‘It’s the contamination effect’

While JBS, Marfrig and Minerva go unscathed from the effects of deforestation, other sectors of the Brazilian economy are wary that the rainforest fire crisis will have a negative effect on their businesses, even if their operations are located far from the rainforest. At the start of July, leaders of 38 large companies and four trade associations sent a letter to Vice President Hamilton Mourão, warning that the country’s negative image overseas “has a potentially damaging effect on Brazil, not only from the reputational point of view, but effectively for the development of business and projects that are fundamental for the country.”

The movement has grown, and the letter now has 72 signatories, according to the Brazilian Business Council for Sustainable Development (CEBDS), which is leading the initiative. Among those that signed are pulp and paper manufacturer Suzano, whose chief financial officer, Marcelo Bacci, has spoken of taking a map to meetings with foreigners to convince them that the company’s production units are located far from the Amazon.

“Pretty soon, we will see companies in the Pampa in Rio Grande do Sul [the southernmost state of Brazil] being impacted by what goes on in the Amazon,” says Robson Dias da Silva, a professor of economics at Rio de Janeiro Federal University (UFRRJ). “It’s the contamination effect,” he says, adding that those depending on foreign investment could have a harder time getting funding, or have to pay higher interest on loans.

Cole Martin, senior agribusiness analyst at Fitch Solutions, says efforts like Suzano’s map and product tracking may not be enough to prevent Brazilian exporters taking a hit. “For companies that import, it could be hard to track and verify what is legal and what is not, especially the indirect suppliers,” he says. “Instead of running the risk of purchasing something that has to do with deforestation and create a problem for the company, over time it will probably be easier for them to simply establish that they don’t buy anything from Brazil.”

The concern over this “contamination effect” also led the president of the Brazilian Agribusiness Association (ABAG) to sign the letter. In a press conference on Aug. 12, Marcello Brito called for the federal government to set a clear target for reducing deforestation. He also took a swipe at declarations made by President Bolsonaro, for whom the international pressure to preserve the rainforest is cloaked in business interests.

“We need to dig in and be more mature when discussing these issues because business interests will always stand firm,” Brito said. “The most important thing is to identify the collective conscience that evolves quickly — that’s what we need to touch on. It will be the collective actions of environmental and socially sustainable production that will fill in this future business space against any geopolitical barrier.”

Also in July, another initiative showed that deforestation is a problem that has expanded beyond the radar of environmentalists and now concerns economists. Twelve former finance ministers and five former central bank presidents signed a letter advising the government to set a path toward a low-carbon economy. The signatories include a broad spectrum of political figures, including former president Fernando Henrique Cardoso (from the PSDB party), Pedro Malan, who was the finance minister in the administration of Fernando Collor (PROS), and Nelson Barbosa, who headed planning for the administration of Dilma Rousseff (PT).

The Ministry of the Economy, headed by Paulo Guedes, said in an email to ((o))eco that “it is undeniable that illegal deforestation in the Amazon immensely harms the Brazilian economy and population” and that “even though illegal deforestation is an historical problem, today we have a national image problem that we know the government had the responsibility to address.” See the ministry’s full response here.

“A warning light came on because the topic migrated from the Ministry of the Environment to the Ministry of the Economy,” says Silva, the economics professor. “Soon, Avenida Paulista [Brazil’s Wall Street] will start to have trouble raising capital because the Brazilian seal has been burned.”

European trade deal in doubt

The most glaring economic impact for now is the possible failure of the trade agreement between the European Union and the South America trade bloc Mercosul (Mercosur in Spanish). The accord was signed in June 2019 following 20 years of negotiations, and in order for it to come into effect, it must be ratified by all member countries. But citing increased deforestation in the Amazon, the Netherlands parliament has rejected the accord, and legislative bodies in Ireland, France and Belgium have already sent out signals along the same lines.

On Aug. 21, German Chancellor Angela Merkel said she has “serious doubts” about the implementation of the accord due to increased deforestation in the Amazon. Her statement came after a meeting with Swedish environmental activist Greta Thunberg.

According to the German Embassy in Brazil, “information about increased deforestation could have a negative impact on public opinion in other members of the European Union as well as the desire of many parliament members to ratify this accord.” The Brazilian Ministry of the Economy said the “possible concerns” on the environment will be dealt with under the agreement and that not internalizing it “is to undermine these institutional advances and … the environmental agenda of bilateral interest.”

Martin from Fitch Solutions puts it more plainly: “The agreement between the EU and Mercosul is dead for the moment.” Based in London, Martin says he is closely following the launch of the European Green Deal, an economic pact on environmentally sustainable created to stimulate the post-pandemic economy. Among the many measures laid out for the coming years — such as an expansion of environmentally protected areas, reduced pesticide use, and lower meat consumption — is a proposal to keep products associated with deforestation off the European market.

This report is the fifth in a series investigating the relationship between the financial market and the Brazilian beef industry. If you would like to contact the newsroom with a suggestion for further reporting, write to: [email protected].

This story was originally published in Portuguese by ((o))eco. 

Banner image of a farm surrounded by smoke from burning in the municipality of Novo Progresso, Pará estate. Image by Marcio Isensee e Sá.

Article published by Xavier Bartaburu
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