August 14, 2014

Lack of Infrastructure Limits Agricultural Expansion in Brazil

Brazil has many millions of hectares of land that could be brought into agricultural production, but a lack of infrastructure limits the pace of that expansion especially at times of low commodity prices. A prime example is the municipality of Gaucha do Norte in eastern Mato Grosso.

The municipality has 230,000 hectares of soybean and corn production, but there are no asphalted roads anywhere in the municipality. As a result, the region is basically cut off from markets during the peak of the rainy season from January to March when heavy trucks find it difficult if not impossible to get into or out of the municipality. Even during the dry season, truckers are reluctant to book cargos in the municipality because of the poor road conditions and the possibility of damage being done to their trucks.

Due to the high transportation cost, the prices paid for inputs such as fertilizers and chemicals are higher than they should be and the prices paid for the grain are extra low. The cost of freight to move soybeans to distant ports accounts for approximately 12% to 13% of the price of the soybeans and it accounts for 50% the price of the corn produced in the region. The cost of transporting a ton of imported fertilizer into the municipality is approximately R$ 115 per ton, but if there were asphalted roads, the cost would fall to R$ 60 to R$ 70 per ton.

The lack of adequate roads also limits farmer's options as far as what they can produce. They are basically forced to produce grain because the grain can be stored while they wait for the dirt roads to dry up enough to support heavy trucks. They can't produce poultry or hogs because of the lack of access to processing plants during the rainy season.

Even for light vehicles such as passenger cars and pickup trucks the roads are very narrow and passing a slow-moving truck loaded with soybeans is a risky proposition.

Farmers in the municipality are especially frustrated because the soils are very fertile and the yields are higher than the state average. Unfortunately, in spite of the good yields they continue to be at a disadvantage due to inadequate infrastructure. The disadvantage is likely to be even more acute during periods of low commodity prices similar to what they are currently experiencing.