Risky business, an analysis of price and small landholder returns in the Pedro Peixoto settlement project in the western Brazilian Amazon

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Dahl, Cameron
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This research focuses on agriculture production of small landholders (100 hectares or less) in the government settlement project of Pedro Peixoto, in the state of Acre in the western Brazilian Amazon. Monte Carlo simulations show that returns from agriculture production for small holders in the Pedro Peixoto project are well above the Brazilian poverty line, and significantly exceed the annual minimum wage. The level of price risk faced by small landholders in the Pedro Peixoto project is examined. It is shown that the level of price risk in the settlement project is higher than price risk in the south of Brazil as well as external markets. The high degree of price risk faced by small landholders in the Pedro Peixoto project may be a barrier to alternative agriculture practices that require increased intensification, such as agroforestry. However, it is also demonstrated that price variation is falling after July 1994. Due to the declining price variation alternative production practices that currently are too risky may become more attractive in the future. The expected return from many of the commodities typically produced by small landholders is shown to be falling after July 1994. This decrease in expected return may be due to a reduction in transaction costs that, in turn, reduce the price of commodities deficit in the project. Conversely, the expected returns of some commodities (coffee and banana) that are surplus in the project are rising after July 1994. This is also consistent with falling transaction costs.