Brazil infrastructure
Truck on a scale with a soybean load in Brazil. The country is looking for ways to reduce its dependence on trucking for grain transportation.
Photo by i-stock.
Brazilian exports of soybeans are expected to reach record levels this year, putting the country’s creaking export infrastructure under huge strain. Exactly how much soybeans will be exported this season from Brazil was not clear in late March, but the U.S. Department of Agriculture (USDA) was estimating 61 million tonnes, while Brazilian sources expected 57 million tonnes. Either figure would represent a major jump from the 54 million tonnes exported in 2015-16 and a significantly higher mark than the 32 million tonnes exported in 2011-12.

In Brazil, both soybean production and export availability have soared in recent years. What has not kept in step is the country’s infrastructure, a problem analysts believe could become a major drag on the country’s agricultural sector and economic growth in the years ahead. This is also a source of concern for many importing countries, especially in Asia, which are relying on rising Brazilian exports to meet the changing dietary needs of their own populations in the coming decade.

These points were discussed at Global Grain Asia 2017 by leading executives from Alphamar Agencia Maritima, a Brazilian bulk cargo port and agency specialist with a heavy presence in the grains trade. David Ross, general manager, and Arthur Neto, company partner, took to the podium at the event, held in March at the Ritz-Carlton Millenia Singapore, and outlined how Brazil’s agricultural sector has a lot more to offer the world in the years ahead, but only if it can overcome its logistics challenges.

Obstacles and opportunities

“Due to the poor inland logistics and the heavy reliability on trucks, our inland logistics are less efficient and far more expensive than those of our main competitors — the U.S. and Argentina — who either rely on cheaper forms of transport like rail and waterways or, in the case of Argentina, benefit because farms are situated much closer to elevation facilities,” Ross said. “If we were able to rely more on rail and waterway transport, thus bringing the transshipment terminal closer to the origination areas, we would be able to reduce the overall FOB (Free On Board) price and in turn become more competitive in the international market.”

Ross and Neto argued that although Brazil was primarily known in bulk shipping markets for its huge iron ore exports, soybean exports, in fact, generated 6.7 times more revenue in 2015 because, per tonne, it was a far more expensive cargo than ore. Moreover, in the future it could be even more valuable to Brazil’s recession-struck economy. The executives forecast that national grains exports could rise by over 30 million tonnes in the next 10 years, but only if infrastructure was improved so growers could reach overseas markets at competitive prices.

“Demand is increasing due to the global appetite and Brazil is the only major producer that has available land for expansion and weather conditions that allow us to grow two crops per year,” Ross said. “Brazil also has a unique position, unlike our main competitors, where not only are we able to sustain two crops per year across the majority of the country, but also we have plenty of land for expansion. If we consider the new environmental legislation, and without cutting down even one tree, we have an expected area for expansion growth of around 9.7 million hectares, which is about the size of Portugal.

“This can be accomplished simply by changing our practices of cattle farming from less free roaming to more confinement methods, primarily in the region called Mapitoba.”

Drawing on Conab and Ministry of Agriculture data, the executives predicted that Brazilian maize exports would total 34 million tonnes in 2016-17, up from 20 million tonnes in 2015-16, and could rise a further 51.2% over the next 10 years. Soybean exports were forecast to reach 57 million tonnes in 2016-17, but a 33.9% increase in production over the next 10 years would enable a 42.1% increase in soybean exports. For soybean meal, they forecast that exports would remain steady at 15.5 million tonnes in 2016-17 but could rise 17.4% over the next decade.

The upshot of the predicted increases would be a 34-million-tonne increase in Brazilian grain and soybean exports over the next 10 years. But, Ross and Neto concluded, with many of the roads from Brazil’s agricultural heartlands congested, and ports in dire need of investment to boost capacity and productivity, these gains would only be possible if major investment from state and private sources was made in infrastructure and transport capacity, including new barge and rail systems.

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Congestion 2017

Brazil infrastructure
Brazil relies more heavily on trucks to transport grain and oilseeds than most other top grain-producing nations.
Photo courtesy of REE Productions.
Ross said port congestion in southern ports was increasing in March and early April as the soybean harvest gathered momentum ahead of its peak in April/May. This was exacerbated by awful conditions on highway BR-163, which runs from soybean source areas in Mato Grosso to northern ports via the Amazon River. Earlier this year, it was almost impassable after heavy rains — drivers were reporting that it was taking 14 days to cover the 620-mile route. This prompted trucks to be diverted to southern ports, a re-routing that adds approximately 40% onto the loaded costs of grains.

The combination of diversions and rain saw truck freight rates soar over February and March for those shipping from Mato Grosso, while ports at Amazon ports fed by BR-163 were operating below capacity due to a lack of soybeans leaving shipping companies waiting to load with substantial demurrage charges.

“We generally do experience some delays during the grain season with the biggest delays historically seen in the Port of Paranaguá of up to 45 to 60 days,” Ross said. “Vessel waiting times in Brazil depend on a number of factors and as long as the transport routes leading to the northern ports, namely the BR-163, remain in a poor condition this will continue to put big pressure on the ports in the south. This is especially evident during the peak of the soybean export program and also when we start to receive our second crop of maize in the ports if we have been unable to complete the full soybean program.

“This year we expect some added port delays due to the cargo that was expected to be flowed through the northern ports currently being diverted to the south and the Port of Santos and Paranaguá in particular on account of the rain, resulting in poor road conditions leading to the transshipment stations in Miritituba.

“Waiting times are currently increasing at a steady pace. However, due to our very poor maize export program last year because of unfavorable weather conditions, the ports were fully ready to receive the soybean crop from the beginning of the year and this has ensured a smooth start with record exports of soybeans in January and February being experienced. According to all the information being assessed currently, we do not foresee record waiting times as seen in 2015 but this will depend heavily on the ability of the trading houses to send cargo to the northern ports.”

Billions must be spent

If Brazil was to realize its full export potential, upwards of $200 billion of investment in transport infrastructure and super structure would be required, Ross said based on studies by the Chamber of Transport. He also said the country needed more investment in grain storage facilities, particularly in Mato Grosso, the country’s largest grain producing state.

“There are currently ongoing improvements to the current road systems along with a new rail concession called Ferrograo, which is expected to be awarded later this year,” he added. “Regarding the barge business, there are heavy investments from many private companies and we expect to see a large increase in barge fleets. Without a reliable means to transport the cargo from transshipment terminals in Miritituba, the many private companies who have already invested in elevation assets or are currently investing in elevation assets in the ports of Santarem, Barcarena and Santana will not be able to realize their full capacity.

“If our inland logistics do not improve it makes our grain exports more costly and less competitive in the global market.”

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Not all bad news

Some progress is being made in improving Brazilian infrastructure. Delays at key ports such as Santos and Paranaguá at the turn of the year were far lower than in previous years. Moreover, Brazil’s ports have been boosting capacity.

At Santos, heavy investment by Tiplam saw two new berths open in January. Together the berths are projected to add 5 million tonnes of grains and 4.5 million tonnes of sugar capacity to the port’s total handling ability.

There are also plans to expand the Port of Miritituba so it can handle 32 million tonnes of grain per year by 2026, while northern ports, aided by private investments from companies such as Archer Daniels Midland Co., Cargill, Amaggi, Bunge, Louis Dreyfus, Hidrovias do Brasil and Caramaru have capacity this season to handle 42 million tonnes, up from about 27 million tonnes a year earlier, said Edeon Vaz Ferreira, a coordinator at Movimento Pro-Logistica, a lobbying group for soybean farmers. However, he added, until hinterland connections are improved, the extra capacity would be under-utilized.

In March, the Brazilian government indicated that feasibility studies for a railroad from Mato Grosso north to the Amazon River were close to completion and tenders for the construction of the new line – dubbed the “Grain Railroad” or Ferrograo – are expected to commence later this year. The R$12.6 billion project is expected to link the city of Sinop in northern Mato Grosso with the Port of Miritituba on the Tapajos River. From there, grain would be barged to ports near the mouth of the Amazon River. However, final decisions on routing have not been confirmed as local authorities in Mato Grosso are pushing for its extension south to additional producer regions.

There are also designs under consideration for the channelization of the Juruena, Teles Pires and Tapajós rivers, creating a 1,000-mile industrial waterway that would allow Mato Grosso soybeans and other crops to be containerized and transported by barge downstream all the way to the Atlantic. Even more ambitious is talk of building a 3,300-mile-long railway over the Andes to the Peruvian port of Ilo. But with the Brazilian economy struggling to lift itself out of recession, much will depend on the ability to raise finance.