Thomas White Global Investing
Green Reports

September 2, 2009

The Green Report

Brazil’s Green Arch Initiative to Save the Amazon
The Amazon is fast shrinking

It was a hot morning. Ricardo looked past his vast soy field into the thick forest in the distance, sighing with guilt as he remembered the big machines that came to raze the lush rainforest. He felt responsible for the destruction, as he cleared the trees to make way for his soy field.

Ricardo is just one of the many vaqueros or farmers who are hacking down vast swathes of forest to make way for profitable soy fields and cattle ranches. The Amazon rainforests, nearly eight times the size of Texas and home to 20 million Brazilians, is fast disappearing due to encroachment for material and commercial gains. In fact, the raising of cattle and agricultural crops has accounted for 80% of the forests’ shrinkage.

It is difficult to imagine that a forest that spans the borders of eight countries is the world’s largest river basin, and is the world’s largest and most luxuriant green is being denuded at such a frenetic speed. According to the World Wildlife Fund (WWF), at the current pace, 55% of the rainforests in Amazon could be gone by 2030 – a highly disastrous proposition not just for the region, but for the world.

To avert this environmental ruin, Brazil has introduced various measures, the latest being the payment of $51 per month to farmers who replant trees in deforested Amazon areas. Known as the “Green Arch” initiative launched by Brazilian President Luiz Inacio Lula da Silva, the effort is expected to stave off growing international pressure on Brazil to reduce deforestation, which leads to global warming and 20% of greenhouse gas emissions. The plan might also provide an alternative livelihood for poor Amazon dwellers, who currently eke out a living through timber exploitation. It is hoped that the Green Arch program will slash Amazon deforestation in half over ten years and thus prevent the release of nearly 4.8 billion tons of carbon dioxide into the air.

Apart from the Green Arch initiative, an Amazon Fund was created in 2008 by Lula da Silva aimed at preserving the Amazon. Financing for the $21 billion project is being sought through donations from industrialized countries, but currently only Norway has come forward with a grant of $1 billion. Brazil’s Environment Minister Carlos Minc has also taken an active role in the Amazon forest battle by reducing credit access to illegal loggers and ranchers, seizing agricultural products and cattle produced on illegally deforested lands, and pushing for new protected areas.

This is a complete turnaround from Brazil’s earlier stance when the country largely put its economic interests ahead of conservation. In fact, there is evidence that Brazilian deforestation correlates with the country’s growth trajectory. The decline in deforestation from 1988-1991 parallels the economic slowdown of the same period, while the soaring rate of deforestation between 1993-1998 correlates with Brazil’s period of rapid economic growth. According to the Center for International Forestry Research (CIFOR) “between 1990 and 2001 the percentage of Europe’s processed meat imports from Brazil rose from 40% to 74%”, and by 2003 “for the first time ever, the growth in Brazilian cattle production—80% of which was in the Amazon—was largely export driven.”

Without question, the Amazon is very beneficial to the South American economy. The Manaus region is an electronic hub, humming with manufacturing activity as leading electronics manufacturers have their products assembled there. Other important sectors include the rubber industry and the mining industry. The state of Mato Grosso, which ironically means “thick forest,” is now Brazil’s leading producer of soy, corn and cattle, exported across the globe to the five key markets of Russia, Iran, China, Venezuela and Egypt, according to the Association of Brazilian Meat Exporters.

Now, Brazil is trying to strike that delicate balance between development and the environment, and the effort is slowly beginning to pay off. Deforestation in the Brazilian Amazon has plunged since peaking in 2004. Minc notes that deforestation between August 2008 and July 2009 was the lowest in the country had seen in two decades. Between May and June this year, deforestation fell by 25%.

But the raw facts remain. Cleared farmland in Mato Grosso sells for up to $1300 an acre. And as John Carter, a rancher who settled in Mato Grosso around 15 years ago observes, “With so much money to be made, there are no laws that will keep forest standing.” For the vaquero, will the lure of money supersede the struggle with his conscience?




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