smoking forest

Economic rights

There’s money in them trees…or is there? Taking a look at the economics of deforestation

November 5, 2014 by Adityarup Chakravorty

Research shows that while deforestation can lead to an initial boom in a country’s GDP, over time, the boom leads to a bust and for the indigenous people whose land was taken over are no better off then before their forests were destroyed.

The seventh-largest economy in the world voted in one of the more unpredictable and contentious presidential election run-offs in decades. On the 26th of October more than 150 million Brazilians chose incumbent President Dilma Rouseff over chief rival Aecio Neves, based on a variety of personal, social, economic and political issues.

But analysts, such as Javier Godar at the Stockholm Environmental Institute, are convinced that environmental issues were not at the forefront of the political agendas of either candidate.

Brazil’s economy is in a recession after years of stagnation and that means “the main issue in the coming election, regardless of the party that will win it, is Brazil’s economy,” Godar said in an interview with The Guardian before the election. “Both individuals and the private sector are in debt … and so environmental issues aren’t at the forefront of the candidates’ or most voters’ concerns.

The lack of widespread interest in environmental issues during the Brazilian presidential election is unfortunate. Brazil contains more than 60% of the remaining Amazon rainforest, which is home to hundreds of thousands of indigenous peoples, including several tribes who have never made contact with the world outside.

But when politics and economics clash with environmental concerns it is usually vote-power and money-power that win. “No government would think of condemning so many voters to persistent poverty in the name of saving trees, writes The Economist in a 2009 article commenting on the lack of political will to enact and enforce laws against deforestation and illegal occupation of Amazonia lands.

Although progress has been made in protecting sizeable areas of tropical forests, the Amazon forest – and other tropical forests across the globe – continues to be deforested, and often the rights of indigenous peoples to their land and way of life are compromised. As a Time magazine article in 2009 explains “the argument for deforestation has always been that the economic benefits to local communities are too great to overlook.

But is there empirical evidence to support the idea that deforestation and subsequent use of the land for agriculture or animal husbandry or even industry leads to economic ascent and improvements in quality of life for anyone? I decided to take a closer look.


In 2009 researchers from Portugal, France and Britain measured social and economic development benchmarks, such as life expectancy and income levels, in over 300 villages and towns on the Brazilian Amazonian that were surrounded by different stages of deforestation.

Bryan Walsh wrote about this research in Time magazine: “Researchers found that logging forests and converting the land to pasture and agriculture initially raised development levels in a burst of prosperity.

You can imagine the sale of timber and the use of the land for agriculture leads to this initial boom in economic output leading to improvements in income levels.

But what the research went on to show is that” in the years that followed deforestation, that bubble of prosperity popped, and development levels declined until on average the communities were no better off than they had been before the trees were destroyed.

As the supply of forest products dwindle and the rainforest soil – never very fertile to begin with – gets exhausted the financial bubble pops and economic and social indicators of quality of life crash back to levels before deforestation.

The boom-and-bust nature of Amazonian deforestation has been confirmed by other researchers as well. For example, a 2012 study published in the academic journal World Development found that “the population’s average welfare (HDI, income per capita) is significantly higher and the poverty rate significantly lower in the active frontier, as compared to the zones that are already deforested or still forested”.

The boom-bust phenomenon isn’t limited to the Amazon rainforest. Led by Dr. William Laurance, from the Center for Tropical Environmental and Sustainability Science, researchers from James Cook University in Queensland, Australia found that deforestation and timber harvesting in the tropical rainforests of Papua New Guinea wasn’t leading to improvements in the lives of native indigenous peoples.

A limited number of the citizens of these countries benefit from such activities—sometimes greatly so—but on balance economic disparity increases and the nations are ultimately poorer and less socially stable for it”, says Laurance and colleagues in a 2012 paper in Biological Conservation.

So, who benefits from deforestation?

Dr. Laurance raises an important point, namely that a relatively small number of people seem to benefit greatly from deforestation of tropical rainforests, while the majority of local people, such as indigenous groups, bear the brunt of the environmental and social damage.

The 2012 study in World Development mentioned earlier found that in the Amazon “municipalities that are either less deforested or more deforested tend to have lower HDI, lower income and higher poverty, reflecting a general boom-bust pattern. Total income per unit area, however, increases steadily with deforestation (emphasis added).”

There exists a startling disparity between TOTAL income, which continues to rise as deforestation increases, and HDI indicators and income per capita, which reflect a boom-bust pattern. How is that possible?

One possibility is the wealth generated through deforestation gets channeled into the hands of a few who, while the vast majority, which includes many indigenous peoples, fall prey to the economic downturn that often accompanies deforestation and illegal settlement of native lands.

The path of no return

            I should point out there is definitely disagreement among researchers as to whether the economic returns from deforestation justify this destructive path. For example, researchers from the London School of Economics and Institute for Applied Research in Rio de Janeiro claim their analyses do not point to a boom-and-bust pattern following tropical deforestation (Note: This is NOT a peer-reviewed article).

But it seems quite clear that in several cases the financial gains from deforestation and subsequent use of the deforested lands actually does not help the local and indigenous populations over the long term.

While trying to wade through the mire of information about the economic repercussions of deforesting tropical rainforests, I was struck by something that Robert Ewers, a biologist at Imperial College London, said while talking to Time magazine. “Even when strong evidence is found that conversion of Amazon rainforest to other uses could be economically optimal, the process of forest conversion is essentially irreversible which places additional burdens of proof on such decisions.

This is a vital point whose importance cannot be overstated! Once rainforests like the Amazon are destroyed there is no easy way to get them back. To me, it’s a bit like asking whether you are willing to sell a part of your body for a lump of gold. You might be if it was a kidney, maybe even a toe but what about an eye? Or a leg? You would want to be VERY sure that the returns would be worth your pain and sacrifice, because there would be no way back.

The unknown can come back to haunt us

            Indulge me as I continue to use my grisly analogy. Let’s say you are very sure that the big lump of gold you got for your sacrifice was a profitable trade for you. After all you don’t have to work anymore now that you are the proud owner of tons of gold (it was a very big lump). You look forward to a life of economic ease and relief from worries.

Then something disastrous happens: gold prices crash and your ton of gold is now worth about the same as two goats and a chicken. The unknown, the unexpected has come back to bite you. Much the same can happen when tropical rainforests are deforested and the land used for agriculture, animal husbandry or more extractive industries such as mining and drilling for oil.

For instance, a 2011 study in Environmental Research Letters found that “the act of deforestation, which is being done to increase agricultural production, may perversely lead to changes in climate that reduce crop and pasture yieldsaccording to Michael T. Coe, co-author of the study. He explained that “In some cases these decreases in yield may be large enough to make agriculture economically unattractive.

What could be: The unappreciated role of indigenous peoples

In an eloquent article published just a couple of months ago The Economist points out that “the central problem facing policymakers is that trees are usually worth more dead than alive; that is, land is worth more as pasture or cropland than as virgin forest.”

It has been notoriously difficult to calculate monetary benefits from forests, “whereas a bushel of soybeans is worth $12 on world markets. The market for palm oil, much of which is supplied from deforested land in Indonesia, is worth $50 billion a year”.

One way to protect tropical forests is to completely eschew any potential economic gains that might come from exploiting them. For example, India’s national forest policy states “the derivation of direct economic benefit must be subordinated to this principal aim (of protecting the forests).”

Of course, while this policy may or may not lead to conservation of forests (it has been at least partially successful in India), it has the potential of uprooting and excluding indigenous populations who may be living in the protected areas. Turns out, that is a huge missed opportunity because “overwhelmingly, [indigenous people] respond to incentives by protecting their land, presumably for cultural reasons: the forest is their home and they do not want to sell it, even if that would be profitable.”

Backing up this idea that indigenous peoples are excellent custodians of their homelands, recent data show “deforestation in indigenous areas of Brazil is about 12 times worse than in areas outside themso expanding indigenous rights further could make a big difference to slowing deforestation.” And that, I think, would unarguably be a benefit for us all.


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