Government subsidies to farmers are fueling a deforestation loop in the Amazon

• Climate extremes caused by deforestation and degradation is responsible for 83 % of the insurance payouts to farmers for failed crops
• 21 % of the farms that received subsidized rural credits between 2017 and 2022 showed evidence of illegal deforestation
• Degraded forest areas in the Amazon receive up to 14 % less rainfall

Research conducted by the Federal University of Minas Gerais, the Center for Territorial Intelligence, and Rainforest Foundation Norway links for the first time the impact of forest destruction on insurance payout costs.

Extreme weather conditions, exacerbated by a combination of climate change, deforestation and forest degradation, are increasingly affecting the productivity of maize and soy production and cattle ranching in the Amazon. In highly deforested areas of the southern Amazon, the number of days with temperatures above 35°C and consecutive days without rain have risen 5 times and 24% over the last two decades, respectively. As a result, crop shortfalls are becoming more frequent, entailing a larger number of payouts and higher insurance premiums, and demanding more public insurance subsidies.

Deforestation accounts for more than 80% of insurance pay-outs

From 2010 to 2023, the Rural Insurance Program (PSR) subsidized 23,500 contracts in the Legal Amazon, covering an area of 6.7 million hectares of farming and 133,000 cattle heads, with premiums totaling USD 244 million, of which USD 83 million consisted of federal subsidies, the report shows.

"We estimate that between 2010 and 2023, the increase in climate extremes due to climate change, in synergy with deforestation, was responsible for 95% of the USD 115 million payouts to farmers and ranchers in the Amazon under the Rural Insurance Program. In largely deforested areas, the share of deforestation alone accounts for 83%", reveals Britaldo Soares Filho, professor of environmental modelling at the Federal University of Minas Gerais in Brazil.

The paradox of agricultural practice in the Amazon

The report “Rainforest Payback: The Cost of Deforestation” further illustrates how government subsidies, intended to encourage agricultural production, have had unintended consequences. In reality, these subsidies often lead to increased deforestation and degradation, which, in turn, reduces rainfall, increases temperature, and contributes to more frequent crop failures. With more frequent crop shortfalls, insurance premiums rise and payouts increase, driving demand for even more public subsidies - creating a self-perpetuating cycle.

"The report’s findings make it painfully clear how paradoxical the practice of deforestation for agriculture is in a vulnerable ecosystem like the Amazon. The more forests you clear, the less rain your crop will receive. Farmers pushing into the rainforest are, in effect, sabotaging their own future," Anders Krogh, forest expert at Rainforest Foundation Norway, says.

The study also highlights that 21% of the 217,000 rural properties receiving subsidized credits between 2017 and 2022 exhibited evidence of deforestation, with 98% of this potentially being illegal.

Additionally, 8% of financed properties were embargoed for breaking environmental laws, yet they continued to access public credits.

Felipe Nunes, a researcher at the Center for Territorial Intelligence and the Center for Remote Sensing, notes that Brazil’s Central Bank’s tightening of rural credit rules is a crucial step toward curbing deforestation. However, he warns that weak monitoring by banks and environmental agencies, along with lenient transition terms until 2027, may still allow loans to embargoed properties."

Greater climate change consequences than previously documented due to forest degradation.

The research expands the understanding of the interlinkage between climate change and forest degradation in the Amazon.

“The data reveals that it's not just the large-scale destruction that is disrupting local and regional climates, but also the slower, less visible erosion of forests through climate change and fragmentation by roads, farming, ranching, selective logging, wildfires and other human activities," says Soares Filho at UFMG.

According to the research, from 2000 to 2020, about 20% of the remaining Brazilian Amazon Forest underwent consistent degradation. The report shows that total annual reductions in evapotranspiration compared to non-degraded forest amount to 22 % for degraded and 41 % for deforested areas. In turn, much less evapotranspiration resulted in a 14 % reduction over degraded forest and 34 % over deforested areas during the dry season. Yet, these figures are conservative because of the effect of deforestation on rainfall reduction augments when analyzed at a broader scale.

Evapotranspiration is a crucial component of the water cycle, regulating climate, plant growth, and water availability in ecosystems. Forest degradation, therefore, weakens the forest's ability to form its own rain clouds.

"The Brazilian government must stop propping up deforestation via public subsidies. Instead, it should reward farmers for protecting or recovering the forest. This is the only sustainable path forward - one that secures long-term crop yields while preventing the Amazon from reaching its ecological tipping point," urges Krogh.