AgDM newsletter article, November 2000

Brazilian soybeans -- Transportation problems

By: Marty McVey, AGRI-Industries, and Phil Baumel and Bob Wisner, Professors of Economics, 515.294.4843,

This is the second in a series of three articles on Brazilian soybean production. Other articles include:
Brazilian soybeans -- What is the potential?
Brazilian soybeans -- Can Iowa farmers compete?

Over the past two years, Brazil’s infrastructure investments have received widespread media attention. A recent American Soybean Association (May, 2000) newsletter reported Brazil’s government infrastructure expenditures in FY 2000 were budgeted at $185 million (U.S. dollars). While this is a large investment, Brazil’s distribution system is antiquated by U.S. standards, and many of Brazil’s infrastructure projects will cost billions of dollars to complete. So, while Brazil has a large and clear advantage in soybean production, its transportation costs will likely remain much higher than U.S. transportation costs.

Truck transportation

About 80 percent of Brazil’s soybeans are trucked to market. Trucking distances can range upwards to 800 miles to market. The quality of most roads is poor and a substantial portion of the nation's highways are dirt surfaced. The cost of upgrading these roads is staggering. For example, it would cost up to $1 billion (U.S. dollars) to upgrade highway BR364, which serves much of the New Frontier soybean producing regions. Long stretches of this national highway are dirt, with washouts several feet deep and large enough to hold an entire semi-truck hauling soybeans. Trucks bypass these washouts by simply driving through fields.

Railroad transportation

Figure 1. Click on map for enlargementThe railroad system consists of several short-line types of railroads serving southeast and northeast Brazil. Figure 1 shows the four most important railroads in Brazil. The black line represents the Novoestes railroad, the blue line is the E.F. Norte Sul, and the orange is the E.F. Carajás. The Ferronorte or Soy Railroad, (red/green) serves part of the cerrado in west central Brazil. This railroad company plans to build new rail lines (red dashed line) into Mato Grosso. However, less than 300 miles of new rail (solid red line) have been laid. With few exceptions, the railroads are in poor physical condition after years of neglect under government ownership. Moreover, individual railroads have different rail gauges requiring costly stops to adjust the wheels.

The Ferronorte recently purchased 50 new General Electric Dash-9 state-of-the-art locomotives and 780 new aluminum 105 ton covered hopper grain cars. Unfortunately, much of the Ferronorte is in such poor condition that the 105 ton cars can be loaded to only 70 tons. Even with these light loads, trains derail on a regular basis and the damaged aluminum cars are difficult and sometimes impossible to rebuild. To illustrate the condition of Brazil railroads, Brazilian grain firms are beginning to purchase new small 60 ton covered hopper cars to operate on the poor quality tracks. While Brazil is shifting down from 105 ton cars to 60 ton cars, U.S. railroads are rapidly shifting up from 100 ton to 110 ton covered hopper cars to take advantage of the cost efficiencies of larger cars.

Most of the new Dash-9 locomotives are too heavy for the poor quality track and are grossly under-utilized. The Ferronorte is trying to lease the new locomotives to other railroads but this has not been successful. The combination of these bad investments, along with huge capital requirements, little non-agricultural traffic, few railcar loading facilities, and very few highways to the railroad, will doom the Ferronorte to be a high cost carrier. Even though it is modernizing, Brazil’s railroad system is likely to remain a limited capacity, high cost mode of transport for years to come. However, a possible joint venture among railroads might accelerate the rate of capacity improvements.

River transportation

Figure 2. Click on map for enlargementSome observers believe that the development of the three navigable rivers shown in Figure 2 will solve many of the major transportation problems facing Brazil’s soybean industry. These three rivers are the Rio Madeira (blue/green), the Hidrovia Paraguay – Parana (red), and the Hidrovia Araguaia – Tocantins (black).

Rio Madeira

The Rio Madeira (blue/green in Figure 2) offers the best hope for improving grain transportation in Brazil, because it is a free-flowing navigable river that is already in full operation. Nine-barge tows move up and down the Rio Madeira, each barge carrying 2,000 tons. The river requires no public investment to maintain the required navigable channel. A modern barge loading facility is located at Porto Velho and a small, but modern barge-to-ocean vessel transfer facility is located at Itacoatiara on the Amazon River. The Madeira waterway has a capacity to move between 2 and 3 million tons yearly without investments in the river. Thus, the Rio Madeira has opened the New Frontier in Mato Grosso to world soybean markets.

While the Rio Madeira offers the best hope of solving Brazil's grain transportation problems, transport rates on the Rio Madeira are very high relative to U.S. rail barge transport rates. Table 1 shows the rates from Sapezal--the center of the new soybean producing area in Mato Grosso -- to Itacoatiara on the Amazon River where the soybeans are loaded into ocean vessels. Table 1 also shows the rates from Jefferson, Iowa to New Orleans (NOLA). The cost from Jefferson to NOLA is 63 cents per bushel less than the cost of transporting soybeans from Sapezal to Itacoatiara. Moreover, the total cost of shipping soybeans from Jefferson to Northern Europe is 66 cents per bushel less than the cost from Sapezal, Brazil to Northern Europe.

The Amazon to Japan -- Ships originating grain on the Amazon must travel up to 1,000 miles east to reach the Atlantic Ocean. These ships must then travel approximately 2,000 miles west to reach the Panama Canal or steam south around the Cape of Good Hope. The distance from Brazil to Japan is approximately 13,000-14,000 miles through the Panama Canal or around the Cape of Good Hope. Of course, these distances vary with the port of origin.

The distance from NOLA to Japan through the Panama Canal is about 10,000 miles. The high cost of internal transportation and ocean freight to the Pacific Rim means that Brazil soybeans will have great difficulty competing with U.S. soybeans in Asian markets. At the present time, almost all of Brazil's soybean exports go to Western Europe.

Table 1. Comparison of the costs of transporting soybeans via truck-barge from Sapezal, Mato Grosso to Itacoatiara and to Europe versus rail-barge from Jefferson, Iowa to New Orleans and Europe, (May 12, 2000) (U.S. dollars per bushel).

Maggi Group
Sapezal to Itacoatiara, Brazil
(Rio Madeira)



West Central Cooperative
Jefferson, IA to NOLA
(Mississippi River)

Truck 580 miles to Porto Velho




Rail 200 miles to E. Clinton, IL



Transfer to barge




Transfer to barge



Barge 600 miles to Itacoatiara




Barge 1,450 miles to NOLA


0.22* **

 Total to ocean ports




 Total to ocean ports



Ocean to N. Europe




Ocean to N. Europe



Total to N. Europe




 Total to N. Europe



* contract rail rate
** barge freight @ 135 percent of tariff

Hidrovia Paraguay - Parana

The Hidrovia Paraguay - Parana (red in Figure 2) flows south from central Mato Grosso through the Pantanal (blue circle)--a huge wetland and the most beautiful tourist attraction in Brazil--into Paraguay and Argentina to the export port of Rosario in Argentina. A barge loading facility is planned for construction in Morrinhos, in the middle of the Pantanal. In addition, the government of Mato Grosso plans to build a road to this facility. However, numerous non-government organizations are expected to fight this proposed development.

The Hidrovia Paraguay - Parana is likely to be developed, but will have limited value to Brazil for the following reasons:

Hidrovia Araguaia - Tocantins

The Hidrovia Araguaia - Tocantins (black in Figure 2) would transport truck-originated soybeans by barge from east central Mato Grosso to Xambioá, Tocantins. At Xambioá, the soybeans would be trucked to Estreito, Maranhao to be transferred into rail cars for shipment to the Atlantic Ocean port of São Luís for transfer into ocean vessels.

The cost of transporting soybeans from east Mato Grosso will be substantially higher by barge-truck-rail-rail over the Hidrovia Araguaia-Tocantins for export at São Luís than by truck-rail for export at Santos. Moreover, the costs of both modes will be much higher than the cost of transporting soybeans from Jefferson, Iowa to NOLA. For example, the estimated transport cost from east central Mato Grosso via the Hidrovia Araguaia-Tocantins to São Luís is $3.15 per bushel. The estimated truck-rail cost from east central Mato Grosso is $1.80 per bushel. Even after allowing for very generous discounts of up to 50 percent for large volume shipments, other possible cost cutting shipper concessions, and large public investments, the cost of shipping east-central Brazil soybeans to the export ports of São Luís and Santos would still be 2 to 3.5 times greater than the cost of transporting soybeans from Jefferson, Iowa to New Orleans.

Grain industry observers in Brazil suggest that the development of the Araguaia is unlikely while the development of the Tocantins may be possible.


The basic conclusions of this analysis are as follows:

1. Future expansion -- Brazil's land clearing and soybean production will likely continue at a rate near the long-term historical rate. However, recent legal action on property deeds of large land holdings, if upheld by Brazilian courts, could reduce the rate of land clearing.

2. Distribution system -- Increased soybean supplies will place major stress on Brazil's distribution system.

3. Tranportation limitations -- Brazil's transportation investments will be limited by capital shortages, environmental problems, social problems, and politics

4. Continued growth -- Despite these transportation problems, Brazil's soybean exports will continue to grow because of its large cost of production advantage.


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