Between March 7, 2019 and May 5, 2019, SLC Agrícola, the largest listed soybean producer in Brazil, cleared 1,355 hectares (ha) of native vegetation at its Fazenda Parceiro farm. This farm, which was exclusively used for soy production in 2018, is located in the municipality of Formosa do Rio Preto, at the border of the states of Bahia and Piauí.

Fazenda Parceiro, made up of five areas, was purchased by the company in 2011. One of these areas, with a size of 10,644 ha, is leased from a third party. The other areas are either owned outright by SLC Agrícola (27,564 ha) or owned through SLC LandCo (3,680 ha), its farmland investment joint venture with UK-based Valiance Fund.

The cleared vegetation consisted of wooded savannah. The clearing took place in an area for which the company had previously applied for environmental licenses to clear 6,698 ha. The company cleared vegetation outside of areas designated as Legal Reserves or Areas of Permanent Protection under Brazil’s Forest Code, and thereby appears to meet all legal requirements.

Figure 1: SLC Agrícola’s Fazenda Parceiro

Source: SLC Agrícola

Figure 2: Deforestation at Fazenda Parceiro between March 7, 2019 and May 5, 2019

Source: Imagery © 2019 Planet Labs Inc.

In 2018, CRR reported that SLC Agrícola’s planned deforestation could contradict the ESG policies of its buyers. SLC Agrícola has now proceeded with these land development plans, at a moment when zero-deforestation demands from supply chain actors are becoming increasingly stringent. According to its 2018 Management Report, SLC Agrícola’s clients Cargill and Amaggi LD Commodities represent more than 50 percent of its net revenues. Both have committed to zero-deforestation supply chains, and SLC Agrícola may therefore face market access risks with these companies.

Cargill, representing 30.1 percent of SLC Agrícola’s sales, recently updated its zero-deforestation policy and adopted a new policy on sustainable soy. Its policy specifically states that it aims to “transform its supply chain to be deforestation-free while protecting native vegetation beyond forests.” A Cargill spokesperson has indicated that suppliers found to be in violation of the company’s policy are no longer eligible to be a supplier.

Amaggi LD Commodities is a joint venture between Amaggi, Louis Dreyfus Commodities, and Zen-Noh. JV partner Louis Dreyfus Commodities adopted its Soy Sustainability Policy in July 2018. Its commitment includes the elimination of all native vegetation conversion, and specifically highlights the Cerrado as having high ecological value. The scope of LDC’s policy is understood to also cover its Amaggi LD Commodities joint venture.

In addition, a number of SLC’s business partners and investors have signed onto the Statement of Support (SoS) for the Cerrado Manifesto. These include the UK and Dutch subsidiaries of Lidl. Lidl’s German, Swiss, and Austrian subsidiaries have a partnership with SLC Agrícola to source Proterra certified sustainable soy from its Parnaíba and Planeste farms in Maranhão. A number of investor signatories who may hold positions in SLC Agrícola have also signed the SoS. Through the SoS, these signatories have committed to work to halt deforestation and native vegetation loss in the Cerrado, including legal conversion.

Based on 2018 figures, SLC Agrícola’s revenue-at-risk may stand at USD 290 million. This constitutes all sales to Cargill and Amaggi, whose responsible sourcing policies may have been violated. Based on the EBITDA margin of 30 percent, value-at-risk is USD 609 million, which is equal to 59 percent of its market capitalization. Since CRR’s report of October 2018, SLC Agrícola’s share price has dropped by one-third In Brazilian Real (corrected for the 2:1 stock split).