Over 1.2 million people live on small farms in Paraguay. This accounts for 58% of the total rural population and 29% of the country’s total population. According to World Bank (1995), 80% of small farm families live below the poverty line and suffer from inadequate education, health and nutrition. As a consequence of their worsening situation, many small farm families have been leaving their farms and moving to the cities in search of better living conditions which they unfortunately seldom find. Migrating rural families end up living in urban slums confronting worse poverty than they experienced in the countryside. One of the root causes of this "circulo de la pobreza" is soil degradation due to soil erosion. Land reaches the point of becoming uneconomic to crop. Abandoned cropping land then reverts to lowly producing natural pastures used to feed cattle.

While the causes of soil erosion are complex they are mainly due to inappropriate soil tillage and cropping practices. The technologies of green manure crops in crop rotations using no-till offer an appropriate means of reversing the debilitating trends of lowering small farm productivity. However, before a substantial number of small farmers can benefit from these technologies, a number of policy changes are needed, and considerable public and private investment will be necessary.

Firstly small farmers will need to be equipped with the necessary technical know-how of no-till/crop rotations. This could be provided through appropriately trained extension services. Government will need to fund these services, since small farmers are unable to fund them themselves. Farmer co-operatives are also not in a position to fund the needed extension services for small farmers since in the short- to medium-term it will not be sufficiently financially attractive. Moreover, the more viable farmer co-operatives are adopting a user-pays extension service policy. Government need not be the provider of these extension services since it is now Government policy to privatise extension services wherever possible. Therefore, within the context of no-till/crop rotation technologies being adopted by small farmers, Government should wherever feasible contract the necessary services to NGOs or other private sector extension providers (farmer co-operatives or private companies). Only as a last resort, where cost-effective private sector providers cannot be contracted, the services should be provided by DEAG.

Specialist training will be required to equip extensionists with the necessary skills. Every attempt should be made to involve small farmers in all development and extension efforts through participatory on-farm research and development. A number of leading small farmers could also be equipped with motorcycles and employed as part of the extension efforts. This should be done once sufficient development and testing of technologies in a location has been completed. These farmers could be very cost-effective in disseminating these new se technologies on to other small farmers.

There is a need for specific agricultural research for small farmers to be funded and provided by Government . DIA is the provider of Government funded agricultural research, but current policy directives is for DIA is to conduct research for medium and large farmers. Research policy will therefore need to change so that the specific needs of small farmers are also met.

Given the uniquely different circumstances faced by small farmers compared to those of medium and large farmers, there is clearly a justifiable need for separate research and development programmes for small farmers. Emphasis should be placed on participatory research with the small farmers on their farms. To achieve this, it is recommended that a small number of DIA staff, and a small number of extension staff of DEAG, should be trained in participatory on-farm research and development. These persons could then work in small teams throughout the country and provide much-needed links between research-extension-small farmers. The approach taken should be participatory on-farm research and development fostering an active participation of small farmers.

Small farmers will need assistance to purchase in small groups, or associations, the machinery and equipment needed for no-till. Initially, such machinery would be beyond the scope of an individual small farmer to own himself. Manual-powered sprayers, animal-traction planters (siembradoras) and rollo cuchillos, can be owned by groups of farmers. Experience emerging in Edelira suggests that this will work best with small groups of 3-5 farmers. The formation of these groups will require extension specialists with special training in working with groups of farmers. They will need to be trained in (i) group organisation, (ii) the preparation of financial plans for groups of farmers to be able to raise long-term loans for the purchase of machinery and (iii) in the operation and maintenance of machinery.

Policies supporting the formation of small farmer organisations will be needed. Supporting the formation of small farmer co-operatives will be extremely important to assist small farmers in the marketing of their produce (obtain better produce prices) and in reducing the costs of farm inputs. A more coherent policy is urgently needed for supporting the formation of small farmer co-operatives in rural areas. There is a proliferation of organisations involved. Although outside of the scope of this study, it will be imperative that major institutional reform is carried out and policy conflicts resolved as soon as possible, so that limited resources can be more effectively used to support small farmer development.

Credit will need to be more accessible and remain affordable to small farmers. Specific credit programmes targeted to small farmers will be needed to permit farmers to purchase seeds, fertilisers and other inputs necessary to restore and maintain soil fertility. At present there are a number of organisations providing credit with identical or similar aims of assisting small farmers. For example, the Banco Nacional de Formento (BNF), Creditos Agricola de Habilitacion (CAH) and el Fondo de Desarrollo Campesino (FDC) all have very similar or identical mandates, yet all three have their own infrastructure and staff resources throughout the rural areas. This creates huge administration costs and an enormous drain on Government’s limited resources.

Policies are already in place to provide affordable credit to small farmers through the CAH, the BNF and the private sector including co-operatives via the FDC. However, credit policies for small farmers need to be more coherent and better co-ordinated between the different institutions in order to ensure accessible and sustainable credit services for small farmers to meet their short- and long-term credit needs. Clearer policy definition and more effective Government support will be needed to realise this.

A policy commitment and resource support for strengthening the linkages between credit institutions and small farmers would be beneficial. This could perhaps best be done through supporting farmer co-operatives to provide this link to help small farmers plan their investment in no-till machinery and in restoring soil fertility and then to administer their loan repayments.

A specific credit investment programme for the restoration of soil fertility on extremely degraded soils is needed. Under the existing policy environment this would best be implemented through the CAH. Also, a specific credit investment programme is needed for the purchase of no-till machinery by groups of small farmers. This could be implemented through farmer co-operatives. In the Departments where farmer co-operatives do not exist, or are not accessible to small farmers, the CAH should be used to provide this special line of credit targeted exclusively to small farmers.

The investment requirements on small farms are outlined below.

The proposal advanced in Section 3 for the recuperation of fertility on extremely degraded soils will require considerable investment over two years in lime, fertiliser and high green-mass producing manure crops. The costs of these inputs over two years vary depending on whether hybrid maize or a non-hybrid maize (guarani V312) is planted (see Table 31 for details). These costs for a 1 hectare parcela are summarised below in US dollars:

Hybrid Maize (US$/ha) Maize Guarani V312 (US$/ha)

Year 1 357 268

Year 2 248 159

A matraca costs approximately US$35 and a simple maize silo of 2,000 kg capacity about US$80. Assuming each farmer requires 2 matracas (one for cotton and another for maize) and one silo, the total capital cost per farmer in the first year is US$150.

The minimum complement of machinery small farmers would require to efficiently introduce no-till includes a 20 litre manual-powered sprayer with 4 nozzles, an animal-traction rollo cuchillo and a lime spreader. Typical costs for these are:

Rollo cuchillo US$600

Sprayer US$200

Lime spreader (encaladora) US$500

This machinery could be shared between a number of farmers. For the proposed first phase project, where each farmer would have a one hectare area where no-till would be introduced, it has been assumed that this equipment could be shared between 10 farmers.

The total capital cost per farmer for the proposed first phase project is US$150+US$1,300/10 = US$280.

Following the introduction of no-till in Central Paraguay, most probably farmers would quickly expand no-till on their farms from an initial 1 hectare to their entire cropping areas. In this situation, this pool of equipment could probably be conveniently shared between 3-5 neighbouring farmers. The capital investment in equipment and machinery for no-till per farmer would therefore be:

Three farmers per group = US$150+US$1,300/3 = US$583/farmer

Four farmers per group = US$150+US$1,300/4 = US$475/farmer

Five farmers per group = US$150+US$1,300/5 = US$410/farmer

In the first phase of the project it will be necessary for farmers to obtain a loan to finance the costs of technical inputs plus the cost of the matracas and the small maize silos. It is proposed that 25% of the 1-hectare parcela input costs in year 1 plus 100% of the input costs in year 2 should be met by the farmers. The total loan required per farmer would be US$337 + US$150 = US$487 for the hybrid maize option and US$226 + US$150 = US$376 for the maize guarani V312 option. A loan of between approximately US$400 to US$500 would be required per farmer. This is a considerable investment for these farmers necessitating careful consideration of the length of the loan, the rate of interest charged and their capacity to service such a loan.

5.3.3. Ability of Small Farmers to Service their Loans

Obviously each farmer’s situation will be different and will require individual consideration. However, in order to obtain a preliminary assessment of the capacity of a typical Paraguari farmer to service a loan of this magnitude, a farm model analysis was undertaken. This analysis is based on the typical 5-hectare farm (see Table 30 in Section 4.2.2 above). The analysis traces the financial impact on the farm of the 1-hectare parcela over the three-year development period. The analysis assumes that hybrid maize would be planted in the first two years in the parcela followed by mandioca-mani in the third year. A projection is also made of the likely future financial situation of the farm once all crops are no-tilled on the farm. The results are summarised in Table 35 below. Full details of the analysis are presented in Appendix A3 Table 24.

1 This cost includes the US$150 required for the two matracas and the maize silo.

The cost of the matracas and the maize silo at US$150 has been included in the cost column in the first year in Table 35. The net farm income in year 1 is estimated at minus US$388, well over twice as low as the present net income deficit. The estimated net farm income in year 2 (minus US$145) is similar to the present net farm income of minus US$176. In the third year, should expected crop yields be realised, net farm income is estimated to be slightly positive at US$33, which is a considerable improvement over the present net farm income. Once the fertility of the soil was recuperated over the total cropped area of the whole farm (3.75 ha), the estimated net farm income is calculated to rise substantially to US$298. The total farm labour requirement under no-till is estimated at 118 person-days, less than the 126 person-days used in the present conventional cultivation system. The future return to labour is calculated at US$2.52/person-day, which is a vast improvement over the negative return at present of minus US$1.40/person-day.

There is need to finance the cost to farmers of the matracas, maize silos and seed and other input costs in the first and second years. In Table 36 the farm cash flow before and after financing is shown. It is assumed that a loan of US$500 would be raised. US$300 would be drawn down the first year and the remaining US$200 in the second year. This would be sufficient to cover the cost of the farmer’s 25% contribution of the first year input costs, 100% of the second year inputs and the equipment (matracas and maize silo). The matracas, maize silo and first year inputs would be supplied to the farmer in the first year, while the inputs required for the second year of the parcela would be supplied before planting the second year crops. It is assumed that interest would be charged at 17.5% per annum and that interest only would be charged in the first year. The loan would thereafter be repaid in equal instalments of principal (i.e. US$500/3 = US$167/year) paid at the end of each calendar year over the next 3 years (i.e. years 2-4 inclusive). The loan would thus be expected to be paid back over 4 a year period, or sooner if the farmer so choose. Under such a financial arrangement, the farmer is expected to be slightly better-off, or slightly worse-off, financially in the first three years than he is at present. His financial situation would improve slightly in the fourth year and thereafter should be considerably higher so that he could begin to recuperate the fertility on other parts of his farm.

There would need to be a delayed loan repayment clause, or in extremely bad and deserving cases a loan write-off clause, to cover the possibility of crop failures due to climatic or pest risks beyond the control of the farmer (see Section 4.3.4). This risk would need to be covered by the Government of Paraguay as it would be both unfair and unrealistic to assume that small farmers could cover this risk. Crop failures caused through no fault of their own, would bring them undue financial hardship and in the worst cases could result in bankruptcy. Once the initial investment in recuperating the fertility of the soil has been made, should a well-balanced and diversified cropping system be practised involving a number of different crops and planting at different times, the risk of crop failures causing financial hardship would be considerably lowered.

5.3.4. Off-farm Investment

The costs of the extension component can justifiably be considered an off-farm investment associated with the first phase project. These costs, which total US$500,000 over four years were detailed in Section 4.3.2 and summarised in Table 33 above. Should the Government of Paraguay be interested in a second expansion phase of the project this would need to be defined and costed in detail. The detailed costings and spreadsheets that have been prepared in this study provide models that could be adapted for this purpose.

During the study consideration was given to the machinery and equipment that would be required to expand the use of no-till and green manure crops on small farms. On farms of less than 10 hectares, no-till could be achieved by hand-planting with a matraca as done by Sr. Mendoza. This reduces the capital cost and is the way in which it is proposed to introduce no-till in Central Paraguay in the first phase project.

It will only be possible to introduce no-till on small farms by forming small groups of farmers who could jointly own their no-till equipment. In Table 37 below, farmer investment costs are presented for different sized groups of farmers for various options involving matrices, animal-driven no-till planters, with or without small motorised stationery threshers. There may be interest on the part of small farmers to also purchase small motorised stationery threshers where currently insufficient are available for hire. These will enable the farmers to crop larger areas of their farms with crops that require threshing, like for example, maize and sunflower. They would also have the possibility of harvesting the seeds of green manure crops for their own use and for sale to other farmers.

Capital costs vary considerably from US$595 per farmer to US$2,933 per farmer depending on whether there are 3 or 4 farmers in the group and on the option assumed. Costs are considerably lower if no-till is carried out through the use of matracas rather than with no-till animal-powered planters. However, considerably more labour would be used in hand-planting. The hand-planting option may be viable for small farmers with less than 10 ha farms who have surplus family labour and no work oxen of their own. It would provide a lower-cost means of introducing no-till on their farms. After a few years they may well improve their farm production and income making it financially worthwhile to substitute hand-planting with animal-powered no-till planters. Savings of having four farmers per group compared to three are also considerable and may well be the best option for most farmers at least in the initial years of introducing no-till on their farms.  

There will be a need for long-term credit to enable farmers to purchase the machinery and equipment needed to change their farming systems from conventional cultivation to no-till. This has not been explored in depth in this report due to a lack of time. However, the report contains sufficient data and information on which to base such a financial analysis. Most probably, however, the majority of farmers would need a long-term loan of 5 to 7 years duration to finance the adaptation from conventional cropping to no-till with green manure crops and crop rotations.

5.4.3. Off-farm Investment Needs

A specific programme, or project, would need to be formulated for this similar to what has been done in this study for the recuperation of soils in the extremely degraded soil zones in Central Paraguay. The results of this study are so promising that it can be concluded with certainty that crop rotation/no-till technologies, which really constitute a technological revolution, have been developed and tested in Paraguay and have the potential to shift small farmers from unsustainable cropping systems to sustainable and profitable ones.

It is in the opinion of the study team that, should the Government of Paraguay be interested, a specific small farmer natural resources programme should be formulated with the aim of raising the incomes of small farmers through the development of sustainable farming systems. Besides a strong technical component, to provide that the necessary participatory research and extension support services emerge, the programme would need institutional development and credit components. These components would be designed to ensure that cost-effective research, extension and credit services are available to ensure that no-till/crop rotation technologies reach a high proportion of small farmers. International development institutions such as IFAD and the World Bank should be approached to gauge their potential interest in fostering and financing such development.

The study team interviewed various suppliers of no-till machinery and equipment in the Department of Itapua. There are private sector companies, both Brazilian and Paraguayan, ready to supply suitable manual and animal-powered no-till machinery and equipment. What is needed is a demand from small farmers. This requires specific programmes to provide the necessary technical assistance for the small farmers and long-term credit to enable them to purchase the needed machinery and equipment to realise this.