Doctoral Dissertation Research in Economics: Development of the Milk and Beef Processing Sectors: Implications for Land Use by Small Farmers in the Amazon

North Carolina State University, Raleigh NC

Investigators

Abstract

Government policy has facilitated integration of the Amazon into national and international markets, encouraging the establishment of milk and beef processing plants. As a result, cattle ranching have become the preferred land use for many small farmers. But there continues to be a raging debate over the sustainability and environmental cost of pasture creation. While an increase in the number of regional processing plants increases market access of farmers as suppliers of milk and beef, the impact of processing plants on land use decisions of farmers is less obvious. Empirical evidence on the market conditions under which farmers adopt more intensive pastoral systems or convert more forest to extensive pastures is notably lacking. This Doctoral Dissertation Improvement will permit the investigator to elucidate (1) the determinants of location decisions of milk and beef processing plants and (2) and the impact of these location decisions on land use choices of small farmers. Specifically, funding is requested to gather detailed information on the milk and beef markets in a case study region in the western Brazilian Amazon, to be combined with an existing spatially referenced three period panel data set on colonist farmers. The hypotheses are that - (1) processing plants locate in regions based on expectations of the number of farmers supplying milk or beef and calculations of the sustainability of pasture productivity; (2) market opportunities arising from greater density of processing plants encourages small farmers to invest in intensification of pastures. The dissertation will build on existing National Science Foundation funded research (SES, 0452852) entitled 'Dynamics of Household Land Use and Economic Welfare on the Amazon Frontier'. Panel data on household production of milk and beef, amount of land devoted to pastures and investments made in cattle productivity have been collected for three periods through interviews with farmer and remote sensing. The proposed fieldwork to be undertaken in July to September 2006 will supplement existing data by (1) surveying personnel of the milk and beef processing plants serving the study region about the reasons for choosing present location, production structure, supply network of farmers and market shed of each processing plant; (2) interviewing key informants among farmers and their associations about contractual agreements and procurement methods of processing plants; (3) gathering detailed information on evolution of cattle husbandry for a sub-sample of farmers interviewed in previous surveys (SES, 0452852) from IDARON (Agencia de Defesa Sanitaria Agrosilvopastoril), the government agency in the state of Rondonia that has conducted extensive cattle census in the study site since 1999; (4) collecting secondary spatial information on soil fertility and topography. The analysis will contribute to the growing inter-disciplinary literature on combining spatial data processed from remote sensing and GPS with socio-economic data from household surveys and information on market structure from interviews with agro-processing plants. Discrete-choice models in the random utility framework will be used to explain the location choice of milk and beef processing plants in a frontier region. Dynamic panel methods will be used to estimate the joint evolution of cattle markets and farmer' land use decisions, utilizing the spatial content of the data to correct for spatial dependence and spatial heterogeneity. This research will examine the formation of cattle market, including location and access to milk vs. beef markets, analyze farmer response to adopt intensive/extensive pastoral systems and inform policy-makers on the links between avenues of landuse intensification and deforestation. Information collected from profit-maximizing processing plants will provide insights on pasture sustainability and possible future trajectories of the cattle market. Proposed fieldwork will enrich an existing panel dataset on farmer landuse with information on evolution of cattle markets and allow researchers to examine a broader array of research questions. The data collected will be the nucleus of a doctoral dissertation and used in journal publications and conference presentations.