Challenges to Fostering Low-Carbon Agriculture Through Public Policies and Support in Brazil

Agriculture productivity in Brazil, the world's top exporter of soy and beef, rose 105.6% between 2000 and 2013 thanks to technological innovations. Promoting technology and good practices over the past 30 years has underpinned improvements in the efficiency of livestock farming, with a 172% increase in productivity. In the same period, the pastureland dedicated to livestock production has decreased by 16%, shrinking to around 161 million ha in 2023.

This extraordinary production growth stems from technology adoption and productivity gains. However, it also creates negative environmental effects, such as deforestation, greenhouse gas (GHG) emissions, and biodiversity loss, among other negative externalities. In 2023, agricultural exports reached USD 166.5 billion, covering 49% of total exports from Brazil.

By tackling deforestation, improving agricultural practices, reducing GHG emissions, and curbing biodiversity loss, agriculture can contribute to both production and conservation, helping to reach key United Nations Sustainable Development Goals.

Encouraging low-carbon agriculture is at the centre of debates on how to promote a resilient agricultural sector in Brazil.

Encouraging low-carbon agriculture-comprising mitigation and adaptation technologies and practices-is at the centre of debates on how to promote a resilient agricultural sector in Brazil. In line with this goal, this article presents recent advancements in public policies and support to foster low-carbon agriculture in the country and sheds light on potential improvements to align finance toward resilient agriculture.

A Range of Policies Support the Sector's Transition

Brazil created the Low-Carbon Agriculture (ABC) Plan in 2011 to help the country lower agricultural carbon emissions. Furthermore, the National Program for Strengthening Family Farming, known as Pronaf, supports family farmers by aiming to improve productivity and foster good agricultural practices.

The National Rural Credit System, which dates from the 1960s, aims to develop Brazil's agricultural sector by directing financing to it. For specific funding sources, rural credit is subsidized by the National Treasury, which offers concessional credit. This is done through credit to farmers at below-market interest rates to promote investment, industrialization, and commercialization. These subsidies do not take the form of direct payments, which is a peculiarity of Brazil's agricultural rural credit policy. The Harvest Plan (so-called Plano Safra in Portuguese) is the main rural credit public policy for the sector: in 2022/24 alone, rural credits amounting to BRL 359 billion (roughly USD 62 billion) were granted in Brazil.

The investment credit instrument to incentivize low-carbon agriculture in Brazil is the ABC+ Plan, renamed RenovAgro in July 2023. RenovAgro has nine subprograms aimed at financing sustainable production systems, practices, products, and processes to support the technological transition in agricultural and livestock activities by encouraging integration systems, no-till planting practices, organic production, planted forests, and environmental compliance, among others.

Brazil launched the first phase of the ABC Plan in 2011. The plan integrated the Nationally Appropriate Mitigation Actions to reduce GHG emissions in agriculture from 2010 to 2020. The goals were to (i) recover 15 million ha of degraded pasture areas; (ii) implement 4 million ha of integrated systems (crop-livestock-forestry and their combination); (iii) increase no-till planting practices on 8 million ha; (iv) boost biological nitrogen fixation on an additional 5.5 million ha; (v) expand planted forests by 3 million ha; and (vi) improve animal waste management for bioenergy by 4.4 million m3.

According to the Ministry of Agriculture, implementation of the ABC Plan surpassed its goals, reaching 54 million ha of agricultural land and 38 million m3 of animal waste treatment, which allowed the reduction of 193.67 million Mg CO2eq from 2010 to 2020.

Brazil Raises the Bar with ABC+ Plan's New Targets

The ABC+ Plan was launched in 2021 to encourage the development of low-carbon and climate-resilient agriculture in Brazil, as well as to support its efforts under the Paris Agreement. It sets more ambitious targets than its predecessor, the ABC Plan: (i) recovering 30 million ha of degraded pasture areas; (ii) implementing 10 million ha of integrated systems (crop-livestock-forestry and their combination); (iii) increasing no-till planting practices on 12.58 million ha; (iv) having agroforestry systems on 100,000 ha; (v) having planted forest on 4 million ha; (vi) applying bio inputs on 13 million ha; (vii) having irrigated systems on 3 million ha; (viii) intensive termination of 5 million animals; and (ix) animal production residue management on 208.40 million m3.

The need to monitor, report, and verify the implementation of the technologies is at the heart of the latest low-carbon agriculture policy.

The ABC+ Plan's targets are extremely ambitious and envisage reaching 72.68 million hectares by 2030. A governance mechanism for the plan has been approved, and the need to monitor, report, and verify the implementation of the technologies is at the heart of the latest low-carbon agriculture policy.

As per Brazil's 2022 Climate Bonds Initiative (CBI), rural credit operations are far more sustainable than the ABC+ Plan/RenovAgro. CBI analyzed 21 programs and plans in Brazil (including the ABC+ Plan) and found that 71.4% of the resources from their operations were aligned with the eligibility criteria of the CBI taxonomy-including requirements of no conversion of high-carbon stocks lands, land-use status, GHG emissions reduction, best practices, and animal welfare. The fact that a significant number of these programs include the agricultural criteria from CBI seems to suggest there is a high uptake of sustainability criteria among these programs and plans.

Agroicone developed a methodology to classify the alignment of Brazilian rural credit resources toward a sustainability journey of the agricultural sector. It revealed that only BRL 6 billion (6.2%) of the total BRL 97 billion of rural credit was dedicated for investments toward low-carbon agriculture in the crop year 2022/23, out of which BRL 3.9 billion corresponded to ABC+/RenovAgro. (In the absence of a taxonomy to classify sustainable resources allocated to agriculture in Brazil, Agroicone developed a methodology for this classification considering the ABC+ Plan's conceptual basis, including good agricultural practices and technologies, and other public policies that list socio-biodiversity products and activities. The methodology considers five levels of analysis of the rural credit database, where the first one considers only investment credit lines for the transition to low-carbon agriculture (as RenovAgro and others) and the fifth level considers all information of credit contracts that provides information regarding the potential to reduce environmental externalities of agricultural production. The different levels allow us to understand to what extent the rural credit contracts incorporate practices and technologies to foster low-carbon agriculture.)

When financed products, identified production systems, and/or other classification elements are included, the amount achieved was BRL 63 billion (20.6%) out of BRL 306 billion of costs and investments financed by rural credit policy. It is important to mention that the Brazilian Ministry of Finance is developing its own sustainable taxonomy policy for all sectors, including agriculture, livestock, and forestry.

Accessing Credit Has Become Tougher Since 2023

Strengthening sustainability requirements in agriculture is one of the rural credit policy's targets. Critical objectives in recent years have included controlling illegal deforestation, safeguarding the compliance process within the Rural Environmental Registry, and ensuring that there are no embargoes on the farms.

New regulations tightening access to credit and creating incentives for environmental compliance came into effect in 2023. These changes include

1. Compliance with restrictions on access to credit related to socio-environmental aspects for all rural property, not just the project or area being financed, is required.
2. A cancelled or suspended Rural Environmental Registry (mandatory for all biomes since 2020) will make it impossible to get credit, considering that the area would not fulfill the Forest Code requirements.
3. Environmental embargoes issued by state agencies, not just federal ones and not just for the Amazon biome, but for all biomes, have been included.
4. Rural credit will not be granted to a business located on rural property wholly or partially inserted in Public Forest Type B (non-designated) registered in the National Registry of Public Forests of the Brazilian Forestry Service, except for rural properties with title of ownership and those with up to four fiscal modules with requests for land regularization analyzed and granted by the National Institute of Colonization and Agrarian Reform.

Figure 1 presents the evolution of the regulatory framework comprising rural credit since 2008, aligning social, environmental, and climate goals.

Incentives toward sustainable agriculture were strengthened in 2024. Financed firms whose certifications are recognized by the Brazilian Ministry of Agriculture and companies that benefited from the RenovAgro program in the last five harvest years will be given a discount on the interest rate of the credit for costing contracted with equalized financial resources or with mandatory financial resources in the National Support Program for Medium-Sized Rural Producers (Pronamp) or by other rural producers, provided the activity financed for costing coincides with the area covered by the investment contract.

How Can Brazil Better Support Its Agricultural Sector's Mitigation and Adaptation?

Promoting low-carbon agriculture is essential for Brazil. This is largely due to two factors: the need to reduce emissions and allow adaptation and the importance of fostering climate actions on agriculture and food security as part of Brazilian climate actions.

Monitoring the adoption of low-carbon technologies and tracking the use of the credits granted by banks to producers are critical to improving the implementation and monitoring of mitigation and adaptation actions. Although financial institutions (supervised by the Central Bank) should monitor and report, the results of the interventions financed, including for pasture recovery and no-till implementation, are not verified.

Aligning agricultural policy and financial incentives with the climate agenda is essential to ensure that agriculture in Brazil-whether carried out by small, medium-sized, or large producers-works toward mitigation and adaptation objectives and supports the country as a major producer of healthy and sustainable food. This alignment takes time, and achieving the ABC+ Plan's goals requires increasing the amount of rural credit available to foster the adoption of low-carbon technologies and allow its monitoring.

Achieving the ABC+ Plan's goals requires increasing the amount of rural credit available to foster the adoption of low-carbon technologies and allow its monitoring.

Besides improving the RenovAgro program and expanding the credit available to adopt low-carbon technologies, convincing small and medium-sized farmers to use technologies that would allow them to mitigate and adapt to climate change is a challenge. Targeting key technologies-including pasture recovery, integrated systems, no-till, and biological nitrogen fixation-could promote a more robust agricultural sector. Public policies and support for food and agriculture should, in this sense, increase support to producers who adopt low-carbon technologies, allowing financial institutions to monitor and create incentives to improve the resilience of agriculture in Brazil.

Supporting and encouraging low-carbon agriculture is a precondition for improving productivity gains, reducing GHG emissions, incentivizing adaptation, and reaching family farmers as well as medium-sized and large producers. These objectives are central to the agricultural transition in Brazil. Innovation is critical to enabling the implementation of mitigation and adaptation approaches in different agriculture sectors. Finance from public and private sources is also fundamentally important toward this goal.

Leila Harfuch is General Manager and Partner of Agroicone. Rodrigo C. A. Lima is Director and Partner of Agroicone. Gustavo Dantas Lobo is a researcher at Agroicone.

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