ROLE OF CREDIT ON THE DEFORESTATION OF AN AMAZONIAN FRONTIER: EVIDENCE FROM THE ALTAMIRA COLONIZATION AREA Stefano Fiorini, Eduardo S. Brondizio and Stephen D. McCracken Indiana University / ACT, U.S.A. INTRODUCTION Capital availability, through credits constitutes an important basis to increase farm production. However, in the Amazon’s frontier areas it may be used to intensify production on the lot or/and expansion and deforestation, becoming a “double blade” knife in the process of deforestation. This opportunity often translates in increased deforestation because of the convenience of cultivating in newly cleared lots. It has been reported that credit lenders have offered more generous loans to farmers using newly cleared land rather than to those clearing secondary growth. There are several reasons that make it difficult to quantify the effects of subsidized credit on the behavior of farmers in the Amazon, among them the lack of data availability, and the difficulties to safely determine the effective use of the subsidized credit directed to agriculture. Drawing from survey data collected in Altamira, State of Pará, Brazil, the present study analyzes the trends of credit use and allocation, and its link to the deforestation pattern among small farmers. The analysis is carried out with an attention to the influence of national and local agricultural policies that conditioned the economic context of colonization. RELEVANT EVENTS Figure 1 represents in chronological order a series of major Brazilian economic events and policies that affected the agricultural sector since Access to agricultural credit went through a period of expansion in the 1970s, experienced a contraction, due to hyperinflation, in the 1980s and in the first half of the 1990s, and an increase again due to improved economic conditions in the 1990s with stabilization following the Real. STUDY AREA AND DATA The present study focus on an area of the region of Altamira defined by a group of 3,718 farm lots, covering 355,295 hectares, with an average size of 95.5 hectares, and stretching from Km 18 to Km 140 of the Transamazon highway west of Altamira. Data on the small-farmers’ access to credit resources, the source of credit as well as its agricultural use derive from a survey of 402 households completed on December 1998 by a multidisciplinary research group. The households were sampled with particular attention to the temporal distribution of their initial settlement in the area. An equal number of households were randomly selected from each cohort of settlements to be interviewed. During fieldwork GPS points were collected in order to allow the link between survey data and satellite-derived information in a GIS. Farm and regional level deforestation is assessed using Remote Sensing because of the multitemporal perspective that allows to determine deforestation trajectories in the area. The present study relies on the information derived from the processing and classification of aerial photos (for 1970), IBGE map (for 1978), Landsat MSS (for 1973, 1975, 1976, and 1978), and Landsat TM (for 1981, 1988, 1991, and 1996). RESULTS AND DISCUSSION In the region of Altamira more than half (56%) of the households interviewed received credit at least once. Generalized access to credit was to be expected in the light of the initial government policies of colonization. In Figure 2 credit acquisition rates since the early 1970s are presented. The rate reaches its higher values (above 14%) during the PIN (Plano de Integração Nacional) phase of the colonization ( ), the period of implemented small-farmers settlement. At the beginning of the second half of the 1970s the rate decreases steadily to reach a minimum in This trend mirrors the change in the government’s policies of development in the region. The focus shifts from small-farmers to the larger scale export-oriented projects of the POLAMAZONIA plan, leaving the small-farmers exposed to the national economic events, like the decline in credit going to agriculture, in the first half of the 1980s, or the hyperinflation of the end of the 1980s. During this period we observe a depressed economy and the end of the traditional bank credit support for annual-crop production. Since the beginning of the 1990s credit rate among small-farmers has increased again as a consequence of the stabilization of prices produced by the Real Economic Plan. TIME LINE Years SOURCE OF CREDIT Source of Credit (%) TYPE OF CREDIT Years Three years moving average Rate (per 100) Years RATES OF CREDIT ACQUISITION Three years moving average Rate (per 100) Figure 1 Figure 2 Figure 3 Figure 4 Cohort by time of initial clearing (%) Percentage Figure 3 separates the credits allocated by type of land-use. Again the historical events clearly condition the variation and amount of credit allocated to different agricultural activities. The general credit for unspecified agricultural activity peaks in the first phase of the PIN. During the past decade, especially after we can observe a strong impulse toward credits for cattle ranching, and after 1994 a slight increase in credits used for perennials which might have been linked to the improved conditions of cocoa production and increase in the price of this commodity. Credit used by the colonist farmer for equipment acquisition has been generally low over the entire colonization period and this reflects on the small usage of machinery among the small-farmers interviewed. In the area the most important equipment is the chainsaw, owned by 77% of the farmers interviewed, followed by generators (owned by 22% of the farmers). In Figure 4 the temporal variation of the source of the credits for the farmers of the region is represented. Banco do Brasil represented the main source of credit among small-farmers during the first 20 years of colonization. The importance of this source during the first half of the 1970s and the absence of other sources like BASA can be related to the different orientation that BASA, with SUDAM, had in implementing large projects instead of financing small settlers. On the other hand after 1990 Banco da Amazonia S. A., with the Fundo Constitutional de Financiamento do Norte (FNO) created in 1988, is the major institution for credit disbursement. In this last period we also observe an increase in credit for cattle ranching activities. Based on our survey the access to credits for agriculture in the area is not significantly correlated to variables like education level or age of the household head, or the economic conditions of the household at the time of settlement. On the other hand we observed a higher tendency to receive credit among farmers that arrived from the Northeast, Southeast and South of Brazil, or those born in the region, compare to farmers from other parts of Amazonia or the Central-West of Brazil. Previous experience with credit also was associate with higher levels of credit received. With regard to the characteristic of the lot we observed a higher tendency to receive credit among farmers with terra roxa (62%) on their property compare to farmers without terra roxa (52%). In Figure 5 the deforestation rates and cohorts of colonist arriving are shown. Deforestation rates increase since the beginning of the colonization process to peak at the end of the 1970s. In the second half of the 1980s the deforestation rates decrease to regain impulse in the mid-1990s. A comparison between the diagram of deforestation (Figure 5) and credit (Figure 2) highlights a correlation between the two rates. In fact based on the survey data we found that the amount of cleared area significantly increases among farmers that obtained credit at least once during their residence in the frontier (publication in preparation at ACT). CONCLUSION The present study highlighted how small-farmers in the frontier Amazon respond to changes in the national economy and governmental policies. Credit represents a resource used by colonists to expand and/or consolidate a lot. The reduced access to bank resources, during unfavorable periods, is reflected in a reduction of the rate of deforestation. The scale of analysis undertaken for the present poster allowed identifying the link between trends in deforestation and trends in credit acquisition among colonists. At this level of analysis period effects are magnified. With our on-going research focusing on the farm level we will be able to determine the role that credit acquisition plays in relation to expansion of cleared areas or consolidation and intensification of already cleared ones. A better understanding of how credit policies can affect farmers’ agricultural choices in the different phases of settlement can improve the realization of developmental plans that contribute to the farmers’ quality of life as well as shape a development policy that is sustainable. DISTRIBUTION OF COLONIZATION COHORTS AND % DEFORESTATION Figure 5