Environmental activist groups have taken to calling it “Bolsonaro’s deforestation.” That’s Jair Bolsonaro, for those who didn’t know. He’s been president of Brazil for five months. But already in October, before he was even elected, New York magazine was asking whether one man (as in him) could “single-handedly ruin the planet.”
On Wednesday, Reuters reported that satellite images of the Brazilian Amazon rain forest show a rapid increase in deforestation in May.
To close Brazil watchers, this is nothing new. Brazil’s deforestation has ebbed and flowed like a tide for years, some years worse than others, regardless of who was in office.
Brazil’s environmental protection agency has been starved of funds for years, including under the Workers’ Party government. That agency, known by its acronym IBAMA, lost authority when Bolsonaro took office in January and introduced an effort to streamline government bureaucracies. So now the forestry commission is under the auspices of the Agriculture Ministry, which is heavily connected to Brazil’s farm lobbies.
Marcio Astrini, Greenpeace Brazil’s public policy coordinator, told Reuters that the Bolsonaro government is “anti-environmental” and has pushed to reduce forest protections without presenting a plan to fight deforestation.
“With Bolsonaro, people who destroy forests feel safe and those who protect forests feel threatened,” Astrini said.
China’s Soybeans Do Not Grow On Trees
There is one key word missing from the Reuters article: China.
If you cannot count on the Brazilian authorities to control deforestation of the largest rain forest in the world, then you have to depend on the buyers—and their funders.
Those buyers are all in China.
China is everything to Brazilian soybeans. And now it’s more than everything because China has basically slapped sanctions on American soy producers in retaliation for tariffs on Chinese goods.
Last year, China bought 10 million more tons of Brazilian soy. Last year was also a record harvest and saw record acreage in Brazil, though expanding acreage does not necessarily mean clear cutting a forest. Sometimes the expansion comes at the expense of other things, such as grasslands for cattle, or other cash crops.
China demand for Brazilian soy is the main reason why soy acreage has been expanding for the past 15 years.
If you want to save the Amazon, it depends on China.
For years, activist groups like Greenpeace have persuaded major multinationals like McDonald’s to stop buying soy sourced from Brazil’s Amazon region. The soy was used in animal feed, mainly for chickens.
Norway’s government pension fund, which invests around $1 trillion worldwide, asked in 2017 that their asset manager, Norges Bank Investment Management, divest from companies involved in palm oil production in Indonesia and one company involved in soy production in Brazil because of deforestation concerns.
Fund managers are not enough, but their actions sent signals to European importers, the second largest buyer of Brazilian soy after China. They have become more strict on where they get their soy, and have done so now for at least ten years.
Some of those companies are publicly traded and risk being shunned from investment portfolios due to restrictions on sustainability practices by those fund mandates. Others can face similar pressure from key lenders.
China importers are not as strict and are not pressured by their lenders. That, coupled with a Brazilian government—whether led by Bolsonaro or someone else—gives farmers an incentive to deforest.
According to a nonprofit called CDP, which does due diligence on large corporate impacts on the environment, Bank of China, Industrial & Commercial Bank of China and Agricultural Bank of China are the top three banks lending to the soy sector, providing 62% of the total loans to Chinese buyers.
Bosera Asset Management Co., China Southern Asset Management C. and E Fund Asset Management Co. are the top three institutional investors funding the sector, representing a sizable 25% of the total value of shareholdings in the soy sector.
Archer Daniels Midland (ADM), Cargill, Bunge, Louis Dreyfus Co. and China’s COFCO account for 52% of Brazilian soy shipments to China and each one has taken steps to manage deforestation risks within their supply chains. But when it comes to environmental issues, the majority of Chinese companies are focused on their home market.
Only a few of them—Muyuan Foodstuff Co., Sunner Development Co. and Wens Foodstuff Group—have taken action to tackle the environment in broad strokes, but not necessarily deforestation of Brazil’s rain forest.
China is the biggest consumer of forest-risk commodities, whether it’s Brazilian paper and pulp made from trees or soy.
China’s demand for soy is a blessing and a curse for Brazil. Worldwide, China imported 63% of the soy traded globally, and Brazil is the world’s No. 1 exporter now that China cut the U.S. out of its market.
With growing domestic demand for soybeans in China and uncertainties around U.S.-China trade relations for next year, it is foreseeable that Chinese demand for Brazilian soy will rise, CDP China analysts wrote in a 72-page report released in May.
CDP China concluded that Chinese demand “could potentially trigger further and faster deforestation.”
The report is meant for corporate readers, especially those concerned with reputation and regulatory risks.
CDP investigated secondary corporate financial data of 30 key companies involved in the soy supply chain in China, covering importing, crushing, animal feed manufacturing and animal husbandry sectors. They identified the top financial institutions active in China-Brazil soy trade.
In total, during 2013-2017, Chinese banks loaned out $5.2 billion to companies, of which 40.1% was exposed to mostly Brazilian deforestation risks.
Underwriters active in the soy sector raised over $7.1 billion in bonds or shares potentially associated with deforestation risks, too.
Institutional investors held over $2.38 billion in shares issued by agribusiness companies as of the end of 2017, of which 64.85% had exposure to deforestation.
CDP China concluded that Chinese financial institutions exposed to the soy sector have a general lack of awareness of the impacts and have taken limited, steps, if any, to address them.
A country’s leadership is the ultimate decider of what’s done with its natural resources. But for decades now no Brazilian leader has seen a reversal of deforestation. Any reversals were temporary and quickly replaced by new record-breaking cutting.
If that is to continue, and under Bolsonaro it looks like it will, then it depends on the buyers’ refusal to purchase commodities from new or recently deforested zones. Europe is doing its part. China, on the other hand, is not. When they do, the Amazon might be better off, no matter who is Brazil’s president.
