July 24, 2018 / 4:29 PM / a year ago

New Brazil freight policy will harm grains trade, boost costs -Cargill

SAO PAULO, July 24 (Reuters) - Food processor and commodities trader Cargill Inc said on Tuesday a new Brazilian road freight policy would have a major impact on grains trading, driving up costs in the world’s biggest soy producer.

Paulo Sousa, Cargill’s head of grains and food processing in Latin America, said the new freight rules would hamper forward sales of grain and reduce transportation efficiency in Brazil.

The new policy, adopted in response to a nationwide trucker strike in May against high diesel prices, sets fixed minimum prices for freight on Brazilian roads. Grains traders and food processors have complained the rates were fixed too high, driving up prices throughout the economy.

“Exporters will have to rethink the way they operate in Brazil, since this breaks the way the supply chain works and unbalances contracts, compromising confidence in the sustainable expansion of agribusiness,” Sousa said in a statement.

He said traders and processors would opt to buy grains with delivery at ports or plants, leaving transportation in the hands of producers or farming cooperatives, instead of the current contracts in which they acquire grains at the farm or elevators.

Sousa believes the high minimum freight prices will encourage informality in the transportation sector and lead to verticalization as companies could opt to buy or expand their truck fleets to control costs.

“This could worsen unbalances in the market and make the excess supply of trucks an even bigger problem.”

The policy was approved by Congress this month, and sent to President Michel Temer to sign it into law.

Brazil’s Supreme Court is evaluating the legality of the fixed rates, which have already been criticized by antitrust regulator Cade. (Reporting by Roberto Samora and Marcelo Teixeira; Editing by Bernadette Baum)

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