Brazil’s policy of setting minimum freight rates has already cost traders around $1 billion in lost revenue and could cost farmers a further $4 billion, according to Frederico Humberg, CEO of Brazil-based trader AgriBrasil.
Speaking at the Global Grains conference in Sao Paulo, Humberg told delegates that a final decision on legal objections to the freight rates will not be decided until after next month’s election, but unless it is unwound it would be very costly.
“Trading companies may have lost $1 billion based on existing purchases made before the strike… (and) a further $3-4 billion could be discounted from farmers on new commercial contracts if the freight table is left in place,” he said, claiming that 20% of the 2019 crop had already been negotiated prior to the freight hike.
In a bid to end a two-week long truck strike over rising diesel prices that threatened to cripple the economy, Brazil’s government earlier this year implemented new minimum freight rates that increased the cost of delivering beans to port by between $40-100/mt.
Several organisations have petitioned Brazil’s court for an injunction to block the freight hike, but a hearing scheduled in August has been delayed.
Earlier this week the government announced stiff penalties for failing to enforce the minimum freight rates.
In earnings calls earlier this year, both ADM and Bunge identified freight rates as injecting significant uncertainty on future costs, with reports that both are now investing in their own truck fleets.
About half of all goods are transported on roads of which only 14% are paved, Humberg said, claiming that it costs each 1,000 km of road freight costs $70/mt.