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Land Use and the Opportunity Cost of Forest Preservation in Bolivia

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Land Use and the Opportunity Cost of Forest Preservation in Bolivia Land use and the opportunity cost of forest preservation in Bolivia Felipe de Figueiredo Silva University of Nebraska-Lincoln [email protected] Juan M. Murguia Inter-American Development Bank* [email protected] Wanderley J. Ferreira Rumbol srl. [email protected] Brisa Rejas Galindo Inter-American Development Bank* [email protected] Boris Hinojosa Guzman Rumbol srl. [email protected] Selected Paper prepared for presentation at the 2018 Agricultural & Applied Economics Association Annual Meeting, Washington, D.C., August 5-August 7 * The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent. We thank the Bolivian Government, the Ministry of Rural Development and Land (Mdryt), the National Institute of Agrarian Reform (INRA) and the National Institute of Statistics (INE) for the assistance with data and relevant information for this paper Copyright 2018 by Silva et al. (2018). All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Land use and the opportunity cost of forest preservation in Bolivia ABSTRACT The objective of this paper is to estimate the opportunity cost of preserving one hectare of forest in Bolivia and identify potential areas for forest preservation and agriculture expansion using the agricultural census of 2013 and satellite image of land deforestation. In this paper we use an alternative method to what has been previously used in the literature. We estimate a stochastic frontier to represent the producer technology and obtain the shadow price of reducing deforestation in terms of value of production. Our results show that the opportunity cost varies significantly across municipalities and that, on average, to preserve one hectare of forest, US$ 1,229 of annual value of agricultural production has to be foregone, which is equivalent to US$ 20.50 per ton of sequestered CO2. These results indicate that it would be less costly to reduce deforestation in the northern departments of the country where agricultural production is less intensive, and to expand agriculture in other areas where agricultural expansion would be more productive. Key words: Agriculture, Deforestation, Opportunity cost. JEL: Q51, Q54, C61. 2 INTRODUCTION In Bolivia, an area greater than 50 million hectares is covered by forest, which is approximately 50% of the country (Food and Agricultural Organization – FAO, 2017). The forest area contains an extensive and rich biodiversity (Andersen et al., 2016) spread throughout seven distinct types of forest (Müller et al., 2014a). Agricultural expansion in Bolivia has led to a conversion of forest to agricultural land, leading to high rates of deforestation in the country, which threatens forest’s biodiversity and other ecosystem services such as carbon sequestration. In this paper, we focus on identifying the tradeoff between agriculture and forest. Bolivia has lost around 289,000 hectares of forest per year during the period of 2010-2015 (MacDicken et al., 2016) while around 400,000 hectares were deforested per year in 2007 and 2008 (Malky, Leguia and Ledezma, 2012), mainly to slash-and-burn agricultural production (Andersen et al., 2016). From 1990 to 2010, Bolivia has lost 4.2 million hectares of forest (Andersen et al., 2016). At the same time, agricultural expansion plays a critical role in both Bolivia’s food sovereignty1 and in poverty reduction strategy2; mainly because poverty is concentrated in rural areas3, and it has been observed that agriculture is more efficient reducing poverty among the poorest of the poor (Christiaensen et al. 2011). It is arguable whether agricultural expansion is needed, as agricultural production could increase without expanding the production area, increasing productivity. Despite the rapid conversion of forest to grass and cropland, and considering the relevance of agricultural expansion for development in Bolivia, there is little information to guide policymakers about where this expansion should be taking place to maximize agricultural production growth and minimize forest preservation costs. 1 Economic and Social 2016-2020 Development Plan – Pillar 8 2 Economic and Social 2016-2020 Development Plan – Pillar 1 3 Extreme poverty was 38.8% in 2013 (UDAPE, 2018) 3 Agricultural production is indicated as the main driver of deforestation in Bolivia (Urioste, 2010), more specifically, mechanized agriculture, cattle ranching, and small-scale agriculture (Müller et al., 2013). Cattle ranching was responsible for around 50% of the deforestation occurred in the period 2000-2010 (Müller et al., 2014b). Ferreira et al. (forthcoming) analyze and forecast the deforestation in 2025 in Santa Cruz, which comprises the Amazon and Chaco forests. They analyze different scenarios; the business scenario considers the current deforestation trends. Under this scenario they find that deforestation will increase by 148% with respect to 2013, 46% will be due to cattle ranching, while 23.4% will be due to agriculture. In the literature, we find that the opportunity cost of sequestering one ton of CO2 in Bolivia lies on the range US$ 2.47 - US$ 5.77, which depends on the assumption made about discount rate, carbon content and period length (Stich, 2009; Malky, Leguia and Ledezma, 2012; Müller et al., 2013). Most of these studies used budget information on output revenue and input cost to obtain the foregone income stream and then obtain the opportunity cost estimate. We estimate the producer technology to obtain the shadow price of reducing deforestation in terms of value of production using a dataset at municipality level from the Agricultural Census of 2013, the Encuesta Agropecuaria of 2015, and satellite images to obtain deforested area. Rather than use an inductive strategy we use a deductive approach using municipality information on agricultural production of more than 115 thousand farms. Our results show that the opportunity cost varies significantly across municipalities, from US$100 to more than 3,000 per hectare per year; and that, on average, to preserve one hectare of forest, US$1,229.35 of annual agricultural production has to be foregone. This translates to a cost of US$ 20.50 per ton of sequestered CO2 using a social discount rate of 0.10 and a carbon content per hectare of forest of 163. These results contribute to the literature on the estimation of 4 opportunity cost of preserving the forest and sequestering CO2 using a deductive approach and readily available datasets, which may be useful to design forest preservation and agricultural expansion policies. DEFORESTATION AND AGRICULTURE IN BOLIVIA Agricultural activities have led to high rates of deforestation in Bolivia (Urioste, 2010; Malky, Leguia and Ledezma, 2012). Around 80% of the CO2 emitted in the country comes from land use change (Programa Nacional de Cambio Climático – PNCC, 2009), mainly from slash-and-burn agriculture (Andersen et al., 2016). The department of Santa Cruz alone has emitted more than 100 million tons of CO2 during the period from 1990 to 2010, an equivalent to more than 70% of total emissions in the country (Andersen et al., 2016). This department alone contains 24.9 million hectares of forest (Servicio Nacional de Áreas Protegida – SERNAP, 2013). In 2015, around 40% of the bovine stock, 62% of the milk production, 57% of the land planted, and 95% of the oilseeds planted were located in Santa Cruz (Instituto Nacional de Estadistica – INE, 2017). In this paper we use information on deforestation in the year 2013 from the National Protected Areas Service (SERNAP, 2013), a variable which we explain later in more detail. Figure 1 display the geographical distribution of the forest cover in 2013 and the deforestation that occurred between 2010 and 2013. By the year 2013, Bolivia had a deforested an area equivalent of 8 million hectares (SERNAP, 2013). During this period, 1 million hectares of forest were logged, almost 70% of it clustered in the department of Santa Cruz (SERNAP, 2013). The top 10 municipalities with respect to deforestation cleared together an area equivalent to 44% of the total deforestation in the period from 2010 to 2013, nine of those are in Santa Cruz. The 5 municipalities of San Ignacio and Pailón cleared almost 200 thousand hectares during this period. [Figure 1] The geographical distribution of land deforested also corresponds to the agricultural production distribution. Figure 2 presents the value of production from the outputs considered in this paper, which are later described in more detail. We observe that municipalities with greater deforestation also show larger output revenue. For example, San Ignacio and Pailón are the municipalities with the greatest area deforested and there are also among the 5 largest producers of soy, corn and of cattle head sold in 2013. [Figure 2] Müller, Pacheco and Montero (2014a) suggest that mechanized agriculture, cattle ranching, and small-scale agriculture are the main drivers of deforestation in Bolivia. They point out that agricultural expansion into the lowlands was promoted by the Bolivian government in the late 1950s seeking to substitute food imports. In the 1980’s, another major expansion was prompted by the introduction of mechanized agriculture (Müller,Pacheco, and Montero, 2014a) which affected the preservation of forest biomes. The production of soybean and sugarcane are clustered in areas with fertile soils in the northern portion of Santa Cruz while rice production is located in more humid areas of this department (Müller, Pacheco and Montero, 2014a). Sunflower, wheat, and sorghum are also produced in consortium with soybean in these regions (Müller et al., 2013). Soybean production, which happens mainly in Santa Cruz, is the most important crop production in Bolivia and targets the export markets (Müller et al., 2013). In the recent years, greater access to export 6 markets, a fertile soil, and intermediate rainfall levels have led to yet another expansion of mechanized agriculture (Müller et al., 2013).
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