Incorporation over Deforestation: Cacao Agroforestry beats Papaya Plantations

(featured photo: the new cacao agroforestry plot at ASA’s Finca las Piedras.)

A wild landscape made tame: the forest stripped from the earth, now dominated by swathes of plantations; riverbank jungles slashed away at to yield to the ominous craters and mounds of gold mines scattered throughout.

These illustrations have quickly become the norm in the Madre de Dios region. But it can be prevented.

One of the fundamental missions of ASA is to protect forested lands by means of promoting cacao agroforestry: as opposed to clear-cutting the jungle to grow pesticide-intensive crops, incorporate produce that can be grown under a shade-providing canopy. With such a method, one’s land can offer sources of income while preserving much of the rainforest biodiversity: the standing natural trees will foster a complex ecosystem of seed-eating mammals, herbivorous insects, and an assortment of birds, reptiles, and other flora and fauna.

But conservation of forest diversity in and of itself does not always provide enough incentive to pursue such a livelihood. Even though many residents of Madre de Dios have a deep interest in the preservation of their rainforests, they also must make a living from their land. But perhaps we can imagine a reality in which preserving the forest may actually be the most financially sound approach to maintaining one’s land, or at least more profitable than expected. Can an agroforestry crop, cacao, be more lucrative than one of the most abundant monocrops in the region, papaya?

Over the past 5 years, papaya prices in Madre de Dios have declined, while cacao prices in the region have remained steady, with the occasional increase. I suspected that the fall in papaya price was due to an oversaturated market; as more Peruvians colonizes the region and depend on a papaya harvest for their living, the more production increases…but demand may not follow. Cacao production, on the other hand, is still only a trickle in Madre de Dios, and almost all of it is shipped internationally to a large global market. This would mean that papaya may not be the most economic crop of choice for future harvest in Madre de Dios, while cacao may show more future promise.

I set out to discover if this was the case. My approach was an econometrics analysis: using statistics to predict and understand economic trends. Using econometrics, I wanted to find out: are the prices of papaya and cacao in Madre de Dios determined by local production? Now, a rationale scientist may start with asking: well, is there correlation between the changes in production of papaya/cacao, and prices of these crops in Madre de Dios? But this information doesn’t actually tell us much of anything. Papaya prices may change at the same time as papaya production changes, but it might really be because of a simultaneous change in demand, rather than supply. So how does one determine the affect of supply versus demand?

The key is to use instrumental variables. An instrumental variable is a variable that affects your supply, but not demand, or vice versa. Let me give you an example, one of the IVs I used in my study. There is a strong relationship between the amount of rainfall in Madre de Dios and the amount of papaya produced*, which seems fairly logical. However, the amount of rain isn’t very likely to impact the demand for papaya….people who like papaya are likely to buy papaya, regardless of whether it is raining or not (the picture is a little more complicated than this– heavy rains make the transport of papaya over long distances more difficult– but for the sake of brevity, let’s stick with this assumption). If I am fairly certain of these assumptions, then I can use the amount of rainfall in the region as an instrumental variable for the understanding the relationship of demand and price: for time periods with a given amount of rain, does price change with a change of demand?

Using such instrumental variables (or called “curve shifters,” as they change supply or demand curves), I was able to figure out if papaya production or demand was driving changes in price. And it turns out that there is a tight relationship between production and price. What does this mean? Well, if the papaya production in Madre de Dios continues to skyrocket…yup, the price will continue to plummet. As for cacao? Well, I didn’t find a correlation between cacao production in Madre de Dios with price in the region, likely because the price of cacao in the region was much more dependent on global demand. And global cacao prices are on their way up, for the most part.

Now, this isn’t completely conclusive evidence that cacao will show more promise than papaya in the coming years. If papaya production decreases for some reason, then the price of papaya will very likely increase, and farming papaya may be a good investment. Furthermore, it’s not easy to start a cacao agroforestry plot– there is a fair amount of capital needed to buy the seeds, and tending to cacao seedlings is a tedious and labor-intensive mission.

But, this study does at least suggest that cacao is competitive. Not only can it preserve some forest biodiversity, that would be lost with the flames of the slash-and-burn used to clear for plantations, but farmers might be able to turn a larger profit margin with cacao than other prominent options. So, go ahead and munch on that chocolate bar you’ve been eyeing all day.

*rainfall and papaya production are actually inversely related: the more rain, the less papaya produced. Although residents of temperate zones may find this backwards, remember just how much it rains down here: when rainfall is high, the papaya fields may get so flooded that many of the plants are killed of.