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Trade-Driven Soy Agriculture in Brazil and Impacts on Sustainability

WORKSHOP REPORT

25 to 27 March 2002 Brasilia, Brazil

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CONTENTS INTRODUCTION

1. DAY ONE 1.1 WWF PROJECT ON SUSTAINABILITY ASSESSMENT

Claudia Saladin (WWF US) 1.2 OVERVIEW OF THE BRAZILIAN CASE STUDY ON SOY

Charles Mueller (Project Consultant) 1.3 PART ONE: SOYBEAN IN BRAZIL, A BRIEF HISTORY

Jorge Madeira Nogueira (Project Consultant) Discussion Points

1.4 PART TWO: THE POLITICAL ECONOMY OF SOY PRODUCTION IN BRAZIL

Jose Madeira Nogueira (Project Consultant) Discussion Points

1.5 PART THREE: INVESTIGATION OF THE SUSTAINABILITY OF SOYBEAN PRODUCTION IN

BRAZIL Mercedes Bustamante (Project Consultant) Discussion Points

1.6 PART FOUR: POLICY RECOMMENDATIONS FOR THE SOY SECTOR

Mauro de Resende Lopse (Project Consultant) 1.7 PART FIVE: TARIFF AND EXTERNAL TRADE POLICIES AND THEIR EFFECTS ON THE

SUSTAINABILITY OF SOYBEAN PRODUCTION Mauro de Resende Lopes (Project Consultant) Discussion Points for Parts Four and Five

2. DAY TWO 1.1 SUMMARY OF KEY POINTS FROM DAY ONE

Part One Part Two Part Three Part Four Part Five

2.2 MESSAGES 2.3 WWF EU-MERCOSUR REPORT

Mikel Insausti (WWF/EPO) ANNEX 1: AGENDA ANNEX 2: LIST OF PARTICIPANTS ANNEX 3: SUMMARY OF THE COMMENTS SUBMITTED ON THE CASE STUDY ON SOY AND SUSTAINABILITY IMPACTS

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INTRODUCTION The meeting took place in Brasília, Brazil, 25 to 27 March 2002 (see Annex 1, Agenda). It gathered together all members of the team directly involved in the preparation and implementation of the case study. In addition, participants from different national and international organizations (some of which are members of the peer review committee for this case study), staff from WWF Brazil and WWF US attended the meeting (see Annex 2, List of Participants). The principal objective of the workshop was to discuss, and provide comments on the fist draft of the case study of soy production in Brazil with a view to providing feedback to assist in finalizing the study.

• Discussion and debate concerning the case study findings with the participants; • Discussion of key opportunities and obstacles for subsequent advocacy and communication

activities related to the case study.

The workshop began with a general presentation of WWF’s project on sustainability and an overview of the Brazilian case study on soy. It then moved into more detailed presentations of Parts One to Five of the case study. Each session was followed by a period of discussion. The second day began with a summary of the key issues raised during Day One. It then moved to present and discuss a recent WWF study on practical mechanisms that could be included in the EU-Mercosur negotiations to support the environment. This report presents the key points raised in the presentation and the discussions.

1. DAY ONE 1.1. WWF PROJECT ON SUSTAINABILITY ASSESSMENT

Claudia Saladin (WWF US) The principal aim of this session was to provide information to the participants on the WWF Sustainability Assessment Project. Key points raised during the presentation were as follows: • Sustainability Assessment (SA) is a tool that can maximize the positive effects of trade liberalization and help to mitigate or avoid the negative impacts. • Many approaches are being developed, including those by governments such as the United States and Canada, and also those in international institutions such as the OECD and UNEP. • WWF is committed to making SA work in the context of a project aimed at carrying out a mix of advocacy, capacity building, and case study activities. • SA begins with environmental and social/developmental concerns, asking whether or not an agreement or sector is sustainable and, if not, how to change unsustainable trends. • SA relies on a multistakeholder process, involving government officials and civil society groups affected by trade and with expertise on trade-related issues. • The project’s vision and goals were introduced, and an overview of progress to date was presented. This included a presentation on the objectives and main elements of the case study on soy in Brazil. A short discussion followed that focused on: • Interest from, and relevance to, government, the private sector and civil society of SA; • definition of ‘sustainability’;

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• Genetically modified organisms (GMOs) and (using GMOs may not necessarily be to the long-term advantage of farmers).

1.2. OVERVIEW OF THE BRAZILIAN CASE STUDY ON SOY

Charles Mueller (Project Consultant) The principal aim of this session was to provide information on the current status of the soy case study in Brazil. The main points raised during the presentation were the following: • The different sections of the case study need to be consolidated into one single report, on the basis of which, a set of conclusions and recommendations will be developed. • The workshop provides an important opportunity for reviewing and finalising the first draft of the study. While comments previously received on the study may be conflicting, an effort will be made to take all comments and input into consideration in the final draft. • Key characteristics of the soy sector in Brazil are important background elements for the case study. These include: (i) government credit to the sector is in total around 12 per cent of the total needs, the most part of the money coming from the multi-national companies; (ii) in Brazil soy is harvested twice a year—there is a main harvest, and a so-called “small harvest”—and between the soy harvests, corn is planted and harvested. • In comparison with the United States, Brazil has a harvest in the winter, which is one factor that contributes to more intense impacts on the environment; and (iii) in contrast with the United States, there is no official production of genetically modified (GM) soy in Brazil although introduction of GM seeds is likely to have important environmental impacts for soy production in Brazil. 1.3 PART ONE: SOYBEAN IN BRAZIL, A BRIEF HISTORY

Jorge Madeira Nogueira (Project Consultant) The principal aim of this session was to present information demonstrating the importance of soy to the Brazilian economy. The main points raised during the presentation were as follows: • Soy production passed from “marginal planted area” during the 1960s to one of the most important crops (in terms of planted area, production and exports) in Brazil today. Brazilian soy plantations have developed more quickly than those in the United States. Soy makes up around 16 per cent of Brazilian agro-business and contributes around 6 per cent of the Brazilian gross national product (GNP). • Around 1 million people are employed in the soy sector in Brazil. • The development of soy in Brazil began in the 1980s with its expansion into the Centre West Region. Soy is one of the most important elements in the recent occupation of this region. For the most part during the 1970s and 1980s soy was grown on areas already occupied by other crops or activities (such as cattle raising). There is no information about substitution of areas planted with other crops or activities by soybeans during the 1990s. • Around 82 per cent of producers are individual producers and others are partners or renters. • Soy production is increasing in most of the production units of over 1000 hectares in the Centre West Region (Cerrado). Most of the production units in the South Region (the initial frontier) are now less than 1000 hectares in area. Normally the environmental impacts are associated to the big plantations, capital intensive, which could provide “gains of scale”. The big plantations are located in the Cerrado region, where the devastation is more visible. The most important cause of the devastation, however, is not the size of the farm, but the way Centre West Region, a frontier region 30 years ago, was occupied by the expansion of the agriculture prior to the introduction of soybeans. Another possible cause of environmental damage are the techniques which encourage

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pollution and erosion. Therefore, the impacts are not necessarily caused by the size of the farms, but by the uncontrolled occupation process into a very ecologically sensitive region – the Cerrado- without taking into consideration the environmental aspects of the production. • Producers are becoming larger. The production in the frontier today (the buffer zone between the Cerrado and the Amzon in the northern part of the state of Mato Grosso, the northwest part of the State of Bahia and the Southwest part of the States of Maranhão and Piauí) is generally big made by producers on large properties. In the South, producers who are able to, are buying new properties to increase their competitiveness. Areas where production is increasing in Centre West and Northeast Regions is focused in the states of Mato Grosso, Goias and Mato Grosso do Sul. • This part will also consider issues related to trade balance, use of graphs, few tables, and the analysis will compare production in the 1960s with production in the 1980s. It will also take into account the fact that from an environmental perspective, an analysis of the planted area is more relevant than an analysis of the areas under production. The planted area refers to the area which is currently planted with soybeans for harvest. The production area is the area “reserved” for soy plantation (the area used in the past but which is not currently being used, plus the planted area). Discussion Points • Emphasis should be placed on what makes the soy production “penetrate” into the Cerrado (such as new varieties and other dynamics). • With respect to the structure of the industry, in the South it tends to be based on small properties and co-operatives. In the Centre West Region there is a different structure. Soy has not traditionally been associated with the history of the Centre West Region and was only introduced around 30 years ago. Expansion of agriculture into the Centre West Region began in the 1930s and did not include soy. Once soy was introduced into the region, a social and economic structure already existed, one of its main elements begin cattle ranching which had already had an impact on sustainability through conversion of natural vegetation to pasture land. • A section will be added to the study discussing the trade balance. Brazilian production is no longer principally directed towards the export market. Today Brazil exports around 40 per cent of the soy production compared with around 70 per cent in the 1970s. Increases in production have been directed at the internal market and value added has come from that market. • The history of production in the Centre West Region is divided into three phases. Phase One is characterised by the introduction of rice in the region, which “opened” much land in states such as Goias and Mato Grosso do Sul, first, and then Mato Grosso. In Goias the production is now diversified. Activity in Mato Grosso do Sul is still characterised by extensive cattle ranching. Phase Two is characterised by the location of industrial plants for crushing. During this Phase, production areas were occupied by the large producers on big properties. The production is now industrialised in the Centre West Region, instead of requiring transportation to the South. Phase Three is characterised by the expansion of the planted area, but the implementation of new factories (plants) is not assured. Economic policies are important for this Phase, to the extent that they encourage the expansion of the production into new areas. • There are different levels of sustainability depending on the region where the plantation is located and on its specificity like climate, soil, or land use. It is therefore important to conduct research in the field to correctly identify problems related to sustainability at the regional level. • Requirements for infrastructure and other logistics will expand as production expands. • The study would benefit from more precise information on production costs associated with the use of agricultural inputs. The two items which impact the most on the final price are transportation costs and the costs of agricultural inputs. • The report should indicate that soybean production in Centre West Region started in the state of Mato Grosso do Sul. The other states in the Cerrado where first used for cattle ranching and rice

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plantations. Production is now expanding in the Cerrado. As production increased in the Centre West Region, it decreased in the South Region. Production is currently also expanding into the states of Maranhão and Piaui, in the Northeast Region. • Producers should be divided between those in the South Region where there are rural properties producing soy on less than 50 hectares, and those in the Centre West Region • The focus for rural development in the South Region occurred during the 1970s after which, production expanded toward the Centre West Region. • In the Cerrado, mention should be made of the substitution of coffee by soybean production. • Data costs for soy production is available from the Zero Tillage Association for the Cerrado. • The study should consider the geographical distribution of production, separating total country production into regions or geographical areas and allowing for the identification of soy destined for domestic consumption and that destined for export. • The study should consider the extent to which total investment comes from internal sources and how much is from FDI. • A short discussion on the role of subsidies might be useful, even if they are no longer applicable to the soy sector in Brazil. • Information should be organised according to economic, social and environmental issues. • Both sections should include a clear identification of their focus, and UNEP’s Manual on Integrated Assessment might be a useful tool. • It is important to highlight the role played by cattle ranching in the Cerrado. • The study should explore the exogenous causes of soy development in the Centre West Region. • With respect to the future of soy, the report should consider whether exports are expected to be lower in absolute terms in the future, and it should further consider the implications of recent growth in production of poultry for both internal and external consumption. • The consultant cited time constraints and noted that further data will be included in the final version. 1.4 PART TWO: THE POLITICAL ECONOMY OF SOY PRODUCTION IN BRAZIL

Jose Madeira Nogueira (Project Consultant) The principal aim of this session was to provide a better understanding of the main actors involved in the soy sector in Brazil, as well as the actors' and soy sector's connection to the international economy. The main points raised during the presentation were as follows: • Existing literature on the political economy of the soy sector is scarce. • Questionnaires were developed to generate information and a number have not yet been responded to. • The Soy complex includes agricultural production and the institutional (organisational) environment. • There has been remarkable growth in Brazil’s internal market for soy consumption. This is because demand for animal feed is increasing internally in Brazil, as well as the fact that income growth following the stabilisation of the Brazilian economy has provoked, among other things, the growth of meat consumption. • The three main products derived from soy (including beans, milk and meat) have a potential market. • A very representative part of the processing capacity still exists in areas that represent the old agricultural frontier—the South and Southeast. Idle capacity stands at around 40 per cent. There is a question about whether this excess capacity is useless, or whether it is still able to add value to production. This issue is related to public policies to encourage the industrial sector or to tax policies, which could discourage the expansion of the industrial production.

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• Refining plants are located in the big urban centres. • Fertilisers are responsible for 44 to 57 per cent of total production costs. • Labour is responsible for 20 to 24 per cent of total production costs. • In the State of Mato Grosso, the costs are 20 to 40 per cent higher than in other production regions due to the distance from the industries. Despite this, producers from Mato Grosso have succeeded in increasing the competitiveness of their soybeans. • In Brazil, 67 per cent of transportation of soybeans is by road, 23 per cent by railways and five per cent by waterways. In total value, transportation costs average US$30 per ton in Brazil, compared with US$7 per ton in the United States where transportation occurs primarily on waterways, a relatively less expensive mode of transportation. • The taxation system in Brazil removes the added value in the soy chain. Discussion Points • The study might consider how comparative advantage is transformed into competitive advantage. If the transformation does not come from transportation costs or costs associated with agricultural inputs, perhaps it comes from the rotation process, from economies of scale, labour costs or technology. • An important group of actors are investors. It could be important to consider whether there is external credit available to the soy sector and if so, the role of multinational companies. • The production and distribution chain for the soy sector is complex. The report should include an analysis on internalisation of costs and the extent to which the agricultural sector captures income. Agricultural expansion can encourage environmental degradation such as pollution and erosion. At the same time, the environment provides a range of services (land and water) which are not “paid for”. In order to mitigate the environmental damage of agriculture investments should be made in environmental friendly technologies, recovery of degraded areas and other measures. Internalising the costs involves paying for the services provided by the environment. • The report should define what it means by efficiency in production and competitiveness. • Regional differences are important. For example, in the South Region the soil is better and fertilisation costs are lower. This is a crucial factor, which allows the production by small and medium size producers. • The many different varieties of soy seeds, adapted to different soils, contribute to added value in production. • Costs associated with transportation by rail are relatively low. WWF Brazil, using this report has an opportunity to encourage any expansion of plantations in areas where railways exist. Transportation costs by road are more expansive than transportation costs using railways. The farmer will spend less money using rail rather than using roads to transport production from the farm to the port on trucks. The use of rail can lower the transportation costs to the farmer. • Consider the possibility of increased imports into Brazil from neighbouring countries such as Paraguay and Bolivia, where many Brazilian producers are also located. • The report should identify the limits to expansion of plantations. For example, in the State of Mato Grosso the limits to the expansion should be the roughly five million hectares in the “areas of contact” between the Cerrado and the rainforest. Legislation at both the state and federal levels, actually prohibits expansion into the rain forest. • Attention must be paid to expansion of production into forested areas, particularly in the State of Mato Grosso where 12 millions of hectares are available for soybean plantations (3 million already under production). Productivity in the United States and Argentina is not expected to grow. The use of GMO seeds is not currently an issue in the Amazon Region. Given this, what are the chances for the conservation of the production in that part of the State of Mato Grosso? Any

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expansion should occur on land already degraded by pasture, avoiding expansion into forested areas. • Soil quality is an important issue related to competitiveness. The South Region has better soils, but not as much area, as the Cerrado. In general, Brazilian soils are low in phosphorus. The United States faces a similar problem in Florida, where the state relies on phosphorous imported form Africa to enrich its soil. In Argentina, lack of availability limits the extensive use of phosphorus. Nevertheless, Brazil’s two main competitors have more phosphorus in their soil than Brazil. Brazil compensates for this through technology, such as seeds that are better adapted to soils weak in phosphorus, which protects it in the future against competitors who could face diminishing stocks of phosphorous to add to their soil, without investing in technology and thereby increasing production costs. In the long run, the production of Brazil’s competitors is not sustainable from an economic perspective. Brazil’s key problem, on the other hand, is ecological sustainability and impacts of deforestation, for example, associated with the expansion of cattle ranching, which is more relevant than issues associated with expansion of planted areas for soy.

1.5 PART THREE: INVESTIGATION OF THE SUSTAINABILITY OF SOYBEAN PRODUCTION IN

BRAZIL Mercedes Bustamante (Project Consultant)

The aim of this session was to identify the highest priority problems in the soy sector contributing to unsustainability in Brazil. The main points raised during the presentation were as follows: • Some primary research may be required in this Part and has not yet been conducted. • In the second half of the 1970s soy expansion was vigorous in the South Region. By the early 1980s this region was responsible for around 85 per cent of production (8.8 million hectares/15.2 million tons). • The soy crop then “penetrated” the Cerrado in areas already occupied by other crops or activities. Expansion into the Cerrado was encouraged during second half of the 1970s and throughout the 1980s by government programs. • In 1990, the South Region was responsible for 58 per cent of the production. This had dropped to 48.8 per cent by 2000. • In the Cerrado Region, the State of Mato Grosso is the second biggest producer in the country. • A recent development is the so-called “North-South corridor” in the southern region of the State of Maranhão. • In the Cerrado the soy was implemented “technologically modern”. • It is not anticipated that there will be large developments in the Amazon Region in the coming years. The areas in Amazon that could receive soy are the savannah, the so-called “clean fields” (campos limpos) and areas that have already been deforested. Today, the total planted area in the Amazon Region is only 73 million hectares. A huge development of soy in the Amazon Region will require high investments. . • The most important development area for present and coming years is the north of the State of Mato Grosso. • The most important impacts of soy production in the North Region (Amazon) are the indirect ones, due to the transportation infrastructure (roads, railways and waterway) used to transport the soy production from the north of the Cerrado to northern ports. In the State of Roraima there are some factors linked to location, which allow the development of soy. These include relatively low cost access to Venezuelan markets and harvests during the period of plantation in the southern region (Roraima is located in the North Hemisphere). In the Amazon areas of the north of the State of Mato Grosso there is no evidence of expansion on primitive forest areas.

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• There are different environmental impacts associated with different types of physiognomy. There are also differences among impacts in areas previously occupied by other crops or activities and the ones in areas of recent occupation. The most frequent impacts are: erosion, loss of nutrients, soils compaction, eutrophication, water and soil contamination, the introduction of pastures introduction, and pesticide and herbicide use. Irrigation is not a huge problem, nevertheless the rotation system with other crops provokes different impacts due to these other crops. Some alternatives to the impacts are: zero tillage, integrated pest management, and chemical control in the uses of some pesticides. • The creation of a system of protected areas is urgently required in the Cerrado. The least protected area is the so-called “ecotone”, the buffer zone between the Cerrado and the Amazon. This region is the one most susceptible to the expansion of the agricultural frontier. The existence of species, which only occur in some specific areas, is the reason to justify this system of protected areas • The social impacts in the Cerrado region differ from the ones in the South Region due to the differences in production methods. In the Cerrado, production and productivity grew in a manner that did not include the distribution of land and was not labour-intensive, but rather, was the result of the incorporation of new technologies by large corporate producers operating on big farms. This has led to a higher degree of concentration of income in the Cerrado than exists in the South. Discussion Points • Sub-sections 3.1 and 3.2 should be moved to the background section in Part One. • Environmental problems should be analysed in the context of policies and how new policies can help address problems and how existing policies could be changed in order to address problems. • It is difficult to integrate social problems into a sustainability analysis. Consider using UNEP matrix including such issues as land use, demographics, migration, or changes in the informal sector. • Consider any impacts on climate change of carbon released from the soil although carbon sequestration is not very relevant for the Cerrado biome. • Consider the ecological integrity of the Cerrado. For example, it appears that “international impacts” are significant, and the economic benefits of conservation should be mentioned. • The discussion of transportation does not take into account issues of transportation in the Amazon. • The assessment by the Japanese Intergovernmental Co-operation Agency (JICA) Project has two important results that could be used in the case studies. The first is an assessment of the impacts of the irrigated production of soybeans in areas of gallery forests indicating that species better adapted to the dry space are dominant. The second lists the risks associated to the agricultural uses of fire and its environmental impacts. • EMBRAPA’s research should be emphasised. • Genetically resistant, technologically developed seeds have addressed problems related to pests and soy. • Integrated pest management had reduced by 50 per cent the use of pesticides, and in the other 50 percent of plantations has reduced the use of chemicals. • In the South Region, the government could implement policies to assist small producers keep their plantations through mechanisms to convert production to methods that use lower levels of pesticides. • Analysis on the expansion of the frontier through the North Region is optimistic, particularly given that it assumes that expansion will occur in converted areas. Perhaps EMBRAPA should encourage only the occupation of areas already converted.

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• The text affirms that the expansion process into the State of Mato Grosso, and forested areas, occurred first with rice and then soy. This should be revisited, particularly for recent years. A similar interpretation is applied to regions in the State of Bahia and to the southern region of the State of Maranhão, where the Cerrado is no longer a primary forest. • With respect to the issue concerning rotation or crops and disease, in certain regions corn is rotated with soy but this does not interrupt the “cycle of illness.” The introduction of a second crop does not eliminate the diseases or pests associated with the first one. With respect to integration with cattle ranching, in the Cerrado, there are six or seven systems of integration between cattle ranching and agriculture, which have been proven to reduce environmental impacts, particularly deforestation. These systems need to be encouraged by the adoption of appropriate policies such as financial incentives to the farmer to conserve and preserve nature and not to contribute to deforestation. • The report should make reference to soybean plantations in the High Paraguay River Basin and the Taquari River Basin where they are a huge problem. • Indirect environmental impacts associated to transportation in waterways should be mentioned even if they occur in areas where there are no plantations. • Consider using the terms “habitat conversion” as opposed to “forest conversion” • The report should be clear on the concept of sustainability in this section as it appears to differ somewhat from other parts of the report. • The report should emphasise fire use in the Cerrado as it is a serious problem. • The restriction on the expansion of soybeans is not only associated to the existing infrastructure, but also with climatic conditions. For example, in the city of Humaitá, where soybean is currently being planted, there is low productivity due to the rain cycle in the region. • There was a dispute as to whether GMOs provide economic benefits to production. 1.6 PART FOUR: POLICY RECOMMENDATIONS FOR THE SOY SECTOR

Mauro de Resende Lopse (Project Consultant) The aim of this session was to identify and analyze possible policy options for addressing priority problems identified in Part 3. Key points raised were as follows: • Two key issues where policy action should occur appear to be in the management of soils and water resources. This includes an examination of no-tillage techniques, as well as the use of herbicides. • With respect to soil management, there should be adequate credit policies for machinery and research to support no-tillage techniques and the reduction or elimination of chemicals. Targets should be set at 100 per cent no-tillage in the Cerrado in the next 5 to 10 years. • There should be a combination of economic incentive programs and command and control policies in place to promote “best practices”. • Economic incentives should be used to address the optimal integration of cattle ranching and agriculture in degraded areas. The Program for the Development of Agriculture (PRODEAGRO) should include some environmental issues in its incentives and credit lines. • Command and control policies should address key issues such as zoning. • Institutional capacity should be enhanced with respect to administration and human resources. • “Empowerment for conservation” programs at the local and state levels should be amended to incorporate environmental and social concerns. Stakeholder consultation and involvement is also important in this process. These programs such as the ecological ICMS, Legal Reserves and policies for environmental protection should also be technically enhanced. • With respect to social policies, because soy production is capital intensive and creates few jobs, policies should be put in place to compensate for this.

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• Policies should also be put in place to counteract, for example, the effects of migration from rural to urban areas. Such migration leads to concentration of land in a few hands as rural farmers sell their land to large producers. This might be addressed through a) the consolidation and emancipation of rural human settlement; b) the creation of trust associations and joint ownership; and, c) best management of natural resources. A target should be the emancipation and consolidation of 30 per cent of rural human settlement and implementation of trust associations and joint ownership in the Cerrado. • With respect to water resources, policies and production methods that avoid pollution of soils and sub-soils should be encouraged. Watershed Committees should be empowered and a program of forest gallery (vegetation in the margins of the rivers to prevent erosion) protection must be implemented. A target would be to ensure all the Watershed Committees are operational in 5 to 10 years. • With respect to infrastructure development, environmental impact studies should be strengthened to ensure the adoption of government policies for environmental protection along with major investment. The target should be to develop a portfolio of investments for environment. • Priorities for research policies should be defined and ways to promote co-ordination of capacities should be encouraged. • Zoning polices that organise the occupation of human occupation of the space should be enhanced. The target should be to define priority areas for crops; cattle ranching; preservation and conservation. • Policies related to social mobility should be developed that are oriented towards communities, develop a sense of community citizenship and encourage stakeholders participation. The target should be the implementation of crosscutting curriculum in community schools and the definition of community citizenship in rural areas. 1.7 PART FIVE: TARIFF AND EXTERNAL TRADE POLICIES AND THEIR EFFECTS ON THE

SUSTAINABILITY OF SOYBEAN PRODUCTION Mauro de Resende Lopes (Project Consultant)

The principal aim of session five aims to identify how key potential changes in the commercial context for soy are likely to impact the sustainability of the sector in Brazil. The main points raised during the presentation were as follows: • There are two key purposes associated with this section: 1) to facilitate coordinated decision-making, between trade, environment, fiscal policy, economic and development policies; b) to identify how trade and economic growth can promote sustainable development. • Tax policies are important; including the value added tax (ICMS), other domestic taxes, and export taxes. Other trade policies to consider include US subsidies, China’s entry into the WTO, market access, tariff peaks and escalation, and export subsidies. One question is: what is the bias introduced by these policies and negotiations? • Tax policies affecting the soy complex include Merchandise Circulation Tax ; PIS and COFINS Taxes; Social Security Contribution; CPMF; and State Taxes in Goiás and Mato Grosso. • There are a number of other policies related to international trade that effect soybean exports. For example, trade policies of Brazil’s trading partners including price supports that keep international prices low. • Tariff escalation is an important issue and should be eliminated. Discrimination against processed products such as oil and meal encourage the production in Brazil of the soybean. • In negotiations between the EU and Mercosur, key issues include: a) Balanced Crushing; b) environmental concerns; c) food safety; d) GMO-free poultry and hogs; and, e) product labeling. • General characteristics of soybean trade include the following:

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a) There is a strong bias in favor of production and exports of beans. b) There is a combined effect of domestic taxation, which discriminates against crushing. c) Subsidies from US push Brazil towards more competitiveness at a fast pace. d) Foreign demand – due to tariff escalation – is concentrated in beans, rather than a balanced combination of beans, oil and meal.

• Artificial prices and artificial demand for beans are pushing production in the direction of expansion of area and exports. • There are environment and sustainability problems in the Cerrado. They should be tackled with measures and policies such as those proposed in Part Four. The question is whether they are sufficient to counter balance the combined bias of domestic taxation and foreign demand and policies of export competing countries. • Without adequate domestic policies, taxation and trade-related issues could further aggravate the problems with respect to sustainability that already exist in the Cerrado. • Even if nothing can be done to reform trade-related policies, there is a need to adopt the policies set out in Part Four in order to promote sustainability in the Cerrado. Discussion Points for Parts Four and Five • The capacity of the government to adopt adequate policies in this sector should be considered. During the 1970s policies such as high subsidization contributed to the development of the sector to where it is today. These policies encouraged the concentration of land and extensive growth as well as the development of modern technologies. Many people do not think the government has the continued capacity to implement public policies to protect sustainability due to a crisis of credibility and legitimacy sparked in part by policies in the 1990s that encouraged timber exports, in part from illegal logging in the Amazon frontier. • With respect to soybeans, oil, and meat production, sustainability is affected by the expansion of the planted area. Whether or not the production is focused in grains or processed product, is a “market problem”. Environmentally sensitive areas should be defined, and those that are most sensitive should be protected. The issue of where production is directed (soybeans or processed products) is related to income distribution. If value is added to production and income distributed, the demand will shift from one product to another. These issues, as well as credit policies should not be linked to sustainability. Otherwise, investment in degraded areas to intensify production in those areas could be misunderstood by the private sector, resulting in more, not less, environmental damage. • Zoning should be linked to conversion of production. • Different taxation policies in different sectors may not be effective in Brazil where tax evasion is high. The soy complex is already highly taxed. • The issue of exchange rate devaluation as an incentive to export should be considered in the text. • The planning unit used as a basis for the policies proposed in Part Four should be defined. 2. DAY TWO 1.2 SUMMARY OF KEY POINTS FROM DAY ONE Part One • Discuss environmental (and social?) impacts of soy at beginning of report in summarized form

to demonstrate WWF’s main concerns about soy production. • Define sustainability and SA including WWF’s approach to SA and lessons learned from the

case study in Brazil.

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• Identify WWF’s goals for this study. • Discuss history of soy and its expansion in Brazil, combining the background section in Part 3

with the introduction in Part 1. • Provide a prognosis of what future expansion will look like including a description of the

factors that influence expansion. • Explain, in the context of land occupation, why soy was developed and why it expanded into

the savannas, including demographic distribution. • Ensure that Parts One and Two create the framework for Parts Three, Four and Five. • Collect data on Brazil’s trade balance and the role of soy in exports and the share of foreign

ownership in the soy sector. • Construct a table summarizing current thinking of projections on how changes in trade policy

would affect soy production. Part Two • Synthesize the discussion of the political economy of soy including a description of the main

actors and the extent to which there is a vertical integration in the soy sector. • Identify the extent of foreign investment in the sector and the nature of domestic investment. • Provide a better understanding of where in the production chain Brazil’s competitive advantage

lies. This should include whom benefits at which stage in the production chain and where the largest rents are obtained along the chain (using information from the questionnaires).

• Identify the source of credit to producers. • Analyze the composition of costs associated with different geographic areas. Part Three • Consider the environmental impacts of production and processing of soy. • Include reference to habitat conversion as well as forest conversion. • Provide more detailed analysis on the impacts of infrastructure development and its impact on

the environment, including a description of projects that have already been implemented (building on the discussion of infrastructure in Part One: History of Soy Expansion).

• Describe the experience in the South Region with respect to the development and adaptation of pests and discuss the implications of that information for possible agro-chemical impacts in the future in other parts of Brazil. This should include a discussion, if necessary, on the applicability of information from the South to the Cerrado, given the differences in ecosystems between the two regions.

• Prioritize most important impacts to better integrate Parts Three and Four and to better frame elements of Part Four such as soils, water resources and biodiveristy.

• Highlight the differences between soy in the Cerrado and soy in the Cerrado region that is associated with Amazonia.

• Include more information on social impacts such as data on the changes in real wages for workers, and migration.

• Include a paragraph highlighting the ecological integrity of what is being impacted by soy production such as numbers of species, and importance of biodiveristy.

• Identify lessons from expansion in the Cerrado and see whether past developments could be replicated in Amazonia.

Part Four • Focus recommendations and be more strategic about best proposals/recommendations about

priority impacts and political feasibility from allied organizations. • Make recommendations more concrete and organize them around different types of impacts. • Consider structuring policy responses as follows:

1.Policy responses implemented with regard to existing plantations

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E.g.: soil management, water resources, climate, etc. 2.How to prevent conversion of new habitats

economic incentives agro-ecological zoning enforcement and control measures state programs and policies policies to mitigate impacts of infrastructure projects

3.Cross-cutting policy responses social responses and policies mobilization and social involvement (empowerment) research policies

• Consider inverting the order of Parts Four and Five Part Five • Include a short introduction that provides a theoretical framework to explain the connection

between international trade policy and sustainability including environmental (and social?) sustainability (not just economic sustainability).

• Explain the importance of trade policy to sustainability including scale factor (access to markets and expanding production, what’s the impact of trade going to be on sustainability?), structural effect on the economy: relative prices of different products (tariff escalation, raw vs. processed products), technological changes induced by trade liberalization and how they relate to sustainability, and effect on products or commodities: what type and quality of products is the market demanding?

• Include an introduction on how to respond to the above diagnosis from both the national and international (e.g., FTAA and EU-Mercosur) contexts, including some policy options.

2.2 MESSAGES This session considered the most important messages arising from the study and how they should be presented. Key questions for consideration included the following: • Who is the target audience and who is this report trying to influence? • What are the overall “take home” messages? • What should be the sequencing of the Parts of the report? • How can the report be made accessible to a broader audience and to a policy-making audience? • What kinds of strategic alliances could facilitate the implementation of policy recommendations

proposed in the study, or at least avoid confrontation? • What are the positive proactive policies that should be promoted in this sector? The following five initial messages were proposed and will be developed further by WWF Brazil in consultation with the SA Team. 1. Trade-led expansion in the soy sector in Brazil will only bring the desired welfare gains and

benefits to sustainability if optimal social and environmental policies are in place. Measures should be put in place to ensure the expansion of soy respects appropriate land use and is not planted in ecologically sensitive areas, but those areas reserved by land planning for agricultural purposes. One such measure would be the development of protected areas and/or conservation units.

2. Brazil should adopt better planning in the soy sector to prevent further habitat conversion and

other adverse environmental impacts. One of the primary reasons for this is that the economic

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costs of the environmental damage related to habitat conversion, soil erosion and to unsustainable practices on the land under cultivation could outweigh the benefits.

3. Tariff escalation should be eliminated. Current practice force Brazil to specialize in grain

production, rather than more processed goods, and they create a pressure for expansion.1 4. Promote the orderly settlement of areas avoiding sensitive areas. 5. Sustainability assessments, such as this case study, are important tools for understanding the

trade and sustainability linkages and for ensuring that the optimal environmental, trade and other policies are in place to ensure that the expected benefits from trade-led expansion of the soy sector are realized.

2.3 WWF EU-MERCOSUR REPORT

Mikel Insausti (WWF/EPO) This session involved the presentation and discussion of a recent WWF study on practical mechanisms that could be included in the EU-Mecosur negotiations to contribute to opportunities for sustainable trade in soy. Key points raise in this presentation were as follows: • Despite the fact that a European audience is more concerned with sustainability issues inside

Europe than abroad, Europe has some concerns on environmental issues related to producer countries and one way to address this issue is through an examination of the ecological footprints of European consumption.

• Mercosur is strategically important for conservation because of its political, economical, social and commercial dimension.

• Environmental issues are not included in the EU-Mercosur negotiations. To investigate the causes of this absence of environment is the reason why the case study was commissioned. Some elements of the case study are: environmental governance, the consequences of the Doha’s’ mandate; external agricultural markets (opened market that include the environmental dimension); management of environmental problems. It also looked at several sectors/commodities, principally soy, corn and meat.

• The main message of the case study is: the production of soy does not internalize environmental and social costs. Were such costs associated with sustainability internalized in the production chain, the environmental and social impacts might be positive. What happens in practice is quite the opposite. There are fewer opportunities for internalization in those sectors where income is concentrated as a result of technology and capital intensive practices. The response to such situations is governmental action to correct market failures. The consumer markets and import countries have the responsibility to provide resources for environmental benefits in some areas of export countries. These resources must be automatically transferred and calculated accordingly the total amount of imports by the consumer market. In order to provide financial accountability, an environmental fund, managed in a transparent and democratic way by government, civil society and the private sector should be created to facilitate these transfers.

1 This view is shared by the Brazilian Government and the crushing industry and if encouraged, could help leverage other policy changes for promoting sustainability.

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ANNEX 1: AGENDA

Workshop on trade-driven soy agriculture in Brazil and impacts on sustainability: Presentation of a WWF initial case study

25-27 March 2002, Brasilia, Brazil

DAY ONE: 25 MARCH 2002 MORNING 8:30 – 9:00 Introduction and Agenda Alvaro Luchiezi Jr (WWF Brazil) 9:00 – 9:30 General presentation of WWF’s project on sustainability assessment

Claudia Saladin (WWF US) 9:30 – 10:00 Overview of the soy case study (5 main sections) Charles C. Mueller 10:00 – 10:15 Coffee break 10:15 – 11:05 Part 1: Soybean in Brazil: A brief history (Jorge M. Nogueira)

Objective: present key information showing the importance of soy to the Brazilian economy.

Discussion

11:05 – 12:00 Part 2: The political economy of soy production in Brazil: stakeholder’s

opinions and analysis. (Jorge M. Nogueira) Objective: provide a better understanding of the main actors involved in the soy sector in Brazil, as well as the actors' and soy sector's connection to the international economy.

Discussion

Afternoon 14:00 – 15:15 Part 3: Investigation of the sustainability of soybeans production in Brazil

(Mercedes Bustamante) Objective: identify the highest priority problems in the soy sector contributing to unsustainability.

Discussion

15:15 – 16:15 Part 4: Policy recommendations for the soy sector (Mauro de Resende

Lopes) Objective: identify and analyze possible policy options for addressing priority problems identified in Part 3.

Discussion

16:15 – 16.30 Coffee break

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16:30 – 17:30 Part 5: Tariff and external trade policies and their effects on the sustainability of Soybean production (Mauro de Resende Lopes) Objective: identify how key potential changes in the commercial context for soy are likely to impact the sustainability of the sector in Brazil.

Discussion

17:30 – 18:00 Summary DAY TWO: 26 MARCH 2002 MORNING 8:30 - 10:45 Discussion and input from participants on key issues, main points and

questions raised during Day One 10:45 - 11:00 Coffee Break 11:00 – 12:00 Trade and agricultural issues: identifying key linkages

Objective: discuss possible linkages identified in the study between changes in trade and agricultural policies affecting soy production and its sustainability in Brazil, and how to address these challenges in a trade negotiating context (such as WTO, FTAA or EU-Mercosur) (Mauro de Resende Lopes and Charles C. Mueller))

AFTERNOON

14:30 – 16:00 Mobilizing positive levers for change: sustainable trade in soy Presentation and discussion of a WWF related study on practical mechanisms to being included in the EU-Mecosur negotiations to enhance opportunities for sustainable trade in soy - Mikel Insausti (WWF/EPO)

16:00 – 16:15 Coffee Break 16:15 – 18:00 Challenges, Conclusions, and next steps: brief of the comments.

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ANNEX 2: LIST OF PARTICIPANTS WWF Brazil Alraro Luchiezi Jr., Agriculture, Trade and Environment Officer Bernadete Lange, Pantanal Program Coordinator* Leonarda Lacerda, Conservation Director Luiz Carlos Pinagé, Amazon Program Coordinator Samuel Barreto, Freshwater Prgram Coordinator (what about the communications director?) WWF, United States Claudia Saladin, Acting Director, Sustainable Commerce Program* Priscilla Stephan, Program Officer, Sustainable Commerce Program WWF, European Policy Office Mikel Insausti, Trade & Investment Policy Coordinator Project Team (Consultants) Mercedes Bustamante, PhD, Professor, Department of Biology, University of Brasilia Charles Curt Mueller, PhD, Professor, Department of Economics, University of Brasilia Jorge Madeira Nogueira, PhD, Professor, Department of Economics, University of Brasilia Mauro de Resende Lopes, PhD, Professor, Center for Agricultural Studies, Getulio Vargas Foundation, Rio de Janeiro Guests Adriano Campolina, Campaigns Coordinator, ActionAid Aércio Cunha, PhD, Professor, Department of Economics, University of Brasilia* Amélio Dall’agnol, Agronomist, Specialist on Soy, Brazilian Company for Agricultureal Research* Ana Célia de Castro, PhD, Profeessor, Centre of Research on Agricultural Development, Rural University of Rio de Janeiro Carlos José Caetano Bacha, PhD, Professor, Department of Economics, Superior School of Agriclutrue Luiz de Querios/University of São Paulo* (please confirm this is one person) Carlos Klinnk, PhD, Professor, Department of Biology, Economics, University of Brasilia, and President, Institute for Research on Amazon (IPAM)* Guilherme Leite da Silva Dias, PhD, Professor Department of Economics, University of São Paulo Heather Schoonover, Program Associate, Institute for Agriculture and Trade Policy (IATP), United States* John Landers, Agronomist and Executive Director, Zero Tillage Association of Farmers for the Cerrado Region* José Felipe Ribeiro, Biologist, Specialist on Cerrado Soils and Vegetation, Brazilian Company for Agricultural Research Kevin Gallagher, Global Development and Enviornment Institute, Tufts University, United States* Marco Antonio Carvalho, Economist, Specialist on Soy, Brazilian Company for Food Stocks Mariano Marques, Economist, Specialist on Grain Markets, Brazilian Company for Food Stocks Mariko Hara, United Nations Environment Programme* Mauricio Galinkin, Executive Director, Brazilian Foundation Center on Reference and Cultural Support (CEBRAC Foundation) * denotes peer reviewer

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ANNEX 3: SUMMARY OF THE COMMENTS SUBMITTED

ON THE CASE STUDY ON SOY AND SUSTAINABILITY IMPACTS Executive Summary • The report needs an executive summary • It should include upfront conclusions and recommendations and where WWF sits on the general impact of soybean production in Brazil Introduction • The report needs an overall introduction that specifies the purpose/objective and rationale for doing this study, including a rationale for selecting soy. The report needs an introduction that begins with the environment and key social aspects. This is important because WWF’s approach begins with the environment and as an environmental WWF should explain why it has undertaken a report about soy. • An introduction might look like the following:

‘Soy is a major economic sector in Brazil and one of Brazil largest agricultural exports. Soy agriculture has grown rapidly in Brazil, beginning in the 1980s, with significant impacts on the economy and the environment. In particular the uncontrolled and unsustainable growth of soy agriculture has specific adverse environmental impacts that are of concern to WWF. These include habitat destruction, soil erosion and soil management problems, the use of agricultural chemical inputs, and water quality issues. Soy production - both in terms of the amount of soy produced and the amount of land under production – has expanded considerably since the 1980s. Soy production could expand much further if current tax policies inhibiting expansion are reformed (which is likely?) and if trade is further liberalized so that Brazil achieves greater market access for its products in the US and European markets. Unless the expansion from soy likely to result from trade liberalization and economic reform takes place in a responsible and sustainable way, the consequences for the environment could be devastating. This report identifies both the adverse environmental impacts of soy and key reforms that need to be put in place to address and mitigate these current impact and promote sustainable future expansion in soy, given the likely changes in soy trade and production patterns.’

• The introduction should include a brief description of the approach adopted for undertaking the study (i.e., interviews were conducted, review of existing literature, seeking input from different stakeholders, etc). • The introduction should include a sense of how the study defines sustainability • The introduction should include an explanation of the report’s overall structure, the rationale for moving from Part One to Part Two and so forth, and identify the common theme that binds these different sections into one overall report. • Should include a general introductory paragraph on Brazil (where it is located, how much

population, etc., assuming that this document will reach international readers). • Intended target audience should be identified. The issue of how information is presented in the report also relates to the question of the audience for the report. The audience for this report is primarily policy makers (or at least they are a really important audience). Presentation • For this document to be relevant for policy makers it needs to be focused on presenting its conclusions and analysis. Each section should start with its main conclusions and then explain how it reached those conclusions. In some cases the report does not actually present any conclusions, it simply describes the situation, without prioritizing the information. If we want this report to be accessible to anyone outside of Brazil, then more background information is going to need to be

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presented than would be necessary for a solely Brazilian audience. We need to think about who the audience for this report is - if it includes anyone outside of Brazil – then the document is going to have to assume less knowledge of Brazil. Once we have a final draft a 2-page executive summary will also be useful, especially for a policy-making audience. • WWF should write a preface explaining the context of this study in relation to its other work in the field of assessment. The final product will be more coherent if the national researchers could write the entire sections in their own language. Even if that means explanations on sustainability appears twice in the text (in the preface and in the introduction), I would think it worthwhile to transmit the voice of Brazilian researchers on what they thought is their sustainable development and sustainability. Since sustainability is context specific concept, WWF’s notion on sustainability and Brazilian researchers’ notion on the same will be different. And that is where this document will be authentic. • Much of the information in the report that is presented in narrative form could be presented more succinctly in table format or in graphs. For example much of the information on expansion, and the information on the different taxes, the data on exports/imports. Graphs could include growth over 20 years of soybean with projected growth for the next ten years. • Maps could be useful. For example, there is no map of Brazil showing where soy is produced; for non-Brazilian, this is a problem. It would also help to have a map to show where all these regions are and over-lay the soy bean production (factories and plantations) over it and flag up biodiversity hot spots. Do a similar map with people related numbers and social impacts. • There should be increased use of bullets and boxes highlighting lists of issues (such as all the different taxes affecting the soy sector) or important findings. • There needs to be an acronym list. • There needs to be a table of contents including lists of figures, tables and graphs. • For each section, the report is long and to help the reader make its way through it, I would strongly suggest a 5 sentence-short summary of the main points of each section at the beginning of the different chapters. Information Gaps • Certain important pieces of information are missing or are not well presented. For example there is a lot of data on the tons of soy produced and produced per hectare and how these have grown over time. In terms of some of the key impacts (e.g., habitat destruction, soil management), a more important measures is number of hectares planted in soy rather than tons. • It would also be useful to know what percentage of land currently in soy production comes from other agricultural crops, pastureland, and natural habitat. The report notes that over time the size of soy holdings has grown - but does not discuss how this is being accomplished - through conversion of natural habitat, converting other crops to soy, converting pasture to soy? Production • The report needs to be edited in English before its final presentation. • Issues of translation should be examined. For example, "soy flour" in the English text should be "soy meal", "soy hulls" is also "soy meal" in English. "Meat and bone flour" in the text, should also be "meat and bone meal". Part One • The report should talk about the main environmental and social impacts of soy at the beginning. • This section should be considered more critically. It appears to be written from the perspective of: we need this sector, so how do we best mitigate environmental harm. It seemed to assume

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changes to increase access to markets would be good. What production is forgone in deciding to opt for soy? Is soy the best crop? Which markets should be made more accessible, etc. • Parts One and Two appear to be inseparable. Essentially it sees the soy sector from economic perspective, whereas Part Three discusses the same from environmental perspective. Given that the suggested restructuring of the sections take place (section 3.1 and 3.2 on soy history will be merged into section 1), Part Two could integrate some elements in Part One that discuss economic policies. Part One would then provide the overview of the history in the development of soy production, Part Two would provide economic aspects of it, and Part Three would concentrate on environmental and social aspects. • There is a lack of geographical detail throughout the study. For example, is the export-led production in the centre-west region where the majority of the larger farms are located? If so, it should be stated. • In the early discussion of the soy sector, emphasise the importance of soy as an export crop. Although that discussion says that Brazil is a leading exporter, it isn't until page 49 that the report says that 70 percent of Brazilian soy production is for export. That's an important fact that should be in the beginning. Part Two • The results of the interviews conducted in Part Two are not presented, and the report does not reflect the fact that a questionnaire was developed, people interviewed and a number of questions asked, to help understand and present a realistic and politically-accurate and sensitive picture of Brazilian soy production. • The study would be strengthened if it mentioned names of soy producers and companies and provided key figures. This is a real market that should not be depicted in academic terms. • The section on the consumer market should ask some basic questions: which companies, why has consumption gone up? • The report should indicate where soy crushing industry is located. This of the production chain has a different set of impacts, such as air and water emissions, which are not mentioned. It would be important to consider, for example, whether they are located in regions where such emissions are already a big problem. • The report should examine levels of FDI and which regions attract the most FDI. The FTAA includes important provisions related to investment that could encourage FDI into Latin America. Since soy is a lucrative and potentially expanding sector, it could attract such FDI. It would be interesting to know what companies are already there, what their practices are, to examine their environmental records at home and other issues. It is also useful to consider whether FDI might have impacts such as bringing with it more chemically-intensive production practices. The work of Daniel Chudnovsky on the soy sector in Argentina could be of use. • Part Two should identify the main actors in the soy supply chain, by name where possible. • The environmental and social impacts should go at the beginning of the report. This matters more to WWF than the history of soybean in Brazil and therefore should get higher profile within body of the report. • The environmental and social impacts should be more clearly spelt out: what are the pesticides doing to the land; what is the heavy use of water doing to Brazil's water-tables and wetlands?; what species are being lost because of land-clearance etc; what are the social impacts on say indigenous tribes or rural poor because of soy bean production; what social impacts are happening because of social migration? Are older people being neglected as young people move from small rural villages to seek work on these plantations and in factories for example? Social impacts should be presented in human terms.

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• The statement about the impact of cattle ranching should be expanded. What are these serious impacts? What was the biodiversity of Cerrado that has now been lost - what forest types/what species/who lives there? • The report should consider the differences in environmental impacts on the farm in (as opposed to those related to expanding into bio-diverse regions) in the southern areas where most farms are less than 1000ha and in the centre-west where they are considerably larger. Which is more labour-intensive? Which is more chemical intensive? (herbicides, pesticides, and so forth). Maybe they are the same? Where is it harder to get water? Which requires more irrigation? • In terms of infrastructure, Part Three observes that there are deficiencies in infrastructure in the Amazon region and that the government will be investing in building infrastructure. This raises a question about the extent to which investment in infrastructure will impact expansion. As trade is increased, the incentive to invest in more infrastructure projects will increase. This could change to profitability of growing soy in remote regions (both in terms of the costs of getting inputs to farms and in terms of getting product to market) and thus could lead to more conversion. • The report should consider the role of substitutes for soy. In the next 35 years, palm oil will replace soy oil and increasingly fishmeal from aquaculture will replace soy meal. There should be some mention of substitutes and trends in other markets. Substitutes will impact price of soy as well. For example, if fishmeal prices go up, then soy meal prices will also likely increase, which could lead to additional soy planting. • Whatever impacts soy has had up to the present time, if the impediments to expansion are removed then the potential impacts are huge. WWF needs to understand what the trends are and what exists to guide policy development and advocacy. Part Three • This section should expand on social issues. Further social impacts that could be discussed include: Land tenure system, demographic movement, equity (Lorenz curve and Gini coefficient), informal sector, cultural values, health and sanitary concerns, rural viability, consumer preferences, technology (both new technology and technology with novelty2), capacity building, and training and education. • This section highlights the environmental value of the savanna area, and later section only discusses the savanna area. The title of the report is therefore misleading, since the report does not discuss other regions. The introductory section needs to reflect this element that the regional focus of this report is on the savanna area. It should also provide the rationale for why it is so important. • This section could provide some more basic information introducing Brazilian agriculture. For example, which region belongs to tropical climate, and how many times there can be harvests etc. are issues that non-Brazilians are unfamiliar. • Information on domestic support measures (such as subsidies or tax policies) and how they affect soy production would be useful. • This section is well structured in terms of identifying problems associated with soy production. It might serve as a model for Part Two, presenting problems that will be addressed in Part Four. • This section can also identify, if possible, the national policies that could be responsible for the problems identified. Are there cases where domestic support policies encourage unsustainable use of natural resources, for example? This will make the transition to section 4 very easy. The same applies to section 2: economic problems identified in the section 2 needs to be related to possible cause in national policies, if any. This is because if one can identify the cause of the problem it is easy to propose the cure in section 4.

2 “Technology with novelty” is the technology that presents unknown risks and uncertainties. For example GMOs.

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Part Four • The report should prioritise among different policy option. What are the policy options and measures that WWF thinks are most urgent to adopt? Where can WWF make a difference? • Is child labour an issue? What are the social implications - can they be listed (again like the environmental ones) in a clear, concise way at the beginning. • What does WWF suggest Brazil do about these social and environmental issues - the conclusion list at the end needs to be revisited and rationalized somewhat (its a bit all embracing but maybe that was the brief) and in written in a more accessible style. • The mention of certification and new technology should be expanded upon. What is this technology? Is anyone using it? Are there model good farms and factories and, if so, where and who are they? • It is hard to decipher between the environmental laws and enforcement that is already in place in Brazil pertaining to the trends outlined in the report, and those that the authors are proposing. It is important to distinguish them. What is the extent of no-till cultivation and integrated soil management in Brazil? Is there more work to be done on making the existing soy production in the South more sustainable and higher yield? There is much discussion of the need for conservation policies, but also there needs to be a discussion of the need to strengthen the production that does and will inevitably occur. • There is also a great deal of information on the percentage of taxes that are levied, but nothing on the base price of soy over time - so it is unclear what the percentages mean in terms of actual money. It appears that there is a lot of money in the system in terms of taxes, that does not go back to the producers that could be used elsewhere. This is an area for thinking about conditional loans tied to better cultivation practices on the ground. Changes in taxes may encourage production, but also may mean losing the potential leverage of having money to promote more sustainable practices. • The report does not yet provide any prioritization of the environmental impacts associated with soy or of the policy recommendations. The terms of reference specified that section three was supposed to conclude be identifying the priority problems with sustainability in the soy sector. • While this section discusses a range of impacts, there is no sense of relative priorities from an environmental sustainability perspective. This lack of prioritization is then reflected in section 4 - which lists a whole host of possible policies - without prioritizing among the policy recommendations. The prioritization of the policy recommendations should be guided by the priority impacts. The priority impacts should be determined from WWF's point of view as a conservation organization – habitat conversion, soil management and chemical inputs/pollution - strike me as major ones. • ICMS needs to be defined when first used in the report. • Part Four should confine itself to feasible policy suggestions that are supported by the previous chapters which reveal the problems identified in the soy sector and the national policies that may have causal linkages to the problem. • Policy responses are based primarily on the recommendation of zero tillage production techniques discussed in Part Three. Part Four therefore, develops policy recommendations that will encourage the adoption of such techniques. While this is a useful suggestion it would be more credible if accompanied by a feasibility analysis of those policies. Part Five • Part Five lacks key elements associated with trade policy and trade negotiations in the WTO. No mention is made for instance of the recent US-Brazil dispute on soy subsidies. • This section could be strengthened by a more dynamic and politically-sensitive description of what is at stake in the current negotiations, why Brazil is so aggressive with respect to market

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access, and the agendas of Brazil’s trading partners. These elements could help demonstrate the importance of trade-related factors. • The description of the links between the agricultural trade changes and sustainability implications are weak, and linkages to Parts Three and Four should be made. • The report needs to be more forward looking. It contains a great deal of information on the past and present, however there is little discussion or analysis of what this information means for possible future trends. Section 5 indicates that there is a lot of room to promote expansion of soy agriculture in Brazil (both overall production and exports) - both in terms of lessening the tax burdens on production and transport, and in terms of attaining greater market access internationally through trade liberalization. This argues that soy production in Brazil is likely to expand. The report needs to give some idea, based on past patterns and current information, of what such expansion will means for the environment and for soy. How will production increases be achieved - moving into new land? what kind of land? where? Planting on more steeply graded land? Increasing chemical inputs? Some states seem to have better yields than others - what is contributing to this? Will the children of current producers inherit their parents' farms? Or will they leave their parents farms and open up new land? Where is that likely to be? Mato Grosso? Goias? Roraima? • Disease will increasingly become an issue, because pests will evolve along with the expansion of soy. It may be useful to see what the trends are in terms of pests in Parana, where soy cultivation has been going on longer. This will affect the ability of Brazilian soy to expand as well as the sustainability soy production (more disease will probably mean more chemical inputs). • In some cases technological issues drive soy expansion and impact sustainability. For example, if means of planting soy on forested land were found, the potential impacts could be large. Also, developments in irrigation technology may drive greater conversion in land. • It would be worth adding a commentary on whether Brazil’s negotiating priorities in various trade negotiations make sense from a social and environmental perspective – more processing incentives would probably be good (increase local return for industry through greater value-added) but overall increase in exports would likely increase pressure on land and other natural inputs (water, etc) and leads directly to the transportation questions, which have their own environmental problems. • The purpose of this work is to reflect upon the environmental and social impacts that may be associated by soy expansion, partly driven by trade, and propose a set of recommendations to mitigate them. It is difficult to get a sense from the study of what the real and most important sustainability challenges posed by soy production and expansion are, what WWF is most concerned aout, and that the priority issues that need to be dealt with are. • Much remains to be done in this report to a) move from description to analysis, b) pull out key information, arguments, conclusions and recommendations and present the information in an accesible manner and c) highlight the relevance of trade to the issue. • The study could examine the consumption patterns related to soybeans, by region, with an explanation of the social aspects of why peoples’ diets change, why are people eating more soybeans—is it population growth, demand for fodder abroad, as people get richer they eat more meat? • The "take home message" is that foreign trade has in part led to the expansion of the Brazilian soy sector. The majority of the expansion has taken place in the center-west regions and is leading to erosion in the precious savannah ecosystems. The FTAA will exacerbate these problems because if Brazil is successful in reducing soy tariffs and subsidies in the United States, it will lead to more expansion of soy production in these areas. It could be worse for the environment in the United States because less soy production means more corn production with is more pollution-intensive.

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• Road transportation is a key part of the production chain. Some attention should be paid to whether ports can sustain long lines of trucks and associated air pollution issues. The CEC study of air pollution on the US-Mexico border could be a useful reference. • The study should not take for granted the value of the land that is being expanded into. For a Brazilian audience the savannahs are wonderful places with diverse ecosystems that need to be protected. However, this will get play across the hemisphere so the report needs a description of the land that is being expanded into, a discussion of its biodiversity, and (if they exist) some description of the potential economic value of non-use or managed use in another way. Soil erosion/conservation: • From a zoning point of view, zoning out area above a certain slope because of soil erosion and biodiversity loss might be a good idea. Not planting on steep slopes ultimately makes the industry more profitable and more sustainable. • Use of conservation corridors on farms as well as at an eco-regional and landscape level - areas, such as sides of streams and rivers, that should not be planted on any farm. • Transportation of chemical inputs is also not discussed. In some cases, there are more tons of input than of output. From a climate change and air pollution perspective the impacts in terms of the transport of inputs may be as significant as the impacts of transportation of the soy to market. Miscellaneous • The question of whether forest conversion policy laws apply to forested land in the Cerrado should be considered, and whether the rule could be extended to apply to limits on conversion of other habitats. • There should be a focus on the connection with Europe beyond the issue of GMOs. • Double cropping should be mentioned if it is practices in Brazil. • Output per hectare should be defined as per crop or per year. • It would be useful to identify companies involved in the sector, distinguishing between foreign and locally-owned companies. An understanding of the specific interests would help explain the politics associated with this sector as well as the possible impact of policy changes. • IATP can provide information on how soy production has developed in the United States to address some of the economic and social issues associated with integration in the global market. • Enhancing the productivity of existing land might create pressure to open up new lands, by making the sector more attractive. This should be discussed. There may need to be prohibitions on new land-use to complement incentives for more effective use of existing land, to ensure that this does not happen.