“Increased investments to make Brazil the fourth largest Oil producer”¹. This proud headline on a Brazilian government website last year nicely illustrates the dynamics that prevail in many emerging markets. Brazil wants to further promote the oil industry and there are two reasons for that: more money in the state treasury and more money in the voter’s wallet (via employment). And it’s not only the oil industry. The ever growing agro industry keeps on adding land at the expense of nature. “Deforestation is somewhat structural, it’s part of the Brazilian growth model ”², says Marek Hanusch, Worldbank economist and author of ‘A Balancing Act for Brazil’s Amazonian States’^3.

It is understandable that countries want to develop their economy throughout their territory. The challenge is that the feedback loop, or better put, the reward for the people in charge must be within reach of voting terms or a financial returns horizon. The $317Bn that Brazil faces to lose annually2 as an opportunity cost caused by forest destruction might therefore not have a direct effect on the national economic strategy as long as that sum does not actually appear in balance sheets. This can be mitigated with True Cost Accounting, but this is still too far from implementation, especially in emerging markets. Given this context, the only immediate antidote to deforestation is making the forest worth more for its nature than its resources and doing this by using the market mechanisms at hand.

Forestbase is not the only one looking in that direction. Other initiatives want to outbid the oil industry in DRCongo, not with the same but with similar financial innovations. We have calculated how high the price per hectare should be to financially outcompete the oil case with nature. That is $27,000/ ha in DRC. That is not within reach today, but it is within reach within approx. 15 years according to our models and with a push from retail investors, perhaps even a lot faster. Also, getting closer to that point might already help as a negotiation chip towards the government.

Agro and Timber can be surpassed financially much earlier than oil, so in areas without oil reserves, the case against logging can be on a 5 year timeline. Once you can outperform oil financially with nature, it means nature has actually become the leading business case. The fact that this possibility is within reach mid-term obliges us to start working towards that path now.

I was explained a few months ago that even when food prices are low, rural economies will continue to promote agricultural investment through all media channels. They would even promote it while selling crops at a loss. I believe this to be true. It always struck me every time I arrived at the airport in Uganda how many billboards were promoting agro investments. The reason these countries do that is that it is usually the only way to keep the majority of their population employed. No stable regime with high unemployment. Just taking away agricultural income by means of conservation is not a sustainable strategy. The question is how the forest can generate financial return for the same people in a different or even non-employment way.

Continued agricultural expansion at the expense of free nature was the recipe for rural employment for decades. But agriculture is becoming more professionalized and on a larger scale. More agriculture does not necessarily lead to more employment today and in any country where the agricultural economy has brought about socio-economic improvement, the higher wages that result from it are irreversibly driving a shift to tertiary economics. This is for example how India has gone through such a (r)evolution. The process for India was rough and forests have only played a resource role, but not one of continued intrinsic value. The consequences are that India has very little nature left and is now a highly sensitive area to climate disasters.

In countries where agricultural expansion is not possible anymore, such as Rwanda, the only way out today is towards a tertiary economy. And in the end it will be like that everywhere. But the sad reality is that the path of least resistance in a country like Brazil is likely to allow for further Amazon deforestation first and this will continue as long as this business case is the least costly.

In terms of employment, however, the old recipe will not continue to work. Already today, modern slavery in Brazilian agriculture has risen sharply and the profits do not manifest much locally. Large conglomerates, increasingly expensive upfront investments and private finance that resembles the Dutch agricultural financing complex make that large scale agriculture as an emancipation dream actually no longer works today. A focus towards sustainable agriculture with smallholder-empowering agricultural cooperations is one way to mitigate this problem. In parallel, an earlier shift to tertiary economy would already be good in a country like Brazil today. After all, people don’t farm for the sake of being a farmer. They farm for the sake of having a livelihood.

In Rwanda this was already set in motion due to a lack of other options. In Brazil there is nature enough, but we could provoke the shift in priority by pushing the price for nature to evolve above that of agriculture. Those who already own natural land will become financially stronger, including the indigenous communities and many millions of small owners, but also the government itself. No one has to lose any value. More valuable assets mean a more powerful position on the global financial scene and new opportunities in a new economy. Just like countries have sovereign wealth funds, young people from indigenous communities with more modern ambitions could perfectly build a future outside the forest and rely on their forest assets as a form of wealth fund. But also those that do see a future for themselves in the forest can rely on the forest for a source of revenue this way (passive income). And they will have a stronger position through their increased financial weight.

It is in this context and on this trend line that we want to ensure that the business case for nature conservation becomes stronger as quickly as possible. Every year the size of Portugal gets deforested around the globe. The countries that are rich in forest assets today make short term gains at best through deforestation but they are guaranteed long term cumulative losses with this strategy. So, for every year that conservation finance reaches deterring benchmarks earlier, a tremendous size of nature is kept safe, potentially permanently.

The biggest challenge is in helping countries to onboard their natural assets on the balance sheet. Typically the annual revenues from logging or other extractive activities are included in the national accounting, but not the value of the asset. As if a big real estate company would only report the annual revenue from tenants, but put zero for asset value in the books. Well, that’s exactly what happens today in plenty of countries.

1 https://portal.datagro.com/en/petroleum/13/625505/mme-develops-project-to-increase-investments-and-make-brazil-the-fourth-largest-oil-producer-in-the-world‍

2 https://news.mongabay.com/2023/05/world-bank-brazil-faces-317-billion-in-annual-losses-to-amazon-deforestation/‍

3 https://bit.ly/BalancingActFullEN

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