As the 2023 United Nations Climate Change Conference approaches, deforestation remains a critical issue, not just a matter of phasing out fossil fuels, increasing renewable energy production, and enhancing energy efficiency.
Two years have passed since 145 countries signed the Glasgow Leaders' Declaration on Forests and Land Use during COP26. However, the outlook for this global vision is not optimistic. According to the 2023 Forest Declaration Assessment, the total global deforestation area reached 6.6 million hectares in 2022, 21% higher than the area needed to eliminate deforestation by 2030.
Decoupling deforestation from the trade of major agricultural and forestry commodities is indeed complex. Stakeholders in the value chain have vastly different interests and understandings of core issues, sometimes even conflicting. Beyond complex smallholder livelihood issues, there are concerns about food security, trade policies, supply chain security, and geopolitical tensions.
Despite these challenges, Brazil's deforestation rate in August this year dropped by 66.1% compared to the same period last year. This indicates that if there is cooperation and determination, the global pace of curbing deforestation could be much faster than imagined.
How can we find a breakthrough, increase determination, accelerate action, and create a zero-deforestation global food system?
Why focus on cooperation between China, the EU, and Brazil?
Brazil is a major producer and supplier of agricultural products to the international market, meeting the needs of a large global population. This is closely linked to Brazil's continuous efforts to develop crop and feed varieties, increase yield and productivity. Currently, over 50% of the world's soy consumption comes from Brazil.
The EU and China are Brazil's two most important trade partners in agricultural industry development. The EU is the main destination for Brazilian coffee exports and the second-largest for soybeans, palm oil, and their derivatives, as well as the third-largest for Brazilian beef, timber and processed products, cocoa, and rubber. In 2022, exports of products covered by the EU's Zero Deforestation Act amounted to $17.5 billion. Considering the impact of the US-China relations and the EU Zero Deforestation Act, trade between Brazil and China deserves more attention and analysis.
From this perspective, addressing deforestation through soft commodity trade between China, the EU, and Brazil is a key entry point with the potential to transform the industry, stabilize soft commodity supply chains, and mitigate deforestation in Brazil.
Building Consensus, Refining Regulations
In recent years, major production and demand markets have been working to curb deforestation, either through stricter trade requirements, more sustainable financial incentives, or better information disclosure and monitoring systems. However, these disparate processes urgently need to be coordinated for greater efficiency.
In June 2023, the EU Zero Deforestation Act, formulated after multiple rounds of negotiations, was finally introduced. The regulation aims to prohibit the import and trade in the EU of products produced in deforested areas after December 31, 2020, including beef, soybeans, palm oil, coffee, cocoa, timber, and rubber.
While this regulation may be good news for indigenous people and wildlife, its effectiveness will be limited if not aligned with actions in tropical forest countries producing these commodities. An inclusive and diverse international cooperation mechanism must be established to facilitate dialogue, consensus, and collective action between producer and consumer countries. One of the immediate priorities is to identify and categorize different regional risk levels in the EU Zero Deforestation Act. Considering the vast differences within countries, the EU needs to study not only the high-risk and low-risk classifications of different countries but also recognize that a country can have high-risk and low-risk areas internally.
There is significant international cooperation space in establishing sustainable agricultural and forestry commodity supply chains. Brazil's Plano Safra 2023/24 (2023/24 Harvest Plan) emphasizes transforming degraded pastures and creating integrated crop-livestock-forestry systems. This mechanism, which aims to balance forest conservation and production through reforestation and agriculture, requires substantial investment, where China and the EU can play a significant role.
Mobilizing Capital Markets, Reshaping Product Markets
The private sector, especially large traders, plays a key role in curbing soft commodity-driven deforestation. In this complex supply chain, traders are centrally positioned in transactions with upstream producers, including smallholders, and downstream consumer goods companies. In soybean imports, Bunge, Cargill, COFCO International, Louis Dreyfus, and Wilmar collectively account for over 80% of the soy supply entering the Chinese market. To fully leverage the private sector's power, the World Economic Forum's Tropical Forest Alliance launched the China Green Supply Chain Working Group, encouraging companies entering the Chinese market to make zero-deforestation commitments and strengthen supply chain management.
In mobilizing companies, capital is a powerful lever. Investment institutions can demand commitments from investee companies, provide information, and enhance corporate confidence and readiness. For example, the UK-based Legal & General Group requires over 700 of its investees in high-risk areas to make zero-deforestation commitments, disclose how they manage deforestation risks, and trace their suppliers, or face the possibility of divestment.
In fact, corporate commitments to purchase zero-deforestation soft commodities are strategic decisions and choices that do not necessarily mean sacrificing benefits. Data shows that achieving zero deforestation is not as operationally complex or costly as commonly thought. According to Brazil's soy production, producing 1 ton of soybeans in high-deforestation-risk areas requires an average of 0.32 hectares of tropical rainforest to be cut down or converted for agricultural use. Data shows that Brazil lost 2.99 million hectares and 3.31 million hectares of tree vegetation in 2021 and 2022, respectively, with an average of 18% caused by oilseed crops; this translates to a total of 1.134 million hectares of forest cover lost due to oilseed production. This means that as of December 31, 2020, the 3.54 million tons of soybeans produced in Brazil were associated with deforestation, accounting for less than 6% of China's total imports. From this perspective, importing companies still have considerable room for maneuver.
In April this year, China's Mengniu Dairy Group became the first dairy company in the country to commit to achieving a zero-deforestation and land conversion supply chain by 2030. During the China International Import Expo in November, Mengniu's Modern Dairy signed a memorandum of cooperation with COFCO International, reaching an agreement to purchase "zero-deforestation" Brazilian soybeans. This soybean order is of milestone significance, sending a positive market signal to the global commodity market from China.
To comprehensively curb deforestation, all companies in the supply chain and all national governments need to control deforestation and land degradation both domestically and internationally. By refining relevant regulations and mobilizing the private sector, a true global vision for forest conservation can be realized, addressing the climate and biodiversity crises before 2030.
