South America Calling

Logistics Monopoly Concerns Brazil's Soy Industry

Overreliance on trucks to transport grains the often-massive distances from farm to port is one of the key reasons that Brazilian logistics costs are so high.

But while trucks still account for 70% of grain transport, the growth of rail freight over the last couple of years has helped cope with constantly growing production and dampened transport-cost spikes.

On the face of it, prospects for continued growth in rail transport received a boost when Cosan, Brazil's No. 1 sugar and ethanol producer, signed a $3 billion deal to take control of America Latina Logistica (ALL), Brazil's principal rail operator, last year. Cosan pledged to invest up to R$9 billion ($3.2 billion) in ALL's network, which carries nearly all grain freight by rail.

However, Brazil's soybean industry is concerned that Cosan will create a virtual monopoly for bulk grain rail transport to Santos, Brazil's main grain port.

"Agribusiness will be at the mercy of one company with market power that's incalculable," said Carlo Lovatelli, president of the Brazilian Soybean Oil Industry Association.

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Cosan has three major terminals at Santos port, which when added to ALL's capacity means the sugar and ethanol firm has stakes in 45% of the bulk shipping capacity there.

That opens the possibility that Cosan will favor rail consignments that go through its port terminals and force rivals to send more by truck.

ALL runs the Ferronorte rail link from Rondonopolis, southern Mato Grosso, to Santos port. The route carried approximately 8 million metric tons (mmt) of soybeans, soymeal and corn last year at a cost 15% to 20% less than by truck.

The Cosan/ALL deal is still subject to approval by Cade, Brazil's antitrust watchdog. Cade councilors are due to rule on Wednesday, although a postponement would come as no surprise.

Cosan have promised not to favor sugar consignments or cargo going through its own terminals.

But Abiove, which represents the major multinational grain traders, and 15 other entities including the Parana agricultural federation, says that is not enough. They want Cade to condition the deal on the sale of Cosan's Santos port operations.

"Otherwise we are condemning ourselves to a monopoly for 33 years," said Abiove's Lovatelli.

The tendency is for Cade to approve the deal without obliging Cosan to sell assets, according to Valor Economico, a local business daily.

Railways take approximately 25% of soy and corn exports to port.

(CZ)

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