Market Power and Carbon Emissions in the Amazon

Abstract

The beef cattle sector is the leading driver of deforestation worldwide. This creates high sectoral emissions, which are geographically concentrated in expanding agricultural frontiers. I focus on the Brazilian Amazon and study how market power in the cattle supply chain shapes production and emissions. Intermediaries exert buyer (monopsony) power over ranchers, but market structure also varies geographically. Ranchers in core regions face the most market power, while the deforestation frontier is relatively competitive. Using rich transaction-level data and a quantitative spatial model, I show that intermediary monopsony reduces prices paid to ranchers, but primarily in regions away from the frontier. While this burdens ranchers and lowers beef production, its effect on emissions is muted because the deforestation frontier is competitive. In counterfactual analysis, I show that many proposed policies fail to target the deforestation frontier and would instead further reduce production in the places already distorted by market power. However, a combination of targeted production subsidies and a carbon tax can reallocate production away from the frontier and reduce emissions by one third while keeping beef production constant.