Work in Progress

Brazilian Sugarcane Production and Its Regional Effect on the Welfare of the Rural Poor

 

For most of the past 30 years, Brazil has been the leading producer and exporter of sugarcane in the world. Two major shocks associated with the sugarcane industry have affected the quantity and quality of associated employment since 1990 and the consequences of these changes are likely to have permeated rural communities of Brazil, where the industry employs up to 25% of the labor pool. The first shock, the ethanol boom, increased employment through increased production of sugarcane and the second shock, mechanization of the harvest, displaced as many as 100 undereducated laborers for every mechanical harvester adopted, all while increasing profits and wages for more skill oriented jobs. This paper considers the humanitarian consequences of such employment shocks and the degree to which they radiated throughout entire communities by considering the selection process of sugarcane production as a function of spatially correlated exogenous variables, thereby requiring matching techniques to estimate the causal effect of the sugarcane industry on the incidence and degree of municipal poverty. This process required the use of a probit variant of the Spatial Durbin Model and Inverse Probability Weighting to match treatment and control observations in addition to quantile regression. Early results indicate expected heterogeneity, with the municipalities more likely to have replaced manual harvesters with mechanized ones experiencing greater incidences and intensities of poverty than both the control sample and their manual harvesting counterparts, while achieving greater success for those at the top of the income distribution. While only 30% of the sugarcane harvest was mechanized in 2008, 80% of the harvest is expected to be mechanized in 2018. While Brazil should continue to retrain displaced workers, the negative effects of mechanization may be greater than anticipated and may require subsidization of the rural poor from sugarcane profits to soften immediate losses.