Most developing countries struggle with limited state capacity, which hinders their ability to enforce laws and provide public goods. This limitation affects many aspects of governance, including environmental regulation, and can lead to increased deforestation and land degradation. However, policies that outsource state functions to market players—when public and private incentives are aligned—may partially address these challenges by harnessing the private sector’s reach and efficiency.

Our research explores the relationship between limited state capacity and environmental outcomes in the context of cattle ranching and slaughterhouse operations in Brazil. Global demand for animal protein has increased, especially in Asia, making Brazil a major player in global beef markets, accounting for roughly 20 percent of global beef exports. Extensive cattle ranching has been the dominant production system in Brazil, with more than 155 million hectares converted to pastureland in the past few decades—an area larger than the territories of France, Germany, and Spain combined.

However, this industrial expansion may cause deforestation and other forms of land degradation. Brazil contains some of the world’s most important preserved biomes: the Amazon rainforest and the Cerrado (a tropical savanna in central Brazil). The expansion of agricultural and cattle production has considerably affected both biomes over the past three decades.

Our study leverages the staggered timing of about 170 slaughterhouse openings in Brazil between 1994 and 2019 using comprehensive municipality-level data. Slaughterhouses usually purchase cattle from areas up to 200 kilometers away. Thus, a new slaughterhouse opening increases the demand for cattle across multiple localities. Ranchers may respond by raising more cattle on existing pasture or by expanding their ranches, potentially driving deforestation.

Brazil has historically faced significant challenges with state-building and law enforcement, particularly in its frontier regions. However, following a 2009 deforestation-awareness campaign led by Greenpeace, federal prosecutors in the Amazon region indicted slaughterhouses for buying cattle from illegally deforested farms. To avoid legal penalties, these plants entered into agreements with prosecutors known as termos de ajustamento de conduta (conduct adjustment agreements, or TACs). Under these agreements, they were forgiven for past violations but could be penalized for future livestock purchases from illegally deforested areas.

TACs aligned public- and private-sector incentives. The agreements benefited the government by outsourcing monitoring and enforcement to slaughterhouses, rather than relying on direct state oversight of dispersed ranchers. Simultaneously, they may have served as a “green certification,” bolstering plants’ reputations by demonstrating their commitment to environmental protection to the public.

Our research assesses whether TACs can increase cattle production without leading to deforestation or pasture degradation. We compared municipalities within 200 kilometers of a newly opened slaughterhouse with those where no slaughterhouse had yet opened nearby. Brazil’s municipalities are autonomous administrative units roughly equivalent to US counties. Between 1994 and 2019, over 70 percent of Brazil’s 5,570 municipalities experienced a slaughterhouse opening within 200 kilometers.

Our study reveals three main findings. First, before TACs were introduced, ranchers did not respond to slaughterhouse openings by increasing the number of cattle raised on existing pasture. Instead, they typically expanded their pastureland: After a slaughterhouse opened, the share of a nearby municipality’s land devoted to pasture increased by approximately 1.47 percentage points on average. This corresponds to an increase of about 2,250 hectares of pastureland per municipality between 1994 and 2019—roughly the area of 4,250 American football fields.

Second, before TACs were introduced, slaughterhouse openings significantly reduced the area of natural forest. Cattle grazing could expand onto already cleared land, such as cropland or natural pastures, or onto native forests. Our analysis reveals that ranchers increased their pastureland, at least in part, through deforestation. Furthermore, pasture degradation increased following slaughterhouse openings. The share of a nearby municipality’s land composed of severely degraded pastureland increased by 1.04 percentage points on average (about 1,600 hectares), while the share composed of totally degraded pastureland increased by 1.6 percentage points on average (about 2,450 hectares).

Third, TACs increased cattle productivity without increasing deforestation. After an existing slaughterhouse signed a TAC, new slaughterhouse openings in the same Brazilian state did not result in additional forest loss or severe pasture degradation. Instead, ranchers increased the number of cattle on existing pastureland and earned a price premium for their production. Conversely, states without any TAC signatories experienced the opposite effects. Slaughterhouses that signed TACs may have monitored ranchers more closely to avoid purchasing cattle from illegally deforested areas. Moreover, the presence of a signatory plant may have increased the likelihood that other plants in the same state would also become signatories. These factors may have led ranchers to increase the productivity of existing pasture by improving management instead of expanding pastureland.

Note
This research brief is based on Daniel Da Mata et al., “Industrial Activity, State Capacity, and Deforestation: Evidence from Brazil,” IZA—Institute of Labor Economics Discussion Paper no. 18380, February 2026, also issued as National Bureau of Economic Research Working Paper no. 34751, January 2026.