The supply and demand analysis presented in this report has suggested that, broadly speaking, global forest resources will produce sufficient supplies of roundwood to meet future demands for forest products, without significant upward pressure on prices. This is not to say however, that there will not be scarcity in some regions or for some types of wood in the future. For example the analysis has shown that the trend towards increasing scarcity of high-quality large logs (typically taken from the natural forest) is likely to continue in the future. Rather, the analysis has shown that the mixture of resources that will have to be used for wood supply will change somewhat in the future.
The changing pattern of resource availability expected in the future will have profound implications for the forest processing industry and for forestry administrations in many countries. A major concern for the industry will be the changes in technology, processing capacity and location, which will be required to accommodate the expected changes in resource availability. Forestry administrations will also have to take note of these expected changes in supply and demand patterns as they continue to support the development of the sector while, at the same time, attempt to encourage a change in emphasis in forest management towards SFM.
The important question for the future therefore, will not be: is there enough wood? But rather: where should it come from and who will produce it? Whatever course is chosen will have social, economic and environmental implications and forestry policymakers have, to some extent, the power to influence these outcomes. This concluding section of the supply and demand analysis will examine the implications of the outlook for the World Bank's three priority areas of: poverty alleviation; sustainable development and private-sector development.
The production of wood and wood products makes a significant contribution to GDP and export earnings in some of the world's poorest countries. For example, Table 29 shows that forest products exports accounted for more than 10% of total merchandise exports in 19 developing countries in 1995 (and in a further four developed countries as well).
What is particularly noticeable in this table is how important forest products exports are to many African countries. This is in stark contrast to the fact that Africa is an insignificant producer of wood and wood products on a global scale, accounting for generally less than 5% of total world output in all forest product categories. Therefore, although Africa is not a significant region in terms of world forest products markets, the reverse is not true and world forest products markets can be said to have a significant effect on many African economies.
In addition to the production of industrial roundwood, forests are often also important sources of food, forage, fuel, medicines and building materials for rural communities. The value of these outputs are often not captured in national accounts statistics, but may be as great, if not greater, than the value of industrial forest product outputs in many poor countries.
Table 29: Countries where forest products exports had a share of total merchandise exports greater than 10% in 1995
Country |
Total value of merchandise exports (US$ million) |
Total value of forest products exports (US$ million) |
Forest products exports as a percentage of total merchandise exports (%) |
OECD countries |
|||
Canada |
192,607 |
27,787 |
14.4 |
New Zealand |
13,769 |
1,634 |
11.9 |
Finland |
40,489 |
11,968 |
29.6 |
Sweden |
79,878 |
10,850 |
13.4 |
Non-OECD countries |
|||
Cameroon |
1,654 |
329 |
19.9 |
Central African Republic |
193 |
29 |
15.2 |
Congo, Rep of |
1,136 |
127 |
11.2 |
Congo, Democratic Republic of |
461 |
55 |
11.9 |
Equatorial Guinea |
84 |
36 |
42.9 |
Gabon |
2,650 |
388 |
14.6 |
Ghana |
1,431 |
276 |
19.3 |
Guinea Bissau |
31 |
4 |
12.9 |
Liberia |
300 |
68 |
22.7 |
Chile |
16,447 |
2,060 |
12.5 |
Paraguay |
819 |
98 |
12.0 |
Cambodia |
342 |
171 |
50.0 |
Indonesia |
45,418 |
4,728 |
10.4 |
Laos |
348 |
70 |
20.2 |
Myanmar |
846 |
307 |
36.3 |
Papua New Guinea |
2,681 |
536 |
20.0 |
Solomon Islands |
182 |
115 |
63.2 |
Estonia |
1,838 |
192 |
10.4 |
Latvia |
1,306 |
277 |
21.2 |
Source: FAO (1997c)
From the point of view of poverty alleviation, the most important aspect of the future supply and demand projections presented earlier is that different sources of wood and fibre supply have different potentials to generate local income and employment and, hence, help to alleviate poverty. For example, harvesting natural forests generally does less to reduce poverty (and may actually increase it by encroaching on forest areas already used for subsistence purposes) than would say, obtaining future wood supplies from trees outside of forests. In as much as future supply patterns in most developing countries are expected to diversify away from exploitation of the natural forest towards supply from a broad range of sources, this could have a beneficial effect on some of the poorest citizens in developing countries.
A very rough appraisal of the potential ability of different sources of supply to alleviate poverty is given in Table 30. Harvesting of the natural forest is believed to provide generally little benefit in terms of poverty alleviation because of the high capital intensities and low level of labour inputs generally used in such operations. Plantations are a little better because they tend to employ more people during harvesting and replanting. However, plantations will not help alleviate poverty if they use land which local people were already using for something else. Greater use of harvesting and mill residues could have significant environmental benefits but would generally do little to improve poverty. Indeed, the use of better technology in forest harvesting and processing often means substituting capital for labour, which might increase unemployment and, consequently, have a negative effect on poverty.
The potential sources of future wood and fibre supply which are believed to have the greatest potential benefits in terms of reducing poverty are trees outside forests and recycling and non-wood fibre supplies. The utilisation of such supplies generally involves the generation of a considerable amount of employment and can benefit both rural areas (trees outside forests and non-wood fibres) and urban areas (recovered paper).
Table 30: Current probable levels of wood and fibre production from various sources and the potential for alleviating poverty by increasing supply from these sources
Variable/region |
Wood and fibre supply source | ||||
Natural forests |
Plantations |
Trees outside of forests |
Harvesting and mill residues |
Recycled and non-wood fibre | |
Potential of each source to help alleviate poverty |
low |
moderate |
high |
low |
high |
Current estimated level of production from each of these sources (non-OECD countries) |
|||||
Europe |
moderate |
moderate |
low |
moderate |
moderate |
Asia and Oceania |
high |
moderate |
moderate |
low |
moderate |
Americas |
high |
moderate |
low |
low |
low |
Africa |
high |
low |
moderate |
low |
low |
Potential to use each of the sources to alleviate poverty by including them in the future supply mix |
|||||
Europe |
low |
moderate |
low |
low |
high |
Asia and Oceania |
low |
moderate |
high |
low |
high |
Americas |
low |
moderate |
moderate |
low |
moderate |
Africa |
low |
moderate |
high |
low |
low |
The middle section of Table 30 shows an estimate of the current level of importance of each of these supply sources for each of the four non-OECD regions identified earlier. Current supply in non-OECD Europe is believed to come from a fairly even mixture of natural forest, plantations, residues and recycled materials. Supply in the three other developing regions is believed to be currently much more heavily weighted towards production from natural forests.
The bottom section of Table 30 shows the potential for supply from each source in each region to be increased and help to alleviate poverty. This section is, in a way, a function of the two sections above it. It shows that, from the point of view of alleviating poverty, it might be most effective to encourage greater use of trees outside of forests in Africa; trees outside of forests and recycled and non-wood fibre supplies in Asia and Oceania; and recycled and non-wood fibre supplies in Europe.
Another way in which forest resources can be used to alleviate poverty is more generally through the development of domestic processing industries. Several developed countries have used their abundant endowments of forest resources as an engine of economic growth including: Canada; Finland and Sweden. Some developing countries have also built substantial forest processing industries on the strength of their forest resources, including: Malaysia; Indonesia; Brazil; and Chile.
The success of development strategies which have used forest resources to develop substantial processing industries has been mixed. All the countries that have pursued such strategies have managed to create large industries generating a significant amount of income and employment for their local economies. However, their successes have not been without problems. For example, a common way in which domestic processing has been encouraged in the past is through a combination of trade restrictions (e.g. log export bans or very high tariffs on unprocessed forest products) and government policies for pricing roundwood from the natural forest, which allow processors access to very cheap sources of wood raw materials. This has led to distortions in investment and overuse of forest resources and an eventual loss of confidence in some of these countries (e.g. as in Malaysia and Indonesia at the moment).
Perhaps the key to the success of such strategies in the future lies in ensuring that the processing industries are not encouraged to develop beyond the capacity of the forest resources to support them in the long-run. This requires information about long-run supply potential which is generally better than is available in most developing countries today.
The countries which have the greatest potential to follow this model of economic development are perhaps those which currently have large log production and export sectors (e.g. many West African countries and the larger producers in the Asia-Pacific region such as: Cambodia; Papua New Guinea; and Solomon Islands). Others with significant plantation resources (e.g. China; India; and South Africa) could be expected to follow this model of development also, although, at least in the case of the latter two countries, they have significant domestic markets which can absorb a large amount of forest product production.
A more general observation from the supply and demand analysis is that all countries are expected to continue to their attempts to move into higher value-added products such as furniture, doors, windows and joinery products. The production of such higher value-added products can substantially increase income and employment but, as noted above, the policies introduced to stimulate such activities have to be designed with care. However increasing the production of higher value-added wood products is very challenging for many developing countries because of the higher levels of technology that are required. Such moves also require improvements in skills, both technical skills and management skills, in order to compete effectively in the increasingly global and highly competitive international forest products marketplace.
The main component of sustainable development in the forestry context is the concept of Sustainable Forest Management (SFM). Political discussion and pressure to implement SFM has grown over the last decade and will continue to do so in the future. To a limited extent, this pressure will be supported by increasing globalisation in the forestry sector and greater demands for the certification of forest products and both of these moves will further encourage countries to implement policies in support of SFM.
However, it also seems likely that the implementation of SFM will develop at a much faster pace in developed countries than in developing countries. Institutional weaknesses in many developing countries makes it difficult for them to implement SFM and, at least in the case of the countries that still have vast forest areas, unsustainable options appear to be more profitable in the short-run (these issues are discussed further in Contreras, 1999).
Implementation of SFM will involve a range of measures which will alter the way forests are managed in the future and, consequently, affect future wood supply. The two major components of SFM are likely to be
1. moves to increase the area of forest within legally protected areas; and
2. moves to alter the way in which forest harvesting and management are carried-out in the future, in order to increase the social and environmental acceptability of production forestry.
As the supply and demand analysis has shown, increasing the area of forest in legally protected areas should be feasible without too much impact on future wood supplies. A more important aspect of any policy moves in this direction will be to ensure that there is adequate funding to properly manage and protect such areas. For example, there are already vast expanses of legally protected areas in many developing countries, but many of these countries spend very little on the protection of these areas (see, for example, Paine (1997) for a discussion of protected area funding in the Asia-Pacific region).
Altering the way in which wood is harvested in the production forest is likely to have a much greater impact on future wood supplies. The supply and demand analysis has shown that potential wood supply could be reduced quite significantly, but should still generally be sufficient to cover future needs in most areas. Regions and product sectors where there might be problems are those which have already been identified as facing potential scarcity in the future, e.g. Southeast Asia and parts of Africa and the plywood production sector.
What is potentially more important to the success of any policies to encourage the implementation of SFM, will be the increased cost of SFM practices. Historically, wood product prices have generally remained constant or fallen in real terms in the past. It is unlikely therefore, that any increased production costs (as a result of following SFM practices) can be passed on to consumers. Nor is there yet any strong evidence to suggest that consumers will pay more for products from sustainably managed forests (i.e. certified products).
A major future challenge therefore, will be to identify how SFM can be financed given these limits. Not only will SFM cost forest managers more (in terms of increased expenditures and possibly lower timber incomes), but the higher standards of monitoring and control, which SFM is likely to entail, will also cost forestry administrations more. Certification, while appearing attractive on the surface, is unlikely to solve this problem and is only likely to be an attractive option for forest managers that are already managing their forests well and will, consequently, have lower compliance costs. In other words, in terms of cost-effectiveness, there may be a substantial amount of "deadweight" associated with this process.
It is possible that there is already considerable scope to pay for SFM out of the slack in many countries forest revenue collection systems. However, if countries are not currently very good at increasing their own government revenues from higher forest levies, it is questionable whether they would be any better at persuading forest concessionaires to spend their excess profits on SFM.
One solution to this problem, which countries might take however, is to take part or all of their natural forests out of production completely. This model has been pursued to some extent in New Zealand, Chile and South Africa and several tropical countries in Asia, which have mostly replaced production from their natural forests with production from forest plantations. China, which is a huge consumer of wood and wood products, is also currently temporarily phasing-out production from some of its natural forests, in response to concerns about flooding. Even in the United States of America, the perennial battles over production from the National Forest can be interpreted as a struggle to take all of this area out of commercial wood production.
If more countries were to decide that SFM is just too expensive and that it would be easier just to simply take some or all areas of natural forest out of wood production, then this would have a severe and profound impact on future wood supplies. This is, of course, unlikely to happen on a dramatic scale in the countries that have little alternative but to harvest the natural forest (e.g. some of the Pacific Islands). It is also likely to occur very gradually and, thus, have little impact within the period of this analysis. However, moves in this direction are gradually gaining ground and this situation should be carefully monitored and appraised.
Another aspect of the supply and demand outlook which is of relevance to sustainable development, is the potential for better technology to enable residues, recycled material and less well known species to be used in the wood raw material supply mix. Past trends in efficiency gains and the greater use of residues and recycled materials are expected to continue in the future. In as much as these trends will reduce forest processing waste, they will have environmental benefits and can be considered as another contribution towards sustainable development. However, the extent to which these trends continue will depend upon the measures introduced to support such moves by forestry policymakers and environmental agencies.
There is still scope to improve efficiency across the whole forestry sector in developed countries and the scope for improvement in developing countries is tremendous. In as much policies and programmes to encourage such developments are often easier to plan and implement, they may present an opportunity to improve the sustainability of the forestry sector that is as great, if not greater, than the traditional approach of devising rules and regulations about what can and can't be done in the forest.
On the roundwood supply side, the outlook for private-sector development in the forestry sector is positive. Changes in the relative strength of different sources of potential wood availability and in forest products markets should encourage the development of future supplies from plantations, trees outside of forests and recovered paper. These sources of supply all tend to be mostly in private ownership, therefore the expected changes in supply sources will offer tremendous scope for private-sector development.
Forestry policymakers can encourage supply from these sources by incentives (e.g. for plantations) or technical assistance (e.g. research and development and extension activities). However, an even stronger mechanism to encourage supply from these sources may be to adjust policies for wood supply from the natural forest (in countries where natural forests are important). Examples of policies which might be re-examined include stumpage pricing and forest land-use planning policies.
In the past, decisions to restrict supply from the natural forest have tended to be taken in response to serious concerns about environmental degradation (e.g. the bans on harvesting in the natural forest introduced in the Philippines and Thailand in response to concerns about deforestation in these countries). However, some countries, such as China, are now starting to consider such changes in their land-use policies before the condition of their natural forest areas has deteriorated significantly. A careful balance between restricting supply from the natural forest and developing alternative sources of wood supply is likely to be the best approach to implementing such changes. Forestry policy in Malaysia is a good example of where such an approach has been pursued, where gradual reductions in the availability of wood from the natural forest have been introduced and compensated for by extensive research into the utilisation of lesser-known forest species and agricultural tree crops such as rubberwood and oil palm husks.
In terms of forest product processing, the outlook for private-sector development is equally bright, but less so for the development of small and medium-sized enterprises (SME). The expected move towards greater production of reconstituted panels and pulp and paper in many developing countries will require large infusions of capital which only the private-sector will generally be able to afford. These developments should also involve the transfer of technology and skills to many developing countries.
These investments will tend to be large-scale and will generally strengthen the concentration of forest industries in many countries into a small handful of large corporations. However, on a positive note, the general increase the production of high value-added products such as furniture expected in the future, should offer some scope for SME development.
Five common themes for potential World Bank support and encouragement emerge from the above analysis. These can be broadly described under each of the following headings: information; pricing; human resource development; industrial restructuring; and institutional development.
The preceding analysis has shown that there is a continuing need for better information about the forestry sector in many developing countries. As a first step, better information about forest areas and potential yields are required to enable countries to more effectively plan and monitor the development of their forest industries. For example, few developing countries produce supply forecasts or reliable estimates of annual allowable cut and many don't even know with any great degree of accuracy what current production really is.
If serious attempts are really going to be made to introduce SFM in many developing countries, this is going to require a significant upgrading of their capacities to collect and interpret information about forest resources and production. The World Bank and others should consider what role they should play in supporting this process as part of their strategies to support sustainable development more generally.
With increased demand for other forest services from natural forests and the introduction of policies to support SFM, it is believed that the pattern of wood supply in the future will have to move away from its current heavy dependence on the natural forest towards a broader range of supply sources. However, the extent to which future supply is taken from plantations, trees outside of forests and recycled fibre sources will be strongly influenced by pricing policies in the natural forest.
There is a wealth of literature to suggest that many countries are setting stumpage rates at levels well below forest concessionaires ability to pay (see, for example, Repetto and Gillis (1988) for an early review of some of these issues). Not only does this discourage the use of other supply sources, but it also tends to distort investment decisions, discourage investment in more efficient production processes and encourage unsustainable forest practices.
The World Bank and others should continue to encourage countries to improve their forest revenue collection systems on the grounds of greater economic efficiency and in order to improve the sustainability of their forest industry developments. To some extent, countries could also be encouraged to use some of this money to improve the effectiveness of their forestry administrations to monitor and control forest operations.
A third and often neglected implication of the outlook for future forest product supply and demand is that many of the issues discussed in this report have tremendous implications for human resource development (HRD). Policies to implement SFM and develop SMEs (say, by encouraging greater supply from trees outside forests); and the general level of industry restructuring towards more technologically complex production processes expected in the future, will all have to be supported by a significant and prolonged programme of HRD in many developing countries.
Some countries have already begun to upgrade the skills of their forestry staff. For example, India has a superb forest surveying section and a considerable number of well trained forestry extension workers. Similarly, Malaysia has a well developed forest research and development community. However, many countries have nowhere near the number of skilled staff necessary to make SFM a viable proposition in the near future. This is particularly the case at the lowest levels of forest operations, where forest workers often receive little training in anything but the most basic forestry skills.
The upgrading of human resources in the forestry sector in many countries will require a substantial amount of funding and technical assistance. The World Bank and others should consider the best way in which these investment needs can be met on a sustainable basis in the long-run.
The supply and demand outlook has suggested that there will be a significant need for industrial restructuring. At a policy level, the World Bank, FAO and others should consider how they can best help countries to re-align their industrial policies to take into account the expected future changes in wood availability and forest products markets. This is particularly the case in countries where past industrial policy has been designed to support industries which may start to come under pressure (e.g. those relying on increasingly scarce large logs, such as the sawmilling and plywood industries). At a project level, there will also be some need for sector reviews to help countries anticipate and adjust to the changes noted above.
Some of the future challenges in terms of required industrial restructuring will have cross-sectoral implications and touch on other government policies outside the forestry sector. The World Bank can also play a useful role therefore, by trying to influence the relevant parts of government administrations outside of the forestry sector (e.g. industry, energy and planning ministries) where appropriate.
Many forestry administrations in developing countries have evolved to fulfil fairly limited roles. Mostly they have largely taken on the tasks of planning, encouraging or developing, then monitoring, roundwood production from the natural forest. The changing pattern of future wood supply and developments such as SFM and greater needs for HRD, research and better management of protected areas, will all require forestry administrations to broaden their activities.
As noted above, some have already started to do this (e.g. India and Malaysia), others will need encouragement and technical assistance with the restructuring of their institutional capacities. The World Bank and others should support this at the policy level in their regular dialogues with countries and consider how technical assistance can best be provided to facilitate this process.
