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March 26, 2018

CNA Study Highlights Brazil's Inefficient Transportation Systems

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

The Agriculture and Livestock Confederation of Brazil (CNA) compiled a 24 page study outlining the disadvantages Brazilian farmers face due to high costs in transporting their grain to export markets. The study will be presented to the Brazilian President Michel Temer and it details how much money Brazilian farmer's lose due to 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%.

In Brazil today, 61% of the grain is transported via highways, 21% is transported by rail, and 14% is transported by water. 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.

The study concluded that Brazil's railroad system has very low usability and efficiency. Brazil has 28,600 kilometers of railroads, which are operated by 12 different companies. Only one-third of the railroads in Brazil are economically viable. The average productivity of the railroads in Brazil is only 30% of the productivity of railroads in the United States.

Brazil has abundant waterways, but again, these waterways are underutilized for transporting grain. The study indicated that Brazil has 63,000 kilometers of waterways in 9 drainage basins, but only 13,000 kilometers are being utilized economically by agriculture. Brazil has 29,000 kilometers of navigable waterways that could be utilized without the need for dredging or the instillation of locks.

The president of the Soybean and Corn Producers Association of Mato Grosso (Aprosoja) indicated that farmers in the state are losing approximately $1.2 billion per year of their potential income from soybean production due to excessive transportation costs getting their grain to export facilities.

Mato Grosso has a tremendous amount of pastures that could be converted to crop production if the cost of transporting the grain could be reduced. Until four or five years ago, farmers in Mato Grosso were increasing their soybean acreage by 500,000 to 700,000 hectares per year. The combination of higher costs, lower prices and a severe economic recession in Brazil has forced farmers to drastically reduce their grain expansion. During the 2017/18 growing season, farmers in Mato Grosso only increased their soybean acreage by 85,000 hectares.

The cost of transporting grain from the fields in Mato Grosso to export facilities represents about one-third of the price of soybeans produced in the state. For corn, it is much worse representing as much as 80% of the price of corn.