Responsible Commodities Facility

About

Growing demand for soy globally is driving a continuous expansion of land under cultivation in Brazil. This expansion represents a major driver of deforestation, which nationally accounts for 51% of Brazil’s total greenhouse gas (GHG) emissions and results in destruction of natural habitats and loss of biodiversity.

Efforts such as the Amazon Soy Moratorium have significantly reduced deforestation in the Amazon, but there is strong evidence that it has also resulted in leakage of agricultural expansion and deforestation of the Cerrado region. The Cerrado Manifesto aims to prevent this trend and calls for immediate action by companies purchasing soy and meat originated in the region, as well as by investors active in these sectors, to come up with solutions to halt deforestation.

Brazil’s nationally determined contribution (NDC) aims to reduce GHG emissions by 43% by 2030, with 89% of this reduction expected to be derived from reduced deforestation.

40 million hectares of already degraded pasture and agricultural land could be made available for more lucrative and productive agricultural uses such as soy. This would decrease deforestation by easing the pressure for agricultural expansion still present in the Cerrado. But additional funding mechanisms are needed to create the right set of incentives to redirect soy production into these areas.

Furthermore, trade and procurement challenges still 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.

The Responsible Commodities Facility aims to provide financial incentives for the production of soy in existing cleared and degraded lands, thus discouraging further expansion of agricultural land into the Brazilian Cerrado.

The Responsible Commodities Facility strategy is to provide soy producers with financial and commercial incentives to redirect production into existing cleared and degraded lands, avoiding further deforestation. The soy produced will be sold through a dedicated exchange, linked to a blockchain registry to allow for monitoring and traceability of the products and guaranteeing compliance to the chosen eligibility in a transparent way.

By discouraging further expansion of agricultural land for soy production in the Brazilian Cerrado biome, the Responsible Commodities Facility will contribute to the reduction of negative climate impacts and loss of habitat and biodiversity. The Facility has the potential to promote the production of over 80 million tons of grains (soy and corn) produced over 10 years in ca. 1.4 million hectares of restored pastureland.

DESIGN

The Responsible Commodities Facility will work to re-direct soy expansion into cleared areas in the Brazilian Cerrado by i) raising capital, ii) coordinating with trading partners, iii) managing a sustainable soy exchange, and iv) monitoring production of responsible soy on degraded lands. Limited financing and technical assistance is currently available for agricultural production on already cleared lands in the region. Moreover, buyers have limited information about origin and criteria used for tracing and screening for sustainable soy, complicating the purchase of this type of soy, despite the growing demand for it.

Through its trading partners, the Facility will provide soy producers with long-term loans as well as technical support for cultivating on degraded lands. Crop financing and loans for Forest-Code compliance will also be available for producers, whose production will be collateralized. A land-bank and producer registry will be developed and managed by the Facility in order to provide information for buyers about the origin of sustainable soy. The sustainable soy exchange will aid in closing the demand and supply gap that currently exists, linking international buyers with soy that can be tracked and monitored.

Financing for the Facility will come from global commercial and concessional debt and grants. An Advisory Board, with representation from different groups of stakeholders (including producers, commodities buyers, NGOs and financial partners) will oversee operations of the Facility, provide guidance, and select eligibility criteria for financing.