Cattle Supply Chains and Deforestation in Brazil

Joint with Veronica Salazar
 

Abstract:  

Tropical forests are crucial to the global environment, serving as biodiversity hubs, storing and sequestering carbon, yet they face severe threats from agricultural expansion. 

Recognizing their role in deforestation, countries like the UK, US, and EU have implemented trade policies to curb deforestation by requiring proof that the production of a set of agricultural commodities is deforestation-free. A key question is whether these policies will encourage farmers to adopt sustainable practices or instead push them toward less regulated buyers. 

In this paper, we adopt a structural approach to evaluate the effectiveness and potential leakages of sustainable supply-chain policies in the context of Brazil’s cattle sector. First, we leverage a unique dataset on animal transport, matched with property boundaries, to document key empirical patterns of deforestation and the supply network of cattle at the farm level in the state of Pará, Brazil. Second, we build a structural model of farm-level land use decisions with an endogenous supply network. Third, guided by model-derived gravity equations, we estimate the role of existing domestic supply-chain zero-deforestation policies in shaping the trade of cattle. 

Our results indicate a strong deforestation trade penalty, whereby a farm that deforests is 16% less likely to supply to a zero-deforestation committed slaughterhouse, and each 10\% increase in deforestation is associated with an 8.3% decrease in trade. In the next steps, these results will serve as foundation to evaluate counterfactual scenarios on the potential effectiveness of supply-chain policies such as the EU’s upcoming Regulation on Deforestation-free products (EUDR).