Soy farmers face market access risks

22 Dec 2017

As large companies increasingly demand responsible soy, the risk of non compliant soy farmers to run out of business grows, says Chain Reaction Report.

Thanks to IDH and its partners and many other initiatives, close to 50% of Brazil’s soy trade is covered by some type of zero-deforestation commitment. This figure may soon reach 57 percent.

Leading consumer goods companies have committed to zero net deforestation in agri-commodity supply chains by 2020. This increases the pressure on commodity traders to adopt and strengthen similar assurances, and address policy and implementation gaps in the short term.

Consequently, soy producers involved in deforestation face increasing market access risk. Those that supply traders with a zero-deforestation commitment risk losing market access if involved in illegal deforestation. In the near future, the risk of losing market access may also increase due to legal deforestation.

Soy producers face the highest risks among the three major stakeholders (growers, traders and investors). These major risks include a loss of customers and stranded assets. Medium risks are additional logistics expenses, storage costs, financing costs. Low risk stems from reputational damage. These can result in destruction of enterprise value.

Traders have more advanced ESG policies and lower risk exposure than producers. Medium risk involves the loss of customers and reputational damage, low risks include increased refinancing costs and processing overcapacity. These too can translate into loss of value.

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