Brazil’s soy sector faces profit challenges from climate transitions

BRAZIL – In a new report titled “Brazil’s Soy Sector Amidst Climate Transitions,” Niamh McCarthy, director at Orbitas, an organization that examines climate transition risks and opportunities, issues a stark warning to Brazilian soy producers. 

She highlights the pressing need for the sector to brace itself for impending climate shifts to safeguard its global dominance and mitigate financial risks.

McCarthy’s report draws attention to the vulnerability of Brazilian soy producers. It reveals that those persisting with high emissions, heavy reliance on land conversion, and lagging in technology adoption face heightened risks of financial setbacks. 

Through comprehensive financial stress testing, McCarthy’s team found that many Brazilian soy producers could face over a 60% risk of financial losses if they fail to adapt to climate transitions.

“Brazil’s soy sector is at a critical juncture. As climate transitions loom, those continuing current practices risk losing market share in the future,” McCarthy asserts.

Brazil’s soy sector, a powerhouse in global agriculture, generated a staggering US$86.9 billion in gross revenue in 2020, supplying over 50% of globally traded soy, as per data cited from the WWF.

McCarthy’s report forecasts that by 2050, climate transitions could precipitate a 15% or higher drop in soy prices, rendering a significant portion of Brazilian soy farmers vulnerable to financial losses, particularly with an expected decline in soy consumption in the ruminant meat sector. 

However, the report also emphasizes that investing in conservation measures and technology could offset these challenges, potentially boosting yields by 14% and minimizing profitability shortfalls.

The analysis underscores the need for preemptive measures to address various climate scenarios’ potential impacts on Brazil’s soy sector. McCarthy stresses that investing in soy production efficiency, rather than land expansion, will be crucial for market competitiveness.

“Mitigating disruptive, sector-wide risks will require significant collaboration from producers, investors, policymakers, and stakeholders across the value chain,” McCarthy emphasizes.

Policymakers are urged to foster a robust regulatory environment and offer technical assistance and financing linked to sustainability metrics. Investors are advised to conduct forward-looking projections for climate risk and opportunity assessments, leveraging metrics based on climate-smart decision-making.

McCarthy also highlights the EU Deforestation Regulation (EUDR) as an example of how accelerating climate transitions can restrict market access. Failure to meet these new requirements could lead to a significant loss of market access for Brazilian agriculture.

As the industry strives to enhance soy production efficiency and ensure market competitiveness by 2050, McCarthy emphasizes investing in technologies that improve soil health, reduce emissions, and enhance efficiency. 

Practices such as farm automation, precision agriculture, and agroforestry offer opportunities to build resilience and diversify revenue streams.

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