December 20, 2010

Construction Progress Slow on Mato Grosso Railroad

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

Soybean producers in Mato Grosso continue to be frustrated by the slow progress on extending the Ferronorte Railroad further into the state. Currently, the railroad is operational only about 50 miles into the southeastern corner of the state. America Latina Logistica (ALL) is responsible for building and running the railroad and the federal government has just given the company several more years to complete building the current section of the railroad from Alto Araguaia to Rondonopolis, a distance of about 250 kilometers. The company now has until December 31, 2012 to complete the section, which is two years longer than the last agreement and more than a decade longer than the original proposal.

The slow progress on this railroad exposes the lack of urgency on the part of the federal government to improve the infrastructure of the country. All of the rail projects in Brazil are coordinated by the National Agency for Land Transportation (ANTT), which is notoriously slow in approving funding for its projects.

The farmers are further frustrated by the lack of savings on transportation costs for the existing rail line. The freight rates charged by ALL are only 2% to 3% less than the freight rates charged by trucking companies to move grain to ports in southern Brazil. The cost of moving Brazilian soybeans to export markets is already the highest of any major producing country in the world and farmers are upset that ALL only offers minimal savings compared to truck transportation.

These high freight rates are the direct result of a lack of completion for the freight business and as result, farm organizations in the state feel that the terms of how this railroad is operated need to be changed. Currently, ALL has the sole right to operate the railroad and no other company is allowed to run trains on the line. Since there is no completion at all, this allows the company to charge whatever they want for bulk freight.

The farm organizations want these rules changed to allow other companies to operate trains on the same line. That would allow for at least some measure of competition between companies. The Brazilian Congress would have to make the change and there is pending legislation to do just that.