Embassy of the United States

foreign agricultural service

Selling U.S Poducts in Paraguay

Prepared by: Date: 22-Feb-1999
U.S. Embassy GAIN Report #PA9006
 Market Brief - Sector
Paraguay
This report was prepared by the USDA's Foreign Agricultural Service for U.S. exporters of food and agricultural products. This information is in the public domain and may be reprinted without permission. Use of commercial or trade names does not imply approval nor constitute endorsement by USDA/FAS.

TABLE OF CONTENTS

A. General Market Overview
    Current Macroeconomic Situation
    Effect of Economic Situation on the Market for Consumer-Ready Foods
    Overview of the Market for Consumer-Ready Food Products
    Table 1. Typical Food Purchases by Type in Food Basket
    Table 2. Principle Foods Demanded
    Trade Restrictions
B. The Consumer
C. U.S. Market Position
    Table 3. Selected Food Products Imported From the United States and Market Share
    Table 4. Best Prospects for U.S. Exporters
D. Domestic and Third-Country Competition
E. Consumer-Ready Product Market Trends and Opportunities
    The Market for Imported Food Products
F. Distribution Systems for Consumer-Ready Food Products
    Steps to Take to Export
    Price/Cost of Imported Food Products
    Table 5. Typical Costs:
    Table 6. Import Tariff Rates for Selected Products
G. Domestic Food Processing Sector
     Table 7. Scale of Food Processing Industry by Product Category
H. Summary Statistics, CY 1996
     Useful Contact Points:
 

 
A. General Market Overview
Current Macroeconomic Situation
Paraguay is a landlocked developing country in central South America of about 5.0 million people. With over 20 percent of the population engaged in subsistence agriculture and 40 percent of the population less than 18 years old, the buying power of the average citizen is severely limited. Among Mercosur countries, of which it is a member along with Argentina, Brazil and Uruguay, Paraguay has the second lowest population and the smallest average income. Over the last few years, total Gross Domestic Product (GDP) has increased, but due to the high population growth rate, per capita income in 1982 currency has remained around US$1,650 and some economists estimate a real income decline in 1999.
The local currency, the Guarani (G), is allowed to float against other monies. Financial transactions are not restricted by the government, and there are essentially no limits on capital inflow or outflow. A recent devaluation of the local currency from about G2,200 per dollar to about G2,900 per dollar resulted in significant expenditures by the Central Bank as it attempted to stabilize the exchange rate, and although beneficial to the agricultural export sector, this devaluation will hurt Paraguay's ability to import much needed foodstuffs. Paraguay has been reforming its financial sector which has also caused some short run instability in financial variables, including exchange rates. There are no mechanisms in place to set minimum or maximum prices for commodities. The trade regime for agricultural goods is open.
Paraguay is a net exporter of primary agricultural products such as soybeans, wheat, corn, sugar and cotton, but a net foodstuff importer. More than 80 percent of total consumption is brought in from outside. The principle origins for foodstuffs are its Mercosur partners due to their proximity to the market, low shipping costs, common labeling rules and preferential import tariffs.
Production of all goods is currently growing at about the same rate as the population itself, or approximately 2.6 percent per year. The fiscal deficit is low at about 1.3 percent of GDP, but the current account deficit is more worrisome at about five percent. Inflation, at about 15 percent, is also running high and increasing. State support for the agricultural economy is limited primarily to assistance intended to boost agricultural output, typically for the cotton sector. Nominal interest rates on credit are about 20-30 percent, depending on the customer and the currency used. Considering inflation, the real interest rate on borrowed funds is about 15 percent.
Over the last few years, Paraguay has privatized ports and transport systems, bringing increased efficiency to these sectors, and the resultant benefits have also accrued to the food trade business. New administration procedures at ports of entry have reduced bureaucracy and facilitated the import process, thus helping to reduce the trader's expenses in getting product into the country. A new customs database system has recently been installed, which should also increase throughput and lower costs.
Investment funds have been entering the country, and some of those funds are being directed to new construction, such as supermarkets, which are vital to the food chain in major cities. Well-known fast food chains are becoming part of the landscape, too. The investment climate is open.
 
Effect of Economic Situation on the Market for Consumer-Ready Foods
Due to low income and unemployment that affects much of the population, purchases of high-value foodstuffs are normally made only by a small segment of those who are better off economically. In many cases, staple foods are all that the consumer is able to afford, and the cost of those foodstuffs alone takes up about 33 percent or more of a families' of total income. Looking at the typical food basket, very few high-value or processed items are found. Thus, for a large segment of the population, high value or processed products could be considered luxury items consumed on occasion or not at all. Further, a lack of funds to purchase refrigerators or other conveniences due to the depressed economic situation also restricts consumption of merchandise that depends on them for storage or preparation.
 
 
Overview of the Market for Consumer-Ready Food Products
According to industry consultants, about 2 percent of the population makes over $1,000 per month (well above the average income for the country as a whole), and this is the segment which habitually buys high value or consumer ready food products. It is also the group that is more likely to live in one of the major cities where refrigerators and microwave ovens are more common.
But, according to market analysts, processed products and canned products are experiencing relatively greater demand at all economic levels and in all areas of the country, as there is some reduction in the consumption of fresh products. The chief advantage of these added-value products is that they can easily be stored for longer periods of time and at ambient temperature, especially relevant in the outlying areas. This shift could give opportunities to exporters such as the United States as it negates some of Argentina's and Brazil's advantage of as nearness to market and timely shipment.
Table 1. Typical Food Purchases by Type in Food Basket

The table below provides further details as to the types of products being demanded across the country by Paraguayan consumers.

Table 2. Principle Foods Demanded

Trade Restrictions
Paraguay does not apply non-tariff barriers or use quotas to restrict imports. Import tariff rates, which are a disincentive to trade from the U.S., are generally those agreed to by the Mercosur group, with some exception made to protect targeted local industries. These measures do affect trade from the United States, and have in particular restricted imports of U.S. drink brands starting in 1998. Paraguay uses open science-based criteria in making decisions on which products can be imported and sold locally.
 
 
B. The Consumer
Domestic agriculture in Paraguay is guided by the need to generate cash income, and this factor directly impacts consumption patterns. Cotton production takes much of the small farmer's time and resources, and limits the variety of raw materials available to the food industry that could be processed into value added products. As a group, Paraguayan consumers tend to incorporate lower cost traditional foods or staples (beef and pork, potatoes and other tubers, and corn or wheat-based foods) in their diet, and these are often produced on their own land. In some cases, other purchases are set aside so that basic food needs can be met. Consumption of horticultural products continues to be relatively low.
Within the urban areas the consumption patterns tend toward more prepared foods purchased in small shops or, increasingly, supermarkets. Children and younger adults, primarily in the major cities, have some influence on purchasing patterns, and they tend to demand processed products such as those found at the several fast food chains which are present in Paraguay. This, along with an increased number of women in the workplace, may encourage a tendency toward increased consumption of high-value or ready-to-eat foods.
The number of microwaves and refrigerators used is reportedly increasing, although neither the rate of increase nor exact quantity now in use are known. Most of these would be in the several primary cities; in the rural areas they are much less common. Canned products are becoming more popular as they can be stored in homes without the worry about going out of condition.
Local food consumption is also patterned by the lack of raw material diversity that accents the local agricultural economy. With a focus on production of primary products such as grains, oilseeds, industrial crops and starch products, and with slow efforts to develop new products and start up processing facilities, only a low percentage of high-value food processing takes place within Paraguay.

C. U.S. Market Position
Although U.S. exports of food products to Paraguay have increased due to advantages based on recognized high quality and value, exporters from the United States encounter two obstacles that will likely continue to restrict its total sales to levels below other origins such as Argentina and Brazil. First, Mercosur countries can ship the product to market quickly and in lots appropriate for the market size. It is possible, for example, for a Paraguayan importer to place an order for milk products early one day, and have the product at the local warehouse on the next. To keep freight costs competitive, the U.S. exporter would have to ship in higher volume, but that would not be convenient for the Paraguayan importer who is not able to handle big lots. Second, the United States must pay the higher Mercosur tariff rates for product exported to Paraguay which range between 13-18 percent extra for representative high-value products. In concert, these factors have held down U.S. market share to about 2-3 percent of total trade, although the share increases when beverages such as beer are included, given the United State's leading role in that trade.
Despite these difficulties, advances have been made. U.S. products are accepted for their high quality and value, and American brand names have become well known through advertising and as a result of travel by Paraguayans abroad. Beer and other drink products have been a success in the Paraguayan market, and others such as ice cream are popular, too. Food ingredients, conserved fruit and vegetables, and frozen products are also showing growth as they have begun to slowly replace traditional consumption patterns.
To meet some of the competition, U.S. exporters could take several steps. First, the exporter should prepare labels and other information in Spanish which will result in a better presentation to the public. Second, product must always be available to the consumer on the shelf, and the exporter needs to work with the importer to ensure that this happens. Third, the exporter should engage in more promotional work highlighting the quality aspect of U.S. product. Fourth, close relations should be maintained with the importer or retailer, and assistance should be provided when necessary.
Some supermarkets have noted that they are really in the first stages of incorporating U.S. foodstuffs into their stores, and working with U.S. suppliers. They have expressed strong interest in continuing and expanding work with that origin.

Table 3. Selected Food Products Imported From the United States and Market Share
     (Values Expressed in Thousand U.S. Dollars, fob)

 Prospects Based on interviews with the industry, the following imported products are currently being demanded by supermarket owners for their stores:

Table 4. Best Prospects for U.S. Exporters

Among those listed above, the highest demand is for snack foods, drinks, cereals and easy to prepare foods. Demand is also strong for those products with well-known brand names, given the average Paraguayan's increased exposure to the lifestyle of the United States. Exporters may want to concentrate on investigating the market for those as well. Long-life products are also suitable for the Paraguayan market due to the less developed cold chain.
New products on the market include concentrated foods and diet foods. Some Paraguayan firms are also evaluating the importation of food ingredients which would be added to local materials to produce a wider variety of high-value foodstuffs locally.
Because the Paraguayan consumer recognizes and is willing to pay for higher quality, the margins for U.S. products are about 20-30 percent greater for products without a substitute from another origin. For those U.S. products that have competition from a similar product from other countries or where the demand is greater, there is virtually no price difference in the market between those from the U.S. and those from other origins.
 
D. Domestic and Third-Country Competition
Competition in Paraguay's food market from the Mercosur partners and Chile is strong, as those countries enjoy notable import tariff (please see Table 6 for examples) or freight cost advantages. In general, imported products from competing countries have good quality, presentation and competitive prices which, as noted elsewhere, allow them enter the market and in some cases to dominate the comparable local item. Imported products are prominent on the supermarket shelves with estimates at upwards of 80 percent of all food consumption coming from imports. Some high-value food products are manufactured in Paraguay, but the total quantity is limited due to lack of raw materials and still-developing industrial base.
Leading Paraguayan supermarkets and importers/distributors attend major international food shows to learn about the latest merchandise. Some products are imported on the basis of these contacts, while others come about through the well-established links between supermarket or importer/distributor and U.S. exporters. In general, the high-value products are promoted locally using several methods, including special sales days, taste testing, and special displays. Also, advertisements are published in local newspapers, and often focus on getting the shopper into the store on the weekend, or for a special holiday.
Another advantage held by the Mercosur nations is the ability to more easily develop marketing and labeling materials into the Spanish language and or take advantage of common translations and Mercosur labeling harmonization, which is especially important if there are instructions for preparation on the label.
Finally, the ability of intra-Mercosur exporters to keep the product constantly on Paraguayan supermarket shelves allows the consumer to become accustomed to seeing and thus purchasing it. In contrast, the lack of constant presence discourages them, and they move to other items. This also gives an advantage to Mercosur, as the product can be moved in rapidly to cover demand.
No major food shows are held in Paraguay, but during the principle agricultural show held in Asuncion during July each year, the "Feria Internacional de la Ganadería, Industria, Agricultura, Comercio y Servicios", several large foreign exporters of high-value products have a strong presence. Large booths are normally set up for Argentine and Brazilian companies, among others, and local companies also display their products. The show is well attended by the general population.
 
 
E. Consumer-Ready Product Market Trends and Opportunities
The Market for Imported Food Products
Currently, U.S. food products are somewhat sparse on the shelves; the ones that are consist primarily of beer and snack foods or other processed products. U.S. horticultural products were more important at one time, but now MERCOSUR product dominates as those origins have a tariff and transportation cost advantage.
Frozen products are not yet a major import item, as the cold chain is not well developed in the country. To develop an adequate cold chain would require large investment, and to date the returns have not been favorable.
Industry analysts estimate that only about 2-3 percent of the population habitually buy high-value processed products (for example, prepared frozen foods), and most of these come from Argentina or Brazil. However, the market trend for high-value or processed products is expected to increase along with the increasing number of women taking jobs outside the home, and the increased urbanization of the country.
Although developing a large, sustainable market for U.S. agricultural products in Paraguay represents a challenge given the country's relatively small population base, low average income, and distance from export points, opportunities exist, and some progress has already been made. For example, trade data shows that imports of foreign-made food products, including those from the United States, are increasing. With the main urban center of Asuncion comprising about 10 percent of the population, reaching a significant portion of the more affluent population is not difficult.
 
F. Distribution Systems for Consumer-Ready Food Products
Because Asuncion is the largest market, most efforts by importers and distributors are concentrated there. But, several local distributors have an extensive network of transport and storage facilities throughout the country which allows them to keep product on the shelves in each the four corners of Paraguay. Doing so represents a challenge, though, as the cold chain is less developed in the countryside. The physical infrastructure of the country makes it more difficult to ship food to the outlying areas of the country, too, as only a small percentage of the country is reached by all-weather roads. Regarding business practices, Paraguay has a law that favors linking exporters to local distributors. There are no other preferred or special marketing channels.
There are a number of smaller outlets for food products, such as local markets and kiosks which have close contact with the consumer. Supermarkets and hypermarkets are now becoming more common, especially in the large cities. In fact, eight new supermarkets of over 3,000 square meters each have recently been added in Asuncion, with potential for more as this method of shopping for food becomes more commonly used. Supermarkets now have 15 percent of the food sales by value. Supermarkets rarely import directly, as it costs too much to hold stocks; rather, they coordinate with importing firms. Importers also provide service to the supermarkets by undertaking market studies, and then present options to the supermarkets.
Shopping centers often contain food plazas, and filling stations often have areas dedicated to snack items and drinks. There are also central supply markets in each large city in which wholesalers gather products and then distribute them. These are most commonly used for local agricultural production. Several of the large distribution companies also have warehouses not only in the main cities, but out in the countryside as well to facilitate their work. Transporting the products has shifted in recent years from mostly state control to private, more competitive systems.
 
Steps to Take to Export
CONAPRA, or the National Commission for Protection of Food, is the coordinating group for food safety issues in Paraguay. It attempts to organize and clarify the required steps and make them easier for importers to follow (even working with importers to make sure the process goes smoothly), and tries to use a centralized system to make decisions and diffuse information. This group is made up of the Ministry of Agriculture, Ministry of Commerce, Ministry of Public Health, private foodstuff producers, city administrators, and university representatives. Paraguay has open laws for food imports, and is striving to make them fair and clear for all involved.
The first step in getting a food product into Paraguay is registering the brand with Ministry of Commerce and Industry (MIC) so that the product name will be legally recognized. Further, the MIC is responsible for customs and import regulations, so they are a key player in any food trade with Paraguay. Then the product must undergo safety and quality testing by the Ministry of Public Health, as any food producer or exporter that would like to sell their product in the Paraguayan market must take steps to assure the government that the food is safe and of good quality. The standards that are applied by the Paraguayan government are a mix of those used by Argentina and Brazil, but the most important set of rules are those of the Codex which must be met as a minimum. Once the food safety registration is granted, it lasts for five years. Information used in previous certification of the product by the official U.S. government inspection and food safety agencies can be used to speed the process along. The city of Asuncion also has the right to periodically check product on the shelves for wholesomeness and truthfulness of claims made on the packaging. Companies wanting to market ecological products and those made using natural products or produced under organic systems must contact a company called SGS in Paraguay to set up an inspection.
Currently, each Mercosur country implements its own food inspection regime and has individual registration procedures. Paraguay does not yet completely accept the rules and procedures of other Mercosur countries as equal to their own. However, the members are working to harmonize the food safety rules, so that they can be mutually acceptable, cutting time and costs for registration of imported products from other members. Potential exporters should keep abreast of Mercosur developments, a these could affect trade laws of Paraguay. Regarding product labeling, according to law basic product information must appear on the package in Spanish.
There are no restrictions on imports, except in special cases. Products must be verified at the point of export by one of two firms selected by Paraguay for that purpose, and foreign exchange must be processed through the Central Bank of Paraguay (in Spanish, Banco Central del Paraguay or BCP). The country of origin must be on the label along with expiration dates, and labels must conform to Mercosur law on technical standards #8734/95 which states that the product must be labeled at the origin in Spanish (or Portuguese for Brazil) with non-coded date, importer name and origin of the product. It also must contain data on the ingredients. Mercosur health regulations must be followed, too. There have been some recent changes in procedures for labeling, and a potential exporter should contact the relevant authorities to obtain the latest information. The Ministry of Agriculture is in charge of inspecting some items and granting any necessary sanitary or phytosanitary certificate.
Imports of foodstuffs are handled primarily through importers (who are often distributors as well), or by those few larger supermarkets that trade directly. Although the process of importing has few restrictions, potential exporters are encouraged to work either with a local company, or to get into contact with the buying arm of the Paraguayan firm located internationally to ensure that the process goes smoothly. At the current time, about 90 percent of imported foodstuffs are brought into the country via such a relationship. Distribution of imported products, for practical purposes, should be arranged with a Paraguayan firm. Several of the larger ones have wide distribution nets throughout the country, which will ensure that the product gets to a large number of potential buyers. Paraguayan law has some restrictions on the legal relationship between importer and exporter, and these should be investigated before a relationship is finalized.
 
Price/Cost of Imported Food Products
In addition to the tariff and other costs such as clearing fees, which add up to about 30 percent more over the FOB price, transport costs from origin add about 10-15 percent more to the final selling price. On the local market, there is a 10 percent value added tax, an 8 percent consumption tax on certain items, and a .5 percent valuing tax. Port costs are about 1-2 percent of value, and the Ministry of Agriculture tax is 1 percent. Markup on products at the supermarket is about 20 percent.
Below are two examples of costs:

Table 5. Typical Costs:

 
Table 6. Import Tariff Rates for Selected Products

 
G. Domestic Food Processing Sector
Although some investment is being made in the local food processing industry and the diversity of its offering has expanded, significant additional work must be done for Paraguay to be self-sufficient in processed food products. The Ministry of Agriculture (MAG) is promoting the production of raw food materials (fruits, vegetables, etc.) locally which could be processed in the plants, but the project is in its early stages. Additionally, the MAG is attempting to boost exports of high-value products in order to increase the country's economic strength.
To give an idea of what types of products are produced locally, the following table lists processing plants by type and relative number.
 
Table 7. Scale of Food Processing Industry by Product Category

 
Totals do not add due to rounding.

H. Summary Statistics, CY 1996

 
Useful Contact Points:

In addition, interested U.S. exporters may request from this office for a list of supermarkets and foodstuff importers that could be contacted to initiate discussions, as these entities tend to be knowledgeable about importing and selling food products in Paraguay. Our address is as follows:

Main Mailing Address:

Office of Agricultural Affairs

U.S. Embassy, Buenos Aires

Avda. Colombia 4300

1425 Buenos Aires, Argentina

E-mail: agbuenosaires@fas.usda.gov

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