R. G. FONTAINE
Forestry and Forest Products Division. FAO
The 1960 FAO Regional Conference for Europe gave attention to the need for and desirability of national forestry funds. It concluded that "the formation of such a fund may be necessary since afforestation can only be a long-term investment, requiring continuity of plan, and private investment cannot always provide sufficient capital or we the proper methods. The matter deserves further investigation and should be put on the agenda of the 1961 session of the European Forestry Commission. This note was drafted as a basis for the Commission's discussions.
OUTLAYS on forestry work can be divided into current and capital formation expenditure. The former is for the purpose of conserving stands as productive capital through normal management, while the latter aims at improving the quality and quantity of forest products, and covers forest extension and the planting of quick-growing species outside the forest; the improvement, restoration or conversion of existing stands; financing the equipment and protection of forest stands; and making them more accessible by road construction.
The financing of current expenditure usually raises no problems. Receipts from the sale of products of privately-owned stands or appropriations out of the annual budget for state or community forests usually provide the means. In some cases, however, particularly in connection with inherited stands, the State helps private owners either by exempting them from taxes or with loans.
In some countries, moreover, outlay on maintenance is obligatory. This is true, for instance, when it is a question of restocking cutover stands in Austria, Western Germany, Italy and Portugal. In Norway, some of the logging receipts are paid into a special account which the owner can draw on only when he has given proof that he has carried out certain regeneration or improvement work. In Italy and Spain, part of the receipts from sales of timber from public community stands is automatically channeled into stand improvement and protection work.
On the other hand, capital formation expenditure sometimes raises certain difficulties. In fact, what is involved is either work such as normal reforestation that gives practically no returns or which yields them only after a long period of time and therefore does not attract capital; or work requiring a large initial capital outlay beyond the means of private individuals, for instance the planting of quick-growing species or infrastructural work; or finally, work that would be of benefit not to the person financing it but to the community at large and which therefore is in the public interest. This is the case, for example, with the planting of forests for protection purposes, to afford recreational facilities or, in countries that are net importers, to supply the nation with timber in the case of emergency.
In most countries capital formation expenditure is financed from the annual state budget for work in the public domain and by private owners themselves for their own stands. However, very often private owners receive state help in the form of low-interest loans or subsidies from the annual state budget. In general, in the case of works in the public interest that offer small returns, the State is called upon to intervene, whether the land be publicly or privately owned.
Work carried out with public funds has usually been limited in scope because the necessary fund allocations depended on budgetary availabilities. An attempt has been made to overcome the drawbacks connected with an annual budget by a number of systems, for instance:
(a) by earmarking budgetary receipts to provide the necessary funds, under a special law, fixing a proportion of receipts from an existing tax;(b) by programming laws that initially stipulated the exact amount of outlay necessary for executing any project and spreading expenditure according to a commitments-and-payments schedule;
(c) by special development budgets; and
(d) by economic development funds that are independent of the state budget.
Such measures, however, give only relative security if the requirements of the state treasury for one reason or another absorb all or part of the receipts that were initially intended for forestry work. In the case of laws programming forestry work, in countries with a parliamentary government, commitments are usually limited in -duration to the period of office of the legislative body, and are inadequate for long-term projects.
For state forests the formula of independent departments has very often been adopted. These can be financed in many ways, in particular from income derived from the forests themselves. Outlays for state forests are given first priority. However, if after several years of functioning there is a surplus in these funds, part of it may be paid into the state treasury. If, on the other hand, there is a deficit of receipts from the stands such that expenses cannot be covered, as happens with poorly forested countries, other sources of credit must be found.
In the last few decades, particularly following the second world war, these methods of financing have proved inadequate because in many European countries regeneration of stands has required heavy and continuous outlay.
Forest extension and rehabilitation require particularly large investment. The European Forestry Commission has several times emphasized the need for large-scale afforestation in order to supply anticipated future needs. It also recognized that the physical and social role of forests can only be fulfilled if forest extension and rehabilitation work is carried out on a large enough scale. For the Mediterranean region, the FAO Mediterranean Development Project demonstrated not only the need for large-scale afforestation work, mainly with quick-growing species on the plains in order to supply a growing timber demand, but also the need for protective stands for soil and water conservation, crop protection and in general better land use. The recommendation was made that over the next 20 years 6 million hectares should be afforested and 10 million hectares improved.
Furthermore, the increased requirements of European industry as well as certain changes in the type of products demanded and the modifications taking place in the economic and social conditions of forest management and exploitation, often call for an intensification of silviculture and complete reconversion of large areas of existing stands. This more often than not requires heavier investment than private individuals can afford. This is true particularly with regard to the conversion of cóppice into high forest, the improvement of hardwood stands by the introduction of softwood species, and finally the equipment of hitherto inaccessible stands.
On the other hand, forest extension and rehabilitation work can only be satisfactorily carried out as part of a long-term plan calling for continuous effort spread over many years and hence requiring a continuous flow of funds. Preparatory studies are necessary to determine which soils have to be afforested and research is necessary to determine the best planting techniques; such work also requires that seed and selected plants be supplied, something that becomes feasible only after long preparation. Finally, it calls for the training of skilled workers who must be given assurance of steady employment and have efficient equipment at their disposal. Plantations may fail and the outlays they have entailed may go to waste if costly maintenance operations are discontinued for want of sufficient and timely funds.
Under these conditions various formulae have been studied and national forestry funds have been set up in several countries. The following are some examples.
Patrimonio forestal del Estado
In Spain the Patrimonio forestal del Estado, set up by law in 1939 and reorganized by a further law in 1941, is an incorporated body enjoying financial autonomy and attached to the Ministry of Agriculture.
The original purpose was to provide for the rehabilitation, conservation and extension of the public domain forests so that they might really accomplish their economic and social functions for the country. Later this body expanded its activities and became a state agency empowered to undertake forestry projects on behalf of communes or private owners on a contract basis.
The usefulness of this body, that has afforested or reforested 1,300,000 hectares in 20 years, lies principally in the fact that it is financially autonomous, and therefore more flexible than government agencies, and that it has decentralized administrative services with full powers in each region.
The Fund derives its income from two main sources:
(a) an annual budget subsidy from the State set by the law of 1941 at 10 million pesetas (approximately U.S.$300,000) and later raised to 500 million pesetas (U.S.$8,000,000);(b) income from the exploitation of state forests as well as of reforested areas.
The Forestry Commission
In the United Kingdom the implementation of the forest laws promulgated between 1919 and 1951 is the province of the Forestry Commission, which is accountable annually to Parliament for all expenditure. Its expenses, including grants and loans to private forestry, are covered by:
(a) receipts from forest products and rents from lands and assets other than those strictly belonging to its forest estate;(b) a balancing figure voted annually by Parliament.
A forestry program was formulated in 1943 proposing that the extent of properly managed forests, both privately and publicly owned, should be raised from 2 million to 5 million acres (from 800,000 hectares to 2,000,000 hectares) by the end of the century. This long-term program was not adopted in its entirety by the Government, but short-term programs within the long-term concept have been formulated from time to time. The forest policy for the United Kingdom has been broadly accepted by the different political parties so that, notwithstanding changes in the political majority in Parliament, the Forestry Commission has felt reasonably certain that the finances necessary for the approved program would be forthcoming.
Fonds forestier national
In France the Fonds forestier national was set up by a law of 30 September 1946. It consists of a special Treasury account 'into which is paid a tax levied on products from sawmills and forest exploitation, but not on fuelwood. The law envisages the adjustment of tax rates within specified limits in such A manner that the authorities responsible for implementation of the plan may adapt the Fund's receipts to practical needs and take constantly into account the current financial situation of those liable for forest taxes as determined by the fluctuations of the timber market. There may be partial or total exemption from taxes for certain commodities, when their markets have to be protected or enlarged. The financing of the Fund is-therefore somewhat flexible, in order not to hamper the forest economy and permit constant adaptation of work programs to requirements.
The Fund grants subsidies, for which it does not expect repayment, as well as low-interest capital loans (simple interest of 0.25 %) and long-term loans often adjusted to the low returns from many stands.
Financial autonomy enables this Fund to decide its own order of priorities for projects independently of other branches of investment. Within the forestry sector, priority is determined for each project according to its economic value (higher returns and improvement of the commercial balance or balance of payments) or social value (establishing better equilibrium in depressed rural areas).
Two thirds of the allocations are used for afforestation, stand improvement, reforestation, new plantations outside the forest and other operations. One third goes to stand conservation, protection and equipment; 80 percent of the credits set aside for afforestation or reforestation answer to the first requirement (economic value) and 20 percent to the second (social value). These priorities apply throughout the country.
Advantages and drawbacks
The significant achievements attained by existing national forestry funds have attracted the attention of other governments and forestry circles. Continuity and flexibility in financing, permitting long-term planning and rapid execution of projects, are the arguments invoked in their favor. They have also made possible the development in public and private sectors of projects in the public interest, whether for soil and water conservation, making forests accessible for recreational use, ensuring a steady timber supply to a country or for helping the government or private owners to make the necessary investments to intensify silviculture.
It is therefore as well to underline the fact that the setting up of national funds to promote forestry not only procures certain advantages for private owners and forest labor in general, whereby they may be recompensed for the special hardships under which they work in a relatively less favored sector of the economy, but is also the recognition of the fact that, directly or indirectly, forestry and its corollary, the need for over-all planning by the State, are in the public interest.
Once the goals have been set, even provisionally, the national forestry funds can lead to the attainment of the desired objectives, either through specific public works programs or public action designed to influence private decisions, or by a combination of both types of action, in proportions still to be determined.
The setting up of such funds has aroused lively discussion as well as some criticism. One much debated subject is the source of their financing. If they are financed out of the regular state budget '. it is the entire, country that maintains them, which is perfectly justified in the case of projects in the national interest but might raise objections in cases where only a private sector of the economy is being helped. If, on the other hand, taxes are levied on the forest economy sector, the expenses are borne by the initial beneficiaries of forest improvement, which is quite justified when it is a matter of helping private stand owners to increase their stand yields and improve their forests, but might raise doubts as to the benefits to the community as a whole.
We might therefore consider whether forestry funds should be financed out of a combination of public funds and levies on the sector of the economy concerned, and whether the ratio of work of general interest to work of private interest should be determined accordingly. Whatever the decision, it does not seem that state investment in the financing of forestry undertakings, particularly in the setting out of plantations of quick-growing species, need he sacrificed for projects in the public interest that promise only very low, delayed returns. The State should retain the option of reserving a forest domain for itself in which receipts and expenditure are as balanced as possible.
The setting up of forestry funds by means of an automatic levy on one sector of the economy, i.e., forest industries, has also given rise to objections of another type. Some people feel that such funds may freeze credit that could very well find in outlet in other sectors or that they may use financial resources derived from forests for other than strictly forestry purposes as a result of too broad an interpretation of the regulations. The fact that a tax is levied only on certain commodities, for instance timber, might be considered a protectionist measure for other products, such as fuelwood.
These drawbacks may certainly be avoided by allowing for the possibility of changing tax rates within specified limits and exercising rigorous control over expenditure. On the other hand, it seems inevitable for forestry funds to be exposed to possible use by the Treasury to cover expenses in other sectors.
Another criticism of taxing forest products is that this may lead to lower receipts when the timber market and economic conditions in general are depressed. This is precisely the time when, for social and economic reasons, it may be desirable to press on vigorously with forest extension and improvement work. Afforestation, road building and other forest development can best be carried out at such times in the form of public works.
Finally, a criticism of forestry funds financed from sources other than public funds is that this constitutes double taxation, which is forbidden by the constitutions of most countries, or else that it relieves one sector from taxation, which is contrary to the principles of equitable taxation.
