2.1 Introduction

2.2 The Forest Resources

2.2.1 Forests and Current Status of Forest Cover

2.2.2 Trends in Forest Cover Change and Sustainable Forest Management

2.2.3 The Changing Origin of Forest Production: Natural and Planted Forests

2.3 Wood and Wood-based Products: Production, Consumption and Trade

2.3.1 Production

2.3.2 Changing Consumption Patterns

2.3.3 Trade Developments and Value of Trade

2.3.4 Forecasts and Implications

2.4 Wood Fuels and Wood Energy

2.5 Non-wood Forest Products (NWFP): Trends, Prospects and Constraints

2.6 Markets for Forest Environmental Services

2. Facts and Figures on Forest Resources, Products and Services

2.1 Introduction

In order to examine the debates over the impact of trade on forests and the role of different policy interventions, it is important to have an understanding of the context, in particular the trends in forest cover, forest management and in forest products trade. This is needed to address issues such as the extent and likely causes of forest loss and the extent to which production of forest products is being driven by international trade or by the demands of the domestic market. This chapter starts with an overview of the forest resource base, examining the extent of forest cover in each region in absolute and relative terms, the constraints posed by protected area status and accessibility on exploitation of forest resources and the changes in forest cover over the last ten years. It then considers how these resources are used worldwide, summarising trends in production, consumption and trade of forest products over the last forty years. Finally it looks at forecasts of future trends.

Over the last 30 years, growth in world GDP has been accompanied by more than proportionate expansion of world trade. While the long-term trend in world real GDP growth has shown an annual percentage change of 3-4% between 1970 and 2003, the world trade volume has shown an annual percentage change of more than 6% during the same period (IMF 2003a). The short-term fall in annual growth of real GDP to 2.4% in 2001 reflected a global slowdown exacerbated by the attacks of 11 September, followed by a recovery to 3% during 2002 expected to rise to 4.1% by 2004. During the same period, annual growth in world trade volume fell to 0.1% in 2001 but bounced back to 3.2% in 2002 and is predicted to reach 5.5% by 2004 (IMF 2003b).

In general, the forest sector has shown the same type of trend over the last 40 years, with a gradual increase in global production accompanied by a more dramatic increase in global forest products trade. Between 1961 and 2000 production of wood forest products measured in roundwood equivalents grew by 1.12% per year while the volume traded increased by 3.88% per year.⁵ These general trends hide interesting divergences, which we will return to in subsequent paragraphs relating to different product types (e.g. processing), their geographical and ecological origin, and the sustainability of that origin.

In total, the forest products sector is estimated to contribute about 1% of world GDP (Sizer and Plouvier 1998 and Peck 2001) (approximately 10% of manufacturing's contribution to the world total). It comprises 3% of international merchandise trade, (FAO 1995) involving every country in the world, with an industry annual turnover of US$ 330 billion (Economist, 31/8/1996).

In comparison with production and trade in say agriculture, forestry appears relatively insignificant. Yet statistics for timber production and trade are widely held in the development literature to underestimate the economic contribution of forests to human well-being. Recent analyses of forests contribution to poverty reduction note their broader significance for local livelihoods (FAO 2001b). As noted in FAO (2003), which states that hundreds of millions of people depend on forests, it is hard to be more specific about the number of people because this depends on how dependence is defined.

The different estimates that exist highlight different aspects of dependence. Thus it is estimated that 60 million highly forest-dependent people live in the rainforests of Latin America, South-east Asia and West Africa. An additional 350 million people are directly dependent on forest resources for subsistence or income, and 1.2 billion people in developing countries use trees on farms to generate food and cash. In South and South-east Asia alone, several hundred million people live on land classified as public forest (White and Martin 2002). 'Loss' of forest resources is asserted to directly affect 90% of the 1.2 billion people who live in extreme poverty (Toyne et al 2002).

The growing adhesion to a new multi-dimensional paradigm for human development adds to the appreciation of the multiple ways in which forests can enhance well-being over and above their contribution to GDP and trade (Alkire, 2002). While we restrict our analysis in this chapter to statistical measures of production and trade, we return in the following chapter to the highly emotive issue of how to measure trade related changes within these multiple dimensions of human well-being.

2.2 The Forest Resources

2.2.1 Forests and Current Status of Forest Cover

While there are many debates over what constitutes forest land and the reliability of data on forests and trade (Hyde 1991), the most widely used categories are those of FAO. Forested land is defined by FAO as land with tree crown cover greater than 10% and a mature tree height exceeding 5 metres on over 0.5 hectares (FAO 2001c). Based on this definition, the total area of forests in the world today is estimated at 3.87 billion hectares or almost 30% of the global land area (see Table 2.1). It can also be seen from table 2.1 that forests in tropical countries⁶ account for 48% of the world's forests, covering 39% of that climatic region's land area. Forests in temperate and boreal countries comprise 52% of the world's forests and cover 25% of that climatic region's land area. Approximately 95% of the total forest area is natural forest, the remaining 5% comprising plantations of various sorts (both softwood and hardwood). Plantations account for 4% of forested areas in tropical countries and 6% of forested areas in temporal and boreal regions. The main areas of plantation are in China, East and South Asia and the former USSR.

Table 2.1 World and regional⁷ data on human and forest resources, 2000

ⁱ Forest area is the sum of natural forests and plantations

Source: Calculated from FAOSTAT on-line database (2002) and FAO (2001c).

There are stark contrasts in the socio-economic characteristics of different regions. As shown in Table 1, tropical countries as a group show a far higher rural population than temperate and boreal countries (63% compared with 44%) and a higher population density. This suggests a consequent higher dependence on forests for subsistence and income and greater pressures for forest conversion to other land uses. But there is considerable variation. In East and South Asia which is mostly tropical and where 70% of the population is rural, there is just over half a hectare per person. In South America though, the rural share of population is much lower at 21% and population density is lower, there being over 5 hectares of land per head of population. There is even more variation in population density within temperate regions with Canada having just under 30 hectares per capita, Europe having less that one hectare per capita and Japan only 0.3 hectares per capita. Yet the latter two regions, have a higher forest area as a proportion of total land area than Canada. Tropical countries have on average much lower economic wealth per capita (11.3% that of their temperate and boreal contemporaries) which compounds forest dependence.

While the figures in Table 2.1 show some clear differences between tropical and non-tropical countries as a whole, they also show considerable variation at a more disaggregated level. This highlights the complex and locally-specific relationships between forest area, demographic patterns and economic wealth. The contextual differences between different trading blocks complicate general value statements regarding the impact of forest trade. In addition to forested land, there are substantial areas designated as 'other wooded land', which are not captured in the statistics in Table 2.1. This is either land with scattered trees of 5 metres or more (5-10% of crown cover) or with smaller trees (less than 5 metres) with more extensive crown cover (over 10%). These areas of other wooded land equate to about 10% of total land area (FAO 2001c). Many of these areas (and particularly trees on farm) also provide substantial quantities of forest products and services.

Inevitably, the transition between different categories of land on which trees occur is affected by both natural and man-made processes of renewal or degradation (e.g. natural regeneration and planting, climate change and climatic events, pollution, natural pests and diseases, fire and management/mismanagement). Forest condition is arguably as important as forest cover, although much harder to measure. Moreover there are complex interactions between the factors which affect forest condition (e.g. the way logging increases the predisposition of forests to fire - Nepstad et al. 1999a, 1999b). As a result, many of the often imperceptible changes of forest condition may also in time have serious implications for forest cover.

2.2.2 Trends in Forest Cover Change and Sustainable Forest Management

The dramatic market-led shift in the origin of forest production towards plantation and semi-natural forest types (as described above) has two contrasting implications for the sustainability of forest management. On the one hand, it is much easier to manage plantation and semi-natural forests sustainably than comparable complex natural forests (and especially diverse tropical forests) - so the there is an increasing likelihood that the timber from production forests will come from a sustainable origin.

On the other hand, the much greater intensity and efficiency of forest production in relatively tiny plantation and semi-natural forest areas may leave extensive remaining tracts of natural forest below the minimum threshold for economically viable production (Macqueen 2001). In the absence of other mechanisms to attribute value to those natural forests, forest clearance for alternative land uses and/or the lucrative, unsustainable and possibly illegal creaming of timber resources become rational (although perhaps undesirable) economic alternatives.

Given the varying definitions of SFM within natural forests, semi-natural forests and plantations and the difficulties involved in assessment, there is little systematic information available on the quality of forest management worldwide. Most commentators agree that SFM, though on the increase, is the exception rather than the rule in natural forests (Gregory et al 2000). Assessing sustainability in plantations and semi-natural forests (e.g. simple temperate systems) is much easier.

The clearest indication of SFM is given by the statistics of the certification systems but there are well-managed forest areas that have not applied for certification are not captured by this data. As of September 2003, certified forests account for an estimated 160 million hectares worldwide. This equates to just over 4% of total forest area.

Moving from the management level to the landscape level, the only proxy indicator for sustainability in the forest sector is given by the changing patterns of forest cover worldwide. Between 1980-1990 according to FAO's Forest Resource Assessment 1990, the net loss in forest cover came to 9.9 m ha per year (total losses subtracting natural and planted increases - FAO 2001c). In 1990, net loss of tree cover was occurring in 75 countries with estimates suggesting that 15.4m ha of mature tropical forest was being lost annually (EIA 2002).

Over the subsequent decade to 2000, it was estimated that 14.6m ha of forest were lost each year, but that 5.2m ha were newly established, leaving a net decrease of 9.4m ha (see Table 2.7). This equates to a global rate of forest loss of 0.24%. Table 2.7 also shows that while non-tropical areas saw a slight increase in forest area resulting from natural expansion and afforestation, tropical areas experienced a significant reduction mainly as a result of conversion to other land uses. Despite changes in assessment definitions it is safe to say that the net loss of forest has decreased slightly over the last 20 years - although the scale and location of continuing losses continues to be an issue. In total, there was a net loss of tree cover in 89 countries and a net increase in 67 countries (FAO 2001c). Gains were reported in Europe, NENA, Former USSR, Canada, Japan, China and the USA⁸, although many of these countries or regions had already depleted much of their forest resource in previous centuries.

Table 2.2 Annual change in forest area, 1990-2000 (m ha per year)

Source: FAO (2001c)

2.2.3 The Changing Origin of Forest Production: Natural and Planted Forests

Historically, the vast majority of timber production has come from natural forests in both temperate and boreal regions and tropical and subtropical regions. Timber has been sourced both from sustainably (and unsustainably) managed forests and from land clearance. The clearance of forest land has its origins in land use competition and has resulted in the residual forest cover shown in Table 2.1. Land use competition is most pronounced in areas made accessible by transport infrastructure - some of which has been developed explicitly to enable forest harvesting, some of which has been developed for agricultural or other forms of land use settlement. Using evidence from both satellite and sociological data it has been shown that "increased road density in a country leads to more deforestation in that country and in neighbouring countries" (Pfaff 1996) - a fact explaining recent reactions towards new infrastructure development programmes in forested areas (Nepstad et al. 2000).

The development of transport infrastructure has not occurred uniformly across all forested regions, it being a function of many factors such as policy direction, population density and the stage of economic development. As a result, timber extraction has historically been focused on more populous and developed regions such as temperate Europe and more recently South East Asia and less so in areas such as the Brazilian Amazon and Central Africa. Large areas of boreal forest also have limited accessibility because of their distance from transport infrastructure. This can be seen from Table 2.2, which shows estimates of the size and significance of altitude, legal and economic constraints over forested land area available for wood supply. Worldwide as much as 43% of the forest area is beyond 10km from major transport infrastructure and is therefore not likely to be economically accessible. In South America this proportion increases to 60%. In Europe, this proportion is also relatively high at 47% because of the large areas of boreal forest. It can also be observed that in most regions it is the economic restrictions implied by remoteness that have the greatest effect on availability rather than the protected area status or altitude.

Estimates of protected forest area vary because of differences in definition of forest area and in the definition of protected. An early IUCN estimates classes 7.5% as protected (Iremonger et al 1997. The FRA 2000, based on a global protected area map developed by UNEP-WCMC, estimates that 12.4% of forests worldwide are in protected areas as defined by the IUCN categories for protected areas (FAO 2001c)⁹. A later estimate by WCMC gives a slightly lower estimate of 10.4% probably due to the use of a different definition of forest (WCMC 2003)¹⁰. Table 2.2 shows that there is considerable regional variation in the extent of protected area forests, with relatively high proportions in North and Central America, and in South America and a rather low proportion in Europe. These statistics however, say little about the extent of protection in practice.

Political and economic concern over the increasing inaccessibility of remaining natural forest resources, and the cost of sustainable management in them, coupled with the continuing expansion of the global market for timber, have enhanced the economic viability of plantations and also semi-natural forests. Semi-natural forests are common within but by no means exclusive to temperate and boreal zones and are typically monoculture stands, but occasionally contain more than one species, managed like plantations, but whose regeneration occurs naturally rather than through plantation)). The area of plantations has consequently increased rapidly since the 1980s, and now corresponds to 5% of total forest area and 8.5% of economically accessible forest (as defined in Table 2.3 below).

Table 2.3 Altitude, legal and accessibility constraints on wood supply

Source: Calculated from Table 9.2 in FAO (2001c). Note that these areas may overlap and so if added together will overstate the constraints on availability.

Table 2.4 shows the regional breakdown of plantation area and planting rates. It can be seen that Asia is currently the dominant region for plantations accounting for 62% of the world's total plantation area. As the extent of annual planting in Asia also is much higher than anywhere else, corresponding to 78% of the global total, the concentration of plantations in this region is likely to continue.

Table 2.4 Plantation areas and plantation rates by region

Source: FAO (2001c)

FAO (1998) estimates that current plantation area in the southern hemisphere has a potential annual growth of 1.1 bn m³ (approximately 70% of current industrial timber production). As such plantation areas mature, it is widely anticipated that there will be a continuing dramatic shift in the origin of timber supply towards plantation areas (Evans 1999). Sedjo and Botkin (1997) estimate that current demand for industrial roundwood could be met by plantations on as little as 1.5 m km² of land, approx 4% of current global forest area. Table 2.4 presents forecasts of the continued shift of supply to plantations.

These estimates predict that by 2050 50% of the world's industrial roundwood supply will be sourced from fast-growing industrial plantations and that only 5% will be derived from unmanaged old growth forests. Most of these fast-growing plantations will be in the tropics and sub-tropics where climatic conditions are particularly favourable for the species involved.

If these predictions prove correct, concerns over the impact of forest harvesting and trade will shift to how plantations are run and how natural forests that are not used for timber production can be protected effectively.

Table 2.5 Estimated current and forecast industrial roundwood supply by forest management situation (% global harvest)

Source: Sedjo (2001)

2.3 Wood and Wood-based Products: Production, Consumption and Trade

While there is increasing interest in the range of non-timber forest products and environmental services from forests, timber remains the primary product which is produced and traded from forests. We examine the trends in production over the last 40 years for different types of wood product, highlighting some recent developments such as the emergence of new players on the world market for forest products.

2.3.1 Production

With regard to primary wood products, the total volume of roundwood felled globally¹¹ declined in the 1990s but has started to increase again. As can be seen in Figure 2.1, most of the fluctuation in production has been in non-tropical countries. In tropical countries there has been a steady but small increase in production since the 1960s.

Figure 2.1 Global volume of roundwood felled (m³ RWE), 1961-2000

Source: IIED calculations based on FAOSTAT on-line database (2002)

Table 2.6 shows that total harvest currently exceeds 3 billion cubic metres annually and that production has grown at just under 1% per annum since 1961.

Table 2.6 Total roundwood production, 1961-2000

Source: IIED calculations based on FAOSTAT on-line database (2002).

Table 2.6. also shows that faster growth is recorded in tropical regions (particularly East and South Asia, Sub-Saharan Africa and South America) but with the higher total volume of production from non-tropical regions. In three regions, Oceania, former USSR and Japan, production has been declining.

Roundwood can be divided into two primary (extractive) categories of wood product: industrial roundwood and fuelwood (for the latter see Section 2.3 for details). Figure 2.2 depicts the relative volumetric significance of the two categories over time. The figure shows the fact that fuelwood is roughly as significant a production category as industrial roundwood - and that this significance has not diminished despite global development efforts over the past four decades which might have been expected to reduce dependence on fuelwood. For the purposes of this analysis, the important point is that forest management is as much affected by the production of fuelwood as it is by the production of industrial roundwood.

Figure 2.2 Total primary wood production, 1961-2000:

Source: IIED calculations based on FAOSTAT on-line database (2002).

The category of industrial roundwood includes logs, wood residues, and chips and particles, the basic inputs for all other industrial wood product categories. As can be seen from Figure 2.2, the proportion of industrial roundwood in total roundwood has remained fairly constant at around 50% apart from some variation in the late 1980s.

However, there are marked differences between tropical and non-tropical countries (see Figure 2.3) and among regions. Over 1961-2000, the industrial roundwood proportion has remained above 70% for non-tropical countries and has doubled from 9% to 18% for tropical countries.¹²

Figure 2.3 Trends in production of industrial roundwood as a percentage of total roundwood production, 1961-2000

Source: IIED calculation based on FAOSTAT on-line database (2002).

The largest producers of industrial roundwood are USA, Europe, Canada, and South America. Production has been relatively stable since 1980 apart from a rising trend during the late 1980s, which ceased with the break-up of the USSR. Table 2.7 explores the regional dynamics of production. It can be seen that annual total production of industrial roundwood from all sources has expanded by 1.12% on average since 1961, with all regions increasing their production except the former USSR (declining since 1971) and Japan (declining throughout). Tropical countries exhibit greater annual increase in production than non-tropical countries, growing at 3.0% per year in comparison to less than 1%. As a result their share of total output has risen from 8% in 1961 to 18% in 2000. This is due both to increases in hardwood production from natural forests and due to the maturation of tropical plantations in regions such as South America and South East Asia.

Table 2.7 World and regional distribution of industrial roundwood production, 1961-2000 (m cum)

Source: FAOSTAT on-line database (2002)

Processed Wood Product Categories

World production of processed wood products has been increasing since the 1960s (see Figure 2.4 and Table 2.8) for each of the four main product categories: sawnwood, pulp, paper and panels, with paper and panels showing the highest rates of growth. Sawnwood production has been more cyclical such that current production levels are only slightly higher than in the beginning of the 1980s. These trends hold true for each region as shown in Table 2.10, except in the case of sawnwood production which has been declining in China, Japan and Former USSR but has grown slightly faster in Canada than paper production. Tropical countries have experienced considerably higher growth rates for all four product categories than non-tropical countries. This reflects particularly high growth rates in East and South Asia, and South America.¹³

Figure 2.4 Trends in world production of processed wood product categories, 1961-2000

Source: Calculated from FAOSTAT on-line database (2002).

Table 2.8 Trends in annual production by product category, 1961-2000 (% per annum)

Source: Calculated from FAOSTAT online database (2000)

Secondary Processed Wood Products (SPWPs)

In addition to the expansion of processed products, there has been a rapid expansion in the production of Secondary Processed Wood Products (SPWPs). The Standard International Trade Classification of these lists SPWPs in several categories which include: Wooden furniture and parts; builder's woodwork, other SPWPs (including packaging. cooper's products, domestic products etc.) mouldings. ITTO also now include NTFP-based furniture in their analysis (ITTO 2002). The production of SPWPs is spread across the globe and is increasingly offering tropical countries and Eastern European countries entry points into international trade. Furniture is by far the most important category for trade and China, Indonesia and Malaysia vie with Italy, Canada, Poland and the USA for the export markets. While production is dominated in tropical regions by South East Asia, capacity is also expanding rapidly in other areas of the tropical and/or developing world such as Brazil (primarily in furniture) and Cote d'Ivoire and Ghana (primarily in mouldings).

The most notable feature of SPWP production has been the spectacular rise in Chinese production capacity. From a total output value of US$ 157 million in 1978, Chinese furniture production expanded to US$16.9 billion in 2001 involving 50,000 enterprises and nearly 5 million employees (ITTO 2002). The annual rate of production increase approximated to 24% in value terms and was driven both by internal consumption and by expanding exports (which grew at 17% per annum in value terms over the same period) (ITTO 2002).

2.3.2 Changing Consumption Patterns

Increasing production, as can be expected, has been accompanied by increasing consumption at a global and regional level. With some exceptions, the trend in consumption over 1961-2000 is upwards for all regions and wood product categories. The main exceptions are for roundwood and sawnwood. Table 2.9 shows the average annual growth rate in apparent consumption over the last 40 years. It can be observed that both Japan and the former USSR have experienced declines in consumption of these two commodities. In the case of the former USSR, this reflects this region's political transformation during the 1990s. Before then consumption had been fairly stable. In the case of Japan, reduced consumption in the 1990s of roundwood and sawnwood reflected the recession that plagued the Japanese economy in this period. China also experienced a reduction in sawnwood consumption in the 1990s, probably reflecting a switch into other wood products such as panels. Consumption of panels in China grew at 10.8% per year over the period 1961 and 2000 and increased almost fourfold between 1991 and 2000.¹⁴

Table 2.9 Average annual change in volume of apparent consumption 1961-2000

Source: IIED calculation based on FAOSTAT on-line database (2002)

Table 2.9 also shows that at a global level, the highest rates of growth over the period are for panels and paper and the lowest rate is for sawnwood at only 0.5% per year. Consumption has been growing fastest in Near East and North Africa, South America and China and relatively less rapidly in the former USSR, Canada and the US. Of interest here is the difference between growth rates in consumption and production. A comparison of Table 2.9 and Tables 2.8 and 2.7 in the previous section reveals that there are some divergences at the regional level. Declines in consumption of roundwood and sawnwood in Japan and the former USSR were accompanied by less marked reductions in production. While consumption of panels increased in China, production of panels grew even faster at 11.4% per year, reflecting a growing export industry. In the US, consumption of panels and sawnwood grew more rapidly than production over the period, implying increasing imports, while for pulp, paper and industrial roundwood, production growth rates were higher than consumption growth rates implying increasing export.

In terms of absolute consumption levels, it can be seen from Table 2.102 that the US and Europe are the major consumers for all four processed wood product categories, together accounting for over 55% of world consumption in all four cases. China is in third place for both paper and panels, reflecting recent economic growth. Other major consuming regions according to Table 2.12 are Japan with over 6% of world consumption for all four product categories, East and South Asia, particularly for paper and sawnwood, and South America which has relatively high consumption of sawnwood and panels.

Table 2.10 World and regional consumption of wood product categories by volume and as a proportion of total world consumption, 2000

Source: IIED calculation based on FAOSTAT on-line database (2002)

Statistics for the consumption of most secondary processed wood products are frequently not collected except in a few OECD countries and selected ITTO members.¹⁵ Consumption volumes are therefore notoriously difficult to assess. But there are indications that the volume of final products consumption has reached very large proportions, with furniture consumption doubling over 1991-2001. (Peck 2001). In 1998 the furniture industry was in the Top 20 product groupings in trade,¹⁶ with an annual value exceeding US$ 50 billion. Indeed, it is asserted that between 1961-94, only computers registered faster growth of imports into high-income countries than furniture.¹⁷

2.3.3 Trade Developments and Value of Trade

As observed in the previous section, the increase in consumption of wood products in all regions has not been exactly matched by increases in production in the same region. This implies increasing trade. Globally, there is a trend to export a greater proportion of timber harvested, whether as industrial roundwood or as processed products. The trend is strongest in non-tropical countries indicating the maturing of plantations during the 1990s coupled with increased demand from tropical countries as consumption in those countries continues to rise.

Wood and Wood-based products

Before launching into a consideration of the rapidly expanding international trade in industrial roundwood it is important to put such trade into perspective. Despite global expansions in international trade, the vast majority of all wood-based production is destined for consumption in the domestic markets of producing countries. Figure 2.5 highlights the fact that in all regions, the quantities of exports or imports from or to countries in those regions are a tiny percentage of wood that is produced and consumed internally in each country.

Figure 2.5 Regional balances for industrial roundwood, 2000 (cum)

Source: Calculated from the FAOSTAT on-line database (2002).

The limited extent of international versus domestic trade (true also for other categories of forest product) puts into context extent to which international trade might be expected to influence sustainable forest management in any region in comparison with domestic trade. Nevertheless, the rapid expansion of international trade is not totally insignificant, noting the recent significant industrial roundwood exports from the former USSR and the recent expanding imports to China. The expansion of international trade is changing the dynamics of competition on such elements as price, product type and quality, social and environmental production standards - shifting production locations and practices in the process.

The trends in industrial roundwood emphasise the rapidly expanding dimension of international trade. As can be observed from Table 2.11, export volume has almost trebled since 1961, with global exports of industrial roundwood exceeding 114 million m³ in 2000. However, exports have grown faster in non-tropical countries and in contrast in tropical countries exports have declined since 1971, most probably reflecting the imposition of log export bans.

Table 2.11 World and regional export volumes of industrial roundwood, 1961-2000 (cum)

Source: Calculated from the FAOSTAT on-line database (2002) and FAO (2001c).

Exports of the basic commodities logs, chips and residues appear to be spread between developed and developing countries. A number of regions are both major exporters and major importers. The three main exporting regions are the former USSR, followed by Europe, and then USA. The case of the former USSR is of particular note. Following the collapse of the centrally controlled market, low production costs, a weak currency and abundant natural resources have enabled Russia to increase its roundwood exports by as much as 14% in 2002 (Ekstrom 2003). Even with greatly expanded exports, Russian production is still well below its annual allowable cut and with rapid increases in the productive capacity, the Russian trade is expected to have a major impact on European and Asian markets. The existing oversupply of roundwood has already led to falling raw material costs in Europe. The important link between Russia and China also deserves comment - with trade between the two countries rapidly expanding (e.g. a doubling in sawn softwood trade between 2000 and 2002 (Kosak and Spelter 2003)). The low cost supply from Russia coupled with low cost processing capacity in China will present a formidable competitive axis in years to come.

East and South Asia, which in the 1980s and 1990s was second only to Europe as an exporting region, has greatly reduced its exports of roundwood in recent years and is now a net importer. In addition to the growing scarcity of raw materials this shift has been occasioned by the imposition of export bans or high export taxes. For example, the Indonesian government introduced a ban on the export of unprocessed roundwood in 1981 to be phased in over five years, but soon altered to a 200% export tax in 1991. This initially shifted exports towards sawnwood until in 1989 a similar 200% export tax stimulated a further shift towards plywood. The recent logging ban in China is creating similar market distortion (Macqueen et al 2003).

A similar look at the major trends in imports reveals the broader extent of Russia and China's changing roles (Table 2.12). The great expansion in imports in Europe is attributed not just to the increasing demand, but also due to the competitive pricing of Russian softwood timber. The marked increase in Chinese imports reflects the great increase in industrial processing capacity over past decades culminating in the imposition of a logging ban within China itself leading to a significant import demand. To date China is importing roundwood, especially tropical, from many regions, but only Russia and New Zealand have made inroads into its sawn softwood market (Kosak and Spelter 2003).

Table 2.12 World and regional imports of industrial roundwood, 1961-2000 (cum)

Source: Calculated from the FAOSTAT on-line database (2002) and FAO (2001c).

Trade in all processed products is increasing in volume terms and as a percentage of production (see Figures 2.6 and 2.7). As with production trends, trade in paper is growing at the fastest and steadiest rate. Trade in sawnwood is also increasing but with considerable fluctuations. Panels trade has increased significantly over the last 20 years and has overtaken pulp.

From Figure 2.7 which shows trade in each product as a proportion of production it can be seen that trade is becoming more important - paper and sawnwood have both gone from less than 20% of production going to export at the beginning of the 1960s to around 30% in the late 1990s. Panels have become more of an export commodity since the mid 1980s, with over 30% of production now being traded internationally.

Figure 2.6 Volume of each category exported, 1961-2000

Source: Calculated from the FAOSTAT on-line database (2002).

Despite the considerable increase in international trade, the majority of production, as for industrial roundwood is destined for domestic markets in producing countries (figures 2.8 a-d)) This is particularly evident for all four product categories for some major producers, the US, Japan and China for all four product categories, but also applies to smaller producing regions such as Central American and Caribbean, and Near East and North Africa. Exceptions to this general observation include Europe where although international trade is sizeable in relation to domestic trade, much of this has its origins in intra-regional trade within the EU. Canada also proves to be an exception with its limited domestic market and its orientation towards exports, particularly to the USA. In between these two extremes, some regions have significant export orientation for one of the product categories but not the others, for example in East and South Asia and in Oceania, the export of panels exceeds domestic trade but export is relatively less significant for the other product categories. The same pattern applies in South America where pulp is the only significant export product and the ex-USSR where sawnwood is the key export.

Figure 2.7 Estimated proportion of processed wood production that enters international trade, 1961-2000

Source: Calculated from the FAOSTAT on-line database (2002).

Figure 2.8 Wood product balances by region and product category, 2000

(a) Pulp (metric tonnes):

Source: Calculated from the FAOSTAT on-line database (2002).

(b) Paper (metric tonnes):

Source: Calculated from the FAOSTAT on-line database (2002).

(c) Panels (cubic metres):

Source: Calculated from the FAOSTAT on-line database (2002).

(d) Sawnwood (cubic metres):

Source: Macqueen et al. 2003 from FRA 2000.

Kozak and Spelter (2003) observe that Russian exports of sawn softwood now exceed those of the entire former USSR for the first time, having increased by 17% over the previous year. They now total 8.6 million cubic metres, equivalent to 44% of total production. This surge in exports reflects the depreciation of the Russian currency and stagnant domestic consumption. Already driving down prices in adjacent markets, the full impact remains to be seen as the production capacity of Russian sawmills continues to expand.

The other notable story is the rapid expansion of South East Asian panel production. The rapid development of Asian processing capacity in this sector was in response to investment policies coupled with export bans and export taxes on industrial roundwood and sawnwood exports. In one component of panel production, plywood, the trade became dominated by South East Asia and tropical plywood exports managed to capture 70% of the global market in the early 1990s (Rytkonen 2003. Over capacity in South East Asia which has led to the exhaustion of accessible raw material is at least partly responsible for the subsequent loss of market share in tropical plywood which currently stands at less than 60%. The implications of distorting trade policies for long term production in Indonesia are detailed in Macqueen et al. (2003).

Developed or non-tropical countries currently dominate exports in all four product categories but South America now accounts for over 13% of world exports of pulp, and East and South Asia corresponds to over 10% of world exports of panels.¹⁸

Owing to the characteristics of their market, SPWPs are best assessed using value traded rather than volume traded. The value traded in furniture makes it by far the most important category of SPWP, accounting for more than 60% of of the export value of SPWPs from ITTO consumer countries, compared with 15.3% for builders woodwork, and 15.1% for other SPWPs (ITTO 2002)..

With exports of US$ 6 billion, Italy is the world's largest exporter of SPWPs - most of its production being imported by fellow EU members (led by Germany France and the UK) and the USA (ITTO 2002). China (exporting US$ 4.5 billion) and Canada are the second and third largest exporters of SPWPs with growth in exports of 56% and 52% respectively between 1997 and 2001 (ITTO 2002). While Canada has been benefiting from the demanding USA market, China has leapt above Germany (fourth largest exporter) and Canada in exports due to a strong policy encouraging downstream processing, low wages and substantial inward investment from USA, Taiwan, Singapore and other South East Asian neighbours (ITTO 2002).

Despite suffering a drop of almost 50% due to the Asian financial crisis in 1998, Indonesian SPWP exports rebounded by 167% in 2000 to surpass Poland as the world's fifth largest exporter. Malaysia, while less affected by the Asian financial crisis, also managed to grow exports by 14% between 1997-2001 to overtake the USA in production (ITTO 2002). The expansion in Asian production and exports has led to falling production in some regions such as the USA which have struggled to remain competitive. The shift towards China has also been to the detriment of European and Canadian producers (ITTO 2002).

In terms of furniture imports, the USA is the largest importer (33%) followed by Germany (10%) France (8%) the United Kingdom (7%) and Japan (6%). The USA, Germany and Japan dominate imports for the smaller builder's woodwork imports, although declining markets in Germany and Japan led to an overall fall in world imports (Tissari 2003). The significant inroads made by developing countries into SPWP trade might suggest a route towards growth and prosperity. Yet Tissari (2003) cautions against over-optimism due to the steady decline in real prices - with a windsor style chair seat made of rubberwood declining from US$ 11 five years ago to US$ 5 in Vietnam in 2003. This author offers engineered wood products (EWPs) as one alternative SPWP sector with a brighter future in the globalised market place.

Trends for tropical and non-tropical countries

Despite significant country exceptions, there has been a marked general difference between tropical and non-tropical countries in relation to export trends. In roundwood equivalent terms, exports from non-tropical countries have increased both in volume and as a proportion of timber felled. In tropical countries, exports have been static, increasing very little after the 1970s both in absolute terms and as a percentage of production (see Figures 2.9 and 2.10). While only about 5% of roundwood harvested in tropical countries in aggregate is exported, this hides considerable variation between countries. In a number of countries such as Indonesia, Malaysia, and Cameroon, the proportion traded is considerably higher. We have already noted the South East Asian dominance of the plywood markets in the early 1990s and the upsurge in the SPWP markets. Nevertheless, the general impression remains.

Figure 2.9 Volume of roundwood exports (RWE), 1961-2000

Source: IIED calculation based on the FAOSTAT on-line database (2002).

Figure 2.10 Exports of wood products (RWE) as a proportion of roundwood production, 1961-2000

Source: Calculated from the FAOSTAT on-line database (2002).

In relation to industrial roundwood, the significance of trade is greater, particularly for tropical countries. Until the late 1970s,as Figure 2.11 shows, exports of forest products were more important in relation to total industrial roundwood production in tropical countries than in non-tropical countries. Since then they have stagnated somewhat. Although exports have been increasing in relative terms in tropical countries since the early 1990s and now average around 28%, they have yet to regain the significant role they held in the early 1970s.

Figure 2.11 Roundwood and processed wood product exports (RWE) as a percentage of industrial roundwood felled, 1961-2000

Source: Calculated from the FAOSTAT on-line database (2002).

Value of wood products trade

The value of world trade in the main categories of wood products is estimated at approximately US$ 140 billion in 1997, with paper accounting for nearly half of this (see Table 2.13). An alternative estimate of US$155 billion (it includes wood manufactures and other minor wood products as well as the five product categories in Table 2.13) is given by Wardle and Michie (2001) who calculate that in real terms the value of trade in forest products increased fivefold between 1962 and 1997. The two regions that saw a major increase in the value of the wood product exports over this period were Asia Pacific and Latin America and Caribbean. These regions both doubled their share of the world value of exports in this period. This reflects both an expansion in trade in volume terms and a shift to trade in more value-added products. The trade in tropical timber accounted for only US$ 16 billion in 2000 - roughly 10% of the total (Rytkonen 2002). The trade in SPWPs adds approximately US$ 40 billion to the total.

Table 2.13 Value of world trade in wood products by wood product category, (1997)

Source: Peck (2001)

Directions of trade in wood products

Intra-regional trade flows account for the bulk of world trade. Table 2.14 shows an assessment of the three main international trade flows in volume terms or each of the main wood products. It can be seen that most of these are within the same region, in particular between Canada and the USA, within Europe; and within East and South Asia. Indeed, Europe, North America and Asia primarily trade internally with only one-third of exports leaving each region (ILO 2001).

Table 2.14 Main wood product trade flows

Source: Peck (2001) and FAOSTAT (2002).

For tropical timber, the emergence of China as the world's largest importer of tropical logs, sawnwood and veneer, means that trade flows within the Asian region predominate. According to ITTO (2002) in 2001, the three largest trade flows of tropical logs were from Malaysia to China and to Japan, and from Indonesia to China. For European importers, the main source of supply was West and Central Africa. For tropical sawnwood, there was a similar pattern with the largest trade flows being from Indonesia to China, and Malaysia to Thailand and China. In the case of tropical veneer, a large proportion of exports were from Malaysia to China and other Asian countries. Trade in tropical plywood was also primarily between Asian countries, with imports by Japan from Indonesia and Malaysia accounting for 46% of world imports.¹⁹

The intra-regional concentration of trade flows is also evident when trade is considered in value terms. According to Wardle and Michie (2001) in 1997, 78% of Europe's forest product imports in value terms came from within the region. Moreover, this was up from 70% in 1962. Similarly, these authors found an increasing emphasis on intra-regional trade in Asia and the Pacific where in 1997, 81% of exports in value terms stayed within the region, compared with 55% in 1962.

Regions have been changing their net trade balances over time. There have been relatively recent transformations of some regions into net exporters during the mid-1970s to mid-1980s. Indeed, between 1961-76 only Canada and Former USSR recorded net exports. During the subsequent decade they were joined by Sub-Saharan Africa, Oceania and South America.²⁰

Traditional directions of trade between tropical and temperate countries are showing some signs of change as shown in Figure 2.12. In non-tropical countries as a group, exports for many years were lower than imports and the trend until the late1980s was for the gap between them to widen. In the early and mid 1990s, exports caught up with imports but in the late 1990s were overtaken again by imports. This group of countries remain net importers of wood products in volume terms. In tropical countries as a group, imports have been steadily increasing in volume relative to exports. This group of countries are still net exporters but the gap between imports and exports is narrowing.

Figure 2.12 Estimated net trade in non-tropical and tropical countries (RWE), 1961-2000

Source: Calculated from the FAOSTAT on-line database (2002).

2.3.4 Forecasts and Implications

There are differences in views on the direction of future trade and production patterns but there is clear consensus in five areas:

Increasing consumption and production (see Table 2.15); Increasing population, greater urbanisation and rising incomes will result in continued strong growth in global consumption of most products. It is anticipated that consumption will grow most rapidly in developing countries where many countries may move from being net exporters to net importers in some forest product categories.

Table 2.15 Comparison of projections of world consumption of industrial wood (RWE) to 2020

* in billions m³

Source: Peck, 2001

With regard to increasing proportions of plantation wood in timber trade, market forces, low tariff barriers and the growing concern over environmental degradation and illegal logging will continue to shift production towards the most efficient and controllable locations, namely plantations (particularly high growth rate tropical plantations) and semi-natural forests (particularly in temperate and boreal regions). The drive to restrict production volumes in natural forests to the annual allowable cut and to curb illegality will further exacerbate this trend.

Increasing trade-output ratios; While domestic markets will continue to dominate trade statistics in many areas, falling tariff barriers are likely to prompt increasing numbers of consumers to widen their search for lower cost and greater quality across national boundaries.

Increasing shift towards processed and SPWPs trade with gradual inroads by developing countries. The developed countries will continue to maintain market share through attention to technology and product design but it is expected that the burgeoning technical capacity in developing nations, coupled with low wages, ample natural resources and policies directed towards value adding processing will continue to drive the shift towards exports in processed and SPWPs from developing nations - although the nature of these exports may vary over time.

The consolidated position of some emerging exporters and importers (e.g. Russia and China). The emergence of Russia and China as major exporters is likely to continue as capacity development has yet to reach its full potential. In China's case this will also involve continued expansion as a major importer of industrial roundwood and sawnwood. Brazil may also be expected to consolidate its position in world markets due to its resource abundance and growing technological proficiency.

The forecasts described above depend heavily on assumptions about technological innovation and political stability. We are right to be cautious about predictions, since factors such as the break-up of the USSR led to changes in trade patterns that were largely unforeseen. There are three important reasons why future forecasts are increasingly risky:

Political and social instability - the growing scarcity of renewable and non-renewable resources, growing global inequality and a rise in unilateralism need to be factored into any future predictions under the current model of globalisation;

Environmental instability - the current rates of economic growth are both based on non-renewable energy resources and have major climatic and environmental consequences. It would be unwise to take as read that global consumption will be able to continue growing at its current rate.

Economic instability - the measures required to correct the market externalities implicit in the growing political and environmental instability may require dramatic shifts in economic policy. The rapid development of markets for environmental services is but one of the measures that may be required to promote sustainability, and which will have far reaching consequences for forest cover and timber production.

Global trade in forest products has increased over the last forty years in both value and volume terms, raising questions about the possible impact on forest management. Statistics on land area, forest area, demographic patterns and income show considerable variation such that it is not possible to draw simple conclusions about the impacts of trade and increased economic activity. The relationships between deforestation and population and economic pressures are complex and highly location-specific. It is also important that roughly half of total roundwood production consists of fuelwood, very little of which is traded internationally.

There are few available indicators of sustainable forest management worldwide, apart from the area covered by certification systems and the extent of forest loss. Certification has been expanding rapidly and the different schemes in existence have certified just over 4% of total forest area worldwide. However, most of the area certified is in non-tropical countries and in plantations or semi-natural forest.

By way of contrast, natural forest areas appear to be contracting worldwide. There is some small net expansion in non-tropical areas but a much greater net loss in tropical countries. Natural forest loss is likely to continue as production shifts to more competitive land uses and more intensive and efficient forest production systems such as plantations and semi-natural forests. While trade in certified products may be a means for promoting sustainable forest management, it is not clear that it can do much to make SFM in natural tropical forests competitive with plantations and semi-natural forests.

Plantations alone are likely to provide up to one half of all industrial supply within 15 years. Since many plantations are heavily subsidised, either directly or indirectly, this further tips the scales against natural forests and undermines the value of natural forests and their potential for investment and trade (as well as conservation).

Domestic trade in forest products is still more important in volume terms than international trade in all regions and most countries. The proportion of timber from tropical countries that enters international trade is particularly small, (about 5% of roundwood and 28% of industrial roundwood felled). This suggests that the export market may not be the most relevant target for addressing problems of forest management. But international trade is increasing for both tropical and non-tropical countries, although at a faster rate in the latter, and this trend is projected to continue.

Europe and the USA are among the principal importers, exporters and consumers of forest products. This suggests a role for trade in linking environmentally sensitive consumers in these regions to producers, particularly those in tropical countries where the domestic market is less interested in environmental concerns. But intra-regional trade accounts for the bulk of all international trade in both volume and value terms, indicating that transport and logistics costs still represent the major determinants of trade patterns. In these circumstances, increasing environmental requirements on the part of buyers in Europe and the USA may intensify these patterns.

There are major new players emerging into the international markets, the foremost of which are China (imports and exports) and Russia (exports). The full extent to which their emergence is likely to shift trade patterns remains to be seen, but it is known that further capacity development in both countries is highly likely.

Tropical countries which for many years were considered as suppliers of forest products, particularly logs and sawnwood, to Northern markets (although the majority of production was apparently for domestic consumption) are seeing their imports of wood catching up with their exports, when considered as a group. They also appear to be shifting production and export into more processed products such as SPWPs, paper and pulp.

2.4 Wood Fuels and Wood Energy

Fuelwood production has been expanding at 1% per annum on average worldwide since 1961.²¹ However, its use is declining in some regions (Canada, Japan, NENA, Oceania, Europe and Former USSR), and expanding in others (notably in SSA, China and the USA). Tropical countries produce over 70% of all fuelwood and over the period 1961 to 2000 have been expanding production at double the rate of non-tropical countries.²² Globally, fuelwood accounts for 7-11% of energy consumption (IEA 1998); FAO2001c) but developing countries account for 90% of global fuelwood use (ABARE and Jaako Poyry 1999) Indeed, 80% of wood harvested in developing countries is consumed as fuel (FAO 2001c), accounting for 15-35% (WEC 1999; IEA 1998) of total energy use.

The volume of wood destined for fuelwood (approximately half of global production as can be seen in Figure 2.2) suggests that forest management at the landscape level is likely to be affected as much by fuelwood use as by industrial roundwood production and trade. It is also important that very little fuelwood is traded internationally. This reflects its relatively low unit value, wide availability and importance for domestic energy supply (Nasi et al 2002; Buongiorno et al 2002). Shortages of fuelwood are more likely to cause diversification to other fuels (kerosene, coal, dung, etc.) rather than augmentation of supply through international markets.

Woodfuels should always be considered goods or commodities that are valuable and capable of meeting demand effectively. Compared to other renewable energy sources, biofuels are characterized by a wide range of various fuels. These differ in provenance, physical/mechanical properties (e.g. total moisture, particle size and particle size distribution) and chemical composition (e.g. total carbon). In this context the lack of clearly defined biofuel properties as well as clear supply conditions are seen as major non-technical impediments for biofuel trading. In the European Union standardization of biofuels has already been started.

Electricity is the single most important energy sector as it accounts for about 40% of gross energy consumption in EU 15. Access for renewables to the electricity networks at fair prices is therefore a critical step for their development. By-products concentrated at industrial processing sites (like bark and saw dust in saw mills) are currently the largest commercially used biomass source. Conversion efficiencies of up to approximately 90 % and above are possible for modern heating units with high-end technology. Electricity production is based mainly on the conventional steam cycle with efficiencies around 30 %.

Almost one third of new additional biomass exploitation by 2010 could fall in combined heat and power (CHP). Increased use of wood fuel-electricity is linked, like that for wind and solar electricity, to fair access to the electricity market. Unlike wind and sunlight, which are for free as energy input, woodfuels also need a trustworthy and liquid pricing scheme for economic measurement. At the end, all wind, sun and wood fuel will have to be measured against feed-in prices for electricity, market-related or not.

Woodfuels in particular are largely traded energy carriers in both formal and informal markets. Woodfuels could make a substantial contribution to cover the given energy demand in an environmentally sound way. Most of the options for using biomass could easily be integrated within the existing energy system. This could allow an easy transfer from the current energy system based mainly on fossil fuel energy in e. g. most industrialized countries to a more sustainable energy system based also on woodfuels.

Although woodfuels from forest residues have a great potential, they is hardly competitive compared to fossil fuels under present circumstances (without taxes) unless a financial support system makes thermal use of biomass lucrative.

For the moment investment projects on new fossil fuel/nuclear power stations are multiplying, whereas much more should be done on the renewable energy side. Financial institutions don't seem comfortable lending to renewable power projects, partly also due to investment risks and the lack of hedging possibilities.

It is the view of this article that emissions trading under Kyoto Protocol will most probably lead to higher energy prices and greatly accelerate the shift from coal (including lignite) to natural gas as the primary fuel used in power plants. Still, coal plants can evaluate to use woodfuels for a fuel mix with coal, thus reducing their carbon balance. So also from this side a more vivid trading of woodfuels can be expected. The market for woodfuels should be prepared for these challenges, which surely also require some trading mechanisms to be in place.

For the moment, the market environment for woodfuels is difficult to assess. There are no clear product definitions which impacts on the quality of wood fuel statistical numbers. Legal and financial regulations on wood fuel are still under development and change and one need to wait some more years until a clear picture will emerge. Use of woodfuels is on the one hand promoted by EU and governmental policies; on the other hand it still lacks the basis as clear product quality definitions or a standard contract to facilitate trade.

Based on this the future for woodfuels is difficult to assess, while a European market for woodfuels is already in its early stages. On the one hand there are ongoing changes inside the forestry and woodfuel industry; on the other hand a lot of external factors show increasing influence on the market.

Most probably, consumption of woodfuels for heat production will increase in the short-term, while a longer perspective is necessary for combined heat and power (CHP) generation, which still suffers from an unstable regulation environment caused by electricity market liberalization. As in every market, cheap qualities will be used more intensively and only later on a market for more expensive qualities will develop. Wood fuel trade from East European/Baltic countries to Nordic/Central European countries should increase during the next years as well as trade from Nordic/Baltic countries to UK and Benelux countries.

The future development of the wood fuel market will impact on the EU targets on renewable power generation, but cannot fill the gap that would be needed from the energy consumption side, although the market for wood could be more expanded due to forest increases.

One of the crucial aspects of future wood fuel use in energy generation will be the existence of a transparent market and the availability of trading instruments to hedge some of the project risks involved. For the moment the industry structure of woodfuels seems to be satisfied without transparent prices. For this reason, also forward market and exchange trading find an extremely difficult environment. So one can say that a favorable environment for trade of woodfuels exist, whereas most prerequisites for trading of woodfuels still have to be developed and such a market still has a longer way to go. Still, this article foresees that in regions that can easily be reached by bulk sea transports, a true market for woodfuels will emerge. In landlocked regions of continental Europe the development will maybe be a different one.

The most necessary issues in the moment are cost-efficient by-products from forestry and wood industry on the supply side, regulation of the heat/power market on the demand side and the development of a transparent market. Policy-makers and regulators already have and partly still have to create a sound environment of financial and legal regulations. The future development of woodfuels is determined more by economic framework conditions (market standardization, price of fossil energy, and internalization of external costs of fossil energy, feed-in tariffs) than by technology.

2.5 Non-wood Forest Products (NWFP): Trends, Prospects and Constraints

Non-wood forest products (NWFP)²³ play an important role in the daily life and well-being of millions of people worldwide. NWFP include products from forests, from other wooded land and from trees outside the forest. Rural and poor people in particular depend on these products as sources of food, fodder, medicines, gums, resins and construction materials; some 80 percent of the population of the developing world use NWFP for health and nutritional needs. Traded products contribute to the fulfilment of daily needs and provide employment as well as income, particularly for rural people and especially women (FAO, 2001).

Most NWFP are used for subsistence and in support of small-scale, household-based enterprises. However, NWFP also provide raw materials for large scale-industrial processing for products such as foods and beverages, confectionery, flavourings, perfumes, medicines, paints or polishes.

International trade in NWFP is composed of imports and exports of numerous products at different stages of processing. At least 150 NWFP are of major significance in international trade. The total value of world trade in NWFP is of the order of US$ 11 billion, of which about 60 percent is imported by the EU, USA and Japan. General direction of trade is from developing to developed countries (FAO, 1993; FAO, 1995).

Most NWFP are traded in rather small quantities, but some such as natural honey, walnuts, gum turpentine, rosin, rattan and gum arabic reach substantial levels. In addition, some 2 500 medicinal and aromatic plants enter international markets (Schippmann et al., 2003). A summary of NWFP of major commercial significance is given in 1 based on the work of FAO (1993; 1995) and updated by preliminary results provided by FAO (2003). which is based on an analysis of relevant Harmonized System commodity (HS-1988) commodities codes for the years 1995 to 2001 inclusive.

Reliable data are mostly unavailable, both on the domestic and the international trade as well as on the sustainability of NWFP production (e.g. resources available and resources exploited). Some information may be available at the local level, on a specific product or in a specific area, but this information generally cannot be extrapolated at the country or regional level. At the national level, production and trade statistics on major NWFP remain the exception. In the best case, available information is restricted to selected products that are of particular interest to specific regions/countries, such as bamboo products in China, rattan in the Philippines, gum arabic in Sudan, or brazil nuts in the Amazon (Killmann et al., 2003).

Reported exports often - but not always - refer to producing countries. Many products are exported as raw material to one country (primary importer) and then (after further processing) re-exported to (secondary) importers. In the case of gum arabic (see table X, plant gums), France (export of 16 714 t worth US$39 Mio) is reported as main exporter according to the HS system followed by Sudan (24 588 t worth US$ 20 Mio) and the UK (3 940t worth U$8 Mio). However, Sudan is the main gum arabic producing country (followed by Chad and Nigeria), while both France and the UK are both importers of raw gum from gum producing countries and (re-exporters of processed gums and gum products. The EU, for example, imported in 1998 38 730 t of gum arabic, consumed 18 978 t and re-exported 19 800t (FAO, 19XX; by Coppen).

Reporting on traded commodities considered as NWFP also incurs the question whether to classify a commodity actually as NWFP or as agricultural crop. Many NWFP are not only collected from the wild but also cultivated in agroforestry systems or agricultural plantations. Most trade data do not distinguish between these different production systems. Wild honey, for example, can be considered as NWFP while the inclusion of cultured honey as a NWFP could be questioned. Nevertheless, because many plants growing in forests and a number of semi-wild trees constitute an important nectar and pollen source for foraging bees at least a part of cultured honey could be considered as NWFP. The actual distinction between wild gathered and cultured honey, however, remains difficult as 'honey' trade statistics merge products from all sources (FAO, 1995).

From the foregoing discussion on the commercialisation of NWFP, a number of interesting features, trends, prospects and constraints emerge, which are briefly outlined below.²⁴ NWFP commercialisation provides considerable potentials to contribute to poverty alleviation and food security. Trade in NWFP can act as an engine for rural growth contributing to national incomes; increase the value of NWFP providing better income and employment opportunities; and provide opportunities for (relatively) benign forest use and create incentives for conservation.

For a majority of the developing countries with limited forest resources, in particular low forest cover countries, NWFP are among the main exportable forest products. In Sudan, gum arabic is the fifth most important export commodity after crude oil, sesame, livestock and cotton), worth US$26 million in 1999 (Economist Intelligence Unit, 2001), contributing to eight percent to the total value of agricultural exports from the country. Gum arabic also provides an important source of income, in particular during the dry "dead" season: some five million Sudanese, 1/5th of the population, are involved in the production and trade of gum arabic. Collection does not only provide income, it also prevents people to migrate to urban areas and to leave (temporary or permanently) the gum belt. Furthermore, it provides various environmental benefits in fragile arid ecosystems, for example combating desertification.

In India, nearly 60 percent of all recorded forest revenues comes from NWFP, although they are primarily exported as raw materials. NWFP are estimated to generate 70% of all employment in the Indian forestry sector - most of India's 50 million tribal people receive a substantial portion of their cash and in-kind income from NWFP. Commercial NWFP alone are estimated to generate US$100 million annually (FAO, 2002).

A variety of studies tried to assess the potential monetary value of NWFP per area. A comparative analysis of 24 studies showed that the annual benefit per hectare varied between US$0.75 and US$420 (Goody et al., 1993). The most known research in this area was carried out by Peters et al. (1989) in Peru, who compared the value of 12 regionally traded fruits and resins with potential timber and grazing benefits. The study concludes that the net present value per hectare derived from trade in fruits and resins reached US$ 6 330 over a period of 50 years, compared with US$ 2 960 derived from grazing and US$ 1 000 from timber trade. Despite these impressive figures, it is difficult to evaluate the real potential value of NWFP and other forest products and services, since it remains difficult to predict supply and demand as well as the development of prices over such a long period (GTZ, 1996).

NWFP are widely used in various industrial sectors such as pharmaceuticals, botanical medicines, cosmetics, food and beverage and paper industries. These industries are interested in NWFP because of their properties, because they can provide cheap and effective (raw) materials (which might substitute existing products) or because they can be marketed as 'exotic' products.

Each destination industry has its own research, manufacturing and marketing requirements. Even the same resource can provide various products for different industries/markets: in the case of shea butter (Vitellaria paradoxa), the cosmetic industry prefers a high content of unsaponifiables (requiring early harvest of the kernels and traditional forms of extraction), whereas the food industry prefers the stable product obtained by solvent extraction.

Research in the identification of new, nature-based products is carried out by various industrial sectors, requiring substantial investments of financial resources and time (see key characteristics below). These investments are in direct conflict with the often unstable nature of NWFP markets with its fluctuations in supply and demand.

Box 2.1 Key characteristics of pharmaceutical, botanical medicine and cosmetic industry

Explication: n/a = Information not available;

* 41 % of the top 150 prescription drugs in the USA contain at least one active compound derived from animal or plant genetic resources (ten Kate and Lair, 1999).

** The natural segment of this industry is estimated to 10 percent of the total sales (ten Kate and Laird, 1999).

Source: Walter et al. (2003)

A key aspect for the development of international markets, from a local or regional perspective, is the supply of NWFP. NWFP are often produced in small volumes, dispersed over wide areas. Particularly wild harvested products can be very unreliable in quantities and qualities due to the biology of the organism, climate conditions and other socio-economic factors (e.g. competing opportunities for producers, tenure systems, local knowledge). Moreover, forest products are almost by definition coming from remote areas with poorly developed communications and transportation infrastructure. Under these conditions, it is often difficult and costly to move products to market.

The development of local/domestic markets is often demand driven. Increased production in a stagnant market is likely to lead to depressed prices and reduced incomes - therefore the potential to expand domestic markets and market demand is a key issue.

Fluctuations in supply - the example gum Arabic

Reduction in supplies caused by two droughts in a period of 10 years resulted in disruption in manufacture of the products containing gum arabic, which led the manufacturers to replace gum arabic with newly developed modified starches. Consequent price hikes made switching over to the substitutes economically feasible. Decisions concerning commercial reformulations for an established product are never taken lightly, and are almost always irreversible, because extensive modifications to manufacturing equipment are involved. Consequently, demand of gum arabic in international market was brought down from 70 000 tonnes in 1970s to 20 000 t in 1980s. Improved supply enhanced increasing market demand reaching world exports of 55 000 t in 2001.

As long as access to markets is ensured, the most important challenge, in particular for export markets, is to maintain/increase quality and quantity of production at competitive prices. Only few low-income countries have the high degree of infrastructural and institutional development, strict quality control and sophisticated supply chain management practices necessary to enter international markets. Positive examples include spices from Asia and gum arabic from Africa. Because of these concerns, it is argued that selling products to mainstream markets is probably beyond most NWFP producers and that therefore a variety of 'green' and 'fair trade' niche markets could be the most useful starting point (Laird and Guillén, 2002; quoted by Belcher & Schreckenberg, 2003).

Many NWFP are not only exported with minor processing (e.g. brazil nuts, vanilla, wild harvested rubber, baskets) but they are used as ingredients in very sophisticated industries. A high degree of technological innovation may be necessary to achieve value-added in the country of origin at the same time as meeting the quality standards of demanding international clients. Governments often promote these required technical innovations by providing incentives (direct subsidies, research, etc.) for the establishment of processing units in producer countries (e.g. kibbling plants for gum arabic in Africa) or by banning exports of raw and semi-processed products (e.g. rattans in Asia).

Once markets for NWFP are well developed, larger operations can easily duplicate production and manufacturing processes for less cost, in less time and with more efficiency of scale (Ervin and Mallet, 2002; quoted by Belcher & Schreckenberg, 2003). Although this is not necessarily a bad approach, it may result in shifting control and benefits to other stakeholders.

Increasing commercial demand in NWFP often gives a strong incentive for increased production and can have negative conservation impacts. Increased production can be achieved through ore extensive harvesting (harvesting from a larger area); more intensive harvesting (harvesting more per unit area); or intensified management (management of wild resources or domestication/ cultivation).

In many cases, the expansion of harvested areas is not possible, since the land and resource base is limited and the competition among harvesters is too high. An increasing harvesting intensity will often lead to an over-exploitation of wild resources. Particularly in open-access conditions, the increased value can lead to uncontrolled competition for resources and to detrimental harvests.

An intensification of management of wild resources and/or the domestication/cultivation of resources providing NWFP is often reported as suitable option to increase the quantity of production and - in addition - to provide better qualities. High external demand is the key driving force often leading to the substitution of wild gathered NWFP by cultivated agricultural products. Consequently, many NWFP producers have to compete with large-scale cultivation within their own or in other countries. The livelihoods of Brazilian natural rubber harvesters, for example, were turned upside down by the massive production of plantation rubber from South-East Asia. Today, world trade in natural rubber is dominated by Indonesia and Malaysia, the world's leading producers accounting for 47 percent of the world's total production in 1992 (FAO, 1995).

NWFP markets are also vulnerable to substitution by synthetic products. A classical 'boom and bust' experience is the case of natural chicle. Chicle fuelled the modern chewing gum industry and its extraction was the main industry in the Yucatan Peninsula of Mexico in the mid 20^th Century. But, by 1960, the development of much cheaper petroleum-based gum had almost eradicated demand for natural chicle (Laird and Guillén, 2002; quoted by Belcher & Schreckenberg). On the contrary, gum arabic could maintain its position (after the chock in the 1980s) on the world market due to its better properties compared to other substitutes.

Trade in NWFP provide income and employment opportunities for many people, in particular poor populations living in rural areas. Increased commercialisation can improve local livelihoods but it can also have the opposite effect through over-exploitation and/or changing property rights (including intellectual property rights and the related discussions on access and benefit-sharing). Therefore, there is a risk that commercialisation leads to increased 'privatization' of resources and to the exclusion of certain (mainly local and poor) groups from the benefits - in a way that poor local people are left worse off and more vulnerable.

2.6 Markets for Forest Environmental Services

In addition to a broad range of various goods (e.g. timber, woodfuels and NWFP), forests provide many ecosystem services which are categorised as environmental services. They can be related to the regeneration of natural resources, the stabilisation of processes and to various life-fulfilling functions.

In this study, the concept of forest environmental services refers to ecosystem services provided by forest ecosystems. The term “ecosystem services” has been coined to describe the processes and conditions by which natural ecosystems sustain and fulfil human life (e.g. Daily 1997, Mooney & Ehrlich 1997). Sometimes ecosystem services are also called functions. However, ecosystem functions are biophysical processes that take place within an ecosystem and can be characterised apart from any human context, e.g. cycling carbon. Ecosystem services are desirable outcomes (flood mitigation, lower global warming, etc.) from ecosystem functions that benefit human beings. This definition is anthropocentric and utilitarian emphasising instrumental values. Forest ecosystem services have also intrinsic or inherent values but such notions of value do not easily lend for trading.

Three fundamental kinds of environmental service categories are customarily recognised (Winpenny 1991, Pearce & Moran 1994): (i) General life support: genetic pool/knowledge, climate regulation, carbon fixing, habitat, aesthetic, cultural and spiritual source, scientific data, genetic insurance; (ii) Sources of materials and services: timber, fuelwood, NWFP), ecosystem (e.g. agricultural) productivity, landscape beauty/ecotourism/recreation, watershed protection, water filtration, regulation of waterflows, insect pest control, pollination; (iii) Absorption of waste products of economic and social activity: recycling nutrients, protecting soil quality, absorption of waste, salinity mitigation.

The list of services provided by forests is even broader than depicted here (see e.g., Myers 1997, Pearce & Pearce 2001). However, most of them are not (yet) tradable. There are no markets or markets are extremely thin because of too high transaction costs, problems with (lack of) rivalry and excludability, inadequate demand because of lack of awareness, problems with defining ownership, and high uncertainty about service attributes.

Based on an ex ante assessment of the tradability aspect, existing market evidence, and the potential impact on forest product trade, this study will concentrate on the following forest ecosystem service categories:

• Biodiversity (insurance service, source of knowledge/information, role in maintaining other ecosystem services)

• Carbon sequestration

• Watershed protection, including water supply services and soil conservation

• Forest landscape beauty (forest-based tourism)

These forest-based services have received most of the attention in the development of markets for environmental services (Landell-Mills & Porras 2002; Pagiola et al. 2002; Nasi et al. 2002). They also compromise the core of the World Bank's (WB) Payment for Environmental Services Programme (www.worldbank.org/environmental economics).

In most cases, the values of these services are captured by selling associated commodities25, which also sometimes serve as proxies for the actual service. A proxy may be needed when it is difficult to come up with a clearly defined service that can be directly traded. The number of commodities used to market environmental services is quite large; consequently this study concentrates more on those commodities, which may have significant impacts on international trade and sustainable forest management.

It is also important to clarify the notion of an economic value of forest ecosystem services that the markets try to capture. Ecosystem values are measures of how important ecosystem services are to people in terms of willingness to pay. In strict economic terms, the full value of a ecosystem expressed in monetary terms would be the sum of each person's willingness to pay for each service generated by each ecosystem function. Forest ecosystem services and related products can be grouped under two categories: use values (direct, indirect and option value) and non-use values (bequest and existence value), which together form the total economic value demonstrates these values (Table2.16).

Table 2.16 Total Economic Value of a Forest and Environmental Services

Source: Modified from Pearce & Moran (1994)

At present, extensive markets exist only for forest products, such as timber, that are directly consumable. Markets rarely exist for ecosystem services, which fall largely under indirect use values, i.e. functional benefits derived from forests. Forest environmental services, such as watershed protection and biodiversity conservation, cannot be commonly traded in the market mainly because in most cases they can be considered as public goods with significant characteristics of non-rivalry and non-excludability. Furthermore, they often produce positive externalities, and sometimes also negative externalities. As a consequence, markets will not by themselves optimally allocate resources to sustainable management of forest resources to produce environmental goods and services, and they will not constrain production of environmental “bads” such as downstream siltation caused by unsustainable land-uses upstream. Market failures result in under-production of public goods such as watershed and biodiversity protection or carbon sequestration, which is reflected in under-investment in the protection of existing forests and the establishment and management of new forests (Pearce & Moran 1994, Landell-Mills & Porras 2002, Nasi et al. 2002).

LINKAGES WITH TRADE NEGOTIATIONS

The WTO agreements, including GATT and GATS, do not define “environmental goods” and the definition of “environmental services” is limited to end-of-pipe activities, not explicitly covering sustainable management of natural resources. The coverage of trade negotiations remains uncertain in this respect. Definitions will have implications for the competitive advantage of environmental goods and services, national sovereignty in regulating environmental service and good delivery (sustainable development), and the nature and level of service provision (e.g., marketing of shade-grown coffee or eco-labelled forest products). Definitions may also influence the competitiveness of individual countries in the production of wood and non-wood products.

Carbon, biodiversity and water services of forests may be significantly affected by the Doha Round. As regards carbon, the main issue is the potential conflict between the still-evolving rules for CDM-based emission trade under the Kyoto Protocol and the WTO, particularly GATS. How this potential conflict is addressed could have major implications for how CDM projects are implemented. The potential impacts of including the protection of biodiversity and landscape as environmental services in the WTO definitions are not yet adequately known and stakeholders have different views on them. In the area of water, the key issue has been opening service delivery to international competition. Defining water resource as an environmental service would broaden the view making watershed management an environmental service subject to GATS regulations. However, many definitional proposals are vague and do not allow a ready assessment of their relevance for markets for forest-based environmental services and sustainable forest management.

IMPACTS OF ENVIRONMENTAL SERVICES ON FOREST PRODUCTS TRADE AND SUSTAINABLE FOREST MANAGEMENT

Markets for forest environmental services are still relatively nascent so the question of having considerable impacts on forest products trade (e.g. plantations for carbon sequestration) will impinge on if any of these markets will take off on a large scale.

Carbon offsets from forests have the best potential to become a globally traded environmental service. With regard to impacts on trade in forest products, reforestation and afforestation projects will expand the timber supply, mainly in tropical countries, and to a lesser extent, the energy cost effect will influence the location of processing industries. The available projections for demand of forest-based carbon credits in the first commitment period suggest that under specific circumstances carbon plantations could increase wood supply to the extent that it would affect timber price at regional level. The impacts will be first observed in Latin America followed by Asia. Africa would require special support to have access to carbon offset trade.

Forest plantations will be favoured, because during the first commitment period (2000-2012) one can credit only afforestation and reforestation projects. Further, non-Annex I countries do not have caps concerning emissions resulting from reductions in forest carbon stock. Such impacts may be exacerbated in the second and subsequent commitment periods by inter-annex leakage resulting from decreased timber harvests in industrialised countries. During the first commitment period this impact will be small.

The incremental impacts of other environmental service markets (biodiversity, landscape beauty, and watershed management) on wood supply and prices, and thus on international trade flows, are likely to be insignificant. However, local impacts can be important, including closing of production facilities because of reduced wood supply. The emerging markets for forest environmental services will offer an opportunity for low-income forest owners and managers to benefit economically from good husbandry or stewardship of their forest resources.

Additional revenue from environmental services will make SFM economically attractive in many locations but may not give a major boost for improved practices due to limited market sizes. Direct payment schemes for forest biodiversity services, including conservation concessions/easements and private conservation funding, are expected to have the most positive impacts on SFM in incremental terms.

Markets cannot develop and operate without government interventions. In fact, international environmental agreements/regulations have a strong potential to increase demand for services generated by sustainable forest management. Markets and regulation are both needed; the question is about the balance between the two, and about the strengths and weaknesses of the market mechanism. Unless market creation for forest environmental services succeeds in generating more revenue than the total market costs, and this “profit” is channelled equitably to the land stewards, the incentives for SFM will not be created.

⁵ IIED calculation using data from FAOSTAT 2002
⁶ The division between tropical and non-tropical countries follows that adopted in the FRA 2000 (FAO 2001c). See Annex 1 for a list of tropical and non-tropical countries.
⁷ For the purposes of this analysis the world is divided into two climate zones (tropical and temperate / boreal) and 12 regions: Central America and the Caribbean (CAC); East and South Asia (ESA); Europe; Former USSR; Near East and North Africa (NENA); Oceania; Sub-Saharan Africa (SSA); South America ; China; Canada; Japan; and the USA.
⁸ IIED calculation based on data in FAOSTAT on-line database (2002)
⁹ These figures differ slightly from those in Table 2.2 even though they are both derived from the FRA 2000 (FAO 2001c). FRA 2000 gives two estimates of protected forest area: 428 ha in Table 9.2 (p76) and 479 ha in Table 7.2 (p63). It is possible that the area inaccessible for altitude reasons also includes some protected areas, explaining why the figure for protected area in the table 9.2 of FRA differs from that of Table 7.2
¹⁰ The baseline definition of forest used by WCMC is for canopy cover exceeding 30% (except for the category of "sparse forest and parklands" when 10% is the baseline).
¹¹ Estimation of production is based on analysis of data from particular stages in the production process and conversion into roundwood equivalent (RWE). RWE is estimated by converting wood product into the equivalent volume of logs needed to produce that product using a standard conversion ratio. Roundwood, 1.00; Sawnwood, 0.50; Panels, 0.44; Paper 0.33; and Pulp 0.27. Conversion rates calculated from: Anon (2000); Anon (1948); Blandon (1999); Brown (1997); Michie and Wardle (1998); ITTO (2000); UNECE/ FAO (1999).
¹² IIED calculations based on FAOSTAT on-line database 2000.
¹³ Calculated from data in FAOSTAT on-line database 2002
¹⁴ IIED calculation based on FAOSTAT online database 2002
¹⁵ For a discussion of the inherent problems with SPWP data, see ECE/FAO (2001).
¹⁶ At the 3-digit SITC level. Reported in Kaplinsky and Readman (2000).
¹⁷ Based on an internal paper prepared for the IKEA Corporation, cited in Maskell (1998) in turn cited by Kaplinsky and Readman (2000).
¹⁸ Calculated from data for 2000 in FAOSTAT on-line database (2002)
¹⁹ Calculated from Table 2.4 in ITTO (2002)
²⁰ See for instance Barbier et al. (1994).
²¹  IIED calculation based on FAOSTAT on-line database (2002)
²² IIED calculation based on FAOSTAT on-line database (2002)
²³ There are a variety of definitions for non-wood forest products (NWFP) and the related terms non-timber forest products (NTFP) and non-wood goods and services (NWGS) corresponding to different perceptions and different needs. For the purposes of this paper, the following definition of NWFP is used: "Non-wood forest products are goods of biological origin other than wood, derived from forests, other wooded lands and trees outside the forests" (FAO 1999).
²⁴ Information is mainly based on the discussions held in an email discussion forum in preparation to the side event "Strengthening Global Partnerships to Advance Sustainable Development of NWFP", organized in the context of the 12th World Forestry Congress, Quebec, Canada (20 September 2003). The email discussion on NWFP commercialisation has been summarized by Belcher & Schreckenberg (2003).
²⁵ A commodity is a an article of trade; a concrete thing desired by purchasers, possessing utility and available in limited supply (New Webster's Dictionary and Thesaurus 1992).