Applying Natural Resource Economics to Forest Degradation: Lessons from India

0352-A1

Meenakshi Joshi^[1] and Preet Pal Singh

Abstract

In poor countries, there is overwhelming evidence that in the aggregate environmental resources are being degraded in quantity and quality or both, resulting in adverse social, economic and environmental impacts. It is entirely possible that growth in per capita gross national product is currently being achieved at the cost of degradation of the environmental resource base. In this paper we contribute to the ecological valuation studies by presenting countrywide estimates of forest degradation for the second most populous developing country - India - where population pressure and poverty are significant factors influencing forests. The present study uses currently available literature to value forest degradation in monetary terms. Gleaning scantily available literature, this paper uses a simple model to quantify annual loss in monetary terms for the period 1995-2000 as a result of forest degradation Total annual loss to society due to reduced timber, fuelwood, non-wood forest products and carbon storage alone is valued at US$ 11.86 billion.

Introduction

Degradation refers to reduction in productivity and/or diversity of a forest due to unsustainable harvesting, fire (except for fire dependent eco-systems), pests, and diseases, removal of nutrients and pollution or climate change (TERI 1998). Degradation of forest resources in the developing countries now threatens not only the economic prospects of future generations but also the livelihoods of current users as well. Arguably, the major single cause of degradation is that forest resource is badly under priced and therefore undervalued by the society (Richard 1994). From an economic perspective, the depletion represents a real economic cost and a diminution in natural wealth, which is equivalent to depreciation of physical structures and equipment. This inappropriate omission has the effect of imputing zero cost to the consumption of resources upon which an economy may depend in order to meet economic targets, finance imports and sustain its population.

This paper provides a framework to incorporate principles of natural resource economics to valuate forest degradation. The economics of forest degradation is elaborated in the context of the second most populous developing country - India - where the population pressure and poverty are significant factors influencing forests. The paper quantifies annual loss in economic terms for the period 1995-2000 because of under stocking of Indian forests. In this paper, loss of timber, fuelwood, non-wood forest produce (NWFP), and carbon storage because of forest degradation is evaluated. Other functions of the forests are left out of the analysis at present because adequate data is not available at a scale to carry out meaningful analysis at national level and not because they are indispensable or less insignificant.

Forest degradation

India is poor country, with 44.2% of population below US$ 1 (1993 PPP) per day (UNDP 2001). 60% of the population is engaged in agriculture and the agriculture land is already fragmented into uneconomic parcels and overused. High population growth, widespread poverty and limited employment opportunities in agricultural and industrial sector have resulted in heavy pressure on forests. As per the wood budget for the year 1996 (Rai et al. 1996) there was a net deficit of 86 million tonnes of fuelwood, which as a compulsion is being removed from the forests. An estimated 100 million cow units graze in the forests annually whereas sustainable level is only 31 million. Additionally graziers collect an estimated 175 to 200 million tonnes of green fodder annually. The forests have at least 5 times more pressure than what they can withstand. On the other hand, subsequent to enactment of Forest Conservation Act, 1980, rate of diversion of forestland has declined drastically to around 0.021 million ha (mha) per annum (ICFRE, 2000). Thus, in Indian context, arresting and reversing forest degradation should be the most important factor requiring consideration in any forest management strategy.

Forest Degradation: Qualitative analysis

Widespread forest degradation in developing countries remains poorly understood or quantified (Niles et al. 2001). Change in forest composition because of selective overexploitation, loss of natural regeneration, low growing stock and low productivity are important parameters indicating forest degradation. Shifting cultivation, fires and over-grazing have resulted in the elimination of susceptible species and in making selected tolerant species more abundant. The preponderance of Tectona grandis and Shorea robusta in the deciduous forest and of Pinus roxburgii in the sub-tropical regions of India is attributed to their inherent gregariousness as well as their resistance to injuries from fire and grazing. On the other hand, bamboo has been completely wiped out from many parts of central India because of overexploitation for industrial and because it is extremely sensitive damage from fire and grazing (TERI 1998).

Inadequate natural regeneration is another indicator of degraded forest. Over-grazing and repeated fires eventually affect relatively hardy species too and their ability to regenerate. Majority of fires are deliberate to facilitate collection from ground of commercially important non-timber forest produce as ‘mahua’ (Madhuca indica) and ‘sal’ (Shorea robusta) seeds. It also results in new flush of grass or ‘tendu’ leaves (Diospyros melanoxylon) used for rolling bidis (country made cigarettes). An FSI sample survey conducted in 1995 found that annually fires affect some 53 to 54 percent of forest areas (TERI 1998). As a result, natural regeneration is either absent inadequate in 53% of the country’s forest.

The area under open forest (< 40% canopy cover) gives an idea of the effect of degradation of the forests. Calculation of growing stock densities for various forest types/strata for the year 1995 (FSI 1995) for canopy densities of >70%, 40-70% and 10-40% indicate that the forest with canopy density of 40-70% and 10-40% show average growing stock of 74.1% and 28.2% respectively compared with forest of canopy density of more than 70%. The current productivity of forest is 1.37 cu m/ha/yr (FSI 1995) is low when compared with the global average of 2.1 cu m/ha/yr. With forests unable to meet the needs of the increasing population, unsustainable usage of forest results. This further causes lowering of productivity and of growing stock ensuing downward spiral of productivity and growing stock.

Fig -1: Growing stock under different canopy density

Valuing monetary loss due to forest degradation

Loss of timber and fuelwood: This quantification is based on the satellite data, aerial photography and processing of forest inventory data collected from 1,70,000 sampling units carried out by Forest Survey of India (FSI). Analyzing the data, FSI classified forest in each state into three density classes - D1, D2, and D3 (Table-1)

Table-1: Classification of forests

Source: (FSI 1995)

For each state, potential addition in growing stock achievable by increasing the growing stock density of D2 and D3 to D1 was calculated. For converting standing stock to biomass, the volume was multiplied by Expansion factor (1.9) to account for small branches of vegetation. Conversion factor of 0.5 is used to convert biomass in volume terms to weight terms. Conversion and Expansion factor used here is the one prescribed by IPCC guidelines for preparing national greenhouse gas inventories (IPCC 1995). The annual growth rate (existing annual increment expressed as percentage of growing stock) of 1.85% (FSI 1995) and ratio of 5:8 (timber: fuelwood) is considered (Dewar et al. 1992) for estimating the physical loss of timber and fuelwood.

Table-2: Value and quantity of Imports of wood and timber

^# @1$=Rs 45
Source: (MoEF 2001)

The literature on timber prices in India is rather sketchy. Although the Forest Policy, 1998 prescribed that, all subsidies be withdrawn, in reality, subsidies largely remained in force because of long term contracts (Saxena 1994). The resulting price damping of price, therefore, undervalues timber. For economic valuation, market prices of goods and services need to be revised to correct for any market and policy failures. The adjusted market (efficiency) price is true indication of the economic value of the good or service. In our analysis, border price of timber is taken as efficiency price. The border price used is c.i.f. (cost, insurance, freight) price. This price reflects the true opportunity cost of domestic output when contrasted against domestic market prices, which are below world prices. The unit price (Table-2) of imported logs in India has remained more or less constant despite heavy devaluation of Indian Rupees in composition to Dollar (MoEF 2001). Considering timber extraction from 80% of the forest (FRI, 1961) and valuing timber at average price of 1995-98, the annual loss of timber is US$ 8.47 billion. As nationally, 72% of the fuelwood is consumed directly, bypassing the market altogether, instead of market price, fuelwood is valued at border price of kerosene (PIB 2001) required to meet same cooking requirements (Table-3). In India, kerosene is next best alternate for fuelwood because it the cheapest commercial fuel available in rural areas. Calculated on this basis, value of fuelwood lost due to degradation annually is US$ 1.80 billion.

Table-3: Loss of timber and fuelwood

^# @1$=Rs 45.
*Kerosene required for substitution is calculated on the following basis:
a) Efficiency of convectional firewood chulla - 16%; Efficiency of Kerosene stove - 40%
b) Energy content of fire wood (air dried) -13.6 MJ/Kg; Fuelwood density: 500 Kg/m³
c) Energy content of kerosene: 43.5 MJ/Kg; Mass Density: 0.78; Border price of kerosene: Rs 13.66 per litre (PIB, 2001)

Loss of Carbon storage value: The additional carbon storage in tree biomass is calculated by multiplying enhanced biomass by 0.45. Half of this additional carbon sequestered calculated to be 730.73 Tg would be stored for an indefinite period. The income from any potential carbon offset is difficult to predict because of continuing uncertainty of fate of Kyoto Protocol. In 1998, the then-chair of the White House Council of Economic Advisors predicted that under global system of trading, carbon would cost $14 -$23/tC (tonne C) (Yellen 1998). The current prices are generally between $10/tCand $30/tC (Niles et al. 2001). Assuming $10/tC to be the value of a tonne sequestered, the loss of carbon storage is valued at US$ 73.07 billion. This loss in terms of loss of annual flows assessed at market interest rate of 10% is US$ 0.73 billion.

NWFP: Although NWFP have been traditionally been important in fulfilling basic requirements of forest-dependent communities, their economic value have generally been neglected, if not ignored. To calculate the loss due to NWFP, the states having similar moisture indices and length of growing season were grouped into seven categories. Maximum monetary flows from NWFP (excluding fuelwood) based on earlier studies (Table- 4) in India were used first to value the potential annual worth of NWTP that could have been extracted if the entire forests were D1. Assuming that in a given grouping, per hectare monetary worth of NWFP extracted would be similar and the percentage monetary value of NWFP lost because of degradation (in D2 and D3) is same as the percentage loss of biomass in D2 and D3 as compared to D1 (i.e., 25.9% for D2 and 71.8% for D3), the loss of NWFP is assessed.

Table-4: Monetary loss of NWFP

Compiled from *Verma 2000 and **Ravindranath et al. 2000 with references mentioned therein.

^#As no studies were available from where per ha values could be calculated, the average value of above three ecosystems was taken.

Discussion and conclusions

The total annual loss to the society due to reduced timber, fuelwood, NWFP and carbon storage because of forest degradation is valued at US$ 11.86 billion/year. Loss of fuelwood and NWFP (US$ 2.66 billion/year) is even more serious, if viewed in context of rural poverty. In India, NWFP provide gainful employment during lean periods and supplements incomes from agriculture and wage labour. Shortage of fodder, firewood, raw material for handicrafts, small timber requirements and other NWFP greatly affect the survival needs of the poor. Self-sufficiency of these materials will definitely help in reducing existing rigors of poverty. This situation is also indicative of the inadequacy of current investment to control forest degradation. Forestry sector in India receives relatively low priority in allocation of funds (NFAP 1999). Against US$ 0.33 billion outlay for forestry annually, estimated recorded and unrecorded removal of forest products is valued over US$ 6.67 billion which is 20 times of the total outlay. This situation is typical of most of the developing and under-developed countries.

Table-5: Monetary loss due to degradation

Source: Own calculations

In addition to above issues, the study also points towards the following major concerns:

a. Failure of traditional market mechanisms to arrest forest degradation. This puts much more weighty responsibility on pubic policies in dealing with various aspects of environmental management.

b. Environmental concerns are rarely considered while making public investment decisions, though at project level these concerns may be incorporated by traditional Environmental Impact Analysis (EIA).

c. A substantial part of the growth in per capita is currently being achieved at the cost of degradation of environmental resource base. Future generations will have to incur heavy expenditure for positive ameliorative measures implying that the present generation is borrowing heavily from future generations to finance current development.

The need of the hour is to develop natural resource accounting system to reflect environmental degradation in national accounts so that accurate interpretation of economic growth - whether the development is at the cost of environment or not, can be obtained. This can bring about environmental accountability in public policy by putting pressure on decision makers to enforce sound management of environmental assets.

Valuing natural resources is not easy. Conceptual difficulties, measurements problems and paucity of data place limitations of accuracy and reliability on valuation of natural resources, especially in a developing country. The immediate benefits from extraction beyond the sustainable limits have been ignored while valuing degradation based on the assumption that the process of degradation has been very gradual and spread over many years. The prices of timber and NWFP do not show consistent price trends to perform even short-term interpolations. As such, values available from studies available in literature from 1995-2000, and, if possible average prices over that period were used. As the forest area has nearly stabilized at about 64 mha, with area under open forest showing marginal decrease of 0.17% of geographical area for 1995-1999 period, the growing stock data for the year 1995 has been taken for valuation. Hence, the valuation period can be regarded as annual for 1995-2000 period. The assumption that in a given state or grouping growing stock, productivity and monetary flows due to extraction would be similar may result in some error. In spite of the above caveats and others, valuing forest degradation is worth doing if only to remind the policy makers that the cost of inaction in combating forest degradation is enormous.

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