Brazilian blends making green mainstream
Protecting the rainforest is an important part of fighting climate change, but trees are often cleared to make way for food production.
Cattle ranching in Brazil is quite a different story from the intensive farming typical of the Netherlands. Farmers may own thousands of animals, which freely roam huge areas of pastureland. Once the same area has been grazed for a prolonged time, the soil gets exhausted and becomes less productive. A rancher may therefore “open up” a new area of rainforest and move the cattle there, leaving the degraded land behind. It’s an inefficient and unsustainable practice that threatens ecosystems like the Amazon, both in terms of biodiversity and in its function as a carbon sink.
A new blended finance product by Rabobank Brazil (RBB) and the Agri3 Fund offers a solution. Long term funding enables farmers to restore the degraded pastureland and introduce rotational grazing techniques. This way, more cattle can use the same area of land, and the soil stays healthy. Moreover, part of the money is used to restore areas that were previously deforested, either through replanting or natural recovery.
“The participation of the Agri3 Fund enables us to offer long-term funding to our clients for sustainable investments. ”
The Agri3 Fund’s mandate is to provide partial risk participations to banks in order to stimulate high impact loans. Their involvement is instrumental to this initiative, according to Thiago Guedes, CSR Rural Banking Manager at RBB: “The participation of the Agri3 Fund enables RBB to offer long-term funding to our clients for sustainable investments. The 10 year tenor is an attractive feature. It allows us to engage farmers to transform idle lands into productive pastures, whilst preserving biodiversity.” In addition to funding, borrowers are offered subsidised technical assistance to make the necessary changes to their farms, for instance by hiring an agronomist to optimise the recovery of the soil.
Rabo Partnerships supports RBB to apply for blended finance facilities, and makes sure that such novel structures fit the existing bank infrastructure. “The Blended Finance team have been real partners to our rural franchise in Brazil in this effort”, according to Mr. Guedes.
As a result of these efforts, RBB client Grupo Vilela de Queiroz received a USD 6mln loan in November 2021. The money will be used to restore circa 3,500 hectares of pastureland and to protect 2,178 hectares of forest. It is the second such blended finance transaction between RBB and Agri3 since the fund’s launch in 2020.
Cobbling together these transactions takes time, however. Specialist staff from the Agri3 Fund look closely at the envisaged impact, and scrutinise whether the farmer meets strict environmental criteria. Yet to reach scale, such funding needs to be readily accessible. In order to make it easier for ranchers to apply, the Blended Finance team is leading the way in standardising the offering of such loans. By pre-agreeing all aspects, from determining when a farmer is eligible to the commercial terms of the transaction, blended finance solutions can be brought to market much quicker. It’s what’s needed to make green truly mainstream.