An Investigation: Solving Deforestation Due to Soybean Farming in Brazil by Ashley McKinnon

Transitions for Sustainability, Vol. 4, No. 1

Introduction

Soybeans are the world’s most traded agricultural commodity, playing a critical role in food systems for both humans and animals. Approximately 75% of global soybean production is allocated toward animal feed to meet the rising demand of the meat industry, which is projected to grow around 3.62% annually through 2029. The soybean market itself is valued at $155 billion and is expected to reach $278 billion by 2031. Brazil, the leading producer and exporter of soybeans, has around 240,000 soybean farms and a market value of $53.2 billion.

As the soybean industry continues to grow in order to meet the rising demands of these industries, it is essential to address its impact on deforestation. According to the National Geographic Society, deforestation—the purposeful clearing of forested land—poses a significant threat to biodiversity and ecosystems. While deforestation in Brazil has slowed down in recent years, partially due to zero-deforestation commitments across soybean agribusinesses and consumers, it is persisting in biodiverse hotspots like the Amazon Rainforest and Cerrado. In fact, while the deforestation and land conversion annual amount is decreasing annually, down around 157,00 hectares between 2018 and 2020, the total area of soy cultivation in Brazil is increasing. The decreased rate of expansion is important, but the only way to achieve zero deforestation in the soybean industry will be through a complete restructuring of soybean farming operations.

Cargill, one of Brazil’s largest soybean exporters, currently generates around $160 billion in annual revenue, and is responsible for heavy deforestation to maintain their output. They have recently pledged lofty sustainability goals including entirely ridding the company of deforestation in their agricultural supply chain by 2030. In order to achieve their goal, they will need to cease expansion into forested land and instead move into cattle pastureland, and work on regenerating the soil they have degraded to improve its productivity; however, in order to truly solve the deforestation problem and make it scalable, they will need to start producing a less land intensive commodity such as insect protein.

External Factors Impacting the Soybean Market

Chinese Imports

China is the largest importer of soybeans, accounting for around 60% of soybean trade globally. Chinese imports from Brazil of the commodity have held an upward trend since 2013, which is largely due to their livestock industry that requires a large quantity of animal feed. China has become more reliant on Brazilian soybeans as a result of the China-US trade war, which resulted in China importing a record low of 18% of US soybean exports in 2018. This has caused Brazil to have a greater lead in exports to China, and as a result, China to have a greater dependence on Brazil to sustain their livestock. China is working to reduce its reliance on Brazilian soy, which would in turn lessen their impact on Brazilian deforestation. In 2020 alone, China was responsible for 229,000 ha of soy deforestation in Brazil, which was far above Brazil’s own consumption as seen in Figure 1. While China has held an upward trend on importing Brazilian soybeans, that is expected to slow in the next few years as they look to diversify their import base and find alternate sources of protein for their livestock.

Figure 1: Soy Deforestation and Conversion Exposure Imported by Country from Brazil (2013-2030)

Source: Stockholm Environment Institute

Russia-Ukraine War

The Russia-Ukraine War has contributed to the increase in soybean prices because of Ukraine’s disrupted soybean production as well as Russia’s control of the fertilizer market. The USDA’s Economic Research Service reported that 45% of operating costs for wheat and corn farms are due to fertilizer, and 23% of costs for soybean farms. When the Russia-Ukraine war began, it caused fertilizer to become less available and therefore the price to surge, which led to a rise in operating costs for wheat, corn, and soybeans. In order to remain competitive, farmers had to increase their grain prices, and some shifted their production from wheat and corn to soybeans to avoid the fertilizer costs the other grains incurred. The overall price of soybeans–despite the shift toward soybean production–increased in the EU. In conjunction with the price rise due to limited fertilizer, Ukraine, Europe’s largest soybean exporter, had to slow its production due to the war.

EU Regulations

The European Union is in the process of enacting several regulations that will protect forests by regulating soybean imports through requiring due diligence on the commodity production. This requirement will start on December 24, 2024, and will put pressure on the soybean market to shift towards more sustainable practices. The effects of this regulation will ripple globally as the EU imports from several countries aside from Brazil, including the US. The EU has specific requirements to ensure due diligence has been done on these companies, which has given rise to programs such as the Archer Daniels Midlands (ADM) Deforestation-Free Soybean Program. Farms can enroll in the ADM Deforestation-Free Soybean program, which is run by the Farmers Business Network (FBN), to verify their company as acceptable for the EU to accept imports.

FBN uses satellite imagery to trace the boundaries of soy fields and ensure that they are not on deforested land along with other methods of confirmation to ensure the companies reports are accurate. Land that fits this agreement is land where more than 1.24 acres of trees were forested and this applies to fields created after December 31, 2020. The ADM program will take a fee of up to $0.15/bushel, which will have price implications across the soy industry. If it is more expensive to produce soy, the market will be forced to change whether that means soy is more expensive and demand is reduced, or a new regulation, or even a new source of protein. The ultimate implication is that soy fields will need to become more sustainable otherwise they will no longer be economically viable.

This new regulation has caused European countries to look at reliable regions outside of Brazil for its soybeans, and Ukraine has been a region of focus. While the Russia-Ukraine War persists, Ukraine continues to export soybeans and eventually could be a sustainable source for all European soy demand. The area’s potential is difficult to anticipate given the current economic and political climate, but it will be a region to follow given it could influence grain prices and exports in Brazil and other soy exporting countries.

Cargill

Cargill currently has set sustainability goals such as reducing scope 1 and 2 emissions by 10% by 2025, reducing scope 3 by 30% by 2030, and achieving zero deforestation in their agricultural supply chain by 2030. They emphasize the importance of achieving deforestation heavily in their reports for both the environmental impacts and improved farmer livelihoods that would result. In order to achieve improved land use, they are implementing sustainable practices throughout their operations in collaboration with their farmers. To do so, they have established a Land Use and Forest Sustainability Advisory Panel that helps manage their goals mainly through four categories–protect, regenerate, restore, and innovate.

Their “protect” category aims to protect land through a collaborative road map, which includes the plan for all stakeholders involved as well as their forest policy. The collaborative roadmap is called the Agriculture Sector Roadmap to 1.5°C, which was devised at COP27 in Egypt by Cargill and thirteen other agribusinesses. They received help from the Tropical Forest Alliance and the World Business Council for Sustainable Development, and the plan will ultimately pave the way for the agriculture sector to support smallholder farmers and protect native forests.

The “regenerate” and "restore” categories outline Cargill’s commitment to creating a collaboration between farmers and scientists to investigate the best regenerative agriculture practices as well as restore ecological biomes in areas like the Cerrado. Cargill has already invested $1 million into a study called Regenera Cerrado that researches the benefits of regenerative agriculture in the Cerrado biome. This study will conclude in 2024, and will create a roadmap to the implementation of regenerative agriculture on their soy land and the best practices. Additionally, Cargill is collaborating with local farmers to help restore up to 100,000 hectares of land that had been converted to farmland in Brazil. Cargill is yet to establish a timeline for this process, making the next few years for “regenerate” and “restore” important to follow.

Cargill’s “Innovate” category will be key to achieving their zero-deforestation commitment. Cargill has heavily invested in technologies that quantify the impacts of deforestation, and will allow consumers and farmers globally to collaborate. Among their biggest investments is a georeferencing platform that will allow farmers to show that their operations are in compliance with deforestation regulations in the EU. As more regions adopt these regulations, this technology will be important for both Cargill and its suppliers.

Cargill has pledged to achieve zero deforestation in its operations, but its definition of “operations” begins at the storage and processing stages of soy production. While Cargill's facilities require substantial inventory and machinery, it is nowhere near the impacts that the farms have that supply Cargill with their soybean inventory. The company is investing in initiatives to combat deforestation and grow agroforestry–the incorporation of trees and forests into the cultivation of crops. However, these findings won’t necessarily be incorporated into their own goals based on the ambiguous language in their sustainability report. As mentioned in the “Innovate” analysis, the next few years for Cargill will be telling as to how serious their commitments are.

Next Steps

Cargill needs to take a stronger stance on deforestation in order to make a tangible impact in the soybean industry, which means requiring their producers to farm more sustainably. If Brazil continues at its current deforestation rate, which is already down from past years, it will clear over 5.7 million hectares of the Amazon Rainforest and Cerrado Savanna in the next 15 years. This forest clearance would devastate biodiversity in these regions and contribute to climate change on a global scale. The proportion of Brazilian expansion operations due to soybean production in Brazil’s most biodiverse regions can be seen in figure 2. The figure indicates that these operations will continue to grow, and as one of Brazil’s largest exporters of soybeans, Cargill has a responsibility to help combat these devastating effects of deforestation. If they require their producers to farm more sustainably, the market will naturally have to shift toward more sustainable soybean production, which in conjunction with the new EU regulations could be very impactful. Some options for these producers are to expand into cattle pastures, regenerate their existing land, or begin a new type of protein farming such as insect farming.

Figure 2: Percentage of Expansion for Soybean Production (2007-2019)

Source: Nature Sustainability, vol. 5, no. 8, 2022

Each pie chart indicates the percentage of expansion in each region for soybean production and can be used to project what deforestation will look like in the future.

Expanding into Cattle Pastures

If Brazil soybean producers utilized their open cattle pastureland, they would be able to expand operations by more than a third without clearing any forests. Intensifying cattle land, that is moving cattle onto only the necessary land, would mean more room for soybean farming and more profitability for the production company. Currently, the cattle stocking rate in the Amazon rainforest is around one cattle per hectare of land, and it could become far more efficient and remain ethical by making it 2.5 cattle per hectare. In order to make the practice even more efficient, this already cleared land would need to have the soil revitalized, which would be an ideal opportunity to input regenerative agriculture techniques. As Cargill has already funded research on regenerative agriculture, they could divert this funding specifically to land in the Amazon to push change this way and have a more direct impact on their supplier sustainability.

Regenerating Existing Soybean Land

As monoculture and climate change intersect to reduce the efficiency of farmland, regenerative agriculture is necessary to revitalize the soil and continue to produce enough soybeans to feed animals and humans. Regenerative agricultural practices could restore up to 400 million acres of currently degraded land by 2050 and avoid further land losses, which would be transformative for heavily reliant farming economies like in Brazil.

Regenerative practices incorporate native plants, indigenous practices, and animals into farming practices. Soybeans specifically are a crop well positioned for regenerative agriculture as they contain bacteria in their root nodules that fix nitrogen, which is in animal feces, and helps with soil restoration. An indigenous soybean practice that incorporates soybeans to regenerate soil dates back 9,000 years ago and is called the Milpa Farming System. It uses maize, soybean, and squash in one farming plot and is completely sustainable–the maize provides a structure for the soybeans to climb, the soybeans fix nitrogen into the soil, which benefits the maize and the squash, and the squash covers the soil and acts as a natural herbicide to prevent weeds. Incorporating other crops like corn, which Cargill also exports, would help regenerate soil and transition soybean farming to become more sustainable without having to spend funds on fertilizers or soil amendments. Additionally, these land plots would benefit from farm animals to help fertilize the land, and the producers could diversify their offerings into animal protein as well. While it would be costly to research these practices and implement them, many companies like Cargill have already invested heavily into these strategies to meet their sustainability goals, making implementation easier.

Farming Insects

A promising alternative protein source is insect farming, which offers a sustainable option for animal feed and a possible replacement or addition to soybean protein.

Insects are farmed on small, typically indoor, plots of land, and contribute astronomically less to deforestation and environmental degradation. Due to the indoor nature of this farming, it can be done year round, resisting any climate factors that typical farming incurs. If Cargill’s producers shifted toward insect protein, it would allow them to stay ahead of the competition as the market increasingly accounts for deforestation.

A team of researchers at MIT is currently working on insect farming in Brazil through their startup, Arari, which could be used as a template for companies like Cargill. Arari is aiming to solve Brazilian deforestation and the negative impacts of overfishing and farming through their alternative insect animal feed. Their goal is to establish small insect farms on existing smallholder farm land to incorporate into animal feed production in a more sustainable way.

Arari has already established an insect farm in Brazil with the help of local and indigenous people to ensure they create not only a sustainable solution from many stakeholders’ perspectives, but also include smallholder farmers in the global value chain where they have been historically excluded.

Cargill has the opportunity to either enter this market like what Arari is doing or even look into acquiring them. If they put in the funds that they have allocated to soybean farming and research into this area, they could transform the agriculture economy outside of Brazil–if Cargill is successful at insect farming and proves the business case, other companies will take it on and deforestation due to farming globally could be improved.

Conclusion

The growing global demand for soybeans presents both opportunities and challenges for agribusinesses today like Cargill. With economic influences and pressures such as China seeking to diversify its imports, the EU mandating due diligence on imports, and the uncertainties surrounding Ukrainian production due to the Russia-Ukraine war, Cargill finds itself at an inflection point—it can strategically position itself to be dominant in the agriculture industry while being completely sustainable or fall behind as the market inevitably shifts. By requiring its producers to adopt sustainable strategies such as the utilization of open pasture land, the implementation of regenerative farming practices, and exploring alternative protein sources like insects, Cargill will achieve its zero-deforestation goal, and possibly influence the soybean market on a global scale, establishing itself as a leader. By integrating these strategies into their producer requirements, Cargill can strengthen its position in a competitive and rapidly evolving agricultural market while also setting a new zero-deforestation standard for the soybean industry.

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