Brazilian Infrastructure

Poor Roads Causing Transportation Losses In Brazil

Anyone who travels the rural roads of Brazil notices immediately two things, the country is very big (10% larger than the continental United States) and the roads are in very poor condition. Soybean farmers in central Brazil have pleaded with state and federal politicians for decades to spend the money needed to improve the country's infrastructure so that transportation cost can be lowered. By any measure, their efforts have been disappointing.

Imagine driving a dual tandem truck filled with soybeans down a Mato Grosso highway filled with axel-breaking potholes. Every time the truck hits a pothole a few more soybeans trickle out the back of the truck. I have driven behind many, many trucks in Brazil where there was a constant trickle of soybeans falling onto the pavement and I wondered just how much money was being lost by this leakage of soybeans.

A farm organization in Mato Grosso (Famato) has estimated just how much of the state's soybean crop is being lost during transportation. They estimate that approximately 0.3% of the state's total soybean crop, or 51,000 tons, dribble out the back of trucks while the crop is being transported to Brazilian ports. The cause of this loss of course is the very poor condition of the highways in Brazil.

At the point where the highway BR-163 leaves the state of Mato Grosso, there are approximately 10,000 trucks per day moving down a road that was designed to handle only half as much volume of traffic. One third of these trucks have seven or more axles and each axle supports ten tons of grain. The highway was designed to handle no more than six tons per axle. The result is that these heavy trucks have really torn up the highway and left it in a retched mess in many locations.

Asphalting of BR-163 Allows Exports To Flow North To Amazon

Instead of shipping Mato Grosso soybeans 1,500 kilometers south to ports in southeastern Brazil, a much cheaper alternative would be to ship the soybeans north to ports on the Amazon River. After more than several decades of delays, it finally appears likely that work on highway BR 163 (nicknamed the "soybean highway"), which links Mato Grosso and the Amazon River port city of Santarem, will finally begin. The entire project is approximately 1000 kilometers long and it is expected to take three years to complete. This highway cuts through the Amazon rain forest and it involves building more than 40 major bridges. Building this road has been a top priority for farmers in Mato Grosso because it will cut in half the distance needed to get their commodities to export facilities. Currently, more than 60% of Mato Grosso's soybeans are tucked to port facilities such as Paranagua and Santos in southern Brazil. This highway will also greatly reduce the distance needed to bring in inputs such as fertilizers and fuel. It is estimated that this new export route out of Mato Grosso will save about US$ 30 a ton for each ton of soybean shipped to the port at Santarem. The Minister of Transportation is now estimating that 70% of the work on this highway will be completed by the end of 2010 and that the entire project will be completed by the end of 2011.

At the city of Santarem, Cargill has already built an export terminal in anticipation of this highway being asphalted. In recent years though, environmental activists and some government officials have tried their best to close the facility on charges that it would encourage ever-greater amounts of land clearing in order to increase row crop production. The immediate fate of this facility is uncertain, but in the long run there will certainly be soybeans from Mato Grosso exported out of this port city.

Asphalting Of BR-163 Could Spur Increased Deforestation In Brazil

Brazil's environmental Minister, Carlos Minc, is worried that the completion of the highway, known as BR-163, between northern Mato Grosso and the Amazon River port city of Santarem will encourage hundreds of thousands of Brazilians to move into the region. The government is right now working on asphalting the 900-kilometer extent of the highway and they expect that 250 kilometers will be asphalted this year. Once the highway is completed, the population of the region is expected to grow from the current 2.1 million to 2.9 million. The Minister is concerned that the increase in population will translate to increased deforestation and I think his concerns are justified. I have seen this happen many times before in Brazil. Once a highway is asphalted, it is a catalyst for explosive growth and in that part of Brazil that means additional deforestation.

In the three years since it was announced that the road would be asphalted, deforestation along the path of the highway has tripled compared to the three years prior to the announcement. The concern is that once the road is completed, loggers will extract more lumber from the rain forest and the land will be subsequently converted to pastureland and ranchers will increase their cattle herds. The asphalted highway will then provide a convenient way to export the lumber and beef via the Port of Santarem.

The Environmental Minister as well as the Agricultural Minister, Reinhold Stephanes, both believe that increased deforestation is not a certainty once the highway is completed and that the enforcement of strict environmental laws can keep deforestation to a minimum. They also point out that the soils of the Amazon River Basin are not well suited for agricultural production and they should not be exploited for that purpose.

Saying that there will not be additional deforestation and actually preventing it are two different things. In recent years, the Brazilian government has been stepping up their efforts to slow deforestation. Brazil's agriculture is heavily dependent on exports and many of the countries that purchase Brazilian products have been insisting on environmental sound agricultural production. If deforestation increases due to the completion of this highway, then Brazil's trading partners are going to complain which could threaten those very exports, which this highway was supposed to facilitate.

Soybeans Contribute Very Little To Amazon Deforestation

We have all heard for years that the lowland Amazon Rain Forest is being cleared by loggers for the valuable hardwoods, ranchers to increase their cattle herds, and farmers to plant soybeans. That may have been the case a number of years ago, but today that is no longer true for soybeans. In 2006, the Brazilian Vegetable Oil Association (Abiove) joined forces with the National Grain Exporters Association (Ance) and various environmental groups to monitor exactly what was causing deforestation in the Amazon Region. After nearly three years of monitoring the states of Mato Grosso, Rondonia, and Para they documented that less than 1% of the land that been cleared was for soybean production. As you might then suspect, the vast majority was cleared for logging and cattle ranching.

The reason why soybean production is no longer a main contributor to deforestation is due to the pro-active policies put in place by the grain exporters and grain processors. Starting in 2006, the grain exporters and processors declared a moratorium on purchasing any soybeans from suspected rain forest land that had been cleared after 2006. At the time, the soybean producers affected by the moratorium howled in protest, but apparently it has been very successful in curbing the expansion of soybeans in the rain forest areas.

I wrote extensively about this program when it was initiated three years ago and the success of the program can be attributed to the fact that the grain companies and the various farm organizations invited the environmental groups to participate in drafting guidelines for what eventually became know as sustainable soybean production in Brazil. Prior to that time, the environmental groups and the farm organizations were constantly at odds with each other. After they joined together to jointly come up with the guidelines, the working relationship between the two groups has been quite good. The key to success for this program was the buyers of the soybeans putting up a united front and refusing to purchase soybeans from disputed areas.

According to Embrapa, today in Mato Grosso 76% of the soybean production is on cerrado land, 23% is on transitional forest land (the transition between cerrado and rain forest), 0.2% is on lowland rain forest land, and 0.06% is on Pantanal land (wetlands). Brazilian soybean farmers are eager to trumpet these findings as a way to reverse the incorrect perception around the world that the Amazon is being burned to grow soybeans. Amazon rain forest is not being cleared to grow soybeans, its being cleared for lumber and cattle ranching.

Past success does not guarantee future success. The Amazon is a very large place with a lot of remote areas, so the region will need to be continually monitored especially as newly asphalted roads make their way into the region. Certainly, there will be some rain forest land cleared for soybean production and some of these soybeans will make their way into the export channels, but I think everyone involved with the Brazilian soybean industry can proudly point to this program as being a success.

Improved Rail Service Could Ease Highway Traffic

A potential solution to this problem (beside fixing the highway) would be to ship out more of the soybeans via rail. The Ferronorte Railway, which is operated by America Latina Logistica, is moving more and more grain out of the state of Mato Grosso, but its operations are woefully inadequate to meet the soaring demand. Several weeks ago, we wrote about truckers having to wait days at the rail terminal until they could unload. The company said the delays were being caused by a lack of rail cars. The company is trying to take care of the backlog, but they have purchased only 650 railcars and 35 locomotives in 2008. In U.S. terms, 650 railcars would represent only a little more than five unit-trains.

The demand for rail transportation in Brazil is far outstripping anything that America Latina Logistica can supply. Every politician in Mato Grosso says that improvement in the rail line is their number one priority and yet sadly, the money never seems to be enough to do the actual improvements.

New Ethanol Pipeline In Brazil To Connect Mato Grosso And Port

The Commerce and Energy Secretary for the state of Mato Grosso announced last week that a new pipeline would be built in Brazil to transport ethanol from the interior to the Port of Santos. The pipeline will start at the town of Alto Taquari in the southeast corner of Mato Grosso and it will terminate at the Port of Santos in the state of Sao Paulo. The pipeline will extend 1,164 kilometers, have nine pumping stations, eight terminals (five will receive ethanol and three will dispense ethanol), and will be capable of moving eight million cubic meters of ethanol per year. Half of the ethanol will move into export channels and half will be consumed domestically. The total project is scheduled to be completed in 2011 and will cost R$ 2.8 billion. Once completed, it will take 250 tanker trucks off of Brazilian highways every day.

Even though there have been a number of proposed new sugar mills put on hold due to the current economic slowdown, the ethanol industry in Brazil will continue to expand and gear up for increased export activity. There are estimates that Brazil could produce up to one billion gallons of ethanol by 2015. With the announcement of the new pipeline, there is already renewed interest in establishing sugar mills along the proposed route of the pipeline.