1040-A2
LIU Can 1
he paper discusses marketing practice of forest environmental services in China, in accordance with Pigou's tax, governmental measures and market-based instruments are analyzed, the constrains and opportunities are presented in the paper, and there is still a long for China to establish better market practice for environmental services of forest resources.
As in most countries, the government of China has traditionally been the lead entity responsible for the protection of forests' environmental services. Since 1978, many large-scale ecological forest programs have been implemented including the "Three-North" Shelterbelt Development Program, the Yangtze River Shelterbelt Development Program, the Coastal Shelterbelt Development Program, and the Taihang Mountains Afforestation Program. In 1998, the Natural Forest Protection Program was launched with an explicit aim of protecting over 95 million hectares of natural forest by 2010. Despite these significant efforts, the trend of environmental deterioration in China has not been reversed. There are some additional measures should be taken, in the paper, we will analyzed marketing practices of forest environmental services, combing governmental intervention and market-based instruments, although in China, some papers have analyzed the issue, but are not systematic, market-based instruments are not considered, that is the reason why the paper is presented. The paper is organized as the follows, methodology and theory is presented in section two, and section 3 presents the key findings, section 4 discusses constraints and opportunities, finally, the policy recommendations are suggested.
It is a well-known fact that many of the environmental services provided by forests have no market prices. These environmental services may be valuable, although, frequently, the estimated value of such environmental services has been exaggerated in the past (Himilton and King, 1983, Chomitz and Kumari, 1996). Forest managers do not receive compensation for all of which is of value to the outsides as a whole. Under the situations, forest managers do not obtain financial payment that reflects the total value of the forest resources, and will have less of an incentive to manage forests to provide environmental services.
Forest environmental service considerations are not new to public finance, although their recent emphasis as something of quantitative importance is relatively new. Economists equate most environmental issues with the more general analysis of externalities, initially developed by Pigou (1952). In a Pigou's view of the world, externalities arose where some adverse effect of a production or consumption activity, and these costs were not borne by the agent responsible for the external effect. Forest resources provide some environmental services of positive effect, such as watershed management, soil erosion controlling, biodiversity conservation, land beauty and etc. Positive effects of forest resources have been brought some benefits to other stakeholders. The paper plans to use Pigon's method to analyze environmental services of forest resources in China.
Rapid Rural Assessment is adapted to collected information about environment services and case study. Case study areas were selected in Guangdong Province, Jiangxi Province, Shanxi Province and Beijing Municipality. The research has involved a review of existing literature, interviews with knowledgeable people, and field visits for in-depth case study work.
China's governments of all levels have taken some measures to internalise forest environmental services and encouraged private sector to be involved into supplying forest environmental services. In September, 2001, The State Council issued " The Decision on Converting the Land for Forestry and Pasture", and stipulated that " The annual subsidy for converting the land for forestry and pasture is 2250 kg/ha in the upper reaches of Yangtze River, 1500 kilograms /ha in the middle and upper reaches of the Yellow River, cash subsidy is US$36 annually. The period will last for 8 years for protective forests." In 1998, The People's Congress of China issued "The Forest Law of the People's Republic of China" and stipulated "To establish the forest environmental benefit compensated funds by the state to promote the environmental benefits and silviculture, tending, protection and managing the protective forest and the forest for special use. The forest environmental benefit compensated funds must to be earmarked, not to be used for any other purposes. The concrete measures will be stipulated by the State Council."
Guangdong Province had promulgated "the Regulation of forest protection in Guangdong." The regulation stipulates that the governments of different levels must provide funds for environmental forest development not less than 1% of its total financial budget every year and not less than 30% of the funds should be distributed for direct environmental forest planting and management.
There appear some market arrangements for environmental services of forest resources. These market arrangements are formed after the negotiation among these stakeholders. The paper focuses on watershed protection, biodiversity and ecotourism services.
3.2.1 Paying for watershed protection services
Water pricing is common throughout China. In the more advanced instances, prices are set to cover costs of provision. However, in general only a limited set of costs is considered, i.e. the cost of transporting and distributing water to consumers. The cost of protecting the hydrological cycle through land management is not taken into account. Yet, land management is thought to be critical to the maintenance of clean water supplies and dry season flows. There have appeared some examples in China.
Miyun Reservoir in Beijing is threatened by increasing siltation and pollution. Direct negotiations between the recipients of water in Beijing and Tianjin Municipality and the suppliers in Fengning County, Hebei Province has resulted in the establishment of an Environmental Forest Compensation Fund. The fund receives US$120,000 from Beijing and US$48,000 from Tianjin each year. Additionally, US$0.02 per cubic meter of water consumed is transferred to forestry protection. These funds are used to pay farmers to manage forest resources. In Yao County, Shanxi Province, 10 per cent of the revenue from a water resource fee collected by the Department of Irrigation and Department of Soil and Water Conservation is channeled to the Forestry Department to protect critical watersheds. In Xingguo County, Jiangxi Province, The metallurgic industry pays 0.5 per cent of sales revenue, the chemical industry 3 per cent of sales, coal enterprises US$0.01/t output and hydropower companies US$0.0001/kilowatt output. The result of this investment has been dramatic. By 1999 the area affected by serious soil erosion had dropped by almost 80 % to 41,000 hectares.
In Qujiang County, Guangdong Province, Qujiang County has abundant water resources, including Zhen River, Lian River and Nan River, key tributaries of the Bei River. While forests are known to play a critical function for hydroelectricity and water supply enterprises. Recognizing the valuable function of forests, water supply and hydroelectricity enterprises have agreed to pay farmers US$0.001/t of water, and US$0.0005/Kw electricity respectively.
3.2.2 Paying for biodiversity conservation - China's medicinal herb industry
While all of society benefits from biodiversity protection, some groups benefit more directly through their commercial exploitation of genetic material. China's vast, and rapidly expanding, medicinal herb industry is a critical commercial beneficiary. In total about 10,000 medicinal herbs are known, and 1,000 of these are commonly used. Many of these find their way into mainstream drugs used alongside western medicines. About 80% of drugs used in China are based on indigenous plants. Not only is the domestic market for herbs huge, but exports are also growing rapidly. As a result overall production has expanded at an estimated 9 per cent per annum over the last 20 years. In recent years there has been a growth in deals between biochemical and pharmaceutical companies and farmers. Total export value in the early 1990s was US$100-200 million (China Customs, 1999).
Medicinal herb plantations have reduced the press forest resources, and production of medicinal herbs is profitable and explains the rapid expansion of the sector in recent years. An economic analysis of medicinal herb production from plantations in Jinggangshan Prefecture, Jiangxi Province estimated IRR up to 10%. Government authorities are also becoming more proactive in getting medicinal herb collectors to pay for access to biodiversity. In Shixing County and Wongyuan County of Guangdong Province, farmers are charged an annual fee of US$1.80 for permission to collect medicinal herbs. The fund goes towards wages of forest guards and other forest management activities.
3.2.3 Paying for forest landscape beauty through ecotourism
Large-scale ecotourism is a relatively recent commercial activity in China. The rapid growth of foreign and domestic visitors to scenic forest spots has highlighted the value attached to landscape beauty services. In 1999 China's 1,002 forest parks attracted over 58.6 million visitors (SFA, 1999). 98% of these visitors were domestic. Foreign travelers mainly came from the USA, France, Britain, and Germany. Russians and Koreans also pay visits to forest parks in the north. The expansion in ecotourism has led to a dramatic increase in forest park revenue. The total revenue in 1999 was US$116,000 in China.
Yunmengshan National Forest Park by 1999, annual ecotourism revenue had risen to over US$181,000 from a base of zero in 1993. Between 50 per cent and 72 per cent of the revenues were channeled to forest protection between 1994 and 1998. Qingchengshan National Natural Park to forestry protection since the mid 1980s. Between 1988 and 1991, the forestry department earned just over US$60,000. Lijiang City, Yunnan Province has experienced rapid growth in forest-based tourism in recent years. Revenue is high enough that landowners are chosen to maintain forests intact, instead of logging. For instance, annual revenue at Yulongxueshan Scenic Zone reached US$6 million. Government spending on maintaining the zone is only a hundredth of this (Sun, 2001).
There are two fundamental conditions for the development of a market: firstly, consumers must be willing to pay for the good or service in question, and secondly, producers must be willing to supply it. For many forest environmental services these conditions are not easily met. However, several factors have conspired to make market-based solutions both more feasible and more attractive in recent years, these factors include increasing understanding of the economic importance of environmental services to consumers, and the need to ensure their continued provision; improving methods for monitoring the status, impact and consumption of environmental services; new commitments by public authorities to quantitative environmental targets combined with growing interest in finding the most cost-effective means of meeting those targets; and increasing acceptance of market-oriented approaches to development and environmental protection generally.
4.2.1 consumer side
Market demand is the precondition for establishing market for environmental services. At present, it is true that more and more people show great interests in environmental improvement. There still exist some constraints in establishing environmental service market the consumer side.
Firstly, low environmental awareness is the one of the most important factors. It indicated that the average public environmental awareness was about 20%, the public environmental awareness of urban residences is higher than that of rural residents, but the average public environmental awareness is less than 35%, which is much lower than that of developed countries
Secondly, incomes of people also constraint the purchasing powers of environmental services. In China, disposal incomes of farmers are very lower, the average annual income per capital was about US$ 200 in 2002 (China State Statistics Bureau, 2002).
Thirdly, there exists free rider problem. While in the urban areas, people' incomes are relatively higher, they have the capabilities to pay some forest environmental services, but the market demand for forest environmental services are still lower.
4.2.2 Producer side
Environmental services of forest resources as public good, it is very difficult to exclude over environmental services. There is simply no way for the producers to exercise a claim over the economic rent. To some extent, it is almost for producers to exclude and exercise exclusion over environmental services, or the cost of exclusion is so high that the producers have to forgo the benefits of environmental services. In the meantime, producers and consumers reach the agreement by negotiation is also very difficult. Public goods of forest environmental services cause the negative effects on forest environmental service supplying. Environmental forests bring less direct economic return than that of timber forests and fruit forests, farmers and other stakeholders make decisions in forest production, they will consider the direct economic return, without market for environmental services, they will choose timber and economic forests for higher economic returns. The survey results of 201 household production willingness in Jinzhai County, Anhui Province (LIU, 2000) indicates that forest management models are divided into full process management, silviculture, tendering and cutting/harvesting. Farmer' willingness of full process for economic forests and timber forests are greatly higher than that of fuel forests and protective forests. With regarded to protective forests, farmers just cut or harvest forests and trees, because protective forests have much lower direct economic returns, the governmental agencies and beneficiaries do not pay for protective forest management. Without adequate compensation fees, producers do not supply enough forest environmental services.
4.2.3 Difficultly valuing and defining the market price
Without clear and acceptable prices of forest environmental services, it is very difficult to establish market for forest environmental services. The current situation has recently been exhaustively reviewed (Kengen, 1996). In China, some researchers has done studies in forest resource accounting, methodology that is adopted is Labor value theory (Kong, 1993, Hou, 1994) and mainstream economics (Liu, 1998, 1999, Hou, 1994, Zhou etc, 2000). Forest environmental values (watershed protection, soil preservation. Environmental value of forest resources of Beijing Municipality is US $26.41/ha. The environmental value of forest resources of Miyun Reservoir watershed is US$0.22/ha (Liu, 1997, 1998). From the above data and information, it indicates that different researchers adopted different methods, greatly different results were received, which is very difficult to reach price arrangement of forest environmental services.
4.2.4 institutional arrangement issues
China is transited from the traditional planned economy to market-oriented economy, there still lack of institutional arrangements. As above analyses, the governmental agencies have realized the importance of establishing markets, the institutional arrangements are still under discussion. Governmental supports are very important for establishing markets for environmental services of forest resources in China.
In principle, landowners could not bundle watershed, scenic view and biodiversity services of their properties, and sell each services in different markets. In principle, the governmental agencies act as monopsonists, purchasing all the landowners' services and reselling them to international and domestic markets. In practice terms, purchase of watershed services in naturally monopsonisic, since there are also will tend to be a single hydropower or utility consumers in a watershed.
If a decision is made in favor of monopsony, then a price strategy must be defined. A basic choice is between fixed and differentiated prices. Fixed prices have the advantage of simplicity, and the appearance of equity. They are easy to administer and for this. The alternative, the differentiated pricing, has advantages and disadvantages of its own. It would be possible under differentiated pricing to compensate each property for the bundle of services it provides. Taken to limit, this would require a system for assigning monetary value to biodiversity resources. The scheme would achieve social efficiency, but would not yield revenues for the implementing agencies. Institutional arrangement is very important for markets for environmental services of forest resources. Suitable market institutional arrangement will promote demand and supply forming.
4.2.5 higher transaction costs
With less perfect institutional arrangements for market creation for environmental services of forest resources, and difficult valuing forest environmental services and low environmental awareness of the public, all these factors will cause higher transaction costs of the market environmental services of forest resources. If the transaction costs is too high for the society and private sector, the participation of private sector will have more difficulties in forest resource management, and also will cause worse environmental consequences.
Markets for environmental services of forest resources are still in the primary stage. There are still lagged behind other countries. Market-based instruments are still not common applied in China to involve participation of forest sector. The important issues should be overcome.
The following policy recommendations are put forwards to promote markets for environmental services of forest resources in China.
Improving institutional arrangement: As above discussion, institutional arrangement is very important, suitable institutional arrangement will promote supply and demand forming, with supply and demand, there will no markets for environmental services of forest resources. With demanding of carbon in China, there do not exist market for carbon of forest resources. Governmental agencies should make institutional arrangements, such as pricing, supply and demand and etc.
Raising environmental awareness: Environmental awareness is the precondition for environmental service demand. Raising environmental awareness should be made by medium and other ways.
Open markets for environmental services of forest resources: all stakeholders should be involved in decision-making, governmental agencies are responsible for making institutional arrangements for marketing for environmental services of forest resources.
Increasing forest stakeholders' economic returns by reducing taxes and transaction costs of environmental service markets.
Marketing for environmental services of forest resources should consider disable or weak groups of the society.
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1 China National Forestry Economics and Development Research Center, Beijing, 100714)