PROGRAMA BIOEN Projeto 2008/ Simulating Land Use and Agriculture Expansion in Brazil: Food, Energy, Agro industrial and Environmental Impacts

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1 PROGRAMA BIOEN Pojeto 2008/ Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts Relatóio Científico Final (9 de Feveeio de 2011) Pesquisado Responsável: Andé Meloni Nassa Instituição Sede: Instituto de Estudos do Comécio e Negociações Intenacionais (ICONE) Equipe de Pesquisa: Leila Hafuch, Pesquisadoa ICONE Macelo M. R. Moeia, Pesquisado ICONE Luciane C. Bachion, Pesquisadoa ICONE Laua B. Antoniazzi, Pesquisadoa ICONE Rodigo C. Lima, Pesquisado ICONE Peíodo de Vigência: 01/08/2009 a 31/12/2010 Local: São Paulo, 09/02/2011 Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts

2 Item I: Summay of the Objectives Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts In the ea of seaching fo enegy secuity and educing geen house gas (GHG) emissions, agicultualbased biofuels have been consideed the altenative enegy souce. In addition with the gowing demand fo agicultual commodities, the intenational debate has been focused on the land use change impacts coming fom the inceasing demand fo biofuels. As an emeging agicultual secto, Bazilian agicultue is expanding and inceasing its impotance in the wold maket. Bazil has temendous potential to be, not only an impotant supplie of taditional agicultual commodities, but also an impotant global biofuel supplie, especially of sugacane ethanol. As exposed in the poject poposal, many questions aise egading land use change effects, specially elated to the competition among cops and pastue and also the effects on the agicultual fontie. The methodologies cuently available to assess land use changes due to biofuel and agicultual expansion ae incomplete and need to be impoved. Economic models and othe methodologies fail to captue and eplicate empiical evidence about the agicultual secto, land allocation and land use changes dynamics. The best appoach to deal with the uncetainties of measuing GHG savings fom agicultual based biofuels, in addition to biofuel expansion and its effects on food poduction and pices (food vesus fuel debate), is to calibate economic paametes based on histoical land use changes identified by satellite imagey and emote sensing techniques, along with seconday data. The main objective of this poject is to calibate paametes in the Bazilian Land Use Model (BLUM) in ode to captue and eplicate empiical evidence and the dynamics of the agicultual secto fom a pospective point of view. Since the satellite imagey database was available duing the development of this poject, BLUM paametes wee e calculated. Combining bette available infomation with cause effect method esults, it was possible to tun the competition among cops and pastue and the definition of the deteminants of total aea allocated to agicultue into paametes in the model. In ode to achieve the main objective of this poject and to answe the questions aised in the poject poposal, the following specific objectives wee consideed in this study: (i) Establishment of the individual contibution of agicultual uses in total agicultual land expansion; (ii) Re calibation of land supply elasticities fo the six egions included in BLUM land use module; (iii) Definition of a new anking fo the competition among agicultual uses with the objective of inceasing the competition between cops and pastues; (iv) Re calibation of own and coss competition elasticities fo agicultual uses included in BLUM that compete fo land (soybean, ice, cotton, con fist cop, sugacane, dy beans fist cop and pastues); (v) Sensitive analysis compaing the pevious vesion of the model and the updated one. Fo the fist specific objective, the individual contibution in total land allocated to agicultue is measued as the shae of each poduct in total land bought into poduction. This paamete is used in the calculations to establish the e calibated land supply elasticities and own and coss competition elasticities, which wee evised using satellite images database combined with seconday database analysis. Land supply elasticities ae the paametes that goven the expansion of total agicultual aea as a function of changes in pofitability. Since empiical evidences ae available to detemine the esponsibility of each agicultual activity ove defoestation, the agicultual aea esponse to aveage etun (land supply elasticities) shall be ecalculated. Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 1

3 Fo the thid item, the competition anking was used in the calculations of coss competition elasticities. Since thee is evidence that cops ae displacing pastuelands, the competition among cops and pastue might be highe than among diffeent cops. As so, this evidence needs to be captued by the coss competition elasticities. The study shows the connections among all the elasticities and the need to ecalculate all of them using satellite images database combined with cause effect methodology. Own and coss competition elasticities goven aea esponse of individual poducts to changes in etuns. As in land supply elasticities, own and coss elasticities wee e calibated by BLUM egions and ae pesented as competition matices. Finally, the last specific objective is to simulate a scenaio with ethanol demand shock in ode to compae the esults of the pevious and updated vesions of the BLUM. Based on the U.S. Renewable Fuel Standad, the demand shock was, appoximately, 9 billion lites of additional ethanol expots (compaing to the baseline scenaio). Though paametes that captue the agicultual secto dynamics, it is possible to make multiple infeences using the model s esults. Captuing the competition among gains, sugacane and pastue can answe the questions aised in the food vesus fuel debate, such as: how biofuel expansion affects food pices and total poduction; what happens in the agicultual fontie when one activity is displaced by a biofuel feedstock; if thee ae any change on the egional poduction dynamics; how diffeent policies affect agicultual dynamics; among many othes. Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 2

4 Item II: Main Achievements Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 1. Intoduction Since the end of 2007 the Institute fo Intenational Tade Negotiations (ICONE) has been woking on impoving the methodologies used fo measuing the impacts of the expansion of the agicultual secto on land use in Bazil. The main pupose of this eseach agenda is to quantify diect and indiect land use changes (LUC and iluc) of agicultual based biofuels in geneal and sugacane ethanol in paticula. In a patneship with the Cente fo Agicultual and Rual Development (CARD, Iowa State Univesity), ICONE s eseach team developed an economic model called Bazilian Land Use Model (BLUM) to simulate supply and demand of agicultual poducts poduced in Bazil and its impacts on the demand fo land,. Because BLUM is integated to FAPRI s wold models (FAPRI, 2010) 1 it is possible to simulate the esponses of the Bazilian agicultual secto to changes in wold pices. Besides economic modeling, ICONE is also woking with othe methodologies to quantify land use changes as a consequence of the expansion of agicultual based biofuels (Nassa et al., 2011a) 2. The institute developed a deteministic methodology to estimate GHG land use emissions associated to the expansion of sugacane (Nassa et al., ; Nassa et al., 2011b 4 ). Economic models equie constant updates of data, paametes and assumptions. A key issue egading ICONE s eseach agenda on land use was to impove BLUM s land allocation and competition section land use module incopoating new data, ecalibating paametes and evising assumptions that detemine equations used in the model. Though the combination of data geneated in the context of the deteministic methodology, emote sensing data assessing Ceados biome convesion to annual cops and pastues (Feeia et al., 2011) 5, data on Amazon, Ceados and Atlantic Foest biomes defoestation and data on the agicultual secto s pe hectae pofitability listed in BLUM, ICONE was able to update and impove BLUM s land allocation and competition section. The impovements accomplished in BLUM s land use section ae discussed and pesented in this epot as the main achievements of the poject Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts. This epot also pesents the esults of a set of BLUM simulations compaing the pevious stuctue of the land use module to the new one. The establishment of paametes and assumptions that goven land allocation fo BLUM s agicultual sectos based on eal data is a key methodological contibution of this poject. Land supply elasticities (esponse of total agicultual land to changes in maket etuns) and coss aea elasticities (esponse of the aea of a cetain agicultual use to changes in the etun of anothe use) wee ecalculated using histoical data of land use changes fom satellite images, athe than based on seconday data only. The 1 FAPRI U.S. and Wold Agicultual Outlook. Food and Agicultual Policy Reseach Institute. FAPRI Staff Repot 10 FSR 1. 2 Nassa, A. M.; Hafuch, L.; Bachion, L. C.; Moeia, M. R. 2011a Biofuels and land use changes: seaching fo the top model. Inteface Focus (doi: /sfs ). This efeence is listed in item V as a publication esulting fom this poject. 3 Nassa, A. M.; Antoniazzi, L. B.; Moeia, M. R.; Chiodi, L.; Hafuch, L An Allocation Methodology to Assess GHG Emissions Associated with Land Use Change: Final Repot. ICONE (epot and detailed speadsheet available at 4 Nassa, A. M.; Moeia, M. R.; Antoniazzi, L. B.; Bachion, L. C.; Hafuch, L. 2011a Indiect land use changes fo sugacane ethanol in Bazil: Development of a causal allocation methodology. Enegy Policy (submitted but not accepted yet). This efeence is listed in item VI as a publication esulting fom this poject. 5 Feeia, M. E.; Silva, J. R.; Rocha, G. F.; Antoniazzi, L.; Nassa, A.; Rocha, J. C. S. Caacteização das áeas desmatadas no bioma Ceado via sensoiamento emoto: uma análise sobe a expansão de cultuas agícolas e pastagens cultivadas. XV Simpósio Basileio de Sensoiamento Remoto (submitted and accepted). This efeence is listed in item V as a publication esulting fom this poject. Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 1

5 assumptions that dive the contibution of individual agicultual sectos to the convesion of the agicultual fontie, as well as those that goven the competition among agicultual uses, wee also evised based on evidences fom emote sensing data and satellite imagey. The main achievements of this poject ae: (i) Establishment of the individual contibution of agicultual uses in total agicultual land expansion. The individual contibution is measued as the shae of each poduct in total land bought into poduction (Table 3); (ii) Re calibation of land supply elasticities fo the six egions included in BLUM land use module. Land supply elasticities ae the paametes that goven the expansion of total agicultual aea as a function of changes in pofitability (Table 5); (iii) Definitions of a new anking fo the competition among agicultual uses with the objective of inceasing the competition between cops and pastues. The competition anking was used in the calculations of coss competition elasticities; (iv) Re calibation of own and coss competition elasticities fo agicultual uses (soybean, ice, cotton, con fist cop, sugacane, dy beans fist cop and pastues) that compete fo land included in BLUM. Own and coss competition elasticities goven aea esponse of individual poducts to changes in maket etun. As in land supply elasticities, own and coss elasticities wee e calibated accoding to BLUM egion and ae pesented in competition matices (Table 6, Table 7, Table 8 to Table 13); This epot is oganized as follows. BLUM land allocation is descibed in the next section. Section 3 discusses the methodological developments of the poject in tems of data geneation and the theoetical model used. Section 4 is devoted to pesent the esults of estimated paametes and simulations. The final section offes a set of ecommendations and points out limitations associated to this poject s esults. 2. BLUM Land Allocation Section 6 BLUM compises the following poducts: soybeans, con (fist and second cop), cotton, ice, dy beans (fist and second cop), sugacane, wheat, baley, daiy, and livestock (beef, boile, eggs and pok). Commecial foests ae consideed exogenous pojections. Combined, these activities wee esponsible fo 95 pecent of total aea used fo agicultual poduction in Although second and winte cops, such as con, dy beans and wheat do not geneate additional need fo land (they ae smalle and planted in the same place as fist season cops), thei poduction is accounted fo in the national supply. Land allocation fo agicultue and livestock is calculated fo six egions, 8 as showed in Figue 1: South (states of Paaná, Santa Cataina, and Rio Gande do Sul); Southeast (states of São Paulo, Rio de Janeio, Espíito Santo, and Minas Geais); Cente West Ceado (states of Mato Gosso do Sul, Goiás and pat of the state of Mato Gosso inside the biomes Ceado and Pantanal); Nothen Amazon (pat of the state of Mato Gosso inside the Amazon biome, Amazonas, Paá, Ace, Amapá, Rondônia, and Roaima); Notheast Coast (Alagoas, Ceaá, Paaíba, Penambuco, Rio Gande do Note, and Segipe); Notheast Ceado (Maanhão, Piauí, Tocantins, and Bahia). 6 This section is focused on the land use section of the model. The stuctue of the supply and demand section is descibed in detail in the section 7.3. of the submission of this poject to Auxílio à Pesquisa/Pojeto Temático. 7 When we efe to agicultual aea, we conside annual cops, sugacane and livestock. 8 The main citeia to divide the egions wee agicultual poduction homogeneity and individualization of biomes with especial elevance fo consevation. Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 2

6 Figue 1. Map of the Bazilian Land Use Model BLUM egions Nothen Amazon Cente West Ceado Notheast Ceado Notheast Coast Southeast South BLUM is a multi maket, patial equilibium economic model and compises two geneal sections: supply and demand and land use. These sections ae intedependent though national poduction of each activity. In the supply and demand section, the demand is pojected at national level and fomed by domestic demand, net tade (expots minus impots) and final stocks (which ae not consideed fo daiy and livestock sectos and sugacane), 9 which espond to pices and to exogenous vaiables such as goss domestic poduct (GDP), population and exchange ate. The supply is fomed by national poduction (which is egionally pojected) and beginning stocks (again consideed only fo gains and final poducts sugacanebased poducts) and esponds to expected pofitability of each commodity, which depends on costs, pices and yields. National supply and demand and egional land use of each poduct espond to pice. Consequently, fo a given yea, equilibium is obtained by finding a vecto of pices that cleas all makets simultaneously. Yea by yea, a sequence of pice vectos ae found, which allows the maket tajectoy to be followed though time. The outputs of the model ae: egional land use and change, national poduction, pices, consumption and net tade. Annual poduction in each egion comes fom the poduct of allocated land and yields. National poduction is the sum of all egions poduction, in addition to beginning stocks. This elationship guaantees the inteaction between the land use and supply and demand sections in the model, consideing that the following identity must be satisfied: Beginning stock + Poduction + Impots = Ending Stock + Domestic Consumption + Expots o, consideing that Net Tade = Expots Impots: Beginning stock + Poduction = Ending Stock + Domestic Consumption + Net Tade 9 In the case of sugacane, stocks ae only fo its final poducts, suga and ethanol. The model does not yet include, as a souce of income fom sugacane, othe vaious bypoducts of sugacane poduction such as bagasse (whethe used fo electicity geneation o animal feed). Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 3

7 BLUM also takes into account inteactions among the analyzed sectos, and among one poduct and its subpoducts. Fo example, the inteaction between the gain and livestock sectos is the feed consumption (basically con and soybean meal) that comes fom the supply of meat, milk and eggs, which is one component of the domestic demand fo con and soybeans. In the case of soybean complex, the components soybean meal and soybean oil ae pats of the domestic demand fo soybeans and ae detemined by cush demand. Similaly, ethanol and suga ae the components of sugacane demand (Figue 1). Figue 1. Inteactions among BLUM sectos Rice Con Ethanol Sugacane Suga Cotton Soybean oil Industy and biodiesel Dybean Pok Soybean Pastue Soybean meal Poulty (eggs and chicken) Beef The land use dynamics is divided in two effects: competition and scale. Intuitively, competition effect epesents how the diffeent activities compete fo land fo a given amount of available land, and the scale effect efes to the way that the competition among diffeent activities geneates the need fo additional land allocation. This need is accommodated by the expansion of total agicultual aea ove natual vegetation. The competition effect follows the methodology poposed by Holt (1999) 10, and consists of a system of equations that allocates a shae of agicultual aea to each cop and pastue in each egion as a function of its own and coss pice pofitability. It establishes that, fo a given amount of agicultual land, an incease in the own pofitability of one activity will incease the shae of aea dedicated to this activity. On the othe hand, an incease in pofitability of a competing activity educes the shae of aea of the fist activity. In Holt (1999), total agicultual aea is exogenously detemined, while in the BLUM it is endogenously detemined in the scale effect, as will be exploed in the methodological section. The egulaity conditions (homogeneity, symmety and adding up) ae imposed so that the elasticity matices (and associated coefficients) ae theoetically consistent. Fo any set of these coefficients we calculate own and coss impacts and competition among activities. Results of BLUM then allow us to calculate not only land allocation, but also land use changes. In othe wods, the conditions allow the identification of the exchanged aea fo each activity, consideing the amount of total allocated agicultual aea. In ode to guaantee coheence of the above mentioned conditions, pastue aea is egionally and endogenously detemined, but modeled as the esidual of total agicultual aea minus cop aea. In the context of Bazilian agicultue, it is paticulaly elevant to poject pastue both endogenously and egionally. 10 Holt, M. T A linea appoximate aceage allocation model. Fago: Jounal of Agicultual and Resouce Economics, 24, n. 2, pp Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 4

8 Although the competition among activities may epesent egions whee the agicultual aea is stable and nea its available potential, this is an insufficient analysis fo Bazil. Recent Bazilian agicultual histoy shows that cops, commecial foests and pastues combined espond to maket incentives by contibuting to an expansion of the total aea allocated to agicultue. This effect is captued in the scale section of the BLUM. This methodological impovement is essential to adjust the model skills to the specific eality of Bazilian agicultual land use dynamics. The scale effect efes to equations that define how the etuns of agicultual activities detemine the total land allocated to agicultual poduction. Moe pecisely, total land allocated to agicultue is a shae of total aea available fo agicultue, and this shae esponds to changes in the aveage etun of agicultue. Fo each egion, total land allocated to agicultual poduction is pojected as: Agland f Avg Re tun * A, whee Agland is total land allocated to agicultual poduction, Avg Retun is the aveage agicultual etun of the egion, A is the total available land (that was estimated using geospatial infomation), a constant elasticity function with esults in the inteval [0,1] fo easonable values of aveage etun. f. is Howeve, scale and competition effects ae not independent. In conjunction, they ae the two components of the own etun elasticities of each activity. Consideing a ceteis paibus condition, the incease in pofitability of one activity has thee effects: incease in total agicultual aea (though aveage etun), incease in its own shae of agicultual aea and, theefoe, eduction in the shae of agicultual aea of othe activities. Fo competing cops, coss effects of pofitability on aea ae negative. As mentioned peviously, the own elasticities of each cop ae the sum of competition and scale elasticities. At the same time, egional elasticity of land use with espect to total agicultual etuns (total Agland elasticity) is the sum of the scale elasticities of each activity. Theefoe, competition elasticities can be calculated diectly afte total Agland elasticity while total own elasticities wee obtained though econometic analysis and liteatue eview. The option to estimate aea esponse to etun, instead of pice, is suppoted by seveal studies. 11 The pocess to obtain pope elasticities was compehensively discussed by ICONE and CARD/FAPRI staffs until the final values wee ageed on. Own etun elasticity was mainly estimated though time seies econometic analysis, using official data fo aea, namely fom Bazil s Agicultue Ministy s National Supply Agency (CONAB) and the Bazilian Institute of Geogaphy and Statistics (IBGE). Annual pofitability was calculated by ICONE. Liteatue eview and expets wee also consulted fo qualitative anking of elasticities. Table epots the own aea etun elasticities (aveaged by aea) used in BLUM fo cops and pastue in this pape. Specific geospatial analysis was conducted in ode to estimate total potential land available fo agicultual poduction fo each BLUM egion, which is included as an input in the scale effect section of the model. Two databases ae available: (i) one developed by UFMG in the context of the Bazil Low Cabon Study and integated to the SIMBRASIL model (de Gouvello, ) and (ii) a second one povided by the Agicultual Land Use and Expansion Model Bazil (AgLUE BR, Spaovek et al., 2010a 13 ). Fo esticting agicultual land use expansion physical (soil, climate and slope) and legal (envionmental legislation applicable to pivate famland and public consevation paks) conditions wee also spatially consideed. 11 Bidges, D.; Tenkoang, F Agicultual Commodities Aceage Value Elasticity Ove Time: Implications fo the 2008 Fam Bill. San Diego: Ameican Society of Business and Behavioal Sciences. v.6, n de Gouvello, C Bazil Low Cabon County Case Study. Wold Bank, Washington, 2010 (available at: 13 Spaovek, G.; Bendes, G.; Klug, I. F. L.; Baetto, A. G. O. P. 2010a Bazilian agicultue and envionmental legislation: status and futue challenges. Envionmental Science & Technology, vol. 44, 2010, pp Spaovek, G.; Baeto, A.; Klug, I.; Papp, L.; Lino, J. 2010b A evisão do Código Floestal basileio. Novos Estudos, 88, Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 5

9 3. Methods 3.1. Data Geneation and Collection This section descibes the data that wee geneated and collected specifically fo the impovements on BLUM s land use module developed in this poject. 14 Geneally speaking, BLUM s land use module is compised of two sets of data: economic data (pe hectae pofitability) and physical data (land availability, substitution among agicultual activities, defoestation ates and convesion of native vegetation land fo poductive puposes). The geneation of physical data esults fom a combination of seconday data and emote sensing data. Being oiginated fom satellite images, emote sensing data wee oganized in tabula fomat by municipalities and aggegated accoding to BLUM s 6 egions (Figue 1). Physical data wee used fo two puposes: (i) calculation of land available fo agicultue in each of the 6 egions of the model; (ii) estimation of the advancement of cops and pastues ove native vegetation in Ceado and Amazon biomes based on histoical data Physical Data The incopoation of availability of land was implemented in BLUM s land use section pevious to this poject. Theefoe, the topic is not exploed in detail in this epot. BLUM uses two sets of data on land availability, both fom Spaovek (2010a, op. cit.; 2010b 15 ). The fist database consides only low slope aeas while the second takes into account soil and climate conditions in the estimation of land availability. BLUM is pepaed to un with both databases. Land availability acts as a constaint in BLUM s land use section as indicated in equation (2) pesented in section 3.3. The quantification of the expansion of cops and pastues ove native vegetation as pesented in Table 3 was calculated in two steps. The fist step was to establish the shae of annual cops, pastues and sugacane on the diect convesion of native vegetation (Table 1 and Table 2). The second step was to establish the shae of individual cops in total convesion caused by annual cops. The shaes in the second step wee calculated based on the methodology poposed by Nassa et al. (2010, op. cit.; 2011b, op. cit.). The appoach poposed by Nassa et al. is an allocation methodology whee the substitution of poductive activities and natual vegetation by othe poductive activities is calculated fom absolute vaiations obseved ove a detemined peiod of time. The positive vaiations ae allocated to the negative vaiations based on assumptions elated to land use changes. The allocation assumptions, mainly in the case of natual vegetation substitution, wee calibated by physical data obtained fom satellite imaging. The coefficients of competition and advancement of the agicultual fontie wee calculated by the combination of seconday data gatheed mostly fom Podução Agícola Municipal (PAM Municipal Agicultual Poduction) of the IBGE and emote sensing pimay data fo defoestation ates (Amazon, Atlantic Foest and Ceado biomes) gatheed fom the Instituto Nacional de Pesquisas Espaciais (INPE) and the Laboatóio de Pocessamento de Imagens e Geopocessamento (LAPIG) of the Univesidade Fedeal de Goiás. The calculations wee pefomed fo each IBGE mico egion (550 appoximately) and aggegated to BLUM s 6 egions. The appoach used in Nassa et al., howeve, only allows the quantification of the individual contibution of agicultual activities to the convesion of native vegetation as a esult of the allocation methodology. Nassa et al. used the vaiations in planted aeas and defoestation ates to allocate positive vaiations ove native vegetation. The appoach used in this poject is diffeent and is based on obsevable data fom emote sensing. In this poject, the land uses in newly defoested aeas fo Amazon and Ceado biomes wee estimated with satellite imagey. The shae of pastues, annual cops and sugacane in convesion of 14 A detailed desciption of all data included in BLUM supply and demand module is descibed in the section 7.3. of the submission of this poject to Auxílio à Pesquisa/Pojeto Temático. 15 Spaovek, G.; Baeto, A.; Klug, I.; Papp, L.; Lino, J. 2010b A evisão do Código Floestal basileio. Novos Estudos, 88, Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 6

10 native vegetation (fist step), theefoe, was established with obsevable data fom satellite imagey 16. Due to limitations egading the methodologies to intepet satellite images visually, it was not possible to sepaate annual cops. Such limitation gave ise to the need to take the second step: to split land use class annual cops into individual cops. The expansion of cops and pastues ove native vegetation in the Amazon biome was estimated though data fom the Soybean Moatoium initiative (Rudoff et al., 2011) 17. Excluding non poductive uses such as buning and natual foest ecovey in newly defoested aeas, the obseved shaes of pastues and cops fo the yea 2007/08 wee 93% and 7% espectively.. This shae was used in BLUM Nothen Amazon egion (Table 3). In the case of the Ceado biome, a specific methodology was developed by LAPIG 18 and its esults wee incopoated in this poject. LAPIG is esponsible fo the Sistema Integado de Aleta de Desmatamentos (SIAD), which monitos defoestation in the Ceado biome (compising the states of Goiás, Distito Fedeal, Bahia, Tocantins, Mato Gosso, Mato Gosso do Sul, Maanhão, Piauí, São Paulo and Minas Geais) on a yealy basis. Detailed desciptions of the methodology used fo detection of defoestation can be found in Feeia et al. (2007), Feeia et al. (2009, op. cit.) and Rocha et al. (2010) 19. The methodology developed by LAPIG fo this poject can be found in Feeia et al. (2011, op. cit.). The main pupose of LAPIG s eseach was to assess the fist occupation of the land once it had been cleaed. Thee classes of poductive uses wee defined: annual cops (agicultue), pastues and sugacane. The defoested polygons analyzed fo this poject efe to the following peiod: 2004/05 and 2006/07. The esults of this eseach that ae elevant to this poject ae descibed in Table 1 and Table 2. Fo the 2004/05 peiod, newly cleaed Ceado occupation shae was 47% with agicultue and 53% with pastues, while in 2006/07 the shae of agicultue inceased to 54%. The distibution is not homogeneous among states. The main contibution of LAPIG to this poject was to evaluate the advancement of annual cops and pastues ove the Ceado. A simila analysis was developed fo sugacane but it was based on CANASAT maps (Rudoff et al., ) athe than SIAD maps. The shae of sugacane in the convesion of native vegetation pesented in Table 3, theefoe, is based on CANASAT maps. 16 Given that the evaluation of the occupation of newly defoested aeas by agicultual uses though satellite imagey is available only fo Amazon and Ceados biomes (compising BLUM egions Southeast, Cente West Ceados, Notheast Ceados and Nothen Amazon), diect advancement of agicultual activities ove native vegetation fo BLUM egions South and Notheast Coast was fully accessed based on Nassa et al. (2010, 2011b). 17 Rudoff, B. F. T.; Adami, M.; Aguia, D. A.; Moeia, M. A.; Mello, M. P.; Fabiani, L.; Amaal, D. F.; Pies, B. M The Soy Moatoium in the Amazon Biome Monitoed by Remote Sensing Images. Remote Sensing, 3(1), (doi: /s ). 18 This poject funded LAPIG wok. The main esults of the eseach can be found in Feeia et al. (op. cit.). 19 Feeia, N.C.; Feeia Junio, L.G.; Huete, A.R.; Feeia, M.E. An opeational defoestation mapping system using MODIS data and spatial context analysis. Intenational Jounal of Remote Sensing, v. 28, p , Feeia, M.E.; Gacia, F.N.; Fenandes, G. Validação do Sistema Integado de Aleta de Desmatamentos paa a egião de savanas no Basil. In: Simpósio Basileio de Sensoiamento Remoto, 2009, Natal. Anais do XIV SBSR. São José dos Campos: INPE, Rocha, G.F.; Feeia, N.C.; Feeia JR., L.G.; Feeia, M.E. Deteção de desmatamentos no bioma Ceado ente 2002 e 2009: padões, tendências e impactos. Revista Basileia de Catogafia, 2010 (to be published). 20 Rudoff, B.F.T; Aguia, D. A.; Silva, W. F.; Sugawaa, L. M.; Adami, M; Moeia, M. A Studies on the Rapid Expansion of Sugacane fo Ethanol Poduction in São Paulo State (Bazil) Using Landsat Data. Remote Sensing, 2, Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 7

11 Table 1. Ceado biome: distibution of polygons with defoestation chaacteized with agicultue o pastue (hectaes, 2004/05) State Agicultue (ha) Pastue (ha) Total (ha) % agicultue % pastue BA 55,242 15,889 71,130 78% 22% GO 17,808 28,095 45,904 39% 61% MA 16,998 10,674 27,672 61% 39% MG 9,584 18,403 27,986 34% 66% MS 8,318 30,665 38,982 21% 79% MT 76,967 96, ,282 44% 56% PI 38,163 7,358 45,521 84% 16% SP 4,955 2,793 7,748 64% 36% TO 8,336 35,137 43,473 19% 81% Total 236, , ,698 47% 53% Table 2. Ceado biome: distibution of polygons with defoestation chaacteized with agicultue o pastue (hectaes, 2006/07) State Agicultue (ha) Pastue (ha) Total (ha) % agicultue % pastue BA 83,404 8,648 92,052 91% 9% GO 6,756 29,525 36,281 19% 81% MA 20,196 17,580 37,775 53% 47% MG 27,253 44,735 71,988 37% 63% MS 28,609 19,991 48,600 59% 41% MT 35,501 31,755 67,256 52% 48% PI 27,000 1,064 28,064 96% 4% SP 3, , % 0% TO 7,961 50,508 58,469 13% 87% Total 240, , ,334 54% 46% Table 3. Shae of land allocated to diffeent uses afte defoestation Regions Activities % Defoestation Cops % Cops Regions Activities % Defoestation Cops % Cops Con 54 Con 20 Soybean 30 Soybean 74 Cops 44 Cotton 0 Cops 39 Cotton 0 South Rice 3 Southeast Rice 1 Dy Bean 13 Dy Bean 5 Sugacane 1 Sugacane 2 Pastue 55 Pastue 59 Con 53 Con 29 Soybean 45 Soybean 69 Cente West Ceado Notheast Cost Cops 42 Cotton 0 Cops 7 Cotton 0 Noth Rice 1 Rice 0 Amazon Dy Bean 2 Dy Bean 2 Sugacane 3 Sugacane 0 Pastue 56 Pastue 93 Con 49 Con 20 Soybean 0 Soybean 34 Cops 20 Cotton 3 Cops 64 Cotton 33 Notheast Rice 3 Rice 3 Ceado Dy Bean 46 Dy Bean 10 Sugacane 7 Sugacane 0 Pastue 73 Pastue 36 Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 8

12 Economic Data The economic data that is elevant to this poject ae pesented in Table 4. Table 4 was geneated aiming the calculation of egional land supply elasticities (pesented in Table 5). The total land allocated to agicultue was established adding up annual defoestation ates ove the base yea (2002). The database with egional defoestation ates was oganized by Nassa et al. (2010, op. cit.). The aveage etun compises agicultual activities included in BLUM that compete fo land (soybean, con fist cop, cotton, ice, dy beans fist cop, sugacane and pastues). Weights used to calculate the aveage etun ae the same as those fom Table 3. Based on equation (11) descibed in the next section, land supply elasticities wee calculated using Eo! Fonte de efeência não encontada. data. Howeve, the empiical evidence does not always confim the theoy: fo seveal yeas etuns ae deceasing while agicultual land is inceasing. Fo this eason, land supply elasticities wee calculated only fo the yeas with positive vaiation of maket etuns. Theefoe, land supply elasticities pesented in Table 5 ae the aveage of positive elasticities fo a given egion. Table 4. Land allocated to agicultue (1,000 ha) and weighted aveage etuns (R$/ha) South Southeast Cente West Ceado Nothen Amazon Notheast Coast Notheast Ceado Aea Retun Aea Retun Aea Retun Aea Retun Aea Retun Aea Retun , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Paametes Definitions The next section descibes the theoetical model and the equations used to calculate the updated paametes pesented in Tables 2, 4 and 11 to 16. In ode to help the eade to undestand the deivation of paametes pesented next, the following notation was used fo the vaiables: (i) (ii) (iii) (iv) (v) d : diect contibution of individual agicultual activity in natual vegetation land convesion in a given egion. The paamete d was calculated based on Nassa et al. (2010), Nassa et al. (2011b) and Feeia et al. (2011). The weights used to establish this paamete ae pesented in Table 3Eo! Fonte de efeência não encontada.. : land supply elasticity with espect to maket etun fo a give egion (fo esults see Table 5)., : own competition elasticity (land competition component of the aea elasticity of cop i with espect to its own etun) (Table 6 and Table 8 to Table 13), : coss competition elasticity (land competition component of the aea elasticity of cop i with espect to the etun of j) (Table 8 to Table 13). Desciptos l, i, j, and c ae, espectively: BLUM s 6 egions, own cop, competition cop, maket etun (pofitability pe hectae) and competition component Theoetical Model and Assumptions The following items in BLUM wee evised: weighted aveage etun index, egional land supply elasticities and egional competition matices elasticities. The next sections explain the theoetical stuctue on the land use section of BLUM, compaing the updated vesion to the pevious vesion. Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 9

13 Pevious vesion of the model In the BLUM land use section, the aea a of cop i of each egion l (l=1,,6) in yea t is defined by the following equation: (1) A T is total aea available fo agicultual poduction; is the shae of that is cuently used fo agicultual poduction (all cops and pastue), and is the shae of the aea used by agicultue that is dedicated to cop i. A T is an exogenous vaiable defined by GIS modeling. The vaiable is endogenous to the model and esponds to the aveage agicultual maket etun (pofitability) index of egion l ( lt ), so the shae of aea allocated to agicultue can be defined as: m lt A A A l l (2) lt T l k k is a constant paamete; is the land supply elasticity (with espect to the aveage etun) fo egion l. In the pevious vesion of the model, lt was calculated as the weighted aveage etun of all cops, using the shae on agicultual aea as the weight: * (3) In that vesion, the citeia to calculate lt is an assumption and, theefoe, can be changed if bette infomation is available. is also an endogenous vaiable and esponds (positively) to the etun of activity i ( it ) and (negatively) to the etun of the othe activities j ( jt ), so:, (4) Accoding to Holt (1999) the coss aea elasticity of cop i with espect to the etun of othe cops j can be defined as:, li, a jlt T ml ilt lt s lt ilt ilt jlt jlt A, lj l silt ilt jlt ml lt T jlt a ilt lt jlt jlt Al ml lt silt ilt jlt Which by eaanging tems leads to:, li, ml lt s lt jlt ilt ilt jlt jlt lj lt jlt ml lt jlt silt ilt, jlt lt, The fist tem on the ight hand side of equation (6) can be defined as the scale effect of the coss aea elasticity, : s m li, l lt lt jlt (7) lj lt jlt ml lt The competition effect of the coss aea elasticity, is the last pat in the ight hand side of equation (6): c s, li, ilt ilt jlt jlt lj jlt silt ilt, jlt By analogy, the aea elasticity of cop i elated to its own etun is also fomed by the scale and competition effects and can be witten as: (5) (6) (8) Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 10

14 , li, ml lt lt silt ilt ilt jlt ilt sli, cli, li li li lt ilt ml lt ilt silt ilt, jlt Whee, is the scale effect and, is the land competition component of the aea elasticity of cop i with espect to its own etun. The land competition component can then be calculated as: cli, l, i sli, li lt li (10) The link between the egional land supply elasticity ( ) and the scale effect of each activity (, can be obseved. The land supply elasticity can be defined as: And eaanging: m m Al l l l l l m l l m l The elasticity with espect to the vaiation in etun of a given cop i in egion l is: Al l m m sli, l l li li l li l Which fom equation (12) and with some calculation can be ewitten as: sli, Al li l l l li li Fom equation (3), equation (13) can be ewitten as: s sli, Al l li l ilt li Using equation (14), if the land supply elasticity is known, the scale effect of activity i can be easily calculated. As a esult, the vecto containing all land competition component elasticities, epesents the diagonal of the competition matix (one fo each egion l). Along with othe estictions (such as homogeneity, adding up, symmety and negative coss elasticities) the diagonal tems ae then used to obtain the coss elasticities in the competition matix, as epesented in equation (8) Impovements on BLUM elasticities Consideing data available, the weighted aveage etuns elated to aea seemed to be the best appoach to detemine agicultual land expansion. Howeve, deepe liteatue eview showed that some activities (notably pastue and some gains) ae especially elated to agicultual expansion (scale effect), while othes tend to compete only with othe activities 21. This means that the land use dynamics and the l (9) (11) (12) (13) (13) (14) 21 Pat of the liteatue eview includes: Feeia et al. (2009, op.cit.) Feeia et al. (2011, op.cit.) Rudoff et al. (2011, op. cit.) Moton, D. C.; Defies, R. S.; Shimabukuo, Y. E.; Andeson, L. O.; Aai, E.; Del Bon Espiito Santo, F.; Feitas, R.; Moisette, J Copland Expansion Changes Defoestation Dynamics in the Southen Bazilian Amazon. PNAS, 103, no. 39, pp 14,637 14,641. (DOI /pnas ) Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 11

15 convesion of native vegetation would be bette epesented if the activities that ae diectly esponsible fo defoestation had a stonge weight in the aveage etun that leads to agicultual land expansion. In the model, this would equie us to ecalculate, eplacing equation (3). The new functional fom of, would no longe be based on the assumption of the aveage etun weighted by activity i s shae of aea, but in evidences that indicate which activities most expand in the agicultual fontie. Satellite imagey and GIS modeling would povide a vecto D with the espective defoestation ate caused by each agicultual activity. We can then calculate the weighting vecto d as follows: d D D ;wheed D (15) Equation (3) can then be eplaced by: * (16) One might notice that we dopped the subscipt t since the vecto d does not change ove time. Thus, equation (14) is now calculated as: d sli, Al l li l li li Since we have new values fo, it is necessay to eview the egional land supply elasticities, in equation (2), and the expansion (scale) elasticities (equation (17)). Equation (10) equies that, in ode to keep the oiginal own elasticities, we ebalance the competition elasticities fo each cop. Fom equation (10) we know that total own elasticity equals scale plus competition effects. Coss elasticities must also be eestimated to guaantee the symmety, homogeneity and adding up conditions pesented in Holt (1999, op. cit.). Section 4 pesents the esults fo each of the 6 BLUM egions fo equation (16), the land supply elasticities (equation (11)), and the competition elasticities matices, elated to equations (8), (10) and (17). 4. Results 4.1. Paametes Estimated Thee sets of esults ae pesented in the following Tables: land supply elasticities, own competition elasticities and coss competition elasticities. Table 5 compaes land supply elasticities fom BLUM s pevious vesion to the updated ones estimated in this poject. The elasticities found though the methodology poposed in this poject ae smalle than the pevious. Updated elasticities ae still in accodance with eality in the sense that highe elasticities wee found in egions with lage amounts of land available and whee the agicultual fontie is expanding (Nothen Amazon and Notheast Ceado). Own pices elasticities ae pesented in Table 6 and competition own elasticities (once the scale effect, deived fom land supply elasticities is discounted) ae pesented in Table 7. Competition own elasticities show that the competition effect is moe intense in the updated vesion than in the pevious one. Updated own elasticities ae lage than the pevious, indicating that the updated vesion of the model allows fo lage esponses of agicultual uses to changes in maket etun than the pevious vesion. Table 8 to Table 13 shows coss competition elasticities (negative values indicate substitution between two agicultual uses). Numbes in gay (diagonal) coespond to the own elasticities, e.g., they ae the same as (17) Gibbs, H. K., Ruesch, A. S., Achad, F., Clayton, M. K., Holmgen, P., Ramankutty, N. & Foley, J. A Topical foests wee the pimay souces of new agicultual land in the 1980s and 1990s. Poc. Natl Acad. Sci. USA 107, (doi: /pnas ) Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 12

16 those in Table 7. Cops i is in the ows and cops j in the columns, which means that fo the South egion a vaiation of 10% in the etun of soybean will lead soybean to displace 0.572% of con aea. Table 5. Land Supply Elasticities ( ) Regions Pevious Vesion Updated Vesion South Southeast Cente West Ceado Nothen Amazon Notheast Coast Notheast Ceado Table 6. Own elasticities South Southeast Cente West Ceado Noth Amazon Costal Notheast Notheast Ceado Con 1st cop Soybean Cotton Rice Dy Bean 1st cop Sugacane Pastue Table 7. Competition effects (fom own elasticities) (, ) South Southeast Cente West Ceado Noth Amazon Coastal Notheast Notheast Ceado Pevious Updated Pevious Updated Pevious Updated Pevious Updated Pevious Updated Pevious Updated Con 1st cop Soybean Cotton Rice Dy Bean 1st cop Sugacane Pastue Table 8. Competition Elasticity Matix South (, and, ) Con Dy Bean Soybean Cotton Rice 1st cop 1st cop Sugacane Pastue Con 1st cop Soybean Cotton Rice Dy Bean 1st cop Sugacane Pastue Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 13

17 Table 9. Competition Elasticity Matix Southeast Con Dy Bean Soybean Cotton Rice 1st cop 1st cop Sugacane Pastue Con 1st cop Soybean Cotton Rice Dy Bean 1st cop Sugacane Pastue Table 10. Competition Elasticity Matix Cente West Ceado Con Dy Bean Soybean Cotton Rice 1st cop 1st cop Sugacane Pastue Con 1st cop Soybean Cotton Rice Dy Bean 1st cop Sugacane Pastue Table 11. Competition Elasticity Matix Nothen Amazon Con Dy Bean Soybean Cotton Rice 1st cop 1st cop Sugacane Pastue Con 1st cop Soybean Cotton Rice Dy Bean 1st cop Sugacane Pastue Table12. Competition Elasticity Matix Notheast Coast Con Dy Bean Soybean Cotton Rice 1st cop 1st cop Sugacane Pastue Con 1st cop Soybean Cotton Rice Dy Bean 1st cop Sugacane Pastue Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 14

18 Table 13. Competition Elasticity Matix Notheast Ceado Con Dy Bean Soybean Cotton Rice 1st cop 1st cop Sugacane Pastue Con 1st cop Soybean Cotton Rice Dy Bean 1st cop Sugacane Pastue Simulations In this section the esults obtained fom BLUM simulations using pevious and updated paametes ae pesented, as descibed in the fome section. To assess the influence of the updated paametes on land use changes caused by the expansion of biofuels, a scenaio with stonge demand fo sugacane ethanol was also simulated (shock scenaio with espect to baseline scenaio). The shock applied to the model coesponds to additional 9 billion lites of ethanol expots in 2022 compaed to the baseline. In ode to make esults compaable, the scenaio should be simulated in the same vesion as the model, changing only the land supply elasticities, the own competition elasticities and the coss competition elasticities. Ou decision was to un the same vesion of the model used fo the pape that we submitted to the U.S. Envionmental Potection Agency public consultation (Nassa et al., ). In this vesion, BLUM uns independently of wold makets and pices ae solved endogenously. This pocedue is diffeent fom the one used when BLUM is unning integated to the FAPRI wold models system, in which Bazil is a pice take and pices ae solved in the wold maket. Table 14 bings the esults on total land use fo agicultue. The updated model is moe consevative in tems of land and, consequently, pojects an advancement of the fontie smalle than the pevious vesion. While the pevious vesion is pojecting that 13 million ha will be bought to poduction fom 2009 to 2022, the updated vesion is pojecting only 7.8 million ha fo the same time peiod. To situate this figue in pespective, fom 2002 to 2009 total defoestation of Amazon, Atlantic Foest and Ceado biomes was 4.9 million ha, which coesponds to 703 thousand ha/yea. The pevious vesion is pojecting 1 million ha/yea and the updated vesion 600 thousand ha/yea. Accoding to the updated vesion, thee egions cove 92% of total agicultual land expansion compaing 2022 to 2009: Notheast Ceado, mainly due to soybean and pastues; Nothen Amazon, also concentated in pastues and soybean; Cente West, with the stongest gowth in soybean and eduction in pastues. The aea of con fist cop is deceasing, while the opposite is taking place with the second cop. Sugacane aea, in absolute and elative tems, is inceasing stongly in the Southeast egion, although Notheast Coast, Cente West Ceado and Notheast Ceado ae also showing expansion. Compaing shock and baseline scenaio, both in the pevious and updated vesions it is possible to identify some indiect land use change, because total agicultual land is slightly lage in the scenaio with stonge ethanol poduction. The indiect effect, howeve, is less than popotional with espect to the expansion of sugacane aea: while sugacane aea is inceasing aound 1 million ha (shock minus baseline scenaio), total agicultual land is expanding by 200 thousand ha. The key diffeence between the pevious and the updated vesions is the intensification of pastues (Table 15 and Table 17). Because coss competition elasticities ae lage in the updated vesion and based on the 22 Nassa, A. M.; Hafuch, L.; Moeia, M. R.; Chiodi, L.; Antoniazzi, L.A. 2009; Impacts on Land Use and GHG Emissions fom a Shock on Bazilian Sugacane Ethanol Expots to the United States using Bazilian Land Use Model (BLUM). Repot to the U.S. Envionmental Potection Agency egading the poposed changes to the Renewable Fuel Standad Pogam. Available at: Simulating Land Use and Agicultue Expansion in Bazil: Food, Enegy, Ago industial and Envionmental Impacts 15