Brazilian soy producer SLC Agrícola continues to move forward with clearing land for cultivation despite increased attention on its operations in the Cerrado. Recent statements from the company itself and satellite data from CRR partner Aidenvironment confirm SLC Agrícola’s recent activity. With the company moving forward despite NGO and media scrutiny, the pressure on major commodity traders and investors to address the land clearing in their supply chains is mounting.

As CRR noted in April, SLC Agrícola cleared approximately 5,200 hectares (ha) of land in 1Q 2020 on its Fazenda Parceiro in the municipality of Formosa do Rio Preto. In addition, the company cleared 4,667ha on its Fazenda Palmeira between January and May 2020. This brings the deforestation tally for SLC Agrícola to 10,000 ha during the first five months of this year.

The same Fazenda Palmeira saw significant wildfires in September 2019, during the height of the fire season in Brazil.

Graphics 1-4 (from top left to bottom right): Location of SLC Agrícola’s Fazenda Palmeira; Active wildfires in September 2019; Satellite imagery January 20, 2020; Satellite imagery May 27, 2020

 Source: SLC Agricola, European Union, contains modified Copernicus Sentinel 2 data processed with EO Browser

Fazenda Palmeira is a recently established farm, created to keep the planned deforestation outside of the scope of SLC Agrícola’s partnership with the European retail company Lidl for the supply of ProTerra-certified soy. It used to be part of Fazenda Parnaíba in the state of Maranhão. In February 2018, SLC Agrícola and Lidl announced a partnership to supply ProTerra-certified soybeans to the German, Swiss and Austrian markets from Fazenda Parnaíba and Fazenda Planeste. In October 2018, SLC Agrícola indicated to CRR that it split Fazenda Parnaíba into two separate farms: Fazenda Parnaíba and Fazenda Palmeira. Fazenda Palmeira is no longer part of the Lidl partnership and is not part of the ProTerra and RTRS certification programs. Both ProTerra and RTRS certifications exclude the conversion of native vegetation for soy cultivation, but producers can get some of their operations certified while continuing to deforest in others.

Fazenda Parceiro, located in Formosa do Rio Preto, Bahia, has a total area of about 42,000 ha, with 27,000 ha owned by SLC Agricola. About one-third of the land is planted area. The 5,200 ha cleared in 2020 come on top of 1,355 ha that the company cleared at the same farm in May 2019.

SLC Agrícola has obtained the environmental licenses for all the recent clearing. It does not appear to contradict Brazil’s Forest Code. However, as frequently reported by CRR, international supply chain actors and investors are increasingly vocal in their concerns over “legal deforestation.” Its Fazenda Parceiro is located in Formosa do Rio Preto, one of the priority municipalities of the Soft Commodities Forum (SCF), a trader initiative to support transparent and traceable soy supply chains. The recent clearing also contradicts the expectations of nearly 140 investors and FMCG companies that signed the Cerrado Manifesto Statement of Support.

Despite its move to an “asset-light” business model, SLC Agrícola has publicly confirmed its intention to continue clearing native vegetation once it receives the required environmental licenses. SLC Agrícola said that the company is aware of its buyers’ zero-deforestation commitments, but is not worried about being cut off by any of them because its actions are legal under Brazil’s Forest Code. SLC Agrícola told Capital Reset that “they [its buyers] all work with a commitment to zero illegal deforestation and [SLC Agrícola’s action] is totally in line with this position.” Under the Forest Code, landowners have to preserve 80 percent of forests in the Amazon, but only 20-25 percent in the Cerrado.

Last year, SLC Agrícola’s main buyers were Cargill (25.7 percent), Amaggi LD – a joint venture between Louis Dreyfus and Amaggi Group (20.3 percent), and Bunge (12.1 percent). All three have public zero-deforestation commitments but have not addressed legal deforestation, leaving room for them to buy from SLC Agrícola.

Pressure could grow on these traders to either engage or cut off SLC Agrícola as the company and its investors see more attention from international media and NGOs, increasing the possibility of business access risks and reputation risks. Both the Financial Times and Global Witness recently highlighted Odey Asset Management increasing its ownership in the company over the past couple of years and currently holding 10 percent of shares.

Graphic 5: Top SLC Agrícola Shareholders

Source: Refinitiv Eikon

Traders are likely to see greater scrutiny, particularly with the possibility of an intense fire season this summer. Late last year, Greenpeace released a report that said Bunge and Cargill – the two companies most exposed to fires in their supply chains in 2019 – are “still fueling destruction of Brazil’s Cerrado” and Mighty Earth referred to Cargill as “the worst company in the world.” Traders, for their part, launched a program this week to work with farmers to assist them in improving their sustainability efforts. The SCF, working with Solidaridad Brazil, is looking to strengthen collaboration with farmers in an effort to balance sustainability and profitability from soy production.