Sustainable Agriculture Finance

Facility
LAB INSTRUMENT ANALYSIS
September 2020

DESCRIPTION & GOAL —

The only credit vehicle tailored to scaling up the adoption of integrated crop-livestock-
forest systems in Brazil, with potential to improve livelihoods and support the country’s
NDCs

SECTOR —
Land Use, Sustainable Agriculture

FINANCE TARGET —
Private debt investors, multilateral organizations, NGOs and philanthropies

GEOGRAPHY —
For pilot phase: South-Central and Northeast regions of Brazil
In the future: Entire Brazilian territory
 The Lab identifies, develops, and launches sustainable finance
instruments that can drive billions to a low-carbon economy.
The 2020 Global Lab cycle targets four specific sectors across
mitigation and adaptation: nature-based solutions; sustainable
agriculture for smallholders in sub-Saharan Africa; sustainable
energy access; and sustainable cities, as well as three regions:
India, Brazil and Southern Africa.

AUTHORS AND ACKNOWLEDGEMENTS

The authors of this brief are Felipe Borschiver and Rosaly Byrd.

The authors would like to acknowledge the following professionals for their cooperation and valued
contributions including the proponents José Pugas (Rede ILPF), Renato Rodrigues (Embrapa/ Rede
ILPF), Gracie Verde Selva (IABS); and the working group members: Pedro Moura Costa (BVRio),
Mauricio Moura Costa (BVRio), Diogo Bardal (IFC), Luiz Daniel de Campos (IFC), Marcio Marcedo
(BNDES), Raphael Stein (BNDES), Felipe Faria (P4F), Oliver Page (IFAD), Leonardo Bichara Rocha
(IFAD), Walkiria Thompson Teixeira de Oliveira (Banco Bradesco), Renato Hobold Watanabe
(Cocamar), Marcio Selva (UNEP), Guillermo Carvajal (Syngenta), José Carlos Fernández (FAO), Anja
Wucke (GIZ) and Diego Colombo (John Deere).

The authors would also like to thank Tatiana Alves, Ben Broche, Barbara Buchner, Elysha Davila,
Valerio Micale, Rob Kahn, Júlio Lubianco and Priscilla Negreiros for their continuous advice, support,
comments, design, and internal review.

The Lab’s 2019/2020 programs have been funded by the Australian, Dutch, German, and UK
governments, as well as Bloomberg Philanthropies, GIZ, the International Fund for Agricultural
Development (IFAD), the Rockefeller Foundation, and the Shakti Sustainable Energy Foundation.
Climate Policy Initiative (CPI) serves as Secretariat and analytical provider.
SUMMARY
The Sustainable Agriculture Finance Facility (SAFF) is the only credit fund and virtual
marketplace that unlocks green capital to foster the adoption of Integrated-Crop-
Livestock-Forest (ICLF) systems in Brazil. It provides customized bundled loans that match
the farmers’ reality on the ground, and takes into account social, environmental, and
specific ICLF parameters.

The Lab secretariat recommends endorsing this instrument, based on the following
criteria:

 Innovation: Though critical to Brazil’s environmental and economic goals, the

adoption of ICLF systems in the country is constrained by a credit system that is
poorly adapted to the specific needs of sustainable agricultural practices. SAFF
addresses this issue by providing loan products that cater to the risk and cash flow
profile of ICLF systems, coupled with a unique specialized certification and
technical assistance program;

 Catalytic Potential: The pilot will leverage approximately US $68 million to be

deployed on 90 thousand hectares of land, mitigating 2.5 million tons of CO2 within
10 years and improving the livelihood of 900 farmers. At scale, the instrument has
the potential to leverage up to US$ 1.4 billion in capital and abate 51 million tons of
CO2. Moreover, ICLF allows for livelihood enhancement in safe, outdoor settings
which are much needed to restart the Brazilian economy after the COVID-19
pandemic;

 Financial Sustainability: The instrument offers very competitive interest rates to

farmers while providing market level returns to private investors. Private investors
are expected to make up 63% of the capital and realize a 5.5% IRR;

 Actionability: Main partners are already aligned (MoUs to be signed shortly) and
main target markets have been mapped (Cocamar and Rural Sustentável 2). Next
steps will include fundraising and the execution of the already mapped pipeline.
Proponents expect the Facility to be market-ready within a year.

TABLE OF CONTENTS

SUMMARY ............................................................................................................................................... 3
CONTEXT ................................................................................................................................................. 4
CONCEPT ................................................................................................................................................ 5
1. Instrument Mechanics ................................................................................................................... 5
Instrument Structure ................................................................................................................... 5
Credit Lines .................................................................................................................................. 6
Partnerships ................................................................................................................................. 6
ICLF Compliance ........................................................................................................................ 7
2. Innovation ....................................................................................................................................... 7
 Barriers Addressed: Access to Credit and Technical Capacity .......................................... 7
Innovation: Only Vehicle to Focus on ICLF Adoption ........................................................... 8
Challenges to Instrument Success ........................................................................................... 8
MARKET TEST AND BEYOND................................................................................................................... 9
3. Implementation Pathway and Replication ................................................................................ 9
Pilot Context ................................................................................................................................ 9
Implementation Pathway........................................................................................................ 10
SAFF – Fundo Vale .................................................................................................................... 11
4. Financial Impact and Sustainability........................................................................................... 11
Quantitative Modeling ............................................................................................................ 11
Private Finance Mobilization and Replication Potential ..................................................... 12
5. Environmental and Social Impact ............................................................................................. 13
Environmental Impact ............................................................................................................. 13
Social and Economic Impact ................................................................................................. 13
NEXT STEPS ............................................................................................................................................. 14
REFERENCES .......................................................................................................................................... 15
ANNEX 1 – EXAMPLES OF TRUSTSCORE SYSTEM ................................................................................ 18
ANNEX 2 – CARBON METHODOLOGY............................................................................................... 19

CONTEXT
ICLF can improve climate resilience and reduce carbon emissions of degraded land in
Brazil, but the adoption rate is low due to lack of finance and technical knowledge.

Brazil has approximately 180 million hectares of pasture land, half of which is considered
degraded and unproductive (IBGE, 2017). Because of this, the country’s Nationally
Determined Contributions (NDCs) include a strengthening of low-carbon agriculture
practices with the goal of restoring 15 million hectares of degraded pastures and
increasing the adoption of integrated-cattle-livestock-forest (ICLF) systems from 17 million
hectares to at least 23 million by 2030.

ICLF is a strategy that combines different productive systems (agricultural, livestock and
forests) in the same area through intercropping, succession or rotation, seeking synergistic
effects between these components. The benefits of ICLF include more efficient use of
land and inputs, restoration of degraded pastures, preservation of biodiversity, soil
management, reduction of pressure on native vegetation and lower emission of
greenhouse gases. This results in increased productivity, improving the income and
livelihood of farmers. ICLF is extremely versatile and can be adapted to a large array of
productive systems, biomes and property sizes.

However, despite its clear economic and environmental benefits, the adoption of ICLF in
Brazil is still at a low 9.4% of the total rural area. The main reasons for this are a lack of
capacity and knowledge for implementation and a reliance on a combination of
different credit lines, which are often bureaucratic, have low limits, and require high
guarantees, especially for smallholders. Rural credit is very concentrated in Brazil with
smallholders making up 74% of contracts of the largest subsidized public funding
programs, but only 14% of the financial amount and 16% of the area.

The Sustainable Agriculture Finance Facility (SAFF) seeks to support ICLF adoption in Brazil
through a combination of accessible credit lines, certification and specialized technical
assistance. It has the potential to reach 13 million hectares of land within the next 10
years, leveraging the economic and environmental benefits of ICLF. Proponents ICLF
Network and IABS1 are long-standing non-profit entities that study and promote
sustainable agricultural practices in Brazil. They are comprised of various private and
public organizations in different tranches of the agricultural value chain.

CONCEPT
1. INSTRUMENT MECHANICS

SAFF provides a bundled credit offering that focuses on the challenges and benefits of
ICLF implementation and a marketplace for certified sustainable suppliers

INSTRUMENT STRUCTURE

Figure 1 Instrument Structure

The instrument will consist of a credit fund to be managed by a third party. ICLF Network
and IABS will act as Technical Consultants to the Fund, providing the necessary social and
environmental parameters for credit deployment.

The fund will be capitalized by concessional and commercial investors, with the former
assuming a “first-loss” position. Loans will be bundled into a combined credit offering,

¹ In Portuguese: Rede ILPF and Instituto Brasileiro de Desenvolvimento e Sustentabilidade

based on a management plan for ICLF implementation, developed by the Technical
Consultants. This plan will be co-signed by the farmer and an accredited technical
assistant, who will be co-responsible for the property's ICLF operation. The technical
assistance will be funded by grants through ICLF Network and IABS.

Credit will be made available to farmers via a newly created marketplace, which will
intermediate payments to ICLF-certified suppliers and resellers (see section 1.4). This
prevents any transactions that are not included in the management plan, guaranteeing
end-to-end traceability of invested resources. Interest rates will follow a “sliding scale”
throughout the loan term in which the rate decreases as ICLF adoption increases.

The instrument will offer terms that are more favorable than the standard bank offering for
rural credit, while still avoiding competition with subsidized lines (which offer very low-
interest rates, but are virtually inaccessible to the majority of farmers). This will be achieved
by focusing on unfinanced opportunities for farmers who have limited access to subsidized
credit lines. ICLF-compliant farmers will repay part of their loans through carbon credits,
which will be priced and marketed by SAFF or absorbed by end-investors.2

All transactions are monitored, time-stamped and tracked via blockchain (a peer-to-peer
compliance protocol), ensuring real-time accountability. This technology has already
been developed by CEPTIS Agro³ and will be funded through grants.

CREDIT LINES
The credit bundle offered will consist of up to 5 different lines in each operation, all
environmentally certified for ICLF implementation:

Table 1: Main characteristics of the 5 credit lines

Credit Lines
Product Initial Interest
Credit Line Term
Example Rate
Short-term Land
Fertilizers and seeds 9% 1 year
Management
Limestone and 3 years / 1 year grace
Soil Recovery 7%
calcium period
Formation of Livestock
Cattle heads 7% 3 years
Inventory
Tractors and
Equipment 7.5% 4 year
harvesters
7 years / 3.5 years grace
Forestry Management Seeds 5%
period

PARTNERSHIPS
The instrument has already secured partnership agreements with some of the largest input
and equipment providers to set up a lean and effective distribution structure:

 JGP Asset Management will be responsible for managing the SAFF Fund’s credit
portfolio and for setting the terms of all credit operations;

² To estimate the potential emissions mitigation by ICLF systems, proponents utilized FAO’s Ex-ACT
methodology, adapted to tropical conditions and to the specificities of ICLF productive systems.
  Bradesco3, Brazil’s third largest bank, will act as a trustee to the fund;

 Equipment suppliers, such as John Deere, will receive credit for on-lending from
the SAFF Fund, delivering its rural equipment directly to farmers. In the case of
John Deer Group, SAFF will fit within its “Troco na Troca” program, which
provides the opportunity for farmers to “sell back” their equipment after 4 years
of use. This will help shorten the length of SAFF loans, improving return for end-
investors;

 Input Resellers, such as Araguaia Fertilizantes, will receive payment from the
SAFF Fund to relay barter operations that are on average 50% more favorable to
farmers than standard operations. They will be compensated through a 0.5%
loan spread and will take the initial loss from its operations. Resellers have very
close ties to farmers, being one of the best positioned entities to distribute and
evaluate credit;

 Trading companies, such as NuTrade (Syngenta Group), will enter into purchase
agreements with farmers and relay the product receivables stemming from
these agreements to SAFF as guarantees to the loan operation. This will help
establish an important layer of collateral which will improve the risk profile of the
instrument;

 Rural cooperatives, such as Cocamar, will work in a similar function to resellers

and trading companies, leveraging on their relationships with their members to
distribute SAFF credit products and entering into purchasing agreements.

ICLF COMPLIANCE
In order to properly assess ICLF adoption, ICLF Network (proponents) have developed the
ICLF Property Certification Protocol that builds upon the main international standards for
sustainable agriculture and introduces new elements that provide dynamic property
monitoring throughout an entire cycle. With this, continued adhesion to ICLF is assured
even after certification is issued, with potential deviations and improvements being
constantly highlighted. The Protocol results in a Trustscore, a 0-100 confidence index that
informs the level of ICLF adoption of a given property, as well as its compliance to
environmental, social and economic criteria. See Annex 1 for a visual example of this tool.

2. INNOVATION

SAFF holds a unique market position in Brazil as the only credit vehicle to focus on ICLF
adoption, while its integrated certification system brings an innovative component to
addressing existing barriers to farmer credit

BARRIERS ADDRESSED: ACCESS TO CREDIT AND TECHNICAL CAPACITY

SAFF addresses two main barriers to farmers’ access to credit and adoption of sustainable
agricultural practices:

1. Access to credit. Brazil’s rural credit system is poorly adapted to farmers’ and ICLF
needs, ignoring the economic advantages of sustainable agriculture. Commercial

³ Members of the ICLF Network

 and subsidized lines demand very high levels of institutionalization from farmers as
well as high collateral volumes that usually reach 120% of loans. In order to address
this, SAFF will provide a credit bundle with tailored timeframes for different ICLF
uptake stages. It will also offer credit-scoring based on a certification system and
unique Trustscore.

2. Technical capacity. Farmers usually lack the capacity and knowledge to

implement ICLF. Many of them work with a single culture, while ICLF is a multi-
culture strategy. SAFF’s technical assistance, along with the specialized credit
bundle, will work to build the capacity of farmers to implement ICLF.

INNOVATION: ONLY VEHICLE TO FOCUS ON ICLF ADOPTION

SAFF is the only credit vehicle to focus on the adoption of ICLF practices in Brazil. While
other existing rural credit lines offer competitive interest rates, they are highly
bureaucratic, limiting farmer access, and do not offer technical assistance for sustainable
agricultural practices. SAFF is also the only fund to have a certification system unique to
ICLF, which works to evaluate/provide credit scores and monitor impact:

Table 2: Comparable Rural Credit Facilities

Comparable Instruments

Similar Instruments Description Differentiation

Government subsidized credit Small producers (<400 ha) face a

line for low carbon highly bureaucratic process and
ABC Program
technologies in Brazil with receive no technical assistance for
interest rates as low as 3% ICLF implementation
Limited offer, due to high collateral
Commercial credit from
demands and need for
Commercial Loans private banks, with avg. 9%
maintaining relationship with
interest rates
various banks
Highly bureaucratic process and
Federal subsidized credit lines guarantee requirements. No
PRONAF targeted at smallholder technical assistance for
producers and enterprises sustainable agriculture (or ICLF)
implementation

CHALLENGES TO INSTRUMENT SUCCESS

As an innovative instrument in the rural credit space, SAFF may encounter some challenges
and risks, mainly:

1. The risk of a low uptake of the credit lines, mainly due to the fact that many Brazilian
farmers can be reluctant to depart from the standard agricultural and credit
practices. SAFF will address this by avoiding competition with subsidized credit lines
and focusing on unfinanced opportunities for small producers and partnering with
rural cooperatives and equipment and input suppliers, entities that are very close to
farmers and will support product distribution and credit analysis.

2. Credit lines may present higher default rates than expected (default rates for rural
credit in Brazil are average ~1%). While the SAFF Fund’s bundled structure will consist
of five credit lines that stagger out and coincide with the ICLF cash flow profile,
proponents ICLF Network and IABS will provide technical assistance to reduce the risk
of production loss (lowering farmer revenue risk). The instrument will also have an
 internal default provision, assuming default rates conservatively higher than historical
ones (at 1.4%) and providing a cash flow buffer for investors. Moreover, a blended
finance structure with concessional capital taking a “first loss” position will be utilized.

3. Products may not reach the market due to a lack of linkages and internal
capabilities. To address this, the instrument will develop value added capabilities and
partnerships with corporate off-takers and other market actors.

4. Carbon credits generated may fluctuate in price and/or face certification

challenges. Firstly, the returns presented in this report do not account for the
economic benefits of the carbon credits. Moreover, to mitigate this risk, proponents
will fit the carbon methodology developed (see Annex 2) to the Verified Carbon
Standard (VCS) and will then submit it to UNFCCC’s Sustainable Development
Mechanism (SDM), to ensure proper carbon certification.

MARKET TEST AND BEYOND

3. IMPLEMENTATION PATHWAY AND REPLICATION

The pilot will target 90 thousand hectares of land and mobilize USD 68 million in capital

PILOT CONTEXT
The pilot for the instrument will be developed in 2 distinct regions of Brazil to capture part of
the diversity of biomes and the needs for ICLF implementation in the country. Initially, the
instrument will target farmers that already have some area of ICLF implemented. Each
region has its own natural and institutional characteristics, which are addressed by the
instrument:

1. States of Paraná, São Paulo and Mato Grosso do Sul. This area is comprised mainly of
the Mata Atlântica biome, a forest system that extends along the Atlantic coast of
Brazil. It will be developed in partnership with Cocamar, one of the largest rural
cooperatives in Brazil, with over 15 thousand farmers and 1.5 million hectares of
pasture land. This is one of the most developed rural areas of Brazil, both
technologically and institutionally. For this region, the pilot will target 600 farmers with
100 hectares of ICLF implementation each, totaling 60,000 hectares.

2. States of Goiás, Minas Gerais and Mato Grosso. This area is comprised mainly of the
Cerrado biome, a vast tropical savanna ecoregion that occupies the central portion
of Brazil. It will be developed in partnership with the Rural Sustentátavel 2 Program, a
comprehensive sustainability program being implemented by ICLF Network and IABS.
Farmers that have already adhered to the program are much more welcoming of
ICLF practices and demonstrate high levels of sustainability and governance. For this
region, the pilot will target 300 farmers for 100 hectares of ICLF implementation each,
totaling 30,000 hectares.

The average area for ICLF implementation for each region is estimated at 100 ha (25% of the
average total area of 400 ha). While the volumes for each line may vary between
operations, it is expected that, on average, each hectare will demand US$ 690 for the
implementation of ICLF. This leads to a total loan portfolio of US$ 62 million, plus a technical
assistance budget of US$ 6 million, adding up to a total capitalization of US$ 68 million.
 IMPLEMENTATION PATHWAY
The pilot is expected to reach full implementation within one year, with the following events
as main milestones:

1. Set-up of SAFF Fund structure and closure of supporting contracts (management,

back-office etc.)
2. Set-up of technical assistance plan by ICLF Network and IABS
3. Closure of agreements with key partners
4. First round of funding for SAFF Fund with concessional and philanthropic investors
5. Second round of funding with private investors (concessional capital assumes a first-
loss position)
6. Phase-out of concessional capital

Figure 2 Pathway to financial sustainability

The main challenges for the implementation of the pilot relate to:

1. Its adaptation to various biomes and ICLF scenarios in Brazil. The instrument seeks to
address this by matching key information provided by local rural cooperatives to
Embrapa’s (Brazilian Agricultural Research Corporation) own database and
experience in ICLF implementation techniques.

2. A risk of low client adoption. This issue is being addressed through the set-up of various
partnerships and different levels of the instrument, which will help ensure that its value
proposition is heard and understood by potential clients.

3. The COVID-19 pandemic, which might cause delays in securing partnerships and
funding. So far the proponents have been successful in developing partnerships and
are in advanced conversation with multiple funding sources (see section 3.3). The
instrument addresses multiple aspects of a green recovery for Brazil, which could help
fundraise in the current challenging environment.
 SAFF – FUNDO VALE
In parallel to the pilot presented above, SAFF is discussing an exclusive facility for Fundo
Vale, an investment fund owned by Brazilian mining company Vale do Rio Doce that has
the goal of restoring 100 thousand hectares of degraded land in 10 years. The same
methodology and structure of the pilot will be applied, with a higher focus on the forestry
component, in compliance with Fundo Vale’s mandate.

4. FINANCIAL IMPACT AND SUSTAINABILITY

QUANTITATIVE MODELING
4.1.1 COMPARISON TO BUSINESS AS USUAL SCENARIO (BAU)

A typical hectare of productive pasture land in the Cerrado and Mata Atlântica regions of
Brazil has 0.8 cattle heads and generates US$ 36.80 every year. The practice of extensive
cattle ranching without forest management leads to the degradation of pasture lands, with
CO2e emissions reaching 2.5 tons/ha/year.

Farmers who seek to improve on this condition, either by simply recuperating degraded
pastures or fully implementing ICLF, find extensive bureaucracy and high collateral
requirements in local credit products. Barter operations (advancement of future production
in return for agricultural inputs) typically embed 20% yearly interest rates, whereas Brazil’s
current treasury-rate is 2%.
Table 3: Comparison of Different Rural Productive Systems

Restoration ICL
ICLF Integrated
Business- of Integrated
Item Crop-Livestock-
as-Usual Degraded Crop-
Forest
Pasture Livestock

Revenues (R$/ha/year) 193.80 624.67 937.01 960.72

Revenues (US$/ha/year) 36.8 118.5 177.8 182.3

% of Livestock Area 100.0% 67% 50% 50%

Cattle heads/ha 0.80 1.20 2.40 2.40

Beef Production/ha/year
57.08 208.15 179.38 179.38
(kg)
Crop Production/ha/year
- - 975.08 975.08
(kg)
Wood Production/ha/year
- - - 490.31
(kg)

CO2 Emission/ha/year (t) 2.50 -1.35 -2.02 -2,83

Although the increase in cattle productivity, from 0.8 to 2.4 heads per hectare, may lead
to higher emissions in itself, the proper management of the pasture area leads to a high
amount of carbon being sequestered from the atmosphere and stored in the soil. In many
cases the concentration of carbon in ICLF pastures is higher than in indigenous forests
under the same natural conditions.
4.1.2 MODEL INPUTS AND METHODOLOGY

The instrument is modelled as a 10-year revolving credit facility with 5 lines of credit, one for
each type of product being financed (see section 1.2). The average loan sizes and terms for
each line reflect the specific needs of the rural cooperative as well as the requirements for
ICLF implementation, according to Embrapa (Brazilian Agricultural Research Corporation).

The interest rates are set to provide competitive terms to farmers, while fulfilling the return
expectations of private and concessional investors. Farmers have the opportunity to
decrease these rates as their Trustscore improves, demonstrating increased adoption of ICLF
practices. Expected default rates were obtained from a research of sector averages, with
specific considerations for ICLF adoption and contributions from input providers and resellers.
The main inputs used for each of these lines are described in the table below:
Table 4: Main Inputs of the Financial Model

Formation
Short-term Forestry
Soil of Equip
Land Manag
Recovery Livestock ment
Management ement
Loans Inventory Loans
Loans Loans
Loans
Avg. Loan Size
346 94 283 94 755
(US$/ha)

Term (years) 1 3 3 4 7

Initial Interest Rate to

9.0% 7.0% 7.0% 7.5% 5%
Producers (% p.a.)
Final Interest Rate to
7.4% 5.7% 5.7% 6.1% 4%
Producers (% p.a.)
Avg. Trustscore (year
50 50 50 50 50
1)
Avg. Trustscore (year
95 95 95 95 95
10)

Default Rate (% p.a.) 1.4% 1.4% 1.4% 1.0% 0.5%

Technical Assistance
7.6 7.6 7.6 7.6 7.6
Cost (US$/ha)
8.5
Initial Portfolio Size 2.7
31 million 2.8 million 17 million millio
(US$) million
n

PRIVATE FINANCE MOBILIZATION AND REPLICATION POTENTIAL

The fund is expected to raise USD 68 million, 25% from concessional investors, 63% from
private investors and 12% from philanthropic entities. While private and concessional
investors are expected to fund the loan portfolio, grants will be targeted to fund the
technical assistance program managed by IABS, that will accompany all loan operations.
With COVID-19 putting considerable pressure on public budgets, it is more crucial than ever
for the climate-finance sector to develop instruments that are be able to mobilize private
finance.
Table 5: Types of Capital Targeted and Returns

Return
Amount for
Type of Capital Pilot (US$)
Rate (% Use of Proceeds
p.a.)4

Concessional Debt 18.3 million 12.2% Loan portfolio

Private Debt 43.5 million 5.5% Loan portfolio
Technical Assist. + Monitoring
Grants 6.2 million -
and Certification
Total 68 million - -

Once a proof of concept has been reached and the pilot is able to provide suitable
returns for both concessional and private investors, the instrument will be replicated in
other areas of Brazil, such as the North and Northeast, where conversations with local rural
cooperatives, such as Cooperativa Nordestina, have already begun. At scale the
instrument would reach 500 thousand hectares with a total capitalization of US$ 380
million. Brazil is expected to add at least another 13 million hectares of ICLF land over the
next few years. Considering that ~15% of this land fits within the profile of the fund leads to
a replication potential of 1.8 million hectares and a portfolio of US$ 1.4 billion. Moreover,
because of ICLF’s versatility, SAFF can be easily exported outside of Brazil.

5. ENVIRONMENTAL AND SOCIAL IMPACT

SAFF is expected to mitigate 2.5 million tons of CO2 in 10 years and increase farmer
income by more than 130%

ENVIRONMENTAL IMPACT
The emission rates for a typical cattle ranching property in Brazil (BAU) are 2.5 tCO2e per
hectare per year (see section 4.1 and Annex 2), leading to 250 tCO2e per year for 100 ha.
By adopting an integral ICLF system, instead of emitting these 250 tons, the integration will
turn the property into a net sequester of 2,400 tCO2e every year. Partial adoption of the
ICLF systems that do not include the Forestry component would result in a mitigation of
283 tCO2e per year.

Considering that the pilot portfolio of US$ 68 million will be able to convert 90,000 hectares
of land to ICLF practices, the instrument would abate 2.5 million tCO2e in 10 years, with
each 1 thousand dollars of investment (public and private) leading to 41 tCO2e abated.
The environmental benefits of ICLF also include more efficient use of land and inputs,
restoration of degraded pastures, preservation of biodiversity and a reduction of pressure
on native vegetation.

SOCIAL AND ECONOMIC IMPACT

The adoption of ICLF systems leads to higher agricultural yields, growing revenues almost 5-
fold, from US$ 37 to US$ 178 per hectare per year. It is expected that farmers will be able to
apply ICLF on up to 25-35% of their average 400-hectare properties, which leads to a
potential income increase of 134%. Moreover, the diversification and sustainable agriculture
practices applied in ICLF systems help lower production risk and ensure a more stable source

4 Real IRR per annum in Brazilian R$

of income for farmers. Brazil’s economy has suffered amidst COVID-19, and systems that
allow for livelihood enhancement in safe, outdoor settings are much needed.

The social structure and functioning of small and medium properties rely heavily on the
participation of women. The instrument will enhance women’s participation through specific
communication activities.

By promoting environmentally sustainable agricultural practices while also improving the

income levels and livelihoods of rural populations, the instrument mainly addresses the
Sustainable Development Goals (SDGs) numbers 2 – Zero Hunger, 13 – Climate Action, 15 –
Life on Land and 5 – Gender Equality.

NEXT STEPS
The instrument will move on to securing the appropriate funding for its initial pilot, as well as
closing the partnership agreements mentioned above, with the goal of developing the
pipeline. Proponents are in advanced conversations with funding sources and partners, with
more work needed on the set-up of day-to-day operations. The closure of the first SAFF Fund
should happen within a year, along which the proponents will finish setting up the structure
for the instrument.

Brazil’s economy has been severely affected by COVID-19. Due to its multiple environmental
and social benefits (addressing 4 SDGs), SAFF has the potential to help the country promote
a green recovery.
REFERENCES
ASSUNÇÃO, JULIANO; SOUZA, PRISCILA. Policy Brief. The Fragmented Rules of Brazilian Rural
Credit. Rio de Janeiro: Climate Policy Initiative, 2018.

ASSUNÇÃO, JULIANO; SOUZA, PRISCILA; Figueiredo Beatriz. Policy Brief. Distribution Channels
for Rural Credit in Brazil. Rio de Janeiro: Climate Policy Initiative, 2018.

ASSUNÇÃO, JULIANO; SOUZA, PRISCILA. The Impacts of Rural Credit

on Agricultural Outcomes and Land Use. Rio deJaneiro: Climate Policy Initiative, 2020

Composição do funding do custeio da soja para a safra 2019/20 em Mato Grosso. Campo
Grande: IMEA – Instituto Matogrossense de Economia Agropecuária, 2019.

Rede ILPF, 2016. ILPF em Números.

IBGE, 2017. Censo Agropecuário.

POLIDORO ET. AL, 2020. Potential impact of plans and policies based on the principles of
Conservation Agriculture on the control of soil erosion in Brazil. Land Degradation and
Development. In press.

ALVES, B. J. R.; MADARI, B. E.; BODDEY, R. M. Integrated crop – livestock – forestry systems:
prospects for a sustainable agricultural intensification. Nutrient Cycling in Agroecosystems, v.
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ANNEX 1 – EXAMPLES OF TRUSTSCORE SYSTEM
ANNEX 2 – CARBON METHODOLOGY

The carbon calculation for the instrument is taken from different methodologies and
reference tools provided by the Intergovernmental Panel for Climate Change (IPCC) and
the Clean Development Mechanism (CDM). These methodologies establish detailed
procedures, providing the necessary guidance to help project developers determine the
limits of carbon quantification, define baselines, evaluate additionality and, at last, quantify
mitigated GHG emissions.

These reductions stem from sustainable land management practices, including variations of
carbon stored in soil, aerial biomass (grass and trees), restoration of degraded pastures,
among other components based on applicable biogeochemical models. However, none of
the existing methodologies are applied to tropical biomes and/or focuses on Integrated-
Livestock-Forest (ICLF) technologies.

Thus, in order to provide a comprehensive carbon assessment, the calculations involving

ICLF systems must group different methodologies and reference tools, that are specific to
each ICLF component. The main tools used are listed below and were grouped using the
statistical programming software R (example in figure below):

 General Guidelines for Sampling and Surveys for Small-scale CDM Project Activities;
 Tool for Estimation of Carbon Stocks and Change in Carbon Stocks of Trees and
Shrubs in A/R CDM Project Activities;
 Tool for Identification of Degraded or Degrading Lands for Consideration in
Implementing CDM A/R Project Activities;
 Tool for the Demonstration and Assessment of Additionality in VCS Agriculture, Forestry
and Other Land Use (AFOLU) Project Activities.