Agricultural commodity prices, governance, and land supply in the Tropics

Sustainable use of land resources is at the core of the bioeconomy, and it is of central importance for development in the coming decades. The United Nations Sustainable Development Goals reflect this aspect of development both directly and indirectly. Important global trends, such as a growing and richer world population, are consistently increasing demand for biomass products, leading to tradeoffs among related goals such as “Zero Hunger” and “Life on Land.” Regarding land supply for biomass production, there is a need for agricultural land and pressure in forest areas. Empirical evidence at regional and global levels points to land suitability, local and international markets, and governance as major drivers of land supply for the bioeconomy. However, global models lack an economically consistent description of the divergence between legal requirements for land use (de jure) and current land use trends (de facto) in tropical regions, where these tradeoffs are expected to be higher. Our analysis empirically estimates the average marginal effect of the socioeconomic, climatic, and governance drivers of land supply in the tropics. We used subnational panel data to construct a fractional response model to estimate these effects. Then, we used the econometric results to calculate heterogeneous individual land supply elasticities to commodity prices at the subnational level. Our results support the idea that in forest-abundant areas, soaring prices reinforce agricultural land expansion. Further, our results support previous evidence that the type of governance (conventional or environmental) determines the likelihood of a reduction or expansion of agricultural land in the tropics but with a very small magnitude compared to other drivers.