China’s ambitious rail plans in Brazil on uncertain track

The environmental cost of agribusiness expansion into the Amazon basin and the Cerrado savanna isn’t limited to the felling of forests and destruction of native vegetation to make way for crops. Agribusiness growth there also requires major transport corridors ­– railways, roads, industrial waterways, ports, and other logistic support – to efficiently move soy and other crops from the interior to market in China, the European Union and elsewhere.

If precautions aren’t taken, this infrastructure could do great damage to the environment, and indigenous and traditional communities, particularly due to the population influx they inevitably trigger.

Over the last 20 years, grain production has exploded in northern Mato Grosso state, and today the process is being repeated in Matopiba, the agribusiness acronym for the parts of the Cerrado savanna located in the states of Maranhão, Tocantins, Piaui and Bahia. The Cerrado is the scene of Brazil’s most recent agribusiness expansion, as cattle, soy, corn, cotton and eucalyptus rapidly replace native vegetation.

While the agricultural boom has been very quick, the building of new infrastructure has been slow, so transport bottlenecks have emerged all over the region, notably on the inadequate roads of northern Mato Grosso and Pará states. New highways are being built and old ones paved, but they are overwhelmed before they’re completed. The end result is bumper-to-bumper Amazon traffic jams that delay delivery and eat into the profits of agribusiness and commodity producers.

Some see the construction of railways and industrial waterways as the best long-term solution. Rail and water transport bring down freight charges and trains emit far fewer greenhouse gases. Today, many in Brazil’s interior put their hopes for new infrastructure in Chinese investment and construction. But there could be serious downsides to this, especially when routes cross protected or indigenous reserves.

A brief history of Amazon rail

Surprisingly few railroads have been built in Amazonia. Most famous is the catastrophic Madeira-Mamoré railway, built between 1907-12 to link Porto Velho to Guajará-Mirim in western Brazil. The goal: provide a way to rapidly move rubber tapped in Bolivia to Amazon streams, for shipment to Europe and the US. Planners also dreamed of linking the Pacific and Atlantic oceans – an ambition being revived today.

The Madeira-Mamoré line was quickly dubbed the “Devil’s Railroad” due to the thousands of construction workers who died from tropical disease and violence. Legend says that a corpse is buried under each sleeper. Though completed, the railroad was soon abandoned when the rubber boom went bust.

More economically successful is the 892-kilometer (554 mile) railroad that annually hauls 120 million tons of iron ore from the huge Carajás mine in Pará state to the port of Ponta da Madeira in Maranhão state. But the line caused many conflicts with communities, particularly the Gavião indigenous group. The Gavião complained repeatedly that the railway divided their land, disrupted their lives and frightened away the animals they hunt, yet they haven’t received the compensatory help promised by the mining company.

Despite this, powerful sectors of the Brazilian government, along with transnational trading companies, such as Cargill, Bunge and Amaggi, and farmers, have long fantasized about installing a vast rail network, crisscrossing the Amazon basin, to provide efficient transport links to get commodities to market. 

Today, many businesspeople believe the dream is within grasp. The first concrete step will likely come with construction of Ferrogrão (Grainrail), which could carry soy from northern Mato Grosso to the Tapajós and Amazon rivers. But that could be just a start toward an Amazon rail network.

Brazil’s place in China’s Belt and Road Initiative

China, with its 1.3 billion people, has long seen food security as a key objective of its investment strategies and international trading ties. In recent years that goal has assumed new urgency. According to Professor Peter Williams, a UK climate scientist: “China is positioning itself for the struggle to come – the struggle to find enough to eat. By controlling land in other countries, they will control those countries’ food supply.”

One way of ensuring food security is by improving international supply routes. In 2014, President Xi Jinping announced an ambitious plan to integrate China’s supply networks across much of the world. Called Belt and Road, it envisioned a 21^st Century Silk Road, composed of a “belt” of land transportation corridors and a “road” of sea routes and ports, with every path leading from vital commodities resources into China.

Environmentalists have responded to Belt and Road with deep concern, saying it could offer a means for plundering the world’s forests and minerals at the expense of local economies, the environment, and indigenous and traditional communities.

At first, the scheme was limited to Asia, Europe and Africa. But at a meeting of the Community of Latin American and Caribbean States in January 2018, Chinese Foreign Minister Wang Yi formally invited Latin America to join. Chinese analysts see the United States as retreating from Latin America and are keen for their country, and its state-owned businesses, to fill the vacuum.

Roberto Jaguaribe, head of the Brazilian Agency for Export Promotion and Investments (Apex-Brasil), saw this as a great opportunity for Brazil, saying Chinese investment in railways, energy generation and other sectors is “essential” for economic growth. “Brazil is a strategic partner of enormous importance [for China]. We need to construct a relationship grounded in economic complementarity and in the great convergence of interests that exists between the two countries,” he said.

This “convergence of interests” is born out of the fact that Brazil is a leading exporter of primary goods ­– crops, meats and minerals – for which China has a growing need.

Soy is king in Brazil and China

The dovetailing of national priorities comes together perfectly in one product: soy. As the Chinese population increasingly adopts a Western-style diet, the country needs more and more soy to use as animal feed for pigs and poultry. Today, China is a voracious consumer of soy on the world market, importing about 60% of the soybeans traded worldwide.

As a result, Brazil has become economically dependent on China which buys 80% of its soybean exports. China bought 95.5 million tons of soy in 2017, an increase of nearly 14% over 2016. Of this, Brazil supplied over half – 50.9 million tons, with Brazil’s share of China’s soy imports that year increasing by a massive 33%.

The main loser has been US farmers. The United States was still an important supplier of soy to China in 2017 – in fact, the only other significant supplier – selling 32.8 million tons to the Chinese. But this amount is declining. Donald Trump’s trade war has resulted in Beijing imposing a 25% tariff on US soybeans, in retaliation for levies Trump put on Chinese imports, and it has also virtually stopped buying US soy.

This could greatly benefit Brazil, if it has the transport infrastructure with which to feed China’s need.

China moves into Brazil’s soy sector

With China so dependent on Brazilian soy, Beijing wants increased leverage over the Latin American supply. One approach has been to buy up land in Matopiba. China is also moving full force into commodity trading and transportation infrastructure ­–  applying its Belt and Road strategy to South America, and the Brazilian Amazon and Cerrado.

Through state-owned COFCO, China’s largest food and agricultural company, it has bought up several trading companies. This move gives China independence from the powerful Western ABCD transnational trading quartet (ADM, Bunge, Cargill and Louis Dreyfus).

It has also bought its own Brazilian port at São Luís do Maranhão on the Atlantic Ocean and purchased a leading engineering company, Concremat, which now operates as a subsidiary of the state-owned Chinese company, China Communications Construction Co (CCCC), one of the world’s largest builders of railways and industrial waterways.

In what, over the long term, may prove its most important strategy, China is also showing interest in investing in transport infrastructure. One of its key goals is to create alternative supply routes to the Panama Canal, which it views as being under US control.

Chinese ambitions mesh well with those of Brazilian agribusiness, which is desperate to improve transport infrastructure, but can’t due to the national economic crisis and the Lava Jato corruption scandal’s disastrous impact on the once powerful Brazilian construction industry. As US and European interest in Brazil flags, China’s role rises.

China is already in line to play a key role in the building and operation of Grainrail. And it is involved in negotiations to help build and run two other major new Brazilian rail lines. One is FICO, the Railway for Integration of the Center-West, which would cut across the Amazon states of Rondônia and Mato Grosso, through important soy producing areas near the towns of Agua Boa and Lucas do Rio Verde, and link up to the east in Campinorte in Goiás state with the Ferrovia Norte-Sul (North-South Railway), which has just begun construction.

The Ferrovia Norte-Sul, when operational will connect Brazil from north to south, extending more than 4,000 kilometers, and stretching from Belém at the mouth of the Amazon River, through the states of Tocantins, Goiás, São Paulo and Rio Grande do Sul. The Chinese have expressed “strong interest” in investing in this railroad, though no concrete plans have been announced. There are also plans to build a railway linking to the Ferrovia Norte-Sul, known as the Northeastern, which would move Cerrado produce to the Atlantic coast for export.

There are also plans to extend the EF-364, or Ferronorte line, (which currently ends in Rondonópolis in Mato Grosso state), as far north as Lucas do Rio Verde and then possibly to Sorriso, also in Mato Grosso. Whether China may play a role isn’t known.

According to a press briefing from Valec Engenharia, the state company running FICO: “There are political plans, not yet properly defined, to form a ‘great junction’ in Lucas do Rio Verde, integrating FICO, Ferrogrão [Grainrail] and Ferronorte.”

Soy producers in northern Mato Grosso see this new rail infrastructure as the best way of bringing down transport costs and improving profits. In November 2017, Mato Grosso governor Pedro Taques travelled to China at the head of a Brazilian delegation and visited the CCCC. He came back confidently saying: “We need FICO and the Chinese are interested in financing it.”

Another railway that interests China is the Ferrovia de Integração Oeste-Leste (FIOL), the West-East Integration Railway, which would run from the future port of Ilhéus on the Atlantic coast of Bahia state, west to Figueirópolis in Tocantins state in the Cerrado. In Figueirópolis it would link up with the Norte-Sul railway.

When Brazilian President Michel Temer visited China in November 2017, the state-run China Railway Construction Corporation (CRCC), one of the world’s largest railway construction companies, declared its interest in forming a consortium to build FIOL. Since then, the Bahia state government has hired Accenture to develop the project.

There would likely be strong objections to some of these new railroads from environmentalists and indigenous communities, as many of the lines would penetrate or affect conservation units and indigenous lands. But at this early stage of planning critics are awaiting announcements of the precise routes of the various railways before evaluating impacts.

Transcontinental Railways

In the longer term, these many railroads would link up with the biggest and grandest of the lot, and the ultimate dream of Brazilian entrepreneurs since the early 1900s. Known as the Ferrovia Transcontinental (Transcontinental Railway), it would extend Ferronorte west through the Amazon into Peru, and east to the Atlantic, providing the Chinese and Brazilians with a definitive alternative to the Panama Canal.

The transcontinental railroad was announced in 2015 by Brazilian President Dilma Rousseff, after she reached an initial agreement with the Chinese, and was proposed at a cost of US$70 billion. It would run coast-to-coast through Peru and Brazil, and link the Pacific and Atlantic Oceans. However, little has been heard about it in recent years, though there are regular discussions about the route, and talk of another transcontinental railway, through Bolivia. If built, that line, known as the Transoceânica, would reportedly cut Brazil to China trade time from 67 to 42 days.

Analysts fear the more northern railway through Peru could do the most damage to protected areas and indigenous reserves. In July 2015, three Brazilian government officials took five Chinese rail experts along the entire proposed 3,500km route in a journey that took them 10 days. The most remote area they visited was in Acre, Brazil’s far western state.

The rail line would cross three large indigenous reserves and an important protected area, the Serra do Divisor National Park, in Acre. This vast region has been practically abandoned by regulatory authorities, leading to lawlessness. Thiago Pinheiro Corrêa, from the Federal Public Ministry (MPF), said: “There are frequent reports of invasions [of indigenous land and protected areas] by illegal logging groups, drug traffickers and predatory hunters.”

Indigenous groups there have been involved in a long struggle to win land rights. Even as the Chinese officials flew over the area, Nawa Indians were holding four Brazilian government officials hostage in the latest chapter of a 10-year struggle to get authorities to mark out their land boundaries. The conflict has proved very difficult because a portion of the land claimed by the indigenous group overlaps the Serra do Divisor National Park.

Railroad futures

The rail network sketched out in this article includes a bewildering array of proposed projects – some probably remaining pipedreams, or suffering long delays, or seeing significant changes in route before they are built. But there seems little doubt that moves are afoot to get at least a few underway, though likely not as fast as commodity producers would like.

Importantly, it is as yet unclear how the October victory of the extreme right candidate, Jair Bolsonaro, as Brazil’s president will affect ties with China. Bolsonaro said last year he wanted to restore the United States as Brazil’s top partner and expressed concern that China was taking over the country, with its investments in mining, agriculture, ports and airports. More recently, he vowed to restrict Chinese purchases of Brazilian companies, warning: “China isn’t buying in Brazil, it’s buying Brazil.” As strident as these remarks may be, however, Bolsonaro also strongly supports agribusiness, which desperately needs China for its markets and for its infrastructure investment dollars.

Now that Bolsonaro has to run the country, and is appointing advisers, new voices are coming forward. One is Paulo Coutinho, a University of Brasilia economist, who is coordinating infrastructure plans for Bolsonaro’s party, the PSL (Liberal Social Party). Under Bolsonaro, the PSL has grown very rapidly, increasing its number of federal deputies from just one in 2010 to 52, deputies after the recent election. It has suddenly become a force in Brazilian politics.

Coutinho notes that the PSL has an ambitious program for expanding railways, roads and airports, but says that it will almost all be carried out by private capital, with state help limited to loans from Brazil’s National Bank of Economic and Social Development, during the building. But he said the new government would welcome Chinese investment: “Bolsonaro doesn’t want the Chinese to buy land, but he has nothing against them building railways.”

The future of Amazon railway expansion will almost certainly depend on the relationship that develops between Brazil’s Bolsonaro and China’s Xi. But it may also depend on Brazil’s stability under Bolsonaro. If the pre-election spike in rural violence worsens, with Bolsonaro supporters in the country’s rural interior moving aggressively to take over land in protected areas and indigenous territories, and to commit violence, the Chinese, renowned for their caution, might not push ahead with infrastructure investment plans, at least in the short term.

But if Bolsonaro reins in rural supporters and his rhetoric, and seeks accommodation with opponents, the Amazon could become part of China’s Belt and Road Initiative.

– This story initially appeared on Mongabay. An original version can be accessed here.