Mar 19, 2018

Brazil Woefully Under Invested in Transportation Infrastructure

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

Agriculture and Livestock Confederation of Brazil (CNA) will present to President Michel Temer at the end of March, a 24 page study outlining the disadvantages Brazilian farmers face due to high costs in transporting their grain to export markets. Global Rural obtained an advanced copy of the report that details how much money Brazilian farmer's loos due the inefficiencies of the highways, railroads, and water transportation systems in Brazil.

Over the past ten years, Brazil has invested the equivalent of 0.6% of their GDP on infrastructure improvements. This is by far the lowest of the Brics countries (Brazil, Russia, India, and China). Over the same ten year period, China has invested 10% of their GDP, India has invested 8%, and Russia has invested 7%.

The lack of investments has not been due to just a lack of financial resources, but other factors as well such as: legal insecurities marked by changing regulations and complex legislation, contracts and projects poorly elaborated that led to cost overruns so that many projects run out of money before being completed, environmental licensing that is both cumbersome and lengthy, difficulty obtaining land for needed projects due to objections from indigenous groups and environmental group among others.

The expansion of agriculture production in the interior of Brazil has put grain production further away from export facilities. In 2003, the average distance from the field to the port was 500 kilometers. Over the last ten years there has been expansion of grain production in Mato Grosso, Goias, Tocantins, and Bahia and many of these areas are 2,000 kilometers from the traditional port facilities in southern Brazil.

Currently, 58% of Brazil's soybean and corn production is north of 16° South Latitude which runs through Brasilia (16° South Latitude) and about Cuiaba, which is the capital of Mato Grosso (15.3° South Latitude). Grain production north of that line has increased 87% between 2009 and 2015. Therefore, the expansion of grain production over the past decade has moved further away from the traditional ports in southern Brazil and closer to the Amazon River.

In Brazil today, 61% of the grain is transported via highways, 21% is transported by rail, and 14% is transported by water. In the United States 43% of the grain moves to port by water, 13% by truck and 13% by rail. The cost of transporting grain in Brazil by truck is US$ 34 per ton per kilometer. By rail it costs US$ 21 per ton per kilometer and by water it costs US$ 12 per ton per kilometer.

Brazil has 1.72 million kilometers of federal state, and local roads but only 12.2% are paved with most of the paved roads in southern and southeastern Brazil. This is 18 times less than in the U.S. and 14 times less than in China. Even if the roads are paved, many of the roads are in a very poor state of repair. All of these deficiencies has resulted in Brazil being ranked 123rd in world ranking for competitiveness.

These high transportation costs impact farmers in Mato Grosso more than almost any other state in Brazil. The study concludes that the transportation cost from the field to the port takes away one-third the value of soybeans and 80% of the value of corn.