Gaps in adoption and implementation limit the current and potential effectiveness of zero-deforestation supply chain policies for soy

The study area comprises the Brazilian Amazon and Cerrado biomes (figure 1), including all companies exporting soybeans from those areas.

2.2.1. ZDC adoption

2.2.2. ZDC implementation and market share

2.2.3. ZDC coverage

2.3.1. Soy company ZDCs

2.3.2. Comparing companies’ economic characteristics and reputational risk exposure

2.3.3. ZDC coverage of forests suitable for soy expansion and habitat of threatened, forest-dependent species market share

2.3.4. Estimating ZDC treatment effect on soy-deforestation

2.3.5. Avoided soy-deforestation in the Amazon from the SoyM

We estimated avoided direct soy-deforestation generated by the SoyM in the Amazon biome. To do so, we applied the estimated average treatment effect (${\text{ATT}}$) of the SoyM on the treated municipalities (figure S9), by calculating the difference between s, the expected outcome without treatment, and s₂, the outcome after treatment (figure 2, SI §3).

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2.3.6. Potentially avoided soy-deforestation in the Cerrado from implementing existing soy ZDCs

Corporate ZDC adoption rates were greater in the Amazon, where companies took part in the SoyM, than in the Cerrado, as reported previously (Zu Ermgassen et al 2020). In the Cerrado, only seven of 129 companies exporting soybeans had a ZDC, with the first pledge made in 2014 (table S1). In 2018, these seven companies controlled 66% of soy exports from the Cerrado. In the Amazon, 16 of 46 soybean-exporting companies adopted the SoyM, and they handled 95% of 2018 exports.

On average, companies with higher share value, greater sunk investments (e.g. storage, crushing, and refining facilities), and higher soy export volumes were more likely to adopt ZDCs (figures 3(a), (b), (d)–(f) and (h)). Compared to non-ZDC traders, those with ZDCs sourced more soy from municipalities with high deforestation rates (figures 3(c) and (g)) and sourced from municipalities where most soy-deforestation occurred (table 1, figure S4). There is no evidence that commitment adoption is related to headquarter location. Cerrado ZDC companies have headquarters in Europe, North America, and Brazil, while SoyM companies have headquarters across many regions (table S1).

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Adopted ZDCs covered less than half of the total remaining forest area suitable for soy expansion, overall and within only those municipalities with planted soy in 2018. About 55% and 53% of the soy-suitable forest in soy-producing municipalities in the Amazon and Cerrado, respectively, was in municipalities where no company had a ZDC (table 1).

Of all soy-suitable forest habitat areas, 48% in the Amazon and 90% in the Cerrado were in municipalities with soy production (table 1). If all soy-suitable forests overlapping with the habitats of threatened forest-dependent species (n = 249) were cleared, 19% and 55% of these species’ habitat areas in the Amazon and Cerrado, respectively, would be removed. Ten species in the Amazon and three in the Cerrado would go extinct if all soy-suitable forests were cleared because their habitats fall only within these forests.

Municipalities with ZDC market share >50% contained about 20% and 45% of threatened species’ habitat areas within soy-suitable forests in the Amazon and Cerrado, respectively (table 1). In the Amazon, these species benefit from greater protection as a result of the implementation of the SoyM (section 3.4), while in the Cerrado they would only receive some protection from soy expansion if currently adopted ZDCs are actually implemented (section 3.5). Yet, even if adopted ZDCs in the Cerrado were implemented, not all at-risk areas would be covered. Extensive threatened species’ habitat areas (i.e. 29% in the Amazon and 43% in the Cerrado) are in soy-producing municipalities with zero ZDC market share (table 1).

Our DiD analysis found that the SoyM reduced direct soy-deforestation in treated municipalities by 57% (95% confidence interval (CI): 31%–73%, table S2, figure 4). Our results were robust against different definitions of the counterfactual group (i.e. not-yet and never treated municipalities), exclusion of pre-SoyM years, and different treatment definitions (tables S2(a)–(d), figures S8(a)–(d)). We found no indication of leakage from treated to neighboring municipalities (table S2(e), figure S8(e)).

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Compared to a counterfactual where the SoyM had never been implemented, the policy led to 230 993 ha (95% CI: 78 668–475 768 ha) or 53% (95% CI: 28%–70%) of avoided soy-deforestation in the Brazilian Amazon between 2006 and 2015 (figure S9). This exceeds observed 2006–2015 soy-deforestation (204 703 ha) but is only 1.6% of total observed 2006–2015 Amazon deforestation (14 547 858 ha, figure S10).

Had the seven companies that have adopted soy ZDCs (table S1) implemented their commitments in the Cerrado in 2006, they could have contributed an avoided 509 126 ha (95% CI: 278 622–1115 087 ha) or 46% (95% CI: 24%–59%) of direct soy-deforestation and around 5% of overall deforestation between 2006 and 2015 (total observed soy-deforestation: 1115 087 ha, total observed deforestation: 10 032 444 ha, figure S12).

ZDC adoption was greater among larger companies with a higher fraction of total soy sourcing within deforestation hotspots and more sunk infrastructure. Such companies face a high risk of being targeted by civil society organization campaigns due to their size, environmental impact, and investments in deforestation-risk regions (Hendry 2006, Rueda et al 2017). Other factors correlated with company size and influence may also be responsible for observed differences. For instance, large companies might benefit from economies of scale, increasing the cost-effectiveness of implementation and mitigating risks by trading several commodities (Grabs and Carodenuto 2021). Since our analytical approach was designed to assess differences between companies with and without ZDCs, further research intended to attribute causes of adoption via ethnographic and/or statistical approaches is needed (Grabs and Carodenuto 2021).

While consumer-oriented campaigns are thought to have played a key role in incentivizing initial commitments by such firms (Gibbs et al 2015, Alix-Garcia and Gibbs 2017), such campaigns cannot target every small firm. Currently proposed due diligence or zero deforestation laws requiring compliance of production with laws and regulations in exporting regions may exclude small and medium-sized firms (European Commission 2021).

Theory suggests that adoption of voluntary policies by larger, more dominant firms can lead to policy spillovers to smaller companies that decide to imitate larger companies (Hendry 2006) to participate in the zero-deforestation market. The SoyM was supported by the two largest soy industry associations in Brazil (Abiove 2020, Anec 2020), leading to high ZDC adoption and implementation among all industry association members in the Amazon including smaller firms. However, ZDC adoption and implementation has not spilled over to smaller firms in the Cerrado biome. Instead ZDC adoption in the Cerrado is even more skewed to the largest firms (table S1). Such large companies are more likely to have the resources needed to implement their policies including more stable sourcing relations with producers that are favorable for policy dissemination (Leijten et al 2022). Yet, while they appear well-positioned to make good on their commitments, none of these companies have implemented their Cerrado ZDCs along their full supply chain.

Although prior studies found a link between the adoption of the SoyM, and trade regulations on genetically modified soy, to be associated with exports to the EU (Garrett et al 2013, Nolte et al 2017), we found that export locations in 2018 were similar between ZDC and non-ZDC companies. The decreasing proportion of exports going to the EU since the SoyM was adopted may have diminished the influence of EU consumer preferences on companies’ incentives to implement new soy ZDCs (table S1). In 2018, Asian markets dominated soy export destinations, while Europe was the second largest export market (figure S5). Yet, none of the companies that adopted ZDCs in the Cerrado have their headquarters in Asia, which suggests lower consumer demand for ‘environmentally-friendly’ soy and/or less non-governmnetal organization (NGO) presence in those countries to pressure companies into greater ZDC action. Another potential explanation for the lack of implementation in the Cerrado compared to the Amazon is that there were fewer firms present in the Amazon during the initial SoyM adoption and implementation period in comparison to the highly competitive market for soy trading in the Cerrado. NGOs directed significant pressure at individual firms with follow-up reporting on deforestation within these firms’ supply chains (Greenpeace 2006). Naming and shaming campaigns have been less visible in the Cerrado. This lack of pressure from civil society did not encourage prompt action by firms. Finally, the political context has significantly changed since the SoyM under the conservative Bolsonaro presidency, which has bolstered efforts to reduce, rather than expand, deforestation control (de Area Leão Pereira et al 2020, Garrett et al 2021).

We found that more than half of soy-suitable forests and forest-dependent species habitats in the Brazilian Amazon and Cerrado are in municipalities without meaningful ZDC market shares, resulting in a major conservation gap. Particularly in the Cerrado, where public policies restrict clearing on only 20%–35% of a private property (NVP 2012), soy-suitable forests outside ZDC sourcing regions would remain vulnerable to soy-deforestation even if ZDC companies were to implement their pledges. In the Amazon, stronger public policies (e.g. restricting clearing on 50%–80% of private properties (NVP 2012)), and limited accessibility may reduce the risk of soy-deforestation even if many areas lack ZDC presence (figure 1). Our results emphasize the concern that because supply chain governance is a constraint only to those producers within specific ZDC supply chains and does not cover all commodities, its ability to meet conservation goals across landscapes and large regions is limited.

While our finding that the SoyM led to a 57% reduction of soy-deforestation in treated municipalities confirms that ZDCs have effectively reduced forest loss from soybean expansion in the Amazon, the impact of the SoyM on overall deforestation in Brazil, across commodities and regions, appears limited. The 57% reduction translated to an avoided 26 666 ha yr⁻¹, or just 1.6% of overall Amazon deforestation over the study period. Moreover, while we found no evidence of cross-municipality leakage in our sample municipalities in the Amazon (table S2, figure S8(e)), leakage may have occurred to municipalities that did not produce soy in 2005, other Brazilian biomes, or other countries (Villoria et al 2022, Gibbs et al 2015, Noojipady et al 2017, Dou et al 2018, Kuschnig et al 2021). Thus, our findings serve as an upper-bound estimate of the SoyM’s contribution to reducing (soy-)deforestation in Brazil.

Yet, our estimate of avoided deforestation is much lower than the only previous counterfactual-based assessment by Heilmayr et al (2020), who estimated that the SoyM reduced overall Amazon biome deforestation by 1800 000 ha (95% CI: ±90 000) or 35% (95% CI: ±16) between 2006 and 2016.

Several methodological differences help explain differing findings. We estimated the impacts of the SoyM only in municipalities with high ZDC market share. In contrast, Heilmayr et al (2020) assumed that the SoyM applied to all soy-suitable areas in the Amazon, including those without SoyM company presence. Our approach therefore reduced the potentially affected area to those areas where SoyM signatories could directly impact producers’ deforestation practices. Second, while our outcome variable was soy-deforestation, Heilmayr et al (2020) used overall deforestation, which likely includes non-soy deforestation (e.g. forest clearance for cattle ranching). Finally, Heilmayr et al (2020) applied a triple DiD estimator, comparing pre and post-SoyM implementation, soy-suitable and not-suitable locations, and Amazon and Cerrado biomes. Our DiD estimator instead compared pre and post-treatment and treated versus not-yet-treated municipalities in the Amazon biome. This allowed us to avoid potentially confounding effects between the Amazon and Cerrado biomes driven by different environmental laws, monitoring and enforcement as part of implementation, and deforestation leakage.

Thus, compared to Heilmayr et al (2020), our approach likely has greater internal validity, or a more trustworthy cause and effect relationship between ZDC implementation and soy-deforestation reductions in Amazon soy-producing municipalities. Yet, our estimates may suffer from lower external validity because they cannot capture deforestation processes outside of soy-producing municipalities. We caution generalizing our findings to different social, environmental, and governance settings.

Our results suggest that had companies with an adopted ZDC in the Cerrado implemented their commitments with the same effectiveness as the SoyM, they could have halved observed soy-deforestation in the biome between 2006 and 2015. This estimate assumes that the implementation of ZDCs in the Cerrado would have had the same effect on soy-deforestation as the SoyM, a strong assumption given that the SoyM is supported among more companies, restricted to a comparably small area (Rausch and Gibbs 2021), and located in a region with stricter environmental laws (NVP 2012), providing synergies in monitoring and enforcement of the commitment (Lambin et al 2014, Garrett et al 2019). At the same time, the Cerrado faced high pressure for soy expansion, possibly in part due to displaced demand from the Amazon because of SoyM implementation (Noojipady et al 2017, Rausch et al 2019). Some research suggests that the SoyM induced additional deforestation in the Cerrado and other regions outside Brazil (Villoria et al 2022, Noojipady et al 2017). Yet, availability of already cleared land highly suitable for soy production in the Cerrado could have absorbed some of the displaced demand, allowing soy expansion without additional deforestation (Nepstad et al 2019, Rausch et al 2019).

Thus, our estimate is likely the upper bound of the potential impact of implementing adopted ZDCs in the Cerrado. Yet, our projected reduction in Cerrado soy-deforestation (50 913 ha yr⁻¹) based on the implementation of currently adopted ZDCs and the market share of companies with adopted ZDCs (figure S11, table S1) is only half of the avoided deforestation estimated by Soterroni et al (2019) (120 000 ha yr⁻¹) who assumed that all companies would adopt and implement a ZDC. Our approach, incorporating the municipal ZDC market share into estimating ZDCs’ potential impact, thus provides a more plausible best-case estimate of the likely conservation benefits of currently adopted ZDCs in the Cerrado. Indeed, deforestation leakage from the Cerrado to other biomes and countries may still reduce the impact of these ZDCs on global avoided deforestation (Villoria et al 2022).