Brazil’s Soy Sector Amidst Climate Transitions
Brazil is the world’s leading producer of soy, but maintaining its competitive advantage depends on adapting to the impacts of climate transitions as the world responds to climate change. Analyzing the potential impacts of climate action on this critical sector reveals material financial risks alongside opportunities to invest in a more sustainable and efficient future for soy production.
Brazil’s Soy Sector Amidst Climate Transitions
Brazil is the world’s leading producer of soy, but maintaining its competitive advantage depends on adapting to the impacts of climate transitions as the world responds to climate change. Analyzing the potential impacts of climate action on this critical sector reveals material financial risks alongside opportunities to invest in a more sustainable and efficient future for soy production.
Climate Transitions Could Benefit Brazil’s Soy Sector
Even in a world that limits global warming to below 2° C, government, consumer, and private sector responses to climate change, known as “climate transitions”, will materially change the financial future of the Brazilian soy sector.
Soy stakeholders that invest in improving the sustainability and efficiency of their operations, reducing the emission intensity of production, exploring emerging market segments and diversifying revenue streams could see significant opportunities emerge as climate transitions benefit this commodity’s outlook.
Climate Transitions Could Benefit Brazil’s Soy Sector
Even in a world that limits global warming to below 2° C, government, consumer, and private sector responses to climate change, known as “climate transitions”, will materially change the financial future of the Brazilian soy sector.
Soy stakeholders that invest in improving the sustainability and efficiency of their operations, reducing the emission intensity of production, exploring emerging market segments and diversifying revenue streams could see significant opportunities emerge as climate transitions benefit this commodity’s outlook.
Climate Transition Impacts on Brazil's Soy Sector by 2050
Modeling how different forms of climate action affect Brazil’s soy sector shows that new opportunities for producers and investors are plentiful as climate transitions occur, but material financial risks will also emerge.
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Possible increase in capital investment in Brazilian agriculture by 2050, driven by financing of deforestation-free and low-emission products under climate transitions — a potential USD 157 billion opportunity
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Possible increase in capital investment in Brazilian agriculture by 2050, driven by financing of deforestation-free and low-emission products under climate transitions — a potential USD 157 billion opportunity
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Possible increase in yield per hectare in 2050 compared to 2020
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As projected in the below 2° C-aligned Modest-Forecast Policy scenario.
See The 8 Trends Driving Climate Transitions For Brazil’s Soy Sector
1. Emissions pricing
Greenhouse gas emissions pricing could materially drive up production costs for emission-intensive soy producers and create opportunities to diversify revenue streams.
2. Land constraints
Climate action, land conservation measures and competition for land from the bioeconomy could reduce the availability of affordable cropland land by up to 36 percent between 2020 and 2050.
3. Yield improvements
As business models reliant on high land use and deforestation become less feasible, soy producers can adapt by prioritizing sustainable productivity investments and process improvements to boost the yield on existing land.
4. Modest production growth
Production increases are supported by the implementation of low-cost yield-enhancing technology and sustainable management practices.
5. Accelerating investment
Investment in capital goods, land, advanced technology adoption and improved management practices could increase production efficiency.
6. Soy price declines
Producer prices could decrease due to changing soy demand and lower production costs driven by technological innovation.
7. Consumer preference changes
The demand for ruminant meat feedstocks could decrease under transition scenarios, but the diverse range of downstream soy applications may offer some resilience in international markets.
8. Competitive advantage in exports
Brazil has the potential to grow its competitive advantage for deforestation-free, low-emission and high-yield soy under climate transitions, increasing exports despite a decline in global traded soy volumes.
How Climate Change is Impacting Brazil’s Soy Sector
Soy is a critical component of the Brazilian economy, employing nearly 2 million people and accounting for nearly half of the nation’s annual crop production value in recent years. The sector is a major catalyst of economic growth but also contributes to the nation’s greenhouse gas emissions, with over 40 percent of soy emissions linked to land-use change.
As Brazil works to meet its own climate goals, it also seeks to earn a reputation as a climate leader on the world stage ahead of the 2025 UN Climate Change Conference COP30 when Brazil will be the host and figurehead for driving global climate action. Additional pressures from international governments, investors, corporates and other actors are shifting the financial outlook for Brazilian soy to pursue a deforestation-free and low-emission future.
Changes in Rainfall (mm)
(Between 1961-1990 and 1991-2020)
Physical Climate Risks Intensify Climate Transitions
Brazil’s agricultural sector has experienced worsening physical climate change impacts for the past several years, impacting both yields and operating costs. These impacts spur action in the form of climate transitions.
As society, the private sector and policymakers become aware of the financial impact of physical changes to Brazil’s economy and agricultural producers mobilize to protect the natural resources that create Brazil’s competitive advantage, the risk of abrupt climate transitions will rise.
The Influences of Climate Transitions on Brazil’s Soy Sector
Climate transitions cover a diverse range of drivers that will transform the future of the global economy.
Across a wide range of climate transition pathways, economic and financial models reveal that achieving greater production efficiency, higher sustainability standards and lower production costs through technology and emission intensity reductions could help producers in the Brazilian soy sector to withstand economic shocks and capture projected global demand increases.
Financial risks will increase for many producers, but proactive mitigation of these risks can reduce financial losses while market leaders may even experience financial gains through leaning into climate transition opportunities.
Learn More About What Climate Transitions Are
For Brazil, new anti-deforestation policies, international trade and sustainability standards and corporate or investor net-zero goals all contribute to transitioning the cattle sector towards a new paradigm stakeholders must proactively manage. Learn more about specific climate transitions impacting Brazil’s cattle sector in our report.
Climate Transition Scenario Analysis for Brazil’s Soy Sector
Orbitas applies a range of potential future scenarios with varying levels of ambition to inform stakeholders where risks and opportunities exist.
Orbitas uses scenarios aligned with 1.5° C and 2° C of warming to showcase the potential impacts that climate transitions may have upon the Brazilian soy sector and reflect how different levels of climate action ambition can create material financial risks and opportunities. This type of scenario analysis provides the sector with the forward-looking data needed to better understand the range of future impacts and identify where new investments in resilience are most needed.
Learn More About Orbitas Scenario Analysis
We use several different scenarios to showcase the potential impacts that climate transitions may have upon the Brazilian soy sector and reflect how different levels of climate action ambition can create material financial risks and opportunities. To help Brazilian soy producers and investors understand the scale of impacts from climate transitions, this report highlights a plausible reference scenario aligned with keeping global warming below 2° C. This models the impact of forecasted climate policies and actions on the real economy up to 2050, tracing detailed effects on producer prices, crop yields and rates of deforestation. This scenario, the Forecast Policy Scenario, is aligned with the Inevitable Policy Response initiative developed by the UN-supported Principles for Responsible Investment. These principles have been signed by investors with over USD 121 trillion in assets under management.
This report analyzes how different types of climate transitions will impact critical financial outcomes for the soy sector’s producers, investors, buyers and other stakeholders. See the potential outcomes for the Brazilian soy sector across the following:
- Future prices for soy producers
- Changes in available cropland
- Changes in Brazilian soy exports
- Improvements in yield per hectare
- Profitability for different types of soy producers
- Profiles of soy producers most and least likely to experience financial losses
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Likelihood of financial loss for producers with shocks to soy prices and increases in transportation shocks
Identifying Where and Who Climate Transition Risks and Opportunities Could Impact
Orbitas analysis of Brazilian soy production also shows how different regions, types of producers and solutions can impact the financial future of stakeholders.
Applying potential price shocks to producers across Brazil showcases who could face outsized risks as different types of climate transitions occur. Producers that have low levels of production efficiencies, higher costs and those that have ties to illegal deforestation and land use change face the most risk.
By 2050, the probability of financial loss from economic shocks common under climate transitions could surpass 60 percent across a significant proportion of Brazilian soy producers at current operating margins.
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profitability increase for High Performance farms due to technological innovation by 2050.
Low Performance farms without land rent payments could increase 2050 profitability by USD 842 more than peers with land rent payments.
On the other hand, proven improvements to production efficiency and maintaining pathways to land ownership may build resilience and provide market leaders with financial gains through new opportunities driven by climate transitions.
Proactive stakeholders can:
1. Adopt technological advancements and sustainable agricultural practices to increase efficiency.
2. Reduce the emission intensity of production to drive down operating costs.
3. Mitigate exposure to economic shocks.
4. Lower land rental payments.
5. Adapt to meet demand from growing market segments.
6. Earn supplemental income from emerging Brazilian bioeconomy markets.
Learn More About Orbitas Analysis of Risks and Opportunities
EMERGING RISKS
The profitability of soy production varies significantly across Brazil, but the least efficient producers who rely on clearing new land to earn profit face the most risk. Without adapting to climate transitions, today’s low performing farms could experience profitability declines of over USD 617, and producers who fail to invest in sustainable management practices and production efficiencies risk financial loss as early as 2030.
SUSTAINABLE OPPORTUNITIES
Brazilian soy farmers can take advantage of a more than 14 percent increase in global soy demand by 2050 due to growing markets for plant proteins, biofuels and non-ruminant meat livestock markets. Investment in yield-enhancing technology innovation could lead to an 83 percent increase in profitability for high performing farms. Producers can also increase resilience through diversifying revenue streams from growing markets driven by efforts to address climate change.
NEW MARKET OPPORTUNITIES
There are growing markets for other land use practices that can transform degraded cropland into profitable assets to diversify revenue opportunities across rural Brazil. Additional revenue streams include agroforestry and non-timber forest products and carbon markets as greenhouse gas prices grow.
Download the report for more details on these new markets and how Brazil’s soy sector can proactively manage risks and opportunities.
Brazil’s Soy Leaders Have the Chance to Make Climate Transitions Work for Them
Climate change and the coming transitions in the global economy provide an opportunity for new market leaders to emerge in Brazil’s soy sector.
A future that is both sustainable and profitable will require a radical level of collaboration among major stakeholders within Brazil and the support of the international community. There is an opportunity for those who are proactive, and these findings provide an early warning system to prepare for climate transitions.*
See the full report to learn more and check out Orbitas’ suite of online tools to better understand climate transitions and their impacts.
Report: Brazil’s Soy Sector
Analysis of Brazil’s soy sector shows that the risks posed by maintaining current production practices and business models are material for investors, producers and the sector’s entire value chain.
Soy Sector Analyzer
Use this tool to understand the material risks and opportunities associated with climate transitions and the financial risks associated with potential shocks for yield, transportation costs and product prices that cattle farmers are likely to encounter between now and 2050.
Illegal Deforestation Analyzer
Use this tool to examine the distribution of illegal deforestation risk and enforcement fines across the Amazônia, Cerrado and Pantanal biomes in Brazil.
*Note: The material produced by Orbitas is provided for informational purposes only and should not be construed as investment advice.
This report was produced with financial support from the Children’s Investment Fund Foundation (CIFF) and facilitation by Nature Finance.