December 5, 2013

Seven projects to Improve Grain Logistics in Central Brazil

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

The center-west region of Brazil (the states of Mato Grosso, Mato Grosso do Sul, and Goias) has the capacity to greatly increase agricultural production, but its growth has been hampered by high transportation costs. Grain production continued to increase over the last five years aided by near record high commodity prices, but if commodity prices weaken, the growth in the region will slow as well due to the high transportation costs. The cost of transportation grain in the region is about three times higher compared to the United States and they can account for as much as 30% of the cost of producing the crops.

In order to address these high costs, seven transportation projects have been prioritized by the National Confederation of Agriculture (CAN), the National Industrial Confederation (CN), and the Logistical Movement of Mato Grosso. The focus of these projects is to move grain north to ports in northern Brazil instead of the current situation where most of the grain moves to ports in southern Brazil.

The center-west region is responsible for 42% of the grain production in Brazil with Mato Grosso alone responsible for 22% of Brazil's grain production. Currently, 70% of the soybeans and 80% of the corn produced in Mato Grosso move south to the Ports of Santos and Paranagua. The eventual goal is to have all the grain produced north of 16 degrees South Latitude, which is about the location of the capital of Mato Grosso (the city of Cuiaba), exported out of northern Brazilian ports instead of southern ports.

Of the seven projects listed below, four are highways, two are port expansions, one is a barging operation, and one is a new railroad.

  • BR-163 - Completion of this most-important highway (sometimes called the "Soybean Highway") which links Mato Grosso with the Port of Santarem on the Amazon River, would allow for grain to be trucked northward to the Amazon River. The highway is currently being asphalted with an estimated completion date sometime in 2015. The completion date for this highway has been pushed back several times and approximately 30% of the highway within the state of Para is still unfinished.
  • BR-158 - This is the major highway running north and south on the eastern side of Mato Grosso. This highway could be used to transport grain southward to the Ferronorte Railroad in southeastern Mato Grosso or northward to a rail line in the state of Para. Most of the highway is already asphalted with only a small part not completed in northeastern Mato Grosso. This highway cuts through the major agricultural expansion area of the state where ranchers are converting some of their pastureland to row crop production.
  • BR-242 - This highway would connect the cities of Sorriso in central Mato Grosso to Canarana in eastern Mato Grosso. This would be the only major asphalted highway that runs east and west across the center of the state. There are presently very few roads that run east and west and no major asphalted highways. Almost all the highways in the state run north and south and this east to west route is sorely needed.
  • BR-080 - This highway would connect the city of Ribeirao Cascalheira in eastern Mato Grosso with cities in central Goias. The highway would allow grain to be transported east to a railroad in Goias and eventually to northern Brazilian ports.
  • Railroad linking Mato Grosso with the Port of Santarem on the Amazon River - This new 1,700 kilometer railroad is the biggest of all the projects and will take the longest to be completed. The proposed railroad would be an extension of the Ferronorte Railroad paralleling highway BR-163 going north out of Mato Grosso to the Amazon River. Once completed, it would be able to transport much of Mato Grosso's grain production northward to the Amazon River. Funding for the project is not in place and it is uncertain when this railroad will be built.
  • Barging operation on the Tapajos-Amazonas Rivers - Work is already underway on building the grain terminals on the Tapajos River (a tributary to the Amazon River) that will be the starting point for loading barges. The BR-163 highway will be used to transport grain to the start of the barging operation. Once loaded the barges would proceed northward to ports on the Amazon River. Only the lower part of the river is currently being considered for barging. To make the upper part of the river navigable, a series of locks and dams would need to be constructed.
  • Port expansion at Vila do Conde - This a port near the city of Belem at the mouth of the Amazon River and it could be a final destination for barges carrying grain from Mato Grosso.
  • Port expansion at Itaqui - This port at the city of Sao Luis in the state of Maranhao in northeastern Brazil. This ocean port, which is just south of the mouth of the Amazon River, already exports grain and its expansion would turn it into one of Brazil's major northern ports. Grain from eastern Mato Grosso or northeastern Brazil could be exported out this port.

Funding for all these projects is not a certainty as the Brazilian government struggles to overcome years of a lack of investments in its infrastructure. Compounding the problem are billions of dollars being invested in the construction of sport stadiums for the 2014 World Cup in Brazil and the 2016 Rio Olympics. Investing in improved grain handling projects in central Brazil is not high on the lists of priorities in Brazil.

On the map below, Point A=Cuiaba, which is the capital of Mato Grosso, Point B=Itaituba, Para where the new barging operation is being built, and Point C=Santarem, Para which is the port on the Amazon River. The blue line represents BR-163 (the Soybean Highway) which will be completed all the way to the Amazon River sometime in 2015. The proposed railroad from Mato Grosso to the Amazon River will parallel this highway. To give you an idea of the distance, it is about 1,700 kilometers from Point A to Point C.

The barging operation on the Tapajos River would start at Point B and it would only offer limited benefits because it is so close to the Port of Santarem. The long range plan is to start the barging operation further upriver in northern Mato Grosso, but dams and locks would have to be built to make the system operable.

Map 1

On the map below Point A=Alto Araguaia, Mato Grosso where the Ferronorte Railroad enters the state of Mato Grosso, Point B=Ribeirao Cascalheira, Mato Grosso, and Point C=Sao Luiz, Maranhao where there is an existing seaport. The part of the blue line in the state of Mato Grosso is Highway BR-158, which is the only asphalted highway running north and south in eastern Mato Grosso. There is an existing railroad in the southern part of the state of Para, so soybeans produced in eastern Mato Grosso could either be railed north to the port at Sao Luiz or trucked to the southeast corner of the state where they could be railed to the Port of Santos.

One of the proposed projects would be a highway running east and west (BR-242) through central Mato Grosso connecting the two blue lines. Currently there is no easy way to go east and west in central Mato Grosso. Just a reminder, the state of Mato Grosso is as big as all of the Midwest.

Map 1