How Much Does Deforestation Cost US Producers?

Destrucution of the world's tropical forests by overseas timber, agriculture and cattle operations is seriously undermining the US's competitiveness in these areas, explores a new report produced by the Avoided Deforestation Partners and the National Farmers Union. Summarised by TheCattleSite junior editor, Charlotte Johnston.
calendar icon 2 August 2010
clock icon 7 minute read

Deforestation allows large-scale low-cost expansion of timber, cattle and agricutural production, which also causes damage to the environment and forest communities.

Much of this agricultural expansion is done via practices which do not meet the US industry standards for sustainability, labour practices and basic human rights, says the report, which gives them a comparative advantage.

Ending deforestation in the US through incentives and international climate action would boost US agricultural revenue by an estimated $190-$270 billion between 2012 and 2030.

This increase includes $141 to $221 billion in direct benefits from increased production of soybeans, beef, timber, palm oil and palm oil substitutes, and an estimated $49 billion savings in the cost of complying with climate regulations due to lower energy and fertiliser costs resulting from the inclusion of relatively low-cost tropical forest offsets.

This competition begins when cattle ranchers or small-scale farmers deforest the land then move on when the soil has become depleted. Commercial soy opertations recondition the land and create long-term soy plantations. Increasingly however, large scale agriculture istself is the primary driver of deforestation.

The study

The report is a first step in understanding the potential impacts on US agriculture of deforestation and global forest conservation efforts.

The study estimates the amount of each commodity that is produced on formerly forested land.

It considers the impact of a reduction in the forested land available for agricultural and timber production in the tropics, without considering the underlying government policies and measures that would produce this result.

A partial equilibrium model is used to estimate the impact of this reduction on the world market and the price effects and changes reduced commodity production from deforested land would have for revenue for the US agriculture.

Two scenarios with different elasticities of supply are used to represent the likely high and low impact on US revenue. For each scenario, the annual impacts at both a 50 per cent and 100 per cent reduction in deforestation are estimated.

In the low revenue scenario, the United States has a limited ability to adjust production in response to market price changes and the rest of the world has a greater ability. In the high revenue scenario, the United States has a greater ability to respond to market price changes and the rest of the world has a more limited ability.

Commodity Change and Estimates and Impacts on the US Markets

Soybeans

In 2003, soybeans accounted for approximately four per cent of the agricultural land in the Amazon.

The US is the leading producer of soybeans with 33 per cent of global production in 2007, it is also the top exporter of soybeans, exporting 40 per cent of global exports in 2007.

Table 1: Annual soybean production by region (2007)
Country/ Region Tonnes
Annual soybean production that drives deforestation 1,306,534
Other annual soybean production from Brazil, Argentina and Paraguay 109,889,450
US 72,860,400
Rest of world 36,476,228

Total deforestation for Argentina, Brazil and Paraguay combined 3.4 million hectares in 2009. Other studies have suggested that 17 per cent of deforestation was caused by large-scale agricutlure between 2001-2004. An increase in prices as well an expanded transportation infrastructure in forested regions has led to increased soybean production.

On top of this, forested land is at least 50 per cent cheaper than land that has already been cleared.

The study concluded that 1,306,534 tonnes of annual soybean production drives deforestation. Other annual soybean production from Brazil, Argentina and Parguay reaches 109,889,450 tonnes - this is soybean that is grown on land other than tropical forest and some is grown on land that was deforested for another purpose, ie. cattle production.

What affects soybean supply and demand?
Individual suppliers face more long-run options such as technology shifts or shifts to other production sources (in this case, other types of land) which would reduce supply. Long-term global supply can also shift because new entrants are likely to enter the market if prices are higher, or exit the market if prices are lower.

Increasing demand, fuelled by population growth, changing diets in developing worlds and growing biofuel use could increase the price. However prices could also fall if supply increased.

Depending on the US's ability to react to price increases, if deforestation ended, US annual revenue could increase between $387 - $590 million. A 50 per cent reduction in deforestation would increase US annual revenue between $265 - $405 million. This is shown in Table 2.

Table 2: Soybean Modeling Results
Scenario Price change (annual) Annual US Revenue Increase Cumulative Revenue Increase to US from Ending Deforestation, 2012-2030
$/ tonne % change US$ % change
Low US revenue 50% reduction in deforestation $3 1.03% $265,384,316 1.13% $34,198,100,533
100% reduction in deforestation $4.67 1.45% $386,824,566 1.64%
High US revenue 50% reduction in deforestation $4 1.20% $405,005,077 1.72% $53,441,145,875
100% reduction in deforestation $5.49 1.70% $590,833,044 2.51%

Beef

Cattle ranching expansion is the primary driver for deforestation in Brazil, which is the world's largest beef exporter.

Estimates of the amount of deforestation attributable to cattle ranching in Brazil are between about 60 and 80 per cent.

A report by the USDA in 2004, predicted that about 1.4 million hectares of deforestation a year are attributed to cattle ranching, which would have been 61 per cent of Brazil's total deforestation.

Due to the fact that the bulk of Argentina's beef production occurs on the prairies, ranching is not a significant driver of deforestation in Argentina.

The beef trade is complicated due to disease restrictions. For example, Brazil is plagued by foot-and-mouth disease, whislt BSE has been found in US and restricts US exports. The US is the largest beef producer, producing 12,044,305 tonnes (20 per cent) of beef per annum.

Using a figure of 61 per cent of Brazil’s annual deforestation attributable to cattle, 1.9 million hectares of natural forested land in the Amazon are converted every year to cattle raising. Brazilian cattle yield is just one head per hectare and Brazilian beef yields .2295 tons (459 lbs) of beef/head. (As a point of comparison, USDA choice beef yields about 487.8 lbs of beef per head.)

With this in mind, the study estimates that each year Amazonian forests are cleared to provide an additional 434,000 tonnes of beef.

Using a price of $5,159/tonne, the report estimated that a 50 per cent reduction in deforestation could increase US beef revenue between US$1,532 - US$1,934 million a year. If deforestation ended completely US beef revenue could increase between US$1,817 - US$2,319 million. (See Table 4)

Deforested land in the tropics typically sustains cattle for five to ten years before the land is depleted and the ranchers move on to deforest more land. The study assumes a conservative five-year estimate of production.

The study estimated the cumulative revenue gains assuming that deforestation declines gradually from a 10 per cent reduction in deforestation in 2012 to a 100 per cent reduction in 2030. The price of beef increases gradually as well over this time. The price increases in year one range from $126 to $159 (a 2.4 per cent to three per cent increase over 2008 prices) and in year 18 the price increases range from $331 to $441 (a 6.4 per cent to 8.5 per cent increase over 2008 prices). It was estimated that the cumulative benefit of this gradual reduction in deforestation to US cattle producers would be between $53 billion and $67 billion.

Table 3: Beef Modeling Results
Scenario Price change (annual) Annual US Revenue Increase Cumulative Revenue Increase to US from Ending Deforestation, 2012-2030
$/ tonne % change US$ % change
Low US revenue 50% reduction in deforestation $127 2.46% $1,532,682,136 2.47% $52,744,788,255
100% reduction in deforestation $150 2.92% $1,817,345,327 2.92%
High US revenue 50% reduction in deforestation $160 3.10% $1,934,190,165 3.11% $67,963,111,806
100% reduction in deforestation $191 3.70% $2,310,830,35 3.72%

Conclusion

Conserving tropical rainforests generates significant financial gains and savings for the US agriculture and timber industries, while also increasing opportunities for residents of rainforest nations. Total estimated increases in revenue for US soybean, oilseed, beef and timber producers range between $190 billion to $270 billion between 2012 and 2030.

August 2010

Further Reading

- You can view the full report by clicking here.
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