As a major global consumer of agrochemical inputs, Brazil's industry has long been constrained by two structural challenges: the "logistics water tax" dilemma caused by over-reliance on imported finished products, and the bottleneck of local production due to complex and high tax burdens. However, neighboring Paraguay, with its unique policy advantages, logistics innovations, and operational cost benefits, has emerged as the key to breaking this deadlock, offering Brazilian agrochemical enterprises a new solution for cost arbitrage and market access.

Brazil's Agrochemical Industry: Caught Between Logistics Inefficiency and High Taxes

Brazil's agrochemical consumption is substantial, yet its supply chain and tax structure have become "stumbling blocks" to industry development. In terms of logistics, Brazil's agrochemical imports are highly dependent on finished products from countries like China and India. These finished products contain large amounts of solvents and diluents (primarily water), which have no real economic value. Nevertheless, importers must pay high intercontinental shipping fees based on the total shipment volume, including the diluents. This creates a wasteful "logistics water tax" that drives up supply chain costs and reduces efficiency.

Taxation issues further exacerbate industry difficulties. Brazil imposes multiple taxes on the industrial production of agrochemicals, including the Industrial Product Tax (IPI), Value-Added Tax on Circulation (ICMS), Social Integration Tax/Social Security Financial Contribution (PIS/COFINS), and Service Tax (ISS). The combined tax burden on the value-added segment alone easily exceeds 35%. High tax rates and cumbersome regulations make local production of low-value-added, high-volume agrochemicals financially unfeasible in Brazil. Capital that should be used to improve efficiency and secure profits is largely consumed by the tax system, ultimately turning Brazil into a high-cost market for agrochemicals.

Paraguay's Solution: Triple Advantages in Policy, Logistics, and Operations

Through forward-looking strategic planning, Paraguay has built a comprehensive competitive edge in agrochemical production, establishing itself as an "efficiency pioneer" within Mercosur. Its core competitiveness first lies in the attractiveness of its fiscal and tax policies. The Export Processing Regime (Law No. 1064/97) provides significant fiscal arbitrage opportunities for enterprises: temporary importation of foreign raw materials (such as high-concentration agrochemical active ingredients, TGAI) for processing is exempt from taxes, and corporate income tax is replaced by a single 1% tax levied only on domestic value-added (VAN) generated within the country. Additionally, all taxes on profit and dividend repatriation abroad are waived. More importantly, the Paraguayan government offers tax stability commitments of up to 20 years for major industrial projects based on investment scale, completely eliminating risks of political volatility and sudden policy changes, and creating a stable regulatory "safe haven."

Logistics innovation is another major highlight of Paraguay. Leveraging the Export Processing Regime, enterprises only need to import high-concentration TGAI, reducing intercontinental shipping volume by 5 to 10 times. The dilution process is completed using locally sourced, low-cost water and inputs, fundamentally eliminating the wasteful "logistics water tax." This "reverse logistics intelligence" converts original shipping costs into corporate working capital, significantly improving supply chain efficiency and resilience.

Paraguay also holds a distinct advantage in operational costs. Its labor costs are far lower than Brazil's, and for the energy-intensive agrochemical formulation industry, access to some of the world's lowest industrial electricity rates—powered by the Itaipu Hydroelectric Dam—greatly reduces fixed operational costs (OPEX) for factories. In stark contrast to Brazil, which has one of the world's third-highest industrial electricity rates, Paraguay enables enterprises to achieve cost control that is unattainable for domestic factories in Brazil.

On-Site Verification: AGROFUTURO's Compliance and Customization Capabilities

Paraguay's advantages in agrochemical production are not just theoretical. A September 2025 on-site visit to AGROFUTURO Paraguay S.A. fully confirmed its high standards of compliance and outstanding industrial practices. Founded in 1996, the company has an annual formulation production capacity of 50 million liters/kilograms, sufficient to meet the huge demand of the Brazilian market.

More importantly, AGROFUTURO has set an industry benchmark for quality and compliance. It owns an ISO 17025-accredited quality control laboratory, capable of providing legally valid physical and chemical analysis results for raw materials and finished products. This advantage is crucial for Brazilian importers: amid Brazil's complex and lengthy agrochemical registration process, data from ISO 17025 laboratories can significantly reduce regulatory risks, accelerate product launch timelines, and resolve major administrative bottlenecks facing the industry. Meanwhile, leveraging its nearshore advantages and production flexibility, AGROFUTURO can also provide customized production and delivery services for Brazilian clients, accurately matching their product portfolios and logistics needs.

Strategic Choice: The Only Path for Brazilian Enterprises

For Brazilian agrochemical enterprises, localizing production in Paraguay is no longer an optional strategy but a necessity for maintaining competitiveness. Through Paraguay's Export Processing Regime, enterprises can simultaneously enjoy triple advantages in taxation, logistics, and operations. Combined with Mercosur's Rules of Origin—agrochemicals produced in Paraguay only need to meet the 60% regional value-added (VAR) requirement to be recognized as "originating" and exported to Brazil duty-free—this fully opens up channels for low-cost production and convenient market access.

For Brazilian enterprises seeking to optimize the production of low-active-ingredient-concentration products, establishing OEM partnerships with certified, high-capacity companies like AGROFUTURO is the lowest-risk and most efficient option: it eliminates the need to bear capital expenditure (CAPEX) for building new factories while avoiding regulatory and cost risks. Today, with its legal stability, simplified taxation, and logistics advantages, Paraguay has firmly established itself as a hub of industrial efficiency in South America, laying a solid foundation for the sustainable development and enhanced competitiveness of the regional agrochemical industry.