Brazil’s agri sector needs better infrastructure

Brazil must increase private investment in infrastructure if it is to unlock further economic potential in its agriculture sector, according to economists and investors.

José Scheinkman, an economics professor at Columbia University, told Agri Investor he hopes to see concessions to rebuild the crumbling infrastructure linking the country’s agricultural producers to markets.

“Brazil is the most efficient agriculture producer in the world. To produce a bushel of corn in Brazil is very cheap. [But] by the time the corn reaches the port the cost has gone up considerably. Everything is shipped by trucks, travelling over bad roads.”

Increased investment in rail expansion could drastically improve the competiveness of Brazilian grain and sugar exports, Scheinkman said. He sits on the board at Cosan, a sugar and ethanol company that owns Brazil’s largest rail company.

In the years of rapid growth before the current recession, investment in Brazilian infrastructure did not keep pace, said chief executive for consulting firm GO Associados, Gesner Oliveira: “Over the last 25 years there was a vast expansion of demand for infrastructure, and very little investment.”

Infrastructure investment accounted for just 2 percent of Brazil’s GDP, compared to 8 percent in China, said Oliveira.

Oliveira added water and sanitation services present a tremendous investment opportunity. Only 40 percent of Brazil’s sewage is treated and half of its population is without access to adequate sanitation, pointing to an immediate need. “There is a major deficit and a major opportunity,” he said.

Favourable currency valuations have accelerated Brazil’s agri exports, as nearly every other sector in the economy contracts. Meanwhile, private equity investors have said that a tight credit market has opened quality agri assets up to investors.

Ealier this year, Summit Agriculture Group (SAG) said it was building a $115 million corn ethanol production facility in the remote Mato Grosso region, because poor infrastructure would give the company a significant price advantage selling ethanol from locally-produced corn back into the local market.