With a climate that allows farmers to grow at least two crops per year on the same piece of land, potential for vastly improved crop production technology and more than 100 million hectares of agricultural land that has not yet been put into production, Brazil has the potential, in the eyes of many experts, to become the world’s top grain and oilseeds producer over the next decade.
Brazil’s Ministry of Agriculture, Livestock and Food Supply has projected significant crop growth during this period (see table 1, page 35). From 2007-08 to 2018-19, the ministry forecasts annual increases of 25% in maize production, 34% in soybean production, 11% in rice production and 45% in wheat output. Overall, the ministry projects annual grain and oilseed production to rise from 139.7 million tonnes in 2007-08 to 180 million tonnes in 2018-19.
Without question, the opportunity exists for Brazil to earn the title of "Granary of the World," but post-harvest problems — primarily those related to grain storage and transportation — will have to be addressed if the country is to maximize its agricultural potential.
Denise Deckers, superintendent of storage and handling of stocks for the National Supply Company (CONAB), spoke about these challenges during a presentation at GEAPS Exchange 2009 in St. Louis, Missouri, U.S.
"When one examines the question of logistics, it is perceived that the capacity for expansion of Brazilian agribusiness may be compromised by the lack of appropriate infrastructure to dispose of production and the inability to store the national harvest," said Deckers, who noted that the average cost of grain transportation in Brazil is substantially higher in comparison to its major competitors, Argentina and the United States.
She said poorly maintained roads, an inefficient railway system, limited waterway alternatives, overburdened ports and a shortage of warehouses in several important grain-producing regions hamper the marketing of Brazil’s grain crop.
NOT ENOUGH STORAGE CAPACITY
Brazilian storage capacity has not kept up with the pace of increases in agriculture production, Deckers said (see chart, page 35). "Currently, there is a deficit of 12% for the storage of grains, not including coffee or sugar," she said. By comparison, grain storage capacity in the United States is estimated to be about 20% greater than total annual production, according to a recent report by the U.S. Department of Agriculture’s Global Agricultural Information Network (GAIN). The report also noted that about 10% of maize (corn) and 7% of soybeans harvested in Brazil are lost due to poor quality storage and improperly sealed trucks.
Deckers said storage capacity expansion stagnated between 1993 and 2001 due to the scarcity of resources and the lack of investment due to interest rate increases.
But circumstances changed in recent years, leading the private sector to show interest in investing in grain warehouses to try to keep pace with the significant increase in soybean production.
Of the 16,591 storage units in Brazil as of 2008, 24% were located on farms, which represents only 15% of the nation’s storage capacity, she said. Although this percentage has grown in recent years (it was only 4% of Brazil’s overall capacity in 2000), the country still lags far behind other top grain producers such as Argentina (40%), Europe (50%) and Canada (80%).
Deckers said the relatively small amount of on-farm storage in Brazil is a primary reason why the nation’s farmers are less profitable than their counterparts in other countries.
"The storage at the rural property can minimize losses, reduce the costs of services provided and charge for storage and also the costs of the freight, and enables the generation of jobs in the field," she said.
Of the off-farm storage, Deckers said 45% is located in urban areas, 34% in rural areas and 6% in port locations.
About 75%, or 96 million tonnes, of the nation’s grain storage capacity is owned by the private sector, while 20% (26.5 million tonnes) is owned by the cooperative segment and 5% (5.9 million tonnes) by the federal and state government.
In addition to the government’s attempt to increase overall grain storage capacity, Deckers said it also is taking measures to improve quality of stored grain. She noted that about 10% of the Brazilian grain and oilseed crops are lost in storage each year.
She said the ministry of agriculture has created the National System of Certification Storing Units that focuses on the safekeeping and conservation of grain products by establishing minimum technical requirements for the operation of warehouses; providing documentation to prove good storage practices; and increasing the labor force working in the storage units.
Deckers said this certification program is expected to "strengthen the relationship of the storage sectors with the production sector and (consumers), thus increasing the professionalism of the sector and, above, all, contributing to the reduction of losses that occur during the storage process."
Recently, the Inter-American Development Bank conducted a study showing that the impact of the inefficiency of transportation costs on exports are generally much more significant in Latin American and Caribbean countries than the protectionist surcharges in major markets.
Another survey, conducted by the National Confederation of Industry of Brazil (CNI) with exporters, identified the main obstacle to be overcome by the companies is the high costs of freight transport and logistical services.
Brazil’s national road network is composed of 76,756 kilometers (km) of federal- or state-paved highways. Research conducted by the National Confederation of Transport (CNT) in 2007 revealed that approximately 81% of the paved roads in Brazil under government management are in "bad or very bad condition."
"The direct consequence of the critical situation of the Brazilian highways is low productivity, low average speed, high fuel consumption, accelerated wear on the fleet and a high rate of accidents involving deaths," Deckers said.
Due to the poor state of roads and high maintenance costs, agricultural leaders point to the need for more railroads. Brazil has 29,706 kilometers of railroads which are mainly concentrated in the south, southeast and northeast.
"Eighty years ago, Brazil had 30,000 kilometers of railways, which shows a total lack of investment in this mode of transportation, since the existing grid today is virtually the same," Deckers said.
She said that even though most of the Brazilian railroad grid is now privately owned, several major problems hinder the ability to transport grain efficiently: namely the regulation for the right of way, which is essential for the movement of cargo north to south, and the regulation of traffic through urban areas.
The average rail speed in Brazil is around 20 kilometers per hour (the world average is 75 km per hour), and there is also a very high risk of railroad accidents in several parts of the country.
Perhaps the greatest potential for increased transportation efficiency in the grain sector lies in the nation’s waterways. There are 30 sea ports and 10 river ports operated by the private sector in Brazil. In 2007, its port system exported 48.8 million tonnes of grains and oilseeds, and the forecast by the National Association of Freight Transport Users for 2023 is an increase of about 104%, to 99.6 million tonnes.
"This points to the need for heavy investment," Deckers noted.
The good news is that Brazil has a privileged position with regard to the availability of water. The total length of its riverlake surface water is estimated at 63,000 km, including 29,000 km that are naturally available for navigation. Deckers said an additional 15,000 km could be made available through river engineering work. The bad news is that of these huge stretches of 44,000 km that could become navigable, only 13,000 km are used economically.
She said farmers in the Cerrado region are severely handicapped by the lack of utilization of waterways for navigation. They are forced to sell most of their crops using roadways, traveling vast distances to the ports of Santos and Paranagua, at high costs and causing the congestion of such ports and its access roads, which are already burdened with the flow of production in the south.
In order to overcome the bottlenecks in transportation infrastructure, the federal government in January 2007 launched the Growth Acceleration Program. As a component of the program, the National Development Bank (BNDES) reduced interest rates for many industries including railways, ports, and roadways.
Deckers said it is estimated that the federal government will allocate about $8 billion per year for scheduled works on highways, railways, waterways and ports.
"The objective of the federal government is to change the matrix of transportation, which is highly concentrated on highways, and improve the participation of railroads and waterways," Deckers said.
She noted that only 5% of exported products were transported by waterway in Brazil, compared to 61% in the U.S. Conversely, 67% of Brazil’s exported products are transported on highways, compared to just 16% in the U.S.
That, of course, means higher costs for Brazilian farmers, as the Brazilian Department of Transportation estimates that transporting these products by roadway costs nine times more than waterway transportation and three times more than transporting them by rail.