Source: USDA [1]. (*) Soybean price at the port in the country of origin after it has been loaded onto the vessel. (**) Soybean price at the port in the destination country.

Farm prices are generally lower in Argentina and Brazil, reflecting lower production costs compared to the United States. When it comes to inland transport/handling costs, the numbers are roughly similar between the United States and Argentina, but strikingly higher for Brazil (based on Mato Grosso). The distance to the export ports on the east coast is about 1,000 miles, and the grain is hauled mostly by trucks through poorly-maintained highways. The mode of transportation and poor infrastructure explains the high transportation cost in Brazil. This explains why, despite its competitiveness on the production side, Brazilian grain fails to be as competitive in the world market. On the other hand, the competitiveness of Argentine grain is affected by the country’s policy-related costs. Finally, ocean transport costs are basically the same across the table and have no significant impact on the relative competitiveness of the three countries

In sum, the numbers tell us that U.S. corn and soybean producers manage to be more competitive in the world market because of the relatively low-cost and efficient transportation system in the United States (as opposed to the high-cost and inefficient transportation system in Brazil) and the absence of policy-related costs as in Argentina.

Matopiba: the new agricultural frontier in Brazil

The region known as Matopiba in Brazil encompasses parts of four states in the north-east side of the country: Maranhao (MA), Tocantins (TO), Piaui (PI) and Bahia (BA). Figure 1 shows the Matopiba region highlighted in red. In order to compare geographical location, the map on the left side of Figure 1 shows the center-west region of Brazil, which is formed by three states: Mato Grosso, Mato Grosso do Sul and Goias. As can be seen in the maps, the Matopiba region is much closer to the coast (and hence to export ports) than the center-west region.

Figure 1: Agricultural areas in Brazil – Center-west (left) and Matopiba (right)

Agriculture is not new to Matopiba, but harvested area and production of corn and soybeans are still lower than levels observed in the center-west region (Table 3). Although it still does not compare to the powerhouse center-west, crop production in the Matopiba region has been growing rapidly in the recent past. In the last 20 years, the harvested area for soybeans increased from approximately 2.2 million acres to 10.5 million acres, while production rose from approximately 80 million bushels to 2 billion bushels. For corn, the harvested area increased from approximately 1.2 million acres to 4.4 million acres, while production grew from approximately 51 million bushels to 250 million bushels. Significant growth has also been observed in yields. Soybean yields increased from about 36 bu/acre in the early 2000’s to 50 bu/acre now, which is already comparable to center-west yields (Table 3). Corn yields have also improved, but are still lagging behind yields recorded in the center-west (Table 3).

Source: CONAB (Brazilian Food Supply Company) is a public agency under the Brazilian Ministry of Agriculture, Livestock and Supply (MAPA), responsible for the execution of Brazilian agricultural policies related to price support, public storage, market supply and foreign trade. In addition, CONAB participates in the formulation of Brazilian government agricultural policy.

In terms of logistics, the region has some relative advantages compared to the center-west. It is closer to the coast and hence to export ports in the Brazilian north-east, reducing the distance and time that it takes to ship grain to the port (thus potentially reducing inland transportation costs). In addition, the ports on the northeast coast are closer to the European market than the ports on the south-east coast (which have traditionally been used to export grain), which can help reduce ocean transport cost. Besides, there are 41 inland ports along the region’s waterways and 2 ports located on the coast that can be used to export grain.

However, just like in the rest of the country, infrastructure is also a challenge in Matopiba. Some of the ports need further investments to be able to efficiently handle all the grain shipped out of the region. Further, in many cases, the grain still needs to be hauled by trucks through poorly-maintained highways until it reaches the ports. Investments have been made to improve highway conditions and also to develop a larger railway system, but more still needs to be done.

Final thoughts

Matopiba is the new agricultural frontier in Brazil and has significantly expanded in the recent past based mostly on corn and soybeans. In 2017/18, soybean production in Matopiba accounted for approximately 13% of the total soybean production in Brazil. Corn has expanded more slowly. Still, the region already accounts for approximately 7% of total corn production in Brazil.

There is still potential to expand grain production in the region, but growth is limited by indigenous land and conservation areas that cannot be used for large-scale agriculture. Still, production can also keep increasing through investments in technology to improve yields, particularly for corn.

Another challenge is the infrastructure to handle the increasing production in the region, especially in terms of transportation. Geographically, Matopiba has some advantages compared to the center-west, but more investments are needed for the region to fully develop this potential. Little research is available showing inland transport/handling costs in Matopiba compared to the center-west. Market participants estimate that these costs in Matopiba can be even 50% lower than in the center-west.

Going back to Table 1 and Table 2, Brazilian corn and soybeans coming from Mato Grosso loses competitiveness because of the high inland/transport/handling costs to get the grain to export ports. It remains to be seen the magnitude of these costs for grain coming out of Matopiba. If these costs are indeed lower in Matopiba, Brazilian grain may be able to gain some competitiveness in the world market. For example, Table 2 shows that even relatively small reductions in inland transportation costs can make Brazilian soybeans more competitive than U.S. and Argentine soybeans.

The main objective of this article is to call attention to recent changes in Brazilian agriculture that may have impacts on the international grain market. At this point, there is not enough information and research to make final statements about this point. More data needs to be collected and more research needs to be done to assess the true competitive edge that the region may have. In the meantime, it is worth following closely how grain production and infrastructure develop in Matopiba, because it has the potential the change the dynamics of the world market in a not-so-distant future.

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Fabio Mattos
Associate Professor
Department of Agricultural Economics
University of Nebraska-Lincoln
402-472-1796
fmattos@unl.edu

Reference [1] Birgit Meade, Estefanía Puricelli, William McBride, Constanza Valdes, Linwood Hoffman, Linda Foreman, and Erik Dohlman, “Corn and Soybean Production Costs and Export Competitiveness in Argentina, Brazil, and the United States”, EIB-154, U.S. Department of Agriculture, Economic Research Service, June 2016