Brazil’s government has slashed enforcement of environmental regulations protecting the Amazon and allowed illegal grazing and slashing to accelerate during the COVID-19 pandemic, multiple reports claim, placing multinational meat and soya traders in danger of investor and consumer backlash.
Reports in The Economist and The New York Times cite environmental groups and supply chain traceability groups as saying that the government of President Jair Bolsonaro has gone to great lengths to commodify the delicate Amazonian ecosystem.
“Illegal loggers, miners and land grabbers have cleared vast areas of the Amazon with impunity in recent months as law enforcement efforts were hobbled by the pandemic,” states The New York Times report. While The Economist report includes a graphic showing how the majority of the deforestation occurs in the state of Mato Grosso and implicates multinational firms such as JBS USA, Minerva Foods and Cargill.
Deforestation of the Amazon presents a problem familiar to supply chain managers and compliance professionals: managing a supply chain in which third- and fourth-tier suppliers escape regulatory oversight and standard auditing procedures.
In the case of the Amazon, cattle ranchers slash timber illegally, graze their cattle on the slashed land for a few years and then move the cattle to legally deforested land for fattening before selling them to downstream traders and exporters. The illegally deforested land is then often sold on to soybean farmers, contaminating the soya supply chain as well.
The increased deforestation under the Bolsonaro government will contribute to a rise in carbon emissions and has made moot a ten-year agreement between multinational commodity traders to monitor and enforce environmentally sound practices within their supply chains.
Commitment to zero deforestation
“The cattle sector in the Brazilian Amazon is the largest driver of deforestation in the world,” the report stated. “[It is] responsible for more forest loss than the total deforestation in any country outside Brazil except Indonesia.”
The report had a dramatic effect on commodity traders’ behavior, resulting in an agreement, “Minimum Criteria For Industrial Scale Cattle Operations In The Brazilian Amazon Biome,” which laid out stipulations for cattle ranching in the Amazon.
Within a period of six months after the signing of the commitment to adopt these criteria, COMPANIES commit to proving, in a manner that can be monitored, verified and reported, that no rural property which directly supplies cattle for slaughtering (fattening farms) and is engaged in deforestation in the Amazon biome after the reference date of this agreement, is on its supplier list.
In the ten years following the agreement, deforestation was limited. Since the Bolsonaro government rose to power, illegal deforestation by speculators and small firms has increased dramatically, The Economist reports.
In the first four months of 2020 an estimated 1,202 square km (464 square miles) were cleared in the Brazilian Amazon, 55% more than during the same period in 2019, which was the worst year in a decade. Come August, when ranchers set fire to cleared areas to prepare them for grazing, runaway blazes could outnumber those that shocked the world last year. Scientists say tree loss is nearing a “tipping point”, after which trees will dry out and die, releasing billions of tonnes of carbon into the atmosphere.
Monitoring, auditing and enforcing
Much of the data regarding deforestation in the Amazon comes from groups such as Greenpeace, the Climate Observatory—an association of Brazilian research organizations—and Trase, which specializes in supply chain mapping and transparency.
Trase has developed a supply chain mapping tool that focuses on production in the Amazon. The tool shows commodity flows from the Brazilian Amazon through traders and multinational firms, such as Cargill, to markets in North America, Europe, China, Russia and the Middle East.
Firms that initially agreed to sustainable sourcing a decade ago have the tools to monitor suppliers. Given the current Brazilian government’s willingness to scrap domestic environmental regulations, remove and sideline environmental authorities, and pursue large-scale deforestation of the Amazon in the name of economic growth, it is imperative that private companies take supply chain mapping and auditing into their own hands.
The risks are currently low, in terms of consumer and stakeholder backlash, but that is a matter of “when,” not “if”—BlackRock Inc., a global investment firm with more than USD 7 trillion under management, recently divested from firms that derive more than a quarter of their profits from fossil fuels. The move was made in response to growing concerns by major stakeholders over the effects of climate change. Brazil’s willingness to cut down vast swathes of the Amazon will have a dramatic effect on carbon emissions, a leading cause of global climate change. It is only a matter of time before stakeholders target the soya and beef industries as well. Companies would do well to be proactive.
Brazil has accelerated illegal deforestation, leading to beef and soya entering the supply chain from questionable sources.
Stakeholders have already demonstrated their willingness to divest from companies that do not take climate change seriously. Companies with stakes in the Amazon should be proactively mapping their supply chains to ensure commodities are responsibly sourced.