Land rush on Brazil’s frontier
Transport costs have made the country’s agriculture industry uncompetitive. But new infrastructure projects should transform the opportunities some have seen in land values.
First, for those international investors interested in Brazilian agribusiness, the good news: the country’s poor infrastructure is crippling the competitiveness of Brazil’s farms. With little or no onsite storage, farmers are forced to ship harvests straight to port – becoming price takers at peak times of supply (and therefore low prices) and incurring peak freight costs. The journey from the interior of the country, which is where most of the agribusiness opportunities are located, is roughly 2,000 kilometres by truck. Roads are poor, railways are virtually non-existent. Delays at ports are costly in time and money. Logistics costs exceed those in other countries such that planting often isn’t economic. Also, regulation is not helping: new rules governing truck drivers’ working conditions are forcing up already sky-high freight costs and the Brazilian government has now restricted foreign ownership of farmland.
The bad news? This situation is changing fast. Key infrastructure projects should come on stream over the next few years and lower logistics costs will make the country’s frontier lands globally competitive. The wave of investments that began in the mid 2000s to develop farmland in the heart of Brazil will continue but those that are making handsome returns from the transformation of scrubland into highly productive arable farms say that the business model has about five years to run.