Course:ECON371/UBCO2011WT1/GROUP1/Article 3: Can Amazonian Beef Be Sustainable?

Summary

This article focuses on Brazil's beef exporting industry, particularly the company Bertin Ltda. Brazil currently exports more beef than any other country, but its cattle industry has taken a toll on Brazilian forests. It is four times less expensive to deforest an area and raise cattle on it than to convert previously used land into a thriving pasture, which gives cattle farmers an incentive to deforest more land than is sustainable. The article reports that in the later months of 2007, deforestation increased by 60 percent, due to the global economy's increasing demand for beef. The loss of forests in Brazil has lead to increased greenhouse gas emissions, an estimated 9 to 12 billion tons in the past decade. Bertin has recently received funding from the International Finance Corporation, which is intended to make the industry more sustainable. The company and the IFC claim that any farmer who wishes to sell them cattle will need to show an "environmental permit," and these permits will only be available to farms that comply with their guidelines. In particular, Daniel Nepstad, an ecologist with Woods Hole Research Center, believes that the farmers who don't abide by the environmental criteria will be forced to sell their cattle farther away, which will be less convenient, thus providing an incentive to raise their cattle without resorting to deforestation.

Many environmentalists are not convinced, however, and state that the company itself has such a large demand for beef that they have no incentive to ensure that the farmers are following the environmental rules. They add that even if the company did want to ensure the farmers were following sustainable practices, it would be extremely difficult to monitor every individual farmer, especially when many farms are small. Amigos de Terra director Roberto Smeraldi commented that the expansions proposed for Bertin's operations could cause immense environmental impacts, and that the test sites proposed for the "environmental permit" regulations do not adequately account for these damages. However, the IFC stands by its claims that the permits will result in "more efficient use of pasture land, raise suppliers' incomes and reduce pressure on critical forest resources."

Analysis

The main issue that this article addresses is the deforestation in Brazil due to the current incentives of Brazilian cattle farmers. In order to change these socially inefficient incentives, Bertin, a large Brazilian beef-export company, has received financing from the International Finance Corporation to implement new standards for the farms they buy cattle from.

These standards may be more difficult to enforce than the company is currently reporting. A previous article written by the same author spoke of problems that the Brazilian government has had enforcing their recent land-clearing regulations. http://www.worldwatch.org/node/5697 According to the article, the government has already legislated that farmers who are illegally cutting down trees will be fined and possibly banned from trade all together. They have also made it mandatory for banks to check for environmental permits before giving out agriculture loans to farm owners or landowners. These enactions have spawned some unintended consequences. Violent protests have occurred in farming areas, and landowners who are following sustainable practices are being threatened by ranchers who want more land. People who have been speaking out against illegal deforestation have received death threats, and some have even been killed.

From this article, it seems like one of the main contributors to the influx of illegal logging has been a lack of enforced property rights. If property owners feel that their lives will be at risk if they don't let cattle farmers use their land, their property rights are being taken away from them, and they no longer have a say in whether or not their land is used sustainably.

Usually, in a situation where farmers were using unsustainable practices, there would be various policy options to try to decrease the harm from these activities. The government might look at legislating a standard, which would limit the amount of new land which could be extracted from the forests; or a high tax on using land which hasn't been previously used, to try to make the new land as expensive as the fertilizer and water it takes to revitalize used land. However in this case, most of the farmers who are deforesting are doing so illegally in the first place, so trying to tax them or legislate a standard probably wouldn't work. One option would be to enforce the existing laws even more, and try to protect the land-owners and farmers who are trying to keep their land sustainable. Another option, which was briefly mentioned at the end of the article, would be to enact an "emission subsidy" of sorts, and pay the farmers an amount equal to the expense of converting already-cleared land into grazing fields, to use already-cleared land instead of deforested land. If this was combined with tighter enforcement of the existing deforestation laws, there would be a clear incentive for farmers to take the subsidy and farm on pre-cleared land.

From the article, there seem to be varying views on whether or not the environmental permit system imposed by Bertin will work. If the company is not wholeheartedly behind the new policies, there is no way for it to work, because the company is self-monitoring its progress. However, if the company turns away any farmer without environmental permits, the incentive for farming sustainably might be large enough to reduce deforestation in the country.

An IFC spokeswoman, Karina Manasseh, was quoted saying "[the environmental permits] will result in more efficient use of pasture land, and ultimately raise suppliers' income and reduce pressure on critical forest resources." If the permit system is successfully implemented, this could end up being true. If less farmers deforest land, they will begin to convert already used pasture land, which would presumably result in more efficient use of the pasture land. Also, it is likely that not all of the farmers would be able own pasture land, so this might reduce the number of farmers in the industry. This would decrease the supply of cattle, which would raise the suppliers' who are still in the market's income. Presuming that the incentive to revitalize pasture land and cut back on deforestation was great enough, the last point about reducing pressure on the forest would surely be true. Less deforestation would be beneficial for the entire planet, so hopefully the environmental permit system they propose will be successful in implementation.

The current situation seems to be inefficient, because farmers are producing at a point where their marginal costs equal their marginal benefits, not where the social costs equal their marginal benefits. This leads to more beef being produced than is desired for social efficiency. If the marginal private cost curve of the farmers could be shifted up to the marginal social cost, less beef would be produced, and the farmers would have to take into account the cost to society of deforestation. If the costs to society of deforestation are as large as the article suggests, the marginal social costs would be quite high, and this would give producers an incentive to revitalize already cleared land instead of clearing more land themselves. The farmers could even be given back a subsidy equal to the increased total costs they would have to pay, to avoid having more violent protests. As long as the subsidy didn't interfere with the now higher marginal costs of the farmers, the farmers will still produce less beef and deforest less, and society will be better off than before.

Prof's Comments

Good.

10/10