Investment Institute

Industrialised agriculture: How the reliance on soybean harms biodiversity

  • 26 October 2020 (5 min read)

The leaders of the world’s largest economies came together in September to commit to putting the environment at the heart of their COVID-19 recovery strategies. The Leaders’ Pledge for Nature aims to reverse biodiversity loss by 2030 via “meaningful action and mutual accountability”, looking particularly at unsustainable production and consumption1 .

While this is an ambitious target that will be tackled with high-level policy changes, we can look to a humble legume to provide an example of what needs to change, and why.

The soybean is a basic staple of food and feed, but its influence on global biodiversity should not be underestimated. Such is its popularity, the land area devoted to its production more than quadrupled over the last 50 years2  – while other major crops have increased by around a third.

In absolute numbers, that represents more than one million square kilometres – equivalent to the total combined area of France, Germany, Belgium and the Netherlands.

However, it is also a crop that is particularly threatening biodiversity systems, whether through deforestation or other measures, and its expansion remains relentless. The United Nation’s Food and Agriculture Organization (FAO) suggests soy production will almost double by 20503 .

Brazil has become the world’s largest producer of soy – and it is no coincidence that it is also the country with greatest levels of deforestation4 . A major part of Brazilian deforestation has been for soy cultivation, and the land claimed for production is only one issue. Intensive agriculture can contribute to many other problems including the spread of diseases as well as pressure on water supply and pollution.

These environmental effects risk the well-being of future generations. They contribute to irreversible climate change and exacerbate biodiversity loss, which presents a major a challenge for active investors seeking to protect the planet and portfolios deep into the future.

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Soybeans: An agricultural lynchpin
Source: WWF, 2014. The Growth of Soy: Impacts and Solutions.
Soybean production on the rise
Soybean production on the rise

Brazil at the forefront

Brazil, Argentina, Paraguay, Uruguay and Bolivia are responsible for more than half of global soybean production. An area roughly the size of France is used in South America for soy agriculture, according to the FAO. From 1995 to 2018, combined soybean production from these countries increased three-fold and is expected to keep growing over the next decade, with further land use expansion for soybeans projected to come at the expense of wild pasture.

In the past 50 years, Brazil has emerged as one of the largest agricultural exporters in the world, playing a major role in the global supply of beef, poultry, soy, sugar, oranges and coffee. Agriculture now accounts for over 30% of the total land area of the country. In this export-oriented industry, soy production has increased faster than any other crop.

As an example, about six million hectares are already used for soy in the Brazilian region of Mato Grosso, but Brazil is still offering another 50 million hectares for the same purpose, mainly in the same region. Overall, estimates suggest Brazil’s domestic soybean output will grow by 20% in the next decade (from 120 million tonnes in 2018 to 144 million tonnes by 20285 ).

The expansion and intensification of Brazilian agriculture has generated substantial economic benefits for the country. As foreign investment by multinational food companies increased, the soy sector became more vertically coordinated and internationally integrated. Agribusinesses have connected distant consumers with the fruits of Brazil’s tropical savannah. The soy industry became increasingly concentrated through the 1990s and 2000s, and a mere six traders now control most of the soy market in Brazil.

However, the economic benefit has come at huge environmental cost. Soy production has been one of the main drivers for the loss of primary forests and unique wetlands in the Amazon, Pantanal and Mato Grosso regions. Over the last 40 years, 18% of the forest in the Legal Amazon region, 50% of the native vegetation in the Cerrado, Pampas and Caatinga biomes, and 88% of the native vegetation in the Atlantic Forest zone has been cleared, primarily for agriculture6 .

The “Amazon Soy Moratorium”, an agreement signed in 2006 to ensure that soy production in the Amazon does not occur through deforestation of native vegetation, helped to decrease some of the pressures. But since President Jair Bolsonaro won power in 2018, regulation has loosened, and deforestation has increased7 .

How can investors play a role?

In the face of this challenge, the question of how responsible investors can address these issues is crucial. Long-term, active asset managers seek to encourage sustainable practices when allocating capital to different stakeholders in the agricultural value chain. But this value chain is a complex web of activities, outcomes, and drivers - and what “sustainable practices” means is dependent on the activity of each individual player.

The identification of companies using good or bad practices, meanwhile, remains challenging. AXA IM’s research has shown that there are two main businesses through which investor engagement can reach deeper into this market: global traders and consumer-facing companies. We believe asset managers directly invested in some of these companies have the potential to influence many other players in the value chain.

In this way, responsible investors can help drive the reconciling of immediate global consumer demand with the deep long-term benefits of protecting the natural world.

A broader public understanding of the threats and more ecological regulation is needed to better protect biodiversity, but companies and the providers of capital are at the heart of the matter. Investors must robustly engage companies on these issues where they can. The agricultural value chain is a complex beast, dispersed across a wide array of players, but with a focused and active approach we can target the key points in that value chain where a tangible and positive difference can be decisively made.

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