THE BLOG
08/19/2013 04:47 pm ET | Updated Oct 19, 2013

The Brazilian Government Has Woken Up

The cost of transporting soybeans from the city of Sorriso (Brazilian West) to China through Santos, the main port in Brazil, is approximately $ 190/ton, nearly three times more than would be spent transporting the product to the same destination, from Illinois (USA).
The North American competitor spends only US$71/ton. This difference, which punishes the Brazilian producer, is due to the costs from farms to ports.

It's easy to understand the huge difference in cost. Just compare the matrices (per ton /km) of transporting soybeans from Brazil and the USA.

While in Brazil 82% of production is transported through roads, only a quarter in the U.S. is transported by trucks. The majority (40%) in the U.S is transported through waterways; in Brazil only 2% is transported through waterways.

The North American railroads are responsible for transporting 35% of the soybeans in the country, while only 16% of the grain produced here sent on railroad cars to get to the ports.

But the case of soybeans is just one example of the damage imposed on our economy by a poor transportation infrastructure. This is undoubtedly one of the main causes that restrict competitiveness and economic growth in Brazil.

This is the reason I was so enthusiastic with the governmental decision in 2012 to launch the concession program, called Investing in Logistics. The program includes a series of actions to develop transport modes of roads, railways, air and waterways, in an integrated manner.

The government finally acknowledged that it lacks the resources and agility the for these projects.

There isn't enough space to write everything that was discussed, but some points that left me with a good impression should be highlighted.

Firstly, it is clear that the program was structured with technical accuracy. Integrated planning between highways, railways, waterways, ports and airports was resumed and the relationship with the productive chains, especially agribusiness was taken into account.

Secondly, it became clear that many pessimistic forecasts regarding the economic viability of the projects to be tendered have been made without proper technical knowledge of the current rules of the program.

It is true that, at first, the government took some missteps in setting conditions that maintained low tariffs; they were able to attract investors without trying to repeal the laws of the market.

But now they are awake. And one cannot fail to recognize that those in charge have always been open to dialogue with the sectors involved and the program has been substantially improved in all forms.

The conditions of our Brazilian National Bank of Development (BNDES) financing, extending deadlines, reducing interest rates and equity to be invested in the projects have improved. The economist Claudio Adilson highlights that projected rates of return become realistic and can attract the interest of investors.

In the case of railways, the rates of return of the project can range from 7% to 8% per year. Already, leveraged return rates, when the loans are considered with their respective costs, vary from 16% to 17%. It is worth noting that these are the rates that effectively remunerate the equity investor.

However, most importantly, I left with the perception that the government remains open to discussions and, if necessary, is willing to make corrections to the program.

After all, the recovery of the transport logistics of Brazil, essential to the success of agribusiness, is an issue too serious to be treated hastily and distorted by political prejudices.
Theses comments were published originally at Folha de S. Paulo, a Brazilian Newspaper.