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Brazilian President Jair Bolsonaro has come under heavy criticism from the international community for his response to fires that have spread across the Amazon. Since he took office in January 2019, his disregard for environmental protections and regulatory oversight has led to a sharp increase in forest degradation. As of August, more than 70,000 forest fires have taken place in Brazil in 2019, almost double the amount compared to the same time last year. The Brazilian fires were the center of worldwide media attention in August, but have faded from the spotlight despite the fact they continue and are burning in neighboring countries. Bolsonaro rejected funds from the G7 to help fight the fires and said that the international community was trying to infringe on Brazil’s sovereignty. The majority of state governors, along with his Minister of Agriculture and Minister of the Environment defend his policies.
Limited attention to deforestation among authorities began before Bolsonaro took office, but environmentalists are drawing connections between his regulatory rollbacks and the increase in fires and deforestation. Evidence shows that the fires in the Amazon overlap with deforestation, reinforcing the argument that the fires have been caused by human behavior. This year, Brazil has slashed the budget for the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) by 25 percent, severely hampering monitoring and regulatory oversight. In these cuts, funds to prevent and control forest fires were reduced by 23 percent. IBAMA employees say that their work has been hampered by leaders at the agency, either with demotions to desk work or shifting priorities in field work. At the same time, fines issued by IBAMA have totaled 1.6 billion Brazilian reals (USD 382 million) through the end of August, down by more than 40 percent compared to last year, falling to the lowest level since 2012, when Brazil’s Forest Code was weakened. Federal prosecutors recently urged IBAMA and the Ministry of the Environment to oversee 43 meatpackers that have not signed Terms of Adjustment of Conducts (TACs). The legally binding TACs provide the framework for sanctions if cattle is sourced from areas with illegal deforestation.4 Despite this recommendation from prosecutors, the federal government has not put resources into oversight of these meatpackers.
Brazil’s National Space Research Institute (INPE), meanwhile, reported that 2019 accumulated deforestation levels totaled almost 6,200 square kilometers at the end of August, an 83 percent increase versus the same time in 2018.5 Deforestation data has become a contentious political issue, with INPE in the center of the controversy. The INPE director was fired in early August and no data was produced for almost a month, causing an uproar among NGOs and prosecutors in Brazil. The government has repeatedly threatened to privatize INPE or cut its funding. Bolsonaro has questioned the accuracy of the agency, despite INPE having a reliable and credible deforestation monitoring system, referred to as PRODES, which monitors deforestation levels and is used. PRODES also informs land policies, and is used by a wide range of academics and researchers. The politicization of deforestation data will likely continue.
Bolsonaro’s Popularity Takes a Hit
Recent polling reveals that Bolsonaro’s public approval has taken a hit, with the fires a likely factor contributing to his lower poll numbers. Almost 40 percent of Brazilians disapprove of the government, more than double the levels in February, based on a poll by MDA/CNT. The same poll showed that more than 50 percent of Brazilians disapprove of Bolsonaro’s personal performance, up from 28 percent in February. The pollsters conducted the survey in late August, while Brazilians were paying close attention to the fires spreading through the Amazon. Respondents pointed to the environment as one issue in which he is performing poorly. 9 There could be more backlash against Bolsonaro should he not be able to control the fires and limit deforestation. Almost 70 percent of Brazilians believe that the government should “balance” economic growth and environmental preservation.
International Spotlight on Brazil’s Agribusiness
International outrage at the fires has put multinational companies operating in Brazil in the spotlight. NGOs, media, investors, and consumers have targeted companies that are connected to deforestation in the Brazilian soy and cattle markets. With the Brazilian government loosening oversight and regulations, businesses remain a critical line of defense in curbing deforestation. Norway’s largest pension fund, KLP, has reached out to major soy traders – Bunge, ADM and Cargill -- and has mentioned possible divestment. Major retailers H&M and VF Group ceased buying Brazilian leather, while Nestle is reconsidering its ties to the Brazilian market. Meanwhile, Ceres and Principles for Responsible Investment, representing 230 investors that hold USD 16 trillion assets under management, called on companies operating in Brazil to take action to stop the forest fires, reduce deforestation, implement robust zero deforestation policies and shore up traceability, monitoring, and reporting systems.
The entire Brazilian beef industry is under scrutiny, and it will remain so for its connections to deforestation, particularly as a number of investigations come to light and 80 percent of deforestation is driven by cattle. Major retailers such as Casino Group, Grupo BIG (formerly Walmart Brasil), and Carrefour – all of which are foreign companies -- have exposure to deforestation through their beef supply chains. An investigation published this September by Reporter Brasil shows French-headquartered companies of Carrefour and GPA (owned by Casino Group) have been supplied by ranchers using slave labor. The fires have received scrutiny from the French, with President Emmanuel Macron taking the lead in urging the international community to respond to the fires, publicly criticizing Bolsonaro’s policies. France has threatened to scrap the EU-Mercosur trade deal, a trade agreement that would increase the volumes of beef sold to the EU, if Brazil does not honor environmental commitments and take stronger action in fighting the Amazon fires.
Meatpackers such as JBS, Marfrig, and Minerva are also coming under pressure to step up their transparency and traceability. This summer, before the fires became worldwide news, Marfrig launched sustainability bonds worth USD 500 million, but the company’s sustainability efforts have come under criticism. The company’s utilization of deforested areas was exposed in an investigation by Reporter Brasil and the Bureau of Investigative Journalism. The company reportedly sourced cattle from areas placed under embargo for protection. Trase estimates that Marfrig’s exports are sourced from suppliers that are connected to 10,000 hectares of deforestation per year. Likewise, Minerva’s suppliers have a similar amount of deforestation, while deforestation risk exposure for JBS’ exports is three times as large.
As the export market grows and the beef industry looks to meet overseas demand, the risks for meatpackers will only increase. Companies are building new export facilities, and Brazil’s agriculture department recently approved new plants for beef export. With almost half of Brazil’s exports heading to China, the trade between the two countries will expand. Against this backdrop, the international community – whether lawmakers, NGOs, investors, and consumers – will push the Brazilian beef industry to reduce these risks, or face further backlash.
Coalition Calls on Government Action
Domestic actors have identified risks from deforestation, urging reforms to mitigate any backlash. Blairo Maggi, former agriculture minister and current owner of Amaggi Group, said, “I fear a boycott of Brazilian products. We are not an isolated island, we are a country that relates to other countries and that needs to pay attention to the way the world is going.” A group of 200 Brazilian members of the Brazilian Coalition on Climate, Forests and Agriculture, which include a wide range of agricultural firms, financial institutions, and environmentalists, called on the government to boost law enforcement efforts in the Amazon. Highlighting that 90 percent of deforestation in the Amazon is illegal, their statement urges the government to tamp down on illegal activity that undermines agribusiness and improve field security to fight forest fires. In a statement, they said: “Deforesting is not necessary to increase agricultural production,” adding that “Brazil has a great opportunity to attract new resources from national and international investors if it is able to monetize its environmental assets.” From 2004 to 2012, annual deforestation rates in the Brazilian Amazon plummeted by 84 percent even though agribusiness expanded. That time period shows how both conservation and economic expansion can occur at the same time. Deforestation rates started rising again in 2012, in large part, because of government weakening regulations.
In the coming months, it will be key to watch whether the international community continues to put pressure on Bolsonaro and his government to take more action to limit forest fires and curb deforestation. After the government banned the intentional burning of the Amazon in late August, approximately 4,000 fires broke out in just a couple of days, a sign the government has not yet put in the proper safeguards. As noted above, the media attention on the fires is not as widespread as before. If attention continues to fade, Bolsonaro could be emboldened to continue to open ups large swaths of the Amazon rainforest for agricultural development. Global leaders such as Macron will likely continue to threaten trade with Brazil until the environmental crisis is under control. Whether Bolsonaro will be moved by international pressure to address enforcement and accountability and deploy more resources to curb forest fires and deforestation remains to be seen.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.