Abstract

Tropical forests are crucial to the global environment, serving as biodiversity hubs and storing carbon, yet they face severe threats from agricultural expansion. Recognizing their role in deforestation, countries like the UK and EU have implemented trade policies to curb deforestation by requiring proof that the production of a set of agricultural commodities is deforestation-free. A key question is whether these policies will encourage farmers to adopt sustainable practices or instead push them toward less regulated buyers.
In this paper, we adopt a structural approach to evaluate the effectiveness and potential leakages of sustainable supply-chain policies in the context of Brazil’s cattle sector. First, we leverage a unique dataset on animal transport, matched with property boundaries, to document key empirical patterns of deforestation and the supply network of cattle at the farm level in the state of Pará, Brazil. Second, we build a structural model of farm-level land use decisions with an endogenous supply-chain network. Third, guided by model-derived gravity equations, we estimate the role of existing domestic supply-chain zero-deforestation commitments (ZDC) in shaping the trade of cattle. Our results indicate that a 10 percentage point increase in the area in forests cleared by a farm is associated with a 5% decrease in its probability of a ZDC slaughterhouse choosing them as their supplier.  Finally, we use the model to conduct a counterfactual exercise that removes zero-deforestation penalties while holding land use fixed, in order to isolate the role of supply-chain restrictions in shaping market access and equilibrium outcomes.

• Co-author : Veronica Salazar

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