Oct 13, 2016

Brazil Ranks 81st in Global Competiveness, Worst in a Decade

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

Brazil continues to struggle with the high cost of transportation and now data from the Instituto de Logistica e Supply Chain has put a number to those high costs. In a study titled 'Logistical Costs in Brazil' (Custos Logisticos no Brasil) they estimate that 12.7% of the GDP of the country goes towards transportation, stocks, storage, and administration services. For comparison, in the United States, 7.8% of the GDP is expended for the same items.

This is the estimate for 2015 and it is up from 12.1% in 2014 due to the financial crisis that has engulfed Brazil for the last two years. The worst economic slowdown in decades has resulted in much higher costs to maintain bloated stocks.

If you break down the numbers further in Brazil, transportation accounts for 6.8% of GDP, stocks account for 4.5%, storage accounts for 0.9%, and administrative costs account for 0.5%.

The reason for these high costs in Brazil is the lack of cheaper alternatives to transport goods. According to the study, in Brazil, 65% of the goods are transported by truck, 20% by rail, 12% by water, and 3% by pipeline. In the United States, 43% of the goods move by truck, 32% by rail, 8% by water, and 17% by pipeline.

This analysis agrees with a recent report from the World Economic Forum that ranked Brazil in 81st position out of 138 countries in competiveness. This is down 33 points from 2012 and the worst ranking in a decade for Brazil. Authors of the rankings cite Brazil's slow adoption of technological advances and business innovation as some of the main reasons for the low ranking. Other problems in Brazil include: excessive regulations, high taxes, and inadequate infrastructure. Of the ten largest economies in Latin America, Brazil ranks 9th in competiveness with Chile and Panama leading the list.

The agricultural sector in Brazil is all too familiar with the logistical problems in Brazil. The country is in the process of addressing some of these issues, but recent progress has been slowed by a shrinking economy. The GDP of Brazil has shrunk by 3.7% to 4.0% for two consecutive years and it is not expected to return to growth until 2017. All of this leads to a fragile economy that hinders the investments needed for growth.