Download Assessing the “food-fuel-forest” competition in Brazil

Assessing the “food-fuel-forest” competition in Brazil: impacts of
sugarcane expansion on deforestation and food supply
José Féres, Eustáquio Reis and Juliana Speranza
(IPEA)
Abstract: biofuels present promising opportunities for Latin-American countries, since
most countries in the region have a strong potential regarding biofuel production.
However, the technology is not without costs. Biofuel production has faced criticisms
regarding its environmental and social impacts. Most of them are related to indirect land
use changes due to biofuel expansion. This paper aims at presenting an overview of the
empirical literature on the environmental impacts of sugarcane ethanol production in
Brazil. In addition to that, we develop a land use model in order to assess the potential
competition between food production, biofuel expansion and deforestation. Our
empirical findings do not provide support to the argument that sugarcane expansion
may lead to food supply disruption. Moreover, sugarcane expansion does not seem to
represent a potential source of deforestation pressure in the Amazon. On the other hand,
enlargement of sugarcane area in the Center-South region _ which is the main
expansion axis _ may induce deforestation. This is of particular concern in the cerrado
biome (Center-West region) and in the remaining Atlantic rainforest areas (Northeast
and Southeast coast of Brazil).
Introduction
Increasing consensus about the end of cheap oil, the geopolitical tensions in major oilproducing regions and the consequences of carbon emissions have caused a spurt in the
search of alternative energy sources. In this context, plant-based fuel like ethanol and
biodiesel seem to be emerging as a serious alternative to fossil fuels. The last few years
have witnessed a sudden growth in biofuel production and demand is expected to
increase at high and sound rates, as the large energy-consuming nations are all setting
ambitious long term targets for biofuels and for reduction in carbon emissions.
There are several reasons for the excitement surrounding biofuels. First, biofuels may
provide energy that is renewable. Second, several biofuels are less-carbon intensive than
fossil fuels and therefore may reduce GHG emissions. Third, increased demand for
agriculture is expected to increase farm income. Finally, biofuels are more labor
intensive than other energy technologies and therefore biofuels may create new jobs. So,
in addition to environmental benefits, biofuels may also improve social conditions and
contribute to poverty alleviation in rural regions.
In view of the above benefits, biofuels present promising opportunities for LatinAmerican countries, since most countries in the region have a strong potential regarding
biofuel production. Most countries will be able to grow one or more types of crops in
which they possess a comparative advantage and use them to meet either domestic or
foreign demand or both.
However, if agriculture is to be relied on to fuel a growing population, then a serious
consideration of the consequences of the widespread adoption is warranted. The
technology is not without costs. Biofuel production has faced criticisms regarding its
environmental and social impacts. Most of them are related to indirect land use changes
due to biofuel expansion.
Basically, biofuel feedstock production may be characterized as a land intensive
activity. This feature has raised concerns regarding the concurrence among competing
land uses. First, some analysts argue that biofuels may lead to increased deforestation
pressure, since farmers may convert forestland into biofuel feedstock production areas.
Increasing deforestation due to biofuel expansion may also result in higher GHG
emissions. Second, biofuel expansion may occur at the expense of subsistence crop
areas, therefore reducing food supply and leading to food price inflation. In this sense,
as Ragajopal and Zilberman state (2007), “biofuels may mean filling the fuel tank at the
cost of emptying the stomach of the poor”. This controversy has given rise to the socalled “food-fuel-forest” competition debate.
Debates on indirect land use change and “food-fuel-forest competition” are at the core
of international trade negotiations regarding biofuels, as illustrated by the current
discussions on biofuel sustainability criteria in the European Community (EC). Two EC
directives, published in December 2008, establish biofuel use targets for the transport
sector as well as sustainability criteria for biofuel production. The Renewable Energy
Directive set a mandatory goal of 10 percent of renewable energy by 2020, while the
Fuel Quality Directive established a mandatory reduction of 6 percent in total
greenhouse gas emissions from the transport sector by the same time horizon. However,
biofuels used for compliance with the targets laid by these EC directives are required to
fulfil sustainability criteria. Specifically, biofuels to be produced or imported by
European countries should not be grown in areas with high carbon stocks (wetlands,
forests) as well as areas with high biodiversity value. Areas with high biodiversity value
include primary forests, protected environmental reserves and highly biodiverse
grassland. The imprecise definition of the term “highly biodiverse grassland” has raised
serious concerns among the Brazilian government and the agribusiness sector, who fear
that such criteria may prevent biofuel production in areas with high agricultural
potential, such as the Brazilian “cerrado”.
The debate on environmental sustainability is also present in the negotiations regarding
US biofuel imports. The Energy and Independence Security Act established new
specific volumes and requirements for renewable fuels that must be used in
transportation fuel in the United States. The requirements include greenhouse gas
emission thresholds for renewable fuels, including direct emissions from the production
cycle and emissions associated to land use changes. The Environmental Protection
Agency (EPA), as part of proposed revisions of the Renewable Fuel Standard program,
published a preliminary version of the results on full lifecycle analysis for renewable
fuels. According to EPA´s Draft Regulatory Impact Analysis, as US increases net
imports of ethanol by 2.5 billion gallons in 2022, the major supplier of this increase in
ethanol is Brazil. However, in calculating greenhouse gas emissions of land conversion,
the report indicates a significant environmental impact resulting from land use changes
in Brazil. The report also estimates that major agricultural commodity prices increase
globally, providing some empirical evidence on a food-fuel tradeoff.
Given the controversy on the “fuel-food-forest competition” hypothesis and its
relevance in the context of international trade negotiations, it is of fundamental
importance that Latin-American countries take an active role in the debate. Biofuels
present great opportunities to LA countries, and failing to provide transparent and
consistent empirical evidence in terms of the environmental and social impacts may
jeopardize access to export markets.
With this background, this paper aims at presenting an overview of the empirical
literature on the environmental impacts of sugarcane ethanol production in Brazil, with
a special emphasis on indirect land use effects due to sugarcane expansion. In addition
to that, we develop a land use model in order to assess the potential competition
between food production, biofuel expansion and deforestation.
Environmental sustainability of sugarcane production
Biofuels present great opportunities to Brazil, given his competitive advantage in
ethanol production. With a production that reached 17,4 billion liters in 2006, Brazil is
the world´s second largest producer of ethanol. From 2000 to 2007, the production of
ethanol in Brazil increased an average of 11.4% per year. Internal consumption has
grown continuously since the launch of flex-fuel vehicles in 200. Such cars can run on
any blend of gasoline and ethanol. Today, they represent more than 80% of all new light
vehicles market sales. It is estimated that domestic consumption could reach 35 billion
liters in 2015 and 50 billion liters in 2050. Future exports depend on how open the main
consumer markets will become, but it is estimated that 20 billion liters could be
exported annually by 2020.
There are 335 bioethanol plants in Brazil, and the vast majority can produce either sugar
or ethanol using sugarcane as feedstock. Currently, Brazilian sugarcane is almost
equally used to produce sugar and ethanol. In 2006, 6,45 million hectares were
cultivated and around 3 million hectares were dedicated to ethanol production. The bulk
of sugarcane production is in the Center-South region (87% in 2007), 60% of total
production being in the state of São Paulo.
The economic dimension of Brazilian sugarcane sustainability is not a controversial
issue. It is internationally recognised that Brazilian ethanol is produced at low costs and
its feasibility does not depend on subsidies. Table 1 compares biofuels productivity and
production costs in Brazil, US and the European Union.
Table 1: Biofuels Overview of Brazil, United States and European Community
Plants in operation
Brazil
2006/07
Ethanol
335
United States
2005/06
Ethanol
97
Feedstock
sugarcane
corn
6.4
31.6
426
267
48%
20%
17,411
18,547
Crop are
(million hectares)
Feedstock production
(million tons)
% of feedstocks
dedicated to fuels
Biofuels production
European Union
2005
Ethanol
Biodiesel
32
120
Oil from rapeseed,
Cereal,
sunflower,
sugar beet, etc.
palm and soy, etc.
Cereals: 51.5
6
Sugar beet: 2.2
Cereals: 253
19.7
Sugar beet: 116
Cereals: 1.6%
Rapeseed: 40%
Sugar beet:0.6%
902
4,458
(million liters)
Productivity
Cereals: 3,125
Rapeseed:1,999
6,800
3,000
(liters/hectare)
Sugar beet:7,250
Sunflower: 833
Production cost
20
40
50-75
44-81
(US$ cents/liter)
Note: 2005 production costs for Brazil and the US, 2004 for Europe. US and Brazil data on ethanol refers
to 2006. Source: Jank et al. (2007)
Notwithstanding the consensus around its economic feasibility, Brazilian ethanol
production has been criticized for its potential environmental and social impacts. As
already mentioned, the current debate on international sustainability criteria is not
restricted to verify whether biofuels have lower GHG emissions vis-à-vis fossil fuels. In
addition to positive net carbon balances, several other aspects regarding biofuel
production have been identified as relevant for a comprehensive sustainability
assessment, namely: a) direct and indirect land use changes; b) socio-economic benefits
generated by ethanol production; c) potential impacts on water availability and quality;
d) impacts of fertilizer and agrochemical use on biomass production; e) soil impacts;
and f) biodiversity loss. In this case study, we focus on the direct and indirect land use
changes due to the expansion of ethanol market.
Debates on indirect land use change are at the core of international trade negotiations
regarding biofuels. As already mentioned, some analysts argue that biofuels may lead to
increased deforestation pressure, since farmers may convert forestland into biofuel
feedstock production areas. When discussing sustainability criteria, the EC Fuel Quality
Directive explicitly refers to this relationship between biofuel expansion, deforestation
and the resulting biodiversity loss. According to the Directive´s text, “The increasing
worldwide demand for biofuels, and the incentives for their use provided for in this
Directive should not have the effect of encouraging destruction of biodiverse lands (…)
The sustainability criteria should consider forest as biodiverse where it is primary
forest (…) Having regard furthermore, to the highly biodiverse nature of certain
grasslands, both temperate and tropical, including highly biodiverse savannahs,
steppes, scrublands and prairies, biofuels made from raw materials originating in such
lands should not qualify for incentives provided for by this Directive”. The imprecise
definition of the term “highly biodiverse grassland” has raised serious concerns among
the Brazilian government and the agribusiness sector, which fears that such criteria may
prevent biofuel production in areas with high agricultural potential, such as the
Brazilian “cerrado”.
In addition to deforestation pressure and biodiversity loss, some analysts suggest that
biofuel expansion may occur at the expense of subsistence crop areas, therefore
reducing food supply and leading to food price inflation. For example, Msangi et al.
(2006) employ a sector model to investigate this food-fuel trade-off. The authors predict
that when there is aggressive growth in ethanol and biodiesel supply with no
accompanying increase in crop productivity compared to current levels, there is likely to
be drastic increase in food prices. Results for calorie availability and child malnutrition
portend a decline up to 194 kilocaries per person, while the number of malnourished
children increases by 11 million children with the worst impacts being felt in subSaharan Africa and South Asia. In this sense, as stated by Ragajopal and Zilberman
(2007), “biofuels may mean filling the fuel tank at the cost of emptying the stomach of
the poor”. This controversy has given rise to the so-called “food-fuel-forest”
competition debate.
From the political perspective, the Brazilian government and the private sector have
been attentive to the “food-fuel-forest” competition debate. Generally speaking, one can
observe that the agenda on land use panning has been quite influenced by the external
pressure. Both the governmental policy measures and the pro-activeness of the private
sector can be partly attributed to an effort to avoid barriers to trade. Among the many
policy initiatives, one may cite the recent economic-ecologic zoning of the North
Region, which virtually bans sugarcane production in the entire Amazon forest. The
sugarcane producers association UNICA has also announced a phasing-out agenda for
manual sugarcane harvesting, which involves slash-and-burn practices. In addition to
that, government and ethanol producers are taking part in several bilateral and
multilateral negotiations in order to guarantee access to international markets. These
discussions involve definition of targets and establishment of minimum biofuel
sustainability criteria, as illustrated by the joint bilateral initiative undertaken by
Swedish ethanol importers (the private company SEKAB) and Brazilian producers.
Considerable efforts have also been devoted to the design and implementation of an
ethanol certification program. The so-called Brazilian Program of Biofuels
Certification, conducted by the National Institute of Metrology (INMETRO), has been
intensively discussed in forums involving government and private sector
representatives. According to the premises of the Program, certification would not be
compulsory and the criteria should be in line with strategies aiming at foster biofuels
exports and at reduction of non-technical barriers to trade. A first version of the
proposed criteria and principles is under public consultation. According to the proposal,
an ethanol producer is eligible for certification if he complies with the following
environmental principles: (i) sugarcane production in conformity with agro-ecologic
zoning requirements; (ii) issuance of all environmental licenses; (iii) adoption of waterrecycling measures; (iv) investment in co-generation (sugarcane residual biomass); and
(v) environmental management of residuals (including mechanical harvesting).
Sustainability analysis of Brazilian ethanol: empirical evidence on the “food-fuel-forest
competition” argument
Life-cycle analyses of ethanol sugarcane indicate substantial environmental gains.
Macedo, Leal and Silva (2004) estimate that the net energy ratio (NER) per ton of
sugarcane ranges between 8.3 and 10.2. The authors also calculate net carbon reductions
due to the substitution of ethanol for gasoline of approximately 2.6 tonnes of CO2
equivalent/cubic meter of anhydrous ethanol and 1.7 tonnes of CO2 equivalent/cubic
meter of hydrous ethanol. Such results are corroborated by Walter et al. (2007), who
compute a NER of 9.3.
Empirical evidence on land use changes in Brazil does not provide support to the “foodfuel-forest competition” argument. Walter et al. (2008) provides an assessment of recent
trends in sugarcane expansion in Brazil. In 2006, the area occupied by sugarcane was
estimated in 6.2 million hectares. In terms of geographic distribution, sugarcane
production is deeply concentrated in the Southeast region, where 68% of the production
took place in 2006. The state of São Paulo concentrated 60% of the national production
that year. The Northeast region is a traditional sugarcane producing area since colonial
times, but its importance has been reduced along the years and nowadays the total share
of Northeast region over the national production is less than 14%. The decadence has
been accentuated in recent years due to inadequate topographical conditions, which
prevents the introduction of mechanized harvesting in the region. Almost 10% of the
national production took place in the Center-West region, one of the main axis of
sugarcane expansion in Brazil. The dynamics of sugarcane expansion in the CenterWest region raises some concerns, given the potential risk of environmental impacts in
the cerrado biome. The share of South region corresponds to approximately 7.8% of
national sugarcane production, mostly concentrated in the state of Paraná (95% of the
regional production). Finally, the production of sugarcane in the North region, where
the Amazon forest is located, is almost insignificant, representing only 0.3% of the
national production.
Considering the period 1996-2006, Walter et al. (2008) observe that sugarcane
production in the North-Northeast region presented a 5% decrease, while the production
grew 87% in the area comprising the Center-West, Southeast and South regions. The
authors provides a in-depth analysis of the evolution of sugarcane production in the
most dynamic regions and conclude that there is no evidence that deforested areas have
been used for the enlargement of sugarcane cultivation. Table 2 exhibits the changes in
land use in the six main producer states of the Center-South region1. Along the period,
almost 90% of the enlargement of sugarcane area was concentrated in four states (São
Paulo, Minas Gerais, Paraná and Goiás). In these states, there was a significant
phasing-out of pasturelands, and also a growth in forested areas. Deforestation was
significant in two states (Mato Grosso and Mato Grosso do Sul). However, it should be
noted that in these states the increase in sugarcane areas represented a small fraction of
the soybean expansion, and therefore forest conversion may be mainly attributed to
soybean production.
Table 2: Land use changes in the six main producer states of the Center-South
region 1996-2006
State
São Paulo
Minas Gerais
Paraná
Goiás
Mato Grosso do Sul
Mato Grosso
∆ Sugarcane
792
184
133
120
71
68
∆ Soybean
93
538
153
1611
811
1607
∆ Pasture
-468
-4794
-942
-3880
-3389
1357
∆ Forest
372
1428
378
1393
-927
-3785
Source: Walter et al.(2008).
Generally speaking, these figures indicate that the environmental impact of sugarcane
expansion in relation to direct land use change as been insignificant. The growth of
sugarcane areas have occurred mainly in areas previously occupied by pastureland.
However, from a prospective viewpoint, land use regulations in the cerrado region
(Goiás, Mato Grosso and Mato Grosso do Sul) should be reinforced. The cerrado biome
is one of the main sugarcane expansion axis, which could imply in increasing
deforestation and biodiversity loss in the future.
1
Center-South region is a generic reference to the area covering the Center-West, Northeast and
Southeast regions of Brazil.
Concerns have also been raised on the indirect land use impacts of sugarcane expansion.
These are based on the premise that sugarcane areas could induce the displacement of
activities to other areas, causing deforestation elsewhere. Of particular concern is the
possibility that displaced activities, such as cattle breeding or soybean production, could
move to the Amazon region and lead to increasing deforestation pressure.
Recent studies by Zuurbier and van de Vooren (2008) and Walter et al. (2008) analyze
land conversion patterns and both works conclude that sugarcane ethanol production in
the Center-South is not pushing cattle and soy farming into the Amazon region.
However, in these studies, the analytical approach does not allow to establish causal
relations between sugarcane expansion and the displacement of activities.
Nassar et al. (2009) and Féres et al. (2009) represent the first attempts to apply specific
economic land use models for Brazil to assess the impact of ethanol expansion. Both
models adopt a sector approach, emphasizing the substitution patterns between
competing land uses and the economic determinants of land allocation and food supply.
These efforts towards the development specific land use models offer the possibility to
represent at a regional level the dynamics of the Brazilian agricultural sectors, capturing
cause-effect relations that are not caught by international and nationwide models. In
addition to that, by providing an in-depth analysis of Brazilian land use patterns, such
models fill an important gap in the literature on land use modeling, whose treatment of
developing countries is very thin.
Nassar et al. (2009) focus on the impact in terms of land use change and GHG
emissions due to net increases in Brazilian ethanol production to attend additional US
import requirements, according to targets established by the Renewable Fuel Standard
program. The authors apply a specific land use model for Brazil (BLUM – Brazilian
Land Use Model), which projects land use changes in six Brazilian regions. Land
allocation is disaggregated according to eight types of use: soybean, corn, cotton, dry
beans, rice, sugarcane, pasture and forests. The regional disaggregation and the dynamic
approach allow not only the assessment of the substitution patterns between use types,
but also the displacement of activities to other areas. In this sense, the model captures
the impacts both in terms of direct and indirect land use changes. The authors consider
land use changes in order to support an additional demand of 2.5 billion gallons of
ethanol. Considering direct and indirect land use change in Brazil, the displacement
results are: 75% over pasture, 5% over tropical forest and 20% over savanna and
shrubland. The estimated reductions in GHG emissions of sugarcane ethanol compared
to gasoline are higher than the results presented by the US EPA Draft Regulatory
Impact Analysis: rather than 26% reduction for 30 years as estimated by US EPA,
Nassar et al. (2009) projects a 60% reduction for the same time horizon. Nassar et
el.(2009) argue that US EPA report overstate GHG emissions and attribute this bias to
EPA´s land use model, which calculates land allocation for the entire Brazilian region.
Féres et al.(2009) investigate in more detail the “food-fuel-forest competition”
hypothesis. The authors specify and estimate an econometric land use model according
to five types of use: sugarcane, subsistence crops, other crops, pasture and forests.
Simulation exercises are undertaken in order to assess how land allocation would
respond to future agricultural prices. Future scenarios are constructed for the year 2035.
The land use model model may be found in the Appendix.
Depending on the scenarios, the increase in sugarcane crop areas ranges from 17.8 to 19
million hectares. Table 3 illustrates the main results in terms of land use changes2.
Before commenting on the results, it should be mentioned that Féres et al.(2009) adopts
a static model, which restricts the assessment of the impact of sugarcane expansion in
terms of direct land use changes. With this remark in mind, several findings are
noteworthy. First, results do not provide evidence on a potential “food-fuel” tradeoff:
the model does not predict the conversion of subsistence crops to sugarcane plantations
in any region. Second, the expansion of sugarcane production in the North region,
where the Amazon forest is located, is not significant. In addition to that, the conversion
patterns indicate that this expansion will not occur to the detriment of Amazon
rainforest. Finally, the results show that sugarcane expansion may imply in significant
deforestation in other Brazilian regions, in particular in the Southeast, Northeast and
Center-West area. Important biomes may be found in these regions, such as the Atlantic
rainforest (coast of Northeast and Southeast regions) and the cerrado (Center-West
region). This finding suggests that, in order to contain the deforestation pressure on
these areas, land use planning measures such as ecological-economic zoning and legal
reserve requirements should be closely monitored and enforced.
Table 3: Land use changes by Brazilian regions according to type of use –
agricultural price scenarios for 2035
Subsistence
crops
(1,000 hectares)
Other crops
Sugarcane
Pasture
Forest
(1,000 hectares)
(1,000 hectares)
(1,000 hectares)
(1,000 hectares)
North
0,15%
4
(0,35 x 10 ha)
-20,65%
6
(-0,17 x 10 ha)
959,77%
6
(0,05 x 10 ha)
-0,0093%
4
(-0,21 x 10 ha)
0,38%
6
(0,11 x 10 ha)
Northeast
0,34%
4
(1,95 x 10 ha)
-24,99%
6
(-2,19 x 10 ha)
803,89%
6
(8,07 x 10 ha)
-0,0035%
4
(-0,11 x 10 ha)
-20,75%
6
(-5,89 x 10 ha)
Southeast
0,49%
4
(1,42 x 10 ha)
-9,55%
6
(-0,84 x 10 ha)
331,75%
6
(8,53 x 10 ha)
-0,0023%
4
(-0,09 x 10 ha)
-66,86%
6
(-7,70 x 10 ha)
South
0,11%
4
(0,66 x 10 ha)
-3,62%
6
(-0,26 x 10 ha)
198,96%
6
(0,69 x 10 ha)
-0,0022%
4
(-0,05 x 10 ha)
-5,56%
6
(-0,44 x 10 ha)
Center-West
0,60%
4
(1,41 x 10 ha)
-12,23%
6
(-0,63 x 10 ha)
614,77%
6
(1,78 x 10 ha)
-0,00018%
4
(-0,01 x 10 ha)
-3,46%
6
(-1,17 x 10 ha)
Source: Féres et al.(2009)
The survey of the empirical literature on ethanol expansion and land use patterns allows
us to draw some general conclusions. First, the available evidence provides little
support to a potential “food-fuel” tradeoff in Brazil. The analysis of recent trends in
land use changes indicates that the expansion of sugarcane areas has not occurred to the
detriment of subsistence crops. Similarly, land use modelling considering future
economic scenarios does not suggest that farmers will switch from subsistence crops to
sugarcane production. Second, sugarcane production is currently of small importance in
the Amazon region and its expansion will not be significant. Therefore, sugarcane
2
Other scenarios regarding agricultural prices were also considered, but the qualitative results are quite
similar. For a thorough presentation of the simulation exercises, see Féres et al. (2009).
expansion is not a source of deforestation pressure in the Amazon. Finally, enlargement
of sugarcane area in the Center-South region _ which is the main expansion axis _ may
induce deforestation. This is of particular concern in the cerrado biome (Center-West
region) and in the remaining Atlantic rainforest areas (Northeast and Southeast coast of
Brazil). This finding suggests that, in order to contain the deforestation pressure on
these areas, land use planning measures such as ecological-economic zoning and legal
reserve requirements should be closely monitored and enforced.
Notwithstanding the importance of developing specific land use models to assess the
economic impact of sugarcane expansion in Brazil, there remain some methodological
gaps that need to be addressed in future research. First, the models do not incorporate
technological change. There is a need for studies that focus on the timing and
determinants of technology adoption, such as second generation biofuels. Second,
economic land use models are quite limited in identifying causal relations between
sugarcane expansion and displacement of competing agricultural activities, which
prevents a deeper investigation in terms of indirect land use effects. Finally, current land
use models do not consider heterogeneity. The implications for small versus larger
farmers, landowning farmer versus tenant farmer may be quite distinct. Allowing for
heterogeneity is a fundamental extension to assess these potential distinct implications.
Conclusion
Brazil and other Latin-American countries have a strong potential regarding biofuel
production. Demand is expected to increase at high and sound rates, as a growing
number of countries adopt more stringent biofuel targets. However, biofuel production
has faced criticisms regarding its environmental and social impacts.
Notwithstanding the benefits in terms of net energy value and net carbon reduction
reported by the scientific literature on sugarcane ethanol, Brazil has faced some
criticisms regarding sugarcane expansion based on the “food-fuel-forest” competition
controversy. Some analysts argue that such expansion may increase deforestation
pressure, especially in areas with high biodiversity value like the Amazon region and
the “cerrado”. Second, it is often mentioned that biofuel expansion may occur at the
expense of subsistence crop areas, therefore reducing food supply and leading to food
price inflation. These potential negative environmental impacts may jeopardize the
access to international biofuel markets, with severe economic consequences to the
agribusiness sector.
Debates on indirect land use change and “food-fuel-forest competition” are at the core
of current international trade negotiations regarding biofuels, as illustrated by the
discussions on biofuel sustainability criteria in the European Community and the United
States. The Brazilian government and the private sector have been attentive to the
“food-fuel-forest” competition debate. Generally speaking, one can observe that the
agenda on land use planning has been quite influenced by the external pressure. Both
the governmental policy measures and the pro-activeness of the private sector can be
partly attributed to an effort to avoid barriers to trade. Among the policy measures, one
may cite the recent economic-ecologic zoning of the North Region, which virtually bans
sugarcane production in the entire Amazon forest. The sugarcane producers association
UNICA has also announced a phasing-out agenda for manual sugarcane harvesting,
which involves slash-and-burn practices. In addition to that, considerable efforts have
also been devoted to the design and implementation of an ethanol certification program.
The survey of the empirical literature on ethanol expansion and land use patterns allows
us to draw some general conclusions. First, the available evidence does not provide
support to the argument that sugarcane expansion may lead to food supply disruption.
The analysis of recent trends in land use changes indicates that the expansion of
sugarcane areas has not occurred to the detriment of subsistence crops. Similarly, land
use modelling considering future economic scenarios does not suggest that farmers will
switch from subsistence crops to sugarcane production. Second, sugarcane production is
currently of small importance in the Amazon region and its estimated expansion will not
be significant. Therefore, sugarcane expansion does not seem to represent a potential
source of deforestation pressure in the Amazon. Finally, enlargement of sugarcane area
in the Center-South region _ which is the main expansion axis _ may induce
deforestation. This is of particular concern in the cerrado biome (Center-West region)
and in the remaining Atlantic rainforest areas (Northeast and Southeast coast of Brazil).
This finding suggests that, in order to contain the deforestation pressure on these areas,
land use planning measures such as ecological-economic zoning and legal reserve
requirements should be closely monitored and enforced.
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Appendix: land use model
General model
We consider that farmers allocate their land for three types of use: sugarcane,
subsistence crops, other crops, pasture and forests. Farmers decide their land
allocations so as to maximize profits, subject to the restriction that land allocations
cannot exceed total farm area. This decision process may be represented by the
following constrained optimization problem:
5
 5

 ∑ Π i ( p i ´, r ´, n , X ) : ∑ n i = N 
n1 , n 2 , n 3 , n 4 , n 5  i = 1
i =1

(1)
Max
where ni is the land allocated for each land use type i (i=1,…,5), pi´ is a price vector for
outputs associated to each use type, r´ is a vector of input prices, n is a vector of land
allocations for the three use types, X is a vector containing agro-climate variables and N
is the total farm area.
A Lagrangean function, denoted L, states the constrained maximization problem as
5
5


L = ∑ Π i ( p i ´, r´, n, X ) + µ  N − ∑ ni  .
i =1
i =1


(2)
The necessary conditions for an interior solution of (2) are
∂L ∂Π i
=
−µ =0
∂ni
∂ni
i = 1, …, 5
(3)
5
N − ∑ ni = 0.
(4)
i =1
Equations (3) allocate land among the three use types so as to equate the marginal profit
from each use type. The land constraint (4) is binding assuming an interior solution.
Solving equations (3) and (4) yields the optimal land allocation choices for the three use
types, which are expressed as a function of output and input prices, total farm areas and
the agro-climate variables
ni* ( p i ´, r´, N , X )
i = 1, …, 3.
(5)
*
i
Moreover, replacing the optimal land allocation expressions n ( p i ´, r´, N , X ) in
equation (4) and differentiating, we have
5
∑
i =1
∂ni* ( pi , r , N , X )
≡ 1;
∂N
5
∑
i =1
∂ni* ( pi , r , N , X )
≡ 0;
∂p
5
∑
i =1
∂ni* ( pi , r , N , X )
≡0
∂r
5
and
∑
i =1
∂ni* ( pi , r , N , X )
≡ 0.
∂X
(6)
These four identities impose physical conservation laws on the allocation decisions. The
first identity says that land reallocations completely absorb an additional hectare of
land, so that they sum to 1. The other three identities says that land reallocations
following a change in output prices, input prices or agro-climate variables sum to zero
since land availability must remain unchanged. Thus, if producers increase sugarcane
area in response to an increase in crop prices, this increase must be offset with a
reduction in the areas allocated to the other four alternative uses.
Econometric specification and estimation
In order to derive the econometric specification of our land use model, we assume that
the restricted profit function in equation (1) takes a normalized quadratic form. The
choice of this functional form may be justified for three reasons. First, the normalized
quadratic is a flexible functional form. Second, it is consistent with economic theory,
since it allows imposing linear homogeneity on the profit function as well as symmetry
restrictions. Finally, closed form expressions for ni* are tractable using the normalized
quadratic because its first derivatives are linear.
To begin deriving the allocation equations, we observe that the necessary conditions
expressed in (3) and (4) form a system of four linear equations. Setting the equations
∂Π i
corresponding to (3) sequentially equal to
removes µ. The resulting equations
∂ni
form a linear system of five equations and five unknowns (n*sugarcane, n*subsstence,
n*othercrops, n*pasture and n*forest). The solutions are the estimable land allocation equations
for the three use types:
j
t
s
f =1
k =1
l =1
ni* = β 0i + ∑ β 1i f p f + ∑ β 2i k rk + β 3i N + ∑ β 4i l X l + η i i =1,…,5
(7)
subject to the parameters´ restrictions implied by (6)
∑β
i
3
=1;
i
∑β
i
i
1f
= 0;
∑β
i
2k
i
= 0 and
∑β
i
4l
=0
(8)
i
and the symmetry restrictions
β1i f = β1if .
(9)
In order to estimate the system of three equations given by (7) subject to the restrictions
in (8) and (9), we use the Iterated Seemingly Unrelated Regression (ISUR) method. The
choice of a simultaneous equation method is justified by two reasons. First, it may
account for the correlation between the errors ηi. Such correlation is likely to be present,
since land allocation decisions between the three types of use should be interdependent.
Second, a simultaneous equation method allows us to impose the cross-equation
restrictions expressed in (8) and (9).
It should also be noted that the adding-up conditions (8) imply that the equation system
in (7) is singular. In order to circumvent this problem, we drop one equation and
estimate the other remaining two equations. The coefficients of the omitted equation can
be recovered by using the restrictions in (8). Since we iterate our estimation procedure,
coefficient estimates are invariant to the choice of which equation is deleted. Such
invariance assures the robustness of our coefficient estimates.
Simulation
In order to assess how farmers will adapt their land allocations in response to climate
change, we adopt the following simulation strategy. First, we simulate the land allocated
to each of the three use types by considering the temperature and precipitation predicted
by the climate model for the baseline period and obtain
^*
j
^
^
t
^
^
s
^
n i , BASELINE = β 0i + ∑ β 1i f p f + ∑ β 2i k rk + β 3i β 3i N + ∑ β 4i l X l , BASELINE
f =1
k =1
(10)
l =1
^
where β s are the estimated coefficients of the econometric model.
Next, we replace the climate variables for the baseline period by the predicted
temperature and precipitation for timeslice T1, keeping all other explaining variables
unchanged
^*
j
^
^
t
^
^
s
^
n i ,T 1 = β 0i + ∑ β1i f p f + ∑ β 2i k rk + β 3i β 3i N + ∑ β 4i l X l ,T 1
f =1
k =1
(11)
l =1
The variation in the area allocated to each type of use i may be computed by the formula
^*
∆ni* =
^*
n i ,T 1 − n i , BASELINE
^*
X 100
n i , BASELINE
We therefore obtain the estimated variations ∆ni* resulting from climate change.
Data
Our main data source consists of the 1995 Brazilian Agricultural Census, produced by
the Instituto Brasileiro de Geografia e Estatística (IBGE). The Census contains
information on land use, output and input prices for all Brazilian municipalities. The
variables used in the econometric model are described below
•
Land allocations: subsistence crop area is given by the sum of manioc, corn and
beans areas. Forest areas correspond to the sum of natural forest, planted forest
and productive land that was not used in the four years preceding the agricultural
Census.
•
Output prices: sugarcane prices are given by average municipal price.
Subsistence crop prices were computed as a Laspeyres price index based on the
prices of beans, corn and manioc. The municipal average cattle price was used
as a proxy for the price of pasture products. In constructing the price for forest
products, we just considered the timber price, since other forest products
represent a negligible value when compared to logging activities. We assume
that the timber price is a good proxy for the opportunity cost of conserving the
forest area.
•
Input prices: due to data availability restrictions, we consider only two inputs in
our econometric specification _ labor and land. Labor price is given by the
average rural salary, computed as the sum of the salaries paid to rural workers in
a certain municipality divided by the number of rural workers. Land prices were
calculated as the value of rented lands in the municipality divided by the total
rented area.
•
Climate variables: the climate variables are the observed average temperatures
and precipitations for the period 1960-1996. The reason to include historical
averages is that farmers are likely to decide their land use allocations based on
long-term climate features. Moreover, in order to take into account seasonality
effects, we specify the econometric regression in terms of quarterly averages.
This approach is based on the hypothesis that a one-degree increase in the
average temperature for the months December/January/February (summer) may
have a different impact in terms of land allocation than a one-degree increase in
the average temperature for the months June/July/August (winter). Climate
projections for the period 2010-2100 are based on the PRECIS model,
developed by the Hadley Center, which provides data on temperature and
precipitation at a 50 km X 50 km resolution for the Brazilian territory.
•
Agronomic variables: our agronomic variables include information on soil type,
erosion propensity, declivity, drainage restrictions and other characteristics that
may affect farmers´ decisions concerning land allocation.