Export challenges

by Chris Lyddon
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Parts of South America are, in many ways, ideal for the production of crops, but at the same time geography and politics combine to give the region some special challenges of its own. Vast distances and underinvestment make logistics difficult, while governmental demands for money impose a further burden.

In April, the U.S. Grains Council’s Grain News published a story looking forward to a bumper South American soybean crop, but it warned of the logistical problems.

“Despite the anticipated bumper crop, logistics remain an ongoing challenge, particularly in Brazil, where corn and soybeans have to travel thousands of miles from Matto Grosso, the country’s central producing area, to be exported through coastal ports,” it said.

“In northern and central Brazil, soybean producers are required to load their product on trucks that travel via sub-par roadways to overcrowded ports in southeast Brazil. Transportation costs are high and plagued with uncertainty: the crop can be held on trucks anywhere from a few weeks to three months, waiting to unload at congested terminals.”

Speaking to the IGC’s recent conference in London, Andy Duff, head of Food and Agribusiness Research at Rabobank in Brazil, described Brazilian infrastructure as “a well-known story of underinvestment...leading to high logistics costs and a corresponding impact on competitiveness.”

For example, storage capacity is low in key regions. “Lack of storage equals lack of choices at harvest time,” he said.

The issue is being addressed. New financing for grain storage has been announced, and this should improve the situation, he said. But more resources will be required to achieve ideal storage capacity levels, owing to production growth.

He also looked at transport problems. Of Brazil’s 1.7 million kilometers of roads, 12% were paved in 2013. Of 28,000 kilometers of rail track, much is old, enforcing an average speed of 25 kilometers per hour. He outlined some recent developments. For example, in April 2014, Bunge made its first shipment of soybeans from Mato Grosso via Miritituba and a new terminal in Vila do Conde. In May 2014, there was the opening of part of the FNS railway between Anapolis and Palmas.

In October 2013, the extension of the rail route linking Rondonopolis (Mato Grosso) with the port of Santos opened. In March 2014, the government signed contracts awarding concessions for highway BR-163 (Mato Grosso) and BR-163 (Mato Grosso del Sul) to private sector players. In the ports of Santos and Paranagua, measures like strict scheduling of truck arrivals and the expansion of truck holding areas had been introduced to improve efficiency.

More developments are planned in the medium term. They include the expansion of grain terminals and the 100% asphalt surfacing of BR-163 between Mato Grosso and Miritituba, which is currently expected to be completed by the end 2015.

Longer term developments include a possible rail link between Acailandia and Vila do Conde, for which a feasibility study has been concluded, although completion is unlikely before 2020 and the removal of rocks along 43 kilometers of the Tocantins River is needed to enable barges to travel from Maraba to Vila do Conde and other Amazon ports.

He noted strong private sector interest in developing northern ports, but the timing of development depends on access (BR-163 surfacing and widening) and licences/tenders for infrastructure in Miritituba, Vila do Conde etc. “An optimistic view of the development of the northern ports would suggest little medium-term increase in grain shipments out of southern ports,” he said. “However, investments in southern ports should in any case lead to greater efficiencies and lower costs, as well as ensuring adequate capacity on a longer-term horizon.”

“The expansion of logistics capacity relative to grain exports should reduce logistics costs. Benefits will apply not only to grain exports, but also to fertilizer imports,” he said, noting that Brazil imports 70% of its fertilizer needs. “The on-farm impact of such changes would be an increase in grain margins per hectare, boosting profitability and competitiveness,” he said.

At the same conference, Ramiro Costa, chief economist of the Buenos Aires Grains Exchange, Argentina, gave figures which demonstrated why logistics play such a role in South America. While the United States transports just 10% of its soybeans by truck, 85% goes by truck in Argentina and 60% in Brazil. The U.S. moves 47% of its crop by rail, compared with 33% in Brazil and just 13% in Argentina, and the U.S. moves 43% of its crop by barge, compared with 7% in Brazil and only 1% in Argentina.

A team from the USDA looked at infrastructure progress and issued a report earlier this year. “The FAS team traveled to the North and Northeast of Brazil to review progress in infrastructure critical to making Brazilian agricultural exports, especially corn and soybeans, more competitive,” its report said. “The results of the trip are mixed. Progress has been made but much remains to be done before this export corridor achieves its full potential.”

The FAS team visited the port of Suape, located in Ipojuca, about 25 miles (40 kilometers) to the south of Recife, the capital of the state of Pernambuco. “Over the last decade, Suape has been the target of billions of dollars of public and private sector investment and has been a key factor behind the rapid growth rate of the state of Pernambuco,” the report said. “Suape is slated to be one of the termini of the Trans-Northeastern Railway, which when completed, will connect the port to southern Piauí, which is located within the Brazilian agricultural frontier and is already a major producer of soybeans and corn. This railway connection to Suape will increase Brazil’s agricultural competiveness, in conjunction with the construction and opening of other Brazilian ports in the Northeast and North. Already, a significant percentage of the Northeast’s fruit exports, much of which originates from the Petrolina area in the interior of Pernambuco, is shipped out of Suape.”

The railroad, to be built as a public-private partnership, was originally projected for completion in 2010. The report describes a series of delays, with the target date slipping to 2016 for the Pernambucan portion of the TNR (about 450 miles or 725 kilometers).

“When asked about the coordination among Piauí, Pernambuco and Ceará state governments to expedite TNR construction and maximize efficiencies, PSSED (Pernambuco State Secretariat of Economic Development) officials stated that this was not a practice,” the report said.

“In the port visits the FAS Team was able to identify the infrastructure advances made, particularly in São Luis and Belem,” the report said. “Nevertheless, administrative red tape and the pace of construction persist as challenges. In the short and medium term, the team believes that the ports of the North and Northeast will continue to increase export capacity by 3-5 million tonnes per year,” it said. “In the long term, the region is poised to radically shift the country’s current agricultural export channels and thereby significantly increase Brazil’s agricultural export competitiveness.”

Political challenges in Argentina

The challenges facing Argentina’s producers are more political, with government seeking to control and tax trade in grains.

“There still persists great uncertainty on the marketing side, due to government policies which limit and control exports via quotas,” the attache said in a report on the influences on wheat producers. “There is some talk that the government could announce some measures to promote the planting of wheat in MY2014-15, but so far, they are only speculations.”

Contacts think that exports taxes, currently at 23%, could be waived in the current season and maybe official banks could launch inexpensive credits to promote greater wheat planting, the report said. “If some of these measures are announced, planted area could increase even further, but not significantly as most producers would prefer to wait and see after many years of disbelief and uncertainty.”

Growers in Argentina are influenced by freight factors. “Freight costs will continue to play a key role in defining area,” the attache, discussing maize, said. “Corn will be planted primarily in areas located close to the ports (primarily Rosario) and in locations in which there are industries which demand corn, such as ethanol, pork, poultry, feedlots, dairies, and wet and dry milling plants.”

The government has a strict control on corn and wheat exports as they are considered sensitive products, the attache explained. “Domestic supply needs to be secure before exports are allowed,” it said. “The government estimates future production, subtracts an estimated consumption and then announces an export quota with the surplus.”

A separate report highlighted the importance to Argentina’s government finances of the oilseeds sector.

“High export taxes on agricultural products have been source of income for the Government of Argentina (GOA) for many years,” it said. “In fact, soybean complex export taxes are the GOA’s largest source of U.S. dollars and a major contributor to the Central Bank reserves which are now under $30 billion. High inflation, a devaluation of the peso, and currency controls have put extra pressure on the economy and the expected influx of dollars from soybean complex exports play a major role in replenishing international reserves and funding government initiatives.”

Molino 3 Castillos, a Seaboard milling investment in Cartagena, Colombia. Photo courtesy of Seaboard.

Chris Lyddon is World Grain’s European editor. He may be contacted at: chris.lyddon@ntlworld.com.