The study combined data from the National Institute for Space Research (INPE), the National Rural Environmental Registry System (SICAR), and farm loan operation information provided by the Central Bank, without separating legal and illegal deforestation.

“When it comes to subsidized farm loan, we [must] think about which sector practices we intend to encourage. And our point is: if we want to encourage something with government funds, we must encourage properties that do not engage in deforestation,” said João Mourão, an analyst at CPI/PUC-Rio and a co-author of the study.

The Cerrado was the biome with the most deforestation related to subsidized farm loans. Of the R$14 billion per year granted in subsidies to farmers who engaged in deforestation, 50% were aimed at properties in the Cerrado region. Next comes the Amazon, the destination of 17% of the subsidized funds that backed deforestation.

In total, 64,700 farms with deforestation accessed subsidized farm loans in the time range analyzed. The number represents 31% of all properties that engaged in deforestation in the period but only 7% of the total farms that accessed the Crop Plan.

According to the researchers, the gap indicates that a small portion of properties receiving subsidized farm loans is responsible for a large part of deforestation. When analyzing the group of 5% largest borrowing properties that carried out some deforestation, they accounted for 74% of the loss of vegetation in the period.

“These are few, but large properties with an average area 10 times larger than those that do not deforest,” said Mariana Stussi, an analyst at CPI/PUC-Rio and one of the study authors. She argues that the subsidies offered by the federal government via farm loans should not be aimed at farmers who have a deforestation history, whether legal or illegal.

“When it comes to subsidized farm loan, the incentive should not be linked to the opening of new areas, but to environmental protection,” Ms. Stussi argues.

Currently, the rules for granting farm loans by the National Monetary Council (CMN) and the Central Bank only prevent funds from being allocated to properties embargoed due to environmental wrongdoing, which only includes cases of illegal deforestation. The rule came into force in January this year and, therefore, was not effective during the period analyzed by the study.

The researchers believe the measure was positive but insufficient since most of the deforestation identified is not embargoed. In the study sample, of 64,700 properties, only 939 with deforestation had some embargo or 1.45% of the total. “The problem is that this is a limited measure, which needs to be extended and improved to properly align incentives with sustainability goals,” the researcher points out.

In a note, the Brazilian Federation of Banks (FEBRABAN) said that its members do not condone bad practices and that they fully comply with the requirements by the National Monetary Council and the Central Bank for granting subsidized farm loans, in addition to their self-regulation standards.

FEBRABAN criticized Brazil’s lack of validation of the Rural Environmental Registry (CAR). “As a key tool for environmental monitoring and prevention and control of deforestation, a quality CAR implementation is strategic for the country and of great interest to the banking sector,” the federation affirmed.

The Ministry of Finance declined to comment. The ministries of Agriculture and Environment did not immediately respond to Valor’s request for comment.