Sustainable Cattle Farming Fund Reduce Emissions & - - PowerPoint PPT Presentation

Sustainable Cattle Farming Fund

Reduce Emissions & Deforestation Caused by the Cattle Industry in Brazil

Henry Lau Antony Chan Nita Poonkulpong Mason Sinclair Blerina Xhelilaj

Brazil is the world’s largest cattle producer and existing government policies do not address livestock GHG emissions effectively. Additionally, cattle ranching is driving the Amazon rainforest deforestation, where 15% is already lost. The problem exacerbates because soil productivity following deforestation becomes infertile very quickly, forcing ranchers to continue deforestation to maintain cattle production.

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The Problem

Besides carbon dioxide, cattle emits methane and nitrous oxide which are 25x and 300x more damaging. CH4 N2O

CO2

In 2019, deforestation rates doubled when parts of the Amazon were set on fire to clear land for cattle farming. Deforestation alone contributes 15% of global GHG emissions. If trends continue, the Amazon is expected to reach a tipping point in 20-30 years turning the rainforest into a savanna ecosystem. Over 70% of Brazilian cattle ranchers are family-run farms. Many in the Amazon (poorest in Brazil) still use unsustainable practices and can benefit financially from sustainable practices but do not have access to the required technical expertise and financial resources. Thus, their cattle continue to graze inefficiently on degraded and destructive pastures.

Hel Help B Brazilian r rancher ers a s adop

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t sustainable c e cattl tle f e farming p practi tices es

The SCF Fund will provide Brazilian ranchers with debt financing that they currently have little access to because of rurality and undeveloped credit scoring system. Technical consultation will be offered to achieve productive, efficient, and sustainable ranching

• perations that are sold at premium prices while minimizing environmental footprint. Ranchers participating in the SCF Fund must adhere

to the Brazilian Forest Code and are strictly prohibited from deforestation of the Amazon rainforest.

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The Solution

Pasture Management

• Pasture rotation, fertilization,

irrigation, controlled grazing improve soil fertility and feed quality for cattle

• Enhances cattle digestibility,

productivity, health, and fertility, thereby reducing cattle lifecycle emissions by 30%

• Enhances carbon sequestration

in soil and eliminates pressure

• n deforestation caused by

degraded pasture

Manure Management

• Handling, storage, and disposal
• f urine and feces will mitigate

up to 80% of waste GHG emissions by capturing biogas for electricity generation and minimize air and water pollution by preventing waste runoff

• Reduce fertilizer cost for

ranchers by recycling nutrient- rich manure back into the soil for better pasture management

Technical Consultation

• Partnering consultancies will

act as an inspector for the fund while providing ranchers with technical advice on transitioning the mentioned sustainable practices and educate them on best practice implementation

International Market Premium

• Partnering agencies (e.g. ABPO)

will help ranchers prove sustainable operations by certifying their products, enabling ranchers to command an additional premium for “Certified Sustainable Beef”

• Demand for “Certified

Sustainable Beef” in international markets currently

• utstrips market supply
• Hedging at scale

Supply Chain Integration

• Vertically integrate rancher’s

cattle production system (cow- calf, backgrounding, and finishing) to capture synergies and extract monetary value currently being lost to intermediaries

• Integration enables monitoring

institutions to validate sustainable cattle farming practices by removing rogue agencies that don’t adhere to sustainability standards from the supply chain

Re Reduce GHG emission and mitigate deforestation

Appeal to Investors:

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Innovation Elements

SCF Fund Cattle Ranchers Certified Sustainable Beef Technical Consultant (Partners) International Market Debt and Equity Investors

• Reduced GHG Emission
• Prohibits Deforestation
• Increases Carbon Sequestration

Pasture Management

• Reduce GHG by 30%
• Prevent land degradation
• Improve feed quality and yield of beef production

Manure Management

• Reduce GHG by 60-80%
• Save costs on fertiliser and electricity

(through conversion of GHG into biogas)

• Improve soil nutrient and land sustainability

Cooperatives Certification Organizations

Flow of Fund:

Proven Sustainable Practices Employed in Developed Markets

Sustainable Practices Vertically Integrated Supply Chain

Flows: Financial Non-Financial

~20% IRR using cattle futures contracts on CME to hedge against market uncertainty Reduced risk due to significant collateral (maximum 50% LTV) Tranches that tailor to different risk and return objectives Repayment schedule that matches ranchers’ cash flows Technical consultants help implement best practices and monitor progress of ranchers

Certification Premium 10% 20% 30% 40% 50% Default Rate 5% 8.4% 15.1% 20.9% 26.1% 30.8% 10% 7.4% 14.1% 19.9% 25.1% 29.8% 15% 6.3% 13.1%

18.9%

24.1% 28.7% 20% 5.3% 12.0% 17.9% 23.1% 27.7% 25% 4.1% 11.0% 16.8% 22.0% 26.6%

19% 19% fund und IR IRR, 50% 50% LTV, strong ng collater eral for inves estors; 2. 2.5x 5x ne net CF F to rancher nchers

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Financial Analysis (2/2)

(200,000) (100,000) 100,000 200,000 300,000 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Ranch Cash Flow Funding/Debt Servicing Net Cash Flow to Rancher

• Average loan amount: US$ 225,000 per rancher; ~2.0x Debt/FCF
• Blended interest rate on loan: 9.0% (competitive)
• Repayment schedule: Repayment of interest and principal at the lesser of

i) 50% of the ranch’s gross cash flows before debt servicing, and ii) Loan balance outstanding

• Collateral: Livestock, ranch, and land
• Compulsory inspection by technical consultants: every 3 months
• Default is triggered if rancher borrows more debt without waiver from SCF Fund

Loan Terms: Inspection every 3 months and ranch assets as collateral

• Premium on sustainable beef: 30% based on market intelligence[2]
• Electricity generated: approx. 900,000kW/year/ranch[4]
• Fertilizer produced from manure: approx. 45,000kg/year/ranch[4][5]
• Implementation period: 1-2 years[6]
• Number of hectares covered by loan: ~22,000 hectares

Key Assumptions*: Cash Flow Projection: 2x ranch operating cash flow by year 3 Fund IRR Sensitivity Analysis: Observations from developed markets

indicate 25-35% certification premium; cattle prices hedged with futures contracts

*Refer to Appendix for References

Potential Partners:

Brazilian Beef Exporters Association (ABIEC)

Our Our fund und will cover more tha han n 100, 100,000 000 cattle and nd 100 100 ranc nche hes s in n Brazil

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Climate Analysis and Impact

Reduction in Brazilian Amazon deforestation by 100,000+ ha Improved cattle productive yield by up to 30% 30% Price premium on Certified Sustainable Beef in international markets Electricity and fertilizer costs saving up to 10% Reduction in GHG emissions by up to 13 million tonnes CO2e

Farm Vector Illustrations [Digital Image]

$50bn $50bn in n loans ns requi equired ed – equi equivalen ent to 2, 2,000x 000x our ur offer ering ng

Scalability and Replicability Potential:

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Scalability

The Brazilian Amazon currently holds 200+ million cattle and 1600+ agricultural co-operatives available to support farmers across the country. This solution can potentially impact 4.8 million ha/year of biome loss and 340 million tonnes CO2e/year (3.4% of current global emissions) caused by cattle ranching induced deforestation. The model is scalable across developing countries in Central and South America, especially Peru, Colombia, Bolivia, Venezuela, and Ecuador where Amazon rainforest is being cleared for inefficient cattle ranching practices. This financial structure can also be applied to various livestock such as pigs, poultry, and buffalo, which contribute significant GHG emissions and land disruption in ways similar to cattle. Requirements for Scalability: Amazon Region

Scalable across ranchers in the Amazon region. Application of this solution to regions in other parts of the globe where cattle farming impacts deforestation requires additional environmental and livestock lifecycle assessment.

Certification Organization

Ranches that can be adequately monitored by an accredited certification organization is essential for this solution to be scaled.

International Markets

There must not be any hindrance of agricultural products at a prospective ranches from being sold to international markets.

Cooperatives

Cooperatives are key partners in this fund. The ranches being serviced must be affiliated with a regional cooperative.

Th Than ank you

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There’s no time to lose..

Let’s moooooooooo-ve!