10. Impact of incentives on the development of forest plantation resources in the Philippines - Romeo T. Acosta^[116]

INTRODUCTION

The Philippines: country information

The Philippines is an archipelago composed of about 7 100 islands and islets that extend more than 1 850 km from north to south. It is bound by the South China Sea to the west and the Pacific Ocean to the east. The country is divided into three major island groupings - Luzon in the north, Mindanao in the south, and the Visayas Islands in the centre. There are 16 administrative regions and 76 provinces.

The total land area of the Philippines is about 30 million ha, including inland water bodies. The islands are volcanic in origin and are, for the most part, mountainous with many active volcanoes. The mountain ranges generally run along the main axis of the islands, parallel to each other and close to the coasts. The largest lowlands are in Luzon and Mindanao with other large plains in Panay and western Negros in the central islands.

Social and economic indicators

Table 1 shows the Philippines’ major social and economic indicators.

Table 1: Some social and economic indicators, 2002

Source: National Statistics Coordination Board (2003)
US$1.00 = PHP51.73 (2002)

THE PHILIPPINE FORESTRY SECTOR

The forestry sector and the economy

From the 1950s until the late 1970s, the forestry sector was one of the mainstays of the Philippine economy, particularly the logging and wood-processing industries. Between 1975 and 1980, forestry’s contribution to the gross national product (GNP) ranged from 1.5 to 2.17 percent (at 1972 prices). Logs were a major part of the Philippines’ international trade, together with primary products (such as sawnwood, veneer and plywood). However, by 2001 the forestry sector’s contribution to the GNP had declined to only 0.09 percent (1985 prices) (Table 2).

Table 2: Gross national product and gross value added (GVA) in forestry (million pesos)

Source: National Statistical Coordination Board, cited in FMB (2001)
* Base years: 1975-1988 (1972 prices) and 1989-2000 (1985 prices)
** as of May 2002

FOREST RESOURCES

According to the Philippine Master Plan for Forest Development, the forest cover decreased from 17 million ha in 1934 to 6.7 million ha in 1990 (DENR/FMB 1991). Official forestry statistics are based on projections from the first national forest inventory in 1969 and the second inventory in 1989. According to the projections, the Philippines currently has 5.4 million ha of forests (Table 3).

Table 3: Forest cover of the Philippines, 2000

Source: FMB (2000)

Various sources indicate different rates of deforestation in the Philippines. The Philippine Master Plan for Forest Development estimated forest cover reduction of about 100 000 ha per annum (DENR/FMB 1991). Other assessments ranged between 50 000 and 70 000 ha per annum, while FAO provided a figure of 89 000 ha per annum (FAO 2000; 2003). The lower figures reflect the assumption that since the natural forests are now relatively inaccessible, the forest conversion rate has slowed compared to the rates of the 1950s and 1970s.

The Natural Resources Accounting Project (NRAP) estimated that timber resources in old-growth dipterocarp forests decreased at an annual rate of 52 million m³ between 1980 and 1989, equivalent to an annual asset depreciation rate of PHP41.6 billion in constant 1985 prices. Volume in second-growth dipterocarp forests, on the other hand, increased by an average of 12.3 million m³ for the same period, translating to an annual appreciation of PHP11 billion, representing an annual volume growth and real increase in stumpage values of 1.5 and 3.7 percent, respectively (DENR/NRAP 1991).

Furthermore, the net depreciation that resulted from changes in the physical stocks of both old-growth and second-growth dipterocarp forests averaged PHP30.6 billion per annum (from 1970 to 1989). The depreciation was highest in the 1970s followed by lower rates in the 1980s. Important factors that contributed to the depreciation of the dipterocarp forests were conversion, ineffective protection of the residual growing stocks and logging damage (DENR/NRAP 1991).

The NRAP attributed an average annual appreciation of PHP1.7 billion to the increase of about 26 800 ha of plantations per annum. However, it warned that “this rate is not substantial enough to compensate for losses in dipterocarp forest...” Similar asset depreciation rates were estimated for pines, mangroves and rattan resources (Table 4).

Table 4: NRAP estimates of annual forest resource depletion, 1970-1989

Source: DENR/NRAP (1991), Table 37 of Main Report

INCENTIVES AND FOREST PLANTATION DEVELOPMENT

Prior to 1980

The need to actively pursue the development of industrial forest plantations was realized in the early 1970s. Previously, the focus had been on converting the natural forests into “managed forests” based on the principle of “sustained yield management” and through the silvicultural methods prescribed under the Philippine Selective Logging System. Although policies were already enunciated to encourage planting of trees, these were mainly focused on rehabilitating denuded lands and grasslands with the primary goal of forest restoration and not necessarily wood production.

The enactment of Republic Act No. 115 in 1947 can be regarded as the first major government effort to restore the forest cover. This Act created a Reforestation Fund from charges levied on timber harvested on state forest lands, in addition to the regular forest charges.^[118] This fund was used exclusively by the then Bureau of Forestry to finance reforestation projects.

To accelerate tree planting, the Reforestation Administration was created in 1963 according to Republic Act No. 2706. Its mandate was to hasten the reforestation of barren and denuded public lands. All reforested areas were declared permanent forest reserves. Until the 1970s, the so-called “regular reforestation projects”^[119] that were developed from the Reforestation Fund and administered by the Reforestation Administration were the only evidence of significant forest plantation development.

By 1973, government forestry administrators recognized that the natural forest was not an inexhaustible resource, and that there was a need to augment timber resources through industrial forest plantations. As a result, the Presidential Letter of Instruction^[120] (LOI) No. 145, issued in November 1973, directed the Presidential Committee on Wood Industries Development to submit a programme “to promote the development of industrial plantations and tree farms, to help ensure wholesome ecological balance and broaden the resource base of the (forest-based) industries” (Domingo 1983).

This approach was encouraged to help rehabilitate denuded watersheds and use barren public forest land for the production of commercial wood and fruits. It was obvious, even then, that the immediate reforestation of barren lands needed to take precedence over timber production. Even fruit trees were considered eligible for development of “forest plantations”. This notion that “reforestation” and “forest plantation development” were synonymous would filter down through generations of forest administrators, and would significantly impact the formulation of forest plantation development policies, strategies and programmes.

The reforestation policy and LOI 145 were subsequently embodied in the Forestry Reform Code (Presidential Decree 389) of 1974, and eventually in the Revised Forestry Reform Code (Presidential Decree 705) of 1975. Presidential Decree 1559 of 1979, amending the Revised Forestry Reform Code, reiterated the “establishment or development and maintenance of forest tree plantations”. In 1980, LOI 423 sanctioned the establishment of industrial tree plantations to “intensify and accelerate forest ecosystem management”, thus leading to the creation of the Program for Forest Ecosystem Management (ProFEM) (Domingo 1983).

ProFEM was to have re-established forest cover nationwide, calling on all government agencies to undertake “tree planting” in watersheds, along roads and in parks. Substantial funds were infused into the Bureau of Forest Development’s reforestation projects. In reality, much of the tree planting was ceremonial and cosmetic in nature - plantings by agency personnel during holidays or agency anniversaries - and often in easily accessible areas such as roadsides and parks. In most cases, there was no follow-up or maintenance, and many “plantings” were conducted in the same places year after year. The statistics on areas planted under this programme are therefore unreliable in the absence of a good georeferenced monitoring system.

A vital element missing from ProFEM was a clear definition of ownership of the land on which the plantings were conducted and of intermediate and final products. While the areas planted, especially in the so-called “critical watersheds”, were legally state lands, these areas were under de facto control of upland farmers and land claimants who regarded the government-mandated tree planting as a threat to their hold on the land. To protect their interests, these farmers and claimants often burned areas planted when the opportunity arose.

Throughout this period, the underlying objective of forest plantation development was environmental considerations and not wood production, despite official pronouncements on the need to augment the wood supplies through plantations. The Timber License Agreement (TLA) holders were mainly interested in harvesting natural forests. The plantations that they established were only a token gesture to comply with the reforestation requirements of the law and their license agreements. Although a few forestry companies established forest plantations because it was in their long-term interests, most private enterprises focused only on extracting timber from old-growth forests.

In summary, forest plantation development before 1980 was mandated by command-and-control, rather than through economic or financial incentives. Also, the bulk of plantation development was funded by direct public investments through annual appropriations to government agencies, primarily the Bureau of Forest Development. The emphasis was on planting seedlings and reporting hectares planted, with little or no quality control or planning for sustainable long-term plantation timber supplies.

1980 to 1985

Between 1980 and 1985, forest plantation development was accelerated through the Industrial Tree Plantation (ITP) programme. Presidential Executive Order No. 725 of 1981 mandated the establishment of plantations in open, denuded, brushland and poorly-stocked areas.^[121] TLA holders were given six months from the promulgation of the Executive Order to:

• Apply for an ITP lease agreement over suitable areas not exceeding 30 percent of their respective TLA areas; and/or

• Implement an approved seven-year reforestation plan within their TLA areas.

To encourage and facilitate the establishment of industrial tree plantations, the government founded the National Industrial Tree Corporation, a subsidiary of the government-owned National Development Company, offering incentives such as:

• A nominal application fee of PHP0.50/ha;

• Exemption from land rental for the first 25 years of the lease. Upon renewal of the lease for another 25 years, the rent would be PHP0.50/ha/year for the first five years, and thereafter, PHP1.00/ha/year;

• No rent from a lessee who, upon verification, substantially met the development schedule of the plantation, tree farm or agroforestry farm, as prescribed in the approved plans;

• Reduced taxes on plantation timber - only 25 percent of the regular forest charges on timber from natural forests;

• Exemption from certain internal revenue taxes;

• Tax deductible plantation development expenses; and

• Long-term low-interest loans from government financing institutions, such as the Development Bank of the Philippines.

During this period, 155 000 ha of state forest lands were granted to the private sector for tree plantation development, with tenurial arrangements of 25 years, renewable for another 25 years (Table 5). Most of these areas had been (fully or partially) under timber concession agreements, which were converted to tree plantation leases^[122] pursuant to Executive Order 725. Notable among the concessionaires that made use of the order were better-performing TLA holders with long-term forest management and development programmes. Several concessionaires took advantage of the lease-conversion incentive to:

• Strengthen their tenure with the expectation that the government was about to shift production focus from natural forests to forest plantations;

• Access forthcoming technical and financial support from the National Industrial Tree Corporation and government financing institutions; and

• Convert the plantations they had established under their timber license agreements so that they could claim them instead of handing them over to the government.^[123]

Table 5: Award of industrial forest plantations (IFP) to the private sector

Source: FMB (1997-2001)

Others, such as provincial electric cooperatives and a few pioneer entities, also saw a long-term business prospect in the programme. However, actual plantation establishment was far below the total area covered by the ITP agreements (Table 6). Of the 155 000 ha placed under ITP lease, only 20 600 ha were reported to have been established as industrial wood plantations. While the TLAs reportedly planted 111 300 ha during this period, not all of the areas could be considered as timber plantations for the following reasons:

• The quality of these plantations as potential economic sources of industrial wood was questionable; and

• It was common knowledge that the extent of plantings reported was exaggerated by as much as a factor of two or more.

The reported government planting of about 180 000 ha was mainly due to regular government reforestation for watershed rehabilitation and environmental purposes. Thus, they could not be considered as a dependable source of industrial wood.

A significant development during this period was the Integrated Social Forestry (ISF) Program, established through Presidential Proclamation 1260 in 1982. At that time, it was a radical departure from the traditional Philippine forestry doctrine in several aspects, by:

• Acknowledging that a substantial portion of the rural population was occupying and living on state forest lands, albeit in economically marginal conditions;

• “Decriminalizing” occupancy of state forest lands which, before then, was punishable by fines or imprisonment;

• Introducing the concept of resource stewardship by forest land-dependent families and communities, a privilege which, for decades, had been exclusive to corporate entities with strong political and economic linkages; and

• Being such a socially- and politically-revolutionary programme introduced during a regime of dictatorship and cronyism.

Table 6: Forest plantings of the government and private sectors (ha)

Source: FMB (1997-2001).

The processes and institutions developed under the ISF Program were to shape the community-based forest management (CBFM) strategy about two decades later. The programme introduced a family-approach to reforestation (contracting of reforestation work to upland families), land-tenure recognition to former illegal forest occupants through a 25-year Certificate of Stewardship Contract (CSC), forestry extension services to upland farmers, agroforestry technology, soil and water conservation measures and a host of support mechanisms to address poverty and forest resources degradation in the uplands simultaneously. The stewardship agreement required participating farm-families to plant forest tree species on at least 20 percent of the land allocated to them.

The ISF Program affirmed that the tenure of poor upland farmers to land and forest resources was a vital element of forest management. It would have contributed significantly to the expansion of the wood-resource base through smallholder woodlots, but the expected massive reforestation by upland communities was constrained by several policies, technical problems and market-related flaws. It was unclear from the start how the timber produced on ISF farms was to be treated at harvest age. It was implicit, and rightfully assumed by the farmers, that they owned the trees they planted. In the absence of precise administrative pronouncements, law enforcers on the ground required documentation from farmers before the trees could be harvested, transported and marketed. Harvesting permits from the local government forestry offices were required even for minuscule volumes from individual woodlots; farmers had to prove not only to the local forest rangers but even to the local police that the timber they had harvested really came from their woodlots and not from government plantations.^[126]

Furthermore, forestry extension services provided poor technical advice on plantation stock quality control and plantation management, resulting in low-quality plantations, low volume per hectare, and thus unattractive revenues. The wood-processing facilities were not structured properly to process the small-dimension timber economically. The continued availability of cheap illegal timber from natural forests further depressed the prices for plantation wood. Other market distortions resulted from the emergence of cartels of middlemen who introduced oligopolistic practices in the sale of timber from small woodlots. Nevertheless, the ISF Program remained the main management programme for the populated forest lands well into the late 1990s.

1986 to 1992

The political and economic transitions that ended the Marcos dictatorship of more than 20 years marked the period between 1986 and 1992. Opposition to the Marcos martial rule involved a wide range of ideologists who formed the core of a robust civil society movement in the country. The more organized and “legal” (in contrast to the more revolutionary armed “underground”) supporters of Corazon Aquino during the ouster of Marcos were, at one time or another and in various forms, at the forefront of the environmental movement. A new Philippine Constitution was promulgated in 1987, and many natural resource conservation advocates became the new political and economic leaders. Malayang (1998) describes the transition as a process of “political ecology”, which was to have a profound effect on the re-orientation of Philippine forestry in the postMarcos era.

The spirit of the civil society movement also permeated discussions on the Philippine forest policy and management of the state’s forests. Resistance to large-scale forest plantations and timber concessions was rife because of the extensive cronyism practised during the Marcos years. Other reasons for opposition included:

• loss of biodiversity of the native Philippine forest;

• threats to the rights of access of forest-dependent communities and indigenous peoples to forest resources; and

• control of forest resources being dominated by the economic elite and foreign investors.

Despite evidence to the contrary (Brown et al. 2001), a total commercial logging ban (or a more drastic total ban on all forms of tree-felling) is regarded by a significant segment of environmental advocates as the only rational way to conserve the Philippines’ forest resources.

A major feature of the transition period was the redefinition of the modes of access to natural resources. Before 1987, the privileges for the use, management, development and utilization of natural resources were granted through leasehold arrangements. In forestry, the main form was the TLA system. Under the 1987 Constitution, this arrangement was terminated and replaced by product-sharing, co-management, or joint-venture arrangements between the state (as owner of the resources) and the private sector.

The forest plantation programme thus had to be redesigned to comply with the constitutional requirement. While the TLAs and ITP leases issued prior to 1987 would remain legally in force until their expiration, subsequent agreements had to be consistent with the Constitution. In 1991, however, TLAs were told to cease logging in old-growth forests and to shift harvesting operations to mature second-growth forests. The Industrial Forest Management Agreement (IFMA)^[127] replaced the ITP lease agreement.

The IFMA was among several institutional reforms designed to support the “democratization of access to natural resources”. Its primary objective was to encourage private sector participation in developing forest resources, and to spread the benefits from these resources. Forestry programmes were planned to address the different needs of stakeholders - inter alia forest-dependent families and communities, local governments, indigenous peoples and forestry corporations.

In 1991, DENR Administrative Order No. 42 provided the following incentives:

• reduced payment of forest charges (25 percent of regular forest charges on plantation products);

• exemption from payment of certain internal revenue taxes;

• permanence of the boundary and status of the IFMA area;

• tax deductible plantation development expenses;

• credit assistance; and

• entitlement to fair compensation.

In addition, adequately-stocked secondary forests could be included in IFMA areas, and could be logged when plantations were established. Apparently, this was the most attractive incentive for the private sector.

About 187 000 ha were granted to the private sector under the new programme and tenurial arrangements. The area was slightly larger than the area granted for the same purpose during the Marcos regime. The difference, however, lay in the thinking of the people and investors at the early stages of this political transition period.

In terms of actual plantation establishment, the private sector accounted for only 28 803 ha, not a significant increase from the previous period. There are two reasons for this continuously slow progress:

• The current and previous ITP lease agreement/IFMA awardees were just speculating on the new government’s move to privatize public assets; and

• The incentives offered were insufficient and thus of little effect.

During the period of change, the forest plantation area reportedly surged to an all-time high of more than 0.5 million ha (see Table 6). However, most plantings (425 800 ha) were the result of massive infusion of funds through loans from the Asian Development Bank/Overseas Economic Cooperation Fund for contract reforestation by families, rural communities, local governmental units and non-governmental organizations (NGOs) under the Forestry Sector Program.^[128] Despite pressure to balance both production and protection, most plantations were established to rehabilitate watersheds. The relics of these plantations still exist, but they cannot serve as an important supply source for industrial wood.

1993 to 1998

This period was characterized by renewed government efforts to improve the policy for forest plantation development. The implementing rules and regulations for IFMAs were rewritten twice, causing confusion, and consternation, for the private sector.

IFMAs covering 127 400 ha were awarded to 126 corporate entities for plantation development during this period (Table 5). Many awardees were TLA holders whose leases were expiring, or who were using this chance to obtain a new 25-year tenure on state forest lands.

Plantation establishment by the private sector remained behind expectations. Access to, and harvesting of, natural forests as part of IFMA operations were still key factors in the establishment of forest plantations. Most of the IFMA holders cited unrest, opposition to large-scale plantations by local people, or simply a perceived unfavourable investment climate as reasons for the dismal performances.

In 1993, the rules and regulations for IFMAs were revised and DENR Administrative Order No. 60 provided the following incentives:

• IFMA holders were allowed to interplant agricultural crops between rows of trees within areas designated for IFP in their IFMA areas;

• All planted trees and other crops established according to an IFMA, or transferred from the Department of Environment and Natural Resources (DENR), belonged to the IFMA holder who had the right to harvest, sell and utilize products at the time specified in the approved Comprehensive Development and Management Plan;

• No restriction on the export of logs, lumber and other forest products harvested from IFMA plantations was placed on an IFMA holder. However, logs or unprocessed lumber from indigenous trees growing naturally in an IFMA area could not be exported;

• All plantation products derived from an IFMA area were exempted from forest charges, but all products derived from indigenous trees and/or other plants growing naturally in an IFMA area and from plantations established in compliance with TLA reforestation obligations were subjected to the usual forest charges;

• Minimal land rentals were charged;^[129] and

• IFMA holders were entitled to all relevant incentives provided for under the Omnibus Investment Code.

The 1993 order liberalized the IFMA administrative system by:

• Categorizing the IFMAs into two types: Type I covered open, denuded and grassland areas to be set aside only for plantation establishment; Type II included secondary forests that could be harvested during plantation development operations;

• Increasing the maximum area per IFMA from 20 000 ha to 40 000 ha;

• Allowing TLAs to be converted to IFMAs;

• Providing for the protection of affected rural communities’ and indigenous people’s interests;^[130]

• Enabling the DENR to actively identify and plan for IFMA areas even prior to any application by a private entity;

• Prescribing the procedures for bidding on IFMA areas by the private sector;

• Prescribing the rate of plantation establishment, such that any IFMA should be fully developed after 12 years;

• Permitting a maximum of ten percent of the IFMA area to be planted with permanent agricultural crops to generate cash flow before the first rotation; and

• Allowing the IFMAs to be transferred to enhance their marketability as an investment venture.

Further amendments were made mainly as the result of three factors. Firstly, the new administrators of the DENR emphasized environmental protection and community-based natural resource management. Secondly, in 1995, Presidential Executive Order No. 263 declared that CBFM was to be the main strategy for sustainable forest management. Finally, perhaps the most significant development at this stage, it was recognized that the IFMAs were being used as fronts for unauthorized or excessive logging in the natural forests. Thus, the 1997 DENR Administrative Order No. 4 stipulated the following conditions:

• IFMA holders could interplant between trees within areas designated for IFP in their IFMA areas, provided that there would be no adverse impacts on biodiversity, as indicated in a prior environmental impact assessment;

• All trees, except those for environmental protection purposes, planted by the IFMA holders belonged to the IFMA holders who had the right to harvest, sell and utilize them;

• The IFMA holder could export logs, lumber and other forest products harvested from the IFMA plantation, in accordance with the government allocation system;

• All plantation products derived from an IFMA area were exempted from forest charges; and

• No restriction was placed on the use and improvements of the IFMA as collateral for obtaining loans for further development of the IFMA area, provided that prior approval from the DENR was obtained.

Previous fiscal and credit incentives remained but the privilege of IFMA holders to harvest in natural forests was withdrawn. These were to be managed as protection, and not production, forests. In addition, the IFMAs were to be covered by the environmental impact assessment procedures of the DENR.

Judging by the slow rate of forest plantation development until 1998, it is obvious that the incentives were ineffective. The major constraint appeared to be the limited financial resources for extensive plantings. With no substantial credit support from governmental or financial institutions, the only alternative was to generate revenues from the natural forests to finance plantation development. This, however, was strongly opposed by both governmental and non-governmental environmental advocates, which from the investors’ perspective provided a major disincentive to plantation development.

1999 to the present

With a change of government in mid-1998, new administrators favouring the corporate forestry sector were appointed to lead the DENR. In 1999, the rules on IFMA were once again revised ostensibly to encourage private sector investment in forestry. The 1999 Administrative Order No. 53 entitled IFMA holders to:

• Interplant secondary crops between trees;

• Harvest, sell and utilize all planted trees and other crops in whatever marketable form(s) and in whatever legal manner(s);

• Export logs, lumber and other forest products derived from the IFMA area without any restriction, although timber from natural forests could not be exported;

• Be exempted from forest charges on plantation products;

• Claim all relevant incentives under the Omnibus Investment Act;

• Transfer plantations that are at least three years old to (rural) cooperatives upon fair compensation or payment to the IFMA developer, or through a financing institution, or be open for investments;

• Use plantation crops that are at least three years old as collateral for loans from government development banks, financial institutions, or government-owned and controlled corporations; and

• Secure access to an additional area, or a new IFMA, if the IFMA holder has satisfactorily complied with the terms and conditions of the original IFMA.

Any TLA can be automatically converted to an IFMA if the TLA holder has proven to be a capable forest manager. Therefore, TLA holders can renew, for another 25 years, their tenure over state forest land. The order also restores the privilege of harvesting in adequately-stocked secondary forests. It allows for the sale of timber felled in areas prepared for plantation establishment. Again, the substantial deviation from the previous order was the issue of harvesting in natural forests.

A significant recent development was the identification and proclamation of a 600 000 ha “timber corridor” in Northeastern Mindanao, together with a 200 ha “wood-based economic zone” for an integrated wood-processing facility, to attract foreign and local forestry investors. About 170 000 ha of this corridor have been awarded to a consortium of companies with foreign capital, with the endorsement of two foreign governments that are major players in the international forest products trade, through a new Co-Production Sharing Agreement. However, the allocation to the consortium is being questioned.

The impeachment of the President in January 2001 brought about a new government, and the DENR again had a change of leadership, which is currently reviewing the policies and the economic environment in forestry.

CONCLUSIONS

The development of private industrial forest plantations has not progressed well in the Philippines. Despite the incentives provided, and the prescriptions of the Philippines Forestry Master Plan, no substantial wood resources are likely to be forthcoming from either private or government plantations in the near future unless the policy and institutional environments are thoroughly revamped. Government involvement in plantation development is decreasing as international donor assistance and major loans to forestry draw closer to their termination. TLA reforestation is also slowing down as the last of the TLAs are about to be closed, and plantation development through IFMAs and CBFM is not picking up substantially.

Many factors constrain the development of forest plantations in the Philippines. These factors are interlinked, thus aggravating the situation and effectively hindering the establishment of viable plantations. Generally, the major consideration is the financial viability of plantation investments. Unless attractive financing and credit arrangements are set up for forest plantations, investors will continue to favour other sectors (for example, real estate, information and communications). The government has to offer secure land tenure to investors. This issue could be addressed by ensuring that investors have complete control over the land for at least two rotations, and that personnel changes in government agencies do not undermine the previous agreements between investors and the government.

For the last several decades it has become clear that the interest of the private sector in establishing plantations is closely linked to harvesting rights in natural forests. On this issue, policies have shifted with each new leadership, as can be seen hereunder:

• 1991 DENR Administrative Order No. 42: Secondary forests are allowed to be included in IFMA areas; selective logging in natural forests allowed but only after all open areas have been planted;

• 1993 DENR Administrative Order 60: Provides for simultaneous plantation development and harvesting of natural forests;

• 1997 DENR Administrative Order No. 4: No cutting whatsoever in natural forests; and

• 1999 DENR Administrative Order No. 53: Reverted back to the 1993 order allowing simultaneous establishment and harvesting.

The frequent reversals of government policy have seriously eroded investor confidence. On the other hand, there is sufficient evidence that many “investors” were not interested in plantation development per se, but only wished to gain access to the remaining natural forests under the guise of “integrated forest management”. Such behaviour seriously erodes the credibility of the private forestry sector and creates suspicions by the government forestry administrators and civil society.

Despite the historical political and institutional instabilities and uncertainties in the Philippines, the current investment climate for forest plantation development appears to be attractive. Incentives seem acceptable to the private sector; companies continue to file applications for tracts of state forest land under the Integrated Forest Management Program. The main barriers relate to security of tenure, and consistency in forest policy and operating guidelines.

The current contentious debate between “protectionists” and “productionists” has delayed the passage of a new forestry law, which has been pending in Congress for more than ten years. In the absence of such a law, the seriously outdated Revised Forestry Code of 1975 applies and an appropriate institutional, policy and investment infrastructure for industrial plantation development is not in place (Brown et al. 2001).

In general, direct incentives failed to achieve the objectives of the various Administrative Orders. There has been no substantial increase in the rate of plantation establishment except in areas where companies are dependent on a sustained long-term supply of plantation wood. The private sector has continuously pointed out their constraints:

• The tenure of 25 years, renewable for an additional 25 years is insufficient for long-term investments. The private sector is advocating for tenure security akin to private ownership, or even complete privatization of state forest lands;

• Tax incentives and the tariff-free import of inputs have not significantly improved the attractiveness of plantation investments; similar incentives are granted to other pioneer industries that, in the view of investors, yield more secure and higher returns.

• Despite the constant urging of the government, financing institutions do not provide concessional loans to investors in plantation development. Banks are unconvinced of the commercial viability relative to alternative investment opportunities. The collateral value of state forest lands and established plantations is low in the financing institutions’ valuations because these lands are state lands and would be difficult to foreclose in case of creditor default. In addition, banks perceive plantation development as a high-risk venture due to outbreaks of fire, pests and diseases.

The potential role of CBFM in forest plantation development has not been recognized adequately. Full rationalization of forestry rules and greater devolution of forest management functions to communities and people’s organizations should be pursued. Research and development and extension support to CBFM should be enhanced. Strengthening the financing and market links between corporate forestry entities and CBFM organizations is necessary. The corporate sector has the technical expertise in manufacturing and marketing forest products, including access to financial resources, while the CBFM organizations can offer low-cost management and operations.

The present ban on the export of logs and rough lumber from the natural forests needs to be re-evaluated. The objectives of the bans have not been achieved; in fact the bans have had the opposite effect of causing further forest degradation (Brown et al. 2001). While there is no ban on the export of plantation wood and products, the ban on export of logs and lumber from natural forests is creating a market imperfection; the economic value of wood from natural forests is not realized, and the value of forest assets in the hands of the private sector is depressed. The foregone export earnings could have been re-invested into forest resources development, including tree planting.

There is a persistent clamour from forest plantation developers for the government to fully deregulate the harvesting, transport and trade of plantation timber. The current regulations are too restrictive and serve as significant disincentives to plantation development; they also encourage corruption and rent-seeking behaviour, particularly by forest law enforcement staff. The reason put forward by those opposed to deregulation is that the government should protect its forest assets and, in so doing, needs to ensure that the wood for sale has not been poached from government forests. This is a weak argument as the government has the mandate and resources to take appropriate steps to physically secure its forest assets. It is the government, not the private tree farmer of trader, which should prove that the wood being traded did not come, or have come from, government forests. The burden of proof should lie with the government, not with the private sector.

The problems facing Philippine forestry are numerous and complex, but not insurmountable. The Philippine Government can begin by unequivocally declaring: (a) production forestry, particularly plantation forestry, is recognized as a strategic base for rural development and poverty reduction; (b) that the government recognizes, and will support, the important role of private capital and community forest managers in forestry; and (c) serious and consistent efforts to remove the disincentives and the unfavourable policy and institutional environments that curtail plantation development.

LITERATURE CITED

Brown, C., Durst, P.B. & Enters, T. 2001. Forest out of bounds: impacts and effectiveness of logging bans in natural forests in Asia-Pacific. RAP Publication 2001/10. Bangkok, Food and Agriculture Organization of the United Nations.

DENR/FMB. 1991. Philippine master plan for forest development. Quezon City, Department of Environment and Natural Resources.

DENR/NRAP. 1991. Executive summary report: Natural Resources Accounting Project (Phase I). Quezon City, Department of Environment and Natural Resources.

Domingo, I.L. 1983. Industrial pulpwood plantations. In Proceedings of the First ASEAN Forestry Congress. Quezon City, Bureau of Forest Development, Department of Environment and Natural Resources.

FAO. 2000. Global forest resources assessment. Rome, Food and Agriculture Organization of the United Nations.

FAO. 2003. State of the world’s forests. Rome, Food and Agriculture Organization of the United Nations.

FMB. 1997-2001. Philippine forestry statistics. Quezon City, Forest Management Bureau.

Malayang, B.S. 1998. A political ecology model of environmental policy in the Philippines: implications for forest management. In Proceedings of the 50^th anniversary of the Society of Filipino Foresters, Inc., Davao City, September 1998, pp. 44 ff. Quezon City, Society of Filipino Foresters, Inc.

NSCB. 2003. http://www.nscb.gov.ph, accessed 19 March 2003. Manila, National Statistics Coordination Board.