Authors: Ellen Atiyah, Innovation Forum

How Can Brazilian Agribusiness Balance Financial Risks and Rewards Amid Climate Transition?

In Brazil, the adoption of sustainable agriculture practices presents potential risks such as revenue losses and financing hurdles, alongside promising opportunities such as heightened yields, enriched soil health, and biodiversity.

On April 30th, 2024 Innovation Forum and Orbitas, delved into the financial impacts of global climate transitions for Brazil’s soy and cattle sectors in a virtual event with industry stakeholders. We brought together international stakeholders to discuss the financial risks and emerging opportunities that current actions to transition to a low-carbon future will bring.

Orbitas’ recent reports on Brazil’s cattle and soy sectors highlighted the risks, such as emissions pricing and land constraints, while also emphasizing potential innovations and revenue diversification opportunities. Regenerative practices have emerged as crucial for restoring soil health and enhancing biodiversity, offering a pathway to increased yields and profitability. However, farmers, particularly small-holder farmers, encounter barriers such as financing and inadequate technology and infrastructure investments. Tailored solutions and farmer-centric approaches were stressed during the webinar, emphasizing collaboration between different scale producers.

Looking ahead, strong government and private sector action will be key to preparing for upcoming regulations and promoting more sustainable practices. Partnerships among stakeholders, including farmers, researchers, policymakers, and consumers, are vital for driving the widespread adoption of regenerative practices. Incentives for sustainability pricing and leveraging advanced technologies for compliance monitoring are needed to ensure environmental accountability.

Sustainable Agriculture Practices and Land Restoration

Challenges

• There are clear concerns over revenue losses in adopting sustainable agriculture.
• Climate transitions could mean that those that do not invest in efficient sustainable practices could encounter profitability challenges.

Opportunities

• Orbitas’ findings emphasize the importance of regenerative practices in restoring soil health, enhancing biodiversity and mitigating climate change.
• Support in transitions is a solution to overcoming the barriers associated with change.
• The reports find that sustainable practices could potentially increase yields and profitability for soy and cattle farmers.
• Maintaining soil health and fertility through restoration can protect Brazil’s competitive advantage in agricultural sectors.
• Brazil has 100m hectares of degraded pasture land across different biomes, which presents a huge opportunity.
• The indirect land-sparing effect from restoration can benefit the soy sector by reducing land prices whilst also conserving biodiversity and natural habitats.
• For cattle farmers, pasture restoration in Brazil can lead to a 310% productivity improvement and profitability increase of almost $400 per hectare on average.
• Coordinated global policies based on various projections can help secure a resilient future for cattle and soy producers by considering opportunities such as pasture restoration and investing in sustainable practices.

A Focus on Farmers

Challenges

• Farmers are investing in improving their production systems to meet the demand for deforestation-free and traceable products, but they still face barriers such as financing and capacity building. This is especially problematic for smaller and medium-sized farms.
• Producers of soy and cattle often lack basic investments in terms of technology, consistent energy supply and condition of roads.
• A slight increase in the production of soy is predicted due to increasing global demand.
• There is a lack of clarity surrounding the EU Deforestation Regulation and a lack of support for farmers. The onus is unfairly placed on the farmers and there needs to be a response that involves all players in the supply chain to mitigate the financial risks for farmers.
• Offering a templated solution will not work and the varying context needs to be considered when offering a solution to farmers.

Opportunities

• Farmers need to be at the center of the conversation to showcase their best practices and learn from each other.
• Farmers of large farms have access to credit lines that are tailored to different biomes and crops, which is effective. Looking forward, this needs to be introduced for smallholder farmers.
• Collaboration between large and small-scale producers is a clear opportunity for knowledge-sharing and capacity-building initiatives.
• There needs to be a package of services and support to facilitate the uptake of sustainable practices, including financing and technological sharing to help farmers and producers be more economically viable.
• Advanced technologies can be used to track sustainable criteria and if any producers are non-compliant, including the deforestation that occurs on farms, overlap with Indigenous territories and slave labor.
• There is a pressing necessity to bring technological investments within reach of farmers, ensuring accessibility and usability.

Climate Transitions and Carbon Pricing: Financing the Climate Transition

Challenges

• Climate transitions will introduce some disruptive sector-wide risks, such as emissions pricing, land constraints, price fluctuations, consumer preference changes and a growing focus on export markets.
• Carbon pricing may drive up production costs for emission-intensive producers.
• Barriers exist in methodological approaches to carbon credits.
• To be successful, the voluntary carbon market requires greater innovation to incorporate further technological improvements and explore methods such as insetting and soil carbon sequestration to generate formal carbon credit.
• The next five years will be crucial for Brazilian agriculture, with strong action from the government and private sector to prepare for regulations such as the EU Deforestation Regulation.

Opportunities

• Carbon pricing can also be seen as an opportunity to diversify revenue through land conservation.
• Businesses and investors must incorporate climate risk assessment into their short-term and long-term strategy.
• Partnerships between farmers, researchers, policymakers and consumers in driving widespread adoption of regenerative practices are important.
• Incentives for corporates, farmers and investors are required to price sustainability correctly.

This post first appeared on the Innovation Forum website.