chapter  22
23 Pages

The expansion of sugarcane cultivation and its impact on municipal revenues: an application of dynamic spatial panels to municipalities in the state of São Paulo, Brazil


Introduction The rising demand for clean energy sources to replace petroleum has led to substantial expansion of agro-energy (FAO 2008) to increase production of fuels such as ethanol and biodiesel from agricultural products. These fuels can be obtained from different raw materials. The main ones in the case of ethanol are sugar cane and corn, while for biodiesel the main sources include soybeans, canola (rapeseed), dendê palm nuts and castor beans, among others. In Brazil, ethanol is made from sugar cane, which can also be used to produce sugar and other byproducts, as well as for cogeneration of energy. Brazil is highly competitive in the production of sugar and ethanol and is the world’s leading exporter of both: the country is responsible for over half the world’s ethanol exports and 40 percent of the sugar exported (F.O. Licht 2003). Production of ethanol and sugar in Brazil is strongly concentrated in the state of São Paulo, which accounts for around 60 percent of national output. The state’s advantages come not only from its climate and soil conditions, but also its proximity to the main consumer markets, better transport infrastructure and presence of research centers and companies producing capital goods. The sharp expansion in output and most of the new investments have therefore been concentrated in this state or neighboring ones. Despite the environmental benefits from using ethanol from sugar cane instead of fossil fuels, the expansion of sugar cane growing has raised some concerns. The first of these is the land use dynamic, since this expansion tends to displace other activities, such as stock breeding, grain and fruit growing (including soybeans), as well as increasing the pressure of the agricultural frontier on native forests.2 Some studies show that Brazil has ample unused tillable lands that can be utilized to grow cane without the need to displace other crops or provoke deforestation.3 There are also various areas of degraded pasturage whose use for growing cane would create positive environmental impacts.4