June 2, 2008

 

Logistics and production costs weigh down Mato Grosso's competitiveness

 

Although Mato Grosso has become Brazil's poster child for meat and soy production, the state is still lacking in many areas which is weighing down its competitiveness, according to a USDA report posted May 30, 2008.

 

In the past 10 years, Mato Grosso has become recognized as a global source of meat and grains.

 

Technology developed by research institutions Mato Grosso Foundation and Embrapa spurred on the revolution, helping agriculture to make large gains in areas that were previously small-scale traditional activities.

 

Between 2000-2004, the state doubled its GNP as soy production skyrocketed. Soy exports in Mato Grosso make up 72percent of the state's total exports, valuing US$3.1 billion.

 

However, infrastructure deficiencies, including shockingly deficient roads, insufficient rail and underutilized waterways, continue to annul the competitiveness of producers in Mato Grosso, the USDA report said. 

 

The cost of production is by far the highest of any Brazilian state, due to the cost of bringing in fertilizers and other inputs. Diesel prices in Mato Grosso are higher than the rest of Brazil by about 20 percent. Fuel prices are also higher in Mato Grosso than any other commercial soy producing region, and more than twice the cost of Argentina. Energy cost makes up 53percent of the total value of product exported to Europe.

 

In 2007 things got desperate in Mato Grosso as the state began to lose its relative competitiveness in the world market as logistical and production costs increased in greater proportion than that of its competitors.

 

Billions of dollars of unpaid debt got out of control due to producers' lack of operating capital. Farmers began to question if they would be able to keep producing, as factors lined up against them.

 

Brazil's Government decision last year to extend rural debt terms helped producers to stay in the game until prices began to pick up late last year.

 

While farmers in Mato Grosso still complain about the government's inconsistent Ag Policy, government support and high international soy prices have bailed farmers out of what looked to be a major financial crisis in 2007.

 

Mato Grosso Infrastructure Update
 

Meanwhile, the BR 163 highway is the prime transport artery of Mato Grosso, running 1100 miles from the state capital to Cargill's deep water port in Santarem PA.

 

The paving of BR 163 is nearly finished in Mato Gross. In Pará, 600 miles of the BR 163 are still unpaved. Brazil's military dictatorship built the BR 163 in the early 1970s to integrate the Amazon with the rest of Brazil. Lula recently announced (some 30 years later) a commitment of $350 million to pave the remaining 500 miles in PA. The Cargill port was built on the bet that the road would be finished, and if it is, Cargill estimates that they will move an at least additional 3 million tonnes per year.

 

On the other hand, many farmers in Mato Grosso see the Amazon river as their best option for transportation of soy. It is a highly underutilized transport corridor, since oceangoing cargo vessels can navigate it as far as 1800 kilometres inland.

 

The Ferronorte rail line hauled 7.5 million tonnes of soy and soymal out of Mato Grosso to Santos in 2007, but has the potential to move much more. America Latina Logistica's (ALL) current plan is to extend the line 260 kilometers further into the state to the city of Rondonopolis, but environmental issues are yet to be resolved and the rights have not been finalized.

 

Bunge, Cargill, Maggi, and ADM are all present in Rondonopolis, and are waiting for this decision to be made.

 

This project would help to lower the cost of transporting commodities in and out of MT, but progress has been extremely slow.

 

Only 50 miles of a single track have been laid with only two grain terminals along these 50 miles. Between 250-300 trucks deliver product daily to these two terminals (mostly soy), and between 6 and 7 60-unit trains carry product daily to Santos, which is a 4-day trip to reach this port due to older sections of the track in the state of Sao Paulo. When the product reaches Santos, there are reports of further delays due to bottlenecks.