Agro advances and storage deficit is greater than the entire Argentine crop

This year, when Brazil is expected to surpass the mark of 300 million tons of grain for the first time, a logistical bottleneck will be accentuated, reaching an equally historic level: 120 million tons will have no storage space.

That’s more than the entire crop in Argentina, which is facing a third consecutive year of drought and will harvest just 75 million tons, against an initial estimate of 122 million tons. The Food and Agriculture Organization of the United Nations (FAO) recommends that countries have storage facilities to hold at least 1.2 times the size of their crops.

The Brazilian gap has been increasing since 2000, when the country still had silos to store, if necessary, all the harvests of a year. According to data from Conab, since 2010 grain production has increased by 82% – from 149 million tons to 271 million in 2022, and could reach 310 million this year – but storage capacity has grown by only 35%, from 136 million tons to 183 million. Thus, it is possible that, for the first time, the structure of silos in the country will not even be able to handle the summer harvest, estimated at 188 million tons – and that is counting only the main products, such as soy, rice and corn.

“Not having a warehouse in the countryside is more expensive for farmers and society. Everyone pays that bill. 85% of the storage structure is in urban and industrial centers, or in ports, and from there the trucks are left in queues, without warehouse, dryer or sufficient structure to receive this production. The product starts to lose quality and the freight price ends up exploding, it is a very serious vicious cycle”, points out Paulo Bertolini, president of the Grain Storage Sectorial Chamber of the Brazilian Machinery and Equipment Industry Association (Abimaq).

Abimaq defends tripling lines of credit for warehouses

The reduction of this logistical bottleneck, through more lines of credit to producers, is of interest to the industry due to its potential to boost the economy. Exporters of silo and warehouse structures, Brazilian manufacturers see the domestic market as a sleeping giant.

Abimaq’s calculation is that to eliminate the deficit of warehouses in the country, investments of R$ 80 billion would be necessary. The request made to the Ministry of Agriculture is to at least triple the amount destined to finance the structures, currently in the range of R$ 5 billion per year. With R$ 15 billion, says the Abimaq, it would be possible to add 10 million tons per year of storage capacity.

In 2021, the Bolsonaro government issued a decree to qualify 124 Conab warehouses for auction, but the bureaucratic procedure did not end before the change of government. And now, the auctions are likely to never take place.

The current government is moving in the opposite direction, and President Lula himself, and his ministers, have declared that the intention is to resume the purchase of products by Conab to build public stocks and regulate the market. Currently, Conab’s warehouses represent around 1% of the country’s installed static capacity.

State warehouses are more expensive and inefficient

“If the government is going to do it, it is more expensive. And you will continue to have the structures in the city, in the same profile of 85% of the storage available today. It doesn’t innovate at all. And it involves public money buying production at one time and selling it at another. All with public and not private money”, says Bertolini.

“If it’s a credit line for the farmer, he’ll pay, he’ll return that money and when it’s time to store it, he’ll know what’s interesting to dose to sell at the most appropriate time. We have to mirror ourselves in what’s working all over the world. The United States does not have this, and they are a model that we need to follow in this regard”, he adds.

The National Confederation of Agriculture and Livestock (CNA) considers that there is a worrying and growing gap in the country’s grain storage structures. But not to the point of requiring a static capacity of 370 million tons, as FAO projections would lead one to believe.

“We don’t face the harsh winter in the United States, we have the second crop, and we can store it two or three times a year, using the same structure. 370 million tons of static capacity is a number that makes no sense”, says Elisângela Pereira Lopes, technical adviser to the National Confederation of Agriculture and Livestock (CNA).

She recognizes, however, that the deficit is a cause for concern. “It starts to scare when you go from 85 million tons of deficit to 122 million, from one harvest to another. If we continue growing exponentially, we will have problems”, she points out.

The situation is more critical above the 16th parallel, which divides the country in half. “When we look at the regions that produce the most, which are Mato Grosso and Matopiba, the deficit is already reaching 60 million tons. That’s half of Brazil’s deficit”, highlights Elisângela, emphasizing that a policy to encourage the construction of warehouses needs to look at these less structured regions.

Country has few warehouses inside the properties

On another front, the Abimaq points out that it is necessary to spread the current lines of credit even further. Today most of the resources would be going to industries and cooperatives, which helps explain the percentage of warehouses built on farms, stagnant at 15% since 2010.

“It is necessary to focus the Warehouse Construction and Expansion Program (PCA) on farms, not on industries and cooperatives, which have access to other lines. The banks are interested in centralizing the money in a large borrower, it is much cheaper for the bank than spraying it. But, for the country, due to the need of the Brazilian agro, it is better that this investment happens inside the farms”, emphasizes Bertolini.

The “on-farm” storage deficit is recognized by the cooperatives, which, however, understand that they should not be seen in the same light as other industries, which are also large borrowers.

“We cannot look at the cooperative as just a CNPJ. Today, 71% of the membership of Brazilian agricultural cooperatives is made up of thousands of family farmers, small producers. And they need to be looked at in a special way in the formulation of public policies, because alone they would not be able to structure robust investments and be competitive”, says João Prietto, coordinator of the Agro sector of the Organization of Brazilian Cooperatives (OCB).

Storing “on-farm” requires management skills

The decision to install a silo on the property, in addition to requiring a heavy investment, demands that the farmer be willing to practically enter into a new business. Producer Sérgio Fortis, from Goioerê (PR), says that the family planned for fifteen years to take this step. The return on investment in a complex with the capacity to store 250,000 bags should take another ten years.

“We see the warehouse as another company. There is a farm company and a warehouse company. There is a whole complexity of drying, cleaning, and keeping the crop in storage. It’s like another business, with new employees, different skills, different management”, explains Fortis.

“Today the successful farmer is considered a rural entrepreneur. That caboclo farmer, who walks around with a schedule and such, is falling behind. To manage a property you have to take care of the details and the cost thoroughly, like a company”, he says.

With its own silo, the producer manages to escape discounts due to humidity

Fortis is only in its second year of operation with its own silos. He highlights two reasons that were decisive for the investment. First, the logistics: “Our region is very strong in second-crop corn, and at harvest time the cooperatives are full of trucks, unable to receive the crop. The truck stays the whole day to unload,” he says.

The second reason is explained with the calculator in hand: “That year, we started harvesting and it was raining. When we managed to enter the field, we harvested soybeans with 25% burned grains. If I ordered the cooperative, it would give a tolerance of 8%, and deduct the other 17%. Keeping it in my silo, I make a mixture of this grain with the others, which normally only have 1% of damages, and I don’t get any discount. With management, I maintain the classification standard. That’s what co-ops do. They mix and don’t get discounted,” she emphasizes.

He observes, however, that it is necessary to have a significant volume of grains to compensate for the investment. And be prepared for the seasonality of agriculture. “An incredible thing happened in these two soybean harvests that we received. The first, last year, was an extreme drop due to drought, the worst in 40 years. And this year’s will be the best vintage ever,” he says.

Not without reason, in agriculture it is not recommended to account for losses and gains over a single harvest, but to evaluate the economic sustainability of the business in a perspective of several years. Argentina, for example, faces the third consecutive year of crop failure due to lack of rain. In Rio Grande do Sul there are already two breaks in a row.