Chile, India and Indonesia offer three contrasting examples of the usefulness and effectiveness of financial incentives for establishing plantations. Chile and Indonesia intended their plantations to supply fibre for an export-oriented forest products industry, which was also supported in its development. In both cases, powerful industrial sectors have been established, although the Indonesians depend heavily on the natural forest to provide domestic wood because plantation development has not been synchronized with industrial growth.
In contrast, India’s main objectives for establishing plantations are providing ecological and social benefits associated with having a reasonable amount of healthy forest. Plantations are judged to be the fastest way to provide these benefits.
In all three countries, plantations were intended to take pressure off native forests, but they have so far been most successful in Chile in achieving this goal. In both India and Indonesia, plantation establishment has been inadequate to substantially reduce native timber use. These two countries have the greatest population pressures, which suggests that it will require a disproportionately greater effort to relieve the pressure on their native forest.
Overall, the Chilean program appears to have achieved its objectives while causing the least negative impacts. Because the opportunity costs are very difficult to calculate, it will be almost impossible to conclusively argue that the plantations and forest industries would have developed without subsidies. The Indonesian program has been successful in the short-term, but the longer term outlook is uncertain due to the inability of plantations to satisfy combined industrial and personal demand. If the present level of pressure continues on the natural forest, the timber shortage in the country will be exacerbated unless wood prices rise in anticipation and stimulate an accelerated rate of plantation establishment. If wood prices rise too much, it will create problems for industry. The Indian program appears to have been handicapped by poor quality seed and stock, and by insufficient technical capacity. However, these gaps are being addressed and an appropriate framework for longer-term success appears to have been developed.
It is interesting that none of the subsidy programs described above is widely viewed as a success. Brown (FAO 2000a) astutely remarks that in most major plantation countries, the majority of plantation establishment has been carried out either by the government, or in tandem with government incentives. The evidence available from both Chile and Indonesia suggests that while timber plantation establishment may not require subsidies to entice investors today, the financial incentives played a major role in alerting investors to the potential of these investments. More importantly, simultaneous efforts to create a thriving forest products industry provided a long-term stimulus for plantation establishment that was initially necessary but is no longer so. While India’s objectives differ somewhat from those of Chile and Indonesia, it is apparent that private sector funding will not provide adequate levels of plantation establishment.
One of the crucial differences between the Chilean and Indonesian experiences is that plantations are presently the highest yielding land use in many regions of Chile whereas oil palm is much more lucrative in Indonesia. Subsidies provided to oil palm growers further discouraged timber plantation development.
It is important to support plantation development with policies that provide for a fair price for wood. This has not happened in Indonesia (due to high levels of illegal logging) or, until recently, in India, where industrial timber prices were artificially suppressed. While log exports into India remain restricted and wood product prices are reduced for consumers; wood prices will be remain depressed. In contrast, Chile’s plantation establishment program was initiated at the same time that numerous market reforms were instituted, removing constraints on wood pricing. These reforms also created perceptions that the investment climate had become more favourable.
A second critical difference between Chile and Indonesia is that the Chilean government sold the land for plantations whereas Indonesia retained state ownership; there is even conflict between traditional rights and the rights of concessionaires. The uncertain tenure in Indonesia cannot have helped persuade investors to establish timber plantations there. In contrast, rising land prices have provided a source of financial gain to Chilean plantation owners that few may have anticipated. Thirdly, the Chilean subsidies were more generous than those offered by Indonesia.
From a social perspective, the Indian incentives support efforts to create community-owned plantations. One of the shortcomings of the Chilean and Indonesian programmes is that they appear to have primarily benefited people and corporations who were already wealthy. While there is nothing wrong with supporting corporations per se, ignoring traditional land uses or customary rights is likely to lead to difficulties. Indonesian plantation owners are already experiencing problems for this reason but are responding by offering joint ventures with local communities.
