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France's President Emmanuel Macron stated on 13 January that the
country should reduce its dependency on imports of Brazilian soy to
avoid contributing to further deforestation of the Amazon.
Brazilian President Jair Bolsonaro and Brazilian Vice-President
Hamilton Mourão have responded, denying that soy production
contributes to Amazon deforestation.
Macron's position, though unlikely to lead to a
significant drop in Brazilian export of soybeans, are demonstrative
of a larger trend towards French and European focus on
environmental degradation.
Macron's remarks on deforestation risks in the Amazon align with
his administration's focus on ecological transition, compounding
existing pressure against the EU-Mercosur deal. The French
government had already stated in September 2020 that it opposed the
EU-Mercosur free-trade deal over concerns about deforestation risks
affecting the bloc, particularly in Brazil. Concerns over the
environment and focus by EU member governments on the interests of
farmers in France and other EU countries such as Belgium and
Ireland, along with the opposition in the European Parliament, are
likely to continue hindering implementation of the EU-Mercosur
agreement, delaying its ratification beyond 2021. In addition,
increased attention on deforestation at the EU level would increase
the likelihood of MEPs calling for the European Commission to start
trade investigations into imports of soy from Brazil over
environmental concerns.
President Macron's comments or a decision by France to boycott
Brazilian soy products are unlikely to cause a significant drop in
Brazil's exports. The EU receives under 10% of Brazil total soy
exports, with 73% going to China. The EU, including France,
primarily imports soymeal for animal feed, with the EU accounting
for 49.5% of Brazil's soymeal exports. France's share of Brazil's
soy market, however, is minimal and Bolsonaro has claimed that
Brazil's soy industry would continue to thrive even without France
importing any soy products from Brazil.
Brazil claims that soybeans are a straw man, not
contributing to the deforestation; regardless environmental
controls are being eroded.
Soy is primarily produced in the Cerrado area rather than in the
Amazon region. Data from ABIOVE, the Brazilian Association of
Vegetable Oil Industries, show that roughly 50% of Brazil's 2018/19
soy crop was cultivated in the Cerrado region, the single largest
soy producing area, and that in this region 93% of the growth in
soy crops took place on land cleared before 2013. In 2008, Brazil
introduced the Soy Moratorium, an initiative seeking to ensure that
soy planted in the Amazon does not contribute to deforestation. A
second ABIOVE study analysing the efficacy of this initiative
reports that soy cultivation in the Amazon grew from 1.2 million
hectares in 2009 to 4.8 million hectares in 2019. However, only
1.5% of this expansion took place on land that had been deforested
since 2008, much of this in Mato Grasso states. Although these
figures are from an industry trade body and therefore may not be
entirely objective, they suggest that despite growing concerns from
environmental organisations about Brazil's environmental policies,
soy cultivation is not the major contributor to Amazon
deforestation.
Despite Brazil's continued participation in the Paris Climate
Agreement and formally rigorous environmental laws, President
Bolsonaro's actions demonstrate ideological opposition to
environmental controls. Brazilian law states that, in the Amazon
region, agricultural producers must preserve 80% of all native
forest on their land, using only 20% of land for cultivation.
However, Bolsonaro pledged in 2019 to open the Amazon to
agribusiness and mining, while Environment Minister Ricardo Salles
has sought to deregulate environmental practices, claiming that
this will reduce poverty in the region. As a result, enforcement of
existing regulations had been weak, giving scope for soy grown by
unregistered growers operating in the Amazon and contributing to
deforestation to enter agribusiness supply chains. Bolsonaro is
unlikely to seek to combat this, as he has also proposed defunding
the Brazilian Institute of Environment and Renewable Natural
Resources (IBAMA), the administrative branch of the Ministry of the
Environment that implements environmental regulations.
Pressure to take environmental risks seriously are not
solely coming from governments, but increasingly shareholder
activists as well.
Even without a drive for official EU regulation, companies face
growing pressure from NGOs, consumers and ESG-oriented shareholders
to demonstrate deforestation-free supply chains for agricultural
products, with increased focus on environmental sustainability
threatening Brazilian exports. High-profile comments such as those
by Macron are likely to encourage shareholder activism,
particularly by French ESG funds (such as Amundi and AXA, already
high-profile exponents of shareholder activism), increasing
pressure on major food companies to prove that supply chains are
ESG-compliant, even without regulatory changes. ESG compliance also
threatens to generate increased operating costs, given the limited
enforcement of regulations in Brazil. The association between soy
and deforestation - even if possibly unjustified - increases
reputational risk for Brazilian exports of soymeal to the EU,
raising the likelihood that French and/or other European farmers,
meat and dairy producers halt imports of soymeal from Brazil over
concerns about their products causing deforestation or damage to
their own market reputations. Macron's stance also increases the
likelihood that environmental lobby groups will have improved
access to government officials to discuss wider regulatory
initiatives.
Posted 01 February 2021 by Ailsa Rosales, Country Risk Analyst, Latin America and Caribbean, S&P Global Market Intelligence and
Bibianna Norek, Research Analyst, Europe & CIS, Country Risk, S&P Global Market Intelligence
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