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Meat giant JBS once again linked to deforestation in Brazil
Gustavo Ribeiro . Sep 05, 2020
Livestock in the Amazon. Photo: Marcio Isensee/Shutterstock
Back in June, Nordea Asset Management — the investment arm of northern Europe’s largest financial services group — dropped Brazilian meat giant JBS from its portfolio. The move was over JBS’ links to farms involved in Amazon deforestation, as well as its response to the coronavirus, and the sheer abundance of corruption scandals involving the firm over the past few years.
A new report by Chain Reaction Research, a think tank that conducts research related to deforestation and commodities, helps understand just how far the blame goes. JBS’s supply chain includes — directly and indirectly — farms that may have deforested at least 1.7 million hectares of native vegetation in the Amazon and the savannah-like Cerrado biome since 2008.
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<p>That would be the equivalent of an area ten times the size of the city of São Paulo — and a whopping 8 percent of the total deforestation in both biomes, according to data from the National Institute for Space Research (Inpe). </p>
<p>These figures, however, are more of an educated guess, as JBS’s supply chain is very difficult to trace. “JBS’ <a href="https://brazilian.report/environment/2019/10/27/china-brazilian-beef-demand-linked-amazon-deforestation-risk/">beef operations</a> in Brazil have an outsized deforestation risk exposure. [The company] operates 20 slaughterhouses within the Legal Amazon, [and its] monitoring of supplier compliance is limited to its direct supply. Its indirect supply chain risks remain unmitigated,” say researchers Tim Steinweg, Gerard Rijk, and Matt Piotrowski — who authored the 24-page report.</p>
<p>It is worth noting that deforestation is often — but not always — illegal, as the Brazilian Forest Code sets the rules for clearing space for pastures and crops. Within the region known as the “<a href="https://brazilian.report/environment/2019/12/18/bolsonaro-year-1-brazil-becomes-environment-bogeyman/">Legal Amazon</a>,” landowners must leave 80 percent of their properties untouched.</p>
<p>However, the projection gives the dimension of how big is JBS’s glass ceiling is, a conglomerate that just 11 years ago made a public commitment to no longer buy cattle herded on deforested land.</p>
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<h2>Blind spots the rule rather than an exception</h2>
<p>While Brazil’s meat industry has undeniably advanced in monitoring direct suppliers, the main players still have a huge blind spot: indirect suppliers — especially those who breed calves and resell them for fattening. The fragmentation of chains works to help transgressors, in a similar way that the fashion industry often relies on slave labor to cheaply produce garments.</p>
<p>As major investors and retail groups become more aware of ESG — Environmental, Social, and Governmental — principles, pressure has mounted on suppliers who are still incapable of tracing their entire chain. </p>
<p>ESG works based on the idea that companies must act in order to protect the environment and have high standards towards their stakeholders — which means taking care of customers, partners, and employees, as well as generating profits. Plus, corporate governance should follow all compliance regulations and treat all shareholders fairly. </p>
<p>To reach their estimate, Chain Reaction Research located and monitored 983 direct JBS suppliers — as well as 1,874 indirect ones. These companies are located in six Brazilian states spread across the Amazon and the Cerrado region: Goiás, Minas Gerais, Mato Grosso do Sul, Mato Grosso, Pará, and Tocantins.</p>
<p>Deforestation data in the sample was projected over the entire network of suppliers — 9,730 direct and 56,241 indirect — across the monitored states, which came up with the eye-watering figures: 200,000 hectares of forest might have been scrapped by direct suppliers, and over 1.5 million by indirect ones.</p>
<p>The think tank identified a common practice of “cattle laundering” in their supply chains. Producers own neighboring properties — registered under different names — and transfer cattle between them. “Cattle are moved from non-compliant farms to compliant farms in order for farmers to maintain market access to slaughterhouses,” says the report.</p>
<h2>How to estimate JBS’ environmental impact</h2>
<p>The analysis was made possible through the so-called <em>Guias de Transporte Animal</em> (GTA), sanitary documents issued every time cattle change hands, dated from 2019 and crossed with rural property records and deforestation data.</p>
<p>The report claims the estimates are “conservative” due to methodological limitations. “In several cases, deforestation alerts transgress farm boundaries. CRR excluded all deforestation that took place outside of farm boundaries from our calculations, despite the likelihood that they are part of a single deforestation event,” it says.</p>
<p>Besides, the think tank projects the total deforestation footprint on the number of properties included in the 2019 GTA records. “As a result, it excludes JBS suppliers that did not supply the company in 2019, but did so in other years. It also excludes any suppliers with faulty, fraudulent, or absent GTA records.”</p>
<p>JBS officially refutes the methodology of the study, saying it “extrapolates a deforestation average associated with a sample of properties to the total number of (direct and indirect) suppliers of the company, considering that 100 percent of farms have deforestation.” </p>
<h2>JBS policies under scrutiny</h2>
<p>JBS claims it has a zero-tolerance policy toward deforestation and claims it was “one of the first companies in the sector to invest in policies and technologies to fight, discourage, and eliminate [deforestation] from its entire supply chain.” However, recent efforts by JBS have been deemed “<a href="https://jbs.com.br/wp-content/uploads/2019/11/JBS_Relat%C3%B3rioAuditoriaCompromissoPublico_DNVGL-2019_EN.pdf">not yet successful</a>” by independent auditors.</p>
<p>“The company told CRR that it is in active discussions with Brazil’s Agriculture Ministry to explore the possibility of creating so-called “Green GTAs” — animal transportation records that would include information about environmental and slave labor embargoes.”</p>
<p>In addition, JBS is piloting blockchain technologies and theoretical productivity indices as measures to address indirect supply chain exposure. The theoretical productivity index is intended to address the risk of “cattle laundering” by assessing the size of a property and the number of cattle it supplies.</p>
<p>Chain Reaction Research calls JBS’ exposure to deforestation practices a “fundamental business risk.”</p>
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<p>“Divestments, exclusions, refusal to extend loans, and other actions from financial institutions would affect JBS’ cost structure, and thus its net profits. In particular, its cost of debt may rise if banks refuse to extend loans and the company is forced to seek new financiers during difficult circumstances.”</p>
<p>Of the company’s top 20 financiers, half of them — with USD 10 billion of exposure to JBS — have deforestation policies in place, or at least are gradually adapting themselves to zero-deforestation goals. These creditors include Barclays, JPMorgan, Rabobank, Santander, and Credit Suisse.</p>
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