Brazilian policies that encourage deforestation in the Amazon

This paper shows that general tax policies, special tax incentives, the rules of land allocation, and the agricultural credit system all accelerate deforestation in the Amazon (region of Brazil). These policies increase the size of land holdings and reduce the chances of the poor to become farmers. The key provisions include: the virtual exemption of agricultural income from income taxation; rules of public land allocation that provide incentives for deforestation because the security of a claim is determined by land clearing; a progressive land tax that contains provisions that encourage the conversion of forest to crop land or pasture; a tax credit scheme towards corporate livestock ranches that subsidizes inefficient ranches established on cleared forest land; and subsidized credit available for SUDAM-approved ranches. These distorting provisions must be removed before afforestation projects and programmes can succeed. Afforestation and settlement projects should take into account the effect of these distortions, and the projects should thus have modest expectations. While reducing perverse economic incentives for deforestation will slow down the destruction of the Amazon forest, incentive policies alone are not enough. A coherent system of land use planning that sets aside more marginal lands in forest reserves and establishes biological reserves is also required. Even under the best incentive regimes, these reserves, as well as Indian reservations, will have to be protected by the power of the law and its enforcement agents. As part of this strategy, forest guards must be given greater incentives to enforce forest preservation laws currently in place [CAB Abstracts].