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Brazil eyes fix for grain export logistics, U.S. should take note

Brazil has unveiled a new plan for modernizing and expanding some of its infrastructure to better support grain and oilseed exports, a move that is long overdue as the country’s dated logistics have somewhat capped growth in that sector.

The full effect may not be realized for another decade or even longer. But if the plan succeeds, the logistical advantages that the United States and other competitors have enjoyed over Brazil’s export program will be whittled away or eliminated, and the upgrading could also tie top buyers like China more closely into the process.

The plan will include multiple railway projects in the central grain belt and the privatization of numerous airports to improve air travel for tourism, farming, and the oil industry. Some 20 airports are set for auction on March 15, while the railway projects would be ready for bidding later this year or early next.

Vasconcelos also said Chinese investment would be “very well received” in the projects. This is somewhat ironic after new President Jair Bolsonaro blasted China on the campaign trail last year for “buying up” Brazil – but he was apparently referring to strategic assets and farm land.

Semantics aside, China has good reason to invest in Brazil’s infrastructure, an area the South American country has struggled with all along. China is the leading consumer of soybeans globally, and Brazil is by far the biggest supplier. With China locked in a trade war with No. 2 supplier the United States, it has increased dependence on South America for its soybeans.

China has already been investing in South American infrastructure, namely Argentina. The two countries signed a $1 billion contract in November for improvements to a rail line that transports raw materials, including soybeans. It is estimated that Chinese investments in Argentinian infrastructure have totaled around $18 billion over the last decade.

Argentina is not as big a threat to U.S. soybean exporters as Brazil, since Argentinian shippers primarily focus on soybean products. But a new, improved, more capable Brazil could certainly displace more U.S. business in the coming years, especially if crop production continues to expand.

STREAMLINING

Historically, Brazil’s corn and soybeans arrived primarily by truck at southern ports such as Santos and Paranagua for export overseas. As the crops got bigger, the international demand quickly outgrew the existing infrastructure, and the country became notorious for its challenging logistics.

This reached a tipping point in late 2013 when the traffic jam at Paranagua was so bad that vessels were left waiting to load outside the port for up to 100 days, and the situation was exacerbated by heavy rains.

A great deal of improvements have been made since then, including more loading terminals, more efficient truck traffic patterns at the ports, the paving of more roads, and the increased use of northern ports. There are many more upgrades yet to be done but jammed Brazilian export logistics have not really been a story in the past couple of years.

Brazil is lacking a reliable and broad railroad system. But if the current one was upgraded and expanded, it could seriously change the game for grain exporters, who largely rely on trucks to transport products to ports on high-traffic roadways.

Currently, about 15 percent of Brazil’s cargo is moved by rail, but the new plan would aim to raise that share to 31 percent by 2025.

Perhaps most importantly for agriculture, the plan calls for a railway in top corn and soybean producing state Mato Grosso for easier access to the northern ports. The Ferrograo grain railway connecting Mato Grosso to the world market will take 10 years to build.

There are currently no railroads in Mato Grosso, but with the planned project, Brazil’s grain production powerhouse could be operating similarly to fellow exporters in the United States.

The United States greatly relies on railroads for its robust corn, soybean, and wheat export programs, among others. Mexico, the No. 2 importer of U.S. grains and oilseeds, takes in 80 percent of U.S. products by rail, according to the U.S. Department of Agriculture.

Corn accounts for nearly half of total U.S. rail grain tonnage, but of the three major commodities, wheat is the one that relies on railroads the most. Up to two-thirds of exported U.S. wheat arrives at ports via rail. When U.S. soybeans are flowing heavily to China, the railroad plays a huge role as beans in the Northern Plains are shipped by train to ports in the Pacific Northwest.

EXPANDING

An equally viable threat to Brazil’s export competitors, though not an immediate one, is the South American country’s potential to further expand its area under agricultural production. This has long been a possibility, though not without controversy, as farmland expansion is seen as a threat to native vegetation, species and people.

The country’s new president, Bolsonaro, has placed pro-agribusiness policies at the center of his agenda, to the dismay of local activists who fear the government’s stance could lead to the stripping of environmental protections.

Brazil’s agriculture minister on Friday presented the idea of opening indigenous land to commercial farming, which could free a maximum 12 percent of Brazil’s area for crops if approved.

In July, the United Nations Food and Agriculture Organization (FAO) estimated that the world’s arable land will expand by 69 million hectares through 2050, with 49 million hectares (6 percent of Brazil’s total land area) of that growth taking place in Brazil.

Brazil planted a record-high 35.76 million hectares of soybeans for the 2019 harvest according to official statistics body Conab.
Source: Reuters

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