Plantation forestry in Paraguay emerges

Robert R. Davis,^a,* Ana Cubas-Báez,^b Frederick Cubbage,^b Bruno Kanieski da Silva ^c

a: International Forestry Consultant, Germantown, TN, USA.
b: Department of Forestry and Environmental Resources, North Carolina State University, Raleigh, NC, USA.
c: Warnell School of Forestry and Natural Resources, University of Georgia, Athens, GA, USA.
*Corresponding author: E-mail: robert.davis@intforest.com

Citation: Davis RR, Cubas- Báez A, Cubbage F, Kanieski da Silva B. 2024. Plantation forestry in Paraguay emerges. J.For.Bus.Res. 3(1): 103-150. https://doi.org/10.62320/jfbr.v3i1.44

Received: 30 November 2023 / Accepted: 21 June 2024 / Published: 25 June 2024

ABSTRACT

Over the last two decades, investors in the forestry sector have been increasingly active in Paraguay, establishing tree plantations with the aim of profiting from the burgeoning global demand for wood and fiber. Growth rates for commercial tree species are good to excellent, and the country has over 7.6 million hectares (Mha) of land with high to very high potential for cultivating them. Since 2010, Paraguay’s plantation area has quadrupled to more than 204,631 ha and planting rates accelerated sharply in 2023. This wave of planting and related forest industries is bringing jobs to rural communities and helping to diversify the country’s economy. Despite these positives, plantation forestry in Paraguay faces some hurdles: high transportation costs from this landlocked country to overseas markets, time-consuming bureaucratic processes, and governance issues. Another challenge is mainstreaming plantation-grown wood into the domestic supply chain, especially for fuelwood, one of the most important sources of energy for Paraguayan households and industry. With native wood now in short supply due to decades of heavy deforestation and overcutting, sustainable fuelwood plantations are needed to fill the gap. Major investments are nevertheless moving ahead. A new multibillion-dollar pulp mill under construction, an uptick in tree planting, the resolve to address domestic needs, especially for fuelwood, and decades of experience managing modest-sized plantations suggest that Paraguay’s plantation forestry sector is poised to expand. Bolstering this expansion with environmental and social best practices will help underpin its sustainability over the long term.

Keywords: carbon sequestration, deforestation, eucalyptus, forestry, growth rates, investment returns, land distribution, Paraguay, pine, risks, tree planting, trees

INTRODUCTION

Paraguay is the fifth smallest country in South America, comprising an area of about 406,752 sq km (40.7 Mha) and sharing borders with Argentina to the south, Bolivia to the northwest, and Brazil to the east and northeast (United Nations Statistics Division 2014). In 2024, the country had a population of 6.9 million inhabitants, with 37 percent living in rural areas (United Nations Population Fund 2024; World Bank 2022). In 2022, Paraguay had a Gross Domestic Product (GDP) of US $41.7 billion and an inflation rate of 9.8 percent (World Bank 2024a; World Bank 2024b). Some 80 percent of the country’s exports come from hydropower, agriculture, and livestock (World Bank 2024c).

Commercial forestry with plantations, long a backwater in the country’s economy, has evolved slowly until recently. In 1990, the country had only 13,000 ha of plantations and planted an average of less than 1,400 ha annually until 2010 (FAO 1981; FAO 1993; FAO 2010). From 2010 to 2022, planting rose dramatically to approximately 13,000 ha per year (FAO 2010; Instituto Forestal Nacional [INFONA] 2023a). By 2022, the country had 204,631 ha of commercial plantations, and planting rates accelerated sharply again in 2023 to an estimated 50,000 ha annually (INFONA 2023a; Federacion Paraguaya de Maderaros [FEPAMA] 2023). Two ventures are driving this most recent acceleration. One involves planting 114,000 ha to supply fiber for a new pulp mill, while another will plant 80,000 ha as a resource for future forest industries (Paracel S.A. n.d.; EUWID 2022; FEPAMA 2023; Astarte Capital Partners LLP 2024).

Managed properly, commercial tree species, mostly eucalypts from Australia and pines from North America, commonly achieve growth rates of 20-38 m³ha^-1 year^-1 in eastern Paraguay, making them highly desirable for forestry enterprises (Frey 2007; Monges 2017; Cubas-Báez 2020; Vargas 2021). Financial rates of return (FRR) for plantation-grown eucalypts in Paraguay at 15-22 percent are among the highest in the region (Frey 2007; Monges 2017; Cubas-Báez 2020; INFONA 2022; Cubbage et al. 2022). Prices for land appropriate for forestry are low to moderate at about US $1,000-$3,000 per ha, and establishment costs at US $1,300-$2,609 per ha are comparable to those in other countries in the Southern Cone (INFONA 2022; Ortiz and Molinas 2022; Cubas-Báez 2020; Cubbage et al. 2022; Yanosky 2024).

Although risks to investors in plantation forestry still exist in Paraguay, the overall investment setting in the sector has improved over the past two decades. The number of landholders with formal land titles has increased significantly, country investment risks have declined, and riverports out of this landlocked country have been upgraded to handle the shipping of large volumes of commodities by barge (Ministerio de Agricultura y Ganadería [MAG] 2023; Durand-Morat 2019; REDIEX 2021; S&P Global 2022). Other conditions attractive to investors include the forestry sector’s decades of experience with small- to medium-scale plantation management and its extensive results from species trials.

The threat of pest outbreaks in plantations is low, with the exception of leafcutter ants (Atta and Acromyrmex spp.), and theft of plantation-grown wood in Paraguay is relatively uncommon, although the risk of wildfires is high (Frey 2007; Ramírez 2017; INFONA 2024). Other issues affecting the sector include time-consuming bureaucratic processes, a complex regulatory framework, and various governance concerns (US Department of State 2022; US Department of State 2023; Transparency International 2023). Nevertheless, according to civil society groups and non-governmental organizations (NGO), more tools and regulations promoting access to information, prioritizing transparency, and combating corruption have been developed over the past few years (US Department of State 2022)[1]. With land for planting trees at a premium worldwide, increasing global demand for wood products, an improved investment climate and urgent need to shore up national wood supplies, along with millions of hectares with favorable conditions for tree cultivation, Paraguay’s potential as an attractive location for plantation forestry appears to be coming into focus.[2]

MATERIALS AND METHODS

This article summarizes a review of existing information from 136 sources concerning Paraguay’s forests and its potential for supporting industrial-scale tree planting. Sources for this article include information from journals, government and industry websites, grey literature, and personal communications from experts in the field (see References). Some of the insights are based on the authors’ on-the-ground forestry experiences in Paraguay, as well as nearby Brazil, Chile, Uruguay, and Argentina.

Because consistently reliable statistics on forest industries and forestry in Paraguay can be difficult to obtain, reliable time series for the sector’s growth are often impossible to compile. The constantly changing situation, including high levels of deforestation and rapid increases in plantation establishment, can also render relatively recent documents and reports obsolete. On a positive note, the country’s forestry agency, INFONA, has recently released more timely reports and data related to forestry on its website.

The authors have made an effort to utilize only the best available information. Original reports and primary sources were favored over secondary sources. Statistics found to be outside expected ranges were checked and verified, or discarded if they could not be supported by corroborating evidence. In general, more recent statistics were favored over older ones, unless older references were the only or best sources available for particular parameters. In some situations, older data were also used to illustrate important points that otherwise could not be brought forward.

RESULTS AND DISCUSSION

Investments in the Paraguayan landscape

The backdrop for investments in commercial forestry in Paraguay’s landscape is complex, involving an interplay of economic interests, societal needs, and environmental conditions. The country’s economy is inextricably linked to its natural resources, particularly its fertile soils, dense forests, and rivers (Szulecka and Monges 2017; International Monetary Fund [IMF] 2023). Drawing on these assets over the past two decades, Paraguay’s economy has ballooned, with its GDP rising from US $8.9 billion in 2000 to $41.7 billion in 2022 (World Bank 2024a). Agriculture and ranching make up 30 percent of Paraguay’s Gross Domestic Product (GDP), provide jobs for some 400,000 Paraguayans, and contribute to reducing poverty (World Bank 2024d; INFONA 2023a; UNDP 2024). Globally, Paraguay is now the sixth-largest exporter of soybeans and the eighth-largest exporter of beef (UNDP 2024).

Much of this economic progress, however, has exacted a toll on the country’s natural ecosystems, particularly on its forests. From 2005 to 2022, 5.7 million ha of forests were converted to croplands and pasture. From 2021 to 2022, the annual deforestation rate in Paraguay stood at 1.5 percent (225,236 ha per year), which is extremely high; and by 2022, only 14.7 Mha of its native forests were still standing compared to 25.5 Mha in 1990 (INFONA 2023a; FAO 2020)[3]^,[4]. The impact of deforestation in Paraguay has had serious consequences, including the loss of biodiversity, destruction of carbon sinks that regulate the climate, shortages of wood needed for fuel and lumber, and disruptions in the hydrologic cycle, including more severe flooding (World Bank 2020; IMF 2023).

These changes could affect Paraguay’s economy, which relies heavily on its water resources to power a major hydroelectric project and transport agricultural goods by river to ocean ports and overseas markets. Fuelwood from native forests, which most Paraguayans households and many industries depend on for a large portion of their energy needs, is also in short supply due to decades of heavy deforestation and unsustainable cutting (MOPC 2019; IMF 2023). The ramifications of this shortage extend to the agricultural sector, which relies on biomass (mainly wood fuels) to dry soybeans and grains prior to export[5].

Broadening the scope of tree planting in Paraguay beyond its focus on producing timber and fiber has important implications for the long-term economic welfare of Paraguay. A more comprehensive approach would include more sustainably managed fuelwood plantations and restoring forest cover to protect critical watersheds. Establishing plantations for fuelwood, however, has been a hard sell to investors, who can make about six times the amount of profit by growing plantations for quality timber (FEPAMA 2022). And consumers still prefer fuelwood from native forests, which is 6 to 18 times less expensive than plantation-grown wood (FAO 2018). To scale up tree planting for fuelwood and watershed protection, approaches such as public-private partnerships and payment for environmental services schemes may be needed to complement commercial efforts.

Geography and ecology

Flowing north to south, the Paraguay River divides the country into two major geographic and ecological regions: the humid Región Oriental in the east and the mostly arid region in the west, generally referred to as the Región Occidental (Figure 1). Köppen Climate Zones in Paraguay are tropical rainforest, monsoon, and savannah; arid steppe; and temperate regions (Figure 2) (Beck et al. 2018). About 18 percent of the country’s 14.7 Mha of forests are in the Región Oriental and 82 percent in the Región Occidental (figure 3) (INFONA 2023a).

The Región Oriental is the original home of several Indigenous peoples, including the Mbya Guaraní, Ava Guaraní, and Ache, and was once covered by the lush tropical Alto Paraná Atlantic Forest, one of the most biodiverse forests in the world (International Work Group for Indigenous Affairs 2023; World Wildlife Fund 2006)[6]. Today only about five percent (2.7 Mha) of the Alto Paraná Atlantic Forest’s original forest cover remains, with the few remnant patches having been mostly logged out or placed under protection for conservation and legally off limits to cutting (INFONA 2023a, FAO 2018) [7]. The predominant land uses in the Región Oriental are now soybean cultivation and ranching.

For forestry purposes, Frey (2007) divides the Región Oriental into two subregions, the Paraguay River and the Paraná River basins. Rainfall in the Paraná basin frequently exceeds 1,800 mm annually, while the Paraguay basin receives up to 1,600 mm on its eastern flank with wide seasonal variation (Pasten et al. n.d.). These river basins and the overall Región Oriental have highly favorable conditions for tree growth and plantation forestry: warm temperatures, ample rainfall, gentle terrain, and fertile soils.

The Región Occidental has 11.9 Mha of mostly xerophytic forests and three major natural ecosystems: the Humid Chaco (or Bajo Chaco), Dry Chaco (or Chaco Central), and Pantanal (wetlands) (Cervantes et al. 2023; Frey 2007; INFONA 2023a). The Humid or Bajo Chaco receives only about 700 mm of rainfall annually, while the Dry or Chaco Central is even dryer, receiving only 600 mm (Frey 2007; Pasten et al. n.d.). Unlike Región Oriental’s fertile environment, the Chaco ecosystems and Pantanal wetlands are not conducive to cultivating most tree crops. Long distances to major markets in the east, where most of the population resides and industries are located, also hinder commercial forestry development in the Región Occidental.

In 2022, some 88 percent of the country’s deforestation occurred in the Chaco, mainly due to the conversion of forest to agriculture and pastureland (INFONA 2023a). Most of this deforestation is legal and sanctioned by Decree 175/18, which regulates Article 42 of Law 422/73 (i.e., the Paraguayan Forest Law) (INFONA 2023a, Cervantes et al. 2023; República de Paraguay 2018)^[8].

Plantation forestry and its potential

Overview

To assess Paraguay’s potential suitability for tree planting, INFONA (2023b) conducted a countrywide spatial analysis using a geographic information system (GIS). Their assessment included biophysical factors that affect tree growth, distances to roads and ports, locations of forest industries, and socioeconomic variables (INFONA 2023b). Results from the analysis indicated that Paraguay has about 20.1 million ha with varying degrees of suitability for tree planting, although only 7.6 million ha are considered to have high-to-very high suitability (Table 1) (Figure 4) (INFONA 2023b).

Figure 1. Map of Paraguay (Adapted from Mappr.com n.d.).

Figure 2. Köppen-Geiger climate classification map for Paraguay (1980-2016) (Beck et al. 2018).