Agribusiness in the fight to reduce the cost of transport

While Ferrogrão is still on paper, companies that export soybeans and corn in Brazil are doing what they can to reduce their logistical costs. We are still far from ideal, but in 2018, around 55% of the volume of soybeans and corn exported by the country already arrived at national ports by rail or waterway.

Figure 1 – Barge transports soy across the river in Brazil

Source – Disclosure

The problem becomes clear when analyzing our main competitor in the international soybean and corn market, the United States. There, in 2016 (last year for which data is available), 87% of the volume of soybeans and corn exported were transported to the country's ports by rail or barge. With cheaper domestic transport, North American soybeans and corn are traded at lower prices than Brazilian ones, ensuring a competitive advantage for the United States in the international market.

The deficiencies in the transport infrastructure that cause this imbalance in the Brazilian matrix are not exclusive to Agribusiness, but are more evident in this sector, one of the main sectors of the national economy and which is now recent with the regulation of road freight. As much as agribusiness develops in the country and is an international reference, it will always run behind in the international dispute, unless it benefits from some bad weather or trade war.

As a businessman, you should never be hostage to luck, the traders are taking action and promise to invest in infrastructure. To escape the high costs of road freight, they promise to take the capital out of their own pockets to build Ferrogrão, a railroad that will connect production in the north of Mato Grosso to the waterway terminals in Miritituba.

Currently, Miritituba is responsible for shipping, annually, almost 9 million tons of soy and corn, which are transported by river to the terminals in Santarém and Vila do Conde, where they are exported. The Federal government promises to grant Ferrogrão construction for construction in 2019, and the expectation is that, in its first year after construction, the railroad will already be moving 13 million tons of soy and corn.

On another front, Rumo has just won the concession for the stretch between Porto Nacional (TO) and Estrela d'Oeste (SP) on the North-South Railroad and expects that, by 2021, it will be operating fully and taking grains from Goiás and Tocantins to Tegram, grain terminal in São Luis (MA). For its part, Tegram plans, by 2020, to expand its capacity to export grains from 7 million to 12 million tons.

There is still expectation of the construction of the Ferrovia de Integração do Centro-Oeste (Fico), whose first phase of the project promises to connect Água Boa (MT) to North-South, near Campinorte (GO). The promise is that it will be built by Vale, in exchange for renewing the Carajás and Vitória-Minas Railroad concessions. It will be another option for grains from Mato Grosso, either to reach the port of São Luis or to go down to Santos.

After a few years of stagnation in the already weakened Brazilian infrastructure, it seems that the winds are starting to blow stronger, mainly on the side of the Agribusiness companies. But these works need to happen and even then they will not be enough. It is necessary to look at the infrastructure in the South, Northeast and Southeast, especially towards the port of Santos. But that's a conversation for another post.