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Farmland Investments in Brazilian Cerrado: Financial, Environmental and Social Risks

September 18, 2017

Following the financial crisis of 2007-2008, there has been a growing investor interest in farmland around the world. In Brazil, this interest has been most pronounced in the Cerrado, a large tropical savanna biome that covers more than 20 percent of the country. Here, institutional investors such as pension funds and private equity, real estate firms and agribusinesses have adopted business models that aim to produce value from land appreciation by acquiring land, clearing it from its native vegetation and transforming it into farmland. While land prices in the Cerrado have increased nearly fivefold between 2003 and 2016, there are signs that the farmland real estate market is currently overheated.

These large-scale farmland acquisitions have resulted in significant environmental and social impacts. Between 2013 and 2015, 1.9 million hectares (ha) of the Cerrado was cleared of its native vegetation. Cerrado deforestation contributed to 29 percent of Brazil’s carbon emissions. Moreover, land acquisition in Brazil is linked to a process of grilagem, whereby land deeds are falsified and later sold. Traditional communities have been impacted through forced removals, loss of hunting grounds and other livelihood impacts.

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The Chain: Bunge Buys IOI’s Specialty Fats Business, Zero-Deforestation Policies Require Integration

September 13, 2017
On September 12, 2017, Bunge announced it will acquire a 70 percent controlling ownership interest in IOI Corporation’s Loders Croklaan for USD 946 million, comprising USD 595 million in cash plus EUR 297 million equivalent. IOI will retain a 30 percent ownership interest and customary protective rights. For the next five years, Bunge will the right to purchase the remaining 30 percent interest from Loders Croklaan. Likewise, IOI will have the same right to sell its remaining 30 percent interest to Bunge.

IOI’s CEO Datuk Lee Yeow Chor stated:

“In this respect, IOI will maintain our strong sustainability commitments as spelled out in IOI Group’s Sustainable Palm Oil Policy”.

“IOI will have two representatives on Loders’ five-member board of directors and our representatives will also be involved in key management decisions taken by Loders”.

Likewise, Bunge confirmed:

“Bunge and Loders are committed to sustainable sourcing, including zero-deforestation, zero peat conversion, protection of human rights, traceability and transparency. This transaction will combine leading policies, people, programs and partnerships from both companies. Bunge intends to continue its work as a member of The Forest Trust, increasing the sustainability of its supply chain and collaborating in projects that help advance industry performance. Following the close of the transaction, Bunge intends to base its palm oil sourcing on Loders’ policy.”

IOI will continue to be the main palm oil supplier to Bunge’s Loders going forward. As shown in Figure 1 (below), IOI has 150,129 hectares (ha) of mature oil palm trees. IOI’s extraction rates are also comparable to their competitors, such as Sime Darby, at 21.35 percent for crude palm oil and 4.81 percent for palm kernel oil.

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About Us

Chain Reaction Research conducts sustainability risk analysis for financial analysts and investors. Our special focus is on sectors that deal with environmentally intensive commodities, especially those sourced from tropical regions like palm oil, and pulp and paper.<

We explore whether unsustainable corporate practices and actions have introduced unreported risks – and how or whether sustainability leadership can mitigate those risks and possibly provide competitive advantage. Where possible, we provide pre-IPO checking of claims about risk and assets reported in prospectuses. We also review claims made by publicly traded companies.

Chain Reaction Research has received support, in part, from the David and Lucille Packard Foundation, and from the International Climate and Forest Initiative (NICFI) scheme managed by the Norwegian Agency for Development Cooperation (Norad). Chain Reaction Research statements and materials do not necessarily reflect the standpoints of the Packard Foundation or Norad.

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