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This year Brazil is witnessing the largest harvest in its history. The country will harvest 185 million tons (MT) of grains and oilseeds, 11 percent more than in the previous year. We became the first producer (84 MT) and exporter (41 MT) worldwide of soybeans. We have also surpassed the United States as the leading worldwide exporter of maize (25 MT, compared to 23 MT U.S.), an unprecedented and surprising fact due to the terrible drought that hit the country in the middle of last year and caused a shortfall of over 110 million tons of grain.
In an event sponsored by the CME group that I participated in the United States, the main issue was not to know the estimate of how much Brazil will produce this harvest, but the volume of soybeans and corn that will be moved through our ports until the beginning of the next US harvest. There is no doubt anymore that Brazil can respond quickly in production. Just in soybeans we expanded the cultivated area by almost 3 million hectares in only one year. The second crop of corn – erroneously called “safrinha (small crop)” and planted after the soybean harvest in the same year – exceeded the summer harvest by more than 6 MT in the last two seasons. This is a notable competitive advantage of tropical environments, which places with temperate climates will never experience.
It so happens that in one year we increased our potential exports of corn and soybeans by 18 million tons, 36 percent more than in the last harvest. It’s worth mentioning that the bulk of the expansion of soybeans and corn occurs in the states of Mato Grosso, Goias and Bahia, in areas that lie between 1,000 and 2,300 kilometers from the ports. If we add further the exports of 25 MT of sugar and 18 MT of imports of raw materials for fertilizers, it is not surprising that this year we will watch, passively and terrified, the biggest grain logistic asphyxia in our history!
At this moment, the queues of ships to dock in the ports of Santos and Paranaguá are two to three times larger than a year ago. Last Thursday there were 82 ships waiting to load grain at the Port of Paranaguá, compared to 31 at the same time last year. In Santos there were 59 ships, up from 29 a year ago. The average cost of delay of a ship waiting to be loaded is US$ 30,000 per day. In a seminar of Bank Itaú-BBA organized last week, operators reported that to avoid 45 days of queues in Paranaguá they decided to send their trucks to the Port of Rio Grande, where queues lasted less than ten days. That is, after traveling 2,300 kilometers from northern Mato Grosso to Paranaguá, the soybean shipments have yet to travel the other 1,100 kilometers to catch a “faster queue” in Rio Grande do Sul. This is truly insane!
To further complicate matters, Brazilian Law 12,619, which restricts the working hours of truck drivers and the driving time of vehicles, had the practical effect of “removing” more than 500,000 trucks from the road. The cargo freight has risen between 25 percent and 50 percent this year. Furthermore the voting process on Provisional Measure 595 (MP 595) – the so called MP of Ports, which proposes new rules for the modernization of ports – has produced a succession of strikes nationwide, which will get worse with the advancement of negotiations.
This alarming situation leads us to at least three important considerations. The first, and most obvious, is the urgent necessity to vote on the new regulatory framework that will modernize Brazilian logistics, particularly the MP of Ports. Despite the calamity on the roads, the historical insufficiency of railways and waterways and lack of warehouses (our storage capacity is equivalent to 72 percent of the harvest of soybeans and corn, compared to 133 percent in the US), the worst bottleneck in the country right now, by far, is at the ports. It’s time to win the market reserve an fix the bureaucracy and corporatism of one of the most outdated sectors of the Brazilian economy.
The second is the urgent necessity for the systemic viability of new logistics in the north of the country, related to the flow of goods by the ports of Itacoatiara (Madeira river), Santarém (Amazon river), Maraba (Tocantins river), Miritituba (Teles Pires/Tapajós rivers) and Vila do Conde (confluence of the Amazon and Tocantins rivers, in the state of Pará), the paving of Federal highways BR-163 and BR-158 and integration of railways North-South (FNS), Center-West (FICO), West-East (FIOL) and Transnordestina. Sixty percent of grain production is concentrated in the Brazilian savannas (cerrados), which will benefit from the new procedures, but only 14 percent of it is now transported through the ports of the North and Northeast. The viability of the new corridors would allow us to export using Capesize ships, carrying 120,000 tons of grains, double the capacity of the Panamax ships, used today. With the future passage of these ships through the Panama Canal, in 2014, it will be possible to reduce by at least 20 percent the sea freight to China, which now accounts for 40 percent of our grain exports. Also there’s potential for reduction in ground freight using railways and waterways.
The third consideration has to do with the long-term. We need to study what would be the best model for the insertion of Brazil into the global agribusiness of the future. Today we are stuck in an inefficient transport system of soybeans and corn by truck, old and expensive ports and small ships. Corn and soybeans are used basically to produce feed for cattle, swine and poultry, which will produce the animal protein consumed by countries that are on the other side of the planet.
At time when many countries build more aggressive commercial policies – see the announcement of the new US-EU agreement and the myriad of Asians agreements – is it not the time to rethink our supply chains, seeking to explore the best combinations of competitiveness and value-added gains of the commodities (grains, meats, dairy) that will be demanded in the future?
Marcos Jank is a specialist in Agribusiness and Bioenergy, was President of UNICA (the Brazilian Sugarcane Industry Association) and ICONE (the Brazilian Institute for International Trade Negotiations).
See the original article in Portuguese here.
