What is most convenient in land distribution?

The creation of protected areas and Indigenous reserves offers the best hope for conserving the biodiversity of the Amazon; however, the management of the human modified landscapes will determine whether society protects the ecosystem services essential for the economic health of the continent. Models predict that an ecological tipping point will be crossed when about 25 per cent of the region’s forests have been converted to agriculture – just a few percentage points above the current level of eighteen per cent. When (if) that tipping point is crossed, the decline in atmospheric water recycling will lead to a catastrophic decline in rainfall across the farmlands of South America, including those in the Southern Amazon, but also in Central Brazil, Paraguay, Bolivia and Northern Argentina.

The predicted tipping point at ~25% deforestation is a basin-wide metric; however, large parts of the Southern Amazon passed that metric approximately twenty years ago. Dozens of municipalities in Pará, Mato Grosso and Rondônia have lost more than forty per cent of their original forest cover. Those landscapes are now both hotter and drier. It could be worse. Producers still benefit from water recycled in the Central Amazon and, as more upwind landscapes are deforested, these will cease to provide this precipitation subsidy. When that happens, the farmers and ranchers of Mato Grosso will be forced to adapt to a new reality.

Some producers will migrate into landscapes less susceptible to precipitation declines, a process already underway as farmers expand northward, attracted by cheap land and lower logistical costs. Most will use new drought-resistant cultivars and adopt management practices that conserve soil moisture. Some will seek to use irrigation technology. There will also be pressure – and incentives – to change how they use the land.

Some academics advocate for a ‘land-sparing’ approach that relies on technology to intensify production on existing production landscapes to reduce the demand for new cropland. Others contend that a ‘land-sharing’ approach that diversifies production systems is needed to conserve ecosystem services. Both tactics have a place in a coherent development strategy, but their social, economic and environmental impacts vary depending on the perspective of the observer and the scale of the evaluation.

The growing recognition in financial markets that climate change is an existential threat to global society has created a demand for investments that comply with criteria defined as Environmental, Social and Governance (ESG). Among the most common are ‘green bonds’ that purport to fund business ventures that reduce greenhouse gas emissions, sequester carbon and conserve forest and biodiversity.

Simultaneously, public and private commitments to eradicate deforestation from commodity supply chains have focused attention on the agricultural economy of the Southern Amazon. If financial analysts and media pundits are to be believed, the Southern Amazon will soon receive billions of dollars of private and public capital that, hopefully, will transform the business models that have long threatened the Amazon. As usual, the devil will be in the details.

Sustainable intensification: The soy-beef nexus in the Brazilian Amazon

All multi-stakeholder initiatives organized to eliminate deforestation from commodity supply chains include programmes to increase producer productivity. They are presented as a ‘carrot’ to farmers and ranchers being coerced to limit (end) the expansion of their industry via deforestation. The logic is simple: a 10% increase in yield can offset a ten per cent reduction in the (future) area under cultivation. This is certainly true at the global scale but less so at local and regional scales. The numbers speak for themselves.

The total soy harvest in Mato Grosso increased from 18 million tonnes in 2008 to more than 35 million tonnes by 2020. Twelve per cent of this increase came from improved agronomic practices (intensification); the rest was due to an expansion of land under cultivation (extensification). Agribusiness advocates argue that the expansion of cropland (in this instance) was also a form of sustainable intensification because it occurred via the conversion of degraded pastures rather than by expansion into forest. Some assert that law enforcement and market incentives have succeeded in eliminating deforestation from the soybean supply chain. This happy story, however, has a more nuanced explanation.

The degraded pastures were supplied by ranchers who had accrued a large surplus of under-utilized pasture due to massive deforestation of previous decades. Due to overgrazing, a very large portion (~ 60%) had been degraded. Soil restoration is a significant investment but is much less expensive than clearing forest. Soy growers chose growth via pasture conversion because it was the most cost-effective option. Ranchers benefited because they were able to monetize an underperforming asset, either via a sale or by renting their land to a farmer for a determined period of time (~5 years). Those that opt for a lease recover an appreciated land asset with restored soils and renovated pastures.

Approximately five million hectares of pasture were converted to cropland in Mato Grosso between 2008 and 2020; nonetheless, the total area of cultivated pasture remained constant at ~21 million hectares. The conversion of pasture was offset by new deforestation on the forest frontier and within forest remnants on consolidated landscapes. Simultaneously, the cattle herd expanded from 26 to 32 million head, which translates into an improvement of the mean stocking rate from 1.3 head per hectare to 1.5 head per hectare. Grazing management is only one aspect of beef productivity and the industry also invested in genetics, animal health and nutrition, which has further increased the productivity of its supply chain.

Both the beef and soy industries have expanded their production by intensification: soy farmers have increased yields and expanded onto pasture while ranchers have increased stocking rates and improved animal health. Claims that they have avoided deforestation are inaccurate, however, because intensive cropping displaced cattle ranching in an industry that continues to expand via deforestation. In the vernacular of natural resource economics, this is called indirect land-use change, while carbon accountants refer to it as leakage. Environmental advocates label it as greenwash.

Eventually, all the pastureland suitable for annual crops, estimated at about ten million hectares, will be occupied by farmers. Mato Grosso’s ranchers will need to double stocking-rates to maintain current levels of beef production if they hope to avoid future deforestation. They will probably attain that level of productivity; however, other factors will influence whether they expand their spatial footprint. As mentioned previously, the appreciation of land is an integral part of a rancher’s business model. Intensification tends to improve profit margins, which provides producers with more capital and, like businessmen everywhere, most will use that capital to expand operations. It may be true that the supply and demand for commodities is a zero-sum equation at the global scale, but it is certainly not true at the local or regional scale.

Meat-packing companies and commodity traders intend to use ESG finance to eliminate deforestation from their supply chain. Perhaps. They will use satellite imagery to monitor land use and ear tags embedded with block-chain-coded chips to document the origin of a cow. It is not clear, however, how technology can resolve the issue of indirect land-use change or detect cattlemen who trade calves via informal markets. Investors should pay close attention to the Key Performance Indicators (KPI) used to evaluate whether their creditors meet ESG criteria – or not.

“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0 license).

Read the other excerpted portions of chapter 4 here:

To read earlier chapters of the book, find Chapter One here, Chapter Two here, and Three is here.