PART I - SITUATION AND PROSPECTS FOR FOREST CONSERVATION AND DEVELOPMENT

Global trends in forest products

To meet the needs for wood and non-wood products and at the same time fulfil demands for environmental and social services from forests is the challenge now facing the forest sector. Efforts to find an acceptable balance between production and protection and between use and conservation drive much of the debate surrounding the forest sector today.

The overall patterns of production and consumption of wood products are very different between developed and developing countries taken as a group. Developed countries account for 70 percent of the total world production and consumption of industrial wood products. Developing countries, on the other hand, produce and consume about 90 percent of the world's fuelwood and charcoal, which are the major household energy sources in many of these nations (see Figure 3). More fuelwood and charcoal are consumed each year in the world than industrial roundwood. Demand for fuelwood is expected to continue to increase at a rate of about 1.1 percent per year between now and 2010, while demand for industrial roundwood is expected to increase at a rate of about 1.7 percent per year over the same period. Factors that are expected to influence the ability to meet the increasing demand include increased sources of wood (e.g. plantations and trees outside forests), technological improvements in wood processing which will increase the efficiency of use of raw material, and increased use of recovered and non-wood fibre. Trade will continue to help balance wood deficits in one place with surpluses elsewhere.

While wood is the predominant commercial product from forests, increased attention is being paid to the actual and potential economic role of non-wood forest products (NWFPs). The importance of NWFPs to household and local economies, particularly among the poor in developing countries, is increasingly recognized, as is the need to consider them in forest management planning and in forest policy in many countries.

Wood energy is another area that is raising new interest. While fuelwood and charcoal remain significant sources of energy in developing countries, especially for domestic use, their potential to contribute to the modern energy sector as an alternative to fossil fuels is being investigated in several countries.

Issues related to trade in forest products and to trade and the environment continue to be highly visible in the global forest agenda. Trade issues were debated at length, although inconclusively, at the second session of IFF in September 1998. A number of developments have occurred in the past two years regarding certification of forest products, one of the most complex and, in many cases, controversial issues in the forest sector. The Asian economic crisis has had the most unexpected and disruptive impact on forest products trade of any development in the 1997-1998 period.

NON-WOOD FOREST PRODUCTS: A LOOK AT MEDICINAL PLANTS

People have innumerable uses for the many plant and animal resources found in forests. Although several species have been domesticated and integrated into agricultural production schemes over the centuries, others, referred to as non-wood forest products, continue to be gathered from wild sources. In many parts of the world, NWFPs provide food (bushmeat, mushrooms, fruits, nuts, animal fodder), construction materials, fibres (bamboo, rattan, palm leaves), medicines and other health care products and goods of religious or spiritual significance. While the bulk of these products are gathered for household use or for sale in local markets, some enter national and international trade in significant quantities. NWFP production is often characterized by a large number of suppliers, each with a small scale of operation and a lack of industrial development. A global overview of major NWFPs, summarizing known information about their production status, value and trade and factors affecting their development was provided in the State of the World's Forests 1997 (FAO, 1997d).

Various issues related to NWFPs are currently being discussed in regional and international fora. One issue relates to the need to ensure the conservation of forest-based biological diversity while still ensuring equitable access to forest resources (including NWFPs), particularly by local people. The development of appropriate and fair pricing methodologies for NWFPs (including royalties on intellectual property rights) is another need. Difficult access and/or insecure tenure rights to the resources and the absence of relevant market information, including fair market access, are among the key constraints faced by the subsector.

Medicinal plants are among the most valuable of the NWFPs. Not all, but most medicinal plants gathered from the wild come from forest lands. Their high value can provide an additional incentive for sustainable management of forest resources and for the conservation of specific habitats.

Use of medicinal plants

More than 10 000 plant species (of both forest and non-forest origins) are used for medicinal purposes, mainly as traditional medicines. WHO has estimated that 80 percent of people in developing countries rely on traditional medicines, which are mostly plant derived, for primary health care. The use of medicinal plants is by no means restricted to developing countries and traditional medicine, however; at least 25 percent of the drugs in the modern pharmacopoeia are derived from plants. Many others are synthetic analogues built on prototype compounds isolated from plants. The demand for medicinal plants is increasing in both developing and developed countries.

Collection and production of medicinal plants

The majority of plant material used for medicinal purposes comes from developing countries. Most of it is gathered from the wild, mainly from forests, for household use. Few medicinal species are cultivated, because the low price of material harvested from the wild still makes cultivation financially unattractive. It is expected that more of these species will be cultivated in the future, however, because sources of wild material are diminishing and cultivated material is far preferable to wild material for large-scale production of commercial drugs for reasons of efficiency and quality control. Standardization, whether for pure products, extracts or crude drugs, is critical and will become increasingly so as quality requirements continue to become more stringent throughout the world.

Wild sources of medicinal plants will continue to be important at least in the short term, and will remain so for much longer in developing areas of the world and for the poorer sectors of society. In addition, some species will be difficult to cultivate, and synthesis of some active ingredients will be problematic. It is therefore critical to ensure a combination of cultivation and/or sustainable wild harvesting of medicinal plants. Only the latter can serve, through sound management of these resources, to provide additional incentives to conserve the habitats with the broadest genetic variation.

Not only are millions of people dependent on these plants for health care, but harvesting medicinal plant material for commercial purposes may be one of the few opportunities for paid employment or for earning supplementary income in some remote rural areas. When a species becomes commercially interesting, however, control over the resource may be transferred to a concessionaire system (involving individuals, a company or a kind of "extractive reserve" community scheme) or a trading board, often depriving some local people of access to the resource, either for household use or as a source of income.

Policy and regulation of trade in medicinal plants

Most end users are unaware of the extent to which the expanding demand in medicinal plants is threatening the survival of several plant species. The prices paid to gatherers tend to be very low, and resources are frequently openly accessible or common property. As a result, commercial plant gatherers often mine the resources rather than managing them. The species most vulnerable to extinction are those that are in high demand, reproduce slowly and have specific habitat requirements and a limited distribution (e.g. Warburgia salutaris in eastern and southern Africa). There is also a clear relation between the part of the plant collected or the collection method used and the impact of harvesting. For example, heavy commercial exploitation of the bark of Prunus africana, which is used in an anti-cancer drug, has devastated populations of this tree throughout humid Africa.

Most countries have few or no regulations controlling the collection and trade of material from the wild, and exisiting national legislation may be insufficient or ineffective. In Bhutan, laws passed to ban collection of specific plants effectively increased their price and stimulated illegal harvesting, which virtually drove them to extinction locally. The introduction of harvesting restrictions or bans in one country can result in overharvesting in other exporting countries.

Most medicinal plants are traded in local or national markets; relatively few are traded internationally in significant volume. There are few reliable global or even national data on production and trade of wild harvested medicinal plants, and it is difficult to distinguish wild from cultivated sources in existing trade statistics on medicinal plant material. According to data compiled from the COMTRADE database of the United Nations Conference on Trade and Development (UNCTAD), the total value of medicinal plant exports in 1995 from approximately 100 countries amounted to US$880 million. Regionally, Asia leads in the supply and consumption of medicinal plants, followed by North America. Germany dominates the European trade in medicinal plants, importing plant material from over 100 countries and re-exporting one-third of it as finished products.

International trade in certain medicinal plants is monitored and regulated mainly through the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). Several national and international initiatives by governmental and/or non-governmental organizations are emerging to address the unsustainable rates of exploitation of many medicinal plant species. At the global level, among the most significant are the Medicinal Plant Specialist Group of IUCN and TRAFFIC, a wildlife trade monitoring programme of WWF and IUCN, which closely cooperates with the CITES Secretariat. TRAFFIC has recently launched a priority programme on medicinal wildlife trade, whose objectives for the 1997-2000 period are: to identify and predict possible threats posed to wild species by the medicinal trade and to indicate possible solutions; to examine existing local, national and international regulatory measures for wildlife medicinals and to seek modifications as required to assist in maintaining trade within sustainable levels; and to promote enforcement of and adherence to regulatory measures intended to conserve wild species in trade.

Clearly, achieving sustainable management of NWFPs in general, and medicinal plants in particular, will be a continuing challenge requiring concerted local, national and international action.

CONTRIBUTION OF WOODFUELS TO THE ENERGY SECTOR

Much of the wood harvested in the world each year is used for energy production. Of the estimated 3 350 million cubic metres of wood harvested in 1995, about 2 100 million cubic metres, or 63 percent, was used as woodfuel.²⁷ While in developed countries only 33 percent of the wood produced was used for energy purposes, in developing countries woodfuels accounted for 81 percent (91 percent in Africa, 82 percent in Asia and 70 percent in Latin America) of the wood harvested. The figures illustrate the importance of woodfuels in total wood production and their relevance for the forestry sector.²⁸

Woodfuels remain significant sources of energy in developing countries, especially in the rural and domestic sectors. In recent years, however, they have been attracting attention as environmentally friendly modern energy carriers. Changes in energy policies have favoured the development of wood energy systems, and new biomass energy technologies are improving the economic feasibility of wood energy, particularly in countries that are heavily forested and have well-established wood processing industries. The environmental costs of fossil fuels are also making woodfuels more attractive.

Role of woodfuels in the forest and energy sectors

Woodfuels consist of fuelwood, charcoal and black liquor (a by-product of pulp and paper). Table 6 shows the consumption of different woodfuel types by region and provides a picture of forestry's contribution to the energy sector.

Source: FAO's Wood Energy Information System (FAO-WEIS). For additional details on these figures refer to the Web site http://www-data.fao.org/waicent/faoinfo/forestry/energy/feforum.htm.
^a Including Mexico and all Central American and South American countries.
^b Including Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Republic of Moldova, Russian Federation, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.

Woodfuels account for an estimated 7 percent of the world's total energy supply. In developing countries, however, where fuelwood is a major source of fuel for household use, the average share of woodfuels in total energy use is

15 percent. In 34 developing countries, fuelwood and charcoal supply more than 70 percent of national energy demand. Woodfuels constitute the major source of energy for most countries of sub-Saharan Africa, Central America and continental Southeast Asia. While fuelwood is the predominant form of wood energy used in rural areas of developing countries, charcoal remains a significant source of energy for many African, Asian and Latin American countries, mainly for urban households.

Woodfuels account for only 2 percent of the total energy used in developed countries. This figure, however, conceals great differences in use at the national and subnational levels. For example, in Europe, relatively small quantities of woodfuel are used in Belgium, Germany and the United Kingdom, while large amounts are consumed in the densely forested countries of Austria, Finland and Sweden. In Finland, wood energy supplies an estimated 17 percent of the national energy demand (FAO, 1997h). Black liquor accounts for a high proportion of the total woodfuels used in most developed countries; it is used by large pulp and paper industries to meet their needs for heat and power.

Recent developments in wood energy

Woodfuel consumption in developing countries has increased steadily along with growth in population, although the share of woodfuels in the national energy balance of these countries has progressively diminished as a result of the increased use of fossil fuels such as oil, coal and gas. Fossil fuels have continued to fulfil most of the increased demand for energy in most developed countries.

Actions by many countries to deregulate, liberalize and privatize energy markets over the past two decades have stimulated competition among energy suppliers and have presented new opportunities for other, non-fossil fuel, energy sources. Some countries have also raised taxes on fossil fuels, prompting decreased use of these fuels and in some cases increased use of other energy sources. In addition, the development and adoption of new technologies for the production, transport, handling and storage of woodfuels, more efficient combustion devices and improved systems for planning, management and organization of wood energy systems are helping to make woodfuels considerably more cost-competitive energy sources. In Sweden, for example, the price of energy generated with fossil fuels doubled between 1980 and 1997 because of increased taxes on fossil fuels, whereas that of wood energy remained stable (Thornqvist, 1998).

Several countries are changing their energy policies to encourage expanded use of wood energy. The European Commission's recently adopted "White Paper" (EC, 1997) gives special attention to bio-energy (including both woodfuels and agricultural energy crops) and constitutes a framework for the future development of renewable energy within the 16 European Union (EU) countries.

In 1994, the Finnish Government established objectives for the promotion of wood energy with the aim of increasing its use by 25 percent by 2005 (Nousiainen and Vesisenaho, 1998). Similar initiatives are being adopted in other countries. In Denmark, 50 percent of households are on district heating fuelled by biofuels. The Netherlands has launched a special investment programme for the promotion of power and heating plants using woody biomass as fuel.

The Canadian Forest Service began an initiative in 1995 to facilitate the introduction of bio-energy (mainly wood energy) for power generation in the remote First Nations communities in northern Canada. The purpose was not only to provide more energy to these isolated areas but also to create employment and foster self-reliance of the indigenous communities.

Several successful bio-energy programmes have been established in developing countries (FAO, 1996e). Indonesia, Malaysia, the Philippines and Thailand have recently launched wood energy initiatives with the support of an economic cooperation programme between the European Commission and the Association of Southeast-Asian Nations (ASEAN), the EC-ASEAN COGEN Programme. A private company in Chile, Chilgener, has been supplying industries with energy generated from woody wastes since 1992. In Nicaragua, two sugar mills have diversified their sugar production with electricity generated from bagasse (during the sugar-cane production season) and fuelwood derived from eucalyptus plantations (when bagasse is unavailable) (see Box 10). Both mills sell this energy to the national power grid. A similar project is under way in Honduras.

Potential for wood energy development in the future

Woodfuels are expected to continue to have an important role for some time to come as a traditional source of energy in developing countries, particularly among low-income sectors of the population. Fuelwood and charcoal will also continue to be burned in limited quantities by households and small industries for specialized uses in developed countries. Recent policy changes and experiences with bio-energy programmes in several countries, however, indicate that woodfuels are becoming more attractive to countries as a modern, renewable energy source. They have potential to become more competitive with fossil fuels in certain situations, both for economic reasons (as fast-growing fuelwood plantations, thinnings from timber plantations and residues from forest industries serve as locally available and inexpensive sources of energy) and for environmental reasons (related to efforts to mitigate global warming). The Framework Convention on Climate Change has recognized the potential role of woodfuels as part of a substitution strategy to reduce emissions of CO₂ from fossil fuels (see discussion of forests' role in mitigating global climate change, above). The Kyoto Protocol of the FCCC, if ratified, has the potential to play a catalytic role in the further development of wood energy.

In response to these recent developments, both the forest and energy sectors are likely to give increased consideration to woodfuels in the future. Improved planning will depend in part on a sound information base, but at present the global information on woodfuels is extremely weak (see Box 11). Continued efforts to improve information collection and analysis will be essential, as will be further assessment of the relative costs and benefits of woodfuels, fossil fuels and alternative sources of fuels as economic conditions and environmental commitments evolve.

TRADE IN FOREST PRODUCTS: CURRENT ISSUES AND INFLUENCES²⁹

Growth in the production of tropical forest products has slowed over the past three to five years. The export of most products has followed a similar trend; export volumes of tropical logs, sawnwood and wood-based panels have decreased. Some of the trends reflect major structural changes that are unlikely to be reversed, while others are a response to normal short-term changes in market conditions. Factors influencing the changes include:

• increasing domestic consumption in important developing producer countries;
• reduced harvest levels because of both environmental concerns and export market conditions;
• a shift in exports from logs, and to a lesser extent sawnwood, towards higher-value products;
• most recently, marked reductions in demand in Asia, especially in Japan.

Asian economic crisis

The most dramatic of the short-term effects began in mid-1997 when a number of key Asian currencies suffered significant depreciation, signalling the beginning of what is now recognized as a major recession. In May 1998 the currencies of Malaysia, the Philippines, the Republic of Korea and Thailand were trading at about two-thirds their value of one year before. The Indonesian rupiah was then worth 25 percent of its May 1997 value. Major economic and structural problems became evident in most of these countries as liquidity tightened and major recessionary conditions took hold.

Key variables determining the effect of the economic crisis on trade in forest products included the dramatic changes in currency relativities; the extent to which Japan, the dominant importer, was affected by the recession; and the effects of the crisis in other regions. Until about September 1998, the recession was confined largely to the Asia and the Pacific region, but by then there were signs that the effects were beginning to extend to many other regions. The major impacts on forestry have been:

• overall reduced demand for all forest products, affecting most significantly China, Japan, the Republic of Korea and Thailand;
• increased competitiveness of affected exporting countries (including Indonesia and Malaysia) through exchange rate depreciation, but in the face of reduced demand;
• falling prices for forest products throughout the region;
• reduced earnings in the forestry sector resulting in closure of mills, reduced harvests and workforce lay-offs.

These effects have spread outside Asia to a number of countries that have heavy trade dependence on Asian markets or are in competition with them.

The Asian crisis is of considerable importance to developing countries' trade in forest products. Most exports (by value) from developing countries are from Asian countries, which dominate developing country exports of wood-based panels, logs, sawnwood and paper products. South American countries, however, are the major developing country exporters of wood pulp.

Since Asia accounts for about 80 percent of tropical wood exports and more than 70 percent of tropical wood imports by value (Japan alone accounted for 42 percent of tropical wood imports in 1996), the Asian crisis is likely to disrupt trade in tropical wood products more severely than in non-tropical wood products. Weak demand in key markets and disruptions in key producer countries are likely to affect this trade most severely.

An important effect of the Asian difficulties has been changes to Indonesian forest policies resulting from the Indonesian Government's efforts to meet International Monetary Fund loan requirements. These include:

• reduction of export taxes on logs and rattan to a maximum of 10 percent by March 1998 (previously, very high export taxes made legal export of unprocessed logs or rattan almost impossible);
• elimination of the APKINDO (Indonesian Plywood Association) monopoly over plywood exports;
• establishment of new resource rent taxes on timber resources, including increased timber stumpage fees and a new auction system to allocate concessions.

In the short term, at least, adjustment to these conditions is likely to constrain Indonesian production.

The effects of the Asian crisis have been felt in trade in other markets and by exporters ranging from Africa to New Zealand to North and South America. Price drops and attempts by Asian exporters to maintain sales have resulted in falling prices for exporters in other (mainly tropical) regions. Market levels have dropped, but market shares have also changed as prices have fallen. African and South American exporters, for example, have been affected by lower Asian prices, the latter particularly by cheaper Asian plywood.

In summary, the main effects of the economic crisis have been lower demand, especially in Asian markets, disruption of supplies, weakened currencies in most developing export countries, lower prices and intense competition. Market prices for tropical products have fallen significantly. ITTO statistics indicate that prices of many tropical forest products fell by up to 60 percent in early 1998. The situation improved in mid-1998, but additional political and financial difficulties seen in the autumn of 1998 in many countries - including the Russian Federation, China, many other Asian countries and some in South America - have caused widespread uncertainty in forest product markets.

Developments in trade liberalization

Moves to reduce trade restrictions that limit and distort free trade in forest products have continued to receive considerable attention.³⁰ Both developed and developing countries have begun to implement the global reductions in tariffs agreed to by the Uruguay Round in 1994. These tariff reductions have been supplemented by others stimulated by regional discussions such as the Asia-Pacific Economic Cooperation (APEC) and Southern Common Market (MERCOSUR) agreements. The terms of the Uruguay Round require that commitments to tariff reductions be fulfilled by 2004. Some countries have even advanced the dates for achieving these reductions. For example, Canada, Japan, the United States and the EU countries have agreed to eliminate all tariffs on pulp and paper products. As tariff rates on forest products in the main importing countries were generally quite low before the Uruguay Round, changes in these markets have not, in general, been substantial.

Some developing countries have also agreed to make substantial reductions in their tariff rates. Major reductions in forest products tariffs in India and negotiations on the accession of China to WTO are of particular significance. Removal of other trade restrictions, such as import licensing, has, for example, triggered the recommencement of the Indian log trade during the past three years. Similarly, negotiations with China on forest products tariffs appear to be close to settlement, and some relatively substantial reductions are likely; early reports suggest that Chinese tariffs on wood and pulp products may be halved (on average) while paper products may be reduced by slightly more (on average). The enormous populations and demand potential in India and China give these changes obvious importance.

Improvements to non-tariff barriers are more difficult to identify, but the Uruguay Round agreements have given the subject more visibility. Several of the agreements subsidiary to the Uruguay Round settlement are important to the forest sector, most notably the Agreement on Technical Barriers to Trade and the Agreement on the Application of Sanitary and Phytosanitary Measures.

The most significant benefit related to the Uruguay Round agreements appears to be the impetus that the negotiations have given to continued reductions in tariffs and improvements in access.

At present, issues of general significance for the forest sector being discussed in WTO include those being considered in the Committee on Trade and Environment (see below) and the possible initiation of a new round of multilateral trade talks on trade liberalization (similar to the Uruguay Round). A number of countries are promoting a "Millennium Round" which would start in 2000. Others are of the opinion that the full implementation of the Uruguay Round agreements and the resolution of problems faced by developing countries should take place before any new negotiations begin. No agreement has been reached on this issue.

In addition to the reductions resulting from the Uruguay Round, an increasing number of regional trade agreements are establishing preferential terms of trade or, often, free-trade blocs. The list includes APEC, ASEAN, the Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), the Caribbean Community and Common Market (CARICOM), EU, MERCOSUR, the North American Free Trade Agreement (NAFTA) and the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA). All of these include reductions affecting the forest sector.

For example, APEC has proposed a timetable for the liberalization of trade across the region under which member countries are committed to creating a region of free and open trade and investment no later than 2010 for industrialized economies and 2020 for developing economies. In November 1997, the forest products sector was selected as one of the 15 sectors for Early Voluntary Sectoral Liberalization (EVSL), under which member countries will be asked to implement voluntarily an accelerated programme of trade liberalization. Development of proposals on this subject is expected to be completed by the end of 1998, with the main objective being to achieve a free market for forest products within APEC economies by the middle of the next decade.

As another example, preparations are currently under way to negotiate a Free Trade Area of the Americas, with negotiations planned to conclude in 2004.

Some concern has been expressed that a proliferation of such regional trade agreements may adversely affect global trade liberalization efforts. Another fear is that the effects of the Asian crisis and, in particular, the current problems in Japan will increase the difficulties faced by the trading system. A particular concern is that the economic downturn will result in a resurgence of protectionist measures as countries attempt to protect themselves against competition from lower-priced imports.

Trade and environment - impacts and developments

Although there is general agreement that trade and environment considerations should be mutually supportive, there are widely differing views on how far this can be achieved and how this objective might be approached. Other important issues of debate are what areas should be given most attention, and whether trade bodies or environmental bodies should predominate when conflicts arise.

The conjunction of trade and the environment was considered important enough that it was made one of the programme areas of the Intergovernmental Panel on Forests (IPF). The complex and contentious nature of the issues is illustrated by the fact that IPF could not reach agreement on many of them, and the subject was passed to the Intergovernmental Forum on Forests (IFF) for further consideration.

The lack of consensus continued when IFF met and again discussed these issues in September 1998. Subjects on which no agreement was reached include market access, trade and sustainable forest management, the relationship between obligations under international agreements and national trade measures, and illegal trade.

Efforts to clarify the issues and seek agreement will be made at a meeting on trade-related aspects of sustainable management of all types of forests, to be hosted by the Government of Brazil, UNCTAD and ITTO in February 1999. The topic will again be discussed by IFF at its third session in May 1999.

Certification (see the following section) is one of the controversial issues concerning trade and the environment. Producer countries and trade groups highlight its trade-restrictive aspects; consumer countries with strong environmental lobbies highlight the environmental advantages; and many consumer interests see eco-labelling³¹ as a means of overcoming a variety of problems.

Some of the issues involved in the trade-environment debate are under further discussion in WTO's Committee on Trade and Environment (CTE); these include eco-labelling, market access, the effects of trade liberalization and the effects of WTO agreements (see e.g. WTO, 1998). Although CTE's main focus is on general trade issues rather than on specific sectors, forestry is emerging as one of the sectors where many of these issues come together, because most aspects of the forest sector have clear links to the environment. Some of the points being debated in CTE, most of which have relevance to forestry, are:

• the impact of trade liberalization on the environment;
• whether non-governmental actions such as certification, which are outside international trade rules, act as non-tariff barriers to trade;
• the closeness of the link between trade and the environment;
• whether actions such as eco-labelling and certification affect trade positively or negatively;
• if actions that are taken for environmental reasons, and restrict trade, are contrary to WTO rules;
• which multilateral agreement should be dominant in the case of conflict - the multilateral environment agreement (MEA) or the multilateral trade agreement.

Forest products certification - an update

Certification of forest products continues to be a high-profile and often controversial subject in the forest sector. In addition, tentative efforts are being made to extend certification to non-wood forest products, which would raise new issues.

Accurate statistics on the area of forests and volume of wood certified are difficult to obtain, and the figures are often difficult to interpret. The Forest Stewardship Council (FSC) reports that about 10.3 million hectares have been certified by FSC-accredited certifiers.³² It is significant that 90 percent of this area is in temperate developed countries, largely in Europe and North America. Sweden and Poland alone account for 58 percent of the total. Thus only a minor part is in tropical countries, where the problem of deforestation is greatest. The volume of wood involved and the volumes entering or about to enter the market are unknown, but are still insignificant in global and regional terms. The area of forests certified is not a sound indicator of the volume of wood entering the market, since parts of the certified areas may not be at harvestable age, may not contain commercial species or in extreme cases may not even have trees on them.

Certification efforts are being made at all levels. International efforts include those of FSC and the International Organization for Standardization (ISO); regional initiatives include those of the African Timber Organization (ATO) and EU's Eco-Management and Auditing Scheme (EMAS) and Eco-Labelling Scheme; and countries with national programmes include Brazil, Canada, Finland, Ghana, Indonesia and Sweden. In the last two years there have been many new initiatives, and a number of additional forests have been certified or are in the process of being certified. Among importing countries, interest continues to be greatest in Europe, especially Germany, the Netherlands and the United Kingdom. The exporting countries showing the most interest in certification are those whose main export markets are European countries and to a lesser extent the United States; hence the considerable effort Canada, Finland, Indonesia, Malaysia and Sweden have put into developing national certification systems.

Certification systems are based on evaluating the standard of forest management being practised. The two main approaches, whose relative merits are a subject of considerable disagreement, are those of FSC and ISO. FSC favours a performance-based approach, i.e. stipulating that a specified level of forest management, covering all aspects - including social aspects - must be achieved. ISO's approach is based on the management system, i.e. stipulating that specific management systems and commitment to specified actions and procedures must be in place. The FSC approach also considers chain-of-custody monitoring as an essential part of the process, while other certification approaches do not. Many consider chain-of-custody too difficult and expensive to contemplate.

Countries use one of these approaches or a modified version as appropriate to their own circumstances. While many consider the two approaches incompatible, there appears to be growing recognition that they may in fact be mutually supportive, and that a degree of mutual acceptance could eventually be achieved. It is also recognized that without this mutual acceptance, progress will be fragmented and difficult.

Even within an individual country, different approaches are being followed by different groups. Sweden, for example, recently announced that agreement had been reached between the large forestry companies and FSC on a certification system based on FSC's principles. Small forest owners in Sweden have rejected this system, however, and are following their own approach.

For many countries an important aspect of certification is its relevance and impact for small forest owners. This is an important issue in countries where a high proportion of the forest land is owned by a large number of owners, many of whom have very small areas of forest - often less than 10 ha. For example, in Finland 62 percent of the forest land is owned by some 440 000 private forest owners, with an average forest holding of about 26 ha. (Of the rest, the State owns 25 percent, large companies 8 percent and others, including municipalities, parishes, common forest owners and other bodies, 5 percent.) Similarly, in France, almost 10 million hectares of forests are owned by some 4 million private owners - an average holding of 2.8 ha per owner. Even in the United States, where large private companies own substantial forest areas, some 60 percent of the commercial forest land is owned by 10 million small-scale farmers and landowners.

Small owners are concerned that the certification systems being promoted may discriminate against them, restrict their freedom, exclude them from markets or be excessively costly to implement. They feel that many of the principles developed are either impossible for small producers to meet or inappropriate to their situation (see Box 12).

Many forest and paper processors use material from many small suppliers which is thus difficult or expensive to identify and track. It may also include waste, recycled or reused material. Materials from various sources are often combined in the manufacturing process, components are sold for remanufacture, and some products are recycled and manufactured into new products. The need to address these problems is resulting in continual modification of certification rules and procedures. Included in this adaptation is a move towards certification based on the proportion of certified material in the final product. This would allow certification of products without requiring that 100 percent of the material used comes from certified sources.

The following are some of the most significant developments that have occurred in the past two years.

• In Canada, an ISO-based certification system has been developed by the Canadian Standards Association (CSA). The system allows individual companies to be certified by a third party assessor using standards developed by CSA. No forests have been reported as certified under this system to date.
• In a related move, an ISO Forestry Working Group has prepared a technical report to assist forestry organizations in implementing the ISO-14001 Environmental Management System Standard. The report provides information on forest principles, criteria and indicators of sustainable forest management that have been developed by various other groups.
• The Netherlands and Germany have been working on the development of methods of validating the certificates provided by suppliers (both domestic and foreign) to their markets and of linking these certificates to final products in their markets. The Keurhout Foundation in the Netherlands has developed a system which will assess suppliers' certificates (from any certified source) and monitor the chain of custody (i.e. track the raw material through to the final product form) to the end user. A "hallmark stamp" (i.e. a label) is available for final products.
• The American Forest and Paper Association (AF&PA) has developed a Sustainable Forestry Initiative (SFI) by which its member companies commit themselves to move towards sustainable forestry. This commitment is a compulsory requirement of membership in AF&PA. It is not a certification process, but the principles and guidelines that companies espouse may serve as a basis for future certification by an independent body.
• FSC has continued to expand its country coverage and has developed an FSC label to be placed on certified final products. This label is available for use on supplies certified by FSC-accredited certifiers.

Despite these efforts, there are still unresolved or unanswered questions surrounding certification and uncertainty as to how it may develop in the future. There is still little evidence of the market impacts of certification, positive or negative. The most obvious sign of growth in certification activities is the area of forests certified, but there are few signs of significant volumes of certified products entering the market. In part, this is because certified supplies remain limited, but it may also reflect a lack of buyer interest.

It remains unclear whether demand for certified wood will increase, and whether a price premium is likely. Even in the markets showing the greatest interest in certification, there is little sign of a substantial or increasing demand, or any price premium paid. A number of market studies (e.g. Brockmann, Hemmelskamp and Hohmeyer, 1996) have concluded that there is little evidence of a significant demand for certified products.

Another unanswered question is whether certification will, in fact, significantly contribute to improved forest management where deforestation is greatest - in the developing countries. Certification was originally promoted by environmental groups as a market-based lever to improve forest management and reduce deforestation. At present, those certifying or trading in certified products seem to be using it more as a marketing tool either to generate an increasing market share or to ensure continued or improved access to markets. Some forest owners, however, see certification as benefiting their forest management practices in addition to providing market benefits (see Box 13).

Despite these uncertainties, interest in certification continues to grow. It seems clear that at least in the short to medium term the area of forests being certified will continue to expand as major producing countries such as Canada, Finland, Indonesia and Malaysia finalize the systems they are developing. It is still difficult, however, to predict where certification will finally arrive and what type of system, or combination of systems, will be favoured. The results will depend heavily on which markets institute it; the degree of support given by consumers, legislators and traders in these markets; and the extent to which harmonization, or at least mutual recognition of different practices, is achieved. Certification may expand and have a significant impact in some markets; equally, it could remain limited to a few markets and a few specific end uses (e.g. high-value furniture). It is also possible that in the long term it could fail to have any significant impact. The deciding factor will be consumer reaction to the products, which is far from clear at this stage.

FUTURE SUPPLY AND DEMAND FOR INDUSTRIAL ROUNDWOOD AND WOOD PRODUCTS

FAO has recently completed two new global supply and demand studies: the Global Fibre Supply Model (GFSM) (FAO, 1998a) and the Global Forest Products Outlook Study (FAO, 1999). A major and more detailed forestry sector study for the Asia and the Pacific region has also recently been produced (FAO, 1998f). Rather than dwelling too intently on market forecasts which will be vulnerable to macroeconomic shifts (such as those recently experienced in Asia), these new studies focus more on the likely policy implications of forest product market developments. The following text briefly describes the main market developments that are expected in the future and discusses the implications of these developments within the context of sustainable forest management.

Future forest product production and consumption by region

The current and projected level of wood production and consumption in 2010 is shown by region in Figure 4. (Current levels of wood consumption and production by product and country are given in Table 4 of Annex 3.) From 1996 to 2010, global industrial forest product production and consumption are projected to increase at an annual rate of about 1.7 percent, from 1 490 million to 1 870 million cubic metres. Thus in 2010, output will be about one-quarter higher than it is at present. It will, however, only be about 10 percent higher than the peak in production (1 700 million cubic metres) around 1990.

Growth will vary between regions, with Asia and Oceania likely to show the highest rates of expansion. Obviously, the actual developments that transpire in Asia will supersede any attempts to model the outlook for forest product markets (see Box 14). Slow growth in consumption is expected for Africa and South America, and slow growth in both consumption and production is expected for North and Central America. North and Central America will, however, remain by far the largest producing and exporting region in the world.

Europe, Asia and North and Central America will account for about 85 percent of production and over 90 percent of consumption in 2010 (roughly the same share as in 1996). However, within this group it is expected that a small share (about 5 percent) of global consumption will be gained over the period by Asia at the expense of North and Central America.

In terms of net trade (the difference between the heights of the consumption and production bars in Figure 4), Asia will continue to be the world's only net roundwood and product importing region. In terms of gross trade flows, however, trading patterns are not expected to change, but the shape and form of trade will continue to change. Since the 1950s, trade in forest products has steadily increased as a proportion of total production. The outlook is for more trade, both in gross volumes and as a proportion of production.

Increases in trade are predicted for two reasons. First, many countries are expected to continue to give priority to developing manufacturing and processing capability rather than exporting roundwood and pulp. This will prompt continued declines in exports of semi-processed products as producers seek to add value to the raw material. For example, a greater proportion of commodities such as sawnwood and panels will be processed further into furniture and joinery products. Second, an expansion of domestic markets is expected as developing countries' economies grow and mature. Maturation of these markets will give rise to economies of scale in processing, product design, assembly, manufacture and distribution. The increasing specialization, market segmentation and competition will promote higher levels of trade, both within regions and internationally.

On the supply side, the factors leading to greater production of both roundwood and products in the future will differ widely among countries. In some countries, roundwood production will be increased by supply-side factors, such as the opening-up of new areas of forest and the maturation of extensive plantation resources (e.g. in countries around the southern Pacific Rim). However, more typically, production will be driven up by increased demand as a result of high rates of economic growth (e.g. in most European and many Asian economies). In countries where there is considerable demand pull, and particularly where forest resources are limited, wood product producers will start to consider using a broader range of wood and fibre raw materials than they have in the past (see Box 15).

Future forest product production and consumption by product category

Current estimates and future forecasts of global forest product production and consumption by product category are shown in Table 7. As in the past, the market for paper and paperboard is expected to have the most rapid growth, at an annual rate of 2.4 percent (see Table 7 and Figures 5 to 10). In contrast, production of pulp for paper is expected to grow by only 1.1 percent per year, reflecting an expected increase in the use of recovered paper in the total fibre furnish in the future. Moderate growth is expected in solid wood product consumption, at annual rates of 1.1 percent for sawnwood and 1.3 percent for wood-based panels. Most of the growth in the production and consumption of wood-based panels is expected in the reconstituted wood panels sector rather than the plywood sector.

Note: Negative figures represent the volume of exports.

Note: Negative figures represent the volume of exports.

Note: Negative figures represent the volume of exports.

Note: Negative figures represent the volume of exports.

Note: Negative figures represent the volume of exports.

Note: Negative figures represent the volume of exports.

Forecast wood and fibre production compared with production potential

The comparison of forecast roundwood production levels in the Asia and the Pacific region with production (or estimated biological) potential (Box 15) shows that, in general, future wood demand could easily be met within the region. In certain countries and for certain types of wood (e.g. sawlogs), however, supplies are going to become increasingly scarce in the future.

FAO does not yet have sufficient data to make an accurate assessment of the production potential for the whole world. The Global Fibre Supply Model, for example, covers a large part of the world but excludes the important contribution of trees outside forests. However, GFSM can be used to compare projected levels of production (as shown in Figure 4) with supply potential from the forest and recovered and non-wood fibre sources across some regions (Table 8).

^a From GFSM (FAO, 1998a) or official government estimates.

As Table 8 shows, forecast production levels are well within the forecast limits of production potential in South America and Oceania, but approach the limit in Asia and exceed it in Africa. The results of the fifth European Timber Trends Study (Joint ECA/FAO Agriculture and Timber Division, 1996) suggest that Europe should also have adequate wood supplies to meet production requirements in the near future. However, two points are worth noting. First, the GFSM supply results should be considered as the absolute maximum amounts. The cost of accessing increasingly marginal areas which are included in the GFSM analysis may prevent the total potential supply presented in Table 8 from being utilized in the near future. Second, it should be remembered that, while supplies may be plentiful at the broad regional or country level, there may continue to be local scarcity which could put forestry policy-makers under pressure to release areas of natural forest for timber harvesting.

In regions such as Africa and Asia, where supplies (particularly of large logs) from forests are coming under pressure, consumers of wood and fibre will increasingly have to look to other sources to meet the demand (as they already do in Asia) if they do not wish to overexploit the forest. Another, perhaps more likely, alternative is that the markets for forest products will continue to move in the direction of substitution of sawnwood and plywood by other wood-based panels and engineered wood products, which can be manufactured from small-sized wood or non-wood substitutes.

To conclude, the supply and demand analysis carried out by FAO suggests that the capacity of the forest and other sources of fibre will be sufficient to meet demand for the foreseeable future. However, the situation will vary among countries and regions. Africa and South Asia will continue to have to use a wide range of non-forest supply sources to meet their needs. The demand for higher-quality sawlogs will also approach or even exceed the production capacity of forests and plantations in Africa, Southeast Asia and the Pacific Islands.

It is expected that product prices will not rise significantly over the projection period. Many regions have ample or excess wood product manufacturing capacity. The current worldwide economic slowdown will further mitigate pressures on consumer prices. In selected cases, there may be upward pressure on the prices of certain types of roundwood (typically the higher grades), but price increases will be restrained by the availability of cheaper wood and non-wood substitutes. Trading patterns are not expected to change significantly, apart from the continuing trend towards more in-country processing of wood raw materials. This should lead to less trade in semi-processed and commodity-grade wood products and more trade in higher-value products.

Possible future market developments

Wood supply. The sources of wood and other fibres used in production are likely to change in the future. It is expected that in most countries there will be a move away from the use of forest resources for wood and fibre production towards other land-based and non-land-based sources of supply. The greatest change by far will be the increased use of wood processing residues and recycled fibres in the product input mix. The use of such secondary sources is likely to continue to expand in the more developed parts of North America, Europe and Asia, while trees outside forests are likely to have an increasingly important role as forest resources decline in some of the less developed regions of the world.

Within the forest, supply patterns are also likely to change in the future. The next ten years or so will see large areas of commercial short-rotation plantations (for pulpwood) come on stream in the Southern Hemisphere (see discussion on plantations above). Greater areas of older plantations established for the production of sawlogs will also start to be harvested in countries such as Australia, Chile, New Zealand, South Africa, the United Kingdom and the United States. These plantations will provide the greatest share of the expanded wood production potential expected in the future. In contrast, very few countries are likely to be able to expand production sustainably from the natural forest without considerable investment in silviculture.

Greater areas of natural forest are likely to be made legally protected areas. Many of the areas that are likely to be chosen for preservation are not currently harvested and are considered unexploitable for economic reasons (physical constraints, transport limitations, low timber value). A decrease in harvesting intensities in the exploitable natural forest would have a greater impact on future supply potential. Harvesting intensities might fall in the future for two reasons:

• tropical countries may modify existing harvesting regulations to reduce the volume of timber that may be felled in a given area, in response to environmental concerns;
• stocking levels may fall as forest operations move out of virgin forest and into secondary forest.

The combination of these factors could have a dramatic effect on future timber availability and will reinforce the expected switch from natural forest to plantations and non-forest supply sources outlined above.

Technological change. Technological change has been incorporated in the above supply and demand analysis only in the pulp and paper sector, where it has been assumed that current trends in the use of recovered paper in the total fibre furnish will continue in the future. For example, 1 tonne of paper and paperboard in 1970 was made up of over 80 percent wood pulp. By 1997, this figure had dropped to 56 percent and by 2010 it is expected to fall to below 50 percent. This trend is partly a result of the increased use of recovered paper, but is also a result of shifts in market shares, whereby the proportion of printing and writing papers (which have a lower fibre content) in the overall market has increased and is expected to continue to do so.

Other technological changes which the model has not included may also occur in the future. First, improvements in harvesting practices could increase log recovery and reduce logging residues in many of the world's forests. Many developing countries have substantial scope to increase their log recovery rates. Even a modest increase in log recovery rates in countries with high annual felling levels could increase production and contribute significantly to meeting the projected growth in industrial roundwood demand.

Better mill recovery rates could also have significant effects by reducing the amount of roundwood required to manufacture products (see Box 16). In addition, residues could be used more effectively to meet the demands of other wood processors. Not much is currently known about the utilization of mill residues outside a few of the large developed countries. However, it is suspected that large volumes of residues are wasted or left unused. As the Asia-Pacific Forestry Sector Outlook Study has shown, all of these sources could make a significant contribution to wood supply.

A third technological change which might occur is a move towards greater use of reconstituted panels because of two factors: upward price pressure resulting from the increasing scarcity of large-diameter logs, and technological developments in construction and other wood-using industries which would allow the use of such products where only plywood or sawnwood are currently used. This shift will also have the effect of extending the use of resources (recovery rates for reconstituted panels are typically higher than for sawnwood and plywood) as well as providing a ready market for residues from other industries.

Policy implications

The preceding analysis has discussed two broad structural changes expected to take place in the forest sector in the future. It is not possible to be precise about when and where these changes will take place (many of them already have occurred in Europe, for example), but it is certain that they will occur at some time. The important question for many forest policy-makers around the world is how to manage the change process. The analysis of future timber markets would suggest that three topics - pricing, human resource development and structural change - deserve the immediate attention of policy-makers. (See Part II for discussion of recent policy and institutional changes in the sector.)

Pricing. Prices are a powerful indicator of scarcity, and when they are wrong they can lead to serious misallocations of investment and resources. About 40 percent of the world's timber supply comes from private forests, and probably about the same proportion of supply is sold in competitive markets (or in a way that approximates competitive markets). However, governments largely control the pricing of wood extracted from the remainder of the forest (mostly natural forest), and prices are often set low to stimulate industrial development.

Setting low stumpage rates may satisfy certain development objectives but also often leads to undesirable effects, some of which are beginning to appear in many countries now. Underpricing of the resource discourages efficiency in harvesting and processing, reduces the incentive to invest in plantations and places alternative suppliers such as smallholders and recyclers at a disadvantage. Thus, designing better pricing policies will be crucial for stimulating the broadening of supply sources and for encouraging the efficiency improvements that will be required in the future.

One of the greatest challenges that forest policy-makers and forest managers will face in the future will be to generate the revenues necessary to finance sustainable forest management. Competitive market-based pricing of the resource will be an important first step in this process. Forestry policy-makers should consider how they can create competitive markets for the roundwood extracted from the natural forest so that the levies they set reflect the market value of the resource and remove the distortion in favour of harvesting wood from the natural forest.

Human resource development. Forestry is a labour-intensive activity. In order to introduce technological improvements and to meet the increasing demands placed on the sector for better standards of management and harvesting, the level of skills in the sector will have to be increased dramatically.

This is a massive task considering how many people are employed in the sector. For example, employment in industrial forestry has been estimated at approximately 1 million full-time equivalent (FTE) jobs in developed countries and 2.7 million FTE jobs in developing countries (Poschen, 1997). Furthermore, the need for upgraded skills does not stop at the production sector. An increased range of supply sources and desirable improvements in management, such as community involvement, will also generate a need for significant upgrading of the skills of staff in many countries' forest administrations and other organizations involved in forest management.

Structural change. The final pressing need of the sector will be an increased capacity to cope with the structural changes that are likely to take place. Many governments already have a wide range of measures designed to stimulate the development of certain types of domestic wood processing industries (e.g. preferential tax breaks, conditions attached to concession contracts, export bans). These should be reviewed to take into consideration the expected changes in patterns of wood supply (fewer large logs from the natural forest, more plantation-grown wood, more recycled paper). In addition, governments should consider the levels of investment that will be needed to finance the structural changes.

As noted above, forest administrations are going to be expected to deal with a wider range of issues in the future. To increase the social and environmental performance of the sector, sections within forest agencies that deal with conservation, community relations, watershed management and extension will be likely to require more resources in the future. Changes are likely to be required within the traditionally powerful harvesting and utilization sections of forest administrations. Officials concerned with wood supply will have to adjust to a move away from having strong control over a small number of concessionaires, towards having much less control over a larger number of smaller suppliers. They should consider devolving some aspects of control to regional, local and even community-based authorities, to cope with these expected changes.

²⁷ The difference between this figure and that provided in Figure 1 results from the inclusion of black liquor derived from wood in the calculation of the amount of wood used for energy generation.
²⁸ The source of these figures is FAO's Wood Energy Information System (FAO-WEIS). For additional details on the figures refer to the Web site: http://www-data.fao.org/waicent/faoinfo/forestry/energy/feforum.htm.
²⁹ All figures quoted in this section are from various issues of the FAO Yearbook of Forest Products, FAO, Rome.
³⁰ See FAO, 1998e for a detailed analysis of trade restrictions affecting forest products.
³¹ Eco-labelling refers to a guarantee that certain environmental standards have been met at all stages leading to the final product, including production, transport and processing. It thus has broader coverage than certification, which indicates that the product comes from forests managed according to a defined environmental standard but implies nothing about postharvest practices.
³² As at 15 May 1998. In 1996, the area of forests certified, under both FSC and other certification schemes, was given as 2.3 to 4 million hectares (FAO, 1997d).