There are a number of responses to some of the problems identified above, which can be applied at the local, national and international level, by governments and the private-sector. Appropriate responses include:
· market reforms, which try to internalise some of the non-market costs and benefits of forestry;
· reform of policies and institutions, both within and outside the forestry administration; and
· direct intervention (e.g. specific development projects) that attempts to give value to some of the non-market goods and services in order to ensure that they are maintained.
There is already some experience with trying to implement several of these responses, but the majority of possible response options have not been attempted on a wide scale. The remainder of this section will describe how such responses might operate and present what little evidence there is of their implementation to date.
Market reforms include a number of measures that either make existing markets work more effectively or create markets where these did not previously exist. In the context of attempts to encourage sustainable forest management, market reforms include measures to:
· provide better information about the source and environmental credentials of forest products;
· improve the legal framework to more clearly establish property rights and the rules governing the transfer of these rights between parties; and
· establish markets for one or more of a number of previously unmarketed forest outputs.
5.1.1 Improving market information
Forest certification - some key facts and statistics
1. There are a number of national and internationally recognised forest certification schemes, the largest of which is the scheme operated by the Forest Stewardship Council, which has issued certificates for forests in 30 different countries.
2. Currently, about 17.3 million ha of forest (or 0.5% of world forest area) has been certified by FSC accredited certifiers.
3. Tropical forests account for 3.7 million ha (or 20%) of this total.
4. As of mid-1998, about 400 businesses and another 1,000 individuals and organisations were associated with the FSC's efforts to bring certified forest products to the marketplace in developed countries.
A prime example of an attempt to reform markets is the development of forest certification. This initiative has been driven by environmental non-governmental organisations, most notably the Forest Stewardship Council, with industry support in some countries. Governments have reacted to the initiative in different ways; some have supported the initiative, a few have opposed it and a number have developed their own forest certification initiatives as an alternative to the Forest Stewardship Council certification systems. However, forest certification faces a number of challenges that will be difficult to overcome, including the following:
· forest certification will be most attractive (i.e. present the least additional costs) to forest owners and mangers that already manage their forests reasonably well either due to strong national regulatory frameworks or because the owners already place high importance on environmental or multi-purpose management objectives;
· increasing globalisation in forest products markets means that end products often mix wood and fibre inputs from a number of sources that are increasingly difficult to verify, wood is also only a small part of the end product in some of its most important applications (e.g. in construction and furniture manufacturing) and the distance between the forest and end-user is becoming increasingly large;
· the benefits to the end-user from purchasing certified wood are poorly understood and difficult to market (in comparison to, say, dolphin-friendly tuna) and are mostly non-use benefits as opposed to use benefits (in comparison to some other environmentally friendly products such as energy efficient appliances and organically grown food);
· studies have shown that the markets for certified forest products in developed countries are relatively limited and the prospects for price premia are poor; and
· the majority (80 percent) of wood and wood products produced in developing countries is also consumed in developing countries, where willingness to pay for environmentally friendly forest products will be constrained by ability to pay.
In addition to the above challenges it is also worth noting that, by concentrating on how forests are managed for the production of marketed forest products, forest certification will do little to influence the management of the greater part of the global forest estate, which is used for other purposes.
In conclusion, the current structure of forest products markets and the poor prospects for price premia for certified forest products make it unlikely that the costs of increased silvicultural investments and longer rotations or cutting cycles can be passed on to forest products consumers. There may however, be some scope for producers to absorb some of these costs, particularly in cases where stumpage prices are artificially low (see below).
In view of all of these challenges, it seems likely that forest certification will make only a marginal contribution to the implementation of sustainable forest management, particularly in tropical countries. It remains, however, important as a force that has generated much publicity for sustainable forest management issues in national and international debate.
5.1.2 Improving the legal framework
Efforts to improve the legal framework supporting property rights have similarly been modest to date. However, in the few cases where attempts have been made to improve the legal framework surrounding forest tenure and the rights of local communities to use and manage their forests, the results have been quite positive. Examples include the Joint Forest Management Initiative in India and recently issued leases to develop degraded forestlands in Nepal.
Initiatives such as these have shown that, where property rights are clarified and individuals are given greater security of tenure, they are prepared to invest in improved forest management and deforestation may be reduced or reversed. There is relatively little experience to suggest what might happen if such changes were also applied to the commercial forestry sector, but it would seem likely that they may also respond positively to such measures. Certainly, the presence of an expanding and relatively well managed private forest estate in many developed countries (where property rights are well defined) would seem to indicate that a strong legal framework is a necessary, but not sufficient, condition for improving forest management.
Another solution to market failure that is often proposed is to create new markets for some of the unmarketed goods and services that forests produce. There is some experience with developing commercial markets for: non-wood forest products; water; wildlife and amenity; biodiversity; and carbon sequestration. Experience with each of these different goods and services has shown how they may contribute to efforts to support sustainable forest management.
There are a number of non-wood forest products that have, over the years, been developed from commodities collected mainly for own use to commercial products. Drugs, such as aspirin and quinine, were originally discovered in forests, as were several other products (e.g. rubber, bamboo, and rattan). Experience with the development of these products shows that:
· the probability of finding products of major commercial value is low; and
· when discovered, such products are often either grown in intensively managed natural forest areas or plantations, or are quickly replaced by synthetically manufactured substitutes.
Even if the above were not true, it would still be likely that, in most circumstances, the benefits from harvesting non-wood forest products would be lower than the benefits from clearing forest land for agriculture. This would suggest that the importance of non-wood forest products is likely to remain as a source of local food and raw materials and that their commercial development is unlikely to support sustainable forest management on a large scale.
Two non-market services of forests that have become increasingly important in recent years are:
· the amenity benefits from scenic values and forest wildlife; and
· the option benefits of potential drug discovery (in areas of high biodiversity).
The benefits from these services have become increasingly commercialised and captured through the development of ecotourism (in the case of the former) and bioprospecting agreements (in the case of the latter).
Again, the areas where these services could potentially be important are fairly small and localised. For example, potential ecotourism sites will tend to be found in only the most accessible part of the forest. In the case of bioprospecting, it would only be necessary to collect samples from a few hectares of forest within a much larger area because the additional biodiversity and, therefore, the probability of discovering new chemical compounds, diminishes rapidly after the first few hectares.
To summarise, the value of these services is potentially high in a few areas, but practically nil elsewhere. Consequently, where such services are potentially important and can be commercialised, development of markets for these services would tend to favour exclusive use for these purposes and the curtailment of any roundwood harvesting activities. They are, therefore, unlikely to contribute to sustainable forest management efforts at the broad scale in forests used for wood production.
The last example of a new market potential is the possibility of selling tradable instruments for the sequestration of carbon, as part of global initiatives to reduce net carbon dioxide emissions. The value of such instruments is potentially high per hectare and could result in significant financial flows into the forestry sector. In addition, in contrast to the above examples, the market for such instruments could be used to finance forestry almost anywhere and on a large scale. However, there remain a number of issues that still have to be clarified, including:
· an exact method for creating, trading and accounting for these instruments;
· a method for calculating carbon sequestration in forests; and
· a relative position of forestry investment on the cost abatement curve.
In addition to this, there is also still some political uncertainty regarding how successful this initiative will be.
There are a few examples of forests where financial flows have been generated to support carbon storage in forests (e.g. in Costa Rica), but these are very limited to date. If carbon trading does become feasible on a larger scale, it could contribute to certain aspects of sustainable forest management, but there remain considerable uncertainties about how attractive forestry would be compared to other measures such as energy efficiency initiatives and higher energy taxes.
5.2 Reform of policies and institutions
Government policies can be defined as: "any activities by the state that seek to modify the actions of individuals and firms with the intention of producing an outcome that would otherwise not occur". Policies can attempt to influence costs, prices and output levels through subsidies and taxes or by more direct measures such as price controls and other types of regulation. Institutions, for the purpose of this discussion, can be limited to government institutions (primarily forestry administrations) that implement these policies.
As the above analysis has shown, markets will do little to support the implementation of sustainable forest management. Consequently, it is likely that well designed and effectively implemented forestry policies will be required to improve forest management. In the context of this analysis, some of the more important areas of policy and institutions that might be examined with a view to reform include:
· pricing policies in situations where the prices of forest products (usually stumpage values or land rents for the use of forest resources) are determined administratively by the government;
· the distribution of benefits from forest operations at national and local levels;
· subsidies to forestry and other activities that have an impact on forests;
· regulations governing land-use planning, forest management and trade; and
· the skills and motivation of forestry administration staff.
By their very nature, many of the policy and institutional reforms that are likely to be needed to support sustainable forest management involve some major political decisions. To date, many governments have been reluctant to make these choices.
Forest levies and rent capture
A number of recent studies have shown that low rent capture is a common feature of forest pricing policies across a wide range of countries in the tropics. Many forest levy systems capture only half of the economic rent from roundwood production and, in some cases, capture is as low as only a few percent. The problem of low rent capture is further compounded by ineffective collection, where forestry administrations fail to collect the levies on all roundwood production. In some major roundwood producing countries in the tropics, the amount of roundwood harvested in the informal or illegal logging sector may be as great as the officially recorded figures.
The reasons why higher forest levies might improve forest management were elaborated above. In short, they are that low levies discourage efficiency and investment in the resource and reduce public finances that can be spent on monitoring and control. These arguments are now generally accepted in most circles. However, raising forest levies remains a major challenge for forestry administrations in many countries. Many attempts to raise levies fail because of the vested interests of powerful forest industry stakeholders, which often stop the implementation of such measures. Therefore, any attempts to correct for this policy failure should concentrate on the question of how to pursue such goals as much as the question of what the correct level of levies should be.
The first problem with many forest levy systems is that they are largely determined administratively rather than by the market. The levels at which forest levies are set are predominantly based on an analysis of estimated cost and revenue structures for the private-sector, that are poorly understood and easily hidden from public scrutiny. For ease of analysis, they also tend to be calculated and set on the basis of broad averages of costs and prices, which typically result in recommendations for levy increases that allow marginal operators to survive while other, more efficient or more fortunate operators make high profits. Furthermore, the price is typically the same for the whole country, thus failing to recognize the important cost implications due to the geographical location. The trend in developed countries is for a move towards more competitive systems of awarding forest concessions, awarding cutting rights and selling roundwood. In contrast, in developing countries, competition for access to forest resources and the sale of roundwood is almost unheard of.
In situations where forest levies are set administratively, the analysis supporting proposed changes to levy systems is sometimes weak but, more often, it is political and institutional factors that stop such changes from being implemented rather than technical issues. Common problems include:
· a lack of openness and transparency in discussions between government and the private-sector over such issues;
· the presence of significant political power in the hands of a number of private-sector forest operators or their associations;
· a lack of accountability on the part of government to obtain the best value for the use of national natural resources; and
· the absence of competition for access to resources (often due to the presence of a large incumbent industrial structure).
In some cases it is also true that an unsustainably large industrial processing structure has developed on the availability of cheap and apparently abundant natural resources and that significant levy increases would result in reduced output. However, this argument would only apply to a few countries (e.g. Indonesia) and even in these cases, there may be scope to maintain output levels though greater efficiency (as has occurred, for example, in Malaysia).
Most proposals to increase forest levies tend to come from technical specialists within forestry administrations, which are then passed on to senior management and, eventually, Ministers. In many cases, these proposals are rejected by Ministers (and, in some cases, they do not even get this far) after discussions with the private-sector. Typically, the private-sector argues that such increases will force several of them out of business, harming income and employment in the sector and the national economy. In the few cases where modest levy increases have been pushed through in developing countries, there is no evidence of such increases having resulted in reduced output in the forest processing sector.
By concentrating on technical analysis of what the level of forestry levies should be rather than on how such measures might be adopted and implemented, technical assistance has largely failed to support such measures in the past. In the future, greater attention might be given to:
· developing competitive mechanisms for the awarding of forest concessions and cutting rights, setting production and export levies and selling standing roundwood;
· developing broad-based support for any changes to forest levy systems amongst other government agencies, politicians and civil society rather than treating this as a purely internal technical issue;
· increasing transparency and accountability in the awarding of forest concessions and setting forest levies by publishing and openly discussing the results of any analyses supporting important decisions in these areas; and
· instituting regular revisions of administratively set forest levy rates either through index linking or periodic revaluation of levy structures.
5.2.2 The distribution of forest revenues
A problem associated with low forest levies and poor enforcement is that the benefits from such levies are often not distributed in a way that encourages institutions to increase levies and work harder to ensure that they are collected.
An uneven distribution of benefits often occurs both between different government agencies and between national and local government structures. For example, it is generally the case that all forest levies are deposited in the national accounts. This sometimes occurs while, at the same time, the forestry administration has insufficient funds to implement even the most basic of duties. Indeed, it is not uncommon in some developing countries, for forest levies to be paid on an almost voluntary basis, with practically no monitoring or control at the forest processing plant or in the field.
A more general problem is that the benefits from forest management are often not shared with local communities who consequently see the forest as of little benefit to them and are therefore, inclined to convert it to other land uses.
Again, most technical assistance in the past has concentrated on what the levels of forest levies should be rather than how the money collected from such levies should be distributed amongst various agencies. Possible measures to attempt to rectify this situation might include:
· improved financing of forest revenue collection services, including performance indicators related to collection activities and performance bonuses either for the agency or staff;
· a stronger legal framework to support revenue collection and penalise evasion;
· greater devolution and decentralisation of collection activities (particularly in countries with very large forest areas) including the provision of adequate funding to support such changes; and
· the development of transparent benefit sharing mechanisms with local communities
There is a substantial amount of evidence to show how subsidies have been successful at encouraging afforestation in both developed and developing countries. However, there are few examples of subsidies being successfully applied to support sustainable forest management. (Indeed some of the forest plantations established with the support of subsidies are probably unsustainable in the wider sense of the word.) The only major subsidy that has been applied to forest management in the natural forest on a wide scale has been the subsidy implicit in low stumpage prices and, as already discussed, this has been shown to have generally negative rather than positive impacts on forest management.
Outside the forest sector, subsidies to other land-uses including agriculture, mining and infrastructure development have also been shown to be detrimental to forests in certain respects, for example in the case of deforestation. Indeed, in the specific case of deforestation, subsidies in these sectors are probably a bigger barrier to the implementation of sustainable forest management than subsidies within the forestry sector itself.
To some extent, the responsibility for the detrimental effects of subsidy regimes and support to infrastructure development lies with developed countries. Widespread subsidies to agriculture in developed countries keep prices low in international markets and encourage developing countries to respond by subsidising their own agricultural sectors. There are also numerous examples of infrastructure development projects, supported by overseas development assistance, which have resulted in environmental degradation.
The broad conclusions about the use of subsidies and their impact on sustainable forest management can be summarised as follows:
· greater attention should be given to the environmental impacts of subsidies in the forestry and related sectors in both developed and developing countries;
· in general, subsidies to forestry are unlikely to be an effective mechanism to support sustainable forest management, except in situations where tree planting is desirable; and
· greater attention should be given to the environmental impacts of infrastructure development projects, where these are likely to result in significant land use changes.
Regulation is a direct measure by which governments seek to alter the actions of the private-sector by specifying either output or quality standards that they must meet, or by instructing them to perform certain actions or forbidding them to do others. Because of the direct nature of government regulations, they are often a preferred choice for governments that want to implement a particular policy. Given the limited success of some of the other measures that have been attempted to encourage the implementation of sustainable forest management, it seems likely that better designed and more strictly enforced regulation will form a major part of any strategy to encourage sustainable forest management.
While regulation works well in some countries, it is ineffective in others. Common failures of current government regulations in the forestry sector include:
· incompatibility of regulations issued by different agencies with a responsibility for land-use sectors;
· weak enforcement;
· regulations that are too complex.
In spite of the care that must be taken in formulating workable forest related regulations, they will remain a vital tool available to forestry policy makers to support the implementation of sustainable forest management. However, this should not be seen as a green light for the introduction of many new regulations. Rather, in many cases, the existing complex web of regulations should be replaced by simpler output-orientated measures that can be clearly quantified and enforced.
5.2.5 Forestry administration staff
The above recommendations for market, policy and institutional reform of the forestry sector all have tremendous implications for forestry administration staff. In the future, they will need to develop a broader range of skills and be able to apply them fairly across a broad range of stakeholders. Currently, there is a major problem with the motivation of forestry staff in a number of countries who, in many cases, seem unable or unwilling to undertake even the simplest of tasks assigned to them.
Ultimately, these problems occur for a number of reasons, including:
· lack of training;
· low pay (sometimes combined with widespread corruption);
· weak personnel management;
· poor career prospects; and
· the effect of donor financed projects which tend to absorb the best staff at high salaries at the expense of staff for regulatory functions.
Again, good governance and greater competition is the solution to this problem. Increased salaries for forestry administration staff might help, but salaries tied to performance would probably be even better. Open competition for promotion and well-designed career planning arrangements might also help to motivate staff. On the other hand, greater penalties for corruption and incompetence would also have to be introduced. In some countries, such improvements to public administration could be politically difficult to implement, so again, broad support for such changes should be developed at the grass-roots level.
The above discussion has very much stressed the need for reforms to existing market, policy and institutional structures to implement sustainable forest management, rather than the need for significant investment in particular projects. However, there are a couple of aspects of sustainable forest management where a project-based approach might be appropriate and these are briefly discussed below.
5.3.1 Conservation area management
The recommendations made above have mostly concentrated on tackling the problems of deforestation and the sustainable production of forest products. A third aspect of sustainable forest management is the protection and management of legally protected forest areas. Such areas require financing to protect and maintain them and, with the exception of sites where ecotourism may be feasible, are unlikely to produce any financial returns.
The conservation of forest areas of particularly high environmental value is recognised by all countries as an important component of sustainable forest management. However, in the case of many developing countries, financing to support these areas is often negligible in the face of the many more urgent demands on government finances. Consequently, many governments designate legally protected areas but do not have the resources to protect or maintain them (the so-called "paper parks"). In view of the fact that the benefits of many of these areas are global in nature, there is some justification for a recurrent transfer of financing to support such areas from rich to poorer countries.
There have already been a number of developments in this area, such as the Global Environment Facility and various debt for nature swaps. Another recent development is the direct purchase or leasing of areas of high conservation value by non-governmental organisations. So far, the latter has occurred mostly within developed countries, although a few projects involving non-governmental transboundary funding of conservation areas have taken place.
Generally, funding for such initiatives has been extremely limited to date, considering the vast area of forests contained in legally protected areas. It seems that there may be a useful role for an international funding mechanism to support the management of forest conservation areas in developing countries.
5.3.2 General support to the sector
Financing of the forestry sector, either for normal investments or to support investments with public benefits, should be based on financial and economic sustainability, which implies that nationally generated financial resources should be the prime source of such financing. International financial resources should be used to bridge financial gaps in this process and to provide resources for activities that are providing specific global benefits.
The other area where significant project investment might be justified is staff training. As already noted, the implementation of sustainable forest management will require a significant upgrading of skills in the forestry sector. Forest workers and forest managers will be expected to improve harvesting and management practices and forestry administration staff will be expected to play a wide number of roles that are currently unfamiliar. Several million people currently work in the forestry sector in developing countries and this is no small task.
The private-sector is unlikely to invest in such training, the benefits of which will be global in nature. Similarly, government administrations may see this as a low priority in the face of other demands for government services. Consequently, there is likely to be a need for international support in this area. Assistance could focus on several developments, including:
· technology transfer from rich to poor countries;
· the development of nationally recognised training curricula, set to meet international standards for forest management;
· the development of national training centres and regional centres of excellence
Such investment will be a necessary condition for the widespread implementation of sustainable forest management in most developing countries.
