Climate risks persist for Brazil’s cattle sector but opportunities to transition present clear avenues for resilience and increased investment: Orbitas research

-Even climate transition pathways aligned with below 2oC of warming globally present enormous risks for Brazil’s cattle sector.

-Sector stakeholders must capitalize on emerging opportunities presented by climate transitions.

-Analysis reveals an 88 percent increase in agricultural investment – $157 billion – could be on the table for Brazil’s farmers that transition by 2050, increasing yields by close to 1/5th while improving financial resilience and performance.

LONDON, SAO PAULO, WASHINGTON, DC, April 3 2024 – The Brazilian cattle sector could see beef production drop by 25 percent by 2050, while experiencing a 37 percent decline in available pastureland through forest-conservation strategies and competition for land, as climate transitions initiate a race to increase yields and cut emissions, new analysis from Orbitas, a Climate Advisers initiative, reveals.

However, investments in low-cost sustainable production efficiencies could drive an 18 percent rise in yields for cattle producers, a 19 percent increase in producer prices and a 9 percent increase in Brazilian beef exports. New climate-aligned revenue streams could also support economic resilience for the sector. Cattle producers that transition to more sustainable cattle production could improve their financial resilience and performance, with an expected 88 percent increase in agricultural capital investment – equating to $157 billion of increased capital investment by 2050 based on 2oC-aligned forecasts. By 2030, this could amount to $114 billion.

In a new report entitled “Brazil’s Cattle Sector Amidst Climate Transitions”, Orbitas found through its analysis of different government, consumer, and private sector responses to climate change, known as ‘climate transitions’, that despite the presence of climate-related risks, there are new opportunities for capital providers and producers who invest in sustainable efficiency improvements and diversify revenue streams.

This will be critical for the Brazilian cattle sector if it is to maintain its position as a major powerhouse in cattle production. Brazil accounts for 20 percent of global beef exports and is second in the world in stock, boasting 232 million heads of cattle. This position means the sector contributes nearly 10 percent to Brazil’s GDP, employing 3.3 million people domestically, including 2.5 million farmers.

In the analysis, Orbitas used several different scenarios to showcase the potential impacts that climate transitions may have upon the Brazilian Cattle sector and reflect how different levels of climate action ambition can create material financial risks and opportunities. It discovered that even under its least ambitious scenario – one aligned with keeping global warming under 2oC – there are still anticipated challenges and changes required for the sector.

This least ambitious scenario anticipates the following significant risks for the Brazilian cattle sector:

-Emission intensive cattle producers would experience rising costs as GHG prices grow.

-Land conservation policies and greater competition for land from other sectors would result in 37 percent less pastureland available.

-There is an 80% chance of profitability loss for most producers with economic shocks to price and transportation costs if they do not sustainably increase production efficiency by 2050. Producers in the northeast of Brazil are the most vulnerable as current profits can be up to 12x less than those in the south.

-Producers who do not increase production efficiency or diversify revenue could face financial losses over USD 155 (~BRL 775) per hectare by 2050.

-Responses to climate change could drive a 25 percent drop in domestic beef production and a significant decline in domestic beef consumption.

-Rising prices and shifting consumer preferences could reduce Brazilian ruminant meat demand by 38 percent and global demand by 5 percent.

Orbitas goes on to outline that significant opportunities exist for stakeholders operating in Brazil’s cattle sector under a 2oC-aligned forecast:

-Cattle producers would gain opportunities to diversify revenue streams through agroforestry and non-timber forest products, and through biodiversity and carbon markets as GHG prices grow.

-Producers could experience an 18 percent increase in pasture yield associated with low-cost technological change by 2050.

-Capital investments in Brazilian agriculture could rise by 88 percent, leading to sustainable increases in output on existing land. This could amount to $157 billion by 2050 (or over $114 billion by 2030) even under a scenario aligned with keeping global warming below 2°C.

-Regenerative soil restoration practices could increase the per hectare yield of severely degraded pastures by up to 310 percent, raising profitability by over USD 375 (~BRL 1875) per hectare for the lowest productivity producers today.

-Deforestation-free and low-emission beef products could capture increased producer pricing opportunities 19 percent higher than 2020.

-Investing in low-cost techniques could increase resilience to climate transition financial risks. These include pasture management practices, increased fertilizer efficiency and use and sustainable farming methods, such as integrated crop-livestock-forest systems and silvopasture.

-Despite declines in overall production, Brazil has the opportunity to invest in international trade, with Brazil projected to increase its share of global beef exports by 9 percent by 2050.

-Net emissions from land use in 2050 could decrease by 1,356 Mt CO2 compared to 2020 levels.

“The future of the Brazilian cattle sector is set to look very different to how it appears and operates today,” commented Niamh McCarthy, Director, Orbitas. “The sector has real climate risks it needs to contend with if it is to remain a significant contributor to Brazil’s GDP and also a key player in global ruminant markets. But responding to these risks could present significant tailwinds for the sector, and there are many opportunities presented by new environmental technologies, sustainability-oriented land management practices and revenue diversification, meaning it could benefit substantially from climate transitions and capitalize on the higher prices offered by sustainably focused export markets.”

Key low-carbon agriculture policies passed by Brazil are already creating transition risk and opportunity, and this trend is expected to accelerate in the run-up to the country’s leadership at the 2024 intergovernmental forum, G20, the 2025 UN Climate Change Conference (COP30) and the 2025 ‘BRICS’ summit.

Leading initiatives are helping Brazilian farmers improve sustainability and yields, including the Innovative Finance for the Amazon, Cerrado and Chaco, aiming for US$10 billion in commitments and US$1 billion in disbursements by 2025 for the sustainable agricultural transition in Brazil and Argentina, and Capital for Climate’s Nature-based Solutions (NbS) Investment Collaborative mobilizing US$5 billion in capital for NBS in Brazil by 2030. And, the cattle and soy sector in Brazil represent an estimated US$30 billion opportunity for investment.

Climate transition insights can further support ongoing efforts to transition to climate-smart practices and investments across Brazil, helping cattle producers and investors move toward a resilient future and identify new opportunities for growth.

Complementary analysis has also been developed by Orbitas covering the Brazilian soy sector here.

Orbitas is an initiative of Climate Advisers, a leading global climate consultancy. Orbitas combines cutting edge economic modeling with traditional financial analysis to highlight emerging climate transition risks and opportunities for smarter financing. Climate change and the transitions to mitigate it represent some of the potentially largest systemic changes our economies have ever seen. Climate transition risks – legal and policy, technology, market and reputation – are all potential pitfalls that can impact performance and are increasingly critical to address, and they all present corresponding opportunities for market leaders.