SOY AND BEEF For the World Forum on Enterprise and the Environment

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1 BRIEFING JUNE 2011 Safeguarding the natural world SOY AND BEEF For the World Forum on Enterprise and the Environment Demand for soya beans and soya products has risen dramatically in recent decades. In just 15 years, production of the crop has doubled, and the land used to grow soya worldwide now covers an area almost the size of Egypt (988,000 sq km). The predominant use of the crop is to make soya meal, a major source of protein in livestock feed, especially for poultry, pigs and dairy cattle. The expansion of soya planting has largely been driven by rising consumption of meat, and there is also a significant market for soya oil for use in food, biodiesel and other products. Around two-thirds of soya products are traded. Imports are dominated by China and the European Union (approximately 37% and 28% of global soya imports respectively). Chinese soya bean imports are projected to rise some 50% by Although the United States remains the largest exporter of soya beans and products, recent and projected export growth is concentrated in South America: in particular, in Brazil, Argentina, Paraguay and Bolivia. Despite significant improvements in productivity, a rapidly growing land area is being planted with soya to meet demand. In Brazil alone, this area is nearly the size of the entire United Kingdom (241,000 sq km). The export earnings from soya have come at a cost to the ecosystems in which it has been planted, both in Brazil and Argentina, but also increasingly in Paraguay and Bolivia. For example, soya expansion has been a significant factor in conversion of the Brazilian Cerrado, or savannah, a biodiversity hotspot larger than Mexico. Cattle ranching is another key driver of habitat destruction in South America, particularly in the Amazon region, but also in the Cerrado, Pantanal and Argentinean Chacos. It is also one of the main economic activities in Brazil. In 2008, a production of 9 million tonnes of beef was 1

2 responsible for 2% of the country s GDP. Brazil is one of the biggest beef exporters in the world. It exported 1.8 million tonnes of beef in 2008, but the vast majority of the production is for domestic consumption. Extensively rearing is the main production method and it is the rural activity which occupies more area in Brazil, covering 199 million hectares (73% of all productive land in the country) with a herd of some 200 million heads. The supply chain is highly fragmented and marked by informality. Beef production is often associated with the expansion of the agricultural frontier over forest and other habitats, responding for around 65% of Brazil s greenhouse gas emissions. Beef and soya are usually linked in a repeated pattern of land use change cycle. The land is cleared, the timber sold and a few herds of cattle introduced to keep the forest from recovering. In 2 or 3 years time the land is sold to soya producers and the cattle is pushed forward into cheaper, forested land. As soya and sugarcane expand into the Cerrado region, beef production is been displaced into the Amazon. A land use model developed by WWF-Brazil incorporating land and commodities prices indicates that a business as usual scenario would see increased pressure from soya production in the Cerrado and an expansion of pastures into the Amazon in 2020 (see pictures overleaf). Considering that less than 3% of the Cerrado is strictly protected, urgent priority must be given to increasing the number and size of protected areas in the Cerrado. Apart from government protected areas, the Brazilian Forest Code, progressive legislation which prescribes the need for in-farm set-asides, determines that up to 35% of the native vegetation in farms in the Cerrado, and 80% in the Amazon, must be preserved. However, few producers comply with it and there is a strong pressure to weaken this requirement and forgive producers that are not compliant with the law. In addition to enforcing the current Forest Code, integrated land use planning should be applied to reconcile cattle ranching, soya plantations and other crops, with biodiversity conservation, and to support sustainable livelihood programmes that enable local communities to capture value from biodiversity. Providing the right set of market and policy incentives for producers to conform with such planning is also crucial. The incorporation of sustainability criteria in lending policies, tying loans with the adoption of best practices to avoid environmental impacts and increase productivity could help reduce the conversion of areas rich in biodiversity. Finance to the beef sector comes mainly from the Brazilian government. Valuating the ecosystems services provided by the natural vegetation is a good way to highlight the importance of an area and influence policy makers. Nevertheless, several Brazilian beef companies have benefitted from major loans from the Brazilian development bank, expanded outside Brazil and got listed in stock markets. Investors and shareholders have therefore become more important in influencing practices in the beef industry. However, for investors, environmental impacts are considered immaterial and pass largely unnoticed unless quantified and related to the companies performance. Valuing ecosystems services is one alternative to attach monetary value to environmental performance, but in order to be considered in the decision making of businesses and the financial community, it needs to go beyond that to assess the cost of inaction. Only then it can be taken into account in the decision making by equity investors and lending bodies. 2

3 Land use model by WWF-Brazil 0% % > 75% 0% % > 75% Soya fields in 2007 Pastures in 2007 Soya fields in 2020 Pastures in

4 In the soya market, which is more organized and exports focused, there are additional levers to reduce impact and drive positive change. A variety of measures and changes have been proposed that could help diminish the current negative impact of European soya demand. They include: Improving soya production practices through certification under credible, multi-stakeholder schemes such as the Round Table for Responsible Soy. Reducing meat consumption and wasteful use. Desirable for a number of reasons, including public health and cutting greenhouse gas emissions, it would also lower demand for imported protein sources such as soya in animal feed. Using locally-grown crops to provide alternative sources of protein in livestock feed. Legume crops, for example, could replace at least some of the protein currently provided by soya, although nutritional challenges remain - especially for pigs and poultry. Changing regulations that currently ban the use of waste products in livestock feed. For example, the EU is reviewing the ban on using processed animal protein (PAP) in the feed of omnivore species (poultry and pig), introduced after the BSE outbreak in cattle, due to concerns about cross-contamination. Lifting this ban would reintroduce an alternative to soya imports, but it would be necessary to overcome issues of public acceptability, as well as the cost of ensuring that herbivore livestock are not fed animal remains and that no livestock is fed the remains of its own species. Sourcing soya from a wider variety of countries to reduce the pressure on South American ecosystems. Options for alternative sources are, however, limited and systems such as traceability and certification would need to be in place to ensure that this does not simply displace the problem to other regions. Undoubtedly some or all of these measures will prove sound, necessary and feasible. However, they will not individually produce change at the scale and pace needed to prevent significant further destruction of South American ecosystems. For the foreseeable future, the EU will still need to import soya. It is therefore crucial to engage consumers and producers of soya in practical and pragmatic steps to minimise the negative impacts of its production. Even if it were practical, complete withdrawal of European buyers from the South American soya market would remove their ability to influence production practices for the better, and China would become even more dominant as the world s biggest soya importer. Over the past decade, producers have been consistently asking for compensation for going beyond what the law requires of them, protecting forests and water bodies with benefits for society as a whole. They require payments for ecosystems services (PES) such as water and carbon, as well as a premium for certified soya. There is currently a debate on whether it is acceptable and feasible to use REDD+ funds to help tackle deforestation drivers. There are also pilots on payments for upstream farmers to maintain riparian forests and avoid water pollution, for instance. One of the challenges to scale up these schemes is the identification of the beneficiaries who should pay for the benefits provided and then putting an agreement and payment mechanism in place. At the moment, there is no comprehensive mechanism to value ecosystem services provided by farmers following best practices, and to ensure payment and continued 4

5 delivery. Linking PES with the implementation of broader sustainability standards leading to certification could help mainstream these schemes and bring the ultimate beneficiary of the services provided, the end consumer, into the equation. There is, however, another obstacle to overcome, which is the resistance from customers in the supply chain to pay fair premiums for certified commodities. Valuing ecosystem services provided by farmers who follow certain standards could provide the rationale for paying premiums, but practice points in a different direction. Unless businesses can capture the value of the ecosystem services in their operations, there is no business case for internalizing the cost of a premium. The value of ecosystem services needs to be translated into the cost of failure to protect these services, so that businesses can factor it in as a material risk. The same applies to investors, who could potentially drive their investees to address the risks around deforestation and environmental degradation associated with commodities such as soya and beef, if they are themselves convinced of the materiality of the risks to the performance of the company. Why we are here To stop the degradation of the planet s natural environment and to build a future in which humans live in harmony with nature. wwf.org.uk WWF-UK charity registered in England and Wales number and in Scotland number SC039593, a company limited by guarantee registered in England number Panda symbol and WWF Registered Trademark of WWF-World Wide Fund for Nature (formerly World Wildlife Fund). 5 SOY AND BEEF JUNE 2011 WWF.ORG.UK