Panama Canal expansion, may not meet its deadline, which is scheduled by December 2015, says a new American Farm Bureau Focus on Agriculture feature. Writer Stewart Truelsen for AFBF says almost all work on the canal was suspended at the beginning of the year, with the exception of some excavation. Cranes, costing $40 million each, he reports, were not moving. Only four of the new gates are in Panama, while a total of 16 are needed. They come from Italy and won’t all arrive until the end of the year, he says.
“To make matters worse, this is the dry season in Panama. In a month or so the rainy season will take hold and make work more difficult. What happened? Simply put, contractors ran out of money,” he writes.
Critics contend that the $5.25 billion project to build a third set of locks was seriously underbid, Truelsen reports. The contractors – a consortium from Spain, Italy, Belgium and Panama – were likely held up by the debt crisis in Europe, Truelsen says. An agreement to resume work, however, was reached in late February.
U.S. agriculture has a big stake in the eventual outcome, too, as tonnage through the expanded canal is expected to double by 2025. According to the USDA, 17% of world grain shipments pass through the Panama Canal and 90% of them are from the U.S. An analysis by Rabobank forecasts a 12% drop in the cost of transporting grain from the Corn Belt to Asia when the new locks are in use.
This will make U.S. grain more competitive with Brazil, Argentina and grain-exporting countries in Eastern Europe, Truelsen explains. The canal expansion could cause other changes in shipping agricultural products. For example, in recent years, more grain, oilseeds and grain products have been loaded on container ships, and the trend is expected to continue. At the same time, the expansion could boost Gulf and East Coast ports that have been losing business to the Pacific Northwest, Truelsen says.
“The Panama Canal route is so important to world trade that China claims to have reached a $40 billion deal with Nicaragua to build a longer canal through that nation to accommodate even larger ships,” Truelsen notes.
“In any event, American agriculture should be an important beneficiary of the Panama Canal expansion, if American highways, waterways and ports are properly maintained and upgraded to take advantage of it,” he says, “and that’s a big ‘if.'”
Stewart Truelsen is a food and agriculture freelance writer and contributor to the AFBF Focus on Agriculture series.