Infrastructure investment allows Brazil to gain on U.S.
Which of the following most makes the U.S. competitive on grain and oilseed exports: A—low production costs and production efficiency on the farm, or B—our transportation system and infrastructure?
"The U.S. is not as pivotal; other countries are coming of age."
If you answered B, you’re correct. Despite some chinks in its armor, the U.S. transportation/infrastructure system and network is still the envy of the world, but the gap is shrinking.
As yield differences also narrow, it will be those with the best transportation and infrastructure that determine who gets the business and what price farmers get paid.
"Brazil, Argentina and the U.S. have similar soybean yields," says Pat Westhoff, Food and Agricultural Policy Research Institute (FAPRI) director. "These countries have great potential to increase corn yields, too."
It’s already happening. U.S. productivity gains are slowing down at the same time they are increasing by key competitors. From 1990 to 2007, annual productivity growth in the ag sector was just 1.2%, which compares to 2% from 1949 to 1990.
Brazil’s problems are well documented: major delays, backups and port problems. However, Brazil is making major investments, and the gap for shipping costs between it and the U.S. is narrowing, albeit slowly, says Ken Eriksen, Informa Economics senior vice president.
Moreover, projects proposed to furnish the efficient movement of soybeans could reduce freight costs between 20% and 30%, depending on the origin. When accounting for wait times between transportation events and export movement, the cost savings could exceed 50%.
"Such potential improvements bring Brazil nearly on par with the U.S. in terms of inland transport costs, effectively bolstering its farm economy," Eriksen says.
In Ukraine, investment funds are sinking money into infrastructure.
"Shipping options are expanding," Eriksen says. "The U.S. is not as pivotal; developing countries are slowly coming of age."
Pivotal Improvements. Much of the investment has been made in recent years with the boom in crop prices, but don’t assume it will go away as prices fall, explains Mike Boehlje, a Purdue University ag economist. "Infrastructure investment isn’t going to stop," he says.
None of this would pose quite as big a challenge for agriculture if the U.S. were stepping up to the plate and making those same investments. "There is a backlog of lock and dam and emergency repairs," Eriksen says. While not a full solution, clearing deferred maintenance buys down the risk of a catastrophic event or closure until authorized major rehabilitation or new construction can be appropriated and completed, Boehlje says.
For example, a 90-day closure during peak soybean harvest at the LaGrange lock and dam (Versailles, Ill.) would mean 341 barge loadings would have to be diverted as 5,000 rail carloads or 21,000 truckloads. Because barge is by far the cheapest transport mode, that would mean lower prices for farmers, he explains.
U.S. transportation infrastructure has served the country well for 10 decades, but it needs investment.
- September 2013