Charcoal Production And Agricultural Expansion Into The Peruvian Amazon Rainforest: A Household Economic Analysis

Agricultural expansion has traditionally led colonization of the Amazonian rainforest. Recently, pioneer farmers in the forest margins around Pucallpa, Peru, have been changing their production decisions and altering the deforestation process. In response to a government policy to protect forests in another region of the country, pioneer farmers have begun to add charcoal production to their activities. A recursive, dynamic optimization model analyzes how the incorporation of charcoal production by a representative pioneer farm would affect household net returns and the rate of deforestation. The model predicts that after 10 years, a net revenue maximizing pioneer farmer would increase household earnings and reduce forest conversion by producing charcoal. A sensitivity analysis predicts that farmers would allocate most of any additional labor to charcoal production, reinforcing the conservation effect. However, the long-term effects of charcoal production upon rainforest conversion will depend upon how extra earnings are reinvested, a decision that is beyond the scope of this model.