Subsidies for Forest Clearing

Latin American governments provided a range of subsidies to livestock ranchers, particularly during the 1960s and 1970s. These comprised:

- grants to cover a portion of ranch development costs
- tax holidays on corporate funds invested in ranching
- exemption from import taxes on ranch equipment
- subsidised credit (i.e. credit at negative real interest rates)

Government investment in road building and land titling laws that amounted to a subsidy to ranchers are discussed elsewhere.

Analyses for Brazilian Amazonia have shown that extensive livestock ranching without such subsidies was only marginally profitable, and only under very specific conditions. The real gains to ranching were made through rises in land value (click for discussion of land titling issues) and because livestock production was a means to take advantage of the above subsidies, which in many cases could then be applied to other activities.

However, it is also the case that the large ranches that mainly attracted such subsidies were only responsible for a portion of livestock-related deforestation. Subsidised credit and other explicit subsidies were probably less important than land titling mechanisms, and the multiple value of livestock to smallholders and the rural poor (for direct consumption, for risk management, as a hedge against inflation, and for extending the use of exhausted croppping land, as well as for direct cash income).

Research/Appraisal Methods

Policy makers must clearly identify all explicit and implicit subsidies affecting ranching, and be aware of the fungibility of subsidies between activities, enterprises and locations. Multiple regression and linear programming models can be used to look at the elasticity of livestock production to specific factors such as credit availability. Where the application of subsidies is clearly linked to specific areas, correlation with physical indicators of deforestation through GIS may be useful.

Policy Options

Explicit subsidies have declined greatly in importance. It is clearly a policy imperative that they not be reinstated, that any remaining subsidies which distort the incentives for livestock production over other activities at the forest frontier be phased out, and that appropriate land taxation regimes be put in place. There may also be a case for selective credit controls. But the importance of "getting the prices" right should not detract attention from the related policy options of:

- Critical appraisal of road building
- Establishment of protected areas
- Reform of land tenure
- Investment in research and extension for intensification
- Social policies behind the frontier

Key References

Faminow, M.D. and Vosti, S.A. 1998. Livestock-Deforestation Links: Policy Issues in the Western Amazon. In A. Nell (ed) Livestock and the Environment: International Conference, IAC, Wageningen

Hecht, S.B. 1992. Logics of Livestock and Deforestation: the Case Of Amazonia. in Downing, T.E., Hecht, S.B., Pearson, H.A. and Garcia-Downing, C. (eds) Development or Destruction: The Conversion of Tropical Forest To Pasture in Latin America Westview, Boulder

Kaimowitz, D.1995. Livestock and Deforestation in Central America in the 1980s and 1990s: A Policy Perspective. EPTD Discussion Paper, IFPRI, Washington DC, 1995. Click to view as Word document . (further information including copies of the report can be obtained from IFPRI at http://www.iimi.org/ifpri)

> > [Livestock & Environment Toolbox Home]