In tree plantations in Paraguay, public money is driving private profit: What is Germany’s role?

Forestry and land-use are a hot topic in the current climate debate, and play an important role in German climate finance. This article, originally published on germanclimatefinance.de, looks at tree plantations that have received support from the Green Climate Fund (GCF) that Germany is supporting and the impacts that they are having on peasant communities.  When researchers from a Paraguayan NGO called Heñoi went to find out what life was like around the industrial tree plantations that have been cropping up all over the countryside, one of the first signs that there was something off came when they pulled over, turned off their car, and were met with total silence. Instead of the hum of insects, birds, and other creatures, there was only quiet in the areas that had been consumed by eucalyptus plantations, with their straight rows of exotic species and daily applications of weed- and pest-killing chemicals. Instead of the raucous buzz of biodiversity, the researchers were surrounded by a sepulchral uniformity. As one local explained, “There is nothing, not even birds come down … not even a little bug. In other places where our native trees are, birds fly around happily; but not here: total silence.” The countryside also used to be home to lots more people, too, but in the last few years, companies like Forestal Apepu and Forestal San Pedro, owned by a Frankfurt-based private equity firm called the Arbaro Fund, have increasingly taken over. Heñoi’s researchers visited communities impacted by plantations operated by these companies in May 2021 to find out how their lives have changed been impacted. They were told: “There used to be more people here, all this was village. And everyone left where the plantations are. Before, the community was larger, now it’s all occupied [by plantations].” Land grabbing and raw materials exports are not new in Latin America, where economies have for centuries been based around goods like tin, copper, rubber, or timber, but this is not the same old story, because now it’s not just private money driving private profits. The rapid expansion of monoculture tree plantations in Paraguay has been fueled by support from the Green Climate Fund (GCF), the financing mechanism of the UN Convention on Climate Change, to which the German Government is a major donor. GCF has poured over $100 million into four projects in Paraguay so far. One of the recipients of that money was the Arbaro Fund, which in 2020 received $25 million for plantation expansion in seven countries in Latin America and Sub-Saharan Africa. Another link between German climate finance and the Arbaro Fund is a 20 million Euro grant made by Germany’s International Climate Initiative to the Seed Capital Assistance Facility, which will “unlock private investment into forest landscape restoration in developing countries.”. The Facility has approved the Arbaro Fund as one of theits first two partners to qualify for its support, which aims to “boost the efforts of these fund managers in developing a pipeline of investments in nature-based solutions that contribute to forest restoration.”

Investments of the Arbaro Fund in Paraguay

The Arbaro Fund is co-owned by two German firms, the asset management company Finance in Motion and UNIQUE forestry and land use GmbH. Unique was recently criticised for its role as both a consultant to government forest restoration efforts and a private-sector forestry company. It has direct investments in plantation projects, and advises governments and other institutions to develop industrial tree plantation projects in the name of forest restoration and climate mitigation. In addition to As well as its two investments in Paraguay through the Arbaro Fund, Unique manages plantations on behalf of the Paraguay Agricultural Corporation (PAYCO), a company that has been associated with numerous conflicts with Indigenous Peoples and peasant communities over its operations, which include eucalyptus plantations and intensive livestock farming. Heñoi visited San Pedro in Eastern Paraguay, at the heart of the country’s eucalyptus boomexplosion, to assess the impacts of the Arbaro Fund’s investments there and, by implication, the impacts of public climate finance awarded by the GCF. Following a dozen in-depth interviews with local residents – most of whom are peasant farmers – and plantation employees, they published a case study with the support of the Global Forest Coalition. Their investigation shows how eucalyptus plantations are having profound impacts on communities and undermining the very fabric of peasant life. Forestry companies are taking advantage of insecure land rights and decades of harm already caused by the intensive livestock and agro-industrial sectors to produce yet another commoditycommoddity on this land. This time, it’s eucalyptus wood that is ultimately destined for pulp and paper production, or to be turned into charcoal to produce steel or dry grains like GMO soy. The companies promise to bring jobs and development, but they offer benefits selectively, dividing communities and families. An interviewee explained: “not a single person here has benefited, [there has been] no benefit at all for the poor or for the community. They say they are going to help the community grow, but it’s just harm; instead of helping [us], they want our land.”     

GCF’s funding for land-based projects is incentivizing false solutions

The GCF’s mandate is to help developing countries cope with climate change and to reduce emissions through. Yet despite criticism from civil society,, and so the funding is ostensibly aimed at promoting so-called climate friendly policies like forest restoration. The Arbaro Fund claims that it will capture 20 million tons of carbon with its plantations, but this creative accounting does not match the reality. The sad truth is that, on the ground, public funding through the GCF for land-basedthese projects often fuels dispossession and poverty for Indigenous Peoples and local communities in places like Paraguay, which offers a small but poignant example of the problem. So far, the GCF’s Arbaro Fund investment committee has signed off three of up to 12 investments into industrial tree plantation projects that the Arbaro Fund will undertake with GCF financing. The impacts of the two in Paraguay have been exposed by Heñoi’s investigation, and the third investment, involving Miro Forestry in Ghana, has also been called out for its unacceptable impacts. It is therefore vital that the GCF’s big contributors, including the German Government, step in to ensure that the mistake of investing in tree plantations in the name of climate mitigation isn’t repeated again and again. Germany’s seat on the GCF board means that it has the power to influence the direction ofthat international climate finance takes, and to ensure that the projects that are fundedreceive finance genuinely contribute to fighting climate change. ForIn order for this to happen, false solutions such as industrial tree plantations and bioenergy need to be taken off the table and excluded from the scope of international climate finance mechanisms. Guest post by Megan Morrissey, Global Forest Coalition, and Omar Yampey, Centro de Estudios Heñoi Read more: Full case study “These are not forests: The Arbaro Fund and monoculture tree plantations in Paraguay“