April 25, 2014

Brazil's Transport Minister needs R$ 400 Billion to Upgrade System

The president of the Brazilian Soybean Producers Association (Aprosoja) Glauber Silveira recently presented a list of needed logistical improvements to Brazil's Minister of Transportation, Cesar Borges, during hearing in the Brazilian Congress. Two of his top priorities were projects designed to move grain produced in Mato Grosso northward to ports on the Amazon River instead of south to ports in southern Brazil.

One of those projects is the completion of highway BR-163 from Mato Grosso to the Amazon port city of Santarem. The highway is currently under construction with approximately 300 kilometers yet to be asphalted. Before reaching the Amazon River, this highway will pass near the Port of Miritituba on the Tapajos River, which is a tributary to the Amazon. At this port numerous grain companies are in the process of constructing barge facilities which will allow the grain to be barged to ports near the mouth of the Amazon.

He is also pressing for a railroad to be built parallel to the highway from northern Mato Grosso to the Port of Miritituba. The estimated cost of the railroad is R$ 6 billion and it could transport as much as 30 million tons of grain to the port by the year 2020.

The Minister of Transportation agreed that massive investments in infrastructure are needed in Brazil to bring the system up to standards of Brazil's competitors such as the United States and Argentina. He feels that Brazil needs to invest R$ 400 billion to modernize and expand the system just to meet the minimum standards. Unfortunately, Brazil is investing approximately R$ 15 billion per year, which at that rate, means it would take about 30 years to meet his goal.

The World Economic Forum released a report indicating just how far behind Brazil is in its infrastructure compared to other countries. The forum classified Brazil as 104th in general infrastructure, 118th in quality of roads, and 130th in quality of ports. Even though Brazil's growth is based on increased exports, its investment in infrastructure is by far the lowest compared to other Bric countries. According to the Minister, in 2012 Brazil invested 0.42% of GDP in infrastructure compared to 10.6% in China, 8% in India, and 7% in Russia.

Inefficient infrastructure is believed to cost Brazil's agriculture US$ 4 billion annually and Brazil's industry US$ 8 billion. The biggest problem is Brazil's reliance on highway transportation instead of the more cost effective rail or barge transport. In Brazil 61% of the cargo moves by highway, 21% by rail and 14% by barge. Aprosoja feels that at least 60% should move by rail or barge.

The cost savings by using more rail and barge would be very significant. Today in Brazil, it costs 56 liters of fuel to transport a ton of grain 1,000 kilometers by truck compared to 10 liters of fuel by rail and just 5 liters of fuel by barge.

Over the last ten years, freight costs in Brazil have risen from an average of US$ 28 to transport a ton of grain 1,000 kilometers to US$ 85 per ton. In comparison, the average cost in its two main competitors, United States and Argentina, is US$ 22 per ton.

Even where there are railroads in Brazil, the cost savings are minimal due to the lack of competition between railroads. The average rail cost worldwide is US$ 30 per ton per 1,000 kilometers, but in Brazil it is US$ 80 per ton. There are very few railroads in central Brazil, and where they are, they basically charge the same price to haul freight as the local trucking companies.