- Ambitious regional government policies hope to boost production while conserving and restoring the forest.
- The Unlocking Forest Finance initiative includes a fully developed business case covering 14 activities in supply chains, sustainable livelihoods and conservation.
- The chosen supply chains represent an attractive prospect for investment.
In the past, the state of Mato Grosso has been one of Brazil’s largest emitters of CO² due to forest fires and deforestation, driven by its strong agriculture based economy. Roughly two fifths of the area once covered by forest and cerrado, the native savanna, has already been converted to farmland. Agricultural production is a major driver of deforestation, with cattle ranching the number one cause of deforestation. Logging and soy production are also major drivers.
However, from 2004 onwards the state led the way in reducing deforestation in Brazil. The amount of cleared land in Mato Grosso has fallen drastically over the last decade. There are several laws and policies to prevent deforestation, including the ‘Produzir, conservar e incluir’ (Produce, conserve and include) strategy launched in 2015, which includes targets to cut deforestation by 90% of 2001-2010 levels by 2030 while intensifying agricultural. The policy also hopes to extend credit and training to farmers.
Enhancing farming and production
Researchers interviewed 115 representatives of 42 different organisations. The project initially investigated 26 different activities, including interventions in 14 commodity chains, five conservation activities and seven activities supporting indigenous livelihoods.
The supply chains were narrowed down by considering environmental and social benefits, links to current policy and whether there was data available. Researchers looked for already-functioning initiatives that could be replicated or adapted to a more sustainable production system. The final portfolio of supply chains included:
- Native community forestry projects
- Plantation forestry
- Beef cattle
- Dairy cattle
- Fish farming
- Agroforestry systems for growing cacao, rubber and bananas
Protecting people and the environment
Alongside production of these commodities, the initiative includes support for conservation in protected areas. It also includes support for indigenous groups living in Mato Grosso, with funds to help improve protection, conservation, and sustainable use of natural resources in indigenous lands and territories.
Analysts made ‘business as usual’ projections for these interventions and modeled potential ‘sustainable ecological management’ scenarios. This included analysis of various data, including prices, operating costs, initial capital investments, the cultivated area, productivity rate, the cost of enforcing Brazil’s Forest Code and other costs.
The results of the sustainable ecological management scenario indicate that the area of pasture could be reduced by 7 million hectares, compared to business-as-usual. Part of this land would be taken up by a 4 million hectare increase in arable land and a 450,000 hectare increase of forest plantations. For crops such as soy, the project is expected to increase productivity and reduce environmental impacts. These interventions could provide training and credit for 45,000 small-scale farmers and other producers, ultimately increasing their incomes.
The plan also includes protection for 3 million hectares of conservation areas. Moreover, it intends to reduce illegal logging and increase the area covered by sustainable forestry plans from 2.8 to 6 million hectares. It also hopes to attract investment to improve the protection of 4.9 million hectares of conservation land and 20 million hectares in indigenous lands in the state.
Overall, the scheme requires R$ 50.7 billion (or R$ 26.8 billion discounted values) in investment and funding for agriculture, livestock and forestry projects. It is expected that this money could be distributed via loans. This includes the costs of production and processing, including machinery, buildings, improvements, personnel costs, raw materials, energy and other factors. Projects conserving protected areas and supporting indigenous livelihoods could increase this figure by up to R$ 533 million.
While the figures above may seem a significant sum of money, it is worth considering that almost US$40 billion in agricultural and livestock credit is distributed in Brazil every year. Finding the finance for this project may be more about adjusting current financial flows rather than raising these funds from zero. Indeed, a large proportion of the money could be channelled through existing mechanisms which already provide credit to farmers in Mato Grosso.
Of the 14 activities discussed in this study, the large majority were demonstrated to be economically feasible for individual producers and for the supply chain as a whole. This shows the potential for attracting private capital to help fund the implementation of the PCI. The next challenge is defining the financial mechanisms to make this transition feasible, through existing credit lines, private investment, or blending of different kinds of financing, such as concessional loans, grants, and market rate loans.
The Mato Grosso project is described in more detail in the below reports. The full report is in Portuguese, while the executive summary is available in both Portuguese and English.
Please note: The final version of the Full Report, below, has some numbers which are different from those included in the Executive Summary. This is due to different data being used in some cases. In addition, a process of final validation with stakeholders led to changes to some of the numbers.
This policy briefing, below, builds on the Mato Grosso project, looking at the different financial instruments which could be used to promote more sustainable agriculture in the state. This is particularly relevant in the context of the Produce, Conserve, Include strategy. Currently available in Portuguese.