Introduction

Increasing agricultural productivity plays a key role in the efforts to combine agricultural growth and forest protection by allowing farmers to produce more using the same area. [1]  However, for agricultural productivity to increase, farmers must invest considerable resources to be able to use modern inputs such as tractors and fertilizers. [2]  Thus, evaluating the demand for capital that productivity increases would generate is important to understand which changes in the supply of agricultural credit are necessary to support increased agricultural production.

In this report, CPI/PUC-Rio explores municipality-level information on revenues, operating costs and farm equipment to quantify the costs of maximizing Brazil’s agricultural production without increasing deforestation. It begins by measuring the potential to increase crop and beef output in each municipality of the country. It then combines this measure with information on operational costs and the value of farm equipment to estimate the increase in capital required to maximize crop and beef output in each municipality of the country.

The researchers find that Brazil could increase crop output by 79.0-104.5% without affecting deforestation. It could also increase beef output by 26.8% without increasing the area with pastures. To obtain these increases in production, farmers would need to increase the value of farm equipment by 47.5-51.6% (USD 34.4-37.4 billion) and the operational costs by 43.5-50.5% (USD 44.4-51.2 billion). There is substantial regional heterogeneity in these numbers with the more substantial increases concentrated in regions as diverse as the north of the state of Goiás or the Vale do Ribeira region in the states of Rio de Janeiro and São Paulo.

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[1]  Climate Policy Initiative (2013). Production and Protection: A First Look at Key Challenges in Brazil. Available at: bit.ly/3bkL6zT.

[2]  For one example of the relationship between agricultural growth and input use, see: Assunção, J., & Bragança, A. (2015). Technological Change and Deforestation: Evidence from the Brazilian Soybean Revolution. INPUT Working Paper. Available at bit.ly/3tGBAxg.