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November 24, 2016

Brazilian Highway System needs US$ 300 Billion in Investments

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

The majority of grain production in Brazil is still transported by truck to distant ports making Brazilian transportation costs some of the highest in the world. These high costs put Brazil at a disadvantage compared to its major agricultural competitor which is the United States.

According to a recent study conducted by Bain & Company and released by Dataagro, Brazil needs to invest US$ 300 billion over the next 15 years in its highway system to bring it up to the minimum standards needed to compete with the U.S.

The study pointed out that the focus of the investments should be on the construction of 20,000 kilometers of new highways increasing the roadway density to 4.2 kilometers per thousand square kilometers of territory. The new highways should increase the connections between 22 state capitals and five frontier commercial areas. Over the past three years, Brazil has constructed 3,000 kilometers of highways increasing its density to 1.7 kilometers per thousand square kilometers of territory.

As a comparison, the density of highways in the U.S. is 10.6 kilometers per thousand square kilometers of territory or six times the density of the Brazilian highway system. The highway density in China is 10.9 kilometers per thousand square kilometers of territory.

Obtaining the needed investments will depend on how the new highways will be funded. Due to a lack of funds from the federal government, more than 70% of the proposed new highways in Brazil will be toll roads as part of public/private partnerships. The federal government puts up some of the funds with the remainder coming from private companies which then collect the tolls to build and operate the highway.

The agricultural community wants improved highways of course, but they are against toll roads because they realize that they will be paying the new tolls in the form of lower grain prices. The grain companies and the transportation companies will gain efficiency and lower costs from the new toll roads, but they will pass along the toll charges to the farmers.

The toll charges in Brazil are not cheap. Most of the major highways in Brazil are being converted to toll roads and it will be nearly impossible to transport grain to Brazil's ports on any highways that are not toll roads. For example, it will cost approximately $ 0.90 per bushel just in toll charges to transport soybeans from northern Mato Grosso to the ports of Santos and Paranagua in southern Brazil.