Factors Affecting Facilitation in the Planted Forests - Ministry for ...

Friday 28 March 2003 Facilitation Session Paper 18Factors affecting the facilitation ofSustainable management in planted forestsIn developing countries : an overview 1ByMohd.Yusoff Mydin 2 andDr.AbdulRahman AbdulRahim 3For delivery at: UNFF Intersessional Experts Meeting on theRole of Planted Forests in Sustainable Forest Management,24-30 March 2003, New ZealandAbstractApart from natural forests, planted forests are also considered as a major source of raw materialsfor the livelihoods in many of the developing and developed countries. They play significant rolesin the production of various goods and services such as in the protection of soil and water,diversifying the rural landscape, sequestering carbon, providing non-wood forest products andcontributing to the conservation of biological diversity. It is very crucial that these forests aremanaged sustainably for the benefit of current and future generations. The development of largescaleplanted forests, however, is seen as very critical in many developing countries as comparedto the developed countries. In many developing countries, the establishment of planted forestsrequires tremendous improvements. There are a number of factors that govern theseimprovements. These factors can be classified into two groups: factors within the control of acountry and factors which require action by timber importing countries, WTO and otherinternational organizations and donor countries. In the first group, several factors have beenidentified which may include strong political commitment, availability of incentives, capacitybuilding programmes, availability of policy on the commercialization and/or privatization, theadoption of agro-forestry systems and the adoption of enrichment planting approaches. While inthe second group, key factors may include the transfer of technology, economic and financialfacilities, and free market access. This paper attempts to overview and discuss these factors inrelation to the successful implementation of the sustainable management of planted forests.1 Paper presented at the UNFF Intersessional Experts Meeting On The Role of Planted Forests inSustainable Forest Management, New Zealand, 24-30 March 2003.2 Under Secretary (Forestry Development Division), Ministry of Primary Industries, 7 th . Floor, MenaraDayabumi, Jalan Sultan Hishamuddin, 50654, Kuala Lumpur MALAYSIA. Tel.No.: 603-22747511.Fax.No.: 603-22731636. E-mail: myusoff@kpu.gov.my.3 Deputy-Director of Forest Plantation (Management), Forest Plantation Unit, Forestry DepartmentPeninsular Malaysia, Jalan Sultan Salahuddin, 50624 Kuala Lumpur MALAYSIA. Tel.No.: 603-26962561.Fax.No.:603-26925657.E-mail:drarar@forestry.gov.my.1

Friday 28 March 2003 Facilitation Session Paper 181.0 Introduction1.1 Globally, the dominant trends for forest products are an increasing demand forwood (resulting from increasing populations and increasing incomes) from adiminishing, or more restricted, forest supply base (Brown, 2001). Considerableattention has, consequently, focused on identifying means to alleviate thepotential wood and fibre shortfalls. For some countries a primary solution hasbeen to increase imports of forest products significantly, thereby redistributingdemand to forest-rich countries. Other solutions have included increased levels ofrecycling, improved processing conversion efficiencies, increased utilization offorest harvesting residues, and the establishment of forest plantations.1.2 Forest plantations are somewhat synonymous to planted forests. They are ‘manmadeforests’ and/or ‘artificially established’ through tree planting activity.Natural forests will become less available for future timber harvesting due toseveral causes, such as difficult terrain; remote locations, low productivity, poorstand quality and the lack of commercial species. Hence, planted forests areconsidered as an alternative to natural forests. To a certain extent, planted forestshave served as a source of raw materials for livelihood in many of the developingand developed countries. These forests play significant roles in the production ofvarious goods and services, such as protection of soil and water, diversificationof the rural landscape, sequestering carbon, providing non-forest products andcontributing to the conservation of biological diversity. These forests willcontinue to play significant roles as mentioned above. Therefore, it is vital thatthese forests are managed sustainably for the benefit of current and futuregenerations.1.3 The development of large-scale planted forests, however, is seen as very criticalin many developing countries as compared to the developed countries. In manydeveloping countries, the establishment of planted forests requires tremendousimprovements. There are a number of factors that govern these improvements.These factors can be classified into two groups: factors within the control of acountry and factors which require action by timber importing countries, WorldTrade Organization (WTO) and other international organizations and donorcountries. In the first group, several factors have been identified which mayinclude strong political commitment, availability of incentives, capacity buildingprogrammes, availability of policy on the commercialization and/or privatization,the adoption of agro-forestry systems and the adoption of enrichment plantingapproaches. While in the second group, key factors may include the transfer oftechnology, economic and financial facilities and free market access. This paperattempts to overview and discuss these factors in relation to the successfulimplementation of the sustainable management of planted forests.2

Friday 28 March 2003 Facilitation Session Paper 182.0 Factors Within the Control of A Country2.1 Strong Political Commitment2.1.1 Political commitment is normally reflected by the stand of the rulinggovernment in a country to the importance of forest plantationdevelopment. In this case, the government’s seriousness in theestablishment of large-scale forest plantation must be fully supported bythe existence of a strong national forest policy, clear developmentobjectives and a strong mandate for implementation. This is mostimportant for plantation establishment led by central or state-governmentplanting programmes. The government has an important role to play inorder to ensure successful establishment of large-scale planted forests.2.1.2 The government may also adopt other approaches for the establishmentof large-scale forest plantation, such as using through community-baseddevelopment programmes and private sector investment. The finalselection of the most suitable approach adopted is entirely governed bythe government’s readiness, as well as the availability of cleardevelopment objectives and a strong national forest policy.2.2 Availability of Incentives2.2.1 Incentives for plantation establishment are specifically created andprovided by a country for a variety of reasons. Gregerson (1984) definedincentives as “public subsidies given in various forms to the privatesector to encourage socially desirable actions by private entities”. Thereare several forms of incentives readily available, either directly orindirectly as provided for by each country. Direct incentives may includecost sharing, subsidized credit, fiscal incentives, reduction of uncertaintythrough loan guarantees, insurance, forest protection agreements, andprovision of land tenure (Gregersen and Houghtaling, 1978). Meanwhile,indirect incentives may include provision of market information,extension and education, and research (Keipi, 1997).2.2.2 Generally, the primy justification for offering incentives is to raise theprivate sector returns to encourage a more socially desirable level ofplantation investment (Williams, 2000). Thus, incentives are onlyappropriate when the private sector net returns are lower while thereturns including externalities are greater than the returns fromalternative land uses. In this situation, incentives could be effective bycreating a more socially desirable land-use pattern. On the contrary,incentives may not be so important if the private sector returns fromforestry exceed those from other forms of land use. Incentives are moreuseful to help investors overcome barriers such as the high initial capitalcost of establishment and the relatively long waiting period for thereturns to be realized, as well as to encourage economic development andgenerate employment opportunities.2.2.3 In Peninsular Malaysia, for example, fiscal incentives are provided for bythe federal government to encourage investment in the establishment of3

Friday 28 March 2003 Facilitation Session Paper 18large-scale forest plantation. Incentives in the form of “Pioneer Status(PS)”, “Investment Tax Allowances (ITA)” and “InfrastructureAllowance (IA)” are offered to the private sector involved in forestplantation establishment. “Pioneer Status” provides 100% exemption ofincome tax for a period of 10 years after harvesting date (productionperiod). “Investment Tax Allowance” allows a 100% tax exemption ofthe qualifying capital expenditure incurred within 5 years of initialestablishment, which could be deducted from the statutory income of thecompany. “Infrastructure Allowance”, allows setting off of expenditureincurred in permanent infrastructure development against companyincome.2.3 Capacity Building Programmes2.3.1 Effective programmes involving the development and transfer oftechnology in various aspects of planted forests from developed todeveloping countries are indeed very timely. This has lead to a call forthe establishment of an effective mechanism of capacity buildingprogrammes from the donor countries to the recipient country involvedin forest plantations development. Through well-planned trainingschedules, the developed countries (donor) may be able to transfertechnical know-how to the developing countries (recipient). Capacitybuilding programmes may be planned according to the requirements of acountry. Some of the areas in which capacity building could be enhancedinclude reducing risk from pests and disease and forestry research.2.4 Availability of Policy on Commercialization and /or Privatization of ForestPlantations2.4.1 The FAO study in the Asia-Pacific Region shows that there are notablythree distinct models commonly applied for the establishment of largescaleforest plantation (Durst et. al., 2000). Any country may adopt thesemodels which may involve any one or a combination of the followingactivities:-i. plantation establishment led by a central or state-governmentplanting programmes;ii.iii.plantation establishment under community-baseddevelopment; andprivate sector-led plantation establishment.2.4.2 The first model is particularly notable in China and Vietnam as well as inMalaysia. It has been reported that, the Chinese Government plans toincrease the country’s forest cover from 14 percent to about 17 percentby 2010. In this endeavour, the government attaches great importance toforestry development through various government-supported plantingprogrammes, including the promotion of private sector participation withfunding through foreign investment and joint ventures. In Vietnam, it hasbeen reported that the government plans to establish a total of 5 million4

Friday 28 March 2003 Facilitation Session Paper 18hectares by 2010 its through national reforestation programme. InMalaysia, the Compensatory Forest Plantation Project (CFPP) waslaunched in 1982 to meet the projected wood requirements of the woodbasedindustries in Peninsular Malaysia. The CFPP plans to establishabout 100,000 hectares of plantations based on a 15-year rotation of fastgrowinghardwood species, such as Acacia mangium, Gmelina arboreaand Paraserianthes falcataria. In the State of Sabah, Malaysia, the StateGovernment has earmarked about 800,000 hectares within the PermanentForest Estate (PFE) and those outside the PFE for forest plantationestablishment; while in Sarawak, the State Government has set a targetto establish 1.4 million hectares of planted forest in the next 20 years.2.4.3 The second model is adopted notably in a number of developingcountries including India, Nepal, the Philippines, Bangladesh, Laos,Myanmar and Sri Lanka. Under this model, participatory activities inplantation establishment at all levels form the key element (basicingredient) for the successful implementation of the project. The basicconcept of this model recognizes the importance of the local people inprotecting, managing and developing forests and envisages mobilizingthe communities through the formation of a unified interested partycalled the “Village Forest Communities” or “People-Oriented ForestryProgrammes”. In this context, “Communities” are empowered to managedegraded forests, including undertaking out reforestation activities on abenefit sharing basis. In the light of the current importance of forestcertification scheme, this model has great potential to be widely acceptedby the consumer countries.2.4.4 The third model which is carried out in many developing countries, inforest plantation establishment is through the involvement of the privatesector. In this model, the government initially establishes a critical massof plantations, but ownership and responsibility for the management ofthe plantation is gradually handed over to the private sector. Countriesthat have adopted this model are New Zealand and Australia. Plantationforestry is regarded as a business and afforestation investments areprimarily assessed based on their potential profitability.2.5 Adoption of Agro-forestry Systems2.5.1 Agro-forestry basically involves the intentional integration of forestspecies into existing agricultural land use systems (Najib et. al., 1999). Itis an innovative approach on land use and is capable of providingmultiple benefits that collectively contribute towards agro-ecosystemsustainability. As part of an ecological land based management system,agro-forestry practices if properly planned, implemented and managed,are capable of increasing profitability and maintaining ecosystemdiversity and processes important to long-term sustainability. Agroforestrycan also be considered as a form of mixed farming.2.5.2 Agro-forestry has both protective and productive functions. The benefitscreated by agro-forestry practices can be biological, economic and5

Friday 28 March 2003 Facilitation Session Paper 18environmental. In terms of productive functions, the benefits are asfollows:-i. biologically, it could increase space utilization, improvement ofsoil chemical, physical and biological properties, potentialreduction in soil erosion and reduction in microclimate extremes;ii. economically and socially, it could increase productivity, incomeopportunity, variety of products and services, reduce risk frompests and diseases, reduce weeding requirements and reduceestablishment cost; andiii. environmentally, it could control surface runoff and soil erosion,sequester carbon, filter and biodegrade excess nutrients andchemicals after fertilization, rehabilitate degraded land, increaseproductivity of marginal land, relieve pressure on overharvestingof natural forest, protect environmentally sensitivelands, provide shelter, and increase biodiversity.2.5.3 The practice of a agro-forestry systems may differ from place to place.However, in general, the three major components, namely agriculturecrops, forest species, and animals, can be grouped into several categories,namely:-i. agro-silviculture systems – trees and agricultural crops;ii.silvi-pastoral systems - trees and livestock;iii. agro-silvi-pastoral systems - trees, agricultural crops andlivestock; andiv. other systems - aqua-forestry (fish-farming), api-forestry (beefarming).2.5.4 For the successful implementation of agro-forestry systems, thefollowing factors must be considered:-i. understanding the growth requirements crops and/or animals tobe integrated in terms of light, moisture, nutrients, space etc.;ii.understanding the basic growth factors of each componentspecies in terms of growth rates, crown shape and size, rootinghabits etc.;ii. growth duration in terms of period to harvesting;iv. planting direction; andv. land topography.6

Friday 28 March 2003 Facilitation Session Paper 182.6 Adoption of Enrichment Planting Approach2.6.1 Enrichment planting involves planting activities under the tree canopy ininland-forested areas after harvesting (selective logging) is completed.As compared to an agro-forestry system, enrichment planting involves arelatively different approach, in which a “mono-crop” (only one treespecies) or “mixed-crop” (one or more tree species) is established inorder to increase the productivity of the poorly-stocked logged-overforest. Enrichment planting is normally carried out through “lineplanting” with a specified planting distance and takes place immediatelyafter the planting lines have been marked in the field. In compacted soils,ploughing is required in order to soften or loosen the soils. Fertilizer“Rock Phosphate” is normally added into the planting hole to boost theinitial growth of the planted seedlings.2.6.2 In Malaysia, all harvested forests in the production forest of thePermanent Forest Estate (PFE) are silviculturally treated, especially withthe planting of selected indigenous tree species. The purpose of treeplanting is to increase the productivity of the site, after forest harvesting(selective logging) particularly in a poorly stocked forest stand.Generally, a single indigenous tree species is planted in rows or groupswith a fixed planting distance. Although, enrichment planting does notinvolve any site preparation, this is nevertheless the most popularapproach adopted by the Forestry Department in Malaysia for enrichingpoorly stocked logged-over forests.3.0 Factors Which Require Action by Timber Importing Countries, WTO and OtherInternational Organizations and Donor Countries3.1 Transfer of Technology3.1.1 Most developed temperate countries have significant advantages invarious capacities for the effective implementation of forest plantationsdevelopment. These include infrastructure facilities, modern technology,high labour skills and lower interest rates compared with otherdeveloping countries. The availability of proper technologies and basicinfrastructure (roads, electricity, ports, etc.,) have helped to enhanceinvestment in the establishment of forest plantations (Haltia et.al., 1997).New technological breakthroughs in plantation forestry are readilyavailable in these countries, such as efficient reproduction technologyand tree improvement techniques, proper planting methods, good stockhandling procedures, large scale commercial forest nurseries operation,pests and diseases control technology, effective silvicultural andmanagement practices, and others. These should be made available anddisseminated to developing countries through specific modalities.3.1.2 The availability of a large number of integrated processing mills and agood marketing network further facilitate the effective implementation offorest plantations development in the developed countries. In addition,many companies in the developed temperate countries also own bothforests and processing facilities. They enjoy significant advantages with7

Friday 28 March 2003 Facilitation Session Paper 18respect to security of raw material supplies, stable raw material pricingand material scheduling. Furthermore, processors are also located closeto their markets and having strong clusters of supporting industries whichhave also helped to capture marketing advantages. Thus, it is essential aswell as beneficial to impart all these experiences to the developingcountries.3.2 Economic and Financial Facilities3.2.1 Forest plantations investments are generally characterized as long-termventures. Normally, overall rates of return form a key factor in the forestplantations investment. Rate of return, however, is affected by manyfactors such as ecological potential of tree growth (i.e. how fast a tree cangrow), initial investment costs, interest rates, and the price of the finalend product. In terms of growth rate, timber trees in temperate andboreal countries such as Sweden, Finland, Russia and Central Europe arerelatively slower as compared to timber trees in tropical countries such asin Indonesia and Brazil. In order to overcome this, the governments insome countries have made available certain economic and financialfacilities in the form of investment subsidies, bank loans, tree plantingbonds and others to make investment into forest plantations developmentattractive.3.2.2 In New Zealand, “partnership structure” has been used to reducefinancial risk. Under this scheme, many partners, in exchange for a proratashare of certain plantation allowances, share risks. In addition,ownership of planted forests is made divisible and transferable under theNZ partnership scheme, based on the valuation of trees at the time oftransaction. Other possible solutions to alleviate financial risk alsoinclude proposal for long term funding/loans/financing (20 to 30 yearsgestation periods) from government-backed funds/banks; directsubsidies/grants; foreign direct investment; project partnerships andforestry unit trusts.3.3 Free Market Access3.3.1 A wide range of factors influence access to markets either by formalinstitutional measures, which restrain trade intentionally, or in manycases, unintentionally. These measures include amongst others tariffsbarriers, non-tariff barriers and trade impediments. While traderestrictions are the focus of formal international multilateral negotiationsheld under the auspices of the WTO, many bilateral and regionalnegotiations have discussed the subject of trade barriers and restraints.For example, the Association of South East Asian nations (ASEAN), theEuropean Union (EU) and the North American Free Trade Agreement(NAFTA), to name a few, all have trade restrictions on their agendas.3.2.2 In the past, the trend of tariff barriers fluctuated in relation to the marketsituation and product acceptance. Few developed country tariffs areparticularly high for most forest products, while tariffs in the developing8

Friday 28 March 2003 Facilitation Session Paper 184.0 Conclusionscountries have also been declining rapidly, although many are still higherthan in the developed countries. The effective use of tariff structures bygovernments to manage trade flows is very well illustrated by China.Recent modification of its import duties on roundwood involves thereduction of import duty on round logs while maintaining the duty onplywood. This has resulted in an increase in the country’s imports oflogs. Local output of plywood has resumed and imports of plywood fellsharply. Although import restrictions are the most obvious barriers totrade in forest products, export restrictions are of considerablesignificance for trade.3.2.3 In addition to tariffs, a wide range of non-tariff measures can alsoinfluence trade. These include a variety of rules and procedures, rangingfrom health and technical standards to measures influencing prices. Nontariffmeasures are much more complex and difficult to recognize andquantify compared to tariff measures. However, in some cases, themanner in which the regulations are administered has resulted in tradedisputes between countries. Restrictions on log exports have traditionallybeen associated with the promotion of the domestic processing industryin timber producing countries. Other measures range from attempts toincrease the financial return to the country, efforts to ensure adequatewood supplies for the domestic wood-based industries and the protectionof forests from being over-exploited.3.2.4 In addition to formal restriction, many other measures may also beconsidered impediments to trade rather than formal trade restrictions.These are either within the legal rules of the WTO or are largely outsidethe boundaries of existing international agreements. They usually haveno direct links to official government regulations. Nevertheless, theyhave many similarities to formal restrictions and often also have similareffects. In many cases their intention is the same – to restrict trade. Forexample, timber certification, although many supporters argue thatcertification is not a trade restrictive practice, it has many of thecharacteristics of being one. Timber certification has been evolving forthe past ten years and has emerged as a global issue after an initial focuson the tropical timber trade. While the objective of timber certification indistinguishing products from sustainably managed sources has beengenerally accepted, there are genuine concerns on a host of other issuesincluding the proliferation of initiatives, the credibility of schemes andthe possibility of it being used as a means to discriminate againstparticular products. The sheer diversity and range of forest managementregimes and product certification schemes being developed around theworld to a certain extent have potentially created confusion in the marketplace (Adam et. al., 2000). There will be claims of superiority of someschemes over the others, as well as unequal treatment and possiblydiscrimination against a particular scheme.4.1 Forest plantations will continue to play a role as one of the major sources ofwood both for fuel and raw materials for the wood-based processing industries in9

Friday 28 March 2003 Facilitation Session Paper 18developing and developed countries. Plantations will also continue to play animportant role in the protection of soil and water, diversifying the rurallandscape, sequestering carbon, providing non-wood forest products, contributingto the conservation of biological diversity and in supporting rural livelihoods inmany parts of the world. The development of large-scale planted forests,however, is seen as very critical in many developing countries as compared to thedeveloped countries. In many developing countries, the establishment of plantedforests requires tremendous efforts and investment.4.2 A number of key factors for the successful establishment of forest plantations(planted forests) in the developing countries have been identified. These factorsare very crucial, thus, meriting considerable attention. These factors are classifiedinto two groups: (a) factors within the control of a country, and (b) factorswhich require action by timber importing countries, WTO and other internationalorganizations and donor countries. In the first group, factors include strongpolitical commitment, availability of incentives, capacity building programmes,policy on commercialization and/or privatization, the adoption of agro-forestrysystems and the adoption of enrichment planting approaches. While in the secondgroup, factors include transfer of technology, economic and financial facilities,and free market access.4.3 The establishment of large-scale forest plantations remains to be characterized asa long-term investment project. While the overall rates of return form a keyfactor for investment, other important factors include potential of tree growth (i.e.how fast a tree can grow), initial investment costs, interest rates and the price ofthe final end-product which have continuously affected the rates of return onforest plantation projects. Incentives, such as security of land and resourcetenure, trade liberalization and open foreign investment, political and macroeconomicstability, as well as consistent government policies may, therefore,provide a conducive environment for investment in forest plantationsestablishment in the developing countries.ReferencesAdam, M. and J. Castaño. 2000. World Timber Supply and Demand Scenario, GovernmentInterventions, Issues and Problems. In Proceedings of the International Conference onTimber Plantation Development. 7-9 November 2000, Manila, Philippines. ForestManagement Bureau, Department of Environment and Natural Resources, Republic ofthe Philippines, International Tropical Timber Organization, and Food and AgricultureOrganization. Pp: 17-42.Brown, C. 2001. Future Production from Forest Plantations. Forest Plantations Thematic Papers.Edited by D.J.Mead. FAO, Rome. 16 p.Durst. P. and C. Brown. 2000. Current Trends and Development of Plantation Forestry in AsiaPacific Countries. In Proceedings of the International Conference on Timber PlantationDevelopment. 7-9 November 2000, Manila, Philippines. Forest Management Bureau,Department of Environment and Natural Resources, Republic of the Philippines,International Tropical Timber Organization, and Food and Agriculture Organization. Pp:43-58.10

Friday 28 March 2003 Facilitation Session Paper 18FRA. 2000. Global Forest Resources AssessmentGregersen, H,M. 1984. Incentives for forestation : A Comparative assessment. in K.F. Wiersum,ed. Strategies and Designs for Afforestation, Reforestation and Tree Planting.Wageningen, the Netherlands, Wageningen Agricultural University.Gregersen, H.M. and L. Houghtaling. 1978. Government Subsidies to Stimulate Forestry at theFarm Communities Level. In Proceeding of Eight World Forestry Congress. Jakarta,Indonesia.Haltia, Olli and Kari Keipi. 1997. Financing Forest Investments in Latin America : the Issue ofIncentives. Interamerican Development Bank, Washington, DC. 21 pp.Keipi, K. 1997. Financing Forest Plantation in Latin America : Government Incentives. Unasylva,48(1) Issue No.188.Najib Lotfy Arshad, Ahmad Fauzi Puasa and Mahmud A.W. 1999. Agroforestry Options ForForest Plantation in Malaysia. Paper presented at the Seminar of Forest PlantationTowards Greater Efficiency and Productivity. 6 November 1999. Tawau, sabah,Malaysia. 14p.Williams, J. 2000. Financial and Other Incentives for Plantation Establishment. In Proceeding ofthe International Conference on Timber Plantation Development. 7-9 November 2000,Manila, Philippines. Forest Management Bureau, Department of Environment andNatural Resources, Republic of the Philippines, International Tropical TimberOrganization, and Food and Agriculture Organization. Pp: 87-101.Forestry Department Headquarters ofPeninsular Malaysia.Kuala Lumpur.March 2003.ARAR/KPUFACILITATION.DOC11