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Changing trends in forest policy in Latin America: Chile, Nicaragua and Mexico

G. Castilleja

Guillermo Castilleja is a senior programme officer with the World Wildlife Fund-USA (the United States affiliate of the World Wide Fund for Nature).

An analysis of changes in forest policies in three Latin American countries which are largely the result of changing market situations, increased environmental sensitivity and consciousness of the rights of indigenous landholders.

Until recently, Latin American countries were characterized by a relatively closed market for forest products. Despite a growing stock, which was twice the size of that of Asia and the Pacific combined, in 1980 Latin American countries exported forest products for a value of less than one-fifth of those of Asia and the Pacific (World Bank, 1992). By the mid-1980s, however, the growth of the paper industry in Chile and Brazil pointed to the region's unrealized potential, with growth rates in those countries' exports from 1980 to 1986 of 10 percent and 19 percent, respectively (World Bank, 1992). In Chile alone, forestry exports have almost doubled in the last two years to around US$1.2 billion in 1992 (Anon., 1992).

The Chilean success has strongly influenced countries such as Colombia, Venezuela and Mexico which are now promoting export policies similar to those that have been credited with boosting the sector in Chile. Reasons for optimism about further development of the sector in Latin America include not only an expanding Asian market for long - and short-fibre pulpwood, for which the region seems to enjoy a comparative advantage (Reed, 1992), but also the expectation that, within the coming decades, Latin America should replace Asia as the world's major exporter of tropical hardwoods (Grainger, 1987). However, an unanticipated public pressure is forcing policy-makers to recognize that their goal of promoting investment in the sector needs to consider values other than just those of strictly commercial worth.

Recognizing environmental values

The recognition of environmental values is crucial in forest management, particularly in areas with rich or unique biodiversity and/or where logging is especially risky (Panayotou and Ashton, 1992). Public dispute over this issue often centres on whether a given area should be declared "off limits" for commercial logging. Forestry institutions, which were unaccustomed to public participation and often concerned about the financial losses that result from removing controversial areas or resources from production - responded at first in a defensive manner. More recently, however, forestry institutions in Latin America have initiated planning exercises in some cases promoted through the Tropical Forests Action Programme which establish forest categories such as conservation, protection and commercial production areas. Although gazetting per se is not synonymous with conservation, the total area of forest that is legally protected from commercial logging and conversion has increased significantly in Brazil, Mexico, Nicaragua, Colombia and Ecuador.

In spite of the high set-aside costs, the establishment of parks and protected areas has not eased environmentalist pressure on the logging industry. Perhaps an even greater challenge has been the call to introduce sustainable forest management - a principle seldom practiced in Latin America (Synnott, 1988). Technical concerns aside, the challenge has not so much been to decree legislation citing forest management plans as a requisite for obtaining logging permits (the new forestry legislation passed in Mexico, Honduras, Nicaragua and Chile includes such a requirement). Perhaps the greatest challenge to sustainable forest management is that it requires greater oversight by the forestry authority at a time when public policies are promoting economic growth through deregulation and reduced involvement of the state in commercial activities. Furthermore, trade incentives for sustainable forest management are still inoperative in many cases, since the higher costs associated with forest management are not yet commonly compensated by greater access to markets.

The status of indigenous communities

A second issue emerging for policy-makers as they try to promote investment in the forestry sector is the status of indigenous territories with regard to forest resource tenure. Over 80 percent of the forested areas in Latin America are under state ownership (FAO, 1982) and, in most countries, forest resources - whether they be located on private or public land belong to the nation (Katz, 1975). Timber concessions granted by the state are therefore a common means by which investors have gained access to large-scale forested areas.

Concession-granting policies, however, seldom recognize the customary land use and ownership of indigenous people living on "public lands". For instance, while most of the forest area in the Honduran Mosquitia is considered by the state to be national territory, a mapping of indigenous territories shows that only a small fraction of the area is unclaimed (Herlihy and Leake, 1992). Yet, indigenous communities in the Mosquitia do not possess any legal documentation securing their rights to these forests. This discrepancy is potentially explosive, as demonstrated by the recent public reaction against attempts by the Honduran Government to grant forest concessions in the Mosquitia to foreign logging companies. The conflict between legal and customary access to forest resources has also emerged in Bolivia, Ecuador and Colombia and, increasingly, it is forcing policy-makers to integrate the rights of the indigenous communities into national forest policies.

The degree to which environmental and indigenous concerns have shaped national forest policies varies from country to country. However, since countries in the region share many of the same problems and have a similar legal framework in which to resolve them, solutions found in one country are likely to be relevant in others. The following cases illustrate specific aspects of how national forest policies have recently been shaped by the different challenges that forestry in Latin America currently faces.


The dramatic growth of the forest industry in Chile is an oddity in the context of Latin America and, in the eyes of some countries, a model to replicate. Between 1970 and 1990, exports of forest products grew from US$41.7 million to $855.3 million, and estimates for 1992 put this figure at $1.2 billion (approximately 10 percent of Chile's total exports). This growth has been fuelled primarily by the massive establishment of Pinus radiata plantations and has been promoted by the increasing demand for Chilean pulp, paper and sawnwood in Japan and Europe. By 1992, more than 1.4 million ha in southern Chile were covered with commercial forest plantations and it is estimated that this area will increase by 75 000 ha each year. As it grows, the plantation-based forest industry in Chile is diversifying its production base and has now incorporated eucalypts into plantation schemes and native forests for the production of wood chips.

The incentives for such growth are largely attributable to a series of specific public policies dating back to the Chilean Forestry Law of 1931 which promoted the first large-scale plantations through comprehensive tax exemptions for reforestation activities (CORMA, 1991a). During the Unidad Popular coalition government in the early 1970s, the state was directly involved in a massive reforestation effort which created thousands of jobs and established the resource that supplies the current private forest industry. The military government which followed reoriented the reforestation incentive system, making it more attractive to the private sector. Under the Decree Law 701 (valid until 1994), the costs of the establishment of a plantation are subsidized by up to 75 percent, there are no property taxes and income taxes have been reduced by 50 percent. Decree Law 701 primarily benefits large-scale operations and attracts private capital by declaring that the planted areas cannot be nationalized. While the subsidies and tax breaks increase the rate of return of the investment, some argue that the key incentive to plant is the land tenure security that the investor enjoys (Vincent and Binkley, 1992).

Environmental groups have systematically countered the impressive exports obtained through this incentive system with criticism of the resulting environmental costs. Although Decree Law 701 does not allow, in principle, the destruction of native forest for the establishment of forest plantations, there is evidence that at least 100 000 ha planted involved forest conversion (Cavieres and Lara, 1983). The loophole seems to be found in a clause of the decree that gives the forestry authority the possibility of approving conversion in areas where the native forest is "not suitable for commercial harvesting" (Government of Chile, 1979).

Issues related to native forest conversion

There are 12 types of native forest in southern Chile, including South America's only temperate rain forest and the endemic Nothofagus mixed forests (Rottmann, 1988). The replacement of native forests is becoming a contentious issue since the Chilean forest industry is rapidly increasing its exports of short-fibre wood chips, now using native forests and eucalypt plantations as a resource base (CORMA, 1991b). With this technology and market, investment returns can be accrued starting from the first year, as opposed to cases where the only marketable product was the wood produced on the plantation. This scheme, however, was seriously challenged recently when a Chilean-Japanese co-investment venture planned to log (and sell as chips) more than 10 000 ha of native forest and then to convert it into a eucalypt plantation in the Valdivia province (Maxudov, 1989). Environmental groups, both national and international, mounted a campaign that forced President Aylwin to halt the plan.

Following the Valdivia conflict, the Aylwin administration instituted a process to establish clear policy guidelines to regulate more than 5 million ha of privately owned native forest. While the main components of the forestry policy that was established under the military government have not changed under the new, democratic administration, the process of policy-making seems to have become more open and the views of the environmental community have been more widely heard (Loveman, 1991). As part of the elaboration of the forthcoming Native Forest Law, the government has formed an ad hoc commission to negotiate between key actors (including industry and non-governmental organizations) and to try and obtain consensus on the future of native forests. The proposal that has emerged allows a degree of forest conversion (25 percent of the areas with less than 45 percent slopes), offers incentives for its management (as opposed to its replacement) and provides support for small- to medium-sized owners (addressing, unlike Decree Law 701, social equity) (Government of Chile, 1992).

For some groups, this proposal is still inadequate since its enactment would allow the conversion of up to 800 000 ha of native forests. On the other hand, the forestry industry has complained that the lack of policy definition inhibits investment in the sector. A lack of government interference and policies promoting large-scale investment were supposed to be the cornerstones of the industry's development. The results of the current debate on the bill will reveal the extent to which sound environmental standards and a vigorous forestry industry can be reconciled through participatory processes.


Nicaragua is the Central American nation that has the largest expanse of production forests, with approximately 2.5 million ha of tropical hardwood forests and 0.5 million ha of coniferous forests. Most of this area is found on the Atlantic plains, a region sparsely inhabited by Misquito, Sumo and Rama indigenous communities which have traditionally considered themselves separate from the mestizos on the Pacific side. Together with the extension of the Atlantic plains into the Honduran Mosquitia, this region contains the largest contiguous forest tract in Central America.

The resources of the Atlantic region have attracted all kinds of traders, from British and American logging companies in search of mahogany, Spanish cedar, and old-growth Caribbean pine stands early this century, to the American fruit companies in the 1940s and 1950s and the timber companies currently operating in the Caribbean and Central America.

Moving away from large-scale concessions

Before the Sandinista takeover in 1979, most of these operations were conducted through large-scale concessions granted by the government in the assumption that those lands were national property. These arrangements resulted in cut-and-run forestry practices which seriously degraded the forest stock particularly the pine stands - and produced few lasting benefits for the Atlantic region's economy.

Once in power, the Sandinistas revoked all concessions on natural resources and passed a law in 1981 to abolish the concession system. The government took direct control of the forest sector through the Corporación Forestal del Pueblo (CORFOP), which was in charge of the harvest, processing and sale of timber from public lands.

The relatively high export levels of forest products during the Somoza years fell from US$70 million in 1976 to little over $3 million in 1980. With the war and the subsequent economic isolation of Nicaragua during the 1980s, exports of forest products, mostly sawnwood, were further reduced to less than $500 000 in 1986 (Araquistain and Nuñez, 1990; Morales and Daloia, 1991).

After its electoral victory over the Sandinistas in 1990, the Chamorro government redirected Nicaragua's economic policies, giving a greater role to the private sector, promoting exports and creating incentives for foreign investment. As CORFOP was being dismantled, international private investors returned, seeking forest concessions in the Atlantic region. Cognizant of the dire economic situation of the country, many of these investors assumed that the government would approve virtually any deal.

A pine plantation in Nicaragua, the central American country that has the largest expanse of production forests

The first serious proposal for investment in the sector came in 1991 from a Taiwanese firm seeking a forest concession of 250 000 ha in the northern Atlantic region. Caught between the new economic scheme and the Sandinista legislation, the decision-making process was at best confused. The impression that a corrupt deal with important environmental and social consequences was being struck, however, triggered a major public protest. Those opposed to the Taiwanese concession argued that large-scale logging would accelerate forest degradation and loss of biodiversity. A more political concern was that the central government was granting a concession without consulting either the regional government (which has an autonomous status) or the indigenous communities living without land titles in areas proposed for the concession.

Establishment of a forestry commission

Environmental groups, both local and international, mounted an intense campaign that quickly spread worldwide. Eventually, in an effort to dispel the image of a Somoza government concession, the Nicaraguan Government decided to establish a forestry commission, integrating government agencies and non-governmental organizations (NGOs) to evaluate the merits of the Taiwanese proposal. The commission deemed the proposal unacceptable on technical grounds and the government formally and publicly rejected it, noting that the proposed operation neglected the rights of the indigenous communities and lacked "a protection plan against environmental degradation" (IRENA, 1992).

This case was crucial for defining the forest policy of Nicaragua under the new economic policy. As part of its deliberations, the forestry commission recommended the elaboration of a set of procedures for approving large-scale logging operations. In the meantime, no concession proposal could be approved. The new Forestry Regulation, to be adopted this year, allows and facilitates foreign investment in the sector, placing a strong emphasis on forest management, local processing, environmental protection and the rights of local communities. Reversing the previous policy, it grants ownership of the forest to the private landowner and creates an agency that is in charge of the administration of the public forested lands (IRENA, 1993).

As a test case for the new regulation, a request by a Dominican firm to log 40 000 ha in the northern Atlantic region is being evaluated by the forestry commission which has now become a permanent body, As a first step, the commission has recommended not to grant a concession on the grounds that the area in question may be, at least partially, the property of the Sumo community of Awas Tingni which is settled there. If the community is able to demonstrate possession of that land, according to the new regulation the trees belong to it. That being the case, the community could then choose to transfer its rights to the firm or sign a sales agreement for specified volumes of timber.

The intention of this policy is unprecedented, not only for Nicaragua but for other countries in the region where state forested lands are inhabited by indigenous communities. However, its implementation is currently complicated by the lack of a legal definition of the tenure rights of most indigenous communities in the Atlantic region. Cases like that of the Awas Tingni will show whether mestizo governments are willing to recognize legally the role of indigenous communities as stewards of the forests and, more important, whether these communities can successfully incorporate commercial forestry as part of their traditional practices.


Mexico's commercial forests comprise an area of 25 million ha of tropical broad-leaved and coniferous forests. The country, however, is a net importer of forest products. This paradox is largely due to the continued reduction of domestic paper pulp production. In terms of sawnwood and other processed products, supply meets demand, with almost no surplus left to export.

Indigenous land tenure

In contrast with most countries in the region, nearly 80 percent of Mexico's forested lands are owned by indigenous communities and "ejidos", a communal form of land tenure established by the revolution of 1920 to secure rural population access to agricultural lands.

The remaining forest lands are 15 percent private and 5 percent public (SARH, 1992). The Mexican Constitution establishes that, regardless of their land tenure, all forests belong to the nation. Timber harvesting, either by concessionaires or by ejido cooperatives, is regulated by the federal government.

For most of this century, commercial logging was carried out through concessions granted by the federal government to industries whose production, such as paper, was considered of public interest. The granting of timber concessions on ejido lands, however, eventually led to a conflict. The economic benefits for the ejido were minimal and, with little control by the state, commercial logging was resulting in forest degradation. At the beginning of the 1980s, as many concession agreements approached their expiration, several ejidos opposed their renewal and pressured the government to allow them to conduct the harvest of their own forested lands (Snook, 1986).

The Forestry Law of 1986 established the basis for the phasing out of concessions and the development of independent ejido forestry cooperatives. Decades of concession forestry, however, had established a pattern of timber extraction characterized by high grading according to size in pine forests and the intense creaming of mahogany and cedar in tropical forests. As a result, forestry cooperatives have commonly been left with degraded and impoverished stands whose sylvicultural needs are often beyond their technical and financial resources.

Promoting sustainable ejido forestry

There are some instances where community tenacity, political will and adequate technical assistance are promoting sustainable ejido forestry, both in temperate and tropical forests. The Union of Forestry Communities and Ejidos of Oaxaca (UCEFO), which manages 70 000 ha of pine forest, has started introducing shelterwood, seed-tree and other sylvicultural methods designed to increase forest productivity and help recover degraded stands which, for decades, were exploited by one single paper company (Lopez and Gerez, 1993). In Quintana Roo, several associations of forest ejidos - collectively known as Plan Piloto Forestal - manage as a group more than 250 000 ha of lowland tropical forest (Bray et al., 1993). With the support of the donor community, these ejidos are developing sylvicultural and marketing strategies to increase utilization of the lesser-known timber species, thus reducing their dependence on the production of mahogany and cedar from the already creamed stands. An important consequence of ejido forestry is that, as part of their cooperative arrangements, "ejidatarios" (ejido members) demarcate their permanent forest estate. In tropical areas, such as Quintana Roo, which are subject to high deforestation rates, this measure incidentally limits forest conversion.

Ejido cooperatives have succeeded in capturing a greater share of the value of the products extracted from their forests. However, the ability of most ejidos to integrate a production line vertically is limited and most forestry ejidos still rely on private sawmills, pulp plants and other industries. Furthermore, production costs in ejido cooperatives are relatively high and their products are not always delivered on schedule or are of the quality required by the buyers. This situation has created a mutual dependency between ejidatarios and the industry which is hard to resolve, partly because of political antagonism and partly because the market for forest products in Mexico has been slow to recover from the economic crisis of the 1980s.

Log extraction by an ejido cooperative in Quintana Roo, Mexico

In spite of the potential that ejido forestry has demonstrated in the last ten years, its future is uncertain. Mexico's new macroeconomic policy is forcefully promoting deregulation, private investment and open markets. The 1992 agrarian and forestry laws open the door to privatization of the ejido and to direct investment of the private sector in forest production (Government of Mexico, 1992).

While industry could provide the fresh capital that a number of ejido cooperatives need to streamline their production schemes, many feel that these joint ventures are not mutually advantageous and will set back the gains they have already made.

Free trade represents a further challenge to ejido forestry. Softwood prices (mill run) in Mexico are now up to 35 percent higher than those on the international market (Lara, 1992) and, even with the current tariff of 15 percent OR imported timber, Mexican buyers are increasingly purchasing imported products (Gonzalez, 1993). The incorporation of Mexico in the North American Free Trade Agreement is likely to result in an increased flow of cheap American timber to Mexico (Merino, 1992). Under these conditions, and in order to remain competitive, ejido forestry systems are likely to be increasingly forced to reduce their production costs. This could be accomplished in various ways. The question is rather whether it could be done without sacrificing the social and environmental achievements of ejido forestry.

The premise of decision-makers seems to be that a macroeconomic policy of deregulation, privatization and open markets will eventually lead, with some readjustments, to a better integration of producers and industry. The outcome of ejido forestry in Mexico should provide important lessons for other countries in Latin America.


These cases indicate that the forestry sector in Latin America has started a remarkable process of redefinition, both in terms of its ranking within the context of the global trade of forest products and in terms of the policy framework that regulates its production. It appears to be too early to determine whether the trends discussed here are pointing in any particular direction. Furthermore, the future of the sector, even if the most progressive policies succeed, is still greatly jeopardized by the rapid deforestation fuelled by extra-sectoral activities.

Trade, the environment and land tenure emerge from these cases as essential components of forestry policies in Latin America. A single formula for combining all of these elements is not yet evident. However, the examples of Chile and Nicaragua show that the dynamics of policymaking are the key to defining processes. Participatory processes, although sometimes marked by confusion and antagonism, are engendering the insights that decision-makers, in isolation, have not been able to provide.


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