Global tropical deforestation continues to be a critical environmental issue and nowhere in the world is the issue more pronounced than in Brazil. This paper examines the land-use choices of small-scale farmers in Ouro Preto do Oeste, Rondonia, Brazil and investigates how agricultural production impacts deforestation levels. The data used to explore these issues consist of a panel collected from 152 households in 1996 and 2000. Overall, the empirical models indicate that access to credit, wealth, lot size, product markets, and off-farm labor opportunities, largely influence deforestation and production decisions. Among other things, the results suggest that more sustainable production methods are unlikely to be adopted by a majority of households under current conditions because the production of milk has rapidly advanced due to its moderate labor requirements and existing market infrastructure. Households with greater levels of wealth have focused on milk while those with access to credit have focused on crops. Since the production of crops is largely influenced by access to credit, similar incentives may be proposed to support more sustainable production activities to help reduce deforestation.
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