News CSR
Questions persist over giant Chinese soy trader's traceability
COFCO's pledge to protect Brazil's vast tropical savannah is welcome but looks less bold on closer inspection.
A logo of China National Cereals, Oils and Foodstuffs Import and Export Corporation (COFCO) in Changzhou city, east China's Jiangsu province. Image: ChinaImages, CC BY-NC-ND 2.0
https://www.eco-business.com/news/questions-persist-over-giant-chinese-soy-traders-traceability/
By Flávia Milhorance and Piero Locatelli, China Dialogue
8 minute read Oct. 26, 2020
The Chinese agribusiness giant COFCO International released plans in July to achieve full traceability of its direct soy suppliers in Brazil by 2023, an effort that could help curb the devastation of the Cerrado savanna biome. However, environmentalists say the plans falls short on transparency.
"Soy production can go hand in hand with the conservation of forests and native vegetation," Wei Peng, head of sustainability at COFCO International, said on announcing the pledge, adding: "We make our traceability commitment public because we are prepared and we want to be held accountable for it."
In recent weeks, the plan, which was a response to a sustainability-linked U$2.3 billion loan, has won high praise in the financial sector. But, when questioned, COFCO did not say how big an increase in the volume of soy it currently traces would be required in order to meet its goal, and it has released very little information about how it plans to do so.
"We still need to understand what these instruments are that they have adopted for verification," says Lisandro Souza, coordinator for the Imaflora programme on climate and agricultural production chains. "Then, the degree of transparency of this policy."
In a statement, COFCO said it would release results of the policy on their annual sustainability reports and other "concrete indicators" regularly.
The most glaring omission in the plan is the issue of the company's indirect suppliers and COFCO has not revealed how much Brazilian soy it sources from them. COFCO says 70 per cent of the soy it buys from the state of Mato Grosso and the so-called Matopiba region that encompasses the states of Maranhāo, Tocantins, Piauí and Bahia, comes from direct suppliers, suggesting its 2023 pledge has significant room for improvement.
In a written response to questions, COFCO said it was making an effort "to engage with indirect suppliers".
The whole of Matopiba and almost half of Mato Grosso fall within the Cerrado biome, from where COFCO sources almost a third of all its Brazilian soy. Less well known than the Amazon rainforests to its north, the Cerrado savannah covers over a fifth of Brazil's land area, but enjoys far fewer environmental protections. At 2 million square kilometres, the Cerrado is equivalent in size to France, Germany, Spain, Italy and England combined.
Preservation of the Cerrado is essential for water stability in Brazil. Known as the "cradle of Brazilian waters", the savannah highlands feed the headwaters of such major rivers as the Araguaia and São Francisco and supply eight of Brazil's 12 major river systems. Only 8 per cent of the vast, partially tree-covered grassland is currently protected land.
As protection of the Amazon region has risen up the agenda in the last 20 years, agribusiness has moved into the neighbouring Cerrado. Soy production tripled in the biome between 2001 and 2019, and 51 per cent of the land area dedicated to soy in Brazil is found there.
Amazon overspill
Unlike the Cerrado, the Amazon is currently protected from the advance of soy plantations by the 2006 Soy Moratorium, a voluntary zero-deforestation agreement made by major food companies to protect the rainforest.
"The success of the Soy Moratorium partly depended on the simple fact that the Cerrado existed alongside the Amazon region," says Toby Gardner, a researcher at Trase, an organisation that monitors deforestation linked to commodities.
Producers in the Cerrado are opposed to COFCO's conservation pledge, though details of what the company will do remain hazy.
"There could be an impact immediately, especially in the Cerrado region of Matopiba where new areas can still be cleared legally, if [the company] begins to restrict purchases from these producers", Fabrício da Rosa, executive director of the Brazilian Association of Soy Producers, told Canal Rural shortly after COFCO's announcement.
The Cerrado covers 13 states but the four states of the Matopiba sub-region represent the main frontier in the expansion of soy farming. Currently, soy currently covers 8 per cent of the biome.
Ambitious newcomer
COFCO International is a subsidiary of China's giant state-run COFCO Corporation. The parent firm has an annual turnover of US$70 billion. COFCO International was set up in in 2014 to become a world leader in grain supply. Headquartered in Geneva, it is expanding fast and aims to compete with global agribusiness leaders like Bunge and Cargill.
In less than a decade, COFCO International has set up operations in 35 countries. It arrived in Brazil in 2017 and quickly became a major exporter of Brazilian soy, sending most of its 4.5 million tonnes of soy to China in the form of pig feed by the end of the following year.
COFCO International says it already monitors all its direct suppliers within 25 priority municipalities in the Cerrado. However, this only accounts for 25 per cent of the soy COFCO obtains from the biome and 7.2 per cent of the total sourced from the entire country, according to calculations based on company data.
This suggests that to achieve full traceability of direct suppliers by 2023, the company would need to increase the monitored area multiple times.
In a written response, COFCO said the calculations were incorrect because it currently monitors more than the 25 municipalities it mentions in its sustainability reports, although it didn't say how many more.
COFCO has also promised to trace 85 per cent of its direct suppliers in Matopiba, the soy heartland that Greenpeace says accounts for 62 per cent of forest devastation in the Cerrado biome, earlier, by 2021.
Paulo Adario, founder of Greenpeace's Amazon Campaign, believes that the company "missed the opportunity" to commit to a shorter period, ending in 2020.
Questions over indirect suppliers
COFCO didn't reveal how much of the soy it buys from Brazil would be traced by its plan, promising only full traceability of direct suppliers. The company also refrained from spelling out what proportion of its total output and purchases from the Cerrado region (or in Brazil) its goals for Matopiba represent.
COFCO International said it would use maps of farms and satellite images as well as official data such as the Rural Environmental Register (CAR) of private properties within forest areas to monitor suppliers, and hire external auditors to monitor the process.
Explanations of how compliance with the new target will work also remain vague. The information is scattered throughout its official announcement, environmental report and its most recent outcomes report from June 2020 at the Soft Commodities Forum, a private sector initiative to curb deforestation in the Cerrado. Nor has COFCO revealed details of the external audit it has carried out in the 25 priority municipalities it cites.
Pressure from banks
The plan is at least in part a response to a US$2.3 billion loan that COFCO International obtained from 21 banks in 2019, the company says. The low-interest loan is linked to compliance with environmental goals that prioritise product tracing.
In response to growing deforestation in Brazil over the last two years, financial institutions such as HSBC bank and Nordea, the investment arm of Europe's largest financial services group, are putting pressure on the commodities market. Greenpeace's Adario says: "COFCO says it is concerned about the environmental issue. It is a concern that exists, and is linked to defending the market".
COFCO has also promised that its suppliers will not use forced labour, or farm on preservation areas or those under embargo by Brazil's environmental protection agencies for irregularities. It also says that its new measures will follow the framework set by the Soy Moratorium.
Transparency essential
The Soy Moratorium has been among the main tools in reducing deforestation in the Amazon biome (as studies in Plos One and Pnas have shown) and was effective up to 2018, though it has recently drawn criticism from Minister of Agriculture Tereza Cristina da Costa Dias.
Even when rates of deforestation in the Amazon started to rise again in 2019, soy was not the culprit. A report by the Soy Working Group (made up of producers, environmental organisations and the Brazilian government) found that only 1.8 per cent of the 2018/2019 Amazon soy crop violated the moratorium. The performance of individual companies is not given, though a template for doing so could be copied from the livestock sector's Meat Conduct Adjustment Agreements.
Souza, from Imaflora, says that transparency is essential to allow participation by civil society groups who demand effective verification systems.
The human cost
Although the growth of agribusiness has boosted the GDP in the Matopiba region's municipalities, it has not advanced social development there.
Only 45 of the 337 cities in the region have wellbeing indexes that exceed the averages for their states, according to a study led by the Sao Paulo-based Federal University of ABC. In most cases, wellbeing indicators in soy-growing regions are worse than elsewhere.
Soy cultivation in the Matopiba region is responsible for degrading springs and riverbeds, and the widespread use of agricultural chemicals has had adverse health impacts, a 2018 report by social organisations revealed.
Altamiran Ribeiro of the Pastoral Land Commission lives in a farming community near Bom Jesus, in southern Piauí. Like most peasant farming communities, Ribeiro's home sits in the lowland river valleys of the Cerrado, whereas agribusiness is taking over the plateau areas.
The expansion of soy monoculture impacts the bodies of water that supply communities like Ribeiro's: "First, deforestation causes the water to dry up," he says.
Next, there is the effect of the agrochemicals used in the fields. "Many communities are downwind, then the wind blows and brings with it the chemicals," he adds. "When it is five in the afternoon, there's this cloud that looks like mist, but it's just pesticides."
Ribeiro also complains that soy monoculture is advancing without dialogue or transparency. "Sometimes we know who is farming it. But the buyers, who the soy belongs to, where it's going and how it gets there, this we don't know," he says.
As for the environmental impacts of soy, COFCO International says that it invests in education and in the development of communities in the regions where it operates.
Joint action or going it alone?
Whereas the Soy Moratorium covered the entire sector, COFCO International has adopted a go-it-alone approach.
"COFCO's stance is interesting because it is unlike the other traders, which ended up making ambitious commitments," says Toby Gardner of Trase. "They kept quiet and evaluated the situation much more carefully to determine the level of the challenge. On top of that, they are making their commitments more concrete."
Paula Bernasconi, coordinator of the Centro de Vida Institute, has welcomed COFCO's pledges, saying it pushes the industry to raise the bar, and shows it is possible to "create a restrictive policy against deforestation". However, she concedes sector-wide agreements are essential to stop environmentally destructive producers putting soy into the supply chain by selling to less demanding buyers.
Meanwhile, the Brazilian Association of Vegetable Oil Manufacturers opposes a sector-wide agreement (like the Soy Moratorium) for the Cerrado.
Big companies have been known to dodge their pledges in the past. Several adopted promises to halt deforestation and promote product traceability by signing the 2014 UNDP-backed New York Declaration on Forests. Although Brazil was not a signatory, Cargill did sign. Even so, it ducked its 2015 commitment to monitor all Brazilian soy purchases by 2020 by deferring the goal to 2030.
Trase ranks COFCO International seventh among the 30 companies most exposed to the risk of obtaining soy from illegally cleared areas.
Besides soy, COFCO International also trades coffee, sugar and cotton in Brazil. To keep a handle on this market, 70 per cent of its 11,000 employees are in Brazil.
COFCO International's strategic focus on Brazil brings risks and benefits. Its increasing presence heightens the risk of environmental impacts if its advances are uncontrolled, while at the same time making it more susceptible to pressure to change from campaigners.
This article was originally published on China Dialogue under a Creative Commons licence.