Livestock Intensification And The Role Of Finance In The Food System Transformation In Brazil

Abstract

The potential for the Brazilian cattle sector to increase production while concurrently reducing pressure for land expansion is widely recognized. With mounting evidence that land use change amplifies the impacts from global climate change, a transition to climate resilient and low-carbon agriculture becomes imperative and unavoidable. This analysis explores possible contributions of the Brazilian beef cattle sector can make to a Food System Transition (FST). The results of this analysis show a large potential to increase productivity and spare land for other uses, but several socioeconomic and political economy challenges will need to be overcome, such as increasing access to finance and technical assistance as well as a tightening of environmental governance across the country. Adopting intensification practices can increase farm profitability and have payback periods of months to a couple of years but require up-front investments that pose challenges for farmers with low access to finance. While results indicate that realizing the land-sparing potential of the cattle sector is not free from macroeconomic frictions, there are also socioeconomic opportunities for the country in a global FST trajectory. However, capturing the opportunities will require well-designed policies that can link multiple objectives and maximize the synergies across the environmental, health, and inclusion domains.

Generated Summary

This working paper, produced by the Food System Economics Commission, investigates the potential of Brazil’s beef cattle sector to contribute to a Food System Transition (FST). The study employs the Model of Agricultural Production and its Impact on the Environment (MAgPIE) to assess various scenarios, including a business-as-usual (BAU) scenario, and full FST pathways. The research examines the outcomes of implementing different measures focused on climate, health, inclusion, and environmental outcomes. The FST pathway involves bundles of measures aimed at reducing trade-offs and includes technical interventions in food production and a shift towards the EAT-Lancet healthy reference diet by 2050. The study aims to identify opportunities and challenges associated with transforming the Brazilian cattle sector to align with sustainable food systems principles, considering environmental, health, and socioeconomic dimensions.

Key Findings & Statistics

• Brazil is the second-largest beef-producing country globally and exports 20% of its production.
• Main destinations for Brazilian beef exports include China, Egypt, and Russia.
• The sector is the primary driver of deforestation in Brazil, especially illegal deforestation for land grabbing.
• In 2019, the Brazilian domestic market consumed 25 kg of beef, 40 kg of chicken meat, and 12 kg of pork per capita per year.
• Over 200 million heads of cattle are managed on about 200 million hectares (Mha) of pastures and rangelands in Brazil.
• There are approximately 60 Mha of pastures in advanced stages of degradation.
• The 2015 Brazilian nationally determined contributions to the Paris Agreement pledge (NDC) relied on improvements to livestock production to deliver GHG reduction targets.
• The Plan had mixed success in its first phase ending in 2020, but did manage to support the adoption of better management practices in livestock production in the end 22
• Early barriers to adoption of low-carbon livestock management practices like integrated livestock-crop-forestry (iCLF) systems 23 have not been completely overcome.
• Market loss is a very material risk for the sector as the European Union (EU) recently enacted legislation banning deforestation-linked commodities from being imported into the bloc.
• The opportunity for closing the pasture-to-carcass yield gaps are also associated with improved production and economic resilience of not only the cattle sector, but the agricultural sector in general.
• The FST is implemented via bundles of measures to reduce trade-offs that would emerge if individual measures were to be introduced by themselves.
• Figure 1 shows a heat map summarising the main results of the study with resulting outcome indicators for a business-as-usual (BAU) scenario based on the Shared Socio-economic Pathway 2 (SSP2) in 2050 and the changes relative to it from the packages of measures and the full FST pathways.
• The most beneficial health and environmental outcomes are accompanied by mostly trade-offs in both inclusivity and economic outcomes.
• The intensification of agricultural production reduces land demand relative to BAU.
• The steep reductions in pasture area are linked to the diet shift away from livestock products which leads to reductions in methane (CH4) emissions from enteric fermentation.
• Reductions in nitrous oxide (N2O) emissions are associated with agricultural management changes, including improved nitrogen use efficiency (NUE), better manure management practices and lower synthetic fertilizer applications
• The increase in investments and costs associated with the transformation cause agricultural commodity prices to increase, and this can lead to increased food insecurity.
• The intensification of agricultural production in general leads to a drop in agricultural employment relative to BAU in 2050, deepening this secular trend caused by increased mechanization.
• A global health-conscious diet shift on its own would lead to reduced net trade and agricultural gross value-added (GVA) for Brazil but if it happens alongside climate and nature positive policies worldwide, Brazil’s favourable soil and climate conditions means it can produce agricultural commodities that meet the specifications of these polices and the country is able to maintain its volume of trade, although with some reduction in agricultural GVA compared to BAU.
• For Brazil, ending illegal deforestation, providing incentives for sustainable resource use, and increasing access to finance are three key policy recommendations to steer the agricultural sector towards more environmentally friendly and inclusive practices 24.
• A 2020 World Bank policy note reported that most rural financing goes to a small number of large farms, while over four-fifths of Brazilian farms have no access to credit.
• Brazil’s agricultural financing landscape is complex with a number of funding programmes and distribution channels.
• Brazil’s agricultural financing landscape is complex with a number of funding programmes and distribution channels (Feltran-Barbieri & Feres 27 identify 11 different sources and 13 credit programmes for soil management and restoration for ranchers between 2013-21)

Other Important Findings

• The potential for the Brazilian cattle sector to increase production while reducing pressure for land expansion is widely recognized.
• A transition to climate-resilient and low-carbon agriculture is crucial.
• Adopting intensification practices can increase farm profitability.
• The land-sparing potential of the cattle sector is not free from macroeconomic frictions.
• The FST aims to align with positive social welfare outcomes across public health, social inclusivity, and environment.
• Reducing overconsumption of livestock products can help balance trade-offs.
• The Brazilian livestock sector operates at a chronically low efficiency.
• The Brazilian domestic market is fueled by a meat-intensive national diet.
• The continuing association of cattle rearing with deforestation poses risks.
• China is also considering similar regulation to the EU, which would be a major shock to Brazilian cattle producers.
• Opportunities for improving cattle production exist in a fast-changing world.
• At national and sub-national levels, there may be trade-offs and barriers relating to governance, financial, and political economy constraints.
• The report examines what the global FST may mean for Brazilian agriculture, especially its cattle sector.
• The report examines the outcomes of implementation of the FST packages of measures, each in turn separately focusing on climate, health, inclusion and environment outcomes.
• Land sparing opens space for alternative land uses.
• Carbon pricing would provide incentives for renewable energy sources.
• A global health-conscious diet shift could lead to reduced net trade and agricultural gross value-added (GVA) for Brazil.
• The increased investments imply increased financial flows to sustainable agricultural practices.
• Diet change is a chronic process, while divestment is an acute risk.
• Large meat producers are exposed to divestment risk.
• Lack of access to rural credit is associated with lower investments in intensification.
• Improving access to credit with environmental covenants is a low-hanging fruit for transforming the livestock industry.
• Several incentive structures have been proposed and approved, like the Green Beef Stamp.

Limitations Noted in the Document

• The study relies on the MAgPIE model, which may have limitations in representing all aspects of the complex agricultural system.
• The model’s simplification of livestock distribution and GHG emissions could affect the accuracy of the results.
• The study acknowledges potential trade-offs and barriers related to governance, finance, and political economy.
• The study does not cover ecosystem service feedbacks, such as those related to yields and pest control.
• The study assumes that water is made available by storage infrastructure.
• The study does not account for all the complexities of food systems transformation.
• The study’s scenarios may not fully capture the impact of diet change.

Conclusion

The study underscores the potential of the Brazilian beef cattle sector to enhance production while reducing land expansion, emphasizing the necessity of a transition towards climate-resilient and low-carbon agriculture. The research highlights that this transformation demands overcoming socioeconomic and political-economic hurdles, particularly increasing access to finance and tightening environmental governance. The findings indicate that while intensification practices can boost farm profitability, they also demand upfront investments, posing challenges for farmers with limited financial access. The analysis suggests that realizing the land-sparing potential is not without macroeconomic complications, yet it presents socioeconomic possibilities for the country within a global FST trajectory. Key takeaways include that capturing these opportunities requires well-designed policies that integrate multiple objectives and optimize synergies across environmental, health, inclusion, and climate domains. Moreover, the current discussions about deforestation-linked commodities and the associated financial risks indicate the need for proactive adjustments in the livestock sector to align with sustainable practices. Therefore, the Brazilian beef cattle sector can make substantial contributions to such a transition by harnessing its large unrealized environmental potential to increase productivity and spare land for other uses.