South America Calling
Alastair Stewart South America Correspondent

Friday 09/28/12

Brazil's Port Problem

Brazilian agriculture's Achilles heel is infrastructure. Its soybean farms produce as cheaply as anyone in the world, but long, precarious road journeys and inefficient ports mean they are forced to swallow transport costs that are four times those of their U.S. counterparts.

As I discuss in the third story in my Brazil Crop Outlook series (see Friday's Top Stories), the situation is looking particularly critical for the upcoming 2012-13 season and the problems start at the ports.

Since Brazil's inception 500 years ago, it has been a commodities exporter and its ports were constructed with the shipment of foodstuffs such as coffee and sugar in mind.

But the growth of Brazil as a major soybean exporter in the 1990s and 2000s coincided with a period of chronic underinvestment in ports.

As a result, alternative ports weren't developed to take the pressure off Santos and Paranagua, which have natural limitations, causing an explosion in ship line-ups and queues of trucks waiting to deliver produce. These bottlenecks have a huge cost. Ship owners charge demurrage of $40,000 for every day's delay, while truckers charge for every day waiting in line and the number of lorries tied up at port means freight prices rise in the interior.

The good news is that the Brazilian government wants to attack this problem and will next month announce a port modernization plan that it hopes will generate up to R$40 billion ($20 billion) in investments between 2013 and 2030.

Farm leaders applaud the initiative but warn that the ports don't need pledges of money but clearer rules and reduced bureaucracy to unlock investments.

Multinational trading companies run many of Brazil's largest grain exporting terminals. They are keen to invest in expanding port capacity, as they see Brazil becoming an ever more important player in soy and grain markets over the coming decades, but they are loath to spend money until clearer rules over terminal concessions are issued.

"There are port concessions that will expire at the end of the year and you don't know what is going to happen, the government hasn't said … It's extremely difficult to invest," Pedro Parente, president of Bunge in Brazil, said at a recent event.

Meanwhile, cumbersome rules, overzealous environmental and anti-corruption regulation and poorly elaborated plans stodge up the investment pipeline at the publicly run portions of the ports.

As a result, issues like limitations to road and rail access to Santos port remain unaddressed.

According to Bernardo Figueiredo, president of EPL, the new government company set up to coordinate infrastructure investments, the idea is to set up a joined-up policy for ports, which will include a new regulatory framework that provide more transparent concessions and clear rules for how the public and private sector work together at ports.

This is a step in the right direction, but farm leaders want to see solid results before lauding the plan after years of big investment initiatives that have failed to live up to their billing.

As I mention in Friday's story, northern ports will start exporting more soy and grain in the next couple of years, which will ease the strain on Santos and Paranagua. The problem is that, after years of underinvestment, there is enormous repressed demand and new capacity is immediately filled. That means Brazilian grain farming will continue to be limited by the ability to deliver produce to export markets.

Posted at 4:55PM CDT 09/28/12 by Alastair Stewart
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