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September 26, 2016

Construction of "Grain Railroad" given OK by Brazilian President

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

Farmers in the state of Mato Grosso in the center-west region of Brazil have long proposed a railroad linking the state with the Amazon River as a way to greatly reduce the cost of transporting their grain to export facilities. It now appears that the railroad is one step closer to being constructed.

Two weeks ago, the Brazilian president, Michel Temer, gave the go ahead for the railroad. It was included in a package of 25 infrastructure projects proposed by the federal government including: railroads, highways, ports, barging operations, airports, energy, and mining projects.

The railroad linking Mato Grosso with the Amazon River is being called the "Grain Railroad." It was originally projected to start in the city of Sinop in northern Mato Grosso, but the starting point has been extended southward to the city of Lucas do Rio Verde in central Mato Grosso. The total extension of the railroad is approximately 1,150 kilometers and the total estimated cost is R$ 12.6 billion. The northern terminus of the railroad will be the river port of Miritituba on the Tapajos River where there are barging facilities. At that point, the grain would be barged to ports at the mouth of the Amazon River.

The railroad will be built by private companies which can bid on sections of the railroad. Bidding is expected to be conducted during the second half of 2017 with construction starting in 2019. Companies will be given 5-7 years to complete construction and they will be granted a 65 year operating concession. The operating concession is much longer than other private/public infrastructure projects in Brazil which are generally 35 years. The potential bidders argued that the longer concession was needed to justify the project.

As with all infrastructure projects in Brazil, the actual cost and construction time will likely end up being higher and longer than the original proposal. Environmental concerns are already being expressed because the proposed railroad would need to pass through the Jamanxim National Park in the state of Para. Obtaining the required environmental permits in Brazil for infrastructure projects is always a very contentious and drawn out affair.

Eventually, it is estimated that the railroad could transport 40 million tons of grain annually at a savings of 40% compared to transporting the grain to export facilities in southern Brazil. Highway BR-163 is also under construction and it too would connect Mato Grosso with the same port facilities on the Tapajos River. Currently, Brazil has much higher transportation costs compared to its main competitors, which are the United States and Argentina.