October 21, 2011

East-West Brazilian Railroad Put on Hold, At Least for Time Being

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

Farmers in central Brazil continue to be frustrated at the slow pace of infrastructure development in their region. Another blow to their hopes for a new east-west railroad was dwelt recently when the Brazilian President put the project on hold due to charges of corruption in the Ministry of Transportation. The corruption charges have resulted in the resignation of the transportation minister, the director of the railroad projects, and the director of the National Department of Infrastructure and Transportation.

The integrated center-west railroad as it is called (Fico), is supposed to link the states of Goias, Mato Grosso and Rondonia with existing railroads in eastern Brazil. The 1,638 kilometer railroad was supposed to run east-to-west across the center of the country. The total cost of the project was projected at R$ 6.4 billion with R$ 4.1 billion to be spent in the state of Mato Grosso. When completed, the railroad is supposed to transport 20 million tons of goods per year.

The federal government wants to increase the amount of agricultural products moved by rail as a way to reduce the very high transportation costs in Brazil. In Brazil, approximately 70% of the grain production moves by trucks over poorly maintained roads. Brazil's main competitors have a much lower cost of transportation due to the fact that they generally transport only 10% by truck, with 50% of their grain production moved by rail and 40% moved by barge.

Soybean producers are now concerned that this railroad may have to move to the "back of line" for funding due to the tremendous amount of resources needed for the 2012 World Cup and the 2016 Rio Olympics.