Deforestation in Brazil, a doomed economic strategy?

Julien Wolfersberger, lecturer in the Public Economy Laboratory (AgroParisTech/Inra), discusses the development strategy defended by the Brazilian government and its connection with deforestation in the Amazon forest.

According to information collected last July, the increased deforestation of the Amazon forest has reached 278% in one year. A few weeks later, in the run-up to the G7, Brazilian President Jair Bolsonaro fought Emmanuel Macron over the fires in the Amazon forest, and the hashtag #PrayForAmazonia overwhelmed Twitter. On September 3, a new twist: the Brazilian president announced that for medical reasons he would not attend the regional summit on the Amazon forest, which was planned a few days later in Colombia.

The current media attention to deforestation provides an opportunity to reflect on the relevance of the development strategy promoted by the current government in Brazil. Beyond environmental considerations, the choice to focus on agriculture also raises questions about long-term economic growth.

The "forest transition" issue

Between 2005 and 2013, deforestation in Brazil declined by 70%. It was not absurd to think that the country would eventually start a reforestation phase, and that the challenge was to get it going as soon as possible.

Based on empirical observations, some studies suggest that there is a "consistent" relationship between a country's level of development and deforestation. At some stage of development, food security and economic drive in the non-agricultural sectors, the conversion of forests to cropland is expected to slow down and then to stop. This is what the geography literature has called the forest transition, and which has been observed in France, the United States, or more recently in China, India or Vietnam.

In environmental and growth economics, a complete literature on the Kuznets environmental curve has also sought to test a similar relationship, with varying degrees of success. The idea is as follows: the level of environmental degradation per unit of GDP increases to a certain per capita income threshold and then decreases over time.

While these links between economic growth, natural resources and the environment remain, the recent relative optimism about reforestation in Brazil now seems to be in question.

While the current president bases his economic model on soya, the structural evolution of the Brazilian economy has only evolved towards industry and services. Carlos Fabal/AFP

A choice in the name of economic development

The Brazilian President has based part of his economic development strategy on the exploitation of national natural resources - forests, land, mines, etc. - as well as on the use of natural resources. In many countries, these resources provide a rent that some governments are not willing to give up, even in the name of the environment.

This situation echoes the debate that took place in France in 2015 about drilling for shale gas exploitation; or, more recently, about the exploitation of the Golden Mountain mine in French Guinea. In both cases, the government has chosen to prohibit the exploitation of natural resources (at least for the time being) in the face of uncertainty about the environmental damage that can result from their extractive activity.

The Brazilian government could completely renounce allowing and encouraging land use in the Amazon forest, in the name of global warming, biodiversity, but also of the last indigenous populations living there. However, Jaïr Bolsonaro does not really seem to be willing to go in that direction. In simple terms, he sees a huge potential to convert forests for the production of soybeans or the grazing of livestock.

Although this vision can be justified by the logic of development equity between countries of the North and the South, questions remain. Even ignoring any environmental or humanist consideration, history suggests that this strategy is not a guarantee of development - at least not the best one.

Deforestation threatens directly the way of life of Amazonian indigenous people. Mauro Pimentel/AFP

An uninsured bet

Historically, the industrial sector seems to guarantee the greatest progress in economic growth for nations.

This is mainly due to a high rate of technological progress, a high absorption rate of the active population (including low-skilled workers), economies of scale and access to the international market. The industrial revolution led to sustained productivity and income growth in Britain and later in the following countries. Industrialisation has also enabled Asian "miracles" of growth and the convergence of living standards between countries like Japan and those in the West.

In the era of artificial intelligence, it is not a question of reproducing industrialisation, as it has happened elsewhere, nor of considering it as the only possible path to development. However, the line defended by Jair Bolsonaro brings a question to mind: could the further expansion of non-agricultural sectors, which is seen as highly promising (e.g. tradable services), not generate more growth in the long term?

There is no guarantee that too much specialisation in the agricultural sector, for example to meet global demand for soya, will offer a country the same prospects for long-term progress. Although it offers access to the international market, this model could be fragile. Beyond the crucial issues of productivity growth and employment rates, demand shocks - such as a change in consumer preferences for the environment, or an easing of the trade war between China and the United States - could compromise this strategy even in the short run.

Furthermore, the conversion of the Amazonian forest into cultivable land could eventually disrupt the hydrological cycle and reduce rainfall, which in turn would influence agricultural yields. Some regions could then lose their comparative advantage in agricultural production.

Finally, the share of agriculture in Brazilian GDP decreased from 18% to 4% between 1960 and 2018, and the employment rate in this sector has declined by more than 50% since 1991.

These figures are a sign of a structural transformation in the Brazilian economy from agriculture to industry and services. It is the model of growth, and therefore development, that has helped to reduce poverty and raise living standards in most countries where it has occurred. Even considering that global warming and the disappearance of biodiversity would only be the problem of rich countries, what sense does it make to redirect, at least in words, the productive effort towards agriculture?

A vision that is out of step with the times

This orientation could also lead to the loss of major economic partnerships in Brazil. Germany and Norway, for example, have blocked the equivalent of €65 million in aid to combat deforestation; in the end, the entire Brazilian economy could suffer from this poor image on the international stage.

On August 23, 2019, in the Brazilian state of Rondônia, huge fires ravaged the Amazon forest. Carl de Souza/AFP

Of course, we must remain very cautious about the actual implementation and success of these public policies, but other developing countries are sending very different signals on the environmental issue. South Africa is setting up a carbon market, Ethiopia is planning to plant 4 billion trees and Costa Rica has been developing ecological tourism for several years. According to the statements of its leader, Brazil is unlikely to leave its mark on people's minds with its innovative public policy choices that are in line with their time, that of climate emergency. This does not guarantee the best growth performance in the very long term.

Julien Wolfersberger, Lecturer in economics, Agro ParisTech – Université Paris-Saclay

This article is republished from The Conversation under Creative Commons license. Read the original article in French.