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Cattle muddy Brazil’s path to sustainable farming



Three years ago, SLC Agrícola took a punt on a technology that integrated infrared cameras into its machinery for spraying herbicide on its vast soya, cotton and corn plantations.

Immediately, the results were clear. The cameras were able to detect weeds, which could then be killed with a precision dose of herbicide, eliminating the need for the kind of mass spraying that is ubiquitous in large-scale agriculture. With the new technology, the company’s use of herbicide dropped 85 per cent, reducing costs and making its products more appealing to consumers.

“It is a very efficient way to save chemicals, but more importantly to apply those chemicals only where they are needed — to apply directly,” says Aurélio Pavinato, SLC’s chief executive.

“We started with one machine, then two years ago we bought two more and then another 10. All our farms now have this machinery.”

SLC is today recognised as one of the leaders in sustainability in Brazil’s agribusiness sector — a bulwark of the economy that has grown in size and stature in recent years thanks to soaring demand for its products, notably from China.

Soya seedlings on an SLC farm
Soya seedlings cultivated by SLC, which uses weed-detecting cameras to minimise herbicide use © Ricardo Lisboa, for the FT

Farming already accounts for 22 per cent of the Brazilian economy and seems poised for an even brighter future, with demand for food forecast to soar as the global population pushes towards 10bn by 2050, according to UN estimates.

The production of soyabeans — used for a variety of oils as well as for animal feed — surpassed 130m tonnes this year, up from 75m tonnes 10 years ago. In the same period, corn production almost doubled to reach 105m tonnes, according to official data.

Brazil’s agribusiness companies, however, are viewed with suspicion by the international community because of the sector’s historical links to deforestation in fragile biomes, such as the Amazon and the Cerrado savannah, which adjoins the south and east of the rainforest.

Special report: Brazil and its biomes

Today, attention is focused on Brazil’s big meat producers — companies such as JBS and Marfrig, which are regularly accused of failing to keep their supply chains free from cattle raised on deforested lands. Soya producers, too, have been lambasted by environmentalists for clearing land in order to grow crops.

A wide field

The reality, however, is complex. Brazil is the world’s largest producer of many commodities, including sugar, coffee and orange juice, which are not closely associated with the deforestation that is currently afflicting the country. Even the meat and soya producers encompass a broad spectrum, from big companies like SLC that recognise the economic potential of sustainable agriculture to small farmers whose lack of access to technology and resources often results in more destructive land use.

“There is no such thing as a monolithic agribusiness sector in Brazil. It doesn’t exist,” says Juan Carlos Castilla-Rubio, the chairman of Space Time Ventures, a São Paulo-based group focused on developing artificial intelligence and robotics technologies for agriculture. “There is the bad segment, mostly in livestock and ranching. Then there is a sector in the middle ground in terms of sustainability, which is trying to do its best to respect laws but they are not in a transformation. And then there is the advanced sector, which realises that a new revolution is required.”

For Mr Castilla-Rubio, SLC fits into the last group. It has joined forces
with Space Time Ventures to develop the camera technology to a point where autonomous robots could be used to detect the weeds and drones sent to kill them.

Celso Moretti, the president of Embrapa — a government-run agricultural research group — says Brazil’s advances in sustainable agriculture have been undermined by poor communication with the outside world.

It is a common refrain among executives in the industry, who fret that their willingness to adopt new technologies is being overshadowed on the world stage by the rhetoric of President Jair Bolsonaro, who regularly makes overtures to the small cattle farmers and gold miners who cause much of the country’s deforestation.

“We are not doing a good job of telling the world the things we are doing the right way, which is producing with technology and without cutting down forests,” says Mr Moretti, adding that illegal deforestation needs to be tackled via enforcement at the federal level.

“We don’t need to cut a single tree. We don’t have to use the Amazon to export more or feed the world. We have the technology.”

Superior soil

Much of this technology is focused on improving soil quality to increase yields and the sustainability of the land. The 204m-hectare Cerrado was once considered unsuitable for growing crops, but is now the heartland of Brazil’s soya and cotton production as a result of efforts to reduce the soil’s acidity and naturally occurring aluminium content.

Some larger producers have also begun no-till farming, which reduces carbon emissions and maintains the quality of the soil for a longer period.

“With no till, we are able to protect organic matter in the soil. And if you have good crop rotation, the soil can recover to the same level as in nature,” Mr Pavinato says.

Another important development has been the cultivation of crops to suit Brazil’s tropical climate. Mr Moretti points out that soyabeans are originally from China, but were brought to Brazil via the US and then genetically modified to flourish in the local climate.

“The fact is in Brazil, we have areas that we crop twice or three times a year,” he says. “We use around 65m hectares of land to produce 257m tonnes of grain and 67m tonnes of fruit and vegetables. And we have another 50m hectares of degraded pasture that we can incorporate in our production matrix, so we can double production of food and fibre without cutting down trees.”

Trouble with cowboys

The fly in the ointment, however, remains the cattle industry — both for its links to deforestation and its emissions of methane, a greenhouse gas produced as cattle digest their food.

Under pressure from international investors as well as purchasers in Europe, Brazil’s big meat companies are rushing to implement protocols to ensure that their supply chains are free from cattle raised on deforested lands.

But a clear problem remains with the tens of thousands of indirect suppliers — ranchers who provide cattle to the companies’ direct suppliers — who often live in remote areas, far removed from the purview of the likes of JBS and Marfrig. Unlike the soyabean industry, which uses fixed contracts, cattle sales operate on a spot market: purchasing is piecemeal, to reflect shifting consumer demand, and ranchers can easily sell to smaller, more unscrupulous operators if the big meat companies’ demands become too onerous.

“The biggest challenge we have in Brazil is to control and to trace the whole supply chain. Why is this so difficult? We have more than 2.5m producers,” says Paulo Pianez, sustainability director of Marfrig.

“How can we access the [indirect suppliers]? If I put too much pressure on my direct supplier for this information, they are going to simply sell to another person.”

Both JBS and Marfrig are adopting what they call an “inclusive” approach, offering support to their supply chain to help producers make better use of their land so that deforestation is unnecessary. They are also using technology such as blockchain to track the life cycle of cattle, as well as satellites to look out for deforestation among suppliers.

Few environmentalists, however, have been convinced, and JBS in particular has been accused of moving too slowly on the issue.

But Mr Pianez makes the point that any solution does not lie just in the meat companies’ hands.

“What we need is the government to implement regulations, meatpackers to all have the same policy system, retailers to only buy meat from meatpackers with these criteria, and investors and banks to provide conditions for producers to have the necessary resources,” he says.

“We believe that only this way can we change the livestock reality in Brazil.”


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Emerging Markets

Bolsonaro faces investigation over election fraud claims




Brazilian politics updates

Brazilian president Jair Bolsonaro’s legal problems have multiplied after a court opened an investigation into his unsubstantiated warnings of voter fraud in presidential elections next year, a probe which could lead to him being disqualified from running.

The judicial inquiry comes as the far-right leader’s ratings are on the slide following accusations of his incompetent handling of the Covid-19 pandemic, which has claimed the lives of more than half a million Brazilians.

Rising living costs and allegations of corruption in vaccine procurement within his administration have damaged Bolsonaro’s standing further.

With political pressure building, the populist has increased attacks on the electronic voting system in recent weeks, reiterating calls for the adoption of printed paper receipts in order to avoid manipulation.

Opponents fear the former army captain is seeking to cast doubt on the legitimacy of the vote, in preparation for refusing to recognise a potential defeat. A group of 18 current and former Supreme Court justices have defended the current ballot system, which was introduced in 1996, insisting that Brazil had eliminated election fraud.

The Superior Electoral Court this week opened an administrative probe into Bolsonaro over his claims, for which he has provided no evidence. It also asked the Supreme Court to investigate whether the president had committed a crime by disseminating fake news about the voting system.

The president hit back on Tuesday. “I will not accept intimidation. I will continue to exercise my right as a citizen, to freedom of expression, criticism, to listen, and to meet, above all, the popular will,” Bolsonaro told supporters in Brasília.

The electoral court’s intervention showed the judiciary was striking back against Bolsonaro’s attacks, said Carlos Melo, a political scientist at Insper in São Paulo. “He [Bolsonaro] is harming the rules of the game, of democracy and the institutions,” he added. “It’s not different to what [Donald] Trump did, and demagogues in other countries. His intention is to question the electoral process without proof.”

Both moves by the electoral court could in theory eventually pave the way for Bolsonaro being barred from standing in the 2022 poll.

“There is a long way until this can bring actual legal consequences against the president which might affect his eligibility,” said Rogério Taffarello, a partner in criminal law at Mattos Filho and professor at the Getúlio Vargas Foundation. “[This] does not mean, of course, that the existence of such investigations cannot generate political consequences”.

The president is already the subject of a criminal investigation into whether he failed to act on warnings about alleged irregularities by public officials in negotiations over vaccine purchases. Bolsonaro and the government deny any wrongdoing.

Protesters have taken to the streets in cities over the past two months calling for the impeachment of Bolsonaro, who in polls is trailing former leftwing president Luiz Inácio Lula da Silva, also a likely frontrunner in next year’s election.

Bolsonaro had long promised to present evidence of cheating in elections, even claiming that the 2018 ballot he won was tampered with. Yet last week he admitted to not holding any proof, only “indications”.

Despite his falling popularity, Bolsonaro retains backing in Congress from an amorphous grouping of centre-right political parties known as the Centrão, or “Big Centre”. Analysts said for now this support appeared to be holding.

Additional reporting by Carolina Pulice

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South Korea looks to fintech as household debt balloons to $1.6tn




South Korea Economy updates

After her family business of ferrying drunk people home was hit by closures of bars due to Covid-19 curfews and social distancing, Lee Young-mi* found herself juggling personal debts of about Won30m ($26,000).

The 56-year-old resident of Suncheon in South Korea was already struggling to pay off or refinance four credit cards, but now faces the prospect of those debts rapidly multiplying after her husband was diagnosed with cancer.

“We’ve had little income for more than a year as not many people are out drinking until late into the night,” said Lee. “Now my husband won’t be able to work at all for the next three months after his surgery.”

Lee’s story is playing out across Asia’s fourth-largest economy as self-employed workers, who make up nearly a third of the labour force, have seen their incomes reduced sharply due to coronavirus restrictions. Now, after struggling for years to keep a lid on household debts that hit a record Won1,765tn ($1.6tn) in March, Seoul is looking to fintech companies and peer-to-peer lenders for answers. 

Chart showing increase in South Korea's household debt

Among them is PeopleFund, which touts tech-based investment products backed by machine learning that allow borrowers to refinance their higher-interest loans from banks and credit card companies.

The company has loaned at least $1bn to more than 7,500 customers since it was established in 2015. Its products allow borrowers to switch their debts to fixed-rate, amortised loans at annual interest rates of about 11 per cent, a change from the riskier floating rate, interest-only loans common in South Korea. 

PeopleFund has received about Won96.7bn in financing from brokerage CLSA, and along with Lendit and 8Percent is one of the first among the country’s 250 shadow banks to win a peer-to-peer lending licence. 

“The country’s most serious household debt problem is with unsecured non-bank loans, whose pricing has been too high. We can offer more affordable loans to ordinary people unable to receive bank loans,” Joey Kim, chief executive of PeopleFund, told the Financial Times.

The proliferation of digital lenders and fintechs in South Korea, where higher-risk borrowers are often cut off from bank financing, has been encouraged by the country’s government.

“We hope that P2P lenders will help resolve the dichotomy in the credit market by increasing the access of low-income people to mid-interest loans,” said an official at the Financial Supervisory Service.

South Korea’s household debt situation has become more pressing since the onset of the pandemic, with increases in borrowing for mortgages, to cover stagnating wages and to invest in the booming stock market. South Korean households are among the world’s most heavily indebted, with the average debt equal to 171.5 per cent of annual income.

South Korea’s household debt-to-GDP ratio stood at 103.8 per cent at the end of last year, compared with an average 62.1 per cent of 43 countries surveyed by the Bank for International Settlements.

Much of the new debt has been risky. Unsecured household loans from non-bank financial institutions were Won116.9tn as of March, up 33 per cent from four years ago, according to the Bank of Korea, much of it high interest loans taken out by poorer borrowers.

Getting on top of the problem has taken on national importance. In a rare warning in June, the central bank said the combination of high asset prices and excessive borrowing risked triggering a sell-off in markets and a rapid debt deleveraging.

“If financial imbalances increase further, this could dent our mid-to-long-term economic growth prospects,” BoK governor Lee Ju-yeol said in July.

The country’s economic planners, however, are struggling to contain debt-fuelled asset bubbles without undermining South Korea’s fragile economic recovery.

The government has attempted to address the danger by tightening lending rules. Regulators in July lowered the country’s maximum legal interest rate that private lenders can charge their customers from 24 to 20 per cent.

Economists caution that rising debt levels increase South Korea’s vulnerability to an economic shock. 

They also warn that the asset quality of financial institutions could be hit by a jump in distressed loans when the BoK rolls back monetary easing, expected in the fourth quarter.

“Monetary tightening is needed to curb asset bubbles but this will increase the household debt burden, holding back consumption further,” said Park Chong-hoon, head of research at Standard Chartered in Seoul. “The government is facing a dilemma.”

For Lee Young-mi, however, the 11 per cent rate offered by the PeopleFund is still too high. “I am not sure how to pay back the debt.”

*The name has been changed

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European and Chinese stocks rise after calming words from Beijing




Chinese equities updates

European shares chased gains in China after calls from Beijing for greater co-operation with Washington helped sooth jitters over a regulatory crackdown in the world’s biggest emerging market.

Europe’s Stoxx 600 index rose 0.7 per cent on Monday to hit new all-time highs, while the UK’s FTSE 100 rose 1 per cent led by economically sensitive stocks including banks and energy groups. London-listed lender HSBC gained 1 per cent after it reported second-quarter figures that easily beat analysts’ expectations.

The gains came after the China Securities Regulatory Commission, Beijing’s market regulator, called on Sunday for closer co-operation with Washington, stressing the country’s efforts to improve transparency and predictability after a crackdown on tutoring groups obliterated the market value of the $100bn sector’s biggest companies.

Chinese listings in the US have become a geopolitical flashpoint as Beijing has sought to exert greater control over the country’s powerful tech sector. The US Securities and Exchange Commission said on Friday that Chinese groups that sought to sell shares in America would be subject to stricter disclosures.

Shares in China rebounded after their worst month in almost three years, with China’s CSI 300 benchmark of Shanghai- and Shenzhen-listed blue-chips rose 2.6 per cent on Monday, while Hong Kong’s Hang Seng index added 1.1 per cent. The city’s Hang Seng Tech index, which tracks big internet groups including Tencent and Alibaba, reversed early losses to rise 1 per cent. Futures tracking Wall Street’s benchmark S&P 500 index climbed 0.6 per cent.

Last month, China’s cyber-security regulator announced plans to review all foreign listings by companies with data on more than 1m users after top leaders in Beijing called for an overhaul of how the country regulates initial public offerings in the US. The crackdown came just days after the $4.4bn listing of ride-hailing group Didi Chuxing.

The intensifying scrutiny of how Chinese groups access capital markets has pummelled stocks, delivering the worst month for China tech groups listed in the US since the global financial crisis. The Hang Seng Tech index fell 17 per cent last month.

“While we do not consider it prudent to completely avoid investments in China, further volatility can be expected until the first quarter of 2022, by which time we believe most regulatory changes may already be in place,” analysts at Credit Suisse wrote in a note on Monday.

Meanwhile, data released by China at the weekend showed that factory activity grew at the slowest pace in 15 months in July as demand contracted for the first time in more than a year.

Government bonds were steady with the yield on the benchmark German 10-year Bund, which moves inversely to its price, gaining 0.01 percentage points to minus 0.45. The equivalent US 10-year yield was steady at 1.234 per cent.

Bond yields have been falling in recent weeks, despite higher than expected inflation readings in the US and indications from the US federal Reserve last week that it was moving a step closer to the day when it would start tapering its $120bn in monthly asset purchases.

The euro rose 0.1 per cent against the dollar to $1.1885, while the pound gained 0.1 per cent to purchase $1.3924. Prices for global oil benchmark Brent crude fell 1 per cent to $74.66.

Unhedged — Markets, finance and strong opinion

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