LOGISTICS, SOY AND INTERNATIONAL TRADE

Brazil is currently experiencing a very promising situation with regard to its trade balance. The total of international negotiations (sum of Brazilian imports and exports) exceeded US$ 120 billion in 2003. Specifically, exports reached US$ 73,1 billion, showing an increasing trend over the years. For 2004, the government expects a number even greater than those registered in 2003.

However, this apparently very promising scenario may be hiding a loss of international competitiveness, because although the absolute numbers are growing, the country loses positions in the ranking of the largest exporters in the world. Brazilian exports, which in 1984 came to represent 1,5% of all world exports, in 2003 came to represent 1,0%. Contrary to what has been happening with the export curve, Brazil's share of the global market is decreasing, and the country is currently only the 25th exporting country in the world (see Figure 1).

FIGURE 1: Annual exports in Brazil and % share in world exports

The loss of positions in the ranking of major exporters shows that Brazil may be missing the opportunity for even greater growth in its exports.

An indicator that certainly demonstrates that the country still has a lot to develop in its foreign trade is obtained when comparing the representativeness of exports in relation to GDP. In Brazil, exports are equivalent to 15% of its GDP, while in countries like Mexico and Korea, the percentages are 26% and 32%, respectively. The Brazilian percentage is closer to that of the United States (9%), a typically consumer country characterized by a negative trade balance.

Several factors may be leading Brazil to this loss of competitiveness vis-à-vis other countries in the world and to the poor use of all growth opportunities. It is at this point that one should start thinking about the Brazilian logistics capacity.

Some of the largest Brazilian exporting companies indicate that their main restrictions on increasing the volume exported are related to costs and uncertainties inherent to the production flow process in Brazil.

Some of these companies are companies belonging to the agricultural sector, mainly to the commodity sales sector. Companies that sell such products – which represent a large part of Brazilian exports – have their return strongly dependent on the costs incurred in the entire production process, from supply, to production and distribution. In the case of agricultural commodities, sales prices follow a pattern established globally, making companies highly dependent on keeping costs low in order to gain competitiveness.

In this sense, it can be assumed that logistical difficulties play an important role in the loss of international competitiveness of companies located in Brazil, and this is particularly relevant for products with low added value and high volumes traded, as is the case of soybeans. .

THE CASE OF SOY

Some numbers

After ore, soy and its by-products are the products that most generate export volume (in tons) in Brazil (36 million tons), demanding a lot from the country's logistics structure. The companies that sell soybeans foresee a significant growth in the crop and in the volume exported in the coming years. To give you an idea, the Brazilian crop in 2000 was 32 million tons and in 2003 it reached 52 million tons, a growth of 63% in three years. These numbers make Brazil the second largest soy producer in the world, after the United States.

Exports of the soy complexⁱ  are equivalent to about a third of all agricultural exports from Brazil and 11% of the entire value exported by the country, which represented US$ 8,1 billion in 2003.

Not only production, but also planting productivity increased. According to Conab, in 2003, average productivity in Brazil was 2818 kg of soy per hectare planted, an indicator that 10 years ago was around 2200 kg/ha.

But increases in soy productivity and production may collide with the country's outflow capacity, which has invested less than forecasts and needs estimated by companies. Contrary to the increase in production, the government, which had foreseen investments in the area of ​​transport of R$ 22,7 billion for the period from 2000 to 2003 in the Avança Brasil plan, invested only R$ 16,2 billion, according to a survey by the Ministry of Planningⁱⁱ .
Characteristics of soybean disposal

An important feature of the soybean disposal process is the existing seasonality due to the harvest period. In Brazil, planting is done at the end of the year and harvesting in the first semester. Bearing in mind that the US harvest takes place in the second half, Brazilian exports should take place in the first half, and the outflow ends up being concentrated in this period. Thinking about storing soybeans to dilute the runoff throughout the year is apparently not a good deal. Concentration then ends up generating peaks in need in the country's logistics structure, which must be handled by ports, highways and railroads.

In turn, the importation of fertilizers, carried out to supply the necessary demand for agricultural planting, uses the inverse flow of the exportation of soybeans, that is, in Brazil, pesticides are imported in the second semester, they are received at the ports and sent to the producing regions of the country. It is worth mentioning, however, that the import volumes of fertilizers are much smaller than the movement of soybeans for export.

Soybean planting areas are mainly located in the South and Midwest regions. The latter, however, is the most promising in terms of possibilities for expanding the planted area and productivity per hectare. This expansion phenomenon further reinforces the need to improve the outflow logistics structure, as growth is taking place towards the interior of the country, in locations even further away from the main outflow ports currently used.

Figure 2 shows the volumes exported by the soy complex in each port, in addition to the soy production volumes in each region of the country in 2002. It can be seen that the outflow occurs mainly through the ports of Paranaguá, Santos and Rio Grande. Exports are mainly destined for China and Europe.

FIGURE 2: Soy Production by Region (Embrapa 2002/03) and Volume of soy and derivatives exported by the main ports (Antaq 2002)

The question of railways and ports

The typically more efficient modes for transporting products with the characteristics of soy produced in Brazil (large volumes, long distances and relatively low added value) are certainly railroads and waterways. Such modes, although they require a longer transport time, have a much higher capacity and, when available, can bring cost savings and reduction of losses. The role of the road modal, in turn, would be to act at the “points”, taking the grains to the rail or waterway terminals.

But Brazil, even though it has a territory of continental dimensions, is a typically road country. To give you an idea, the availability of railways in Brazil (measured by the km of track per km2 of territorial extension) represents 55% of those available in China, 40% of those available in Canada, 32% in Mexico and 12% in the United States. Unitedⁱⁱⁱ.

The country's rail and waterway infrastructure is not sufficient to carry out the flow of grains. This makes it necessary to use trucks to transport more than half of the Brazilian soybean production, even when the distances to be covered are high. It turns out that a truck carries about 150 times less soy than a train and about 600 times less than a convoy of barges on a waterway such as the Madeira River. And in addition to this lower productivity for long distances and large volumes, road transport is more polluting, uses more fuel and registers much higher accident rates.

But it's not just infrastructure that the country needs to improve in the rail sector. Some equally important issues are related to the interaction between railway concessionaires and the times for loading and unloading wagons at the terminals. All of this leads to an increase in the total time for transporting the crop, hindering the efficiency and speed of exports.

In turn, the issue of ports has also been much discussed in the country, as the ports face a series of problems that harm exports and Brazilian competitiveness in the world market.

As mentioned, the concentration in harvest periods requires greater port capacity, mainly in Paranaguá, Santos and Rio Grande, through which the largest amounts of soybeans for export pass.

The poor availability of storage, the low number of piers, the lack of coordination between what is sent and what can be received by the port, in addition to the delay in bureaucratic procedures were some of the causes that generated serious problems in Paranaguá in the flow of the crop of the first half of 2004. The main consequences were major congestion, both on land and at sea: the queue of trucks that formed at the port for unloading reached more than 120 km and the waiting time for ships was excessive, reaching the point for a ship to wait up to 60 days in port.

Problems with the draft and lack of dredging, difficulties in accessing ports both by rail and by road, and the constant strikes by entities that are somehow part of the international trade process are also critical points that reduce the efficiency in the flow of Brazilian exports.

Private port terminals (exclusively used by the same company) are not usually as affected as non-exclusively used ones. This is because a private terminal is able to more accurately manage the arrival and departure of trucks, trains and ships, better coordinating product flows.

But in general, surveys carried out by CEL/COPPEAD with exporting companies indicate that the ports that carry out the flow of grains are practically at the limit of their capacities, and that if the forecasts of an increase in the harvest materialize, there may be serious logistical problems with the exhaustion of possibilities for movement in ports.

Estimates presented at the 2nd Brazilian Agribusiness Congress in June 2003 in Brasília^v  indicated that the country needs to increase the annual outflow capacity of ports by at least 31 million tons. Such changes would need to occur by 2012 to support forecasts of increased movement of grains. The same work shows that, among the ports with capacity expansion needs are: Paranaguá, São Francisco do Sul, Santos, Sepetiba, Vitória, Ilhéus, Aratu, São Luís and the ports of the Amazon River (Itaituba, Itacoatiara, Santarém and Vila do Conde). And it is clear that the increase in capacity must come hand in hand with improved access to ports.

Some cost indicators

The logistical problems presented are reflected in the country's loss of efficiency and this loss can be measured in terms of real costs for companies.

An example of increased costs caused by inefficiency in ports was calculated by the multinational Bunge and presented to the government^v. Forecasts made indicate that companies that sell grain to the international market will pay US$ 2004 billion in fines in 1,2 for waiting for ships in Brazilian ports. This cost of overstaying, called “demurrage” is paid by companies when there are delays in boarding or disembarking at ports. The estimate considered that, in Brazil, ships wait an average of 22 days and that around 1000 Panamax-type ships, with a capacity of 50 tons, are used to transport the annual grain harvest.

Losses from these inefficiencies have been growing over the years, given that the prices paid for a day at a standstill have increased considerably. In 2002, the average “demurrage” value was US$ 12 thousand/day, and in 2004 the value of this overstay rose to US$ 50 thousand/day. The price increase was mainly caused by the increase in demand from China, which ended up shifting to its market a large number of ships that operated in the rest of the world market.

In addition to the “demurrage” costs, Brazil also loses competitiveness when internal transport costs are calculated (from the productive area to the port). Estimates by the Brazilian Association of Vegetable Oil Industries – ABIOVE^vi   indicate that the cost of internal transport in Brazil is about 80% higher than in the United States (in the USA, the cost of transport from the interior to the port is US$ 15/ton and in Brazil it is US$ 27/ton ). Estimates show that if these internal logistics costs in Brazil were the same as those in the US, US$ 432 million could have been saved in the flow of the 36 million tons exported in 2003, considering only exports from the soy complex. If the same calculations were made for all exported agricultural products, Brazilian agriculture would certainly save more than US$ 1 billion per year.

ADDITIONAL ANALYSIS

It is not just soy that faces logistical problems for shipping in the country. Carrying out an additional analysis of companies in other sectors, it is possible to verify that manufacturers of high added value products also experience difficulties; and these difficulties can be quite different from those observed in the flow of solid bulk.

The lack of agility of bureaucratic procedures and the lack of containers due to the imbalance between imports and exports stand out as points that affect the agility of companies. It is also worth noting that difficulties in importing products can also affect exports. This is the case of some electronics companies, which depend on imported items to be able to manufacture products that will then be exported. Such companies are greatly affected during strike periods, when the import process becomes slower. Long strikes deplete companies' stocks of raw materials – which are generally low, as the products are of high value – delaying production for export.

The uncertainties in the time to be spent with the logistical process can generate difficulties in meeting delivery deadlines and the need to increase inventory levels, sometimes stored outside the country. Such factors certainly represent significant additional costs for exporters of high added value products.

CONCLUSION

Logistical improvements in the country can increase Brazil's international competitiveness, increasing reliability in delivery times and reducing the costs of inefficiencies in the outflow process. However, the necessary improvements will not only serve to reduce costs, but also to facilitate the disposal of grains, whose crops forecast for the coming years may not be able to be sold if investments are not made.

Improvement plans for Brazilian logistics already exist in the government, including the Railway Revitalization Plan, estimated to be carried out in 3 stages, according to the establishment of priorities. The 2004-2007 Pluriannual Plan also includes works that will seek to improve the infrastructure of ports considered critical. The government plans to carry out these improvements in the logistics system mainly through obtaining resources through PPPs (Public-Private Partnerships).

BIBLIOGRAPHY

– Pinheiro, AC, Markwald, R., Pereira, LV. (2002), The Challenge of Exports, 1st edition. BNDES, Rio de Janeiro, RJ.

– Cargo Transport in Brazil – Threats and Opportunities for the Development of the Country (September 2002). CNT and COPPEAD. Available on the sitewww.ilos.com.br.

ⁱ Soy complex products include grains, bran and soy oil.

ⁱⁱ Information published in the Valor Econômico newspaper on May 20, 2004.

ⁱⁱⁱ Information obtained from the report – The Roads to Transport in Brazil – CNT and COPPEAD (2002).

^iv The 2nd Brazilian Agribusiness Congress – Building Strategies, was held on June 24 and 25, 2003 at Palácio Itamaraty – Brasília – DF, and was organized by ABAG – Associação Brasileira de Agribusiness.

^v Information published in the Valor Econômico newspaper on May 14, 2004.

^vi Estimate presented at the 2nd Brazilian Agribusiness Congress – Building Strategies, in June 2003.