EFFECTS OF IMPROVING SOUTH AMERICA S TRANSPORTATION SYSTEM ON INTERNATIONAL COMPETITIVENESS IN WORLD GRAIN MARKETS

Transcription

1 EFFECTS OF IMPROVING SOUTH AMERICA S TRANSPORTATION SYSTEM ON INTERNATIONAL COMPETITIVENESS IN WORLD GRAIN MARKETS Stephen Fuller, Tun-Hsiang Yu, Luis Fellin Alejandro Lalor and Ricardo Krajewski* TAMRC International Market Research Report No. IM-2-01 October 2001 *Dr. Fuller, Tun-Hsiang Yu, and Alejandro Lalor are Professor, Research Associate and Graduate Research Assistant, respectively, in the Department of Agricultural Economics at Texas A&M University, College Station, Texas. Luis Fellin is former Research Associate in the Department of Agricultural Economics at Texas A&M University, and Ricardo Krajewski is an Economist with the USDA-AMS, Agricultural Transportation and Marketing Division, Washington, D.C.

2 EFFECTS OF IMPROVING SOUTH AMERICA S TRANSPORTATION SYSTEM ON INTERNATIONAL COMPETITIVENESS IN WORLD GRAIN MARKETS Abstract: South America has emerged as a major competitor of the United States in the international grain market over the past two decades. This study explores the effects of transportation system improvements in South America on their competitiveness in the world grain markets. Analysis is carried out with spatial, inter-temporal models that represent forecasted international corn and soybean economies in Analyses focuses on port facility improvements, improved navigability of the lower Parana River, the Parana-Paraguay Waterway, the Madeira-Amazon Waterway, extension of a railroad into central-west Brazil and development of a highway linking central-west Brazil to Amazon River ports. Results show the improved transportation systems increase South American corn and soybean exports about 8 and 2 percent, respectively, while U.S. prices, revenues and exports modestly decline. Corn prices in the U.S. decline about $0.25/metric ton as a result of the improved transport network while soybean prices decline $2.12/metric ton, and combined corn and soybean revenues of U.S. producers decline about $290 million per year. Although the revenue loss is significant, it represents a small fraction of U.S. producers annual corn and soybean revenues. The Texas Agricultural Market Research Center (TAMRC) has been providing timely, unique and professional research on a wide range of issues relating to agricultural markets and commodities of importance to Texas and the nation for more than two decades. TAMRC is a market research service of the Texas Agricultural Experiment Station and the Texas Agricultural Extension Service. The main TAMRC objective is to conduct research leading to expanded and more efficient markets for Texas and U.S. Agricultural products. Major TAMRC research divisions include International Market Research, Consumer and Product Market Research, Commodity Market Research and Contemporary Market Issues Research.

3 EFFECTS OF IMPROVING SOUTH AMERICA S TRANSPORTATION SYSTEM ON INTERNATIONAL COMPETITIVENESS IN WORLD GRAIN MARKETS EXECUTIVE SUMMARY The purpose of this study was to gain increased understanding of South America s recent and expected transportation improvements and to evaluate the effect of these improvements on the corn and soybean economies of the United States and South America. Analysis was accomplished with previously-developed spatial, inter-temporal equilibrium models that were modified to include projected 2010 demands/supplies and South American excess supply regions that were linked to export sites via a transportation network. In addition, regional corn and soybean supply equations were estimated for South America as were national demand equations. Preliminary analysis showed Argentinian corn and soybean production, and Brazilian, Paraguayan and Bolivian soybean production were likely to be impacted by recent and expected transport improvements. Thus, transport networks were constructed to represent these countries grain transport networks before and after improvements. By contrasting model solutions that represented the transport networks before and after transport system improvements, insight was developed on the effect of the improved transport network on corn and soybean prices, exports, revenues and production. The results of the analysis were generally as expected. Regions whose transport network was improved often experienced noteworthy gains in price. Their higher price lead to increased production, revenues and exports which subsequently lowered the world corn/soybean price. For those regions not experiencing a commensurate improvement in transportation (e.g. United States), grain prices decline as the South American grain transportation network is improved. In this study, six improvements to South America s transportation network were evaluated. They included: (1) improved efficiency in Argentinian and Brazilian port facilities; (2) improved navigability of the lower Parana River port area and the Parana-Paraguay Waterway; (3) development of the Madeira-Amazon Waterway; (4) extension of the Ferronorte railroad into Mato Grosso; (5) improvement and construction of a paved highway (Highway BR-163) linking Mato Grosso to the Amazon River port at Santarem; and (6) privatization of selected railroads in Argentina and Brazil. Efforts were made to segregate the improvements that had recently been implemented from those that seemed likely in the near future. Many of Argentina s more important transportation improvements have largely been implemented while improvement to Brazil s transportation network has been partially accomplished. Most of the findings appear reasonable or intuitive. For example, greatest benefit or gain to South America is associated with those improvements to the transportation network that handle

4 or transport large quantities of corn and soybeans. For example, the improved efficiency at port facilities yields a comparative large gain since all exports transit these facilities. Also offering important benefits was the improved navigability of the lower Parana River port area that resulted from dredging and improved channel markings. Again, the aggregate gains were comparatively large because of the large volume of Argentinian, Paraguayan and Bolivian exports moving via this port area. Other transportation projects were found to be important to selected regions. For example, recent improvements in the Parana-Paraguay Waterway were of significance to Bolivia and Paraguay and if the originally envisioned waterway were developed its influence could be wider, however, its role in Brazil appears limited given other on-going or anticipated improvements in Brazil s transport network and environmental concerns about future improvements to the Parana-Paraguay Waterway. In addition, the development of the Madeira- Amazon Waterway was found to be very important to west central Mato Grosso where soybean prices were projected to have increased $11.39/metric ton (mt). And, if the highway (Highway BR-163) linking Mato Grosso to the Amazon River port at Santarem were completed, similar gains would result for about 45 percent of Mato Grosso s soybean production. Interestingly, the Ferronorte Railroad was not found to be a principal transporter of soybeans in Mato Grosso when it embraces its current rate structure and other expected transportation systems are developed, i.e., for the Ferronorte to transport significant quantities, the most efficient privatized rate structure would need to be adopted ($18.00/mt/1,000 km). The effect of rail privatization was explored for selected regions: results suggest rail privatization could be an important force in those regions if the most efficient privatized rate structure were adopted ($18.00/mt/1,000 km), however, there is little evidence that railroads are currently offering these rates. Analyses attempted to differentiate the effects of recent transportation system improvements from those that were anticipated in the near future. In particular, the effects of recent transportation improvements were measured as were the combined effects of recent and expected system improvements. Results show recent improvements to South America s transportation system reduced average U.S. soybean and corn price an estimated $1.80 and $0.25/(mt), respectively, while respective exports declined 0.45 and 0.82 million metric tons (mmt). Revenues of soybean and corn producers in the U.S. decline an estimated $153 and $102 million, respectively, as a result of recent improvements in South America s transport system. When the recent and expected improvements to Brazil s transportation system are implemented, U.S. soybean prices are projected to decline $2.12/mt while revenues and exports decline $187 million and 0.55 mmt, respectively. Although absolute losses to U.S. producers seem important the relative loses are modest. As a result of South America s recent and expected improvements to its transportation system, U.S. corn and soybean exports decline about 1.20 and 1.40 percent, respectively, while total revenues decline about 0.70 percent. South America s absolute and relative gains to its corn and soybean producers from improvements to its transportation system were comparatively great relative to U.S. loses. Soybean exports increase about 0.99 mmt with recent transport improvements and 1.29 mmt when recent and expected transportation improvements are included. In addition, average soybean price in South America increases $3.94/mt with recent improvements to the

5 transportation system and $4.95/mt when recent and expected transportation system improvements are implemented. South American corn exports (Argentina) increase about 1.99 mmt while producer price increases an average of $8.72/mt with implemented transportation improvements. South America s estimated increase in corn and soybean exports with implemented transportation improvements are 8.4 and 1.8 percent, respectively, while soybean exports increase 2.3 percent when recent and expected transportation improvements are adopted. In conclusion, U.S. prices, production, revenues and exports modestly decline as a result of South America s recent and expected transport network improvements. United States corn prices decline about $0.25/mt as a result of South America s improved transport network while soybean prices decline about $2.12/mt. United States producers are projected to lose about $290 million per year in corn and soybean revenues because of improved corn and soybean transport networks in South America. Although the revenue loss is significant, it represents a small fraction of U.S. producers total soybean and corn revenues. v

6 Table of Contents Abstract... i Executive Summary... ii Background...2 Brazil...2 Argentina...7 Method of Analysis...10 Spatial Models...10 Model Data...11 Corn and Soybean Production and Consumption...12 Excess Supply Regions in South America...12 Evaluated Transportation Systems in South America...14 Countries Transportation Networks...15 Evaluated Improvements to Transportation System...15 Results...19 Soybeans...19 Separate Effects of Transportation Improvements...19 Combined Effects of Recent Improvements in the Transportation System...20 Combined Effects of Recent and Expected Improvements in the... Transportation System 21 Corn...23 Separate Effects of Transportation Improvements...23 Combined Effects of Recent Improvements in the Transportation System...23 References...25 Appendix A Spatial Models...47 Appendix B Estimated Demand and Supply Equations...50 vi

7 List of Tables Table 1: South American Corn and Soybean Production Regions with Projected... Table 2: Estimated Effects of Transportation Improvements in South America on U.S.... Table 3: Estimated Effects of South America s Recent Transportation Improvements on U.S. and South American Soybean Exports, Prices, Revenues and... Table 4: Estimated Effects of South America s Recent and Expected Transportation Improvements on U.S. and South American Soybean Exports, Prices,... Table 5: Estimated Effects of Improvements in South America s Transportation... Table 6:Estimated Effects of South America s Recent Transportation Improvements on U.S. and South American Table A1:... Subscripts, Parameters and Variables Included in Formulated Models 49 Table B1: Estimated Soybean Hectare Supply Response Equations for Selected... Table B2: Description of Variables Included in Soybean Hectare Supply Response... Table B3: Estimated Soybean Hectare Supply Response Equations for Selected... Table B4: Description of Variables Included in Soybean Hectare Supply Response... Table B5: Estimated Corn Hectare Supply Response Equations for Selected... Table B6: Description of Variables Included in Corn Hectare Supply Response... Table B7:... Brazil s Estimated Soybean Demand Equation 60 Table B8: Description of Variables Included in Brazil s Estimated Soybean Demand... Table B9:...Argentina s Estimated Corn Demand Equation 61 Table B10:... Description of Variables Included in Argentina s Estimated Corn Demand Equation 61 Table B11:...Argentina s Estimated Soybean Demand Equation 62 Table B12: Description of Variables Included in Argentina s Estimated Soybean... vii

8 List of Figures Figure 2:United States, Argentina and Brazil Soybean Exports (Soybean Equivalents), Average Exports, Figure 1: United States and Argentina Corn Exports, Average Exports, Figure 3:...Cerrados: Brazil s New Land Frontier 37 Figure 4:... Map of Brazil 38 Figure 5:... Map of Mato Grosso 39 Figure 6:...Map of Brazil Ports 40 Figure 7:... Map of Brazil Highway Network 41 Figure 8:... Map of Brazil Railroad Network 42 Figure 9:...Map of Brazil Waterway Network 43 Figure 10:... Map of Parana-Paraguay Waterway 44 Figure 11:... Map of Argentina Railroad and Network 45 Figure 12:...Map of Argentina Ports 46 viii

9 EFFECTS OF IMPROVING SOUTH AMERICA S TRANSPORTATION SYSTEMS ON INTERNATIONAL COMPETITIVENESS IN WORLD GRAIN MARKETS Brazil and Argentina have emerged as major competitors of the United States in the international corn and soybean markets over the past two decades. Argentina is now the second largest exporter of corn in the world, and a major producer and exporter of soybeans and soybean products. Even though Argentinian corn exports are comparatively small relative to the United States, the information in Figure 1 suggests they have increased at the expense of U.S. exports in recent decades, i.e., U.S. exports have edged downward as Argentinian exports have increased. During the 1990's, Argentinian and Brazilian soybean output about doubled, while U.S. production increased about 40 percent. Even though commercial soybean production was recently introduced in Brazil (1960's), it is now the world s second-largest soybean producer. Currently, Argentinian and Brazilian soybean exports (soybean equivalents) are about 140 percent of U.S. exports (Figure 2) (USDA, 2001a). Even though the record of Argentina and Brazil in expanding grain, soybean production and exports has been impressive, each country has additional land area for crop expansion. Large areas of improved pasture in Argentina could be placed in grain and oilseed production with proper incentives. However, the greatest potential is in central Brazil, where there are large tracts of undeveloped land referred to as the cerrados (Figure 3). The cerrados region is about one-fourth the size of the U.S. s 48 contiguous states and is estimated to include 100+ million hectares suited for modern mechanized crop agriculture. This is an area that annually exceeds that planted to corn, soybeans and wheat in the United States. The cerrados is a tropical grassland that includes small twisted trees interspersed with short grass. The land in the cerrados region is relatively inexpensive and can be easily cleared and converted to mechanized agricultural production (AgBrazil). In their native state, the cerrados soils are infertile, but with regular application of lime and fertilizer, they become productive and yield 40+ bushels of soybeans/acre. The USDA observes that abundant soils and good climate in Argentina and Brazil make them low-cost producers of soybeans and corn, with per bushel production costs 20 to 30 percent lower than in the United States (Schnepf, Dohlman and Bolling, Warnken) Although crop production costs in Argentina and Brazil are often lower than in the United States, both countries have comparatively inefficient marketing and transportation systems partially offsetting their competitive advantage in production (Schnepf, Dohlman and Bolling). Schnepf, Dohlman and Bolling compared port and hinterland grain prices and found Brazilian regions at similar distances from port as U.S. regions (2,000 km) had marketing and transportation costs that represented about 25 percent of the delivered port price while in the United States these costs made up about 8 percent of port price. And, in Brazilian and Argentinian regions that were

10 comparatively close to port (350 km), the marketing and transportation costs were about 15 percent of the port price. Although, Argentinian and Brazilian marketing and transport costs are historically high relative to the United States, recent and planned improvements in South American transportation systems suggest an enhanced competitiveness of these regions in world markets. The purpose of this study is to evaluate recent and planned improvements in South American transportation systems to determine their affect on competitiveness of the United States, Argentina and Brazil in world corn and soybean markets. The analysis is accomplished with spatial, inter-temporal equilibrium models of the international corn and soybean markets. Background on Argentinian and Brazilian grain production and their new and improved transportation systems is initially offered. This is followed by a section which forwards the method of analyses. Discussion focuses on the spatial models and their use to determine the effect of recent and planned improvements in South American transportation systems. Next, data for model construction is discussed with special attention given to the South American transportation systems that are evaluated. Finally, results of the analyses are presented. Background This section offers background regarding the location of corn and soybean production in Argentina and Brazil, its proximity to ports, their transportation systems, and recent and planned improvements in South America s transportation network. Brazil Brazil has great potential for economic development and agricultural trade because of its size and extensive land resources (University of Texas, 2000). It is only slightly smaller than the United States and includes a population of 173 million that is mainly distributed in coastal regions. Central Brazil has a very low population density, less than one inhabitant per square km. Transport distances are considerable in Brazil, especially for the central region (CIA). Historically, Brazil s soybean production was concentrated in the south and southeast regions (Rio Grande do Sul, Parana, Sao Paulo, Minas Gerais) which are comparatively close to Atlantic Coast ports, however, production has increasingly migrated into the central-west or cerrados region during the past two decades (Figure 4). Currently, about half (46%) of Brazil s soybean production (32 million metric tons [mmt]) remains in the traditional production region in south and southeast Brazil where distances to port range from 350 to 600 km (FNP Consultoria & Comercio). Most of the remaining soybean production (45%) is located in the new production region (cerrados) in central-west Brazil where the epicenter of production is Mato Grosso, a state

11 whose production centers lie from 1,650 to 2,200 km from Atlantic Coast ports (Figure 5). Other soybean producing states in the central-west region are Goias and Mato Grosso do Sul whose distances to Atlantic Coast ports range from 800 to 1,100 km. The northeast region of Brazil (Bahia, Maranhao, Piaui) produces about 6 percent of national production. Ports in Brazil are the responsibility of the federal government, however, the government may grant a concession of its obligation to a state or private entity. The country s largest ports are operated as public ports, managed by harbor companies, while others are often operated by state governments (University of Texas, 1998). For a variety of reasons, Brazilian ports have often been cited as being comparatively inefficient and costly. Rabobank International reports that port charges for soybean exports were about $8.00/mt in 1998 while in most competing countries port charges averaged about $ $4.00/mt. Regardless, improvements appear to have been made. The Financial Times reports that several years ago, the estimated cost of unloading grain at the Santos Port was $10.50/mt whereas in early 2001, the reported charge had declined to $3.75/mt. About three-fourths of Brazil s soybean and soybean product exports are through Atlantic Coast ports at Paranagua, Rio Grande and Santos (Figure 6). Other Atlantic Coast ports of importance are at Vitoria (6%) and Sao Francisco (8%): remaining exports are via facilities at Illheus (Atlantic Coast), Itacoatiara (Amazon River), Sao Luis (Atlantic port in north Brazil) and Corumba (Parana-Paraguay Waterway) (Schnepf, Dohlman and Bolling). There is no precise information regarding the role of the various modes in the assembly of Brazil s soybean and soybean product to port but it is generally presumed that truck is the principal carrier (60%) followed by railroad and barge, however, in portions of the central-west region, motor carriers are estimated to transport 90 percent of all grain cargo (Rabobank International; University of Texas, 2000). The highway system in Brazil includes 1.98 million kilometers and transports about 64 percent of the nation s freight (CIA; Ministerio dos Transportes, 1999). Unfortunately, only 9 percent of the system is paved, and because of heavy reliance on trucking, the inadequate highway infrastructure creates traffic bottlenecks and severe delays (Figure 7) (University of Texas, 1998). The primary truck-trailer configurations used in Brazil for soybean haulage are the 27- ton, straight-bed trailer and the newer, larger double-box trailer that legally transports 39 mt (USDA, 2001b). In the traditional producing region of south and southeast Brazil, average truck rates to Atlantic Coast ports range from $15.00/mt (500 km) to as high as $20.00/mt in the harvest and immediate post-harvest period (March-June) when there is considerable port and roadway congestion (SIFRECA). In Goias and Mato Grosso do Sul (central-west) the distance to port, ranges from 850 to 1,100 km with associated rates averaging about $25.00/mt in the nonpeak period but about $30.00/mt during the harvest quarter. Mato Grosso, the largest soybean producing state in Brazil (+8.0 mmt), is connected by a single paved highway (Highway BR- 364) to Atlantic Coast ports. Soybean production in Mato Grosso is largely located in the southeast (33%), central (42%) and west-central (24%) regions where average distance to port ranges from 1,650 to 2,200 km. In the southeast Mato Grosso region, truck rates to Atlantic Coast ports (1,650 km) average about $40.00/mt during the non-peak period and $44.00/mt during harvest quarter, whereas in the west-central Mato Grosso region (2,200 km) rates range 3

12 from $51.00 to $55.00/mt. Higher rates during the harvest quarter are due to the increase in transportation demands at harvest and the peak in export activity during this period with associated port and road congestion. During the four months extending from April through July, the majority (67%) of Brazil s soybeans are typically exported (FNP Consultoria & Comercio). The harvest- time peak in export activity would appear to result from comparatively small quantities of storage capacity at hinterland locations. A potentially important highway project for Brazil s central-west soybean production region is the paving and improvement of Highway BR-163 which is to link central Mato Grosso to the Amazon River port at Santarem. This north-south route will extend from Cuiaba, Mato Grosso, in south central Mato Grosso, through central Mato Grosso and Para to the Amazon River at Santarem. It is estimated that this improvement would reduce north central Mato Grosso s distance to port by kilometers (USDA, 2001b). Railroads carry about one-third of Brazil s freight over a system that includes 27,420 km of track which is primarily located in states bordering the Atlantic Coast (Figure 8) (CIA). In 1996 and 1997, the federal government of Brazil privatized its rail system offering 30 year concessions with provisions and performance goals established in the contracts. Historical fragmentation among regions, gauge differences in track, and Brazilian geography combined to prevent the development of a single, national rail network (University of Texas, 1998). For this reason, the government privatized the federal system into six regional markets with limited exchanges between lines. The purpose of privatization was to improve railroad efficiency and attract capital so railroads might have an expanded role in Brazil s transport system. Historically, only 10 percent of Brazil s agricultural products were transported by railroads (University of Texas, 2000). In recent years, Brazilian railroads transported an estimated 3 to 5 mmt of soybeans with most transported in the south and southeast regions at average distances ranging from 250 to 580 km (Ministerio dos Transportes, 2001). Although railroad trackage is largely confined to coastal states, there are several exceptions where rail lines reach into soybean producing areas of central-west Brazil. They include the Novoeste (Ferrovia Novoeste S.A.) which extends from Corumba (near Bolivia) in Mato Grosso do Sul to Atlantic Coast ports, the Ferro Centro-Atlantica which links portions of Goias to Atlantic ports, and the Ferronorte (Ferrovias Norte Brazil, S.A.) which currently connects the southeast border region of Mato Grosso (Alto Taquari) to the port at Santos via the Ferroban (Ferrovias Bandeirantes, S.A.). Plans are to extend the Ferronorte to Rondonopolis by 2002, Cuiaba by 2005 and eventually to Porto Velho on the Madeira River, and the Amazon port at Santarem (Figure 5). Rates from Alto Taquari, a distance of 1,300 km from Atlantic ports, currently average about $26.00/mt (SIFRECA). During the most recent harvest, soybeans were trucked from nearby regions to Alto Taquari and Chapadao do Sul for loading aboard the Ferronorte. Based on communications with Ferronorte personnel, it transported about one mmt of soybeans in 2000 (Ramos). Ferronorte has recently purchased 50 state-of-the-art locomotives and ton aluminum hopper cars but because of poor track and roadbed, and derailments they are loaded with only 70 mt (McVey, Baumel and Wisner). Management at Ferronorte is optimistic about improving the quality of the roadbed and track, and the overall efficiency of future railroad operations. 4

13 Waterways and railroads are seen as the most feasible transportation modes for integrating Mato Grosso and other central-west regions into Brazil s major transportation networks. Waterways are seen as a low-cost transportation alternatives to Brazil s historic dependence on high-cost highways (University of Texas, 2000). Brazil includes about 50,000 km of waterway, however, much is in need of dredging and additional infrastructure (CIA). Most waterways in central-west Brazil flow in a north-south direction, thus precluding these arteries for transportation of soybeans to Atlantic Coast ports (Figure 9). The exception and most developed waterway in Brazil is the Tiete-Parana Waterway. This waterway connects the Parana River north of Foz do Iguacu (in west Parana) to southeast Goias and, in addition, to the Tiete River in the state of Sao Paulo. The Parana River segment flows north-south and forms the western borders of the states of Parana and Sao Paulo, and the eastern border of Mato Grosso do Sul while the Tiete River flows in an east-west direction through Sao Paulo and terminates approximately 250 km west of the port at Santos. As such, this waterway facilitates truck movement from soybean production regions in central Mato Grosso do Sul to barge-loading sites on the Parana River where it can be barged via the Tiete-Parana to a location outside of Santos (USDA, 2001b). At this site, soybeans may be loaded into a truck for final shipment to the port at Santos. Currently, the Tiete-Parana is not an important route for transporting soybeans from Mato Grosso do Sul to Atlantic Coast ports, since most is now transported by truck and rail to port. The additional intermodal transfer costs associated with the Tiete-Parana Waterway and its extended distance from most central-west Brazil production may make it a comparatively unattractive alternative. The most important waterway development for Brazil s central-west soybean producing region has been the Madeira-Amazon Waterway which connects soybean production in west-central Mato Grosso to an Amazon River port elevator via the Madeira River (Figure 9). A joint venture involving the Maggi Groupo and the state of Amazonas invested in a river elevator at Porto Velho (Madeira River), a barge-to-ocean vessel transfer facility at Itacoatiara, a port on the Amazon River, and a fleet of barges and towboats that operate between Porto Velho and Itacoatiara. Soybeans are shipped by truck from west-central Mato Grosso to Porto Velho, a distance of 950+ kilometers, where they are loaded into barges (2,000 metric ton capacity) that move in nine-barge tows down the Madeira River for approximately 1,100 km to a floating, shiploading facility at Itacoatiara. At this site, soybeans are transferred from barges to Panamaxsized vessels that travel about 1,000 km down the Amazon River to the Atlantic Ocean. Currently, about 1.1 mmt of soybeans move over this route, however, it is nearing capacity and no additional investment is likely because of expected competition from other transportation routes. It is estimated that the Madeira-Amazon Waterway lowered transportation costs for west-central Mato Grosso soybean production about 20 percent (USDA, 2001b; McVey, Baumel and Wisner; Schnepf, Dohlman and Bolling). The Araguaia-Tocantins Waterway has also been cited as a potential artery for transporting central-west Brazil s soybean exports to port (Figure 9). In the initial waterway plan, the Araguaia River (east border of Mato Grosso) was to have been made navigable to the north Brazil port at Belem, but environmental concerns arising from construction of necessary locks has prevented development of this route. Thus, an alternative grain transportation route has been forwarded. This route connects east central Mato Grosso, Goias and northeastern Brazil soybean 5

14 production to the Atlantic port at Sao Luis in the state of Maranhao. The route involves truck shipments to the Araguaia River, on the eastern border of Mato Grosso, where barges are loaded and shipped to Xambioa, Tocantins a distance of 1,000 + kilometers. At Xambioa, the soybeans are transferred to trucks and transported to Estreito, Maranhao (160 km) where they are loaded into railcars operated by the Norte-Sul railroad which interlines with the Carajas (EFC) Railroad for final transport to the port at Sao Luis, a total rail trip of kilometers (USDA, 2001b). McVey, Baumel and Wisner have examined the feasibility of this route and find its cost to exceed that of direct truck shipments from Mato Grosso to Santos. An additional waterway which may have potential for central-west Brazil soybean production is the Parana-Paraguay Waterway. Historically, the Parana-Paraguay Waterway served as a transport artery, but it was comparatively inefficient because of needed improvements. In 1989, a committee made up of nations sharing the waterway (Intergovernment Committee of the Hidrovia Paraguay-Parana) was created to improve waterway navigation. As originally envisioned, the Parana-Paraguay Waterway would facilitate efficient barge transportation from south Mato Grosso (Caceres) to Nuevo Palmira, Uruguay, a 3,440 km canal linking Brazil, Bolivia, Paraguay and Argentina hinterlands to lower Parana River ports (Rosario, Buenos Aires, and Argentina) and the Uruguay port at Nuevo Palmira (Figure 10). The goal was to develop a waterway that could be navigated 365 days per year, 24 hours per day. Important improvements have been made in the southern reaches of the Parana River in Argentina and barge companies operating on the Parana-Paraguay Waterway have dramatically improved their efficiency, but remaining improvements have been comparatively modest. Environmental concerns, awkward custom procedures, lack of cooperation among involved countries, and inadequate efforts at dredging have curtailed development (University of Texas, 2000). The Brazil portion of the Parana-Paraguay Waterway extends from Caceres in southern Mato Grosso to the juncture of the Apa and Paraguay Rivers in southwest Mato Grosso do Sul, a distance of 1,278 km (Figure 10). In the northern portion of the Paraguay River (Caceres to Corumba (672 km), minimum draft is about 1.2 meters, whereas below Corumba ( 2,770 km) the minimum draft is 3.0 meters. Over much of the Caceres to Corumba segment, the Paraguay River flows through the Pantanal, the world s largest wetlands. In this region, the river meanders and the channel narrows, thus precluding efficient barge transportation. Initial plans to straighten and channel this portion of the Paraguay River have been halted because of environmental concerns regarding the decreased assimilative capacity of the wetlands, increased downstream flooding and others. The Inter-American Development Bank, a potential investor in the waterway has abandoned or at least placed on-hold any future investment in the Parana- Paraguay Waterway because of environmental concerns. Investment to facilitate year-round navigation over the entire waterway is estimated at about $1 billion (University of Texas, 2000). In 1998, about 11 mmt of cargo were moved on the entire Parana-Paraguay Waterway, with 35 percent identified as grain and soybeans. This was an increase from 8.3 mmt in 1997 and 6.7 mmt in An estimated 1.7 mmt of soybeans/soybean products entered the waterway in Paraguay in 1997, while Bolivia added 0.55 mmt and Corumba area ports about 0.25 mmt. 6

15 Paraguay is the primary shipper of soybeans on the Parana-Paraguay Waterway, shipping about two-thirds of its annual exports via this artery (Krajewski). 7

16 Argentina Argentina is the second largest country in South America, with a land mass about one-third of the United States. However, its population is only one-eighth of the United States (37 million) and its per capita income ranks third among American countries behind the United States and Canada (CIA; University of Texas, 1998). Argentina is generously endowed with high-quality land resources. The productive and most fertile land is located within a 500 kilometer radius of Buenos Aires and is known as the Argentina Pampas. The Pampas produces the majority of the country s cereal, oilseed and cattle. The proximity of the Pampas to the Argentina Coast and inland river ports (lower Parana River) favors the export of its grains and oilseeds (USDA, 1998). The Pampas includes about 50 million hectares which are largely located in the provinces of Buenos Aires, Cordoba and Santa Fe (Figure 11). These provinces typically produce about 85 percent of Argentina s corn production, and 80 and 60 percent of the respective wheat and soybean output (SAGPyA, 2001a). Remaining production tends to be located in the provinces of La Pampa, San Luis, Entre Rios, Santiago del Estero, Tucuman, Salta and Jujuy. In recent years, grain and oilseed acreage in northwest Argentinian provinces (Santiago del Estero, Tucuman, Salta, Jujuy) have modestly expanded, regardless, the regional distribution of total production has been little affected. Because of Argentina s large area of high-quality land resources and small population, most of its grain production is exported. In recent years, exports have equaled about two-thirds of Argentina s corn (17 mmt) and wheat (15 mmt) production. In addition, approximately 22 percent of Argentina s soybean production (24 mmt) is exported in an unprocessed form while over 90 percent of remaining production is exported as soyoil and soymeal. Argentina is the world s second-largest exporter of corn, largest exporter of soybean oil, second-largest exporter of soybean meal and an important competitor in the world wheat market (USDA, 2001a). Port elevators are a critical link in Argentina s grain and soybean marketing chain since comparatively large portions of annual production are exported. Argentina s most active export range is the lower Parana River. Export facilities extend from the mouth of the Parana River near Buenos Aires to Santa Fe, a distance of about 590 km (Figures 10 and 12). The most intense export activity is near Rosario which is 420 km above Buenos Aires. In 1998, lower Parana River ports exported about 70 percent of Argentinian corn exports, 30 percent of its wheat exports and about 97, 91 and 79 percent of its soybean, soymeal and vegetable oil exports, respectively. It is estimated that 78 percent of Argentina s soybean crushing capacity is in the Rosario area: many of these facilities are located on the Parana River and load meal and oil directly into ocean-going vessels, thus reducing transhipment and inter-modal transfer charges. Argentina s second-most important export range includes Atlantic Coast ports in the east and southern portion of the Buenos Aires province. The Atlantic Coast facilities at Bahia Blanca and Quequen/Necochea handle about 70 percent of Argentina s wheat exports, 24 percent of its corn 8

17 exports and important quantities of vegetable oil exports (21%). The port of Buenos Aires exports about 6 percent of Argentinian corn exports and about 2 and 5 percent of its wheat and vegetable oil exports (Bolsa de Comercio de Rosario, 2000a). In the early 1990's, Argentinian ports were generally viewed as comparatively inefficient with costs averaging about $8.00/mt, but during the past decade Argentinian export facilities have undergone modernization and privatization and now have costs that compare favorably with U.S. ports ($3.00-$4.00/mt) (Rabobank International). In contrast to the United States and much of Brazil, Argentinian grain and soybean production is in close proximity to port elevators. For example, Parana River ports, the principal outlet for Argentinian corn, soybean and soybean products are within 250 km of Argentina s most intensive corn producing region and about 200 km from the center of Argentina s primary soybean producing region. Further, Bahia Blanca and Quequen/Necochea, the principal export locations for wheat (70%) are within 250 km of Argentina s southern wheat production region while Parana River ports are about 200 km from the heart of the country s northern wheat production region (Ordoñez, Lalor and Fuller). Argentina has been at the forefront in privatization of its transportation infrastructure. Since 1990, a number of concessions have been granted for road corridors. Most of the road system is rated as poor, but under conditions of the 15-year concessions, road quality is to be improved. Regardless, much of the highway system appears to be poorly maintained and is deteriorating as a result of intensive use (University of Texas, 1998). In 1991, the government-owned rail system in Argentina was privatized to include five 30-year concessions. The purposes of privatization were to lower costs, improve infrastructure and increase efficiency. In general, there has been modest capital invested into the rural portion of the rail system in Argentina since privatization. Waterway development has also been privatized in Argentina. In 1995, a ten-year concession was granted Consorcio Hidrovia, S.A. to dredge the lower Parana River to 32 feet from Rosario to the Atlantic Ocean and 22 feet from Santa Fe to Rosario. The completion of this effort in 1997 has facilitated the loading of Panamax-sized vessels in much of the lower Parana River port range. The highway system in Argentina is comprised of 215,434 km of roadway with an estimated 63,553 km (30%) that are paved (Figure 11) (CIA). Grain transportation in Argentina is very dependent on the highway system since 80 to 85 percent of all grain is transported by motor carriers: the estimated average distance of haul by Argentinian grain truckers is 250 km. Commercial truckers and trucks operated by country elevators transport most grain from farms to country elevators, ports or processors since few farmers own grain trucks (Bolsa de Comercio de Rosario, 2000b). Assembly from farm to country elevator is over dirt roads which are often impassable during periods of extended rainfall while more distant hauls to port are often over the privatized highway system where traffic is dense and lanes are narrow. Because of modest onfarm storage capacity in Argentina, most grain is transported from farms during harvest. As such, truck queues at country elevators and ports usually involve a one-day wait and many require waits that extend for 2 to 4 days. During the peak transportation period, truck rates often increase 20 to 30 percent. Representative truck rates at distances of 100, 200 and 300 km are 9

18 $9.00, $13.70 and $18.75/mt, respectively (Margenes Agropecuarios). When truck routes include travel over dirt roads, rates often increase about 20 percent. The typical Argentinian grain truck transports 28 to 30 mt in a truck-trailer combination where one-third of the cargo is carried by the truck and the remaining two-thirds by the trailer (Ordoñez, Lalor and Fuller). Railroads in Argentina are estimated to transport 14 to 19 percent of the grain traffic at an average distance of 360 km. Privatization of railroads in Argentina in 1992 is thought to have lowered rates, however, railroads have not been able to make necessary investments so that efficient, reliable grain transport service can be offered. Argentina s privatized rail system annually transports about 18 mmt with 8 mmt being grain, oilseeds and other agricultural products. It is estimated that 5 of the 8 mmt of agricultural product are destined to Rosario area ports (lower Parana River ports) (Bolsa de Comercio de Rosario, 2000b). Argentina s most important grain/oilseed carriers are the Ferroexpreso Pampeano and Nueva Central Argentina with each transporting about 2.5 mmt of grains, oilseeds and other agricultural products per year. The Ferroexpreso Pampeano network is primarily in south Santa Fe province, and south and east Buenos Aires province, but with a link between the Rosario and Bahia Blanca ports (SAGPyA, 2001c). The average distance of grain haul for the Ferroexpreso Pampeano is estimated to be 370 km at an average rate of $13.88/mt. The Nueva Central Argentina, the other major grain/oilseed carrier, extends from northwest Argentina (Tucuman, Santiago del Estro) through south Santa Fe and into the northeast Buenos Aires province. Its average distance of haul is 461 km and its average rate is $12.90/mt. Railroads in Argentina operate comparatively low horsepower locomotives and small railcars as compared to U.S. railroads. Most locomotives in Argentina have 1,500 to 2,000 horsepower while grain cars typically transport 30 to 50 mt in grain trains that include 30 to 40 cars. In contrast, most locomotives in the U.S. have a minimum of 3,000 horsepower. And, U.S. grain hopper cars carry at least 90 mt and often move in grain trains that include 100+ cars. Argentina waterways transport about 1 percent of that country s grain traffic (Bolsa de Comercio de Rosario, 2000b). Small quantities of grain and oilseed are transported from north Argentinian regions to the Parana-Paraguay Waterway ports at Reconquista and Resistencia for subsequent barge movement to lower Parana River ports. Argentina has made comparatively modest improvements above Santa Fe to the Parana-Paraguay Waterway, however, the introduction of an American barge company (ACBL), in 1996, dramatically improved the efficiency of barge operations on that system. ACBL invested in channel markers, introduced GPS to aid in river navigation, and provided intensive training to crews, and, as a result, travel time from the upper reaches (Brazil, Paraguay) of the Parana-Paraguay Waterway to lower Parana River ports were reduced as were transport costs (Ordoñez, Lalor and Fuller). The lower Parana River port area is a significant transport artery for Argentina since most of its grain exports exit via this port range. Unfortunately, during the 1980's and early 1990's, the lower Parana River became expensive for ships to navigate because of inadequate maintenance. By 1992, ship draft was limited to 24 feet and because of inoperable buoys, ships could only navigate during daylight hours taking 3 to 4 days to travel from Buenos Aires to Rosario. Further, because of the limited draft, grain ships could not be fully loaded and, in 1993, 10

19 Panamax-sized vessels discontinued service to the lower Parana River ports. In 1995, the Argentinian government issued a concession to dredge the lower Parana River to Rosario to a depth of 32 feet and from Rosario to Santa Fe to a depth of 22 feet. By 1997, most of the planned dredging had been accomplished, and buoys and river markers had been upgraded to facilitate 24-hour navigation. It is estimated that these improvements lowered the cost for ships frequenting this port range $3.00 to $6.00/mt of grain cargo (Ordoñez, Lalor and Fuller). Method of Analysis The analysis is facilitated with spatial, inter-temporal equilibrium models of the domestic and international corn and soybean sectors. Previously developed spatial models are altered to represent projected demands and supplies in 2010, and South American regions with their exportable quantities of corn and soybeans and associated grain transportation networks. Initially, base models are developed that represent transportation networks prior to improvement or development. The solution to the base model creates a benchmark or a measure of conditions prior to improvements in transportation. The effects of improving the transportation system are evaluated by incorporating selected transportation improvements into the base model s transportation network, solving these modified models, and then contrasting their solutions with the base model solution. By contrasting the base model solution with the modified model solution that reflects the improved transportation system, the effect of the transportation improvement on grain prices, revenues, production and exports can be estimated. Spatial Models The spatial corn and soybean models used in this analysis include sloped excess demand and supply relationships that are solved with a quadratic programming algorithm. The quadratic programming models generate regional prices, production and interregional trade flows that result from maximizing producer plus consumer surplus minus grain handling, storage and transportation costs (Samuelson; Takayama and Judge). The models include considerable detail on regional excess demands and supplies, and transportation, storage and grain handling costs in the United States and exporting countries in South America. Subregions of Argentina and Brazil are represented in the model as regional excess supplies while Paraguay and Bolivia are each represented as an excess supply region. Other trading countries are treated as an excess supply or excess demand region. See Appendix A for a mathematical representation of the corn and soybean models. The U.S. portion of the international corn model includes 64 excess supply regions. Argentina, a corn exporter, is included in the corn model by four excess supply regions while each of the other exporters (China, South Africa, Other) are included as an excess supply region. Included among the excess corn demand regions are 60 U.S. regions and 24 foreign demand regions. The 11

20 U.S. portion of the soybean model includes 68 excess supply regions while Argentina and Brazil include four and ten excess supply regions, respectively. Bolivia and Paraguay are each represented as an excess soybean supply region. Remaining exporters in the soybean model (Other) are represented as an excess supply region. The soybean model includes 24 U.S. excess demand regions and 24 foreign excess demand regions. Imbedded in the United States, Brazil, Argentina, Paraguay and Bolivia portions of the models are transportation networks that connect excess supply regions with excess demand regions and ports via applicable transport modes. Excess supply regions in the United States are linked by truck and rail transportation costs to 37 barge-loading sites on the domestic waterway system: the barge-loading sites are linked to barge-unloading sites on the waterway system and ports as appropriate. Seventeen U.S. ports receive corn and soybeans from the excess supply regions via truck, rail and barge as appropriate and then ship via maritime costs to a representative port in each of the 24 foreign excess demand regions. Selected excess supply regions in Argentina, Brazil, Bolivia and Paraguay are also linked by truck and rail as appropriate to four bargeloading sites on the Parana-Paraguay Waterway and one barge-loading site on the Madeira River in Brazil. The barge-loading sites in Argentina and Brazil are linked to appropriate ports in those countries. Six ports in Brazil and four ports in Argentina receive grain by truck, rail and barge as appropriate from excess supply regions in Argentina, Brazil, Bolivia and Paraguay. Ports in Argentina and Brazil are linked by maritime costs to each of the 24 foreign excess demand regions as are other foreign excess supply regions. To reflect freezing of the Great Lakes and upper Mississippi River, the models disallow shipping via these arteries in the winter quarter. Grain handling and storage costs are incurred in the United States, Argentina, Brazil, Bolivia and Paraguay: grain handling costs (loading/unloading) occur at excess supply locations, barge-loading and -unloading locations and ports. The corn and soybean models include four quarters. Model Data The corn and soybean models were constructed with estimates of country/region excess demand and supply equations; grain handling and storage costs; and railroad, truck, barge, and ship costs/rates. Previous journal articles and documents communicate much of the transportation data included in the U.S. portion of the corn and soybean models (Fuller, Fellin and Grant; Fuller, Fellin and Eriksen; Fellin, Fuller, Grant and Smotek). Accordingly, this section focuses on data associated with modifications to these models. Attention is given to projected production, consumption and trade in 2010, South American corn/soybean excess supply regions, and the transportation networks evaluated in South America and their associated transportation costs. 12

21 Corn and Soybean Production and Consumption Estimated corn and soybean production and consumption in 2010 were incorporated into the spatial models since some of the potential transportation improvements may not be achieved until that point in time. Thus, any measured changes in corn and soybean revenues are based on estimated production and consumption in National estimates of corn and soybean production, consumption, and trade for 2010 were based on the USDA Agricultural Baseline Projections to 2008 (USDA, 2000). The 2010 estimates of national production and consumption were obtained by extrapolating the USDA s 2008 projections to 2010 via estimated linear trend lines. Based on this effort, world corn trade was estimated to be mmt in United States corn exports were projected to be mmt while Argentinian exports were estimated at mmt. Other exporters (South Africa, Europe and Other) had estimated exports of 3.51 mmt. World soybean trade was estimated at mmt while exports of the United States, Argentina, Brazil, Bolivia, and Paraguay were estimated at 40.86, 23.31, 28.24, 1.28, and 3.72 mmt, respectively. Other world traders had estimated exports of 4.80 mmt. The soybean trade estimates include both whole soybean and soybean product trade. All projected production, consumption and trade in soymeal and soyoil in 2010 was converted to whole soybean equivalents by use of country conversion factors included in the Agricultural Baseline Projections. Thus, the soybean model represents projected trade of soybeans and their products (soymeal, soyoil). The analysis assumes a change in whole soybean trade would influence soybean price in the same way as an equivalent quantity of soybean products, i.e., an additional metric ton of whole soybeans supplied to the international market would have the same affect on price as would the exported soybean products manufactured from that metric ton of whole soybeans. In the U.S. portion of the corn and soybean models, historic geographic production and consumption patterns were maintained when calibrating the models to represent the 2010 period. That is, if a particular supply region had historically produced 1 percent of national production during the mid-1990's, it was assumed that its share of total production in 2010 would be analogous. In a similar manner, projected national consumption was estimated for each geographic region in the U.S. portion of the corn/soybean models. Further, it was assumed that U.S. supply and demand elasticities in 2010 were similar to those during the mid-1990's as were transport costs. Foreign excess demands in 2010 were obtained through linear extrapolation of import data from the USDA Agricultural Baseline Projections 2008: excess demand elasticities for foreign excess demand regions were based on those included in an earlier version of the spatial models (Fuller, Fellin and Eriksen). Excess Supply Regions in South America 13

22 Regional excess supply functions were estimated for four corn and soybean producing regions in Argentina, ten soybean producing regions in Brazil and one soybean producing region in both Bolivia and Paraguay. The excess supply relationships were obtained with an estimate of the excess supply elasticity, surplus or estimated excess supply, and price. The estimated excess supply elasticity for each region was estimated with the following formulation (Shei and Thompson). Projected prices were based on those presented in Agricultural Baseline Projections E es = E s (Q p / Q e ) - E d (Q d / Q e ) where, E es = excess supply elasticity of region E s = own-price supply elasticity of region Q p = quantity produced in region Q e = quantity exported from region E d = own-price demand elasticity of region Q d = quantity consumed in region The own-price supply elasticities (E s ) for all regions in Brazil and Argentina were obtained through statistical estimation of harvested area (hectares) supply response equations for states/provinces. All equations were specified as follows: Hect t = f (Hect t-1, Price t-l, Year n ) where, Hect t = Harvested hectares in time period t Hect t-1 = Harvested hectares in time period t-1 Price t-1 = Price in time period t-1 Year = 1... n The supply elasticities (E s ) were obtained from the estimated coefficients on the price variable in each equation while the year variable was included to facilitate estimation of region supply in In addition, trend lines were estimated for purposes of estimating price and yield in The resulting price and yield estimates for 2010 were used in combination with the estimated hectare supply response equation to project state/province production to In those cases where several states/provinces comprised an excess supply region, the state/province supply elasticities (E s ) were weighted by their production share. Included in appendix B are the estimated hectare supply response equations for selected states/provinces. A corn and a soybean demand equation was estimated for Argentina and a soybean demand equation for Brazil: demand equations were not estimated for states/provinces because consumption data were not available. The own-price demand elasticities (E d ) were obtained from the estimated coefficients on the price variables included in the estimated demand equations. See appendix B for the estimated country demand equations. 14

23 Four excess corn and soybean supply regions in Argentina are incorporated into the spatial corn and soybean models. They include the central, northeast, northwest and north central Argentinian production areas. The central Argentinian excess supply region includes the provinces of Buenos Aires, Cordoba, Entre Rios, La Pampa, and Santa Fe. Also included in the models is a northeast Argentinian region that incorporates the Chaco, Corrientes, and Formosa provinces; the northwest region including the provinces of Jujuy and Salta; and the north central region including Santiago Del Estero, and Tucuman. Brazil is represented by ten excess soybean supply regions. They include the southeast region incorporating the states of Parana, Santa Catarina, and Rio Grande do Sul; the east central region including Minas Gerais and Sao Paulo; the northeast region including production in the states of Bahia, Piaui, Para, Maranhao and Tocantins; and southeast, south central, central, west central and northeast Mato Grosso; as well as the states of Goias and Mato Grosso do Sul. The west central Mato Grosso region includes production in Amazonas, Rondonia, and west central Mato Grosso. Bolivia and Paraguay are each represented as an excess soybean supply region. Projected production and consumption of corn in Argentina, and soybeans in Argentina, Bolivia, Brazil and Paraguay in 2010 were obtained via linear extrapolations from USDA s Agricultural Baseline Projections 2008 as outlined above. Additional insight was required to estimate production, consumption and excess supply for each supply region. Several efforts were carried out to obtain the excess supply region production/consumption estimates. First, province/state level production in 2010 was estimated with the estimated area (hectare) supply response equations (Appendix B) and estimated yield and price trend lines as outlined above. In addition, previous studies were consulted to gain insight on historic and projected corn and soybean production, consumption and potential land areas suitable for expanded production in the identified subregions (Banco Interamericano de Desarrollo, 1996a; Ministerio dos Transportes, 1999; Ministerio da Agricultura e do Abastecimento; USDA, 1994). Historic livestock, poultry, dairy and human populations by country and state/province with associated trend lines were used in projecting consumption to Based on this information and data, estimates of regional excess supplies were obtained (Table 1). Argentina s projected excess supplies of corn and soybeans are concentrated in the central region, in particular, the provinces of Buenos Aires, Cordoba and Santa Fe. Historically, these three provinces have produced most of that country s corn and soybean output. In contrast, production and excess supplies of soybeans in Brazil are projected to increasingly migrate over time to the central-west region. Evaluated Transportation Systems in South America A brief overview is initially provided of the modeled transportation networks in Argentina, Brazil, Bolivia and Paraguay. This is followed by discussion of the improved transportation systems that are evaluated. The evaluated improvements to South America s transportation network are: (1) improved efficiency in Argentinian and Brazilian port facilities; (2) improved 15

24 navigability of the lower Parana River port area and the Parana-Paraguay Waterway; (3) development of the Madeira -Amazon Waterway; (4) extension of a railroad (Ferronorte) into Mato Grosso; (5) improvement in and construction of Highway BR-163 linking Mato Grosso to the Amazon River port at Santarem; and (6) privatization of selected railroads in Argentina and Brazil. Several of the improvements have not been implemented, whereas others have been implemented but realization of anticipated gains is not complete or possibly not even likely, while other improvements have been completed and anticipated gains realized. In these analyses, an effort is made to differentiate between those improvements that have been implemented and have achieved gains or are nearing realization of gains, and those whose gains are expected in the near future. Countries Transportation Networks The Argentinian corn and soybean transport networks imbedded in the corn/soybean models feature ports at Rosario, Santa Fe, Buenos Aires and Necochea. In addition, the models include barge-loading facilities at Resistencia and Reconquista: these two sites are located on the Argentinian portion of the Parana-Paraguay Waterway. These barge-loading sites are linked by barge rates to ports at Rosario, Santa Fe and Buenos Aires. The four excess supply regions in Argentina (central, northeast, northwest and north central regions) are linked by truck and rail costs/rates as applicable to ports and barge-loading sites. The Brazilian transport network included in the soybean model features Atlantic ports at Rio Grande, Paranagua, Santos and Sao Luis, and Amazon River ports at Itacoatiara and Santarem. Corumba, a barge-loading site in Mato Grosso do Sul, is linked by barge to lower Parana River ports via the Parana-Paraguay Waterway. In addition, the soybean model features barge-loading sites at Porto Velho on the Madeira River. Porto Velho is linked by barge costs to Itacoatiara, an Amazon River port serving ocean-going vessels. A variety of schemes link Brazil s ten excess supply regions to nearby ports in the soybean model. However, for all excess supply regions, the truck mode is available for transportation to a nearby port while rail is available for selected excess supply regions before and after improvements in transportation. The modeled transport network in the Bolivian portion of the soybean model features direct truck transportation from Bolivia s excess supply region (Santa Cruz) to Brazil s Atlantic Coast ports and the ports at Santa Fe and Rosario. Truck transport between Santa Cruz and Corumba, a barge-loading site on the Parana-Paraguay Waterway is also featured, thus linking Bolivian soybeans to lower Parana River ports by barge. In addition, the model allows Bolivian soybeans to be placed on Brazil s Novoeste Railroad at Corumba for transport to the Brazilian port at Santos. 16

25 The modeled transport network included in the Paraguay portion of the soybean model links truck-transported soybeans in east Paraguay regions to the Brazilian port at Paranagua. In addition, truck costs link east Paraguay production to the Parana-Paraguay Waterway. Evaluated Improvements to Transportation System Port facilities are an important link in a country s grain export system and, accordingly, are evaluated in these analyses. In the early 1990's, both Brazil and Argentina had comparatively inefficient ports with estimated charges of $8.00/mt (Rabobank International). After port privatization and modernization in Argentina, port charges declined to about $4.00/mt, a representative charge for many U.S. port operations. Brazil port facility costs are estimated to have declined to $6.00/mt with expectations of $4.00/mt charges in the near future (Figures 6 and 12). Improvements in the navigability of Argentina s lower Parana River and the Parana-Paraguay Waterway are linked and, therefore, are evaluated simultaneously. Before dredging and the addition of associated navigational improvements in the lower portion of the Parana River, effective draft for ocean-going vessels had been limited to 24 feet at Rosario and 20 feet at Santa Fe. After canal dredging and widening at selected sections of the river in 1997, the effective draft at Rosario and Santa Fe became 32 and 22 feet, respectively (Figures 10 and 11) (Krajewski). Each additional foot of draft enables the loading of an extra 1,500 mt of grain, thus the eight feet of added draft facilitates an additional cargo of 12,000 mt. A recently estimated grain ship rate equation that included cargo size as an explanatory variable was used to estimate the effect of an additional 12,000 mt of grain cargo on rate (Jonnala, Bessler and Fuller). This analysis suggested that increasing cargo size 12,000 mt would lower ship rates by $6.68/mt: based on an earlier ship rate analysis by Binkley and Harrer an additional 12,000 mt of grain would lower rates $4.64/mt. In addition, an Argentinian grain ship rate equation was estimated by ordinary least squares that included dredging of the lower Parana River as a binary variable: this analysis suggested that dredging and improved navigational aids at lower Parana River ports had decreased ship rates from $0.00 to $6.82/mt. The estimated range was due to different model specifications. Further, an Argentinian government official estimated that improvements in the lower Parana River port area had lowered ship rates about $5.00/mt. In this analysis, ship rates are assumed to have been reduced $5.00/mt as a result of lower Parana River port improvements. In addition to the port improvements in the lower Parana River, Argentina and other South American countries have made improvements to the upper portion of the Parana-Paraguay Waterway which extends northward through Paraguay into central-west Brazil. In the Argentinian portion of this waterway, channel markings have been added to facilitate more efficient navigation. It is estimated that representative rates from Resistencia (river port in model) to lower Parana River ports have declined from $8.30/mt to $7.55/mt and with additional 17

26 improvements may decline to $6.80/mt. Rates from Reconquista (river port in model) are estimated to have declined from $7.00/mt to $6.47/mt as a result of recent improvements and with future improvements may decline to $5.95/mt. The effect of upper Parana River improvements on barge rates was based on a study by the Inter-American Development Bank and discussions with grain handlers (Figure 10) (Banco Interamericano de Desarrollo, 1996a; Banco Interamericano de Desarrollo, 1996b; Ferres). Initial plans for the Parana-Paraguay Waterway in Brazil included its extension to Caceres in southwest Mato Grosso, however, environmental concerns that center on the Pantanal in northwest Mato Grosso do Sul have limited most improvements to Corumba, a site on the Paraguay River that is about 670 km south of Caceres. Corumba is located in west central Mato Grosso do Sul near the Bolivian border. Improvements in the Parana-Paraguay Waterway are thought to have lowered barge rates linking Corumba to lower Parana River ports from about $24.00/mt to $19.00/mt and if all improvements were made to facilitate efficient year-round passage, rates could decline to $14.00/mt (Banco Interamericano de Desarrollo, 1996a): Mato Grosso do Sul, Mato Grosso and Bolivia may be favorably affected by the waterway improvements to Corumba. In Paraguay, improvements in the Parana-Paraguay Waterway are estimated to have reduced barge costs from Asuncion to lower Parana River ports from $11.00 to $9.75/mt and if additional improvements were made, rates may decline to $8.50/mt (Figure 10) (Banco Interamericano de Desarrollo, 1996a). The Madeira-Amazon Waterway connects west central Mato Grosso soybean production to a barge-to-ocean vessel transfer facility at Itacoatiara, a port on the Amazon River. This waterway was implemented in 1997 and is believed to represent an improved marketing alternative for selected regions in Mato Grosso. Shipping to Atlantic Coast ports by truck has often been the best alternative for Mato Grosso prior to barge transportation on the Madeira River: estimated trucking costs to Atlantic Coast ports from west Mato Grosso average about $55.00/mt. In contrast, trucking to Porto Velho on the Madeira River, where soybeans are loaded to barge and then shipped to Itacoatiara, have estimated costs of about $42.00/mt or about 76 percent of the truck cost to Atlantic ports. Grupo Andre Maggi, S.A., a large land holding company in west Mato Grosso, owns and operates the infrastructure that facilitates this alternative (Figure 9). Private investors with assistance from the Brazilian government are constructing Ferronorte, a railroad that will eventually link central and western regions of Brazil to the port at Santos. The Ferronorte currently extends northwest from Santos through the northern portion of Sao Paulo, then parallels the Goias/Mato Grosso do Sul border to sites near Alto Taquari in southeast Mato Grosso. During 2002, the railroad is to be extended to the proximity of Rondonapolis (southeast Mato Grosso): plans include westward extension of the railroad to Cuiaba and eventually to Porto Velho (Madeira River) and Santarem (Amazon River). The Ferronorte may have an important influence on soybean marketing in Mato Grosso and possibly south Goias where trucks may deliver soybeans to Ferronorte-served terminal elevators. Current rates from Alto Taquari to Santos are $25.90/mt but could decline to about $23.50/mt if rail efficiencies 18

27 ($18.00/mt/1,000 km) as projected by Banco Interamericano de Desarrollo (1996a) are realized. The Ferronorte is to extend to Cuiaba by 2005 and based on potential rail efficiencies the estimated rate would be $33.03/mt. In this analysis, the extension of the Ferronorte to Alto Taquari and Cuiaba are evaluated (Figures 5 and 8). Railroad privatization in Argentina and Brazil may have an important affect on soybean and corn marketings in excess supply regions at extended distances from ports. Privatization of the Novoeste Railroad, a railroad company with rail line extending from the port at Santos to the Bolivia/Brazil Border at Corumba, may influence marketing of Mato Grosso do Sul and Bolivian soybeans. In addition, privatization of railroads in northwest and north central Argentina were viewed as having a potential impact on corn, soybean and soybean product marketings in those regions. The Novoeste s estimated representative rate from Mato Grosso do Sul to Atlantic Coast ports prior to privatization was $39.00/mt, and currently is estimated at $35.00/mt, about a 10 percent rate reduction. Potential gains from privatization, if fully realized, may lower rates to $23.40 (Banco Interamericano de Desarrollo, 1996a). Prior to privatization, the estimated railroad rate from northwest Argentina to lower Parana River ports was $37.40/mt and is now thought to approximate $33.75/mt, but if all gains from privatization were realized, rates could decline to $22.50/mt. Rail rates from north central Argentina to lower Parana River ports are thought to have declined from $24.00/mt to $21.60/mt with privatization and may decline to $14.50, if all potential gains from privatization are realized. For this study, privatization of railroads in the southeast and east central regions of Brazil and northwest Argentina were viewed as comparatively inconsequential for soybean transportation because of their proximity to Atlantic ports and the cost advantage of trucks for many of these hauls (Figures 8 and 11). Finally, an additional transportation scenario is evaluated to determine the effect of improving and paving Highway BR-163, a highway linking Mato Grosso to Santarem, an Amazon River port that is being developed to serve ocean-going vessels. It is estimated this route would reduce mileage to port by kilometers for selected Mato Grosso regions (Figure 5). Many Argentinian and Brazilian producers find it attractive to ship directly to port, local processor or country elevator via a commercial motor carrier at harvest because of modest onfarm storage capacity. Further, it is often beneficial to ship directly to port by truck rather than rail via a country elevator because of the additional intermodal transfer charges. Truck transport is also favorably impacted by an underdeveloped rail industry and a recently-privatized rail system that has not yet realized all available efficiencies. In this analysis, truck transport is assumed to dominate in the assembly of corn and soybeans from producing area to port for most excess supply regions in the base model and in the analysis of evaluated transportation improvements unless explicitly identified. Commercial motor carrier rate information for Argentina came from Camara Argentina del Transporte where representative rates for distances of 100, 200, and 300 km were $9.00, $13.50, and $18.75/mt, respectively: truck rates during the harvest quarter were assumed about 20 percent higher (Margenes Agropecuarios). Rail rates were based on an Inter-American 19

28 Development Bank study which estimated pre- and post-privatization rail rates for Brazil and northern Argentina, and on information from grain handlers (Banco Interamericano de Desarrollo, 1996a). The Inter-American Development Bank study estimates pre-privatization rail rates at $30.00/mt/1,000 km and post-privatization rates at $18.00/mt/1,000 km. Grain storage costs for Argentina were estimated at $.025/bushel/month while barge loading and unloading charges were estimated at $4.00/mt. Trucking, grain handling and storage charges in Bolivia and Paraguay were assumed to be similar to those in Argentina. Drying, cleaning and marketing costs (brokerage) were not included in the analysis because they are not included in the U.S. portion of the corn and soybean models. Brazilian truck rates for soybean hauls were based on estimated truck rate equations. The truck rate equations were estimated from data supplied by the University of Sao Paulo through their Sistema de Informacoes de Fretes at Estimated charges for transporting soybeans during the peak shipping period (harvest quarter) to port at distances of 400, 600, 800, and 1,000 km for all Brazil regions except Mato Grosso were $18.50, $22.55, $26.64, and $30.72/mt, respectively. During the off-peak, trucking charges are approximately $4.90/mt lower. For Mato Grosso, estimated charges for shipments to port during the peak shipping season at distances of 1,600, 1,800, 2,000 and 2,200 km were $42.88, $46.86, $50.84 and $54.81/mt, respectively, and during the off-peak, charges were about $4.12/mt lower. Grain storage charges and grain handling charges in Brazil were assumed to be similar to those in Argentina. Results The effects of selected improvements in South America s transportation network on the competitiveness of the United States and South America in the international corn and soybean economies are explored in this section. To develop perspective on the importance of the evaluated transportation improvements, each improvement is separately incorporated into the spatial model, then the model is solved and its solution is compared with the base model solution. By contrasting these solutions, the effect of each potential transportation improvement can be identified, and the relative importance of each improvement on prices, revenues, production, and exports can be discerned. In addition, a model solution is obtained that incorporates recent transportation improvements to evaluate their combined impact on competitiveness, while another model solution incorporates recent transportation improvements and those which appear feasible in the near future. Soybeans The separate effects of the transportation improvements are initially analyzed and presented. 20

29 This is followed by analyses that evaluate the combined effects of recent or implemented improvements in the South American transportation system. Finally, the combined effects of recent and expected or future improvements to the transportation network are analyzed. Separate Effects of Transportation Improvements In these analyses, each incomplete transportation improvement is assumed to be operating at its projected efficiency upon completion, and if the improvement has been completed, it is evaluated at its exhibited efficiency level. For example, the Parana-Paraguay Waterway is incomplete, but in this analysis it is assumed to be operating at its forecasted barge rates if completed. Whereas, for completed improvements (e.g., Maderia-Amazon Waterway) its reported costs are included in the analyses. The effect of modernizing and privatizing South American port facilities is comparatively large and has the greatest effect of any single transportation improvement on exports, prices, revenues and production (Table 2). Lowering port facility costs an average of $4.00/mt, a realized goal in Argentina and an anticipated improvement in Brazil, increases South American soybean prices $2.84/mt while lowering U.S. prices an average of $1.16/mt. As a result, South American soybean exports and production annually increase about mmt and revenues about $376 million, while United States exports decline mmt and revenues about $99 million per year (Table 2). Because of lowered transport costs in South America, the soybean producer price increases as does production and exports. In contrast, U.S. prices, production and exports decline, hence a comparative reduction in international competitiveness. Dredging and the other navigational improvements in the lower Parana River in combination with envisioned improvements in the Parana-Paraguay Waterway are important for Argentina, Paraguay and Bolivia with estimated increases in price of $4.10, $6.57 and $14.07/mt, respectively (Table 2). Estimated exports and production in these countries increase about 0.55 mmt and annual revenues about $290 million. The principal gain in Argentina results from the $5.00/mt decline in shipping cost associated with the improvements in the lower Parana River port area while Paraguay and Bolivia benefit from the improved port area and the forecasted lower costs associated with barging soybeans on the Parana-Paraguay Waterway. If all initially envisioned improvements on the Parana-Paraguay Waterway were accomplished, estimated barge rates from Corumba (barge-loading site for Bolivia) to lower Parana River ports would decline $10.00/mt, while rates from Asuncion, Paraguay would decline about $2.50/mt. Selected regions in Mato Grosso also ship to the Parana-Paraguay Waterway when all envisioned improvements are incorporated, however, the gains are comparatively modest, thus the overall negative affect on Brazil. The analysis shows Argentina makes important gains from improved port facilities, improved navigation in the lower Parana River port area and a modest gain if northwest and north central railroads in Argentina were to experience the maximum potential gain from privatization (Table 21

30 2). These improvements are also projected to yield gains for Bolivia while Paraguay s primary gains are limited to improved port facilities and improved navigation on the lower Parana River port area. Brazil also experiences gain from improved port facilities, and, as expected, from the Madeira-Amazon Waterway, Ferronorte and Highway BR-163 linking Mato Grosso to the Amazon River port at Santarem. Highway BR-163 is projected to yield annual revenue gains to soybean producers of $102 million while the revenue gains of the Ferronorte and the Madeira- Amazon Waterway are each about $60 million. The Madeira-Amazon Waterway yields important price gains to west central Mato Grosso ($11.39/mt) and more modest gains to central Mato Grosso ($0.96/mt) while the Ferronorte generates price gains of $0.40 to $4.75/mt in four Mato Grosso regions when it reflects a price structure of $18.00/mt/1,000 km, the privatized rate structure envisioned by Banco Interamericano de Desarrollo (1996a). Combined Effects of Recent Improvements in the Transportation System To gain insight on the effect of recent transportation improvements in South America, the estimated effects of the following improvements are incorporated into a single solution (Table 3). For Argentina, port facility costs have been lowered an estimated $4.00/mt, the improved navigability of lower Parana River ports has lowered ocean shipping costs by $5.00/mt, the improved Parana-Paraguay Waterway has lowered barge costs by $0.53 to $0.75/mt at Argentina sites and railroad privatization has lowered northwest and north central Argentina rates to ocean port areas by $2.40 to $3.75/mt. In Brazil, the following transportation system improvements are assumed: Improved port facilities have lowered these costs an estimated $2.00/mt, improving the Parana-Paraguay Waterway has lowered barge rates from Corumba to lower Parana River ports from $24.00 to $19.00/mt, the Madeira-Amazon Waterway is in operation, the Ferronorte is extended to Alto Taquari and exhibits its current rate ($25.90/mt), and railroad privatization has lowered the Novoeste s rate from Mato Grosso do Sul to Atlantic Coast ports by about $4.00/mt. Results show the above identified improvements to the recent transport system have yielded comparatively large gains for Argentina, Paraguay and Bolivia (Table 3). The gains in Argentinian price ($7.33/mt) are largely the result of the improved port facilities and improved lower Parana River port area while Paraguayan and Bolivian gains in price ($8.46 to $12.20/mt) result from the improved Argentinian port facilities and port area improvements, and the improved navigability of the Parana-Paraguay Waterway. In contrast, the analysis suggests Brazil s average gain in price has been comparatively modest at $1.12/mt. In addition, to the $2.00/mt reduction in port facility costs, Brazil has made important transportation improvements in Mato Grosso. The most impressive gains are in west central Mato Grosso where prices increase an average of $11.69/mt with implementation of the Madeira-Amazon Waterway and in northeast Mato Grosso where prices increase $2.45/mt with extension of the Ferronorte to Alto Taquari. The recent transportation improvements are estimated to have increased the average Mato Grosso soybean price $3.35/mt. These recent transportation improvements in South America are estimated to have reduced the average U.S. soybean price $1.80/mt and annual U.S. exports and revenues about 0.45 mmt and $153 million, respectively (Table 3). 22

31 Additional perspective is offered by contrasting the model-estimated soybean price spreads before and after South American transportation system improvements for Argentina s central region, Mato Grosso, and Illinois. Before transportation system improvements, the central Argentinian soybean price was estimated to be $12.13/mt less than the average Illinois price, whereas after improvements, the Illinois price advantage had declined to $2.50/mt, i.e. a $9.63/mt gain in Argentinian price relative to that in Illinois. Mato Grosso s average soybean price was estimated to be at a $38.66/mt disadvantage relative to Illinois price before transport improvements and $33.45/mt disadvantage after improvements, hence a $5.21/mt gain in price relative to Illinois. South America s recent improvements in its transportation network has had a noteworthy affect on absolute exports, and prices and price spreads, however, the relative gains and losses are modest. For example, Argentinian and Paraguayan soybean exports increase about 3 percent as a result of recent transportation improvements while Bolivian exports increase near 6 percent. Changes is production levels are modest with South American countries percentage gains ranging from 0.30 to 5.00 percent. United States exports decline about 1 percent as a result of recent transportation system improvements in South America while respective reductions in U.S. production and revenues are estimated at 0.27 and 0.60 percent. Combined Effects of Recent and Expected Improvements in the Transportation System Additional analysis focuses on South America s recent transportation improvements in conjunction with those improvements judged to be likely or feasible in the near future. In this analysis, Brazil port facility costs decline an additional $2.00/mt to match Argentina s $4.00/mt reduction, i.e., it is assumed Brazil port facilities make additional gains in efficiency. The lower Parana River port area reflects recent rate reductions ($5.00/mt) and the Parana-Paraguay Waterway reflects recent rate reductions, i.e., the analysis assumes additional investments to improve navigability of Parana-Paraguay Waterway in the near future will be modest and comparatively inconsequential. The Madeira-Amazon Waterway is in place and reflects the same cost structure as assumed in analysis of recent transportation improvements as does the privatized railroad scenario. That is, it is assumed the Novoeste and Argentinian railroads never realize the maximum efficiency expected from privatization, the $18.00/mt/1,000 km rate structure. Importantly, in this scenario the Ferronorte has been extended to Cuiaba, Mato Grosso and it reflects the most efficient rates attained through privatization ($18.00/mt/1,000 km), and Highway BR-163 linking central Mato Grosso to the Amazon port at Santarem has been completed and paved. In summary, it is assumed all improvements in transportation efficiency are associated with Brazil in the near future, i.e., the transportation improvements for Argentina are those evaluated as recent improvements. Results show the additional $2.00/mt reduction in Brazil s port facility costs, the development of Highway BR-163 and the extension of the Ferronorte to Cuiaba, Mato Grosso with its assumed rate structure to generate important gains for Brazil (Table 4). In particular, important gains are 23

32 made in Mato Grosso where 45 percent of production is shipped via Highway BR-163 to the Amazon River port at Santarem with an average gain in price of about $12.32/mt, and 30 percent is shipped via the Ferronorte to Atlantic ports at an average gain in price of $2.24/mt. Remaining Mato Grosso production is shipped via the Madeira-Amazon Waterway (23%) and by truck to Atlantic Coast ports (2%). As a result, the average Illinois price exceeds the Mato Grosso price by a more modest $27.07/mt, a gain in price of $5.21/mt relative to the recent transportation improvements outcome and a gain of $11.59/mt as compared to before improvements. Brazil s average soybean price increases $2.82/mt ($ $1.12 = $2.82) relative to the scenario reflecting recent transportation improvements while exports, production and revenues increase three and one-half times relative to the scenario reflecting recent transportation improvements (Tables 3 and 4). The comparatively large gains in Brazil are at the expense of Argentina, Bolivia and Paraguay whose transportation improvements in the near future were assumed to be modest or inconsequential. Hence, a decline in these countries soybean exports, prices and revenues relative to the above scenario which evaluated only recent or implemented improvements (Table 3). Similarly, U.S. soybean price, exports and revenues decline. When South America s recent and expected transportation improvements are considered, U.S. average soybean price declines $2.21/mt relative to the base, while annual exports and revenues decline about 0.55 mmt and $187.3 million. As expected, the effects of recent transportation improvements and expected transportation improvements in the near future are more pronounced for U.S. soybean producers than the recent transportation improvements. However, the relative affects on production, revenues and exports are modest. United States soybean exports are projected to decline about 1.40 percent, while revenues and production decline 0.70 and 0.33 percent, respectively. The affects of these transportation improvements on Brazil are somewhat greater with gains in exports estimated at 1.70 percent, while respective increases in production and revenues are estimated at 1.20 and 2.70 percent. Gains in other South American countries diminish modestly relative to the previous scenario that considers only recent transportation improvements: this occurs because the analyses included no major transportation improvements in these countries in the near future. 24

33 Corn In these analyses, the focus is on Argentina since it is the projected competitor of the United States in the international corn market. Initially, the separate effects of Argentina s potential and realized transportation improvements are evaluated. This is followed by analyses that incorporates the combined effects of recent transportation improvements into a single solution. Since many of Argentina s major transportation improvements have been completed or anticipated improvements are comparatively inconsequential or unlikely, the section includes no analyses that measures the combined effect of recent and future improvements as did the section on soybeans. Separate Effects of Transportation Improvements In these analyses, the port facility scenario reflects the $4.00/mt charge ($4.00/mt reduction) associated with modernization and privatization of Argentinian port facilities. Improved navigability of the lower Parana River port area through dredging and improved channel marking ($5.00/mt savings) in combination with forecasted barge rates on that segment of the Parana-Paraguay Waterway included in Argentina ($1.05 to $1.50/mt rate reductions) are also included. The forecasted barge rates reflect those anticipated if all originally envisioned improvements to the waterway were accomplished. The railroad privatization scenario reflects those rates anticipated if all efficiencies were obtained, i.e., a rate structure approximated by fares which equal $18.00/mt/1,000 km. Results show the improved navigability of the lower Parana River port area and improvements in the Parana-Paraguay Waterway yield the greatest gain in Argentinian competitiveness (Table 5). It is estimated these improvements would increase Argentinian corn production and exports about 1.11 mmt while average price and revenues would increase $4.80/mt and $209 million per year, respectively. United States exports are projected to decline 0.45 mmt per year as a result of these investments in Argentinian transportation infrastructure while U.S. price declines a modest $0.14/mt. Improved efficiency of Argentina port facilities through privatization and modernization ($4.00/mt) generated an estimated gain in production and exports of 0.87 mmt, while Argentinian price increased an estimated $3.78/mt. The estimated impact of rail privatization in Argentina is comparatively modest. Rail privatization in Argentina is projected to increase average corn price $0.67/mt while exports and revenues increase mmt and $25 million per year, respectively, if maximum railroad efficiency were attained. Combined Effects of Recent Improvements in the Transportation System 25

34 In this analysis, the combined effects of Argentina s recent transportation improvements are incorporated into a single solution (Table 6). Port facility costs have been reduced to $4.00/mt, improved navigability of the lower Parana River port area has lowered shipping costs an estimated $5.00/mt, the improved Parana-Paraguay Waterway has reduced barge costs by $0.53 to $0.75/mt at Argentinian barge-loading sites, and railroad privatization has reduced northwest and north central railroad rates by $2.40 to $3.75/mt, respectively. Results show the combined effects of these improvements to have increased Argentinian corn price $8.72/mt while increasing exports and revenues by 1.99 mmt and $385 million per year, respectively. In addition, the price spread between the average Illinois corn price and the central Argentinian price, narrowed from $9.60/mt to $0.43/mt, a gain in central Argentinian price of $9.17/mt relative to the Illinois price. As expected, the corresponding affect on the United States is unfavorable with exports declining 0.82 mmt while respective price and revenue reductions are $0.25/mt and $102 million per year. The effects of Argentina s transportation improvements on corn production and exports is comparatively great relative to soybeans because of the low price of corn relative to soybeans. That is, a $9.00/mt increase in corn price that results from transport improvements represents about a 10 percent increase in corn price but only a 5 percent increase in soybean price, hence the corresponding change in production and exports is considerably larger for corn. Results show the recent improvements to Argentina s transport system increased their corn exports 8.4 percent and production 7 percent. Regardless, the affect on the U.S. remains comparatively small with exports and production declining about 1.20 and 0.20 percent, respectively. 26

35 References AgBrazil, Brazil s Frontiers. < Banco Interamericano De Desarrollo, Estudios De Ingenieria Y Viabilidad Tecnica Y Economics Del Mejoraamiento De Las Condiciones De Navegacion De La Hidrovia Paraguay - Parana (Puerto Caceres - Puerto Nueva Palmira), Informe Final, Volumen I, Diciembre, 1996a. Banco Interamericano De Desarrollo, Estudios De Ingenieria Y Viabilidad Tecnica Y Economics Del Mejoraamiento De Las Condiciones De Navegacion De La Hidrovia Paraguay - Parana (Puerto Caceres - Puerto Nueva Palmira), Informe Final, Volumen XI, Diciembre, 1996b. Binkley, J.K., and B. Harrer, Major Determinant of Ocean Freight Rates For Grain: An Econometric Analysis, American Journal of Agricultural Economics, 63: , Bolsa de Cereales, Numero Estadistico, 1996/ /98, Buenos Aires, Argentina, Bolsa de Cereales, Numero Estadistico 1994/ /96, Buenos Aires, Argentina, Bolsa de Cereales, Numero Estadistico 1993/94, Buenos Aires, Argentina, Bolsa de Comercio de Rosario, Nueva Comparación Entre la Industria Aceitera de Argentina y Brasil, Año XIX, No. 983, Bolsa de Comercio de Rosario, Accesos Ferroviarios para el Transporte de Cargas en la Region del Gran Rosario, 2000a. Bolsa de Comercio de Rosario, Bregando para un Mayor Uso de los Ferrocarriles, Informative Semanal, 2000b. Embassy World, Maps Of Each Nation, < October 10, FNP Consultoria & Comercio, Boletim Agricola SOJA, Numero 185, < Fellin, L. and S. Fuller, Effect of Proposed Waterway User Tax on U.S. Grain Flow Patterns and Producers, Journal of the Transportation Research Forum 36: 11-25,

36 Fellin, L. and S. Fuller, Effect of Privatizing Mexico s Railroad System on U.S./Mexico Overland Grain/Oilseed Trade, Journal of the Transportation Research Forum 37: 46-58, Fellin, L., S. Fuller, W. Grant and C. Smotek, Measuring Benefits from Inland Waterway Navigation Improvements, Journal of the Transportation Research Forum, 40: , Ferres, P. Executive Director, Terminal 6, Rosario, Argentina, Personal Communication, October, Financial Times, Santos Showdown May Break Dock Unions Grip, Friday, April 6, Fuller, S., L. Fellin and K. Eriksen, Panama Canal: How Critical to U.S. Grain Exports, Agribusiness: An International Journal 16: , Fuller, S., L. Fellin and W. Grant, Grain Transportation Capacity of the Upper Mississippi and Illinois Rivers, Journal of the Transportation Research Forum 38: 38-54, International Monetary Fund (IMF), International Financial Statistics, Washington, D.C., various issues, Jonnala, S., D. Bessler, and S. Fuller, An Analysis of International Grain Freight Rates, Proceedings of the 42 nd Annual Meeting of the Transportation Research Forum, Annapolis, Maryland, December, Krajewski, R., USDA-AMS, Personal Communication by Fax, March 27, Margenes Agropecuarios, Fletes Agricolas, Año 13: No. 155, Mayo, McVey, M., P. Baumel and R.Wisner, U.S. Upgrade Unlikely to Reduce Competition from Brazil, Feedstuffs, 72 (40), 1 & 22-24, September 25, Ministerio do Esporte E Turismo, Instituto Brasileiro de Turismo. August 22, Ministerio dos Transportes, Departmento de Transportes Ferroviarios, Sistema de Dados Estatisticos do Transporte Ferroviario - Coleta de Datos, < May 7, 2001a. Ministerio dos Transportes, Transport Information Bank, Inland Waterways, 28

37 2001b. Ministerio dos Transportes, Empresa Brasileira De Planejamento de Transportes, Corredores Estrategicos De Desenvolvimento, Brasilia, Brazil, Fevereiro Ministerio dos Transportes and Ministerio da Agricultura e do Abastecimento, Agricultura Transportes, Brasilia, Brazil, Outobro, Ordoñez, H., A. Lalor, and S. Fuller, Grain Production, Marketing and Transportation in Argentina, Contract report to the USDA, AMS, Transportation and Marketing Division, May, Rabobank International, The Crushing Industry in Brazil and Argentina, September, Ramos, A.L. Ferronorte, Personal Communication by , August 13, Samuelson, P.A., Spatial Price Equilibrium and Linear Programming, American Economic Review 42: , Secretaria de Agricultura, Ganaderia, Pesca y Alimentacion (SAGPyA), Agricultura Series Historicas, < (September 18, 2001a). Secretaria de Agricultura, Ganaderia, Pesca y Alimentacion (SAGPyA), Principles Puertos Cerealeros Argentinos, < (September 18, 2001b). Secretaria de Agricultura, Ganaderia, Pesca y Alimentacion (SAGPyA), Transporte Terrestres, < (September 18, 2001c). Schnepf, R. D., E. Dohlman and C. Bolling, Developments in South American Agriculture: A Focus on Field Crops in Argentina and Brazil, U.S. Department of Agriculture, Economic Research Service, Market and Trade Economics Division, Washington, D.C., (draft copy), Shei, S. and R.L. Thompson, The Impacts of Trade Restrictions on Price Stability in the World Wheat Market, American Journal of Agricultural Economics 59: , SIFRECA - Sistema de Informacoes de Fretes para Cargas Agricolas, Cotacao de Fretes Rodoviarios - Soja, < (August 14, 2001). 29

38 Sullivan, J., V. Roningen, S. Leetmaa, and D. Gray, A 1989 Global Database for the Static World Policy Simulation Modeling Framework, U.S. Department of Agriculture. Economic Research Service, Washington, D.C., May, Takayama, T. and G. Judge, Spatial and Temporal Price and Allocation Models, Amsterdam: North Holland Publishing Co., U.S. Central Intelligence Agency (CIA), The World Factbook 2001, < September 5, U.S. Department of Agriculture, Production, Supply and Distribution Database, < Economic Research Service, October 10, 2001a. U.S. Department of Agriculture, Brazil Infrastructure, < Foreign Agricultural Service, August 1, 2001b. U.S. Department of Agriculture, Agricultural Baseline Projections 2008, < Economic Research Service, February 12, U.S. Department of Agriculture, Gain Report No. BR9007, Foreign Agricultural Service, U.S. Department of Agriculture, Major World Crop Areas and Climatic Profiles, Agricultural Handbook No. 664, World Agricultural Outlook Board, Washington, D.C., University of Texas, Lyndon B. Johnson School of Public Affairs, Transportation in the Americas, Policy Research Project Report 135, Austin, Texas, University of Texas, Lyndon B. Johnson School of Public Affairs, Multimodal/Intermodal Transportation in the United States, Western Europe and Latin America, Policy Research Project Report 130, Austin, Texas, Wall Street Journal, Remote Brazilian Area Becomes a Breadbasket, Thanks to the Amazon, May 18, Warnken, P., The Development and Growth of the Soybean Industry in Brazil, Iowa State University Press, Ames, Iowa,

39 Table 1: South American Corn and Soybean Production Regions with Projected Excess Supplies in 2010 Estimated Excess Supply Region Included Producing Provinces/States Supplies (mmt) Corn Central Argentina Buenos Aires, Cordoba, Entre Rios, La Pampa, Santa Fe Northeast Argentina Chaco, Corrientes, Formosa 0.48 Northwest Argentina Jujuy, Salta 0.46 North Central Argentina Santiago Del Estero, Tucuman Soybeans Central Argentina Buenos Aires, Cordoba, Entre Rios, La Pampa, Santa Fe Northeast Argentina Chaco, Corrientes, Formosa 0.25 Northwest Argentina Jujuy, Salta 0.37 North Central Argentina Santiago Del Estero, Tucuman 0.70 Southeast Brazil Parana, Santa Catarina, Rio Grande do Sul 9.64 East Central Brazil Minas Gerais, Sao Paulo 1.00 Northeast Brazil Bahia, Piaui, Para, Maranhao, Tocantins 1.30 Goias Goias 2.87 Mato Grosso do Sul Mato Grosso do Sul 2.12 Southeast Mato Grosso Southeast Mato Grosso 3.51 South Central Mato Grosso South Central Mato Grosso 0.25 Central Mato Grosso Central Mato Grosso 4.88 West Central Mato Grosso West Central Mato Grosso 2.74 Northeast Mato Grosso Northeast Mato Grosso 0.37 Bolivia Santa Cruz

40 Paraguay Alto Parana, Itapua, Caazapa, Caaguzu

41 33 Table 2: Estimated Effects of Transportation Improvements in South America on U.S. and South American Soybean Exports, Prices, Revenues and Production Port Lower Maderia-Amazon Improvements 1 Parana/Waterway 2 Waterway 3 Ferronorte Railroad 4 Brazil-163 Highway 5 Railroad Privatization 6 Exports (1,000 mt)

42 34 United States Argentina Brazil Paraguay Bolivia Prices ($/mt) United States Argentina Brazil Paraguay Bolivia $ $ $ $ $ $

43 35 Revenues (millions $) United States Argentina Brazil Paraguay Bolivia $ $ $ $ $ $ Production (1,000 mt)

44 36 United States Argentina Brazil Paraguay Bolivia Port facility costs in South America decline by $4.00/mt. Lower Parana River port area shipping costs decline $5.00/mt and forecasted barge rates on Parana-Paraguay Waterway decline up to 45%. Maderia-Amazon Waterway is developed. Ferronorte Railroad extended to Cuiaba, Mato Grosso with rate structure reflecting $18.00/mt/1,000 km. Highway BR-163 linking central Mato Grosso to Amazon River port at Santarem is completed. Railroads in Mato Grosso do Sul (Novoeste), and northwest and north central Argentina are privatized, reflecting a rate structure of $18.00/mt/1,000 km.

45 Table 3: Estimated Effects of South America s Recent Transportation Improvements on U.S. and South American Soybean Exports, Prices, Revenues and Production Combined Recent Improvements 1 Exports (1,000 mt) United States Argentina Brazil Paraguay Bolivia Prices ($/mt) United States Argentina Brazil Paraguay Bolivia $ Revenues (millions $) United States Argentina Brazil Paraguay Bolivia $ Production (1,000 mt) United States Argentina Brazil Paraguay Bolivia

46 1 (a) Port facility costs in Argentina and Brazil decline $4.00 and $2.00/mt, respectively. (b) Lower Parana River port area shipping costs decline $5.00/mt and actual barge rates on Parana-Paraguay Waterway decline about 7% to 20%. (c) Maderia-Amazon Waterway is developed. (d) Ferronorte Railroad extended to Alto Taquari with current rates to Atlantic Coast ports ($25.90/mt). (e) Highway BR-163 linking central Mato Grosso to Amazon River port at Santarem does not exist. (f) Railroads in Mato Grosso do Sul (Novoeste) and northwest and north central Argentina have been privatized but show modest rate reductions ranging from $2.40 to $4.00/mt. 38

47 Table 4: Estimated Effects of South America s Recent and Expected Transportation Improvements on U.S. and South American Soybean Exports, Prices, Revenues and Production Combined Recent/Expected Improvements 1 Exports (1,000 mt) United States Argentina Brazil Paraguay Bolivia Prices ($/mt) United States Argentina Brazil Paraguay Bolivia $ Revenues (millions $) United States Argentina Brazil Paraguay Bolivia $ Production (1,000 mt) United States Argentina Brazil Paraguay Bolivia

48 1 (a) Port facility costs in Argentina and Brazil decline $4.00/mt. (b) Lower Parana River port shipping costs decline $5.00/mt and barge rates on Parana-Paraguay Waterway decline about 7% to 20%. (c) Maderia-Amazon Waterway is developed. (d) Ferronorte Railroad extended to Cuiaba, Mato Grosso with privatized rate structure of $18.00/mt/1,000 km. (e) Highway BR-163 linking central Mato Grosso to Amazon River port at Santarem is completed. (f) Railroads in Mato Grosso do Sul (Novoeste) and northwest and north central Argentina have been privatized but show modest rate reductions ranging from $2.40 to $4.00/mt. 40

49 Table 5: Estimated Effects of Improvements in South America s Transportation System on Corn Exports, Prices, Revenues and Production Port Improvements 1 Lower Parana/Waterway 2 Railroad Privatization 3 Exports (1,000 mt) United States Argentina ,

50 Prices ($/mt) United States Argentina $ $ $ Revenues (millions $) United States Argentina $ $ $ Production (1,000 mt) 42

51 United States Argentina , Port facility costs in Argentina decline by $4.00/mt. Lower Parana River port area shipping costs decline $5.00/mt and barge rates on Argentinian portion of Parana-Paraguay Waterway decline $1.05 to $1.50/mt. Railroads in Argentina are privatized and reflect a rate of $18.00/mt/1,000 km. 43

52 Table 6: Estimated Effects of South America s Recent Transportation Improvements on U.S. and South American Corn Exports, Prices, Revenues and Production Exports (1,000 mt) United States Argentina Combined Recent Improvements , Prices ($/mt) United States Argentina $ Revenues (millions $) United States Argentina $ Production (1,000 mt) United States Argentina , (a) Port facility costs in Argentina decline $4.00/mt. (b) Lower Parana River port area shipping costs decline $5.00/mt and barge rates on Argentinian portion of Parana-Paraguay Waterway decline $0.53 to $0.75/mt. (c) Railroads in Argentina have been privatized but show modest rate reductions ranging from $2.40 to $3.75/mt. 44

53 Export in million tons Figure 1: United States and Argentina Corn Exports, Average Exports, through UNITED STATES ARGENTINA

54 Source: USDA, 2001a 46

55 Figure 2: United States, Argentina and Brazil Soybean Exports (Soybean Equivalents), Average Exports, through Time UNITED STATES ARGENTINA BRAZIL

56 Source: USDA, 2001a 48

57 49 Figure 3: Cerrados: Brazil s New Land Frontier Source: McVey et al.

58 50 Figure 4: Map of Brazil

59 51 Source: Ministerio do Esporte E Turismo Figure 5: Map of Mato Grosso

60 Source: Ministerio dos Transportes 52

61 53 Figure 6: Map of Brazil Ports Source: Ministerio dos Transportes

62 54 Figure 7: Map of Brazil Highway Network Source: Ministerio dos Transportes

63 55 Figure 8: Map of Brazil Railroad Network Source: Ministerio dos Transportes

64 56 Figure 9: Map of Brazil Waterway Network Source: Ministerio dos Transportes

65 Figure 10: Map of Parana-Paraguay Waterway Source: Ministerio dos Transportes 57

66 Figure 11: Map of Argentina Railroad and Network 58

67 Source: Embassy World 59

68 Figure 12: Map of Argentina Ports Source: Embassy World 60