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January 3, 2014

Highway Tolls to Lower Prices Paid to Brazilian Farmers

Brazil is in the process of converting many of its principal highways into toll roads and as they do, farmers, cooperatives, and grain companies as starting to choose their port of destination for their exported soybeans based on the amount of tolls that need to be paid. The toll charges are also expected to result in lower prices paid to farmers for their grain.

A case in point is soybeans being exported from the state of Mato Grosso do Sul. Soybeans from the state can be exported from the Port of Paranagua in the state of Parana or the Port of Santos in the state of Sao Paulo. Over the last four months, there has been a definite shift in favor of the Port of Paranagua. In August 66% of the exported soybeans were sent to the Port Paranagua and that increased to 79% in September, 99.5% in October and virtually 100% in November.

From central Mato Grosso do Sul, the Port of Paranagua is 30 kilometers closer than the Port of Santos, but from the southern part of the state where 70% of the soybeans are grown, it is approximately 250 kilometers closer. In addition to a shorter distance which results in lower costs, the highway tolls that need to be paid are much lower if the soybeans are sent to the Port of Paranagua as compared to the Port of Santos.

From southern Mato Grosso do Sul to the Port of Santos, a seven-axil dual tandem semi hauling 37 tons of soybeans will pay highway tolls equal to R$ 90 per axil (US$ 39) for a total of R$ 630 (US$ 275) or approximately US$ 0.50 a bushel just for highway tolls. If the same truck went to the Port of Paranagua the total amount of highway tolls would be R$ 448 (US$ 195) or a savings of R$ 182 per trip (US$ 80). The difference in highway tolls equates to a savings of US$ 0.06 per bushel.

The cost of the highway tolls will be pushed back to the farmers in the form of lower prices paid for their soybeans. Within a few years, the entire highway toll system will be in place and when it is, it will be virtually impossible to transport grain to export facilities by truck without paying an excessive amount of highway tolls.

As costly as the tolls will be for soybeans transported from Mato Grosso do Sul, it will be much more expensive for soybeans transported from Mato Grosso. The state of Mato Grosso is the largest grain producing state in Brazil and it is also the state furthest away from Brazil's export facilities. The northern production regions of Mato Grosso are approximately 2,300 kilometers from the Port of Paranagua or 2.3 times further away than southern Mato Grosso do Sul. As a result, the highway tolls from northern Mato Grosso to ports in southern Brazil could be as high as US$ 1.00 per bushel or more. The toll charges will be in addition to already sky-high freight charges.

Nearly all the farm organizations in Brazil opposed the program to convert Brazil'fs highways to tolls. They argued that they have already paid for the highways in the form of taxes and they knew that the toll charges would be passed back to the farmers in the form of lower prices paid for their grain. The nationwide toll system should result in better highways, but it is not designed to expand the highway system, but simply as a means of generating revenue for highway maintenance.