Do forests provide watershed services for farmers in the humid tropics? Evidence from the Brazilian Amazon

Forests are a key component of hydrological cycles, and thus deforestation is likely to affect the availability and quality of water for downstream agricultural production. However, in humid tropical regions where water is relatively abundant and the terrain is relatively flat, it is unclear whether these changes in ecosystem services matter to local farmers. We test whether the extent of forest in upstream drainage areas affects downstream farm production in an agricultural colonization zone in the Brazilian Amazon. We first estimate panel models of the output of milk, which is the primary farm product in our study region. We then test for effects on pasture stocking and cow productivity as possible pathways for the effect of upstream forests on milk output. Estimation results suggest that upstream forest increases the productivity of properties with small drainage areas. The effects are strongest when water is either scarce (dry season of drought years) or excessive (rainy season of flood years). The contribution of Amazonian forests to the resilience of the local farm economy is likely to become more important as rainfall becomes more variable due to regional and global climate change.