Companies worth more than $4 trillion have promised to reduce their impact on the world’s forests, and more than one-third of the new pledges came just last year, which more than doubled 2013’s total. Now comes the hard part: keeping those promises honest, and helping smaller suppliers adjust to the new demand. Here’s how public finance for forest protection can help.
1 June 2015 | Fast-food companies get a bad rap, but with good reason. Their beef often comes from farms and fields that were tropical rainforests just a few short years ago, as does the soy they feed their chickens and the palm oil they use to make their shortening bread. Even their coffee and the paper they use to package their products often come at the expense of forests – and let’s not even talk about the Styrofoam. But “often” isn’t the same as “always”, and ultimately, it’s we, the consumers, who drive demand – because we do have a choice.
McDonald’s, for example, stopped buying beef from the Brazilian Amazon a decade ago, and on Earth Day of this year, it announced that all of its beef, poultry, coffee, packaging, and palm oil would be “deforestation free” within the next five years. On top of that, scores of other companies signed the New York Declaration on Forests late last year, vowing to cut deforestation in half by 2020 and end it by 2030.
But do such pledges matter? And how do we know which ones work and which ones don’t? Holly Gibbs of the University of Wisconsin-Madison says there’s evidence that voluntary, large-scale moratoriums work – and work faster than still-emerging public finance forest protection under the right circumstances. Ecosystem Marketplace initiative Supply-Change.org shows that some individual voluntary efforts are, in fact, delivering as well – while others are just beginning to take root, and the basic answer is: “it’s complicated”.
To begin with, consumer-facing companies like McDonald’s and Wal-Mart don’t raise their cows and soybeans themselves – they buy from middlemen which most of us have never heard of: like Brazilian meatpacking giant JBS (a $45-billion-per year behemoth that’s the largest meat-processing company in the world) or Marfrig Global Foods (Brazil’s third-largest meatpacker, with a still-stunning $8 billion in yearly sales).
Then there’s the legal framework. Brazil has pretty good laws backed by a world-class space agency for monitoring from the sky, but a Forest Trends study showed that about half of all deforestation globally happens illegally – making it hard for companies to know what’s clean and what isn’t, even if they really want to. For cash-strapped developing countries, policing the forests isn’t a top priority.
To address the challenge, a mosaic of market-based mechanisms and legal interventions is emerging, enabled by new technologies and growing consumer awareness. Some of these efforts are already delivering results, while others need to be nudged along – and that may be where performance-based financing like REDD comes into the picture.
Earlier this year, the Global Canopy Programme published the Forest 500, a list of the 500 entities – private and public – that have the power to end deforestation, and it ranked them according to their deforestation pledges. Shortly afterwards, Ecosystem Marketplace published Supply-Change.orgto help everyone track the actual actions that companies are taking to meet those pledges. While these two initiatives are shining a light on individual efforts, Gibbs published research on the effects of two massive, voluntary moratoriums on beef and soy from the Amazon. These weren’t individual – and often undefined – promises like the New York Declaration, but binding moratoriums with clear deadlines and means of verification.
The first study looked at the effects of a voluntary 2006 moratorium on chopping trees in the Amazon to plant soy. It was published in January and showed that only 1 percent of new soy productionin Brazil came at the expense of the forest. “Before the moratorium, 30 percent of soy expansion [in the Brazilian Amazon] occurred through deforestation, and after the moratorium, almost none did,”said Gibbs.
The second study, published in May, looked at the effects of a 2009 moratorium imposed by consumer-facing meat buyers and less well-known but equally critical meatpackers like Brazil’s Marfrig Beef. Under the agreement, the meatpackers agreed to stop buying from ranchers who chop the forest, and Gibbs found that deforestation had, in fact, plunged dramatically on participating ranches – but it also increased elsewhere.
Plugging the Gaps
Taken together, the two reports demonstrate the power that demand-driven actions can have – as well as the limitations. In the case of soy, deforestation plunged dramatically within the Amazon under the moratorium, but it increased in the Cerrado grasslands and savanna east of the Amazon. In the case of beef and cattle, some deforestation simply moved down the supply chain – to farms that raise calves and sell them to “fattening farms”, which then sell them to slaughterhouses.
“In practice, the agreements regulate only direct purchases from supplying farms, thus ignoring calving ranches and other indirect parts of the supply chain,” the beef report says. “Cattle fattened on noncompliant properties with deforestation can leak to slaughterhouses that lack full monitoring systems; these cattle can also be laundered by moving them to a compliant ranch for direct sale to a slaughterhouse.”
The biggest problem, however, isn’t cattle from deforested land “leaking” into participating slaughterhouses; it’s simply the fact that even the global buyers now participating in the moratoriums don’t have universal reach – as evidenced by the fact that 80% of Brazil’s beef is consumed domestically.
“We monitor more than 8,000 suppliers, but we’ve cut 2,000 of them off because they don’t meet our criteria,” says Mathias Almeida, Sustainability Manager at Marfrig Beef, which is a signatory to both moratoriums. “So, we eliminated 2,000 ranches, but they’re all, as far as I know, still in business – because someone else has stepped up to buy from them.”
For Dan Nepstad, that’s where public finance for regional forest protection comes in – as we’ll see in a bit.
From Trickle to Torrent
A forester by training, Nepstad has been working in the Amazon for 30 years and now runs the Earth Innovation Institute, an environmental NGO focused on sustainable forest management and rural economics.
“It’s great that companies are taking on ambitious goals like zero deforestation supply chains, but when they start implementing that, they bump up against the limits of the farm-by-farm approach,” he says. “It’s really expensive, and if you have to segregate your product – meaning you’re dealing with soy, palm, beef, etc. in separate streams – then it’s more expensive.”
He says sustainability officers are just now beginning to wrestle with that expense – and the complicated nature of supply chains in general – as they seek to keep the promises their bosses have committed to.
Gibbs agrees on the complication front, but she says the cost of monitoring has been overstated.
“In both the case of soy and cattle, we don’t see that these agreements are limiting production or limiting economic growth,” she says. “For example, following the soy moratorium, the soy area planted doubled. Following the cattle agreement, JBS’ profitability more than doubled, and the number of slaughterhouses in the Amazon increased by 350% – from 9 slaughterhouses in 2008 up to 32 in 2015.”
If companies are continuing to invest, she says, it’s because the cost of monitoring isn’t much of a burden; but there are, she adds, other challenges that smaller suppliers are struggling to meet – challenges that are about to explode, if early analysis of data from Supply-Change.org is any indication.
That analysis, published as Corporations, Commodities, and Commitments that Count, shows that most of the few companies that have successfully reduced their impact on forests needed more than five years to do so. The new wave of companies scrambling to get green have set goals that are long on ambition but short on know-how. Most of them, for example, are keying off of the year 2020 – which is already less than five years away.
“It’s the dawn of a new decade,” the report notes. “It’s a nice even number. For the 65 companies that made new commitments in 2014, a commitment year of 2020 was five whole years away. For those stepping up to the plate in 2015, it’s only four years away. Then three years in 2016, two in 2017, and so on – until companies should logically consider later target years. But until now, only three in 198 companies report post-2020 goals.”
And, the report notes, the number of “goals” with no target date has tripled since 2009 – indicating a lot of talk but little walk. On top of that, roughly 85% of companies making zero-deforestation pledges believe they can simply buy products that are certified low-deforestation.
“That’s disturbing,” says Nepstad. “It shows a demand for simple, low-cost solutions – but if you look at the complexity of the supply chain and the challenges that a company like JBS (Brazil’s largest meatpacking company) is facing, you realize how hard it is to meet that demand.”
He’s proposing an approach somewhere between the biome-wide a moratoria that Gibbs tracked and the farm-by-farm certification programs currently underway.
Jurisdictional Certification: a Partial Solution?
Nepstad would like to see states or even sub-regions within states (i.e. “jurisdictions”) use public climate finance to build regional certification programs, so that buyers can trust purchases of several commodities from thousands of suppliers in a given region.
“This way, a company like Marfrig doesn’t have to do the farm-by-farm filtering itself, and a buyer in Europe doesn’t have to try and understand this complex process,” says Nepstad. “Instead, they would know that if they buy from this jurisdiction or that, then they’re safe.”
Gibbs sees the allure, and says that public finance could help supplemental programs costs down the road, but she’d rather see an immediate focus on more moratoria.
“REDD+ (acronym for public forest conservation finance), particularly at the jurisdictional level, is still developing, and shouldn’t be viewed as a replacement for farm-by-farm filtering that has been demonstrated effective for soy and cattle in the Brazilian Amazon,” she says. “Jurisdictional REDD+ could be an ‘add-on’ for supply-chain solutions, but the farm-by-farm monitoring of the Soy and Cattle Moratoria have been demonstrated to lead to changes within months, whereas REDD+ has been a very slow boil over many years.”
Low-Emission Rural Development
Beyond the Brazilian Amazon, the governments of Norway, the United States, and the United Kingdom are using public finance for avoided deforestation to support sustainable agriculture through the Initiative for Sustainable Forest Landscapes, which funnels these payments through the World Bank’s BioCarbon Fund to smaller forest countries or to individual states within larger nations, beginning with Ethiopia’s Oromia State and Zambia’s Luangwa Valley. The activities they cover include everything from certification of sustainably-harvested commodities to community conservation, and the amounts are based on how much the countries can reduce their greenhouse gas emissions from deforestation and forest degradation.
Like Acre, the payments aren’t offsets – none of the countries will use the reductions to lower their own footprints – and Nepstad advocates the use of the term “LED” (Low-Emission Rural Development). It’s a term that The Nature Conservancy and others have also used, and which Nepstad broadly defines as the use of carbon finance to “improve rural livelihoods, create jobs, improve services, increase market access and investment, and protect and restore natural capital.”
A Mosaic of Solutions
Peruvian indigenous leader Juan-Carlos Jintiach says low emissions development is a cornerstone of his “Indigenous REDD” initiative.
“If you look at a state like Acre, you see that they used REDD income to support indigenous land-use practices,” he says. “I think we can apply a similar strategy in Igarapé Lourdes (the indigenous territory shared by the Arara and Gavião of Rondônia), but we still have some work to do.”
The key, he says, is identifying low-cost, high-impact activities that can nudge a state’s agriculture sector in a more sustainable direction – and that probably means a mosaic of market-based mechanisms and legal interventions, all enabled by new technologies and growing consumer awareness.
Gibbs is leery of regional certification programs, which she says can end leading to pockets of intensified destruction.
“The jurisdictional approach could reward municipalities that could easily comply,” she says. “For example, a municipality with little remaining forest or with strong NGO involvement in recent years could be seen as a model, low-risk jurisdiction. The problem is that the high-risk municipalities closer to the forest frontier and with less governance will continue with business as usual, while the moratoria led to change across the entire Amazon including those high risk locales”.
She’d rather see public forest conservation finance directed into programs that help small ranchers develop simple technologies that can help them become more efficient.
“We’ve been encouraging producers to stop clearing forests by intensifying production for years, and they always respond with, ‘How?’” she says. “They’ve repeatedly asked for ‘more technical know-how and more financing,’ so in my mind, that’s something that jurisdictional REDD could provide.” Almeida agrees.
“We have huge amounts of degraded land in the Amazon that can be recovered both for cattle production in a more intensive way or crop production,” he says. “REDD can be used to promote technical systems and technology for producers who are engaged in land recovery and intensification.”
He also said he’d like to see financial guarantees for take-off agreements to encourage long-term purchasing arrangements with ranchers who follow good practices.
“Right now, all of our purchases are short-term – like week-to-week,” he says. “If we need to buy, or if a rancher needs to sell, we pick up the phone and call around. He sells to the highest bidder, and we buy from the lowest.”
Like Nepstad, he also advocates jurisdictional efforts, and offered the state of Pará’s Green Municipalities Program (Programa Municípios Verdes) as an example. Developed in partnership with municipalities, NGOs, and the private sector, the program helps entire municipalities develop green supply chains by offering tax incentives and also withholding subsidies – which are, to many, the elephant in the deforestation room. A working paper by the Overseas Development Institute identified nearly $500 billion in agricultural subsidies worldwide, compared to just $8.7 billion committed to avoiding deforestation.
Laws and the Cost of Compliance
Many countries have laws to protect their forests, but the challenge is finding the money to enforce them. Under Brazil’s Forest Code, for example, landowners in the Amazon can only deforest 20% of their land, while those in the Cerrado can only clear 35% for agriculture. The same law requires all private lands be listed in the Rural Environmental Registry (Cadastro Ambiental Rural, or CAR), and it restricts finance in municipalities with less than 80% of the properties registered.
“Public enforcement of environmental laws is a formidable task in the Brazilian Amazon, which covers an area six times the size of Texas,” says Gibbs. “But these market-based interventions are leading to rapid changes in the beef industry within a period of months, even in very remote areas.”
In 2013, The Nature Conservancy used satellite data to compare deforestation rates São Félix do Xingu, a municipality in the Brazilian state of Pará, to CAR registration rates and found higher registration correlated with lower deforestation.
Gibbs found the same correlation – but she also found surprising results when she looked to see who was cheating and who was playing fair.
“Only 115 people out of several thousand soy farmers have violated the Soy Moratorium since 2006, but over 600 of them have violated the Forest Code,” she says. “So, this same group of farmers is five times more likely to violate the governmental policy than they are to violate the private sector agreement.”
She sees a role for public forest conservation finance in helping governments build up their capacity to monitor the forest – a role that it is already playing, in Brazil and around the world – and adds that the one thing everyone agrees on is that no one has all the answers.
“We have a lot of tools now, and none of them are extraneous or irrelevant,” she says. “I’m sure there is a need for all of these polices or approaches – but the question is: where and how?”
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