Brazil faces crop logistics blackout

09/06/2012 @ 10:50am

Brazil is starting to plant an expected record-large soy and corn crop, this month. Challenges are showing up in every phase of production, from purchasing fertilizers -- already facing a shortage of ships and late deliveries -- to marketing of grain - that will be dangerously concentrated in February and March. Representatives of producers and industry race against time to avoid a logistic blackout.

In addition to the expansion of the cultivated area, mainly in soybeans, the weather forecasts are positive and farmers are investing heavily in technology. The increasing of production, at a time of record prices, should be a good reason for celebration for Brazilian agribusiness -- if they have on-farm storage capacity.

Warehouses are insufficient. In the region of Lucas do Rio Verde, Mato Grosso, farmers have stored winter corn on the floor around the silos. They do not have space in warehouses to save the harvest and while they wait for the best prices.

Warehouses, roads and ports will face even greater burden than in 2011/12 across the country -- mainly in Paraná and São Paulo, states that export two-thirds of the corn and soybean produced in Brazil.  Winter corn "overflowed" the silos in Mato Grosso, the main grain producer in Brazil. The problem is that, in the next season, the grains will need to be covered, due the summer rains, or transported quickly.

The federal government recognizes that farmers must find solutions to transport the crop production in 2012/13. "We are doing everything possible," says Mendes Ribeiro, minister of Agriculture, Livestock and Supply.

Roads require more investment. The Brazilian government promises since the past decade to pave highways like BR-163 in Mato Grosso, farmers complain.

This week, he announced that the government will appeal to the Army troops and trucks to transport winter corn from Mato Grosso to Northeast and South regions. The goal is to transport 400,000 tons in the next four months.

The next crop holds huge challenges for Brazil's infrastructure:

  • 51 million hectares (126 mill. acres) to plant, from the middle of this month.
  • 175-180 million tons to harvest and store - 10 million more than last year.
  • 50 million tons of corn and soybean to export.
  • 800 ships to load with grains, two-thirds of them in the ports of Santos and Paranaguá.

The bell rang by the winter crop is not a false alert. Mountains of grain rising around crowded warehouses shows the lack of space and exposes the difficulty faced to transport the production.

Agribusiness has little time to prevent a logistic blackout before the summer harvest. Corn and Soybean Growers Association (Aprosoja), focused on problems related to farmers, and Brazilian Association of Vegetable Oil Industries (Abiove), responsible for the crushing demands, are pressuring the government to postpone the regulation of the truck driver profession that was announced a month ago.

The matter is that is missing trucks and drivers, beyond of the limitations of the highway -- that supports two-thirds of the grain production flow. Under the new legislation, which is being reviewed, the truckers should have breaks of 30 minutes every four hours. By day, they still have to stop a period of 9 hours. The breach involves fines and retention of the vehicle. The framework, which guarantees basic rights to the category, threatens to reduce by one third the performance of the current fleet, according to the industry.

"With a production up to 80 million tons of soybeans, the logistics system will be tested more than ever. The problems will be very steep," said Fabio Trigueirinho, secretary of Abiove. "The new legislation is relevant to the truck driver and traffic safety. The difficulty is the implementation. We need at least one year. " In his assessment, Brazil will need a "war plan" to ensure the flow of the biggest grain harvest.

The transportation cost of one grain ton from Mato Grosso to Santos or Paranagua ports has increased from R$ 250 to R$ 300, according to Abiove. "We heard that the increases will go up to 50%," said Carlos Fávaro, president of Aprosoja and head of the Logistic Movement, created in 2009 to monitor the infrastructure accessed by agribusiness.

The concentration of the crop outflow in February and March is taken for sure. Not only due to the advance sales, that have reached 40% of the volume of the expected soybean production, four times the rate of the same time last year, according to consultancy Safras & Mercado. As international stocks are low  and U.S. production is less than estimated, the market will be vying soybeans in early 2013. The Brazilian producers will try to reap the first chance to take advantage of the better prices on the spot market.

Written by Jose Rocher from Gazeta do Povo newspaper in Parana, Brazil.