Authors: Joaquim Ferreira-Filho and Mark Horridge
Agriculture area and production has expanded greatly in Brazil during the last 40 years. The area of annual crops almost doubled, while the area planted for pastures and forestry tripled. However, the rate of deforestation has considerably reduced since 2004. In this paper we analyze the effect of slower forest clearing on food supply and the economy in Brazil, in the presence of increasing world food prices. A multi-period computable general equilibrium model, based on previous work of the authors, is used to analyze the importance of endogenous land supply for agriculture in Brazil. The model includes annual recursive dynamics and a detailed bottom-up regional representation, which for the simulations reported here distinguished 15 aggregated Brazilian regions. It also has 36 sectors, 10 household types, 10 labor grades, and a land use change (LUC) module which tracks land use in each state. The core database is based on the 2005 Brazilian Input-Output model. The LUC model is based on a transition matrix calibrated with data from the Agricultural Censuses of 1995 and 2006, which shows how land use changed across different uses (crops, pastures, forestry and natural forests) between those years. This transition matrix is used to project the deforestation rate (or the increase in total land supply) in the baseline scenario, for the period 2005-2025. Results show that a halt in deforestation would decrease Brazilian GDP by about 0.5% in 2025, compared to a baseline which allows deforestation to continue. But there are redistributive effects that policies may need to counteract: regional GDPs would decrease by as much as 6% for states on the agricultural frontier, and food prices rise by around 2%, slightly raising the cost of living for poorer households.
JEL classification: C68, D58, E47, Q15, Q16.
Keywords: CGE, food prices, land use, Brazil.
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