Economics of non-wood forest products and services in Poland and Slovakia

C. Upton

Christopher Upton is with SGS Silviconsult Ltd in Oxford, UK.

For many East European countries the challenge of economic transition has created a situation in forestry where many forces are interacting. A balance needs to be struck between environmental protection, public use of the forest and the need for the forest to contribute to rural development and overall economic growth. Taking the examples of Poland and Slovakia, this article shows how a careful economic appraisal of non-wood products and services can be of value in this regard.

In general, the economic analysis of forestry development efforts faces two main problems. First, many of the benefits from forests are difficult to value; and second, benefits often accrue many years after costs have been incurred. This, combined with the fact that costs are nearly always better assessed than benefits, means that forestry easily shows low returns.

The shift from central planning towards a market economy in much of Eastern Europe has required countries to appraise the cost-effectiveness of forestry activities, in terms of benefits both to the commercial forest operator and to the national society. In establishing the latter, an appraisal of the benefits from non-wood products and services needs to be included.

How this balance of considerations can be translated into forestry policy and then implemented on the ground is affected by the structure of land and forest ownership. In Poland, more than 80 percent of the forest resource is owned and managed by the state. The state is also the regulator of forest legislation and, consequently, can directly ensure that the forest provides an adequate level of non-wood products and services. In Slovakia, almost 60 percent of the forest area is under private ownership, and the forest service, as an effective regulator, ensures that society is provided with the level of non-wood forest products and services that it requires. Forest extension and incentives (subsidies, preferential credit, fiscal exemptions, etc.) are some of the tools that can be used to promote sustainable multipurpose forest management, including non-wood forest products and services. Economics can help in estimating the extent to which such incentives are required.

In both Poland and Slovakia, the balance between an appropriate level of commercial wood production and the ability of the forest to provide adequate non-wood forest products and services is hotly contested. Commercial wood production has to take place in order to provide the funds with which investments to improve forest conditions can be made. In addition, the wood industry sectors in both Poland and Slovakia are significant employers and generators of foreign exchange. In Poland, wood product manufacturers generate annual sales worth almost US$ 2000 million and employ more than 180000 people. In Slovakia, the wood industry exports 40 percent of its production, which is worth more than US$ 250 million in overseas sales, and the sector employs more than 50000 people.

TABLE 1. Poland and Slovakia: key forest data and characteristics

Data	Poland	Slovakia
(million ha)
Forest area	8.7	1.8
- State-owned	6.8 (79%)	0.8 (42%)
- Privately owned	1.8 (21%)	1.0 (58%)
- Broadleaf	1.9 (22%)	1.0 (58%)
- Conifer	6.6 (78%)	0.8 (42%)
	- 69% Scots pine	- 30% beech, 27% spruce
(million m3)
Current annual harvest	17.0	4.2
Key characteristics	· 800000 ha of forests seriously damaged by air pollution	· 980000 ha moderately and severely damaged by air pollution · 60% of forest land on slopes greater than 40% · 117000 ha on watersheds supplying water to urban areas

Both countries place great emphasis on the special role of forests in society as well as the environmental benefits from maintaining a forest cover. The forest's ability to provide adequate levels of non-wood forest products and services is an important consideration.

Foresters are custodians of a heritage as much as providers of wood to industry. The new Polish forest legislation states that forest management has to take particular account of "conservation of forests and their favourable impact on climate, air, water, soil, living conditions and the health of humans as well as on the balance of nature (The Act on Forests, 30 August 1991). Principle I of the Slovak forestry policy states that forests "represent a landscape-forming and ecological stabilizing element of the territory. The maintenance, protection and improvement of forests is a fundamental aim of Slovakia's forestry policy" (The Strategy and Concept of the Development of Forestry in Slovakia. June 1993).

Public access is guaranteed to all state forest areas for the collection of berries and mushrooms and for recreation in both Poland and Slovakia. The Slovak forest policy establishes public access as an "important democratic principle which makes it possible for every citizen to enjoy recreational and therapeutical time in forests". Poland guarantees access to all state forests under sections 26 and 27 of the Act on Forests.

Table 2 indicates the relative importance of the main non-wood forest products and services for Poland and Slovakia as well as their definitions. Many similarities are apparent but there is also an important difference. The main similarity is the high degree of importance that non-wood products and services have in each country. It is safe to say that, in both countries, the production of non-wood products and services is at least as important as the production of wood.

The main difference relates to the more mountainous topography of Slovakia when compared with Poland. Because much of Slovakia's forest area is mountainous - 60 percent of forest land is on slopes greater than 40 percent - the role of the forest in terms of soil, water and avalanche protection is more significant. As argued below, this has an important effect with regard to the way in which the economics of non-wood forest products and services can be analysed.

Including non-wood benefits in economic analysis of forestry

Essentially, there are three possible approaches to including benefits from non-wood products and services as part of an economic analysis: do nothing, quantify as many benefits as possible or quantify all non-wood benefits as a function of wood benefits. Under the "do nothing approach", one would always assume that forestry projects are a good public investment provided that the financial real rate of return is above a certain cut-off point; 2 to 5 percent can be used as a guide for forestry in Slovakia and Poland. The other two approaches are discussed in more detail below.

Quantify as many benefits as possible

Under this approach, one would undertake research to value specific benefits. For example, amenity values can be determined using the travel cost method, hunting values can be estimated from annual meat sales, sporting values and from what hunters are prepared to pay in other countries. All rates of return above a certain threshold are then accepted on the assumption that some benefits are just too difficult to measure. The United Kingdom Government allows a cutoff rate for forestry of 3 percent if no non-market benefits are included and 6 percent if quantifiable non-market benefits are included. In France, the government is to adopt a rate of 3 to 5 percent for public sector investments in its next five-year plan.

TABLE 2. Importance of non-wood forest products and services in Poland and Slovakia

Nun-wood production service	Poland	Slovakia
Hunting	+ + +	+ + +
Soil protection	+ + -	+ + +
Water protection	+ + -	+ + +
Avalanche protection	- - -	+ + -
Recreation (amenity)	+ + +	+ + +
Berries, mushrooms, etc.	+ + +	+ + +
Biodiversity	+ + -	+ + -
Forest as net carbon sink	+ + +	+ + +

Key:

+ + + considerable overall significance.
+ + - considerable significance in certain areas.
- - - no particular significance.

Definitions:

Hunting - includes the sale value of meat, trophies and other sporting revenues.

Soil protection - refers to the impact on soil fertility in terms of maintaining ecosystem productivity, diversity and structure, and on soil loss resulting in siltation watercourse instability, etc.

Water protection - includes the impact on water quantity and quality. Impact on water quantity is measured by the incidence of flooding (intensity and distribution of runoff), and quality by the availability of water for human consumption, agriculture and industry.

Avalanche protection - refers to the impact of snow avalanches on the forest resource as well as human and economic activity. It also includes large-scale erosion from mud and landslides.

Recreation (amenity) - includes the impact on all outdoor activities and tourism (especially hiking and skiing) in terms of forest structure, e.g. size of clear-cut, landscape effect of new planting and forest roads, absorption of noise and local pollution.

Non-wood forest products - includes the impact on public availability of berries, mushrooms, etc.

Greenhouse gases - measures the ability of the forest resource to act as a net carbon sink (carbon sequestration) and the impact of other greenhouse gas emissions on the forest (especially SO₂ and NO_x).

There are two significant potential disadvantages to this method when applied in practice: i) unless research is used to produce general levels of benefit, each analysis requires its own investigation; and ii) where non-quantifiable benefits are significant, the analysis may give a result below the threshold rate even when the investment is economically sound. This is particularly true where soil, water and avalanche protection and biodiversity issues are paramount.

However, this approach is well suited to the situation in Poland where reasonable estimates of the main non-wood products and services can be made. These include: hunting, recreation (amenity) and the collection of non-wood products. The role of the forest as a net carbon sink also requires consideration.

Hunting values can be estimated from meat sale records and total sporting value (sale of licences, trophies, etc.). Hunting in Poland is a significant economic activity. The first Polish hunting laws were enacted in 1775, in 1926 the Polish Hunting Union (PZL) was founded and in 1927 the most advanced game regulations in Europe were enacted. Today the PZL has about 100000 members, belonging to 2500 hunting clubs. Hunting for elk, red deer, fallow deer, roe deer and wild boar takes place in forested areas. Hunting plans submitted by the hunting clubs have to be approved by the forest service. In addition, Poland is widely recognized as having some of the best hunting in Europe, and sales of "hunting trips" to foreigners are becoming increasingly important.

There is no consolidated account showing the value of hunting in Polish forests but the value of the meat alone, based on the status of existing game populations in 1991 and assuming an appropriate sustainable culling level, would be almost US$ 35 million per year - equivalent to about US$ 5 per hectare of forest.

To estimate the total value from hunting, the consumer surplus from sporting, trophies, etc. should also be added to the meat value. It would not be unreasonable to double the annual per hectare value for game meat. Even at current tremendously undervalued rates, a red deer or elk trophy may sell for up to US$ 1500 and wild boar between US$ 100 and US$ 1000 based on the tusk. In addition, hunting provides opportunities and creates significant economic activity in other sectors through the provision of hunting paraphernalia, including guns, ammunition' clothing and binoculars.

Recreation (amenity) values are estimated using the travel cost method. As mentioned earlier, forest cover in Poland is ranked highly by society, with forests valued for their recreational and amenity value. Amenity values are related to the socioeconomic and cultural role of the forest estate as well as population density and stand maturity. Estimates for Poland range from US$ 2 per hectare per year for immature pine to $45 per hectare per year for mature, mixed hardwood stands. Where woodland is being sold privately for amenity purposes and individuals are permitted to construct simple summer houses, prices are more than US$ 4250 per hectare.

An exhaustive study to assess the recreational and amenity consumer surplus attached to forestry in the United Kingdom was completed in 1990 (Benson and Willis, 1990). This study used the travel cost methodology which assumes that the recreational value individuals gain from visiting a forest must be at least equal to the cost incurred to get there. This is likely to be an underestimate of the full user recreational value. The results from this study gave an average consumer surplus over all forest types of US$ 89 per hectare per year. The range was US$ 6 per hectare for upland conifers to US$ 784 for lowland broad-leaved species.

In Sweden, an average figure for the country has been estimated to be US$ 6 per hectare (Wibe, 1992). As expected, the lower density of population and the higher proportion of forest cover in Sweden compared with the United Kingdom result in lower per hectare consumer surplus values.

A value for Poland should reflect Poland's relatively dense population, the easy access for amenity and recreation of most forests as well as the obvious importance that the forest plays in Polish society.

In addition, just as wood prices may rise in real terms over time, so recreational benefits may rise. Data from the United Kindgom show that outdoor recreational activity has been growing at a rate of 2 percent per year. As real per caput incomes start to rise in Poland, real increases in recreational and amenity values can be expected. Any analysis should probably take into account a real rate of increase of 1 percent per year from 2000 onwards; however, comparisons from other countries should take into account relative differences in per caput incomes and purchasing power.

The value of berries, mushrooms, etc. is estimated from the value of actual sales and surveys of collections made by private individuals. The collection of berries, mushrooms and other wild produce by commercial operators is paid for under a contract with the Forest Administration. During 1991 the Polish Forest Administration earned a surplus from such non-wood products of US$ 0.5 per hectare. It is estimated that the private collections of non-wood products are three times more than commercial collections, giving an average total value of US$ 2 per hectare per year.

FIGURE 1. Outline of the methodology used when quantifying all non-wood benefits as a function of wood benefits

The forest as a net carbon sink. Under the temperate climatic conditions of northern Europe, afforestation produces net gains in carbon sequestration for a period of around 100 years after planting for conifers and fast-growing broad-leaved species and about 200 years for other broad-leaved species. After this, carbon sequestration is matched by decay and there is no further increase in storage.

The rationale for including carbon sequestration as part of the economics of non-wood forest products and services is that Poland, together with many other nations, has agreed at least to stabilize carbon dioxide emissions by early next century. Carbon "sinks" (such as forests) are widely accepted as having the opposite effect of an allowable emission.

Two approaches have been suggested for estimating the value of fixing a tonne of carbon dioxide: i) the "damage - avoided" approach which estimates the value of a tonne of carbon dioxide as being equal to the damage that would have been caused if the carbon was not sequestered; and ii) the "offset" approach which sets the value of carbon sequestration as equal to the cost of offsetting carbon dioxide emissions by investing in carbon dioxide reduction technology.

Using the damage-avoided approach, global warming damage estimates have been calculated on the basis of estimated losses in GNP (Walter and Ayres, 1992). A "medium damage" scenario suggests a figure of about US$ 13 per tonne of carbon.

The damage-avoided estimates range from US$ 20 to US$ 40 (in 1991 paces). Work in the United Kingdom using the offset approach (Anderson, 1990) suggests a figure of US$ 28 per tonne of carbon which is within the range of the damage-avoided approach. Given the state of current research, a figure of US$ 30 per tonne of net carbon sequestered would not be unreasonable.

Quantifying all non-wood benefits as a function of wood benefits

Under this approach, basic research is undertaken for a particular forest area (or areas) to establish what the important benefits are, how they are affected by current forestry activities and how they can be quantified in physical and monetary terms. The research programme then generates data which can be used to express the value of non-wood benefits in relation to commercial forestry revenues for a particular area and project. Various general "factors" are developed for particular benefits which can be used to assess forestry projects in a specific region. The ongoing research programme provides feedback by which these factors can be periodically updated as relative values change over time. While the research programme is building up, adjusted estimates from different forest areas can be used. In measuring the effect on forest values from air pollution, Nilsson (1992) gives a good overview of what these values could be for Europe's forests. His findings are based on a wide review of published research results.

TABLE 3. Level of public benefit, by soil and vegetation type, as a function of wood revenues in Slovakia

Vegetation type	Site No.	Altitude (m.a.s.l.)	Soil type
			Extreme			Acid				Good nutrition						Above average
																With humous			With moisture
			X	Z	Y	M	K	N	I	S	F	C	W	B	H	D	A	J	L	U	V
Dwarf pine (Pinus mugo)	8	Above 1500	-	10.0	-	-	5.0	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Spruce	7	1250-1550	-	5.0	2.0	2.0	4.0	-	2.0	2.0	-	-	-	-	-	-	4.0	-	-	-	-
Spruce/ beech/fir	6	900-1300	3.0	-	-	0.7	-	2.0	-	0.7	0.7	-	1.0	0.7	-	-	-	0.4	-	-	-
Fir/beech	5	500-1000	3.0	3.0	3.0	0.4	0.4	1.0	0.4	0.4	0.4	1.0	1.0	0.4	0.4	0.4	1.0	0.4	1.0	0.4	0.4
Beech	4	400-800	3.0	3.0	3.0	0.4	0.4	1.0	0.4	0.4	0.4	1.0	1.0	0.4	0.4	0.4	1.0	0.4	-	-	0.4
Oak/beech	3	300-700	3.0	3.0	3.0	0.4	0.4	1.0	0.4	0.4	0.4	1.0	1.0	0.4	0.4	0.4	1.0	0.4	1.0	0.4	0.4
Beech/oak	2	200-500	3.0	3.0	n/a	0.4	0.4	1.0	0.4	0.4	-	1.0	1.0	0.4	0.4	0.4	1.0	0.4	0.4	-	0.4
Oak	1	Below 300	3.0	3.0	n/a	0.4	0.4	1.0	0.4	0.4	-	1.0	-	0.4	0.4	0.4	1.0	0.4	0.4	0.4	0.4

Key:
X - no soil.	N - stony rocky.	W- subject to waterlogging.	J - with debris.
Z - extremely acidic.	I - compacted.	B - normal average.	L - lowland.
Y - very thin soil cover.	S - medium-rich.	H - good soil cover.	U - valley.
M- poor (very light grain composition).	F - steeply sloping.	D - good soil cover.	V - wet.
K - medium-poor (heavier grain composition).	C - dries out, susceptible to drought.	A with rocks.	- site type does not exist.

Source: Forest Research Institute. Zvolen.

FIGURE 2. Economic analysis of forestry projects

In principle, a set of standard factors for each country could be developed and used to analyse forestry projects. The approach is not dissimilar to using a standard conversion factor to convert financial labour costs to their economic values or to adjust for traded goods, or for a single cutoff discount rate to proxy for the opportunity cost of capital. Accuracy at the margin can be disputed but not the fundamental premise that qualitatively established benefits must have some quantitative value. A second premise is that, once base multipliers have been established, the relative difference between the benefits from commercial forest management and other benefits is easier to estimate than the actual level of the other benefits themselves. Using such a methodology to appraise a project involves a process of five main steps which are illustrated in Figure 1.

Two circumstances argue strongly for the use of this approach in Slovakia. First, many of the economic benefits, especially soil and water protection, are difficult to quantify; second, basic research to quantify such forest functions was initiated in the 1950s. By the late 1970s, this research had been published (Papánek, 1978) and was available to assist decision-making in developing forest management practices. These empirical studies aimed at measuring the benefits of non-wood forest products and services in physical terms and ascribing them monetary values.

The objective of the research is to provide a consistent and empirically based framework through which forest managers can take into account the non-wood functions of forests in their plans and operations. Practical use of this research was constrained in the past by rigid planning procedures and is currently impeded by a lack of resources.

Table 3 provides a summary of some results for different forest ecotypes in Slovakia, calculated by the Forest Research Institute in Zvolen. Coefficients have been derived for a matrix of forest type (by dominant species and altitude) against main soil type. These coefficients represent the total non-commercial value of the forest relative to its commercial value in terms of wood production. For example, high-altitude dwarf pine forests on acid soils have a non-wood benefit value five times greater than the value of wood from these forests, alternatively, beech forests between 400 and 800 m above sea level on similar soils have a non-wood benefit value that is 40 percent of the wood value. The coefficients relate non-commercial to commercial values and cannot be compared with each other prior to conversion to monetary values. For example, one cannot say that the soil protection value in high-altitude dwarf pine forests is more important than that in mid-altitude beech forests, as these values relate to the value of wood produced from such forests, which will be lower for dwarf pine than for beech. The Forest Research Institute classified non-wood benefits into 22 distinct functions. In aggregate, these correspond to the list in Table 2.

The research has also been used to develop guidelines establishing technical and management standards for forestry operations in Slovakia. A scoring system has been developed for various activities which are then related to maximum scores allowed for particular sites and which take into account the forest's ability to provide non-wood products and services. This is a similar approach to that adopted by many forest audit procedures which aim to judge the appropriateness of forestry activities in environmental teens for particular sites.

Conclusion

In both Poland and Slovakia, there is a great opportunity to use past investments in basic research and the development of professional skills to include the economics of non-wood products and services in defining policy and management prescriptions for the national forest estate. Both countries show an impressive level of forestry planning and management. In numerous instances, management and policy prescriptions are backed up by detailed research undertaken over long periods of time. However, under the constraints of the centrally planned economies, it was not always possible to put research recommendations into practice.

Figure 2 illustrates the different levels at which forestry efforts are often analyzed.

Most are analyzed using Level 1 data and this is the level for which most data are available. Level 1 corresponds most closely to the benefits that private individuals receive from the forest. In addressing public concerns and needs, forestry services need to extend the analysis in order to cover at least Levels 2 and 3. At higher levels, data become more difficult to obtain and decisions contain an increasing amount of subjective assessment. As this article has shown, the strong technical base of the forestry services in both Poland and Slovakia allows this type of analysis to take place.

Bibliography

Anderson, D. 1990 The forestry industry and the greenhouse effect. Edinburgh, UK. Forestry Commission.

Benson, J.F. & Willis, K.G. 1990. The aggregate value of the non -priced recreation benefits of the Forestry Commission estate. Edinburgh, UK, Forestry Commission.

Nilsson, S. 1992. Sustainability of European forest resources a case-study. Laxenburg. Austria, IIASA.

Papánek, F. 1978. Teória a prax funkene integrovaného lesného hospodárstva (Theory and practice of functions for forest management). Lesnícke stúdie 29. Bratislava, Slovakia, Príroda.

Walter, J. & Ayres, R. 1992. Global warming, Vol I: Damages and costs; Vol. II Abatement policies and costs. Laxenburg, Austria, IIASA..

Wibe, S. 1992. Markets and intervention failures: Sweden. Paris, OECD.