Deforestation is threatening the double cropping practices that have made Brazilian agriculture an attractive investment, says the author of a report from non-profit financial think tank Planet Tracker.
Entitled No Rain on the Plain and released last month, the report details how in recent decades, agricultural production in Brazil has been propelled by the practice of growing a second crop on farmland after an initial harvest – a practice known as ‘double cropping’.
The report cites climate research suggesting continued illegal deforestation in Brazil is contributing to increasingly dry, hot and unpredictable conditions that could hamper such production.
Planet Tracker wrote that an end to double cropping in key production states such as Mato Grosso and the neighboring MATOPIBA regional grouping could decrease Brazil’s export revenues by as much as $2.1 billion by 2050. Such a reduction would amount to 6 percent of export revenue earned by Brazilian producers in 2018.
Director of fixed income Peter Elwin told Agri Investor that debt investors have been the primary focus of efforts to bring attention to deforestation in Brazil, because of the frequency with which they interact with key players in country’s supply chains. Elwin – who is also head of Planet Tracker’s food and land use program and was among the September report’s authors – stressed that deforestation also threatens equity investors across Brazil’s economy.
“If you are a pension plan investing in farmland through a private equity structure, you are very, very exposed to the value and the utility of that farmland. At the moment, we’re saying, because of the way the agribusiness sector conducts itself in Brazil, particularly beef, the agribusiness sector is very responsible for deforestation and has a huge capacity to control it,” said Elwin, who held research positions with JP Morgan and Universities Superannuation Scheme before joining Planet Tracker in December 2020, according to his LinkedIn profile.
“Our thesis is that if they don’t, the value of land will potentially fall quite dramatically.”
To illustrate deforestation’s direct impact on double cropping, the report highlights that onset of the rainy season in the state of Rondonia now occurs an average of 11 days later in comparison to 30 years ago. Such delays postpone sewing of the second crop and threaten the delicate land-use schedules employed by Brazilian producers.
The report details how Brazil’s agricultural production is increasingly concentrated amid a growth of doubling cropping, largely for corn and soy, that has been especially rapid in the state of Mato Grosso and in MATOPIBA, a regional grouping of neighboring states.
In addition to direct production schedule impact, Planet Tracker’s report highlights deforestation’s indirect risks to investors in Brazil, including challenged hydroelectric power generation and transportation logistics.
“There is a much, much broader economic risk that is being created by this, as well as the obvious impact on land values and agribusiness output,” Elwin added.
The report encourages investors to join collective international efforts such as the Brazilian Soy Moratorium, as well as taking other steps to encourage more active deforestation oversight by domestic actors. Elwin said although receptivity to such messages varies throughout the Brazilian government, parts of it are very focused on sustainability and investors can still have positive influence.
“If you speak to the top of the house, you’ll get one view. If you go in at the mezzanine level, you could have a very different conversation and potentially see change taking place in spite of the overall political environment,” Elwin explained.