Financial incentives for plantation establishment have proven to be effective but they require supporting policies and conditions to be successful. In particular, secure tenure and other conditions that make the investment at least somewhat attractive without the subsidy are important. Adequate technical support is also required. Finally, the program has to be sufficiently attractive if the uptake is to be sufficient to reduce pressure on native forests. Indeed, one measure of success appears to be a diminishing need for continued subsidization. Chile, as well as Australia and New Zealand no longer offer extensive subsidies now that their forest industries are globally competitive (FAO 1997).
Countries that are embarking on plantation incentive schemes intended to support industrial development now face strong competitors in the form of Chile, Indonesia and other countries that have already moved decisively into these areas. This suggests that future incentive programs will either become more expensive if they are organized along traditional lines, or they will have to be modified in order to make them successful. Many countries, including Indonesia (Potter and Lee 1998), are redirecting their assistance programs to small scale and community level forestry. The use of direct government subsidies is becoming less desirable and privatization is now viewed as an essential part of economic development (Keipi 1997). Indirect incentives such as support for research, training, extension and possibly providing market information may be places where government can make cost-effective contributions to promote privately funded forestation (Keipi 1997). Crossley et al. (1997) examined more innovative financing proposals, including the creation and development of entirely new financing mechanisms and instruments such as debt-for-nature swaps. They suggested that financial innovation may encompass the adaptation and application of well-established financial vehicles, such as bonds, to emerging investment areas such as sustainable forest management, biological diversity protection and conservation.
Beneficial externalities also can be very valuable and are likely to increase in value over time. For example, Haltia and Keipi (1997) calculated that the ecological benefits (carbon sequestration and watershed protection) of Eucalyptus globulus and Pinus radiata plantations in Chile were $US 451/ha and $US 510/ha, respectively. Until markets develop for these types of benefits and private interests are able to capture some of their value (or internalize them, as is the case with community forests), creating a supply of external ecological and social benefits will be the major justification for providing financial incentives for plantation establishment.
