December 16, 2011

China Considering 1,500 km Railroad from Mato Grosso to Amazon River

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

A group of Chinese officials, both diplomatic and commercial, recently met with officials from the state of Mato Grosso and the National Land Transportation Agency (ANTT) to discuss the completion of the Ferronorte Railway from the capital of Mato Grosso, Cuiaba, to the Amazon port city of Santarem. Concurrently, a group of technicians from China Railway is conducting preliminary inspections of the proposed path to the Amazon River in addition to inspecting the two existing grain terminals already in operation along the Ferronorte Railway in southeastern Mato Grosso. This last section of the railroad is 1,500 kilometers long and the estimated cost of the complete build-out of the railway to the Amazon River is expected to be in the range of R$ 10 billion.

The rational for the Chinese interest in Mato Grosso soybean production is very simple. Seventy percent of Brazil's soybean exports go to China and Mato Grosso is the number one soybean producing state in Brazil as well as being the number two corn producing state. China is expected to continue increasing their soybean imports from Brazil and Mato Grosso represents a major growth area for Brazilian soybean production. As a result, if China wants to lower the costs of transporting soybeans from Mato Grosso to the ports in China, one way to do that is to build a railroad to transport the soybeans north to the Amazon River.

An asphalted road connecting the cities of Cuiaba and Santarem is expected to be completed sometime in 2012 and the proposed railroad would parallel the highway. Building the railroad in the state of Mato Grosso would be relatively easy since the terrain is generally composed of long rolling hills. It would be more challenging in the state of Para where there are several small mountain ranges and the vegetation is still mostly Amazon Rain Forest.

There are also nearly constant objections to projects such as this from environmental groups that feel any development in the Amazon Region is objectionable. If the railroad would parallel the existing highway, these objections may be overcome because the same debate occurred when the federal government proposed asphalting the road. The environmental groups dropped their objection to the highway only after the government agreed to prohibit the production of grain along the highway where the native forest still existed.

If this railroad is built, the majority of soybeans produced in the state of Mato Grosso would be shipped north to the Amazon instead of to ports in southern Brazil. No timetable has been established for the project, but given the long and tortured history of this railroad, it will be many years before it is completed, if ever.