LAND USE IN BRAZILCPI RIO FRAMEWORK & RURAL CREDIT OVERVIEWCPI RIO FRAMEWORK &  RURAL CREDIT OVERVIEW

JULIANO J ASSUNÇÃOJULIANO J. ASSUNÇÃODirector, CPI Rio

SAN GIORGIO GROUP |  SEPTEMBER 2012

Land Use in Brazil

554 million ha native vegetation• 107 million ha Conservation Units• 103.5 million ha Indigenous Lands• 274 million ha native vegetation within private property (water and hillside Areas of Permanent Protection; Legal Reserves)• 69.5 million ha remaining native vegetation

60 illi h d ti60 million ha productive area• Grain, fruit, planted forest

38 million ha urban area and other usesa d ot e uses

198 million ha pasture

1

Source: ICONE (2012)

Expansion of Agriculture (1970‐2006)

400

0=100)

320

360

tare (1

970

África (sub‐saara) Ásia

240

280

ity per hec

160

200

prod

uctiv

i

80

120

160

8080 100 120 140 160 180 200

area (1970=100)

2

Source: FAO, Agricultural Census

Expansion of Agriculture (1970‐2006)

400

0=100)

320

360

tare (1

970

África (sub‐saara) ÁsiaSub‐Saharan Africa

240

280

ity per hec

Sub Saharan Africa

Asia

160

200

prod

uctiv

i

80

120

160

8080 100 120 140 160 180 200

area (1970=100)

3

Source: FAO, Agricultural Census

Expansion of Agriculture (1970‐2006)

400

0=100)

Região Norte (Amazônia)Northern Brazil (Amazon)

320

360

tare (1

970 Região Norte (Amazônia)

Centro‐Oeste (sem MT)

África (sub‐saara)

Northern Brazil (Amazon) 

Central‐Western Brazil (excludes MT) 

Sub‐Saharan Africa

240

280

ity per hec

África (sub saara)

Ásia

Sub Saharan Africa

Asia

160

200

prod

uctiv

i

80

120

160

8080 100 120 140 160 180 200

area (1970=100)

4

Source: FAO, Agricultural Census

Expansion of Agriculture (1970‐2006)

400

0=100)

Região Norte (Amazônia)Northern Brazil (Amazon)

320

360

tare (1

970 Região Norte (Amazônia)

Centro‐Oeste (sem MT)

África (sub‐saara)

Northern Brazil (Amazon) 

Central‐Western Brazil (excludes MT) 

Sub‐Saharan Africa

Challenge: Change the agricultural 

expansion pattern

240

280

ity per hec

África (sub saara)

Ásia

Sub Saharan Africa

Asia

expansion pattern

160

200

prod

uctiv

i

80

120

160

8080 100 120 140 160 180 200

area (1970=100)

5

Source: FAO, Agricultural Census

Land Use in Brazil

Economic perspective• Efficient use of land / misallocation• Efficient use of land / misallocation

J i t d ti Joint production• Ecosystem services (HVES)A i l l d i (HPA)• Agricultural production (HPA)

Alternative delivery routes for HVES and HPA• Public x private / centralized x decentralized• Ex.: forestry code (private and decentralized), conservation units (public and centralized).

6

Getting into specifics…

Policy tools Risk/financial managementg Technology adoption Market imperfectionsMarket imperfections

7

Central Bank Resolution 3,545

Federal resolution that conditioned the concession of rural credit upon proof of compliance with environmentalcredit upon proof of compliance with environmentalregulations.• Key requirement is the CAR (cadastro ambiental rural)Key requirement is the CAR (cadastro ambiental rural)• Compulsory implementation starting in July 2008• Applicable to all municipalities within Amazon BiomeApplicable to all municipalities within Amazon Biome

Small‐scale producers were exempt from strict conditions: Small‐scale producers were exempt from strict conditions:• Some were subject to more relaxed requirements• Some were entirely exempt from all conditioning measures• Some were entirely exempt from all conditioning measures

8

Credit Constraints and Deforestation

Ambiguous relationship: depending on the production model and credit usep g p

extensive model:• credit restriction limits capacity of clearing new areas• lower deforestation

intensive model:• credit restriction limits capacity of intensifying production• creates incentive to push the agricultural frontier or change model

hi h d f i• higher deforestation

Empirical analysis reveals predominant mechanism

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Empirical analysis reveals predominant mechanism.

Empirical setup

Data: Contract‐level observations from 2002 to 2011 in Brazilian Amazon (app. 4 million contracts).Brazilian Amazon (app. 4 million contracts).

Difference in differences strategy exploring (i) Difference‐in‐differences strategy exploring (i) municipalities in and out of the Amazon Biome (ii) withinmunicipality variation provided by exemptionsmunicipality variation provided by exemptions.

Two stage estimation of the impact of credit constraint into Two‐stage estimation of the impact of credit constraint intodeforestation.

Results are robust to a series of falsification tests.

10

Credit Concessions in Brazilian Amazon (BRL millions)

Counter‐factual“in the absence of the policy”

11

Credit Concessions in Brazilian Amazon (BRL millions)

12

Deforestation in the Brazilian Amazon

Counter‐factual“in the absence of the policy”in the absence of the policy

13

Summary

The Resolution 3,545, enacted by the Central Bank in 2008, reduced the availability of subsidized credit in the Brazilianreduced the availability of subsidized credit in the Brazilian Amazon, especially in livestock production.

Effect is stronger for medium and large‐scale contracts.

Changes in deforestation provide evidence of binding credit constraints in the region mainly on livestock productionconstraints in the region, mainly on livestock production.

Reduction in deforestation is compatible with an extensive model of production. 

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Thank You

Climate Policy Initiative Rio de JaneiroNúcleo de Avaliação de Políticas Climáticas da PUC‐Rio

climatepolicyinitiative.org