ANNEX 4: THE ECONOMICS OF CHARCOAL PRODUCTION AND IMPLICATIONS FOR THE COLLECTION OF REVENUES FROM THIS SECTOR

The following analysis of the economics of charcoal production and current and potential fee collection is based on data presented in FAO (1996). The figures presented there (on page 10 of Annex 1) have been updated for inflation and taking into account discussions with Forestry Department staff.

Some basic statistics on the production of charcoal on a commercial scale and current levels of charge collection are presented in Table 18. The operational data and total estimated consumption/production figures have been taken from FAO (1996). Charge levels are those currently in place in Zambia and the level of collection has been set so that the total charges collected are equal to the figures reported by the Forestry Department (see Table 6).

Currently, the total amount of charges collected per bag of charcoal is, on average, K 125. According to the charge rates set in the SI on charges, the proportion of the total charge that should be paid by producers is 73% but, due to differences in the effectiveness of collection, the production charge actually accounts for 99% of all revenues collected from charcoal production. If the production charge was to be expressed in terms of the charge to make one batch of charcoal in a "standard sized" kiln, the current charge would be K 13,660 to fill and operate that kiln for 3 months.

The economics of charcoal production are shown in Table 19. The current market price in Lusaka is about K 15,000 per bag. Producers are believed to get about one-tenth of this for selling the product in the forest. The other production costs shown in this table have been taken from FAO (1996) and updated for inflation.

The total value-added from charcoal production is equal to the sale price minus the cost of all capital and raw materials used in production. This comes to K 7,750 per bag, of which the producer gets K 1,076 profit or income (14%), the Government gets K 125 (2%) and the trader gets K 6,549 (84%). The current distribution of value-added is skewed very much in the favour of the trader, who gets a profit margin of about 44% of the sale price.

It is suggested that two changes to the current charging system for charcoal production might be considered.

Firstly, the existing charge on producers might be changed from a charge per cubic metre of wood used to a charge to operate a kiln (in a specified area). Sixty (stacked) cubic metres of wood are required to operate a "standard sized" commercial kiln (3m x 2m x 10m). At the current charge level, the total charge for wood to fill such a kiln would be K 108,000. It is suggested therefore, that licences might be awarded to operate one "standard sized" commercial kiln according to the following scale: 200 Fee Units per month; or 500 Fee Units per quarter; or 1,500 Fee Units per year (this scale offers a discount to encourage producers to take a longer licence).

Such an arrangement would be easier to monitor and would not require measurement of the wood input (which is difficult to monitor). It is relatively unambiguous (i.e. someone found filling or operating a kiln either has the licence or they do not) and there would not be any need to mark wood being used. The Forestry Department could also establish a routine for collecting such a charge. It would not even be necessary to strictly enforce the kiln size, because a much larger kiln (than that assumed here) would take longer to fill and operate, so the Forestry Department would collect more monthly fees anyway. However, it would be necessary to define a size of kiln that would be permitted for charcoal production for personal use.

The second suggestion is that the conveyance fee should be revised to K 2,700 per bag (or 15 Fee Units). This would reduce the traders’ profit margin by half and would give the Government a greater share of revenues. It would also place the main burden of the charges on the trader (77%) rather than the producer (23%), which seems appropriate considering that they make by far the most money out of these operations. This would require improved enforcement of the conveyance charges and a proposal for how to do this is presented in the main text of this report (see page X).

Assuming that production and consumption levels remain the same as they are at the moment, total revenue collection from such charges would be K 50 million (see Table 20) or about 30 times higher than at present (assuming that all charges were collected).