Deforestation and the Brazilian Beef Value Chain

P OST-PROJ ECT REPLICATION O F SA VING S GROUPS IN UGANDA

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

Datu Research October 2014

A DATURESE ARCH.COM This research is prepared on behalf of the Environmental Defense Fund: http://www.edf.org/

Datu Research provides economic analysis to inform strategies to protect natural resources, improve food security, and develop local economies.

AUTHORS Shawn Stokes, Marcy Lowe, and Sarah Zoubek, with contributing research from Eduardo Rodrigues da Costa, Russell Owen, and Luiz Alberto Teixeira Pinto Junior.

ACKNOWLEDGEMENTS The authors are grateful to the many ranchers, beef processors, palm oil processors, tanneries, supermarkets, NGOs and universities who provided their valuable time and expertise. Many thanks also to Andrew Hutson and Jake Hiller for helpful review of early drafts.

The opinions or comments expressed in this study are not necessarily endorsed by the facilitating or partner agencies mentioned or individuals interviewed. Errors of fact or interpretation remain exclusively with the authors. We welcome comments and suggestions.

Inquiries can be directed to [email protected]

LIST OF ABBREVIATIONS ABC Low Carbon Agriculture ABRAS Brazilian Association of Supermarkets ADM Archer Daniels Midland BNDES Brazilian National Development Bank CAR Rural Environmental Land Registry EID Electronic Identification System EMBRAPA Brazilian Agricultural Research Corporation FIESP Federation of Industries in the State of São Paulo GTA Animal Transport Guide GTPS Working Group for Sustainable Beef IBAMA Brazilian Institute of Environment and Renewable Natural Resources IFC International Finance Corporation ILUC Indirect Land Use Change INCRA National Institute for Colonization and Agrarian Reform INPE National Space Research Institute IRR Rural Income Tax Credit ITR Tax on Rural Properties LAR Environmental Rural License LAU Environmental License MV Green Municipalities NGO Non-Governmental Organization PES Payment for Ecosystem Services PRONAF Program for Strengthening Family Agriculture REDD+ Reducing Emissions from Deforestation and Forest Degradation ROSP Roundtable on Sustainable Palm Oil RTRS Roundtable for Responsible Soy SEMA State Secretary of the Environment TAC Terms of Adjusted Conduct

TABLE OF CONTENTS

5 Executive Summary

1 Where is Beef-Driven Deforestation Heading? 7 Progress since 2004 8 Initiatives by government, NGOs, and industry 9 A shifting clandestine market

2 Deforestation Threats within the Beef Value Chain 11 Power dynamics between processors and ranchers 13 Public sector regulations and inefficiencies 15 High costs of adopting a deforestation-free operation 17 Ranchers’ declining profitability 19 No price premium for compliance

3 Deforestation Threats Emerging Outside the Beef Value Chain 20 Speculation-driven deforestation 25 Growth in demand for other commodities 27 Rapidly expanding role of palm oil

4 The Intersection of Beef and Palm Oil 31 Planting on degraded ranch land 33 Ensuring that small producers capture value 33 Avoiding pitfalls of monocropping 34 Stepping up the public sector role

5 The New Deforestation Reality 35 Emerging complications for enforcement 38 Increasing awareness by retail industry and consumers

6 A Jurisdictional Approach 40 Zero net deforestation 40 Effects on producers, retail buyers, and consumers 41 Challenges

7 Conclusion 44 Appendix A. Corporations that Source Beef Products from Brazil 47 References Cited

2 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURES 39 Figure 20. Attributing deforestation will soon be 7 Figure 1. Brazilian Amazon deforestation, challenged: example of beef and palm oil 2004-2013

9 Figure 2. Clandestine beef market, 2007-2013 TABLES

10 Figure 3. Up to 15% of beef from licensed ranchers 13 Table 1. Ranchers’ costs to comply with may appear as part of the clandestine market regulations on deforestation

11 Figure 4. Brazilian beef value chain 19 Table 2. Laws and initiatives to promote deforestation-free ranching are all stick and no 12 Figure 5. Market share of top three processing carrot firms 22 Table 3. Policies that facilitate speculative 14 Figure 6. Per-hectare cost to obtain ranching deforestation licenses in Pará, according to ranch size 32 Table 4. Increased acreage from projected 15 Figure 7. Leakage: Illicit cattle enters legitimate expansion of corn, soy, sugarcane and palm oil, supply chains via licensed ranches percent increase over 2012-2013

16 Figure 8. Initial production costs of ranchland management: deforestation versus pasture intensification

17 Figure 9. Five years of cattle production: costs of managing pasture versus costs of clearing land

18 Figure 10. Profitability of ranching in Mato Grosso, Pará and Rondônia, R$ per arroba, 2007-2013

21 Figure 11. Deforestation in Pará, August 2012 – January 2013

23 Figure 12. Price of ranchland and farmland in Mato Grosso and Pará, 2006-2010

24 Figure 13. Speculators anticipate future demand from displaced ranchers

25 Figure 14. Growth in Brazilian corn and soy production, by region

27 Figure 15. Growth in Brazilian sugarcane production, by region

29 Figure 16. Brazilian palm oil value chain

30 Figure 17. Growth in palm oil production, by major corporations, 2012-2020

37 Figure 18. Present opportunities for illicit commodities to enter legitimate supply chains

38 Figure 19. Future opportunities for illicit commodities to enter legitimate supply chains

3 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

LIST OF INDUSTRY INTERVIEWS

INDUSTRY STATE

Beef Processor Pará Beef Processor Pará Beef Processor Mato Grosso Beef Processor Mato Grosso Beef Processor Mato Grosso Beef Processor Mato Grosso Beef Processor São Paulo Beef Processor São Paulo Beef Processor São Paulo NGO Pará Palm Oil Processor Pará Palm Oil Processor Pará Rancher Pará Rancher Pará Rancher Pará Rancher Pará Rancher Pará Rancher Pará Rancher Mato Grosso Rancher Mato Grosso Rancher Mato Grosso Rancher Mato Grosso Supermarket Pará Tannery Pará

4 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

Many ranchers interviewed for this study complained that they receive no price premium for adopting a EXECUTIVE SUMMARY deforestation-free operation. Worse, given the high costs to comply with regulations and the ease with which unlicensed ranchers can sell cattle, ranchers have perverse incentives to revert to deforestation. For those After decades of aggressive deforestation in the Brazilian Amazon, efforts to prevent deforestation are yielding committed to maintaining legitimate operations, many are reducing their beef focus, shifting some of their land positive results. From 2005 to 2013, the rate of deforestation dropped considerably, falling nearly 80% (INPE, to more profitable—and possibly less closely regulated—activities. 2014). At the same time, the beef industry—responsible for nearly 75% of previous deforestation—continued to rapidly expand production, proving it possible to produce more beef without more land (Boucher, 2011a). In sum, beef-focused efforts to combat deforestation to date are creating unintentional impacts on ranchers’ land use decisions, raising the possibility that future deforestation threats will merely shift out of the beef industry and Despite these impressive gains won by years of effort by government, NGOs, and the beef industry itself, the into other sectors. Unfortunately, several dynamics external to the beef industry are already lining up to accelerate deforestation problem is far from solved. Sharp increases in demand from non-Western countries potentially this shift. Among them are land speculation, the growth of other commodities, and the rapidly emerging role of undermines recent tactics most effective in reducing deforestation—pressure from Western companies that palm oil. demand deforestation-free supply chains. Russia's recent embargo of Western beef has increased demand for Brazilian beef by over 10% creating alternatives that do not require deforestation-free operations (Ward, 2014). Deforestation fueled by land speculators is increasing rapidly in Brazil. As the country’s agricultural The industry continues to face challenges as it adjusts to its new operating environment, leaving ample export market grows, and government and industry build new infrastructure for commodities exports, opportunity to backslide on recent progress. This report focuses on ranchers—the entities capable of preventing speculators anticipate future demand in the North, including demand from displaced ranchers currently deforestation—and processors, the entities with the most direct leverage over ranchers. operating in the South and Center-West regions. In the state of Pará from August 2012 to January 2013, an estimated 80% of deforestation was speculative in nature, occurring around infrastructure projects Consolidation of beef processing firms has intensified a power dynamic in which ranchers have dwindling such as Transamazônica and highway BR-163. Only about 20% of deforestation comprised expansion of bargaining power and ever fewer options for selling their cattle. The market share of the three largest processors, existing agricultural operations (Brandao Jr., 2013; Mansur, 2013). The recent capture of a highly JBS, Marfrig and Minerva, grew from 24% in 2011, to 37% in 2013 (BeefPoint, 2013). Several ranchers and organized deforestation gang reinforces the notion speculative deforestation has surpassed traditional midsize processors expressed concern, fearing that the three top firms could be an oligopoly in the making. Many drivers. Responsible for an estimated 10% of recent deforestation in Pará, the gang systematically burned small and midsize processors feel that unlike large processors, they have restricted access to finance, reducing their public land, divided it into parcels, and sold it to farmers and ranchers (BBC, 2014). ability to monitor for deforestation.

Production of Brazilian agricultural commodities is expected to increase substantially during the next ten years, Several regulatory inefficiencies increase costs for ranchers who comply, even while allowing impunity for creating additional drivers for deforestation. According to the Federation of Industries in the State of Sao Paulo violators. Since 2009, the evolving mix of deforestation laws has created a number of bureaucratic hurdles. (FIESP), just four crops—soy, corn, sugarcane, and palm oil—will require more than 10.5 million additional Ranchers must acquire an array of federal and state licenses to operate. Although some requirements are hectares of land by 2023 (FIESP, 2013). straightforward and used in all states, others can be confusing, overlapping, or unevenly enforced from region to region. Agencies are notorious for bottlenecking paperwork, or worse, losing entire applications. And illicit cattle Palm oil, relatively new in Brazil, is positioned to grow faster than any other commodity. The government of Pará operations still have ample opportunity to enter legitimate supply chains. It is not difficult, for instance, to estimates that by 2022, oil palm plantations for biofuel will cover 700,000 hectares, which would place Brazil circumvent the GTA system to track cattle from the ranch to the slaughterhouse. Falsified GTA lists with the origin third in global palm oil production, behind Indonesia and Malaysia (Frayssinet, 2013). To ensure that palm oil is and destination of cattle are easily obtained, costing as little as R$ 200. an environmental win for the Amazon and an economic one for ranchers and farmers, it is necessary to see that only already-degraded land is used. The net effect of palm oil could turn out positive or negative for forests, Choosing pasture management over clearing new land represents daunting costs for ranchers. A crucial element is depending in large part on whether it creates economic opportunity for small producers; if they do not have land tenure, and the institution of land tenure in Brazil is deeply flawed. Several ranchers interviewed for this study economically viable alternatives, they will only end up illegally clearing new land. have been waiting for years—sometimes more than 20—to receive a title to their land. Without a title, banks will not approve ranchers for the credit they need to make the costly transition to a deforestation-free operation. Depending As more ranchers turn to producing oil palm or other crops, it will become increasingly difficult to attribute on the terrain, the estimated cost to deforest 145 hectares of new land—the cost the rancher is accustomed to—is deforestation to a specific commodity, making commodity-by-commodity enforcement methods less effective. An between R$ 65,250 and R$217,500 (Desmatamento, 2006; EMBRAPA, 2003). These gross costs do not alternative that merits further study is to complement future efforts to build deforestation-free supply chains with account for earnings from the sale of timber, which may actually yield a net profit for clearing forest. By contrast, enforcement and certification mechanisms focused not by commodity, but by jurisdiction. pasture management for 145 hectares will cost roughly R$ 412,000, a significant premium (Costa & Factori, 2011).

5 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

Many ranchers interviewed for this study complained that they receive no price premium for adopting a deforestation-free operation. Worse, given the high costs to comply with regulations and the ease with which unlicensed ranchers can sell cattle, ranchers have perverse incentives to revert to deforestation. For those After decades of aggressive deforestation in the Brazilian Amazon, efforts to prevent deforestation are yielding committed to maintaining legitimate operations, many are reducing their beef focus, shifting some of their land positive results. From 2005 to 2013, the rate of deforestation dropped considerably, falling nearly 80% (INPE, to more profitable—and possibly less closely regulated—activities. 2014). At the same time, the beef industry—responsible for nearly 75% of previous deforestation—continued to rapidly expand production, proving it possible to produce more beef without more land (Boucher, 2011a). In sum, beef-focused efforts to combat deforestation to date are creating unintentional impacts on ranchers’ land use decisions, raising the possibility that future deforestation threats will merely shift out of the beef industry and Despite these impressive gains won by years of effort by government, NGOs, and the beef industry itself, the into other sectors. Unfortunately, several dynamics external to the beef industry are already lining up to accelerate deforestation problem is far from solved. Sharp increases in demand from non-Western countries potentially this shift. Among them are land speculation, the growth of other commodities, and the rapidly emerging role of undermines recent tactics most effective in reducing deforestation—pressure from Western companies that palm oil. demand deforestation-free supply chains. Russia's recent embargo of Western beef has increased demand for Brazilian beef by over 10% creating alternatives that do not require deforestation-free operations (Ward, 2014). Deforestation fueled by land speculators is increasing rapidly in Brazil. As the country’s agricultural The industry continues to face challenges as it adjusts to its new operating environment, leaving ample export market grows, and government and industry build new infrastructure for commodities exports, opportunity to backslide on recent progress. This report focuses on ranchers—the entities capable of preventing speculators anticipate future demand in the North, including demand from displaced ranchers currently deforestation—and processors, the entities with the most direct leverage over ranchers. operating in the South and Center-West regions. In the state of Pará from August 2012 to January 2013, an estimated 80% of deforestation was speculative in nature, occurring around infrastructure projects Consolidation of beef processing firms has intensified a power dynamic in which ranchers have dwindling such as Transamazônica and highway BR-163. Only about 20% of deforestation comprised expansion of bargaining power and ever fewer options for selling their cattle. The market share of the three largest processors, existing agricultural operations (Brandao Jr., 2013; Mansur, 2013). The recent capture of a highly JBS, Marfrig and Minerva, grew from 24% in 2011, to 37% in 2013 (BeefPoint, 2013). Several ranchers and organized deforestation gang reinforces the notion speculative deforestation has surpassed traditional midsize processors expressed concern, fearing that the three top firms could be an oligopoly in the making. Many drivers. Responsible for an estimated 10% of recent deforestation in Pará, the gang systematically burned small and midsize processors feel that unlike large processors, they have restricted access to finance, reducing their public land, divided it into parcels, and sold it to farmers and ranchers (BBC, 2014). ability to monitor for deforestation.

Production of Brazilian agricultural commodities is expected to increase substantially during the next ten years, Several regulatory inefficiencies increase costs for ranchers who comply, even while allowing impunity for creating additional drivers for deforestation. According to the Federation of Industries in the State of ˜Sao Paulo violators. Since 2009, the evolving mix of deforestation laws has created a number of bureaucratic hurdles. (FIESP), just four crops—soy, corn, sugarcane, and palm oil—will require more than 10.5 million additional Ranchers must acquire an array of federal and state licenses to operate. Although some requirements are hectares of land by 2023 (FIESP, 2013). straightforward and used in all states, others can be confusing, overlapping, or unevenly enforced from region to region. Agencies are notorious for bottlenecking paperwork, or worse, losing entire applications. And illicit cattle Palm oil, relatively new in Brazil, is positioned to grow faster than any other commodity. The government of Pará operations still have ample opportunity to enter legitimate supply chains. It is not difficult, for instance, to estimates that by 2022, oil palm plantations for biofuel will cover 700,000 hectares, which would place Brazil circumvent the GTA system to track cattle from the ranch to the slaughterhouse. Falsified GTA lists with the origin third in global palm oil production, behind Indonesia and Malaysia (Frayssinet, 2013). To ensure that palm oil is and destination of cattle are easily obtained, costing as little as R$ 200. an environmental win for the Amazon and an economic one for ranchers and farmers, it is necessary to see that only already-degraded land is used. The net effect of palm oil could turn out positive or negative for forests, Choosing pasture management over clearing new land represents daunting costs for ranchers. A crucial element is depending in large part on whether it creates economic opportunity for small producers; if they do not have land tenure, and the institution of land tenure in Brazil is deeply flawed. Several ranchers interviewed for this study economically viable alternatives, they will only end up illegally clearing new land. have been waiting for years—sometimes more than 20—to receive a title to their land. Without a title, banks will not approve ranchers for the credit they need to make the costly transition to a deforestation-free operation. Depending As more ranchers turn to producing oil palm or other crops, it will become increasingly difficult to attribute on the terrain, the estimated cost to deforest 145 hectares of new land—the cost the rancher is accustomed to—is deforestation to a specific commodity, making commodity-by-commodity enforcement methods less effective. An between R$ 65,250 and R$217,500 (Desmatamento, 2006; EMBRAPA, 2003). These gross costs do not alternative that merits further study is to complement future efforts to build deforestation-free supply chains with account for earnings from the sale of timber, which may actually yield a net profit for clearing forest. By contrast, enforcement and certification mechanisms focused not by commodity, but by jurisdiction. pasture management for 145 hectares will cost roughly R$ 412,000, a significant premium (Costa & Factori, 2011).

6 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

1 Where is Beef-Driven Deforestation Heading?

Brazil’s Amazon region is the largest continuous area of tropical rainforest in the world, comprising roughly 40% of global tropical rainforests (Kirby et al., 2006; Ometto, 2011). While the forest extends over nine countries, 70% of the Amazon lies within Brazil’s borders. The Brazilian Amazon originally occupied over four million km2—an area roughly equivalent to half of continental Europe (Assunçao, 2013). However, in the past 40 years the region has suffered severe deforestation.

Until 1970, expansion into the Brazilian Amazon was relatively slow, claiming an average of 10,000 km2 of forest per year (Hargrave & Kis-Katos, 2013). Beginning in the 1980s, as deforestation became closely associated with agricultural markets, the annual rate of deforestation increased rapidly. During this time, drivers of deforestation grew increasingly complex and interrelated. Unresolved land tenure issues, poverty, expanding infrastructure, and demand for agricultural commodities acted together to fuel deforestation in Brazil, eventually peaking in 2004 at a rate of over 27,000 km2 per year (Hargrave & Kis-Katos, 2013; INPE, 2013). During that time, Brazil lost approximately 18% of its original forest cover (Assunçao, 2013).

PROGRESS SINCE 2004 After decades of aggressive deforestation in Brazilian Amazon, efforts to prevent deforestation are yielding positive results (see Figure 1). From 2005 to 2013, the rate of deforestation dropped considerably, falling nearly 80% (INPE, 2013). At the same time, the beef industry—responsible for nearly 75% of previous deforestation—continued to rapidly expand production, proving it possible to produce more beef without more land (Boucher, 2011a).

30,000 FIGURE 1. Brazilian Amazon deforestation, 25,000 2004-2013

20,000 SOURCE: INPE 2014

15,000

Square Kilometers 10,000

5,000

2004 2005 2006 2007 2008 2009 2010 2 011 2012 2013

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Initiatives by Government, NGOs, and Industry Several factors contributed to the decline in deforestation. Starting in 2004, the Brazilian government implemented several forest conservation policies, collaborating with state and municipal entities to restrict deforestation. Shortly after, the Brazilian National Institute of Space Research (INPE) implemented new satellite technologies to monitor the rate and location of land clearing, which made it much easier to enforce the new regulations. A case in point is the federally-mandated Rural Environmental Land Registry (CAR). The CAR uses a property’s GPS coordinates to monitor deforestation via satellite imagery. If the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) detects deforestation on a rancher’s property, it fines the rancher and revokes the license (IBAMA, 2014). By some estimates, conservation polices and improved monitoring are responsible for up to half the reduction in deforestation (CPI, 2012; UCS, 2011).

Beef industry initiatives also contributed significantly to the recent fall in deforestation. For decades prior, the industry largely ignored calls to clean up its supply chain. However, after a 2009 Greenpeace report identified several multinational brands and retail chains linked to beef-related deforestation, the government and major retailers pressured the industry to make changes (Greenpeace, 2009). Brazilian federal prosecutors threatened major processors with billions in fines if it did not take immediate action (Brasil, 2013). Large retailers such as Walmart, Carrefour, and Tesco banned Brazilian beef from suppliers identified in the report. The World Bank revoked US$ 90 million in loans from Bertin, the then-largest processor (Adam, 2009).

The beef industry responded, with the three largest processors—JBS, Marfrig, and Minerva— signing a moratorium on any products coming from newly deforested lands (Walker et al., 2013). To date, 140 beef processors in four Amazonian states—Pará (120), Mato Grosso (17), Rondônia (2), and Amazonas (1)—have signed the Terms of Adjusted Conduct (TAC), a federal agreement that provides credit, promotion, and technical assistance in exchange for a commitment to deforestation-free operations (Brasil, 2013). Additionally, JBS, Marfrig, and Minerva initiated regular third-party audits of their suppliers.

In the nearly five years since the Greenpeace report, the industry has taken significant steps to monitor its supply chain against deforestation—yet pressure on the industry continues. In March of 2013, the 2,800-member Brazilian Association of Supermarkets (ABRAS) declared it would no longer source beef raised in the rainforest (BBC, 2013). In April of 2013, federal prosecutors fined 26 producers in Mato Grosso and Rondônia US$ 236 million for purchasing beef from areas linked to deforestation and slave labor (Murphy, 2013).

The industry has responded by fortifying systems to monitor their supply chain. In December of 2013, JBS, Marfrig, and Minverva agreed to standardize their audits, making it easier for suppliers and retailers to ensure a deforestation-free product. Results from the new audits came out in April of 2014, and demonstrated the firms continue to make significant progress (Greenpeace, 2014). While not as extensive, almost every other small and midsize processor--such as Mafrinorte and Mafripar in Pará, and Superfrigo and Redentor in Mato Grosso--has implemented systems to audit their suppliers.

8 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

A shifting clandestine market Accompanying these industry changes is a decline in clandestine beef—a market that, existing outside the official, registered market, is less likely to respond to regulatory or public pressure to prevent deforestation. Figure 2 shows how the clandestine market, at one time responsible for almost half of Brazilian beef production, has contracted in recent years, declining from 27% in 2007 to just 13% in 2013 (IBGE, 2013). To estimate the clandestine market’s size, researchers compare heads of cattle slaughtered to number of leather hides reported (Walker et al., 2013). In theory, the two numbers should match, yet because leather is not as closely regulated, more leather hides are reported than heads of cattle. The difference, therefore, is recognized as a proxy for the size of the clandestine market for beef.

40,000,000 FIGURE 2. Clandestine beef market, 35,000,000 2007-2013 30,000,000 SOURCE: IBGE 2013 25,000,000 Hides (Official) 20,000,000 Slaughters (Official) 15,000,000 Sharp increases in demand from non-Western countries potentially undermines recent tactics most Slaughters (Clandestine) 10,000,000 27% effective in reducing deforestation--pressure from Western companies that demand deforestation-free 21% 20% 18% 5,000,000 13% 13% supply chains. Russia's recent embargo of Western beef has increased demand for Brazilian beef by over 10% creating alternatives that do not require deforestation-free operations (Ward, 2014). 2008 2009 2010 2 011 2012 2013

While a clandestine market of 13% is relatively low—compared to a high of 44% in 2002—the actual Deforestation Threats within the Beef Value Chain size may be even smaller. In many cases, fully licensed ranchers may not report a portion of their To understand the dynamics of a given industry, it is useful first to map out the value chain. This beef, making it only appear to be part of the clandestine market. can lend insights into how the target good is produced and why certain methods are used. Several factors, such as government regulations, production costs, and private sector quality standards, On average, processors reject about 15% of cattle due to quality issues such as gender, low weight, influence industry practices. Relationships between lead firms and their suppliers help explain and hide quality (Industry interviews). With few legitimate buyers available, licensed ranchers face which segments control and influence others, shedding light on how industry practices are likely to limited options for selling these rejected cattle (see Figure 3). Most ranchers say they have the cows evolve over time. processed at the municipal slaughterhouse and then sell the beef to local stores. Several ranchers and processors interviewed said municipal slaughterhouses frequently underreport the number of The Brazilian beef value chain is depicted in Figure 4. Moving from left to right, the chain begins cattle—sometimes by as much as 80%—to help ranchers avoid taxes. Many legitimate cattle thus go with firms that provide inputs such as fertilizers, machinery and vaccinations. Ranchers, simply put, undocumented. raise cattle. Some ranchers specialize in a single aspect of ranching, for example, calving—providing calves to other ranchers—or “finishing,” providing the last stage before cattle go to slaughter. Cattle Other ranchers say they may sell their rejected cows to local butchers, who sell the meat in their move to subsequent stages via traders, auctions, finishing lots, and processors. Ranchers who shops. As a third option, some ranchers slaughter the cows on site, sell the meat to a local butcher, specialize in finishing cattle may never need some inputs, such as genetics. or give the meat away to family, friends or employees. In each of these cases, cattle from fully licensed ranchers can mistakenly be attributed to the clandestine market. This suggests that the Processing consists of primary and secondary processing. Primary processing occurs in the clandestine market, often thought to reflect non-compliant beef, may be somewhat overstated. slaughterhouse, producing fresh and frozen meat and all other meat byproducts. Secondary processing transforms the products of primary processing into food for human or animal

9 DATURESEARCH.COM

FIGURE 3. Up to 15% of beef from licensed ranchers may appear as part of the clandestine market

SOURCE: Industry interviews

MUNICIPAL SLAUGHTERHOUSES Municipal slaughterhouses often give OF BEEF IS REJECTED tax breaks to ranchers in exchange for FOR QUALITY STANDARDS... cash. A common practice is to document 15% only a portion (e.g., one of every five cows), saving the ranchers a percent of their tax liability.

LOCAL BUTCHERS Rancher sells rejected cattle to local butcher who slaughters the cattle and sells the meat.

ON-SITE SLAUGHTER Rancher processes beef on site and either Paths via which registered beef can be undocumented sells it to local stores or gives it away and mistakenly attributed to the clandestine market to employees.

Sharp increases in demand from non-Western countries potentially undermines recent tactics most effective in reducing deforestation--pressure from Western companies that demand deforestation-free supply chains. Russia's recent embargo of Western beef has increased demand for Brazilian beef by over 10% creating alternatives that do not require deforestation-free operations (Ward, 2014).

Deforestation Threats within the Beef Value Chain 2 To understand the dynamics of a given industry, it is useful first to map out the value chain. This can lend insights into how the target good is produced and why certain methods are used. Several factors, such as government regulations, production costs, and private sector quality standards, influence industry practices. Relationships between lead firms and their suppliers help explain which segments control and influence others, shedding light on how industry practices are likely to evolve over time.

The Brazilian beef value chain is depicted in Figure 4. Moving from left to right, the chain begins with firms that provide inputs such as fertilizers, machinery and vaccinations. Ranchers, simply put, raise cattle. Some ranchers specialize in a single aspect of ranching, for example, calving—providing calves to other ranchers—or “finishing,” providing the last stage before cattle go to slaughter. Cattle move to subsequent stages via traders, auctions, finishing lots, and processors. Ranchers who specialize in finishing cattle may never need some inputs, such as genetics.

Processing consists of primary and secondary processing. Primary processing occurs in the slaughterhouse, producing fresh and frozen meat and all other meat byproducts. Secondary processing transforms the products of primary processing into food for human or animal

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consumption, or nonedible goods such as cosmetics and leather. Increasingly, midsize and larger slaughterhouses are vertically integrating their operations to accommodate secondary processing. Firms such as Marfrig, Marfripar, and Marfrinorte have expanded to produce processed frozen foods. JBS has acquired several tanneries to manufacture leather. Sharp increases in demand from non-Western countries potentially undermines recent tactics most effective in reducing deforestation--pressure from Western companies that demand deforestation-free supply chains. Russia's recent embargo of Western beef has increased demand for Brazilian beef by over 10% creating alternatives that do not require deforestation-free operations (Ward, 2014).

Deforestation Threats within the Beef Value Chain To understand the dynamics of a given industry, it is useful first to map out the value chain. This can lend insights into how the target good is produced and why certain methods are used. Several factors, such as government regulations, production costs, and private sector quality standards, influence industry practices. Relationships between lead firms and their suppliers help explain which segments control and influence others, shedding light on how industry practices are likely to evolve over time.

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURE 4. Brazilian beef value chain

SOURCE: Adapted from (Neves et al., 2012) and industry interviews

INPUTS RANCHERS PRIMARY & SECONDARY PROCESSORS SALES

GENETICS CALVES FRESH/FROZEN MEAT PROCESSED FOOD COMMERCIAL FOOD CANNED FROZEN CURED SERVICE INDUSTRY MINERAL SUPPLEMENTS YOUNG BULLS ORGANS & GLANDS RESTAURANTS PET FOOD INDUSTRIAL KITCHENS FEED SUPPLEMENTS COWS INDUSTRIAL MEAT COSMETICS FOOD RETAILERS VITAMINS & ADDITIVES FINISHED STEER FEET, INTESTINES, GROCERY STOMACH, ETC. PHARMACEUTICALS BIG BOX ANIMAL HEALTH CONVENIENCE TALLOW LEATHER PESTICIDES NON-FOOD RETAILERS TRIPE BIG BOX CONVENIENCE FERTILIZERS INDUSTRY BYPRODUCTS FORAGE SEED MEAT MEAL & BONE MEAL AGRICULTURAL LIME BLADDER DIESEL OIL BLOOD MEAL FENCING & POSTS

TRACTORS & AUXILIARY EQUIPMENT

SISBOV EAR TAGS

SUPPORTING INSTITUTIONS—BANKS, INDUSTRY ASSOCIATIONS, UNIVERSITIES

PUBLIC SECTOR—FEDERAL, STATE AND MUNICIPAL GOVERNMENT

INTERNATIONAL AND DOMESTIC NON-GOVERNMENTAL ORGANIZATIONS

The chain ends with sales, including restaurants and retail outlets such as grocery and big-box stores. On the periphery of the value chain are entities that have a direct influence on the industry. These include supporting institutions such as banks and industry associations, the public sector, and non-governmental organizations (NGOs).

This report focuses on ranchers—the entities capable of preventing deforestation—and processors, the entities with the most direct leverage over ranchers.

Power dynamics between Processors and Ranchers Starting in 2005, Brazilian beef processors have grown and consolidated rapidly, leaving ranchers ´ with fewer options for selling their cattle. Figure 5 shows the rapid growth in market share for the three largest processors—JBS, Marfrig, and Minerva—up from 24% in 2011 to 37% in 2013 (BeefPoint, 2013). In some states such as Mato Grosso, Mato Grosso do Sul, and Goais, their market share is as high as 68%.

11 DATURESEARCH.COM Sharp increases in demand from non-Western countries potentially undermines recent tactics most effective in reducing deforestation--pressure from Western companies that demand deforestation-free supply chains. Russia's recent embargo of Western beef has increased demand for Brazilian beef by over 10% creating alternatives that do not require deforestation-free operations (Ward, 2014).

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

consumption, or nonedible goods such as cosmetics and leather. Increasingly, midsize and larger FIGURE 5. slaughterhouses are vertically integrating their operations to accommodate secondary processing. Market share of top three processing firms Firms such as Marfrig, Marfripar, and Marfrinorte have expanded to produce processed frozen SOURCES: (BeefPoint, 2013; JBS, 2014; Marfrig, 2012; Minerva, 2012) foods. JBS has acquired several tanneries to manufacture leather.

MATO GROSSO 68% Market Share GOIAS (JBS, Marfrig) 60% Market Share (JBS, Marfrig, Minerva)

MATO GROSSO DO SUL JBS JBS Marfrig 49% Marfrig Minerva Market Share 24% 37% (JBS, Marfrig, NATIONAL Minerva NATIONAL Minerva) MARKET SHARE MARKET SHARE 2 011 2013

Several ranchers and midsize processors expressed concern about this trend toward consolidation, many referring to the three top firms (JBS, Marfrig and Minerva) as an oligopoly in the making. Ranchers feel the consolidation distorts prices and has turned them into price takers (BeefPoint, 2013). In a 2011 survey, 43% of ranchers in Mato Grosso cited “consolidation of processors” as one of the main problems hindering their productivity (BeefPoint, 2012). Ranchers still have a degree of bargaining power during the dry season, when fewer cattle are available. However, several processors have plans to invest in finishing lots that will stabilize supply, effectively eliminating ranchers’ only bargaining edge.

Many ranchers in Pará fear that the “big three” will soon move into their geography. To prepare, they have begun to bypass processors and instead sell to live cattle exporters. This, in turn, has alarmed Pará’s small and midsize processors. Already having to compete with the big three, they will now also find a shrinking supply of cattle destined for slaughter, since many will be diverted instead to live cattle exporters.

12 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

Small and midsize processors also complain that, while small and midsize processors have difficulty accessing affordable credit, development banks continue to invest heavily in JBS, Marfrig, and Minerva. Between 2008 and 2010 the Brazilian National Development Bank (BNDES) invested US$ 4.7 billion in JBS (Forero, 2013). In 2013, the International Finance Corporation (IFC), a World Bank affiliate, acquired a 3% share of Minerva for US$ 19.65 million and approved financing for an additional US$ 60 million (Jelmayer, 2013). This inequitable access to finance makes it difficult for small and midsize processing firms to compete. It also restricts their ability to afford implementing systems to monitor for deforestation.

Public sector regulations and inefficiencies Several weaknesses in regulatory rules and enforcement increase costs for ranchers and allow impunity for violators. Since 2009, the evolving mix of laws regulating deforestation has created a number of bureaucratic hurdles for ranchers and processors. Ranchers must acquire an array of federal and state licenses to operate, including the environmental license (LAU) in Mato Grosso, environmental rural license (LAR) in Pará, and the Animal Transport Guide (GTA). Although some of these are straightforward and used in all states—for instance, the GTA, which documents the movement of cattle throughout the country—others can be confusing, overlapping, or unevenly enforced from region to region. Table 1 lists ranching licenses required in Mato Grosso and Pará since 2009, along with fees and wait times, which vary according to ranch size and individual experience. At a minimum, the initial expense of regulatory compliance costs a rancher R$ 16,500 Ranchers say that although licensing fees are significant, they do not compare with the time and and can reach as high as R$ 28,000. opportunity costs that result from government inefficiencies. Processors require most of these licenses, so ranchers cannot sell their cattle without them. The longer a government agency takes to TABLE 1. Ranchers' costs to comply with regulations issue a license, the longer the rancher must wait to generate revenue.

SOURCE: Industry interviews Agencies are notorious for bottlenecking paperwork, or worse, losing entire applications. To avoid LICENSE AGENCY COST WAIT IMPLICATIONS this, some ranchers drive weekly to the state capital to push the paperwork along. More often, ranchers hire services, such as Seta Ambiental, to shepherd applications for a fee. In extreme cases, ranchers LAU - Licença Ambiental SEMA Única (environmental license) (Mato Grosso) Variable 1 – 5 years resort to paying bribes to acquire the documents they need. Many licenses require ranchers to renew • Buyers will not accept cattle each year, starting the process over again. CAR – Cadastro Ambiental Rural (Environmental Rural Register) SEMA R$ 300 – R$ 3,000 3 months – 1 year • Rancher hires The institution of land tenure in Brazil is also deeply inadequate. Several ranchers interviewed for LAR – Licença Ambiental Rural service to this study have been waiting for years—sometimes more than 20—to receive a title to their land. SEMA expedite process (Environmental Rural License) (Mato Grosso) R$ 3,000 – R$ 7,000 4 months – 2 years Without a land title, banks will not approve ranchers for the credit they need to make the costly

Geo-Referencing INCRA R$ 10,000 – R$ 15,000 1 – 2 years transition to a deforestation-free operation.

Land titles INCRA Variable 1 – 20+ years • Rancher cannot Many industry leaders expressed that they would have more patience with these inefficiencies if the access credit system worked. Unfortunately, it does not. While most operations are licensed, a persistent minority of illicit cattle operations still have ample opportunity to enter legitimate supply chains. Figure 7

13 DATURESEARCH.COM

describes a phenomenon known as “leakage,” also referred to by several ranchers and processors simply as jeitinho brasileiro, or “the Brazilian way.” Leakage occurs when a licensed rancher offers to sell cattle from an unlicensed ranch, causing processors to believe the cattle is licensed. The ease with which one can circumvent the GTA system to track cattle from the ranch to the slaughterhouse facilitates leakage. Each carrier must present an official list with information regarding the origin and destination of cattle, gender, and reason for transport—yet falsified GTA lists are easily obtained, costing as little as R$ 200 (Industry interviews).

Not only is leakage easy to achieve, it also goes largely without punishment. The fine-collecting record of the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) is dismal. In 2010, the agency issued more than R$ 1 billion in fines in the state of Pará, citing violations for deforestation, illegal fires, and illegal wood sales. Of all fines issued, the agency collected just 0.2% (Moukaddem, 2011). Industry representatives say that even violators who do eventually pay are rewarded for late payment; the longer they wait, the likelier they can negotiate a smaller fee. To make the transition to a deforestation-free operation, ranchers must adopt a pasture management system that will produce enough grass to fatten cattle. This requires a notably higher High costs of adopting a deforestation-free operation investment than the cost to deforest new land. Figure 8 illustrates two scenarios for a given rancher. When beef processors signed the TAC in 2009, the costs of preventing deforestation, and the Depending on the area and terrain, the estimated cost to deforest 145 hectares of new land—the cost responsibility of enforcement, shifted from government to the beef industry. Processors assumed the rancher is accustomed to—is between R$ 65,250 and R$ 217,500 (Desmatamento, 2006; the role of enforcer, increasing their administrative costs to monitor suppliers. Most new costs were EMBRAPA, 2003). These are gross costs and do not account for earnings from the sale of timber, incurred by those who had to comply with the new regulations--ranchers. Because processors had which may actually yield a net profit for clearing forest. By contrast, pasture management for 145 consolidated into ever-fewer available buyers, ranchers of any significant size had little choice but to hectares will cost roughly R$ 412,000, a significant premium over the gross cost to deforest the quickly meet processor requirements. Virtually overnight, ranchers needed to stop clearing land, same acreage (Costa & Factori, 2011). Of the initial investment in pasture management, more than adopt an entirely new method of raising cattle, and register their land with the licenses and certifications their buyers required. All of these involved unprecedented costs.

half (R$ 217,500) is spent on planting. Remaining expenses are for assets such as fences, watering stations, and machinery, which depreciate over approximately ten years (Costa & Factori, 2011).

After their initial investment in pasture intensification, ranchers must maintain the land, which requires the additional annual cost of fertilizers (see Figure 9). Deforestation, on the other hand, can support cattle for at least five years without further investment (Hecht, 1985). At an annual expense of R$ 50,544, fertilizing the pasture over five years costs R$ 252,720, considerably more than even the highest one-time cost to deforest 145 new hectares of land(Costa & Factori, 2011).

Many industry representatives reported that only the smallest ranching operations remain unlicensed. One possible discouragement for small ranchers to seek licenses may be the fact that many licensing fees are fixed on a per-producer basis, resulting in disproportionately high per-hectare costs for smaller operations. As shown in Figure 6, a 500-hectare ranch pays R$ 12.6 per hectare, a cost that goes down for much larger operations (Imazon, 2014).

R$ 12.6

FIGURE 6. Per-hectare cost to obtain ranching licenses in Pará, according to ranch size1 Figures do not include geo-referencing R$ 5.3 costs to map property

SOURCE: (Imazon White Paper, R$ 2.6 forthcoming) R$ 1.7

500 2,500 5,000 10,000

HECTARES OF PASTURE

Ranchers say that although licensing fees are significant, they do not compare with the time and opportunity costs that result from government inefficiencies. Processors require most of these licenses, so ranchers cannot sell their cattle without them. The longer a government agency takes to issue a license, the longer the rancher must wait to generate revenue.

Agencies are notorious for bottlenecking paperwork, or worse, losing entire applications. To avoid this, some ranchers drive weekly to the state capital to push the paperwork along. More often, ranchers hire services, such as Seta Ambiental, to shepherd applications for a fee. In extreme cases, ranchers resort to paying bribes to acquire the documents they need. Many licenses require ranchers to renew each year, starting the process over again.

The institution of land tenure in Brazil is also deeply inadequate. Several ranchers interviewed for this study have been waiting for years—sometimes more than 20—to receive a title to their land. Without a land title, banks will not approve ranchers for the credit they need to make the costly transition to a deforestation-free operation.

Many industry leaders expressed that they would have more patience with these inefficiencies if the system worked. Unfortunately, it does not. While most operations are licensed, a persistent minority of illicit cattle operations still have ample opportunity to enter legitimate supply chains. Figure 7

14 1 Figures do not include geo-referencing costs to map property DATURESEARCH.COM

half (R$ 217,500) is spent on planting. Remaining expenses are for assets such as fences, watering stations, and machinery, which depreciate over approximately ten years (Costa & Factori, 2011).

Ranchers’ declining profitability Figure 10 sums up the effect these dynamics have had on ranchers’ profitability. The cost of raising cattle in Amazon states has increased substantially in recent years, in many cases surpassing the market price for beef (Del Isola, 2014). In the three Amazon states with the highest number of cattle, the cost of producing one arroba (unit of measure equal to 15 kg) doubled from 2007 to 2013 (Del Isola, 2014). Ranching in Rondonia has not been profitable for over three years, and it appears Mato Grosso and Pará may be heading in the same direction. Ranchers say that although licensing fees are significant, they do not compare with the time and opportunity costs that result from government inefficiencies. Processors require most of these licenses, so ranchers cannot sell their cattle without them. The longer a government agency takes to issue a license, the longer the rancher must wait to generate revenue.

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURE 7. Leakage: Illicit cattle enters legitimate supply chains via licensed ranches

NON-LICENSED LICENSED PROCESSOR RANCHERS RANCHERS Believes all cattle is from Identifies a neighboring Offers to channel a licensed ranch and does licensed ranch willing to non-licensed cattle through not contribute to deforestation channel non-licensed cattle licensed property for a fee

describes a phenomenon known as “leakage,” also referred to by several ranchers and processors simply as jeitinho brasileiro, or “the Brazilian way.” Leakage occurs when a licensed rancher offers to sell cattle from an unlicensed ranch, causing processors to believe the cattle is licensed. The ease with which one can circumvent the GTA system to track cattle from the ranch to the slaughterhouse ´ facilitates leakage. Each carrier must present an official list with information regarding the origin and destination of cattle, gender, and reason for transport—yet falsified GTA lists are easily obtained, costing as little as R$ 200 (Industry interviews).

15 DATURESEARCH.COM

half (R$ 217,500) is spent on planting. Remaining expenses are for assets such as fences, watering stations, and machinery, which depreciate over approximately ten years (Costa & Factori, 2011).

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

145 HECTARES

R$ 412,000 PLANTING OF PASTURE R$ 217,500

R$ 65,250 - R$ 217,500

MACHINERY R$ 107,046

DEFORESTATION describes a phenomenon known as “leakage,” also referred to by several ranchers and processors INFRASTRUCTURE PASTURE R$ 87,379 simply as jeitinho brasileiro, or “the Brazilian way.” Leakage occurs when a licensed rancher offers to sell MANAGEMENT cattle from an unlicensed ranch, causing processors to believe the cattle is licensed. The ease with which one can circumvent the GTA system to track cattle from the ranch to the slaughterhouse facilitates leakage. Each carrier must present an official list with information regarding the origin and destination of cattle, gender, and reason for transport—yet falsified GTA lists are easily obtained, costing as little as R$ 200 (Industry interviews). FIGURE 8. Initial production costs of ranchland management: deforestation versus pasture intensification

Not only is leakage easy to achieve, it also goes largely without punishment. The fine-collecting SOURCE: (Costa & Factori, 2011; Desmatamento, 2006; EMBRAPA, 2003) record of the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) is 145 Ha figure based on model from Costa & Factori, 2011. The top-end cost to deforest land is R$ 1,500/Ha. dismal. In 2010, the agency issued more than R$ 1 billion in fines in the state of Pará, citing When multiplied by R$ 1,500, our example of 145 hectares equals R$ 217,500, coincidentally, the same cost of planting violations for deforestation, illegal fires, and illegal wood sales. Of all fines issued, the agency pasture on 145 hectares of land. collected just 0.2% (Moukaddem, 2011). Industry representatives say that even violators who do eventually pay are rewarded for late payment; the longer they wait, the likelier they can negotiate a smaller fee. To make the transition to a deforestation-free operation, ranchers must adopt a pasture management system that will produce enough grass to fatten cattle. This requires a notably higher High costs of adopting a deforestation-free operation investment than the cost to deforest new land. Figure 8 illustrates two scenarios for a given rancher. When beef processors signed the TAC in 2009, the costs of preventing deforestation, and the Depending on the area and terrain, the estimated cost to deforest 145 hectares of new land—the cost responsibility of enforcement, shifted from government to the beef industry. Processors assumed the rancher is accustomed to—is between R$ 65,250 and R$ 217,500 (Desmatamento, 2006; the role of enforcer, increasing their administrative costs to monitor suppliers. Most new costs were EMBRAPA, 2003). These are gross costs and do not account for earnings from the sale of timber, incurred by those who had to comply with the new regulations--ranchers. Because processors had which may actually yield a net profit for clearing forest. By contrast, pasture management for 145 consolidated into ever-fewer available buyers, ranchers of any significant size had little choice but to hectares will cost roughly R$ 412,000, a significant premium over the gross cost to deforest the quickly meet processor requirements. Virtually overnight, ranchers needed to stop clearing land, same acreage (Costa & Factori, 2011). Of the initial investment in pasture management, more than adopt an entirely new method of raising cattle, and register their land with the licenses and certifications their buyers required. All of these involved unprecedented costs.

16 DATURESEARCH.COM

half (R$ 217,500) is spent on planting. Remaining expenses are for assets such as fences, watering stations, and machinery, which depreciate over approximately ten years (Costa & Factori, 2011).

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURE 9. Five years of cattle production: costs of managing pasture versus costs of clearing land

SOURCE: (Costa & Factori, 2011; Desmatamento, 2006; EMBRAPA, 2003)

DEFOREST R$ 217,500 (5YRS)

FERTILIZE (5YRS) R$ 252,720

R$190,000 R$200,000 R$210,000 R$220,000 R$230,000 R$240,000 R$250,000 R$260,000

half (R$ 217,500) is spent on planting. Remaining expenses are for assets such as fences, watering stations, and machinery, which depreciate over approximately ten years (Costa & Factori, 2011).

“Inputs have become increasingly expensive recently, especially costs to improve productivity. Ranching is not a good business nowadays. So some smaller ranchers still consider deforestation the best way to expand production without having to invest in the land.” - Rancher, Para´

17 DATURESEARCH.COM Ranchers say that although licensing fees are significant, they do not compare with the time and opportunity costs that result from government inefficiencies. Processors require most of these licenses, so ranchers cannot sell their cattle without them. The longer a government agency takes to issue a license, the longer the rancher must wait to generate revenue.

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURE 10. Profitability of ranching in Mato Grosso, Pará and Rondônia, R$ per arroba, 2007-2013

1 arroba = 15 kg of beef

SOURCE: (Del Isola, 2014)

R$ Pará 150

100

0 JUL - 11 JUL - 10 JUL - 12 JUL - 13 JUL - 07 JUL - 08 JUL - 09 APR - 11 JAN - 11 JAN APR - 10 JAN - 10 JAN OCT - 11 OCT - 10 APR - 12 APR - 13 APR - 07 APR - 08 APR - 09 JAN - 12 JAN - 13 JAN JAN - 07 JAN - 08 JAN - 09 JAN OCT - 12 OCT - 13 OCT - 07 OCT - 08 OCT - 09

COST PRICE half (R$ 217,500) is spent on planting. Remaining expenses are for assets such as fences, watering stations, and machinery, which depreciate over approximately ten years (Costa & Factori, 2011). R$ Mato Grosso 120 After their initial investment in pasture intensification, ranchers must maintain the land, which 100 requires the additional annual cost of fertilizers (see Figure 9). Deforestation, on the other hand, 80 can support cattle for at least five years without further investment (Hecht, 1985). At an annual 60 expense of R$ 50,544, fertilizing the pasture over five years costs R$ 252,720, considerably more 40 than even the highest one-time cost to deforest 145 new hectares of land(Costa & Factori, 2011). 20 0

Ranchers’ declining profitability JUL - 11 JUL - 10 JUL - 12 JUL - 13 JUL - 07 JUL - 08 JUL - 09 APR - 11 JAN - 11 JAN APR - 10 JAN - 10 JAN OCT - 11 OCT - 10 APR - 12 APR - 13 APR - 07 APR - 08 APR - 09 JAN - 12 JAN - 13 JAN JAN - 07 JAN - 08 JAN - 09 JAN OCT - 12 OCT - 13 Figure 10 sums up the effect these dynamics have had on ranchers’ profitability. The cost of raising OCT - 07 OCT - 08 OCT - 09 COST PRICE cattle in Amazon states has increased substantially in recent years, in many cases surpassing the market price for beef (Del Isola, 2014). In the three Amazon states with the highest number of cattle, the cost of producing one arroba (unit of measure equal to 15 kg) doubled from 2007 to 2013 (Del Isola, 2014). Ranching in Rondonia has not been profitable for over three years, and it Rondoniaˆ R$ appears Mato Grosso and Pará may be heading in the same direction. 120 100 80 60 40 20 0 JUL - 11 JUL - 10 JUL - 07 JUL - 08 JUL - 09 JUL - 12 JUL - 13 APR - 11 JAN - 11 JAN APR - 10 JAN - 10 JAN OCT - 11 OCT - 10 APR - 07 APR - 08 APR - 09 APR - 12 APR - 13 JAN - 07 JAN JAN - 08 JAN JAN - 09 JAN JAN - 12 JAN JAN - 13 JAN OCT - 07 OCT - 08 OCT - 09 OCT - 12 OCT - 13

COST PRICE

18 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

No price premium for compliance Ranchers we interviewed most commonly complained that they receive no price premium for adopting a deforestation-free operation. Anti-deforestation efforts to date have dealt ranchers only negative incentives. Table 2 lists the suite of laws and initiatives to persuade ranchers to adopt deforestation-free operations (Nepstad et al., 2013). Six of the seven initiatives increase costs, restrict entry into markets, or diminish access to credit. Only two provide positive incentives—Low Carbon Credit (ABC) program, and REDD—but neither has yet performed as intended. ABC, which offers 5.5% financing, has had little uptake, possibly because it requires ranchers to have a land title. REDD+ would provide compensation to ranchers who protect the forest, but it has not yet been implemented at sufficient scale to have significant impact.

TABLE 2. Laws and initiatives to promote deforestation-free ranching are all stick and no carrot

SOURCE: Adapted from (Nepstad et al., 2013)

LAW/INITIATIVE FOREST METRIC NEGATIVE INCENTIVE POSITIVE INCENTIVE

Forest Code 80% of property with forest cover Fines. No access to credit None

Critical Municipalities Municipality-wide deforestation No access to credit and markets None

Beef Moratorium (voluntary) Cut-off date for forest clearing No access to beef buyers None

REDD+ State-wide, historical deforestation None Not yet implemented for ranchers at scale

Consumer Goods Forum commitment (CGF) Zero net deforestation by 2020 Exclusion from CGF buyers None designed

Rural Land Environmental License (CAR) Legal compliance (in Para) Cost of application Time cost to comply None

Low-Carbon Credit (ABC) Low interest (5.5%) credit; Program Legal compliance No access to low-interest credit but uptake has been low, possibly because a land title is required

Ranchers we interviewed feel the situation is not sustainable. Given the high costs to comply with regulations and the ease with which unlicensed ranchers can sell their cattle, ranchers have perverse incentives to abandon the rules and revert to deforestation. For those who are committed to maintaining legitimate operations, little choice remains but to reduce their beef focus and instead dedicate some or all of their land to more profitable—and possibly less closely regulated—activities. In sum, beef-focused efforts to combat deforestation to date are creating unintentional impacts on ranchers’ land use decisions, raising the possibility that future deforestation threats will merely shift out of the beef industry and into other sectors. Unfortunately, several dynamics external to the beef

industry are already lining up to accelerate this shift.

19 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

3 Deforestation Threats Emerging Outside the Beef Value Chain

As Brazil’s agricultural export-driven economy continues to grow, new deforestation threats are emerging from outside the beef industry. At least three dynamics are expected to intensify the pressure on forests in northern Amazon states: land speculation, growth in demand for other agricultural commodities, and the rapidly expanding role of palm oil.

Land Speculation Deforestation fueled by land speculators is increasing rapidly in Brazil. As the country’s agricultural export market grows, and government and industry build new infrastructure for commodities exports, speculators anticipate future demand for land in the North, including demand from displaced ranchers currently operating in the South and Center-West regions.

Figure 11 maps the deforestation in Pará from August 2012 to January 2013, illustrating the severity of land-speculation-driven deforestation. About 80% of deforestation was speculative in nature, occurring around infrastructure projects such as Transamazonicaˆ and highway BR-163. Only about 20% of deforestation comprised expansion of existing agricultural operations (Brandao˜ Jr., 2013; Mansur, 2013). The recent capture of a highly organized deforestation gang reinforces the notion speculative deforestation has surpassed traditional drivers. Responsible for an estimated 10% of recent deforestation in Pará, the gang systematically burned public land, divided it into parcels, and sold it to farmers and ranchers (BBC, 2014).

Because speculators most often use cattle to show that land is productive, government agencies, NGOs and the international community often attribute land-speculation-driven deforestation to the beef industry, further tarnishing its reputation even as it works to clean up its supply chain (Barreto & Silva, 2013).

“As agriculture advances over degraded pasture, ranchers sell their land to farmers and relocate into new land. ”-Rancher, Mato Grosso

“This is the problem, people can clear land for R$ 400 a hectare, then two years later sell it for R$ 3,000 a hectare.”-Rancher, Para

20 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURE 11. Deforestation in Pará, August 2012 – January 2013

SOURCE: (Brandão Jr., 2013; Mansur, 2013)

Commodity-Driven Deforestation

Speculation-Driven ~20% Deforestation ~80%

Transamazonicaˆ (BR-230) ~30%

Highway BR-163 ~50%

A combination of public policies and market dynamics fuel speculative deforestation. Table 3 outlines the three contributing areas of public policy: land tenure, the rural income tax, and the tax on rural properties. As mentioned earlier, the institution of land tenure in Brazil—especially in Pará, where most speculative deforestation takes place—is deeply flawed. Almost 40% of territory in Pará has unresolved issues with tenure and titles, and over 70% of all deforestation takes place on this land (Brito et al., 2013). Land speculators know that years will pass before the government sorts out a title for the land, and by then it will not be possible to prove who is responsible for any deforestation on it.

“For cattle ranching to be viable, land needs to be a cheap asset and that is exactly what ranchers find as they move toward the north.” - Rancher, Mato Grosso

21 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

Under the rural income tax (IRR), any business on rural land pays 1/5 the normal tax rate. The government designed the IRR to assist rural entrepreneurs, but the law has become an ideal way to launder money or evade taxes. Brazilians with excess income can purchase a rural property, put a few cows on it, report millions in revenue to the government, and pay a fraction of the taxes (Barreto & Silva, 2013). This only increases demand for land, further fueling speculation.

By design, the tax on rural properties (ITR) is an effective tool to discourage speculation by incentivizing land intensification and productivity. The ITR assigns higher taxes to landowners with less productive land, reaching a tax rate of 20% for land deemed unproductive (Barreto & Silva, 2013). Many owners of unproductive land are those using it to launder money or evade the non-rural tax rate. Unfortunately, the Brazilian federal tax authority does not strictly enforce tax collection, collecting less than 10% of potential ITR revenues (Barreto & Silva, 2013). This is an important missed opportunity to discourage people from clearing land to evade or minimize their income taxes.

TABLE 3. Policies that facilitate speculative deforestation

SOURCE: (Barreto & Silva, 2013); (Brito et al., 2013)

POLICY INTENT REALITY OUTCOME Uncertainty in legal status Provide a legal framework for The process is extremely Land tenure contributes to continued acquisition and ownership of inefficient. It is common to wait deforestation of new land. public lands. Owner must prove ten years or more for a title. In Pará, 39% of state territory land is productive, and in Making land look “productive” is has unresolved issues with return, the state provides a title. as easy as placing a few cows on it. So speculators deforest, buy a tenure and titles, and 71% of few cows, and wait while the all deforestation occurs on property value grows. this land. Speculators know that by the time government resolves the issue it will be impossible to prove who deforested the land.

Rural Income Give rural entrepreneurs a tax The tax provides an opportunity to Increases demand for land, launder money and/or reduce taxes. fueling speculation. Tax (IRR) break to start their business. Any business on rural land pays 1/5 Wealthy Brazilians buy land, put a the normal tax rate. few cows on it, report millions in revenue from the operation, but bay only 1/5 the normal tax rate.

Tax on Rural Tax land that is underproductive. Tax is not enforced. Brazil has An enormous missed Properties (ITR) Intends to discourage deforestation roughly 10 million underutilized opportunity to prevent by incentivizing land intensification hectares. Receta Federal (Brazil’s speculative deforestation. and productivity. Least productive federal tax authority) collects less land is taxed at a rate of 20%. than 10% of taxes due.

22 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

The market dynamics that fuel speculation-driven deforestation begin with the historical relationship between farmland and ranchland. For most of the twentieth century, ranching in Brazil took place in the southern savannahs. Motivated by government policies that encouraged expansion into the Amazon, ranchers slowly moved north in the 1970s. Expansion accelerated quickly in the 1990s when agricultural exports started to take off, displacing ranchers into the forests of Mato Grosso (Boucher, 2011b). Today, demand for agricultural land continues to push ranching north. By 2023, an estimated 3.8 million additional hectares of ranchland are expected to be displaced out of the Center-west and Northeast regions (FIESP, 2013).

Demand for those 3.8 million additional hectares of ranchland will increase already-skyrocketing land values. As Figure 12 shows, the average value of farmland and ranchland has increased considerably in Mato Grosso and Pará, in some cases more than doubling between 2006 and 2010 (FGV, 2013). Several ranchers interviewed in Mato Grosso noted how quickly their land’s value had increased in recent years, expressing interest in selling it and moving their operations north. As the value of ranchland in Mato Grosso continues to rise, and as ranchers struggle with increased costs, ranching may similarly migrate northward, following cheaper land.

7007 7176

5600 4486 4758 FIGURE 12. 3105 3281 Price (R$) of ranchland and farmland 2348 2651 in Mato Grosso and Pará, 2006-2010 1819

SOURCE: (FGV, 2013)

2006 2007 2008 2009 2010 MATO GROSSO “For me, the future of RANCHLAND FARMLAND ranching isn’t in cattle, but 4865 in the appreciation of the 4220 land value. I bought this 515-hectare ranch in 1713 2001 for 45,000 reais, 1473 1553 1398 1489 723 and today I can sell it easily 535 596 for 2.5 million reais” -Rancher, Mato Grosso 2006 2007 2008 2009 2010 PARÁ

RANCHLAND FARMLAND

23 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

Figure 13 illustrates the process by which speculators in the North deforest land in anticipation of ranchers displaced from ranchland in the South and Center-West regions. Global demand for grains increases demand for farmland in the southern half of the country. Public and private sector regulations prohibit deforestation, which limits the quantity of available farmland and rapidly increases its value. Facing increased costs from pasture management and burdensome regulations, ranchers sell their land for a large profit and buy less expensive land in the North. Speculators observe these trends, grab land in the north and deforest it in anticipation of future demand.

FIGURE 13. Speculators anticipate future demand 1. from displaced ranchers Global demand for grains increases demand for farmland in southern Brazil

5. 2. Observing these trends, speculators in Regulation limits Pará and Rondônia availability of new grab land and deforest farmland, so farmers it in anticipation of pursue degraded future demand from ranchland as displaced ranchers alternative

4. Facing increased costs 3. of pasture management & burdensome regulations, The value of Mato Mato Grosso rancher sells Grosso ranchland triples his land and pursues in under 5 years less expensive land in areas such as Pará or Rondônia

This phenomenon is known as indirect land use change (ILUC). Several researchers have hypothesized that the expansion of industrial agriculture in Brazil is encroaching upon existing ranchland, displacing cattle ranchers into newly deforested areas (Andrade et al., 2010; Barona et al., 2010; Lapola et al., 2010). Although these findings of ILUC in Brazil remain controversial, more recent studies provide supportive empirical evidence (Andrade et al., 2013; Arima et al., 2011). One such study found that every 10% increase in soy production encroaching on ranchland results in up to 40% increase in deforestation on the forest frontier (Arima et al., 2011). It is possible that attempting to prevent deforestation by targeting a sole commodity may actually shift deforestation to another. More research is needed to fully understand this dynamic.

24 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

Growth in demand for other commodities Production of Brazilian agricultural commodities will increase substantially during the next ten years, creating additional drivers for deforestation. According to the Federation of Industries in the State of Sao Paulo (FIESP), just four crops shown in Table 4—soy, corn, sugarcane, and palm oil—will require more than 10.5 million additional hectares of land by 2023 (FIESP, 2013). Accommodating this 17% increase in farmland in less than ten years while also preventing further deforestation presents considerable challenges for government and industry.

In the coming decade, Brazil is expected to increase production of corn by 14%, and soy by 47% (FIEPA, 2013; FIESP, 2013). Large new infrastructure projects will make exports more competitive and ensure long-term growth. A new federal highway (BR-163) will soon connect farms in Mato Grosso to a new US$ 2.5 billion port on the Amazon River, establishing a Pacific route to Asia via the Panama Canal. Together, the projects will increase shipping capacity by 72% and shave two days off the current south Atlantic route to Asia (FIEPA, 2013; Freitas & Wilson, 2014).

FIGURE 14. Increased acreage from projected expansion of corn, soy, sugarcane and palm oil, percent increase over 2012-2013

SOURCE: (FIESP, 2013)

LAND REQUIRED IN 2023 (Ha) PERCENT INCREASE REAL INCREASE (Ha)

CORN

17,700,000 11 % 1,782,734

SOY

34,300,000 24% 6,571,625

SUGARCANE

10,500,000 20% 1,720,736

PALM OIL

140,000 328% 459,000

TOTAL 62,640,000 17% 10,534,094

25 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

Increased production will expand acreage for corn and soy by 11% and 24%, respectively, requiring an additional 8.5 million hectares of land for these two commodities alone. As shown in Figure 15, much of the additional acreage will be located in Amazon states, particularly Mato Grosso and Pará. States in the northern Amazon—notably Pará—will experience the largest percent growth in corn production (36%), while the Center-West region—notably Mato Grosso—will see the largest total growth in corn production. The Center-West region will also see the largest total growth in soy production (FIESP, 2013).

Sugarcane and oil palm production are projected to grow as well, driven by expanding demand for ethanol and biodiesel. Brazil is the largest supplier of sugar in the global market, accounting for half of all exports (FIESP, 2013). About half of Brazil’s sugarcane production is manufactured into over 20 billion liters of ethanol, most of which is consumed domestically. Since 2009, Brazil has exported between 1.9 and 4.7 billion liters of ethanol to the United States, responding to demand from the revised U.S. renewable fuel policy (FIESP, 2013). Continued exports, combined with rapidly growing automobile sales in Brazil, will double annual ethanol production to about 40 billion liters by 2023 (FIESP, 2013).

To accommodate this growth in production will require an additional 2 million hectares of land. In 2023, nearly a quarter of production (23.1%) will be in Amazon states. Over the next ten years, productivity will grow 59.9% in the Center-west region and 71.2% in the North.

“Continued exports, combined with rapidly growing automobile sales in Brazil, will double annual ethanol production to about 40 billion liters by 2023” (FIESP, 2013).

26 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURE 15. The Brazilian government, prioritizing development on degraded lands, focuses most of its Growth in Brazilian corn and soy production, by region efforts in northeastern Pará, where the Zoneamento Agroecologico do Dende recommended SOURCE: (FIESP, 2013) 37 municipalities with large tracts of deforested land (César et al., 2013; Glass, 2013a; Yui & Yeh, 2013). NORTH-EAST

CORN SUGARCANE SOY NORTH Several private and public sector initiatives aim to prevent deforestation in the leading palm 30% 56.4% 161% CORN SUGARCANE SOY 7% 9.8% 12% oil firms’ supply chains. To date, these efforts seem promising. Agropalma, the 36% 71.2% longest-established palm oil producer in Brazil, has set deforestation standards exceeding 0.7% 2% those of the Roundtable for Sustainable Palm Oil (RSPO). The firm is also a founding member of the new Palm Oil Innovation Group (POIG), a small set of progressive palm oil companies dedicated to increasing the global demand and supply of sustainable palm oil (Greenpeace, 2014). The public sector’s own efforts to steer palm oil planting to CENTER-WEST already-degraded lands have also been effective, discouraging the expansion of new CORN SUGARCANE SOY production into forested land. 9% 59.9% 52% 42% 22.4% 48% SOUTH-EAST CORN SUGARCANE SOY Still, the aggressive domestic growth in demand for palm oil raises concerns that further 12% 23.0% 28% forest land could be cleared. The state of Para expects to more than double planting area to 35% 61.1% 6% 329,000 hectares and increase the biofuels share from 33% in 2012 to 47% by 2015 (Frayssinet, 2013; Glass, 2013a). The state government estimates that by 2022, oil palm SOUTH plantations for biofuel will cover 700,000 hectares, placing Brazil third in global palm oil CORN SUGARCANE SOY production (Frayssinet, 2013). Given the devastating record of deforestation in Indonesia 17% 12.7% 17% 33% 5.9% 29% and Malaysia, the world’s two top palm-oil producing countries, it is worth closely monitoring the development of this industry in the Amazon.

GROWTH (from 2013/2014 - 2023/2024) SHARE in 2023/2024 To understand the emerging role of Brazilian palm oil, it is useful to lay out the full set of economic actors and how they are linked to one another. The value chain, depicted in Figure 17, begins with firms that provide inputs such as fertilizers, pesticides, and seeds. Most seeds Rapidly expanding role of palm oil are imported from Colombia, Costa Rica, or Ecuador, but some may be purchased from the Palm oil, a relatively new addition to Brazil’s agricultural portfolio, is nonetheless Brazilian Agricultural Research Corporation (EMBRAPA). In many cases, nurseries grow positioned to grow faster than any other commodity, stimulated largely by federal policies seedlings and sell them to producers (oil palm farmers). Producers purchase inputs, grow the promoting the use of biodiesel. In 2005, Brazil mandated that all diesel in the country oil palms, and after three years, when the trees begin to produce fruit, sell fresh fruit bunches contain a mix of five percent biodiesel (Brazilian National Congress, 2005). Recent (FFB) to primary processors. Previously, production in Brazil consisted chiefly of large proposals may increase the blend rate to as much as 10 percent by 2020, providing stronger industrial farms. More recently, as processors increasingly decide to contract production to incentives for companies to expand palm oil production to meet future demand (Nielsen & outside parties, small family farms have begun to play a larger role. According to confidential Lima, 2013). industry documents, up to 25% of processors’ FFBs come from operations under 100 hectares. One large firm hopes to increase the number of family farms from which it sources Ideal climatic conditions for palm oil occur 10 degrees above and below the equator, which FFBs to 2,000 families by 2015. includes the entire Amazon region. However, as of 2012, 82% of Brazilian national palm oil production was concentrated in roughly 120,000 hectares in the single state of Par á.

27 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

The Brazilian government, prioritizing development on degraded lands, focuses most of its efforts in northeastern Pará, where the Zoneamento Agroecologico do Dende recommended 37 municipalities with large tracts of deforested land (César et al., 2013; Glass, 2013a; Yui & Yeh, 2013).

Several private and public sector initiatives aim to prevent deforestation in the leading palm oil firms’ supply chains. To date, these efforts seem promising. Agropalma, the longest-established palm oil producer in Brazil, has set deforestation standards exceeding those of the Roundtable for Sustainable Palm Oil (RSPO). The firm is also a founding member of the new Palm Oil Innovation Group (POIG), a small set of progressive palm oil companies dedicated to increasing the global demand and supply of sustainable palm oil (Greenpeace, 2014). The public sector’s own efforts to steer palm oil planting to already-degraded lands have also been effective, discouraging the expansion of new production into forested land.

Still, the aggressive domestic growth in demand for palm oil raises concerns that further forest land could be cleared. The state of Para´ expects to more than double planting area to 329,000 hectares and increase the biofuels share from 33% in 2012 to 47% by 2015 (Frayssinet, 2013; Glass, 2013a). The state government estimates that by 2022, oil palm plantations for biofuel will cover 700,000 hectares, placing Brazil third in global palm oil production (Frayssinet, 2013). Given the devastating record of deforestation in Indonesia and Malaysia, the world’s two top palm-oil producing countries, it is worth closely monitoring the development of this industry in the Amazon.

To understand the emerging role of Brazilian palm oil, it is useful to lay out the full set of economic actors and how they are linked to one another. The value chain, depicted in Figure 17, begins with firms that provide inputs such as fertilizers, pesticides, and seeds. Most seeds Rapidly expanding role of palm oil are imported from Colombia, Costa Rica, or Ecuador, but some may be purchased from the Palm oil, a relatively new addition to Brazil’s agricultural portfolio, is nonetheless Brazilian Agricultural Research Corporation (EMBRAPA). In many cases, nurseries grow positioned to grow faster than any other commodity, stimulated largely by federal policies seedlings and sell them to producers (oil palm farmers). Producers purchase inputs, grow the promoting the use of biodiesel. In 2005, Brazil mandated that all diesel in the country oil palms, and after three years, when the trees begin to produce fruit, sell fresh fruit bunches contain a mix of five percent biodiesel (Brazilian National Congress, 2005). Recent (FFB) to primary processors. Previously, production in Brazil consisted chiefly of large proposals may increase the blend rate to as much as 10 percent by 2020, providing stronger industrial farms. More recently, as processors increasingly decide to contract production to incentives for companies to expand palm oil production to meet future demand (Nielsen & outside parties, small family farms have begun to play a larger role. According to confidential Lima, 2013). industry documents, up to 25% of processors’ FFBs come from operations under 100 hectares. One large firm hopes to increase the number of family farms from which it sources Ideal climatic conditions for palm oil occur 10 degrees above and below the equator, which FFBs to 2,000 families by 2015. includes the entire Amazon region. However, as of 2012, 82% of Brazilian national palm oil production was concentrated in roughly 120,000 hectares in the single state of Par á.

28 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURE 16. Brazilian palm oil value chain

SOURCE: Industry interviews

INPUTS PRODUCERS PRIMARY & SECONDARY PROCESSORS RETAIL

FERTILIZERS SMALL FAMILY FARMS PALM OIL EXTRACTION RETAIL GOODS COMMERCIAL FOOD 10-100 HA PACKAGED FOODS SERVICE INDUSTRY PESTICIDES COSMETICS RESTAURANTS INDUSTRIAL FARMS HYGIENE INDUSTRIAL KITCHENS SEEDS 100+ HA BIODIESEL FOOD RETAILERS SEEDLINGS GROCERY BIG BOX CONVENIENCE

FUEL STATIONS

SUPPORTING INSTITUTIONS—BANKS, INDUSTRY ASSOCIATIONS, UNIVERSITIES

PUBLIC SECTOR—FEDERAL, STATE AND MUNICIPAL GOVERNMENT INTERNATIONAL AND DOMESTIC NON-GOVERNMENTAL ORGANIZATIONS Nine primary processors are already expanding palm oil production in Pará (see Figure 18). The four largest of these each plan to expand by 50,000 hectares or more. They are Agropalma, ADM, Petrobras, Primary processors manufacture the palm oil, which requires a two-step process: milling and refining. and Biopalma. Agropalma, Brazil’s dominant processor to date, now plans to add 50,000 hectares, more Milling is the process of thrashing, sterilizing, and extracting the oil from the FFB. Refining is the process than doubling its 45,000-hectare production by 2020. ADM will also add 50,000 hectares, vastly of clarifying and removing water content from the milled oil (MDOE, 1999). Primary processors then sell increasing the size of its own 3,000-hectare operation. Petrobras and Biopalma will undergo the largest the refined palm oil to secondary processors. Primary processors are some of the largest in the industry growth, expanding by 75,000 hectares and 70,000 hectares, respectively (Frayssinet, 2013; Glass, 2013a; and are frequently vertically integrated, i.e., their in-house capabilities stretch across several segments of Lane, 2012). Although the market currently offers higher prices for food end uses, these firms seem to be the value chain. They wield substantial influence over producers, often providing financing and input anticipating supplying the biofuel market in the future. materials in exchange for long-term contracts granting exclusive rights to future harvests. ADM, which already manufactures biodiesel from soy, plans to diversify its biodiesel feedstock with palm Secondary processors use palm oil as an ingredient in processed or manufactured retail goods, such as oil. The firm is building a processing facility in Sao Domingos do Capim, expected to be operational in packaged foods, cosmetics, soaps and lotions, or biodiesel fuel. The largest primary processors in Brazil 2016 (Crain's, 2011). Petrobras recently signed a US$ 530 million agreement to produce palm oil in sell refined oil to secondary processors, but are also capable of some secondary processing. For example, Brazil and ship it to Portugal, where it will be refined by Galp Energia, making 250,000 tons of biodiesel Agropalma converts some of its refined palm oil into margarine, and ADM, Biopalma, and Petrobras are for distribution throughout Europe (Frayssinet, 2013). Biopalma also plans to expand biodiesel all capable of manufacturing biodiesel from refined palm oil (Crain's, 2011; Fischer et al., 2013; production, the result of a recent deal with mining giant Vale. As part of its strategy to produce biodiesel Frayssinet, 2013). to fuel its mining equipment, Vale recently acquired 70% of Biopalma—which in turn plans to invest US$ 500 million in two extraction facilities in Pará. The first facility will open in 2015 with annual At the end of the value chain, retail firms such as restaurants, grocery stores, and fuel stations then sell capacity of 120,000 tons per year. The second will open in 2018 with capacity of 450,000 tons per year palm oil products to the end consumer. Thanks to palm oil’s versatility as an ingredient in an array of (SABI, 2012). retail goods, it is now found in half of all items on grocery store shelves around the world (RSPO, 2013). China, India, Indonesia, and the European Union (EU) are the largest consumers of palm oil (RSPO, With the Brazilian government ensuring a guaranteed market for its producers via its proposed increases in 2013). In the EU, the largest consumer is France, where the average citizen consumes an average of two biofuel mandates, the country’s palm oil industry is poised to grow at unprecedented rates in the coming kilograms of palm oil each year (RSPO, 2013). years. The resulting demand for farmland raises concerns about future deforestation. Will the palm oil expansion become a new deforestation threat, or an opportunity to continue the country’s recent progress? Much of the answer will lie in several dynamics not just within palm oil, but also within the beef industry.

29 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURE 17. Growth in palm oil production, by major corporations, 2012-2020

SOURCE: (Glass, 2013a)

500,000 459,000 150,000 400,000 112,000

100,000 95,000 300,000 2012 2012 79,000

2020 140,000 2020 HECTARES HECTARES 200,000 53,000 45,000

50,000 42,000 36,000 32,000 100,000 16,000 16,000 15,000 12,000 10,000 11,000 6,000 5,000 4,000 4,000 3,000 3,000

ADM TOTAL YOSSAN OTHERS BIOPALMA DENPASA DENTAUA PALMASA AGROPALMA MARBORGES PETROBRAS/GALP Nine primary processors are already expanding palm oil production in Pará (see Figure 18). The four largest of these each plan to expand by 50,000 hectares or more. They are Agropalma, ADM, Petrobras, Primary processors manufacture the palm oil, which requires a two-step process: milling and refining. and Biopalma. Agropalma, Brazil’s dominant processor to date, now plans to add 50,000 hectares, more Milling is the process of thrashing, sterilizing, and extracting the oil from the FFB. Refining is the process than doubling its 45,000-hectare production by 2020. ADM will also add 50,000 hectares, vastly of clarifying and removing water content from the milled oil (MDOE, 1999). Primary processors then sell increasing the size of its own 3,000-hectare operation. Petrobras and Biopalma will undergo the largest the refined palm oil to secondary processors. Primary processors are some of the largest in the industry growth, expanding by 75,000 hectares and 70,000 hectares, respectively (Frayssinet, 2013; Glass, 2013a; and are frequently vertically integrated, i.e., their in-house capabilities stretch across several segments of Lane, 2012). Although the market currently offers higher prices for food end uses, these firms seem to be the value chain. They wield substantial influence over producers, often providing financing and input anticipating supplying the biofuel market in the future. materials in exchange for long-term contracts granting exclusive rights to future harvests. ADM, which already manufactures biodiesel from soy, plans to diversify its biodiesel feedstock with palm Secondary processors use palm oil as an ingredient in processed or manufactured retail goods, such as oil. The firm is building a processing facility in Sao Domingos do Capim, expected to be operational in packaged foods, cosmetics, soaps and lotions, or biodiesel fuel. The largest primary processors in Brazil 2016 (Crain's, 2011). Petrobras recently signed a US$ 530 million agreement to produce palm oil in sell refined oil to secondary processors, but are also capable of some secondary processing. For example, Brazil and ship it to Portugal, where it will be refined by Galp Energia, making 250,000 tons of biodiesel Agropalma converts some of its refined palm oil into margarine, and ADM, Biopalma, and Petrobras are for distribution throughout Europe (Frayssinet, 2013). Biopalma also plans to expand biodiesel all capable of manufacturing biodiesel from refined palm oil (Crain's, 2011; Fischer et al., 2013; production, the result of a recent deal with mining giant Vale. As part of its strategy to produce biodiesel Frayssinet, 2013). to fuel its mining equipment, Vale recently acquired 70% of Biopalma—which in turn plans to invest US$ 500 million in two extraction facilities in Pará. The first facility will open in 2015 with annual At the end of the value chain, retail firms such as restaurants, grocery stores, and fuel stations then sell capacity of 120,000 tons per year. The second will open in 2018 with capacity of 450,000 tons per year palm oil products to the end consumer. Thanks to palm oil’s versatility as an ingredient in an array of (SABI, 2012). retail goods, it is now found in half of all items on grocery store shelves around the world (RSPO, 2013). China, India, Indonesia, and the European Union (EU) are the largest consumers of palm oil (RSPO, With the Brazilian government ensuring a guaranteed market for its producers via its proposed increases in 2013). In the EU, the largest consumer is France, where the average citizen consumes an average of two biofuel mandates, the country’s palm oil industry is poised to grow at unprecedented rates in the coming kilograms of palm oil each year (RSPO, 2013). years. The resulting demand for farmland raises concerns about future deforestation. Will the palm oil expansion become a new deforestation threat, or an opportunity to continue the country’s recent progress? Much of the answer will lie in several dynamics not just within palm oil, but also within the beef industry.

30 DATURESEARCH.COM Nine primary processors are already expanding palm oil production in Pará (see Figure 18). The four largest of these each plan to expand by 50,000 hectares or more. They are Agropalma, ADM, Petrobras, Primary processors manufacture the palm oil, which requires a two-step process: milling and refining. and Biopalma. Agropalma, Brazil’s dominant processor to date, now plans to add 50,000 hectares, more Milling is the process of thrashing, sterilizing, and extracting the oil from the FFB. Refining is the process than doubling its 45,000-hectare production by 2020. ADM will also add 50,000 hectares, vastly of clarifying and removing water content from the milled oil (MDOE, 1999). Primary processors then sell increasing the size of its own 3,000-hectare operation. Petrobras and Biopalma will undergo the largest the refined palm oil to secondary processors. Primary processors are some of the largest in the industry growth, expanding by 75,000 hectares and 70,000 hectares, respectively (Frayssinet, 2013; Glass, 2013a; and are frequently vertically integrated, i.e., their in-house capabilities stretch across several segments of Lane, 2012). Although the market currently offers higher prices for food end uses, these firms seem to be the value chain. They wield substantial influence over producers, often providing financing and input anticipating supplying the biofuel market in the future. materials in exchange for long-term contracts granting exclusive rights to future harvests. ADM, which already manufactures biodiesel from soy, plans to diversify its biodiesel feedstock with palm Secondary processors use palm oil as an ingredient in processed or manufactured retail goods, such as oil. The firm is building a processing facility in Sao Domingos do Capim, expected to be operational in packaged foods, cosmetics, soaps and lotions, or biodiesel fuel. The largest primary processors in Brazil 2016 (Crain's, 2011). Petrobras recently signed a US$ 530 million agreement to produce palm oil in sell refined oil to secondary processors, but are also capable of some secondary processing. For example, Brazil and ship it to Portugal, where it will be refined by Galp Energia, making 250,000 tons of biodiesel Agropalma converts some of its refined palm oil into margarine, and ADM, Biopalma, and Petrobras are for distribution throughout Europe (Frayssinet, 2013). Biopalma also plans to expand biodiesel all capable of manufacturing biodiesel from refined palm oil (Crain's, 2011; Fischer et al., 2013; production, the result of a recent deal with mining giant Vale. As part of its strategy to produce biodiesel Frayssinet, 2013). to fuel its mining equipment, Vale recently acquired 70% of Biopalma—which in turn plans to invest US$ 500 million in two extraction facilities in Pará. The first facility will open in 2015 with annual At the end of the value chain, retail firms such as restaurants, grocery stores, and fuel stations then sell capacity of 120,000 tons per year. The second will open in 2018 with capacity of 450,000 tons per year palm oil products to the end consumer. Thanks to palm oil’s versatility as an ingredient in an array of (SABI, 2012). retail goods, it is now found in half of all items on grocery store shelves around the world (RSPO, 2013). China, India, Indonesia, and the European Union (EU) are the largest consumers of palm oil (RSPO, With the Brazilian government ensuring a guaranteed market for its producers via its proposed increases in 2013). In the EU, the largest consumer is France, where the average citizen consumes an average of two biofuel mandates, the country’s palm oil industry is poised to grow at unprecedented rates in the coming kilograms of palm oil each year (RSPO, 2013). years. The resulting demand for farmland raises concerns about future deforestation. Will the palm oil expansion become a new deforestation threat, or an opportunity to continue the country’s recent progress? Much of the answer will lie in several dynamics not just within palm oil, but also within the beef industry.

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

4 The Intersection of Beef and Palm Oil program, nearly 93% of all Pronaf spending in 2012 (Glass, 2013b). The government has linked these two programs, requiring that firms wishing to qualify for benefits in the Social Fuel Seal program collaborate with small family farmers in Pronaf EcoDende. To meet anticipated demand of 10.5 million additional hectares of farmland, the Brazilian government realizes it must encourage planting on already-degraded lands. Beef ranchers have Private sector initiatives are equally ambitious. Firms that source products for Bunge and Cargill are millions of hectares of underutilized ranchland that could be devoted to palm oil and other already contracting directly with ranchers to grow soy and corn on their ranchland. The companies high-demand commodities. Accordingly, several public and private sector programs now encourage supply ranchers with inputs such as seeds and fertilizers in exchange for an agreed-upon ranchers to also plant crops—efforts that, if managed well, can help avoid further land clearing. bushel-per-hectare return at the end of the growing season. In interviews with Datu researchers, Still, a positive outcome will not be automatic. To ensure that palm oil is an environmental win for ranchers reported in 2013 paying the companies 21 bushels per hectare. In 2014, they will pay 22.8 the Amazon and an economic one for ranchers and farmers, it is necessary to ensure that only bushels per hectare. In these agreements, ranchers keep any yield in excess of the agreed-upon already-degraded land is used. It is also necessary to make certain that small producers capture share. economic value, to avoid the pitfalls of mono-cropping, and to step up the role of the public sector.

Planting on degraded ranch land Although Brazil currently accounts for just 0.5% of global palm oil production, the government anticipates, and is actively encouraging, substantial growth (UNEP, 2011). In 2010, EMBRAPA identified 32 million hectares of land suitable for palm oil cultivation, 29 million of which are located in the Amazon biome (EMBRAPA, 2010). The Brazilian government considers palm oil a win-win opportunity, frequently citing the crop’s potential returns as green fuel, green jobs, and a carbon sink ideal for reforesting lost segments of the Amazon (Frayssinet, 2013; SAGRI, 2013; UNEP, 2011). Of course, the key to realizing these green benefits is preventing further clearing of forest land. Fortunately, several private and public sector incentive programs are in place, each prohibiting any expansion of new crops on forested land.

A description of programs that incentivize the integration of palm oil and other crops with ranchland is found in Table 5. One of the largest public initiatives is the Low Carbon Agriculture (ABC) program. ABC actively supports the integration of cattle and other agricultural activities, providing low-interest financing (EMBRAPA, 2011). The program aims to convert 15 million hectares of degraded ranchland to crops as a means to improve agricultural productivity without expanding into new areas (Marques, 2013).

To promote the expansion of palm oil, the government has implemented two complementary social inclusion programs: the Social Fuel Seal (SFS) and the Program for Strengthening Family Agriculture (Pronaf EcoDendê). The SFS is a certification private biofuel companies must earn in order to participate in the majority of biodiesel auctions, and it requires a certain minimum percentage of raw materials to be sourced from small producers (Cesar et al., 2013; Glass, 2013a; Secretaria da Agricultura Familiar, 2013). Pronaf EcoDendê—a subprogram recently developed under the broader Pronaf program—provides 2% financing to small family farmers to expand palm oil production (Glass, 2013b; MDA, 2012). Palm oil has become a priority for Pronaf. In the 2013/2014 budget, Pronaf allocated nearly R$ 125 million for palm oil projects in its EcoDendê

31 DATURESEARCH.COM Nine primary processors are already expanding palm oil production in Pará (see Figure 18). The four largest of these each plan to expand by 50,000 hectares or more. They are Agropalma, ADM, Petrobras, Primary processors manufacture the palm oil, which requires a two-step process: milling and refining. and Biopalma. Agropalma, Brazil’s dominant processor to date, now plans to add 50,000 hectares, more Milling is the process of thrashing, sterilizing, and extracting the oil from the FFB. Refining is the process than doubling its 45,000-hectare production by 2020. ADM will also add 50,000 hectares, vastly of clarifying and removing water content from the milled oil (MDOE, 1999). Primary processors then sell increasing the size of its own 3,000-hectare operation. Petrobras and Biopalma will undergo the largest the refined palm oil to secondary processors. Primary processors are some of the largest in the industry growth, expanding by 75,000 hectares and 70,000 hectares, respectively (Frayssinet, 2013; Glass, 2013a; and are frequently vertically integrated, i.e., their in-house capabilities stretch across several segments of Lane, 2012). Although the market currently offers higher prices for food end uses, these firms seem to be the value chain. They wield substantial influence over producers, often providing financing and input anticipating supplying the biofuel market in the future. materials in exchange for long-term contracts granting exclusive rights to future harvests. ADM, which already manufactures biodiesel from soy, plans to diversify its biodiesel feedstock with palm Secondary processors use palm oil as an ingredient in processed or manufactured retail goods, such as oil. The firm is building a processing facility in Sao Domingos do Capim, expected to be operational in packaged foods, cosmetics, soaps and lotions, or biodiesel fuel. The largest primary processors in Brazil 2016 (Crain's, 2011). Petrobras recently signed a US$ 530 million agreement to produce palm oil in sell refined oil to secondary processors, but are also capable of some secondary processing. For example, Brazil and ship it to Portugal, where it will be refined by Galp Energia, making 250,000 tons of biodiesel Agropalma converts some of its refined palm oil into margarine, and ADM, Biopalma, and Petrobras are for distribution throughout Europe (Frayssinet, 2013). Biopalma also plans to expand biodiesel all capable of manufacturing biodiesel from refined palm oil (Crain's, 2011; Fischer et al., 2013; production, the result of a recent deal with mining giant Vale. As part of its strategy to produce biodiesel Frayssinet, 2013). to fuel its mining equipment, Vale recently acquired 70% of Biopalma—which in turn plans to invest US$ 500 million in two extraction facilities in Pará. The first facility will open in 2015 with annual At the end of the value chain, retail firms such as restaurants, grocery stores, and fuel stations then sell capacity of 120,000 tons per year. The second will open in 2018 with capacity of 450,000 tons per year palm oil products to the end consumer. Thanks to palm oil’s versatility as an ingredient in an array of (SABI, 2012). retail goods, it is now found in half of all items on grocery store shelves around the world (RSPO, 2013). China, India, Indonesia, and the European Union (EU) are the largest consumers of palm oil (RSPO, With the Brazilian government ensuring a guaranteed market for its producers via its proposed increases in 2013). In the EU, the largest consumer is France, where the average citizen consumes an average of two biofuel mandates, the country’s palm oil industry is poised to grow at unprecedented rates in the coming kilograms of palm oil each year (RSPO, 2013). years. The resulting demand for farmland raises concerns about future deforestation. Will the palm oil expansion become a new deforestation threat, or an opportunity to continue the country’s recent progress? Much of the answer will lie in several dynamics not just within palm oil, but also within the beef industry.

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

The Intersection of Beef and Palm Oil program, nearly 93% of all Pronaf spending in 2012 (Glass, 2013b). The government has linked these two programs, requiring that firms wishing to qualify for benefits in the Social Fuel Seal program collaborate with small family farmers in Pronaf EcoDende. To meet anticipated demand of 10.5 million additional hectares of farmland, the Brazilian government realizes it must encourage planting on already-degraded lands. Beef ranchers have Private sector initiatives are equally ambitious. Firms that source products for Bunge and Cargill are millions of hectares of underutilized ranchland that could be devoted to palm oil and other already contracting directly with ranchers to grow soy and corn on their ranchland. The companies high-demand commodities. Accordingly, several public and private sector programs now encourage supply ranchers with inputs such as seeds and fertilizers in exchange for an agreed-upon ranchers to also plant crops—efforts that, if managed well, can help avoid further land clearing. bushel-per-hectare return at the end of the growing season. In interviews with Datu researchers, Still, a positive outcome will not be automatic. To ensure that palm oil is an environmental win for ranchers reported in 2013 paying the companies 21 bushels per hectare. In 2014, they will pay 22.8 the Amazon and an economic one for ranchers and farmers, it is necessary to ensure that only bushels per hectare. In these agreements, ranchers keep any yield in excess of the agreed-upon already-degraded land is used. It is also necessary to make certain that small producers capture share. economic value, to avoid the pitfalls of mono-cropping, and to step up the role of the public sector.

Planting on degraded ranch land TABLE 4. Programs that promote the integration of commodity production into ranching Although Brazil currently accounts for just 0.5% of global palm oil production, the government anticipates, and is actively encouraging, substantial growth (UNEP, 2011). In 2010, EMBRAPA SOURCE: (Glass, 2013a, 2013b; MAPA, 2012; PalmOilHQ, 2011) identified 32 million hectares of land suitable for palm oil cultivation, 29 million of which are ASSISTANCE PROGRAM CORN SOY SUGARCANE PALM OIL located in the Amazon biome (EMBRAPA, 2010). The Brazilian government considers palm oil a Low Carbon Agriculture (ABC) program—Provides win-win opportunity, frequently citing the crop’s potential returns as green fuel, green jobs, and a financing up to $500,000, 5.5% interest, 5-15 year terms to help ranchers integrate agriculture into their operations carbon sink ideal for reforesting lost segments of the Amazon (Frayssinet, 2013; SAGRI, 2013; PUBLIC SECTOR Pronaf EcoDendê—Provides financing up to R$ 80,000 UNEP, 2011). Of course, the key to realizing these green benefits is preventing further clearing of ASSISTANCE per family over 14 years to cultivate palm oil forest land. Fortunately, several private and public sector incentive programs are in place, each Petrobras Biocombustîvel—Set a goal to contract prohibiting any expansion of new crops on forested land. 2,250 farmers to grow palm oil

Bungee, Cargill—Provide ranchers inputs such as seed A description of programs that incentivize the integration of palm oil and other crops with & fertilizer in exchange for an agreed upon bushel/hectare return on the investment PRIVATE SECTOR ranchland is found in Table 5. One of the largest public initiatives is the Low Carbon Agriculture ASSISTANCE ADM, Agropalma, Biopalma Vale—Provide a mix of low (ABC) program. ABC actively supports the integration of cattle and other agricultural activities, interest loans and technical assistance to ranchers providing low-interest financing (EMBRAPA, 2011). The program aims to convert 15 million interested in growing palm oil hectares of degraded ranchland to crops as a means to improve agricultural productivity without expanding into new areas (Marques, 2013). Similar to public sector initiatives, the largest private sector programs target palm oil. Backed by government incentives to work with family farmers, Agropalma, Archer Daniels Midland (ADM), To promote the expansion of palm oil, the government has implemented two complementary social Petrobras, and Biopalma each have initiated programs to engage small producers. In exchange for inclusion programs: the Social Fuel Seal (SFS) and the Program for Strengthening Family exclusive access to future harvest, each company offers producers a different mix of incentives, such Agriculture (Pronaf EcoDendê). The SFS is a certification private biofuel companies must earn in as input materials at-cost, fees for rural licenses such as the CAR, transport of goods, technical order to participate in the majority of biodiesel auctions, and it requires a certain minimum assistance, and low-interest loans. These incentives are very effective. According to a private percentage of raw materials to be sourced from small producers (Cesar et al., 2013; Glass, 2013a; industry report, as a result of these programs, more than 80 percent of newly-initiated palm oil Secretaria da Agricultura Familiar, 2013). Pronaf EcoDendê—a subprogram recently developed farmers now have access to credit for the first time. under the broader Pronaf program—provides 2% financing to small family farmers to expand palm oil production (Glass, 2013b; MDA, 2012). Palm oil has become a priority for Pronaf. In the 2013/2014 budget, Pronaf allocated nearly R$ 125 million for palm oil projects in its EcoDendê

32 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

Several ranchers interviewed for this study expressed interest in growing palm. Beef processors in 2013a). If small ranchers are to successfully include palm oil in their operations and not fall back Para´ are aware of this interest and expressed concern that beef production could decline and restrict on illegally clearing land for grazing, these economic hurdles will need to be addressed. supply. A confidential large-processor report found that approximately one in three of its palm oil suppliers also raise cattle. Avoiding pitfalls of monocropping Reliance on a single crop presents several environmental risks, including vulnerability to pests Because the expansion of palm oil is only beginning, it is difficult to predict which types of and disease. Producers also face economic risk when they depend on a single crop in a highly rancher will be more likely to convert to palm oil in the future. One may speculate—based on the fluctuating commodity market, with no guarantee that the prices they receive will cover their licensing costs cited earlier for ranchers with fewer than 500 hectares—that smaller operators rising input costs. An additional risk is a decline in the local agrarian economy, as subsistence facing a disproportionately higher cost to operate may be some of the first to make the transition. farmers move away from generating their own food in favor of a cash crop that may or may not Geography and infrastructure may also be a determining factor. Since FFBs must make it to produce sufficient returns. processing within 24 hours, adoption will be limited to ranches located sufficiently close to transportation infrastructure. The increasing shift of farmers to palm cultivation is already contributing to a regional economic effect underway in Para. Sixty percent of food consumed in Para is now grown out-of-state, and Ensuring that small producers capture value the price of many food items in the state is rising. According to Roberto de Sena Bentes, Brazil’s beef industry consists largely of small producers; an estimated 1,800,000 ranchers raise economist and technical advisor of the Para regional office of the Departamento Intersindical de cattle, with an average of only 110 heads of cattle per farm (Ahola, 2014). Small ranchers lack the Estatistica e Estudios Socioeconomicos (DIEESE), the recent increase in food prices can be economies of scale enjoyed by larger producers. As the costs of fuel, equipment, labor, and attributed to the turnover of agricultural land to palm oil (Glass, 2013a). regulatory compliance increase, small ranchers’ already-thin margins decline even further. It is no surprise that many small ranchers continue to find a way around current anti-deforestation A large monoculture on a regional scale can also create power imbalances between the buyer and measures, since the alternative—pasture management—requires up-front investment at a producer. The beef industry has already moved largely toward a consolidated, top-down power considerably higher price than clearing land. In short, if small producers simply cannot afford to structure, a pattern that the palm oil industry is repeating. In the long-term contractual avoid clearing land, that is what they will do, despite the rules. To avoid repeating this dynamic in agreements between palm oil small producers and biodiesel companies, the buyer or company palm oil, it is important not just to offer incentives to small producers to enter the palm oil value maintains a high degree of influence over the producer (Cesar et al., 2013). Contracts grant the chain, but also to ensure that they fully capture the economic value they create. company exclusive buying rights, largely unfettered access to the palm property, and the ability to define all management practices (Glass, 2013a). A lack of worker unions or cooperative support Compared with beef ranching, palm oil offers greater potential revenues per hectare. On average, in the northern region for palm production accentuates the power disparity, inhibiting farmers’ palm oil can yield R$ 6,028 per hectare per year, while beef yields only R$ 697 (IndexMundi, self-reliance in producing and marketing palm (Cesar et al., 2013). 2014a, 2014b). The important question is whether small producers will capture an adequate share of this value, or if it will be absorbed largely by the extraction plants and processors seeing An “agro-pastoral” approach combining crops and livestock could help ranchers reduce their the palm oil into its final stages. market risk and expand their choice of potential buyers. In a recent five-year study of the related concept of agro-forestry in Pará, palm oil yields in agro-forestry systems surpassed monocrop To date, palm oil small producer projects undertaken by the biodiesel industry remain largely systems under similar conditions, at 7 tons per hectare per year for agro-forestry, versus 5 tons in experimental. Initial programs have seen mixed success in their ability to generate income for a monocrop (EMBRAPA, 2013; Langford, 2014). While cattle were not included in this study, rural families (Cesar et al., 2013; Glass, 2013a). Palm oil takes at least two years to become the economic benefits of a diversified operation are evident. EMBRAPA is currently pushing a productive, reaching maximum productivity only in the eighth year of growth (ACET, 2013). variety of possible systems through their iLPF Strategy2, which encourages the integration of Thus, while revenues are extremely attractive in the height of palm’s productivity—from its crops, livestock, and forest activities via rotation, intercropping, and succession (EMBRAPA, 8th-18th year—in its initial stages the cost of production (fertilizer, pesticides, some rental 2013). Recently, the Inter-American Development Bank (IDB) began funding a pilot project for machinery, labor) can result in a net loss (ACET, 2013). Even small producers with mature trees integration of a native palm oil variety on ranchlands in the Cerrado region after a feasibility achieve low net profits due to their financing obligations for fertilizer and start-up costs (Glass, study determined the integrated system to be socially and economically sustainable (Averdunk et

33 DATURESEARCH.COM

al., 2012, 2014). Petrobras currently requires its palm oil producers to avoid intercropping, sudden intersection with the beef industry—it will be increasingly difficult to attribute land although the company, having commissioned a study with EMBRAPA to investigate its benefits, is clearing to a single commodity. And, for the industries that must be held accountable, it will be considering changing the requirement (Glass, 2013a). increasingly hard to verify that their supply chains are deforestation-free.

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

Several ranchers interviewed for this study expressed interest in growing palm. Beef processors in 2013a). If small ranchers are to successfully include palm oil in their operations and not fall back Para are aware of this interest and expressed concern that beef production could decline and restrict on illegally clearing land for grazing, these economic hurdles will need to be addressed. supply. A confidential large-processor report found that approximately one in three of its palm oil suppliers also raise cattle. Avoiding pitfalls of monocropping Reliance on a single crop presents several environmental risks, including vulnerability to pests Because the expansion of palm oil is only beginning, it is difficult to predict which types of and disease. Producers also face economic risk when they depend on a single crop in a highly rancher will be more likely to convert to palm oil in the future. One may speculate—based on the fluctuating commodity market, with no guarantee that the prices they receive will cover their licensing costs cited earlier for ranchers with fewer than 500 hectares—that smaller operators rising input costs. An additional risk is a decline in the local agrarian economy, as subsistence facing a disproportionately higher cost to operate may be some of the first to make the transition. farmers move away from generating their own food in favor of a cash crop that may or may not Geography and infrastructure may also be a determining factor. Since FFBs must make it to produce sufficient returns. processing within 24 hours, adoption will be limited to ranches located sufficiently close to transportation infrastructure. The increasing shift of farmers to palm cultivation is already contributing to a regional economic effect underway in Para.´ Sixty percent of food consumed in Para´ is now grown out-of-state, and Ensuring that small producers capture value the price of many food items in the state is rising. According to Roberto de Sena Bentes, Brazil’s beef industry consists largely of small producers; an estimated 1,800,000 ranchers raise economist and technical advisor of the Para´ regional office of the Departamento Intersindical de cattle, with an average of only 110 heads of cattle per farm (Ahola, 2014). Small ranchers lack the Estatistica e Estudios Socioeconomicos (DIEESE), the recent increase in food prices can be economies of scale enjoyed by larger producers. As the costs of fuel, equipment, labor, and attributed to the turnover of agricultural land to palm oil (Glass, 2013a). regulatory compliance increase, small ranchers’ already-thin margins decline even further. It is no surprise that many small ranchers continue to find a way around current anti-deforestation A large monoculture on a regional scale can also create power imbalances between the buyer and measures, since the alternative—pasture management—requires up-front investment at a producer. The beef industry has already moved largely toward a consolidated, top-down power considerably higher price than clearing land. In short, if small producers simply cannot afford to structure, a pattern that the palm oil industry is repeating. In the long-term contractual avoid clearing land, that is what they will do, despite the rules. To avoid repeating this dynamic in agreements between palm oil small producers and biodiesel companies, the buyer or company palm oil, it is important not just to offer incentives to small producers to enter the palm oil value maintains a high degree of influence over the producer (Cesar et al., 2013). Contracts grant the chain, but also to ensure that they fully capture the economic value they create. company exclusive buying rights, largely unfettered access to the palm property, and the ability to define all management practices (Glass, 2013a). A lack of worker unions or cooperative support Compared with beef ranching, palm oil offers greater potential revenues per hectare. On average, in the northern region for palm production accentuates the power disparity, inhibiting farmers’ palm oil can yield R$ 6,028 per hectare per year, while beef yields only R$ 697 (IndexMundi, self-reliance in producing and marketing palm (Cesar et al., 2013). 2014a, 2014b). The important question is whether small producers will capture an adequate share of this value, or if it will be absorbed largely by the extraction plants and processors seeing An “agro-pastoral” approach combining crops and livestock could help ranchers reduce their the palm oil into its final stages. market risk and expand their choice of potential buyers. In a recent five-year study of the related concept of agro-forestry in Pará, palm oil yields in agro-forestry systems surpassed monocrop To date, palm oil small producer projects undertaken by the biodiesel industry remain largely systems under similar conditions, at 7 tons per hectare per year for agro-forestry, versus 5 tons in experimental. Initial programs have seen mixed success in their ability to generate income for a monocrop (EMBRAPA, 2013; Langford, 2014). While cattle were not included in this study, rural families (Cesar et al., 2013; Glass, 2013a). Palm oil takes at least two years to become the economic benefits of a diversified operation are evident. EMBRAPA is currently pushing a productive, reaching maximum productivity only in the eighth year of growth (ACET, 2013). variety of possible systems through their iLPF Strategy2, which encourages the integration of Thus, while revenues are extremely attractive in the height of palm’s productivity—from its crops, livestock, and forest activities via rotation, intercropping, and succession (EMBRAPA, 8th-18th year—in its initial stages the cost of production (fertilizer, pesticides, some rental 2013). Recently, the Inter-American Development Bank (IDB) began funding a pilot project for machinery, labor) can result in a net loss (ACET, 2013). Even small producers with mature trees integration of a native palm oil variety on ranchlands in the Cerrado region after a feasibility achieve low net profits due to their financing obligations for fertilizer and start-up costs (Glass, study determined the integrated system to be socially and economically sustainable (Averdunk et

34 2 iLPF - Integração Lavoura-Pecuária-Floresta DATURESEARCH.COM

Stepping up the role of the public sector Emerging complications for enforcement Brazil’s burgeoning palm oil industry is already facing several consequences of government The integration of ranching with crops for food and biofuel has extensive potential to prevent inefficiency. Poor road infrastructure results in higher prices and uncertainty in market access, further deforestation, even as demand for agricultural land increases by 17%. However, as more leading processors to undertake maintenance of roads and bridges themselves in order to transport ranchers also become farmers, complications arise. Under the current system, a rancher who their goods (Averdunk et al., 2012). Rapid production expansion is inhibited by a backlog of land chooses to grow soy and palm oil faces the daunting task of navigating requirements for the title paperwork. Procedures to obtain environmental licenses remain slow and complicated Terms of Adjusted Conduct (TAC), the Roundtable for Responsible Soy (RTRS), and the (Averdunk et al., 2012). Roundtable on Sustainable Palm Oil (RSPO). Because each roundtable uses its own unique system to audit suppliers, this presents needless delays and compliance costs. As demonstrated by Brazil’s experience with beef-related deforestation, vast improvement is needed in public sector monitoring and enforcement. In beef, negative publicity about deforestation led Fortunately, the states of Para and Mato Grosso are moving to improve the existing fragmented the large processors to take on a self-policing role, creating efficient systems to screen suppliers and licensing system by relying almost exclusively on the CAR to monitor against deforestation. By commissioning independent audits of their supply chains. Much progress has been made thanks to streamlining the process for ranchers and simplifying auditing for processors, the CAR these industry efforts, but they unfortunately have come at a cost that disproportionately affects markedly reduces licensing costs and allows operators to diversify and experiment with other small ranchers, diminishing their ability to compete. crops without excessive bureaucratic hurdles. To promote rancher adoption of the CAR, in May 2011, Para initiated an incentives program, Green Municipalities (MV), to provide Care must be taken to avoid recreating this dynamic all over again with palm oil. The palm oil CAR-registered property owners low-interest financing, and to grant ranches in industry uses the CAR to monitor suppliers against deforestation. As discussed earlier, the CAR is a federally-embargoed municipalities access to markets. As of April 2013, more than 70,000 federally-mandated license required of all agricultural producers that uses satellite imagery to rural properties had registered, more than any other state in Brazil (PMV, 2013). monitor land for deforestation. When asked about potential leakage in the CAR system—similar to how illicit beef is sold through CAR-registered producers—industry representatives attributed the Para and Mato Grosso are demonstrating success in using the CAR system to address beef-related problem to insufficient regulation and enforcement, something they consider the responsibility of deforestation. However, an important regulatory challenge must be considered. As ranchers the government, not the private sector. So ultimately, industry self-policing for deforestation will increasingly undertake production for more than one value chain, and as roundtable efforts, such as the be only as effective as the CAR system. RTRS, replace their unique systems to audit suppliers with the CAR system, opportunities for regulatory “leakage” will only multiply. Recent land use data confirm that having ambitious regulations in place achieves little if the laws are not enforced. A 2013 University of California-Davis study projecting land conversion rates under Consider the example from the beef value chain, discussed earlier, depicted again here in three different Brazilian government enforcement scenarios (low, medium, and high) found that in Figure 20. Within any single value chain, unlicensed producers can insert their non-compliant a low anti-deforestation enforcement scenario, palm oil expansion in Para would lead to 62% product into the legitimate supply chain via licensed producers. An unlicensed rancher, for conversion of forested areas (Yui & Yeh, 2013). Effective monitoring and enforcement is crucial. instance, may have the opportunity to channel deforestation-linked beef through a licensed rancher who, facing ever-increasing production costs, will pass along illicit beef for a fee. This leakage is believed to at least partially explain why deforestation continues despite great strides The New Deforestation Reality in regulation and enforcement. It occurs only vertically between unlicensed and licensed producers of the same product—in this case, beef. Brazil’s challenge of preventing future deforestation is about to become much more complicated. Given the country’s anticipated rapid growth in palm oil and other commodities—and their Several ranchers interviewed for this study expressed interest in growing palm. Beef processors in 2013a). If small ranchers are to successfully include palm oil in their operations and not fall back Para are aware of this interest and expressed concern that beef production could decline and restrict on illegally clearing land for grazing, these economic hurdles will need to be addressed. supply. A confidential large-processor report found that approximately one in three of its palm oil suppliers also raise cattle. Avoiding pitfalls of monocropping Reliance on a single crop presents several environmental risks, including vulnerability to pests Because the expansion of palm oil is only beginning, it is difficult to predict which types of and disease. Producers also face economic risk when they depend on a single crop in a highly rancher will be more likely to convert to palm oil in the future. One may speculate—based on the fluctuating commodity market, with no guarantee that the prices they receive will cover their licensing costs cited earlier for ranchers with fewer than 500 hectares—that smaller operators rising input costs. An additional risk is a decline in the local agrarian economy, as subsistence facing a disproportionately higher cost to operate may be some of the first to make the transition. farmers move away from generating their own food in favor of a cash crop that may or may not Geography and infrastructure may also be a determining factor. Since FFBs must make it to produce sufficient returns. processing within 24 hours, adoption will be limited to ranches located sufficiently close to transportation infrastructure. The increasing shift of farmers to palm cultivation is already contributing to a regional economic effect underway in Para. Sixty percent of food consumed in Para is now grown out-of-state, and Ensuring that small producers capture value the price of many food items in the state is rising. According to Roberto de Sena Bentes, Brazil’s beef industry consists largely of small producers; an estimated 1,800,000 ranchers raise economist and technical advisor of the Para regional office of the Departamento Intersindical de cattle, with an average of only 110 heads of cattle per farm (Ahola, 2014). Small ranchers lack the Estatistica e Estudios Socioeconomicos (DIEESE), the recent increase in food prices can be economies of scale enjoyed by larger producers. As the costs of fuel, equipment, labor, and attributed to the turnover of agricultural land to palm oil (Glass, 2013a). regulatory compliance increase, small ranchers’ already-thin margins decline even further. It is no surprise that many small ranchers continue to find a way around current anti-deforestation A large monoculture on a regional scale can also create power imbalances between the buyer and measures, since the alternative—pasture management—requires up-front investment at a producer. The beef industry has already moved largely toward a consolidated, top-down power considerably higher price than clearing land. In short, if small producers simply cannot afford to structure, a pattern that the palm oil industry is repeating. In the long-term contractual avoid clearing land, that is what they will do, despite the rules. To avoid repeating this dynamic in agreements between palm oil small producers and biodiesel companies, the buyer or company palm oil, it is important not just to offer incentives to small producers to enter the palm oil value maintains a high degree of influence over the producer (Cesar et al., 2013). Contracts grant the chain, but also to ensure that they fully capture the economic value they create. company exclusive buying rights, largely unfettered access to the palm property, and the ability to define all management practices (Glass, 2013a). A lack of worker unions or cooperative support Compared with beef ranching, palm oil offers greater potential revenues per hectare. On average, in the northern region for palm production accentuates the power disparity, inhibiting farmers’ palm oil can yield R$ 6,028 per hectare per year, while beef yields only R$ 697 (IndexMundi, self-reliance in producing and marketing palm (Cesar et al., 2013). 2014a, 2014b). The important question is whether small producers will capture an adequate share of this value, or if it will be absorbed largely by the extraction plants and processors seeing An “agro-pastoral” approach combining crops and livestock could help ranchers reduce their the palm oil into its final stages. market risk and expand their choice of potential buyers. In a recent five-year study of the related concept of agro-forestry in Pará, palm oil yields in agro-forestry systems surpassed monocrop To date, palm oil small producer projects undertaken by the biodiesel industry remain largely systems under similar conditions, at 7 tons per hectare per year for agro-forestry, versus 5 tons in experimental. Initial programs have seen mixed success in their ability to generate income for a monocrop (EMBRAPA, 2013; Langford, 2014). While cattle were not included in this study, rural families (Cesar et al., 2013; Glass, 2013a). Palm oil takes at least two years to become the economic benefits of a diversified operation are evident. EMBRAPA is currently pushing a productive, reaching maximum productivity only in the eighth year of growth (ACET, 2013). variety of possible systems through their iLPF Strategy2, which encourages the integration of Thus, while revenues are extremely attractive in the height of palm’s productivity—from its crops, livestock, and forest activities via rotation, intercropping, and succession (EMBRAPA, 8th-18th year—in its initial stages the cost of production (fertilizer, pesticides, some rental 2013). Recently, the Inter-American Development Bank (IDB) began funding a pilot project for machinery, labor) can result in a net loss (ACET, 2013). Even small producers with mature trees integration of a native palm oil variety on ranchlands in the Cerrado region after a feasibility achieve low net profits due to their financing obligations for fertilizer and start-up costs (Glass, study determined the integrated system to be socially and economically sustainable (Averdunk et

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

35 DATURESEARCH.COM Several ranchers interviewed for this study expressed interest in growing palm. Beef processors in 2013a). If small ranchers are to successfully include palm oil in their operations and not fall back Para are aware of this interest and expressed concern that beef production could decline and restrict on illegally clearing land for grazing, these economic hurdles will need to be addressed. supply. A confidential large-processor report found that approximately one in three of its palm oil suppliers also raise cattle. Avoiding pitfalls of monocropping Reliance on a single crop presents several environmental risks, including vulnerability to pests Because the expansion of palm oil is only beginning, it is difficult to predict which types of and disease. Producers also face economic risk when they depend on a single crop in a highly rancher will be more likely to convert to palm oil in the future. One may speculate—based on the fluctuating commodity market, with no guarantee that the prices they receive will cover their licensing costs cited earlier for ranchers with fewer than 500 hectares—that smaller operators rising input costs. An additional risk is a decline in the local agrarian economy, as subsistence facing a disproportionately higher cost to operate may be some of the first to make the transition. farmers move away from generating their own food in favor of a cash crop that may or may not Geography and infrastructure may also be a determining factor. Since FFBs must make it to produce sufficient returns. processing within 24 hours, adoption will be limited to ranches located sufficiently close to transportation infrastructure. The increasing shift of farmers to palm cultivation is already contributing to a regional economic effect underway in Para. Sixty percent of food consumed in Para is now grown out-of-state, and Ensuring that small producers capture value the price of many food items in the state is rising. According to Roberto de Sena Bentes, Brazil’s beef industry consists largely of small producers; an estimated 1,800,000 ranchers raise economist and technical advisor of the Para regional office of the Departamento Intersindical de cattle, with an average of only 110 heads of cattle per farm (Ahola, 2014). Small ranchers lack the Estatistica e Estudios Socioeconomicos (DIEESE), the recent increase in food prices can be economies of scale enjoyed by larger producers. As the costs of fuel, equipment, labor, and attributed to the turnover of agricultural land to palm oil (Glass, 2013a). regulatory compliance increase, small ranchers’ already-thin margins decline even further. It is no surprise that many small ranchers continue to find a way around current anti-deforestation A large monoculture on a regional scale can also create power imbalances between the buyer and measures, since the alternative—pasture management—requires up-front investment at a producer. The beef industry has already moved largely toward a consolidated, top-down power considerably higher price than clearing land. In short, if small producers simply cannot afford to structure, a pattern that the palm oil industry is repeating. In the long-term contractual avoid clearing land, that is what they will do, despite the rules. To avoid repeating this dynamic in agreements between palm oil small producers and biodiesel companies, the buyer or company palm oil, it is important not just to offer incentives to small producers to enter the palm oil value maintains a high degree of influence over the producer (Cesar et al., 2013). Contracts grant the chain, but also to ensure that they fully capture the economic value they create. company exclusive buying rights, largely unfettered access to the palm property, and the ability to define all management practices (Glass, 2013a). A lack of worker unions or cooperative support Compared with beef ranching, palm oil offers greater potential revenues per hectare. On average, in the northern region for palm production accentuates the power disparity, inhibiting farmers’ palm oil can yield R$ 6,028 per hectare per year, while beef yields only R$ 697 (IndexMundi, self-reliance in producing and marketing palm (Cesar et al., 2013). 2014a, 2014b). The important question is whether small producers will capture an adequate share of this value, or if it will be absorbed largely by the extraction plants and processors seeing An “agro-pastoral” approach combining crops and livestock could help ranchers reduce their the palm oil into its final stages. market risk and expand their choice of potential buyers. In a recent five-year study of the related concept of agro-forestry in Pará, palm oil yields in agro-forestry systems surpassed monocrop To date, palm oil small producer projects undertaken by the biodiesel industry remain largely systems under similar conditions, at 7 tons per hectare per year for agro-forestry, versus 5 tons in experimental. Initial programs have seen mixed success in their ability to generate income for a monocrop (EMBRAPA, 2013; Langford, 2014). While cattle were not included in this study, rural families (Cesar et al., 2013; Glass, 2013a). Palm oil takes at least two years to become the economic benefits of a diversified operation are evident. EMBRAPA is currently pushing a productive, reaching maximum productivity only in the eighth year of growth (ACET, 2013). variety of possible systems through their iLPF Strategy2, which encourages the integration of Thus, while revenues are extremely attractive in the height of palm’s productivity—from its crops, livestock, and forest activities via rotation, intercropping, and succession (EMBRAPA, 8th-18th year—in its initial stages the cost of production (fertilizer, pesticides, some rental 2013). Recently, the Inter-American Development Bank (IDB) began funding a pilot project for machinery, labor) can result in a net loss (ACET, 2013). Even small producers with mature trees integration of a native palm oil variety on ranchlands in the Cerrado region after a feasibility achieve low net profits due to their financing obligations for fertilizer and start-up costs (Glass, study determined the integrated system to be socially and economically sustainable (Averdunk et

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

36 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURE 18. Present opportunities for illicit commodities to enter legitimate supply chains

NON-LICENSED LICENSED RANCHER RANCHER JBS, Marfig, Minerva

NON-LICENSED LICENSED SOY FARMER SOY FARMER Cargill, Bunge

NON-LICENSED LICENSED PALM PALM OIL FARMER OIL FARMER Vale Biopalma, ADM, Agropalma

Figure 18 shows how, under a framework with all commodities regulated using the CAR system, leakage could occur horizontally, giving unlicensed producers many times more opportunities to channel their products into legitimate, regulated supply chains. Thus, while past unlicensed palm oil producers could only channel their product through willing licensed palm oil growers, they now can channel it through a willing CAR licensed rancher who also happens to grow palm oil. Since some of the largest processors do not collect FFBs directly from the farm, but rather at collection centers, the opportunity to channel illicit FFBs into the legitimate supply chain is even easier than it is for beef. Future frameworks will need to address these increased opportunities for leakage.

“Financing for palm oil is more widely available, the profitability is more predictable than beef, and the cattle industry is just too complex now with all the pressure on ranchers.”- Rancher, Para´

37 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURE 19. Future opportunities for illicit commodities to enter legitimate supply chains

CAR LICENSED NON-LICENSED RANCHER WITH RANCHER SOME SOY AND JBS, DEFORESTING PALM OIL Marfig, LAND Minerva

NON-LICENSED CAR LICENSED SOY SOY FARMER FARMER WITH SOME PALM OIL DEFORESTING Cargill, Bunge LAND AND CATTLE

CAR LICENSED NON-LICENSED PALM OIL PALM OIL FARMER FARMER WITH DEFORESTING LAND SOME SOY Vale Biopalma, & CATTLE ADM, Agropalma

Increasing awareness by retail industry and consumers The beef, soy, and palm oil industries have each worked hard in recent years to prevent deforestation in their respective value chains and show governments, buyers, and the international community that their operations are deforestation-free. As commodity operations merge, attributing deforestation to a specific commodity becomes more difficult. Said another way, it becomes easier to falsely blame one industry for deforestation committed by another. An example is shown in Figure 19. If a licensed palm oil operation, also raising cattle, deforests adjacent land to expand palm oil production, this deforestation could be attributed to beef. The same scenario could occur in the opposite direction, attributing beef-related deforestation to palm oil. Producers and buyers throughout each product’s value chain have reason to be concerned about this reputational risk.

38 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIGURE 20. certain, as demonstrated by the recent decision to end the Brazilian Soy Moratorium in December, Beef, soy, and palm oil processors would save on the substantial administrative costs to monitor their With its sophisticated satellite technology to monitor deforestation, and its established reference Attributing deforestation will soon be challenged: Example of beef and palm oil 2014 (Stewart, 2014). Roundtables also face challenges in globalized markets; for example, the supply chains. Processors staff entire departments to manage detailed files on each of their suppliers, points upon which it has already made considerable progress, Brazil has already overcome some of RSPO, influential in western markets, has less impact in the highest palm-oil-consuming countries ensuring that each one is up to date with the many required licenses. To publicly verify their the initial challenges to implementing a deforestation prevention program based on (China, India, and Indonesia), where environmental concerns are of lower priority. As observed deforestation status, processors such as JBS regularly hire firms to conduct independent audits of their jurisdictional certification. It has also put in place some of the world’s most comprehensive PRODUCER: PRODUCER: PRIMARILY PALM OIL PRIMARILY BEEF with GTPS and Brazilian beef, regulations exclusive to a single commodity can drive up costs, supply chain. These practices are costly. A jurisdictional certification reduces these costs considerably, regulations—regulations that, unfortunately, it often fails to enforce. Institutional accountability WITH SOME BEEF WITH SOME PALM OIL distribute them unevenly across the chain, and create perverse incentives for producers. Future since the processor or retailer need only verify that the supplier operates in the designated and public sector enforcement need drastic improvement. Like any regulatory effort, a efforts will require moving beyond a single supply chain focus. Continued success will require jurisdiction. jurisdictional certification will only be truly effective if the public sector enforces the rules and complementing roundtable efforts with innovative measures that work across multiple commodities. collects fines from violators. Jurisdictional certifications also level the playing field across all products and producers. As discussed Zero net deforestation earlier, the smallest ranching operations face a per-hectare cost of compliance nearly ten times that of Perhaps equally daunting is the poor state of land tenure in Brazil. While not prohibitive to a Deforests land to expand Deforests land to expand beef Many organizations working to prevent deforestation are promoting the concept of “zero net the largest operations. Similarly, third-party certifications are frequently too costly for small jurisdictional certification, unresolved tenure can impede the implementation of a PES component. palm oil production, but it is production, but it is attributed attributed to beef to palm oil deforestation.” Unlike zero deforestation, zero net deforestation allows land to be cleared in some producers, putting them at a disadvantage. A jurisdictional approach helps address these challenges A successful PES program depends on clearly defined land tenure rights to ensure that regulatory areas, as long as other areas are sufficiently reforested to maintain net carbon density (WWF, 2014). A faced by small producers trying to compete with larger players. enforcement and incentive-based components work effectively. If more than one occupant claims number of municipalities and states in Brazil are striving to achieve zero net deforestation by 2020 ownership of land, it is impossible to enforce regulations against environmental offenses, since each HYPOTHETICAL HYPOTHETICAL (PMV, 2013). This creates an unprecedented opportunity to simplify enforcement and traceability. By A further advantage over the commodity focus is the elimination of most opportunities for vertical occupant can blame the other for the infraction. BUYER: BUYER: certifying a given jurisdiction, and all commodities produced in it, as “deforestation-free,” authorities and horizontal leakage. If every producer within a given jurisdiction is licensed and certified, it VALE BIOPALMA JBS would no longer have to track thousands of producers, instead focusing on a single geography. removes the incentive for this type of leakage. Of course, if market demand increases for products To receive payment for ecosystem services for protecting the land, owners need to be able to prevent in certified jurisdictions, leakage may well come from other, non-certified jurisdictions. The best third parties from deforesting their land without consent (Duchelle et al., 2013). A possible New satellite technology and data management help make the jurisdictional approach possible by way to prevent this is to improve the GTA system, the traceability mechanism for cattle. opportunity to address unresolved land tenure may lie in cooperation between the government and eliminating uncertainty about a geographic area’s deforestation record. Since 2002, the Brazilian Incorporating the use of electronic identification (EID) systems—microchips that use radio processors. Because processors have established a system to verify that their suppliers have proper Derivatives of beef, soy, and palm oil are used in millions of end products. Large retail firms that National Space Research Institute (INPE) has made its satellite imagery available to the public (INPE, frequencies to monitor the location and movement of cattle—would be much more effective than licenses—thus defining land/operator relationship over time—they may offer a start by providing source these commodities—and consumers of final products—increasingly want to be sure they are 2013). More recently, Google provided a public platform for new high-resolution maps, monitoring the current system. EIDs are currently used in Australia, Canada, and Denmark, where they reduce reliable documentation. not contributing to deforestation in the Amazon. Yet the links are not always obvious. To illustrate, rates of deforestation at a spatial resolution of 30 meters (GFW, 2014; Science, 2013). Because this labor costs associated with cattle management (CowTime, 2003; Livestock Research, 2010). a sample list of U.S. corporations that source beef products from Brazil is included in Appendix A. technology is available to governments, corporations, NGOs, and operators, it is more possible than A jurisdictional certification based on net zero deforestation would address many shortcomings of Consumers of products such as canned corned beef from Goya, or leather shoes from Birkenstock, ever to monitor performance at the state or province level, preparing the way for jurisdictional From the perspective of conscientious retail buyers, jurisdictional certification would build far current commodity-based approaches. It has potential to trim administrative costs across the value can easily make the connection to ranching in Brazil. But other connections are not as widely certifications. greater confidence that the suppliers they select do not contribute to deforestation. Several large chain, reduce leakage, and increase retailer and consumer confidence in the veracity of recognized. For example, the public may not be aware that JP Morgan Chase trades in Brazilian companies in the Consumer Goods Forum, such as Kraft, Nestle, Proctor & Gamble, Unilever and deforestation-free products. Realizing these benefits will require the public sector to make leather, thus potentially linking it to Amazon deforestation. New Ford car owners may not consider Effects on producers, retail buyers, and consumers Walmart, have committed to establishing zero net deforestation supply chains by 2020, raising the considerable improvements, particularly in enforcing regulations and resolving land tenure. Indeed, the origins of their leather seats, and pet owners may assume Hartz dog treats come from a For ranchers and farmers, meeting the requirements of a deforestation-free jurisdiction could possibility that they could support efforts to identify and certify entire jurisdictions that have these public sector issues will need to be resolved before any approach, whether focused on sustainable source. If future regulatory efforts continue to address deforestation commodity by potentially be less costly and time-consuming than obtaining commodity-specific certification. Costs achieved this status (PRNewswire, 2010). Consumers, in turn, would benefit from increased commodities or on geographies, can reach its full potential. commodity, the links to end products may become only more complex and difficult to isolate. associated with government bureaucracy and third-party requirements would likely decrease. In transparency. addition, the stage would be set for a United Nations Reducing Emissions from Deforestation and Forest Degradation (REDD+) program, giving producers economic incentives. A common complaint Challenges among ranchers is that they receive no price premium for their deforestation-free operations. A Implementing a jurisdictional system with a PES component such as REDD+ is challenging. It 6 A Jurisdictional Approach jurisdiction-based payment for ecosystem services (PES) program could provide ranchers an indirect requires well-established, reliable systems to monitor deforestation and realistic reference points premium for preserving the forest on their land. A PES system can also deliver additional benefits, upon which to base future progress. Extensive planning and negotiation are required to ensure an Commodity-by-commodity efforts such as the GTPS and RTRS have worked successfully with such as capital, technical training, or inputs. effective and equitable distribution of benefits. Also essential is coordination across multiple powerful firms to prevent deforestation in the beef and soy supply chains, thus helping to achieve agencies at all levels of government, with effective and transparent institutions capable of enforcing impressive reductions in land clearing. However, future commodity-by-commodity efforts are not the law (CIFOR, 2012).

39 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

certain, as demonstrated by the recent decision to end the Brazilian Soy Moratorium in December, Beef, soy, and palm oil processors would save on the substantial administrative costs to monitor their With its sophisticated satellite technology to monitor deforestation, and its established reference 2014 (Stewart, 2014). Roundtables also face challenges in globalized markets; for example, the supply chains. Processors staff entire departments to manage detailed files on each of their suppliers, points upon which it has already made considerable progress, Brazil has already overcome some of RSPO, influential in western markets, has less impact in the highest palm-oil-consuming countries ensuring that each one is up to date with the many required licenses. To publicly verify their the initial challenges to implementing a deforestation prevention program based on (China, India, and Indonesia), where environmental concerns are of lower priority. As observed deforestation status, processors such as JBS regularly hire firms to conduct independent audits of their jurisdictional certification. It has also put in place some of the world’s most comprehensive with GTPS and Brazilian beef, regulations exclusive to a single commodity can drive up costs, supply chain. These practices are costly. A jurisdictional certification reduces these costs considerably, regulations—regulations that, unfortunately, it often fails to enforce. Institutional accountability distribute them unevenly across the chain, and create perverse incentives for producers. Future since the processor or retailer need only verify that the supplier operates in the designated and public sector enforcement need drastic improvement. Like any regulatory effort, a efforts will require moving beyond a single supply chain focus. Continued success will require jurisdiction. jurisdictional certification will only be truly effective if the public sector enforces the rules and complementing roundtable efforts with innovative measures that work across multiple commodities. collects fines from violators. Jurisdictional certifications also level the playing field across all products and producers. As discussed Zero net deforestation earlier, the smallest ranching operations face a per-hectare cost of compliance nearly ten times that of Perhaps equally daunting is the poor state of land tenure in Brazil. While not prohibitive to a Many organizations working to prevent deforestation are promoting the concept of “zero net the largest operations. Similarly, third-party certifications are frequently too costly for small jurisdictional certification, unresolved tenure can impede the implementation of a PES component. deforestation.” Unlike zero deforestation, zero net deforestation allows land to be cleared in some producers, putting them at a disadvantage. A jurisdictional approach helps address these challenges A successful PES program depends on clearly defined land tenure rights to ensure that regulatory areas, as long as other areas are sufficiently reforested to maintain net carbon density (WWF, 2014). A faced by small producers trying to compete with larger players. enforcement and incentive-based components work effectively. If more than one occupant claims number of municipalities and states in Brazil are striving to achieve zero net deforestation by 2020 ownership of land, it is impossible to enforce regulations against environmental offenses, since each (PMV, 2013). This creates an unprecedented opportunity to simplify enforcement and traceability. By A further advantage over the commodity focus is the elimination of most opportunities for vertical occupant can blame the other for the infraction. certifying a given jurisdiction, and all commodities produced in it, as “deforestation-free,” authorities and horizontal leakage. If every producer within a given jurisdiction is licensed and certified, it would no longer have to track thousands of producers, instead focusing on a single geography. removes the incentive for this type of leakage. Of course, if market demand increases for products To receive payment for ecosystem services for protecting the land, owners need to be able to prevent in certified jurisdictions, leakage may well come from other, non-certified jurisdictions. The best third parties from deforesting their land without consent (Duchelle et al., 2013). A possible New satellite technology and data management help make the jurisdictional approach possible by way to prevent this is to improve the GTA system, the traceability mechanism for cattle. opportunity to address unresolved land tenure may lie in cooperation between the government and eliminating uncertainty about a geographic area’s deforestation record. Since 2002, the Brazilian Incorporating the use of electronic identification (EID) systems—microchips that use radio processors. Because processors have established a system to verify that their suppliers have proper Derivatives of beef, soy, and palm oil are used in millions of end products. Large retail firms that National Space Research Institute (INPE) has made its satellite imagery available to the public (INPE, frequencies to monitor the location and movement of cattle—would be much more effective than licenses—thus defining land/operator relationship over time—they may offer a start by providing source these commodities—and consumers of final products—increasingly want to be sure they are 2013). More recently, Google provided a public platform for new high-resolution maps, monitoring the current system. EIDs are currently used in Australia, Canada, and Denmark, where they reduce reliable documentation. not contributing to deforestation in the Amazon. Yet the links are not always obvious. To illustrate, rates of deforestation at a spatial resolution of 30 meters (GFW, 2014; Science, 2013). Because this labor costs associated with cattle management (CowTime, 2003; Livestock Research, 2010). a sample list of U.S. corporations that source beef products from Brazil is included in Appendix A. technology is available to governments, corporations, NGOs, and operators, it is more possible than A jurisdictional certification based on net zero deforestation would address many shortcomings of Consumers of products such as canned corned beef from Goya, or leather shoes from Birkenstock, ever to monitor performance at the state or province level, preparing the way for jurisdictional From the perspective of conscientious retail buyers, jurisdictional certification would build far current commodity-based approaches. It has potential to trim administrative costs across the value can easily make the connection to ranching in Brazil. But other connections are not as widely certifications. greater confidence that the suppliers they select do not contribute to deforestation. Several large chain, reduce leakage, and increase retailer and consumer confidence in the veracity of recognized. For example, the public may not be aware that JP Morgan Chase trades in Brazilian companies in the Consumer Goods Forum, such as Kraft, Nestle, Proctor & Gamble, Unilever and deforestation-free products. Realizing these benefits will require the public sector to make leather, thus potentially linking it to Amazon deforestation. New Ford car owners may not consider Effects on producers, retail buyers, and consumers Walmart, have committed to establishing zero net deforestation supply chains by 2020, raising the considerable improvements, particularly in enforcing regulations and resolving land tenure. Indeed, the origins of their leather seats, and pet owners may assume Hartz dog treats come from a For ranchers and farmers, meeting the requirements of a deforestation-free jurisdiction could possibility that they could support efforts to identify and certify entire jurisdictions that have these public sector issues will need to be resolved before any approach, whether focused on sustainable source. If future regulatory efforts continue to address deforestation commodity by potentially be less costly and time-consuming than obtaining commodity-specific certification. Costs achieved this status (PRNewswire, 2010). Consumers, in turn, would benefit from increased commodities or on geographies, can reach its full potential. commodity, the links to end products may become only more complex and difficult to isolate. associated with government bureaucracy and third-party requirements would likely decrease. In transparency. addition, the stage would be set for a United Nations Reducing Emissions from Deforestation and Forest Degradation (REDD+) program, giving producers economic incentives. A common complaint Challenges A Jurisdictional Approach among ranchers is that they receive no price premium for their deforestation-free operations. A Implementing a jurisdictional system with a PES component such as REDD+ is challenging. It jurisdiction-based payment for ecosystem services (PES) program could provide ranchers an indirect requires well-established, reliable systems to monitor deforestation and realistic reference points premium for preserving the forest on their land. A PES system can also deliver additional benefits, upon which to base future progress. Extensive planning and negotiation are required to ensure an Commodity-by-commodity efforts such as the GTPS and RTRS have worked successfully with such as capital, technical training, or inputs. effective and equitable distribution of benefits. Also essential is coordination across multiple powerful firms to prevent deforestation in the beef and soy supply chains, thus helping to achieve agencies at all levels of government, with effective and transparent institutions capable of enforcing impressive reductions in land clearing. However, future commodity-by-commodity efforts are not the law (CIFOR, 2012).

40 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

41 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

42 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

7 CONCLUSION

This study has examined beef-related deforestation in the Brazilian Amazon. Responding to public pressure, the Brazilian beef industry has reduced deforestation considerably in a short time. By implementing systems to monitor their suppliers, processors have incentivized nearly all major ranchers to license and register their properties. For the first time ever, almost 90% of cattle come from legitimate, licensed operations.

Our research identified important areas of needed public sector improvement to reduce industry cheating and ensure that ranchers make long-term commitments to deforestation-free operations. Also needed are regulatory streamlining, reductions in the costs to comply, and resolution of land tenure issues to ease access to credit for improved pasture management.

While Brazil’s beef industry is now in large part deforestation-free, this transition has come at ranchers’ expense. Escalating requirements by processors and government have dramatically increased ranching costs without expanding revenues, calling into question ranchers’ ability to make further progress in avoiding deforestation. Just as when a balloon is squeezed, ranchers could respond by simply shifting to areas of less pressure, diversifying into other commodities that may not be as closely regulated.

Changes in ranchers’ land use decisions, along with other rapidly emerging dynamics in the beef industry, are pushing future land-clearing threats out of the beef value chain. An important focus for future anti-deforestation efforts is the intersection between beef and palm oil. The net effect of palm oil expansion could turn out positive or negative for forests, depending partly on how much economic opportunity it creates for small producers; if they do not have economically viable alternatives, they will only end up illegally clearing new land.

As more ranchers turn to producing oil palm or other crops, it will become increasingly difficult to attribute deforestation to a specific commodity, making commodity-by-commodity enforcement methods less effective. An alternative that merits further study is to complement future efforts to build deforestation-free supply chains with enforcement and certification mechanisms focused not by commodity, but by jurisdiction.

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Appendix A. Corporations that source beef products from Brazil

FIRM NAME END PRODUCT AUTOS

Acura Audi BMW Buick Chevrolet Chrysler Dodge Ford Honda Hyundai Leather upholstery for cars Jeep Kia Land Rover Lexus Lincoln Mazda Mercedes Mitsubishi Nissan Porsche Renault Toyota Volkswagon Volvo

BANKS JP Morgan Chase PNC Bank Leather Standard Bank and Trust

44 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIRM NAME END PRODUCT FOOTWEAR

Allen Edmonds Shoe Corporation Footwear Belvedere, Inc. Footwear Burten Distribution Shoe parts, Footwear DSW Footwear Genesco (Brands include: Journeys, Schuh) Footwear Happy Feet Inc (Birkenstock) Footwear Kepner Scott Shoe Company (Children's Shoe Brand's: Amilio, Footwear Carpenter, Sandals by Carpenter and Self Starters) L.L. Bean Footwear Loeffler Randall Footwear Matisse Footwear Footwear Mosinger Company, LLC (Brand is Mark & Lemp) Footwear Nordstrom, Inc. Footwear Off Broadway Shoes Footwear Opportunity Shoes Footwear Pinnacle Brand Group Footwear Rainbow Sandals, Inc Footwear Reef Sandals Footwear San Marina Shoes Footwear Southern Leather, co; Sells to brands such as Birkenstock Shoe repair products The Jay Group (Retail in Adidas, Nike, JCPenny, Reebok, Payless, Steve Madden, Naturalizer, Stride Rite, Nine West Footwear Timberland Footwear

FOOD Bushy Creek corned beef Sampco Inc Bushy Creek shredded beef Bifi Snacks Link Snacks, Inc Jack Links Beef Jerky Peperami Snacks Goya canned corned beef Goya Foods, Inc.

FURNITURE American Leather, Inc Upholstery Anthem Leather, Inc Furniture Carroll Leather Upholstey

45 DATURESEARCH.COM DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

FIRM NAME END PRODUCT FURNITURE

Hancock and Moore, Inc Furniture Klaussner Furniture, Inc Upholstery ACET. (2013). The Oil Palm Value Capture Opportunity in Africa: African Center for Economic Transformation. LA-Z-BOY Upholstery http://acetforafrica.org/publications/post/the-oil-palm-value-capture-opportunity-in-africa/.

Leather Creations, Inc. Upholstery Adam, David. (2009). Supermarket suppliers 'helping destroy Amazon rainforest'. The Guardian. Retrieved January 21, 2014, from McKinley Leather Upholstery http://www.theguardian.com/environment/2009/jun/21/supermarket-suppliers-amazon-rainforest-deforestation. Stickley Fine Upholstery Upholstery Ahola, Jason. (2014). What U.S. should know about South American beef production. Progressive Cattleman Retrieved April 10, 2014, from Taylor King Furniture, LLC Upholstery http://www.progressivecattle.com/focus-topics/management-a-finance/6095-what-us-should-know-about-south-american-beef-production.

Andrade, Saraly, Charles Palmer and Stefanie Engel. (2010). Ethanol production, food and forests. Cambridge, UK: Discussion paper series, PET FOOD 48.2010 Department of Land Economy, University of Cambridge. http://eprints.lse.ac.uk/27950/. Hartz Naturals Dog chews Legacy Pet, LLC Dog chews Andrade, Saraly, Charles Palmer and Salvatore Di Falco. (2013). Dynamics of Indirect Land-use Change: Empirical Evidence from Brazil: Economic Research at ETH Zurich - Economics Working Paper Series; Working Paper 13/170 Pet Center, Inc Pet Food http://www.cer.ethz.ch/research/WP-13-170.pdf. Red Barn Pet Products Pet Food The Natural Dog Company Pet Food Arima, Eugenio, Peter Richards, Robert Walker, and Marcellus Caldas. (2011). Statistical confirmation of indirect land use change in the Brazilian Amazon: Environmental Research Letters 6 (April-June 2011). http://iopscience.iop.org/1748-9326/6/2/024010/fulltext/.

Assunção, Juliano; Gandour, Clarissa; Rocha, Romero. (2013). "DETERring Deforestation in the Brazilian Amazon: Environmental Monitoring and Law Enforcement." Climate Policy Initiative. Source: (ImportGenius, 2014) Averdunk, Katharina, Thilo Zelt, Philipp Golka, Malte Hopfner, Corina Muller, and Ilka Bettermann. (2012). Concept Note for the Use of Resources from the FIP Competitive Set-Aside. https://www.climateinvestmentfunds.org/cif/sites/climateinvestmentfunds.org/files/20131120_Macauba_Project_FIP_Brazil%20public%20versi on%20%282%29.pdf.

---. (2014). Macuaba - Sustainable Palm Oil: Results of the Feasibility Study of the Leuphana University of Lüneburg. http://www.leuphana.de/fileadmin/user_upload/portale/inkubator/download/Summary_Macauba_Feasibility_Study.pdf.

Barona, Elizabeth, Navin Ramankutty, Glenn Hyman, and Oliver Coomes. (2010). The role of pasture and soybean in deforestation of the Brazilian Amazon: Environmental Research Letters. Vol. 5, No. 2. http://iopscience.iop.org/1748-9326/5/2/024002.

Barreto, Paulo and Daniel Silva da Silva. (2013). How Can One Develop the Rural Economy Without Deforesting the Amazon. Belém, Pará: Imazon. http://www.imazon.org.br/publications/books/how-can-one-develop-the-rural-economy-without-deforesting-the-amazon.

BBC. (2013). Brazil supermarkets 'to avoid Amazon meat'. British Broadcasting Channel Retrieved January 21, 2014, from http://www.bbc.com/news/world-latin-america-21934025.

BBC. (2014) Brazil dismantles 'biggest destroyer' of Amazon Rainforest. British Broadcasting Channel. Retrieved September 29, 2014 from http://www.bbc.com/news/world-latin-america-28961554

BeefPoint. (2012). ACRIMAT em Ação levanta situação do estado e demanda dos pecuaristas. Retrieved February 5, 2014, from http://www.beefpoint.com.br/cadeia-produtiva/giro-do-boi/acrimat-em-acao-levanta-situacao-do-estado-e-demanda-dos-pecuaristas-slides/. ---. (2013). Relatório do Banco Credit Suisse analisa mercado da pecuária de corte no Brasil e oportunidades para frigorífico Minerva. Retrieved February 7, 2014, from http://www.beefpoint.com.br/cadeia-produtiva/especiais/relatorio-do-banco-credit-suisse-analisa-mercado-da-pecuaria-de-corte-no-brasil- e-oportunidades-para-frigorifico-minerva/.

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SABI. (2012). Brazil: Palm Oil Market Heating Up: South American Business Information. November 12, 2012.

WWF. (2014). Zero Net Deforestation. World Wildlife Fund Retrieved March 25, 2014, from http://wwf.panda.org/what_we_do/how_we_work/conservation/forests/zeronetdeforestation/.

Assunção, Juliano; Gandour, Clarissa; Rocha, Romero. (2013). "DETERring Deforestation in the Brazilian Amazon: Environmental Monitoring and Law Enforcement." Climate Policy Initiative.

BBC. (2013). Brazil supermarkets 'to avoid Amazon meat'. British Broadcasting Channel Retrieved January 21, 2014, from http://www.bbc.com/news/world-latin-america-21934025.

BBC. (2014) Brazil dismantles 'biggest destroyer' of Amazon Rainforest. British Broadcasting Channel. Retrieved September 29, 2014 from http://www.bbc.com/news/world-latin-america-28961554

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

Lúcio, Mauro. (2013). Owner, Fazenda Marupiara. Personal communication with Datu Researchers. October 13.

51 DATURESEARCH.COM

RSPO. (2013). Why Palm Oil Matters in Your Everyday Life. Kuala Lumpur, Malaysia: Roundtable on Sustainable Palm Oil. http://www.rspo.org/file/VISUAL%20-%20Consumer%20Fact%20Sheet.pdf.

SABI. (2012). Brazil: Palm Oil Market Heating Up: South American Business Information. November 12, 2012.

WWF. (2014). Zero Net Deforestation. World Wildlife Fund Retrieved March 25, 2014, from http://wwf.panda.org/what_we_do/how_we_work/conservation/forests/zeronetdeforestation/.

Assunção, Juliano; Gandour, Clarissa; Rocha, Romero. (2013). "DETERring Deforestation in the Brazilian Amazon: Environmental Monitoring and Law Enforcement." Climate Policy Initiative.

BBC. (2013). Brazil supermarkets 'to avoid Amazon meat'. British Broadcasting Channel Retrieved January 21, 2014, from http://www.bbc.com/news/world-latin-america-21934025.

BBC. (2014) Brazil dismantles 'biggest destroyer' of Amazon Rainforest. British Broadcasting Channel. Retrieved September 29, 2014 from http://www.bbc.com/news/world-latin-america-28961554

Lúcio, Mauro. (2013). Owner, Fazenda Marupiara. Personal communication with Datu Researchers. October 13.

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

RSPO. (2013). Why Palm Oil Matters in Your Everyday Life. Kuala Lumpur, Malaysia: Roundtable on Sustainable Palm Oil. http://www.rspo.org/file/VISUAL%20-%20Consumer%20Fact%20Sheet.pdf.

SABI. (2012). Brazil: Palm Oil Market Heating Up: South American Business Information. November 12, 2012.

WWF. (2014). Zero Net Deforestation. World Wildlife Fund Retrieved March 25, 2014, from http://wwf.panda.org/what_we_do/how_we_work/conservation/forests/zeronetdeforestation/.

52 DATURESEARCH.COM ACET. (2013). The Oil Palm Value Capture Opportunity in Africa: African Center for Economic Transformation. http://acetforafrica.org/publications/post/the-oil-palm-value-capture-opportunity-in-africa/.

Assunção, Juliano; Gandour, Clarissa; Rocha, Romero. (2013). "DETERring Deforestation in the Brazilian Amazon: Environmental Monitoring and Law Enforcement." Climate Policy Initiative.

BBC. (2013). Brazil supermarkets 'to avoid Amazon meat'. British Broadcasting Channel Retrieved January 21, 2014, from http://www.bbc.com/news/world-latin-america-21934025.

BBC. (2014) Brazil dismantles 'biggest destroyer' of Amazon Rainforest. British Broadcasting Channel. Retrieved September 29, 2014 from http://www.bbc.com/news/world-latin-america-28961554

Lúcio, Mauro. (2013). Owner, Fazenda Marupiara. Personal communication with Datu Researchers. October 13.

DEFORESTATION AND THE BRAZILIAN BEEF VALUE CHAIN

RSPO. (2013). Why Palm Oil Matters in Your Everyday Life. Kuala Lumpur, Malaysia: Roundtable on Sustainable Palm Oil. http://www.rspo.org/file/VISUAL%20-%20Consumer%20Fact%20Sheet.pdf.

SABI. (2012). Brazil: Palm Oil Market Heating Up: South American Business Information. November 12, 2012.

WWF. (2014). Zero Net Deforestation. World Wildlife Fund Retrieved March 25, 2014, from http://wwf.panda.org/what_we_do/how_we_work/conservation/forests/zeronetdeforestation/.

53 DATURESEARCH.COM