May 21, 2015

Brazil and China Agree on Feasibility Study for "Mega Railroad"

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The governments of Brazil and China signed an accord on Tuesday in which China would invest US$ 53.3 billion in various projects in Brazil including agriculture, auto parts, transportation equipment, energy, railroads, highways, airports, ports, storage, and services. The agreement was reached between the Brazilian President Dilma Rousseff and the Chinese Premiere Li Keqiang on his visit to Brasilia.

The biggest proposed project involving agriculture would be a transoceanic "Mega Railroad" railroad linking Rio de Janeiro on the Atlantic Coast with Peru on the Pacific Coast. The R$ 30 billion railroad would start in Rio de Janeiro and pass through the Brazilian states of Minas Gerais, Goias, Mato Grosso, Rondonia, and Acre before entering Peru and ending at the Pacific Ocean (2,600 kilometers long). The agreement reached between Brazil and China is to conduct a feasibility study and not the actual building of the railroad, at least not yet.

In the state of Mato Grosso, the railroad would cross the state east to west cutting through the heart of the grain producing region of the state. It would facilitate the movement of soybeans, corn, soybean meal, meats and other agricultural products to China, which is the primary purchaser of Brazil's agricultural exports.

Individual companies will be able to bid on the construction of various sections of the proposed railroad. Grain and cargo terminals are planned for the city of Lucas do Rio Verde in central Mato Grosso and Araguaia in eastern Mato Grosso with a third in western Mato Grosso. Technical studies are already underway for the stretch of railroad that will connect Campinorte in Goias and Lucas do Rio Verde in Mato Grosso (1,000 kilometers).

No timetable has been established for the completion of the "Mega Railroad", but a project of this scope and technical complexity will take many years to be completed due to the extensive easement purchases, environmental licenses, engineering work, etc. Additionally, it still remains to be seen if Brazil and China can work out their differences on who will actually operate the railroad, if and when it is completed.