Europe’s Soy Habit “Unwittingly” Fuelling Deforestation

Investors urged to seek responsible sources, as new rules disrupt supply chains.

European consumption of soy is a major contributor to deforestation but new green rules could weaken demand through higher costs and increased supply chain scrutiny, posing risks to the industry and its investors.

A World Wide Fund for Nature (WWF) report said Europeans were “unwittingly wiping out forests across the world” by consuming 60.6kg each per year of soy, and called for support for proposed European legislation, which will ban the import of deforestation-linked soy and other commodities, including beef, palm oil, wood, cocoa and coffee.

Although China is by far the biggest soy importer, accounting for more than 40% of global imports, the EU27 plus the UK, is the second largest destination.

A separate report from UK think tank Planet Tracker said the soy industry is to blame for deforestation causing US$2.7 billion of “wholly avoidable” CO2 emissions, at prevailing carbon trading prices, from just one region.

It identifies the Gran Chaco, the largest dry forest in South America, which extends from southern Bolivia into western Paraguay and northern Argentina, as “the next deforestation frontier”. A lack of protections and international focus (which is devoted mainly to the Amazon), combined with rising soy demand, are threatening the region, said Planet Tracker.

The ‘deforestation dozen’

Planet Tracker identifies 12 commodity traders, including Vicentin, Glencore/Viterra and Cargill as its ‘deforestation dozen’. Also highlighted are 20 financial institutions that support them financially, including Citi, JP Morgan, BlackRock, Vanguard and State Street. The traders control 89% of soy exports from the Gran Chaco but were failing to control deforestation in the region, said Planet Tracker.

Current deforestation levels of around 20% create a risk for these traders and other companies and investors in the soy supply chain due to the associated CO2 emissions. The price of soy from the Gran Chaco would more than triple if the embedded deforestation CO2 emissions were priced in at US$91/tonne, based on the current EU Emissions Trading System price, said Planet Tracker.

“We do not believe this risk is being priced correctly by financial markets. Since the EU is the largest importer of soy from the Argentina’s Gran Chaco the proposed implementation in 2026 of an EU Carbon Border Adjustment Mechanism presents a material risk to companies’ future cashflows,” the report said.

Moreover, the EU deforestation legislation, if passed, will ban the import of soy linked to deforestation. EU Member States are currently considering the new law, with an orientation debate between environment ministers scheduled next week.

Investor recommendations

Planet Tracker said investors should engage with and support initiatives such as the non-profit Round Table on Responsible Soy Association (RTRS), and Innovative Finance for the Amazon, Cerrado and Chaco (IFACC), an initiative of the UN Environment Programme, Nature Conservancy and Tropical Forest Alliance. It also recommended that investors should require portfolio companies to purchase only RTRS-certified soy.

In terms of further due diligence measures to avoid exposure, the financing of companies operating in the Gran Chaco should be made contingent on comprehensive zero deforestation policies that include time-bound requirements for monitoring and transparency. Also, Planet Tracker called on investors to require trading companies to disclose the location of the soy silos and source farms in their supply chains to aid traceability as a condition of funding.

Investors should also press companies and countries to link their funding to their deforestation commitments, for example, though deforestation-linked sovereign bonds.

When engaging with companies, Planet Tracker said asset owners should find out whether deforestation policies include the Gran Chaco specifically; how deforestation exposure from lesser-known areas is monitored; how carbon emissions from deforestation are calculated and incorporated; and how firms intend to improve their ranking in the World Benchmarking Alliance’s Food and Agriculture Index.

European soy consumption

WWF’s report found that 90% of the soy eaten by Europeans is consumed indirectly, as soy is the main animal feed used to produce meat, eggs, fish and dairy products. In some cases, said WWF, such as for chicken and salmon, the amount of soy animal feed is almost equal to that of the food produced.

WWF noted that the majority of soy used in Europe is imported from South America, where the Cerrado, Amazon and Pantanal are “biodiversity hotspots”. Around 1,600 species of mammals, birds and reptiles have been identified in the Cerrado alone.

While the European Commission’s legislative proposal contains many strong elements, said the WWF, it limits its scope to forests, which would postpone the inclusion of other ecosystems by at least two years. “As a result, the existing pressure of agricultural production on savannahs and grasslands is ignored and there is a risk that new expansion of soy production will be shifted from forests to these other ecosystems,” said WWF.

“To ensure that our daily food is nature destruction-free, the law needs to cover, from the start, other natural ecosystems, too,” said Anke Schulmeister-Oldenhove, Senior Forest Policy Officer at WWF’s European Policy Office. It was critical that the deforestation legislation is strong and “loophole free”, she added, containing all important habitats affected.


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