The Challenge of Low-Carbon Development - World Bank Internet ...
The Challenge of Low-Carbon Development - World Bank Internet ... The Challenge of Low-Carbon Development - World Bank Internet ...
demonstrate that chain-of-custody tracing was reliable andfeasible, and that verifiably sustainably produced productscommand a market premium, other agriprocessors might“green” their own supply chain. This could drive unsustainableproducers out of business.Agribusiness at the forest frontierDeforestation in the Brazilian Amazon is largely drivenby conversion to pasture and soy. Over the period 2002–07, IFC made three loans in the Brazilian Amazon: twoto a soy processor (Amaggi) and one to a beef processor(Bertin). The projects aimed to demonstrate sustainableagribusiness practices in the sector by building clients’ environmentalmanagement capacity. Both loans attempteda “law abidance” strategy—that is, to bring the respectivefirms and their suppliers into compliance with Brazilianenvironmental, social, and land tenure legislation, therebyreducing deforestation in the Amazon.Under the IFC loan, the soybean processor committedto ensuring that all soybeans grown on its farms andall soybeans purchased from prefinanced suppliers meetBrazilian and IFC environmental and social regulations.With the beef company, IFC sought to ensure compliancewith Brazilian legislation for all Bertin suppliers, as wellas to develop a chain of custody system to track animalsthroughout the supply chain.IFC loans to agriprocessors in the BrazilianAmazon attempted to bring firms andsuppliers into compliance with Brazilianenvironmental law.The law abidance/chain of custody strategy, if successful,would ensure that IFC was not directly associated with deforestation.And, with the right conditions, it might havea market transformation effect. If the companies couldPhoto by Yosef Hadar, courtesy of the World Bank Photo Library.But the conditions for this scenario are stringent. The processorsneed to be able to trace the purchases to the pointof origin—which is difficult because cows and soy can be“laundered.” Then the processors have to verify that theoriginating farms are in compliance with the law, a tasknormally undertaken by government. To motivate these actions,the processors would have to face a market in whicha significant proportion of buyers will pay a premium forsustainably produced goods. And it has to be possible tosustainably intensify production on farms and ranchesthat comply with the law. If any of these conditions fails,new investments at the forest frontier could end up simplyincreasing pressure on the forest.Outcomes. IFC and Amaggi succeeded in ensuring thatno new deforestation occurred on the company’s ownfarms or on those of prefinanced suppliers. The companyused a combination of satellite imagery, digital mapping,and field visits to verify the behavior of those suppliers.Development of this sophisticated monitoring systemserved the firm’s own quality control and fiduciarypurposes in addition to satisfying IFC requirements.However, a significant proportion of the company’s soypurchases were from the third parties that were outsidethe conditions of the loan agreement and for whichAmaggi had no capacity to identify the farm of origin.IFC’s agribusiness investments did notcatalyze deforestation, but neither did theycatalyze widespread changes in industrypractices.Little was accomplished under the environmental covenantsof the agreement with the beef producer. Bertin hadagreed to develop an environmentally sustainable supplychain, including 100 percent traceability of its cattle fromfarm to final product , and to make 600 suppliers compliantwith labor, land acquisition, and environmental legislation.Although some progress was made with ranchesreceiving direct support from IFC advisory services, manysupplier were noncomplant. The company also purchasedslaughterhouses close to the Amazon biome in breach ofIFC’s requirements, without first ensuring the sustainabilityof their supply chains. This noncompliance with IFC’ssocial and environmental standards was in effect when IFCdecided to disengage from the project.IFC wagered its reputation that these loans would tame,rather than encourage, deforestation. On one hand, both58 | Climate Change and the World Bank Group
orrowers have demonstrated the ability to raise fundingfar in excess of that provided by IFC, so IFC’s financing perse was not catalytic of deforestation. On the other hand,neither did IFC catalyze the kind of widespread change inindustry practice that would redeem its endorsement of soyand beef production at the forest frontier.Alternative approaches to ensuring supplier compliancewith environmental rules. IFC’s strategy was to holdbuyers responsible for the legality of their supply chain,tracing the chain of custody to the original producerand verifying that producer’s compliance with the law.Without significantly strengthened supporting institutions,this strategy was unviable. First, without effectiveinstitutions and infrastructure to create traceability, noncompliantfarmers could potentially launder their salesthrough “complying” farms. Second, being “out of compliance”was difficult to define. Cases of land invasion,rural violence, and forced labor in the Amazon remain inlegal limbo for decades. Third, an effective, comprehensivegeoreferenced land registry was required to enforcethe requirement that landholders keep 80 percent of theirproperty under forest cover (the legal forest reserve). Butno such registry exists. And finally, the commitment ofthe beef purchasers lacked credibility.Although IFC’s strategy had limited success in the Amazon,alternative strategies have shown more success. These relyon a combination of external pressure on buyers and theuse of simple but geographically comprehensive approachesto monitoring compliance.The Soy Moratorium and governmentenforcement to restrict deforestation forcattle development have shown moresuccess in reducing deforestation pressuresSoy. In the soy sector, industry groups announced in July 2006a moratorium on the purchase of soybeans planted in theAmazon in areas deforested after that date. This closely followedGreenpeace’s report “Eating up the Amazon” (Greenpeace2006) and its subsequent international campaign.Industry and nongovernmental organizations joined to implementthe Soy Moratorium, which continues to date. Thismonitoring system uses existing remote sensing data fromthe Brazilian Space Agency, supplemented by aerial flyovers.The success of the Soy Moratorium is based on three factors.It is a policy of zero new deforestation, which bypasses thequestion of the Legal Reserve and land ownership andtherefore is simple to monitor. Second, as an industrywideaction, it avoids leakage and achieves economies of scale inmonitoring. Third, Greenpeace’s participation as an independentmonitor lends credibility to the enterprise.Beef. In June 2008, Greenpeace launched Slaughtering theAmazon, an international campaign exposing the marketingof beef and leather products from illegally deforestedAmazonian areas. Shortly thereafter, the federal prosecutorof Pará and the Brazilian Environmental Agency broughtaction against 21 ranches and more than 13 slaughterhousesthat purchased cattle from these ranches, includingIFC’s client. Following warnings that they would besubject to prosecution if they continued to purchase fromthese slaughterhouses, 35 supermarkets and wholesalerssuspended contracts with the offending meat processors.Subsequently, four meat processors (including the client)agreed not to purchase cattle from ranches that are embargoedby the Brazilian Environmental Agency or that engagein unlicensed new deforestation in the next two years.Success in the beef sector is being won through a strategythat depends heavily on government enforcement and thecomprehensive use of remote sensing and georeferencingtechnologies. In February 2008, the national monetarycouncil in Brazil began embargoing the economic use oflands illegally deforested, as well as making all agents inthe productive chain co-responsible for deforestation fromthese areas. The Brazilian Environmental Agency publisheda “dirty list” consisting of municipalities in which mostillegal deforestation is occurring and an Internet site listingproperties embargoed due to deforestation.In addition, the 2008 resolution required that all farmerswishing to receive credit in the Amazon biome presentdocuments (issued by the state environmental agencies)demonstrating compliance with Brazilian environmentallegislation. Mato Grosso and Pará have begun to createrural environmental cadastres that register land for environmentalcompliance purposes, sidestepping the complexissue of regularizing ownership.Finally, the Brazilian government has built on an existingcattle-tracking system to control the spread of hoofand-mouthdisease. Environmental compliance of landholdersis now also tracked, incorporating the deforestationBeyond Energy: Low-Carbon Paths in Cities and Forests | 59
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demonstrate that chain-<strong>of</strong>-custody tracing was reliable andfeasible, and that verifiably sustainably produced productscommand a market premium, other agriprocessors might“green” their own supply chain. This could drive unsustainableproducers out <strong>of</strong> business.Agribusiness at the forest frontierDeforestation in the Brazilian Amazon is largely drivenby conversion to pasture and soy. Over the period 2002–07, IFC made three loans in the Brazilian Amazon: twoto a soy processor (Amaggi) and one to a beef processor(Bertin). <strong>The</strong> projects aimed to demonstrate sustainableagribusiness practices in the sector by building clients’ environmentalmanagement capacity. Both loans attempteda “law abidance” strategy—that is, to bring the respectivefirms and their suppliers into compliance with Brazilianenvironmental, social, and land tenure legislation, therebyreducing deforestation in the Amazon.Under the IFC loan, the soybean processor committedto ensuring that all soybeans grown on its farms andall soybeans purchased from prefinanced suppliers meetBrazilian and IFC environmental and social regulations.With the beef company, IFC sought to ensure compliancewith Brazilian legislation for all Bertin suppliers, as wellas to develop a chain <strong>of</strong> custody system to track animalsthroughout the supply chain.IFC loans to agriprocessors in the BrazilianAmazon attempted to bring firms andsuppliers into compliance with Brazilianenvironmental law.<strong>The</strong> law abidance/chain <strong>of</strong> custody strategy, if successful,would ensure that IFC was not directly associated with deforestation.And, with the right conditions, it might havea market transformation effect. If the companies couldPhoto by Yosef Hadar, courtesy <strong>of</strong> the <strong>World</strong> <strong>Bank</strong> Photo Library.But the conditions for this scenario are stringent. <strong>The</strong> processorsneed to be able to trace the purchases to the point<strong>of</strong> origin—which is difficult because cows and soy can be“laundered.” <strong>The</strong>n the processors have to verify that theoriginating farms are in compliance with the law, a tasknormally undertaken by government. To motivate these actions,the processors would have to face a market in whicha significant proportion <strong>of</strong> buyers will pay a premium forsustainably produced goods. And it has to be possible tosustainably intensify production on farms and ranchesthat comply with the law. If any <strong>of</strong> these conditions fails,new investments at the forest frontier could end up simplyincreasing pressure on the forest.Outcomes. IFC and Amaggi succeeded in ensuring thatno new deforestation occurred on the company’s ownfarms or on those <strong>of</strong> prefinanced suppliers. <strong>The</strong> companyused a combination <strong>of</strong> satellite imagery, digital mapping,and field visits to verify the behavior <strong>of</strong> those suppliers.<strong>Development</strong> <strong>of</strong> this sophisticated monitoring systemserved the firm’s own quality control and fiduciarypurposes in addition to satisfying IFC requirements.However, a significant proportion <strong>of</strong> the company’s soypurchases were from the third parties that were outsidethe conditions <strong>of</strong> the loan agreement and for whichAmaggi had no capacity to identify the farm <strong>of</strong> origin.IFC’s agribusiness investments did notcatalyze deforestation, but neither did theycatalyze widespread changes in industrypractices.Little was accomplished under the environmental covenants<strong>of</strong> the agreement with the beef producer. Bertin hadagreed to develop an environmentally sustainable supplychain, including 100 percent traceability <strong>of</strong> its cattle fromfarm to final product , and to make 600 suppliers compliantwith labor, land acquisition, and environmental legislation.Although some progress was made with ranchesreceiving direct support from IFC advisory services, manysupplier were noncomplant. <strong>The</strong> company also purchasedslaughterhouses close to the Amazon biome in breach <strong>of</strong>IFC’s requirements, without first ensuring the sustainability<strong>of</strong> their supply chains. This noncompliance with IFC’ssocial and environmental standards was in effect when IFCdecided to disengage from the project.IFC wagered its reputation that these loans would tame,rather than encourage, deforestation. On one hand, both58 | Climate Change and the <strong>World</strong> <strong>Bank</strong> Group
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