Brazil, similar in area to Europe, is the fifth largest country in the world in terms of land size and occupies almost half of the entire South American continent. But getting crops to market is a big problem due to the size of the country, lack of good infrastructure and distance from access points to the world. It’s just a long way to transport anything efficiently.

Otavio Lemos de Melo Celidonio, CEO of the Institute of Agricultural Economics of Mato Grosso (IMEA), says: “The first issue for farmers here is logistics, the second issue is logistics and the third issue is logistics.”

Thanks to its tropical climate, short-season soyabean and deep soils, the state of Mato Grosso produces about 30% of the country’s soyabeans. But, according to Lemos: “When the cost of transporting soyabeans from the fields in central Mato Grosso to a China-bound ship reach 40% of the commodity’s value, you have a serious problem.”

He explains that despite farm sizes of 10,000ha or more, some producers must truck their crops about 600 miles across the country to where they can be loaded on barges. The barges then travel another 700 miles by river to ports on the Amazon River. At the port, the soya beans are offloaded and stored until they are loaded on ships destined for the Atlantic Ocean, another 600 miles away.

But distances are only one problem. Less than 15% of roads in Brazil are paved. And because there are few railways, 60% of soya beans are transported by road.

Although the market price for soya is global and currently sits around $350/t ($9/bushel), the transportation in Brazil can cost up to $150/t or $4/bushel to get it to the terminal. One of the key competitive advantages US grain producers have is down to their investments in road, rail and barge infrastructure. South Dakota producers ship their soya beans on trains to the Pacific northwest at a cost as low as 7c/bushel. So the further soya bean prices fall, the more uncompetitive the Brazilian soyabean farmer becomes.

Agricultural boom

Grain production has more than doubled in Brazil since 1990, without improvement in agricultural logistics. And in the state of Mato Grosso, output has increased fourfold to 52m tonnes over the last 15 years.

And forecasts indicate that soya bean and maize exports will grow further.

But one of the key issues is that as agribusiness, and especially the boom in soya bean production, expanded into the vast plains of Mato Grosso, it moved further away from the ports. For example, Santos, in the state of Sao Paulo, is 2,000km away from the main soya bean producing area in Mato Grosso, yet it still handles nearly 60% of exports of the crop, most of which is hauled in by truck.

Lack of investment

Many believe Brazil’s infrastructure is not adequate enough to put it on a more competitive footing against rival exporters, who are often from the most advanced economies.

Brazil more or less stopped heavy infrastructure investment in the 1970s. So when grain production began to ramp up in areas thousands of miles from the sea, the roads, rail and port facilities eventually became overrun.

Road infrastructure

During the 1950s and 1960s, to serve agricultural development in the west and north of the country, Brazilian governments built thousands of kilometres of roads instead of more costly, but much more efficient, railroad tracks. This led the country to its present dependence on road-based transport rather than trains.

The realisation that Brazil needs farm revenues to underpin the foreign accounts led president Dilma Rousseff to prioritise infrastructure. However, a recent study by the Brazilian Institute of Logistics found that the cost to improve roads to a sufficient state is 19 times more than the government’s current budget for such improvements.

One road project of significance is the paving of the BR-163, which connects the central Mato Grosso region with northern Amazon ports. Farmers have been waiting for asphalt along the infamous highway for more than a decade. Yet despite work progressing, it still may be a further two years away.

Along with reducing internal trucking costs for grains and soya beans, it is expected that the road would decrease sea shipping costs to markets such as the EU compared with ports in southern Brazil.

The Brazilian Soya bean Producers Association estimates that transport costs will fall by at least $30/t for soya beans transported on this road.

Port infrastructure

Brazilian ports can be known for bottlenecks. In 2013, Credit Suisse noted that there was a “10-mile line of trucks waiting at gates to unload the crop and 200 ships waiting to load the cargo”. However, the recent privatisation process of several bulk sea port terminals has resulted in significant investment and a noticeable increase in efficiencies.

Infrastructure

Based on overall infrastructure quality, Brazil ranked 120 out of 144 countries surveyed by the World Economic Forum in 2014, with particularly poor results for roads. Brazil’s rankings have generally worsened over the past five years. As illustrated in the chart, Brazilian transport costs to China, the top global soya bean importer, are significantly higher than the US. In the top soya bean production state of Mato Grosso, transport costs as a portion of the total landed price were 31% compared with 16% in Iowa.

But this is not just a story about exports. Currently, much of Mato Grosso’s corn and soya bean harvests are trucked to poultry and livestock feeding operations in southern Brazil. The livestock is then shipped to northeast Brazil, where animal protein consumption is increasing rapidly. Rail improvements will allow for greater meat production in Mato Grosso and direct shipment to the northeast either for local consumption or export.

Comment

Despite planned improvements, poor logistics and transport infrastructure burdens Brazilian agriculture and influences the competitive position of the sector. In general, Brazil allocates a relatively low share of its agricultural support to infrastructure. While short-term benefits accrue to farmers from price support and credit programmes, in the longer run sector-wide investments can have a higher pay-off for farmers.

If Brazil transferred additional resources to public investment it should lead to improvements in agricultural productivity and hence the associated profitability of the sector.

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