A Brazilian soy story : how international soy demand affects deforestation and agricultural land use

2018

In this paper, I use municipal soy trade data covering the years 2010 to 2015 to

investigate the export market for Brazilian soy and what the expansion of soy exports

leads to in terms of land use. The soy data were acquired from the Trase database and

offer an unprecedented opportunity to map the international demand for soy to the

municipal production and land use in Brazil. To the best of my knowledge, no equally

detailed agricultural trade flow data has been available for research studies before this,

lending originality to this study. For the econometric analysis, I use a fixed effects

instrumental variable approach, with trade-weighted world income as an instrument

for soy demand, to estimate the effect of soy demand on agricultural land use and

deforestation. Unsurprisingly, I find a strong positive link between the Brazilian soy

export market and the land use of exporting soy farms. This expansion of land has

necessarily replaced other forms of land use. This paper is primarily an investigation

of what alternative land uses have been restricted as a consequence of soy exports

increasing. The main finding is that there is a significant negative elasticity between

the land use of non-soy crops and the international soy demand. This implies that

a significant share of the land use expansion of soy happens at the expense of other

agricultural land use. However, I find no conclusive evidence that deforestation has

been hastened by the increasing international demand for soy. This non-finding can

be caused by either lacking power in statistical tests, by the effect of soy expansion

on deforestation only being indirect due to displacement of other crops which again

replace forests, or by Brazilian policies restricting the expansion of soy farming into

forested territories being successful in curbing the negative externalities of soy farming.

I also discuss the dominant role of China in the importing market, with a short analysis

of what a trade war between the US and China would entail for Brazil.