setembro, 09 2020

By Fabricio de Campos, Green Finance Coordinator at WWF-Brazil

Notably known as a grain and meat producing region, the Cerrado has become fundamental to the Brazilian balance of trade. Only locally produced soy accounts for 51% of plantation in the country. From the 1970s, the Cerrado became a new and noteworthy Brazilian agricultural frontier. This transformation boosted productivity in agriculture, making Brazil one of the most significant world producers of commodities.

In addition to exports, the biome is also strategic for the maintenance of water resources in Brazil, as it houses springs or riverbeds in eight hydrographic basins among the twelve that exist in the country. In other words, it participates directly or indirectly in numerous other economic sectors. The Cerrado is still relevant for its biodiversity and is the holder of valuable cultural and historical heritage.

Despite this, it is in a critical state of environmental degradation. Currently, the biggest threats to its integrity are habitat destruction and fragmentation. About 50% of its territory has already been deforested, and approximately 80% has already been modified in some way by man. Mainly due to agricultural and urban expansion as well as road construction. Although deforestation in the Cerrado has decreased slightly in 2019 (2.26%) compared to the previous year, the average deforestation reaches 1 million hectares per year.

We understand that it is essential to guarantee the continuity of agricultural production in the region, but it is also necessary to be aware of the soy and beef production chains, which together with the process of land speculation, are the biggest drivers of local deforestation. It is important to emphasize that the Brazilian environmental law (Código Florestal) requires that only 25% of the natural vegetation of the Cerrado be preserved on private properties and only 8.7% of the biome is legally protected by the National System of Conservation Units, differently from what occurs in the Amazon that has much of its territory protected by Conservation Units and Indigenous Lands. But precisely for this reason, the initiatives of the private sector and rural producers and government policies make a big difference in reducing deforestation and recovering degraded areas.

The recovery of degraded pastures is one of the ways to conserve the Cerrado. With appropriate lines of credit for that, this investment can become an opportunity: the rehabilitation of 10 million hectares of pasture could move between R$ 9 billion and R$ 17 billion in opportunities for the productive and financial sector, depending on the arrangement for this rehabilitation. Another possibility is the restoration of native vegetation, with the development of financial models for the restoration of natural areas, using species of economic interest to bring a return on investment. The financial mechanisms for the producer already exist, but they need to be expanded, with new "green" lines of credit.

That is not a legal obligation, nor an expense: the recovery and rehabilitation of productive areas in the Cerrado can bring positive financial returns. Estimates indicate that 30% of the Biome's pastures (more than 23 million hectares according to Lapig[1]/2017) are highly degraded and underutilized. The degeneration of the areas represents annual losses of around R$ 9.5 billion to producers (estimates from Livestock Rally, 2018). For each of them, there is a reduction in the patrimony of at least 50%. Considering the price of land with pastures that should have high production capacity, but are low. (data based on Anualpec[2]In this context, the small-scale producer suffers most. In smaller property, the loss is proportionally higher, making the business unfeasible.

Producers bump into initial transition costs and access to available lines of credit. Thus, for the rehabilitation of pastures to gain the necessary scale in the Cerrado, it is fundamental to create financial mechanisms and expand those that already exist. The ABC Recovery Program, for example, is the main rural line of credit to support the rehabilitation of degraded pastures nowadays. It offers a grace period of up to five years, allows debt amortization in up to 10 years, and has fixed interest rates at 6% per year.

The financial mechanisms available are not yet sufficient to meet the challenge of recovering millions of hectares of pasture. The approximate amount for this recovery (pastures areas only) would be approximately R$ 9.45 billion, with R$ 5.4 billion for Midwest Cerrado and another R$ 4.05 billion for Northeast Cerrado in MATOPIBA[3]. Most of these resources could come from the ABC Program and Constitutional Funds. That is why collaboration between public and private financial institutions is essential.

The collaboration of financial institutions, such as banks, insurance companies, investors, and securitizers, companies in the value chain, such as traders and slaughterhouses, and rural producers can create financial arrangements that benefit everyone. That would bring security and transparency to the financial application in agricultural production, creating a virtuous circle, with an increase in financial and environmental opportunities. Among the favorable aspects, we highlight the greater use of the productive potential of the land, the rescue of ecosystem services lost during the process of occupation of the biome, and the increased protection of water resources and carbon sequestration.

The Cerrado can meet the demand for commodities without having to deforest new areas. In addition to the recovery of degraded areas, there are already techniques such as Crop-Livestock-Forest Integration and Crop-Livestock Integration, which promote greater efficiency and production, and less pressure for deforestation. By ignoring these tools, we are losing a great productive potential, destroying new areas, moving away from the NDCs (Nationally Determined Contributions) agreed by the Paris Agreement, and accumulating losses from underutilization.

Thinking about land use efficiency - applying economic logic - can save the Cerrado.

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[1]     Image Processing and Geoprocessing Laboratory at the Institute of Socioenvironmental Studies at the University of Goiás
[2], 2019.)  Anualpec is an online platform that gives you access to the most important statistical updates of the livestock market quickly and easily, facilitating your consultations and decision making.
[3] by 2030.  The expression MATOPIBA, also called MAPITOBA, results from an acronym formed with the initials of the Brazilian states of Maranhão, Tocantins, Piauí, and Bahia. It designates a geographical extension that partially covers the territories of the four Brazilian states mentioned