Paving the Amazon with Soy
World Bank Bows to Audit of Maggi Loan
December 16th, 2004
The sprawling state of Mato Grosso, in central west Brazil, could be thought a paradise of sorts, at least from a distance. The lush rainforest of the Amazon basin, often called the “lungs of the world,” straddles the state, as does the grassy Brazilian savanna or cerrado. Parrots, jaguars and pumas are just a few of the abundant species found in the savanna, considered one of the most biodiverse in the world, along with endangered species like the maned wolf, anteater and river-dwelling giant otter.
The landscape, however, is rapidly being altered as vast fields of soybeans and cattle ranches replace grasslands and forests. Soy rules Mato Grosso and it's not the soy that much of the world associates with the ostensibly eco-friendly, vegetarian diet, either.
In the wake of the Mad Cow disease scare, soy producers have benefited from increased demand in affluent countries for meat from cows that are fed soy meal, rather than animal-based feed. This is only the latest in a series of factors that have allowed a company named the André Maggi Group to spearhead, along with the Brazilian government, the expansion of soy in Mato Grosso and adjacent states over the last two decades, with disturbing consequences.
"Soy -- at this moment -- is the most important driver for deforestation, directly and indirectly," says environmental analyst Jan Maarten Dros. "Directly because the cerrado is being converted from natural vegetation into soy fields. But indirectly, because in this region a lot of cattle farms are being replaced by soy farmers buying or renting land from cattle farmers." This means, according to Dros' 2003 WWF study on the impacts of soybean cultivation in Brazil, that the "cattle farmers tend to advance into new forest area, causing more deforestation."
The governor of the state of Matos Grosso is Blairo Maggi, the owner of the Maggi group, who is also known as the rei da soja -- the Soybean King. In fact, the Maggi Group is the largest private soy producer in the world. The company grossed $600 million in sales this year, primarily managing the production, trade and processing of over 2 million tons of soy, most of it destined for livestock in Europe and Asia. Maggi has also been key in establishing transportation infrastructure that further opens the Amazon to development and deforestation.
In 2003, Maggi’s first year as governor, the deforestation rate in Mato Grosso more than doubled. Last year when the New York Times pointed out that the destruction of the Amazon had risen by two-fifths, Blairo Maggi responded: “To me, a 40 percent increase in deforestation doesn’t mean anything at all, and I don’t feel the slightest guilt over what we are doing here. We are talking about an area larger than Europe that has barely been touched, so there is nothing at all to get worried about.”
Despite the fragile ecosystem in which it operates, and the controversy around its practices, the Brazilian agribusiness giant has had little trouble getting bankrolled by private banks in Europe and Japan, and by public institutions like the International Finance Corporation(IFC), the private-lending arm of the World Bank. In 2002 the Maggi Group’s soy production division, Amaggi Exportação e Importação Limitada, landed two back-to-back US $30 million loans from the IFC -- one in 2002 and second that was granted in September of 2004.
World Bank audits loan to Amaggi
The Maggi Group, however, has encountered a bump in the road. Under pressure from NGOs in Brazil and abroad, World Bank president James Wolfensohn has called for an audit by the IFC’s Office of the Compliance Advisor Ombudsman of the 2004 loan to Amaggi, stating in a letter to Brazilian NGOs that "the audit will provide an independent review of the issue and the results will be made public.”
In the cases of both loans, the IFC assigned the projects a Category B social and environmental rating, meaning that “a limited number of specific environmental and/or social impacts may result which can be avoided or mitigated,” according to Rachel Kyte, director of the IFC’s Environmental and Social Development Department, although this classification may now be under review.
“If civil society's arguments were to have been considered two months earlier,” says Roberto Smeraldi, director of Friends of the Earth Amazonia, in response, "this audit would not have been necessary". Brazilian and foreign NGOs have argued that the loan should have warranted a Category A classification, defined as “likely to have significant adverse environmental impacts that are sensitive, diverse, or unprecedented.” Such a categorization would flag the project’s potential for serious harm to the fragile ecosystem of the cerrado.
The IFC loan provides Amaggi with capital to expand its inventory capacity for storing soy products while simultaneously supplying pre-finance loans to the 900 medium-sized soy farmers in Mato Grosso and Rondônia states from whom Amaggi buys the majority of the soy it sells. These tenant farmers tend to have limited capital and therefore must turn to Amaggi for financing, since the Brazilian government only provides loans at a very high interest rate. In return, the farmers sign contracts to sell their product to Amaggi on terms dictated by the agribusiness company.
The problem with this arrangement, says geographer Wendy Jepson, whose work focuses on soy production in the states of Mato Grosso and Rondônia, is that the pre-financing loans that Amaggi provides lack detailed conditions about the environment, while locking farmers into deals with Amaggi. “The IFC loan is wrongheaded because it doesn’t seem there are any environmental stipulations on how these producers actually cultivate. It’s facilitating the expansion of production and not dealing with the fact that these farmers have little choice in how they produce.”
Steve Schwarzmann of the Washington DC-based Environmental Defense guardedly welcomes the World Bank audit, while scoffing at the IFC’s Category B classification of the loan. “To say that financing the expansion of soybean production in the Amazon in 2004 is the kind of project whose impacts stop at the farm gate, is simply not credible.”
Banking on “green gold”
More significant than the direct consequences of the IFC loan, according to Dutch analyst Dros, is the prestige that the international lending body has given to Amaggi, which in turn has attracted much larger loans from private banks. Rabobank, the Netherlands’ biggest agricultural bank, has lead a consortium of 11 banks, including ING Bank (Netherlands), HSBC (UK), BNP Paribas (France), Crédit Suisse First Boston (Switzerland), UFJ Bank (Japan), WestLB (Germany), Fortis Bank (Netherlands/Belgium), HSB Nord Bank (Sweden), Banco Bradesco and Banco Itaú (Brazil), to loan Amaggi $230 million.
This is the second large loan Rabobank has arranged for Amaggi. The first loan for $100 million, in 2002, included ABN Bank and Fortis Bank, Banque Cantonale, BBVA, WestLB, and Standard Chartered, as well as three Brazilian banks.
In September of this year, Rabobank launched an advertising campaign presenting itself as “a bank that puts corporate social responsibility into practice.” Rabobank is a signatory of the IFC’s Equator Principles, a voluntary set of guidelines for managing social and environmental issues, and also has its own official standards on forest protection.
Dros, who has written a number of studies on soy in Brazil and South America for the World Wildlife Fund and AIDEnvironment, believes that the IFC’s imprimatur has given private banks a means of skirting their own environmental policies. “Rabobank’s reasoning was that if IFC approves this project and they classify it only as a class B, low-risk project, we can safely invest $230 million, eight times more than what IFC is investing, in this corporation.”
Rabobank public affairs manager Hans Ludo van Mierlo counters that the bank has an excellent record on environmentally sustainable lending. “We see no cause of concern by World Bank president James Wolfensohn's call for an audit of the IFC's loan to Amaggi,” says van Mierlo. “The current discussion among NGO's is about the IFC procedures, which resulted in a classification of Category B. This is more an internal discussion about the procedures of IFC and does not mean that Amaggi is doing something wrong.”
The Maggi Group has also received a loan of $24 million in March 2001 by a foreign banking syndicate arranged by Deutsche Investitions und Entwicklungsgesellschaft (DEG), two loans headed by Standard Chartered Bank in July 2001 and July 2002 for $70 million and $50 million respectively, a $80 million loan arranged by WestLB in June 2003 and a $34 million dollar loan from Banco Nacional de Desenvolvimento Econômico e Social (BNDES), Brazil’s development bank, in June of this year.
Environmental Defense’s Schwarzmann notes the irony of the IFC loaning money to the Maggi Group, given the corporation’s ability to draw large private loans. “The ostensible justification of [IFC lending] is to take public resources to support private business in the developing world that would not have access to international capital markets,” states Schwarzmann. “What the IFC has done with the Amaggi loans is anything but that.”
The controversy around IFC and private bank loans to the Maggi Group has highlighted the agribusiness company’s potential for ecological damage as soy producer and broker. But equally consequential has been Maggi’s role in reshaping the Amazon region, owing partially to the substantial political and economic power of the Maggi family.
Governor Maggi, with largesse from the Brazilian and Mato Grosso state governments, as well as from private companies including his own, has built roads, ports and expanded waterways through the Amazon rainforest that, according to critics, have further opened up the region to soy farms, cattle ranches and small colonists.
Maggi has initiated the creation of roads cutting through the heart of the Amazon, including the BR-163 highway currently being paved from Cuiabá, the capital of Mato Grosso, to the deep-water Amazon River port of Santarém. The asphalting of BR-163 is part of a public-private arrangement between the Brazilian government, Maggi and US agribusiness giants Cargill, Bunge, ADM and others who want a cheap way to export soy. According to the Amazonian Institute for Environmental Research, or IPAM, this 1600 kilometer road will cut a 10 million hectare swath of land through the region, opening the area for further colonization.
Blairo Maggi has shrugged off criticisms by those who see a conflict of interest between his position as Mato Grosso state governor and Brazil’s largest soy producer. “My electoral platform was based on the need to keep up economic development in Mato Grosso,” Maggi told Soybean Digest last year. “As governor, my key goal is to … triple agricultural production in Mato Grosso within 10 years, and to develop agro-industry in order to add value to that production.”
No end in sight?
Given the power of agribusiness interests like the Maggi Group, the march towards soy and cattle-driven deforestation may seem unstoppable. But the export-driven soy expansion may slow down for reasons of demand, for the time being.
After reaching a fifteen-year high in April, the price of soy has fallen on the world market to half its peak value, partly owing to record soy production in the US and to decreased demand from China. The price of soy started to slip this spring after China refused to accept shiploads of soy from Brazil owing to high levels of pesticides on the beans. The Maggi Group estimates that it could take several years for the price to pick back up.
Over the long run, demand for soy is only expected to grow. As long as consumers continue to demand meat from soy- fed livestock and international banks continue to finance its growth, the Maggi Group will stay in business. Meanwhile, the vital ecosystems of Mato Grosso’s Amazon rainforests and cerrado remain in danger.
Sasha Lilley is a staff writer for CorpWatch and producer of Against the Grain on Pacifica Radio.