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Cablegate: Ethanol in the Rainforest: Global Commodities and Highway

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DE RUEHBR #0316/01 0541447
ZNR UUUUU ZZH
R 231447Z FEB 07
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 8179
INFO RUEHLP/AMEMBASSY LA PAZ FEB LIMA 3376
RUEHQT/AMEMBASSY QUITO 2150
RUEHBO/AMEMBASSY BOGOTA 4125
RUEHGE/AMEMBASSY GEORGETOWN 1230
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RUEHCV/AMEMBASSY CARACAS 3618
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RUEANAT/NASA HQ WASHDC
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UNCLAS BRASILIA 000316

SIPDIS

SIPDIS

STATE PASS USTR: S CRONIN
DEPT PASS USAID TO LAC/RSD, LAC/SAM, G/ENV, PPC/ENV
TREASURY FOR USED IBRD AND IDB AND INTL/MDB
USDA FOR FOREST SERVICE: LIZ MAHEW
INTERIOR FOR DIR INT AFFAIRS: K WASHBURN
INTERIOR FOR FWS: TOM RILEY
INTERIOR FOR NPS: J PUTNAM
INTERIOR PASS USGS FOR INTERNATIONAL: J WEAVER
JUSTICE FOR ENVIRONMENT AND NATURAL RESOURCES: JWEBB
EPA FOR INTERNATIONAL: CAM HILL-MACON
USDA FOR FAS AND ARS/INTERNATIONAL RESEARCH: G FLANLEY
NSF FOR INTERNATIONAL: HAROLD STOLBERG
DOE GOR G WARD

E.O. 12958: N/A
TAGS: SENV EAGR ENRG EAID TBIO SNAR ECON SOCI XR BR
SUBJECT: ETHANOL IN THE RAINFOREST: GLOBAL COMMODITIES AND HIGHWAY
EXPORT CORQS TRANSFORMING THE FACE OF THE SOUTHWEST AMAZON

1. Summary: USAID Mission officers and the Regional Environmental
Affairs Officer visited the Southwest Amazon February 4-10, 2007 (en
route to the Amazon Basin Conservation Initiative meeting in Yucay,
Peru) on a 550- kilometer road trip connecting Rio Branco, capital
of the state of Acre, with Puerto Maldonado, capital of Madre de
Dios Department, Peru. This route will soon form a paved export
corridor extending to the Peruvian port of Ilo. The group witnessed
vastly different land-use practices between the two countries and
sweeping changes taking place in the region as new highway corridors
link this isolated region with Pacific ports. In a landscape
predominated by pastureland on what was formerly lush rainforest,
the group was surprised to see a large expanse of sugar cane and a
recently-installed ethanol plant near the Brazilian town of
Capixaba. Every indication is that sugar cane cultivation has
joined cattle ranching and soybean cultivation as a profitable
enterprise in the Brazilian rainforest, putting yet more pressure on
this unique ecosystem. END SUMMARY.

WHERE HAVE ALL THE TREES GONE?

2. Much of the tropical rainforest in a wide swath along the BR-317
highway between Rio Branco and Assis Brasil, Acre was cleared
decades ago in a first wave of settlement of ranchers from southern
Brazil starting in the 1970s. The landscape for most of the 330
kilometer distance between the state capital and the border with
Peru is one of unbroken cattle pastures with a few patches of farm
woodlots and scattered solitary giant Brazil nut trees providing the
only shade for the zebu cattle. Just beyond the horizon to the
northwest of the BR-317 highway, the Chico Mendes Extractive Reserve
protects one million hectares of rainforest and the livelihoods of
traditional rubber tappers and Brazil nut collectors. The 220-km
stretch of un-paved road between border town Inapari and Puerto
Maldonado, Peru is also largely deforested, although blocks of
largely intact forest still exist, apparently supporting the
economies of small towns that depend on Brazil nut collecting for a
living.

TAMING THE RAINFOREST: DEFORESTATION BY ANOTHER NAME

3. The mindset in Acre state several decades ago was one that
equated development with conversion of the rainforest to "higher and
better" use, mainly speculative cattle ranching. In spite of the
ease with which rainforest trees will burn when felled and piled up
during the dry season, it still takes a number of years to "tame"
the land, removing stumps and re-sprouting roots to prepare
unimpeded farm or pastureland. Even though ranchers profited from
land speculation, many cattle operations failed because of lack of
pasture technology adapted to the humid tropics. Unfortunately,
taming the rainforest also involved land grabbing and serious
clashes with traditional populations of rubber tappers and Brazil
nut collectors, culminating in the murder of rubber tapper leader
Chico Mendes at his home QXapuri, Acre in December 1988.

FLORESTANIA: GOVERNANCE ON THE AMAZON FRONTIER

4. Eight years ago, Chico Mendes' protege governor Jorge Viana
began to change the state mindset by establishing the "government of
the forest", recognizing the value of Acre's standing forests for
the benefit of the state's population. Many new conservation areas
were established under Viana's leadership. Viana was recently
succeeded by Binho Marques, who intends to continue extending
citizen benefits to rainforest dwellers, while dealing with changing
realities brought on by advancing roads and agribusiness, ending
Acre's isolation from the rest of the world. In recognition of the
economic potential of the standing forest, USAID's "Amazoniar"
consortium of local NGOs is helping traditional populations and
settler communities in the Southwest Amazon establish sound,
sustainable, income-generating forest management practices.

THE GRASS IS GREENER

5. Pasture technology developed by Embrapa, Brazil's agricultural
research enterprise, eventually sparked a second wave of
entrepreneurial cattle ranching on degraded pasture lands depleted
of nutrients after the illusory first flush of productivity derived
from rainforest ashes. Part of this new technology involves
establishment of African pasture grasses such as Brachiaria
brizantha in consortium with nitrogen-fixing forage legumes such as
tropical kudzu (Pueraria phaseoloides), producing greener, more
palatable pastures. The result is nutritive long-lasting
pastureland capable of supporting healthy productive cattle herds -
the predominant landscape along much of the BR-317 highway today.
Much to the dismay of environmentalists, today's reality is that
Amazon cattle ranching is a profitable enterprise with sights on
even more lucrative international markets with eventual control of
hoof-and-mouth disease.

GREEN ALCOHOL?

6. To our surprise, the constant landscape of cattle pastures in
Acre was broken near the town of Capixaba by a twelve-kilometer
expanse of sugar cane, extending as far as the eye could see. A
road sign announcing inauguration of the Farias Group's "Alcool
Verde" operation stood next to neatly organized plots of a sugar
cane variety trial. The Farias Group, which already operates
distilleries in Sao Paulo, Goias, and northeastern Brazil expects to
harvest 1.5 million tons of cane starting in 2008 (a ton of sugar
cane can produce 80 liters of ethanol; a hectare of cane can produce
over six thousand liters of ethanol; the production of ethanol from
this distillery alone would supply a fleet of 72,000 flex-fuel
economy cars for one year - more than the total fleet of Rio Branco,
Acre), ramping up to 3.5 million tons yearly with addition of a mill
designed for sugar export through Pacific ports. Calculating a
yield of 75 tons of cane per hectare, the Farias Group will occupy
twenty thousand hectares at startup of their operation, growing to
almost fifty thousand hectares at peak production. NOTE: During
the Common Agenda for the Environment meeting in Brasilia in late
2006, a high level official in the Brazilian Foreign Ministry
claimed that environmental concerns over expansion of biofuels are
overblown, stating that "it is scientifically proven that you can't
grow sugar cane in the rainforest". End Note.

SUGAR CANE IN THE RAINFOREST

7. Conversion of established pastureland to cultivation of sugar
cane in this former rainforest landscape is made easier by years of
"taming" the land, making it ready for mechanized cultivation with
little further investment. That rainforest land in the Southwest
Amazon is suitable for sugar cane cultivation should come as no
surprise - almost all of the cane grown in Brazil, including the
highly productive sugar cane operations in Sao Paulo state, occupies
land that was once Atlantic Rainforest. Nevertheless, the success
of sugar cane cultivation in the Southwest Amazon could exert
pressure to clear additional rainforest land as displaced cattle
operations seek out new lands to expand, a phenomenon that has been
documented in Mato Grosso state where soybeans replaced pastureland.


THE ROAD TO THE PACIFIC: A TWO-WAY STREET

8. Brazilian entrepreneurs, encouraged by the success of cattle
ranching and increasing industrialization in the Southwest Amazon,
are setting their sights on Asian markets with the soon-to-be
completed paving of the road to the Pacific port of Ilo, Peru. The
330-km road between state capital Rio Branco and border town Assis
Brasil is already paved, and the 220-km distance between Peruvian
border town Inapari and department capital Puerto Maldonado is in
the process of being paved, but currently offers a very suitable
hard-packed clay surface for unimpeded transportation at least
during the dry season. Additional road segments will soon connect
the 1470-km route from Brazil's southwest Amazon border to the
Pacific port of Ilo, Peru (Cuzco is 740 km distant and Lima is 1871
km from Assis Brasil). Although it is unlikely that raw soybeans
produced in the Southwest Amazon would be trucked over the Andes,
timber, processed meat, soy meal and oil, and sugar and ethanol are
likely candidates for Pacific export. Road paving should also open
Puerto Maldonado's already well-established rainforest ecotourism
industry to an even greater influx of tourists. However, recent
stories of drug-running and trafficking in persons from Peru to
Brazil along this route and first-hand experience of embassy
travelers raises cause for concern over governance of this largely
unguarded porous border region.

MAP: THE OTHER TRI-BORDER

9. The department of Madre de Dios, Peru, Acre state, Brazil, and
the department of Pando, Bolivia meet at a speck on the map where
Arroyo Yaverija meets the Rio Acre, forming a region known by the
acronym MAP. A recently inaugurated bridge links the town of Assis
Brazil with the even smaller town of Inapari. A new road will soon
connect the capital of Pando, Cobija, with Iberia on the
Inapari-Puerto Maldonado road. The whole region is on the verge of
transformation as isolated populations and lands connect with
Brazilian and Asian markets. Recognizing past mistakes in Amazon
boom-and bust economic development, local residents in the MAP
region have been meeting periodically for the past eight years to
discuss options for orderly development of the region. USAID
provides modest small grant funding for events that support this
dialogue, which has progressed from an academic exercise to a
grass-roots movement of concerned citizens, local authorities, and
enlightened entrepreneurs hoping to establish effective governance
over economic development of the MAP region.

WHERE HAVE ALL THE CATTLE GONE?

10. With the exception of a few very prosperous cattle operations,
the largely treeless landscape along the Peruvian stretch of the
inter-oceanic highway was devoid of cattle. Some pastures consisted
of Brachiaria ruziensis, a less palatable African grass established
in the Amazon decades ago, but now little used in Brazil. However,
much of the cleared land on the Peruvian side was simply overgrown
with secondary forest, an indication that pastures were abandoned
after depletion of the first flush of rainforest ash fertility.
Several tree plantations of teak (Tectona grandis - a Southeast
Asian species) showed signs of having been killed by accidental
fires (note: the Southwest Amazon suffered a record drought and
subsequent fires in 2005, possibly linked to the same Atlantic
phenomenon that spawned Hurricane Katrina). However, paving the
road from Inapari to Puerto Maldonado will surely attract cattle
ranchers adopting Brazilian pasture technology. The question for
the future of the Southwest Amazon portions of Peru, Brazil, and
Bolivia is whether traditional extractive economies (rubber and
Brazil nuts were traded as global commodities a century ago) can
co-exist with production of the newer global commodities of tropical
hardwoods, beef, soy, sugar, and ethanol.

TAMING AGRIBUSINESS: RESPONSIBLE SOURCING COMES TO THE AMAZON

11. A recent development in the Brazilian Amazon, following on
technological advances that have cattle ranchers, soy growers, and
ethanol producers eyeing export markets, is corporate concern that
company purchasing practices could be perceived as detrimental to
Amazon forest conservation. Responsible timber sourcing has become
the norm for European and increasingly for U.S. markets interested
in Amazon hardwoods. In a remarkable move, in July 2006 members of
the Brazilian oil processing association ABIOVE pledged not to
purchase soybeans grown on newly-cleared Amazon rainforest land
deforested after the date of the announcement (the initial two-year
purchasing moratorium is expected by many observers to become
permanent). Lucas do Rio Verde, Mato Grosso, the second-largest soy
producing municipality in Brazil, has pledged to work towards having
100% of its farmers in compliance with Brazil's strict conservation
set-aside laws. Cattle ranchers in Mato Grosso are forming the Land
Alliance to promote environment-friendly ranching practices and to
demonstrate compliance with these same conservation set-aside laws.
An equivalent responsible production movement in the ethanol
industry is still in its formative stages. USAID is working with
The Nature Conservancy, Woods Hole Research Center, and Brazilian
NGOs Amazon Institute for Environmental Research (IPAM) and the Land
Alliance to encourage responsible corporate sourcing in Amazon grain
and cattle industries and to assure independent monitoring of
farming practices in compliance with Brazil's environmental
standards. Similar efforts by the mission to support responsible
biofuel production would be beneficial as the U.S. and Brazil
develop plans for cooperation on ethanol.

CONCLUSION

12. Comment: Large scale infrastructure development such as the
paving of the inter-oceanic highway has greatly reduced the
remoteness of the Southwest Amazon. Growing linkages to regional
and global markets for timber, soybeans, cattle, and increasingly
sugar cane ethanol, coupled with mechanization of both forest
clearing and crop production, (in tandem with modern entrepreneurial
cattle ranching) could provoke simultaneous intensification and
expansion of land use at the heart of the Southwest Amazon. A

comprehensive suite of initiatives including independent
certification schemes attesting to environmental soundness of
farming and forestry practices, market pressure for responsible
sourcing of agribusiness commodities (concurrent with responsible
lending practices), adequate environmental impact mitigation of new
infrastructure, strengthening of local environmental governance
processes, and wider application of satellite-based forest cover
monitoring and land use planning tools will be essential to balance
economic benefits from expanded commodity production with protection
of Amazon biodiversity, vital ecosystem services, and vulnerable
rural communities whose livelihoods depend on access to natural
resources on one of the world's last forest frontiers. END
COMMENT.

SOBEL

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