Brazilian Cotton’s Path To Success Begins With Overcoming Infrastructure Roadblocks
January 29, 2009 Potential has long been the buzzword associated with Brazil’s cotton industry. With untapped acreage, advances in technology and an ideal climate, the perpetually emerging cotton giant seems to have limitless possibilities. If the past few years are any indication, those possibilities are beginning to become reality.
From the 1991/92 season to the 2002/03 season, Brazil maintained a steady increase in cotton output, although domestic production never met domestic consumption. But changes in technology and production methods led to yield booms since the 2003/04 season, especially in the states of Bahia and Mato Grasso, and the nation has become a major player on the global export scene.
The ICAC predicts roughly 500,000 tons of lint cotton will be exported from Brazil following the 2008/09 season. From the major ports of Santos and Paranagua, Brazilian cotton will make its way to places as far flung as Europe, China and Pakistan. But as Brazil’s growers can attest, the Atlantic Ocean can be far less challenging to navigate than the roads that lead from Mato Grasso’s vast plantations to Brazil’s eastern coast. Infrastructure continues to be the major obstacle holding the nation back from its full potential.
A Difficult Journey
Brazil’s National Transport Confederation (CNT) lists 82% of Brazil’s roads showing serious deficiencies. More than 8,000 km of roadways show serious deterioration, with cracks, potholes and ruts, according to CNT reports. Road conditions are often only a seasonal problem, though, according to Christopher Ward, Director of the Association of Mato Grasso Cotton Producers (AMPA).
Most of Mato Grasso’s growers harvest their cotton from April to July. Nearly 100% of the cotton is then ginned on-site at the farm where it is produced. As such, by the time the cotton is ready to ship, the rainy season has subsided, allowing time for the roads to be moderately repaired.
“The roads by then aren’t ideal, but they’re serviceable. Cotton doesn’t suffer nearly as much as the grain crop, which is shipped during the rain season,” says Ward. The geography of the western hemisphere’s second largest country only compounds the problems posed by the road conditions, though. The sheer distance from Mato Grasso – where over 50% of Brazil’s cotton is produced – to the nearest ports of Santos and Paranagua is a costly challenge in itself.
Cotton transport is done entirely via the highway system, which winds for over 1,700 km from the centrally located city of Cuiaba to both of these ports. Some cotton farmers located farther northwest than Cuiaba are forced to truck their cotton some 3,000 km. Distance, combined with poor road conditions, has led some shippers to estimate five to seven days for trucks to make their way from Mato Grasso’s farms to the ports.
Alternative shipping options are largely non-existent. Water transport to the coast is impractical for most farmers, as the nearest rivers and waterways are often equally distant and out of the way. Railways have not made their way into vast amounts of the Brazilian interior, and talks of their construction are often met with resistance due to environmental issues. Railroads account for less than 3% of the flow of freight, though that is limited to minerals and petroleum products.
As such, trucking is the only option for farmers seeking to move their cotton thousands of kilometers to Brazil’s ports. In the face of such staggering distances, fuel prices have become a major issue.
“The main problem in our industry is the cost of diesel fuel,” says Ward. “That combined with the strength of the Brazilian Real have caused major issues.” Much like the rest of the world, fuel prices have become a serious dilemma for Brazil’s growers. In early July, fuel prices per gallon had shot to around $6 (USD), despite a comparatively strong Brazilian Real.
The Real’s strength has been a major factor in driving fertilizer prices up, which spells trouble for the cotton industry as its main competitors for acreage, corn and soybeans, require significantly less fertilizer. As a result, cotton acreage is reportedly down some 20% during the 2007/08 season. “The Real isn’t going as far for the cotton farmer as it used to,” says Ward.
Still, with advances in technology, yields have consistently gone up in recent years. Brazil’s 2007/08 production is triple what it was 15 years ago, despite the recent declines in acreage. Of course, with added production comes added exports, and added pressures on the country’s major ports.
Port Problems
Cotton represents only a fraction of Brazil’s export boom in recent years. The Companhia Docas Do Estado de Sao Paulo (CODESP), the port authority overseeing Santos, reports a 35% increase in annual movement from 2003 to 2007. Exports have grown at the port from 39.1 million metric tons (MT) to 53.8 million MT in the same time frame, while container movement has increased 60%. Naturally, the port has struggled to cope with such rapid growth.
Similar growing pains have been seen at Paranagua Port. There, the index of handling is around 27 containers per hour, while the international average is 40 containers per hour. Since storage capacity at ports fulfills only 60% of the nationwide demand, unloading can often be a costly and time consuming task. As a result, many cotton producers have taken to storing their cotton on the same farms where it is grown and ginned.
The port of Salvador in Bahia, where much of Brazil’s cotton is grown, could provide some relief to the problems of export overflow in Santos and Paranagua. Salvador is not as heavily utilized by cotton producers due to a perceived lack of export infrastructure, although it does provide some advantages. Most notably, the port’s location in the northeast provides a closer point of export for many of the nation’s producers, especially those in inland Bahia. With investment, the port could become a major hub of international activity, though how much cotton producers would utilize it remains unclear.
What is clear is that no magic bullet will alleviate the myriad of problems facing Brazil’s cotton infrastructure. While the industry can only wait and hope for fuel prices to go down, action must be taken to find solutions for issues such as road conditions and port storage. If infrastructure can improve the way production has, the nation’s potential might finally be realized.
Captions:
Brazil’s highway system has not kept pace with agricultural growth.
The Atlantic Ocean can be far less challenging to navigate than the roads that lead from Mato Grasso’s vast plantations to Brazil’s eastern coast.
Also add photos by Andrea Klosterman Harris
Editor’s note: Adriana Davida, of Metasul Corretora, and Irina V. Brown of Dunavant Enterprises, Inc., contributed to this report.
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