Exchange rates, soybean supply response, and deforestation in South America

Abstract

The advancement of South America's agro-pastoral frontier has been widely linked to losses in biodiversity and tropical forests, with particular impacts on the Brazilian cerrado, the Atlantic Forest, and the Amazon. Here we consider an important, yet largely overlooked, driver of South America's soybean expansion, namely the devaluation of local currencies against the US dollar in the late 1990s and early 2000s. Much interest has emerged in recent years over the environmental implications of soybean production in Brazil, with evidence of both direct incursions into moist tropical forest by soybean producers and of potential indirect effects, via the displacement of existing ranching operations. In this research we utilize historical trends in soybean prices, exchange rates, and cropland dedicated to soybean production in Bolivia, Paraguay, and Brazil to estimate the impact of currency devaluations on area of production. The results suggest that approximately 80,000km2, or 31% of the current extent of soybean production in these countries, emerged as a supply area response to the devaluation of local currencies in the late 1990s. The results also indicate that the more recent depreciation of the dollar and appreciation of the Brazilian real have counteracted a recent rise in global soybean prices, in the process sparing an estimated nearly 90,000km2 from new cropland, 40,000km2 of this in the Amazon alone. Amidst an increasingly neoliberal economic environment, where barriers to trade are jettisoned in favor of the free flow of commodities, relative currency values will occupy an important role in the future sourcing of both agricultural expansion and environmental degradation.