How Trase links companies and commodities to deforestation risk

Is Company X somehow linked to deforestation through its supply chains? This is a question that more and more companies, consumers, and investors are asking, especially when it comes to commodities like beef, soy, palm oil and timber, which are responsible for two thirds of tropical deforestation.

Trase helps to answer this question by quantifying deforestation risk associated with a particular supply chain or company that is sourcing from a particular production region. This opens up new opportunities for sustainable agricultural trade and production.

Assessing the deforestation associated with supply chains is actually extremely complex. For Brazilian soy, where we have the most data, we do this in three ways, all of which are based on linking supply chain actors to the regions (municipalities in the case of Brazil) that they source from.

1. ‘Territorial deforestation’

A commonly used method to assess deforestation risk is to look at how much deforestation occurred in the entire municipality in a given year — what we call ‘territorial deforestation’. Even if this deforestation is not associated with a particular commodity such as soy, high deforestation rates can still pose reputational and operational risks to companies operating in the area. Territorial deforestation is also provides a valuable starting point for identifying potential deforestation hotspots that need urgent attention.

However, for example in the case of soy produced in Brazil, Brazilian municipalities are frequently large areas that may include several farms growing a range of crops, as well as urban centres, forests, lakes, and industrial areas, all of which could be driving deforestation. Thus, the soy purchased by a particular company may only contribute to a fraction of the territorial deforestation in that municipality, or even to none at all.

2. ‘Soy deforestation’

The best way to focus-in on soy-related deforestation would be to overlay high-resolution maps of annual soy expansion and annual deforestation to detect where soy has expanded into deforested land. Trase is already able to do this for the vulnerable Cerrado savanna in Brazil, thanks to the groundbreaking work of the Brazilian company Agrosatélite. The data is represented in Trase as “soy deforestation”. However, producing such high-resolution soy-expansion maps every year, and for all soy-producing regions of Latin America, would be a timely and costly endeavor.

3. ‘Maximum soy deforestation’

Nonetheless, linking deforestation to a particular commodity, and doing so across many production landscapes, is crucial for companies to more accurately understand the risks they face. Trase offers a new method for doing just this using the measure of “maximum soy deforestation” — defined as the amount of deforestation in a municipality that could be due to newly planted soy fields. This calculation compares official statistics on new areas of soy expansion with deforestation in the same area for the same year. For example, if only 10 hectares of soy were planted, and 50 hectares of deforestation occurred, then the maximum deforestation attributable to soy is 10 hectares. Likewise, if 60 hectares of soy were planted in an area where there was 15 hectares of deforestation, the maximum soy deforestation was 15 hectares.

While this measure still approximates the amount of deforestation caused by soy expansion, it is a more accurate assessment of deforestation risk linked to soy production than territorial deforestation. This is particularly useful for soy traders and buyers to identify regions of genuine concern (as well as governments and watchdogs). Moreover, enough data is available to calculate this for the entire country of Brazil, as well as neighbouring soy-producing countries.

Figure 1 shows the relationships between these different risk measures. For example, maximum soy deforestation in the Novo Progresso municipality is much lower than territorial deforestation, meaning that only a small share of the deforestation in that year could have been due to soy expansion. In Paragominas, by contrast, a lot of soy expansion occurred on previously cleared land. Here much of the new soy crop was grown on land originally cleared for cattle pasture, as is the case for most of the soy expansion in Brazil.

Figure 1: Comparison of different deforestation risk metrics currently available in Trase for three municipalities in Brazil, 2015

The third example, Urucui, is in the Cerrado and thus covered by Agrosatélite maps, making it possible to produce a soy deforestation figure and identify exactly where the forest is felled for soy expansion.

Why these insights matter

While the current Trase data cannot definitively answer the question of whether a given company has deforestation in its supply chain, it can provide a powerful first step in helping to identify those commodity flows that risk being linked to deforestation.

These insights are increasingly important to companies that are aware that links to deforestation can hurt their reputation — especially if they have made a public zero-deforestation commitment. If authorities along the supply chain tighten regulations in order to protect biodiversity or meet carbon emissions targets companies may also face operational and legal difficulties. Further, in the longer term, environmental degradation and climate change may damage the commodity producers these companies rely on. Ultimately, these risks threaten a company’s bottom line, and their ability to attract investors.

What information does Trase use?

For the first time, Trase shows the export trade flows of commodities associated with tropical deforestation for entire commodity sectors.

It does this using previously untapped trade and logistics data to trace supply chains from production municipality all the way through to consumer countries. The data provides blanket coverage of the whole exported crop, identifying both exporting and importing companies.