Agricultural revenues, employment in Latin American tropical areas likely to decline with deforestation ban

IDB news, Jan 28, 2011

Study says ban unlikely to significantly raise world food prices but highlights need for compensatory policies to fight local poverty

Farmers in Latin America and Caribbean will see billions in lost revenue over the next two decades if a complete ban on deforestation is put in place, highlighting the need for compensatory actions to alleviate poverty in affected rural areas, according to new pilot study by the Inter-American Development Bank (IDB). The study also found that a deforestation ban would have a negligible impact on food prices.

Smaller countries with fewer economic alternatives within and outside of agriculture in Central America and the Caribbean would suffer disproportionately from the ban, while larger and more diverse countries such as Brazil may eventually benefit from the ban, according to the paper “Agriculture Greenhouse Emissions in Latin America and the Caribbean,” which was presented today during a seminar at the IDB’s headquarters in Washington D.C. today.

The study forecasts that a hypothetical complete ban on land clearing for agriculture in tropical areas of Latin America and the Caribbean could generate potential large agricultural losses in these areas. For example, in 2030 farmers will receive $12.7 billion (in 2000 U.S. dollars) less than they otherwise would without a ban. Although there is much uncertainty regarding the value of greenhouse gas emissions in the marketplace, compensating farmers for refraining from land clearing may only offset over half of the total agricultural losses associated with the ban, when taking into consideration the average 2009 price of roughly $4.30/t CO2 eq.

Latin America and the Caribbean is coming under intense pressure to boost agriculture output to meet rising world demand for food, biofuels and animal feed, which is expected to increase by between 50 percent and 85 percent from 2009 to 2030. Deforestation and forest degradation are the today’s the main source of greenhouse emissions in the region and scientific studies suggest policies to halt destruction of forest cover will be key to stabilize worldwide greenhouse emissions. The study is part of ongoing efforts by the IDB to improve information on and understanding of the potential costs and benefits of policies seeking to mitigate and adapt to climate change.

“Our study supports other empirical studies indicating that the potential income that the rural poor could receive from protecting the forest is much smaller than the income they would typically get by clearing land to grow crops,’’ said Eirivelthon Lima, a Natural Resources Economist at the IDB, who coordinated the study, together with Stephen A. Vosti, an economist from the University of California, Davis. “A complete ban on land clearing in the tropics of Latin America and the Caribbean would therefore require compensatory policies to make the ban feasible and to prevent local poverty from increasing.”

The economic losses stemming from the ban would be unevenly distributed in tropical areas. The northern South American rim around the Amazon would suffer approximately 32 percent of all losses. The ban would also induce agriculture productivity to increase and product mix to change in non-tropical areas in the region, which could generate economic gains of approximately $3.4 billion and some additional greenhouse gases emissions.

Globally, the effects of deforestation ban on poverty would be very small as producers and consumers worldwide are expected to adjust to the absence of food supplied by hypothetically protected areas. Food prices would essentially be maintained on their long-term baseline trend. This is very good news for the poor, including the very large urban populations in Latin America and the Caribbean.

The study also forecasts that over the next 20 years livestock will surpass deforestation and forest degradation as the major source of greenhouse emissions in Latin America and the Caribbean.