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September 24, 2013

Conab to Start Expanding Storage Capacity Early Next Year

The Bank of Brasil and Conab reached an accord last week to finance the modernization and expansion of Brazil's public grain storage facilities. Work on the expansion project is set to begin during the first semester of 2014.

The plan to upgrade the public storage facilities of Brazil is part of the Harvest Plan 2013/14 announced by President Rousseff in June. A total of R$ 500 million will be invested in the project. Of the total, R$ 350 million will be used to construct 10 new storage facilities and R$ 150 million will be used to upgrade Conab's 84 existing facilities.

Upon completion of the project, Brazil's public storage capacity will increase from its present 1.96 million tons to 2.81 million tons. Of the ten new storage facilities to be built, six will be in northeastern Brazil, three in southern Brazil, and one in the center-west region. Many of the existing facilities are underutilized due to outdated machinery and structural deficits. These ageing facilities will be upgraded with more modern and efficient machinery as well as increased capacity.

The goal of the public grain storage program in Brazil is to smooth out commodity prices in Brazil and to prevent the type of price spikes recently seen in northeastern Brazil, which has been disseminated by a multi-year drought. These new storage facilities in northeastern Brazil will be used to store grain brought in from other regions in Brazil. The grain will then be auctioned off to local livestock producers at subsidized prices.