Agricultural irrigation systems for small and medium producers with financing
Agricultural irrigation systems for small and medium producers with financing
Business Model Description
Offer irrigation services and infrastructure equipped with technology tailored for small and medium plantations, financing them based on the timing of their harvests.
Expected Impact
Increase irrigation systems financing to improve agricultural outputs, reduce poverty and ensure food security.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Paraguay: Coordillera
- Paraguay: Misiones
- Paraguay: Paraguarí
- Paraguay: Guairá
- Paraguay: Caaguazú
Sector Classification
Food and Beverage
Development need
76% of the total area of the country is used for agricultural activities. The agro-livestock sector is critical in Paraguay since, in 2010, this sector represented 28% of GDP (I).
Policy priority
The Ministry of Agriculture and Livestock made a Strategic Agrarian Framework in 2013. The objectives are, among others: strengthen the capacity of the agricultural sector and increase competitivity (II).
Gender inequalities and marginalization issues
Rural poverty disproportionately affects women and indigenous communities. Key factors contributing to poverty among family farmers include fluctuating prices, insufficient wages, low productivity, limited technology adoption, declining soil fertility, lack of access to financial services, among others (III).
Investment opportunities introduction
The opportunity to modernize family farming in Paraguay using more inclusive business models can accelerate poverty reduction, increase the productivity of the sector and help close inequality gaps (IV).
Key bottlenecks introduction
Paraguay faces infrastructure gaps that include high transport costs, limited connectivity, disparities in regional development, and health-related impacts (V).
Food and Agriculture
Development need
76% of the total area of the country is used for agricultural activities. The agro-livestock sector is critical in Paraguay since, in 2010, this sector represented 28% of GDP (I).
Policy priority
The Ministry of Agriculture and Livestock made a Strategic Agrarian Framework in 2013. The objectives are, among others: strengthen the capacity of the agricultural sector and increase competitivity (II).
Gender inequalities and marginalization issues
Rural poverty disproportionately affects women and indigenous communities. Key factors contributing to poverty among family farmers include fluctuating prices, insufficient wages, low productivity, limited technology adoption, declining soil fertility, lack of access to financial services, among others (III).
Investment opportunities introduction
The opportunity to modernize family farming in Paraguay using more inclusive business models can accelerate poverty reduction, increase the productivity of the sector and help close inequality gaps (IV).
Key bottlenecks introduction
Paraguay faces infrastructure gaps that include high transport costs, limited connectivity, disparities in regional development, and health-related impacts (V).
Pipeline Opportunity
Agricultural irrigation systems for small and medium producers with financing
Offer irrigation services and infrastructure equipped with technology tailored for small and medium plantations, financing them based on the timing of their harvests.
Business Case
Market Size and Environment
2.48% coverage with irrigation.- total cultivated area of 6,547,372 ha (1)
In Paraguay, 45 commercial crops are currently utilizing irrigation technology. The country has a total of 7 irrigation systems and the overall irrigated agricultural area in Paraguay is approximately 162,325 ha (1).
Indicative Return
10% - 15%
An investment project for an irrigation system for an orange plantation in the Ejido de Limones, Bacalar municipality, Mexico, presents an IRR of 21%, using a discount rate of 10% (2).
The estimated rate of return in Agriculture for an investor is 11.23%. The rate provided is a benchmark calculated as a cost of capital with the country risk premium that translates into an average return required by active investors in the subsector (3).
Investment Timeframe
Short Term (0–5 years)
An investment project for an irrigation system for an orange plantation in the Ejido de Limones, Bacalar municipality, Mexico, presents an IRR of 21%, for the 5 years of the project (2).
The times of irrigation services or installation of irrigation systems may depend on the size of the agricultural fields. Most of the crops produced in the country are harvested in less than a year, in which the producers would pay the financing of the systems.
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Impact Case
Sustainable Development Need
In Paraguay, 45 commercial crops are currently utilizing irrigation technology. The country has a total of 7 irrigation systems and the overall irrigated agricultural area in Paraguay is approximately 162,325 ha (1).
To address the scarcity of natural resources in family farming and promote inclusion and sustainability, it is essential to ensure equitable access to resources, technological advancements and more sustainable farming practices (4).
Gender & Marginalisation
41.7% of the employed population in rural areas is dedicated to family farming. Half of the population employed in family farming is in a situation of poverty (49.4%), with a higher incidence among women (5).
Expected Development Outcome
Increase the proportion of the small and medium producers with agricultural irrigation systems financing.
Raise the percentage of small and medium producers adopting sustainable agricultural methods.
Increase access to financing for irrigation systems and technology for sustainable agricultural practices.
Gender & Marginalisation
Reduce inequalities in access to affordable irrigation systems for small and medium-sized producers.
Primary SDGs addressed
12.1.1 Number of countries developing, adopting or implementing policy instruments aimed at supporting the shift to sustainable consumption and production
8.2.1 Annual growth rate of real GDP per employed person
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Indirectly impacted stakeholders
Public sector
Outcome Risks
Providing higher lines of credit carries increased risks associated with the abuse of the system and non-repayment. These risks include amplified financial losses for lenders, heightened borrower vulnerability, the potential intensification of a debt cycle, elevated portfolio risk, and sustainability concerns for microcredit programs (7).
Small and medium producers may become over-indebted if they borrow beyond their repayment capacity (7).
Impact Risks
Stakeholders: High interest rate volatility creates uncertainty for investors, increases borrowing costs for borrowers, presents risk management challenges for financial institutions, reduces investment returns, contributes to market instability, and can have adverse economic effects.
Stakeholder risks: heightened credit risk stemming from a lack of trust in small and medium producers.
Impact Classification
What
Granting access to financing for affordable irrigation systems is positive because it boosts agricultural productivity, income stability, crop diversification, and food security.
Who
Small and medium-sized producers facing challenges in their production systems due to climate change and lacking the necessary financing to make improvements.
Risk
There is a risk of underutilization of funds due to the limited knowledge and management capacity of MSME and small farmer owners.
Impact Thesis
Increase irrigation systems financing to improve agricultural outputs, reduce poverty and ensure food security.
Enabling Environment
Policy Environment
The National Development Plan 2030 aims to achieve goals such as enhancing the productivity of family farming and increasing the household income share (8).
Agrarian Strategic Framework 2013 - The general objective of Axis 2 of the Agrarian Strategic Framework includes contributing to the process aimed at improving the quality of life with substantive reduction of poverty in Family Farming (9).
Financial Environment
The IDB offers loans that promote and finance sustainable and market-based business models that facilitate the participation of private sector companies, local governments and communities in the development and delivery of of quality products and services (12).
Development Financial Agency (AFD) - Its function is to grant credits to complement the funding structure of first-tier financial intermediation entities, in order to enable the execution of short, medium and long programs (13).
Law 60-90 (investment law) protects investments of national and / or foreign origin (8)> Law 60-90 establishes the total exoneration of fiscal and municipal taxes levied on the constitution, registration and company and company registries (14).
Regulatory Environment
Law No. 6286, which focuses on the "Defense, restoration and promotion of family farming." This law, promoted by the Parliamentary Front against Hunger of Paraguay, recognizes the significant role of family farmers in maintaining food security and food sovereignty (10).
Law No. 4457 / 12 establishes benefits for MSMEs. Among them, Art. 34, 35, 36 and 37: Special conditions for access to credits, financing and technical cooperation of MSMEs (11).
Marketplace Participants
Private Sector
Banco BASA (Paraguay), Banco Itaú (Paraguay), Banco Atlas (Paraguay), Interfisa Banco (Paraguay), Banco Continental (Paraguay), Banco GNB (Paraguay) (offer the AFD product)
Government
National Development Bank, Development Finance Agency, Ministry of Urbanism, Housing and Habitat, Central Bank of Paraguay
Multilaterals
IDB, European Union (EU), World Bank (WB).
Non-Profit
Fundación Paraguaya
Target Locations
Paraguay: Coordillera
Paraguay: Misiones
Paraguay: Paraguarí
Paraguay: Guairá
Paraguay: Caaguazú
References
- (I) Gobierno de Paraguay. 2014. Plan Nacional de Desarrollo Paraguay 2030. https://www.stp.gov.py/pnd/wp-content/uploads/2014/12/pnd2030.pdf (II) Ministerio de Agricultura y Ganaderia. 2013. Marco estratégico agrario. https://faolex.fao.org/docs/pdf/par179001.pdf (III) International Fund for Agricultural Development. 2016. Paraguay. https://www.ifad.org/en/web/operations/w/country/paraguay (IV) UNOPS. 2020. To grow, eat and sell: Modernizing agriculture in Paraguay. https://www.unops.org/news-and-stories/stories/to-grow-eat-and-sell-modernizing-agriculture-in-paraguay (V) OECD. 2018. Multi-dimensional Review of Paraguay. https://www.oecd.org/development/mdcr/countries/paraguay/Paraguay_Vol_1_Overview_En.pdf
- (1) Jorge Ogasawara. 2017. Estudio de los diferentes sistemas de riego agrícola utilizados en el Paraguay. https://www2.aladi.org/nsfaladi/estudios.nsf/4040FC1C4A77A47E0325819B0065757B/$FILE/DAPMDER_04_17_PY.pdf
- (2) Brenda del Carmen Alvarado Tamayo. 2015. Proyecto de inversión de un sistema de riego en el ejido de limones, municipio de Bacalar, Q. Roo. http://www.itzonamaya.edu.mx/web_biblio/archivos/res_prof/ige/ige-2015-16.pdf
- (3) Aswath Damodaran. 2021. Current Data. https://pages.stern.nyu.edu/~adamodar/
- (4) FAO. S.F. Fortalecimiento de la agricultura familiar, una estrategia para el desarrollo nacional. https://www.fao.org/paraguay/noticias/detail-events/zh/c/1263581/
- (5) ONU. 2020. Examen Periódico Universal – Tercer Ciclo - Paraguay. https://uprdoc.ohchr.org/uprweb/downloadfile.aspx?filename=8456&file=SpanishTranslation
- (6) International Fund for Agricultural Development. 2016. Investing in rural people in Paraguay. https://www.ifad.org/documents/38714170/39972349/Investing+in+rural+people+in+Paraguay.pdf/df4d8f6d-37d7-4c09-ae33-55ac52bba2cf?t=1517243708000
- (7) Jessica Schicks and Richard Rosenberg. 2011. Too Much Microcredit? A Survey of the Evidence on Over-Indebtedness. https://documents1.worldbank.org/curated/zh/553421468148522571/pdf/649800NWP00PUBLIC00Box361550B0OP19.pdf
- (8) Gobierno del Paraguay. 2014. Plan Nacional de Desarrollo Paraguay 2030. https://www.stp.gov.py/pnd/wp-content/uploads/2014/12/pnd2030.pdf
- (9) Ministerio de Agricultura y Ganaderia. 2013. Marco estratégico agrario. https://faolex.fao.org/docs/pdf/par179001.pdf
- (10) Congreso de la nación paraguaya. 2019. Ley No. 6286. https://www.bacn.gov.py/leyes-paraguayas/8898/ley-n-6286-de-defensa-restauracion-y-promocion-de-la-agricultura-familiar-campesina
- (11) Congreso de la nación paraguaya. 2012. Ley No. 4457. https://www.bacn.gov.py/leyes-paraguayas/8272/ley-n-4457-para-las-micro-pequenas-y-medianas-empresas-mipymes#:~:text=La%20presente%20Ley%20tiene%20por,servicios%2C%20y%20darles%20identidad%20jur%C3%ADdica.
- (12) International Finance Corporation. 2011. International Finance Institutions and development through private sector. https://www.deginvest.de/DEG-Englische-Dokumente/PDFs-Download-Center/IFI_and_Development_Trough_the_Private_Sector.pdf
- (13) Agencia Financiera de Desarrollo. S.F. Acerca de la AFD. https://www.afd.gov.py/que-es-la-afd
- (14) Congreso de la Nación Paraguaya. 1991. LEY Nº: 60/90. https://www.mic.gov.py/mic/w/industria/ddi/pdf/Ley60-90.pdf