Sustainable soy production – Brazil
Key Facts
- Term: 1 year revolving
- Guarantee instrument: Mezzanine / Subordinated Guarantee
- Guarantee exposure: USD 11m
- Effective date: September 2023
Deal Summary
The Responsible Commodities Facility (RCF) is a Brazilian/UK multi-party financial vehicle managed by SIM Investment Management that provides revolving working capital loans with discounted interest rates to soybean farmers. Loans are offered to farmers that meet eligibility criteria for protection of native vegetation (including >5% of excess legal reserve) with the intention to promote the production/trading of deforestation-free soy from the Cerrado region of Brazil.
The Responsible Commodities Facility Cerrado Programme 1 was launched in August 2022 through investments by UK retailers Tesco, Sainsburys and Waitrose, raising USD 11m. In its first year, RCF has worked with a total of 32 farmers, with 42,400 tonnes of deforestation free soy produced in the main crop season, and 8,541 ha of native vegetation was conserved, while no default on repayment of loans were outstanding.
RCF’s eligibility criteria is mostly focused on zero deforestation and legal compliance. AGRI3 will therefore support the scaling up of the facility by working with RCF to develop a program which will include certain commitments and activities to engage with farmers in the RCF to promote more sustainable agricultural practices aligning with international standards (on a realistic best effort basis), supported by technical assistance.
Impact Rationale
The RCF is innovative structure which brings together various value chain stakeholders building a scalable solution to tackle the deforestation challenge This deal has a strong financial additionality, as the AGRI3 mezzanine participation together with the investment of the retailers catalyses significant private sector capital, through Rabobank and Santander, with the potential for further expansion in future years.
This deal tackles commonly identified issues when it comes to providing compensation to avoid deforestation in soy production in Cerrado and in an innovative yet straightforward way through the establishment of a financial vehicle that allows the creation of financial incentives for soy farmers not to deforest through lower interest rates.
The project matches AGRI3’s Forest Protection objectives while the Fund will also provide funding for technical assistance to assist RCF farmers to start moving towards more sustainable agricultural practices.
Impact Targets
Protection of natural ecosystem (direct and indirect)
Sustainable agriculture
Improved rural livelihoods