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The Chain: Downstream Companies and Investors Push for Deforestation-Free Soy in Brazil; Commodity Traders Remain Quiet

December 12, 2019

Key members of the soy industry, major corporations, and actors in the financial community are collaborating on efforts to protect against increased deforestation in Brazil’s Amazon and Cerrado.

A letter sent by 84 companies, including Fast Moving Consumer Goods companies, as well as investors with more than USD 3 trillion in assets under management, at the beginning of December urged Brazilian President Jair Bolsonaro and his government to address deforestation for the cultivation of soy. Specifically, the companies are asking the government to keep the Amazon Moratorium intact as some stakeholders call for it to be eliminated. The Moratorium, signed in 2006, was an agreement among companies to not utilize newly deforested land for soy production. After the Moratorium was put in place, deforestation rates in the Amazon continued to decline until 2013. “Since [2006], soy production in the Amazon has increased 400 percent, showing that forest protection and agricultural expansion can be compatible,” the letter said.

Noticeably absent from the letter are major soy traders, including Bunge, Cargill, LDC, Cofco, ADM, Glencore Agriculture, and Amaggi, which combined account for almost 60 percent of the country’s soy exports. Traders’ activity has shifted to the Cerrado from the Amazon. One unintended consequence of lower soy-driven deforestation in the Amazon is the increase of land clearing for soy in the Cerrado. The traders have yet to endorse the Cerrado Manifesto, which urges companies to implement zero-deforestation agreements in the region.

The letter from the 84 companies, which include major players Tesco, Mars, Carrefour, and Robeco, to the Brazilian government comes at a critical time. Deforestation rates in Brazil have risen to their highest levels in more than a decade, and deforestation is expected to increase again in 2020. Moreover, farmers recently started calling for support from traders to end a ban on buying soy from areas cleared after 2008. Farmers feel emboldened by their support from President Bolsonaro. Since he took office at the beginning of the year, President Bolsonaro has overturned key environmental regulations to support agriculture development, including weakening IBAMA, Brazil’s environmental agency. However, he has not publicly supported getting rid of the Moratorium. Rolling back the Moratorium could bring about various risks for the soy industry amid likely backlash from importing countries. These risks include financial, market access, and reputational.

Given the government’s actions to loosen environmental protections, company and investor actions have become an even more critical line of defense against deforestation. The letter to the Brazilian government sent last week comes soon after a group of investors urged companies to take action to reduce their exposure to deforestation. Their letter was in response to the Amazon fires that spread throughout the Amazon and the Cerrado over the summer.

Group provides funding for Cerrado soy farmers

In the Cerrado, meanwhile, a group of three European companies last week announced an initiative, called Funding for Soy Farmers in the Cerrado, to support soy farmers in preserving more land than they otherwise would. Tesco, Nutreco, and Grief Seafood, all of which have signed the Cerrado Manifesto, are contributing to a fund that will help provide financial incentives to farmers to not clear land for soy cultivation. UK-based Tesco plans to provide USD 13 million throughout the next five years, while Dutch Nutreco plans to provide USD 1.1 million over the same time period. Grieg Seafood, which is based in Norway, will give USD 2.00 for every ton of soy that it uses. Daniel Salter, the responsible sourcing manager for Tesco, said that direct payments to farmers is the most effective financial incentive in reducing soy-driven deforestation. Tesco is aiming by 2025 to source from only areas that are verified zero deforestation. It is a member of the Consumer Goods Forum and on the steering committee for the Cerrado Working Group. Local NGOs are supportive of this new measure, sources have communicated to CRR.

Soy farmers have been the focus of financial initiatives to reduce exposure to deforestation in the Cerrado, which has risen sharply since 2000. The latest initiative comes five months after the launch of a green bond initiative on the London Stock Exchange. That effort seeks to provide medium-sized Cerrado farmers with low-cost loans to incentivize using under-utilized land for soy production rather than newly cleared forested areas.

Soy farmers in the Cerrado will likely see growing attention in 2020 as Brazil solidifies its position as the world’s top producer. Brazil’s soy cultivation is forecast to reach 121 million metric tons in 2020, approximately 25 percent higher than the second-largest producer, the United States.

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One Response to The Chain: Downstream Companies and Investors Push for Deforestation-Free Soy in Brazil; Commodity Traders Remain Quiet

  1. […] Soy (RTRS) certified. Before its engagement with Cargill, Grieg Seafood had already been active in efforts to reduce soy-driven deforestation in Brazil. Along with Tesco and Nutreco, Grieg […]

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