0938-A1

Forest Environmental Values and Socio-Economic Development: A Case Study of Lao PDR

Lucy Emerton^[1]

Abstract

The paper argues that economic decision-makers and development planners have a tendency to under-value natural forests. In particular, non-market values (environmental services and livelihood benefits) are not considered. This has effects on economic and land-use policies, planning and management practice. In particular, it has acted to the detriment of sustainable forest management. It means that sustainable forest management is given a low priority in economic planning (except for commercial timber extraction), often faces discriminatory market and fiscal signals (for example subsidies to alternative land use and investment options), and receives extremely low public budget allocations and donor aid.

The net result is that, in the face of these disincentives, forests are more likely to be managed unsustainably, converted, degraded and lost. Although this is not seen as an economic cost at the national economic policy level, because non-market forest benefits remain unaccounted for, it can undermine the very goals of socio-economic development itself: income and employment generation, food security, rural development, poverty alleviation and national economic growth.

The case of Lao PDR is used to illustrate these issues at a national level and at the level of a forest in the northeastern part of the country, Nam Et-Phou Loei. The paper describes how, contrary to received wisdom, forests have a very high - and quantifiable - non-market benefit. They underpin much economic activity, at both local and national levels and across sectors. In turn, these economic values provide a strong - and much needed - argument for sustainable forest management, and underline the importance of forests in socio-economic development and poverty alleviation.

Acknowledgement:

The information and results presented in this paper are based on work recently carried out in Lao PDR. The field study of Nam Et-Phou Loei NBCA (Emerton et al. 2002a) was carried out as part of the Lao component of the project "A Review of Protected Areas and their Role in the Socio-Economic Development of the Four Countries of the Lower Mekong Region", led by IUCN - The World Conservation Union and International Centre for Environmental Management, Brisbane and implemented in collaboration with the National Mekong Committee Secretariat; Science, Technology and Environment Agency; Department of Forest Resource Conservation; and the Nam Et-Phou Loei Integrated Conservation and Development Project. The economic assessment of Lao PDR’s biodiversity (Emerton et al. 2002b) was carried out as an input into Lao PDR’s National Biodiversity Strategy and Action Plan, funded through GEF-UNDP under Project LAO/98/012 and implemented in collaboration with the Science, Technology and Environment Agency of the Government of Lao PDR. Particular acknowledgement is due to these institutions and to the co-authors of these studies.

1. Introduction

It is estimated that almost half of Lao PDR, or 11.6 million hectares, is under forest (DoF 1992). It is one of the most forested countries in Asia, and in biodiversity terms ranks as one of the richest in the region (Nurse and Soydara 2002). The human population of Lao PDR are also characterised by their extremely high economic dependence on forests. Alongside rice farming, forest resources underpin the majority of Laotians’ livelihoods - more than 80% of the population of 5.5 million people live in rural areas, and depend largely on forest products for their day-to-day subsistence and income.

Despite - or perhaps because of - the relatively good state and cover of Lao PDR’s forests compared to neighbouring countries, and the high economic reliance on them, forest clearance and degradation is becoming a major problem. During the 1980s reduction in national forest area was estimated to be between 100,000-200,000 hectares per year or about 1% of the 1981 forest area (MAF 1990). Of this, approximately half arose as a result of shifting cultivation, and the rest was mainly accounted for by timber harvesting and forest fires. Estimates of deforestation in the latter part of the 1990s range between 0.3% to 2% of the national forest area per year, meaning that forest cover may fall below 35 percent by the year 2020 (World Bank, Sida and Government of Finland 2001).

The causes of deforestation in Lao PDR are multiple and complex. This paper argues that one important reason that forest cover is being allowed - and in some cases even being encouraged - to decline is that forest resources are under-valued in national economic statistics and decision-making. Especially, little importance is attached to non-market forest benefits, including local livelihood values. According to official statistics, the forest sector contributed only 3% of gross domestic product (GDP) in 2000 - representing a real GDP of $4.3 million or nominal GDP of $52.5 million (IMF 2002). This figure is based almost wholly on estimates of formal-sector timber output, including gross revenues from commercial roundlog harvesting of up to $50 million (calculated from data presented in World Bank, Sida, Government of Finland 2001) and government timber revenues of approximately $11.6 million (IMF 2002). It however makes little or no reference to household use of forest resources.

These figures, and commercial timber output, represent just the tip of the iceberg in economic terms. Lao PDR’s natural forests are actually worth many times this amount, but the bulk of this value is comprised of household-level benefits that never appear in formal markets and therefore remain largely invisible to economic decision-makers and planners. Because forests are under-valued, and in the light of urgent and pressing needs for socio-economic development, many policy-makers see little economic gain from sustainable forest management and little economic cost associated with natural forest degradation and loss. A low priority is thus accorded to the forest sector in national economic planning, and few financial resources and weak economic policy incentives are provided for sustainable forest management. Yet, as this paper will describe, both site-specific and national-level data underline the extremely high value of Lao PDR’s forests in economic and development terms. It is argued that, in fact, sustainable forest management yields vital economic benefits to Lao PDR’s economy, and must be seen as a central component of the country’s socio-economic development strategy. This, in turn, requires that non-market forest values are given due weight in economic and development policies and decision-making processes.

2. A case study of forest environmental values: Nam Et-Phou Loei

Lao’s protected area network of National Biodiversity Conservation Areas (NBCAs) covers more than 29,000 km², contains some of the richest and most undisturbed forest in the country, and has an accordingly high economic value. The 4,200 km² Nam Et-Phou Loei (NEPL) NBCA, located in the north-east of the country (Figure 1), provides a good example of a forest with high environmental and economic values. It is considered to have particular global and national conservation significance (Robichaud et al. 2001), harbouring among the highest faunal biodiversity of any protected area in northern Lao PDR (MAF and IUCN 1998, WCS 1998). NEPL also has extremely high local significance, due to the central role that the forest plays in the economy of the surrounding area.

Figure 1: Lao PDR NBCAs and Location of Nam Et-Phou Loei

Source: Emerton et al. 2002b

NEPL overlaps three Provinces: Houaphan, Luang Prabang and Xieng Khouang. Within these Provinces, more than 160 villages lie inside or on the boundary of the NBCA (MAF and IUCN 2001). The majority of these villages, and two thirds of the NBCA’s area, lie in Vienthong District of Houaphan Province. The vast majority - more than 80% - of the residents of Viengthong’s NBCA villages are engaged in farming and forest products collection as their primary occupation.

NEPL’s resources provide a wide range of products that are used for income and subsistence by the 3,600 NBCA-resident and NBCA-adjacent households in Viengthong District, together comprising more than 24,000 people. This includes harvesting forest products for food, medicines, fodder, house construction and handicrafts production. Over 40 species of trees, 15 bamboos, 6 palms, 34 wild vegetables, 7 grasses, 4 vines, 12 wild fruits, 56 medicinal plants and 13 mushrooms have been identified as being used by local villagers (MAF and IUCN 2001), and birds, snakes, frogs, fish, porcupine, barking deer and wild pigs are all consumed as food. In total, it is estimated that 165 kg of wild plant products and 141 kg of wild meat are consumed each year at the household level (Schlemmer 2001), that almost all of domestic energy and construction needs are sourced from the NBCA, as well as the bulk of livestock fodder and pasture, human medicines and raw materials for crafts and utility items (Emerton et al. 2002a).

Unsurprisingly, the economic value of forest product utilisation for the 80 NBCA-resident and NBCA-adjacent villages in Viengthong District is significant, estimated to be worth more than $1.1 million a year (Table 1). Subsistence-level consumption accounts for almost three quarters of this value. Annual values range from $160 per household living outside the NBCA, through $270 for those bordering the NBCA, to an average of $500 in villages that are located inside the NBCA. There are also notable differences in forest values within villages, especially according to the relative wealth or poverty of individual households. Taking access to productive assets^[2] and income-generating opportunities as a proxy for wealth, a clear relationship becomes apparent between household socio-economic status, forest values and livelihood dependence on forest products. Both the richest and the poorest households consistently harvest forest products to a much higher annual value than other sectors of the population. Yet whereas richer households focus primarily on higher-value and market commodities, the high forest values accruing to poorer households reflects their reliance on sales of low-value wildlife and NTFP due to the absence of alternative sources of income. Although valuable in absolute terms, forest resources do not form the main component of richer households’ production. As poverty levels rise, so forest products make a progressively greater economic contribution to livelihoods, rising to almost half of total income and subsistence for the poorest households in NEPL.

Table 1: Value of local forest utilisation in Nam Et-Phou Loei NBCA

Source: Emerton et al. 2002a

3. The role of forests in national socio-economic development goals

It is clear that NEPL has an extremely high economic value to the surrounding economy. A similar situation exists in most other parts of the country. At the national level, non-wood forest products have been calculated to be worth an average of $320 per year for rural households in Lao PDR, contributing about 44% of subsistence value, 55% of cash income, and 46% of the total household economy (Foppes and Ketphanh 2000). Forest foods are estimated to contribute between 61-79% of non-rice food consumption by weight, and provide an average of 4% of energy intake, 40% of calcium, 25% of iron and 40% of vitamins A and C (Clendon 2001). More than three quarters of the population, and many businesses and enterprises, rely on woodfuel as their primary energy source to an annual value of more than $4.5 million a year, use of natural forest wood for house construction is worth more than $17 million, and commercial non-timber forest product exploitation is thought to generate gross revenues of more than $46 million (Emerton et al. 2002b).

Such figures have major implications for national economic and development processes. Far from being a minor component of Lao PDR’s national and local economies, the forest sector may in fact be one of the most important sources of economic production and consumption in the country. In total, forest products contribute an estimated $308 million a year in terms of gross production and consumption. More than two thirds of this figure is contributed by local-level household consumption, and only 17% is accounted for by the formal-sector logging and timber extraction which dominate official calculations of sectoral income and output (Emerton et al. 2002b).

Clearly, national statistics have miscalculated the economic value of forests in the Lao PDR economy. They have also under-estimated the importance of forests to some of the country’s key development goals. The overriding aim of the current socio-economic development strategy for Lao PDR, as defined in the Seventh Party Congress, is poverty alleviation (Sisoulith 2001). This is a pressing problem - thirty nine percent of the country’s population are currently thought to be living in poverty and Lao PDR is ranked 140 out of 174 in UNDP’s Human Development Index, making it one of the poorest countries in the Asia region and in the world (ADB 2001a, 2001b). The government aims to reduce poverty by half by the year 2005, and to eradicate poverty completely by 2010.

The case of NEPL makes it clear that forests play a key role in meeting the economic needs of the poorest sectors of the population. The Northern Region, where NEPL is located, has the highest prevalence of poverty in the country. Within the Northern Region poverty is highest in Houaphan Province, where three quarters of the population were classified as poor in 1998 with an equivalent 2002 per capita GDP of just $204 (UNDP 2002). Against this background of widespread poverty, the value of forest resource use is extremely significant at an average of $486 per household per year, or over one third of per capita GDP. For villages inside the NBCA, who are among the most vulnerable in the Province, this rises to $500 per household or almost 40% of per capita GDP. Among the poorest NBCA households, defined as those who suffer recurrent rice deficits, own few or no livestock, have access to little cropland and limited sources of cash income, NBCA resources comprise up to half of household cash earnings and contribute nearly two thirds of the total household economy.

Like many other forests in the country, NEPL plays an essential role in meeting the gap between the level of basic subsistence and income that a rapidly growing human population require to survive, and that which the government is currently able to afford to provide. Reflecting this role, in 2000 the annual worth of NBCA resource use for Viengthong villages was equal to the total recorded economic output for the District, and on a per capita basis is more than double the entire annual development expenditures made by central government and donors in Houaphan Province each year (UNDP 2002).

4. The implications of economic under-valuation for sustainable forest management

Under-valuation of Lao PDR’s forests is not just a hypothetical issue - it also has serious consequences for economic policy and practice. Most basically, it has meant that sustainable forest management has been given a low priority in economic planning, continues to receive extremely low funding, and often faces discriminatory market and fiscal signals. Despite the extremely high value of Lao PDR’s forests, at national and local levels, neither domestic nor donor economic policy-making pay much heed to these non-market values.

Because forests are under-valued, they are often not considered a priority when public budgets are formulated or donor funds are released. Recurrent allocations to the national and local government agencies mandated with forest management and conservation - District and Provincial Agricultural and Forestry Offices, and the Department of Forestry - remain extremely low compared to other public sectors, and the share of forestry activities in the government Public Investment Programme has fallen by a half over the last decade, from 8% in 1991 to just 4% in 2000 (MEFP 1991, World Bank 1997).

After rising over much of the 1990s to peak in 2000, donor commitments to biodiversity conservation in general, and to sustainable forest management and NBCAs in particular, have declined dramatically over recent years (Figure 2). Between 2000 and 2003 total donor commitments to biodiversity-related activities fell from $36 million to $14 million, and between 1996 and 2003 the share of forest conservation expenditures in total donor funding to biodiversity had dropped from 89% or $6 million to just 7% or $1 million (Emerton et al. 2002b, SPC 2001). Today, little foreign or domestic funding is available for sustainable forest management in Lao PDR.

Insert Figure 2: Donor commitments to biodiversity and forest conservation in Lao PDR, 1996-2003

As well as facing severe financial constraints, forests continue to be marginalised by many of the economic policy instruments that are being used to support other sectors and development goals. These run the risk of overwhelming the few economic incentives that do exist for sustainable forest management - such as reduced land taxes on stabilised land use and reforestation, exemptions on turnover tax for forestation activities, and release from the reforestation component of timber tax against replanting. Although the Lao PDR economy has undergone substantial liberalisation over recent years, a number of price and market distortions still exist which contribute to the under-valuation of forests, encourage forest-degrading activities, or promote particular economic activities at the cost of forests.

A wide range of implicit subsidies favour land clearance for farming, including the provision of preferential credit to agriculture, minimum farmgate prices, relatively lower tax rates and reduced trade duties on agricultural products and inputs. Sustainable forest-based activities are not subject to such special treatment. The relative profitability of agriculture vis-à-vis sustainable forest management is enhanced still further by exemptions on agricultural land tax for newly-cleared land in both mountain and lowland areas, and on newly-established industrial orchards. Within the logging sector below-market royalties are also thought to promote excessive demand, and tax variation between different timber products encourage the use of only premium quality logs and encourage wastage in harvesting (World Bank, Sida and Government of Finland 2001).

5. Conclusion

Examples from Lao PDR illustrate a set of constraints to sustainable forest management that are also common in many other countries. Economic and development decision-makers frequently under-value the forest sector, both in terms of its overall economic worth as well as in the way that it contributes to national and local development processes. The case of Lao PDR illustrates that contrary to received wisdom, tropical forests often generate very high - and quantifiable - non-market economic benefits. In Lao PDR, household-level reliance on forest products is worth more than 3 times as much as recorded timber production over the last 5 years, and adds almost a fifth to official estimates of national economic output (Emerton et al. 2002b). Individual forests such as NEPL make a demonstrable contribution to the country’s primary socio-economic development goal, poverty alleviation. Not only do they underpin local subsistence and income but they also fill the gap between the goods and services that a poor and rapidly growing human population require to survive, and that which the government is currently able to afford to provide.

Under-valuation of forest environmental benefits is however not just an accounting problem. In many cases it has acted to the detriment both of sustainable forest management, and of sustainable local livelihoods. As is the case in many other countries, Lao PDR has a strong stated commitment to sustainable development, sound environmental management, and socio-economic development and poverty alleviation at the local-level. Yet various national budget decisions and economic policies act against these goals. The Department of Forest Resource Conservation and associated Provincial and District line agencies, who are responsible for forest and PA conservation, take a progressive approach to sustainable forest management which aims to benefit local residents, and to encourage local support. Little, and declining, funding is however available to them to undertake such activities. At the field level, local residents face a number of economic policy inducements to engage in land and resource uses that are not compatible with sustainable forest management.

The net result is that, in the face of this under-valuation and these disincentives, forests are being managed unsustainably, converted, degraded and lost. This is not, for the most part, seen as an economic cost at the national economic policy level. Yet forest loss and loss of forest components of local livelihoods runs the risk of giving rise to immense economic and development losses to the Lao economy - costs which neither the population nor the government can afford to bear, now or over the long-term. And ultimately, because it leads to the loss of these - largely unaccounted for - non-market benefits, forest under-valuation may undermine the very goals of socio-economic development itself: income and employment generation, food security, rural development, poverty alleviation, and national economic growth.

6. References

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Emerton, L., O. Philavong and K. Thanthatep, 2002a. Nam Et-Phou Loei National Biodiversity Conservation Area, Lao PDR: A Case Study of Economic and Development Linkages. IUCN - The World Conservation Union, Regional Environmental Economics Programme, Karachi. 27 p.

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MAF and IUCN, 1998. Project Document: Integrated Biodiversity Conservation and Community Development in Nam Et-Phou Loei National Biodiversity Conservation Areas, Lao PDR. Ministry of Agriculture and Forestry and IUCN - The World Conservation Union, Vientiane. 22 p.

MAF and IUCN, 2001. Progress Report: Integrated Biodiversity and Conservation and Community Development in Nam Et - Phou Loei NBCAs, Lao PDR. Ministry of Agriculture and Forestry and IUCN - The World Conservation Union, Vientiane. 28 p.

MAF, 1990. Lao PDR Tropical Forestry Action Plan (First Phase). Ministry of Agriculture and Forestry, Vientiane.