Amazon Fire Fallout Highlights Brazil Protein ESG, Export Risk

 

• The significant increase in Amazon rainforest wildfires in 2019 and international backlash highlights potential trade risk caused by environmental, social and governance (ESG) factors for the Brazilian protein sector, says Fitch Ratings.
• Credit implications are manageable but quantifying the effect of Amazon deforestation and the effectiveness of sector sustainability and traceability efforts in minimizing financial ramifications remains a challenge.
• Brazil is the world's second-largest producer of beef (the U.S. is largest), exporting about 20% of production in 2018, per the US Department of Agriculture's Foreign Agricultural Service. Livestock farming is a driver of deforestation in the Amazon region with roughly one-third of Brazil's cattle pasture land in the rainforest.
• JBS, Marfrig, and Minerva have mechanisms to only procure beef produced on land that can be legally used for cattle production. However, deforestation, given the release of carbon dioxide when trees burn, is garnering greater attention due to climate change, resulting in increased scrutiny of industry practices.

(Source: Fitch)