Brazil's soy industry faces profitability challenges due to climate change impacts

She is the author of a new report, Brazil’s Soy Sector Amidst Climate Transitions​​. That review stresses the necessity for Brazil's soy sector to brace for impending climate shifts to maintain its global dominance and mitigate financial risks.

“Through financial stress testing, we found that many Brazilian soy producers would face a more than 60% risk of financial losses if they do not take actions to prepare for climate transitions. As the sector increasingly implements sustainability  measures and advanced technologies, those that continue current practices risk losing market share in the future,” she tells FeedNavigator.

Brazil’s soy sector generated US$86.9bn in gross revenue in 2020 and supplies international markets with more than 50% of soy traded globally, as per WWF data ​​cited in the report.

Financial risk

By 2050, climate transitions could precipitate a 15% or higher drop in soy prices, leaving a sizable portion of Brazil's soy farmers vulnerable to financial losses, especially coupled with an expected decline in soy consumption in the ruminant meat sector. Nevertheless, investing in conservation strategies and technology could offset these challenges, potentially boosting yields by 14% and minimizing profitability shortfalls, reads the report.

The analysis examines various climate scenarios' potential impacts on Brazil's soy sector and underscores the need for preemptive measures.

Even under a modest forecast aligned with limiting global warming to 2°C significant challenges loom, including economic volatility, land competition, and technological disruptions, says the US-based author.

Sector-wide collaboration urged​

“Mitigating disruptive, sector-wide risks will require significant collaboration from producers, investors, policymakers and mid- and downstream value chain stakeholders,” she maintains.

Policymakers play a significant role in scaling climate smart solutions through fostering a strong regulatory environment, offering technical assistance, and providing financing linked to sustainability metrics, while investors can take to protect their investments and enhance the economic resilience of Brazil's soy sector in the face of climate transitions, remarks McCarthy.

“It’s important for investors to use forward looking projections to conduct climate risk and opportunity assessments since historical data cannot predict the impacts of climate change. Investors can also mitigate risks through linking financing to metrics based on climate smart decision making and leaning into opportunities to create new financial mechanisms that support emerging sectors in the bioeconomy.”

Soil health ​

Looking at how the industry might enhance the efficiency of soy production and ensure market competitiveness by 2050, she said that technologies will evolve but Orbitas' recommendations revolve around practices that can improve soil health, reduce emissions, and improve efficiency.

"Some examples of technology investments include farm automation, precision agriculture and seed selection, while agroforestry, carbon markets and integrated systems offer opportunities to build resilience through diversifying revenue streams.”

Implementing practices like no-till farming, cover crop rotation, and integrated pest management can cut production costs and improve yields, particularly for those lacking access to affordable financing.

Emerging opportunities ​

By 2050, Orbitas projects a decrease in available agricultural land, rising emissions pricing and a drop in soy producer prices under climate transitions, which would create incentives to sustainably increase production and lower costs.

“If the sector acts early, companies could garner a major share of the 88% increase in agricultural capital investment Orbitas has projected under to 2°C aligned climate transitions, which would mobilize up to US$157 billion for sustainable technology improvements.

"Producers who invest in efficient and low-emission soy production could capitalize on a more than 14% increase in global soy demand from increasingly sustainably oriented export markets. Meanwhile, competition for agricultural land due to conservation and the bioeconomy could drive a significant increase in yields.”