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Technology and institutional factors are important drivers of production and land use decisions. This section explores the relationships between two institutional drivers  land rental markets and cooperatives  and three technological drivers 

technical assistance, rotational grazing and lime usage  of cattle farm productivity and pastureland conversion. The results show that the importance of these drivers cannot be understated. In fact, our results show there are opportunities to increase productivity, particularly through improvements in land rental markets, technical assistance, lime usage, and rotational grazing. For example, it's interesting that so little farmland is under lease contracts since holdings under these contracts are more productive than those operated by their owners.

Productivity

For each productivity driver, our analysis splits municipalities into two groups: one low-adoption group and one high-adoption group, so that each group has the same number of municipalities. We then calculate and compare the average productivity in each group. Table 4.2 summarizes this section's ndings.

Table 4.2: Productivity Drivers: Institutions and Technology

Average Productivity in Municipalities where Driver is...

Driver Low High Land Rental Markets 1.00 1.24 Cooperatives 1.14 1.10 Technical Assistance 0.99 1.27 Rotational Grazing 1.05 1.19 Lime Usage 0.97 1.27

Notes: each table row shows average HPH in municipalities where the corresponding driver is below and above the median distance. HPH is heads of cattle in large cattle farms divided by hectares of pastures in those farms. The dierences in the two columns is statistically signicant at the 1% level. We consider only municipalities in which cattle ranching is a signicant activity, meaning that the share of pastureland is at least 24 percent of farmland, leaving us with 2879 municipalities.

Land rental markets A well-functioning land rental market ensures that a land holder who is not as

productive as her competitors, can rent out her holding to someone who can achieve better results. Hence, healthy land rental markets can have signicant impacts on land productivity. We take rental rates as a measure of a well-functioning land rental market, and explore the association with cattle farm productivity. The rst row of Table 4.2 presents the results. In the group of municipalities where a low fraction of the land is leased, average productivity is 1.0 HPH. In contrast, in those municipalities with relatively more active land rental markets, productivity averages 1.24 HPH, or 24% higher. In the typical municipality however, only 3.4% of pastureland is leased. Given the extensive nature of cattle ranching, and the low xed capital investments in farms, it is intriguing that this ratio is so low.

Cooperatives Cooperatives form an important institution to organize agricultural production. As we will see in Chapter 5, cooperatives are associated with productivity gains in most crops. However, in large-scale cattle ranching, this does not seem to be the case. There is little productivity dierence between

municipalities above and below that threshold. In fact, large-scale cattle ranching is slightly (3.5%) less productive in municipalities in which cooperatives are more common.

Technical Assistance Turning to technological factors, the third row of Table 4.2 shows that access to technical assistance is correlated with greater

productivity among large scale cattle ranches. In municipalities with little provision of technical

assistance, productivity averages 0.99 HPH. This gure jumps to 1.27 HPH when technical assistance is more widely available, a 28% increase.

Rotational Grazing Rotational grazing consists of moving cattle into rested areas to allow for better forage growth. It therefore introduces a trade-o between leaving areas to rest and making them more productive. Table 4.2 shows that it pays o. Municipalities with above-median usage of rotational grazing achieve 1.19 HPH, while below-median municipalities average 1.05 HPH, a 13% drop in productivity.

Lime Lime is an important input in soil stabilization, and is more relevant in the Center-West region because of its acidic soil type. Municipalities with above-median lime usage achieve average productivity levels 1.27 HPH, while this gure is 0.97 HPH for below-median municipalities, amounting to a 31% dierence in productivity.

Land conversion

This section now turns to assess the extent to which the institutional and technological factors analyzed in Section 4.3 impacted pastureland conversion between 1985 and 2006. Figure 4.1 shows that the North and Northeast regions increased their share of pastureland in the 1985 to 2006 period, whereas the other regions saw their share of pastureland decrease. Within each region however, some municipalities changed their shares of pastures more than others, as Figure 4.3 shows. This section explores the impacts of land rental markets, cooperatives, and lime usage on the municipalities' changes in share of pastureland. Much like in Section 4.3, municipalities are divided into two groups, but this time according to their adoption levels in 1985. The section, then, discusses how the share of pastureland changed for each of those two groups between 1985 and 2006.

Figure 4.4 depicts the impacts of land rental markets (top panel) and cooperatives (mid panel) on the share of pastureland on total farmland (bottom panel), by region. Municipalities with a high share of land under rental in the North region increased their share of pastureland by 12%, whereas municipalities with a low share of land under rental increased their share of

Production and Protection: A First Look at Key Challenges in Brazil Chapter 4 pastureland by 5%. The Northeast follows the same

pattern. In the Southeast and South, land under rental had very little or no eect. Finally, in the Center-West municipalities with a high share of land under rental decreased their shares of pastureland when compared to municipalities with a low share of land under rental. Figure 4.4 also reveals that the fraction of farms associated with cooperatives in 1985 had impacts on pastureland conversion only in the Southeast and Center-West regions. Municipalities in which a relatively high fraction of farms were associated with cooperatives saw the share of pastureland decreasing more than those municipalities with low cooperatives coverage.

Lastly, Figure 4.4 reveals the dierent impacts of lime usage across regions. In the North and Center-West, municipalities with high adoption of lime in 1985 converted less farmland into pastureland in the 19852006 period. The opposite is true for the South and Southeast. The degree of lime usage in Northeast had no apparent impact on land conversion.

In sum, these numbers show that better access to good institutions and technology enabled producers in each region to pursue their best available agricultural activity. For example, municipalities in the Center-West with good access to cooperatives, lime, and well-functioning land rental markets, saw their share of pastureland decrease, implying that producers in those municipalities favored crop farming relatively to cattle ranching. Although these data do not show into which crop farmers converted their lands, the next chapter will present data suggesting it was soybean, the leading agricultural exporting commodity in Brazil.