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Cablegate: Brazil's Deforestation Cycle (Part 2 of 3): From Forests,

VZCZCXRO1522
RR RUEHRG
DE RUEHBR #0229/01 0501606
ZNR UUUUU ZZH
R 191606Z FEB 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 1028
INFO RUEHSO/AMCONSUL SAO PAULO 1617
RUEHRI/AMCONSUL RIO DE JANEIRO 5800
RUEHRG/AMCONSUL RECIFE 7701
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 03 BRASILIA 000229

SIPDIS

SENSITIVE

SIPDIS

DEPT FOR OES/PCI - L.SPERLING AND F.COLON
DEPT FOR OES/ENCR - S.CASWELL AND C.KARR-COLQUE
DEPT FOR OES/EGC - D.NELSON AND T.TALLEY
DEPT FOR WHA/EPSC - L.KUBISKE

E.O. 12958: N/A
TAGS: SENV EAGR ENRG KSCA BR
SUBJECT: BRAZIL'S DEFORESTATION CYCLE (PART 2 of 3): FROM FORESTS,
TO CATTLE, TO SOY OR ABANDONMENT

REF: BRASILIA 224

1. (U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED AND NOT FOR
INTERNET DISTRIBUTION.

2. (SBU) SUMMARY. The massive clearing that has been taking place
in the Amazon since the 1970's (REFTEL) has generally followed the
pattern: conversion into cattle pastures and later either soybean
production or abandonment. From 2003 to 2006, 94% of the 10 million
heads of cattle added to Brazilian cattle herds were in the Amazon.
The number of slaughterhouses in the Amazon soared from 26 in 2004
to more than 200 today. Logging plays a limited role in
deforestation, mainly by building roads to remote areas that open
the area for others. To date, sugar cane production has not
directly been a major factor in deforestation. Indirectly, sugar
cane - as well as soybeans, corn and other crops - are pushing to
some undetermined extent cattle into the lower priced Amazon as
pastures are converted into fields. COMMENT. The differential
between higher land prices outside of the Amazon and lower costs for
land (obtained illegally or not) within the Amazon is a critical
factor behind deforestation. END COMMENT.

3. (SBU) This cable is second in a three-part series on
deforestation in Brazil. The first discussed the cycle of clearing
and the recent upswing in the rate of deforestation (REFTEL). This
cable looks at the causes behind the large scale clearing of the
Amazon (by which we mean in this series the nine-state region
referred to as Legal Amazon). And the third will examine the
measures taken to address the problem. END SUMMARY.

FROM CATTLE PASTURES TO SOYBEANS OR ABANDONMENT

4. (SBU) With the announcement on January 23 of an increase in
deforestation (REFTEL), the debate over the principal causes has
made front-page news. Environment Minister Marina Silva has
generally blamed deforestation on "latifundiarios, madeireros e
grilheiros" (large plantation owners, loggers and land grabbers).
With regard to the recent increase in the deforestation rate she
claimed higher prices for beef and soybeans were the principal
causes. She noted that cattle ranching and soybean production were
the typical activities in the areas where the greatest amounts of
deforestation are occurring. She commented, "We don't believe in
coincidences."

5. (SBU) Agriculture Minister Reinhold Stephanes shot back that
there was no need to raise cattle or grow soybeans in the Amazon
because there was plenty of land available elsewhere. Note.
Stephanes point is accurate, but doesn't negate the fact that cattle
ranching and soybean production are on the rise in the Amazon. End
Note. For his part, President Luis Ignacio Lula da Silva declared
that "nobody is to blame" for the deforestation and criticized his
Environment Ministry and NGOs for pointing the finger at the
agriculture sector and soybean producers.

6. (SBU) The typical pattern in the Amazon is for an area to be
cleared for cattle first. A field can relatively quickly be
converted into usable cattle pasture, though without investment in
the land it will have a useful life of a few years at best. The
land subsequently is typically converted into soybean production or
just abandoned. To prepare a former pasture for soybeans, a farmer
almost always will grow rice first for one or more seasons. The
Director of the Institute for Tropical Forestry (ITF), Johan Zweede,
estimates that about 20 percent of cleared forest lands are now
abandoned, degraded areas.

7. (SBU) Cattle ranching in the Amazon has skyrocketed in just in
the last six years, increasing by roughly 40%, from 52 million head
in 2001 to 74 million in 2006, based on figures from the Brazilian
Institute of Geography and Statistics (IBGE). More to the point, of
the 10.3 million heads added to Brazilian herds from 2003-2006, 9.7
million were in the Amazon, or an astounding 94%. Environment
Minister Silva estimated that 70% of deforestation was for the
purpose of creating cattle pastures. In 2004, there were just 26
slaughterhouses registered in the Amazon, and in 2007 there were
more than 200. These slaughterhouses processed 41% of all the heads
of cattle in Brazil in 2007. (Note. Post's estimates for cattle in
Brazil are lower than IBGE's, though we understand IBGE is likely to
lower its figures. While the exact number may be lower, there is
little doubt about a substantial increase taking place in the
Amazon. End Note.)

LINK BETWEEN COMMODITY PRICES AND DEFORESTATION RATES

BRASILIA 00000229 002 OF 003

8. (SBU) The Environment Ministry and independent experts see a
close correlation between prices for cattle and soybeans and
deforestation rates. A recent study by the respected NGO IMAZON
showed how close. IMAZON calculated a very strong link (a
coefficient of 0.82) between changes in the price of cattle and
changes in the deforestation rate. It detected a weaker connection
between changes in soybean prices and changes in the deforestation
rates (0.50). The President of the Environment Commission of the
Brazilian National Confederation of Livestock and Agriculture (CNA)
Assuero Veronez told the press that "it would be hypocritical to say
the expansion of soy and cattle ranching has no influence on
deforestation that has taken place in the Amazon in the last five
years." Nonetheless, CNA issued a statement that "totally
repudiated" any link between agriculture commodity prices and
deforestation rates.

9. (SBU) While the Environment Ministry today sees a strong nexus
between rising agriculture prices and increasing deforestation
rates, it was less convinced with regards to the reverse when
commodity prices and deforestation rates were both falling. The
Ministry attributed those changes in the deforestation rates to
successful actions of the government, and downplayed the role of
commodity prices. Environment Vice Minister Joao Paulo Capobianco
reportedly has questioned the strength of the linkage between
commodity prices and fluctuations in deforestation rates.

10. (SBU) The demand for land for ranching and farming has driven
land prices to record highs. The FNP Institute, a private
agribusiness consultancy, reports that agriculture land prices rose
17.83% in 2007 and predicts more increases for 2008. COMMENT. The
differential between higher land prices outside of the Amazon and
lower or no cost for land - whether obtained illegally or not -
within the Amazon lies at the heart of the deforestation issue. END
COMMENT.

LOGGING'S LIMITED CONTRIBUTION TO DEFORESTATION

11. (SBU) A common perception is that illegal logging is
responsible for deforestation. Without question there is a
tremendous volume of unauthorized harvesting of wood in the Amazon.
Although the federal government in theory has introduced a
registration system for harvesting and sale/re-sale of wood, the
vast majority of logging takes place outside of it. By one
estimate, from Greenpeace's Forest Engineer Marcelo Marquesini,
about 80% of the wood sold in Brazil is outside the legal system.
Nonetheless, loggers themselves are not the primary cause of
deforestation. In the Amazon, there are only a handful of
commercially valuable trees per hectare, according to ITF Director
Zweede. Loggers have no economic incentive to clear cut an area.
In fact, the economic interests argue against this: i.e., not to
spend valuable resources (human, machinery or time) on clearing the
large amount of non-commercially valuable vegetation. ESTH
Counselor has visited sites where illegal logging has taken place.
The majority of non-commercial plant life was left intact, though
some was mangled due to the process of building roads and log
storage areas.

12. (SBU) Loggers do contribute to deforestation. Some may clear
cut an area if paid to do so, such as by the cattle rancher who
wants to use the land. Also, they can be viewed as abettors of
deforestation because they facilitate subsequent clear cutting by
building roads to previously inaccessible areas. Overall, however,
loggers play a limited role in deforesting the Amazon.

13. (SBU) While loggers may not be central to the deforestation
question, another type of woodsman is threatening to become a major
player. This person finds any sort of wood to use for making
charcoal to supply the voracious demand for charcoal from the pig
iron foundries. There are no reliable data on the wood taken for
making charcoal. ITF Director Zweede estimates that the volume of
wood cut for charcoal today probably equals the volume of wood cut
for timber, and demand for charcoal is growing rapidly.

SUGAR CANE - NOT A DIRECT THREAT

14. (SBU) The question of sugar cane production in the Amazon has
drawn great attention. President Lula has reacted by claiming that
sugar cane can't be grown in the Amazon. Although not quite
accurate (sugar cane is grown commercially in various places
throughout the Amazon), the quantity is relatively small. Mark
Lundell from the World Bank in Brazil estimated that less than

BRASILIA 00000229 003 OF 003


100,000 hectares of sugar cane are grown in the Amazon, which
contrasts with the millions of hectares grown in the Southern region
of Brazil. In fact, production figures released in November 2007 by
the Agriculture Ministry's National Supply Company (Companhia
Nacional de Abastecimento or CONAB) indicate only 21,500 hectares of
sugar cane production in the Amazon.

15. (SBU) Nonetheless, the Lula Administration has announced plans
to introduce legislation to prohibit sugar cane production in the
Amazon. This issue is very sensitive inside the GoB, and some
officials have overreacted by claiming it is impossible to grow
sugar cane in the Amazon region. The government is working on a
legislation to ban this kind of activity in the forest. Agriculture
Minister Stephanes suggested allowing sugar cane production on land
in the Amazon that has already been cleared and is now unproductive.
The Environment Minister pushed back and won President Lula's
support for legislation to bar outright sugar cane production in the
Amazon region. An analysis of this issue is underway and is
supposed to be ready by June 2008, after which a final position on
whether or not to allow more sugar cane production in the Amazon
will be decided.

16. (SBU) Sugar cane, soybeans, corn and other crops are having an
indirect effect of undetermined extent on deforestation. As
pastures outside of the Amazon are converted into crop production,
to some degree cattle ranchers are being pushed into the Amazon,
where land costs are lower. Similarly, increased pork and poultry
production raises the demand for grains for feed, which in turn
leads to conversion of pastures into fields, and again puts pressure
on cattle ranchers to move.

NATURE - DRYER WEATHER ALLOWS MORE TIME FOR CLEARING

17. (SBU) The rainy season has been late to arrive in Brazil. This
has given those who want to clear the forest more time, which can
explain in part the surge in deforestation realized between August
and December 2007. Normally, the months of November and December
are usually the start of the rainy season and it is not typical that
the forest is cut down at this time of the year. In the last decade
there have been noticeably longer and more severe dry periods in the
Amazon.

18. (SBU) The rains have served as a brake on deforestation in the
Amazon. However, we may be witnessing increasingly dry periods
becoming a permanent feature of the Amazon weather pattern. In
which case, there may soon be markedly stepped up rates of
deforestation, such as happened at the end of 2007.

SOBEL

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