CONTENTS

List of Figures List of Tables List of Boxes Acknowledgements Synopsis 1. General Introduction: Strategy for Development 1.1 Paradox and Policy 1.2 Global Issues 1.3 Conservation and Development 1.4 The Strategy Process Summary Sources THE FOREST SECTOR

ix xi xiii xvii xix 1 3 5 8 10 15 16

PART I

Introduction to Part I 2. The Forest Sector Concept 2.1 What is the Forest Sector? 2.2 Composition 2.3 Interactions and Influences 2.4 The Role of People in the Sector 2.5 Application of the Sector Concept Summary Sources Resources 3.1 Endowment Forest Resources Human and Capital Resources v

19 21 22 25 27 29 30 32 32 33 35 36 42

3.

vi
3.2 Allocation 3.3 Renewal Summary Further Reading Sources 4. Activities 4.1 Subsectors 4.2 Value Added 4.3 Employment 4.4 Capital Formation 4.5 Trade Summary Further Reading Sources Outputs 5.1 Range and Diversity 5.2 Demand 5.3 Supply 5.4 Sustainability Summary Further Reading Sources Organizations and Institutions 6.1 Organizations Types of Organization Forest Sector Organizations International Organizations Organization Theory 6.2 The Institutional Framework Law, Custom and Practice Policy and Programmes Financial and Economic Arrangments Education, Research and Data Handling Participation, Conflicts and Leadership 6.3 Sector Management Management Style Cohesion The Management of Change Sector Capacity Growth and Development

Contents
48 54 62 63 64 65 66 71 80 83 89 96 97 97 99 101 115 121 130 144 145 146 149 150 151 153 165 167 174 175 178 182 185 189 196 198 199 203 206 207

5.

6.

Contents Summary Further Reading Sources 7. The Forest Sector as a System 7.1 System Characteristics 7.2 Transformations 7.3 Modelling System Dynamics Gap Analysis Continuity of Supply and Sustainability 7.4 System Development Strategy, Programmes and Projects Development Aims Summary Further Reading Sources STRATEGY

vii 210 211 211 215 216 223 231 234 237 241 248 251 255 260 261 262

PART II

Introduction to Part II 8. Strategic Ideas 8.1 Origins 8.2 Business Strategy Functional Characteristics Deliberate and Emergent Strategy Strategy, Tactics and Operations 8.3 Public Policy Views of Public Policy The Policy Process Forest Policy 8.4 Forest Strategy Aims and Choices Imperatives, Constraints and Priorities The Strategy Process Summary Further Reading Sources Strategic Methods 9.1 Analysis Sector Review Transformations and Modelling

267 269 270 273 276 278 282 285 286 289 291 294 297 301 305 310 311 312 315 316 316 321

9.

viii
SWOT Analysis Participation 9.2 Aims Imperatives Scenarios Strategy Formulation NFP Preparation Forest Policy 9.3 Action Programme Development Monitoring Evaluation Summary Further Reading Sources 10. Strategy in Action 10.1 Strategic Impact 10.2 Institutional Arrangements The Role of Government A Forest Forum Leadership Programme Support 10.3 Style 10.4 The Way Ahead Summary Further Reading Sources

Contents
323 327 329 329 331 335 336 339 341 341 349 350 351 352 353 355 357 363 364 367 370 375 379 384 390 391 392 393 401

References Index

LIST OF FIGURES

1.1 1.2 2.1 2.2 2.3 2.4 3.1 3.2 3.3 4.1 5.1 6.1 6.2 6.3 6.4 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 8.1 8.2 8.3 8.4 9.1 10.1 10.2 10.3

Evolution of the conservation concept Contributions to forest sector strategic management The forest sector Components of the forest sector and their interactions Forest sector activities and outputs Internal interactions and external influences Additions to forest sector resource endowment Levels of resource allocation Renewal and depletion of forest resources Subsector output flows Wood products flow chart International influences on the forest sector The 7-S Framework of organisational interactions The policy process Investing in people: ideal human resource development pyramid Classes of systems Transformations/organizations matrix Transformation cell inputs, outputs and interactions Three-dimensional forest sector system matrix The danger of suboptimal solutions Systems dynamics model components Simplified flow chart of demand module in TIMPLAN The Project Cycle Levels in the development hierarchy Three perceptions of strategy Intended and realized strategies Stages of the policy cycle Policy development and implementation process Data base structure Influences and indicators of strategic impact Components of strategic fit in the forest sector The development triangle

9 14 23 25 26 28 47 50 57 67 103 165 171 180 185 220 228 229 230 232 235 240 252 256 272 281 290 294 349 359 362 374

ix

LIST OF TABLES

3.1 3.2 4.1 4.2 4.3 4.4 4.5 5.1 5.2 5.3 6.1 6.2 6.3 6.4 6.5 7.1 8.1 8.2 9.1 9.2 9.3 9.4 9.5 10.1 10.2 10.3 10.4

Forest resources of selected countries and regions A classification of natural resources Forest sector activities Forest sector production and trade in selected countries, 1993 Major importers and exporters of forest products in 1997 and 2001 World production and exports of forest products in 2001, and proportions entering trade World exports of forest products in 1993 and 2001, and composition by value Definition of commodity aggregates for production statistics Output of wood products and changes over 25 years, 19691994 Total economic value in relation to the use of tropical forests Organizations and interest groups in the forest management subsector Organizations and interest groups in the harvesting subsector Organizations and interest groups in the primary processing subsector Organizations in the secondary manufacturing, construction, distribution and trade subsectors Machine model views of forest management and managers evolving into organic model perspectives Examples of forest sector transformations Types of strategy The forest strategy process SWOT analysis of the forest sector in Cyprus Comparison of scenarios National Forest Programme matrix for Cyprus NFP for Cyprus: Projects in Subprogramme G. Institutional reform, modernization and capacity building Basic Logframe matrix Output mix assessment table Flow balances in the forest sector Contributions to the strategy process from a forest forum Changes in attitude required for forest strategy to work xi

39 55 69 79 90 91 92 104 105 114 155 161 162 163 200 225 283 308 325 333 337 338 343 360 361 369 382

LIST OF BOXES

1.1 1.2 2.1 2.2 2.3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 5.1 5.2 5.3 5.4 5.5 5.6

Recommendations for addressing the forest crisis Definition of conservation Definition of sector Different interpretations of the forest sector Forests as landscape Definitions used for the 2005 Global Forest Resources Assessment The analogy with hunting/gathering and agriculture Employment in the forest sector Capital and investment in the forest sector Benhams categories of real capital Effects of government policies on forest resources Incentives for forest industry development The principle of sustainable yield Patterns of planted trees on farms The history of a window frame Definition of value added Harvesting in Trinidad The treatment of natural resources in national accounts Allowance for forest stock changes in New Zealand Value added attributed to timber in the USA, 1958 Employment attributed to timber in the USA, 1972 Afforestation in New Zealand Labour absorption by the forest sector Overestimates of employment opportunities Transformation of forest capital in the USA Intergenerational equity and sustainability New barriers to forest products trade Uses of the forest resource The importance of non-wood forest products The role of forests in five domains of human welfare The concept of value Influences on the demand for wood Changes in tropical forests xiii

5 9 22 24 26 37 41 43 44 46 52 53 56 60 71 72 73 74 75 77 81 82 83 84 87 88 95 108 109 113 116 118 122

xiv
5.7 5.8 5.9 5.10 5.11 5.12 5.13 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 7.1 7.2 7.3 7.4 7.5 7.6 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 9.1 9.2 10.1

List of Boxes
Rural poverty and tropical deforestation Tree growing by farmers in developing countries The significance of resource endowment and trade in forest sector development Sustainable development Definitions of sustainable forest management Components of sustainability included in criteria for forest management Different approaches to certification of sustainably managed forests Organizations Separation of functions in the UK Forestry Commission The changing role of forest departments in developing countries NGOs in the forestry sector Informal organization Features of the Human Relations and Contingency approaches to organization The role of the legislature The decline of off-farm tree resources in the tropics The National Forest Programme Approach Changing expectations from forestry research International declarations advocating a participatory approach for forestry Participation in National Forest Programmes Key concepts for pluralism in sustainable forestry and rural development Change management The nature of systems Nine characteristics of open systems Gap analysis of production and consumption The objectives of sustainable forest management Sustainable Development combines needs and limits Choice of strategy and NFP preparation in Cyprus A Grand Strategy Philip and Alexanders actions at Chaeronea in 338 BC The forest policy of Cyprus Two views of strategy Objectives and policy Assumptions about policy-making Various definitions of forest policy Imperatives The necessity for strategy SWOT analysis in business organizations Cost-benefit analysis Typical features of the policy problem for forests and people 123 125 129 132 136 138 141 151 156 158 159 168 172 176 178 182 189 191 192 193 203 217 219 238 244 249 254 271 274 278 286 288 292 302 306 324 345 356

List of Boxes 10.2 10.3 10.4 10.5 10.6 Criticism of public enterprises Functions of leadership The New Development Paradigm and professionalism Vision and mission statements Propositions on which the strategy process is based

xv 365 372 380 383 386

FOREST STRATEGY Strategic Management and Sustainable Development for the Forest Sector

SYNOPSIS This book deals with the application of strategic management principles to sustainable development for the forest sector. It contains an introductory chapter followed by two parts: Part I (consisting of 6 chapters) explaining the Forest Sector and Part II (3 chapters) dealing with Strategy. It is global in scope, while focussing on the sector at national level. The Introduction presents strategy as a concept which bridges the gap between aims and their achievement. It is evident that misuse and destruction of the worlds forest resources is having a serious impact. Forest strategy, viewed as a process, is related to the global development issues evident in forestry and conservation. Policy failure, which is widespread, can be attributed partly to neglect of appropriate strategic methods in natural resource management. Part I describes the forest sector, its composition and the way that it functions. The forest sector concept is explored in chap. 2; the sector is defined in broad terms as the economic, social and cultural contribution to life and human welfare derived from forests and forest-based activities. It has three components: resources, activities and outputs, which are described in detail in chaps. 3, 4, and 5. Chapter 6 covers the human aspects of the sector, describing it as a loose association of all those who depend on forest resources. A holistic approach is essential and chap. 7 deals with the sector as a dynamic, open system. This analysis treats the sector as a unit, providing insights into it structure and operations, and breaks new ground. Part II examines the strategy concept and its application to the forest sector. Strategic ideas, drawn from military/diplomatic, business management and public policy sources, are considered in chap. 8. These different perspectives portray strategy in three ways (as a grand design, guidance for decision making and a route for development). They lead to the formulation of forest strategy as part of a cyclical process which connects analysis with the choice of aims and subsequent action to implement those aims. Chapter 9 deals with the application of strategic methods to stages in the strategy process. It covers various analytical methods (such as SWOT), scenario preparation, imperatives (e.g. sustainability, equity, participation), choice of objectives and national forest programme preparation. The final chapter, entitled strategy in action, considers various practical problems, such as public xix

xx

Forest Strategy

value assessment, leadership, direction and control of sectoral affairs, in a national setting and from an international point of view; these issues must be tackled to enable strategies to work. Strategic concepts have not previously been applied to the forest sector in this manner and many aspects of the methodology represent new thinking which is relevant to the advancement of forest science and development worldwide. The book draws on a wide range of sources and is backed by an extensive bibliography, with recommendations for further reading. Diagrams and tables support the text. Summaries of each chapter are provided.

CHAPTER 1 GENERAL INTRODUCTION: STRATEGY FOR DEVELOPMENT

As the title of this book indicates, it is concerned with two things: forests and strategy. Its purpose is to investigate ideas about both subjects and to study the implications of applying the strategy concept to the development of the forest sector. The forest sector consists of forest resources plus all the varied activities dependent on them and on which they depend. Strategy is (or should be) focussed on ways of getting the right things done; forest strategy aims at getting the right things done in the forest sector. The subtitle of the book is strategic management and sustainable development for the forest sector. Strategy formulation and implementation is (or should be) regarded as an ongoing process; hence the use of the term strategic management. Sustainable development refers to the need to be able to continue to meet the requirements of society for goods and services of all kinds in future years; it is the antithesis of short term satisfaction at the expense of long term welfare. The forest sector distinguishes the forest-dependent portion of economic and social activity from all the rest of the activities that go on in the world, treating the sector as a recognisable unit within a wider national and international setting. Strategic management provides the means for achieving sustainable development when applied to the forest sector. This theme is examined in detail throughout the following pages. Part I of the book considers the meaning and significance of the forest sector concept; it describes its composition, characteristics and the way it works. Successive chapters view the sector from different standpoints and describe the interdependencies which hold it together. The strategy concept is examined in Part II, first by reviewing the various sources of strategic ideas and then by considering how they can be applied to the situation in the forest sector. Strategy in action involves the use of various techniques and procedures to make the difficult choices that arise when attempting to direct the development of the forest sector; these methods are described and their usefulness evaluated. The sources of information that have been drawn on for this study are eclectic. Readers trained in a particular discipline, such as forestry or ecology, may find 1

Chapter 1

some of the ideas unfamiliar. For this reason care has been taken to explain the terms used in a way that does not assume prior knowledge; this has been done for the sake of clarity although it risks boring those who have already been exposed to other disciplines. The administrators and managers who deal with forest sector affairs are becoming more diverse, their backgrounds and experience are more varied than formerly, although forestry professionals still predominate. Within the forestry profession there is often a greater amount of specialization by students during their training than there used to be; they need to expand their horizons as they progress in their careers. Older practitioners could use a text that enables them to update their skills. The standpoint from which the book has been written is practical. It is concerned with how best to promote forest sector development, mainly from a national standpoint. To achieve this it is necessary to understand the complexities of the forest sector and the principles on which its development should be based. There have been manifest failures, particularly in a number of tropical and subtropical countries, which have resulted in forest resources being destroyed or degraded, leading to criticism and consternation amongst people who fear its effects on the global environment. International opinion in knowledgeable quarters has described the situation as a crisis. What is less obvious but more damaging in the long run is the apparent inability in many countries to administer the forest sector effectively; such shortcomings reflect failures at both political and managerial levels. Indecisiveness and poor management deprive individuals and communities of many of the benefits that the forest sector can confer. The present generation is deprived of worthwhile improvements in its standard of living, while future generations lose opportunities to enjoy the goods and services that the sector is capable of supplying. Consequently the significance of the forest sector tends to be underestimated in the eyes of the general public. We should ask why the management of the forest sector is failing and what can be done about it. The analysis that is presented in the following pages is an attempt to diagnose the causes and suggest an approach which might lead to solutions to the problem. The answers appear to depend on changes in attitude in two important respects. First, the forest sector must be viewed as a whole instead of piecemeal; second, the key role of strategic management in the development process needs to be recognised and put into practice. It is vital to adopt a holistic approach and to work out strategies for developing the sector which are based on the expected outcomes of alternative courses of action rather than stipulating in advance a set of forest policy aims, with little regard to how they might be implemented. It might be said of a strategy, by its fruits shall ye know it, whereas forest policies, too often, consist of pious aspirations unsupported by the means to carry them out. Part I reveals why the forest sector must be treated holistically. The resources, activities and outputs of the sector are interconnected in space and over time. Similarly, the sector is made up of numerous organizations and interest groups which interact with each other. Thus a seed sown or a seedling planted will grow eventually into a tree, which may be felled, transported to a sawmill and cut into

General Introduction

timber; the timber is likely to be used for building construction or find its way as furniture to an end user. A series of transformations is involved, first in the forest of which the tree is a part and later in the industries which use timber and distribute wood products. While the tree increases its biomass, it will capture atmospheric carbon, interact with other organisms in the ecosystem, affect the quality of the forest as a water catchment and marginally alter the landscape. The output of wood that the tree supplies is connected to consumers through the manufacturing chain. Similarly, outputs of services from the forest, such as climate amelioration and biodiversity, provide public benefits. Judgements about what to do with a forest (what to plant, whether to cut and how to alter its structure etc.) should consider all the downstream consequences and not ignore what may appear to be side effects which alter the quality of peoples lives indirectly. Viewed from the other end, changes in public needs and tastes have important repercussions on the activities, employment and investment that takes place in the sector, and are transmitted back, in one way or another, to influence the composition of the forest. It is necessary to treat the forest sector as a system and consider how interventions at one point will be transmitted to affect the rest, either now or in the future. Decision making based on partial analysis is likely to be misleading. The complexity of the forest sector causes problems for decision makers. Part II explores these in the context of strategic management. Strategy bridges the gap between aims and their achievement; it is necessary to choose attainable aims and then seek to implement them. By working out the probable consequences of strategic options it is possible to choose between them in a rational manner. However, the forest sector is a constantly changing, dynamic system which is open to outside influences. Consequently, the expected results of decisions are unlikely to materialize in exactly the way envisaged and strategic aims need to be reviewed and adjusted as time goes by. The process is surrounded by uncertainty and is evolutionary. Therefore, it also seems rational to allow for unexpected events by providing flexibility so that the strategy process becomes responsive to change and allows for readjustment as it continues. Forest sector development can be compared to a journey along a path that alters, towards a destination that is never quite reached. 1.1 PARADOX AND POLICY

This paradoxical situation appears to be the source of many of the policy failures that are now evident. It is certain that forest sector development can only be guided if the direction in which it is to be steered has been mapped out; equally certain is the inevitability of unexpected events occuring along the way which may frustrate even the best of development plans. The forest resources on which development is based may be destroyed by fires or a hurricane, a trade embargo may put a forest industry out of business, national forest programmes may prove disappointing because they fail to attract the financial resources that are necessary to carry them out and forest projects may prove to be technically unworkable. These dangers,

Chapter 1

and many others, can disrupt progress. A strategic approach offers a way of coping with such eventualities by including formal procedures for monitoring, revision and readjustment at all levels. How to deal with such paradoxes is a widespread problem outside the forest sector. Referring to signs of a general breakdown of organized management and control in society, Charles Handy has pointed out the inevitability of paradox as a feature of life. He identifies nine principal paradoxes which create turbulence in our lives, ranging from intelligence to justice. He points out that we need to accept paradox as a first step towards living with it and managing it. In his view, in order to make sense of the future we need a new perspective on life, its purpose and responsibilities. He suggests that we need to build on three senses: a sense of continuity, a sense of connection and a sense of direction. Without these senses we feel disoriented, adrift and rudderless 1 . The author is a well-known writer on business and organizational matters and his books are directed at managers of all descriptions, including those who work in the forest sector. His ideas are obviously relevant to the way the forest sector should be managed; continuity is important in dealing with forest ecosystems to allow for their perpetuation, connections between the various activities and people in the sector enable them to communicate and induce a feeling of coherence, while direction gives all its organizations and individuals a common purpose. Strategic management of the forest sector should address all three. Other causes of policy failure have been identified. The discrepancy between aims and their successful implementation is often blamed on lack of political commitment or put down to regional, ethnic, cultural, social or even religious factors. One might argue that these should have been forseen when the policy was drawn up; alternatively they might be classed as unexpected events with which the policy was incapable of dealing. Either way, a strategic approach as described in Part II would enable the problem to be identified and an appropriate response arranged. The emphasis when forest policies are prepared has usually been on their objectives rather than the means of carrying them out. That there has been a lack of attention in practice to what are called policy tools has been pointed out 2 ; since these determine the courses of action to be followed in order to implement the policy, they should be at the centre of the policy-making process. Good intentions do not lead automatically to successful results. A strategic approach, on the other hand, focusses on the connection between aims and the achievement of results. Policy failures are evident in many countries. Too often, national forest policies and plans have failed to produce the results that were hoped for, forest resources continue to be destroyed or degraded in spite of all the attention that is supposedly paid to sustainability, and the numbers of endangered plants and animals in forest ecosystems throughout the world are still being depleted. Taken together, these problems constitute a policy failure of global proportions. Consequently, there have been calls for international action which have become progressively louder and more urgent. They resulted in the Earth Summit at Rio in 1992 and, more recently,

General Introduction

the World Commission on Forests and Sustainable Development was set up to consider what should be done. Seen at this level, policy failures become global issues and a subject for diplomacy. 1.2 GLOBAL ISSUES

The World Commission believes that the worlds forests are being cut and burnt at such a rapid rate that if action is not taken soon, we risk undermining their vital function in maintaining a habitable planet. Already, forest losses are contributing to the extinction of plants and animals, increased flooding and disruption of climate patterns. In many parts of the world, forest decline adds to peoples social and economic distress. The Commission has expressed the view that we are faced with a forest crisis 3 . Their Report makes important recommendations about what should be done, calling for international leadership and political action. The solutions advocated by the Commission, as listed in Box 1.1, are plausible, given their underlying assumptions. However, general exhortations of this kind have not been very successful up to now in persuading nations and the international community to change their ways. There are serious difficulties to be overcome at international, country and local level before these recommendations can be achieved. Conflicting interests are at stake which must be reconciled. Many of these are based on wider concerns than fears about the future of the forests. For example, decisive action at international level is not possible without collective agreements by governments. These may infringe what countries regard as their

Box 1.1 Recommendations for addressing the forest crisis The conclusion of the World Commission is that we must urgently choose a path that respects the ecological value of forests while recognising their role in social and economic development. The key recommendations in their Report include: the global nature of the forest crisis requires decisive international leadership and action; governments must ensure that the public interest prevails over private interests; prices and policies that truly reflect all benefits provided by forests are needed to change wasteful production and consumption patterns; protection of the remaining primary forests requires that future demand for wood products must be met through plantation and secondary forests; community involvement in decision-making is essential for sustainable management of forests.
Source: Our Forests, Our Future. Report of the World Commission on Forests and Sustainable Development.

Chapter 1

sovereign right to do what they please with their forests. However, rights should go with responsibilities to the global community; countries are responsible for the consequences of their actions if these are detrimental to the rights of other nations. There are serious political difficulties at international level which prevent decisive action being taken, even though the global nature of the crisis is undeniable. Humphreys has described them in relation to the issues raised by tropical deforestation 4 . He identifies three dimensions of the problem: causal, institutional and proprietorial. The causes can only be tackled if all the actors with a stake in forest use, including transnational corporations (TNCs) and non-governmental organizations (NGOs) as well as the governments, join together in a coordinated response. He points out that forest conservation cannot be achieved on the ground without the effective participation of indigenous people, villagers and local community groups. Institutions and political structures need to be devised to integrate the views of local people, at the lowest level of international society, with government departments, TNCs and UN agencies at the highest level. Controversially, he asks who owns or has a legitimate stake in the worlds forests: are they a national resource or should they be treated as global commons? These three dimensions are interlinked. The World Commissions recommendations involve action at various levels. The issues may be global but the solutions are not. Decisions about the rights and responsibilities of citizens and the public interest are national not international matters. Government action on policies and prices requires implementation and support at lower levels. For example, moves to protect primary forests and meet future demands for wood products by establishing compensatory plantations cannot be successful without official backing and much activity on the ground. International encouragement, supplemented by offers of assistance, may assist national and local initiatives, but success depends on coordinated action taken by governments with community involvement in local decisions which affect their interests. A multi-level response is required. However vociferous the protests about unsustainable forest exploitation and destruction, international intervention to impose solutions on national governments that fail to look after their forests is unlikely to be acceptable; nor is it practicable. They may be cajoled but not forced. It is important for countries to accept their share of global responsibility and devise their own remedies which are suited to local conditions. For this they may secure the backing of international organizations and other nations willing and able to provide appropriate assistance. International cooperation can help, but the only feasible way of tackling these global issues is through national action and countries own efforts. Success depends on mobilizing the resources that are available to the forest sector and securing the participation of organizations and individuals within it. Sector level coordination of locally based projects and operations is necessary within a generally acceptable institutional framework. Therefore attention should be focussed on the preparation and implementation of sector strategies and national forest programmes. International activities should be directed towards their support.

General Introduction

There are other global-scale influences, not directly addressed by the World Commission, that are having an impact on the forest sector and call for a strategic response. The advent of the new millenium marks a time of unprecedented change. We face the spread of the global economy, the impact of a technological revolution in the provision of information and communications, and the effects of environmental deterioration on the welfare of communities. These three major influences are unavoidable, ubiquitous and unsettling in their consequences. Somewhat perversely, they also add to the divisions in society because their effects vary from place to place according to local geographical, economic and social conditions. Not all nations are able to benefit equally from growth of the world economy, some regions are better able to make use of information technology than others, and climate change affects different regions and their populations in different ways. Adaptability and enterprise are at a premium and the ability to successfully manage the situations that these changes create is assuming unprecedented importance. No part of the economy or section of society is immune from their effects, least of all the range of activities associated with forests, the industries and rural communities dependent on them. Managers have to cope with the upheaval and uncertainty that these global influences bring. Adjustments in the forest sector include greater openness to trade in forest products and less scope for protection of domestic producers. Working practices in forests and forest-based industries require reappraisal to make use of the fast moving technological innovations in data handling and availability. Much more attention than in the past is being paid to forest resources from the point of view of their effects on climate, biodiversity and the conservation of fauna, flora and landscapes; the social consequences of environmental deterioration are coming under scrutiny. Those who live, work and derive their living from forests, directly or indirectly, are being subjected to unaccustomed changes which are occuring at unprecedented rates. The task of dealing with the problems created by these changes presents a severe test of managerial competence. A strategic response that provides flexibility and allows for uncertainty has become essential. Even without the challenges created by these worldwide trends, those responsible for forestry affairs have been put under severe strain. The traditional concerns of the forestry profession, which have revolved around timber supply, are being superseded by multipurpose management of forest resources which calls for much broader expertise and training. In developing countries, particularly in the tropics where rapid population growth continues, forest resources are being depleted and this is causing international concern. The pressure on land for subsistence agriculture is the main reason for the substantial shrinkage in forest area that has occurred, but the quality of the remaining forests has also been affected by unrestricted cutting and grazing to meet villagers basic needs and, in many places, by inadequately controlled commercial exploitation. The extent of the forest resources in temperate regions remains more or less constant overall, but this apparent stability conceals local variations and some serious qualitative deterioration due to pollution and mismanagement. Forest administrators are having to contend with increasing

Chapter 1

pressure exerted by external interests, while attempting to meet the demand for more goods and services of all kinds from a shrinking resource base. Their ability to meet the needs of the communities they serve is being undermined and too often their efforts to remedy the situation have been ineffectual. Their predicament shows up major shortcomings in the way that forest policies are decided and forest resources are administered. A new strategic perspective is necessary to cope with this unsatisfactory situation. 1.3 CONSERVATION AND DEVELOPMENT

The forest crisis has its origins in a wider failure of conservation. Forest ecosystems are not being adequately safeguarded or sustainably managed to continue to provide the wide range of environmental benefits that society expects. Public concern is mainly concentrated on the effects of forest destruction on life support systems, climate change, loss of biodiversity, water supplies and landscape. The fears are mainly for the services and intangible benefits that forests provide, rather than the timber supplies or other material goods derived from them. Timber production is frequently portrayed as inimical to conservation even though the world would find it difficult to live without forest products. Comparable concerns are evident about other types of ecosystem which are not dominated by trees. The conservation of natural resources generally is suffering from policy failure at international, national and local level. Wildlife conservation has not, so far, prevented species becoming endangered or extinct at human hands and conservation of the marine environment has not stopped overfishing or dumping. The conservation movement has been active in drawing attention to the problems and proposing solutions at international level, but results have fallen short of expectations; unfortunately, conservationists have been no more successful professionally than foresters in achieving their aims. As with forestry, good intentions have not led to remedial action where it is needed within countries and the same strategic principles need to be applied. Conservation, as a concept, has evolved from simple preservation to more complex ideas about the way that natural resources should be used as shown in Fig. 1.1. Starting with protection of areas of land and water in their natural state, as with national parks in the USA which were first set up to safeguard outstanding scenic features such as the Yosemite Valley and the Sierra redwoods 5 , it developed in the early part of the twentieth century into a creed based on wise use of natural resources 6 . This implied a rate of use which did not exceed the ability of the resource to replenish itself, as enshrined in the sustained yield principle adopted by foresters to ensure a continuous output of timber. In the last quarter of the century the conservation concept was extended further, as shown in Box 1.2, and now covers the equitable sharing of benefits derived from the resources, in the present and in the future 7 . This wider interpretation is similar to the definition of sustainable development adopted by the World Commission on Environment and Development in 1987 8 ,

General Introduction

Figure 1.1 Evolution of the conservation concept

Box 1.2 Definition of conservation the management of human use of the biosphere so that it may yield the greatest sustainable benefit to present generations while maintaining its potential to meet the needs and aspirations of future generations. Thus conservation is positive, embracing preservation, maintenance, sustainable utilization, restoration and enhancement of the natural environment. Living resource conservation is specifically concerned with plants, animals and microorganisms, and with those nonliving elements of the environment on which they depend.
Source: World Conservation Strategy, 1980.

i.e. development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Protecting the interests of future generations (intergenerational equity) is usually combined with providing for the present needs of the least advantaged in society (intragenerational equity); both forms of equity are regarded as components of sustainable development 9 . Equitable use of resources, based on fair shares for the users, leads on to beneficial use designed to provide the greatest possible satisfaction for the beneficiaries. This is also the aim of sustainable development. Thus conservation merges with sustainable development. Society benefits from the existence of natural resources and the way they are utilized. The transition from protection to sustainable development reveals a shift in emphasis from concern for the forests to concern for people. Conservation is focussed on resources and the way they are managed, whereas sustainable development is oriented towards the recipients of the outputs of goods and services that the resources provide. They represent different aspects of the same spectrum

10

Chapter 1

of ideas. The final step in the transition is supplied by the word development, which adds a dynamic dimension to the concept. It implies that the flow of benefits derived from the resources is expected to increase and provide greater satisfaction, higher living standards and environmental improvements in future years. Some people still regard conservation as protection of the status quo. This view is not tenable. Forest resources cannot be preserved untouched; they exist naturally in a state of flux due to climate change and the endless interactions between species and their habitats. Ecosystems will not remain exactly as they are now even if human intrusion and interference are prevented. There is widespread evidence of historical change in the extent, distribution and composition of forest resources. Nor is it reasonable try to keep humans out. Resources should be managed to provide a sustained flow of outputs of all kinds (tangible and intantangible), for the benefit of all sections of the community. Some benefits derived from forests are attributable to conservation of the flora and fauna, and some to preservation of areas as wilderness. However, other areas may be used to grow timber and, in many cases, outputs are combined under the mantle of multiple use. Viewed from the perspective of receivers, a countrys resources should be managed to make the maximum possible contribution to the nations economic growth and the welfare of its citizens, both now and in future. Changes in peoples tastes and improvements in technology may affect the composition of the output mix over time. Global influences also have an impact on what happens in the forest sector. Managers seeking to promote sustainable development must cope with the consequences of change and unexpected events which affect both the forests and the people that use them. Uncertainty is unavoidable and unpredictable, and flexibility to respond appropriately is essential. A strategic approach is required. Instead of conservation based on resource management it is necessary to move to sustainable development based on strategic management of the forest sector. It might be said that strategic management represents the new face of conservation. This transition requires a new managerial perspective.

1.4

THE STRATEGY PROCESS

Strategic management is a continuous process. In relation to the forest sector, it defines the aims and guides the action to be taken in pursuit of development objectives. As the process deals with the sector holistically, it covers all aspects of the sector and is mainly carried out at country level. It takes place within the context of national institutions, customary social behaviour and prevailing economic conditions, but is influenced to some extent by events and opinions at international level and also by tactical and operational considerations that reflect the realities of the situation on the ground, which are transmitted upwards. The setting within which the process occurs affects both the choice of aims and the type of action contained in the strategy; conversely, decisions taken as the result of the strategy process determine both the subsidiary objectives and the means of attaining them

General Introduction

11

that constitute local level development. Strategic management does not take place in a vacuum and drives forward changes and development at all levels. The decisions that are taken during the strategy process lead to interventions in the system. These are intended to promote sector development. We might ask, why intervene? Surely, environmental changes and market forces will occur anyway and these will stimulate sectoral development without extra help. Perhaps deliberate intervention is unnecessary and the forest sector will progress faster if it is left alone. This point of view is not supported by popular opinion or economic rationality. Public protest of some sort, low key or vociferous, is likely if the sector fails to produce the goods and services expected of it, or if those dependent on it appear to have suffered unfair treatment. As many of the outputs derived from the sector are unpriced and difficult to value, their equitable distribution, particularly between generations, is unlikely to occur by chance. Intervention of some sort is both necessary and expected. Therefore governments have a duty to step in to promote sector development by initiating and facilitating strategic management. It is more useful to consider what the object of intervention should be and how best to interpret development aims in a national and local context. The general objective is clearly to make people better off, both as individuals and in society as a whole. Strategic management should deliver economic improvements for the people whose livelihoods depend on the forest sector and for the nation. It should also lead to better surroundings for them to live in and contribute to their social, cultural and aesthetic welfare. What is often referred to as the public good has many dimensions. Strategic management is multi-purpose management and involves difficult choices between outputs that are not directly comparable. It is necessary to balance the composition of the output mix and also decide how this balance may change in later years. It is the function of the strategy process to interpret this general objective in ways that correspond to the particular situations found in different countries. Each country or state needs to have a national strategy for forest sector development, which is suited to the type of resources and conditions found there. The general objective is betterment, but the range of activities and mixture of outputs that best meets this aim varies from place to place. Different countries require different treatment and strategic objectives; thus one may concentrate on expanding its timber-based exports (as in Fiji), while another may adopt a strategy based on ecotourism (e.g. Cyprus). It is also true that the process by which objectives are identified and selected should be adapted to the prevailing social system and customs. The procedures followed where most of the forest is owned and managed by the state, for example are unlikely to be the same as those where private landowners control much of the resource or shifting cultivation by tribal people is widespread. In all countries, an essential feature of strategic management is the attempt to reconcile resource limitations with the desires of the community for outputs derived from the forest sector. The capacity of forest resources to supply the mixture of goods and services that society wants is finite, whereas the needs and aspirations of society are only held in check by the spending power of individuals and

12

Chapter 1

governments. It is possible, over time, to increase capacity by means of investments which raise the productivity ceiling; similarly, requirements are likely to increase in most countries as incomes and populations rise. Reconciliation is therefore a dynamic balance which aims to match changes in supply to changes in the amounts that are sought. Each type of output has its own balance; thus the potential of a countys forests to produce timber or supply water should correspond to the nations timber or water requirements. Output balances may be influenced by prices, by competitive spending on other goods and services and by the proportional relationships that govern outputs in joint supply situations. Successful reconciliation depends on the validity of forecasts of output flows under different assumptions about the future and on difficult value judgements about the relative values (or utility) of different types of output. Making people better off depends partly on providing more of the outputs people want and partly on achieving the mixture of outputs that the community prefers. Strategic management should facilitate interventions that are designed to enable the forest sector to satisfy both requirements. It is therefore forward thinking, anticipating future changes and requirements so far as this is possible, rather than backward looking or reactionary. However, expectations are seldom fullfilled in their entirety so that the amount of social betterment actually achieved is likely to fall short, even with the most carefully prepared strategy. The behaviour of complex systems such as the forest sector is difficult to predict. Therefore, forecasts need to be adjusted periodically and strategic decisions revised. In fact, forest sector development should be viewed as a series of approximations and the development path that is followed is likely to meander under the influence of unexpected events. Hence, the development paradox previously described. In spite of these difficulties, strategic management is still worth while. It may only offer imperfect, second best solutions, but does provide a sense of direction on which interventions can be based. The approach is rational and positive, which seems preferable to leaving it all to chance. The alternative is likely to be reactive behaviour by those in charge of forest sector affairs, who respond to whatever situation is perceived as most threatening or whichever pressure group has the most influence. Aimlessness and the absence of a strategy are harmful because they lead to piecemeal instead of holistic treatment of the sector and deal with short term issues rather than long term sustainability. It is also likely to be unfair and divisive; the weaker groups in society tend to suffer most. The level of social satisfaction is likely to be lower without strategic management than where the strategy process is well organised and effective. It is evident that the strategic management process should be initiated at national level and that collaboration is necessary between the organizations and groups that comprise the sector. Oversight and control of the process is therefore a government responsibility, although strategy implementation devolves onto all those taking part in its activities. The sector is a conglomerate of diverse interests, which tend to pull in different directions, although there are benefits for all in pursuing a common purpose. The strategy process should foster unity through participation in its stages;

General Introduction

13

all the participants are entitled to a say in decisions about the objectives to be pursued and to share in the resulting benefits. A prosperous forest sector increases the wellbeing of its members while, at the same time, generating outputs which confer benefits on society as a whole. Strategic management, as applied to the forest sector, is therefore a joint venture. The process has three steps which are repeated at intervals: analysis, aims and action. Analysis covers review of the situation and identification of possible courses of action, choice of aims should be based on their likely consequences and lead to decisions about which route development should follow, and action deals with implementation of the chosen aims, including the means that are used. The process involves cooperation to consider objectives and select the best way forward and, subsequently, participation by all the organizations involved in the programme to carry out the necessary work on the ground. First comes formulation of an agreed strategy for sector development, then preparation of a national forest programme to implement the strategy. The programme, consisting of subprogrammes and projects, spells out the action to be taken in particular forest areas and the types of activity that are required. It should also include schedules and targets, which specify what is expected of the organizations or groups carrying out the work. The strategy process should connect general aims and aspirations at the national level to specific activities in forests and factories. The programme needs to be monitored to keep it on track and be sufficiently flexible to enable it to be adjusted or adapted to cope with unexpected events. The process is cyclical so that national objectives can be reviewed at intervals of, say, five to ten years. This brief description of the strategy process summarizes its functions. Strategy is often distinguished from tactics and operations, which refer to the levels at which decisions are taken and the scope of the responsibilities of the managers who take them. As applied to the forest sector, strategy is primarily a national function, whereas tactics are subnational and relate to the control of projects and other components of the national forest programme; the operational level deals with day-to-day management. These levels are interdependent and it is essential that they be coordinated for the sector to develop in the way intended. Much of the uncertainty with which the strategy process has to deal arises at tactical and operational levels. A major source of uncertainty relates to difficulties with programme and project funding. This can lead to delays and sometimes cancellations which may undermine the strategy. The problem of securing the necessary financial resources creates another paradox: budgets are derived from programmes, while programmes depend on budgets that can seldom be guaranteed in advance. Although a settled programme is highly desirable and much easier to carry out, this ideal situation is scarcely ever achieved in practice. Sufficient flexibility must therefore be built into the content and timing of programmes to overcome this chicken and egg type of problem. Fig. 1.2 shows how strategic management is applied to the forest sector. The resources, activities, outputs, organizations and institutions which comprise the sector are brought together by treating it as a system. Strategy evolves as the result

14

Chapter 1

Figure 1.2 Contributions to forest sector strategic management

of a three-stage, repetitive process, which consists of analysis, aims and action. The strategy process, when applied to the sector system, leads to forest sector strategic management. The arrangement of parts and chapters that make up this book follows the sequence in the diagram. In Part I, the forest sector is described from all aspects and its characteristics as a dynamic, open system are examined. The relevance of strategic ideas, drawn from various sources, to the special problems of the forest sector are considered in Part II; this section includes explanation and discussion of the methods that are available for promoting sector development through the strategy process. The general introduction, which has been presented in this chapter, might be called the what, the why and the wherefore of the book. It describes what the book contains and why it was written, together with a justification of its purpose and its style. It focusses on the role of strategy in forest sector development. This sets the scene for the rational approach to change and development that is advocated and urgently needed to overcome the policy failures now attracting international attention. It puts forward the case for a significant shift in managerial attitudes and the adoption of new techniques by those responsible for administering the forest sector. This is most important at national level where strategic concerns are

General Introduction

15

concentrated. Forest administrators should take on a new role and become agents of change; their proper function is to make things happen. The book proposes changes in sector organization and institutions, partly derived from other fields and partly from what is already regarded as best practice in the forestry field. The strategy process provides the means by which the sector can be guided, stimulated and controlled in the interests of its members and society. Improvements in sectoral performance depend on basing strategic choices on a comprehensive view of development and encouraging joint action by the sectors assorted organizations and interests. A positive approach to uncertainty and the dilemmas that it causes is a necessary ingredient of success. The following pages attempt to show how forest sector strategic management can become more efficient and effective; they are intended as a guidebook for forest administrators and a text for students who expect to move into positions of responsibility connected with the forest sector in future. SUMMARY Forest Strategy is about the application of strategic ideas to the forest sector. The book has two parts: Part I considers the meaning and significance of the forest sector concept, describing its composition, characteristics and the way it works; Part II reviews strategic ideas drawn from various sources and considers strategy formulation and the range of aids to decision making that are available for guiding forest sector development. The forest sector must be treated as a whole. Its resources, activities and outputs are interconnected in space and time; it is made up of numerous organizations and interest groups which interact with one another. A series of transformations link the forests to consumers and the general public. It is necessary to view the sector as an open system and consider how interventions at one point will be transmitted to other parts. Decision making based on partial analysis is liable to be misleading. Strategy bridges the gap between aims and their achievement; it is necessary to choose attainable aims and then seek to implement them. Strategic management is a continous process, which is affected by the complexity of the forest sector and influenced by uncertainty. Flexibility is essential. Policy failures are evident in many countries and the cause of widespread international concern. A forest crisis has been identified, which is marked by forest destruction, the extinction of plants and animals in forest ecosystems and disruption of climate patterns. A new strategic perspective is necessary to cope with this situation. The forest crisis has its origins in a wider failure of conservation. The conservation concept has evolved from preservation into sustainable development. Forest management based on resource protection needs to be replaced by strategic management aimed at making people better off. Strategic management represents the new face of conservation.

16

Chapter 1

Strategic management requires leadership which is mainly the responsibility of governments. Its general purpose of promoting sustainable development and public welfare needs to be interpreted in a national context, to suit the resources and conditions in each country. This is achieved by preparing a forest sector strategy and implementing it by means of a national forest programme. The strategy process (based on analysis, aims and action) is cyclical and evolutionary. SOURCES
1 Charles Handy. The Empty Raincoat. Hutchinson, London (1994). 2 Maurizio Merlo and Manuel Paveri. Formation and implementation of forest policies: a focus on the policy tools mix. Special Paper prepared for Section G, Proceedings of the XI World Forestry Congress, held at Antalya, Turkey, October, 1997, volume 5, pages 233254. 3 Emil Salim and Ola Ulsten, Co-chairmen. Our Forests, Our Future. Report of the World Commission on Forests and Sustainable Development. Cambridge University Press (1999). 4 David Humphreys. Forest Politics. Earthscan, London (1996), Chapter 1. 5 Alfred Runte. National Parks: the American Experience. University of Nebraska Press (1979). 6 Gifford Pinchot. Breaking New Ground. Harcourt, Brace & Co, New York (1947). 7 World Conservation Strategy prepared by International Union for Conservation of Nature and Natural Resources (IUCN), with advice, cooperation and financial assistance from United Nations Environment Programme (UNEP) and World Wildlife Fund (WWF), in collaboration with Food & Agriculture Organization of the United Nations (FAO) and United Nations Educational, Scientific and Cultural Organization (UNESCO), 1980. 8 World Commission on Environment and Development. Our Common Future. Oxford University Press (1987). 9 David Pearce, Anil Markandya and Edward B. Barbier. Blueprint for a Green Economy. Earthscan, London (1989).

PART I THE FOREST SECTOR

INTRODUCTION TO PART I

Activities can be analysed and studied at various levels of aggregation. One approach is national; everything is lumped together and the behaviour of a country as a whole is observed. An alternative approach is to examine the way that individuals behave and individual enterprises perform. Economists traditionally work at both these levels. They distinguish macroeconomics from microeconomics and have developed different theoretical concepts to suit each approach. However, there is also a third, rather neglected, level that lies in between. It might be called mesoeconomics. This deals with the behaviour of particular industries or sectors of economic activity. In Part I of this book the sector approach is developed by applying it to the group of varied activities that is based on forest resources. This portion of the national economy is conveniently called the forest sector. The forest sector is a broad-based concept. Its scope embraces scientific, technical, economic, social and cultural features, which interact with each other in many possible ways. The complex behaviour of the sector is determined partly by its scientific and technical characteristics rates of tree growth, ecosystem responses, population dynamics and the like and partly by the actions of people and organisations involved in sectoral activities, including the owners, workers and managers of forests and forest industries. The way that the sector responds to change and the direction that its future development will follow, are influenced by human values, preferences and aims. These interact with the ecological and physical realities of the sector. In this book the behaviour of the forest sector is viewed from a human standpoint; the perspective is anthropocentric. This stance is appropriate when the resources, activities and outputs, which make up the sector, are being studied from the point of view of a strategist who is responsible for its management and future development, as is the case here. Part I contains six chapters, each of which looks at the sector in a different way:Chapter 2 outlines the forest sector concept, defines it, and provides a general description of its composition; the dynamic interactions which are a feature of its behaviour, the role of people in sectoral activities and the need to adopt a holistic approach. Chapter 3 examines the sector as a collection of resources, and examines their distribution, allocation and renewal. 19

20

Part I

Chapter 4 considers the sector as a set of related activities which link the forest to the outputs it generates. Chapter 5 describes the sector as a provider of tangible and intangible outputs. Chapter 6 views the sector from the standpoint of the people involved and examines its organisations and institutions. Chapter 7 treats the forest sector as a system, enabling its behaviour to be explored using simulation models and its development promoted.

CHAPTER 2 THE FOREST SECTOR CONCEPT

Forests and the activities associated with them are commonly referred to as the forest sector. The name is convenient and its meaning is often thought to be self-evident, but those who use it seldom explain what they have in mind. Therefore the purpose of this chapter is to look more carefully at the forest sector as a concept, define it and describe its distinctive features. It is a distinct entity with easily recognisable characteristics. An understanding of these is required for its management and future development. The sector includes forests and all the people who, in one way or another, depend on them; it also covers their relationships. An overview is provided of its scope, composition and functions, indicating the important features which distinguish it from other sectors. A holistic approach is adopted to allow for the dynamic interactions that take place within it. The sector as a whole amounts to more than the sum of its parts. The forest sector concept is all-embracing. Globally, it covers all types of forest and woody vegetation, from rain forest in the tropics to boreal coniferous ecosystems, and includes all manner of human activities based on forest resources. Sector activities range from large scale forest industries, which manufacture timber, panels, paper and other mass-produced goods to meet the needs of consumers in home and foreign markets, to the small-scale collection and processing of forest products for domestic and local use. Service activities which aim to satisfy social, cultural and environmental needs are also included. Outputs from the sector are very diverse and comprise intangible benefits, such as scenery and biodiversity, in addition to the wide range of goods derived from forests and trees. From a human point of view the sector is a collection of groups, organisations and institutions, with interests ranging from the conservation and exploitation of the forests to the processing and distribution of the goods and services obtained from them. The sectors contribution to social and economic welfare is heterogeneous. The forest sectors of districts, countries and regions are more restricted in scope; each contains an assortment of resources, activities and outputs drawn from the range of different types existing in the world. The forest sector of a particular area or zone is specific to that location and consists of the actual forests and the particular activities and outputs that occur there. The forest sector of each place is 21

22

Chapter 2

therefore distinctive and different from other places. Some countries have large and important forest sectors, while in others the sector is insignificant. The general description of the forest sector, which is presented in this chapter, applies at all levels. It is arranged in five sections. First, the sector is defined and its main features are identified. In the second section its composition is described; the sector is divided into three parts: resources, activities and outputs. These components interact with each other and respond to external stimuli from other sectors, as described in the third section. The fourth section deals with the role of people in the sector. Finally, the way in which the sector concept is applied to actual situations and the real world is considered in the fifth section. 2.1 WHAT IS THE FOREST SECTOR?

A sector is a convenient portion or section of something, like a slice cut from a cake as shown in Fig. 2.1. However, it is not cut at random; each sector has particular features which distinguish it from other sectors. Economists have found the sector idea useful. They divide the national economy into sectors, which describe the nature of the economic activities carried out by different groups of people or types of organisation and separate government activities from those of private persons (see Box 2.1). The national economy is also subdivided according to the contributions derived from various sources, such as manufacturing or financial services, or produced by industries such as agriculture, mining or fisheries. These industrial sectors are based on particular natural resources, for example mining activities depend on mineral resources and fisheries on water resources. Similarly, the forest sector includes all the activities based on forest resources.

Box 2.1 Definition of sector Sector a part of the economy that has certain common characteristics which enable it to be separated from other parts of the economy for analytical or policy purposes. A broad division may be made, for example between economic activities undertaken by the state (the PUBLIC SECTOR) and those that are undertaken by private individuals and businesses (the PRIVATE SECTOR).
Source: Pass, C., Lowes, B. and Davies, L. (1993). Collins Dictionary of Economics. 2nd. edition.

The section of the national economy concerned with forests and the goods and services that forests supply, is the forest sector. It embraces everything to do with forests and woody vegetation from the seedling to the consumer. The sector is characterised by its dependence on forest resources. These provide the

The Forest Sector Concept

23

The size of the slice indicates the importance of the sector. Total production from the sector amounts to as much as about 20 percent of GDF in a few countries, although the average is only about 2 percent but GDP excludes non-marketed services, so the relative size of the sector may be many times greater.

Figure 2.1 The forest sector

foundation for a wide range of activities that include the management of the resources themselves and the subsequent harvesting, processing, distribution and trade activities which utilize inputs derived from the forest. Forest sector activities provide outputs in the form of tangible and intangible benefits in response to the requirements and aspirations of society, locally and nationally. The sector idea, derived from economics, can be enlarged to include other perspectives. From an economic standpoint the forest sector creates utility and wealth; from a social and cultural point of view it contributes to the structure, way of life and ethos of the community. It gives rise to a variety of organisations and institutions, and is a source of aesthetic, educational, historical and religious values. Therefore, the forest sector can be defined in broad terms to include the economic, social and cultural contribution to life and human welfare which is derived from forests and forest-based activities. This comprehensive definition takes account of all aspects of the sectors contribution to local, national and international development. Other, more limited, interpretations are sometimes used (see Box 2.2). In institutional terms, the range of activities administered by the government ministry responsible for forestry matters has sometimes been called the forest sector, thereby demeaning the role of private firms and voluntary agencies. Parts of the sector may be excluded, such as the contribution derived from informal activities which are not recorded in national accounts. The danger is that an incomplete specification of the sector can easily lead to oversights and analytical errors and thus to mismanagement. Change is a feature of the forest sector; it continually evolves and develops or regresses. Forest resources are subject to natural processes of biological growth and ecological succession, intervention by humans may affect their size and quality, and their capacity to satisfy local and national requirements may diminish or expand with time. The range and variety of sector activities alters in response to the

24

Chapter 2

Box 2.2 Different interpretations of the forest sector The forest sector self-evidently covers those activities based upon the forest, and the goods and services provided by the forest. But this gives considerable leeway for differences in interpretation. Some sector analyses are confined to all woodbased activities, others encompass only forestry activities, excluding the forest industries. Where the latter are included in the sector there is considerable room for choice as to which of the wood-using industries to include. In many instances forest sector analysis should also include consideration of non-wood products and services of the forests, including soil and water protection, recreation, amenity and wildlife. There is in fact no standard uniform classification of the sector and no need for one. The sector should be defined to meet the purposes of the particular analytical exercise, including all those activities that have a significant bearing on the situation to be diagnosed. If the purpose is for a national planning exercise encompassing all sectors, then the boundaries of the forest sector will of course be affected by what is to be included or excluded from the other sectors.
Source: FAO (1974). An Introduction to Planning Forestry Development, page 23.

availability of supplies of raw materials from the forest and stimuli from end-users market demands. Outputs from the sector vary with shifts in consumer preference and population growth. A change in one place affects the rest of the sector because its parts are interdependent. The sector adjusts and adapts, expands or contracts, alters in composition and may even suffer economic or environmental collapse. The forest sector is a dynamic entity. The forest sector is a portion of the national economy and its boundaries are demarcated by its relationships with other sectors, such as agriculture, energy or construction. Often, sectors overlap, as with agroforestry in which forestry and agriculture share the use of land. In other cases, parts of the forest sector are also included in other sectors, as for example, forest industries, which form one group of industries within the wider sectoral classification of manufacturing industry as a whole. How sectors are delineated is a matter of convenience 1 and depends on the purpose of the analysis which is being undertaken. Double counting must be avoided if the aim is to examine the relative importance of different sectors in the national economy (e.g. contributions to the gross domestic product for national statistics), but is irrelevant for in-depth studies of particular sectors. The concept of the forest sector as a dynamic entity dependent on forest resources, which is presented in this chapter, depends on a comprehensive definition. A broad perspective is essential in order to allow for the sectors internal interactions and to lay a proper foundation for subsequent discussion of strategy formulation and policy analysis.

The Forest Sector Concept 2.2 COMPOSITION

25

The forest sector concept provides a useful general framework for explanation and analysis it presents a conceptual model of the way the sector works. The sector is made up of resources, activities and outputs. These three components interact with one another (see Fig. 2.2) and transformations take place during which resources are converted by activities into outputs; additional inputs may come from outside. Value is added by these transformations, so that the forest sector creates wealth in response to human needs and contributes to economic growth. More generally, economic, social and environmental outputs from the sector influence the course of a nations development and the welfare of its people. Forest sector resources include the whole range of resources available in the sector, not forgetting the factors of production used in processing, distribution and trade activities. They fall into three groups: natural, human and capital. Natural resources comprise land, water, soils and air, the ecosystems which they support and the minerals which lie underground. Forests are included in this category and are by far the most important of the natural resources utilised by the forest sector. Other natural resources utilized for sectoral activities include water and a small amount of land occupied by forest industries. Human resources include relatively small numbers of forest dwellers and other people dependent on the forest for their livelihoods, such as shifting cultivators; many more people are employed in forestry and forest industries. Capital resources are made up of the physical assets obtained by investment in the sector (buildings, factories, machinery, tools etc.) and also human capital derived from skills, education and training. Human resources and capital resources tend to be concentrated in the industrial parts of the sector. Forest resources are the natural resources associated with forest land and trees. They include forests and woody vegetation both in their wild state and when modified or managed by man. They form a wide spectrum of vegetative types, from closed forest (i.e. land entirely covered by trees), through woodland and scrub, to parkland and isolated trees. Man-made forests and plantations are included, and also trees which form the forestry component of mixed land use systems such as agroforestry. Forest resources are distinguished by the presence of trees, but they also comprise the land, soils, water and local climate which support tree growth and all the other living things that are associated with trees. Kimmins (see Box 2.3) has aptly described forests as landscapes 2 . Forest sector activities include all the activities based on forest resources. They fall into two groups. The first is forest oriented and includes what are generally called forestry activities. It covers all the work that is directly associated with the

Figure 2.2 Components of the forest sector and their interactions

26

Chapter 2

Box 2.3 Forests as landscape A forest is defined as an ecosystem dominated by trees. But the forest is no more the trees than the farm is the cabbages or cows. Ultimately a forest is a landscape that has the soil, climate and set of organisms that make up what we think of as a forest. Forestry has been defined as the art, science and practice of managing forested landscapes to provide a sustained production of a variety of goods and services for society. In concept, forestry is definitely people-oriented.
Source: Kimmins (1992). Balancing Act: Environmental Issues in Forestry, pages 27 and 48.

conservation and management of trees, forests and forest land. The regulation of tree felling and extraction operations is also a forest management activity. The second group consists of activities which utilize outputs from the forests. These outputs generate sequences of operations which connect the forests to the end users of forest products. Harvesting leads to processing, processing is followed by distribution and trade as shown in Fig. 2.3. Forest sector activities are also directed at the delivery of services and intangible outputs from the forest. The object of these activities is to provide forest sector outputs of various kinds in response to the needs of consumers. The sector produces a wide range of goods and services ranging from food to fuel and wood to wilderness. Some outputs, such as beautiful scenery or biodiversity, provide intangible benefits which, nevertheless, meet the needs of the community. Tangible outputs include wood and non-wood items with market values. Some come straight from the forest and are used in unprocessed form to satisfy local requirements for food, fuel and shelter. Other forest outputs provide raw materials for processing and manufacturing (e.g. logs and pulpwood) or are used by other sectors (e.g. water for hydroelectric power

Figure 2.3 Forest sector activities and outputs

The Forest Sector Concept

27

generation). Within the forest sector, there may be one or more stages of processing before eventual distribution for use elsewhere in the country or abroad. Each stage provides outputs, some of which become inputs to the next stage, before they finally reach consumers. 2.3 INTERACTIONS AND INFLUENCES

The three components of the forest sector interact with one another. The sequences of operations or processing chains, which link forest resources to sectoral outputs, depend on these interactions. They work in both directions backwards and forwards. The nature of the resources affects the sort of activities that take place and the kinds of goods and services produced; in the reverse direction, consumer demand for goods and services influences sectoral activities and the way that the resources are managed. Looking forwards, forests and woody vegetation generate a succession of activities, including the management of forest land and forest crops, the harvesting of those crops, and the subsequent processing, distribution and trade in wood and nonwood forest products. Improvement in the productivity of forest resources leads to more raw material to harvest and process, and, in turn, to an increase in the amount available for consumers. The effects of these interactions may, of course, be extended in both space and time. For example, more trees planted in one district now can lead to an increase in harvesting activities in later years and more logs for sawmills situated elsewhere in the country. Similarly, forest management aimed at preserving biodiversity in one area of forest may confer global benefits. In the reverse direction, the requirements of end users are transmitted backwards along the distribution and processing chain until they reach the forest in the form of derived demand. Sector activities are influenced by demand at all stages along the chain. Thus an increase in paper consumption may lead to working an extra shift in some paper mills or more investment in paper-making machinery. It may also increase the demand for wood pulp and lead to a rise in pulp production. In turn, this may lead to greater use of sawmill residues or waste paper, or be transmitted into requests for more pulpwood and a higher rate of felling in the forest. Similarly, consumers requests for intangible outputs influence the flow of funds to forest managers and the nature of their activities. The size of the forest sector and the amount of activity that takes place in it depend on two internal factors: the capacity of the forest resources to supply outputs of different kinds, including environmental benefits, and the strength of end users demands for tangible and intangible outputs. The sector is driven from both ends resource push and consumer pull. These opposing forces interact and are reconciled with each other by the scale and nature of the activities that are generated in between. Forest sector behaviour is controlled by the responses to changes in supply and demand. These changes may be either actual or anticipated. An actual change in market behaviour, such as an increase in the use of newsprint, can lead directly

28

Chapter 2

to increased production, subject to the constraints imposed by the availability of pulpwood and the capacity of existing pulp and paper mills. It can also result in investment to increase their capacity. An anticipated change, which is expected at some time in the future, perhaps due to rising population and incomes, may also cause increased investment and production. Whether the anticipated change in demand in due course turns into an actual change will, of course, depend on circumstances at that time, but the expectation is enough to affect sectoral behaviour. In fact, because of the long delays associated with the growth of forest crops, forest sector development is dependent to a large extent on present expectations of future events. These interactions connect different parts of the sector they are internal interactions. The behaviour of the sector is also affected by external influences, either from other sectors, or due to national action, or resulting from international activities. Other rural sectors impinge on the forest sector, particularly agriculture which is the most important alternative use for forest land. Changes in farming practices, productivity and subsidies are having profound effects on forest resources in many places and much deforestation in developing countries is caused by agricultural clearing. Forest sector outputs are utilised by other sectors, such as food processing, and changes in their requirements may affect the level of activity in forest industries. The forest sector is also affected by national events; thus the level of demand for forest products tends to be cyclical, following general fluctuations in industrial activity and trade. International action, affecting trade and aid, and global concerns about tropical deforestation and biodiversity also influence the forest sector, either directly or indirectly. The sector is linked to activities in other sectors, to national prosperity and stability, and to the economic, political and environmental state of the world. There are influences at all levels from which it cannot be isolated. As Fig. 2.4 shows, the forest sector is not an independent entity and displays open system characteristics.

Figure 2.4 Internal interactions and external influences on the forest sector

The Forest Sector Concept 2.4 THE ROLE OF PEOPLE IN THE SECTOR

29

Another way of looking at the forest sector is from the perspective of the people involved and the way that they are organized. The sector can be regarded as a loose association of all those who depend in one way or another on forest resources. Sectoral activities are undertaken by people, either as individuals or in groups. Some control, manage or work in the forests, or grow trees alongside agricultural crops; they are involved directly with forest ecosystems and woody vegetation. Others depend indirectly on outputs from the forest through their participation in harvesting, processing, manufacturing and the distribution of forest products. At every stage people interact within the sector and with others outside, giving form, direction and purpose to the wide range of sectoral activities. People have a dual role: they are both producers and consumers of forest products. As producers, their activities provide goods and services from the forest and influence the flow of intangible outputs such as carbon sequestration. They are responsible for forest harvesting activities and the provision of raw materials for primary processing; their productive contribution extends into secondary manufacturing, distribution and trade. As consumers, people are the recipients of these goods and services, and benefit from them. The production costs of those that can be profitably bought and sold are recouped from their prices; others, which cannot be traded, are financed through taxes or by charitable subscriptions. Either way, in the long run, consumers must pay for the outputs they receive or face losing the benefits of output flows which are unsustainable. Consumer demand influences what is produced and changing consumer preferences lead to changes in the balance of productive activities. In their role as producers, people contribute to the sector in various ways and benefit from it in other ways. They provide the work force, the managers, the directors and the owners of private enterprises; they are also employed as civil servants in the government ministries and departments concerned with the forest sector. The sector contains landowners and timber growers, users of forest land with rights established by custom or law, shifting cultivators, collectors of forest produce (such as resin tappers), loggers and transporters, suppliers of herbal medicines, sawmillers, manufacturers of plywoood and panels, pulp and paper producers, furniture makers, housebuilders, timber merchants and exporters, and many others. A wide range of knowledge and experience is necessary for these varied activities and the expertise and skills of staff and labour are essential ingredients in the productive processes that take place. The forest sector cannot function without an assortment of human resources and its future development depends on renewing and extending their capacity. As beneficiaries, those engaged in sector activities receive employment, incomes, profits, training and other advantages. For some the forest sector provides a way of life, for others it offers social, cultural and recreational facilities. The sector is made up of a variety of functional units. People join together in groups of various kinds which undertake sectoral activities. They range from small, dispersed family units to large, highly organised industrial corporations.

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Typically, peasant farmers practising agroforestry are widely scattered, while largescale manufacturing processes, such as pulp and paper making, are concentrated in particular locations in a few countries. Some groups are loose associations of people with a common interest, such as landowners associations, or cooperatives formed to market the output of small-scale producers like handcraft makers. Other groups are more tightly organised in order to perform complex functions which depend on technical expertise and effective coordination, as with state forestry departments and companies in the private sector. Generally, national forests are managed by government agencies, while industrial and commercial activities are undertaken by firms. Some of these groups and organisations operate entirely within the forest sector, while others straddle its boundary and are also active in other sectors. Which organisations are included and which are excluded is to some extent a matter of judgement and convenience. The various kinds of organisations that make up the sector represent a wide range of interests. Non-government organisations (NGOs) are voluntary groups formed for such purposes as upholding the rights of indigenous people, or protecting special forest areas and ecosystems, or representing peoples concerns about issues such as tropical deforestation and sustainability. Similarly, forest sector workers may join trade unions and manufacturers combine to form trade associations in order to strengthen their bargaining position through joint action. Companies engaged in manufacturing and trade are commercially motivated, seeking to fulfil the ambitions of their managers, provide employment for their workers and make profits for their shareholders. International corporations have interests in world trade in forest products and international agencies, such as the Food and Agriculture Organization of the United Nations (FAO), are concerned with a whole range of matters affecting world forestry from the collection of statistics to measuring and monitoring global forest resources. This diversity of organisations and interests encourages divergent tendencies; the sector does not behave as a single, tightly organised, cohesive unit. It is best described as a conglomerate or loose association of organizations with a common interest. Nevertheless, the interactions between its parts and the existence of an institutional infrastructure are unifying influences. The institutions create a framework that serves various functions, including law and regulation, policy and planning, financial arrangements, education and the provision of information, conflict resolution and leadership. The actual institutional arrangements and their effectiveness vary from country to country, according to the characteristics of the sector and the system of administration. It is desirable to foster a sense of unity because member organizations have a common interest in collaborating to promote sector growth and sustainable development from which all can benefit. 2.5 APPLICATION OF THE SECTOR CONCEPT

As a concept, the forest sector is comprehensive in scope, but unrelated to either particular places and circumstances or to specific problems and types of analysis. A wide range of forest resources, activities and outputs exists throughout the world.

The Forest Sector Concept

31

Different forest types, processing industries and patterns of consumption occur in each country. The sector concept covers the whole range and serves to define a general outline for study and analysis; it provides a description of the possibilities and potential for development of the sector. The three-part sectoral composition of resources, activities and outputs, which the concept embraces, must be applied to actual situations to be useful in practice. This involves selecting those parts of the conceptual framework which are appropriate. A description of the forest sector in a country should contain an account of the types of forest resources, activities and outputs found there, an explanation of the way that they interact with each other and with other sectors. The description should also cover the organisations and institutions of the sector, the roles they play and contributions they make. The sectors actual composition is specific to each country and the stage of development that it has reached; it also reflects external influences. The development opportunities open to the country at any particular time consist of a few possibilities drawn from the wide range contained in the framework. It is important to distinguish between the forest sector as a concept and as a description applicable to the real world. The concept does not exist anywhere except in the imagination, but is a helpful idea because it is comprehensive and provides a standard with which to analyse and compare the actual situation in different countries. Forest sector descriptions draw on relevant parts of the concept to fit real situations in particular places. If the descriptions are drawn up without reference to the concept there is always a danger that some parts or some interactions will be overlooked, or others included which should not be. Similarly, a more restrictive definition of the forest sector, i.e. a more limited concept, is likely to lead in practice to omissions from the analysis of actual forest situations. Some of the early sector studies undertaken by FAO under the Tropical Forestry Action Plan were defective for this reason 3 ; they ignored environmental aspects or excluded forest industries. The scope of the concept should not be altered it is important to maintain a broad sectoral perspective but the way it is applied can, if necessary, be restricted to match the problem being studied. A full sector study may not be needed to answer a specific question in a particular place, the analysis can concentrate on the aspects that are relevant, but it is not acceptable to redefine the sector in order to narrow the analysis. It is helpful to view the sector holistically, as a complex entity, by regarding it as a system. A systems approach stresses the interconnections between different parts of the sector and the need to treat it as a single unit. In each country or region, the sector forms a dynamic system which depicts its composition, interactions and organizational structure. A change in one part may produce other changes elsewhere and affect the rest of the system, often in unexpected ways. This approach treats the sector as a matrix of activities which interact in space and time. It enables the behaviour of the system to be analysed and studied with the aid of simulation models in a computer. Models can reveal what is likely to happen under various assumptions about future events and changing conditions. They can be used to construct scenarios showing what the sector might look like if a particular course

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of action is chosen. Development of the sector can then be steered in the direction likely to bring the greatest advantage to the people who are directly dependent on forest resources and, more generally, to increase the flow of benefits for society as a whole. The sector concept therefore provides a comprehensive means of describing forest resources and the range of activities and outputs dependent on them. It stresses the diverse interrelationships which are a feature of sectoral behaviour and indicates how the processes of change at work inside and outside the sector are likely to influence the flows of benefits that the sector provides. Treating the sector as a system provides a powerful analytical tool for formulating development strategies and preparing detailed programmes to implement them; this approach helps to turn good intentions into reality. In theory and in practice, the forest sector concept offers advantages to managers in their search for better understanding and wiser courses of action in matters relating to forest resources and the contribution they make to a sustainable environment. SUMMARY The forest sector is defined in broad terms as the economic, social and cultural contribution to life and human welfare derived from forests and forest-based activities. The sector should be treated holistically. It has three components: resources, activities and outputs. These components interact with each other in response to the capacity of the forest to supply outputs and the demand from consumers for those outputs. The sector is also subject to external influences at three levels: activities in other sectors, the behaviour of the national economy and international events. Viewed from a human standpoint, the sector is a loose association of all those who depend on, or who are concerned with forest resources. Sectoral activities are undertaken by individuals and organisations, including private companies, government departments and NGOs. The forest sector concept provides a comprehensive general framework for study and analysis; relevant parts of this framework are used to describe the actual forest sector in particular places. Treating the sector as a system enables its behaviour to be studied and its development guided in the direction that society prefers. SOURCES
1 FAO. An Introduction to Planning Forestry Development. Paper Ref. FAO/SWE/TF 118, FAO, Rome (1974). 2 Hammish Kimmins. Balancing Act: Environmental Issues in Forestry. UBC Press, Vancouver (1992). 3 FAO. Tropical Forestry Action Plan: Report of the Independent Review. FAO, Kuala Lumpur, Malaysia (1990).

CHAPTER 3 RESOURCES

Resources provide the means which enable the forest sector to function; they are the assets of the sector which are available to support its activities and produce its outputs. Their usefulness makes them valuable. They provide the inputs to the productive processes which take place in the sector. In relation to a particular region or country, the availability of resources limits the sectors development and determines its importance compared with other sectors. Some resources, such as forests, are linked to particular locations. To the extent that resources cannot easily be moved, differences in the resource endowments of countries are significant. It is usual to divide resources into three types: natural, human and capital. All three are essential to the activities of the sector and contribute to its productivity and development. A country that is well-endowed with forest does not necessarily have a well-developed forest sector; it may lack the human and capital resources that are needed to complement the wealth of the forest. Conversely, some countries without any forests of their own have built up a significant forest sector based on imported raw materials. Forest sector resources should be distinguished from forest resources. The former include the resources of all three types available in the sector, whereas the latter are the natural resources contained in the forest itself forest land, soils, trees, vegetation, ecosystems etc. Most of the sectors natural resources are concentrated in the forest and are site-specific. Forest resources underpin the sector and are the source of all its activities and outputs. They provide the raw material from which processed outputs are derived and support the sectors contribution to environmental stability and human welfare. Except for the small amount of land used by forest industries, the sectors natural resources are all located in forest areas or in woodlots and scattered trees on agricultural land. Some of the sectors human resources are also forest-based, but most are employed by the industries that utilise outputs from the forest, such as sawmilling and furniture manufacture, and in the sale and distribution of forest products after processing. Capital assets, in the form of buildings, machinery and equipment, also tend to be concentrated at the industrial end of the output chain. Forest resources are tied to the land they occupy; they cannot be moved from place to place or redeployed. Human and capital resources, within limits, are more 33

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mobile. People, machines and equipment, even buildings, can be shifted to new sites and additional expertise or capital can be acquired from outside the forest sector. Therefore, forest resources are less flexible than the other types of resources and their geographical distribution has a greater influence on the way the sector develops in particular countries. The ability of the sector to supply a wide variety of outputs depends partly on the nature and extent of its resources and partly on the way that resource inputs are combined. All three types of input are necessary for the sector to function effectively, but there are many possible ways of allocating the available resources to different uses in accordance with their relative scarcity or abundance. To some extent, one type of resource can be substituted for another. Countries which are wellendowed with forests tend to use forest land and forest products more freely than countries which lack forest resources. Some countries, such as India, have ample labour and tend to adopt labour-intensive methods of production, while others, as in western Europe, choose capital-intensive technology in their forest industries. With time, changes occur and the structure of the sector may alter. Forests may be destroyed to make way for agriculture, new industries may start up, new markets may be developed and different techniques and methods may be introduced. The development path of the forest sector in a country depends partly on the resources that the country possesses and partly on the way that the available resources are allocated. There is also a third influence: renewal or sustainability. The nations resources may be depleted or built up, both in quantity and quality. Forest resources may be exploited and not replaced, leaving less for future years. Failure to maintain the productive potential of the existing capital and human resources, or allowing them to degrade, reduces the potential for future development. Adequate provision for the renewal of resources is essential. The sectors activities cannot be sustained without attention to resource renewal, otherwise, in time, the sector will inevitably decline instead of progressing. These three influences on development the endowment, allocation and renewal of resources determine the path of future change in the forest sector. Viewed positively, more resources, better allocated, with due attention paid to their replacement, will result in sectoral growth, which is likely to increase the sectors contibution to national welfare; from a negative point of view, fewer resources, wastefully allocated, with no concern for their depreciation and sustainability, lead to contraction and a diminishing role for the sector. Development, in a positive sense, is not inevitable. Unfortunately there are many countries where the forest sector has slipped back through neglect and mismanagement of its resources. Negative development is regression. Whether the forest sector in a particular country regresses or progresses depends on the choices that are made by those responsible for its management and, more generally, by those in control of rural affairs and the direction of the national economy. Positive development is obviously a desirable national aim. It goes without saying that a countrys people and government should seek the best or, at least, a satisfactory use of its resources. Resource endowment, allocation and renewal,

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35

and their interactions with each other, should therefore be examined in more detail. These topics are addressed in the following three sections of this chapter. 3.1 ENDOWMENT

Resource endowment describes the present stock of different types of resources and their condition. It refers to their quantity and quality in relation to the way they are used. Natural resources, labour and capital are described by economists as factors of production; their availability determines the amount of goods and services that can be produced. In general, (other things remaining the same) the more of a particular type of resource that is available for use by the forest sector, the greater the output that is likely to result. Better quality resources more fertile soils, a better trained workforce and more efficient machines also enable outputs to be increased. The forest sector is endowed with natural resources, which attract human and capital resources. A country starts with an area of forest land, which may be diminished or increased, and a population which tends to expand, at least in the early stages of development; as development proceeds, the stock of capital resources, consisting of man-made assets and the money to buy them, are gradually built up. Within limits set by market capacity, additions to the quantity of these resources will add to tangible and intangible sector outputs. A larger work force in the forest makes it possible to grow more timber or provide better facilities for forest recreation; extra sawmill employees might be used to speed up production or work another shift. Generally, the same work force using more capital in the form of machines and equipment enables output to be increased, as for example using powersaws instead of handsaws for felling. Similarly, the procurement of additional productive forest land is likely to lead to a larger annual harvest in future years and may also enhance environmental benefits based on the forests role as a refuge for wildlife or a sink for atmospheric carbon. The quality of resources can be improved in a variety of ways, which usually involve investment. Outlays of time, effort and money are necessary to increase the capacity of resources to supply more output and greater benefits per hectare, per worker or per unit of capital. Soil improvement practices, tree breeding and genetic improvement, training to provide the workforce with new skills, research to improve techniques and develop new products, improvements in the design of machines and manufacturing processes these are all examples of the way resource quality can be enhanced. Knowledge about resource endowment in the forest sector is uneven. Because forest resources underpin all sector activities and their presence distinguishes the sector, attention tends to be focussed on them; their richness, variety and availability attract more attention than the people and capital employed in sector activities. This relative neglect of human and capital resources can be explained to some extent by their greater mobility compared with natural resources. The supply of forest resources, which are land based, is limited and inflexible whereas human and capital resources can be augmented from outside the sector. However, the importance of

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having a skilled workforce and sufficient capital should not be overlooked. The sector cannot function without them and any assessment of sector potential should embrace the availability and quality of all three resource types. Most of the information that is available relates to the distribution of forest resources. Published statistics show the areas of forest in each country, much less is known about their composition and quality. The human and capital resources of the sector are inadequately recorded and have been little researched; data from a few places have been published from time to time, but estimates for successive years, which would show changes over time or trends in resource use, appear to be almost non-existent. Forest Resources Some natural resources, such as land, are supposedly finite; the possibility of adding extra hectares to the global stock of land is limited to relatively small areas reclaimed from the sea. The land area of the world, estimated at 13,067 million ha, is accurately known, but, within that total, estimates of the areas of forest and wooded land are less sure and liable to alter with land use changes. The area classified as forest varies widely, depending on how forests are defined and how they are measured. If only closed forest, i.e. land entirely covered by trees, is included, the area classed as forest will be smaller than if open woodland or scattered trees are also regarded as forest land. Mather 1 lists different estimates of the global forest area ranging between about 3,000 and 6,000 million ha, and attributes most of this variation to different definitions. FAOs best estimate 2 , based on its 2005 Global Forest Resources Assessment, gives 3,952 million hectares (30.3 % of the land area) as the total area of forest and also a larger area of 5,328 million hectares, representing the total forest plus other wooded land. The definitions used for this assessment are shown in Box 3.1. The 2005 assessment is the most comprehensive and reliable general guide to the state of the worlds forest resources that is available. It includes 229 countries and is based on information supplied by countries and survey data, combined with monitoring using remote sensing techniques. Therefore the reliability of the figures varies somewhat from country to country. It displays the area of forest by country and region, and also shows growing stock and biomass. At the time of the assessment, 30.3 percent of the land area of the world was covered by forest, with a further 10.5 percent classed as other wooded land. The forest area amounted to approximately 0.6 ha per head of population. Estimates are provided of the rate of net annual deforestation since 1990. Destruction of the worlds forest resources is a cause for concern. The global rate of loss remains alarmingly high, although it declined slightly from 8.9 million ha annually in the decade 19902000 to 7.3 million ha during the period 20002005. Brazil (3.1 million ha) followed by Indonesia (1.9 million ha) recorded the greatest losses. These figures do not include estimates of degradation, which only affect the quality of the forest, not its area.

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Box 3.1 Definitions used for the 2005 Global Forest Resources Assessment Forest Land spanning more than 0.5 hectares with trees higher than 5 m and a canopy cover of more than 10 percent, or trees able to reach these thresholds in situ. It does not include land that is predominantly under agricultural or urban use. Forest is determined both by the presence of trees and the absence of other predominant land uses. The trees should be able to reach a minimum height of 5 metres (m) in situ. Areas under reforestation that have not yet reached but are expected to reach a canopy cover of 10 percent and a tree height of 5 m are included, as are temporarily unstocked areas, resulting from human intervention or natural causes, which are expected to regenerate. Includes: areas with bamboos and palms provided that height and canopy criteria are met; forest roads, firebreaks and other small open areas; forest in national parks, nature reserves and other protected areas such as those of specific scientific, historical, cultural or spiritual interest; windbreaks, shelterbelts and corridors of trees with an area of more than 0.5 ha and width of more than 20 m; plantations primarily for forestry or protective purposes, such as rubber-wood plantations and cork oak stands. Excludes: tree stands in agricultural production systems. The term also excludes trees in urban parks and gardens. Other wooded land land not classified as forest, spanning more than 0.5 hectares; with trees higher than 5 m and a canopy cover of 510 percent, or trees able to reach these thresholds in situ; or with a combined cover of shrubs, bushes and trees above 10 percent. It does not include land that is predominantly under agricultural or urban use.
Source: FAO. Global Forest Resources Assessment 2005, Annex 2.

The 2005 assessment is the latest in a series, published by FAO, which started in 1945; assessments have been carried out at 5 to 10 year intervals since then. It provides more information than before and is intended to contribute data relevant to the application of sustainable forest management. It covers seven thematic elements: 1. Extent of forest resources 2. Biological diversity 3. Forest health and vitality 4. Productive functions of forest resources 5. Protective functions of forest resources 6. Socio-economic functions 7. Legal, policy and institutional framework Earlier assessments are not directly comparable as they focussed on other issues and the definitions on which estimates were based were slightly different. Thus

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the 1990 assessment 3 included a special study of the long term changes in tropical countries and, in some respects was more informative because it distinguished developed from developing countries. In the latest assessment, estimates of the volume of growing stock are provided for countries, but not by regions or the whole world; the global volume per ha is put at 110 m3 . Similarly, the biomass stock is given by countries only. The 1990 assessment covered 179 countries and showed the total forest & other wooded land divided in the ratio 2:3 between the developed countries, (approximately 2,060 million ha) and the developing countries, (3,060 million ha). In the developed countries the decrease in the forest area was estimated at 0.08 million ha or 0.01 percent per year, compared with an annual loss of 13.1 million ha or 0.43 percent in the developing countries. Both these deforestation rates were net figures; 16.3 million ha were deforested annually, mostly in the tropics, but 3.2 million ha of forest plantations were added, and 2.1 million ha of forest were degraded, mainly by shifting cultivation, and transferred to the other wooded lands category. The total volume of growing stock was estimated at 384 billion cubic metres over bark, corresponding to an average of 114 m3 /ha and the total above-ground biomass was estimated at about 440 billion oven-dry tonnes. Three-quarters of the biomass was said to be in the developing countries, due to the higher density of wood and larger proportion of branchwood in tropical forests. The 1990 assessment included a special study of long term area changes in the tropics over the 30 years 19601990. The loss of forest cover during this period was estimated at 450 million ha. Demographic changes were said to be the prime cause, followed by other factors such as economic growth and government policy. Over these three decades, the population of the developing countries roughly doubled in number from 2 to 4 billion. Since 1990, according to the latest assessment, the deforestation rate has declined, but still remains high. Global statistics can be misleading as Table 3.1 reveals. They disguise large variations between regions and countries. Thus, the percentage of the total land area classed as forest for Europe is twice as high as the proportion in Africa. Finland, Japan and Brazil are all well endowed countries (74%, 68% and 57% respectively), whereas the United Kingdom, which in the past also had extensive forests, now has less than 12 percent about one third of the average for European countries. Some countries are poorly endowed for climatic reasons, such as Syria (2.5% of forest) where much of the land is semi-desert. A few countries have practically no forests at all, e.g. Tonga and Singapore, because all the available land has been taken for agriculture or industrial development. The area of forest and other wooded land in a country is, at best, only an indicator it is a mere pointer to the potential of the forest sector, which may or may not be realized in practice. It shows the extent of its forest resources, but tells us nothing about their quality or productivity or biodiversity, and very little about the way they are being managed or their contribution to national development and welfare. In relation to population, the forest resources of countries also differ widely. Finland has more than 4 ha of forest and Canada nearly 10 ha per head, compared

Table 3.1 Forest resources of selected countries and regions Country or Region Forest Area 1000 ha 22 500 2 845 15 554 17 915 1 001 394 310 134 303 089 677 464 163 678 24 868 8 309 206 254 8 673 3 522 11 089 9 203 635 412 871 67 701 197 290 88 495 571 577 477 698 16 121 831 540 3 952 025 % of total land area 73 9 11 8 28 3 35 9 44 3 33 6 33 1 32 7 21 3 68 2 31 0 24 3 45 0 62 12 2 76 21 4 67 22 8 21 2 48 8 18 5 57 2 21 5 47 7 30 3 Annual change rate % 20002005 n.s +0 4 +0 3 +1 7 +0 1 0 +0 1 n.s 0 1 n.s +0 2 0 2 0 5 0 3 3 3 0 0 6 0 3 n.s +2 2 2 0 +0 2 0 6 +0 4 0 5 0 2 Per capita ha 4.31 0.05 0.26 0.43 1.38 9.72 1.03 1.58 8.14 0.19 2.05 6.3 0.83 0.11 0.08 0.20 0.73 0.01 0.06 0.15 0.41 0.15 2.67 1.01 2.28 0.62 Growing stock million m 2 148 340 2 465 888 32 983 35 118 4 249 324 281 1 386 635 30 4 698 13 255 5 216 81 239 1 882
3

Other wooded land 1000 ha m3 per ha 96 120 158 50 102 106 116 111 171 36 37 80 125 69 102 34 69 67 59 82 170 117 155 110 802 20 1 708 10 299 100 925 91 951 111 866 421 590 2 557 429 908 5 001 34 920 5 495 21 409 406 100 58 4 110 87 615 191 291 13 241 129 410 1 375 829

Finland United Kingdom France Spain Europe Canada USA North America Australia Japan New Zealand Oceania Senegal Kenya Nigeria South Africa Africa Bangladesh India China Indonesia Asia/Pacific Brazil Chile South America TOTAL WORLD

FAO. Global Forest Resources Assessment, 2005.

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with only 0.2 ha per head in Japan.The United Kingdom population density (247 inhabitants per km2 ) is much lower than the density in Japan (350 inhabitants per km2 ), but the amount of forest per head in the latter country compares favourably with the United Kingdom with only 0.05 ha per head. Generally, the developed countries as a group have more forest per head of population more than twice as much in 1990 compared with the developing countries with only about 0.5 ha per head. A full appreciation of the variety and richness of a countrys forest resources requires detailed information, using a wide range of criteria. Forests may be species rich or species poor; one or more ecosystems may be represented; they may provide livelihoods for many or few people, and raw material for large-scale or small industries. The uses to which forests are put differ from place to place and a range of wood and non-wood outputs may be produced, upon which the value of the resource depends. Suitable indices of biodiversity, landscape value etc. need to be developed and a wider range of statistics assembled by individual countries and by FAO before it becomes possible to build up comprehensive profiles to describe the forest resource base in each country. As a factual starting point for measuring future forest sector change and development, the FAO assessments are useful. They record the state of the resources at a given date their distribution, composition and condition at that time. This is dependent partly on geographical factors, i.e. on a countrys climate, topography, geology and soils, which may be more or less favourable for tree growth, and partly on the changes which occurred in the past, caused by forest clearing and other forms of human interference with the forests in their pristine state. Geography and history combine to explain the present state of the resource in each country. Depending on what exists now, there may be significant opportunities for national betterment through conservation and management or costly remedial action may be required to halt further environmental decline. Resource management and development lead to modification and change. Whatever course of action is chosen, future assessments will portray a new disposition of forest resources, due to the resulting alterations in their distribution, composition and condition. Problems arising from uninhibited use of forest resources are not new, although they have become a focus for environmental concern. Mather refers to the idea that in many parts of the world a sequential pattern of use of the forest resource can be demonstrated. Initially the forest is seen as almost unlimited, with little danger of exhaustion and little need for conservation; a reduction in forest area may even be welcomed to make way for agricultural expansion. As destruction progresses, calls for conservation start to be heard, which, as they become stronger, may lead to government action and legislation to protect the remaining forest. The forest area is stabilised. Finally, attempts may be made to re-create forest resources by planting trees and allowing marginal agricultural land to revert to forest. Different parts of the world have reached different stages in the progression. Woodland in Britain contracted for centuries until there was a turn-round after World War I and subsequent expansion through afforestation, which has continued to the present day.

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How far the depletion phase has been allowed to go in other countries depends on circumstances; it reached a climax in the nineteenth century in the Mediterranean region where all but a tiny fraction of the original forest was destroyed, whereas in North America, although the reaction came later, extensive forest areas have been preserved. Mather also compares the changes in the way that forest resources have been used with the evolution of agriculture in Box 3.2. The unrestricted cutting, grazing and cultivation of the forest, which leads to resource depletion and instability, is equivalent to the hunting/gathering phase; the transition to settled agriculture corresponds with stabilisation of the forest resource base.

Box 3.2 The analogy with hunting/gathering and agriculture Initially, utilisation of the forest resource resembles hunting or gathering rather than farming. It involves the direct use of an ecological resource with little or no management or manipulation. Only later is management applied, and later still trees are grown under conditions as artificial as those under which crops such as wheat or rice are produced. Again the model is perhaps not simple or linear: there may be deviations and reversals. Nevertheless, the transition from hunting/gathering to farming the forest has been made in many parts of the world, although in many others it has still to begin.
Source: Mather (1990), page 31

These historical and geographical factors do not fully account for the variations in the present forest extent in different countries. Rapid population growth linked with poverty in the developing countries is having a significant destructive effect on the forests. These factors combine to produce environmental deterioration in rural areas, as Leonard 4 explains: growing populations continuously subdivide a land resource whose potential to yield food, fodder and fuel is relatively fixed, and the worlds poorest people are increasingly being driven to occupy and exploit more and more marginal lands such as tropical forests and other ecologically sensitive areas. The forests that remain are subjected to ever greater pressure to satisfy the requirements of an increasing number of people and the expansion that is taking place in the global economy. The deforestation, which accompanied land use changes in the past, not only diminished the forest resource base but also reduced the forest sectors share of total land resources. Forest land was, in effect, reallocated to other uses. In some cases the outcome was the result of deliberate decisions by governments the consequence of land use policy and legislation which gave priority to agricultural settlement. In other cases a new distributional pattern arose by default because landowners and private interests were able to do whatever they wanted, without restrictions, and forests were destroyed for the sake of short-term gain. The process

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continues and some developing countries now, whatever their official policies may say, are being overwhelmed by the growing masses of poor people encroaching on the forests for subsistence agriculture; their governments are unable to stop the involuntary land use changes that are occurring. Human and Capital Resources It is evident that previous land allocation patterns have affected present forest resource endowment. For the most part the trend has been negative; forest land has been taken and converted to other uses, so that the total area of forest has shrunk. This process is continuing in developing countries. The tendency for forest resources to diminish contrasts with the sectors human and capital resources, which have generally increased in availability. More people now derive their livelihoods from forest sector activities than was the case in the pre-industrial past and the amount of capital employed in the sector has greatly expanded. Increased industrial production and extension of the processing chain have led to a larger work force and more complex processing methods, while the forest resource base, which supports sectoral development, has declined in size. Detailed information about the forest sectors human and capital resources is hard to come by. Unfortunately, there is no comprehensive statistical coverage of them. The 2005 FAO assessment includes a table of forestry (not forest sector) employment for some countries. The national statistics published by most countries usually include estimates of employment, but these tend to combine forestry workers with those in agriculture and seldom divide industrial employment into its sectoral components. The forest sector is not recognised as a distinct unit by government statistical services; therefore they do not provide employment information which relates to it. Even less is recorded about the capital employed in the forest sector. Governments seldom attempt to estimate the total value of capital assets used either by particular industries or nationally; it is too difficult an undertaking. Generally, they are less concerned with the stock of wealth in the form of physical assets than with additions to the stock represented by the flow of investment. As a component of gross domestic product, total investment is shown, but it is not disaggregated in a way that reveals forest sector capital formation as a separate item. Therefore, the only accessable sources of data on human and capital resources in the forest sector are a few special studies undertaken from time to time, for various purposes, in particular countries. The limited amount of published data that is available should be interpreted with caution. Just as forest area statistics form the basis for assessments of forest resource capacity and potential, employment statistics are only a starting point for measuring human resources. They exclude some groups of people who depend on the forest sector for their livelihoods, such as shifting cultivators or owners of forest land. Industrial employment figures often cover only establishments above a certain size, leaving out workers in small enterprises, so that total sector employment is liable to be understated. The way that part-time, seasonal and casual labour are

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counted is not always consistent or clearly stated. Even if the estimates of employee numbers are reliable, they do not reveal the quality of the workforce they give no indication, for example of the skills available for sector activities, the kind of work involved or productivity levels. Some examples of forest sector employment from countries which are wellendowed with forest resources are given in Box 3.3. Although it is unwise to draw general conclusions from them, they indicate that the sector accounts for some 3 to 7 percent of total employment in those countries.The studies relate to different years and different stages of development, so are not comparable. In other countries, with less forest, the proportion of the working population employed in the forest sector is likely to be less than 3 percent. Similar care is necessary with information about capital resources and investment. The scope of the data is not always clear. The forest sector is seldom defined and parts may be excluded (e.g. secondary wood manufacturing or processing of

Box 3.3 Employment in the forest sector Malaysia: About 100,000 people are directly employed in the forest and forestbased industries, less than 3 percent of the total labour force in Malaysia. Despite the low rate of direct aggregate participation, forestry employment had a rapid growth rate of about 46 percent in the five years between 1972 and 1976. If figures of sectors dependent on forests are included, e.g. transport, trade and construction, the contribution is even higher. About three-quarters of the total employed are concentrated in Peninsular Malaysia and 60 percent of these are found in sawmills and plywood-veneer mills.
Source: Kumar (1986), page 154.

Chile: The forest industry in Chile in 1981 employed 67,358 people, representing about 3 percent of the active population of the country, of which 6,523 worked in industrial centres, 2,682 were employed in services, such as transport, and 58,153 in forest activities.
Source: Solbrig (ed) (1984).

Canada: In the past few years, the forest sector in Canada has installed new processing equipment and adopted less labour-intensive technologies. As a result, employment opportunities for lower-skilled workers have declined, while the demand for higher-skilled workers has increased. The overall employment level rose from 311,000 direct jobs in 1993, to 339,000 jobs in 1994. There were substantial increases in the logging industry and forestry services. Forest-sector employment now accounts for 1 job in every 15 in Canada.
Source: Natural Resources Canada (1995).

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non-wood products), so that information from one country may not be comparable with that from others. Investment may be gross or net; either including provision for the replacement of worn out buildings, machines and equipment, or showing only additions to the value of existing assets after allowances for depreciation have been deducted. Investment may also include or exclude stock changes. Stocks of unprocessed wood inputs and manufactured outputs alter from year to year, and adjustment for these inventory fluctuations, which are often substantial, is not always included in the statistics. The examples in Box 3.4 illustrate some of these difficulties. In particular, the Malaysian study refers to land but does not include fixed assets used for forest

Box 3.4 Capital and investment in the forest sector Malaysia: Fixed Assets of Wood-based Industries in 1972 Land Buildings Transport Machinery Logging 116 1,613 25,575 8,331 Sawmills 11,729 26,048 21,065 20,061 Plywood & 6,173 21,374 7,908 61,117 Veneer Total 18,018 49,035 54,548 89,509
Source: FAO. Global Forest Resources Assessment, 2005.

(M$000) Total 35,635 78,903 96,572 211,110

Chile: In 1970 the total investment in the forest industry in Chile was US$ 275.6 million, of which US$177.6 correspond to industrial plant and US$ 98 million to forest plantations.
Source: Solbrig (ed) (1984).

Canada: In 1993, capital and repair expenditures decreased slightly, reflecting the continuing low profitability of pulp and paper companies in particular. Capital expenditure by the forest industry is cyclical. Expenditures were up slightly for both the logging and wood industries sectors. Additions to capacity were substantially lower in 1993, compared with the boom that occurred between 1988 and 1991. Most of the expenditures were to finalize projects initiated in earlier years. 1993 Paper & allied industries Wood industries Logging industry Total expenditures billion annual % Can $ 1 year 3.9 10 5 +10 0 1.5 +25 6 0.4 +19 2 5.8 1 7 change 10 years +10 5 +0 1 +8 3

Source: Natural Resources Canada (1995).

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management activities, whereas the cost of forest plantations is regarded as part of forest industry investment in Chile. Studies of this kind do not show the relative position of the forest sector in the economy with regard to capital. Some idea can be gleaned from employment statistics of the forest sectors importance as a provider and employer of human resources, but little can be inferred from the available data about the sectors share of the national capital endowment. It should also be noted that employment and investment in forest industries can fall as well as rise from year to year, even though sector output continues to expand in the long run. Cyclical variations in the demand for forest products cause employment fluctuations and affect investment. The introduction of labour-saving methods of production normally involves investment and leads to fewer employees. The examples also raise important questions about the nature of capital resources and investment. Resources are factors of production they provide inputs for the productive activities that take place in the forest sector. The size and quality of a countrys resource base, i.e. the national factor endowment, limits the quantity of goods and services that can be produced. Capital resources, viewed from this standpoint, consist of physical assets such as buildings, machines and equipment and the stock of these items in the forest sector represents the capital that is available for its use. Land is not part of this capital endowment (although the Malaysian example groups them together); it is a basic component of natural resources and should not be classed as capital. The availability in the forest sector of all three types (natural, human and capital), at any time, limits its productive capacity. As time passes, the capacity of the sector can be raised by increasing the quantity and improving the quality of resources of each type. Investment enables the supply of resources available to the sector to be increased and improved. It involves expenditure which is intended to enable the forest sector to produce more in the future. The money may be used to build new mills or factories or buy additional capital goods, such as machines or vehicles, which add to the sectors capital resources. Alternatively, investment expenditure may be used to improve the quality of human resources by training or add to the productive capacity of forest resources by purchasing more land, creating plantations or undertaking silvicultural research. Investment can be applied to all types of resources, not solely to physical capital. Confusion can arise because all forms of investment are often referred to as capital expenditure, including those directed at human and natural resources. Investment is often described as capital formation and economists define capital as the contribution to productive activity made by investment. Some of the difficulties that arise due to different interpretations of the meaning of capital can be avoided by distinguishing money from the goods that money buys. Benham, in his classic texbook 5 , describes the capital of a community as all its physical assets or possessions measured at a given moment of time. The value of this capital stock, and subsequent additions to it, is also referred to as capital. The word capitalis used in two senses: capital funds and capital goods. In its money form, capital is mobile and can be easily moved to wherever extra investment is

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needed; in its physical form, after it has been invested, capital is relatively immobile and is only released slowly through the income that is generated by the flow of outputs produced as a consequence of the investment. Throughout their working life, factories, machines and equipment produce cash flows, some of which can be saved and used for investment elsewhere. There are also other difficulties as shown in Box 3.5. Benhams interpretation of capital includes circulating capital and therefore covers stock changes in forest industries; it might easily be extended to include the growing stock of standing trees in the forest. To bring his ideas up to date, however, human capital needs to be added to real capital and the capital concept should be further enlarged to cover investments in natural resources. In the forest sector, in addition to the capital invested in physical assets and people, we can also distinguish forest capital, based on investments in forest crops, such as timber plantations, and improvements in the capacity of forests to provide tangible and intangible outputs of all kinds.

Box 3.5 Benhams categories of real capital We have, then, five categories of real capital (as distinct from paper titles, which are capital to an individual or a firm) between which it may be necessary for some purposes to try to distinguish. They are: fixed capital used in industry and trade; land; circulating capital used in industry and trade; durable consumers goods in the hands of consumers; other consumers goods in the hands of consumers. I have argued that from the standpoint of the community as a whole there is no need to draw a line, which in border-line cases would be very difficult to draw, between these different categories, and that we can include them all because they all contribute, in one way or another, to future output and the future satisfaction of wants.
Source: Benham (1955), pages 1389.

The economists idea of capital is based on an important distinction between saving and consumption. It involves delays and waiting for benefits which are expected at a later date. By definition, the part of the national output which is not consumed or used up, is saved or invested and contributes to future output. Capital, in all its various forms, is the result of accumulated savings/investment; some capital accumulates in the form of capital goods and contributes to the nations stock of capital resources, some is used to increase the potential of human resources so that they can contribute more in the future, and some is directed to natural resources to increase their future output. Our present stock of capital has been built up from the output of former years; it is output that has has not yet been used up, scrapped or consumed. The generation of capital through the accumulation of savings/investment is the result of human economic activities. From a resources point of view, these do not

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provide a sufficient explanation of the way that productive potential is built up. Forests in their original state, without any interference or modification by people, are the result of natural growth processes; they possess a productive potential that has accrued naturally as species multiplied and trees grew in size. Forest resources, which are being managed, benefit in two ways: from additions to the growing stock due to nature and an accumulation of capital due to investment. The present stock of forest resources is derived from both natural and human sources, and their interactions with each other as shown in Fig. 3.1. Similarly, human resources do not derive their potential solely from investment. The numbers of people have risen due to population expansion, while their capacity to contribute to society has increased through education, training and research. Only the resources of capital goods depend entirely on savings/investment. Finance to undertake forest sector investment may be generated internally, within the sector, or externally from savings elsewhere. Sector profits or savings may be sufficient for its requirements, but often need to augmented. In some countries with substantial forest resources, the flow in the past was in the opposite direction and surpluses from forest exploitation were invested in other sectors. The ability of the national economy to generate funds for investment depends on the proportion of the national income that is saved rather than consumed. Subject to this general limitation, the amount of investment in the forest sector is determined by the attractiveness of opportunities there compared with other sectors. Development of the sector may be inhibited by shortage of funds or a dearth of suitable projects. However, domestic financial constraints may be loosened by overseas investment or foreign aid. Whatever the source of investment funds, they need to be matched to real resources in the form of land, labour and capital goods. Land must be acquired,

Figure 3.1 Additions to forest sector resource endowment

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workers employed, machines and equipment obtained; the cost of these additions to forest sector capacity represents the value of the investment. Additions to the resource endowment of the sector, which are brought about by investment, are affected by the availability and mobility of resources. Natural resources are fixed geographically, whereas human and capital resources can be shifted from sector to sector. Nationally, the total amount of land is limited and additions to the forest area depend on reallocation from other uses; such changes of use are frequently beset with practical difficulties. Generally, the forest sectors natural resource endowment is most easily increased by improving the quality rather than the size of forest resources. The number employed in the sector can be supplemented by recruiting workers from other sectors provided the inducements offered are adequate, although unwillingness to move away from their homes may reduce the numbers available. Alternatively, the sectors existing work force can be retrained and redeployed, or made more efficient by providing better organisation and equipment. Capital resources such as sawmills and pulpmills cannot easily be moved and they continue to operate at their old locations, provided they remain profitable, until the machines and equipment wear out; upgrading and productivity improvements at existing plants are usual, however. Such restrictions do not apply to new capital resources which can be located wherever is most convenient. Capital formation is facilitated by resource mobility and the forest sector would develop much more slowly if human and capital resources could not be moved. Investment provides flexibility both inside the sector and for interchanges with other sectors. It also enables adjustments to be made over time. The share of national saving/investment that was taken by the sector in the past affects its present productive capacity. The balance between natural, human and capital resources that exists now in the sector, is the result of previous investment choices. In fact, the quantity and quality of resources of all kinds that is available for forest sector activities is a legacy of the past; the sectors present resource endowment has been shaped by its history. Looking to the future, through investment, additional resources can be brought into the forest sector. Growth of the national economy may provide new capital and population growth adds to the available work force. Sector resources can be supplemented by reallocation from other sectors, or by bringing into use land, labour and capital that is at present underutilized or unemployed. How a country chooses to use the resources of all kinds that it has available to it at a given time predetermines the resources that will be available in future and the development path that the sector will follow. 3.2 ALLOCATION

The resource endowment of the nation consists of factors of production which are used for different purposes. Allocation describes the way they are distributed between sectors throughout the national economy and their patterns of use within

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sectors. The three types of resources natural, human and capital can be combined in a variety of ways, in different proportions, and to some extent different kinds of resources can be substituted for one another. The forest sector receives a share of the total of each type available to the nation. Within the sector, resources are applied in appropriate combinations to forestry activities and along the processing chain to produce various outputs. Allocation depends on resource mobility. Only resources that are free to move or are capable of being used in a different way can be allocated. Much of the present endowment is committed to existing uses and cannot easily be reallocated, at least in the short term. Forest land that is inaccessible or too steep to cultivate cannot be converted to agriculture, labour is more mobile but may need to be rehoused or retrained, and capital, once invested, does not become available for reinvestment until existing assets are sold or written off at the end of their useful lives. Allocation is easiest with additional resources, which result from extra investment generated by savings and economic expansion. This can be used to build new mills and factories at any suitable site, or to acquire machinery, vehicles and equipment for any purpose. Investment in human resources, through education and training, widens employment opportunities for new recruits to the work force and assists transferability. Forest resources can be supplemented by investment in plantations, forest infrastructure and conservation facilities. Generally, resource mobility is greatest in a growing economy, when it is easiest to improve resource allocation by taking advantage of alternative investment opportunities. Allocation involves choices or decisions; there are alternative ways of using the same resources and, by one means or another, selections must be made. Choices may be deliberate, rational and calculated, or involuntary, when the resulting allocation pattern comes about through habit, tradition, drift, inertia, reluctance to intervene or inability to alter the course of events. Policy, politics and prejudice all contribute to resource allocation and it is little wonder that the present pattern of resource use is often unsatisfactory and offers ample scope for improvement. The pattern may be economically inefficient, in the sense that a different distribution of resources would lead to a larger total output or utility, or ineffective because the way of using the resources that has been chosen for some reason fails to achieve the desired results. It may also be inequitable, because it benefits some sections of the community or one generation more than other sections or generations. Where are the choices made and who makes them? We can distinguish several levels at which allocation takes place. The two most easily recognisable levels are concerned with the distribution of resources within countries and the way they are used within sectors: at national level the resources available to the nation are divided between sectors. Each sector receives a share which corresponds to its contribution to national output and perceived needs; a portion of the total is allocated to the forest sector. Countries develop distinctive patterns of resource allocation, partly based on their natural advantages, partly as the result of government policies and intervention, but mainly due to the interplay of activities and market forces that takes place

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between sectors.The pattern in each country alters as its economy develops and new investment takes place. Over time, two sorts of change occur: first, the balance between natural, human and capital resources may be adjusted in response to alterations in their relative abundance and value, and second, there may be shifts in the relative importance or weight attached to particular sectors. The forest sectors share may increase or decrease, according to circumstances, as the allocative pattern evolves. sector level allocation refers to the distribution of resources within sectors; the resources available to the forest sector are shared amongst its various activities. The choices of the various organisations and interests that constitute the sector determine its internal pattern of resource allocation. Some forest sector resources are controlled by the government, others are in the hands of private corporations and individuals. The former are divided between various programmes and projects in accordance with budgetary allocations, while the latter, which are guided by market forces, are distributed among enterprises. Government influence is strong in many countries, where the state directly controls the management of large areas of forest land and determines the nature of the its output. Adjustments to the pattern take place continually as the sector develops. Changes in resource allocation at national level affect the pattern of resource allocation at sector level; the higher level influences what happens at the lower level. These levels are interdependent and, in fact, form part of a complete hierarchy consisting of six levels as shown in Fig. 3.2. In addition to the national and sectoral levels already identified, resource allocation takes place at global level and, within sectors, at three subsidiary levels, which roughly correspond with the strategic, tactical and operational decisions made by governments and private corporations: The worlds total resources are distributed, largely as a result of geographical and historical accident, among countries according to their area, population and

Figure 3.2 Levels of resource allocation

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accumulated capital. Each country has a share of global resources, some of which may be transferred to other countries. It is possible to augment a nations resources by allocation decisions taken at global level, as with international aid and investment flows. Some of these flows are directed towards the forest sector. Countries also affect the patterns of resource allocation in other countries in a more subtle way by means of tariffs and trade restrictions. Within sectors, resource allocation takes place at the agency/enterprise level. Ministries, departments and other agencies of the government, by means of their budgets, share out their resources among branches, divisions, programmes and projects in order to carry out the functions for which they are responsible. Private enterprises similarly distribute their resources to mills, factories and other subsidiaries. Choices in the way resources are employed at this level depend on agency and enterprise strategies; this is the level mainly responsible for strategy formulation and strategic management. The programme/project/plant level deals with the allocative choices made within each government or enterprise sub unit. In the forest sector, government activities are frequently decentralized to regions or administered by means of programmes lasting several years (e.g. watershed rehabilitation) and projects in particular places (e.g. a community forestry scheme). Similarly, many decisions of companies (such as production levels) are made at plant or factory level.These choices are tactical and are expected to conform with the strategic framework of resource allocation set at agency/enterprise level. The lowest level in the hierarchy deals with allocation at the operational level. The choices are made by units with day-to-day responsibilities in the forests or the workplace and concern the means by which tactical plans are implemented. Their impact on resources is generally short-term and local. The levels in the hierarchy interact with each other. The choices made at each level restrict the range of choices lower down. Each level receives a portion of the total resources available to the level above. Allocation at global level affects the resource endowments of each country; national level allocations decide each sectors share of resources; at sector level resources are distributed to agencies and enterprises, and so on, down to the local choices made at operational level. A decision at the top filters down and is felt directly or indirectly at the bottom. In the reverse direction, lower level decisions commit resources to particular uses and may limit the range of possibilities for decision makers at higher levels. The interactions work in both directions. The kinds of interactions that occur are often far reaching. Policy choices at national level, which affect the distribution of resources between sectors, also influence their availability and allocation within sectors. National policy strongly influences the use of land, for example and thereby restricts the development possibilities open to forest sector agencies. As Box 3.6 shows, governments have promoted the conversion of indigenous forest to permanent agricultural crops in Malaysia 6 , induced population migration in Indonesia 7 and provided tax incentives which were detrimental to the forests in Brazil 8 . In each case, although the objectives

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Box 3.6 Effects of government policies on forest resources Malaysia: as part of the land development programme, a large area of natural forest has been converted into plantations of rubber, oil palm, cocoa and coconut. During 198185 some 417,000 ha of new land were planted, 69 percent with oil palm, 23 percent with rubber and 4 percent with cocoa. Further large areas were scheduled for conversion under the Fifth and subsequent Malaysia plans.
Source: FAO. Report of the Mission to Malaysia on the Tropical Forestry Action Plan, 1986.

Indonesia: almost two thirds of the countrys 147million people live on the three heavily populated islands of Java, Madura and Bali, with a land area of only 13.9 million ha and a population density of 10.6 persons per ha.The Outer Islands of Kalimantan, Sumatra and Irian Jaya have an area of 144 million ha and are lightly populated East Kalimantan has only 0.05 persons per ha and large areas covered with tropical rain forest. Indonesia has had a Transmigration Programme for a number of years to transfer people from the densely to the lightly populated areas, which involved considerable clearance of forest. The Programme aimed to resettle 500,000 families between 19781983 and 750,000 families during the period 198388. It was estimated that about 300,000 ha would be cleared annually during the latter five year period, 80 percent of which would be in primary or relatively old growth forest.
Source: Ross (1985).

Brazil: Public policies affect individual land use decisions and frequently play a pivotal role in promoting tropical forest conversion. For example a single Brazilean policy promoting the development of the Amazon region through a program of corporate tax incentives favouring commercial beef producers was responsible for an estimated 30 percent of the total forest area converted in Brazilean Amazonia by 1983. All told, cattle ranching in the region was responsible for about 60 percent of the 148,000 square kilometers of Amazon forest area converted, whereas small farmers participating in government resettlement schemes accounted for only about 11 per cent of the total reported conversion by 1983.
Source: Browder (1989), page 113.

of government policy were quite different, land was reallocated for use by the agricultural sector and the forest sectors resource base was seriously affected, thus diminishing its future productive potential. Some countries, which are well-endowed with forest resources, such as Ghana, Ivory Coast and Indonesia, have tried to promote development by stimulating forest processing, as described in Box 3.7. Attempts have been made to discourage log

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Box 3.7 Incentives for forest industry development ..to stimulate investment in processing capacity that would create employment and value-added in wood industries, log-exporting countries have banned log exports, reduced or waived export taxes on processed wood, and offered substantial investment incentives to forest product industries. Ghana used four different measures in the attempt to stimulate investment in domestic processing industries: log export bans were enacted (but mostly evaded); plywood and other wood products were exempted from export taxes (which were far less onerous than the currency overvaluation); long-term loans for sawmills and plymills were granted at zero or negative real interest rates; and finally, a 50-percent rebate on income tax liabilities was given to firms that exported more than 25 percent of output. By 1982, these policies had created a domestic industry comprising 95 sawmills, 10 veneer and plywood plants, and 30 wood-processing plants. Similarly, in the Ivory Coast generous incentives were given for creation of wood processing capacity. Firms making approved investments can write off half the costs against income tax liabilities and are eligible for income tax holidays for seven to eleven years on subsequent profits. These incentives, in addition to the large reductions in export taxes on exports of processed wood, explain the creation of a sizable but inefficient processing industry. Such industrial incentives can increase local employment, but often do so at a heavy cost in lost government revenues and faster deforestation. In Ghana, Ivory Coast and Indonesia, many of the mills established in response to these inducements have been small and inefficient. Conversion rates of logs into sawn lumber and plywood have been only about two thirds of industry standards. Shifting to domestic processing in technically inefficient mills means that considerably more logs must be harvested to meet any level of demand, disturbing much larger forest areas through selective cutting. The Indonesian case illustrates the fiscal costs and risks to the forests that ambitious forest-based industrialization entails. To encourage local processing, the government raised the log export tax rate to 20 percent in 1978, exempting most sawn timber and all plywood. Mills were also exempted from income taxes for five or six years. Since these tax holidays were combined with unlimited loss-carryover provisions, concessionaires were frequently able to extend the holiday by declaring (unaudited) losses during the five-year holiday provision, or by simply arguing before sympathetic tax officials that the holidays were intended to apply for five years after the start of profitable operations. With these incentives and the impending ban on log exports, the number of operating or planned sawmills and plymills jumped from 16 in 1977 to 182 in 1983.
Source: Reppetto (1988), pages 2325.

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exports and to offer incentives to attract new investment into wood industries. These measures have led to the creation of sizeable industries. They affect resource allocation at both the national and the sectoral level by diverting resources from other sectors, thus increasing the forest sectors share, while at the same time altering the balance of resource use within the sector. The incentives favour some activities and types of processing more than others. Such interventions in the allocative process may have achieved their aim, but have also been criticised because the industries, which were set up, were inefficient. These examples illustrate the complexity of the interactions between levels. Preferential treatment given to part of one sector such as the part of the forest sector concerned with wood processing in the countries above caused extra resources to be diverted to it from elsewhere. Other sectors had to forego the use of additional government tax revenues so that the forest sector might benefit. The justification for their sacrifice was the expectation that an enlarged forest sector would contribute more to national output, employment and welfare in future years. However, as Reppeto 9 points out, the costs (in export taxes and other revenue foregone) entailed by the switch from log exports to (inefficient) domestic processing was more than the extra value that was generated in the countries he studied. The mills, run by private companies, were profitable because of the incentives but the national economy paid the price for this, at least in the short term. Furthermore, there was a serious risk that the log supply needed to keep the additional mills working would lead to overcutting and unsustainable harvesting rates in the forest. Consequently, a different part of the forest sector was likely to be disadvantaged. Government interventions which alter resource allocation need to be very carefully analysed to discover and evaluate their full effects. Even their measurable impacts are sometimes difficult to foresee and not always beneficial. Besides these, there may be other effects on the supply of public goods, such as loss of biodiversity, which although intangible are not necessarily insignificant. 3.3 RENEWAL

Resources are so named on account of their usefulness and value. As Rees 10 puts it, resources are defined by man, not nature. The natural environment consists of physical entities they are things which only become resources if they acquire utility. Mere existence is not enough; if they have no conceivable use and are not valued by humans, they are not classed as resources. Natural resources require knowledge and skills for their extraction and utilization, and there must also be a demand for the materials and other outputs produced. Forest resources provide goods and services which benefit the community. Similarly, people become human resources and capital items are transformed into capital resources when they are used for productive purposes. Resources are utilized to provide a continuing stream of tangible and intangible benefits. This stream may increase or decline over time, or even cease altogether. The future flow of benefits from a resource depends on its nature and, in the case

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of those resources which are capable of renewal, on the capacity of the resource to renew itself. The renewal process in forest resources depends partly on the natural growth and reproduction which take place in all ecosystems, partly on the physical characteristics of the environment and partly on the way that the resources are managed. Human resources are renewed in number by the reproductive capacity of the population and migration from elsewhere, and in quality by the provision of education and training. The continued productivity of capital resources depends on the replacement of assets as they wear out and the introduction of changes in technology which maintain efficiency. When natural resources are used, the possibility arises that they are also being consumed or used up. They may cease to be capable of providing a flow of outputs. Some resources, such as minerals, are inert and exist in fixed quantities; they are described as non-renewable or stock resources. These are distinguished from renewable or flow resources, which continue to provide utility and value, and are not necessarily depleted by exploitation. Although resources are commonly divided into these two types, it is more useful to classify them in a range, as shown in Table 3.2. At one end are those resources which take millions of years to form and cannot be replaced; at the other extreme are those which are continuously renewed and need not run out provided that they are used at a rate which matches their renewal. Forest resources are an intermediate type; they can behave as either stocks or flows, depending on the way they are used. Rees calls them critical zone resources. These can be exploited to exhaustion if their rate of use exceeds their rate of natural replenishment. At some point the critical zone the depletion process can go beyond the capacity of the resource to renew itself. Then, even when all exploitation ceases, recovery becomes impossible. Thus plants and animal populations may become too sparse to reproduce themselves, and land overuse may lead to soil erosion, degradation and desertification. Mather 11 prefers to describe forest resources as potentially renewable. This draws attention to the fact that, too often in the past, there was a tendency to treat them as though they would last forever and to mine them, forgetting that their survival

Table 3.2 A classification of natural resources. STOCK Consumed by use Oil Gas Coal Theoretically recoverable All elemental minerals Recyclable Metallic minerals FLOW Critical zone Fish Forests Animals Soil Water in aquifers Non-critical zone Solar energy Tides Wind Waves Water Air

Source: Rees (1990)

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is not automatic. Unfortunately, the need to ensure their renewal is still frequently ignored or overlooked, as is evident from the widespread destruction of forests in many parts of the world. Mather also points out that a resource may shrink or deteriorate because of external factors unconnected with its current use. Forest land may be lost through conversion to agricultural purposes or be damaged by pollution. The level or intensity of forest exploitation is not the only factor to be considered and the renewal of forest resources depends, first and foremost, on having a secure land base, with adequate protection from outside influences. The classification in Table 3.2 and Mathers comments highlight a feature of forest resources which has wider significance. They are suppliers of raw materials. Throughout this chapter, the role of resources as factors of production has been emphasized. The activities which are carried on in the forest sector depend on resource inputs, in order to provide the wide variety of outputs which the community uses and values. The contribution to production obtained from capital and human resources is rather different from that provided by most natural resources however. Fixed capital contributes to manufacturing or processing activities, but is not itself shaped or transformed during the productive process and does not become physically part of the output; similarly, human resources are responsible for the shaping and transforming, but are not themselves converted or destroyed in the process. Natural resources also provide inputs to the productive process, but usually in the form of raw materials which are incorporated in the eventual output, even though they may be considerably modified during the course of manufacture. The difference is that raw material inputs come only from natural resources, not from capital and human resources.

Box 3.8 The principle of sustainable yield Wood is not only versatile; it is also a renewable resource. It is something which we can have, if we go about it the right way, as far in the future as we wish. Many European and North American forests are primarily managed for wood production, and the key principle is that yield should be at least maintained. This principle of sustainable yield was only established after a hard battle at the end of the last century. In establishing it, foresters won the first battle in the twentieth-century conservation movement. Because the factory and the product are identical, care must be taken that trees are not felled at a time and in a way which lowers the capacity of the forest to go on producing wood (and providing its other services). Forestry science has now advanced to the point where it is known how to do this for nearly all temperate zone forests. This does not mean that all such forests are properly managed. But mismanagement arises more from confused ideas about the purposes for which the forests should be managed than from ignorance about how to manage.
Source: Westoby (1989), page 33.

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Forest resources provide wood and non-wood raw materials for forest sector activities. These raw materials flow into the processing chains which link the resource to the final consumers of outputs from the forest. In relation to wood processing, forests are regarded as resources because they are the source of raw materials for primary processing plants such as sawmills. The forests and the trees in them can be bought and sold, and have utility and value. They represent valuable stocks of wood for processing, which have been built up by growth and regeneration in past years. Mature standing trees are the result of a protracted process of wood production and a forest can be regarded as a wood factory. The growing stock in the forest accrues annually as the trees grow and, in a sense, the forest represents both the product and the production line. The productive capacity of the forest is set by the growth rates of the trees, the density of the crop and the fertility of the site. The way the forest is managed has a strong influence on its productivity and the flow of wood obtained when the trees are harvested. Somewhat confusingly, this output flow, in the form of logs, poles or pulpwood, is also often referred to as a resource. It is important to maintain the output flow so that processing activities can continue and consumers requirements can be met in the future. Concern to provide an uninterrupted supply of raw material from the forest underlies the principle of sustained yield, as developed by foresters during the eighteenth and nineteenth centuries (see Box 3.8). The ability of the forest to provide a continuous flow of raw materials depends on the rate of renewal of the resource and the rate of harvesting. In some cases, harvesting is necessary for regeneration to take place. In the long run, removals from the forest should be matched by new growth and the rate of harvesting should not exceed the capacity of the resource to replace what is taken away. The growing stock acts as a buffer between the new growth and the removals as shown in Fig. 3.3. This buffer enables depletion to exceed removals for a short period, by reducing the growing stock, but if too many trees are felled, the annual growth of the remaining trees may be insufficient to maintain the renewal rate at its previous level, thus reducing the sustainable yield from the forest. Forest resources are described as potentially renewable because they are capable of replenishing themselves in this manner, within biological limits and given appropriate management. If the forest is mismanaged by allowing excessive harvesting, at some stage, depletion of the growing stock will reach the point where renewal is undermined and the output flow ceases to be sustainable. Eventually, further exploitation will become uneconomic or impracticable. As with trees grown for

Figure 3.3 Renewal and depletion of forest resources

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timber, so also with other plants and animals; their populations represent stocks, which are renewed by reproduction and depleted by hunting or collecting for food, sport or other purposes. The flora and fauna of the forest the part of the resource which is living is composed of potentially renewable resources. As well as raw materials, forests provide services and intangible outputs, such as recreational opportunities and biodiversity. The existence of the forest may be enough to ensure that these benefit flows continue, although not necessarily without changes in their quality and quantity. As with timber production, the way the forest is managed is important. Thus, visiting a forest provides people with a recreational experience, but the areas that are accessable and the kind of recreational facilities that are offered determine the quality of the experience. Similarly, the variety of species of wildlife that a visitor may come across depends on how the forest ecosystem is managed; species diversity often depends on maintaining glades and forest margins so that they provide suitable conditions for herbs, insects and birds to flourish. Forests are composite resources. They consist of several, associated components which provide a mixture of outputs, some in the form of raw materials and some as services or benefits to the community. From the point of view of resource renewal, the components behave differently. Some are stocks, like forest land, which exists in fixed amount at any given time, although the area of forest may be added to if extra land is taken from alternative uses. The land itself is not reduced in size or consumed when trees are grown on it, although its fertility may decline with bad management. Others, like the trees and wildlife, are renewable resources part stock and part flow which can be managed by controlling their rate of exploitation within safe limits to provide a sustained flow of outputs. There are also pure flow components, such as carbon sequestration, which provides an uninterrupted supply of benefits so long as the forest is not destroyed, although the amount of carbon dioxide removed from the atmosphere can be altered by way the vegetation is managed. These variations in behaviour make it necessary to disaggregate the various components of forest resources when analysing their renewal and sustainability. Often components interact with one another, so that having more of one means having less of others. Each component requires individual consideration and successful resource management depends on finding ways of safeguarding the renewal of as many constituents as possible, while sustaining their outputs in the desired proportions. Forests in their natural state are complex ecosystems consisting of many interdependent plant and animal species. Forest soils contain vast numbers of invertebrates and fungi on which the health and resilience of the ecosystem depends. Above ground, climatic variations affect both species distribution and population numbers; the flora and fauna form a changing patchwork. In their pristine state, it is often assumed that forests exist in a state of dynamic equilibrium decay is balanced by new growth, the available nutrients and energy are recycled, and species diversity does not decline. The stocks and flows in the system will be maintained, although they may fluctuate from year to year. However, dynamic equilibrium, at least in

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this simplistic form, is seldom found in actual forests, even though they appear to be free of human interference. Ecological processes are subtler and more complicated than that; some species only reproduce themselves infrequently in response to exceptional events such as fires. Nevertheless, the idea of an equilibrium is valid and useful because it stresses the natural tendency of forests to renew themselves and to absorb the shock of disturbances, provided these are not so severe as to overwhelm the system. Human interference or, in rare cases, a natural disaster such as an earthquake, will disturb the equilibrium. Low levels of intervention, such as felling occasional trees or light grazing by domestic animals, allow the system to adjust to change without significant alteration in composition and diversity. The forest ecosystem will continue to exist and generally retain its renewable characteristics. More serious interventions cause ecosystem changes that may be long-lasting or even permanent. For example, selective logging in mixed forest, which leaves unmarketable timber species behind, is liable to upset the species balance and impoverish the forest resource for many years to come. Logging may also destroy the habitat of endangered species and, in extreme cases, may lead to their extinction. Managing the natural forest as a timber crop combines intensive harvesting of the valuable species with silvicultural operations to assist regeneration. This is likely to disturb the ecosystem and may reduce biodiversity, but so long as the rate of removal does not exceed the rate of replacement, the crop can be considered to be sustainably managed. However, the beneficial consequences of obtaining a regular supply of logs should be weighed against a possible loss of diversity; some sacrifice of non-timber benefits may be involved. In many cases the extent of the loss may be considered acceptable, perhaps because other unexploited forest areas contain similar ecosystems. Nevertheless, sustained yield management for timber should not be confused with managing the forest as a renewable resource. It is necessary to consider the renewal of each type of output separately. Different parts of the forest may be managed in different ways so that each part contributes to the renewal of the whole resource. Over the entire forest area it may be possible to achieve a satisfactory balance of outputs which is sustainable. The most drastic intervention occurs when particular species are grown as plantation crops, usually as even-aged monocultures. Man-made forests amount to a new form of land use, which involves concentrating the full productive potential of the site onto the selected species at the expense of the other constituents of the ecosystem. If this involves replacing a low output system by a more valuable tree crop, as occurs with the afforestation of degraded grassland, the change is likely to be considered advantageous. However, if the site supports a rich, existing ecosystem, such as tropical high forest, which is destroyed by clearing prior to planting, the sacrifice is questionable. Such changes are irreversible and should not be undertaken without a full understanding of their consequences. Even if the plantations are sustainable and the previous natural ecosystem was so neglected that it was not capable of renewing itself, this does not necessarily justify the conversion. The species and habitat losses should be examined carefully to see how they might

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be ameliorated or made good elsewhere. The renewal of each component should be considered separately, with a wider perspective than merely the area which is to be converted into plantations. The growth of agroforestry poses other resource renewal problems. In developing countries, where rural households have traditionally depended on common property resources to supply some complementary inputs to the agricultural system, off-farm tree resources are being degraded and are disappearing. Farmers are tending to meet their needs for some items of food, fuel and fodder, by protecting, planting and managing appropriate tree species on their own land. There is a shift from public to private tree resources. Trees can be used on farms in a variety of ways in response to the demands of other farm activities and crops, as shown in Box 3.9. As agricultural land use intensifies, the organisation and sophistication of tree

Box 3.9 Patterns of planted trees on farms Trees on non-arable or fallow land. This type of lower intensity management of naturally regenerated trees is likely to occur in more extensive farming and grazing systems. Trees grown in homestead areas. This often emerges even when there is still plentiful tree cover, to introduce fruit and other valued species. Where protection against livestock or burning is difficult, the homestead area can be the only niche where trees can be grown. Trees growing along boundaries and in other interstitial sites. Found where trees need to be separated from crops in areas of intensive land use, or where trees are the dominant means of boundary demarcation, or where lines of trees serve a protective purpose (e.g. windbreaks and contour planting). Intercropping on arable land. Generally takes the form of trees scattered, or in clumps or rows (alley-cropping), as part of sometimes complex agricultural crop production. Occurs where trees provide benefits to agricultural crops through shade, shelter or soil improvement, or intercropping is mutually beneficial to both trees and crops because of shared water, soil, nutrient, and light resources. In its most highly developed forms, as in multistoried multiple species home gardens, tree/crop mixtures can represent important components of the overall farm system. Monocropping on arable land (farm woodlots). This is usually associated with the growing of trees to produce cash crops, such as poles, pulpwood, bark or for fruits such as cashew nuts, and is most commonly found in the more advanced market-oriented agricultural areas. Tree crops are also employed as a low cost means of using poor sites, or to maintain land as extensively managed fallow.
Source: Arnold (1997), page 8.

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management strategies is also likely to increase. Trees become an integral part of the farm production process and their renewal is linked to the renewal and sustainability of the whole farming system 12 . In practice, renewal of forest resources is a matter of management. It depends on careful analysis of the kinds of output or benefits that are derived from each area of forest and the probable consequences of human interference. It involves understanding what combinations of outputs are technically possible and choosing the most appropriate combination. Different combinations, derived from different parts of the forest or trees outside the forest, are necessary to ensure the complete renewal of all components. A broad perspective is needed, so that forest resources are managed on a sectoral rather than a local basis, with each part of the forest estate contributing in a balanced way to the general renewal and sustainability of the sector as a whole. At the start of this section, it was pointed out that the renewal of resources is not only concerned with maintaining the flow of outputs from forest resources. The human and capital resources used throughout the forest sector are also renewable and, like forest resources, their renewal depends on the way they are managed. A continuous flow of capital and human inputs is needed to sustain forest sector activities and to provide for their future development; the flow will dwindle if there is no provision for renewal. The quality and quantity of the human contribution depends on maintaining the numbers, skills and quality of the people in the work force. Capital renewal is achieved by means of depreciation provisions and setting aside a portion of the incomes received so that the capital stock remains intact. Human resources consist of people who apply their knowledge and skills to sectoral activities. Renewal depends on maintaining both their numbers and their quality. Adequate levels of remuneration and reward are necessary to retain people in the sector. It is also necessary to ensure that the work force has an intake of recruits which balances retirement and other losses after allowance has been made for changes in productivity. The quality of the employees needs to be sustained or improved by education and training. It may be possible for the same work to be done with smaller numbers in future if their productivity is increased. This may be achieved by improving their skills or providing them with more or better capital resources to work with. The introduction of technological improvements will only increase output if they can be used effectively. Human resource renewal is therefore linked with investment in the forest sector and depends on continuity in the flow of capital resources to keep the work force employed. The renewal of capital resources is achieved by allowing for the run down of physical capital that occurs while it is being used. Capital goods, such as buildings, machinery, vehicles and equipment gradually wear out and lose their utility; these assets have a limited life and need to be replaced at intervals. If they are not renewed, their productivity will decline and their maintenance costs are likely to increase. Some items are likely to be superseded by improvements in design or technology. In other cases new methods of production can lead to obsolescence,

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such as the replacement of mechanical sawmilling by electrically driven machines. Financial provision to meet the cost of renewal is usually made by spreading the cost of each capital item over the number of years of its expected useful life. Each year an appropriate amount is set aside to allow for depreciation so that money is available, as needed, for reinvestment. In practice, the replacement items are often improvements on those used previously so that output per or per $ invested tends to increase. Investments in research may also lead to increased efficiency in the use of both capital and labour. The forest sector can continue to provide benefit flows only if all its resources are renewed in an appropriate manner. Provision for renewal is not just a matter for foresters. Natural, human and capital resources are to some extent interdependent so that renewing one type affects the others. In all cases resource management is necessary, with adequate attention to renewal, so that the sectors capacity to maintain the flow of outputs of all kinds, both tangible and intangible, can be sustained.

SUMMARY Resources are factors of production. They provide the inputs to the productive processes which take place in the forest sector, and their availability limits the sectors development. Three types of resources are distinguished: natural, human and capital. All three are essential to forest sector activities and contribute to the flow of tangible and intangible outputs in the sector. Forest resources are the natural resources contained in the forest itself, including forest land, soils, trees, vegetation, wildlife, ecosystems etc. They underpin the sector and are the source of all its activities and outputs. They supply raw materials for industrial processing and provide a wide range of other welfare and environmental benefits. The capacity of the forest sector to provide outputs of all kinds is determined by the nature and extent of its resources. Development of the sector is influenced by three factors: resource endowment, allocation and renewal. Resource endowment describes the present availability of different resource types with respect to both their quantity and quality. Forest resources are land-based and limited in extent, whereas human and capital resources are more mobile and can be more easily augmented from outside the sector. FAOs 2005 Global Forest Resources Assessment is the most comprehensive and reliable guide to the state of the worlds forest resources that is available. 30.3 percent of the worlds land area is classed as forest with a further 10.5 percent of other wooded land. The total area of both is divided in the ratio 2:3 between developed and developing countries. The endowment of individual countries varies widely and deforestation has proceeded much further in some countries than in others.

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Historically, the area of forest resources has declined while the sectors human and capital resources have generally increased; more people now derive their livelihoods from forest sector activities than in the past and the amount of capital employed has greatly expanded due to industrialisation. However, there is no detailed statistical coverage of sector resources, comparable to the forest assessments produced at 10 year intervals by FAO. Investment involves expenditure intended to enable the forest sector to produce more in future. It is often referred to as capital formation although it applies to forest and human resources as well as capital assets. Additions to the resource endowment of the forest sector are derived partly from investment and partly from natural processes of growth and reproduction. Allocation describes the way resources are distributed between sectors and their patterns of use within the forest sector. Resources can be combined in many ways. Allocation is based on choices, which take place at six levels and form a hierarchy, ranging from the global to the operational level. Levels interact with one another and choices made at one level restrict the choices further down. Forest sector activities cannot be sustained without provision for resource renewal. The future flow of tangible and intangible benefits from the sectors resources depends on maintaining their productive potential. Forests are composite resources, which provide a mixture of outputs, including raw materials for processing and a range of community services/benefits. They are described as potentially renewable resources, which are capable of replenishing themselves within biological limits, provided the growing stock is not depleted by excessive harvesting. Human resources are renewed by recruitment, migration, education and training. Capital resources depend on the replacement of assets as they wear out by making adequate provision for their depreciation. FURTHER READING Alexander Mather has provided a comprehensive review of the forest resources of the world and the dangers to them in Global Forest Resources, published in 1990 by Belhaven Press. International reviews of the worlds forest resources have been carried out every 10 years by the UN Food & Agriculture Organization. The most recent is available in the Global Forest Resources Assessment 2005, Forestry Paper 147. It was preceeded by Forest Resources Assessment: Global Synthesis, Forestry Paper 124, published in 1995. Natural Resources: Allocation, Economics and Policy by Rees discusses the general characteristics of natural resources, including forests. The unfortunate effects of some government policies on forests, particularly in the tropics, are examined critically by Repetto in The Forest for the Trees? Government Policies and the Misuse of Forest Resources, World Resources Institute, 1988.

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1 Alexander Mather. Global Forest Resources. Belhaven Press, London (1990), Chapter 4. 2 FAO. Global Forest Resources Assessment 2005. Forestry Paper 147. Food & Agriculture Organization of the United Nations, Rome (2005). 3 FAO. Forest Resources Assessment 1990: Global Synthesis. Forestry Paper 124. Food & Agriculture Organization of the United Nations, Rome (1995). 4 H. Jeffrey Leonard, Environment and the Poor: Development Strategies for a Common Agenda. Transaction Books, New Brunswick, USA and Oxford, UK (1989). 5 Frederic Benham, Economics: a General Introduction. 5th edition, Pitman & Sons, London (1955). 6 FAO. Report of the Mission to Malaysia on the Tropical Forestry Action Plan, November, 1986. Food & Agriculture Organization of the United Nations, Rome (1987). 7 M.S. Ross. The Development and Current Status of Land Clearing for Transmigration in Indonesia. Journal of World Forest Resource Management, 1 (2), 163176, 1985. 8 John O. Browder. Development Alternatives for Tropical Rain Forests. Chapter 3 in Leonard, H. Jeffrey and contributors, Environment and the Poor: Development Strategies for a Common Agenda. Transaction Books: New Brunswick, USA and Oxford, UK (1989). 9 Robert Repetto. The Forest for the Trees? Government Policies and the Misuse of Forest Resources. World Resources Institute, Washington (1988). 10 J.A. Rees. Natural Resources: Allocation, Economics and Policy. 2nd. ed. Routledge, London (1990). 11 Alexander Mather, op cit, page 4. 12 J.E. Michael Arnold. Framing the Issues. Part I in Farms, Trees and Farmers. Edited by J.E.Michael Arnold and Peter A. Dewees. Earthscan, London (1997).

CHAPTER 4 ACTIVITIES

Resources, which were discussed in the previous chapter, provide the inputs for forest sector activities. In turn, these activities give rise to outputs, which are the subject of the next chapter. The purpose of this chapter is to describe the range of activities that take place and examine their characteristics. The activities are very varied. They create incomes, employment and trade, and contribute to the welfare of the community at global as well as national level. Over time, the activities alter and the balance between them changes as the sector develops. Some forest sector activities are forest-based and are concerned directly with the protection and management of forest resources; others are focussed on the transformation and movement of forest products, after they leave the forests, en route to consumers. The first group the forestry activities are supply oriented. The forests are the source of tangible and intangible output and benefit flows. Forest management activities are broadly aimed at maintaining these flows, to both consumers in particular and society in general, in the short and the long term. The second group consists of industrial activities which are demand or consumer oriented. They aim to satisfy the needs of end-users by converting raw materials from the forest into more valuable or useful commodities and distributing them to the places where they are required. Forestry activities serve two purposes: conservation and production. The conservation function is concerned with protecting forest resources and safeguarding their capacity to provide future output flows. Conservation provides a variety of intangible benefits which accrue directly to particular groups of people or the community-at-large, as e.g. the conservation of habitat for endangered species, which preserves biodiversity for everyone. The activities aimed at production provide tangible outputs, some of which are used in their natural state and pass directly to consumers, while others form the raw material inputs which support the sectors industrial activities. The direct outputs include poles, fuelwood, game animals, fruits, fungi, etc, which are taken, mainly by people living near the forests, for domestic use; the industrial inputs must be processed to varying degrees before being sold to consumers within the country or for export. Forest management is therefore concerned with multiple outputs, the problems of joint production, and the resolution of conflicting requirements. 65

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The size and economic importance of the two groups of activities is very unequal. Forestry activities tend to be widely spread and their impact is less obvious. Industrial activities are more concentrated and account for most of the sectors contribution to gross national product (GNP), a large proportion of the employment generated and nearly all the trade in forest products. They are mostly based on wood and nearly all the available statistics refer to wood products; FAOs forest product statistics in fact refer to timber. A comprehensive view of the sector is obtained by dividing it into parts or subsectors, based on the different kinds of activity concerned with wood production. Other types of product do not involve all subsectors and service outputs accrue directly to consumers. The first section of this chapter provides a classification of forest sector activities, based on division into six subsectors. Each subsector performs a distinctive function and interacts with other subsectors. Using this scheme, the contributions to value added, employment, capital formation and foreign trade, that are generated by the sector, are described and discussed in subsequent sections. 4.1 SUBSECTORS

Six distinct types of activity take place in the forest sector. These were recognised and described in a classic study by Dwight Hair of the economic importance of timber in the United States, which was published in 19631 . However, the types he distinguished are not peculiar to that country or applicable only to timber-based activities; they can be easily adapted to provide a convenient framework for general use. Hairs classification has been modified to derive the following breakdown of the forest sector into six subsectors:1. Forest management all activities concerned with protecting, conserving and managing forest resources. 2. Harvesting felling, cutting, gathering, collecting, removing and transporting wood and other forest products from the forest to local delivery points. 3. Primary processing the conversion of wood and other forest products from their natural state into basic manufactured products, such as lumber, veneers, boards, pulp & paper, turpentine, rosin and essential oils. 4. Secondary manufacturing the reprocessing and further manufacture of outputs from primary processing to produce finished goods, such as furniture, containers and paper products. 5. Construction the use and fabrication of timber and other forest products for buildings and other fixed structures. 6. Distribution and trade the transportation, handling, marketing and trade in timber and other forest products at all stages after harvesting. These subsectors represent stages in the flow of production, which extends from the seedling to the consumer. The subsectors follow in succession, although some kinds of product do not need to pass through all the stages. Sawn timber illustrates the sequence. It begins in the forest with the regeneration and growth of trees to maturity; this stage, which may take many years, is part of the forest management

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subsector. The next stage the harvesting subsector includes felling the trees, extracting the logs and transporting them to convenient collecting points, ready for sawmilling. The primary processing stage then takes over and the logs are cut up to produce lumber. Some of the mill output is sold to the secondary manufacturing subsector, perhaps for joinery, the remainder going to the construction subsector, say for roofing timber or shuttering. The activities involved in selling, handling and transporting the sawn timber, form part of the distribution and trade subsector. The whole sequence of subsectors is not required in other cases as Fig. 4.1 makes clear. For example, poles, firewood and bamboo are used directly by consumers, without any processing. Similarly, some sawn timber and plywood passes straight from the mill to end users, avoiding secondary manufacturing. Many non-wood commodities, such as grasses, game meat, flowers and fruit, are taken for local sale or domestic use by people living in the vicinity of the forest; little processing is involved. However, other non-wood forest products, including gums, resins and some medicinal plants do entail factory extraction, distillation or purification before sale. Each type of output follows a different succession of subsector activities, which is more complete for some outputs than others. Nevertheless, all the activities which take place in the forest sector, can be assigned to one or other of the subsectors. The classification is all-inclusive.

Figure 4.1 Subsector output flows

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The sequence of subsectors follows the direction of flow of raw materials and outputs from subsector to subsector. During their progression along the processing chain, there is a reduction in bulk or weight. When logs are sawn or peeled, or sawn timber is machined, some of the wood is removed; part is unusable and goes to waste, the rest is sold or recycled as a by-product. In some cases, residues are passed directly to consumers, as with sawmill offcuts used for domestic fuel; other residues, such as the cores of peeled logs, may be utilised to produce sawn timber or woodchips for the manufacture of particle board or paper. Most of the raw material used by the primary processing subsector comes from harvesting, but some is derived from other processing activities which take place in the same subsector. This classification into six subsectors has the advantage of being comprehensive, but the disadvantage of including some activities which overlap with other industries or sectors. The first three subsectors are obviously forest-based. Forest management and harvesting take place in the forest. Primary processing depends on raw materials obtained from forest resources and provides outputs which are generally described as forest products. The difficulty comes with the secondary manufacturing and construction subsectors. These absorb large quantities of forest products, but also utilise products from other industries. For example, wood and wood panels are used in furniture manufacture, but metal items, plastics and textiles are also important furniture inputs; similarly, cement and bricks are essential building materials they are even required for the foundations of wooden houses and some forms of construction rely more for strength and durability on metal components than wood. A significant proportion of the output of both of these subsectors is not attributable to forest products, does not depend on forest resources, and therefore, should not be included in the output of the forest sector. The parts of the forest sector which are wholly dependent on the forest, i.e. the first three subsectors, support a variety of activities which are also wholly dependent on forest resources. Secondary manufacturing and construction are partially dependent on forest products and these subsectors may include activities which use only small amounts of wood or other products derived from forest resources, compared with the larger quantities of inputs drawn from outside the forest sector. In some cases, when the forest-based input is relatively small, it becomes difficult to say precisely which activities should be included in these subsectors and exactly where the boundaries of the sector should be drawn. Therefore, to some extent, the sectors size and limits are a matter of judgement. However, in practice, if forest products are significant inputs, the secondary manufacturing activities which use them should be recognised as forest sector activities. Table 4.1 indicates the wide variety of activities found in the forest sector. Some forest management activities are supportive and protective. They are concerned with the continued existence of forest ecosystems in the face of threats from agricultural settlement, fires, excessive grazing and unrestrained cutting. Other forestry activities provide tangible outputs and are aimed at production. Harvesting and the subsectors which follow, contain activities which are related to their outputs.

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Table 4.1 Forest sector activities Subsectors Forest management Activities protection of forest land and ecosystems construction and maintenance of forest roads regeneration, cultural operations and tending of forest crops inventory, yield regulation and control of harvesting agroforestry and community forestry watershed management and soil conservation maintenance of landscape features and scenery wildlife and game management habitat and species conservation recreation management and tourism promotion safeguarding the basic needs of forest dwellers and rural populations timber felling and crosscutting extraction of logs and other roundwood from forest to roadside collection and removal of leaves, flowers, fruit, and other non-wood products hunting or collecting animals, birds and insects transport of forest products to mills or other local delivery points extraction of water and minerals preparation and treatment of poles and posts preparation of bamboos, canes and fibres production of woodchips sawmilling veneer, plywood and blockboard production manufacture of particle board, fibreboard and other board products manufacture of matches pulp and paper production processing of gums and resins extraction of essential oils preparation of drugs and medicinal products machining, drying and further treatment of sawn timber joinery wood turning furniture manufacture paper and paperboard manufacture further processing of non-wood products prefabricated timber housing building construction timber enginearing marketing of forest products storage and stock control transport of timber and other forest products merchandising and retailing importing, exporting and shipping international trade activities

Harvesting

Primary processing

Secondary manufacturing

Construction

Distribution & trade

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Different processing and manufacturing methods, using different technologies, are used to produce different types of output. Thus, sawmilling requires machines and a workforce with the skills needed to cut up logs to produce sawn timber, plywood manufacture depends on slicing or peeling logs by rotating them against a knife and paper production is based on converting logs into woodchips and pulp by mechanical or chemical methods. Similarly, secondary manufacturing and construction activities are associated with the methods used. The kinds of activities involved in the distribution and trade subsector, such as marketing and transport, are generally comparable to those in other industries. They are functional, but differ in detail according to the nature of the product. The list in Table 4.1 is intended show the range and diversity of the activities which take place in the forest sector, not to provide a comprehensive classification. Attempts at classification would require revision to keep up to date with changes in production methods and technology. Furthermore, each country displays a different assortment of activities it has a distinctive forest sector profile of its own which evolves year by year, as new industries start up, extra capital is made available and end users requirements change. As Box 4.1 illustrates, the very varied nature of these activities offers scope for specialisation by those who carry them out. A different person, agency or corporation, with appropriate expertise, frequently undertakes each stage, although some large corporations exhibit vertical integration and directly control all stages from the forest to the consumer. Except for these, the work in each subsector is done by different organizations, passing the output from one to the next, along the processing chain. As the output changes hands, ownership of the product is transferred from firm to firm. These transactions form the links in the chain and the value of the output exchanged at each stage builds up progressively as value is added to the product. Sometimes individual enterprises or agencies undertake a range of activities which straddle subsectors. Thus government forest departments in some countries (e.g. India) not only manage forest resources but also undertake timber harvesting, and there are corporations (such as Weyerhauser) which control both forest resources and forest industries. The division into subsectors does not always correspond with the functions performed by organisations, although large-scale forest resources tend to be owned and managed by governments, while private sector companies concentrate on the processing and commercial activities associated with particular forest products. Forest management activities involve distant time horizons because of the long periods required for growing trees to maturity timber rotations in temperate zones frequently extend to 80 or 100 years. This is much longer than the time span required for industrial activities. Most harvesting is completed in days or possibly weeks; primary processing operations take a similar length of time. Investments in processing, such as sawmills or pulp and paper plants, usually have an economic life of no more than 20 years. Generally, the shorter perspectives of the industrial subsectors are better suited to a private enterprise approach.

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Box 4.1 The history of a window frame Six stages are involved, corresponding to the six subsectors, with six different types of organisation contributing to the process, as shown below. The forest owner is concerned with growing the timber crop from which the window frame is derived; at maturity, the trees are felled, the resulting logs are extracted from the forest and transported to mill by a logging contractor; there the sawmiller takes over and converts the round logs to sawn boards and scantlings; the rough timber then passes to a joinery manufacturer for resawing, machining and assembly into the finished window frame; the builders merchant holds the frame in stock in his warehouse before selling and delivering it to the building site; finally the window is installed in the completed house, which becomes the property of the new houseowner. Forest management Harvesting Primary processing Secondary manufacturing Distribution & trade Construction house. forest owner logging contractor seedling - - - - - - - - -> mature tree standing timber - -> roundwood at mill sawmiller log - - - - - - - - - - - - - - - - -> lumber joinery manufacturer rough timber - - - - - - -> finished frame builders merchant factory - - - - - - - - - - -> warehouse housing company building site - - - - - -> completed house

4.2

VALUE ADDED

Value is added to forest products as they move along the chain from forest to consumer. Seedlings cost a few cents, but grow into mature trees worth many dollars. The price of a standing tree (i.e. its stumpage value) is much less than the value of the logs obtained from it. Sawn timber is worth several times the cost of the logs from which it was cut. The amounts paid for forest products of all descriptions, compared with the cost of the raw materials used to produce them, become progressively larger as additional value is generated by the activities in each subsector. At each stage, raw materials and other inputs are used up and outputs are produced. There is a difference between the cost of the inputs and the value of the outputs; this difference is known to economists as value added (see Box 4.2). The total of the extra value generated by each of the activities in a subsector represents the value added by that subsector. Similarly, the sum of the additional value from all six subsectors amounts to the value added by the forest sector as a whole. This represents the contribution of the sector to the total annual output of the nation, i.e. the portion of the gross domestic product (GDP) that is derived from forest sector activities.

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Box 4.2 Definition of value added Value added the difference between the value of a firms (or industrys) output (i.e. the total revenues received from selling that output) and the cost of the inputs of raw materials, components or services bought in to produce that output. Value added is the value that a firm adds to its bought-in materials and services through its own production and marketing efforts within the firm.
Source: Collins Dictionary of Economics, 2nd. edition, 1993.

Value can be taken away instead of being added if the cost of the inputs exceeds the value of the output; value added can be negative as well as positive. This arises if operations are notprofitable or only become profitable because the prices paid for inputs or received for the output are distorted and do not reflect their true economic value. This situation may arise when governments intervene in markets or provide subsidies to promote particular activities. The attempts to encourage domestic processing of timber and discourage log exports in West Africa and Indonesia, which were referred to in the previous chapter, provide examples of resource misallocation with detrimental consequences for the forest sector in the countries concerned. Inefficient industries can, too easily, become a drain on the GDP. The subsectors provide two kinds of output: intermediate and final. Intermediate outputs provide the raw materials used for further processing inside the forest sector, while final outputs are those products which are sold to end users or exported to other countries. Intermediate outputs form part of the inputs to other subsectors and are therefore excluded when subsector value added is calculated. Only the final outputs are included in the value added for the whole forest sector. The forest sector value added is made up of the sum of all of its final outputs, after deducting the cost of raw materials and the value of any inputs that are obtained from other sectors . It is necessary to deduct the inputs from other sectors because they represent part of the output (and value added) attributable to those sectors and would therefore involve double counting if they were also included in the forest sectors output. For example, the cost of diesel fuel for logging vehicles, resins for bonding plywood and upholstery materials for furniture are all deductible items, which are the products of other sectors. Another way to look at value added is the way that it is spent; it represents the amount available for payment of wages and salaries, interest, profits, taxes and depreciation. The forest sector contributes to the national output and also to the total income of the nation. Foreign transactions apart, output and income at national level are different sides of the same coin; the income is used to purchase the output. The value added by forest sector activities (after allowance has been made for depreciation and stock changes) indicates the contribution of the sector to the total income of the nation. At subsector and enterprise level, value added can be broken

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down to show the amounts spent on payments to staff and labour, and the level of profits, as illustrated for logging activities in Trinidad in Box 4.3. Value added calculations for the forest management subsector face a special difficulty. If the product approach is followed:Value added = value of wood and non-wood forest outputs cost of goods & services from other sectors.

The difficulty is that the value of the forestry output (and any surplus or profit) is not the result of only one years growth. In the case of timber, the value of standing trees at maturity has been built up, year by year, over a long period. It is unreasonable to attribute the whole of this accumulated value to the GDP of one particular year. A better measure of the output of the subsector would be the value of the annual increment, i.e. the additional value generated by new growth. However, this may not match the amount felled. The value of the output actually

Box 4.3 Harvesting in Trinidad Logging in Trinidad in the 1960s was carried out entirely by numerous smallscale operators working on short-term licences. After felling, logs were usually crosscut and frequently roughly squared before extraction by bull or tractor to roadside, where they were sold to sawmillers who undertook their own transport to mill. Most of the work in the forest was subcontracted to others who were paid according to the task performed instead of daily wages. The value added by harvesting operations was estimated from a sample of more than 200 licences, taken in 1964, which showed the following average costs and returns (in West Indian cents per cubic foot of timber):76 cents (100%) Sale value of timber per cubic foot at roadside Royalty paid to Forest Department 9 cents (11.7%) (stumpage) Value added 67 cents (88.3%) made up as follows:Wages paid to employees 5 cents (6.5%) Payments to sub-contractors 31 cents (40.6%) felling, cross cutting & squaring 8 cents (11.1%) loading 2 cents (2.1%) extraction 21 cents (27.4%) Licensees surplus 31 cents (41.2%) licensees labour and animals 8 cents (10.0%) profit 23 cents (31.1%)
Source: Gane (1966).

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Box 4.4 The treatment of natural resources in national accounts there is a dangerous asymmetry today in the way we measure, and hence, the way we think about, the value of natural resources. Man-made assets buildings and equipment, for example, are valued as productive capital, and are written off against the value of production as they depreciate. This recognizes that a consumption level maintained by drawing down the stock of capital exceeds the sustainable level of income. Natural resource assets are not so valued, and their loss entails no debit charge against current income that would account for the decrease in potential future production. A country could exhaust its mineral resources, cut down its forests, erode its soils, pollute its aquifers, and hunt its wildlife to extinction, but measured income would not be affected as these assets disappeared. Ironically, low-income countries, which are typically most dependent on natural resources for employment, revenues, and foreign exchange earnings are instructed to use a system for national accounting and macroeconomic analysis that almost completely ignores their principal assets.
Source: Repetto et al. (1989).

removed from the forest in any year may be more, or less, than the value of the new growth; it depends on circumstances and the decisions of forest managers. Only if the rate of removal matches the rate of replacement, does the output approach give a fair measure of the value added by forest management activities. This difficulty can be avoided if the value of the output is adjusted to allow for changes in the value of the growing stock from year to year. However, this does not conform with the model system of national accounts published by the United Nations 2 and, consequently, it has not been customary practice to include forest inventory changes when national accounts are prepared. The problems associated with defining and valuing forest output were recognised some years ago by forest economists, including Kunnas 3 . More recently, the shortcomings of the present system of national accounts have attracted wider attention; the forest sector is not the only one affected when changes in the value of natural resource assets are omitted. Repetto et al. (see Box 4.4) have pointed out the serious consequences of treating natural resources as gifts of nature and not allowing for either their depreciation as they are used up or their appreciation as they grow. This study 4 , undertaken by the World Resources Institute, proposes a system of natural resource accounting, which is designed to correct the estimates of net national product and national income in national accounts. FAO has recommended a system of satellite accounts which would achieve the same purpose 5 . Corrections to the national accounts to allow for growing stock changes have been attempted in a number of countries with significant forest resources. In some cases this has been in response to the destruction of forest and other natural resource assets, which is taking place in some tropical countries such as Indonesia. The

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recorded forest output in those countries overstates the sectors contribution to the national product unless an appropriate correction is made. While the GDP in Indonesia increased at 7.1 percent between 1971 and 1984, the true rate of growth of output, after accounting for consumption of natural capital, was only 4 percent according to the World Resources Institute study. In other countries the reverse occurs the contribution to GDP is liable to be understated if new growth exceeds removals. This is the situation in Scandinavia, where the quantity of timber felled has been less than the volume increment over a number of years. It is also occuring in a few countries, such as New Zealand and Chile, where the forest sector is expanding due to rapid afforestation. New Zealand has adopted a system of forest resource accounting which indicates that changes in the value of the growing stock averaged about 11/2 percent of GDP during 198993 6 (see Box 4.5).

Box 4.5 Allowance for forest stock changes in New Zealand In New Zealand, the rapid expansion of the exotic plantation estate from the 1960s was such that in 1978 it was decided to expand the coverage of the System of National Accounts (NZSNA) to incorporate the changes to the forest estate. Changes to the plantation estate have since been captured in the national accounts, along with changes to the livestock base in the agriculture sector. Based on these accounts, changes to the value of the plantation stock have contributed, on average, around 1.5 percent of total GDP over recent years. Changes to the value of the plantation stock have also made up about 25 percent of the total contribution of the forest sector to GDP. National Accounts Data ($ million) Increase in Change in value Contribution to GDP1 Forestry & Forest GDP forestry stocks as of forestry stock logging Sector2 a % of GDP 1092 1442 3884 66403 1.64 1084 1538 4201 71435 1.52 1075 1564 4244 73601 1.46 1083 73378 1.48 1165 77067 1.51

Year 1989 1990 1991 1992 1993

Notes: 1. Value added including changes in the value of stocks. 2. Includes Forestry & logging, manufacture of wood and paper products. Source: Bigsby (1995).

National account adjustments have been taken further in Norway by attempting to include non-market goods and services 7 . The growing stock is increasing and

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this is beneficial because it also involves additional carbon sequestration for which the forest acts as a sink. It is argued that the resulting reduction in atmospheric carbon dioxide is equivalent to a reduction in the use of fossil fuels; this was valued by using the tax on petroleum fuel related to CO2 emissions. The effect of this adjustment appears to be substantial: on timber sales of 3,371 million kroner in 1990, allowing for net growth of the forest stock added 522 million kroner (15%) and CO2 fixation increased the value added by 1,925 million kroner (57%). The size of the increase depends on the method of valuation, however, and the adjustment might have been either larger or smaller than the estimate given if some other basis had been used. It is also worth noting that in other countries, where net losses in the growing stock are occuring, the value added should be reduced to compensate for the extra CO2 released into the atmosphere. Adjustments to the accounts to allow for carbon sequestration in the forest, which are based on changes in the growing stock, do not tell the whole story, however. They assume that CO2 is released as soon as the trees are felled, whereas if timber is removed from the forest and converted to sawn timber or other durable forms such as plywood, the release of the CO2 contained in the processed wood will be delayed, often by many years. These adjustments only apply to the value added by the forest management subsector. They are not applicable to the other subsectors concerned with harvesting, processing and subsequent activities, for which the value added calculations include adjustments for changes in stocks of wood products. As no adjustments for stock changes in the forest are made in most countries, statistics of the value added by forestry activities are liable to be misleading and less informative than the contributions recorded by other subsectors. However, the overall effect of such errors is less serious than might be thought. The value added by forest management is usually relatively small compared with the amounts generated by forest industries and, in relation to the contribution to GDP of the forest sector as a whole, the share provided by forestry activities is not very significant. Perhaps the most striking feature of the value added by forest sector activities is the way that it builds up as forest products pass along the processing chain. Hairs groundbreaking study of timber-based activities in the USA illustrated this, as shown in Box 4.6. The forest management contribution was not adjusted for growing stock changes, but, even if it had been, the later stages would still have contributed far more than the subsectors at the start of the progression. A small amount of extra output from the forest leads to sequential value increases which multiply the economic impact many times before it reaches the consumer end of the chain. Follow up studies in the USA 8 (USDA 1980 and 1982) shows that the forest sectors contribution to the national economy has altered over time and appears to be declining; the relative amounts coming from each of the subsectors is also changing. The value added attributed to timber increased from about $25 billion in 1958 to $48.5 billion in 1972. However, this increase was insufficient to keep pace with national economic growth over the same period, with the result that the timber-based contribution, as a proportion of GNP, declined from 5.6 to 4.1 percent; $1 out of every $18 of GNP came from timber in 1958, compared with $1 out of

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Box 4.6 Value added attributed to timber in the USA, 1958 The sum of the values added in all kinds of timber-based economic activities amounted to about $25 billion in 1958. This represented 5.6 percent of the Nations gross national product the market value of all goods and services produced. This means that about $1 out of every $18 of gross national product originated in some kind of timber-based economic activity. Of the total value added attributed to timber in 1958 about 4 percent was added in forest management. An additional 6 percent was added in harvesting, 16 percent in primary manufacturing, 22 percent in secondary manufacturing, 31 percent in construction, and 21 percent in transportation and marketing. Looked at another way these data show that in 1958 timber increased in value nearly 25 times between the stump and delivery of finished products to final consumers. On the average, to each $1 worth of stumpage cut another $1.50 was added in harvesting, $3.85 in primary manufacturing, $5.45 in secondary manufacturing, $7.60 in construction, and $5.35 in transportation and marketing.
Source: Hair (1963), page 5.

every $24 in 1972. The build up of value along the processing chain was also less pronounced. In 1958 timber increased in value nearly 25 times between the stump and delivery of the finished product to consumers, whereas the multiple had fallen to about 17 by 1972. Although evidence is hard to come by because few comparable investigations have been carried out elsewhere, there is no reason to think that the progressive build up in value added in the USA is exceptional. A study of the forest sector in Trinidad 9 showed that in 1963, of the total value added by the first three subsectors (i.e. forest management, harvesting and primary processing), 8 percent came from forestry activities, 43 percent from harvesting and 49 percent from primary processing. In New Zealand, according to Bigsby, forest management + logging combined to provide 37 percent of the sectors adjusted contribution to GDP during 19891991. The build up is a general phenomenon, although the subsector percentages vary from country to country, depending on their particular circumstances. Differences in the distribution of subsector activities between countries are inevitable, due to variations in their resource endowments and the stage of development reached. The nature of the forest affects the activities and the outputs. Countries such as Malaysia and Indonesia, which are rich in tropical rainforest, obtain a particular range of outputs from their forests and support forms of harvesting, processing and manufacturing which are adapted to that range and the prevailing climatic conditions. The balance of subsector activities in those countries is likely to be different to that found in countries with cooler or drier climates,

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where the range of forest outputs is more resticted, and different technologies and working methods are used. Distinctive variations between countries also arise due to economic and social factors, such as population density, income per head, opportunities for trade with other countries, government regulation and the nature of the political system. These factors affect all aspects of national life and influence the path of forest sector development. As development proceeds, the processing chain tends to lengthen and the relative sizes of the subsector contributions alter; processing activities expand, manufacturing increases and a wider range of products is distributed to consumers. The total value added in the forest sector, which depends on the size and range of subsector activities, varies from country to country. The sectors contribution, as a proportion of GDP, also varies between countries. Unfortunately, comparative data are not available. The few country analyses that have been published refer to different years and differ in scope. They provide few clues about the significance of the factors likely to influence sector size and importance. No general conclusions can be drawn about the sectors rate of growth or whether the relative size of its contribution to GDP is likely to expand or contract over time. It is obvious that during the course of development, the sector increases in size as more forest products are manufactured and the output flows become larger in quantity and value. What is lacking are insights into the necessary conditions for sector growth and the ways in which it can be promoted and sustained where this is desirable. There is a dearth of information about the forest sectors role and economic contribution in different countries. In lieu of comparative value added statistics, the only surrogate that is available is provided by the figures of gross output of forest products published by FAO 10 . Although somewhat outdated, Table 4.2 gives an indication of the significance of the economic contribution resulting from forest sector activities. Usually, the value added by forest sector activities is less than the gross output, the difference being due to an unknown amount for goods and services purchased from elsewhere. However, the FAO figures exclude the economic contributions coming from secondary manufacturing, construction, distribution and trade; the omission of these subsectors is likely to affect the developing less than the developed nations. It is also possible that natural resource accounting and environmental adjustments, as described previously, would affect the positions of some countries in the table of comparative statistics. The value of the world output of forest products in 1993 amounted to about 2 percent of the global GDP, according to the FAO statistics. Forest production in the developing countries accounted for about 3 percent, compared with 1 percent of GDP in the developed countries.This indicates the developing countries greater dependency on primary production compared with the developed countries, where processing and manufacturing chains tend to be longer. Within both groups there are wide variations as can be seen in Table 4.2, although some care is necessary in interpreting them due to uneven reliability of the statistics. Some developed countries, which possess substantial forest resources, depend quite heavily on forest products, e.g. Finland (10%), Canada (6%) and New Zealand (6%); the value

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Table 4.2 Forest sector production and trade in selected countries, 1993 Country or Region Production million $ 9 4 14 3 75 18 30 93 129 230 055 481 658 235 443 655 189 240 % of GDP 10 0 1 1 1 6 2 3 5 4 1 3 4 4 20 2 6 1 3 1 6 8 2 3 11 4 2 20 3 1 3 2 Imports million $ 475 192 502 479 141 124 2 082 16 873 20 923 308 152 2 639 26 262 1 648 556 767 701 216 273 5 541 13 15 77 327 5 672 325 Exports million $ 7 1 5 1 41 2 19 13 33 411 932 751 032 427 061 295 401 018 % of Trade 32 1 2 2 3 13 3 5 5 12 1 4 0 0 0 1 14 0 2 1 12 19 4 0 0 0 2 15 2 3 3 3

79

Consumption million $ 2 10 18 5 80 16 13 96 117 294 315 232 106 950 506 442 661 145

Finland United Kingdom Germany Spain Europe Former USSR Canada USA North/Central America Brazil Chile Guyana South America Bangladesh India Nepal China Indonesia Japan Asia Australia New Zealand Papua New Guinea Oceania Senegal Kenya Nigeria South Africa Zaire Africa All Developed Countries All Developing Countries WORLD

8 9 2 47

17 437 2 742 6 25 421 1 424 16 543 957 34 659 13 519 21 828 111 899 3 065 2 194 460 5 814 188 1 729 5 281 2 079 1 788 25 276 246 834 144 493 391 327

4 16 33 1

1 85

1 995 1 134 6 3 532 0 17 0 1 121 5 158 1 684 15 203 468 1 310 464 2 350 0 1 20 566 50 2 027 80 232 19 386 99618

15 751 1 760 2 23 528 1 450 16 788 958 38 186 8 917 36 912 130 396 3 813 1 158 1 5 005 201 1 744 5 337 1 840 1 743 24 921 251 926 146 524 146 524

21 417 106 742

Source: FAO. Forestry Statistics Today for Tomorrow: 19451993..2010

of forest production was only about 1 percent of GDP in other industrialized countries, including Germany and Japan. Amongst the developing nations, some of the poorest countries rely on their forests for fuel, as in Nepal (20%), while others with substantial forest resources, such as Zaire (20%), Papua New Guinea (8%) and Indonesia (6%), are exploiting them to generate trade. Without comparative statistics of the forest sectors contribution to national product in different countries, which are repeated at intervals to show changes in

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the value added, it is very difficult to draw general conclusions about its growth and development. The sector may grow faster or slower than the rest of the economy and its performance in relation to the growth and development of other sectors may also change. The value added by the forest sector obviously increases as its activities expand and national development proceeds, but how best to influence the growth process, ensure that it is sustainable and obtain the greatest national advantage from it, are questions that cannot at present be answered satisfactorily. Scarce resources, combined in various ways, can significantly alter the contributions generated in different parts of the sector. Historical studies of forest sector development, based on the structural and economic changes taking place, are necessary before any general conclusions can be drawn about the mechanisms involved. 4.3 EMPLOYMENT

Forest sector activities contribute value to the total production of the nation; part of that value added consists of payments made to human resources in the form of wages and salaries. When value is added, employment is also generated. The amount of employment the number of jobs depends on the scale of the activities and also on their nature. Some activities in the forest sector are highly labour intensive, including many forest management operations, while others are described as capital intensive and employ a few skilled workers to control very expensive plant and machinery, as with pulp and paper manufacture. Like value added, employment in the forest sector tends to expand with movement along the processing chain. Hares study for 1958 showed the relatively small contribution provided by forest management in the USA only 3 percent of the total employment attributed to timber; for every person employed in forest management, 10 more were employed in logging and primary processing and 30 more in the subsequent subsectors. Evidence for other years in the USA (see Box 4.7) and from other countries supports this general pattern, although the percentages obviously vary according to local circumstances and the stage of development reached. Historically, the share of total employment that is attributable to the forest sector has tended to decline through time. Forests are now relatively less important as a source of industrial raw materials than in the past and the use of wood for industrial and domestic fuel has been largely superseded by other forms of energy in most developed countries. At the same time, labour productivity has improved and forest operations have become more mechanised. Mather 11 cites the example of Canada, where almost half the adult male population was involved in the timber and lumber industry in the late nineteenth century, while only 7 percent of the labour force is forest-dependent now. In Sweden, forest sector employment reached a peak at the end of the 1930s, since when it has declined at a rate of about 2 percent per annum. In the USA, the employment attributed to timber fell from 5.6 percent of total employment in 1954 to 4.5 percent in 1963 and 4.0 percent in 1972. Forest resources were often used recklessly in the early stages of development, particularly in countries where they appeared to be unlimited as in North America.

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Box 4.7 Employment attributed to timber in the USA, 1972 Employment (full-time equivalent) in all timber-based economic activities amounted to 3.3 million people in 1972. This represented about 4 percent of the total civilian employment in the United States in 1972 and means that about 1 out of every 25 persons employed was engaged in some type of timber-based economic activity. In 1963, the employment attributed to timber was 3.1 million, about 4.5 percent of total civilian employment. Some 4 percent of the employment attributed to timber was in timber management, an additional 6 percent in harvesting, 13 percent in primary manufacturing, 27 percent in secondary manufacturing, 24 percent in construction, and 26 percent in transportation and marketing. These data on employment attributed to timber show that for each worker employed in forest management and harvesting, four were employed in primary and secondary manufacturing and five in construction, and transportation and marketing.
Source: USDA (1980), page 27.

Large tracts were cleared to make way for farms and the residual forests were mined rather than managed. As areas were worked out, logging and sawmilling operations were forced to move on and the labour force, housed in camps, migrated to fresh sites. This transient pattern of natural forest exploitation is being repeated today in many developing countries, where cut and run logging is prevalent 12 . So long as the resource lasts, employment continues at an inflated and unsustainable level; when the saleable timber has been worked out, most of the labour force is paid off or relocated. Forest sector development which is based on unsustainable rates of resource utilisation, is liable to destabilize forest-dependent rural communities. In these circumstances the forest sector creates employment, but it is not necessarily permanent employment. When sustained yield management is introduced, the flow of output from the forest is likely to be reduced, which at first leads to job losses in rural areas although it may help to stabilize employment levels later on. It may not always be welcomed by the local communities who are hardest hit and special measures to soften the social impact may be desirable. In some respects the introduction of yield restrictions in forests is comparable with stopping the overexploitation of fisheries resources when boats have to be laid up and fishermen are thrown out of work. If time is allowed for adjustment by progressively reducing the rate of felling (or the size of the catch) over several years, new employment opportunities can be created and the work force can be retrained. It is preferable to anticipate the conversion to sustainable rates of exploitation rather than wait until the damage to the resources becomes critical or even irreversible. Forests are generally more flexible than fisheries because it is often possible to create new forestry employment by investing in silvicultural operations which increase the productivity of existing

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resources, establishing plantations or diversifying the range of outputs/benefits that the forests provide. There are many opportunities for creating employment in the forest sector which can be used to allay fears of job insecurity. Instability is also caused by fluctuations in the demand for forest products, which lead to corresponding variations in forest sector activity. Even though population growth and rising incomes per head lead to ever larger requirements for forest products, the upward trend in demand is not constant; it tends to be cyclical with periods of rapid increase followed by downswings, as countries experience alternate periods of economic expansion and recession. These fluctuations, which originate in the global economy, affect forest sector employment nationally and the numbers working in harvesting, processing, manufacturing and construction at regional and local level. Their consequences are felt most in places where the economy is poorly diversified and there are few opportunities for alternative employment. Their impact is greatest in rural areas and developing countries. In the past, the cyclical movements in economic activity were more pronounced, there were long periods of depression, and special measures were taken to relieve widespread unemployment, poverty and social distress. During the Great Depression of the late 1920s and early 1930s, forestry programmes were used to provide relief work in a number of countries. Roads, firebreaks, towers, picnic facilities and similar capital improvements were constructed in the USA 13 . Reforestation was carried out in Britain and in New Zealand (see Box 4.8) extensive areas were planted with exotic conifers which became the basis for a further wave of planting and large-scale forest industry development after 1960 14 .

Box 4.8 Afforestation in New Zealand Most of the forest areas were established during one of two boom periods; the late 1920s and early 1930s and from the late 1960s onwards. The first planting boom extended 12 years, and comprised a variety of species, notably Corsican pine, ponderosa pine, lodgepole pine, Douglas fir and radiata pine. The bulk of these older plantings occured in the central North Island and were initiated by Government as part of depression relief-work schemes, in response to the perceived possibility of timber shortages and as a means of using cobalt-deficient, pumice scrublands.
Source: Valentine (1993).

After the Second World War, attention turned to efforts to raise living standards in the underdeveloped countries. The potential of the forest sector for generating jobs and income in these countries was recognised as Box 4.9 shows and attempts were made to exploit it, though not always with the hoped for results. Nevertheless, employment creation remains a national policy aim in many places and

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Box 4.9 Labour absorption by the forest sector Forestry and forest industries provide many opportunities of absorbing underand unemployed labour. Even in the developed countries almost all operations in the forest are carried out by manual labour. Afforestation, thinning, pruning, nursery work and some aspects of insect and fire control, for instance, do not lend themselves readily to mechanisation: these operations are mechanised but rarely, and only in those countries where labour is extremely scarce and expensive.The same is true for many aspects of forest exploitation save in those instances where large log sizes compel mechanization. What should be emphasized here, however, is that limited or negligible mechanization should not imply primitive methods of work. In all these phases there is ample scope for spectacular increases in productivity by the provision of suitable transport and simple, well-adapted tools.
Source: Westoby (1987), pages 5152.

the mobilization of underutilized labour resources is often seen as a development priority. It is generally believed that the forest sector can make a worthwhile contribution to the achievement of this aim 15 although estimates have sometimes been over-inflated as Box 4.11 shows. The numbers employed in the forest sector depend on the level of activity. Employment tends to increase as the sector expands, other things being equal. The greater the flow of forest products from subsector to subsector, the higher the level of activity and the larger the workforce required. If there are deficiencies on the supply side or fluctuations in demand, the growth tendency may be checked in the way previously described, but the underlying upward secular trend continues, based on long term increases in the consumption of forest products by the general population. However, this trend is offset by an opposing downward tendency: employment tends to be reduced by technological progress and improvements in labour productivity. When fewer people are required to produce the same output, the growth of employment is held back. Which influence is strongest depends on circumstances and the balance between the tendencies may alter with time. Future employment expectations should be treated with caution; they have sometimes been inflated because changes in technology and productivity were overlooked. 4.4 CAPITAL FORMATION

Forest sector activities generate incomes and employment; they also contribute to the formation of additional capital resources, which increase the sectors capacity to provide future output, incomes and jobs. Most of the present income flows, which accrue to organisations and employees, are used up during production or consumed to meet day-to-day needs, but a smaller amount is saved and invested

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Box 4.10 Overestimates of employment opportunities there appears to be a widespread tendency to overestimate the number of jobs that forestry and forest-products industries can provide. Employment potential is frequently an important element in forest policies or in justifying individual projects, and exaggerated or over-optimistic estimates have often been made. For example, it was forecast in the early 1970s that employment in forestry and wood industry in Australia would rise substantially: in fact it has declined. In Scotland the chief minister in promoting a programme of forest expansion in the 1940s looked forward to a day when forestry would employ as many workers as agriculture and coal mining (around 15,000). In fact it now employs little more than 10,000,
Source: Mather (1990), page 278.

to meet future requirements. This contributes to capital formation within the sector and may in some circumstances provide capital for other sectors, thereby adding to total national investment. Some problems with the definition of capital in relation to resources were described in the last chapter. Two kinds of capital were distinguished: capital funds and capital goods. Our concern here is with the accumulation (or run down) of capital as a store of value. Activities in the forest sector enable its resource endowment to be built up by additions to the value of the natural, human and capital resources that are present. Capital funds provide a mechanism for mobility which enables investment (or disinvestment) to take place where it is required. Capital goods refers to the physical assets, such as factories and equipment, which are acquired as a result of investment. However, investment may also affect the sectors natural and human resources. According to Clayton & Radcliffe, the word capital refers to human generated wealth, including both the goods that society produces and the tokens of value, such as money, that society uses to transfer wealth 16 . They separate artificial capital, which is used for the goods and services that society produces, from natural capital which refers to those features of nature that are directly or indirectly utilised or are potentially utilisable in human, social and economic systems. Both kinds of capital are present in the forest sector, but natural capital is mainly found in the forest management subsector whereas artificial capital is spread throughout all subsectors. The natural capital of the forests, consisting of the trees, plants, wildlife and other living organisms that have acquired value because of their utility to man, may conveniently be called forest capital. This classification is useful because it points out that the value of natural capital results from its utility; therefore its value may alter if people are prepared to pay more (or less) for it, regardless of any investment that may take place in the forests. However, the terminology is somewhat misleading because managed natural forests and plantations are artificially created by society.

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Forest capital is therefore a hybrid, partly formed by nature and partly as a result of investment by society. The artificial capital that is used during manufacturing and distribution consists of buildings, machines, vehicles, equipment and other artifacts; less tangible features of the productive process, such as the capacity to provide services and a specialized knowledge base are also included. Some artificial capital is employed in forest management activities, but most is to be found in the industrial subsectors concerned with handling and processing the raw material outputs obtained from the forest. The most important factor which controls capital formation in these subsectors is therefore the capacity to cope with the quantity of material passing through them in response to market demand from consumers an increase in the required throughput will lead to extra capital formation, once the existing capacity is fully utilised. Thus, global consumption of paper and paperboard averaged 25 kg per head in 1960, rising to 38 kg in 1984 and 44 kg by 1995 17 ; world capacity for manufacture of these products amounted to 220 million metric tons in 1985 and is expected to rise to 337 million metric tons by the year 2000 18 . Capital formation also occurs in response to changes in technology. This involves the substitution of less expensive or relatively abundant resources for more expensive or scarce resources, as for example the introduction of labour saving equipment in forestry and harvesting, and the replacement of circular saws by bandsaws to improve sawmill recovery rates. New technologies can create entire new industries, cause old products to be replaced by new ones, create new inputs or increase the productivity of old ones, and otherwise affect the processes by which goods and services are produced, distributed and consumed 19 . This is illustrated by the development of new board products, such as medium density fibreboard (MDF). Generally it is very difficult to identify and separate capital formation caused by the need to increase capacity from that due to technological change; often investments are undertaken with both objectives in mind and statistics do not distinguish between them. Artificial capital is continually created by investment and used up through wear and tear. The investment may be provided from income and savings generated within the forest sector or new investment may come from outside. It is the normal practice of business enterprises to reflect the run down of capital assets by allowing for depreciation in their accounts; they are guided by the principle of keeping capital intact and make provision for the replacement of fixed assets at the end of their useful life. However, in practice, the replacements are seldom identical to the old assets and the opportunity is taken to re-equip with up-to-date machinery and the latest technology. Assets may even be written off ahead of time if the pace of change is rapid and they become technically obsolete; investment in new production methods then becomes essential to remain competitive. The forest sectors endowment with artificial capital resources is renewed and updated by this turnover of assets. Without the turnover, the sectors activities would soon cease to be sustainable. Therefore, it is necessary to maintain an investment flow which is at least equal to the rate of depreciation. The long-term survival of the sector depends

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on preserving a balance between capital formation and capital depletion. Sector expansion and development involves additions to the stock of artificial capital. There is a significant difference between the types of capital: artificial capital depreciates in use and gradually runs down in value unless provision is made for its replacement, whereas forest capital is capable of self-renewal through regeneration and growth. Left to themselves, trees do not depreciate or wear out; usually their value appreciates as they get older until they become over-mature. Capital formation takes place through the biological process of tree growth. Trees increase in size, year by year, until physical growth slows down and eventually ceases in old age. Their value for timber also tends to increase with size, because large logs usually fetch a higher price per m 3 than small ones sawmill wastage is lower and timber quality is higher. Ecosystem enrichment may also occur because older tree communities tend to support a greater diversity of associated species than is found among seedlings and saplings. Forest crops consisting of trees of similar age, increase in volume and value as they grow; forest capital in the form of standing timber accumulates until the trees are felled. The longer that even-aged crops (such as plantations) are left to grow, i.e. the greater the rotation, the more the value of the growing stock, although the rate of capital accumulation slows down in later life. The capital value of uneven-aged crops (as in natural forest) depends on the distribution of size classes of the trees, but also tends to increase as the trees get older; a given area of forest may support a larger or smaller growing stock, depending on the species present, their growth rates and the way the crop is managed. Whether the crop is even- or uneven-aged, the amount of the growing stock and therefore the capital value of the forest depends on the age of the trees and is influenced by the management regime. Management for sustained yield depends on maintaining a balanced succession of age classes, leading up to the oldest, and harvesting the age classes in turn. Within limits, the capital value of the forest can be altered by adjusting felling rates and changing the rotation or felling cycle while still preserving the continuity of the output flow. Longer rotations generally support a higher capital value per ha than shorter rotations and forest capital can be built up by slowing down the rate of felling and removal; conversely, a higher removal rate tends to reduce forest capital. The principle of maintaining capital intact, which applies to artificial capital, involving the preservation of a balance between the depletion and renewal of assets, is also applicable to forest capital. Normally, the rate at which forest products are removed should match the rate at which they are replaced by new growth. This growing stock balance is a useful indicator of sustainability. However, it is not an infallible guide because a management regime, which involves felling large, slow-growing, overmature trees in order to replace them with a young, quick-growing crop, may sometimes justify harvesting at a faster rate. It may also conceal ecological deterioration or other adverse environmental effects which alter the capital value of the forest. If the balance is upset by excessive rates of exploitation, future productivity may be undermined. In extreme cases the forest resource may be degraded by

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uncontrolled cutting and grazing or destroyed by forest clearance. The capacity of the forest to sustain the output flows to other subsectors will then be affected and the flows may even cease altogether. This will have a knock-on effect on the ability of the forest industries to continue to generate income, savings and investment. In the long run, the viability of the whole forest sector depends on the way the forests are managed; sustainable forestry is a prerequisite for a sustainable sector. If the forest capital is dissipated, the sectors capacity to replace its artificial capital will also eventually come to an end; both forms of capital are interdependent. Historically, in several countries, the exploitation of untapped forest resources in their natural state has contributed to capital formation outside the sector and accelerated national development. In the USA and Canada, during the second half of the nineteenth and the first part of the twentieth century, their rich forest endowments were used to generate other forms of capital for the advancement of agriculture, mining, the construction industry, communications and manufacturing 20 (see Box 4.11). Rostow records the substantial increases in savings and investment rates that marked the take-off stage in national economic development in these and other countries 21 . Profits from timber were ploughed back to create productive capacity in other sectors, often indirectly through the medium of foreign trade; timber contributed to a rapid rise in exports, which was used to finance imports of capital equipment and service the foreign debt. Wealth flowed out of the forest sector, pushing up investment and stimulating rapid growth.

Box 4.11 Transformation of forest capital in the USA The USAs deforestation was not a deliberate strategy to produce national wealth, but was an inevitable consequence of making room for agricultural expansion. Stocks of timber were converted into liquid capital, yielding arable land beneath them as an even greater source of national wealth. Previously unproductive forest assets produced an injection of housing materials, railroad ties, mine timbers, and other products for industry and household consumption. The newly converted lands under agriculture provided an increased flow of food products for both subsistence and market sales, helping propel the countries industrial urbanization. Forest conversion financed much of the USAs early economic development.
Source: Laarman & Sedjo (1992), pages 1067.

Although forest resources were liquidated to provide funds for non-forest purposes in the past, present-day repetition of the process is subject to severe criticism and countries where it is being allowed to happen, even on a limited scale, face the prospect of international disapproval. Forests, after unrestricted exploitation, cannot continue to yield a steady flow of outputs for processing and consumption or the same range of intangible benefits for the community; the consequences

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are obviously unsustainable and it is no longer acceptable to generate capital for development in such a destructive way. Those countries, particularly in the tropics, which continue to deplete the capital stock locked up in their forests for short-term commercial gain, would benefit if they adopted sustainable resource management practices. They would avoid much of the outcry from conservation activists but, more importantly, by maintaining the viability of the resource base, could sustain the income flows on which capital formation depends. Capital conversion could still take place, although at a rather slower pace. Forest capital can be readily converted to artificial capital, but the reverse process is very difficult, often impossible, and involves waiting a long time for the trees to grow. The creation of forest capital depends on patience; the rate of formation is limited by the natural growth rate of the trees and there is a long interval between regeneration and harvesting. Waiting has an opportunity cost the land might be used for agriculture or young trees might be sold as poles to obtain an immediate income instead of delaying felling until they reached sawlog size. There is a cost to society of the opportunities foregone whenever present consumption is put off for the sake of future benefits. Furthermore, forest capital is not homogeneous. Some forms are irreplaceable, such as tropical rain forest supporting complex ecosystems which have taken thousands of years to develop; replanting after felling cannot fully compensate for loss of the forest as a source of biodiversity, although forest capital will be built up in the new tree crop. Artificial capital is therefore an inadequate and imperfect substitute for forest capital. The fact that different forms of capital goods are not freely interchangeable has serious implications for development policy and the important debate about environmental safeguards which lies at the heart of concerns about sustainability. In Box 4.12 Pearce, Markandya & Barbier 22 identified three key issues: (i) valuing the environment to take account of quality changes, (ii) extending the time horizon, and (iii) meeting the needs of the least advantaged in society (intragenerational equity) and fair treatment for future generations (intergenerational equity). All three are particularly relevant to changes in national endowments of forest capital.

Box 4.12 Intergenerational equity and sustainability These three concepts of environment, futurity and equity are integrated in sustainable development through a general underlying theme. This theme is that future generations should be compensated for reductions in the endowments of resources brought about by the actions of present generations. The underlying logic of this proposition is in fact very simple. If one generation leaves the next generation with less wealth then it has made the future worse off. But sustainable development is about making people better off. Hence a policy which leaves more wealth for future development.
Source: Pearce, Markandya & Barbier (1989), pages 23.

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Until recently, it was assumed by many economists that it was acceptable to degrade natural environments if man-made capital wealth was provided in lieu. This view is no longer tenable. The conversion of forest capital into artificial capital is likely to deprive future generations of a range of tangible and intangible benefits which artificial capital cannot provide. This is most evident in tropical forests, where destruction and progressive deterioration is taking place at a rapid rate. These losses are irreversible and, clearly, will leave our descendents worse off. In very many places the natural forest capital accumulated over centuries is being dissipated in order to provide subsistence for poor farmers and no compensating investment is taking place outside the forest sector, but even where some development capital does result, the conversion fails the intergenerational equity test of sustainable development. 4.5 TRADE

Forest sector activities generate a substantial amount of trade between countries. Trade flows consist of imports and exports of goods and services; the exports of one country become the imports of others. Inputs of machines, technology and skills, which are not available from local sources, are imported to sustain the sectors productive functions. Outputs of timber and other forest products are exported to foreign countries for either consumption or further processing. Countries which are deficient in forest resources are obliged to meet their needs by importing from elsewhere. Other countries may possess forests, but for a variety of reasons lack the processing and manufacturing capacity necessary to use them fully, so import the finished products that they cannot make. Many countries are both importers and exporters, bringing in roundwood or raw materials from forests in other countries for further processing, and sending out manufactured products for sale abroad. The great natural diversity of forests and variety of different outputs derived from them enhance the possibilities of trade and make it impossible for any nation to be completely self sufficient. Generally, trade widens the range of forest products available to consumers and is therefore beneficial. The pattern of trade in the forest sector is very complex due to variations in the forest resource endowments of countries, their differences in climate, topography and ecosystem distribution, and the uneven distribution of manufacturing facilities throughout the world. Some countries are heavily dependent on exports of forest products to provide foreign currency for general development purposes, others rely on imports to generate value added and employment for their own populations from the raw materials or semi-processed goods supplied by other nations. To the extent that international trade is not inhibited by tariffs, embargoes or other restrictions, it flourishes on diversity of outputs and the comparative advantages that countries possess for growing, processing and transporting different forest products. As time passes, changes in the availability of forest products affect prices and consumer preferences, and the resulting market changes affect future production and trade flows. The pattern of trade evolves as countries develop at different

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speeds and in different ways; it is also influenced by social differences, power politics and economic forces which have little regard for the welfare of the forest sector. Over the years, forest sector trade has expanded remarkably total exports of wood products more than doubled in value between 1973 and 1983, and more than doubled again in the following decade. However this growth in trade disguises substantial variations in the quantity and value of its various components and also changes in its direction. As world trading conditions alter, the pattern of trade continues to adapt and develop. About 3 percent of world trade is attributable to forest products; the forest sectors share of trade is similar in both the developing and developed countries. As can be seen in Table 4.2, the percentage varies slightly between continents, North/Central America being highest with 5 percent, while Africa and Asia derive only two percent of their trade from forest resources. The FAO statistics show that individual countries differ much more widely, ranging from a negligible amount in the drier parts of Africa and Asia up to 63 percent in the Solomon Islands 10 . The share is highest in those tropical countries which are rich in forest resources, rely heavily on log exports and have poorly developed processing facilities, as in the Solomon Islands, Myanmar (50%), Equatorial Guinea (48%) and Laos (41%). The developed countries generally have more diversified economies and the forest sectors contribution tends to be lower. Forest-rich countries again head the list, but those at the top all have sophisticated forest industries which provide substantial exports of processed wood. Finland derived 32 percent of its trade from the forest sector in 1993, followed by Sweden (15%) and Canada (13%); these countries were also the three largest exporters of paper and paperboard in the world. The developed countries accounted for about four fifths of world trade in forest products in 1993; 80 percent of exports came from them and 79 percent of imports went to them, by value. They continue to dominate as Table 4.3 shows. The most important single country remains the USA, which was the leading importer
Table 4.3 Major importers and exporters of forest products in 1997 and 2001 Country Value of imports (million $) 1997 USA China Canada Japan Germany United Kingdom Finland Indonesia 24 12 3 16 10 9 134 656 976 684 916 993 716 976 2001 24 14 3 11 11 8 026 571 866 194 311 938 976 1 030 Value of exports (million $) 1997 16 3 25 1 9 2 10 5 334 746 648 640 828 124 414 115 2001 14065 3 698 24 317 1 593 10 538 2 022 10 093 4 994

Source: FAO. Forest Products Yearbook, 2001.

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and ranked second as an exporter of forest products, after Canada. A significant share of the world trade in forest products is therefore centred on North America and much of this is concerned with coniferous timber. Trade in forest products is regionalized within three important trading blocs North America, the Pacific Rim and Western Europe 23 . Much of the trade between European countries consists of manufactured products. Indonesia, Malaysia, New Zealand and Chile are major exporters, providing roundwood, sawnwood and panels to Japan, Korea, China and Singapore. Indonesia is a leading supplier of plywood and Malaysia is a large exporter of veneer sheets. Imports by China have more than doubled since 1993. More detailed analysis of the data for 2001 provides a breakdown of the production and export statistics into their components by quantity. The largest components of production consisted of outputs before processing took place, with its accompanying loss of bulk on conversion. Table 4.4 shows the proportion of production that was exported for each of the main products derived from wood. In its natural state, either as roundwood or roughly squared, timber is relatively low in value, bulky and costly to transport. Consequently, nearly all fuelwood is used locally and very little is exported. The proportion of industrial roundwood (including logs, pulpwood and woodchips) that enters international trade is also quite low. After processing, the value to weight ratio is higher and the percentage

Table 4.4 World production and exports of forest products in 2001, and proportions entering trade Product Quantity produced 2001 million units1 1 784 1 543 378 271 106 181 7 56 83 34 166 320 39 95 187 Quantity exported 2001 million units1 4 117 110 Proportions entering trade2 2001 % 0.2 7.6 29.1 1973 % 0.2 8.4 16.4

Wood Fuel Industrial roundwood Sawnwood + sleepers Coniferous Non-coniferous Wood-based panels Veneer sheets Plywood Particle board Fibreboard Wood pulp Paper + paperboard Newsprint Printing + writing paper Other paper + paperboard

60

33.1

15.2

38 95

22.9 29.7

16.2 18.6

Notes: 1 Unit = 1 cubic metre of fuelwood, roundwood, sawnwood or panels, or 1 metric ton of pulp or paper. 2 Exports as a percentage of production in 2001 and 1973. Sources: based on statistics from FAOs Forest Products Yearbook, 19831994 and Forest Products Yearbook, 2001.

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that is exported increases significantly. As with value added and employment, so also with international trade; activities at the beginning of the processing chain contribute relatively little compared with the amount of trade generated by subsequent subsectors. Most of the exports and imports of the forest sector are the result of its manufacturing activities and the proportion traded increases with the degree of processing. In general, except for industrial roundwood, production has expanded in all categories since 1973 and there have been significant changes in the proportions exported as Table 4.4 reveals. The proportion exported was higher in 2001 than in 1973 except for industrial roundwood. This was largely due to efforts by the developing countries to reduce their roundwood exports and encourage domestic processing. Production of non-coniferous sawlogs + veneer logs from developing countries increased by 72 percent while exports fell from 50 to less than 20 million cubic metres between 1973 and 1993. Within the wood-based panels group, instead of exporting their veneers, countries have tended to use them locally in the manufacture of plywood and other types of panel. World exports of wood products increased in value almost 41/2 times, from $22.4 billion in 1973 to $99.5 billion in 1993, and since then by more than a quarter. All groups of products showed export value increases between 1993 and 2001, except for wood fuel and industrial roundwood. As can be seen in Table 4.5, the smallest

Table 4.5 World exports of forest products in 1993 and 2001, and composition by value Product Value of exports 1993 million $, f.o.b. Value of exports 2001 million $, f.o.b. Composition by value1 1993 % Fuelwood + charcoal Industrial roundwood Sawnwood + sleepers Coniferous Non-coniferous Wood-based panels Veneer sheets Plywood Particle board Fibreboard Wood pulp Paper + paperboard Newsprint Printing + writing paper Other paper + paperboard TOTAL 224 878 292 102 190 149 537 009 237 365 996 728 163 822 743 492 85 958 721 422 299 352 572 474 929 378 081 707 332 582 793 904 02 99 21 4 15 2 62 13 2 15 80 22 14 11 1 44 0 82 16 9 18 8 100 2001 % 0.1 6.2 17.0 12.1 4.9 12.8 2.0 5.1 3.1 2.6 12.6 51.4 7.3 22.3 21.7 100

9 21 15 6 13 1 8 2 1 10 43 8 16 18 99

7 21 15 6 16 2 6 3 3 16 65 9 28 27 127

Notes: 1 Composition as a percentage of total value of exports. Sources: based on statistics from FAOs Forest Products Yearbook, 19831994 and Forest Products Yearbook, 2001

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gain was in sawnwood and the biggest increase was in paper and paper board products. Exports of products which involved less processing and used methods which were less capital intensive tended to increase at a slower rate than more sophisticated products further down the processing chain. The most significant factor in forest sector trade is the extent of processing activities that takes place. This is evident from the statistics of quantities exported, but is also born out by the data on the composition by value in Table 4.5. A negligible amount comes from fuelwood and the largest contribution is made by paper and paper board manufacturing, which accounted for 44 percent of the total value of exports in 1993 and 51 percent in 2001. Value tends to be concentrated in the later stages of processing. While trade expanded, changes in its composition have also occurred. The concentration of value in the more sophisticated products has been accentuated with the passage of time. Between 1973 and 1993, the proportion of total exports provided by industrial roundwood decreased from 17.8 to 9.9 percent; by 2001 it had fallen to 6.2 percent. The contribution from sawnwood fell from 25.3 to 21.4 percent and subsequently to 17 percent over the same time periods. Conversely, the contribution from the more highly processed products has increased. The stage of development of forest-based industries in particular countries has a more potent influence on their trade than their endowment with forest resources. Some countries have extensive forests but little in the way of industries and negligible exports, while others have used their forest resources to build up large-scale industries which contribute substantial export flows. For example, Guyana has 15.1 million ha of forest (76.7% of its land area) but exports forest products worth only a fraction of those provided by Finland, with a similar percentage of forest (73.9), which produced exports worth $10 billion in 2001. More than 70 percent of Finlands exports consisted of paper and paperboard. Forest resources, used as a basis for industrialisation, can generate substantial export benefits. Malaysia, with a comparable area of tropical forest (20.9 million ha) to Guyana, produced exports worth $4.3 billion in 1993, of which 31 percent consisted of panels and 41 percent was sawnwood. There are also some transit processors, notably Singapore and Hong Kong, which have no forest resources of their own, but have developed wood-based industries using imported raw materials. A large part of the output of these industries is then exported. Singapore imported forest products worth $779 million in 1993; domestic production was valued at $204 million and exports at $442 million. However, the considerable quantity of sawnwood and plywood manufactured there is declining as hardwood log supplies are restricted by exporting countries in the region, which seek to create value added and employment for themselves rather than allow these benefits to pass to foreigners. Indonesia, for example, imposed a log export ban on 1st January 1985 to protect its rapidly expanding plywood industry. These restrictions have also affected South Korea, Taiwan and Japan, forcing them to search for alternative supplies of logs.

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Protectionism and trade interventions of various different kinds are commonplace. They do not always achieve their purpose and usually tend to restrict the flow of trade. The general view of economists is that international trade has a beneficial effect on economic development. Free trade and expanding markets enable countries to specialize in the production of those goods in which they have a comparative advantage and, in theory, all countries would be better off if trade could be liberalized. However, even if this is the best policy for the world as a whole, it may not be in the interests of particular countries or individual producers of specific commodities. Supporters of restrictions argue that they can be used to improve the terms of trade for importers, increase employment by substituting domestic production for imports, encourage industrialization by protecting infant industries, generate revenue for governments and improve the balance of payments 24 . In practice, national interests often prevail over wider economic welfare considerations; trade barriers are a fact of life. Any government law, policy or practice which is intended to restrict trade is described as a trade barrier. Two categories are usually distinguished: tariff and non-tariff measures. Tariffs are relatively straightforward charges on imports, which have the effect of putting a tax on other countries exports, thus raising their prices compared with domestically produced goods. Non-tariff measures are diverse, and sometimes difficult to identify and measure; they include quotas, prohibitions and licencing of imports, and a variety of export controls, duties and taxes. The effect of these barriers is to reduce the volume and influence the pattern of trade. International efforts to reduce the barriers have focussed on the series of multilateral negotiations conducted under the auspices of the General Agreement on Tariffs and Trade (GATT). Significant reductions in tariffs resulted from the Tokyo Round of negotiations, which was completed in 1979, and the Uruguay Round, finalized in April 1994, led to further substantial lowering. International trade in forest products has benefited from these negotiations. The extent of the tariff reductions which were achieved differed according to the markets and the products. In a study of the effects of the Tokyo Round, tariff rates for wood and wood products in major developed country markets, were estimated to be zero for wood in the rough; to have declined from 2.4 percent (pre-Tokyo Round) to 1.7 percent (post-Tokyo Round) for primary wood products, and to have been reduced from 7.8 to 5.7 percent for secondary products (UNIDO, 1983). Rates in most developed countries had reached very low levels even before the Uruguay Round. Imports of forest products from all sources, valued at $40.6 billion, were subject to a pre-Uruguay Round average tariff rate of 3.5 percent, falling to 1.1 percent post-Uruguay Round 25 . Tariff rates in developing countries are generally higher, often substantially higher, compared with rates in developed countries. An important feature is known as tariff escalation, which is common in agricultural and forest products. This is the extent to which rates rise with the level of processing and value added; lowest on unprocessed products and rising with increased processing. Low or zero rates on wood in the rough, higher rates on

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Box 4.13 New barriers to forest products trade In recent years there has been a proliferation of additional policies and regulations that have the potential of becoming new barriers to the forest products trade. These barriers include: export restrictions by developing countries to encourage domestic processing of tropical timber for export; environmental and trade restrictions on production and exports in developed countries that affect international trade patterns; quantitative restrictions on imports of unsustainably produced timber products; the use of ecolabelling and green certification as import barriers. Although only the last two measures could be strictly defined as new, all of these trade measures have been increasingly employed in recent years and have the potential to affect forest product trade flows significantly.
Source: Barbier (1995), page 9.

sawn timber and panels, and even higher rates on secondary products such as furniture are found in the forest sector. Tariff escalation has an adverse effect on exports of processed products from developing countries and inhibits their efforts to promote further processing in the forest sector. The Uruguay Round has reduced significantly the degree of escalation faced by forest products in developed country markets; the reduction on panels was 30 percent, on semi-manufactures 50 percent and on manufactured articles 67 percent, while on pulp and paper products it was eliminated completely. Trade interventions by exporting countries include various taxes or levies on exports as well as log export bans and other quantitative and qualitative controls applied to specific products or species. In the past, export taxes on wood in the rough were used in many tropical countries as a way of raising revenue. Taxes and bans are now increasingly used for strategic purposes, such as the encouragement of forest-based industrialization and attempts by the larger exporters, particularly Malaysia and Indonesia, to capture a large share of the international market for tropical timber. At first, the tendency was to levy export taxes at descending rates: typically rates on logs ranged between 10 and 20 percent, rates on sawn timber were half those on logs, while rates on veneer and plywood were negligible. This export tax structure was designed to promote the development of forest industries and is still being used in some countries. However, export taxes have now been replaced by bans in many tropical countries 26 . It has also become clear that, even though export restrictions may have been successful in stimulating growth and employment, they have also led to overcapacity and inefficiency in forest industries. Environmental issues are beginning to have an effect on trade as noted in Box 4.13. Producer countries may impose restrictions on forest exploitation to

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preserve particular species of wildlife, ecosystems or areas of outstanding natural beauty. These restrictions have knock-on effects on the levels of harvesting and processing activities, and quantities, prices and trade in forest products. Trade may also be curtailed by the introduction of sustainable levels of harvesting where resources are at present being overcut and depleted. Global warming has become a major concern which encourages forest protection and stimulates afforestation. Bans by importing countries on tropical timber have been suggested with the aim of arresting tropical deforestation, even though they are very unlikely to be effective. Exporting industries in developed countries may be more tightly controlled to reduce water and air pollution, putting up their costs and prices, and possibly driving them out to other countries where standards are less demanding. The possibility of using trade barriers to try to alter the behaviour of countries that ignore standards of behaviour set by the global community on environmental matters, has now become an issue that can lead to international tension and disputes. SUMMARY A variety of activities take place in the forest sector; some are forest-based and concerned directly with the protection and management of forest resources, others are focussed on the transformation and movement of forest products after they leave the forest en route to consumers. The forestry activities are supply oriented, while the industrial activities are demand or consumer oriented. A comprehensive view of the sector is obtained by dividing it into six subsectors based on the different kinds of activity involved in wood production: forest management, harvesting, primary processing, secondary manufacturing, construction, and distribution & trade. Some types of product do not involve all subsectors and service outputs accrue directly to end-users. The subsectors form a sequence, following the direction of flow of raw materials and outputs, from subsector to subsector along the processing chain. Different technologies, time horizons and types of enterprise or agency are involved at each stage. Value is added to forest products as they move along the processing chain. The total value added by the forest sector is its contribution to the gross domestic product (GDP); it is made up of the sum of its final outputs less the value of inputs derived from other sectors. It is necessary to make adjustments for stock changes. Alternatively, value added represents the sum available for payment of wages and salaries, interest, profits, taxes and depreciation. Value added builds up along the processing chain; the later subsectors contribute much more than the earlier ones. Forest sector activities generate incomes and provide employment. Employment also expands along the processing chain. The sector contributes to capital formation by investment; artificial capital is man-made, in the form of buildings, machines, vehicles and equipment, while natural capital is derived from nature and owes its value to the uses to which

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it is put. Forest capital consists of the capital found in forests, including their ecosystems and the trees, plants, wildlife and other living organisms that live in the forest, which may be augmented artificially by forest management and tree planting activities. International trade results from forest sector activities. About three percent of world trade is attributable to forest products; the developed countries account for four fifths of this trade. Most of the exports and imports of wood products are the result of manufacturing. World exports increased almost 41/2 times in value between 1973 and 1993 and since then by more than a quarter, the more highly processed products showing the fastest increase. Trade in forest products has benefitted from tariff reductions resulting from negotiations conducted during the Tokyo and Uruguay Rounds. FURTHER READING Hairs classic study of The Economic Importance of Timber in the United States, published in 1963 by the U.S. Forest Service (Miscellaneous Publication 941), provided the first full analysis of sectoral activities based on timber, with their contribution to value added and employment along the processing chain. A later report showed comparative figures for 1963, 1967 and 1972 (USDA Forest Service General Technical Report WO-21, 1980). The treatment of natural resources in national accounts is dealt with by Repetto et al. Their contribution entitled Wasting Assets: Natural Resources in the National Income Accounts has been reproduced as Chap. 25 in Environmental Economics, edited by Markandya & Richardson, Earthscan, 1992. An important source of statistics is the UN Food & Agriculture Organization. Forestry Statistics Today for Tomorrow: 19451993 2010 which gives output data by countries. The Global Forest Resources Assessment 2005 provides upto figures or removales from the forest. Production and trade figures are produced annually in the Yearbooks of Forest Products. Westobys important contribution The Role of Forest Industries in the Attack on Underdevelopment, was published by FAO in 1962. It is available, and was given a fresh perspective, in the collection of his writings published by Blackwell in 1987, entitled The Purpose of Forests. International trade issues are examined by Barbier et al. in The Economics of the Tropical Timber Trade, Earthscan, 1994. SOURCES
1 Dwight Hair. The Economic Importance of Timber in the United States. Miscellaneous Publication 941. Forest Service, U.S. Department of Agriculture, Washington, D.C. (1963). 2 The methodology was set out in A System of National Accounts. United Nations, New York (1968), since when a number of revisions have taken place. 3 Heikki J. Kunnas. Forestry in National Accounts. Folia Forestalia 121, Institutum Forestale Fennia, Helsinki, 1971.

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4 R. Reppeto, W. Magrath, M. Wells, C. Beer and F. Rossini. Wasting Assets: Natural Resources in the National Income Accounts. World Resources Institute, Washington, D.C. (1989) Reproduced as Chap. 25 of Environmental Economics. Edited by Anil Markandya and Julie Richardson. Earthscan, London (1992). 5 FAO. A System of Economic Accounts for Food and Agriculture. FAO, Rome (1996), see Annex 2.7. 6 Hugh Bigsby. National Accounts and Forestry. New Zealand Forestry, May, 1995, pages 1518. 7 Hans Fredrik Hoen. Forestry and National Accounting. Scandinavian Forest Economics, 34, 1993, pages 134147. 8 USDA. Timber in the United States Economy 1963,1967 and 1972. Forest Service General Technical Report WO-21 (1980). 9 M. Gane. Priorities in Planning. Commonwealth Forestry Institute Paper No. 43, University of Oxford (1969). 10 FAO. Forestry Statistics Today for Tomorrow: 19451993 ..2010. Food & Agriculture Organization of the United Nations, Rome (1995). 11 Alexander Mather. Global Forest Resources. Bellhaven Press, London (1990). 12 Jack Westoby. Introduction to World Forestry. Blackwell, Oxford (1989). 13 Albert C. Worrel. Economics of American Forestry. Wiley, New York (1959), page 277. 14 John Valentine. Private Forest Development: Experiences from New Zealand. Commonwealth Forestry Review, 72 (2), 9294, 1993. 15 Jack Westoby. The Role of Forest Industries in the attack on Underdevelopment. First published by FAO in The State of Food and Agriculture 1962, Chapter III, 88128. Subsequently reproduced as Chapter 1 in The Purpose of Forests. Blackwell, Oxford (1987). 16 Anthony M. H. Clayton and Nicholas J.Radcliffe. Sustainability: A Systems Approach. Earthscan Publications, London (1996). 17 FAO. The Outlook for Pulp and Paper to 1995. Food & Agriculture Organization of the United Nations, Rome (1986). 18 FAO. Pulp and Paper Capacities 19952000. Food & Agriculture Organization of the United Nations: Rome (1996). 19 David N. Bengston and Hans M. Gregersen. Technical Change in the Forest-based Sector. Chapter 8 in Emerging Issues in Forest Policy. Ed. Nemetz, P.N. University of British Columbia Press, Vancouver (1992). 20 Jan G. Laarman and Roger A. Sedjo. Global Forests: Issues for Six Billion People. McGraw Hill (1992). 21 W.W. Rostow. The Stages of Economic Growth. 2nd. edition. Cambridge University Press, London (1971). 22 David Pearce, Anil Markandya and Edward B. Barbier. Blueprint for a Green Economy. Earthscan Publications, London (1989). 23 Edward B. Barbier Impact of the Uruguay Round on International Trade in Forest Products. Food & Agriculture Organization of the United Nations (1996). 24 I.J. Bourke. Trade in Forest Products: a Study of the Barriers faced by the Developing Countries. FAO Forestry Paper 83. Food & Agriculture Organization of the United Nations, Rome (1988). 25 E.B. Barbier. Trade in Timber-based Forest Products and the Implications of the Uruguay Round. Unasylva 183, vol. 46, 1995, pages 310. 26 Edward B. Barbier, Joanne C. Burgess, Joshua Bishop and Bruce Aylward. The Economics of the Tropical Timber Trade. Earthscan, London (1994).

CHAPTER 5 OUTPUTS

In this chapter we turn from the activities of the forest sector to its outputs. The activities provide the means by which the populations needs and aspirations may be satisfied. Activities are influenced from one side by the sectors resource endowment and from the other side by the nature of the outputs of goods and services which the community desires. The availability of resources restricts the range and scale of the activities and hence the output possibilities; societys requirements prescribe the outputs and hence the nature of the activities undertaken to provide them. The outputs that are actually generated, represent a compromise between societys wishes and its capacity to make those wishes come true. The output possibilities of the sector are exceedingly diverse. Some are tangible and some intangible. They include an almost limitless variety of wood and nonwood commodities as well as social and even psychological benefits attributed to the continued existence of forests. Forest resources serve many purposes and have numerous functions which are valued by different groups of people in very different ways at different times. Therefore the first aim of this chapter is to describe the range of outputs derived from forests and classify them according to their characteristics and ways that they are used. Some outputs can be traded and have market prices, while others provide services which are very difficult to value, even though in some cases they are indispensible for our survival. Demand for the former provides an economic justification for their production. On their account much of the activity taking place in the sector can be described as market driven. Present consumer preferences and prices, coupled with expectations about what will happen to them in future years, largely control sectoral events. But non-market forces also affect the sector and recognition of their importance has increased significantly during recent years; social objectives, derived from peoples basic needs and increased environmental awareness, now play an important part in determining its activities and development. The outputs in both categories are influenced by the people that use and benefit from them. Their wishes, backed by the spending power of individuals, groups and governments, determine the range and diversity of outputs that are produced in particular places at particular times. The amount of each output depends, in part, on the relative strength of the desire for that output and the actual mixture of 99

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outputs that results in various countries is due to the way that output preferences are combined and expressed. The influence exerted by consumers and society on output is what was called consumer pull in Chap. 2. Influences on output from the demand side interact with constraints derived from the supply side. Without resources there can be no outputs and the rich variety of forest resources makes possible a wide assortment of outputs. The output flow is affected by the character of the forest, the nature of the workforce and the supply of capital that is available. The availability of these factors of production limits the range and quantity of possible outputs. From a more positive standpoint, abundant or underutilized resources can also serve as a stimulus to development. Forest areas under improved management may be made more productive to provide increased quantities of raw material for processing, or wildlife benefits may be enhanced for tourists by the provision of better facilities for visitors so-called resources push. Sector output is affected by supply constraints and pressures as well as the pulling power of societys demands. Both sets of influences depend on signals which are given by output prices and values. Prices provide market signals; they indicate consumers willingness to pay for outputs and, where prices exceed the costs of production, the prospect of profits is likely to encourage producers to maintain or increase the output flow. In other parts of the forest sector, where social objectives predominate and market prices are either lacking or give inadequate signals, the benefits obtained by the community must be valued in other ways. It is necessary to understand and bear in mind the limitations of the free market system as a way of controlling the flow of outputs; the system is not always a reliable guide as to what outputs should be produced or how much of each. Sector development should not be left entirely to market forces. They need to be tempered by interventions based on a wider range of indicators of social preferences than prices alone can provide. The interaction between these two sets of influences from resources on one side and consumers on the other can lead to either growth and development of the sector or its impoverishment and destruction. If the sectors resource base is not safeguarded, the demands for outputs from it cannot be sustained. Attempts to exploit forest resources at a rate which is greater than their ability to regenerate and replace what is removed are doomed in the long run, although they may survive such impoverishment for a time. Alternatively, if future needs are intelligently anticipated, the productive capacity of the forests and industries depending on them can be increased to meet higher levels of demand and different combinations of output preferences. The forest sector is capable of continuously supplying an appropriate mix of outputs if managed correctly. Sustainable management depends on finding the right balance between demand and supply and reconciling the influences coming from both sides. This chapter is arranged in four sections. The range and diversity of outputs is described in the first section and their role in relation to subsector activities, technological progress and development is discussed. The influences which determine output flows are examined in subsequent sections. In the second section the charac-

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teristics of consumer demand and societys preferences are considered, including the effect of prices and values on levels of output; local needs, national uses and overseas trade contribute to total market requirements and the way that international concerns affect resource management is explained. In the third section, supply features are covered, including the time lags which are inevitable when dealing with forest resources and the global significance of some environmental outputs. The fourth section deals with the continuity of output flows, examines the sustainability concept and reviews the way it has evolved; recent initiatives to develop criteria and indicators for sustainable forest management are considered. It is concluded that sustainable development now requires a sectoral approach, based on endeavouring to match supply and demand over time, for outputs of all kinds. 5.1 RANGE AND DIVERSITY

The forest sector provides an extraordinary array of outputs. They range from large physical objects such as tree trunks to perceptions in the human mind. Those that are tangible can be measured, weighed or counted; they include wood in many different forms and non-wood products of all sorts. Others are intangible and have no material existence. Nevertheless, all outputs are associated with value. Just as forests, people and capital are converted into resources on account of their usefulness, outputs become outputs because of their value. People value things, and if those things are bought and sold, their value is reflected in the prices which are paid for them. Individuals or the community as a whole may also be prepared to pay for services, such as the provision of access to fine scenery, or for their abstract beliefs, as in the importance of preserving biodiversity for future generations. Some outputs, particularly the intangible ones, have no market prices and are very difficult to value in terms of money. Nevertheless this does not imply that they are worthless. The value of forest sector outputs depends on peoples willingness to pay for the goods and services that forests provide. Output values depend ultimately on the strength of the demand at the final interface with end users. At earlier points along the chain of processing activities, values are based on derived demand. Thus the requirements of consumers for sawn timber induce a corresponding requirement for logs from sawmills, which in turn leads to harvesting activities to provide the logs. The value of mature standing trees before they are felled is derived from the value of the logs which can be obtained from them and, at the next stage, from the value of the sawn timber when the logs are converted. All subsectors produce outputs. Some of the outputs provide inputs for processing by subsequent subsectors, while others pass directly to end users. The outputs of the forest management subsector include those intangible benefits, such as carbon sequestration, which accrue to the whole population as well as the flow of raw materials for subsequent harvesting and processing. Some roundwood outputs from logging activities are used as fuel, posts, poles and pitprops, while others provide inputs to the primary processing subsector. Harvesting subsector outputs include a varied assortment of fruits, foliage, resins, bark and wild animals, which are

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gathered or hunted in the forests; most of these are consumed directly, although some require subsequent further treatment or manufacture, e.g. into medicines, turpentine and cork. The complex pattern of output flows stems from the variety of forest resources and the many ways in which they influence the livelihoods, life styles and well-being of the community. Subsequent processing also affects output diversity by adding to the possible ways in which forest products can be used. As Fig. 5.1 shows, wood removed from the forest may be roughly fashioned or converted to suit the needs of a whole range of industries. Residues derived from wood processing are also utilized in various ways and fibres from other sources outside the forest sector are mixed with wood pulp for paper and paperboard production. Manufacturing technology contributes to the diversity of products and the development of new technology has added to their variety. Medium density fibreboard (MDF) for example was omitted from the flow chart reproduced here as Fig. 5.1; this product was unknown when this diagram was first published in 1962 1 . Technological progress has thus expanded forest sector potential and in many countries has opened up new development possibilities. Wood is the basis for a very large and varied group of outputs. By quantity and value, wood in all its various forms far outstrips all other types of forest products. It is a basic commodity with many uses which is essential to peoples existence in all countries, developed and underdeveloped. In very poor communities, human dependence on wood for fuel and shelter is almost complete because there are no available or affordable alternatives; in wealthier and more sophisticated societies, processed and manufactured wood products are indispensable components of a modern life style. World production of these outputs reached a total value of $391 billion in 1993, of which about 63 percent was attributed to the developed countries 2 . It continues to increase, year by year. The economic role of wood products is so important that most countries now prepare statistics of their production and trade. These are collected, compiled and published annually by FAO in Forest Product Yearbooks. Definitions of the various product categories used in their preparation have been standardised; they follow those published in Classification and Definitions of Forest Products 3 . The definitions are important because some categories are aggregate commodities, made up of groups of products, the components of which need to be distinguished: e.g. wood pulp includes four types (mechanical, semi-chemical, chemical and dissolving pulp) which are produced by different methods and have different properties. The production statistics are aggregated according to the standard classification which is reproduced in Table 5.1. The tables of imports and exports follow a similar sequence, corresponding with the code numbers of the United Nations Standard International Trade Classification. The Yearbooks show how forest sector output has expanded with the passage of time. Table 5.2 provides comparative production figures for 1969 and 1994, with the changes that have taken place over this 25 year period, for the main groups of wood products. Generally, output in the developing countries grew more

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Veneer logs

Production of veneers, plywood and blockboard

Construction, including maintenance and repair Fumiture Contalners Joinery Other wood manufactures Transport equipment Other uses

Logs for sleepers

Production of sleepers (sawn, hewn) Mill residues

Railways, other uses Sawdust, shavings, hog fuel, other Fuel, other Construction, including maintenance and repair Fumiture Contalners Joinery Other wood manufacturers Shipbuilding Other transport equipment Mining Other uses

Sawlogs

Production of sawn wood

Production of particle board

Pulpwood

Production of wood pulp: Mechanical Dissolving Other Chemical Semi-Chemical

Utilization of wasle paper

Production of fibreboard (compressed and non-compressed)

Construction, including maintenance and repair: Fumiture Contalners Matches Joinery Other wood manufactures Shipbuilding Other transport equipment Other uses

Production of paperboard From the forests Other fibres: Bamboo Esparto Bagasse Cotton Flax Straw Etc.

Construction, buildings Packaging Containers and materials Printing Other uses

Fellings

Removals

Production of other fibre pulp

Production of paper Newsprint Other printing and writing Other

Logging and transportation losses and forest residues

Construction, buildings Packaging Containers and materials Newsprint uses Other Printing and writing Other uses

Dissolving pulp for textiles, etc.

From trees outside the forest

Pitprops

Coal mines Other mining

Poles

Communications Construction Other uses Transformation of mill residues into wood-wool wood-flour

Other industrial wood: Posts Piling Dislillation wood Match blocks Etc.

Consumption of mill residues for fuel

Construction Transportation and communication Matches Distillation and other chemicals Agriculture other uses Production of charcoal

Fuelwood (including wood lor charcoal)

Agriculture Power production Household Other uses

Figure 5.1 Wood products flow chart

Table 5.1 Definition of commodity aggregates for production statistics

Source: Forest Products Yearbook (FAO, 2001). Symbols: C = coniferous, NC = non-coniferous, WIR = wood in the rough, CUM = cubic metres, MT = metric tons.

Table 5.2 Output of wood products and changes over 25 years, 19691994 Product Developed countries 1969 million units Roundwood Fuelwood + charcoal Industrial roundwood Sawlogs + veneer logs Pulpwood + particles Other industrial roundwood Sawnwood + sleepers Wood-based panels Veneer sheets Plywood Particle board Fibreboard Wood pulp Mechanical Semi-chemical Chemical Dissolving Paper + paperboard Newsprint Printing + writing paper Other 1,226.3 188.3 1,037.9 608.6 278.8 150.5 361.5 60.3 2.4 27.5 16.7 13.6 95.2 22.2 7.0 61.0 4.9 114.7 19.9 23.8 71.0 1994 million units 1,318.2 191.3 1,126.9 643.9 427.1 55.9 303.0 92.3 2.6 28.8 45.5 15.4 139.3 32.5 6.4 97.6 2.9 212.8 30.5 66.6 115.6 Change % Developing countries 1969 million units 1,335.1 1,141.3 193.8 126.9 12.1 54.8 50.5 5.3 0.6 3.4 0.6 0.7 3.1 1.0 0.1 2.0 0 9.3 1.0 2.4 5.8 1994 million units 2,121.7 1,799.7 422.0 251.2 68.7 102.1 110.3 49.4 18.5 20.1 6.5 4.3 16.1 1.9 0.5 13.0 0.7 56.6 3.3 15.4 37.9 Change %

7.5 1.6 8.6 5.8 53.2 -62.9 -16.2 53.1 8.3 4.7 172.5 13.2 46.3 46.4 -8.6 60.0 -40.1 85.5 53.3 179.8 62.8

58.9 48.9 117.8 98.0 467.8 86.3 118.4 832.1 2,983.3 491.2 983.3 514.3 419.4 90.0 400.0 550.0 508.6 230.0 541.7 553.4

Note: 1 unit = 1cubic metre of roundwood, sawnwood and panels or 1 metric ton of wood pulp, paper and paperboard. Source: FAO (1982). 1980 Yearbook of Forest Products and FAO (1996). 1994 Forest Products Yearbook.

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rapidly than amongst the developed nations. This table also reveals significant differences between products; the increase in output has been greater amongst the technologically advanced products, such as particle board, than for long-established products, such as sawn timber. These trends have not changed in the last decade as Table 4.4 shows, although FAO statistics no longer distinguish between developed and developing countries. Roundwood is produced by the harvesting subsector. The quantity of roundwood output far exceeds that from primary processing activities. Industrial roundwood is taken in for processing, during which its bulk is reduced by wastage; residues such as offcuts, plywood cores and wood chips emerge as bye-products during processing operations in addition to the main outputs of sawnwood, panels, pulp and paper. Fuelwood and charcoal are mostly used for domestic purposes. They account for only 15 percent of the roundwood produced in developed countries, compared with about 80 percent in developing countries where very large numbers of people rely on wood for cooking and heating. The total output of roundwood rose by one third over the quarter century, but the increase in the developed countries was only 7.5 percent whereas it reached nearly 60 percent in the developing countries. The output of most types of processed wood increased at a faster rate than roundwood, although there were big variations between commodities. Sawnwood and sleeper production scarcely changed globally, but declined by 16 percent in the developed countries, while it more than doubled in the developing countries during the period. The world outputs of other product groups increased faster: wood pulp rose by nearly 60 percent, while wood-based panels and paper + paperboard more than doubled. Within these groups, particle board and printing + writing paper were the commodities which expanded most rapidly. Some of these variations were influenced by changes in processing technology as in the case of the differences between the types of wood pulp. Very large percentage increases in the output of all panel, pulp and paper products took place in the developing countries, pointing to the success of their efforts to build up forest-based industries. Table 5.2 conceals large regional and national variations in output growth. As a group, the Asian countries expanded most rapidly and development of their wood-based industries has been unchecked throughout the period 19691994; their production of panels rose by a factor of 4.8 and paper + paperboard by a factor of 4.3. During this time, output in the African countries increased at a much slower average rate and actually declined after 1985. Within both regions, large producers followed the regional trends; between 1983 and 1994, Indonesian output of panel products increased more than threefold (mostly due to plywood) and paper + paperboard eightfold, while Nigerian sawnwood production remained more or less constant and panels decreased by about 100,000 cubic metres. Changes in Europe and North America were more moderate. Increases of about 20 percent in panels and about 50 percent in paper + paperboard production took place in the European countries over the period 19831994, while in North and Central America, dominated by Canada and the USA, the corresponding figures were approximately 15 and 37 percent. Industrial development in the forest sector, judged by the growth

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of output, continues to make progress in most countries, although the pace of expansion has tended to slow down in those countries where economic development has gone furthest. A broader historical perspective is provided by Mather 4 who identifies three major stages of development of forest resources in terms of their use: the pre-industrial forest, characterised by common property ownership and by the production of a wide range of products, of which wood for construction and fuel is only one. the industrial forest, which is usually subject to use by private individuals or companies, although it may remain in public ownership. The product range is narrow and simple, with priority usually given to timber. the post-industrial forest, in which services such as conservation and recreation are provided alongside (or even to the exclusion) of timber production. Although the sequence of stages is not rigid some forests classified for management purposes as protection forests skip the industrial stage and progress has been very uneven, these categories roughly correspond with the situation found in many developing countries, which are still in the pre-industrial stage, and the emergence in Western Europe, North America and Japan of the post-industrial stage. However, the stages tend to overlay rather than replace one another as the range of possible outputs widens and the relative importance of service uses increases. In the pre-industrial stage, forest resources were largely used to meet the subsistence needs of the local population as shown in Box 5.1. Gradually, new opportunities for production and trade opened up, stimulated by population growth, better communications and technological progress; forest-based activities became increasingly commercialised. The traditional uses of forest resources were supplanted by the need for industrial timber of all kinds and its production became the primary objective of management. The industrial stage has been dominated by rapid expansion of wood processing and manufacturing in all its forms, aided by the invention of new ways of transforming wood as a raw material into more sophisticated products for consumers. This has provided the main driving force behind forest sector development during the twentieth century, although the rate of industrialisation has not been the same in all countries and some developing nations, such as Guyana, have lagged far behind. From a development perspective, the predominant view of forests in the industrial era has been as the source of wood, forgetting the multiplicity of other products for which they were formerly valued. These became known as minor forest products to distinguish them from wood, which was the principal forest product, as described in Schlichs Manual of Forestry published at the beginning of this century 5 . Non-wood forest products continued to be used, mostly locally, but tended to be overlooked and frequently went unrecorded. For example, the Forest Products Yearbooks issued annually by FAO are misnamed and only cover timber production. This attitude, which has been labelled timber primacy, is now being questioned as some countries enter the post-industrial stage. It has often led to a short-sighted use of wood resources, to the detriment and even destruction of the rest of the forest ecosystem, and has had adverse effects on forest dwellers in devel-

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Box 5.1 Uses of the forest resource Traditional use and minor products Fodder, grazing, shifting cultivation Food fruit, nuts, honey, game Medicines Fibres Latex gums, resins Building materials Wood for utensils and furnishings Fuelwood Sawlogs Pulpwood Veneer logs Fuelwood and charcoal Minor industrial products, e.g. cork,turpentine Soil conservation Water conservation Nature conservation Amenity Recreation

Industrial use

Non-consumptive uses

Source: Mather (1990), page 124.

oping countries, who frequently depend on forest resources for subsistence 6 . Too often, the local populations share of the benefits of timber exploitation has been minimal, logging practices have been very destructive and the rate of felling clearly unsustainable. At the same time there has been a reappraisal of the significance of non-wood forest products (see Box 5.2). Their variety and value, if properly assessed, sometimes exceeds that of timber and they too may generate value added, employment and trade from processing, manufacturing and distribution activities. The role of non-wood forest products derived from natural forests is twofold: for local consumption and as a basis for extractivism. Local consumption is often very important ethnically and socially. Some of the concern about tropical deforestation is based on the injustice, hardship and deprivation suffered by tribes who inhabit remote forest areas; they depend on the forest for all their needs and without it, their customary way of life as hunter-gatherers or shifting cultivators becomes impossible; they must either adapt or perish. In a less extreme form of forest dependency, rural populations in developing countries collect fruit, foliage, fibres, flowers and fungi for local use, and hunt wild animals to supplement their diets. Similar traditional habits persist in developed countries where many nonwood forest products are consumed as delicacies (e.g. truffles) or collected as part of a recreational experience. Local consumption is not generally market-based and

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Box 5.2 The importance of non-wood forest products .the belief that forests are of value only for wood production in a macroeconomic context has gradually been modified in the face of overwhelming evidence to the contrary, combined with a growing concern over providing sustainable benefits at both national and local levels. It is now apparent that forests provide a whole range of other products and benefits, most of which have long been known and utilized by local people, and many of which are still essential to their survival. The challenge is to better quantify and assess the value of these products; and then to transform the use of as many of them as are commercially, socially and ecologically viable from one of subsistence to one of development; i.e. to bring them into the mainstream of forest-products subsector planning and policy-making, alongside the already well established timber products of national and international commerce, while at the same time ensuring benefits to local people. These efforts must be an integral part of a comprehensive, realistic approach to realizing the full potential of forestry for sustainable development.
Source: FAO (1991).

many of these outputs are unpriced. It is small-scale and consequently does not have a large measurable economic impact. Extractivism, on the other hand, depends on commercial forces and provides incomes and employment for local people. It has been defined as the harvesting or extraction of naturally occurring non-timber forest products 7 . In practice, traditional local uses of forest resources can turn into extractivism if wider markets for non-wood forest products emerge and their harvesting becomes organised. This has occurred in the past. Wild rubber from Amazonia, which was stimulated by the invention of vulcanization in the nineteenth century, is an outstanding example, but there are many others from other parts of the world. Saulei & Aruga 8 refer to the Minor Forest Product Industry in Papua New Guinea, which started in the early 1900s during the colonial era and involved such products as gum copal, vatica gum, sandalwood, tannins, massoy bark, rattan and sales of butterflies and orchids. Extractivism can be the basis of significant commercial and economic activity. Repetto 9 records that the exports from Indonesia of forest products other than timber, including rattan, resin, honey, natural silk, sandalwood, nuts and fruits, cosmetic and pharmaceutical products, reached US$ 120 million in 1982; there was also substantial domestic consumption. The value of these exports was nearly half as large as the total government revenue from timber exports. These products did not leave the country in the same state that they left the forest; preparation, grading, processing and packaging for sale followed harvesting, before they were fit for export markets. Downstream activities undoubtedly added value to the products and generated employment, although there is no information about the amounts

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or the numbers. In the same way that logging is the starting point for a chain of subsector activities based on timber, the collection of non-wood forest products also leads to manufacturing and distribution chains which connect the forest to end users. How long the chains are, how much value is added and how many people are employed, depends on the nature of the product and the requirements of the market. Each product is different and impact assessments are lacking. However, the economic effects expand along the chain, as with timber, and are likely to be comparable. Like wood, the non-wood outputs from forest resources are also capable of generating industrial activities, investment and economic expansion, and offer additional routes for forest sector development to follow. A particular feature of non-wood forest products is their great number and versatility. To take just one class of products as an example, according to Lintu 10 about 3,000 essential oils are known of which about 300 are commercially important. He points out that non-wood products represent one of the most challenging product groups from a marketing point of view because of their diverse characteristics, variety of end uses and different types of producers, including individual gatherers, local cooperatives and large-scale, industrial plantations. Their markets range from simple, village level consumers to the most sophisticated industrial niche markets in both developed and developing countries. It is clear that these products have considerable potential from a development point of view, but realization of that potential depends very much on the skill with which they are marketed. Products and their end uses need to be defined and classified to provide satisfactory information for marketing and FAO has taken the first step by presenting a tentative classification system 11 . They have also been included in the 2005 Global Forest Resources Assessment. Non-wood forest product development depends on exploiting opportunities for market expansion on the demand side and stimulating the flow of output on the supply side. In natural forest, either the populations of desired species may be enlarged by good management or net yields may be increased by better harvesting methods; alternatively, the domestication of suitable species and their intensive cultivation may lead to higher levels of productivity, as with tree crops such as cocoa and rubber. Research and field trials are necessary to select appropriate varieties, devise ways of raising yields and work out cultivation techniques. Further investment is then needed for plantation establishment, or other large scale application of the new methods, and subsequent processing, handling and distribution of the outputs. No doubt, the potential exists for forest sector development based on an enhanced range of non-wood products, but progress will be slow unless it is facilitated by the provision of information about production methods and appropriate incentives for investment at all stages along the subsector chain. Industrial expansion, based originally on timber with the addition latterly of nonwood products, still provides most of the impetus behind forest sector development. Nevertheless, a new perspective has evolved, which become a major influence during the second half of the twentieth century. This is characterised by greater attention to the service functions of forests and less emphasis on the goods they

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supply. The arrival of the post-industrial stage is marked by recognition of the need for broader environmental objectives, based on the sustainable use of forest resources. Forest management aimed solely at providing a sustained yield of timber is ceasing to be sufficient. It is being replaced by multi-purpose management and sector activities are now expected to deliver a much wider range of goods and services than formerly. The output of goods is made up of timber and non-wood products. The services include the various protective functions fulfilled by forests, such as their role in soil and water conservation, which have been known for a long time, and other, more recently identified benefits, such as climate amelioration and the preservation of biodiversity. It has now become evident that the use of forest resources is not sustainable unless they are safeguarded and managed to provide both goods and services; there should be continuity of product flows without destroying the capacity of the resources to continue to provide services for future generations. Sustainability has moved on from a concern with continuity of timber supply to ensuring a continuous stream of tangible and intangible outputs of all kinds. These services are sometimes described as non-productive or non-consumptive in the sense that physical products such as wood are not involved. However, these terms are misleading because forests may be managed to produce services, such as recreation, which are enjoyed by consumers. In some forests, the output of services generates more income and is worth more than the receipts earned from the sale of goods; services are certainly productive in terms of value and attract a share of the expenditure of consumers. There is no difference in principle between goods and services from a management point of view. Traditionally, two categories of forest have been recognised for management purposes productive and protective. Particular areas of forest were allocated in practice to one or other category. The principle objective of management in production forests was to produce timber, while protection forests were set aside primarily to safeguard watersheds, prevent erosion and protect soils. The services provided for environmental protection were therefore regarded as valid forest sector outputs, comparable to timber production, even if the cost of maintaining protection forests usually fell on the government. Similarly, the protection of areas of outstanding scenic and wildlife value has generally been regarded as a responsibility of the state. The national parks movement, for example, began in 1864 in the USA with the creation of the Yosemite National Park, which included a magnificent grove of the Sierra redwoods amongst its remarkable landscape features 12 . The output of services by the forest sector is not limited to recreation and environmental protection. There are also important cultural outputs. Laarman & Sedjo 13 have attempted to classify the role of forests in relation to five domains of human welfare, as shown in Box 5.3. Outputs which are physically consumed or used up, i.e. goods, form one group; the others can be regarded as services, although in some cases they have physical attributes, as with historic sites. The list demonstrates the variety of possible uses and the breadth of service functions, even though some items are questionable and others only relevant in very specific

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circumstances. Thus, forests frequently offer opportunities for research, although the provision of research outputs is unlikely to be a forest management objective except over limited areas in a few special cases. Similarly, the deliberate retention of areas of forest, set aside to provide a stock of land for future agricultural use, can scarcely be regarded as a legitimate forest sector output, although it may be a reasonable land use decision in some circumstances. Land use decisions affect the mixture of outputs and the balance between goods and services. Pearce 14 identifies various options for tropical forests which affect sustainability. They can be left alone the preservation option. Maintaining the forest stock in broadly its original state but allowing human use of it, he describes as conservation; there is a broad spectrum of conservation options, including selective logging followed by natural regeneration, the harvesting of non-wood products such as rattan or latex, and possibly even a small amount of shifting cultivation provided it is on a scale that allows adequate time for re-establishment of the forest vegetation. However, any use which produces irreversible effects would not be classed as conservation. Options which are often called development include clearance for permanent agriculture, clear felling of timber without regeneration and removal of the forest for roads, mining or industrial purposes. By these standards, conservation allows the forest to be used in ways which enable the continuous harvesting of goods to take place, while at the same time protecting its capacity to provide services; development on the other hand is viewed as destructive of the forest and precludes the possibility of growth and change on a sustainable basis taking place within it, i.e. it rules out development in the true sense. At the beginning of this section it was pointed out that forest sector activities lead to outputs and that the distinguishing characteristic of all outputs is that they have value, even if this is sometimes difficult to measure. Attempts to value services have led to important new insights into the nature of the benefits derived from forest resources. Environmental economists have gone some way towards a taxonomy of economic value 15 . They distinguish user values which are derived from actual use of the resources, from intrinsic values which are based on their existence regardless of whether they are used or not. Use means all forms of activity from which benefits are derived and includes pursuits, such as viewing scenery and studying wildlife, in which nothing is physically removed or used up. It also refers to opportunities to use resources in future years. By implication, all benefits derived from forests on which value is conferred, whether based on use or existence, should be regarded as outputs of the sector. In order to compare conservation and development choices in a fair way, using cost-benefit analysis, it is necessary to capture the total economic value generated by all forms of output. This consists of use values and non-use values as shown below in Table 5.3; total economic value is the sum of the direct + indirect + option + existence values. The direct and indirect use values are fairly straightforward in concept although they are not necessarily easy to assess in practice. They include the whole range of goods and services previously described. Option values relate to the amount that

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Box 5.3 The role of forests in five domains of human welfare Protective services and influences Climate regulation Regulation of atmospheric composition Stabilization of slopes, streambanks, water catchments and sand dunes Shelterbelts, soil moisture retention Streamflow regulation, flood reduction Land reclamation Buffer against spread of pests and diseases Nutrient storage, distribution and cycling Wildlife habitat Conservation of biological diversity Educational and scientific services Research on ecosystems and organisms Zones to monitor ecological changes Specimens for museums, zoos, botanical gardens Wild stocks for foods, chemicals, biological control agents Environmental education Psychophysiological influences Recreation, tourism, sports Sense of stewardship, peace, harmony with nature Inspiration for art, literature, music, myth, religion and philosophy Historic sites and values Consumption of plants, animals and derivatives Timber: logs, pulpwood, posts, poles Fuelwood: firewood and charcoal Food products: fish, game, fruits, nuts, berries, seeds, mushrooms, spices, eggs, larvae, honey, syrups, teas, other beverages Herbs, flowers, medicinal plants, pharmaceuticals Gums, resins, lacs, oils, tannin, waxes, distillates Livestock fodder (grass, leaves) Thatch, ropes and string, weaving materials, silk Non-wood structural materials (e.g. bamboo, rattan) Skins, feathers, teeth, bones, horns House plants and pets Source of land and living space New lands for cropping and grazing Habitat of indigenous (aboriginal) peoples
Source: Laarman & Sedjo (1992), page 3.

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Table 5.3 Total economic value in relation to the use of tropical forests Use value Direct value Sustainable timber Non-wood products Recreation Medicine Plant genetics Education Human habitat Indirect value Nutrient cycling Watershed protection Air pollution reduction Micro-climate Option value Future uses (as in the direct and indirect value columns)

Chapter 5

Non-use value Existence value Forests as objects of intrinsic value, as bequest, as a gift to others, as a responsibility (stewardship). Includes cultural and heritage values.

Source: Pearce (1991).

individuals would be willing to pay to conserve the forest for future use; even if no use is made of it now, the opportunity to use it later on is worth paying for. An option value is rather like an insurance premium which secures future outputs against the possibility that they will cease to be available because of deforestation. Genetic diversity is an example: within limits, paying to preserve diversity is worthwhile in case species or subspecies which might yield new crop varieties or medicines are wiped out. Existence value is based on peoples willingness to pay for environmental assets even though they have no expectation or intention of using them. This is revealed by the widespread support for wildlife and other environmental charities. Debt-for-nature swaps, by which conservation organisations in rich countries buy up some of the foreign debts of developing countries in return for agreements to preserve particular areas of forest, are an example 16 . The motivation of those who contribute may be partly vicarious, in that they enjoy watching wildlife at secondhand through the lense of someone elses camera, but existence value probably owes more to a sense of disquiet about the state of the planet and peoples desire to contribute to global protection in the only way open to them. Needless to say, it is very difficult to separate existence values from option values in practice and even more difficult to estimate their magnitude. It is clear from this review that the forest sector is characterised by a very wide range and diversity of outputs. The range covers traded goods, various services and also invisible benefits derived from option and existence values. The latter are functional additions to the value created by forest resources, rather than true outputs, but they can be regarded as outputs from a management point of view because they contribute to the value generated by forest resources; decisions concerning future resource development should be based on their total value, not on incomplete assessments of their consequences. It should also be noted that recognition of these wider categories of value inevitably leads to multiple-use management. Products like plywood or wild rubber are distinct entities which exist separately although they come from the forest. It is possible to focus management attention on them individually and to seek

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to maximise their production regardless of any side-effects this may have on ecosystems or watersheds. In the past, as has been noted, timber production was paramount. Indirect benefits, such as nutrient cycling and climate amelioration, cannot be isolated in this way; they are inseparable from the forest resources which provide them and managers must consider output combinations instead of single outputs. Some are linked, such as timber production and carbon sequestration young stands absorb carbon dioxide from the atmosphere, much of which is later released as the wood is harvested and utilized. Others are incompatible with each other, as with alternative species occupying the same site or the choice between plantation crops and natural ecosystems. The way that outputs can be combined and the value generated by possible combinations become unavoidable management issues. Similarly, option and existence values are additions to the value of direct and indirect uses; they cannot stand alone and must be considered in combination with other outputs. The range and diversity of outputs available in particular countries, regions or forest areas is, of course, restricted each is a subset drawn from the entire range of possible outputs. Each is composed of a mixture of outputs which depends on local circumstances, including the forest industries present, opportunities for trade, climatic conditions, terrain, the type of forest and the ecosystems present.These features set limits to the range of output possibilities. Within their limitations, the way the forest sector is managed puts further restrictions on the output mix. Some outputs may be favoured and others suppressed; some are produced jointly and others are incompatible with each other; more of one may mean less of others and choices made in the present may endanger future outputs. Sector management must deal with preferred combination of outputs rather than outputs taken separately and must accomodate shifts in consumers tastes and evolution of the communitys expectations. 5.2 DEMAND

Demand pull represents the influence exerted by individual consumers and the community as a whole on output flows and the composition of the output mix. The basis of demand is the value of the outputs, as perceived by individuals and the community, backed by their purchasing power. Total demand for forest sector goods and services is restricted by societys ability to pay for them and peoples willingness to forego outputs of other kinds in order to acquire them. The strength of the pull is counterbalanced by supply limitations due to the nature of the forest, the availability of human and capital resources, and the possibilities of trade. In the previous section, value was identified as an attribute of all outputs, tangible or intangible, whether considered singly or in combination. The value of an output was taken as an expression of its worth to individuals and the community. More was intended than its money worth, although this is its customary meaning in economics. Value is often expressed or measured in monetary terms, but the underlying concept has a deeper meaning which is closer to the idea of utility (see Box 5.4). By utility

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Box 5.4 The concept of value The value of a thing derives basically from some need or desire which it has the capacity to satisfy. The greater this capacity, the greater its value will usually be. Value as a property of a thing can only be measured in terms of some desideratum, that is, some characteristic which people want in the thing. Using this desideratum as their criterion, people can rank things in an order of relative values. Those that have a high capacity for providing the desideratum are assigned a high value and those with a low capacity, a low value. .the value of a thing depends partly on the circumstances under which it is evaluated. Value is not a fixed, inherent property. Rather it is a variable property whose magnitude depends not only on the nature of the thing itself but also on who evaluates it and the environment in which it is assessed.
Source: Sinden & Worrell (1979), page 4.

is meant the satisfaction or pleasure that an individual derives from the consumption or use of an output; it cannot be measured directly because each person perceives utility differently, but the sum of the individual utilities within a population is equivalent to the value of the output to the community. Value is an indicator of relative importance and the comparative values of alternative things or actions provide guides for choices and decisions. The measurement and comparative valuation of outputs is a separate subject in itself, which it is beyond the scope of this chapter. Our concern here is with the influence of utility and value on the size and composition of output flows. As perceptions of value alter, so also does the demand for different types of output in the forest sector. Table 5.2 demonstrated how the outputs of wood products changed in the 25 years after 1969 in response to changes in demand, with the largest increases taking place amongst the most highly processed products. The renewed attention given recently to non-wood outputs, as a group, has raised their demand profiles and consumers with increased incomes now seek more recreational and other services than previously. Generally, the strength of demand for most types of output increased and their range and diversity widened substantially during the twentieth century. Historically, the total recorded annual value of forest production in the world has risen year by year and new types of manufactured outputs have appeared; also, there is now a greater public willingness to pay for services which were previously unrecognised or taken for granted. Outputs which are traded can be valued by the amount of money (or other goods) exchanged for them when they are bought and sold (or bartered). Market value is the product of the quantity and price at which transactions take place. Consumer demand varies with price and generally, the higher the price the less the quantity

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demanded; economists portray this variation in the form of a demand schedule or a demand curve. When demand is very sensitive to price changes, i.e. when a small increase in price is associated with a large decrease in the quantity demanded, output flows are likely to be volatile and the level of activity in the industries which produce them tends to fluctuate. Conversely, when the quantity demanded changes little with price, employment and industrial activity are likely to be more stable. Different products respond to price changes in different ways but estimates of elasticities of demand show quite a wide range of variation. In an extensive study over the period 1929 to 1960 in the USA 17 , which is frequently quoted, a 1 percent increase in price led to falls in consumption of about 3.5 percent for sawnwood, 0.4 percent for paper and only about 0.1 percent for plywood. Other, more recent investigations relating to particular countries trade in timber products, which are cited by Barbier et al. 18 , show many variations in elasticity and few significant differences between types of product, although sawnwood demand generally appears to be more responsive to price changes than panel products or paper and paperboard. There is no evidence that the derived demand for roundwood is more stable than the final demands for wood products, even though it might be thought that, as roundwood provides the raw material for several different kinds of processed outputs, it is therefore less dependent on the vagaries of particular, more specialised markets. One feature of the processing and manufacturing chain, which affects the derived demand for timber, is the loss of bulk as material moves from subsector to subsector. Thus the final demand for a given quantity of sawnwood generates a derived demand for logs which is about double the amount of end product; during conversion the volume of logs is reduced by about half, by the removal of slabs and losses of sawdust. Conversion losses during plywood manufacture and the production of pulp and paper are comparable. Similarly, the derived demand for standing trees in the forest, prior to felling, allows for large quantities of branchwood and pieces left behind during crosscutting and extraction of the logs; much of the biomass accumulated during tree growth is discarded. The reduction in bulk between the forest and the consumer also affects prices because receipts from the sale of final products must cover it as well as meeting all the costs of processing and transport that are involved. The end result is that stumpage prices paid to owners of the forests are residuals the amount left over after all other expenses are paid. Timber growers receive only a small fraction of the ultimate sale value to consumers. Fluctuations in the demand for final products tend to be transmitted backwards and magnified, leading to relatively large changes in growers incomes. The main influences on demand for wood products, apart from price, are changes in population, incomes, tastes and technology 19 (see Box 5.5). Substitution usually has long-lasting effects, whether it takes place within the forest sector (e.g. sawnwood being supplanted by panel products) or results in the replacement of forest products by outputs from other sectors (e.g. wood fuel by alternative energy sources such as petroleum and electricity). Demand is also affected by the state of the economy and the general level of business activity, producing fluctuations which follow the trade cycle. The demand for internationally traded commodities

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Box 5.5 Influences on the demand for wood Demand for wood products is affected by: (a) population (quantity bought at a particular price increases, usually proportionally, with population); (b) income per head (quantity of some goods, such as firewood, increases only slowly or may even decline with increasing national income, while other products, such as paper, form an increasing proportion of expenditure (income elasticity of demand for wood products varies widely around one)); (c) availability of substitute products (like fossil fuels) which reduce demand, or complementary products (like computer printers) which increase it; (d) state of wood processing technology (without a domestic pulp or particleboard industry, there may be no industrial demand for small roundwood); (e) tastes for timber products (since timber is often not sold directly to consumers, but undergoes further processing, formation of tastes occurs less through consumer advertising, more through supply of information to manufacturers on strength and working properties of particular species, and through general advocacy of wood as a material); (f) state of business activity (if the economy is recovering from economic recession, the construction industry, a major consumer of sawn timber, is active: by contrast, during descent into recession, the construction industry is more depressed than the overall economy).
Source: Price (1989), pages 89.

is also uneven, depending on their availability elsewhere, competitive costs and prices, and the restrictions on imports and exports imposed by some countries. Events outside the forest sector, which form part of the general mle of economic and social change, have the greatest effect on demand. The extent to which it is possible to influence demand from within the sector, to achieve sectoral aims or to manipulate it to suit the interests of particular individuals or corporations, is limited. There is little scope for advertising to increase the sectors share of national output because forest sector outputs are so varied and are marketed in such different ways; many are too specialised for mass consumption or can be easily obtained from alternative sources, making expenditure on product promotion unprofitable. Attempts to manage demand are more likely to come from publicity for new types of product or education aimed at correcting misinformation about products or practices alleged to be environmentally harmful. These influences on demand operate in different ways and combine to produce patterns of use that vary greatly from place to place. Worldwide, population increase accounts for much of the expansion in wood consumption that took place in the twentieth century, but this generalisation disguises the significant differences

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between countries and products revealed by the available statistics. Income levels also play an important part. Total sawnwood consumption per thousand of the population in 1991 for all countries was estimated at 85 cubic metres 20 . However, the comparable figure for the developed countries 275 m3 per 1000 was more than ten times the consumption in the developing countries 26 m3 per 1000 . Canada 612 m3 per 1000 and some European countries consumed double the global average, while insignificant quantities were recorded in the poorest countries in Asia and Africa. Similar discrepancies were recorded for paper and paperboard world consumption was estimated at 45 metric tons per thousand people, the developed countries consumed more than three times as much (153 mt per 1000), while the developing countries used only about a quarter of the global average (12 mt per 1000). World consumption of paper and paperboard per head of population increased from 25 kg in 1960 to 38 kg in 1984, reaching 45 kg in 1991; production was expected to continue to grow by about 3.8 percent per annum 2 . Demand for non-wood products is subject to similar influences, although the extent to which most of these outputs are processed before they are fit for use is usually less than for timber, so that industrial requirements tend to have less influence on the output mix. However, non-wood products are so diverse that each must be looked at separately to understand the interplay of market forces that determine output. Extreme variations in demand are commonplace and prices are often unstable. Richards, writing about Amazonia, comments that expectations that non-wood products might become a major contributor to natural forest resource conservation have been badly over-estimated 7 . Among the reasons given for this are the nature of the markets, with the inherent tendency to replace extractive products with synthetic substitutes and cultivated trees (domestication). Export markets are often relatively small and volatile. Thus Babau oil exports from Brazil fell from $4.28 million in 1985 to $109,000 in 1989, due to substitution by synthetic detergents and less fatty edible oils. The future of natural rubber extraction is said to be bleak, due to competition from cultivated rubber elsewhere, and has only continued as a result of government subsidy. Where markets are imperfect or even non-existent, monetary value becomes less reliable as a guide to the relative strengths of peoples wants. Many of the forest outputs collected by the adjacent population for domestic use in developing countries, such as wood for fuel and grass for thatching, fall into this category; they are basic needs which most rural people have neither the income to pay for or the incentive to offer to supply on the scale required; the prices paid for the small amounts which are traded through local markets are not representative of the true extent and strength of consumer demand. Gathering of fungi, fruit and flowers from nearby woods and forests by country people is a traditional recreational activity in most developed countries, which also falls outside the market economy. It such cases it may be possible to estimate what people would be willing to pay for the outputs or the recreational experience, although the values obtained are often subjective and unreliable. It is difficult to infer prices for things which are not normally bought and sold, and hard to ascertain how much people might pay in hypothetical

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circumstances which lie outside their experience. Demand assessment based solely on money values becomes questionable in these circumstances, although there is no doubt that the outputs concerned have an underlying utility for their consumers. The demand for environmental services is particularly difficult to assess and some, such as clean air and water, tend to be regarded as free goods of which there is an unlimited supply. Other service outputs, such as forest recreation, may yield revenue from service charges and it is possible to estimate the demand for recreation in particular places, taking account of travel costs to get to them. Monetary values can be put on specific outputs, such as those resulting from watershed protection and flood control, by carrying out cost-benefit analysis of their likely consequences, including downstream effects on agricultural crop production and damage avoidance benefits. However, it is more difficult to impute values to protective services like carbon sequestration that have widely dispersed climatic effects. Market forces do not instigate measures to reduce greenhouse gas emissions and civil action at national or international level is necessary to tackle global warming. The force of public opinion, expressed by environmental pressure groups such as Greenpeace, indicates the strength of public demand for action and influences government willingness to pay for remedial measures. Market valuation is replaced by political influence when resources are allocated, but this is likely to be an unreliable way of making choices about the use of forest resources. The problem for managers is how best to gauge the strength of demand for outputs that are not subject to market forces. Biodiversity illustrates some additional difficulties involved in non-market assessment. Biological diversity is an umbrella term, which describes the variability of living things 21 . It can be interpreted in several ways and exists at several levels: genetic the variety of genetic information contained in the genes of individual plants, animals and microorganisms; species the variety of groups of genetically related individuals which breed with other individuals of the same species; ecosystems the variety of distinctive collections of associated species which form biotic communities, occupying particular habitats and displaying different dynamic processes; they exhibit functional, community and landscape diversity. It is necessary to identify the particular genes, species and ecosystems to be preserved, but genes and species only exist naturally, in various combinations, within ecosystems. Biodiversity is linked to associations of desirable genes and species, and the survival of the ecosystems in which they occur it is site-related. In fact, it is a compound output composed of groups of interdependent organisms living in particular habitats. Biodiversity conservation is an aim that can only be achieved by protecting various combinations of characteristics in the places where they occur and the demand for biodiversity only becomes meaningful when it is related to the characteristics of particular forest areas. Furthermore, ecosystems exist in a state of dynamic flux. The conservation of biodiversity is therefore a slippery objective based on continually changing combinations of genetic material and species. The public desire for biodiversity of an unspecified kind that is commonly proclaimed,

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needs to be pinned down and refined before forest managers can respond to it effectively. It is clear that the forest sector is capable of providing a very diverse range of goods and services. Each type of output, treated separately, generates its own demand schedule, showing users willingness to pay, expressed either through market forces or the political process. The relative values of outputs are liable to alter as consumers tastes change and public expectations of environmental quality evolve. However, joint production of outputs is usual; each piece of forest is capable of producing numerous outputs, many of which are interdependent, and the pulling power of demand is applied to the output combinations obtainable from different places and types of resource. The demand for outputs is, in reality, the demand for alternative output combinations which must be reconciled with the joint supply possibilities. The composition of output flows and the proportions in which outputs are combined are influenced by the relative strengths of demand; from the supply side, site limitations and management constraints determine the composition of the output mix. 5.3 SUPPLY

Supply represents the influence of resources on outputs. Forest resources provide a rich variety of outputs, which are produced in various combinations, depending on the capacity of the resources and the degree of human interference with their ecosystems. The output mix depends partly on environmental characteristics, such as geology, terrain, soils and climate, the type of forest and the ecosystems present, and partly on interventions in the systems, which favour some outputs in preference to others and lead to modification of the natural flora and fauna. Constraints on the outputs, due to natural causes, include site fertilitity, temperature, rainfall and location; the productive potential of each piece of land is also limited by the characteristics of the species present and their growth rates. Human intervention, when it is deliberate, seeks to loosen these constraints, increase the flow of the most desirable outputs and optimise the output mix. In extreme cases it may lead to replacement of natural forest by plantations, thus concentrating site potential on one (or a few) species and creating more intensive production systems. As with agriculture, there is a tendency towards monocultures as higher levels of output are sought. Alternatively, pure forestry may give way to agroforestry in which site potential is utilized more intensively to supply mixtures of food, fodder and fuel. Forests which are in their natural state, without human intervention of any kind, are rare and only exist in places which people cannot reach because they are too unattractive or inaccessible. Historically, untouched forests were probably more extensive when populations were smaller, before the growth in numbers accelerated in the last hundred years, although what is known about human migrations suggests that few areas have remained completely undisturbed. However, even those forests which are truly pristine have been affected by climatic and geological changes to which their ecosystems have become adjusted. All forests are dynamic entities in

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Box 5.6 Changes in tropical forests Throughout the tropics, evidence has been amassing over the last thirty years or so to show that the tropical rain forests are in the main less than 18,000 years old; that they change, both constantly and episodically, in all directions, just like European and North American forests; that they comprise species with totally different autecologies, so that no assemblage is ever precisely the same at any time, .. and, perhaps most surprisingly of all, especially for foresters, that the rain forests are infinitely younger than some of the worlds savannas and tropical grasslands, formations which were once deemed to have been derived from the climax forests. In a dynamic world, foresters must be seen neither to support discarded theories of stability, equilibrium, and forests as inviolate entities nor to aid and abet the thoughtless production of landscapes of fear; their true value must be to play their part to the full to ensure maximum human benefit, for as long as feasible allowing for constant change in the landscapes that we must and will produce from the forests. Trees and wood, flowers and animals, can always have their role, but never the same, from one moment to the next.
Source: Stott (1997).

which adaptation is a continuing process, whether caused by human disturbance, changes in the external environment, or the internal rhythms and species interactions within the forest. The old idea that natural forests are ancient, stable, climax communities, which must be protected from interference, is misleading (see Box 5.6) and the attitude to deforestation engendered by this belief is open to criticism. In particular, the conversion of some forest to agricultural systems appears inevitable and can provide greater value for people. Change, whether brought about by nature or human intervention, is a fact of life and what matters from a human point of view is the kind of change, its direction and extent. Human intervention in forest ecosystems may be constructive or destructive beneficial or harmful. As Stott 22 describes it, landscapes of hope may be created if the existing natural forest is replaced by adaptive systems of land use, which enhance human benefits; alternatively, landscapes of fear result from reckless forest exploitation and clearance, giving rise to erosion, soil degradation, poverty and misery. Deforestation is not always bad, but its consequences are likely to be irreversible and, as far as possible, should only follow careful consideration of its likely consequences; the benefits should be greater than the costs if it is to be worthwhile. Forests which are free from human intervention, whether by geographical accident or deliberate exclusion of people, normally retain their protective functions. Most of the ecological changes that take place are gradual and the forests continue to provide

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Box 5.7 Rural poverty and tropical deforestation Rural poverty is widely acknowledged to be the leading worldwide cause of tropical forest destruction. It is asserted that an estimated 200250 million subsistence farmers and land-hungry migrants living in a state of shifting cultivation and rural poverty destroy some 51,000 square kilometers of tropical forest every year. That is to say,the rural poor have been blamed for at least 45 per cent of the tropical forest area destroyed annually on a worldwide basis.
Source: Browder (1989).

a flow of intangible outputs, such as carbon fixation, biodiversity and watershed protection, which is only rarely disrupted by catastrophies like tropical cyclones, earthquakes or wildfires. The advent of people leads to use of the forests and widens the range of outputs to include timber and non-woody products, grazing and recreational services. New supply possibilities are opened up which do not necessarily interfere with the protective functions, provided that the level of exploitation is kept low. However, some disturbance within the ecosystem is inevitable and this leads to gradual changes which may affect species composition and distribution. At this level, the supply of desirable outputs from the forest is widened without threatening its existence. Haphazard human intervention, due to indiscriminate cutting, uncontrolled burning or overgrazing, tends to build up as the population increases and may eventually reach the point when the restorative powers of the forest ecosystem are exceeded. After that, degradation and eventual destruction of the resource are likely, threatening the future supply of the entire range of outputs, both goods and services. The consequences of excessive use, if it is allowed to continue, may be serious where the indigenous population depends on the forests for its basic needs; eventually population growth will force people to migrate or change their way of life in order to survive. For example, scattered shifting cultivation in the tropics on long cycles may be supportable, but larger numbers of cultivators can lead to shorter and shorter fallow periods and reduced soil fertility; transition to a more settled form of agriculture and displacement of people become unavoidable. More generally, unprotected forests, treated as a common property resource by the people living nearby, tend to deteriorate and disappear. This is evident in many developing countries where small farmers, who have no other way of making a living, cannot survive without clearing new land. Rural poverty has been linked to deforestation 23 as Browder explains in Box 5.7. The uncontrolled exploitation of forest resources is liable to lead to loss of their capacity to provide goods and services. Their supply potential may be undermined gradually by overuse or, more drastically, by forest clearance for cultivation or by timber mining by logging contractors. Logging often opens up the forest to subsequent settlement for agricultural purposes. The dangers of unregulated use

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have long been recognised and, in some parts of the world such as the Mediterranean region, mismanagement of the land has been blamed for degraded scrub vegetation, denuded slopes, and silted river mouths 24 . Unsurprisingly, attempts were made in many countries to control the situation by government efforts to protect forest resources. In a few places all forests were nationalized in the belief that the people would then respect them and prevent their destruction (e.g. Nepal in 1957), in other countries (e.g. India) large areas were declared forest reserves, administered by government officials and managed in the national interest; in most countries privately owned forest is regulated to some extent. The desire to prevent the deterioration and disappearance of natural forests is linked to concern about the future supply of vital goods and services which they provide. Destructive interference with forest ecosystems needs to be curbed. Based on this belief, the authority of the state has been widely used to try to safeguard the resource base and deter excessive levels of use; historically, the role of government in relation to forest resources has tended to be protective and preventative. This defensive attitude has had limited success, particularly in the face of overwhelming population pressure in the developing countries where basic human needs take precedence over wise use and deforestation continues unabated. It is now recognised that a more positive attitude is necessary carrots rather than sticks. Instead of keeping people out of the forests, they should be motivated to look after them; rather than trying to reduce the flow of produce from the forest to match its productive capacity, outputs should be increased by better forest management and the encouragement of tree growing on farms outside. In those countries, government forest policies have shifted in favour of schemes which assist rural people to meet their own needs, such as community forestry (in Nepal), participatory forestry (e.g. India) and farm forestry (e.g. Tanzania). Agroforestry, viewed as a source of supply of forest products, provides a limited range of outputs which are suited to the domestic needs of farmers (see Box 5.8) and, to a lesser extent, are sold to supplement the income obtained from agricultural cash crops and livestock. The growing of trees always involves some cost in terms of land, labour and capital invested, and must therefore fit into the overall farm economy; it must be related to farmers other objectives and alternative uses of their resources 25 . Furthermore, the outputs are not static. Peoples requirements and aspirations alter as their circumstances improve, other types of fuel and building materials become available at prices they can afford and new market opportunities open up for agricultural produce. Farm forestry, particularly in the earlier stages of rural development, can supply some of the outputs needed by the community, but it is not well-suited to the large-scale provision of wood as a raw material for industrial use or the long growing periods necessary to produce large, high quality logs. Nor is it capable of substituting adeqately for many of the service outputs of forests, such as scenic benefits, tourism and biodiversity. It is not a panacea although it can contribute significantly to total forest resources in appropriate situations. The worlds forests are shrinking while the demands on them are increasing. The only way that these demands can be met is by increasing the productivity of the

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Box 5.8 Tree growing by farmers in developing countries Much of the early impetus for intervention to stimulate tree growing by farmers stemmed from concern about deforestation. Growing household demands both for wood and for land were perceived as progressively reducing wood stocks, and denuding the land of tree cover that performed essential protective and regulatory functions. Promotion of tree growing on farms was seen to be necessary in order to create new wood stocks where they were readily accessible to the main body of users, thereby reducing pressure on remaining forests, and to re-establish a protective tree cover in environmentally fragile landscapes. A powerful second, rural welfare, perspective focussed on the importance of tree resources in meeting peoples fuel and other basic needs. Mobilizing farm households to grow more trees was identified as the most effective way for the rural poor to avert or reverse shortages of fuelwood and other essential tree products, from their own resources. As the diversity of goods and services derived from trees became better appreciated, a wider potential was postulated for agroforestry as a tool for resource-poor farmers in stabilizing and improving their farming systems. Tree crops could help the poor to increase output and generate income, and secure a greater degree of self sufficiency, with low inputs of capital and labour.
Source: Arnold (1996).

forest sector. Natural forests are giving way to other forms of land use in the third World while the area of forest elsewhere remains more or less constant. At the same time, the increasing industrial demand for wood products worldwide puts more pressure on the resource base. This opens up opportunities for constructive human intervention in the remaining forests in order to supply more of the material outputs that society desires on a sustainable basis. Constructive intervention is positive and purposeful; it involves deliberate choice of outputs and resource management. At first basic management is needed to protect the forests from destruction and control their rate of exploitation, later the emphasis shifts with the aim of increasing the output flow by interventions which affect the ecosystem. As management is intensified by the addition of more capital and human resources, the supply of the most highly valued outputs is enlarged to match as far as possible the long-term needs of the community. It is to be expected that more and more forest will be actively managed, seeking the best way to combine natural, human and capital resources so as to supply a mixture of outputs in the optimum proportions. The higher the level of investment, the further from its untouched state the ecosystem is likely to become. Interventions result in modification of the natural flora and fauna, turning natural ecosystems into semi-natural systems. No doubt some places will be protected from human inter-

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ference, preserved as wilderness areas or national parks and suffering only minimum disturbance, but, as standards of living rise, the need to increase production and market forces will lead to greater intervention and more substantial modification in the more accessible areas. Selective improvements in mixed forest stands progressively alter stand composition, increasing the the stocking of prime timber species while decreasing the proportion of secondary and noncommercial species. More drastic operations may turn uneven-aged forest into even-aged stands. Modification goes furthest when man-made forests are created, usually dominated by one tree species, occasionally by a mixture; often the species that are planted are exotics, such as teak, mahogany and Douglas fir, that have been introduced from foreign countries on account of their vigorous growth and exceptional value. The choice of outputs that are bought and sold commercially, particularly timber and other forest products which are widely traded, is guided by market considerations. The prospect of future profits largely determines what will be produced and the amount of capital formation that will take place. Marketable outputs that can command high prices and are profitable to produce are likely to be favoured over less-attractive products with uncertain market prospects. The productivity of timber crops, as with agricultural cropping systems, can be intensified by investment aimed at maximising production of the most valuable species. Outputs which are not market driven, such as biodiversity and other environmental services, depend on administrative decisions. Forest managers control them, working within budget allocations which are influenced by perceptions of their environmental significance. To a large extent they are combined with the marketable outputs in joint production systems and have often been regarded as by-products. An important task of forest managers is to reconcile the supply of marketable goods with non-marketed services in order to obtain the best mixture of outputs from the forest sector. Within physical and biological limits, it is possible to select the combination of outputs that is preferred. The mix may be altered over time; some outputs may be favoured and promoted while others are taken for granted or forgotten. However, since the outputs are derived from ecosystems, they are also interdependent and management interventions aimed at increasing one particular output may have unforeseen consequences on others. It is a great mistake to try to manage outputs in isolation. Joint supply is a feature of the forest sector and forest management involves choices between various combinations of outputs. However, there are so many outputs that it is not practicable to consider every possible combination. Not all outputs are equally important, some may be irrelevant, some can only be obtained jointly and some are incompatible with others. It is necessary to select the outputs which are judged to be most significant in the given circumstances, leaving aside the rest on the assumption that they are not likely to alter resource management decisions. The choices can then be narrowed down for assessment purposes to consideration of alternative supply combinations of the significant outputs. The choices depend on:-

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(i) the composition of the output mixture, i.e. what outputs to include and what weight to give to each? (ii) the volume/size of each output flow, i.e. how to assess or measure them and how to combine flow assessments which are not directly comparable? (iii) the timing of flows, i.e. how to take account of supply changes which take place at different times? Each type of forest or forest area has many different production possibilities and its own particular set of limitations. Some places are suited to the conservation of wildlife, others are well-placed to supply timber, while the maintenance of vital water supplies may be the foremost consideration in upland catchment areas. The composition of the output mix that is appropriate is different in each case. The forest managers task is to identify the optimum supply combination for that location to select, in accordance with societys preferences, both the composition and the relative importance of the flows which make up the output mixture. These may be expected to change over time as the physical constraints and the availability of resources alter. Some outputs are mutually exclusive and some are inseparably associated with others. Thus, the same piece of land can only be used to grow one species (or mixture of species) as a plantation crop; there may be alternative uses of the land planting either spruce or pine perhaps, but not both. Similarly, management designed to maximise water supply is not likely to be compatible with planting Eucalyptus for maximum timber production, and biodiversity losses are inevitable if natural ecosystems are replaced by man-made forests. On the other hand, carbon sequestration and timber production go together; the higher the growth rate of the trees, the faster the build-up of biomass and the intake of carbon dioxide. Generally, it is easier to provide environmental services by protecting natural ecosystems in national parks or forest reserves than in forests managed for production. Up to a point, compromises can be achieved by assigning specific areas to particular main functions or groups of functions, thus obtaining a satisfactory blend overall from the resulting mosaic of predominant land uses. Supply management is complicated by the time lags between decisions and their consequences, and also by the uncertainty that their effects may not turn out exactly as expected. Ecosystems do not respond immediately to interventions; the repercussions following disturbance may last a long time and their dynamic interactions are difficult to predict. Natural forests can be modified with the aim of increasing the yield of valuable species by selective felling and silvicultural operations, but altering the proportions of young trees does not lead to corresponding changes in the quantities harvested until many years later; furthermore the populations of forest dwelling animals, birds and insects will change gradually as their habitat alters. Plantation establishment does not result in mature timber in less than about twenty years, even on the most favourable sites in the tropics, and rotations of 50 to 100 years or more are common in Europe. Long delays increase uncertainty by extending the period during which expectations may be upset by events outside the

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control of managers, such as changes in the world economy, political crises or chaos due to unpredictable climatic factors. The longer the wait, the greater the dangers. In spite of these risks, which are unavoidable and unmeasurable, reasonable expectations about future supplies from the forest are essential to forest sector prosperity. Poor supply prospects hinder development, whereas optimism encourages it. Plentiful supplies lead to resources push by encouraging forest industries to expand and develop. Where a ready supply of raw materials can be anticipated, either from existing underutilized forests or by increasing the future productivity of managed forests, new industrial investment can be justified, leading to more processed outputs and a larger volume of sales to consumers. When output from the forest can be expanded quickly, the stimulus to development may also be quick-acting; when there is a significant lag between forest operations and additional forest outputs, the knock-on effects on the rest of the sector also take time to emerge. Therefore, supply-driven industrial expansion in the forest sector is often delayed-action development, based on future increases in outputs. No doubt satisfactory supply prospects are necessary for development to take place, but the same is true of demand. Supply on its own is not sufficient and needs to be matched by confidence about demand. In the short term, market expansion to match increased output may result from lower prices, better distribution, advertising and increased trade; over longer time periods, the level of demand is determined by population, incomes and international conditions. Within the limits set by future demand possibilities, forest sector development can be stimulated from the supply side. In the reverse direction, future levels of supply can be planned in response to demand stimuli. In practice, it seems likely that development opportunities come from both directions and the sector progresses by a series of adjustments aimed at balancing and rebalancing supply and demand. Because the sector is dynamic and its responses are uncertain, lasting equilibrium is never likely to be achieved. In fact, forest sector development appears to depend to a large extent on the capacity of individuals, organisations and nations to respond to new and often unexpected supply and demand opportunities. Supplies of forest products need not come from domestic sources and many countries rely on trade. Shortage of forest resources need not prevent sector development if supplies of raw materials for processing can easily be obtained from abroad, as shown by the experience of places such as Hong Kong and Singapore (see Box 5.9). On the other hand there are resource-rich countries, such as Guyana and Papua New Guinea, where forest sector development has made slow headway, due partly to distance from markets and partly to difficulty in obtaining other factors of production. In addition to supplies of raw materials, forest industries need capital and human resources to expand and develop. Development has gone furthest where all three factors are available, as in Finland and Canada. Trade fosters development; it provides opportunities to both developing and developed countries by opening up new sources of supply and giving access to wider markets.

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Box 5.9 The significance of resource endowment and trade in forest sector development Resource-poor countries Hong Kong lacks forest resources but has developed a significant forest sector based mainly on imports of industrial roundwood. (529 000 m3 worth $99.3 million). Hong Kong was the sixth largest importer by volume of tropical logs (510 000 m3 , mainly from Malaysia and Papua New Guinea. Sawnwood (441 000 m3 and some wood-based panels 41 000 m3 were produced. Total production of forest products amounted to $189 million. Singapore also has negligeable forest resources but imported industrial roundwood (32,000 m3 worth $3.7 million) and produced sawnwood 25 000 m3 , wood-based panels 355 000 m3 and paper & paperboard (96,000 metric tons). This production (valued at $204 million) was about 1 percent of GDP and represented less than half of the islands apparent consumption of wood. Resource-rich developing countries Papua New Guinea has 36 million ha of forest, representing about 80 percent of its land area and 1.8 percent of the worlds tropical forest resources; this amounts to about 9 ha per head of population. It produced forest products (worth $460 million), amounting to about 8% of GDP and was the worlds second largest exporter of tropical roundwood. Wood exports (worth $464 million) represented about 19 percent of the countrys trade. Most of the output of sawnwood 117 000 m3 and panels 46 000 m3 was used in the domestic market. Guyana, with 18.4 million ha of forest, 94 percent of its land area and 1 percent of the worlds tropical forest, is comparable to Papua New Guinea but has a smaller population and 17.7 ha of forest per head. The forest sector is relatively underdeveloped. Total production ($6 million), imports ($2 million) and exports (6 milion) amounted to about 1 percent of GDP and trade. Industrial roundwood exports were insignificant, sawnwood production 15 000 m3 was very low and panel production was negligible. Resource-rich developed countries Finland is well-endowed with forests covering 20.1 million ha. or 66 percent of the country; it has about 4 ha per head of population. Total production (worth $9.2 billion)amounted to about 10 percent of GDP. 32 percent of the countrys trade comes from wood, mostly exports ($7.4 billion) although imports ($475 million) were also substantial. Finland ranked third in the world in newsprint exports (1,252 metric tons) and fifth for woodpulp exports(1456 metric tons). Industrial roundwood was the main item imported, mostly from the Russian Federation. Canada, with 453.3 million ha of forest covering 27 percent of the land area, was the worlds foremost exporter ($19.3 billion) and also a large importer ($2.1 billion) of forest products. Total production ($30.7 billion) was about 6 percent of GDP. USA was Canadas largest trading partner. Source: FAO. Forestry Statistics Today for Tomorrow 19451993 and 1994 Forest Products Yearbook. The data refers to 1993; values are US dollars; non-wood products are not included.

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Trade widens the range of choice for both suppliers and consumers. Without trade, supply possibilities would be restricted to what each countrys forests could provide for its inhabitants and the living standards of consumers would be meagre in places which are poorly endowed with forest resources. Trade in forest products makes available a wider range of outputs all along the processing chain and extends consumer choice. Access to raw materials from abroad enables a greater variety of processed outputs to be manufactured and delivered to consumers, as happens in Europe for example, when tropical timbers are used for furniture manufacture. Market prospects may be enhanced in this way and may feed back to influence the suppliers of raw material in producer countries to increase their outputs and extend their activities; consumer pull from abroad can generate forest sector growth at home. However, the benefits of trade will be lost if the suppliers are unable to respond, either because forest resources have been squandered, as in many tropical countries, or because satisfying the overseas markets would lead to unacceptable overexploitation and rates of harvesting that cannot be sustained. The capacity to increase supply from the forest must exist, otherwise the benefits of trade will not materialize. It is generally easier to stimulate demand than to boost supply in the short term; longer term, the output flow is limited by the supply potential of the forest and its future productivity. Imbalances between supply and demand arise because of the time taken for output flows to change in response to changing levels of demand. Shortages of outputs of goods which are traded are likely to induce immediate price rises and send signals to suppliers; they respond fairly rapidly with production increases within the limits of existing manufacturing capacity, stocks and raw material supplies. Underutilized forest resources usually take a bit longer to bring into production. Once their potential has been fully utililized, further supply expansion, if it is to be sustainable, depends on raising forest productivity levels which is often a lengthy process. The response times for outputs which are not traded, particularly those which affect environmental quality, are also lengthy; it has taken years of public debate to bring about changes in the public perception of issues, such as the importance of species protection and global warming, and similar time lags are likely before this heightened awareness leads to significant results on the ground. These imbalances can often be foreseen, although not always very accurately, and it is generally easier to forecast the future demand for goods than intangible services. Continuity of supply depends on anticipating and adjusting to these imbalances. It is a drawn-out process that requires a long-term approach to resource conservation and management. 5.4 SUSTAINABILITY

Sustainability refers to the continuation of output flows in a world that is changing for better or worse. It is desirable to have continuous flows of goods and services in the forest sector so that their utility for consumers and other beneficiaries is

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not interrupted. Outputs are valued for various purposes by their recipients they may depend on some types of output to meet their basic needs for food and shelter, on others to support their present lifestyles and provide luxuries, and on the services provided by forest resources to maintain the quality of the environment in which they live. Recipients rely on the continued availability of the outputs and are prepared to pay for continuity of supply. They seek reassurance which, like an insurance policy, can be obtained at a price. The cost of continuity is the sacrifice of some instant gratification for the sake of future satisfaction and some managerial resources devoted to ensuring sustainability. The wish for continuity of supply touches on the human desire for stability and security. Sustainability provides safeguards for the future. If the flows of output are changed, people feel better or worse off. Loss of outputs deprives people of present satisfaction and also affects their future wellbeing. It may alter the future prospects of individuals, communities and nations, and influence their development. For this reason, sustainability is concerned with the loss of future options and was described in these terms by the Brundtland Commission 26 :Humanity has the ability to make development sustainable to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs.

The Commission recognised that this concept involved limits. There are limitations imposed by the present state of technology and social organisation on environmental resources and by the ability of the biosphere to absorb the effects of human activities. Over time, by good management, it may be possible to relax these limitations to make way for a new era of economic growth. It was argued that widespread poverty is no longer inevitable and sustainable development involves meeting the basic needs of all, while extending to all the opportunity to fulfill their aspirations for a better life. Sustainable development (see Box 5.10), in a broad sense, is therefore about making people better off, or at least stopping things getting worse. Three key characteristics have been identified, on which the achievement of sustainable development depends 15 . First, increased emphasis is needed on the value of the natural, built and cultural environments because environmental quality is part of the wider development objective of improved quality of life; there is more to welfare than rising real incomes. Second, the time horizon for planning and implementing decisions must be extended, beyond the short-term perspective of political manifestos to the long-term future to be inherited by our children and grandchildren and theirs. Third, emphasis must be given to providing for the needs of the least advantaged in society (intragenerational equity) and on fair treatment for future generations (intergenerational equity). These three concepts environment, futurity and equity form an underlying theme: future generations should be compensated for reductions in the endowments of resources brought about by the actions of present generations or the resources should not be used at all. The logic of this proposition is simply that

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Box 5.10 Sustainable development To sustain is to support without collapse. Sustenance is that which supports life. Currently, humans are unequally provided with sustenance, and many suffer actual deprivation. It is widely believed that addressing these problems requires that levels of economic activity be increased worldwide. It is also generally accepted that increased levels of economic activity would potentially damage the natural environment and impair its ability to sustain humanity although some believe that current levels of economic activity are already unsustainable. Here, the sustainability problem is taken to be: how to address problems of inequality and poverty in ways that do not affect the environment so as to reduce humanitys future prospects.
Source: Common (1995), page 1.

..sustainable development is not a fixed state of harmony, but rather a process of change in which the exploitation of resources, the direction of investments, the orientation of technological development, and institutional change are made consistent with future as well as present needs. We do not pretend that the process is easy or straightforward. Painful choices have to be made. Thus, in the final analysis, sustainable development must rest on political will.
Source: World Commission on Environment and Development (1987), page 9.

if one generation leaves the next generation with less wealth, then it has made the future worse off. These are general prescriptions for sustainable development. How relevant are they to the special circumstances of the forest sector? First, its contribution consists of a wide variety of goods and services, some of which are not traded and have no commercial value, although their continued availability has a significant effect on environmental quality. Continuity of supply over the whole range of outputs is therefore a necessary condition for sustainable development of the forest sector; it is not enough to ensure future timber production or safeguard particular wildlife populations, disregarding all the other outputs on which the community depends. Sustainability must not be selectively applied. The second prescription specifies long time-horizons, which match the slow rhythms and delayed responses of forest ecosystems, and the extended production periods usual in timber crops. Industrial activities in the forest sector need to be geared to the pace of change in the resources which underpin them. Equity considerations, which form the third prescription, impinge directly on the welfare of forest-dependent people, such as shifting cultivators, who may have few rights and little protection against exploitation. Indirectly, the incomes of owners, employers and employees, who work in the forests and forest industries, depend on the way the total return from sector activities is shared

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out; gross imbalances are likely to be regarded as unfair. Intragenerational equity may also be involved if the forest sector workforce is beset by poverty or badly treated by comparison with other sectors. Intergenerational equity is affected if it is likely that future generations of workers will lose their livelihoods or consumers will be deprived of the benefits of goods and services from the forest sector. Sustainability is concerned with continuity of supply across generations; future generations should not be less well-endowed with resources or receive a less satisfactory flow of goods and services than the present generation. But neither the resources or the social, economic and cultural environment in which development takes place are stable. Forest ecosystems are subject to natural processes of change and are affected by human interventions, while the factors which influence supply and demand in the forest sector alter all the time. The needs of future generations will not be the same as present requirements and the capacity of the forest resources to continue to supply outputs of all kinds is likely to change for better or worse. Continuity of supply in this dynamic setting can only be maintained by a process of continual readjustment. Sustainable development in the forest sector depends on managing its resources, activities and outputs at the present time in ways that do not curtail their future availability and use. Development takes place in a changing environment which affects all parts of the sector and different management prescriptions for each part are necessary to ensure continuity of supply. The following set of aims provides a recipe for sustainability: safeguarding the resource base: without forest resources there can be no activities or outputs, so protection of their potential is essential. maintaining sector activities: subsector activities generate outputs at all stages from the forest to the consumer; the flow of outputs depends on continuation of the activities. preserving output choices: the quantity and variety of outputs determines how far the future needs and welfare requirements of society can be met. The first of these requirements seeks to protect the productive capacity of the forest resources; their ability to meet the need for outputs in future years should not be undermined by forest destruction. This does not involve a total ban on all deforestation, which would be unworkable and unwise. There are some situations where forest must be cleared to provide public services, such as highways or reservoirs, and some circumstances when changes of land use are justified because they lead to higher living standards without significant loss of forest benefits. Sometimes it is possible to compensate for the resulting loss of goods and services by increasing the outputs from other forests. The sacrifice of forest land in one place may be made good by afforestation of grassland or plantations on run down land elsewhere. If a countrys total forest resources, including those on agricultural land, are more than sufficient to meet its forseeable requirements, then there may be a good case for putting some forest to other uses. Whatever the justification, such intentional forest conversion should only be undertaken after very careful consideration of all the pros and cons, taking full account of the risks involved. Clearing natural forest

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often has irreversible consequences natural forest ecosystems may take centuries to restore and some species may be wiped out; their full consequences may be very hard to predict and some groups of people may be unfairly disadvantaged. Unfortunately, most deforestation is not the result of deliberate decisions of this kind. Sometimes it comes from the traditional, unregulated land use practices of small farmers for whom survival comes first, in other places powerful interests are involved in timber mining or land grabbing. These threats to the forest resource base must be countered and other, less destructive ways found to provide them with alternative livelihoods before sustainable management can begin. Ensuring that activities continue is the second prescription for sustainability. Outputs depend on activities, some of which take place in the forest and others subsequently in other sectors. The flow of intangible services, such as forest recreation and watershed protection, depends on the way the forest is managed. Similarly, silvicultural activities determine the flow of raw materials for harvesting and subsequent processing. Primary and secondary manufacturing activities are responsible for the range and variety of goods that are produced, while distribution and trade affect what is supplied to consumers. All these activities must be kept going to sustain the flows through the sector. In turn, as long as they continue, the activities generate employment, value added and incomes. They are supported by investment in physical capital and human resources, and their productivity is maintained by resource renewal through depreciation allowances, education and training. Preserving choice is the third ingredient of the recipe for sustainable development. Present choices are limited to the range of outputs that are available now and future choices depend on what will be available in the years to come. It is necessary to preserve the variety of forest sector outputs so that the options available to society are not restricted; the community will be made worse off if consumers lose part of their present range of goods and services. It is also important to maintain the size of the output flow. A reduced supply of timber in future years, for example, will deprive some consumers of benefits; there will be less wood for construction and other purposes, and it will lead to price rises (or some other form of rationing) to match the quantity of wood demanded to the quantity available. In fact, maintaining a constant output flow will not be sufficient to maintain consumption standards in most countries, because rising population and incomes tend to increase the total demand for timber. An increasing output flow is necessary to avoid any loss of utility in future years. This issue raises technical questions about the meaning of sustainability. Does it mean maintaining the total quantity of goods and services at present levels, or continuing to supply the same quantity per head of population as the total number rises? Alternatively, is it satisfactory to maintain the value of goods and services at a constant level, either in total or per head, irrespective of what happens to prices? Rising prices can cause values to stay the same, even though quantities decline, and increasing quantities accompanied by decreasing prices can have a similar effect. In the context of a developing economy, should sustainability be judged by comparing

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future supply with the present level of demand, or by attempting to balance future supply against future demand, either by quantity or value? These questions reveal some of the problems of defining sustainable development. It is an ambiguous concept, capable of being interpreted in various ways. Although sustainability is now widely talked about and generally accepted as a desirable aim, there seems to have been little discussion of these issues so far and no general agreement yet about which meaning is best in practice. The 3-point recipe for sustainable development of the forest sector which has been suggested does not lead us to a definition acceptable to all, if indeed there is one. However, there is a strong case for aiming at constant output per head in order to preserve intergenerational equity. It is also worth noting that continuity of supply depends on anticipating future supply and demand; it depends on projections or assumptions about what will happen in future. If the expected growth rates or levels of production are not achieved for any reason, the supply targets will be missed. Similarly, estimates of future demand may turn out to be wrong and may lead to over- or under-production relative to users requirements. Sustainable development is based on expectations or forecasts which in practice are very unlikely to be achieved, particularly over the distant time horizons which are a feature of the forest sector. Plausible estimates of future supply and demand, that are adjusted from time to time as circumstances change, are the best that can be hoped for. Seen from this standpoint, sustainable development consists of a set of pious hopes and flexibility in the way the concept is applied is more important than precision in its definition. The principle of sustainability has a long history in forest management. Forests were first protected as royal hunting preserves in Europe, later they were managed to provide a sustained yield of timber. This was achieved by balancing the volume to be harvested against the expected growth and regeneration of the trees. It is now recognised that management solely for wood is too restrictive and the concept of sustainable forest management has evolved to take in a wider range of outputs. Non-wood forest products are included and services such as recreation. The need to maintain the role of forests in environmental protection is also accepted and there is concern about the impact of forestry activities on indigenous people and their communities. Sustainable forest management is being brought into line with general perceptions of social, economic and cultural sustainability. However, it still overlooks the significance of trees and woody vegetation outside forests and tends to be focussed on forest resources rather than the forest sector, falling short of what is necessary to promote sustainable development of either wood industries or the sector as a whole. Attempts to describe and define sustainability in relation to forest resources (see Box 5.11) make clear two things: first, the intention to deliver a continuous supply of outputs of many kinds from the forest, and second, that the forest must be protected and maintained in a fit state to keep on producing this flow of goods and services. Sustainability depends on the condition of the resource base as well as the composition and consistency of the output flow. When timber production was the sole aim, sustained yield involved preserving a succession of age classes or a

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Box 5.11 Definitions of sustainable forest management The concept of sustainable forest management ..is now seen as the multipurpose management of the forest so that its overall capacity to provide goods and services is not diminished. A forest managed in this way will provide timber on a sustainable basis and will continue to provide fuelwood, food and other goods and services for those living in and around it. Its role in the preservation of genetic resources and biological diversity as well as in the protection of the environment will also be maintained.
Source: FAO (1993). The Challenge of Sustainable Forest Management, page 11.

Forest resources and forest lands should be sustainably managed to meet the social, economic, ecological, cultural and spiritual needs of present and future generations. These needs are for forest products and services, such as wood and wood products, water, food, fodder, medicine, fuel, shelter, employment, recreation, habitats for wildlife, landscape diversity, carbon sinks and reservoirs, and for other forest products. Appropriate measures should be taken to protect forests against harmful effects of pollution, including air-borne pollution, fires, pests and diseases in order to maintain their full multiple value.
Source: 2(b) of the Non-legally binding Authoritative Statement of Principles for a Global Consensus on the Management and Sustainable Development of all types of Forests. (Grayson & Maynard, 1997), page 9.

Sustainable management means the stewardship and use of forests and forest lands in such a way, and at a rate, that maintains their biodiversity, productivity, regeneration capacity, vitality and their potential to fulfil, now and in the future, relevant ecological, economic and social functions, at local, national and global levels, and that does not cause damage to other ecosystems.
Source: Definition accepted at the Second Ministerial Conference on the Protection of Forests in Europe, held at Helsinki in 1993. (Dewar, 1997)

Sustainability has been taken to mean maintaining or enhancing the contribution of forests to human well-being, both of present and future generations, without compromising their ecosystem integrity, i.e. their resilience, function and biological diversity.
Source: Definition adopted by the Centre for International Forestry Research (CIFOR) as a basis for its research on criteria and indicators. (Sayer, Vanclay & Byron, 1997)

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mixture of trees of different sizes, which could be harvested in turn; both the land and the growing stock had to be kept intact. Wider interpretations of sustainability, based on a more varied range of outputs, make it essential to preserve the integrity and capacity of many other components of the ecosystem. Largely because of widespread concern about the effects of tropical deforestation, sustainable use of forest resources has become an international issue. The United Nations Conference on Environment and Development, held at Rio de Janeiro in 1992, strengthened efforts to tackle environmental issues globally and promoted initiatives aimed at the adoption of sustainable forest management practices by governments. Deliberations at the Conference led to the Rio Declaration designed to protect the integrity of the global environment and development system. The Conference envisaged a new and equitable global partnership among States, key sectors of society and people to be established by cooperation and international agreements. The Declaration contained 27 general principles which apply to all activities, including forestry. It was supported by an outline for follow-up action to the year 2000 and beyond (Agenda 21), and also by agreement on the means of reporting progress. The mechanism for this was provided by the General Assembly of the United Nations, which established the UN Commission for Sustainable Development to monitor achievements and identify problems; this body subsequently set up the International Panel on Forests (IPF) to deal with issues concerning forests. Chapter 11 of Agenda 21 provides a four-point programme for combatting deforestation and appeals to all countries to formulate national forestry plans, using agreed international frameworks such as the Tropical Forestry Action Programme (TFAP) and, more recently, the Mediterranean Forest Action Programme. The deliberations of the IPF have led to intergovernmental consensus about priorities for action on forestry issues. The Rio Conference also agreed a Statement of Principles for the Management and Sustainable Development of all types of Forests. Although not legally binding, this is an authoritative declaration which has been followed up in several ways. Countries have been encouraged to adopt sustainable forest management policies and programmes, and international working groups have attempted to identify guidelines, criteria and indicators for forest managers to apply, which are suitable for use in various parts of the world. Sustainability is perceived to depend on a range of features; a number of conditions must be satisfied and processes maintained to protect the future flow of benefits for the community. Criteria attempt to describe conceptually these different aspects of sustainability they specify a set of standards for good management. Indicators enable the degree of success in meeting those standards to be measured and recorded. It has been realised that, as our understanding of what constitutes sustainability progresses, the lists of criteria and indicators will also change and be improved. Criteria and indicators are recognised as important tools for guiding and assessing progress towards sustainable forest management. They can be adapted to suit local conditions and the stage of development reached in different countries, and can provide a common framework for understanding and action at international level.

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The various lists of criteria and indicators that have been put forward relate to particular regions and are intended to operate at national level. The Helsinki Process, initiated by Finland, for example, led to a set of criteria for Europe, covering the principal boreal, temperate and Mediterranean forest types, which is intended to keep each countrys forests in a condition to provide a regular yield of those goods and services that society expects at present and believes that future society will need or want. A parallel approach, arising from the Montreal Process, which covered 60 percent of the worlds temperate and boreal forests, generated a more detailed list. Each criterion is supposed to represent a key component of sustainability, to be used in combination with all the others. Taken together, the criteria and indicators suggest an implicit definition of the conservation and sustainable management of forest ecosystems at the country level 27 . The lists resulting from these consultations are similar, except that the Montreal Process includes an extra legal, institutional and economic criterion. The criteria selected for the boreal and temperate regions are remarkably similar in their general coverage to the lists proposed for other parts of the world, although there are significant differences in detail which reflect local conditions. The same seven components, or groups of features, which are listed in Box 5.12, are represented in all of them. This suggests a broad measure of agreement between the various working groups and the possibility of arriving at a common framework of criteria for all countries. Differences between the lists are more pronounced among the indicators than the criteria. Some of these are due to physiographic variations; e.g. the criterion dealing with land and soil conservation in the FAO/UNEP list for countries in the Near East includes an indicator to measure the extent of combating desertification, while the comparable criterion for the Amazon region refers to the percentage of forest which is flooded. Other differences are caused by variations in interpretation, particularly with regard to socio-economic functions. Thus the Helsinki process focussed on forest resources, i.e. it was oriented towards the forestry subsector, whereas the Montreal process went further and included

Box 5.12 Components of sustainability included in criteria for forest management 1. 2. 3. 4. 5. 6. 7. Conservation of biological diversity Maintenance of forest ecosystem health and vitality Maintenance of productive capacity of forest ecosystems Conservation/protection of land, soil and water resources Maintenance of contribution to global carbon cycles Maintenance and enhancement of other socio-economic functions Legal, institutional and economic framework for forest conservation and sustainable management

Source: Based on data contained in Grayson & Maynard (1997).

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indicators such as the value added by downstream processing, employment in forest industries and investment, including investment in research and development, within the sector as a whole. Furthermore, in relation to the external framework in which the forest sector operates, i.e. the seventh component above, the connection between sustainability and some of the proposed indicators seems tenuous. No doubt it is desirable to promote public education and extension programmes about the forests (Montreal process), harmonize legislation (Amazon) and build up capacity for implementing international instruments (Near East), but the inclusion of these features as indicators has little direct bearing on the supply of outputs from the forest. Although a large amount of time and effort has gone into meetings of experts and the preparation of these lists of criteria and indicators for sustainable forest management, the scope of the discussions is unclear. Some of the items relate to forest resources, while others affect the development of the forest sector as a whole. In relation to the 3-point recipe for sustainable development suggested previously, most of the items are concerned with safeguarding the integrity and productive capacity of the resource base across a wide range of types of output. A small number refer to forest sector activities and their consequences, such as value added, employment generation and investment. The need to protect output choices, is not directly addressed, although the purpose of sustainable management is to meet consumers requirements, now and in future; therefore the criteria and indicators should allow for flexibility to deal with changing patterns of demand and new output combinations. Sustainability has become a fashionable concept, but its application to forest management still has some way to go and falls short of becoming sustainable development of the forest sector. The idea of setting standards for managing forest resources also faces difficulties in relation to the extent to which countries rely on trade in forest products and the level at which sustainability is assessed. At country level, some consumers needs are met by imports, which may come from unsustainable sources; reliance on trade tends to become greater as countries become richer and specialisation grows. Forest industries may depend on raw materials from elsewhere, as in Singapore and Hong Kong. In these circumstances, when sources are uncertain and future supplies are not guaranteed, can forest sector development be regarded as sustainable? Similarly, the management of a countrys forest resources may be based on exports, as in Finland and Fiji, and sustainability may be undermined if there are significant changes in overseas market requirements. Trade is beneficial because it broadens the range of outputs available to consumers and opens up new production possibilities for forest managers. However, it also has important implications for sustainability unless continuity of supply can be guaranteed across frontiers. At local level, sustainability may be impracticable due to uneven distribution of forest resources. Each area of forest land supplies a different mixture of outputs and cannot meet all requirements. If the forest resources of a country are fragmented, isolated areas in different districts may need to be managed as a group and felled

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in sequence to provide a sustained annual yield of timber for the region or even over the whole country. Local level self-sufficiency is likely to be uneconomic except for village needs; internal trade provides economies of scale with most processed goods. With the service functions of forests, such as climate amelioration and biodiversity, the benefits are international and it is necessary to assess sustainability on a global basis. Therefore the level to which criteria and indicators are applied is important and needs to be related to the type of output under consideration. Some of the impetus behind the search for appropriate criteria and indicators for sustainable forest management has come from consumers. Concern about tropical deforestation has led to resistance in the developed countries to buy timber obtained by felling natural forests and threats to boycott supplies derived from their unsustainable commercial exploitation. There has been a move towards product labelling and certification to restore consumer confidence in forest products. Products that are certified carry an assurance they have come from well- managed forests. Certification has generated a lively debate, revolving around self-regulation versus third party assessment of different management systems and whether sustainable forest management depends on specific standards or putting in place a system which aims at continuous improvement (see Box 5.13). The Forest Stewardship Council (FSC) is the main proponent of the standards approach, while the Canadian Standards Association (CSA), using the methodology of the International Organisation for Standardisation (ISO), has promoted continuous improvement. The FSC acts as an external arbiter of standards, while the CSA has identified the components of systems for ensuring sustainability, which involve audit procedures to ensure compliance 28 . A third contributer to the debate has been the International Tropical Timber Organization (ITTO), which has undertaken several specific studies relating to the tropical timber trade and tropical forests. These include the preparation of guidelines and criteria for their sustainable management, forest resource accounting to report on their condition, and certification of timber and timber products. The objectives of certification were said to be: first, to improve forest management and second, to ensure market access; ancilliary objectives include (a) control over illegal harvesting and unauthorised land use changes, (b) better collection of royalties, taxes and fees, and (c) increased transfer of funds to forest management. The scope of certification procedures has thus taken ideas about sustainable forest management a step further; it is now being recognised that sustainability is linked to the socioeconomic conditions in which managers operate and that it is a dynamic aim to be pursued flexibly to suit changing local conditions. In fact, sustainability is regarded as inseparable from good management. The pursuit of high standards of forest management, for which criteria, indicators and certification may be useful tools, is a dynamic process. Our perception of what constitutes sustainable forest management has changed and expanded over the course of the last century. As Prabhu 29 puts it we are thus faced with a moving target. It is necessary to follow an adaptive management philosophy that

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Box 5.13 Different approaches to certification of sustainably managed forests The Forest Stewardship Council (FSC) The Forest Stewardship Council is an independent non-profit, nongovernmental organization. It has been founded by a diverse group of representatives from environmental organisations, the timber trade, the forestry profession, indigenous peoples organizations, community forestry groups and forest product certification organizations from 25 countries. The FSC seeks to promote good forest management throughout the world, and will evaluate, accredit and monitor certification organizations which inspect forest operations and certify that forest products have come from well-managed forests. The FSC does not itself certify forest management or products; its mandate is to set a code of practice for certification, to accredit the certifiers, and to promote the development of national standards of forest management for the purposes of certification. The FSC principles, used for certification, are designed to ensure that forests of all types are managed in ways that are: environmentally appropriate; socially beneficial; and economically viable. The Canadian Standards Association Sustainable Forest Management System The CSA standard for Sustainable Forest Management (SFM) has grown out of the need to provide assurances that Canadian forests are being managed to an acceptable standard. The standard follows an environmental management system format hence the title SFM System. There are three essential inputs into a SFM System which can be audited: the current state of the forest (as defined by existing conditions and uses); stakeholder input related to the forest; the management goals and objectives for the forest. These three inputs, typically unique for each forest, dictate how the components of a SFM System are applied. The components of a SFM System, designed to manage the above inputs, are:1 commitment; 2 public participation; 3 planning; 4 implementation; 5 measurement and assessment; and 6 review and improvement.
Source: Upton & Bass (1995). The Forest Certification Handbook, pages 1312 and 138.

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embraces persistence, change and unpredictability. This depends on feedback so that managers know what is happening and can adjust their activities to meet changing circumstances. Relevant and timely information is required, organised in such a way that new standards can be set and continuous improvement can take place at the forest level. Criteria and indicators help to set the standards and meet these information needs. Sustainability then becomes embedded in management practice and evolves as management progresses. However, the perspective of forest managers still tends to be restricted, focussing on the forests rather than the forest sector. Forest managers are resource-oriented and see their role as the provision of a steady or increasing supply of goods and services of all kinds from the resources under their control. As the discussions about criteria and indicators show, sustainability is largely regarded by them as a technical forestry matter, although the management of forest resources cannot be isolated from activities in the rest of the sector or changes in the pattern of demand. From a sectoral standpoint, sustainability must be pursued in relation to forest sector resources, activities and outputs. Hence the recipe previously suggested, which is based on safeguarding the resource base, maintaining sector activities and preserving output choices, all with the aim of ensuring continuity in the supply flow. The whole of the flow should be considered, from forest to end-user, including all stages in between. A sectoral approach to sustainability and development depends on analysis of the composition and timing of the flow and cannot avoid comparisons between supply and demand for each type of output. The quantities made available and the amounts for which people are willing to pay should correspond as far as possible, both now and in years to come, in order to preserve the range of choices for future generations. The stream of outputs of all kinds needs to be matched to the diverse requirements of consumers. Over time, the quantities of outputs will alter and their proportions will be modified to suit changes in the consumer preferences and alterations in the expectations of society. Sustainable development of the forest sector depends on preserving this dynamic balance in the output flow and the degree of success achieved by managers the effectiveness of their management systems can be judged by the closeness of the match. Four features of the supply-demand balance are particularly important:(a) joint supply: some outputs are inseparable from others; supplying more of one leads automatically to more (or less) of others; thus carbon sequestration adds to biomass and is linked with timber production, while biodiversity is reduced by favouring prime timbers to the detriment of other, less-easily marketed species; forest managers have to deal with combinations of outputs with only limited scope for adjusting their proportions. (b) supply lags: the rate at which trees grow and the pace of ecological changes lead to delays before any action to alter output flows produces results; thus it may take twenty or more years before seedlings reach timber size, and longer to produce fruit to sustain fruit-eating birds such as parrots.

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(c) self-sufficiency trade: the extent to which a country or region seeks to be independent of others or to rely on trade to meet its requirements for forest products, affects the character and size of the forest sector; some outputs of services are global, as with climatic effects, while others, such as water supplies and river flows, may affect neighbouring countries; international imperatives are overtaking national rights and responsibilities in the management of forest resources. (d) preferences of consumers and society: both consumers incomes and the proportion spent on forest sector outputs change over time; similarly, the preferences of consumers and the distribution of their spending amongst traded outputs are likely to alter; expenditure to maintain services in the forest sector, some of which have no markets or prices, depends on social preferences expressed in various ways, which also change. Matching supply to demand over time is not an exact science. It involves looking into the future, to anticipate what is likely to happen and to prepare for expected changes. Forecasting is notoriously difficult and often proves wide of the mark, various assumptions have to be made and uncertainty about future outcomes is unavoidable. There are usually many possible ways of satisfying demand, each with its own set of costs and range of prices. The outcome of each option is, to some degree, unsure; the desired supply of outputs from the forest may not be forthcoming because of some ecological mishap, or be too expensive to produce; similarly users requirements may alter in unpredictable ways. Success in management terms depends on adaptability, altering assumptions and revising forecasts as the situation changes. It is necessary to keep pace with shifts in private and public preferences and periodically rebalance the supply and demand projections. Choices and compromises are unavoidable and sometimes deliberate strategies to reduce risk are needed. Sustainable management of the forest sector is, therefore, a task of considerable complexity. The forestry profession was guided in the past by sustained yield and has recently turned to sustainable forest management. Sustainability, as a concept, began in Europe in the 18th Century to regulate timber production and has been extended in the twentieth century to cover all the goods and services obtained from forest resources. Foresters have applied it to the domain they controlled, i.e. to the forests in their care. The concept should now be extended beyond the forest boundary, to apply to the sector as a whole. This makes sustainability also the responsibilty of industrial managers, merchants and farmers. Forest managers can no longer act alone; they must cooperate with others to ensure that the principle of sustainability is adhered to. International agencies, national governments, beaureaucracies, corporations, voluntary bodies and individuals are all concerned, in one way or another, with the resources, activities and outputs of the sector. This shift in perspective poses a new set of questions. How are sectoral affairs managed? Who is responsible for controlling them? What kind of institutions are necessary and how best can they be organised? These matters form the subject of the next chapter.

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The forest sector provides a diverse assortment of tangible and intangible outputs. Resource availability determines the output possibilities; the preferences of consumers and society prescribe the outputs that are desired. The actual outputs that are forthcoming represent a compromise between supply push and demand pull. Wood and non-wood products are produced and also a range of services. All outputs possess value, even though some have no market prices. Their value depends ultimately on end users willingness to pay, either directly or indirectly. The value of manufactured products at earlier stages in the processing chain depends on derived demand. Wood is the basis for a very large and varied group of outputs, which far outstrip all other types of forest produce by quantity and value. World production of wood products reached US$391 billion in 1993, 63 percent from developed countries. Output growth continues, relatively slowly for sawnwood, fastest for pulp and fibre-based products. Non-wood products are widely used for local consumption, which is often unrecorded. Some have been commercially exploited on a larger scale and are traded internationally. Service outputs include recreational, protective and cultural uses of the forest. They also include option values based on their possible future use and existence values derived from their perceived intrinsic worth. Demand represents the influence of individuals and the community on output flows and the composition of the output mix. The basis of demand is the value people choose to put on the outputs; their values indicate their relative importance to users and society. Total demand for forest sector goods and services is restricted by the communitys willingness to pay for them and peoples willingness to forego other types of goods and services. Outputs which are traded can be valued by the money paid when they are bought and sold. Market value is the product of the quantity and the price at which transactions occur. The main influences on demand, apart from price, are changes in population, incomes, tastes and technology. Demand fluctuates according to the general level of business activity. The demand for environmental services is sometimes influenced by market forces, as with forest recreation, in other cases by imputed values for benefits which cannot be traded. Public opinion and political influence affect the willingness of governments to pay for outputs that are not subject to market forces. Supply represents the influence of resources on outputs. Outputs are produced in various combinations, depending on the nature of the resource and the degree of intervention in their ecosystems. Human intervention may be constructive or destructive. Uncontrolled exploitation is liable to lead to loss of resources ability to produce future outputs. Constructive interventions involve choice of

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outputs and purposeful resource management to increase outputs in the desired proportions. Sustainable development is about providing safeguards for the future and making people better off. Sustainability, in relation to the forest sector, is concerned with continuity of present and future supply across generations. It takes place in a dynamic setting and depends on the way that sector activities are managed. A recipe for sector sustainability involves safeguarding the resource base, maintaining its activities and preserving output choices. Sustainable forest management is focussed on forest resources. It is now seen as multipurpose management based on preserving the integrity of the forest ecosystem. There have been numerous international initiatives to identify guidelines, criteria and indicators of sustainability, and attempts to introduce certification procedures with the object of raising management standards and satisfying public concerns. A sectoral approach to sustainability and development depends on analysis of the whole output flow from forest to end-user, not just the management of forest resources. It involves comparisons of supply and demand over time, with particular attention to four features: joint supply, supply lags, self-sufficiency v trade, and changes in the preferences of consumers and society. Uncertainty about the future is inevitable, and sustainable development relies on the ability of managers to update their forecasts and adapt to change.

FURTHER READING Mathers book (Global Forest Resources. Belhaven Press: London, 1990) deals with the outputs as well as the resources of the forest sector and puts their development in a historical perspective. FAO publications are the most important source of output data and future projections, notably Forestry Statistics Today for Tomorrow: 19611991 2010 and Forestry Statistics Today for Tomorrow: 19451993 ..2010, published in 1993 and 1995 respectively. Blueprint for a Green Economy (Earthscan: London, 1989) by Pearce, Markandia and Barbier deals with issues of environmental value from an economic point of view and discusses sustainability. The Report of the Brundtland Commission should be read by everyone concerned with sustainability at the global level (Our Common Future. Oxford University Press, 1987). Grayson & Maynard reviewed international moves towards sustainable forest management in The Worlds Forests Rio + 5: International Initiatives towards Sustainable Management. Commonwealth Forestry Association, Oxford, 1997. The Forest Certification Handbook (Earthscan, 1995) by Upton & Bass, covers many of the same issues and deals with certification in more detail.

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1 Jack Westoby. The Purpose of Forests. Basil Blackwell Ltd, Oxford (1987), pages 2223. This diagram was originally published by FAO in 1962 as part of this authors classic paper on the role of forest industries in economic development. 2 FAO. Forestry Statistics Today for Tomorrow: 19451993 ..2010. Food & Agriculture Organization of the United Nations, Rome (1995). 3 FAO. Classification and definitions of forest products. Food & Agriculture Organization of the United Nations, Rome (1982). 4 Alexander Mather. Global Forest Resources. Belhaven Press, London (1990). 5 W.R. Fisher. Forest Utilization. Schlichs Manual of Forestry, volume 5, 2nd. edition, Bradbury, Agnew & Co, London (1908). 6 FAO. Editorial for Unasylva, 42, (165), 1991, page 2. 7 Michael Richards. The potential of non-timber forest products in sustainable natural forest management in Amazonia. Commonwealth Forestry Review, 72 (1), 1993, pages 2127. 8 Simon M. Saulei and John A. Aruga. The status and prospects of non-timber forest products development in Papua New Guinea. Commonwealth Forestry Review, 73 (2), 1994, pages 97105. 9 Robert Reppeto. The Forest for the Trees? Government Policies and the Misuse of Forest Resources. World Resources Institute, Washington (1988). 10 Leo Lintu. Marketing non-wood forest products in developing countries. Unasylva, 46 (183), 1995, pages 3741. 11 FAO. Terminology, definition and classification of forest products other than wood. Paper presented at the FAO/Government of Indonesia Expert Consultation on Non-Wood Forest Products. Yogyakarta, Indonesia, January, 1995, pages 1727. 12 Alfred Runte. National Parks: The American Experience. University of Nebraska Press, Lincoln (1979). 13 Jan G. Laarman and Roger A. Sedjo. Global Forests: Issues for Six Billion People. McGraw Hill (1992). 14 David Pearce. An economic approach to saving the tropical forests. Chapter 9 in Economic Policy towards the Environment. Edited by Dieter Helm. Blackwell, Oxford (1991). 15 D.A. Pearce, A. Markandya and E.B. Barbier. Blueprint for a Green Economy. Earthscan, London (1989). 16 David Pearce. Blueprint 4: Capturing Global Environmental Value. Earthscan, London (1995). 17 W. McKillop.Supply and demand for forest products, an econometric study. Hilgardia, 38 (1), 1967, pages 1132. 18 Edward B. Barbier, Joanne C. Burgess, Joshua Bishop and Bruce Aylward. The Economics of the Tropical Timber Trade. Earthscan, London (1994). 19 Colin Price. The Theory and Application of Forest Economics. Blackwell, Oxford (1989). 20 FAO. Forestry Statistics Today for Tomorrow: 19611991 ..2010. Food & Agriculture Organization of the United Nations, Rome (1993). 21 David Pearce and Dominic Moran. The Economic Value of Biodiversity. Earthscan, London (1994). 22 Philip Stott. Dynamic tropical forestry in an unstable world. Commonwealth Forestry Review, 76 (3), 1997, pages 2079. 23 John O. Browder. Development alternatives for tropical rain forests. Chapter 3 in Environment and the Poor: Development Strategies for a Common Agenda. by H.J. Leonard and contributors. Transaction Books, New Brunswick and Oxford (1989). 24 J. V. Thirgood. Man and the Mediterranean Forest. Academic Press, London (1981). 25 J.E. Michael Arnold. Framing the Issues. Part I in Farms, Trees and Farmers. Edited by J.E.Michael Arnold and Peter A. Dewees. Earthscan, London (1996). 26 World Commission on Environment & Development. Our Common Future. Oxford University Press (1987).

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27 A.J. Grayson, A.J. and W.B. Maynard. The Worlds Forests Rio + 5: International Initiatives towards Sustainable Management. Commonwealth Forestry Association, Oxford (1997). 28 Christopher Upton and Stephen Bass. The Forest Certification Handbook. Earthscan, London (1995). 29 Ravi Prabhu. CIFORs research on criteria and indicators for sustainable forest management. European Tropical Forest Research Network News 21, September-October, 1997.

CHAPTER 6 ORGANIZATIONS AND INSTITUTIONS

The composition of the forest sector and the characteristics of each of its three main parts have been described in previous chapters. In this chapter the focus of attention shifts from parts to people. The sector is viewed from the standpoint of the men and women involved all those who control its resources, participate in its activities and receive its outputs. They contribute as individuals, but also collectively and more importantly, in organized groups and administrative units composed of people who collaborate for particular purposes. The sector consists of organizations of various kinds, including government departments, private enterprises and NGOs. Perceived as a whole, it is a conglomerate made up of different units or groups, each having a particular role and contributing in a distinctive way to the wide range of activities which collectively distinguish the forest sector as an economic and social entity. Human organizations are social systems of varying degrees of complexity. The forest sector contains a set of organizations, each of which is a distinct social unit. Seen in its entirety, the sector is also a large, complex social system which therefore can be regarded as a rather amorphous organization at a superior level. The sector has a multi-level structure, with subordinate organizations at subsector level and below linked to each other through their activities and outputs. Together, they form a recognisable whole, which displays its own set of distinctive sectoral characteristics. The distinguishing feature of the sector is its dependence on forest resources. All the subordinate organizations which make up the sector, are involved, directly or indirectly, with forest-based activities. This dependency is obvious in the case of the individuals, groups and organizations engaged in forest management and tree growing; similarly, those employed in logging and other forms of forest harvesting rely on outputs from the forest. Direct dependency also extends further along the chain of production to organizations engaged in primary processing, secondary manufacturing, construction and overseas trade, which utilize wood and non-wood raw materials derived from the forest. The connection between forests and other organizations, which do not form part of the productive process, such as cooperatives and trade unions, is indirect; they serve the interests and protect the rights of people engaged in forest sector activities. Environmental NGOs seek to safeguard forest 149

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resources by influencing public opinion and the media, altering the way forestry affairs are handled by governments, landowners and industrial enterprises; industrial NGOs look after industrial interests and may pursue different aims. The forest sector is a loose conglomerate, held together by the interactions between organizations within it and by an institutional framework which supports its activities and controls its behaviour. Reliance on forest resources acts as a unifying influence. Market transactions connect organizations which manage forest resources to those that sell forest products; similarly, interactions between NGOs and other non-commercial bodies pervade the sector. All its participants have a common interest in preserving and protecting the forest resources on which their activities and prosperity depend, but different ideas on how that is to be done. The institutional framework regulates sectoral affairs by means of an infrastructure of policy, custom and law, allocates financial resources, and provides services, such as education and research. It contributes to the maintenance of harmonious relations within the sector and supplies leadership. The behaviour of forest sector organizations and the institutional framework within which they operate can be influenced, for better or worse, by human intervention in sectoral affairs. The organizations which make up the sector have a mutual interest in promoting changes from which they can all benefit. Due to the interactions within the sector, it is necessary to manage it as a whole in order to obtain the benefits of synergy. A holistic attitude therefore implies the adoption of a comprehensive approach to sector management and the promotion of organizational change within it. As the forest sector is a voluntary association of member organizations, its development must be based on consent. The organizational and institutional foundations for sector management are presented in the first two sections of this chapter. Section 6.1 deals with the way the sector is organized and the types of organization of which it is composed; Section 6.2 describes the sectors institutional framework and the functions it performs. The third section considers how best to manage the forest sector and develop its potential. 6.1 ORGANIZATIONS

When people associate in groups to undertake particular activities, as in the forest sector, they are said to be organized. Organization refers to group activities carried out in an orderly fashion; the groups which carry out these activities are called organizations. The members of each group share its workload, are responsible for its performance and contribute to its achievements. Some groups are highly organized and adopt formal working arrangements, others are loosely structured and informal. They vary in size from small families to large corporations with hundreds of employees. Organizations are social groups that display organized behaviour (see Box 5.1). Each organization is a distinct unit, able to function separately, with its own internal distribution of power and authority, set of human relationships, aims and aspira-

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Box 6.1 Organizations Organisation is understood generally either as an activity containing a multitude of factors that lead to a meaningful whole, or as an orderly system of people and assets, which can contribute decisively to the solution of a task
Source: Tropical Forestry Handbook, vol. 2, page 1633.

All organisations have some function to perform. Organisations exist in order to achieve objectives and to provide satisfaction for their members. Organisations enable objectives to be achieved that could not be achieved by the efforts of individuals on their own. Through co-operative action, members of an organisation can provide a synergistic effect.
Source: Mullins (1996), page 70.

Organizational behaviour refers to the structure, functioning and performance of organizations, and the behaviour of groups and individuals within them.
Source: Pugh (1971), page 9.

tions, and sense of identity. Simple organizations contain a single social group, more complex organizations are made up of several groups working in combination. Large organizations are hierarchical and need a structure of power and responsibilities in order to provide leadership and control over lower level group activities. Organizations, large and small, can be associated to form compound organizations which display distinctive organizational characteristics of their own. The forest sector is a conglomerate of this kind. It consists of numerous separate organizations, each of which is, to a large extent, independent and self-regulating. Notwithstanding its diverse composition, the sector is an easily recognized entity which can be treated as a big, loosely-structured organization in its own right. Types of Organization There are many sorts of organization, which perform a wide variety of functions. They vary greatly in size, complexity, structure, behaviour and style. Several attempts at classifying them have been made, based on their different characteristics, such as type of authority, purpose, beneficiaries and activities. These general systems of classification provide background information and some insights into organizational behaviour. They provide a starting point for more detailed examination of forest sector organizations and the way they work. The sociologist Max Weber for example, distinguished between organizations according to the way in which authority is legitimized; he was interested in why people did what they were told 1 . He divided them into traditional, charismatic

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and bureaucratic organizations. The traditional type is characterized by custom and natural right to rule (as with hereditary monarchs, the pope or a paternalistic employer), authority in charismatic organizations is legitimized by belief in the personality and inspiration of the leader, and the bureaucratic type, which Weber regarded as the most efficient, is based on the acceptance of law, formal rules and procedures. It is useful to distinguish these types of authority for analytical purposes, although real organizations do not display them in pure form. Bureaucracy is most closely linked with government organizations and, in the forest sector, is associated with forestry departments and the ministries responsible for administering forest resources. However, bureaucratic characteristics are displayed by all large organizations which rely on set procedures to control the activities of their personnel. Classifications based on the purposes of organizations involve grouping them in various ways. Mullins distinguishes the following categories 2 : economic organizations (business firms), protective organizations (armies, police forces, trade unions) associative organizations (clubs and societies), public service organizations (local authorities and hospitals), religious organizations (churches). He also distinguishes political, educational, military and voluntary organizations. Many organizations do not fit easily into a classification of this sort and others are multi-purpose. In the forest sector, NGOs might be classed as associative or protective or political. Similarly, government forest departments have public service and protective functions. While it may be useful to separate commercial from noncommercial organizations or private interests from government, these distinctions are inadequate to describe fully the sectors composition, or to represent the diversity of its social groups, the differences in their structure, and the variety of interests they represent. Similar shortcomings are evident in classifications based on primary beneficiaries, (excluding benefits accruing to managers). Four types of organization can be identified according to who receives the benefits 3 : Mutual-benefit associations, where the prime beneficiary is the membership, such as political parties, trade unions and professional associations. Business concerns, where the owners and top management are the prime beneficiaries, such as industrial and other firms which are operated for profit. Service organizations, where the client group is the main beneficiary, such as hospitals, schools and welfare agencies. Commonweal organizations, where the prime beneficiary is the public-at-large, such as central government departments, the armed services and the police. The prime beneficiary is not necessarily the only beneficiary. Thus companies may contribute to charity as well as making profits for their owners, and forestry departments provide services, e.g. facilities for tourists, as well as public benefits, such as biodiversity conservation. All four types are represented in the forest sector.

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A system of classification based on primary activities has been suggested by Katz & Khan, which divides organizations into four classes 4 : Productive or economic concerned with the creation of wealth, the manufacture of goods, and the provision of services for the public. Maintenance concerned with the socialisation of people to fulfil roles in other organizations and society, e.g. schools and churches. Adaptive concerned with the pursuit of knowledge and the development of ideas, e.g. research establishments. Managerial or political concerned with adjudication, co-ordination and control of physical and human resources and other sub-systems, e.g. government departments, trade unions and pressure groups. The forest sector contains examples of all four. However, it is often difficult to decide to which group an organization should be assigned; forestry departments are frequently involved in all of them. Forest Sector Organizations These general categories are not capable of describing fully the rich variety of organizations and interest groups found in the forest sector. They provide some useful information about types of activities, their purposes and beneficiaries, but a more detailed scheme of classification, is required to explain adequately the wide variety of sectoral interactions and behaviour. Each subsector performs particular functions and contains a different assortment of organizations adapted to those functions. Therefore detailed analysis of the various types of organization present in the forest sector should be based on a subsectoral framework. The organizations and informal groups which make up the subsectors are listed in tabular form in the following pages. The tables indicate the form of ownership, the primary purpose, type of activity and main beneficiaries of each organization or group. The lists are not intended to be exhaustive, but serve to demonstrate the variety of organizational forms found in the forest sector. Neither is the scheme of classification very precise, because the organizations actually present in many countries do not fit neatly into the categories shown. Some categories are likely to be missing or combined with others. In some cases the scope of a particular organization may be expanded to include a wider range of activities within the same subsector, as with some forestry departments in developing countries which, besides managing the national forest estate, also undertake extension work to promote tree growing on agricultural land. Sometimes an organizations activities extend across subsector boundaries; e.g. large forestry corporations frequently use their forests to supply raw material to their own mills and construct storage facilities from which to distribute the forest products they have manufactured. Sector boundaries are also blurred. Some organizations are active both inside and outside the forest sector, as with trade unions which represent equivalent grades of workers in several sectors (e.g. clerical staff in the civil service). Similarly, farmers engaged in agroforestry are included in two sectors only their tree growing

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activities form part of the forest sector. Many companies operate in several sectors, taking advantage of similar manufacturing technology or the same distributional facilities to supply a variety of products in the same markets. Profitable opportunities to invest in other sectors may encourage a forest sector enterprise to enlarge the scope of its activities. In this way, successful small companies can grow into large corporations, regardless of sectoral and even national boundaries. Whether an organization or group is included in the forest sector is a matter of convenience; it depends on the extent of its dependency on forest resources and joint membership of several sectors is not precluded. Table 6.1 provides an organizational profile for the forest management subsector, which shows the types of organizations and interest groups represented, with their characteristics. In most countries, forestry affairs form part of the portfolio of a government ministry with wider responsibilities, such as agriculture or the environment. The agency which looks after forests on publicly owned land may be a forestry department within that ministry, or a semi-autonomous forestry authority appointed by the minister, such as the Forestry Commission in Britain. In countries with federal constitutions, forestry responsibilities are usually shared with the states, as in the USA, where the US Forest Service manages national forests throughout the country and each state government has its own forest department to run the states forests. In some places (e.g. Malaysia) the central government employs staff and is responsible for forestry research and education, while the states control the forests. The arrangements vary from country to country, depending on various features such as the system of government, the relative importance of forestry matters in the national economy and the pattern of land ownership or tenure. There is no standard or best way of administering a nations forest resources and the profile is a generalized representation of the organizational features that are commonly present. Pettenella 5 has identified four models which describe the organizational arrangements for dealing with forestry by governments. In some countries forestry matters are the concern of a Ministry of Agriculture and Forestry or a Ministry of Rural Development; this model focusses attention on the role of forestry in the rural economy. A second model, applicable in countries where forestry is given considerable political and financial support and forest-based industries are important, is based on a separate Ministry of Forestry. A third type found in some countries such as Argentina, divides responsibility for forestry matters between two ministries: a Ministry of Economics, Finance or Planning, which is in charge of the commercial aspects of productive forestry, and a Ministry of Environmental Resources which looks after forest protection. The fourth type considers forests primarily as a provider of public goods and services, and allocates responsibility for them to a Ministry of Environment, or Ministry of Natural Resources or Ministry of Watershed Management and Forests. Pettenella points out that the effectiveness of the administrative arrangements depends heavily on inter-ministerial coordination and the avoidance of disputes. In practice, the type of model and the names of the

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Main beneficiaries

Government ministry with overall responsibility for forest resources Federal and state forestry departments Other national and local government agencies with forestry responsibilities Organizations engaged in promoting community and farm forestry Forestry companies and corporations Owners of forests and woodland Farmers and agriculturists Tree growers cooperatives and participatory forestry schemes Forest dwellers and shifting cultivators NGOs concerned with conservation and other special interest groups Forestry consultants

Public

Administration, coordination and policy making Management of forest resources Protection and management of forest resources Promotion and advisory services Forest management Forest management Farm forestry, woodlots and shelterbelts Technical support, credit and marketing

Public-at-large

Public

Public

Conservation, production and amenity Conservation, production and amenity Production and amenity Production Production and amenity Production and amenity Production and provision of services Production Conservation and amenity Provision of services Provision of services Provision of services

Consumers, industrial users, employees Consumers, industrial users, employees Local communities, consumers Owners, industrial users, employees Owners, users, employees Owners, local communities, users of produce Members, users of produce, consumers

Mixed

Private Private Private

Mixed

Private Private

Subsistence Publicity and public awareness Management and advisory services Information, promotion and standards Negotiation and representation

Forest people Members, general public Consultants, employees and clients Members

Private

Professional forestry associations Trade unions representing forestry employees

Private

Private

Members

ministries are less important than the political support, provision of finance, degree of commitment and competence of the staff. The profile distinguishes between the governments general responsibility for forestry affairs and its particular responsibility for managing forest land owned by the nation; the former tends to be carried out at ministry level, whereas the latter

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Chapter 6

Box 6.2 Separation of functions in the UK Forestry Commission The Forestry Commission as Forestry Enterprise develops its forests for the production of wood for industry, manages its estate economically, protects and enhances the environment, provides recreational facilities, stimulates and supports employment and the local economy in rural areas by the development of forests and the wood-using industry, and fosters a harmonious relationship between forestry and other land using interests, including agriculture. The Commission as Forest Authority advances knowledge and understanding of forestry and trees in the countryside, develops and ensures the best use of the countrys forest resources, promotes the development of the wood-using industry, endeavours to achieve a reasonable balance between the interests of forestry and those of the environment, undertakes forest research, combats forest pests and diseases, and advises and assists with plant health, and safety and training in forestry. Finally it encourages good forestry practice in private woodlands by administering grant-aid and felling controls, as well as through forest research and advice.
Source: Hart (1991), pages 12.