April 3, 2014

Grain Companies Propose Three New Railroads for Mato Grosso

Four of the largest agricultural trading firms in Brazil have joined forces to present a unified proposal to the Brazilian Minister of Transportation on how to improve the infrastructure of Mato Grosso. The four companies include Amaggi, Cargill, Bunge, and Dreyfus and collectively account for approximately 70% of Brazil's grain exports. Currently there is only one railroad operated by America Latina Logistica that services the southern part of the state and these firms see a need for three more additional railroads in the state with each exiting the state in a different direction.

Mato Grosso is the leading grain producing state in Brazil and the state is expected to export 70 million tons of grain by 2020, but long term profitable grain production in the state can only be sustained if the current sky-high transportation costs are drastically reduced. Most of the grain is currently transported out of the state by truck and these firms feel that rail transport would be the best way to significantly reduce transportation costs.

Deemed the most important of the three new railroads would be a railroad that runs north and south and parallels highway BR-163 that traverses the middle part of the state. The proposed new railroad called the Grain Railroad or Ferrograo, would go straight north from central Mato Grosso to the Port of Miritituba on the Tapajos River and the Amazon River port city of Santarem. This railroad would service the major soybean and corn producing region of the state and could transport up to 50% of the soybeans, corn, and soybean meal exported from the state.

Highway BR-163, which is sometimes called Brazil's "Soybean Highway", is currently being asphalted all the way to the Amazon River and the entire project is scheduled to be completed sometime in late 2014 or early in 2015. Even after the highway is completed, the grain would still be trucked most of the way to the Amazon River. The most expensive way to move a bulk commodity such as grain is by truck and a new railroad heading north to the Amazon River could greatly lower the transportation costs.

A second proposed railroad would exit the state going northwest and connect western Mato Grosso with the port of Porto Velho on the Madeira River. The Madeira River is a tributary of the Amazon and from there the grain would be barged to various ports on the Amazon River. Barging operations already exits at this port, but all the grain from Mato Grosso arrives by truck, once again the most expensive way to move grain. Additional port facilities are already being planned at the port in order to handle the expanding grain production in western Mato Grosso.

The third proposed new railroad would connect central and eastern Mato Grosso with the North-South railroad that is already in operation in the neighboring state to the east, Goias. Grain production in eastern Mato Grosso is expanding rapidly as ranchers convert some of their pastureland to row crop production. Grain produced in eastern Mato Grosso could then be exported from Atlantic Coast ports in northern Brazil.

If these three new railroads were built, then grain produced in Mato Grosso could be exported north and west from Amazon Rivers and east from Atlantic ports in addition to the Port of Santos which is the primary southern exit point for the grain currently being produced in the state.

The biggest hurdle for all three new railroads of course would be financing. The state or federal governments would not actually pay for the projects but instead, auction off the rights to private firms to build and operate the new railroads. The railroad existing east out of the state is estimated to cost R$ 6 billion and the federal government is currently setting up a bidding process for the proposed railroad.

No estimates were given for the cost of the northern railroad or the western railroad, but both would probably cost more than the eastern railroad due to the greater distances involved. Other than the eastern railroad, there is no timetable for when the other two railroads may be built.