mobilizing capital to scale responsible expansion of crop livestock in brazil

BOSTON CONSULTING GROUP 23 Price riskThe long-tenors are not suitable for traditional commodity price hedging for the whole period of financing. The involvement of the whole supply chain to work on a long-term pricing agreement is unlikely in the short term but can be worked on. More realistically, including some buffer of commodity collateral in the economics of the transaction to absorb downward price variation can mitigate the risk Unsold production riskLong-term offtake contracts can mitigate this risk, even though in the commodity market the question is more about price rather than existence of a buyer. However, long-term offtake contracts can (i) foster a stronger commitment of the producer in repaying the loan as it involves a commercial partner, (ii) reduce operational risk as offtakers can repay directly the lenders, and (iii) provide a better overall visibility Socio-environmental risk associated with the expansion on degraded pastures (biodiversity, water, soil, social impact on rural communities)These risks can be measured, and mitigation actions can be adapted thanks to a thorough socio- environmental risk mapping prior to expansion of culture Innovative financing with lack of track recordThese specific long-term financings for small and medium producers may not be well-developed, but the Brazilian financial market is already highly experienced in financing agribusiness and managing the associated risk Reputational risk in case of conflict with local communitiesA thorough due diligence of land tenure is a must for this kind of financing. However, this risk is inherent to the Brazilian reality, and consultation with local civil society organizations can also be a mitigator Non-compliance by producers of some zero-conversion commitmentBrazil has state-of-the-art satellite monitoring that allows for nearly daily follow-up. Producers should be clearly communicated about this system and the pre-established consequences in case of covenant breaches