FORESTS FOR CATTLE: Are Developing Countries Trading Away Their Future?

 

By Zara Clayton-Niederman

ABSTRACT

Cattle ranching is a prime source of development for many poor countries. Converting forestland to pastures provides land for previous landless, gives stability in a risky economic environment and enhances international trade. But because pastureland used for livestock grazing has a very short productive life, cattle ranching appears to be an unsustainable source of economic growth. In exchange for present consumption, some less developed countries (LDC) are selling their natural resources too cheaply at the expense of future generations. Much of this pressure is coming from the developed world and large transnational companies. Because LDCs need to provide a subsistence level to their citizens, transnational companies can take advantage in negotiating deals for cattle ranching. Not only does this cheap extraction of resources harm LDCs; it is potentially harmful to the global community. The solution lies in finding a sustainable means of ranching or alternate uses of the forests that will provide equivalent streams of revenue for LDCs without destroying their productive capacity.

DEFORESTATION

Forests in Madagascar house over a quarter of Africa's plant species. The Amazon region holds over 75 billion tons of carbon, helping to protect the earth from the threat of global warming. All of the tropical forests hold the potential for producing a cure for cancer. Forests still cover over a quarter of the earth's continental surface, from Zaire to Malaysia to Brazil, but despite all of their benefits they are being cut down at staggering rates. An estimated 17 million hectares of rain forest (the size of Wisconsin) are lost every year. The earth has lost a fifth of its forest land since pre-industrial times. Much of this loss has been in the more temperate regions of North America and Europe, the wealthier nations that have benefited economically from industrialization. The forests in the tropical regions had been relatively protected from industrialization until recently. They were remote and sparsely populated so that any loss would grow back rapidly enough to go unnoticed. But with poverty and rapid population growth rates, over 2% in most LDCs, deforestation is occurring faster than forest regrowth.

CATTLE RANCHING

Cattle ranching has been a primary cause of rapid deforestation in many LDCs for two main reasons. The first is because it provides quick economic return. Part of this return comes from the relatively cheap cost of the land. The second is that cattle place high demands on the land on which they graze. Because the land is cheap, ranchers have an incentive to drain one plot's resources and then move on to the next plot.

But deforestation can have dramatic effects. Some damages from deforestation are irreversible, such as species extinction and loss of potential medicinal cures. Other effects can be more direct and more immediate such as the disruption of both local and global ecosystems, threatening health, safety and economic prosperity. Locally, the loss of trees can damage topsoil and water safety. Combined with the high volumes of grazing and animal produced waste, topsoil and water quality are damaged even more. On a global level, cutting down forests contributes to global warming through its release of carbon into the atmosphere.

All production must have tradeoffs but the costs of cattle ranching appear to be much higher than the benefits. While ranching adds significantly to gross domestic product (GDP), a common measure of national welfare, the benefits are received by a select few. In fact, large corporations who are unaffiliated with the LDC receive much of the benefits. In many cases, the profits received from cattle ranching are not reinvested into the local or even national community. The costs incurred, however, are spread out across the local citizens, the global community and the future generations. But because some corporations are so powerful, they have the means to influence governments into handing over large amounts of land at low cost.

Therefore, it appears that because the social costs of forest conversion into pasture land for cattle are not counted, cattle ranching in LDCs is an unsustainable source of economic growth which threatens both the local and the global communities. Due to the need to provide for today, LDCs are selling off their natural resources at the expense of future generations. Along with less natural capital in the future, this is presently creating a huge burden on the local inhabitants who thrive on resources in and around the forests. It also has the potential to create a burden of enormous proportions on the global community if the threats of global warming prove to be true. Unless the true costs of cattle ranching and deforestation are charged and the profits reinvested, cattle ranching will be a drain on rather than a benefit to national welfare.

THE WEALTH GAP

One of the main reasons why forests are being cut down so rapidly despite such huge costs is the growing gap in the distribution of income between the wealthy and the poor nations. Less developed countries are finding that they need to use up much of their natural resources in order to provide a subsistence level for their citizens. Developed nations (developed in many cases through forest conversion during the industrial revolution) find the wealthier they get, the more they desire luxury goods. Some of these goods, such as beef, leather and fine wood furniture are imported from LDCs at the expense of their rainforests. With the help of transnational companies’ power and bargaining tactics, the wealthy countries can import these goods at modest costs. Due to the relatively cheap prices of these imports, luxury items such as beef are becoming necessity goods for citizens of wealthy countries. This means that even if the prices increase, demand will remain high, which in turn means a pressure to produce cattle and thus cut down trees will continue. The other part is that LDCs, in many cases, have dire needs to make money to provide for their people. This means that they have very low bargaining power and thus sell off their products very cheaply. In effect, they are using an extremely high discount rate for production and consumption in the future, because if they don't survive today, there will be no tomorrow. The higher the discount rate used the less will be saved for future; meaning sustainability becomes much more difficult. In some cases, transnationals are essentially acting as pawn brokers; they buy expensive goods at cheap prices due to the desperate nature of the seller. In other cases, when governments may not be politically strong, transnationals provide support in exchange for cheap land grants. And in other cases, they act as monopsonists, the only buyers of beef from native cattle ranchers. In all cases, they are able to gain large amounts of beef at low prices but high costs.

WHY NATIONS CHOOSE CATTLE RANCHING

In order to see how cattle became such a large industry in developing countries, it will be helpful to look at Amazonia as an example of the increase of cattle ranching. While the specific policies do not transfer, the general concepts will be useful in looking at cattle ranching across countries. Due to the increasing rate of population growth in Brazil, there was a growing pressure on the urban sector for land and downward pressure on income. In an attempt to solve both problems, the government decided to promote landless people to laborless land, thereby raising the economic productivity of its forests and lowering the strain on urban living. In 1960, the government built the Belem-Brasilia Highway, steadily improving it throughout the next couple decades, and building additional highways through the forests. By building highways, access to remote forestland became much easier, thus lowering drastically the cost of using the forest and its resources for trade. At the same time, the government gave subsidies to large cattle ranchers and loggers. Ranching and logging quickly became profitable for private firms so more firms entered and more roads were built. This made access much easier for small subsistence farmers as well. While the government did not give direct subsidies to small farmers, it did indirectly by allowing farmers squatting rights, rights based on clearing forest land. It is a common sentiment that cattle ranching now is unprofitable and can only exist because of government subsidies. Studies show though that while cattle ranching in and of itself may not be privately profitable, it has a higher return than most alternative activities, and some of the accompanying benefits of holding land that was once given as an indirect subsidy make it profitable. (2+3)

WHY INDIVIDUALS BECOME RANCHERS

Aside from profitability, ranchers in Amazonia find security and flexibility in owning land and cattle. There are three main ways that private owners obtain value from land and its resources. First there is extraction, which is the source of survival for the indigenous dwellers. Resources that are extracted for trade include rubber, nuts and trees, all of which are renewable, if extracted at a sustainable rate. Land can also produce objects of value, but it requires inputs such as labor and capital and energy. Products that land provide through cattle, such as dairy, beef and leather, give value from production. Lands third value comes from speculation, the expectations of higher value in the future. This is known as scarcity rent, because land is set at a fixed level. With the building of highways and public land becoming private, rents of forest land have soared. Since regulation of ownership has been less than optimal, land owners have strong incentives to clear land in order to strengthen their claim of ownership. This creates huge incentives to cut down forestland that they may not be using. Owning cattle and the land they graze on can provide huge financial benefits. In the face of high environmental and economic risk, cattle give security. Aside from benefits of tax credits and subsidies, cattle and land are assets, which hedge against inflation and provide possibility of increased future value. They provide great flexibility in the time of "harvesting" allowing for a stable source of income. Cattle also can occupy a large land area with very little labor costs. So while cattle products themselves may not strictly be profitable (one study claims that cattle repay only 25% of production costs (3)), cattle ranching is, and it causes overuse and very high environmental damage.

WHO BENEFITS?

As stated above, cattle ranchers benefit from ranching due to a number of reasons such as security, stability, decreased risk and speculative benefits. In the worst scenarios, ranching provides at least as much the next best alternative. Additionally, governments gain from ranching because they can deal better with urban population stresses and create higher GDP. Governments often see rainforests as untapped resource that could provide land and money for its people. The only costs to the government are subsidies for road building. While lots of opportunities are created and GDP rises by building roads and opening up forests for production, much of these benefits are short lived due to the nature of the projects. Road building lasts only as long as it takes to build a road, and cattle ranching employs very little labor relative to land. So what gains are made in the short run do not carry on into the future. But one possibility for GDP gain is that towns may start cropping up, especially in abandoned pasture land. Whether this would be better or not is debatable, and beyond the scope of this paper, but it is one possibility where LDCs could raise GDP. But the short of it is that cattle ranching appears to be a viable industry when looking strictly at GDP.

IS CATTLE RANCHING WORTH THE COSTS?

The problem is that GDP should not be the only measure. Governments should also look at the externalities and the sustainability of cattle ranching. Negative externalities are the costs they are imposing on society, both directly and implicitly. In doing a cost benefit analysis of ranching, it is important to look at costs on the environment, opportunity costs, non-use costs and distribution of costs and benefits. As stated above, environmental costs can be large from cattle ranching alone, and much larger when combined with the preceding deforestation. Some of the opportunity costs, or opportunities passed up from taking the present course of action, include increased resource extraction and ecotourism. Costa Rica has, after vast amounts of deforestation, begun to capitalize on ecotourism, while Brazil creates income from the extraction of rubber and nuts. In addition to the degradation of the land caused by cattle ranching, many indigenous people are pushed from their homes as forests are cleared for pastures. Often governments do not take account of indigenous people because they are not a part of the "society"; they do not pay taxes to or collect benefits from the government. Finally, one of the least considered values of the forest is the existence value of forests. While it is extremely difficult to quantify, existence values can be very high. The general sentiment though is that the value of nature is much higher to wealthy people, so the existence value to citizens of LDCs may be negligible.

When looking at distribution of costs and benefits, we can see two main distribution problems. First, the cattle ranching has a very low labor to land ratio, meaning that those who benefit are few. Meanwhile, the cost is spread out to taxpayers who pay for road building and other subsidies, and to people who are hurt by the damages to the environment. Since those who are hurt by the ranching may not realize, or may not care because the individual damages are too small, cattle ranching will continue beyond its efficient level. Second, one of the biggest costs will come to future generations. Cattle ranching appears to be providing a short term welfare gain at the expense of the long run. If this proves to be the case, then it is an unsustainable source of economic growth. Since future generations can not speak for themselves and must rely only on previous generations to take them into account, they are often considered less important in decision processes. If the government can find ways to reinvest the profits of cattle ranching back into the local communities through education or capital, it is possible that a substitution of natural capital in the present for human and physical capital in the future will provide sustainable growth. One way of measuring sustainability is through the use of Net National Welfare (NNW) as compared with GDP. NNW takes into account the costs of growth and the depreciation of capital used in production. By measuring these factors and deciding how much to discount future value, one can determine whether future generations will suffer or gain from the conversion of forests. In the case of most LDCs it seems that the future is too heavily discounted.

In the case of cattle ranching, there are huge costs to other nations. Many developed nations place a huge existence value on rainforests, but unless they are willing to pay for the benefit they receive from forests, this will not be accounted for in national decisions. Additionally, the environmental costs could be enormous. If the threat of global warming proves to be real, deforestation would create a heavy cost on the world. Again, this social cost is not accounted for when LDCs are deciding whether to conserve or convert forestland. While on first look it seems selfish of LDCs not to take into account the harm they do to other countries by cutting down forests, many LDCs feel that wealthy countries should pay for the benefits that they receive from LDCs resources. In effect, they feel that wealthy nations are freeriding on the benefits that poor countries are shouldering. In order that resources are used at their correct amount, social costs must be equated with social benefits.

 

CONCLUSION

In the case of cattle ranching, many small ranchers supply beef to large transnational beef companies. As the number of ranches increase, the cattle supply increases, bringing the cost of beef down. This creates huge profits for the transnationals, and cheaper meat for consumers. Unfortunately many of the countries that are producing this beef, such as Brazil, do not receive any of these benefits. Most of the beef consumers are in wealthy countries and these transnationals are not making profits in the interest of the producing country. Were the companies to reinvest heavily back into Brazil in order to build capital, or provide better education, such growth would be beneficial for the producing country. In many cases though, they aren't.

In addition, cattle ranching is in many cases devastating the natural resources of LDCs. This is harmful in itself, since it can create effects of pollution and health hazards. But it can also be extremely harmful to the future generation because they are losing a lot of their productive capacity. Natural resources are considered natural capital, and in order to provide many goods and services, natural capital is needed. Natural capital can be substituted with physical capital, to a degree, but when transnational corporations are taking their profits and investing elsewhere, a country's productive capability is diminished. This can become a vicious cycle, one that often can only be stopped with outside financial support. Often, the only ones who will invest in these developing countries are the wealthy ones who have already profited from extracting their resources. Often if countries are going to invest, then they want a say in how the government should be run. Part of this includes cheap exports, which again can lead to a vicious cycle. So what can be done?

If wealthy nations are not willing to help LDCs for pure altruism, then they should do it for their own sake. Many citizens of wealthy nations are made less well off just by knowing that natural resources are being destroyed. While there is no market value for the service that natural resources provide, that does not mean there is no value. In fact this existence value can be extremely high. In addition, the possibility of finding a cure for cancer in the rainforests means that keeping the forest in tact is valuable. This value, known as option value can also be extremely large, when considering that if found, a cure for cancer could save, hundreds, thousands, possibly millions of lives.

Finally, forests provide value in their role in ecosystems. As stated above, forests are a key to slowing global warming, a threat which could impose astronomic costs if not taken care of. With global warming, unlike pollution, what one country does affects everyone, not just its closest neighbors. So helping LDCs save their forests could be extremely beneficial to those who have concern for future risk.

One of the main problems with outside countries helping is that much of these values that forests provide are entirely intangible. It is very difficult for people to see or care about things that will not affect them for another fifty years. It is difficult to say what exactly should be done, but it is clear that as the world continues to grow into a global society, success or demise of one country will have a like effect on other nations. Therefore, it is in the interest of all nations to make policies that will benefit society, not just their own nation.

References:

1) Kremen, C. et al. (forthcoming)

2) Hecht, S. B. "The Sacred Cow in the Green Hell: Livestock and Forest Conversion in the Brazilian Amazon," The Ecologist, v19 n6 November/December 1989

3) Faminow, M. D. Cattle, Deforestation and Development in the Amazon, New York. CAB International, 1998

4) Browder, J. O. "The Social Costs of Rainforest Destruction," Intercencia 13, 3, 115-120, 1988

5) Rifkin, J. "Bovine Burden," Geographical Magazine July, 1992