The Economic and Ecological Impact of Soy in Brazil: A Synthetic Control Method Approach

In recent decades, soy expansion in Brazil has generated significant environmental, social and economic impacts. However, there is no consensus about benefits and drawbacks, calling for a more careful account of the economic and ecological diversity of the territories where this phenomenon has been unfolding. By acknowledging this diversity, we investigate the economic and ecological impacts of soy by applying a synthetic control method to longitudinal data (1990–2019) at state level. We focus on three indicators (GDP, CO2 emissions and deforestation) and explore how these indicators vary in five states (Goiás, Paraná, Piauí, Rio Grande do Sul, Tocantins). These states differ in terms of underlying conditions and timing of soy expansion but have in common a significant contribution of soy to their GDP. From an environmental perspective, the states where soy consolidated its presence during the period considered (Goiás and Paraná) experienced a general improvement compared to their synthetic counterfactuals, especially in terms of deforestation, while a pioneer state in soy production such as Rio Grande do Sul saw a worsening in environmental indicators, especially right after the 2008 global financial crisis. This is also reflected in the impact of soy on GDP, which has been negative in this state, suggesting that it may have suffered from being a plantation economy, with soy subtracting resources from potentially more beneficial sectors. This geographical and temporal heterogeneity indicates that the economic and environmental impact of soy cannot be reduced to a single dominant trend. The outcome depends on the trade-offs with other sectors, which is in turn linked to the level of economic development of the state when soy took off.