Brazil's bad infrastructure getting worse
Some farmers in Brazil have to drive each truckload of soybeans a distance equivalent to the route from Des Moines, Iowa, to New Orleans, Louisiana. This is oftentimes over roads that are nowhere near anything U.S. farmers would consider passable in a vehicle loaded with hundreds of bushels of grain.
Then, once they get to the port, they may sit in line with hundreds or thousands of other trucks awaiting their chance to dump the grain and start the long journey back to the field. Then, the barges on which the grain is loaded may have to wait weeks or months before departing the congested port.
It's a common scenario in Brazil, where crop production is far outpacing the development of the nation's infrastructure -- road, rail and port -- to support it. And now, a report released by Rabobank's Food & Agribusiness Research and Advisory team shows the problem will only get worse in the coming year, and for a number of reasons.
"Despite the projects that are under construction to improve the country's capacity to transport and export major agricultural commodities, there is virtually nothing that can be done to alleviate the current pressure on the system in the short-term, or to prevent this pressure from intensifying in the near-term," says Rabobank analyst Andy Duff in the bank's report released this week.
The report outlines both a trio of causes for the logistical nightmare in Brazil, as well as the ways those factors are affecting different sectors of the nation's economy.
"2013 is shaping up to be a very difficult year for agribusiness logistics in Brazil. Three factors have combined to drive transport costs for major commodities, such as soybeans, sugar, and corn, sharply higher. The first factor is new legislation impacting the number of hours that truck drivers are permitted to drive per day," Duff says. "The second is increases in the price of diesel fuel (5.4% in January 2013 and 5% in March 2013). The third factor relates to bumper crops and the expectations of large export shipments for soybeans, sugar, and corn."
Worsening traffic jams
The vast majority of Brazil's ag commodities travel from the field to the terminal by truck, making major any change in laws regulating trucking. Changes like the recent ruling limiting truckers' hours on the road -- though "no one is disputing that the aims of the new law are worthy," Duff says -- pour salt on the wound of both high freight costs and an already overloaded road system.
"Since road freight is the dominant method for transporting major commodities to the ports, the cost of road freight tends to dictate the freight rates for all modes of transport. For this reason, the new legislation on truck drivers' working hours has had a substantial impact on grain transport costs," Duff says. "The new law stipulates that drivers must take a half-hour break after every four hours of driving and also that drivers must take a minimum of 11 hours rest for every 24 hours worked."