The effect of commodity prices on deforestation in Brazil : an empirical analysis investigating the effect of futures and spot prices for soy and maize on deforestation in Brazilian municipalities

Abstract

In this thesis we aim to provide empirical evidence of the effect of spot and futures prices on municipal land transition in Brazil. We take advantage of newly developed, detailed, municipality-level data on land transition, for the whole of Brazil. Additionally, we exploit data on potential yield for soy and maize in our analysis, and we present two simple models for two different kinds of land transition to guide our empirical work. We mainly utilize a First Difference approach to study the effects of both spot and future prices for soy and maize. We also estimate the effects of our commodity prices for different levels of potential yield, and investigate the long-term effects of our prices. Our main findings are that the spot-future spread has a seemingly larger effect on deforestation than the spot price alone for soy. This contributes to the extensive research on deforestation in Brazil by suggesting that the price expectations for the future should be included in further research on Brazilian deforestation. Maize on the other hand, show more ambiguous effects. Finally, municipalities with higher levels of potential yield seems to have a more price sensitivity towards land transition. Further, the long-term effects are larger for deforestation than regrowth of forests.