Aug 19, 2021

Lack of Grain Storage in Brazil Contributes to Higher Costs

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

A lack of adequate grain storage has long been one of the factors in Brazil that contributes to what is known as "Custo Brasil" (Brazil Cost), which is the high cost of producing and marketing grain in Brazil due to inadequate highways, railroads, and ports.

The Food and Agriculture Organization of the United Nations (FAO) recommends that a country have enough grain storage to store 1.2 times its annual grain production, but Brazil falls woefully short of that goal.

Brazil is expected to produce 264.8 million tons of grain in 2020/21, but its grain storage capacity is only 171 million tons. So instead of having the capacity to store 120% of its annual gain production, Brazil has the capacity to store 64.5% of its annual grain production. The situation is not quite as bad as its seems because Brazil's two main crops, soybeans and corn, are harvested at different times of the year. Even with the offset in harvest, insufficient storage capacity drives up the costs of the agricultural sector.

The Brazilian government tried to address the lack of grain storage in the 2020/21 Harvest Plan which took effect July 1st. In the 2021/22 plan, the government devoted R$ 4.12 billion for the Program to Construct and Amplify Warehouses (PCA). This represents an increase of 84% compared to the 2020/21 plan. If fully applied, the R$ 4.12 billion would be enough to add about 5 million tons of storage capacity.

Mato Grosso is the state in Brazil with the most grain storage capacity at 38.7 million tons followed by Rio Grande do Sul at 30.9 million and Parana at 29.9 million tons. The department or Rural Economics for the State of Parana (Deral) estimates that the state will produce 38.6 million tons of grain in 2021/22, or 8.7 million tons more than what they can store.

The push to construct more grain storage is coming at an inopportune time due to raw material shortages and supply chain interruptions. For example, prior to the Covid-19 pandemic, in the state of Parana a section of galvanized metal for a grain silo cost R$ 4.50 each. Currently, the cost for that same section of metal is R$ 14.00.

Prior to the pandemic, if a farmer in Parana built an on-farm storage unit with a 15,000 ton capacity, it would pay for itself in about 10 years. The price of that same unit today is double due to the high cost of raw materials.

For farmers who do not have the financial resources to build their own storage units, some are joining together to build what they call a "grain condominium." A group of farmers joint together in a type of cooperative to specifically build storage units. The amount of resources each farmer must contribute is proportional to their estimated amount of grain production. These grain condominiums are essentially grain elevators equipped with balances, dryers, hoppers, grain silos with an office and small staff. In western Parana, many of these "grain condominiums" already exist.

On-farm storage or farmer owned "grain condominiums" offer many advantages for Brazilian farmers including