Brazil: A Big Trucking Problem

Brazil’s transport matrix is highly dependent on road transport, so as soon as the truckers decided to suspend their activities and block roads across the country, it did not take long for the economy to feel the impact. By the end of the week, bus services and even air transport in many places were operating reduced services, large queues developed at fuel stations, and supermarkets experienced shortages of merchandise.

As we enter a second week of disruption, the government has proposed a series of measures (among them a subsidy on diesel prices and minimum rates for road cargo). However, at the time of writing there is no certainty that the strike has definitively ended.

The strike has had two main short-term effects for the sector: shortages at the ports for export, and stoppage of the crushing industry. In both cases, however, the impacts should be offset through the rest of the year – although May soybean exports will dip, the total volume of exports in 2018 will not be affected.

In the ports that use road transport as the main means to receive the soybeans (such as Paranaguá), exports have been limited to what was available at the port warehouses during the last week – and the flow could therefore be severely reduced if the strike continues for a second week. However, in Santos, Itaqui, and Vitória, where most of the beans arrive by train, operations were less impacted.

For local soybean crushers, the main issue has been the lack of warehouse capacity. According to Abiove (Brazilian Association of Vegetable Oil Industries), most of the crushers stopped their plants because their warehouses are completely full of soymeal, soy oil, and biodiesel, given that trucks are the main means used to transport these products to consumer markets/export.

According to ABPA (Brazilian Animal Protein Association) and ABIEC (Brazilian Beef Exporters Association), around 200 slaughterhouses have suspended operations as a result of the strike. These plants represent around 90% of total capacity. Regarding exports, it is estimated that 125,000 tonnes of beef, poultry, and pork, valued at USD 450m, were not exported during the week of the strike.

The situation is critical in the field. By Sunday 27 May, 64m birds had already died due to lack of feed. If the strike continues, in the very short term, up to one billion birds (15% of total production) and 20m pigs (out of a national herd of 44m) are at risk of feed shortages. For the beef cattle sector, the situation is less problematic, as animals are mainly raised on grass, but as the dry season approaches, pasture is losing quality rapidly, and feedlot operations may also be impacted by the lack of feed availability.

While there are negotiations already in place to liberate trucks with animal feed, associations have declared that it will take around two months to normalise meat supply and exports.

The harvest runs from March through to December; by 25 May, fuel shortages had reportedly already impacted cane harvesting and transport activities as well as the onward movement of sugar and ethanol from mills. According to UNICA, the industry’s representative body, 50 mills had stopped operations, and, without a return to normality, most of the 270 mills operating in the Centre/South region will soon slow down harvesting activities or stop altogether.

The continuation of strike action for a second week would therefore suspend cane harvesting, processing and sugar and ethanol production, without resulting in any permanent loss of output. This will, however, cramp mills’ short-term cash flows. Meanwhile, sugar stocks in warehouses at the region’s ports are low, as the harvest is still in its early stages, and exporters have already signaled the possibility of declaring force majeure in relation to export contracts.

To date, government measures to address the truckers’ concerns have focused exclusively on adjustments to diesel fuel prices. The cane sector’s greatest fear for the longer term is that if the current strike were to morph into a more general action against high fuel prices, the government may implement measures that ultimately alter the competitiveness of ethanol versus gasoline.

The transportation of farm inputs has been affected along the whole supply chain, from the ports to the farmgate. Truckers have blocked Brazil’s main ports, prohibiting any cargo to leave by road. As a result, most of the storage facilities for fertilisers in the ports are full, and incoming vessels will have to wait to berth. Line-ups are short so far, as we are in the low season, but the vessels scheduled to arrive this week will face more waiting days than expected, until the situation normalises.

Inland, most fertiliser facilities are not working, due to absence of raw material, or due to the impossibility of distributing. To date, the impact on farmers has been limited, as this is the low season for fertiliser and crop protection purchases. The peak season for fertiliser imports is June to August, followed by peak deliveries to farms from August to October – so a significant extension of the strike could potentially disrupt the timing of farms deliveries.