Sustainable Cattle Farming Fund Reduce Emissions & Deforestation Caused by the Cattle Industry in Brazil Henry Lau Antony Chan Nita Poonkulpong Mason Sinclair Blerina Xhelilaj
The Problem Ca Cattle industry y contributes 10% 10% of of g glob obal g green eenhou ouse g se gas ( s (GHG HG) em emissi ssion ons [1 [1] Besides carbon dioxide, In 2019, deforestation rates doubled when parts of the Amazon cattle emits methane and were set on fire to clear land for cattle farming. Deforestation nitrous oxide which are alone contributes 15% of global GHG emissions. If trends CH 4 N 2 O CO 2 25x and 300x more continue, the Amazon is expected to reach a tipping point in damaging. 20-30 years turning the rainforest into a savanna ecosystem. Over 70% of Brazilian cattle ranchers are family-run farms. Brazil is the world’s largest cattle producer and existing Many in the Amazon (poorest in Brazil) still use unsustainable government policies do not address livestock GHG emissions practices and can benefit financially from sustainable practices effectively. but do not have access to the required technical expertise and Additionally, cattle ranching is driving the Amazon rainforest financial resources. Thus, their cattle continue to graze deforestation, where 15% is already lost. inefficiently on degraded and destructive pastures. The problem exacerbates because soil productivity following deforestation becomes infertile very quickly, forcing ranchers to continue deforestation to maintain cattle production. 2
The Solution Hel Help B Brazilian r rancher ers a s adop opt su t sustainable c e cattl tle f e farming p practi tices es The SCF Fund will provide Brazilian ranchers with debt financing that they currently have little access to because of rurality and undeveloped credit scoring system. Technical consultation will be offered to achieve productive, efficient, and sustainable ranching operations that are sold at premium prices while minimizing environmental footprint. Ranchers participating in the SCF Fund must adhere to the Brazilian Forest Code and are strictly prohibited from deforestation of the Amazon rainforest. Pasture Management Manure Management Technical Consultation Supply Chain Integration International Market Premium • Pasture rotation, fertilization, • Handling, storage, and disposal • Partnering consultancies will • Vertically integrate rancher’s irrigation, controlled grazing of urine and feces will mitigate act as an inspector for the fund cattle production system (cow- • Partnering agencies (e.g. ABPO) improve soil fertility and feed up to 80% of waste GHG while providing ranchers with calf, backgrounding, and will help ranchers prove quality for cattle emissions by capturing biogas technical advice on finishing) to capture synergies sustainable operations by for electricity generation and transitioning the mentioned and extract monetary value • Enhances cattle digestibility, certifying their products, minimize air and water sustainable practices and currently being lost to productivity, health, and enabling ranchers to command pollution by preventing waste educate them on best practice intermediaries fertility, thereby reducing cattle an additional premium for runoff implementation lifecycle emissions by 30% • Integration enables monitoring “Certified Sustainable Beef” • Reduce fertilizer cost for institutions to validate • Enhances carbon sequestration • Demand for “Certified ranchers by recycling nutrient- sustainable cattle farming in soil and eliminates pressure Sustainable Beef” in rich manure back into the soil practices by removing rogue on deforestation caused by international markets currently for better pasture management agencies that don’t adhere to degraded pasture outstrips market supply sustainability standards from • Hedging at scale the supply chain 3
Innovation Elements Re Reduce GHG emission and mitigate deforestation Appeal to Investors: Flow of Fund: Flows: Financial ~20% IRR using cattle futures contracts on CME to hedge Non-Financial against market uncertainty Debt and Equity Investors Vertically Integrated Supply Chain Sustainable Practices Reduced risk due to significant collateral (maximum 50% LTV) Certification SCF Fund Cooperatives Organizations Tranches that tailor to different risk and return objectives Technical Consultant Cattle Ranchers Certified International (Partners) Sustainable Beef Market Repayment schedule that matches ranchers’ cash flows Proven Sustainable Practices Employed in Developed Markets Pasture Management • Reduce GHG by 30% Technical consultants help implement best practices • Prevent land degradation and monitor progress of ranchers • Improve feed quality and yield of beef production Manure Management • Reduce GHG by 60-80% • Save costs on fertiliser and electricity • Reduced GHG Emission (through conversion of GHG into biogas) • Prohibits Deforestation • Improve soil nutrient and land sustainability • Increases Carbon Sequestration 4
Financial Analysis (2/2) 19% 19% fund und IR IRR, 50% 50% LTV, strong ng collater eral for inves estors; 2. 2.5x 5x ne net CF F to rancher nchers Loan Terms: Inspection every 3 months and ranch assets as collateral Cash Flow Projection: 2x ranch operating cash flow by year 3 Ranch Cash Flow Funding/Debt Servicing Net Cash Flow to Rancher • Average loan amount: US$ 225,000 per rancher; ~2.0x Debt/FCF • Blended interest rate on loan: 9.0% (competitive) 300,000 • Repayment schedule: Repayment of interest and principal at the lesser of i) 50% of the ranch’s gross cash flows before debt servicing, and 200,000 ii) Loan balance outstanding 100,000 • Collateral: Livestock, ranch, and land • Compulsory inspection by technical consultants: every 3 months 0 • Default is triggered if rancher borrows more debt without waiver from SCF Fund (100,000) Key Assumptions*: (200,000) • Premium on sustainable beef: 30% based on market intelligence [2] Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 • Electricity generated: approx. 900,000kW/year/ranch [4] Fund IRR Sensitivity Analysis: Observations from developed markets • Fertilizer produced from manure: approx. 45,000kg/year/ranch [4][5] indicate 25-35% certification premium; cattle prices hedged with futures • Implementation period: 1-2 years [6] contracts • Number of hectares covered by loan: ~22,000 hectares Certification Premium 10% 20% 30% 40% 50% Potential Partners: 5% 8.4% 15.1% 20.9% 26.1% 30.8% Default Rate 10% 7.4% 14.1% 19.9% 25.1% 29.8% 18.9% 15% 6.3% 13.1% 24.1% 28.7% 20% 5.3% 12.0% 17.9% 23.1% 27.7% Brazilian Beef Exporters 25% 4.1% 11.0% 16.8% 22.0% 26.6% Association (ABIEC) *Refer to Appendix for References 5
Climate Analysis and Impact Our Our fund und will cover more tha han n 100, 100,000 000 cattle and nd 100 100 ranc nche hes s in n Brazil Electricity and fertilizer costs saving up to 10% Reduction in GHG emissions by Reduction in Brazilian Amazon up to 13 million tonnes CO 2 e deforestation by 100,000+ ha Improved cattle productive yield 30% Price premium on Certified by up to 30% Sustainable Beef in international markets 6 Farm Vector Illustrations [Digital Image]
Scalability $50bn in $50bn n loans ns requi equired ed – equi equivalen ent to 2, 2,000x 000x our ur offer ering ng Scalability and Replicability Potential: Requirements for Scalability: The Brazilian Amazon currently holds 200+ million cattle and Amazon Region 1600+ agricultural co-operatives available to support farmers Scalable across ranchers in the Amazon region. Application of this solution to regions in other parts of the globe where cattle farming impacts across the country. This solution can potentially impact 4.8 deforestation requires additional environmental and livestock lifecycle million ha/year of biome loss and 340 million tonnes CO2e/year assessment. (3.4% of current global emissions) caused by cattle ranching induced deforestation. Certification Organization The model is scalable across developing countries in Central and Ranches that can be adequately monitored by an accredited South America, especially Peru, Colombia, Bolivia, Venezuela, certification organization is essential for this solution to be scaled. and Ecuador where Amazon rainforest is being cleared for inefficient cattle ranching practices. International Markets This financial structure can There must not be any hindrance of agricultural products at a also be applied to various prospective ranches from being sold to international markets. livestock such as pigs, poultry, and buffalo, which contribute significant Cooperatives GHG emissions and Cooperatives are key partners in this fund. The ranches being land disruption in ways serviced must be affiliated with a regional cooperative. similar to cattle. 7
Th Than ank you There’s no time to lose.. Let’s moooooooooo-ve! 8
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