South America Calling

Chinese Premier Li Keqiang rolled into Brasilia this week announcing grand plans for investment and financing.

Among the 35 deals and Chinese pledges, of varying solidity, for tens of billions of dollars in funding was the revival of the contentious project to build a railway linking Brazil to the Pacific coast.

The plan caught the attention of the agricultural world as Brazil is a large and growing exporter of farm goods and China is a voracious and growing consumer. But farm leaders are skeptical that the railroad will ever be built or ever carry soybeans, which are the main farm export to the Middle Kingdom.

"We struggle to build simple rail projects, let alone this huge one," said a source at one exporter, who didn't want to be named. "There are much easier ways of exporting soybeans to China."

The plan to build a 3,000-mile railway connecting Rio de Janeiro with a Pacific port in Peru, via Mato Grosso, was first touted a decade ago but never went forward.

The challenges in building such a railway are epic with the biggest obstacle being the Andes. Building a link that can carry soybean-laden wagons over the mountain range represents a huge engineering challenge.

Beyond engineering, there will be huge environmental opposition to sending a railway through the Amazon Forest.

If the point is to send grains via the railway, this begs the question "why bother?"

Brazil is in the process of constructing new terminals, roads and railways that link the Cerrado grain fields with ports in the Amazon and northern coast. These routes could carry as much as a third of Brazil's grain exports in 10 years, helping reduce the logistics bottleneck and reducing costs.

Surely, it is much easier to bolster these projects and utilize the soon-to-be-expanded Panama Canal than embark on this enormous project.

Obviously, the transcontinental railway would provide the Chinese with a dedicated route to the soybean fields and to send its goods to Brazil's major cities. But Brazil has been resistant to ceding on conditions that Chinese put on investments in the past and this may happen again.

Previously, China expressed interest in financing the North-South railway and construction of a new port at Itaqui, northern Brazil. However, Brazil walked away from the $2 billion financing deal, which the Chinese wanted to condition on the guarantee of soybean supplies. Sovereignty will once again be an issue.

Meanwhile, Brazil's capacity to build railways has proven limited in recent years, due in large part to bureaucracy. The North-South railway that links the soy fields in the eastern Cerrado to northern ports is only just coming online, well behind schedule, and the West-East railway project has been stop-go for the last few years.

According to the agreement signed by Brasilia and Beijing, the Chinese have undertaken to first conduct a feasibility study into the railroad.

(AG)

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