Indirect Land-Use Change from Ethanol Production: The Case of Sugarcane Expansion at

the Farm Level on the Brazilian Cerrado

Jason S. Bergtolda, Marcellus M. Caldasb, , Ana Claudia Sant’Annac, Gabriel Grancod and

Vanessa Rickenbrodee

a Associate Professor, Department of Agricultural Economics, Kansas State University, 307

Waters Hall, Manhattan, Ks, 66506-4011, P: 785.532.0984, Email: bergtold@ksu.edu

(Corresponding Author)

b Associate Professor, Department of Geography, Kansas State University, 117 Seaton Hall,

Manhattan, KS, 66506-2904, P: 785-532-1244, E: caldasma@ksu.edu

c Graduate Research Assistant, Department of Agricultural Economics, Kansas State University,

342 Waters Hall, Manhattan, KS, 66506-4011, P:785.532.6011, E: acsantanna@ksu.edu

d Graduate Research Assistant, Department of Geography, Kansas State University, 118 Seaton

Hall, Manhattan, KS, 66506-2904, P: 785-532-6727, E: ggranco@ksu.edu

e Undergraduate Research Intern, Summer Academy in Sustainable Bioenergy REU Program,

Department of Chemical Engineering and Agricultural Economics, 342 Waters Hall, Kansas

State University, Manhattan, KS, 66506-4011, P: 785.532.0984, E: rickvan11@gmail.com

Acknowledgements: This work was supported by the National Science Foundation [NSF BCS-

1227451 and NSF SMA-1359082]. Any opinions, findings, and conclusions or recommendations

expressed in this paper are those of the authors and do not necessarily reflect the views of the

National Science Foundation.

1

Indirect Land-Use Change from Ethanol Production: The Case of Sugarcane Expansion at

the Farm Level on the Brazilian Cerrado

Abstract

The expansion of sugarcane production in the Brazillian Cerrado has resulted in indirect land-use

change (ILUC), occuring when displaced land-uses in one location are reallocated to another.

Studies, however, usually identify ILUC at the regional or national level far from the original

area of a displaced land-use. This study examines the occurrence of ILUC due to sugarcane

expansion for ethanol production at the farm scale in the Brazilian Cerrado. It fills a gap in the

literature by examining socio-economic, policy and farm-level factors that influence ILUC at the

farm scale in the Brazilian Cerrado using face-to-face enumerated surveys. Results indicate

ILUC did occur at the farm scale and farmers who undertook ILUC intensified agricultural

production on their farms. Results inform policymakers on how the intensification of agricultural

practices may make it potentially difficult to keep protected lands out of production, reducing the

environmental benefits from sugarcane based biofuel production.

Keywords: biofuels, Cerrado, conservation, farmer, indirect land-use change, sugarcane

2

Indirect Land-Use Change from Ethanol Production: The Case of Sugarcane Expansion at

the Farm Level on the Brazilian Cerrado

1.0 Introduction

Increased global demand for biofuel production from agricultural crops has significantly

increased and is expected to continue to increase into the future. Brazil is one of the largest

suppliers of sugarcane ethanol in the world and is responsible for over half of sugarcane

production worldwide (Brazil, 2013). Energy production from sugarcane and its derivatives are

the second largest supply of energy in Brazil (Andrade de Sa, Palmer & Engel, 2013).

Furthermore, sugarcane energy is a cornerstone for the Brazilian National Policy on Climate

Change which set a voluntary reduction on greenhouse gasses emission of 36.1% to 38.9% of the

business as usual by 2020 using 2005 as the base-year (Brazil, 2009). The policy establishes a

goal of 80% of energy power to be from renewable sources by 2030, and it emphasize the role of

biofuels, especially sugarcane ethanol. Also, this policy aims at reducing greenhouse gas

emissions from deforestation, as well as agricultural and livestock production (Brazil, 2009). In

this context, between 2005 and 2013 sugarcane expanded due to a push for greater ethanol

production into the Center-West of Brazil, particularly in the states of Goiás (GO) and Mato

Grosso do Sul (MS). The Center-West, comprises a significant portion of the Cerrado (tropical

savanna), the country’s second largest biome (Shikida, 2013). From 2005 to 2013, 40 new

ethanol producing mills have been constructed in these two states (Granco, Caldas, Bergtold &

Sant’Anna, 2015). In fact, the two states (GO and MS) planted over 1.5 million hectares of

sugarcane in 2014, and contributed to 15% of the total sugarcane produced in Brazil (Institiuto

Brasileiro de Geografia e Estati’stica [IBGE], 2014; Sant’Anna et al., 2016). Further expansion

3

was promoted with the mapping of suitable areas for sugarcane production (12.6 million hectares

in GO and 10.8 million hectares in MS) by the Sugarcane Agroecological Zoning, launched in

2010 (Manzatto, Assad, Bacca, Zaroni & Pereira, 2009).1 The increased land use toward

sugarcane production has directly (and anecdotal evidence exist that sugarcane has also

indirectly) displaced more traditional crop and livestock production in the region.

While direct changes in land use are likely to occur with increased sugarcane production

for ethanol in the Cerrado, indirect land use change may result as well. Indirect land use change

(ILUC) is defined as taking place when displaced agricultural activities or land use in one

location is reconstituted in another (Arima, Richards, Walker & Caldas, 2011; Lapola et al.,

2010; Searchinger et al., 2008). For example, increased sugarcane production in the Center-west

of Brazil has increased by being produced on land used previously for pasture or soybean

production. This has resulted in pasture and soybean production being undertaken on new lands

that had not been under that land usage before. The primary driver for ILUC in the Cerrado

during this time period can partially be traced to the expansion in sugarcane production for

ethanol due to favorable market and policy conditions, such as relatively more affordable

agricultural land, good growing conditions for sugarcane, fiscal incentives, credit, and

investments in infrastructure (de Souza Ferreira Filho & Horridge, 2014; Granco et al., 2015).

The displacement of land by these and other market forces moved some displaced agricultural

land use activities to places with marginal land and lower management costs (Andrade de Sa et

al., 2013; Arima et al., 2011). Thus, a potential consequence of the increase in demand for and

promoting the production of sugarcane ethanol in Brazil, was the intensification of production of

food and feed crops on more marginal land, potentially having greater adverse environmental

consequences. 1 See Granco et al. (2015) for a detailed analysis of the expansion of sugarcane production in Brazil.

4

In Brazil, the expansion of sugarcane production at the national scale for both ethanol and

sugar came from primarily converting cropland (~32%) and pasture (~66%), with the remaining

2% coming from natural vegetation (World Bank, 2011). With increasing land prices in the areas

in which sugarcane expanded, there was market pressure to move displaced crop and pasture

production to other regions, despite increases in agricultural productivity (World Bank, 2011).

De Souza Ferreira Filho and Horridge (2014) found that every hectare of sugarcane expansion

results in a 0.14 ha decline in forest or natural vegetation and 0.47 ha decline in pasture. Nassar

et al. (2008) found an increase in deforestation of 0.8 ha for each hectare increase in sugarcane

production. Displacement of agricultural activities and resulting ILUC can lead to increased

deforestation, loss of natural wildlife habitats, impacts on biodiversity, lower carbon

sequestration from the land, and increased greenhouse gas emissions that may be as great as

direct land use change (Allan et al., 2015; Andrade de Sa et al., 2013; Arima et al., 2011;

Fargione, Hill, Tilman, Polasky & Hawthorne, 2008; Searchinger et al., 2008). Thus, research

has provided evidence of adverse environmental costs from the expansion of sugarcane

production and the resulting ILUC.

Analysis of indirect land use change has mostly taken place at the global scale with some

studies conducted on a more regional level (Andrade de Sa et al., 2013, Arima et al., 2011).

Many studies at the global level can identify if ILUC is occurring in Brazil, but cannot identify

the place of occurrence with any specificity beyond the regional or national level (Arima et al.,

2011). Sub-national studies focus on a detailed spatial scale, providing evidence of the

displacement of agricultural production due to sugarcane expansion, leading to deforestation and

conversion of natural vegetation to pasture (e.g. Andrade de Sa et al., 2013; de Souza Ferreira

Filho & Horridge, 2014). These studies show that the displacement of agricultural production by

5

sugarcane expansion can result in a cascading effect, where ILUC spreads across a landscape due

to migration of agricultural activities farther away from the original displacement of the

agricultural activities in question. Thus, ILUC can occur hundreds of kilometers from the area of

displacement over time (Andrade de Sa et al., 2013). This cascading effect begins in the local

area where the agricultural production was originally displaced with the local producers. At the

local level, ILUC can occur if farmers begin to convert other agricultural land or natural

vegetation to displaced agricultural activities.

Assessment of ILUC at the local or farm scale in Brazil has not been conducted to the

authors’ knowledge. Analysis at this level may have implications for understanding socio-

economic, policy and farm level factors that may impact ILUC, such as the Sugarcane

Agroecological Zoning policy, access to rural credit, and risk-averse behavior (Andrade de Sa et

al., 2013; Granco et al., 2015). For example, understanding factors that impact ILUC at the farm

level, may help with designing sustainable biofuel and agricultural policies and initiatives that

further limit deforestation, protect natural habitats, and ensure the integrity of Brazil’s protected

areas.

The purpose of this paper is to fill a gap in the literature by examining socio-economic,

policy and farm-level factors influencing indirect land use change at the farm level as a

consequence of the expansion in sugarcane production for ethanol in the Brazilian Cerrado.

Using a set of intensive face-to-face enumerated surveys, the paper uses qualitative assessments

and regression techniques to examine ILUC at a farm scale. The paper contributes to the

literature on bioenergy and ILUC in several novel ways: (i) by examining ILUC at the farm scale

in Brazil; (ii) examining demographic and behavioral characteristics of farmers that may

influence ILUC at the farm scale due to the expansion of agricultural production for biofuels;

6

and (iii) providing farm scale recommendations for policy makers for helping to reduce

deforestation, degradation of natural habitats, and threats to protected areas in Brazil to provide

more sustainable biofuel feedstock production.

2.0 Data

Data was collected using face-to-face enumerated surveys with landowners and farmers

in 22 Municipios (e.g. counties) in the Brazilian states of Goiás (GO) and Mato Grosso do Sul

(MS). Survey design was based on studies conducted in Quirinopolis, GO (Picanço Filho &

Marin, 2012; Picanço Filho & Marin, 2012a; Picanço Filho, 2010). The survey was tested with

experts and farmers within the study region prior to its application in the field. The counties

surveyed in each state were chosen based on: (i) geographic location of sugarcane production in

2012 using the National Institute for Space Research (INPE) Canasat Project (Rudorff et al.,

2010); and, (ii) sugarcane production growth obtained from the Brazilian survey of county-level

agricultural production – PAM (IBGE, 2015).

We contacted landowners and farmers from sugarcane growers associations, rural

syndicates, the Goiás and the Mato Grosso do Sul Federation of Agriculture and Livestock

(FAEG and FAMASUL) to participate in the survey. The survey provides information on the

participants’ demographics, farm characteristics, landownership, sugarcane production and

contracts, perceptions of mills’ interaction with the local community, and land use. For the

purposes of this study, we asked a detailed set of questions that tracked land used for sugarcane

production and other uses over time at the farm level to assess how the expansion in sugarcane

production changed land usage at the farm level. We specifically collect data on sugarcane

acreage and distribution; expansion in area planted to sugarcane since 2010; and impact on

displaced agricultural activities due to expanded sugarcane area.

7

Surveys were conducted in 2014 from June to July. A total of 148 landowners and

farmers were interviewed. Field data collection among farmers in the Cerrado is not an easy task.

It often involved enumerators travelling fortwo to four hours in one direction along highways

and secondary dirt roads to reach a farm. In total, the research team traveled 3,546.6 kilometers

(2,203.8 miles) across the Cerrado. The farms’ remoteness and large sizes made time a serious

constraint on data acquisition. Furthermore, farm locations and meetings were not always

precise. Time was lost by travelling to sites where the farmer was not at home when an

appointment was scheduled or the farm was no longer in operation but no indication of this was

provided. This limited the number of interviews that could be completed each day.

As seen in Table 1, 91 out of 142 (64%) of the surveyed farmers had either produced

sugarcane or rented land for sugarcane production, while 80 (56%) of them still grew sugarcane.

The rest of the respondents grew other crops or were cattle producers. The farmer population

surveyed does not represent the entire farmer population in these states in Brazil. Rather

respondents represent the group of commercial farmers likely be approached by mills to supply

sugarcane or to rent out their land for sugarcane production. This is due to the fact that the

sample consists largely of farmers belonging to associations, rural syndicates, and/or

cooperatives involved in sugarcane production. Member of organizations tend to manage

commercial farms usually larger in size. Hence, the average farm size in our sample is 1466

hectares, while that of the 2006 Agricultural Census2 is 415 hectares (IBGE, 2006). This

difference is due to the census comprising a much larger number of smaller farms than the

survey. Nevertheless, the percentage of male farmers in the census is close to that of the survey.

In the census 92% of farmers are male, while in our survey, 96% of the respondents were male.

In terms of education, our survey has a higher percentage of farmers with high school and

2 The 2006 Agricultural Census is the most current census.

8

college degrees than the census. In our survey 37% of the respondents had completed high

school and 28% college. In contrast, the census reported 4% of farmers with completed high

school and 3% college. The survey also reported a higher average sugarcane production value

and yield than that in the Companhia Nacional de Abastecimento (CONAB) (CONAB, 2013).

While CONAB (2013) reports average yield of 70.3 tons/ha in this region, our respondents

declared a yield of 87.71 tons per hectare.

Summary for sugarcane production and associated land use is provided in Table 1 and

discussed in the next subsection of the paper. Table 2 provides summary statistics for sugarcane

producers who increased the area on their farm planted to sugarcane in 2010 for the analysis of

farm, socioeconomic, policy and factors impacting indirect land use change on commercial farms

in the study region.

3.0 Sugarcane expansion at the Farm Level and ILUC

As discussed in the introduction, much of the newer expansion of sugarcane for ethanol

production in Brazil has occurred in the Cerrado region, primarily in the states of GO and MS.

Of the approximately 1.8 million hectares of land added into crop production in both states

between 2005 and 2012, 53% of it was for sugarcane production (Granco et al., 2105; IBGE,

2014). Much of the expansion in sugarcane production in this region came from repurposed

pastureland (69.7%) and cropland (25%) (Adami et al., 2012). Granco et al. (2015) suggest that

mismanaged and degraded pasture and an outbreak of foot-and-mouth disease in 2005 in MS

may have helped to precipitate expansion of sugarcane production into the region. Around the

same time, the soybean rust was also indicated as a contributing factor to the sugarcane

expansion (Sant’Anna et al, 2016). In addition, Granco et al. (2015) state that favorable

9

agricultural conditions, agricultural policies, fiscal incentives and investments in infrastructure

have helped to sustain the expansion of sugarcane production for ethanol. This was partially

evidenced by the construction of over 40 new mills in the region during the time period to meet

increasing demands for hydrous ethanol (Granco et al., 2015; Newberry, 2014).

Table 1 provides descriptive statistics for farmers surveyed in GO and MS. Data on the

questions referenced in Table 1 were missing for 6 outout of the 148 farmers surveyed,

narrowing the sample size to 142.3 Of the farmers surveyed, 64% of them had grown sugarcane

on their farm and 56% of them are currently growing sugarcane. The mean area of sugarcane

planted on farm was 240 hectares. Farmers grew sugarcane on land that was previously primarily

used as cropland (58%) and pastureland (64%), substantiating the findings of Adami et al (2012)

in the previous paragraph. Farmers primarily grew sugarcane to obtain higher profits (possibly

due to lower profits from raising livestock on degraded pastureland). The ability to contract with

a mill in their local area that promise to return the land in better shape than before, was also

tempting for farmers. Thus, the presence of a sugarcane mill seems to have been a precipitating

factor in expanding sugarcane production at the farm level.

Of the farmers who had grown sugarcane (N=91), 52% of them have expanded their

sugarcane production since 2010 (or the past five years from the time the survey was

administered in 2014).4 The mean increase in sugarcane planted area was 167 hectares. As seen

in Table 1, new sugarcane production at the farm level replaced or displaced pastureland (51%),

cropland planted to soybeans (43%), other cropland (4%) and native vegetation (Cerrado) (4%).

In addition, only 2% of the expanded sugarcane planting was on new land purchased or rented by

3 There were 142 usable responses for calculating descriptive statistics in Table 1, but only 91 of these produced sugarcane and 47 increased their planted area to sugarcane since 2010. Thus, giving the different sample sizes used to calculate the descriptive statistics in Table 1.4 The year 2010 was used in the survey to limit biases from memory recall farther back than 5 years.

10

the farmer. For much of the displaced agricultural activities production was lost: 60% for

pasture; 43% for soybean production; and 33% for other crops. This is in light of the fact that

total planted area devoted to production of other major cash crops (e.g. corn and soybeans) in the

region were increasing in both states at the same time (Granco et al., 2015). For pastureland,

33% of displaced pasture area due to the expansion was moved to new pastureland either

purchased or rented by the farmer.

A farmer who still desired to undertake displaced agricultural activities as a result of

increasing sugarcane for ethanol production, could replace another land use on their farm or

purchase new land and replace the old land use on that new land, resulting in indirect land use

change. For displaced pastureland, only 2.4% of the farmers converted lands on their farm or

new land from a land use to pasture that was not used prior as pasture. For cropland planted to

soybeans, 21% of the farmers converted lands on their farm or new land from a prior land use to

soybean production. For cropland planted to other crops, the indirect land use change decision

was 17%, but the number of observations here was very small. Most of the ILUC experienced at

the farm level was for crop production instead of pasture, and resulted in pastureland often being

converted to soybean production. Given that much of the pastureland is degraded (Granco et al.,

2015), this land use change may result in more intensified production on marginal land, leading

to adverse environmental consequences. This would also seem to complement the results in the

literature that provides evidence of ILUC as a result of displaced pasture land occurring much

farther from the area of sugarcane expansion (Andrade de Sa et al., 2013). This may be a

consequence of problems in livestock markets and degraded pastureland previously mentioned.

Of interest, given the farm level assessment conducted here, is the impact of socioeconomic,

policy and farm related factors that may influence ILUC at the farm level.

11

4.0 Modeling ILUC at the Farm Level

This section of the paper examines the socio-economic, policy and farm level factors that

may influence ILUC at the farm level in the states of GO and MS due to the expansion in

sugarcane production for ethanol. This analysis uses data from the face-to-face enumerated

surveys discussed in section 2.

4.1 Conceptual Framework

Andrade de Sa, Palmer and Engel (2012) and Andrade de Sa et al. (2013) show that a

necessary condition for the displacement of agricultural activities due to sugarcane expansion is

that the output for the displaced agricultural commodity faces a relatively inelastic demand. This

is likely the case for soybeans or corn, which are food staples, feed crops, and primary export

commodities in Brazil and worldwide. We model the farmers’ land use decision for moving or

discontinuing production of a displaced land use or agricultural production activity following

Andrade de Sa et al. (2013).

We assume farmer i is considering replacing land use k on their farm with the displaced

land use j as a result in increased sugarcane production on-farm. This decision will be based on

the expected profitability of land use option j on the given land, π i , jE = π i , j

E (Fi , S i , Pi). F i is a

vector of farm characteristics that impact production and land allocation decisions for the farm

(e.g. land tenure, available land, use of crop insurance, farm sales, household income from the

farm, proximity to a sugarcane mill). Si is a vector of other socio-economic factors that may

influence a farmers’ land allocation decisions (e.g. risk aversion and education). Many of the

factors in both F i and Si have been shown to impact the decision of a farmer to undertake a

particular agricultural activity (Pannell et al., 2006). Wu (1999) shows that crop insurance will

12

impact cropping mix on the farm, potentially toward high earning and risker crops. Following the

discussion in Granco et al. (2015), the proximity of a sugarcane mill may heavily influence land

allocation on-farm by increasing the profitability of growing sugarcane as proximity to the mill

increases. Pi is a vector of policy variables that may impact land allocation decisions at the farm

level. For example, if a farm is in the Sugarcane Agroecological Zone, then it may deem it as an

advantage to devote more land toward sugarcane production and less to other agricultural uses,

reducing the likelihood a farm may continue a displaced agricultural activity.

Farmer i will replace land use k with the displaced land use j if

π i , jE ( F i , Si , Pi )>π i ,k

E (F i , Si ,P i). That is, the expected profitability of converting to displaced land

use j is greater than the expected profitability of keeping land use k.

4.2 Empirical Model

What is observed in the survey data is if a farmer converted land from one land use to

another that was displaced by an increase in sugarcane production since 2010 (e.g. pasture,

soybean production or other crop production). A binary variable (ILUC) was created using the

survey data to indicate if a farmer had converted a portion of their land due to an expansion in

the area planted with sugarcane (Table 2). So observationally, farmer i will convert their land to

the displaced agricultural activity if P(

π i , jE ( F i , Si , Pi )>π i ,k

E (F i , Si ,P i)¿=P(π i , jE ( Fi , S i , Pi )−π i ,k

E ( Fi , S i , Pi )>0)=¿

P (∆ π i , j , kE ( F i , Si , P i)>0)=P ¿ = 1|F i , S i , Pi). (1)

Now assume that:

∆ π i , j ,kE ( F i , Si , Pi )=ILUCi=α0+αF F i+α S S i+α P Pi+ui, (2),

13

where (α ¿¿0 , α F , α S , α P)¿ are parameters to be estimated andui is a mean zero IID error term.

The explanatory factors are those identified in section 4.1 and summary statistics for them are

provided in Table 2. Given the potential multicollinearity between gross farm sales and

household income from the farm, gross sales is replaced with the percent of gross farm sales

from sugarcane production to bring in the influence of the extent of sugarcane production on the

farm. Assuming that ui is distributed extreme value Type 1, the model given by equations (1) and

(2) can be estimated as a logistic regression model (Train, 2009). Marginal effects for impact of a

given explanatory factor on the probability of ILUC occurring on-farm are calculated following

Greene (2012) with asymptotic standard errors estimated using the delta method (Greene, 2012).

4.3 Results

Estimation results for the logistic regression model examining factors influencing ILUC

at the farm level is provided in Table 3. Overall the fit of the model is good with a McFadden

Pseudo R2 of 0.54. For the farms that had exhibited ILUC on their land in the study region, being

a risk avoider; the use of crop insurance; having a college education; and a higher percentage of

household income that came from the farm significantly impacted the likelihood of having ILUC

on the farm. That is, a higher likelihood of converting another land use to the displaced land use

due to an increase in sugarcane production on-farm.

Risk played a role in potentially influencing ILUC on the farms studied. Being a risk

avoider, which indicated people who identified themselves as very cautious or trying to avoid

most risks, increased the likelihood of ILUC by 18%. With a highly risk averse farmer, it could

be the case that these farmers displaced an agricultural activity (e.g. soybean production) that

provided much higher income with certainty than another activity (e.g. pastureland) on-farm,

14

increasing the likelihood that the farmer wound engage in ILUC and continue production of the

displaced agricultural activity over the other alternatives. Recall that pastureland in the study

region was highly degraded and there were shocks to the livestock market. Most of the farmers

that exhibited ILUC, were replacing pastureland with soybeans, an enterprise that provides

higher returns with a more certain market in that region. Furthermore, farmers who had

purchased crop insurance were 23% more likely to engage in ILUC. Even if soybean production

was being placed on more marginal lands, crop insurance provides a way to reduce the potential

yield and market risk of soybean production on these lands. Thus, at the farm scale, ILUC due to

sugarcane expansion will potentially result in more intensified cash crop production on lands less

suitable for sugarcane production (e.g. degraded pasture land), increasing the expansion of

mechanized intensive crop production in the region.

If a farmer had a college education, it increased the likelihood of ILUC on the farm by

31%. More educated farmers are likely to be better managers and may recognize that displaced

agricultural activities provide a higher profit margin and make more efficient use of land than the

agricultural activity or land-use that it is replacing. This may result in further agricultural

intensification of production on these new lands (e.g. moving from pasture to soybean

production) and potential adverse effects, such as impacts on native habitats and biodiversity

(Allas et al., 2015). Farmers with a higher level of household income derived from the farm were

1.5% more likely to engage in ILUC for each 1% increase in household income coming from the

farm. Thus, farmers that rely on the farm as their primary source of income will likely keep

enterprises on the farm that provide the highest income generation potential to support their

household. This result indicates that ILUC is more likely to occur on farm households that are

highly dependent on the farm for their standard of living.

15

Of interest is that the percent of gross farm sales coming from sugarcane production and

the proximity to a sugarcane mill did not significantly impact the likelihood of ILUC on-farm. A

potential reason for the distance to the mill not having an impact may be explained by the farm

being at a close distance to the mill geographically but when using the roads to the mill the farm

may not be at a viable distance. A potential reason for the percent of gross farm sales from

sugarcane production not having a significant impact, is that sugarcane production placed on

degraded pastureland may resulted in the pasture not being replaced due to already low

productivity. While increases in sugarcane production displaced agricultural production, the

production of corn and soybeans in the region was increasing, as well (Granco et al., 2015).

Thus, dynamics in the soybean market are likely to have played a greater role in influencing

ILUC at the farm level, being place on more fertile land that was purchased or rented.

5.0 Conclusions

The purpose of this paper was to examine socio-economic, policy and farm-level

factors influencing indirect land use change (ILUC) at the farm level as a consequence of the

expansion in sugarcane production for ethanol in the Brazilian Cerrado. The paper provides a

descriptive and logistic regression analysis of ILUC due to the expansion of sugarcane

production at the farm level in the Brazilian states of Goiás (GO) and Mato Grosso do Sul (MS),

using a rich data from a set of face-to-face enumerated surveys with commercial farms in the

region. The study conducted provides a novel contribution to the literature by examining ILUC

at the farm level due to increased biofuels production and examining socio-economic, policy and

farm factors that may influence ILUC.

16

Results show that ILUC does occur at the farm level as a result of the expansion of

sugarcane production within the study region. Many studies focus on ILUC at a global or

regional scale from biofuels production and the resulting ILUC far from the originally displaced

agricultural activity (e.g. Adrade de Sa et al., 2013). This study provides evidence that while the

cascading effect from the displacement of agricultural activities due to expanded biofuel

feedstock production may result in ILUC far from the area of original displacement, ILUC can

still occur in the immediate area where agricultural activities are being displaced. This seems to

be the case with sugarcane expansion in GO and MS. Much of the observed ILUC took place

when soybean production was displaced. Many of the farmers surveyed who had ILUC on their

farm converted pastureland to soybean production that was displaced due to the sugarcane

expansion. Thus, policymakers who are examining ILUC as a result of increased demand for

ethanol and agricultural biofuel feedstocks, should not only focus on the effects of ILUC, such as

deforestation, far from the originally displaced activities, but should recognize that ILUC may

occur in the immediate area from displaced agricultural activities. This may result in more

intensified production in the local area, which is what seemed to have occurred in the states of

GO and MS from 2005 to 2013 (Granco et al., 2015). As previously mentioned, this may have

adverse environmental impacts and threaten wildlife habitats and biodiversity in the Cerrado

biome. Furthemore, it may reduce the intended environmental benefits associated with using

biofuels over traditional fossil fuel alternatives (Fargione et al., 2008).

Examining factors that may influence ILUC at the farm level, the analysis of survey data

showed that being a risk avoider, use of crop insurance, having a college education, and deriving

higher levels of household income from the farming operation increased the likelihood of

experiencing ILUC on-farm. The farm situation may result in more intensified production on

17

more land to maintain farm livelihood, resulting in ILUC on the farm. De Souza Ferreira Filho

and Horridge (2014) indicate that efforts to promote biofuel expansion in Brazil may hinder

enforcement efforts to limit further deforestation in the country. While much of this effort has

focused on the Amazon, the Cerrado is Brazil’s second largest biome with a rich biodiversity.

Agricultural expansion and intensification in the Cerrado due to increased demands and policy

for greater ethanol production has significantly increased in the recent past, putting further

environmental pressure on this biome (Granco et al., 2015). Policymakers should recognize that

ILUC, resulting in deforestation and conversion of natural vegetation within the Cerrado, is

occurring and the impact from this may be detrimental to the biome. The intensification of

agricultural practices may make it potentially difficult to keep lands that need to be protected out

of production. In addition, the intensification of agricultural production as a result of ILUC will

likely lessen any benefits of reductions in greenhouse gas emission and carbon sequestration

from promoting sugarcane based biofuel production (Fargione et al., 2008).

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Table 1: Descriptive Statistics for Survey Data of Farmer Respondents on Sugarcane production, land use and managementCategory Mean Standard

DeviationaN

Percentage (as a decimal) of farmers who have grown sugarcane. 0.64 --- 142Percentage (as a decimal) of farmers currently growing sugarcane. 0.56 --- 142

Mean area in hectares. 240 393Percentage of farmers producing sugarcane that converted land to sugarcane production by land type.

Crop land 0.58 --- 91Pasture 0.64 --- 91Native land 0 --- 91

Percentage (as a decimal) of farmers who indicated that the following reasons were “important” for their decision to grow sugarcane.

Higher profits 0.74 --- 91Contract with the local mill 0.64 --- 91Higher risks associated with other crops 0.35 --- 91Production costs 0.27 --- 91Pest management problems 0.10 --- 91Inside the Sugarcane Agro-Ecological Zoning 0.36 --- 91

Farmers that increased sugarcane area since 2010Percentage (as a decimal) of farmers 0.52 --- 91Mean hectares of land for farms that increased area 167 329 91

Percentage (as a decimal) of the expanded sugarcane area that came from different land uses for farmers who expanded production since 2010. For each land use category, the percentage of farmers who discontinued the displaced land use or moved it to new land is provided when applicable.

Pasture 0.51 --- 47 Production lost 0.60 --- 42 Bought new land to put into pasture production

0.33 --- 42

Converted other land on-farm to pasture production

0.024 --- 42

Land planted to soybeans 0.43 --- 47 Production lost 0.52 --- 29 Bought new land to put into pasture production

0.10 --- 29

Converted other land on-farm to soybean production

0.21 --- 29

Land planted to other crops 0.036 --- 47 Production lost 0.33 --- 6 Bought new land to put into other crop production

0 --- 6

Converted other land use on-farm to crop production

0.17 --- 6

Cerrado or natural vegetation 0.043 --- 47New land (rent or buy) 0.021 --- 47

a Standard errors are only provided for continuous statistics. Standard errors for binary variables (percentages) are equal to √ p (1−p) where p is the probability of an action taking place or decision being made.

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Table 2: Descriptive Statistics for Factors Impacting Indirect Land Use Change Decisions By Farmers Surveyed (N = 47)Variable Definition Mean

(Frequency)Standard Deviation

Dependent VariableILUC Equal to “1” if a farmer made had indirect land

use change on their farm and “0” otherwise. 0.17 ---

Explanatory VariablePercent Rented Percentage of farm land rented. 16.1 28.3Farm Size Size of the farming operation (ha). 1552 1836Risk Avoider Equal to “1” if the farmer identifies themselves

as very cautious or avoids risks and “0” otherwise.

0.62 ---

Insurance Equal to “1” if the farmer has crop insurance and “0” otherwise. 0.45 ---

Sugarcane Sales Percentage of gross farm sales from sugarcane production. 52.2 74.6

College Equal to “1” if the farmer is a college graduate and “0” otherwise. 0.40 ---

Zoning Equal to “1” if the farmer identified the Sugarcane Agro-Ecological Zoning as an important reason for producing sugarcane and “0” otherwise.

0.34 ---

Income from Farm

Percentage of household income from the farming operation. 82.2 26.1

Distance to Mill Distance (km) to the closest sugarcane mill. 22.0 14.9a Standard errors are only provided for continuous statistics. Standard errors for binary variables (percentages) are equal to √ p (1−p) where p is the probability of an action taking place or decision being made.

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Table 3: Logistic Regression Results for Assessing Farm, Socio-Economic and Policy Factors Impacting Indirect Land Use Change Farmer Decisions.Variable Coefficient Estimate

(Standard Error)Marginal Effecta

(Standard Error)Intercept -30.03**

(13.75)---

Percent Rented 0.032(0.024)

0.0022(0.0017)

Farm Size 0.00061(0.00045)

0.000042(0.000031)

Risk Avoider 3.68(2.36)

0.18***(0.064)

Insurance 4.19**(2.14)

0.23***(0.064)

Sugarcane Sales -5.95(4.10)

-0.41(0.29)

College 6.13**(2.89)

0.31***(0.058)

Zoning 2.11(1.76)

0.14(0.096)

Income from Farm 0.22*(0.11)

0.015***(0.0079)

Distance to Mill -0.079(0.068)

-0.0055(0.0048)

Fit StatisticsLog likelihood -9.93McFadden Pseudo R2 0.54AIC 39.9Number of Observations 47a Marginal effects are calculated at the means of the explanatory variables. Asymptotic standard errors are estimated using the delta method (Greene, 2012).*10% level of statistical significance, ** 5% level of statistical significance, ***1% level of statistical significance

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