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77 Challenge 1: Improve Management Techniques It Would Difficult to Meet Guideline to Formulate the Strategy for Sustainable Development in Rural Territories Final Report Challenge 1: Improve management techniques It would difficult to meet the increased demand if processing companies work only with dairy farms directly contracted by them, since the availability of their land is limited. It is therefore necessary to continue working with them as key production units, and invite local small dairy farms to participate in their value chain. For this it is necessary to address some issues. First, it is essential to develop and extend breeds of cows with high milking capacity such as Holstein.76 To achieve this, it is necessary to facilitate low-interest financing for small farms which purchase high-capacity dairy cows, and create an appropriate framework for repayment with daily processing companies. The dairy farms that sell raw materials directly to the dairy processing company studied are mostly descendants of Europeans with rich experiences and expertise, such as pasture management, provision of balanced artificial insemination techniques, integrated management of hygiene in the milking process, bacteriological control, and temperature control before clearance, which are all necessary for management of dairy cows.77 These farms can produce between 20 and 30 liters of milk per head per day through proper management of high capacity cows (Holstein, among others), which is much higher than the national average, 10 liters per head per day. Many small farms raise Holstein, but do not have appropriate management techniques. It is obviously not sufficient to introduce breeds of cows with high capacity, but is necessary to provide training on proper management and follow up actions for small dairy producers. Challenge 2: External assistance to processing companies The processing company studied offers technology transfer and monitoring to directly contracted dairy farms. If the number of dairy farms increases, it is inevitable for the company to expand its service coverage and monitoring of technology transfer to those new farms. However, it is likely that the extension of service coverage would put additional costs to the company, push up sales prices of dairy products, and result in the loss of competitiveness in this industry. The assistance by the public sector or donor agencies to organize small farmers could be one of the areas to support the initiative of processing companies. For example, raw milk is 76 For example, to achieve the recommended by the WHO in the domestic market, keeping the same number of dairy cows and milking the volume of calls for increased 33,866 head of cattle. “Exploitation of medium and small farms in Paraguay,”, 2004 MAG / JICA. 77 ABC Digital La Vaca Lechera: un verdadera fábrica de alimentoshttp://fw3.abc.com.py/suplementos/rural/articulos.php?pid=182210 77 Guideline to Formulate the Strategy for Sustainable Development in Rural Territories Final Report currently transported to collection centers with carts or motorcycles by respective small producers. It might be possible to support organize small producers, establish a collective collection system, and reduce transport costs as a result. Challenge 3: Improve road infrastructure There are several sections in rural areas that become impassable in rainy season. To address the issue, it is necessary to consider two groups of paths: rural roads from the production area to the collection centers where containers are installed, and main roads. Rural roads play an important role in ensuring the supply of raw milk according to the plan of processing companies. Rural roads in poor condition make it difficult for producers to comply with the plan, and adversely affect their income. Improving conditions of rural roads from the collection centers to the main road is therefore critical. There is a clear need of co-management of rural roads by the administration, processing companies, and communities. For example, rural roads within the community could be built and maintained mainly by the community, while access rural roads from main roads to communities could be maintained by processing companies and the public sector. Challenge 4: Reduce processing cost Of gross profit of 1,025 per liter Guarani of the processing plant, net profit is only 6% and the remaining 94% are costs. In particular the materials purchased from a third party, including paper packaging accounts for 51% of their expenditures. It is considered necessary to reduce the cost of processing by increasing production and as a result, increasing the ability to negotiate prices with external suppliers. 4 1"(#%1)0(3 Organic sugar is more than 60% of the total According to the MIC, table (ordinary) sugar that was previously dominant is being replaced by organic sugar through the continued growth in the latter. In 2007 the production of organic sugar surpassed table sugar (figure 3.2-33). Of the total production of 106,598 tons in 2008, 61.2% was organic sugar, most of )'96%`HYP``9' 6564$9#8)43)3 6 '9 D which was oriented for export. 78 Guideline to Formulate the Strategy for Sustainable Development in Rural Territories Final Report The sugar produced in the 22 major refineries is exported to 27 countries through 18 exporting companies. Total export volume increased from 32,551 tons in 2003 to 101,553 tons in 2008. The main market was North America (68,837 tons, 67.8%), of which the U.S. accounted for 97%. The export to European countries was 29,622 tons (29.2%), mainly Germany (26.8%). According to the Paraguayan Chamber of Sugar, direct employees of sugar industry are estimated to be 31,250 people, including farmers and mill workers. Additionally, there are 220,000 people indirectly involved in this industry, including transport companies, financial institutions, suppliers of agricultural equipment and materials, workshops, farm machinery, and so on. Production of sugar cane According to CAN 2008 there are 20,550 agricultural production units in the Eastern Region, the main production areas of sugar cane, with the planted area of 81.8301 hectares and a production of 5,079,612 tons.78 Small producers with less than 20 hectares occupy 87% of agricultural production units, and produce 40% of total sugar cane production.79 Disaggregating by departments, The largest proportion was produced in Guairá (38.6%), followed by Paraguarí (21.5%), Caaguazú (15.7%), Cordillera (6.3%), and Caazapá (5, 7%). These five departments together accounted for around 88% of total production. Between 2000 and 2008, the area planted increased by 68% and the production volume by 112%. These figures demonstrate the increasing trend of production of sugar cane. The 22 major mill companies produce sugar with raw materials from total 77,171 hectares, among which 28% belongs to those companies. However, only six of the 22 mill companies have large areas of cultivation, and many of the mill companies depend on supply of raw materials by small producers. 78 Among the total land planted, 27% belongs to mill companies. 79 122 large producers with land of more than 500 hectares (0.5%) occupy 36.2% of total production. 79 Guideline to Formulate the Strategy for Sustainable Development in Rural Territories Final Report Value chain of sugar industry As a case study, the value chain of sugar in Cordillera department is analyzed. The value chain consists of the following stages: production → collection → processing → export. According to CAN 2008, there are 1,464 agricultural production units in Cordillera department with 5,111 hectares, )'96%`HYP`a 19%#( )34&8(%79' 6)3$9786D producing annual 317,390 tons or approximately 38,000 million Guarani. The main costs consist of: preparation of agricultural land and labor labor for harvesting, which together are estimated to be approximately 8,300 million Guarani; and materials (fertilizers) costing 5,360 million Guarani. In addition to producers and employees of the mill companies, the following are involved in the value chain: 25 equipment and materials suppliers in the department; 12 equipment and materials suppliers outside the department; temporary harvest workers; and extension technicians directly employed by the mill companies. The price of delivery to mill compnaies is 120,000 Guarani per ton, and 38,000 million Gurani of total production. The sugar cane harvested by producers is first transported to collection centers by horse cart carriers. There are several collection centers in the department, equipped with cranes for loading trucks. The loading transportation costs are borne by producers, and are estimated to be approximately 640 million Guarani. The cost of equipment and materials are paid by mill companies. The value added in the production process is estimated to be 29,060 million Guarani, which is calculated by total production (38,000 million Guarani) minus the cost of labor (8,300 million Guarani) and the cost of transport (640 million Guarani). Then, the harvested sugar cane is transported to mill factories by trucks. This cost is borne by the mill companies, estimated to be 640 million Guarani. Sugar cane is processed into sugar with the value of USD 26.2 million (120.5 billion Guarani). The breakdown of this amount is 67% sugar (ordinary 41%, organic 26%), alcohol 27%, and honey for distilleries 6%.80 Most of the organic sugar (USD 6.55 million) is exported. In the case of organic sugar processing, the stages of production, transport and processing are performed within the department, while the 80 Miel para destilerías. 80 Guideline to Formulate the Strategy for Sustainable Development in Rural Territories Final Report activities from the port of landing are performed outside the department. Assuming the retail price in Italy (one of the destinations of exports) being 100%, 36% of the economic value were generated within the department. Potential of demand for organic sugar The demand for organic food has been showing a steady increasing trend in recent years.
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