Brazil’s vast jungle is synonymous with the problem of deforestation, but the country’s Cerrado savanna is also at risk from agricultural expansion. One of the world’s largest agribusinesses, together with one of the nation’s biggest lenders, plans to deter farmers from clearing vegetation from the region.

Bunge Ltd. and Banco Santander Brasil SA, together with The Nature Conservancy, a U.S. charitable organization, will start a pilot program in September that lends to Brazilian farmers who cultivate parts of the Cerrado that don’t require clearance. The loans will be in U.S. dollars for up to 10 years and the program is starting with $50 million in capital, according to White Plains, New York-based Bunge.

The Cerrado, the largest grassland savanna in South America, has come under increased pressure from the sustained boom in Brazilian soybean production. The country has emerged as the world’s largest exporter of the commodity that’s primarily used in animal feed. Output is expected to keep growing next year, and the nation’s farmers are being helped by the trade war between the U.S. and China, which has boosted prices in South America relative to the benchmark futures price in Chicago.

Last year, the Brazilian Academy of Sciences and the Brazilian Society for the Advancement of Science asked the government to tighten protections in the grassland, a swath of land below the Amazon that’s about three times the size of Texas.

Everyone from consumers to non-governmental organizations are increasingly interested in sustainable practices within the food supply chain and the conservation of places like the Cerrado.

“These trends are happening, they’re increasing every year,” Stewart Lindsay, Bunge’s vice president of global corporate affairs, said in a telephone interview. “The market is sending new and different signals, but they’re not sending signals yet that are strong enough to really encourage farmers in places like Brazil to expand here, not there.”

The loans would be made to farmers that Bunge already has a relationship with. The company is one of the world’s largest buyers, traders and processors of soy.

Loan funding

The trading house will account for 30 percent of the funding, while Santander will be responsible for 65 percent of the capital and The Nature Conservancy for 5 percent. Interest rates are expected at 6 percent to 10 percent a year.

These will be innovative long-term loans for land acquisition and recovery in the country, according to Carlos Aguiar, agribusiness director at Santander. Funding to Brazilian farmers is usually restricted to finance plantings or machine purchases and silos acquisitions.

"We are focusing on areas where there’s deforestation risk and where we believe it’s possible to make a difference," Michel Santos, Bunge’s sustainability global director, said Wednesday at an event in Sao Paulo.

There are about 25 million hectares of already cleared land in the Cerrado that can be used for agriculture, Greg Fishbein, director of agriculture investments at The Nature Conservancy, said in an interview. “The Cerrado is a vast store of carbon,” mostly underground in its roots, that is essential to helping stem global greenhouse gas emissions, he said.

The farmers would have to meet environmental thresholds, including good agricultural practices, and other measures relating to labor and chemical use, Fishbein said.

Environmental groups and companies are asking “how do we expand production in this area, because Brazil will continue to be bread basket to the world, or soy basket to the world, but do it in a way that doesn’t continue to clear all this important habitat,” Fishbein said.