Farmers’ Acreage Responses to the Expansion of the Sugarcane Ethanol Industry: The Case of Goiás and Mato Grosso Do Sul, Brazil

From 2005 to 2012 sugarcane planted area increased by 54% in Brazil, reaching 9 million ha. This expansion was stronger in the Brazilian Cerrado, especially in the states of Goias and Mato Grosso do Sul which are the new frontier of sugarcane production. The rapid expansion of sugarcane production in Brazil has the potential to reorganize the agricultural production landscape. Previous studies that examined the expansion trend and production system at a larger scale found evidence for the transition to a sugarcane producing region. However, little is known on how farmers decide which agricultural production to pursue and which land use to replace in the new frontier of sugarcane production. The goal of this chapter is to analyze farmers’ acreage response during the proliferation of the sugarcane industry into the new production frontier. More specifically, we estimate a partial adjustment model to examine farmers’ decisions toward sugarcane production in the states of Goias and Mato Grosso do Sul. We estimate acreage response at county level using a partial adjustment framework. Estimates found that price of cattle has the largest cross-price elasticity with sugarcane acreage. In addition, the results suggest that acreage of sugarcane and soybean double-crop are positively correlated.