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June 1, 2020

Upgrade of Malha Paulista Railroad will help Mato Grosso Farmers

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

The railroad company Rumo last week signed a 30-year extension with the Brazilian National Land Transportation Agency (ANTT) to operate the Malha Paulista railroad within the state of Sao Paulo. Their original concession was set to expire in 2028, but with the new 30-year contract, Rumo can now make the needed investments to upgrade the rail line.

Rumo will invest more than R$ 6 billion to increase the capacity of the rail line from the current 35 million tons per year to 75 million tons, which will have a profound impact on farmers in Mato Grosso. The Malha Paulista railroad along with the Malha Norte railroad is part of the only railroad that connects the state of Mato Grosso with the Port of Santos in southeastern Brazil.

Malha Norte, which is also called the Ferronorte Railroad, is the part of the railroad that connects Rondonopolis, Mato Grosso with the border of Mato Grosso do Sul and Sao Paulo. This new section of the railroad has four grain terminals and the capacity to transport 35 to 40 million tons of grain per year, but right now, it can only transport 23 million tons. The problem is that the Malha Paulista rail line can only transport 35 million tons per year and that is divided between grain, sugar, cellulose, and other products.

The Malha Norte rail line (Ferronorte Railroad) is the only railroad currently operating in the state of Mato Grosso and it only extends approximately two hundred kilometers into the southeast corner of the state.

Once the Malha Paulista upgrades are complete, the amount of gain moving out of Mato Grosso should increase from 23 million tons per year to 40 million tons, or an increase of 74%. The Pro-Logistics Movement estimates that grain transportation costs could be reduced by 20% to 25% if railroads were used for long hauls such as from Mato Grosso to the Port of Santos which is 1,500 to 2,000 kilometers.

The Malha Paulista railroad also needs upgrading because there will be more grain and cargo flowing into it when the southern end of the North-South railroad is completed. Rumo is also currently building the southern extension of the North-South railroad from Porto Nacional, Tocantins to Estrela do Oeste, Sao Paulo where it will connect to the Malha Paulista railroad. The North-South railroad is considered the "backbone" of Brazil's railroad system.

When all these projects are completed, Rumo will be the major railroad available to transport grain and other products from central Brazil to the Port of Santos, which is Brazil's largest port. That will be good for Rumo, but maybe not as good for producers in central Brazil. The President of the National Cargo Transporters Association (Anut) is worried that without major competition from competing railroads, the transportation savings may be as large as anticipated.