By far the largest share of all forest plantation incentives goes to incentives to support the new planting or replanting of forest plantations Indeed, as noted above, the majority of plantation establishment has probably been carried out either by the government or as a result of incentives for establishment. However, the role that incentives have played in promoting forest plantation establishment remains controversial. For example, Keipi (1997), in reviewing the success of government plantation incentives in South America, suggests:
"In the cases of Brazil and Chile, the availability of adequate incentives for the establishment of forest plantations was a minor factor contributing to forest industry growth, once a critical initial mass of plantations was established (Beattie, 1995). For example, Wurster (1994) claims that subsidies had only a secondary impact in promoting plantations in Chile. More important factors have been comparative advantage and a favourable general economic environment."
Furthermore, Keipi suggests that the following five factors (broadly in line with Porter's theory of competitive advantage) are more crucial to successful forest plantation development:
1. political and macroeconomic stability;
2. trade liberalisation and open foreign investment;
3. clearly established property rights for land;
4. credible government with adequate capacity to enforce laws and administer incentive schemes; and
5. good natural growing conditions, proper technologies and basic infrastructure.
Conversely, Clapp (1995a), in a review of forest policies in Chile, suggests the following:
"Some policies were ineffective, others were effective but blunted by contradictory policies, and at least one was stunningly successful - the 75 percent reforestation subsidy established in 1974. In a generation Chile has created one of the world's most competitive forest resources..."
Clapp notes that the average annual afforestation rate in Chile between 1940 through 1974 was only 11,373 hectares, but that between 1974 and 1990 (when the subsidies were available)35 this increased to almost 80,000 hectares per annum. Nonetheless, Clapp suggests that it still remains unclear as to whether Chile's forest plantation policies were necessary or whether the free market would have generated reforestation without state promotion:
"Much of the Chilean debate over the plantations concerns the hypothetical costs and benefits of plantations without government subsidy and the justice of devoting public funds to the development of a privately owned resource. Advocates of the governmental subsidy, like Emilio Guerra (November 1990 interview, Temuco) of CORMA argue that the "high social return but insufficient private return" of reforestation justified the public expenditure. In addition, the subsidy is held to promote an ecologically appropriate use of deforested land, benefiting the environment as well.... It is equally difficult to evaluate whether the incentives were economically efficient, since estimates of the true costs of afforestation vary. A World Bank study found that afforestation would have been profitable even without the DL 701 subsidies; another study found that reforestation would have been unprofitable, absent a substantial rise in the price of wood. The opportunity costs of the public funds and the private resources attracted by the subsidies further complicate the issue."
Clapp concludes that the Chilean government may have paid more than necessary to establish forest plantations but that it achieved its purpose. However, he also raises the important philosophical point regarding subsidies, namely, whether the opportunity cost of using government revenues to stimulate investment in forest plantations can be justified. In particular, whether governments should be reallocating wealth through taxation and commercially driven subsidy programmes.
Similar questions can be raised with respect to taxation incentives and forestry loans. Tax incentives are often particularly criticised because they tend to encourage investment by those more interested in short term tax relief rather than in technically sound forestry practices (see again, Box 6 on page 70). In developing countries, tax incentives may also not be much use to small landowners, who probably do not pay income tax anyway. Forestry loans may reduce some of the economic distortions associated with subsidy programmes. However, their main disadvantage is the generally high transactions costs associated with administering loan programmes over the long-life of forestry projects.
Almost every significant national forest plantation programme appears to have been started by governments, or at least with a significant component of government participation. In part, this results from two important elements of industrial forest plantation development:
1. the long time between expenditure and income generation in a forest plantation; and
2. the need for the sector to develop sufficient critical mass before it can achieve long-run viability.
The first element is strongly identified with forestry investment more generally, while the second applies to a broad range of industries. However, in part, the two elements are related.
On reason for governments to become heavily involved in forest plantation development is to develop a critical mass of forest plantations, so that either these resources can be used to deliberately substitute for production form the natural forest or in response to a projected decline in harvests from the natural forest. In terms of the latter, at a national level, governments are generally best placed to recognise impending roundwood supply shortages, which may be evident up to 50 years before shortages become acute.
For example, Box 9 describes how such concerns provided the initial impetus for forest plantation development in New Zealand. The private-sector is less likely to respond to potential shortfalls over such a long time-horizon, particularly where substantial investment in research and development may be required. Thus, in New Zealand, not only was the government primarily responsible for the establishment of the forest plantation estate, but it also established the initial research and processing facilities to demonstrate that roundwood from the forest plantations that they were developing could be used in the forest processing industry.
Brown (1997) describes the genesis of plantation development in New Zealand.
A Royal Commission on Forestry...reported to Government in 1913. The report recognised that the natural forest was not inexhaustible, the existing methods of use were wasteful, and that natural forest species were not commercially suitable for afforestation. The Commission recognised that future needs would have to come from imports, or from large scale planting of introduced tree species.
In response to the findings of the Commission, a review of the country's natural forest estate was undertaken. The results of this survey, produced in 1925, confirmed the fears of the Royal Commission. Balancing the expected future total wood production from natural forests against anticipated future domestic requirements for timber revealed that the supply from natural forests would be exhausted by 1965 - 70. The remedial action put to the Government by the Director of Forests was to mount an extensive afforestation programme to increase the area of State planted forests.
Source: Brown (1997).
Once a country's forest plantation estate achieves certain critical mass, however, it can be more efficient to leave the private-sector to increase the forest plantation sector further. Thus, for example, New Zealand, Chile, Brazil and the United States of America all now have significant forest plantation estates owned and managed by the private-sector. Nonetheless, active government support for forest plantation establishment remains widespread (see, for example, Box 10), despite a noticeable trend towards governments tending to devolve commercial forestry operations to the private-sector or local communities.
The largest remaining government forest plantation establishment programmes are those of China and India.
In China, the central government was instrumental in establishing and managing the large-scale plantation programme, the bulk of which have been established under the 1980 Directive On Vigorously Carrying Out Tree-Planting And Afforestation Activities. At the same time, many of the provinces also commenced plantation establishment programmes. Shi et al (1998) cite the total area afforested by the State between 1949 and 1986 as more than 20 million hectares. More recently, the private sector and community role in plantation establishment in China has increased. Forestry loans and subsidies are available to private sector investors and several regeneration levy schemes have been implemented. Nonetheless, at present, the majority of plantation establishment is being carried out by the State in accordance with the Ninth Five-Year Plan (1996-2000) which plans for the establishment of 3.34 million hectares of plantations.
In India, around 70 percent of plantation establishment is carried out by the State. Ahmed (1997) notes:
The government funded afforestation activities have only reached a level of about 1.0 million hectare per year in degraded forest areas and around 0.50 million hectare per year in village commons and private lands under various afforestation schemes. In all the total annual afforestation efforts from all sources fluctuate between 1.0 to 1.3 million hectares.
India established a National Afforestation and Eco-Development Board in 1992 with responsibility for promoting afforestation, tree-planting and ecological restoration projects. The majority of new planting is on public lands under a 20 Points Plan for Afforestation. This programme also co-ordinates seedling distribution for planting on private lands.
Sources: Shi et al (1998) and Ahmed (1997).
Privatisation has been an increasingly fashionable direction for government policy since the mid-1970s. Globalisation, increasing pressures toward free-trade, efforts to balance government finances and perceptions that resource efficiency is improved by accessing private sector management skills and investment, have all caused a number of governments to rethink their reasons for involvement in productive sectors of the economy. Generally, this has resulted in the sale of some non-strategic nationalised industries. Forests have not been immune to this trend, although sales of publicly owned forests has not been a common event.
The strongest arguments for privatisation in the forestry sector have been put forward in cases where state forests are not perceived as producing very much in the way of non-financial (i.e. social or environmental) benefits, or where continued production of these benefits can be ensured by a strong regulatory framework. To date, only three countries have pursued forest privatisation to a great extent: Chile, New Zealand and the United Kingdom (see Box 11). In each instance, the forests sold have been forest plantations, planted largely with exotic species. This is not surprising since, from a social and environmental perspective, such forests are perceived by the public to produce much lower levels of non-financial benefits than natural forests. Experiences from all three countries show that not only is forest plantation privatisation feasible, but that it can also deliver a number of positive outcomes, both for government and for the forest industry. In none of the three countries has privatisation, in itself, created inordinate social, economic, or environmental problems. Not surprisingly, therefore, several other countries are examining options for forest plantation privatisation.
The Government of South Africa is currently proposing to withdraw from direct involvement in commercial forestry and is examining lease options for forest land. The majority of government-owned plantations in South Africa have been corporatised in SAFCOL, a parastatal company. This step parallels the privatisation process in New Zealand where the government's commercial forestry activities were first institutionally separated from policy functions and then sold to the private sector.
Forest plantation developments in South Africa, New Zealand, Chile and Australia have all followed a similar course (which might be called the "Southern Plantation Forest Model"). The fourth member of the group, Australia, is different from the other three in that the majority of its forest plantations are still owned by state governments (i.e. at the state level and not the national or federal level). Nonetheless, several states, including Victoria and South Australia, are reported to be examining forest plantation privatisation options.
A second group of countries examining and implementing forestry privatisation programmes is the former centrally-planned economies in Europe. Privatisation of state-owned businesses is widespread throughout Eastern Europe, though not particularly well documented. In the forestry sector, both Slovakia and Latvia are reported to have privatised significant areas of forest, as has Romania. In 1996, the area administered by state-owned forestry companies in Slovakia decreased by 655,000 hectares (Slovak Information Agency, 1997). The Government of Poland is reportedly proposing a comprehensive programme of forest privatisation and several other countries are doubtless contemplating similar programmes. In many cases, the issue is one of restitution (handing back lands and assets formerly nationalised by the state) as opposed to privatisation in the usual sense of the word.
A handful of developing countries, particularly in Africa (e.g. Uganda and Kenya) are also seriously considering privatising some of their forest plantations.
Chile was one of the first countries in the World to introduce a widespread policy of privatisation and was also the first country to embark on a policy of deliberate forest plantation privatisation. Forest plantations held by the Corporacion Nacional Forestal (CONAF) were sold, along with land, nurseries and machinery, during the period 1975-1979. An interesting side-effect of the new policy environment was a major acceleration in forest plantation investment by the private-sector. For example, as Clapp (1995a) notes:
The proportion of reforestation performed by the state fell from a high of 91 percent in 1973 to almost zero in 1979, while the rate of plantings soared. New plantation areas averaged almost 80,000 hectares annually from 1974 to 1990, more than 3 times the rate from 1960 to 1973.
The New Zealand experience in privatisation bears many similarities to that of Chile. Privatisation in New Zealand was first announced in December 1987. Government assets were to be sold with the primary aim of reducing public debt. Other reasons for state asset sales were also given, namely:
1. that government ministers are not good owners of businesses;
2. to avoid the possible need for future government investment;
3. to minimise the government's risk exposure in the business sector of the economy; and
4. to enable ministers to concentrate on matters of economic and social policy.
The criteria for asset sales were that taxpayers must receive more from the sale than they would from continued ownership and that the sale must make a positive contribution to the government's economic and social policies. A major objective in the forestry sector was to rationalise the estate and produce a more efficient, internationally competitive forestry sector. A particular concern was the need to provide security of supplies to processors in order to attract new investment into the industry.
This initial sales round was relatively unsuccessful: only two bids (for 72,000 hectares in total) were accepted. All other bids were rejected as being too low. However, the government later entered into round of negotiated sales that resulted in the sale of another 174,000 hectares. The third stage of privatisation was the sale of forests managed by the state-owned enterprise: New Zealand Timberlands. In April 1992, New Zealand Timberlands was sold to an American Company, ITT Rayonier. In 1997, the final phase of the plantation privatisation process was completed with the sale of the Forestry Corporation of New Zealand and its 190,000 hectares of plantations.
In the case of the United Kingdom, privatisation policies were first introduced in 1979 and the sale of publicly owned forests began in the early-1980s. Forests selected for sale were primarily chosen where their disposal would rationalise the management of the state's forest estate. The government also, however, set targets for the revenue from sales of forest and the area to be sold each year (£150 million and 100,000 hectares by the year 2000). By March 1997, the Forestry Commission had sold 66,000 hectares (out of a total of 900,000 hectares before the sales started) and raised £75 million.
The type of forests sold were mostly remote conifer plantations or areas difficult to manage in some other way, such as very small forest plantations. Forests providing a high level of non-timber benefits were not sold but, in the early 1990's, concerns were raised about the loss of public access. In response to this, the Forestry Commission initiated a policy of giving local government the opportunity to enter into legally binding access agreements over areas about to be sold.
Complete privatisation of the remaining publicly owned forest estate was considered in 1994. However, complete privatisation was rejected on the grounds that:
1. it was unlikely that the whole resource could be sold en masse for a reasonable amount;
2. such a sale would be legally and administratively complicated; and
3. there would be considerable public resistance to such a move.
Sources: Clapp (1995a); Brown and Valentine (1994); and Whiteman (1998).
Forest plantations established for reasons other than commercial industrial roundwood production (i.e. non-industrial forest plantations) are a significant component of the total forest plantation resource. The objectives of management in such forest plantations can vary widely, but the most common are: production of wood fuel; rehabilitation of degraded land; watershed protection and/or soil erosion control; employment generation; regional development; production of non-wood forest products (NWFPs); and production of other forest services (such as carbon sequestration). In nearly all cases, such plantations are established with government support because of the non-commercial nature of management objectives.
The establishment of forest plantations for wood fuel production is most common in South Asia. Countries such as India, Pakistan and Bangladesh mention wood fuel production specifically in their forest plantation policies. In India, for example, one of the functions of the National Afforestation and Eco-development Board is to, "restore fuelwood, fodder, timber and other forest produce on the degraded forest and adjoining lands in order to meet the demands for these items" (Government of India, Ministry of Environment and Forests, 1999). Similarly, in Pakistan, the 1991 forest policy specifies the goal of, "meeting the country's environmental needs and requirements for timber, fuelwood, fodder and other products by raising the afforestation area" (FAO, 1995b).
Most forest plantations for wood fuel production are established for supply to local communities and most are located in developing countries. Larger scale projects do exist though. For example, in the 1980s the Philippines unsuccessfully attempted to implement policies to establish large-scale forest plantations as a source of commercial dendro-thermal power. However, large-scale wood fuel plantation programmes are relatively uncommon.
A number of factors contributed to the lack of success in the Philippines, including: sub-optimal species choice; problems with matching species to site; the use of narrowly-based genetic material; sub-optimal forest management regimes; and an absence of alternative fuel sources or contingency plans. Issues such as these are pertinent to all types of forest plantation development. Specifically with respect to the development of small-scale forest plantations for local wood fuel supply, issues that should be considered are the usual community forestry issues (e.g. extent of participation in the project, gender issues and the use of appropriate technology) plus careful consideration of the long-term demand for wood fuel.
The establishment of forest plantations to rehabilitate degraded land is common in many countries. Indeed, some of the largest areas of non-industrial forest plantation establishment can be found in North Africa, China, and the Indian subcontinent, where such planting is being used to stop or reverse desertification. One of the most interesting projects is the Algerian "Green dam" (Mather, 1993). This project started with planting on a small-scale at Bou Saada in the 1960s. The long-run plan is to establish a forest plantation belt covering 3 million hectares across Algeria as a barrier to desert encroachment.
Watershed and soil protection are similar reasons for establishing non-industrial forest plantations. Currently, the world's largest non-industrial forest plantation project is China's Three-North Shelterbelt Development Project, which is being developed specifically for these reasons. This project commenced in 1978 and will eventually result in the establishment of 35 million hectares of shelterbelt networks to protect against soil and water erosion. Protection from soil erosion is, perhaps, the most common reason for planting trees, although many projects (e.g. line-planting and agroforestry) are classified as trees outside forests rather than forest plantations. Populus, Salix and Paulownia species are particularly utilised for this purpose in many regions.
In all these cases, the main policy issue that should be considered is the effectiveness of forest plantations for meeting the specified objectives. Forest plantations can make a significant contribution to efforts to halt desertification, soil erosion and watershed degradation, but the management of the forest plantations has to be designed to specifically meet these needs. Again, these projects are often small-scale and community based and community forestry techniques should be developed and used if such projects are to be successful. Given the large amounts of public support often involved in such projects, it is also important to ensure that government institutions have the capacity to implement such projects and that other policy measures are in place to promote success (e.g. clear guidelines regarding the eventual use of such forest plantations once they mature).
At the international level, a number of recent policy initiatives may have a direct influence on the outlook for forest plantations. The two most important are probably the development of criteria and indicators for forest management and the Kyoto Protocol. These implications of both of these initiatives are briefly discussed below.
Sustainable forest management is, without doubt, currently the biggest issue on the international forest policy agenda. A broad range of fora (including a number directly or indirectly resulting from the United Nations Conference on Environment and Development (UNCED) in 1992) are considering issues associated with forest sustainability. In particular, many of them are attempting to establish criteria and indicators to measure the sustainable management of forests. For example, the Montreal Process provides seven broad criteria for the sustainable management of temperate and boreal forests including plantations. Similar criteria have been developed for tropical forests, by the Tarapoto Proposals (Amazon forests), the Central American Process of Lepaterique (Central America), and more generally through the ITTO Guidelines for the Establishment and Sustainable Management of Planted Tropical Forests (1993); for European forests, under the Pan-European (Helsinki) Process; and for dry-zone forests within the framework of the Dry- Zone Africa and Near East Processes.
However, there remains significant debate in international circles about the desirability and sustainability of plantation forests as a means of producing roundwood in the long-run. For example, the UNCED Statement of Forest Principles (1992) specifically recognises the contribution of forest plantations in, "off-setting pressure on primary/old-growth forest". Similarly, Solberg et al (1996) conclude that,
"There is tremendous scope for raising forest productivity through the intensification of forest management.... The challenge is to achieve this with minimum loss of biodiversity and other damage to the environment and without harming the already fragile social fabric of rural communities. In other words, wood production will have to be, and can be, expanded within the context of sustainability".
The challenge for countries promoting forest plantations as a means of producing roundwood in the long-run is to ensure forest plantation management practices are acceptable to the wide range of stakeholders with a legitimate interest in this area. In some instances, this may mean adjusting existing management practices.
If acceptable criteria and indicators for the sustainable management of forest plantations can be developed and agreed by all, this will be a positive step toward gaining greater acceptance of forest plantations. Setting objective measures of sustainable management will provide an opportunity to demonstrate the sustainability of forest plantations, or assist with the development of revised practices.
Developing indisputable evidence36 that forest plantations can contribute decisively to the overall sustainability of forest management in a country will doubtless enhance the attractiveness of forest plantations as an alternative source of roundwood. It is difficult, however, to argue that current uncertainty about their contribution to sustainable forest management is presently impeding forest plantation development. There is, for example, little evidence of forest plantation programmes slowing markedly in the post-UNCED era. If, however, forest plantations are generally accepted as contributing to environmentally, ecologically, and socially, benign development, at the same time as producing goods and services, then a number of countries may expand forest plantation programmes.
Another one of the outcomes of international discussions since UNCED is the emergence of the possibility that forest plantations will qualify innovative financing mechanisms under the Kyoto Protocol.
The potential problem of global warming and the contribution of carbon emissions to this problem has been discussed at many international meetings since UNCED. These meetings have included discussion of the role of forests in the global carbon balance but have not, until recently, reached any consensus about whether forest plantation projects can be included as part of an overall strategy to reduce net carbon emissions. For example, DiNicola et al (1997) noted:
The lack of comprehensive emissions reduction policies has meant that there are no economic drivers to implement such "carbon farm" plantations. There are no examples of carbon-dedicated plantations, or even commercial forest plantations with carbon offset components built into them. It can be expected that as GHG emission regulations become more stringent, traditional forest management players with extensive plantation experience will design more sophisticated investments, with greenhouse sequestration options built into them.37
However, the adoption of the Kyoto Protocol to the United Nations Framework Convention on Climate Change (in December 1997) represents a major step forwards in this direction.
The Kyoto Protocol provides a framework for accounting for every country's net emissions of carbon to the atmosphere and includes targets for the reduction of such emissions in a number of countries. It recognises the role that forests play in the global carbon balance and, therefore, allows changes in forest carbon stocks to be included in the calculation of net changes in every country's carbon emissions.
The Protocol also includes a number of provisions to establish market-based instruments to encourage carbon emission reductions and carbon sequestration projects (which might include forestry projects). In particular, the Protocol provides mechanisms for the development of project-based credit trading between countries (Joint Implementation) and a Clean Development Mechanism (CDM). Consequently, Brand (1998) argues:
"We are likely to see at least three trends flowing from the Kyoto Protocol in the forest sector - increase in plantation forests, increasing use of forest biomass as an energy source, and a substitution of wood products for other, more energy intensive materials."
There remain a number of uncertainties surrounding the Kyoto Protocol. A number of countries have still to ratify the Protocol and to incorporate its provisions in to national law. The exact way in which forestry projects might be incorporated into Joint Implementation and the Clean Development Mechanism is also still under discussion. However, it seems likely that, in the future, some sort of arrangement will be made for countries to increase carbon sequestration by the establishment of forest plantations and to include this in the calculations of performance against their emissions targets. There remains some uncertainty about whether "offset plantations" will be a mainstream development under the Kyoto protocol or whether they will only work in a small number of cases. However, if it the former turns out to be true, this will have a major impact on the outlook for forest plantations.
35 The subsidies were among a bundle of measures enacted as Decreto Ley 701 (DL701), the forestry law in 1974. The primary intent of DL 701 was to persuade the private sector to assume the task of reforestation. The decree maintained some of the tax exemptions established in 1931 and added direct payments to the tax incentives. The key provision reimbursed 75 percent of the costs of reforestation (Clapp, 1995b).
36 A comprehensive review of evidence concerning the narrow-sense sustainability of forest plantations was recently commissioned by the UK Department for International Development (for further details, see: Evans, 1999).
37 However, Di Nicola et al also noted that:
"...at least ten developed countries, including the United States, Netherlands, Canada, Germany, Australia and Japan have developed, or announced intentions to develop, mechanisms to review and approve international investment proposals which reduce GHG emissions (Stuart and Sekhran 1996). To date these national programmes have led to implementation of several projects and an estimated capitalisation of US$40 million."
Several of these national programmes have included measures in the forestry sector, including forest plantation programmes.