A computable general equilibrium analysis of forest concessions in Brazil

The management of natural forests in Brazil is concentrated in the states of the Legal Amazon with almost all legal timber extraction occurring on private land. While the government has historically promoted the development of forest plantations through economic incentives, state involvement with natural forests has focused on regulation. Over 1 million km² in the Legal Amazon have been identified as suitable for the production of forest goods and services and other resource-based activities (Veríssimo et al., 2000, p. 6). Only recently, however, has the state taken action to harness the potential this vast public resource holds for promoting sustainable development. In March 2006, the Public Forest Management Law was passed by the government of President Luiz Inácio Lula da Silva. A key feature of this law is a framework for creating forest concessions on public lands. With the goal of establishing up to 13 million ha of forest concessions by the end of the decade, such an initiative for the development of the forest sector is unprecedented in Brazilian history, marking the state's recognition of the Amazon's vocation as one of forest-based development.A static computable general equilibrium (CGE) model is developed to evaluate the short-run socio-economic and environmental implications of implementing forest concessions in the Brazilian Amazon. Results indicate that household income and private consumption increase with the implementation of forest concessions. With the expansion of natural forest management in the north, forest plantations contract significantly in all regions and to a lesser degree, natural forest management in the north east and center west. As forest plantations demand less agricultural land for production, the price of agricultural land decreases and the excess supply is taken up by the agricultural sector which pays less for the land and consequently produces more of a less expensive product. The implementation of forest concessions results in a 3.8% increase in legal deforestation with the largest increase in the north, followed by the north east and center west.