September 15, 2011

Brazilian Infrastructure Declines in Ranking Second Year in a Row

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

According to a survey of 200 businessmen, both Brazilian and non-Brazilians associated with the World Economic Forum, the overall quality of the Brazilian infrastructure fell for the second year in a row compared to the 142 countries that were evaluated. Brazil's position fell 20 points since last year from a ranking of 84 to 104.

The two principal causes for the decline were the poor condition of the Brazilian highways and the inadequate port facilities in Brazil. While Brazil's agricultural production continues to increase, the improvements in the highways and the ports have not been able to keep pace resulting in bottlenecks and extremely high transportation costs. The position of the Brazilian highways fell 13 positions and is now ranked among the 25 worst in the 142 countries evaluated. The Brazilian port facilities fell 7 positions and are now ranked 130 out of 142.

None of this comes as a surprise to the Brazilian agriculture community who has been complaining for decades that the country's infrastructure is woefully inadequate to meet the surging agricultural production. Experts from the National Confederation of Agriculture and Livestock (CAN) have indicated that spending on Brazilian infrastructure needs to increase significantly if the country wants to remain competitive with other large producers such as the United States and Argentina.

Many in the agricultural sector are concerned that the situation is likely to get worse before it gets better. Numerous infrastructure projects have been halted as a result of recent corruption scandals in the Ministry of Transportation. According to the National Department of Infrastructure and Transportation (Dnit), many projects have been put on hold while investigators sort out the corruption changes logged against high ranking officials in the Ministry of Transportation. The projects will be liberated according to their national importance and only after it has been determined that none of the alleged corruption was associated with the project. These projects ranged from being just in the initial planning stages to projects that are nearly complete.

To complicate matters even more, Brazil is in the midst of a huge spending spree in preparation for the 2014 World Cup and the 2016 Olympic Games to be held in Rio de Janeiro. These projects may improve the infrastructure within the cities that will host the sporting events, but these projects will have little impact on the agricultural community. Many fear that as more money goes into the sporting venues, funds will be stripped away from projects that could help agriculture.

China is the largest importer of Brazilian agricultural products, but the transportation system in China is much more efficient than in Brazil. China is currently importing 54 million tons of soybeans per year and 18% of those soybeans come from Brazil. Over the next decade, Chinese soybean imports could hit 100 million tons and Brazil could double its soybean exports to China if it has an adequate infrastructure to handle the increased volume. Transportation costs in Brazil are already the highest of the major producing countries and it could get even worse.

According to figures from the Mato Grosso Soybean and Corn Producers Association (Aprosoja), it cost an average of US$ 100 to transport one ton of soybeans 1,400 kilometers within Brazil. It cost only US$ 35 to move the same ton of soybeans an equal distance within China. Brazilian producers are concerned that they will not remain competitive with the United States or Argentina if they don't drastically improve their infrastructure.