Fueling Development: Sugarcane Expansion Impacts in Brazil

This research paper examines the local impacts of sugarcane and ethanol mill expansion in Mato Grosso do Sul, Brazil, between 1999 and 2012. The study finds that the entry of these mills significantly boosts municipal GDP, employment, and wages, while creating positive productivity spillovers for other crops like corn and soybeans. However, this growth comes with a land-use shift that displaces cattle ranching. The authors attribute these gains to improved infrastructure, a more skilled labor force, and increased access to financial credit.

• The entry of sugarcane mills in Mato Grosso do Sul led to significant municipal economic growth. Three years after a mill is constructed, a typical municipality experiences a 30% increase in GDP, a 31% jump in tax revenues, and a 20% increase in GDP per capita.
• Sugarcane expansion caused a substantial shift in land use, primarily displacing cattle ranching. The cattle herd in municipalities with mills decreased by an average of 27 thousand heads, relative to a sample average of 285 thousand heads.
• The industry's growth created positive spillovers for other agricultural crops, specifically increasing the productivity of grains. While soybean harvested area decreased, its production remained constant or increased in the short run, and both corn production and harvested area increased.
• The establishment of mills significantly boosted local employment and wages. Employment increased by 40% with the creation of 3,542 vacancies, and aggregate wages rose by 49%.
• The economic benefits extended beyond the mills to various ancillary sectors. The most positively affected sectors included manufacturing, wholesale and retail trade, maintenance, hotels and restaurants, and transport, storage, and communications.
• Sugarcane expansion improved local financial intermediation and access to credit. Private deposits increased by 4.8 million reais, and agricultural credit rose by 18.5 million reais for both operational expenses and investments.
• The study identifies three primary transmission channels for positive spillovers: a larger and more educated labor force, improved infrastructure (transportation, storage, and communications), and increased access to capital and credit.
• The expansion of the sugarcane industry in Mato Grosso do Sul was driven by the 2003 introduction of flex fuel vehicles (FFVs) and a 2004 credit reform for automobile purchases.
• The scale of investment for a standard mill is very large relative to local economies. A typical mill requires capital expenditures of approximately 280 million reais, which represents 130% of the average municipal GDP in the study area.

APA

Assunão, J., Pietracci, B., & Souza, P. (2016). Fueling Development: Sugarcane Expansion Impacts in Brazil. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2016/07/Paper_Fueling_Development_Sugarcane_Expansion_Impacts_in_Brazil_Working_Paper_CPI.pdf.pdf

Chicago

Assunão, Juliano, Breno Pietracci, and Priscila Souza. Fueling Development: Sugarcane Expansion Impacts in Brazil. Climate Policy Initiative, 2016. https://www.climatepolicyinitiative.org/wp-content/uploads/2016/07/Paper_Fueling_Development_Sugarcane_Expansion_Impacts_in_Brazil_Working_Paper_CPI.pdf.pdf.

Wikipedia

{{cite report |last1=Assunão |first1=Juliano |last2=Pietracci |first2=Breno |last3=Souza |first3=Priscila |title=Fueling Development: Sugarcane Expansion Impacts in Brazil |publisher=Climate Policy Initiative |date=July 2016 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2016/07/Paper_Fueling_Development_Sugarcane_Expansion_Impacts_in_Brazil_Working_Paper_CPI.pdf.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{assuno2016fueling, author = {Assunão, Juliano and Pietracci, Breno and Souza, Priscila}, title = {{Fueling Development: Sugarcane Expansion Impacts in Brazil}}, institution = {Climate Policy Initiative}, year = {2016}, month = jul, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2016/07/Paper_Fueling_Development_Sugarcane_Expansion_Impacts_in_Brazil_Working_Paper_CPI.pdf.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }