Overview
This fund will finance the transition to sustainable agriculture in the Brazilian Amazon and Cerrado regions. The instrument includes a private credit fund with a blended finance structure, bringing together a credit line, an income transition guarantee, and a technical assistance facility.
The Problem
In Brazil, there is enough land to feed future generations without further need for deforestation or biodiversity loss in the Amazon and Cerrado biomes. Sustainable agriculture has proven more profitable than conventional methods, increasing productivity while reducing costs. However, an upfront investment is needed, and farmers cannot afford to bear the risk alone.
Agribusiness is extremely important for the Brazilian GDP, accounting for almost 27% last year. The breakout for funding the agriculture sector in Brazil shows 30-40% of the required capital going through the financial system using subsidized government loans. In 2022’s crop season, the Brazilian government announced BRL 340 billion [USD 66 billion*] in loans, of which only BRL 6 billion [USD 1.2 billion*] was made available for low-carbon agriculture credit lines, highlighting a significant funding gap for agriculture transition.
The Solution
The Low-Carbon Agriculture Transition Mechanism (LATM) addresses several barriers through a blended finance structure to facilitate the transition to sustainable agriculture in the Brazilian Amazon and Cerrado regions. It provides longer-term credit lines with attractive rates for the producer, technical assistance, and income insurance. These three components create a complete solution that can tip the scale to convince the producer to transition. The credit lines with the transition guarantee provide a replication level in transforming degraded land into sustainable production, integrated management, and agroforestry systems.
“There is an extreme amount of knowledge in the Lab network that we can learn from to make our fund market ready, as well as share a lot of our on-the-ground experience in creating debt mechanisms that will really make money flow to producers on the ground and with the potential to scale.”
Martha de Sá, CEO of Vert Capital
“We are super excited to be part of the Lab network. This instrument is a further step toward achieving our mission by directing money in a very impactful way to support farmers in their land use transition. The Lab knowledge and support will be fundamental to overcome the challenges of unlocking this type of capital.”
Gilberto Ribeiro, CIO of Vox Capital
Target Impact
The proponents Vert Capital and Vox Capital will focus on financing five impact areas: pasture recovery, sustainable livestock, integrated systems, agroforestry, and bioeconomy. The instrument aims to restore degraded land, and the credit grant is designed to consider different levels of sustainability (zero deforestation, best practices on large-scale agriculture, and agroforestry systems). The instrument is designed specifically within the Brazilian context but could be replicated in other regions.
*Exchange rate on March 9, 2023.
