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demonstrate that chain-of-custody tracing was reliable andfeasible, and that verifiably sustainably produced productscommand a market premium, other agriprocessors might“green” their own supply chain. This could drive unsustainableproducers out of business.Agribusiness at the forest frontierDeforestation in the Brazilian Amazon is largely drivenby conversion to pasture and soy. Over the period 2002–07, IFC made three loans in the Brazilian Amazon: twoto a soy processor (Amaggi) and one to a beef processor(Bertin). The projects aimed to demonstrate sustainableagribusiness practices in the sector by building clients’ environmentalmanagement capacity. Both loans attempteda “law abidance” strategy—that is, to bring the respectivefirms and their suppliers into compliance with Brazilianenvironmental, social, and land tenure legislation, therebyreducing deforestation in the Amazon.Under the IFC loan, the soybean processor committedto ensuring that all soybeans grown on its farms andall soybeans purchased from prefinanced suppliers meetBrazilian and IFC environmental and social regulations.With the beef company, IFC sought to ensure compliancewith Brazilian legislation for all Bertin suppliers, as wellas to develop a chain of custody system to track animalsthroughout the supply chain.IFC loans to agriprocessors in the BrazilianAmazon attempted to bring firms andsuppliers into compliance with Brazilianenvironmental law.The law abidance/chain of custody strategy, if successful,would ensure that IFC was not directly associated with deforestation.And, with the right conditions, it might havea market transformation effect. If the companies couldPhoto by Yosef Hadar, courtesy of the World Bank Photo Library.But the conditions for this scenario are stringent. The processorsneed to be able to trace the purchases to the pointof origin—which is difficult because cows and soy can be“laundered.” Then the processors have to verify that theoriginating farms are in compliance with the law, a tasknormally undertaken by government. To motivate these actions,the processors would have to face a market in whicha significant proportion of buyers will pay a premium forsustainably produced goods. And it has to be possible tosustainably intensify production on farms and ranchesthat comply with the law. If any of these conditions fails,new investments at the forest frontier could end up simplyincreasing pressure on the forest.Outcomes. IFC and Amaggi succeeded in ensuring thatno new deforestation occurred on the company’s ownfarms or on those of prefinanced suppliers. The companyused a combination of satellite imagery, digital mapping,and field visits to verify the behavior of those suppliers.Development of this sophisticated monitoring systemserved the firm’s own quality control and fiduciarypurposes in addition to satisfying IFC requirements.However, a significant proportion of the company’s soypurchases were from the third parties that were outsidethe conditions of the loan agreement and for whichAmaggi had no capacity to identify the farm of origin.IFC’s agribusiness investments did notcatalyze deforestation, but neither did theycatalyze widespread changes in industrypractices.Little was accomplished under the environmental covenantsof the agreement with the beef producer. Bertin hadagreed to develop an environmentally sustainable supplychain, including 100 percent traceability of its cattle fromfarm to final product , and to make 600 suppliers compliantwith labor, land acquisition, and environmental legislation.Although some progress was made with ranchesreceiving direct support from IFC advisory services, manysupplier were noncomplant. The company also purchasedslaughterhouses close to the Amazon biome in breach ofIFC’s requirements, without first ensuring the sustainabilityof their supply chains. This noncompliance with IFC’ssocial and environmental standards was in effect when IFCdecided to disengage from the project.IFC wagered its reputation that these loans would tame,rather than encourage, deforestation. On one hand, both58 | Climate Change and the World Bank Group