BRAZIL'S DEFORESTATION CYCLE (PART 2 of 3): FROM FORESTS,

UNCLAS SECTION 01 OF 03 BRASILIA 000229 SIPDIS SENSITIVE SIPDIS DEPT FOR OES/PCI - L.SPERLING AND F.COLON DEPT FOR OES/ENCR - S.CASWELL AND C.KARR-COLQUE DEPT FOR OES/EGC - D.NELSON AND T.TALLEY DEPT FOR WHA/EPSC - L.KUBISKE E.O. 12958: N/A TAGS: SENV EAGR ENRG KSCA BR SUBJECT: BRAZIL'S DEFORESTATION CYCLE (PART 2 of 3): FROM FORESTS, TO CATTLE, TO SOY OR ABANDONMENT REF: BRASILIA 224 ¶1. (U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED AND NOT FOR INTERNET DISTRIBUTION. ¶2. (SBU) SUMMARY. The massive clearing that has been taking place in the Amazon since the 1970's (REFTEL) has generally followed the pattern: conversion into cattle pastures and later either soybean production or abandonment. From 2003 to 2006, 94% of the 10 million heads of cattle added to Brazilian cattle herds were in the Amazon. The number of slaughterhouses in the Amazon soared from 26 in 2004 to more than 200 today. Logging plays a limited role in deforestation, mainly by building roads to remote areas that open the area for others. To date, sugar cane production has not directly been a major factor in deforestation. Indirectly, sugar cane - as well as soybeans, corn and other crops - are pushing to some undetermined extent cattle into the lower priced Amazon as pastures are converted into fields. COMMENT. The differential between higher land prices outside of the Amazon and lower costs for land (obtained illegally or not) within the Amazon is a critical factor behind deforestation. END COMMENT. ¶3. (SBU) This cable is second in a three-part series on deforestation in Brazil. The first discussed the cycle of clearing and the recent upswing in the rate of deforestation (REFTEL). This cable looks at the causes behind the large scale clearing of the Amazon (by which we mean in this series the nine-state region referred to as Legal Amazon). And the third will examine the measures taken to address the problem. END SUMMARY. FROM CATTLE PASTURES TO SOYBEANS OR ABANDONMENT ¶4. (SBU) With the announcement on January 23 of an increase in deforestation (REFTEL),the debate over the principal causes has made front-page news. Environment Minister Marina Silva has generally blamed deforestation on "latifundiarios, madeireros e grilheiros" (large plantation owners, loggers and land grabbers). With regard to the recent increase in the deforestation rate she claimed higher prices for beef and soybeans were the principal causes. She noted that cattle ranching and soybean production were the typical activities in the areas where the greatest amounts of deforestation are occurring. She commented, "We don't believe in coincidences." ¶5. (SBU) Agriculture Minister Reinhold Stephanes shot back that there was no need to raise cattle or grow soybeans in the Amazon because there was plenty of land available elsewhere. Note. Stephanes point is accurate, but doesn't negate the fact that cattle ranching and soybean production are on the rise in the Amazon. End Note. For his part, President Luis Ignacio Lula da Silva declared that "nobody is to blame" for the deforestation and criticized his Environment Ministry and NGOs for pointing the finger at the agriculture sector and soybean producers. ¶6. (SBU) The typical pattern in the Amazon is for an area to be cleared for cattle first. A field can relatively quickly be converted into usable cattle pasture, though without investment in the land it will have a useful life of a few years at best. The land subsequently is typically converted into soybean production or just abandoned. To prepare a former pasture for soybeans, a farmer almost always will grow rice first for one or more seasons. The Director of the Institute for Tropical Forestry (ITF),Johan Zweede, estimates that about 20 percent of cleared forest lands are now abandoned, degraded areas. ¶7. (SBU) Cattle ranching in the Amazon has skyrocketed in just in the last six years, increasing by roughly 40%, from 52 million head in 2001 to 74 million in 2006, based on figures from the Brazilian Institute of Geography and Statistics (IBGE). More to the point, of the 10.3 million heads added to Brazilian herds from 2003-2006, 9.7 million were in the Amazon, or an astounding 94%. Environment Minister Silva estimated that 70% of deforestation was for the purpose of creating cattle pastures. In 2004, there were just 26 slaughterhouses registered in the Amazon, and in 2007 there were more than 200. These slaughterhouses processed 41% of all the heads of cattle in Brazil in 2007. (Note. Post's estimates for cattle in Brazil are lower than IBGE's, though we understand IBGE is likely to lower its figures. While the exact number may be lower, there is little doubt about a substantial increase taking place in the Amazon. End Note.) LINK BETWEEN COMMODITY PRICES AND DEFORESTATION RATES BRASILIA 00000229 002 OF 003 ¶8. (SBU) The Environment Ministry and independent experts see a close correlation between prices for cattle and soybeans and deforestation rates. A recent study by the respected NGO IMAZON showed how close. IMAZON calculated a very strong link (a coefficient of 0.82) between changes in the price of cattle and changes in the deforestation rate. It detected a weaker connection between changes in soybean prices and changes in the deforestation rates (0.50). The President of the Environment Commission of the Brazilian National Confederation of Livestock and Agriculture (CNA) Assuero Veronez told the press that "it would be hypocritical to say the expansion of soy and cattle ranching has no influence on deforestation that has taken place in the Amazon in the last five years." Nonetheless, CNA issued a statement that "totally repudiated" any link between agriculture commodity prices and deforestation rates. ¶9. (SBU) While the Environment Ministry today sees a strong nexus between rising agriculture prices and increasing deforestation rates, it was less convinced with regards to the reverse when commodity prices and deforestation rates were both falling. The Ministry attributed those changes in the deforestation rates to successful actions of the government, and downplayed the role of commodity prices. Environment Vice Minister Joao Paulo Capobianco reportedly has questioned the strength of the linkage between commodity prices and fluctuations in deforestation rates. ¶10. (SBU) The demand for land for ranching and farming has driven land prices to record highs. The FNP Institute, a private agribusiness consultancy, reports that agriculture land prices rose 17.83% in 2007 and predicts more increases for 2008. COMMENT. The differential between higher land prices outside of the Amazon and lower or no cost for land - whether obtained illegally or not - within the Amazon lies at the heart of the deforestation issue. END COMMENT. LOGGING'S LIMITED CONTRIBUTION TO DEFORESTATION ¶11. (SBU) A common perception is that illegal logging is responsible for deforestation. Without question there is a tremendous volume of unauthorized harvesting of wood in the Amazon. Although the federal government in theory has introduced a registration system for harvesting and sale/re-sale of wood, the vast majority of logging takes place outside of it. By one estimate, from Greenpeace's Forest Engineer Marcelo Marquesini, about 80% of the wood sold in Brazil is outside the legal system. Nonetheless, loggers themselves are not the primary cause of deforestation. In the Amazon, there are only a handful of commercially valuable trees per hectare, according to ITF Director Zweede. Loggers have no economic incentive to clear cut an area. In fact, the economic interests argue against this: i.e., not to spend valuable resources (human, machinery or time) on clearing the large amount of non-commercially valuable vegetation. ESTH Counselor has visited sites where illegal logging has taken place. The majority of non-commercial plant life was left intact, though some was mangled due to the process of building roads and log storage areas. ¶12. (SBU) Loggers do contribute to deforestation. Some may clear cut an area if paid to do so, such as by the cattle rancher who wants to use the land. Also, they can be viewed as abettors of deforestation because they facilitate subsequent clear cutting by building roads to previously inaccessible areas. Overall, however, loggers play a limited role in deforesting the Amazon. ¶13. (SBU) While loggers may not be central to the deforestation question, another type of woodsman is threatening to become a major player. This person finds any sort of wood to use for making charcoal to supply the voracious demand for charcoal from the pig iron foundries. There are no reliable data on the wood taken for making charcoal. ITF Director Zweede estimates that the volume of wood cut for charcoal today probably equals the volume of wood cut for timber, and demand for charcoal is growing rapidly. SUGAR CANE - NOT A DIRECT THREAT ¶14. (SBU) The question of sugar cane production in the Amazon has drawn great attention. President Lula has reacted by claiming that sugar cane can't be grown in the Amazon. Although not quite accurate (sugar cane is grown commercially in various places throughout the Amazon),the quantity is relatively small. Mark Lundell from the World Bank in Brazil estimated that less than BRASILIA 00000229 003 OF 003 100,000 hectares of sugar cane are grown in the Amazon, which contrasts with the millions of hectares grown in the Southern region of Brazil. In fact, production figures released in November 2007 by the Agriculture Ministry's National Supply Company (Companhia Nacional de Abastecimento or CONAB) indicate only 21,500 hectares of sugar cane production in the Amazon. ¶15. (SBU) Nonetheless, the Lula Administration has announced plans to introduce legislation to prohibit sugar cane production in the Amazon. This issue is very sensitive inside the GoB, and some officials have overreacted by claiming it is impossible to grow sugar cane in the Amazon region. The government is working on a legislation to ban this kind of activity in the forest. Agriculture Minister Stephanes suggested allowing sugar cane production on land in the Amazon that has already been cleared and is now unproductive. The Environment Minister pushed back and won President Lula's support for legislation to bar outright sugar cane production in the Amazon region. An analysis of this issue is underway and is supposed to be ready by June 2008, after which a final position on whether or not to allow more sugar cane production in the Amazon will be decided. ¶16. (SBU) Sugar cane, soybeans, corn and other crops are having an indirect effect of undetermined extent on deforestation. As pastures outside of the Amazon are converted into crop production, to some degree cattle ranchers are being pushed into the Amazon, where land costs are lower. Similarly, increased pork and poultry production raises the demand for grains for feed, which in turn leads to conversion of pastures into fields, and again puts pressure on cattle ranchers to move. NATURE - DRYER WEATHER ALLOWS MORE TIME FOR CLEARING ¶17. (SBU) The rainy season has been late to arrive in Brazil. This has given those who want to clear the forest more time, which can explain in part the surge in deforestation realized between August and December 2007. Normally, the months of November and December are usually the start of the rainy season and it is not typical that the forest is cut down at this time of the year. In the last decade there have been noticeably longer and more severe dry periods in the Amazon. ¶18. (SBU) The rains have served as a brake on deforestation in the Amazon. However, we may be witnessing increasingly dry periods becoming a permanent feature of the Amazon weather pattern. In which case, there may soon be markedly stepped up rates of deforestation, such as happened at the end of 2007. SOBEL