The beneficiaries of deforestation

Image: Romina Ordonez
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By ENCO (European Network of Corporate Observories)

How European companies and banks participate in the destruction of Brazil's forests and savannas

Brazil's dependence on the export of raw materials is the main cause of the unprecedented level of deforestation and hyper-exploitation of nature in Brazil's two richest ecosystems: the Amazon and the Cerrado. The Amazon is a key ecosystem for the planet's environmental health, as it influences the climate through its role as a carbon sink and retainer. The Cerrado is the richest savannah in the world. And large European companies and financial institutions play an important role in this context.

In addition to their extreme abundance in fauna and flora, water and biodiversity, the Amazon and Cerrado regions are the habitat of many traditional communities (indigenous peoples, small farmers, communities of babassu coconut breakers, Afro-descendant communities) who have lived for centuries in coexistence with the local economy and the sustainability of natural resources. Vast areas of these ecosystems are threatened by a series of economic interests: the advance of agroindustry based on livestock, large monocultures of soy, meat and wood; and mining and logging activities linked to the raw material industry.

Fires, conflicts over land appropriation, attacks on indigenous peoples

In 2019, widespread fires devastated huge portions of the Amazon rainforests, most of them as a result of the practice of opening up pasture areas for cattle. The number of fires identified in the Amazon region in August 2019 was the highest since 2010, and double the number recorded in the same period of the previous year. In the Cerrado region, large tracts of vegetation on indigenous lands have been converted into pasture and agricultural production zones. According to one estimate, about 80% of the original Cerrado vegetation has been modified by the expansion of agroindustry.

 Region of origin and country of destination of soy with potential for deforestation. Estimates of annual averages between 2009 and 2017 (Trase, 2020).

Currently, the Amazon and Cerrado regions are territories of political, economic and environmental conflict. These confrontations are not only due to internal competition between the economic sectors that exploit soy, corn, meat, leather, wood, sugar cane, cotton and mineral resources. They are also related to conflicts between large and medium-sized agricultural companies – supported by the government of Jair Bolsonaro – and the forest peoples.

Aggressions, expulsions and displacements of traditional communities continued to increase under the Bolsonaro government. The pandemic added a new challenge, since the state bodies responsible for ensuring respect for rights were also restricted, facilitating violations of the rights of various communities in the regions of Mato Grosso, Pará, Rondônia and Maranhão. The Xavante indigenous people in Mato Grosso, for example, suffered more aggression during the pandemic period. In addition, the peasant communities of Balsas, in the state of Maranhão, like the community of Bom Acerto, suffered forced displacements in August 2020[I].

What is the role of European companies?

The fight against illegal deforestation targets companies involved in the raw material production chain, including financial institutions and other multinational companies that are part of the supply process. In 2016, for example, Banco Santander (a Spanish bank) was fined US$15 million for providing financial support to plantations in illegally deforested areas. Major grain trading companies, including Cargill and Bunge (United States), were fined a total of $29 million after an Ibama investigation revealed that around 3.000 tonnes of grain produced by five trading houses had been harvested in areas prohibited for agriculture.

In addition to financial support, European companies operate directly in the Amazon and Cerrado regions and some are accused of rights violations. Mining companies present in the state of Pará (such as France's Imerys and Norway's Norsk Hydro) and infrastructure sector groups (private and state), which manage energy transmission and distribution concessions, were accused of generating negative impacts in the territories. According to civil society organizations, the presence of these multinational companies has contributed to increasing tension in the territory against the rights of local communities.

The Netherlands and Spain are top European destinations for deforestation-related soy

Of all the raw materials that pose an environmental risk, soy is the most traded on international markets. In 2016, three countries in South America (Brazil, Argentina and Paraguay) accounted for 50% of world soy production, which corresponds to an area of ​​approximately 56 million hectares. Three crops – soy, sugar cane and corn – occupy 70% of the Brazilian agricultural surface, corresponding to more than 60% of the total value of the country's agricultural production. Soybean production in Brazil has increased 400% in 25 years.

Soybean crops were initially planted in the southern regions of the country, which are more suitable for this production. After the 1970s, companies such as Syngenta (Switzerland) and Pioneer (United States) invested in transgenic seeds adapted to the Cerrado ecosystem with the support of the Brazilian government. With the “successful” domination of the savannas, the expansion of agribusiness advanced to the Amazon region after the 2000s.

According to database numbers Trace, the Netherlands and Spain are the main European destinations for soy linked to deforestation. Then France and Germany. Recent studies estimate that around two million tons of illegally planted soy each year reached the European market in recent years, of which 500.000 tons were produced in the Amazon region. Almost half of rural properties in the Amazon and agricultural lands in the Cerrado region, which supply soy and beef for export, do not meet the deforestation limits established by the forest code.

The Brazilian soybean production chain is dominated by five major global trading companies: ADM, Bunge, Cargill, Louis Dreyfus and COFCO. Among the top ten destination countries for soy exports from the Amazon and the Cerrado are the Netherlands (36%), Spain (21%), Germany (10%) and France (10%).

Estimated risk of deforestation among soy traders (2020, in hectares).

Soybean traders are directly supported by many financial institutions that are linked to them through equity (mainly private equity and property) and debt (such as bonds, loans and credit renewal facilities).

The European Union is the second largest buyer of Brazilian meat, after China

With 214 million head of cattle in 2021, Brazil has more cows than inhabitants. This number continues to increase, especially in the Amazon and Cerrado. In 2019, Brazil exported 1,84 million tons of beef. This makes it the world's largest exporter, according to the Brazilian Association of Beef Exporters (Abiec). Unlike the soy production chain, the meat sector is managed by large national companies, financed by national and foreign capital. The European Union, with the purchase in 2017 of more than 180.000 tons of Brazilian meat, is the second largest buyer of Brazilian meat, after China.

The export policy has been strongly encouraged by the Brazilian government through the creation, in 2008, of a support program for “national champions”. The National Bank for Economic and Social Development (BNDES) provided a series of subsidies to stimulate some companies in specific sectors, such as meat processing, and encourage their growth. These subsidies have helped Brazilian meat processing companies, for example JBS and Marfrig, to develop. Marfrig became the third largest meat producer in the world. JBS is the world's largest meat producer and one of the ten largest agro-industrial companies on the planet. As an exporter, JBS is supplied by approximately 1.324 municipalities, or 47% of Brazilian beef producing municipalities in 2017. In addition, BRF, a poultry processing company, has become one of the world's largest exporters of these products, with two processing plants in Europe (Netherlands and England) and nine in Argentina.

However, the growth of these multinationals has not come without a high price: the massive increase in the destruction of the Amazon and Cerrado biomes, but also the deplorable working conditions to which their employees are subjected.

The appalling conditions in the meat production chain, for both the cattle and the humans who work there, are nothing new. In the soybean chain, the situation is similar: together with degrading working conditions, forced labor and land appropriation, Brazil is able to put pressure on production costs and export at low prices, producing the cheapest meat in the world in Amazon.

The meat chain: BNP, Carrefour, Nestlé and many others

Minerva, one of Brazil's big three meat packers, derives at least a third of its gross revenues from Brazilian beef exports, linked to 10.900 hectares at risk of deforestation due to the expansion of cattle pastures in 2017. The Shareholders of Minerva are largely global investors who currently have no commitment in terms of deforestation, such as Morgan Stanley (4,94% of the capital), Vanguard (2,21%) and BlackRock (0,4%), as well as as financial institutions that publicly recognized the risk of deforestation as a problem, including BNP Paribas (2,26%).

In addition, JBS, Marfrig and Minerva received more than nine billion reais (1,5 billion euros at current exchange rates) in investments and loans from European and non-European banks that have signed environmental agreements, including Deutsche Bank, Santander, BNP Paribas and HSBC. Unfortunately, the lack of laws in Europe on the subject "means that banks, investors, risk rating agencies, importers and supermarkets are not legally required to carry out due control over the risk of deforestation before doing business with companies in the beef sector”, lamented the NGO Global Witness in a report December 2020 on the subject.

In 2014, governments, civil society and private companies approved the New York Declaration on Forests, which aimed to reduce global deforestation by 2020. The Brazilian states of Pará, Amazonas and Acre are among the Brazilian signatories, while Deutsche Bank and Nestlé are among the European signatories. However, the Nestlé Group, and also Carrefour, have not stopped buying meat from JBS and Marfrig, according to the Mighty Earth.

German, Dutch and Swedish investment funds involved

Due to the financial exploitation of land, the price of Brazilian agricultural land, especially in the Cerrado, has increased exponentially. Institutional investors, such as private equity and pension funds, real estate companies and agribusiness, are following a business model that values ​​land by acquiring and clearing areas of native vegetation for agriculture, rather than basing their income on goods production.

In the last fifteen years, numerous land companies have been created, entirely focused on the acquisition, sale, lease and management of agricultural land in these regions. In the Cerrado, large areas of native land officially belonging to the state are being illegally privatized. This process usually leads to violent eviction of inhabitants (many of whom are from traditional communities or impoverished rural populations), as well as extensive clearing or deforestation. More recently, these agricultural areas have been sold to agro-industrial companies or land holding companies, which can rent or sell the land.

Three European investment funds contribute to the operation of land companies in the Cerrado region: the German pension fund Ärzteversorgung Westfalen-Lippe; the Dutch Algemeen Burgerlijk Pensioenfonds (ABP) and the Swedish Andra AP-fonden (AP2). These pension funds invest in mutual funds managed by the Teachers Insurance and Annuity Association of America (TIAA), a non-profit private pension fund currently considered the largest investor in farmland and the world's third largest manager of commercial real estate. It currently holds US$2 billion in assets in Brazil.

Most foreign-owned agricultural land in the Cerrado region is financed through the TIAA. The fund is also present in the agricultural land market through companies such as Radar Agricultural Properties (a j between a Brazilian company, Cosan, and Mansilla Participações, a company wholly owned by TIAA) and Tellus Brasil Participações, a national subsidiary focused on land acquisition, in which TIAA has a significant stake (49%). A complex network of companies was created by TIAA to buy and invest in agricultural land, evading the legal restrictions imposed by national laws on land ownership by foreigners. In the midst of all this, the responsibility of European companies and financial institutions tends to become invisible. However, it does not disappear.

*ENCO (European Network of Corporate Observories) is a network of public and media organizations dedicated to research into the power of large corporations.

Translation: Fernando Lima das Neves

Note

[I] View the news portal Public Agency.

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