The election of populist Jair Bolsonaro to be president of Brazil will likely increase deforestation in the Amazon and the Cerrado amid higher output from the country’s soy and beef industries. Bolsonaro, who was elected on October 28, 2018, has articulated a pro-business agenda and prefers the agriculture industry over preserving the environment and respecting indigenous rights. Bolsonaro plans to weaken the country’s environmental agencies through less oversight and may merge the Ministry of Agriculture with the Ministry of the Environment. Moreover, he will likely seek to change environmental laws and repeal legislation that safeguards protected areas and indigenous peoples.
Bolsanaro’s election could reduce pressure on agriculture producers to limit deforestation, through lack enforcement of existing law, adoption of weaker laws and a new political environment that encourages land conversion. At the same time, the new political environment will increase pressure on consumer goods companies, traders and investors to limit exposure to commodities linked to deforestation.
European consumer goods companies will have less leverage along the supply chain to influence changes due to China’s growing market influence as a result of purchasing more Brazilian soy. The role of the financial infrastructure in allowing agricultural expansion is becoming more important. Banks and traders will not be in a position to count on government or consumer action to curb deforestation.
Some trading companies operating in Brazil have favored environmental regulations because they could sell their products without a reputational backlash. But if products coming out of Brazil lose an “environmental stamp of approval,” traders could face revenue-at-risk. Sourcing of deforestation-linked soy would likely increase reputational risks for soy traders. Although major companies such as ADM, Bunge, Cargill, COFCO, Louis Dreyfus and Amaggi either have or are in the process of committing to zero-deforestation policies, they may still be exposed to sourcing soy from legally or illegally deforested farms. For ADM, for instance, up to 30 percent of its equity value may be impacted due to deforestation in the Cerrado biome, CRR found in a report published September 21, 2018. These companies dominate the country’s soy trade. With reduced oversight from the government, their vigilance in excluding deforestation-linked soy from their supply will likely help determine the rate of deforestation. Public and consumer backlash may intensify pressure on companies. ABIOVE, an organization that represents major traders and others in Brazil’s agribusiness, reaffirmed its members’ commitments to curbing deforestation in a statement on October 24, 2018. Similarly, the Brazilian Coalition on Climate, Forests and Agriculture – soy producer Amaggi and trader Cargill are both members – called for sustaining environmental protections and for Brazil to remain in the Paris Agreement in a position paper published October 24, 2018.
The traders and large soy producers are not necessarily aligned with the farmers. Aprosoja, an association that represents Brazil’s soy growers, has publicly voiced its support for Bolsonaro and has called on him to take drastic measures to defend the interests of the farmers. Some of the proposed measures include: 1) making it easier to get farming licenses in areas with “low environmental impact risks,” 2) getting licenses automatically via an online portal, for which a written statement of the owner would suffice, 3) making it a crime to occupy land with the aim of expropriation, 4) not allowing new indigenous territories, and (5) not allowing the government to accept any moratoriums and demands from NGOs that go beyond the current environmental legislation. One of Aprosoja’s former chairpersons, Marcos da Rosa, has been mentioned in the press as one the candidates to become the new minister of agriculture and the environment.
Bolsonaro could move fast to implement his agenda after he is inaugurated on January 1, 2019. Receiving 55 percent of the vote, he found strong support from the military, religious conservatives, and neoliberals. He also won a majority of votes in the Amazon, where former president Luiz Inácio Lula da Silva of the Workers’ Party used to have strong support. During his campaign, Bolsonaro visited the Amazon several times and made it clear that, in his opinion, indigenous peoples should be able to sell parts of their territory if they wish to.
In addition to his mandate, he will have allies in Congress. Policymakers in favor of the agribusiness last year introduced laws to limit protections for rainforests and indigenous peoples and provide amnesty for violators of environmental crimes. The current presidency of Michel Temer has already eased environmental regulations amid budget cuts. Conditions for indigenous peoples are likely to deteriorate under Bolsonaro, who sees them as obstacles to growth for agribusiness and has threatened to shut the government agency that protects indigenous lands. Indigenous peoples are likely to be victims of violent attacks, and their fates are directly linked to deforestation on their lands.
Looser regulations under Temer are one factor behind increased deforestation. The shift in global trade flows due to U.S. protectionism is also challenging efforts to curb deforestation. Higher Chinese demand for Brazilian soy as a result of the U.S.-China trade war has expanded production. Soy output is expected to reach a record in 2018-19. Through the first three quarters of 2018, Brazil’s exports rose by 22 percent year-on-year to China. Almost 80 percent of Brazil’s soy now is exported to China, the largest importer of soy in the world.
Producers in Brazil will also face geopolitical risks going forward. If U.S. President Donald Trump declares a truce in the trade war with China, Brazil may lose some of its soy market share in China back to the United States. For now, though, the deforestation risk in Brazil is increasing due to the combination of the Bolsonaro’s presidency and the increasing soy trade flows from Brazil to China. Investors could face higher deforestation risks in their portfolios as a result.
Editor’s note: This Chain has been updated from the original version.
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