes a more worrying problem when account is taken of the elevated mortality rates in the country linked to it. Among the selected benchmark countries, Paraguay has the second highest mortality rate arising from exposure to unsafe water, sanitation and hygiene services, with an average of two people dying per 100 000 inhabitants annually (Figure 4.3).

Sewerage infrastructure also constitutes a major challenge. In 2015, with a local coverage of around 11% in sanitary sewer networks and treatment for only 3% of the total population, Paraguay’s sewerage system was considered, along with those of Haiti, Honduras and Guatemala, to be one of the most deficient in Latin America (ECLAC, 2016). The consequences for the well-being of the population are considerable, as access to sewerage promotes a healthy environment for each household and the community. Inadequate treatment can cause different diseases that can have a substantial impact, such as cholera or chronic diarrhoea (UNICEF/WHO, 2013). Among the benchmark countries, Paraguay has the highest post-neonatal rate of death caused by diarrhoea (13% in 2015, Figure 4.4), five percentage points above the LATAM average and at the same level as sub-Saharan countries such as Côte d’Ivoire and Liberia.

An inadequate sewerage network tends more to affect the rural population. Given the complexity of the water cycle, zones with low quality sewerage services, such as rural zones, could have contamination of potable water by sewage. As the use of water-processing and storage methods such as wells, septic tanks and latrines, does not guarantee a level of quality, agricultural zones are highly exposed to water contamination, that could expand to food and animals (ECLAC, 2016). Overall, water regulation in Paraguay lags. SENASA, the national environmental sanitation service, which is responsible for implementing environmental law relating to rivers and underground water, has little institutional capacity to regulate water quality.

Differences in access between rural and urban areas are particularly high in Paraguay, in comparison with Latin American countries and with OECD members (Figure 4.5). In comparison with Latin American countries, improvement of water sources in rural areas has been significant, but the gap between rural and urban areas is still similar. Contrary to OECD countries where both rural and urban areas improved, Paraguay still has a 22 percentage point gap in water source improvement. This difference is even more noticeable considering that Paraguay is a country based on agro-industry and livestock and fresh water in rural areas is essential to the production system. Of the total fresh water withdrawal, 79% is used in agriculture.2

Agricultural production in Paraguay can also be a cause of water contamination. The excessive use of nitrate fertilisers could be associated with the high level of metals within the water cycle (Willaarts et al., 2014). Countries based on agro-industry have used fertilisers to increase their productivity and make them more competitive in international markets. Globally, the consumption of fertilisers rose from 89 kilograms per hectare in 2002, to over 126 in 2013. Paraguay went from 66 kg in 2005 to 105 kg in 2014 (FAO, 2016). If this trend continues, water contamination caused by nitrates could limit the availability of domestic water and also contribute to the increase of biomass load within the water (a phenomenon also known as eutrophication) (ECLAC, 2016). Clear examples of the eutrophication effect are observed in the Ypacaraí Lake and the Pirayú streams. Samples taken from these bodies of water showed that the increase of micronuclei is mainly driven by the cytotoxic effect of fertilisers and pesticides that are released in bulk into rivers and streams (López Arias et al., 2013). This type of contamination has consequences not only for local communities, but could extend to other areas, given the nature of water to circulate3 (ECLAC, 2016).

If untreated, an excessive increase in biomass in water could bring futures challenges for Paraguay. Sedimentation of the soil is a natural process, partially created geologically, but also by human activity in putting nitrates into water (Callisto et al., 2013). In much of the work associated with hydroelectric generation, the phenomenon of sediment accumulation is critical to the life of reservoirs and electro-mechanical equipment. In a country where all energy production is hydroelectric-based, water sedimentation is an issue for the future (World Bank, 2017). The eutrophication phenomenon together with the climate change effect, including the El Niño phenomenon (a period of warming of the sea in the Ecuador region), could represent a threat for Paraguay’s energy security (ECLAC, 2016).

Air quality

Air pollution in urban areas is still not a major environmental concern in Paraguay, but pressure on air quality is growing. Available data suggest that total carbon monoxide (CO) emissions increased from 1 100 units in 1990 to 2 178 units by 2000, mainly explained by agriculture and changes in land use. By contrast, total nitrogen emissions have remained fairly stable over the same period, with a decrease from 110 to 87 units. Emissions of volatile organic compounds (VOCs) increased significantly, from five to 58 units over the 1990s. Other air pollutants such as sulphur oxides (SOx) remain low (0.16 units in 2000) and did not show any increases during the same period. The number of vehicles in use in Paraguay, a common source of gas emissions in emerging economies, increased (from 256 000 units in 2005 to 370 000 in 2014), but remains lower in per inhabitant terms than in OECD economies. In addition, the management of air quality regulation and monitoring is one of the areas under the responsibility of the Environmental Secretariat (SEAM). However, today, an effective air quality system monitoring emissions is lacking and data on air emissions are not available for all years and for the entire territory.

The exposure of the Paraguayan population to air pollution is relatively low when compared to other benchmark countries, and lower than in neighbours Argentina and Uruguay. Between 2005 and 2013, peak concentration of small particles (exposure to particulate matter [PM]2.5) decreased by nearly 40% (Figure 4.7). The share of the population exposed to more than than 10 micrograms/m³, a standard level of air quality, also fell significantly over the same period, from 71% to 14%. A comparison of mean annual exposure to PM2.5 in Asunción and other urban centres in Latin America show the city has moderate levels of PM concentrations, comparable to those in Buenos Aires, Montevideo, San José or Quito. By contrast, other cities in the region (e.g. Rio de Janeiro, Lima, Bogotá) have much higher emission levels (WHO, 2011). Air quality has been an area of work for environmental authorities in recent years. In 2014, the air quality law (“Ley de la calidad del aire”) was passed, the National Air Directorate was created, and air quality towers have been installed better to monitor air quality.

GHG emissions

Paraguay has a clean, low-carbon energy mix, mostly based on renewable energies. Production-based carbon productivity, a measure of gross domestic product (GDP) produced by CO₂ emissions, is high and only surpassed by Uruguay, one of the cleanest energy users in the world (Figure 4.8, Panel A). An increase in carbon productivity indicates that more GDP is being created per unit of carbon dioxide emitted, which in general is interpreted as beneficial for the environment. At the same time, the energy intensity of the economy (energy supply per unit of GDP, Figure 4.8, Panel B) is low and has remained fairly stable over the past decade. Work in the area of climate change has progressed, and is an important component of the National Development Plan.

In terms of greenhouse-related emissions, between 2005 and 2013 greenhouse gas emissions increased in Paraguay by 76%, when land-use change and forestry are included, but they remain low when compared to benchmark economies (Figure 4.9, Panels A and B). Most countries decreased their GHG emissions during the same period. The largest share of GHG emissions per capita in Paraguay comes from transport, which is much higher than in the benchmark countries (Figure 4.9, Panel C).

Energy

Paraguay has a considerable stock of primary energy. Given the country’s strategic position in the La Plata basin and its environmentally diverse regions, Paraguay can count on an enormous variety of water, gas and natural resources capable of producing biomass. Since 1970, the country has conducted major efforts to produce primary energies and, by 2011, Paraguay had increased its production volume six times compared with 40 years before (MOPC, 2011).

The Paraguayan energy mix is mainly composed of renewable and local energy. Since 1960, after negotiations between the Brazilian and the Paraguayan governments, and the signing in 1973 of the Itaipú Treaty, the country has experienced an energy revolution. Producing more than 2.4 million megawatt hours (MWh) since its inauguration in 1984, the Itaipú binational dam is one of the biggest hydroelectric stations in the world. In 2015, hydro-energy accounted for 68% of the total primary energy production in the country. The other 32% came from biomass (24%) such as charcoal and wood, and other biomasses (8%), which include waste from forestry and cotton (DGEEC, 2015). The importance of the biomass component in Paraguay’s energy matrix is reflected in the government plans to foster reforestation through the new energy policy and national reforestation plan.

With one of the cleanest energy productions in the world, the whole of Paraguay’s electricity comes from renewable resources. The binational dams produce in total 70% of their output for the Paraguayan market (MOPC, 2011), which is sufficient to satisfy the whole electricity demand in the country. The rest is exported to neighbouring countries (Figure 4.10). Paraguay is the only country among those selected as benchmark countries to have a 100% use of renewable energy in its total production of electricity. Also, as fixed costs decrease rapidly with production, electricity prices in Paraguay are among the cheapest in Latin-America. In 2011, one kilowatt hour (KWh) cost USD 0.06 in Paraguay, as opposed to a median price of USD 0.16 in the region (OLADE, 2017). However, Paraguay is a major consumer of polluting energy. Of total energy consumption only 29% is electricity. The rest of energy consumption breaks down into fuel (56%, mainly diesel with 38%), and biomass energy (16%) such as wood and charcoal (DGEEC, 2015). Almost all the demand for hydrocarbon fuels comes from the transportation sector (MOPC, 2011, see Figure 4.9, Panel C). This dependence on fuel is also linked to the fact that Paraguay’s vehicle park increased by 165% from 2007 to 2015 (DNRA, 2017).

Biomass is still heavily used in Paraguay, especially in poor urban suburbs and rural areas. In 2015, wood represented 67% of the total share of biomass energy, with about 52% of rural households using it, mostly for cooking (DGEEC, 2015). In urban areas, biomass is also used for daily activities, including cooking and pottery. The high use of biomass products in these areas could be related to two main factors: on the one hand, the more limited access to electricity in rural zones, and on the other, the low energy intensity of Paraguay’s productive sectors. Most people living in the countryside use wood to cook as a cultural habit or following the patterns of rural life (GNESD, 2015). However, even if around 98% of the rural population have access to electricity; the density of electrification lines differs among different geographic areas. The southern part of the country has most of electricity connections, giving the Chaco region just 10% of the total electric network (GNESD, 2015). In urban areas, hydroelectric energy is also not used because of high energy distribution costs.

Paraguay’s low energy intensity can be explained by the nature of its productive sectors and by energy consumption trends. As already indicated, Paraguay’s energy intensity (CO₂ emissions from fuel combustion per unit of GDP) is low by international comparison in both per capita terms and per unit of GDP (Figure 4.12). As Paraguay is an agriculture-based economy (the sector accounts for 26% of the country’s GDP, [BCP, 2017]), its production sectors do not require the same intensity of energy use as the industry or manufacturing sectors. The agriculture sector makes little use of technological capital, and therefore the use of energies is limited. This explains Paraguay’s energy intensity levels, which is similar to Peru’s but lower than those of Argentina and Uruguay (Enerdata, 2015). Compared to some benchmark countries, Paraguay has the best environmental performance of all, and far better than countries with comparable land size and population, such as Israel and Costa Rica.

Despite the availability of spare capacity in electricity generation, an acceleration in growth will require further development in generation capacity to satisfy demand. In terms of electricity supply, Paraguay is likely to be able to export electricity well into the 21^st century. Indeed, average production is expected to be around 67 000 GWh per year with the hydropower plants currently in operation, while demand was 13 018 GWh in 2013. A prospective exercise carried out as a basis for the country’s energy policy (Fundación Bariloche, 2015) considers a business-as-usual (BAU) scenario with 3% growth in GDP and trend changes in energy intensity, and an alternative scenario with 5.2% growth in GDP and significant changes in the economy following the objectives of the National Development Plan. In the former, current installed capacity would be sufficient until 2040. In the latter alternative scenario, however, industrial energy consumption would outpace growth and the necessary capacity to respond to demand with reasonable margins would reach currently installed capacity in electricity generation by 2029. As a result, Paraguay has developed a National Energy Policy (adopted by Decree 6092/2016) which contemplates further development of hydroelectric energy alongside the development of other sources of energy as well as actions to improve energy efficiency, accelerate the replacement of other sources by electricity and improve electrical integration.

The Paraguayan government has acted to improve the regulatory framework in this area. In June 2015, the National Congress voted on a biofuel law (Law 5444/15 for the consumption promotion of absolute [99% pure] and alcohol-based fuel), decreeing that all fuels in the country should contain a minimum threshold of bio-fuel extracted from renewable and sustainable resources (VMME, 2017). The Ministry of Agriculture accompanies the implementation of the law with technical assistance in the production of sugar cane and corn for alcohol. To increase energy-generation capacity in some areas other than the two large hydroelectric projects of Itaipú and Yacyretá, the government has started to promote the construction of mini-hydroelectric plants. In 2015, the government, with the national council for the production and independent transportation of electric power, started approving the construction of ten small hydroelectric plants with an investment of USD 60 million for the first project.

With rapid environmental degradation and access to abundant clean hydropower energy, Paraguay could be at the forefront of environmental policy in the region, promoting renewable energy, building an energy-efficient technology, and improving energy utilisation in transport, among other areas. Paraguay enjoys low GHG and CO₂ emissions, thanks to clean electricity production from hydropower. However, only 29% of total energy consumption comes from this clean electricity, the bulk coming from fuel and biomass. Transport, which accounts for nearly 90% of Paraguay’s GHG emissions, is one area where improvements could be introduced. The country could consider gradually increasing projects based on electricity-based systems (Sauer et al., 2015). This could include, for example, updating the bus fleet, one of the main sources of pollution in urban areas. A purchase of electric buses could not only reduce air emissions but also transport costs. Another approach consists in reducing biomass consumption, which represents a high share of Paraguay’s total energy consumption (Blanco et al, 2017). The industrial sector is the main user of biomass, particularly in the areas of grains, cassava and starch production, as well as dairy production. Biomass consumption for household consumption is also high, particularly for cooking and heating purposes. Low wood costs partially explain the bias towards biomass consumption (Maennling and Todelano, 2013).

Conservation and biodiversity

Agriculture and the environment: Establishing the linkages

Paraguay is among the largest producers of soybeans and among the ten largest exporters of beef worldwide. By 2014, soybean and meat production constituted 25% of GDP and accounted for 65% of exports. In 2014, the country ranked as the sixth largest world producer and fourth largest exporter of soybeans.4 Within Latin America, Paraguay is classified as third in soybean production levels, after Brazil and Argentina. The country’s area for soybean and meat production has considerably extended in recent years. While the consolidation of the agriculture and livestock sector has driven the economy in recent years, it has also underlined the increasing pressure on natural resources. Yields in Paraguay are comparable to those of other countries in the world and, partly because of the use of direct seeding, the country has one of the highest production yields in the world (Figure 4.13). Over the last two decades, the area dedicated to soybean production has increased 5.7 times, while production increased ninefold (WWF, 2016). Indeed, yields of crops in Paraguay are comparable to those of benchmark countries, and have increased at equal rates. In the Eastern Region in particular, the area dedicated to soybean planting has increased considerably, almost tripling over the last 20 years. In the Western Region, the ranching industry has taken the lead and has increased its production area by 43%. The surface area of production of both soybeans and meat is expected to increase over the next few years, which puts considerable pressure on the conservation of forest areas.

Deforestation in Paraguay has become an issue of growing concern for the authorities in recent years. Between 2005 and 2015, the drop in the percentage of forest land area in the country is estimated to have been over 17% (FAO, 2015). Other estimates, which include increasing levels of illegal deforestation, are more pessimistic. This figure is well beyond the rate observed in some of its regional peers, such as Brazil and Ecuador (Figure 4.15, Panel A). Moreover, the average annual deforestation rate was estimated at 1.39% in 2015 (Figure 4.15, Panel B). This represents the highest deforestation rate among the countries analysed (World Bank, 2017). The FAO’s 2015 Global Forest Resources Assessment analyses the ongoing trends on forest preservation and highlights Paraguay as the country with the third greatest annual net loss of forest area between 2010 and 2015, surpassed only by Nigeria and Zimbabwe (FAO, 2016). Yet, Paraguay’s use of land for agriculture remains within the average of the benchmark countries (Figure 4.15, Panel C). Important policy lessons could be drawn from the experience of other countries on a strategy to control deforestation (see Box 4.2).

Deforestation processes in Paraguay have been relatively recent, starting during the late 20^th century, first with intense logging of hardwood, and later conversion of forests to croplands or pasture. Nowadays, soybean cultivation (particularly in the Eastern Region), with around 3 million hectares devoted to its cultivation (WWF, 2014a), and to lesser extent cattle ranching, have been the main drivers of deforestation, as the global demand for commodities such as meat and soybeans continues to grow. Until 2003, the expansion of the soybean and cattle industry was accompanied by intense deforestation, reaching rates of approximately 300 000 hectares a year. In 2004, with the enactment of the “Zero Deforestation Law” (Law 2524/04), deforestation rates decreased significantly (see Box 4.1).

Box 4.1. Paraguay’s Zero Deforestation Law

In 2004, Paraguay amended its policy on deforestation by approving in the senate a zero deforestation law in the Eastern Region of the country. The law established a temporary moratorium on native forest conversion to any other land use and is due to be in force until 2018. The law emphasises three aspects. First, it prohibits the transformation or conversion of lands with forest cover for agricultural use or the construction of human settlements. Second, it establishes the Secretariat of the Environment (SEAM) and the National Forestry Institute (INFONA) as the responsible parties for creating a baseline inventory of existing native forests. Third, it calls for an independent audit using geo-referenced technology to review land use plans.

The law has been credited with a significant slowdown in deforestation rates in Paraguay (close to 80% lower than the previous rate). Part of this achievement comes from a coalition and a platform for dialogue between the government, civil society representatives and the private sector.

Cattle ranching and the meat industry in Paraguay

Together with the development of agriculture, Paraguay’s meat industry is today one of the most dynamic sectors of the economy. In 2012, the country ranked as the world’s ninth largest beef exporter, accounting for 3% of total beef exports. However, while the total number of cattle increased between 1991 and 2008, there was a simultaneous decrease in the number of farms in the industry. In the Eastern Region, the total area devoted to ranching fell by 2.7%. However, within zones there seems to be mixed evidence, with some departments increasing the total amount of land used for cattle ranching and others reducing it. In the Western Region, where ranching is predominant, there was an increase of approximately 40% in land devoted to this activity (WWF, 2014).

The change in the area devoted to ranching in the Eastern Region is partly accounted for by the expansion of soybean land surface. Nowadays, an increasing amount of soybean production is taking place in areas that had traditionally been used for ranching, as small livestock producers see the sale or rental of their land to soybean producers as a source of financing. Although, the volume of beef exports increased by over 294% between 2003 and 2014, the proportion of ranching in Paraguay’s GDP remains at around 5%.

Box 4.2. Reducing deforestation: The case of Brazil

Between 2000 and 2013, Brazil managed to halt deforestation and reduce greenhouse gas emissions by over 40%, while increasing income per capita by approximately 30%. Moreover, in 2014, the annual deforestation rate in the Amazonia Legal region, comprising all nine states in the Amazon basin, was 75% below the average of the previous ten years. In view of this precedent, by 2020, Brazil is likely to overshoot its target of reducing deforestation in the region by 80% (OECD, 2015, OECD, 2016).

Brazil’s progress is largely explained by the government’s launching of an action plan for the prevention and control of deforestation in the Amazonia Legal (PPCDAm) in 2004. This initiative combined advanced monitoring systems, strengthened enforcement, credit restrictions, expansion of protected areas, and promotion of sustainable natural resource use. Additionally, the congress passed legislation such as the forest code, which requires landholders to set aside a share of their land for forest and soil conservation and restoration.

Determined implementation of the PPCDAm, together with wide support from civil society, the private sector, and the international community, led to significant policy changes that have resulted in a 75% decline in the annual deforestation rate of the Amazon. Some of these are highlighted below:

Large increases in the number of protected areas. Since 2000, when Brazil established its national system of protected areas (SNUC), the number and surface of official protected areas has more than doubled. By March 2015, protected areas covered 17.2% of the country’s terrestrial area and inland waters.
Implementation of payment for ecosystem services (PES) programmes and income support schemes designed to compensate poor households in rural and forest communities for environmental conservation. Among these programs is Bolsa Verde, a federal programme providing payments for adoption of environmental practices and technical training to support beneficiaries in meeting their conservation commitments. It is seen as a potentially efficient way to curb deforestation, with low payments per hectare of avoided deforestation.
Implementation of new technology and better monitoring practices have helped targeting and enforcement. Brazil is a world leader in monitoring deforestation via satellite imaging, which has been a crucial factor in reducing forest clearing in the Amazon. A nearly real-time monitoring system alerts authorities if deforestation and forest degradation occur in the region.
Increased international development co-operation funds. Funding from international and bilateral co-operation has helped finance the PPCDA and other biodiversity-related programmes and has added implementation capacity to the government machine.
Increased public investment in environmental-relevant infrastructure. In 2014, 15% of lending by the Brazilian Development Bank was environment-related. This, and other sources of funding and support, has contributed to Brazil’s rank as the seventh largest investor in renewable energy

To make up for forest lost in the past, the country has made efforts to increase preservation areas and the amount of land with guaranteed protection status. In 2000 only 3% of forest area in Paraguay was classified as protected. In 2015 the protected area had increased by 162%. This increase was mostly concentrated in the Atlantic Forest. However, by 2015 the proportion of original forest area protected in Paraguay (below 5%) was still lower than in most benchmark countries (Figure 4.17). Another government initiative to address environmental concerns is embodied in the Law No. 3001-06a, which provides a compensation mechanism for environmental damage and serves as a complement to a previous law for the “rational management of forest lands”, which had established that all rural landholders must preserve at least 25% of their property as forests (Box 4.3). The law’s main objective is to promote conservation, protection, and recovery of the country’s natural resources through a fair valuation and retribution of “environmental services”.5 It aims to achieve this through creating a market for environmental services certificates. The certificates must be purchased by all agents who are mandated by law to invest in environmental services, and may be traded in the international market for the payment of compensation associated with environmental damage, or used as compensation for local taxes. In this sense, the law establishes that all activities classified as having a high impact on the environment must include in their investment scheme compensation for environmental services through the purchase of environmental services certificates. The investment in environmental services of these projects must not be smaller than the 1% of the total cost of the project. However, in 2013, seven years after the law was established, an audit revealed that the Secretariat of the Environment (SEAM), the main authority in charge of the law’s application, had been “irregular” in its performance in fulfilling its assigned “commitments, responsibilities, functions and attribution”.

Box 4.3. Using payments for environmental services: The case of Costa Rica

Costa Rica is a pioneer in the use of payments for environmental services. The country’s compensation system aims to incentivise preservation and to remunerate agents for their provision of environmental services. Unlike in Paraguay, the system does not involve the use of certificates, but consists of simple direct payments managed though different programmes for a set of activities that are classified in the “environmental services” category. The initiative consists of four main programmes: i) the programme of recognition of environmental benefits consists of a direct payment to small and medium-scale producers for the use of “green or living” fences and terraces, and for soil condition improvement; ii) the basin management programme, managed by the Costa Rican Electricity Institute (ICE), provides electricity supplies and material to farmers who develop activities that ensure the sustainable use of natural, social and economic resources under an integrated and participatory approach; iii) the environmental services payment (PSA) programme provides financial recognition to farmers for environmental services which include a direct payment for the planting of individual trees, and an annual compensation per hectare of land earmarked for conservation or agroforestry, the programme being financed through the National Forestry Financing Fund (FONAFIFO) and implemented by the Ministry of Environment and Energy (MINAE); iv) the recognition of environmental benefits for organic production (RBAO), a direct payment to organic producers for a maximum period of three years.

The PSA is partly credited for helping the country achieve negative net deforestation rates in the early 2000s, after having one of the world’s highest deforestation rates (Pagiola and Platais, 2016; OECD, 2017b).

Improving biodiversity outcomes

Paraguay has played host to a wide variety of wildlife in recent years, and biodiversity is at the core of the environmental concerns for the country. Located in the centre of La Plata basin, the environmental division of the country is the perfect habitat for 35 000 animal species. The Chaco region is especially important for these species. Comprising several habitats such as the savannahs and the thorn forest, this geographic zone has the biggest number of such wildlife (WWF, 2017b). However, there is a growing demand for agricultural products such as soya, beef and foods related to biofuels, and the number of companies exploiting this region is constantly growing, threating these unique habitats (WLT, 2017). The Chaco-Pantanal transition zone is under threat of being drained, polluted and even lost through the spread of agriculture.

Environmental capabilities in Paraguay

Institutional framework for environmental management and current challenges

The Environment Secretariat (Secretariat del Medio Ambiente – SEAM) is the entity in charge of implementing the environmental norms at the national level. Created under Law 1561/2000 as an autonomous and autarkic institution, the SEAM became an autonomous body from the Ministry of Agriculture. It is responsible for assessing the environmental impact on the national territory, assessing the effect of future crops, granting environmental licences and permits, managing wetlands and reinforcing the implementation of environment-related laws (such as climate change regulation). Not being a separate ministry, as is the case in other countries in the region, the secretariat faces today challenges in terms of visibility and resources. On the other hand, the INFONA (Instituto Forestal Nacional) is the enforcement authority of forestry law, responsible for managing forest areas and keeping control of the national forest reserves. Created under Law 3464/2008 as an autonomous and autarkic institution, it is a decentralised entity with administrative autonomy that succeeded the Servicio Forestal Nacional (SFN), an agency under the Ministry of Agriculture. INFONA is also responsible for changes in land use.

The institutional framework for agriculture development faces challenges in terms of financing, institutional co-ordination and product prioritisation. There are considerable gaps in resources and productivity between the “dynamic” agro-business sector (concentrated in soy, wheat and meat) and the subsistence agriculture sector that occupies a large part of the rural population. For the latter, the Ministry of Agriculture is responsible for enhancing the competitiveness of small and medium-sized producers through technical assistance and direct support for investment. While the Ministry of Public Works is in charge of developing road infrastructure in rural areas, the Ministry of Agriculture provides assistance for facilitating business initiatives. On the financial side, budget implementation is limited and reflects high levels of inefficiency. Also, monitoring mechanisms for the management of agricultural resources are non-existent. There is not, for instance, a statistical office tracking information for the agriculture sector. Capacity-building among public servants is another area where the Ministry of Agriculture could develop further. On the institutional side, proposed legislation was recently submitted to parliament for improving the co-ordination mechanisms between the ministry and other agencies in the sector.

There are considerable needs in terms of environmental protection that are not being met. The secretariat lacks the staff (it only has 400 employees for the whole territory) and the institutional capacity to ensure its functions are carried out. In terms of budget, the secretariat also has limited resources to implement its mandate. Nearly 60% of resources come from fines and licences, and the remaining 40% from the central budget. Local authorities do not have the capacity to provide environmental protection. In spite of the need to decentralise environmental control activities, there are neither the capacity nor the resources within municipalities to take responsibility.

Initiatives on education have played a significant role in updating Paraguay’s human capital stock in the farming sector. Together with direct support instruments towards subsistence agriculture, some efforts for improving capacity-building programmes in the agriculture and livestock sector are remarkable. The Dirección de Educación agropecuaria (farming and ranching) has been instrumental in developing new curricula and introducing innovations in the sector. However, a more global vision of the escuelas agropecuarias is still needed, that really addresses the provision of skilled labour in the sector and develops entrepreneurial capacity. Progress has been made in integrating higher education and universities into Paraguay’s agriculture sector. Research by universities in the sector has increased, and the creation of several research centres such aseptic (Paraguayan Institute of Agricultural Technology), Centro de Ganaderos para Experimentación Agropecuaria (CEA), and Ibio (Instituto de Biotecnología Agrícola) (from the private sector), with the support of the national council of science and technology (CONACYT) have contributed to strengthening public and private research programmes in this sector. Still, research and innovation are concentrated on soy, wheat and livestock, and today few resources are devoted to other products where family agriculture could expand. The national directorate for agriculture has also been instrumental in supporting a new vision for agriculture schools, and integrating an entrepreneurship approach into secondary schooling.

Box 4.4. Paraguay’s multilateral agenda in agriculture

Paraguay has engaged actively in the multilateral arena to adhere to different standards in the agriculture sector. In the area of sanitary and phytosanitary measures, a National Technical Committee was created in 2005 (6626/05 decree) to adopt WTO standards related to the sector. These are co-ordinated by mainly by SENAVE (for seeds and vegetables) and SENACSA (animal). Through MERCOSUR, Paraguay has also adhered to good practices for imports of pork, canines and felines. Paraguay has also made significant efforts to establish accreditation programmes for professions related to agriculture and livestock activities (e.g. veterinaries).

In relation to OECD, Paraguay has adhered to a number of Council recommendations on Trade and Agriculture. Some OECD recommendations have been adopted while others are currently under review.

Below a short description of the decisions where Paraguay currently participates:

C(2007)69. The OECD scheme for the Certification of Forest Reproductive Material. This scheme aims to encourage the production and use of forest tree seeds or plants that have been collected, processed, raised, labelled and distributed in a manner that ensures their “trueness to name”. This material is intended for use in a variety of forestry functions, including timber production, soil protection and environmental criteria. http://www.oecd.org/tad/code/forestreproductivematerial.htm.

C(2006)95. Scheme for the application of international standards for fruits and vegetables. The scheme promotes international trade through the harmonisation of implementation and interpretation of marketing standards. http://www.oecd.org/agriculture/fruit-vegetables/.

C(2005)1. Decision of the Council revising the OECD standard codes for the Official testing of agricultural and forestry tractors. The decision aims to facilitate trade by enabling either an exporting or an importing country to accept with confidence the results of tests carried out in another country. http://acts.oecd.org/Instruments/ShowInstrumentView.aspx?InstrumentID=217&Lang=en&Book=False.

C(2000)146/FINAL. OECD schemes for the varietal certification of the control of seed moving in international trade.

Paraguay subscribes also to well-established recommendations of the OECD Council concerning the role of agriculture in the planning and management of peri-urban areas (C(1979)18/FINAL), the standardisation of packaging for the international transport of fresh or refrigerated fruit and vegetables (C(1976)124/FINAL) and the labelling and identification of fresh fruit and vegetables (C(1972)100/FINAL).

Waste management

The proportion of Paraguay’s population with access to waste collection services is low when compared to other countries in the region. With a large number of people living in urban areas, waste collection and management have become major issues of responsibility for municipal administrations. Inappropriate waste management is associated with falling health outcomes and diseases including dengue fever, leptospirosis and breathing difficulties. The coverage of waste management services in Paraguay (57% of the population) is considerably lower than the regional average of 93% (PAHO/AIDIS/BID, 2010). In addition, close to 50% of solid waste final disposal sites are open-air dumps with all the sanitation and environmental risks that they represent, the remainder being considered controlled (PAHO/AIDIS/IDB, 2010).

Resources devoted to waste management are low. In Paraguay, 56% of the services are municipal, 36% are private and 8% of municipalities have both municipal and private services. In 2010 only 19% of municipalities had a proper waste management plan, compared to 57% in Peru and Costa Rica or 74% in Uruguay and Argentina (PAHO/AIDIS/IDB, 2010). In addition, the level of human resources in municipalities dedicated to waste collection and management (3.1 employees per 10 000 inhabitants) in Paraguay is low, compared to countries such as Brazil (7.48), Uruguay (4.7) and the Latin American average (5.6). The number of collection vehicles for waste management in Paraguay (1.49 vehicles per 10 000 inhabitants) is also lower than the regional average (3.96 vehicles per 10 000 inhabitants). The average amount of solid urban waste (i.e. residuos sólidos urbanos or RSU) generated in Paraguay is around 1.2 kilogrammes a day, varying between 0.5 and 1.5 kg/person/day. Hospital-related waste is collected with other RSU with some exceptions (such as Asunción). Currently, there is no registry of sewerages, or other studies about the management of solid waste. Difficulties in waste management in Paraguay are associated with the increase of the informal economy and the lack of co-ordination in planning at the national, subnational and municipal levels. As in other countries in the region, Paraguay’s urbanisation process will increase municipal waste generation, thus access to waste collection services will become increasingly important. Fewer than 40% of the population are covered by sanitary landfills, where waste is isolated until it is safe, whereas coverage in Colombia and Chile is above 80%.

There is no equivalent of an extended producer responsibility system, like the one that operates in most OECD countries. This system requires manufacturers of hazardous waste (pesticides, batteries, tyres, fluorescent lamps and electronic devices) to recover these products at the end of their useful life. Paraguay lacks a real recycling infrastructure to separate waste collection. Recycling remains a very limited activity.

Environmental taxes

The country has implemented some measures on environmental taxes. The environmental services law (“ley de servicios ambientales” 3001) aims to provide a tax exemption for land used for reforestation. It also includes environmental certificates to be deductible from income tax. In practice, the implementation of the law is pending and the regulation is still non-existent (enforcement of the law is poor). Costa Rica has implemented an interesting model of environmental services that could serve as benchmark for Paraguay.

Risk management

A risk assessment of Paraguay’s agriculture sector

The agriculture sector in Paraguay accounts for nearly 20% of the country’s GDP and more than 40% of its exports. Moreover, it employs around 40% of the working population. Taken together, these factors imply that risk and volatility within the sector might have major economic and social implications. Paraguay has not been exempt from external shocks, including climatic phenomena, that have seriously affected the performance of the agriculture sector. While commercial agriculture has been expanding in terms of both surface and production during the past decade, the average yield per hectare in family farming has decreased. The productivity gap between commercial and family agriculture projects has grown. In the agricultural production process, soy, maize and wheat play key roles, accounting, on average, for 56%, 18%, and 12% respectively of the planted area between 2009 and 2012. Commercial agriculture has gradually moved away from cotton and sesame, given the fall in international prices for these commodities in recent years. From an employment perspective, cassava, beans, white maize, cotton, sesame, fruits and vegetables, are also important as they constitute the main farming crops in family agriculture and key staples within households’ consumption baskets. Organic sesame production has also gained traction recently thanks to demand from Japan, and there could be an opportunity to develop a competitive value chain in the sector.

Soy and livestock production in Paraguay entails a number of environmental and economic risks, which need to be considered. First, production risks associated with grain production are mostly agro-climatic risks and diseases. For soy, the main sources of risk are droughts, which in past years have reduced the average yield. For others, such as maize and wheat, excess rainfall and early frosts also threaten yields and quality. Second, market risks, and in particular volatility in export prices (resulting from changes in production, seasonal variations and weather events) are relevant for soybean and maize production. Third, logistic risks in Paraguay exist, given the country is landlocked, which could include uncertainty in the supply of river barges for transport to ocean ports, variations in transport costs through using barges at different periods, and uncertainty related to poor infrastructure in production areas. Livestock production also carries a number of risks, related to droughts, floods and frosts. Droughts negatively affect the birth rate of cattle, as well as their weight and expected meat output. Floods are directly linked to animal death, weight loss, and costs associated with renting pastures and transporting animals. Health-related risks exist as well, affecting cattle, sheep and goats. Today, Paraguay is one of the main meat exporters globally, and the country is certified as free from foot-and-mouth disease and classic swine flu by the World Organization of Animal Health. Finally, environmental risks in the country’s livestock industry are related to land invasion and cattle rustling.

Box 4.5. Improving the management of volatility in agriculture production: Economic and environmental costs

At the macroeconomic level, fluctuations in Paraguay’s business cycle have been closely linked to changes in agriculture production. Drops in agricultural production (both for the domestic and foreign markets) can entail growth slowdowns and reduce tax collection. On average, losses associated with production risks are estimated to be around 5.4% of agriculture GDP, which represents half a percentage point of annual economic growth. These numbers become larger when accounting for livestock losses and the impact on family agriculture.

The impact of agriculture fluctuations can go beyond the primary sector and affect other parts of the supply chain. Farmers linked to soy, maize and rice production are the most affected by drought-related drops in yields, as their production and income decrease, and their capacity to repay debt and invest is reduced. Other actors in the supply chain, including processing, distribution, and commercialisation can face losses associated with reductions in activity.

For livestock production, the most substantial impact is associated with drought. Droughts lead to reductions in pasture, which affect production costs and profitability. At the farmers’ level, severe droughts may lead to unsustainable levels of debt because of high financing and transaction costs, and the absence of the kind of long-term financing that would allow them to recover from these shocks.

Overall, part of the variation in production and losses faced by farmers and other actors along the supply chain can be explained through unavoidable, non-mitigated risks. These risks could be addressed through adequate farming practices, infrastructure investments, and accurate and timely information. Higher investment in R&D and better access to affordable insurance could also limit the negative impacts of the described risks.

Land management and administration

Paraguay faces a significant challenge in land management and administration, which is linked to the significant rural-to-urban migratory flows. In rural areas, the possibility that land granted via land reform can be sold illegally to large farmers limits the impact of the action of the national institute for rural development INDERT, responsible for implementing land reform and for rural development. Land reform works through INDERT buying, parcelling and granting land in “colonies”. However, it has limited capacity to overcome the obstacles posed by lack of previous topographic measures and disrupted registry histories. As a result, only a small fraction of colonies have received property titles, with INDERT focusing instead on granting certificates of entitlement to farmers. Some measures have been recently introduced to reduce irregularities in land transfer. To prevent beneficiaries of the agrarian reform from selling their rights, Law 4682 of 2012 was introduced, forbidding selling or buying lots or fractions.

Land ownership in Paraguay is highly concentrated and has become more so in recent years. Between 1991 and 2008, almost 23 000 productive units disappeared within an area of 400 000 ha, almost half the size of government purchases for land reform purposes. In urban areas, the capacity of local governments to carry out adequate urban planning is limited. A large majority of municipalities do not have land use plans. Indeed, the land register has limited coverage even in several urban areas. As a result, urban development is unorganised, and the capacity of municipalities to collect property taxes (which should be a sizeable share of revenue) is reduced. However, some efforts are being made by the Cadastre, in particular to reduce the double titling phenomenon in land ownership, whereby the same piece of land has several “owners”. Currently, while the country is made up of 400 000 km² of land, nearly 500 000 km² are registered.

Many deficiencies in land management come from the different governance structures responsible for it. In this respect municipalities have a crucial role in the procedure of land registration. However, a regulatory body that guides and supervises the municipalities’ activities in this process is lacking. As in the case of some urban areas, municipalities lack the human resources and capacity to implement ordinances regarding land use. The National Planning Secretariat has made efforts to assist local governments with the development of municipal sustainable development plans. As municipalities depend largely on central government transfers, they could be further encouraged to use part of these resources to develop local capacity. Furthermore, beyond the fiscal incentive for municipalities to improve land registration, which would allow them to increase tax revenues, a territorial perspective for updating the land register is required. At the national level, the absence of proper legislation for land use planning renders difficult the implementation of a national strategy for land management. In the global context of the implementation of the New Urban Agenda, Paraguay has an opportunity to implement a territorial agenda for the development of cities and municipalities, under the principles of sustainability, inclusion and resilience.

Tackling the deficiencies in land management could be an important driver in reducing territorial inequalities between urban and rural areas. Having access to land title, financing resources, technological innovation, education, and basic and productive infrastructure can reduce vulnerability and increase resilience in the light of agricultural risks (Arce and Arias, 2015, De Waroux et al. 2016). Most farmers in Paraguay lack definite land title, exacerbating existing differences in income, and access to public services (education, health, and infrastructure) and technical assistance. Not having collateral, a lack of land title also translates into a lower access to financial markets. Integrating land management in Paraguay’s development agenda will be a crucial component for guaranteeing social, economic and environmental sustainability.

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Notes

← 1. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

← 2. The Secretariat of the Environment (SEAM) highlights the presence of pesticides in waterways, together with high levels of lead, chromium and mercury. Recent studies also point to the existence of glyphosate in crops.

← 3. Pollution havens are a major concern in Paraguay and could explain the high levels of deforestation and pollution in the Chaco region.

← 4. Global consumption of soybeans has been driven by European markets and China. More than 90% of global production came from six countries: Brazil, United States, Argentina, China and Paraguay. The main destinations for Paraguay’s soybean exports are Russia, Germany, Mexico and Spain.

← 5. Under this law, “environmental services” are defined as services dedicated to the management, preservation, and recovery of the ecosystem’s functions that directly or indirectly benefit “populations”.