Logistics drive up costs for Brazilian producers

first_imgShare Facebook Twitter Google + LinkedIn Pinterest If you have read my previous article, when I wrote on Brazil’s corn production and the massive export record established this year, a question might have popped into your mind. How on earth is Brazil being able to export so much corn (and soybeans) if the country is well known for its terrible logistics? And, if you are really into the agricultural markets, memories of some famous photos of dozens of trucks waiting in line on some muddy road may have emerged. Some Brazilian regions still have serious logistical problems, especially when compared to the United States. In 2018, the cost per metric ton to ship soybeans from Davenport, Iowa to Shanghai, China through the U.S. Gulf reached $88.80, according to USDA data. For Sorriso, Mato Grosso (Brazil’s top producer state), shipping soybeans to the same Chinese region, using the Brazilian port of Santos, cost $122.08 per metric ton.That difference, of course, means that farmers who grow soybeans in Sorriso, located 1,190 miles from the port of Santos, in southeastern Brazil, received less for their production. While farmers in Davenport got $9.15 per bushel, the 2018 average price received by farmers in Sorriso was $8.33.The main reason for that difference is the type of transportation used to move grains from producing regions to export ports in each country. While the United States has a well-developed transportation system based on an efficient  combination of rail, barge and truck, Brazil heavily relies on trucks, for many reasons that include some choices made in the past such as government incentives to the automotive industry in the early 1950s, which contributed to pushing railroads aside. Geographical and environmental peculiarities, along with several economic crises, also played a role in putting trucks and poorly maintained roads at the center of Brazil’s transportation system.The big increase in grain production in Brazilian central and northern states over the last three decades just added more drama to an already poor infrastructure, resulting in trucks stuck along the way, trying to reach ports that had not been built to attend that kind of demand. Brazil’s main ports, Santos and Paranaguá, were built in the late nineteenth century, to ship coffee produced in the states of São Paulo and Paraná, not soybeans and corn grown more than 1,000 miles away.Although southern states continue to be very significant in grain production, Brazil’s production map has turned upside down since the 1990s, with central and northern states becoming more and more important. Thirty years ago, they produced 36% of Brazil’s soybean and corn output. Now, they represent 61%.What Brazil needed, therefore, was to turn its logistics upside down too, avoiding, as far as possible, covering such long distances using only trucks. And some important changes have been made for a few years now, through private and public investment in road improvements, rail, barge and, last but not least, ports in the north of the country.Five years ago, the so-called “Northern Arc ports” shipped 19% and 12% of Brazil’s soybean and corn exports, respectively. Now in 2019, their share jumped to 32% and 33%. By the end of the year, 35 million metric tons of soybeans and corn will be shipped by the northern ports, compared to 11.1 million in 2014.That is a great achievement, no doubt. But much is yet to be done, especially when it comes to improving roads and railroads between producing regions and the northern ports. And investors seem to be interested in doing that, especially the Chinese, who recently announced infrastructure projects in the states of Maranhão and Pará. It might take time, probably several decades, to have something remotely similar to what the United States has. But it seems that Brazil has finally woken up.last_img