This information was submitted by the proponent, BVRio, in their proposal to the Lab.
Growing demand for soy globally is driving a continuous expansion of the area under cultivation in Brazil, resulting in deforestation, loss of biodiversity and 51% of the national GHG emissions. Given that 89% of Brazil’s NDC is expected to come from reduced deforestation, alternative mechanisms are needed to meet this target while allowing production to grow.
The Brazilian Soy Moratorium has significantly reduced deforestation in the Amazon biome, but it has also resulted in leakage to the Cerrado. The recent Cerrado Manifesto calls for immediate action by companies and investors active in the region to protect native vegetation in this biome. By redirecting the soy expansion into already cleared land and degraded pastures, deforestation can be avoided while maintaining agricultural production.
While multiple corporate commitments were made to adopt zero-deforestation supply chains, trade and procurement challenges need to be overcome to create efficiencies and enable this market segment to reach the scale required to meet demand and halt current environmental impacts.
A Responsible Commodities Facility is proposed as a vehicle to coordinate a suite of efforts to promote zero-deforestation commodities in Brazil, beginning with soy in the Cerrado. The approach of the Facility would be to engage soy producers in a zero-deforestation trajectory through the provision of financial and commercial incentives, such as crop finance, loans for compliance with the Brazilian Forest Code, and investment in on-farm silo facilities to improve their financial returns. This will require partnering financial organizations and banks engaged in sustainability with traders and producers.
Moreover, a “Responsible Commodities Exchange” would be created to link producers and buyers and enable them to aggregate supply of sustainable products at scale, in an environment that is transparent in terms of price and quantity and that traces their supply chains effectively, efficiently and with low transaction costs. The Exchange would promote the use of forward delivery contracts with physical delivery, assisted through partnerships with logistics and trading companies.
The Facility will have a governance structure composed of the main actors involved with this objective: producers, buyers, NGOs and financial institutions. There will be a screening process to ensure that producers meet a set of eligibility criteria (based on the date of deforestation, CAR registration and other criteria such as the TFA’s and the new Green Grains Protocolf from the Brazilian Public Prosecutors office). Compliance and traceability of production will be done using tools like MapBiomas (http://mapbiomas.org) and Trase (http://trase.earth/).
The combination of innovative financial and trading tools, increased transparency and traceability, and a focused effort on facilitating compliance with strict guidelines, have the potential to accelerate the growth of zero-deforestation commodities, while promoting compliance with the Forest Code and reducing emissions in the Cerrado by more than 500 million tCO2.
The need for investment and credit for the farmers participating in the Responsible Commodities Facility in the Cerrado could generate a demand of finance of up to US $3.4 billion, over an initial 5-years of operation (i.e., an average of US$ 700 million/year).
The estimate assumes that the Facility redirects 50% of soy expansion into cleared areas (3,3 million ha) by providing: 1. Finance for in on-farm silos (US$ 81/tonne); 2. Crop finance of US$ 625/ha (upfront payment of 50% of the production costs); 3. Loans for Forest Reserve Credits at US $140/ha/yr.
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The Lab picks top finance instruments for action on climate change in developing countries, particularly Brazil, India, and in Sub-Saharan AfricaFebruary 14, 2018
LONDON — The Lab – a public-private initiative composed of experts in sustainable investment from governments, development finance institutions, and the private sector – has picked a new class of investment vehicles to drive much-needed finance to low-carbon, climate-resilient global development, out of over 100 ideas submitted into a competitive pool. The nine new instruments […]