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November 30, 2015

Freight Costs in Mato Grosso Increase due to New Tolls

Farmers in Mato Grosso have long complained about the very poor condition of the few major highways in the state and how those poor condition increase the cost of transporting their soybeans to distant ports. One obvious way of reducing those costs would be to improve highway BR-163 which is a two-lane highway full of pot holes and virtually the only major highway leading into and out of the state.

When the federal government announced plants several years ago to improve and expand the highways of Brazil by turning them into a toll road, farmers in Mato Grosso complained that they had already paid for the highway in taxes and that turning BR-163 into a toll road would increase their cost of transporting grain. Well, their assumption was correct and freight costs in Mato Grosso have just set a new high for the year.

Tolls are now being charged on BR-163 and according to the Mato Grosso Institute of Agricultural Economics (Imea), the cost of transporting corn from central Mato Grosso to the Port of Santos in southeastern Brazil (approximately 2,000 kilometers) recently hit a new high for the year at R$ 315.00 per ton or approximately US$ 2.30 a bushel using the current exchange rate of 3.7 Brazilian reals to the dollar. Ironically, one of the main reasons for the increase is the recent imposition of tolls along highway BR-163.

The highway was divided into sections and the work of widening the highway to four lanes was auctioned off to the lowest bidder, who then could charge tolls for a 25-year period to pay for the construction and to operate the highway. The winning companies are allowed to start charging tolls when 10% of the work has been completed. These tolls just went into effect along most of BR-163. The cost of the tolls of course will be passed on to the farmers in the form of lower prices paid for their grain.

The ultimate solution to these high costs is to move away from truck transport to more efficient rail or barge transport for bulk products such as commodities. The Brazilian government is slowly moving in that direction, but a severe economic downturn will delay some of these projects. For at least the next 5-10 years, the majority of Brazil's grain will still move to export facilities by trucks.

Personal note: When we travel through Brazil, we seek out toll roads because the highways are in much better condition, they are safer, it saves time, and the amenities along the highway such as rest areas and restaurants are vastly superior to regular highways. But of course, we only travel down the highway occasionally and we are not like Brazilian farmers whose income and livelihood depend on paying the tolls.