China’s deforestation footprint in Brazil

. Sep 27, 2020
china deforestation Cattle farm in the Amazonian state of Pará. Photo: Paralaxis/Shutterstock

The increase in deforestation in the Amazon rainforest and its links to agricultural supply chains has become a hot-button issue for investors worldwide. With firms now painstakingly judged on their ESG (Environmental, Social, Governance) credentials, there is significant pressure placed on companies in the food industry to ensure that their deforestation footprints are minimized. However, while much of the coercion has come from companies in Europe and the Americas, what of China, Brazil’s biggest trading partner?

</p> <p>China&#8217;s appetite for Brazilian products has<a href=""> increased significantly</a> in 2020, as a result of the devalued Brazilian Real and trade war tensions with the U.S. While soybeans, oil, and iron ore continue to top Beijing&#8217;s Brazilian shopping list, trade of meat has seen the sharpest increase, totalling USD 1.84 billion in the first half of 2020 — more than double what was seen in the previous year.</p> <p>Among the Chinese firms that has ramped up its purchases in Brazil is fast food company Yum China, which operates popular chains KFC, Pizza Hut, and Taco Bell. Deforestation and commodities think tank Chain Reaction Research estimates that in order to feed Yum China&#8217;s approximately 1 billion chickens, the company would take up between 0.9 and 1.6 percent of Brazil&#8217;s entire soybean production every year, not to mention Yum China&#8217;s significant appetite for imported beef.</p> <h2>Burning paradise to put up a cattle farm</h2> <p>Environmental monitoring has shown that cattle ranching is the largest cause of deforestation in the Amazon and the Pantanal wetlands. Landowners illegally torch the native vegetation on their properties to make way for pastures. This allows them to raise cattle which often make their way onto supply chains of major food companies.</p> <p>A Federal Police investigation concluded that the overwhelming wave of forest fires ravaging the Pantanal began with blazes in four large farms. Since the beginning of the year, 25,000 hectares of the Pantanal have been <a href="">destroyed by fire</a>.</p> <iframe src="" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <p>While the new found importance of ESG has prompted firms in Brazil and around the world to increase oversight on food supply chains, reducing their deforestation footprints as much as possible, Yum China did not even acknowledge its perceived links to environmental destruction as a sustainability risk in its recent <a href="">prospectus supplement</a>.</p> <p>This lack of importance placed on deforestation risks could spell trouble for Yum China. With the growing concern around ESG credentials, <a href="">Chain Reaction Research believes</a> company shareholders BNP Paribas Norges Bank, Legal &amp; General, and JPMorgan &#8220;might reconsider their positions or engage [Yum China] to support their investment value.&#8221;</p> <h2>Brazilian meatpackers make deforestation pledge</h2> <p>Meanwhile, in Brazil, the world&#8217;s biggest meat producer JBS has launched a plan to minutiously track every one of its cattle suppliers by 2025, thus completely eradicating any links to deforestation from its supply chain.</p> <p>The company&#8217;s proposal involves using blockchain technology to oversee the entire life cycle of cattle, and severing ties with any farms linked to illegal deforestation. The focus of the initiative is to target so-called &#8220;indirect suppliers,&#8221; which are the farms that rear cattle before selling them to larger farms, where they are purchased by beef giants like JBS.</p> <p>Competitors Marfrig and Minerva have made similar promises to monitor their supply chains, but critics say the 2025 deadline is too far in the future and that the firms have had plenty of time to implant these measures already — in 2009 all three companies pledged to fully track indirect suppliers by 2011.</p> <p>Investment analysts from BTG Pactual are buoyant about the news coming from JBS, maintaining the firm as their &#8220;top pick in the food space.&#8221; A recent report from the financial management company highlights that JBS&#8217;s &#8220;ESG metrics are gaining increased attention from investors&#8221; and talks of the meatpacker&#8217;s strong earnings momentum for the coming future.

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Euan Marshall

Originally from Scotland, Euan Marshall is a journalist who ditched his kilt and bagpipes for a caipirinha and a football in 2011, when he traded Glasgow for São Paulo. Specializing in Brazilian soccer, politics and the connection between the two, he authored a comprehensive history of Brazilian soccer entitled “A to Zico: An Alphabet of Brazilian Football.”

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