Brazil’s Agricultural Land Use and Trade: Effects of Changes in Oil Prices and Ethanol Demand

Abstract

A prominent issue related to land-use changes in Brazil is the westward expansion of agriculture into the country’s frontier region, which includes the surrounding Cerrados savannah. The conversion of range, pasture, and other land into cropland in Brazil is due to rising domestic and international food demand but is also a consequence of ethanol production and policies that have increased the demand for sugarcane (ethanol feedstock). Because the supply and demand for ethanol are inexorably linked to that of petroleum, oil prices can affect production and land-use decisions for ethanol feedstocks and related agricultural commodities. This study examines the effects of longrun changes in oil prices on ethanol production in Brazil and resulting cropping patterns. Given a sustained fall in oil prices, ethanol use would be expected to fall, leading to a decrease in area planted to sugarcane and an increase in land available for other agricultural commodities. However, a sustained increase in oil prices would be expected to increase the incentives to produce ethanol, thereby expanding sugarcane production and planting area. Given Brazil’s dominant position in multiple global commodity export markets, adjustments to output and exports would lead to changes in world prices.