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1. The role of incentives in forest plantation development in the Asia-Pacific region - Thomas Enters[1]

Will we have enough forests and wood to satisfy the growing demand for wood products? The key message of a study by Nilsson (1996), which reviewed the available knowledge in the mid-1990s, was that probably we will not run out of forests but we may run out of wood. Nilsson (1996) forecasted a rather “substantial shortage of industrial roundwood already by 2010” (p. 53). Throughout the last century, similar predictions were made in many countries in the Asia-Pacific region. The first distress signals about an impending domestic timber famine were articulated in the 1920s in New Zealand. These concerns were reiterated in other countries, at first modestly, later fervently, until forest departments in most countries had convinced their governments of the necessity to provide the appropriate budget allocations for forest plantation programmes. Today, forest plantations make up about 16 percent of the forest cover of the Asia-Pacific region and the region accounts for around 61 percent of the world’s plantation forest.

Historically, public-sector agencies have dominated forest plantation development in most countries in Asia and the Pacific. This pattern has changed in many countries over the past ten to 20 years, mainly for four reasons. First, devolution of forest management has led to greater involvement of communities and the private sector in forestry. Second, the performance (financially and biologically) of public-sector plantations - with few exceptions - has been disappointing. Third, shrinking government budgets make it impossible for most forest departments to devote as many resources to forest plantations as they have in the past. Fourth, problems related to weak governance structures are driving many countries to reconsider the role of government in administering forest resources and in directly implementing forest programmes (Gregersen et al. 2004).

These developments have been paralleled by a shift in the main objectives of forest management, which traditionally focused on timber production. Although forest policies and forest management objectives diversified and expanded long before the United Nations Conference on Environment and Development (UNCED), since 1992 forestry has become even more multidimensional. Forests are increasingly valued for supporting local livelihoods and helping to reduce poverty, for providing local environmental services and as a reservoir of global biodiversity. In the Asia-Pacific region, this shift in thinking has affected forestry immensely over the last ten years. Perhaps the most far-reaching outcome is that forest areas set aside for conservation have expanded considerably and that the area of production forests has declined even faster, due to unabated deforestation rates and, even more so, due to complete or partial harvesting restrictions - the logging bans (Durst et al. 2001).

In environmental or conservation terms, the impact of the various conservation measures, especially logging bans, has been mixed. In terms of wood supply, the impact is clear-cut. Domestic timber supplies derived from natural forests have been reduced substantially, in some countries such as Thailand to a trickle. As a consequence of such developments, the search is on for generating alternative wood supplies. While some countries have turned to imports - at least in the short term - most have attempted to augment forest plantation resources. Today more industrial roundwood is sourced from plantations and trees outside forests in Asia and the Pacific than from natural forests (Brown and Durst 2003). With the public sector retreating from direct involvement in planting and tending trees, the question is whether the private sector can grow the wood that many expect is needed.

During the 18th Session of the Asia-Pacific Forestry Commission (APFC), held in Noosaville, Australia in May 2000, the Commission reviewed the results of the regional study on the Impacts and effectiveness of logging bans in natural forests in Asia-Pacific (Durst et al. 2001) and considered issues identified by the study as requiring additional information and analysis for effective policy-making. Inter alia, it recommended conducting collaborative activities in the area of commercial forest plantations. In light of the above, the APFC undertook a comprehensive multicountry study on the Impacts of incentives on the development of forest plantation resources in the Asia-Pacific region.


There are several examples in the world where clear, consistent and stable policies, a conducive investment climate and well-programmed incentive schemes have made a significant impact on the success of forest plantation development. In contrast, where initiatives have been ill conceived or poorly implemented, the results have been disappointing despite heavy investment by governments. It is common knowledge that vast plantation areas are of very poor quality. Others exist on paper only, because mismanagement or some disaster led to their premature death in the field. Others were never established, but appear in records only to spuriously indicate that targets have been reached and funds spent.

This regional study was designed to comprehensively examine the reasons for the mixed results and to provide guidance in policy formulation to those countries interested in stimulating investments in tree growing through the provision of incentives to large- and small-scale growers. The study focused on policy instruments and mechanisms aimed at stimulating investment in commercial plantations grown for profits, while recognizing that forest plantations can also be established to meet broader social and environmental objectives.[2]

This publication is based on country case studies conducted in Australia, China, India, Indonesia, Malaysia (Sabah), New Zealand, the Philippines, Thailand and the United States of America.[3] The countries were selected to represent examples of major private-sector involvement in plantation development. In addition, experiences from other countries were reviewed to strengthen the results of the study.

Many governments and their respective forestry agencies are increasingly asking what it takes to effectively involve the private sector and local communities in forest plantation development. Hence, the main purpose of the study was to gain insights into this pertinent question.

The principal objectives of the study were to:


The key conclusions that emerge from the regional study are presented below. The final chapter discusses these issues in greater detail.

1. Very broadly, plantation development in the Asia-Pacific region is at three stages (that is, initiation, acceleration and maturation stages). In Australia, New Zealand and the United States, interest in growing trees has a long history and by the 1990s these three countries had reached the maturation stage. Most Asian countries find themselves still in the initiation or early acceleration stage - especially with regard to involving the private sector - even though plantations may cover extensive areas such as in China (46.7 million ha) and India (32.6 million ha).

2. Broadly defined, incentives encompass anything that motivates people to act. In the context of the regional study, incentives were defined as policy instruments that increase the comparative advantage of forest plantations and thus stimulate investments in plantation establishment and management (for a detailed definition see Chapter 3). These include a wide range of interventions from the provision of free seedlings (a common direct incentive) to political and macro-economic stability (in the Asia-Pacific region, a less common indirect incentive). Under this definition, incentives constitute any means that provides encouragement to “do business” (that is, establish plantations). At the disposal of policy-makers is a vast array of incentives and none has emerged as a silver bullet, although some are more effective than others. The effectiveness of a particular incentive changes over time as countries move from one stage to the next.

3. During the initiation stage, direct incentives may be required, in certain instances, to raise awareness and to increase the pace and scale of tree planting, especially to build up raw material supplies for an expanding processing sector. However, as experience is gained and both capacity and infrastructure develop, direct incentives become less important (they can also suffer from very high transaction costs). They are likely to be replaced by variable incentives and complemented by research and development, and extension, during the acceleration stage. In fact, a good sign of success is direct incentives becoming obsolete during the acceleration stage.

4. In the long term, providing a favourable investment climate, technical assistance and well-established markets have greater influence than direct incentives such as free seedlings, subsidized credit or cost-sharing of planting expenses. In all cases, incentive systems must be timely, well-targeted and flexible if they are to successfully engage the private sector in forest plantation development. In deciding on measures that increase the interest of investors it is vital that consideration be given to factors that motivate people to invest in planting trees, rather than focusing on the needs and objectives of governments and their respective forest agencies. Thus, small grants provided with a minimum of administrative complexity tend to be more effective than loans that have bureaucratic repayment requirements.

5. In the countries that have reached the maturation stage, it has been recognized that key measures to maintain private sector interest and investment in plantation development are related to the reduction of barriers to investments and removal of structural impediments and operational constraints. The key to success in forest plantation development lies in providing clear and secure resource and property rights, and coherent and stable policies. An important component of an enabling environment that is supportive of economic activities is healthy debate on the merits of planting trees and particular incentives, and transparent decision-making.

6. Most people agree that forest plantations can help meet increasing demands for wood and provide public goods and services, although there are exceptions to this general statement. Most people also maintain that appropriate incentives - particularly enabling incentives - play a key role in stimulating plantation development. However, proponents of forestry need to recognize that alternative land uses may offer similar - often greater - benefits to society as well as higher returns to investments. Under such circumstances, it may be pointless to offer incentives for plantation development, since it may be more economically efficient to invest in alternative land uses.

7. In a historical context, incentives have largely been applied in an ad hoc manner. As improved understanding of the mechanisms and conditions related to economic growth and development has evolved, it has become apparent that, in many instances, plantation incentives have been less successful than they might otherwise have been, had various restrictions on - or disincentives to - plantation establishment, tree harvesting and transport also been addressed.

8. Finally, and not surprisingly, the overriding stimulus for commercial timber planting is real prices and perceptions of future price developments. Investors frequently react vigorously to changes in prices, as the price spike for wood in the early 1990s showed. In many countries in the Asia-Pacific region, it triggered an unprecedented planting boom, without much, if any, intervention from the public sector.


Chapter 2 provides an overview of plantation development in the Asia-Pacific region. It highlights the considerable increases in establishment rates during the 1990s and the more mixed results of the past several years.

Chapter 3 introduces the concept of, and the rationale for, providing incentives. It takes the reader through an assortment of diverse and sometimes confusing definitions. If it is agreed that incentives should only be applied for achieving public goals, what then is the justification for providing incentives to potential private investors in plantation establishment? There are a number of reasons that justify the transfer of scarce resources, especially in the nature of direct incentives, to commercial tree growers. There are also circumstances where such transfers should not be made.

Chapter 4, the main body of this volume, introduces the reader to the nine case studies conducted under the regional review. The country studies follow a common format. Dividing the history of plantation development into different phases, which is not always straightforward, they illustrate the use of incentives and the results or impacts. The reader will become aware of the difficulties in making these assessments, since the use of incentives has not been monitored rigorously in most countries.

Chapter 5 summarizes the main insights gained from the case studies. The impact of incentives on plantation development depends on numerous issues. There are considerable differences among the nine countries that were part of the regional study. What works in one country does not necessarily achieve the same outcomes in another country, even if situations are seemingly similar. Notwithstanding the diversity and the different paths taken to expanding plantation areas, a common theme emerges. Those readers expecting clear guidance may be disappointed. A blueprint for stimulating investors to put their money and/or labour into trees does not emerge. However, the picture that does surface is sufficiently coherent to conclude the chapter and the book with guiding principles for supporting plantation development.


Brown, C.L. & Durst, P.B. 2003. State of forestry in Asia and the Pacific. RAP Publication: 2003/22. Bangkok, Food and Agriculture Organization of the United Nations.

Durst, P.B., Waggener T.R., Enters, T. & Tan, L.C. (eds.). 2001. Forest out of bounds: impacts and effectiveness of logging bans in natural forests in Asia-Pacific. RAP Publication: 2001/08. Bangkok, Food and Agriculture Organization of the United Nations.

FAO. 1999. Incentive systems for natural resource management. Environmental Reports Series 2. FAO Investment Centre. Rome, Food and Agriculture Organization of the United Nations.

Gregersen, H., Contreras-Hermosilla, A., White, A. & Phillips, L. 2004. Forest governance in federal systems: an overview of experiences and implications for decentralization. Paper presented at the Interlaken Workshop on Decentralization in Forestry, 27 to 30 April 2004. (

Nilsson, S. 1996. Do we have enough forests? IUFRO Occasional Paper No. 5. Vienna, International Union of Forestry Research Organizations.

Sanders, D.W., Huszar, P.C., Samran Sombatpanit & Enters, T. 1999. Incentives in soil conservation. Enfield, New Hampshire, U.S.A., Science Publishers, Inc.

2. Plantations in the Asia-Pacific region: an expanding resource - Philip McKenzie[4], Chris L. Brown[5] and Jim Carle[6]

Forests in the Asia-Pacific region cover approximately 699 million ha (FAO 2001). Of this area, some 113.2 million ha are forest plantations, or 16 percent of the total forest resource. This is considerably higher than the global average of plantations, which stands at around five percent. The Asia-Pacific region accounts for some 61 percent of the world’s plantation forests (Figure 1).

Source: FAO (2001).

Figure 1: Global distribution of forest plantations by region in 2000

The majority of the global forest plantation resource is held by a small group of countries.

Five countries from Asia rank among the top ten plantation countries in the world: China (46.7 million ha); India (32.6 million ha); Japan (10.7 million ha); Indonesia (9.9 million ha); and Thailand (4.9 million ha).[7] Together, these five countries account for 55 percent of the global forest plantation resource, and 91 percent of the Asia-Pacific plantations.

Forest plantions were established on around 34 million ha in the Asia-Pacific region (excluding Japan, Australia and New Zealand) between 1990 and 2000. This is a marked increase on the 27 million ha established during the 1980s. India (1.5 million ha per annum) and China (1.2 million ha per annum) currently have the highest plantation establishment rates (Brown and Durst 2003). Trend analysis confirms a significant increase in plantation establishment in the region during the 1990s (FAO 2003). This trend is likely to continue in the coming years, due to the increasing demand for wood and wood products, although in recent years planting rates in some countries have declined for a variety of reasons (see Chapters 4 and 5).

There has been a very rapid acceleration in plantation establishment in China during the past 20 years. China’s forest plantations comprise mainly Chinese fir (Cunninghamia lanceolata), poplars and a variety of pines. More than 80 percent of China’s plantations are of industrial species. In Japan, 45 percent of forests are classified as plantations, almost all of which were planted during the postwar reconstruction. The main species are sugi (Cryptomeria japonica), hinoki (Chamaecyparis obtusa), pine and Japanese larch (Larix leptolepis).

Forests plantations in India have, generally, had a markedly different focus, with more than two-thirds designated as non-industrial plantations. Although many of the plantations were established to produce fuelwood, a large percentage have subsequently been harvested for construction purposes and pulp. In recent times, there has been a shift in planting towards industrial purposes. India’s plantations are dominated by fast-growing hardwood species, particularly, acacias and eucalyptus. Teak (Tectona grandis) is commercially the most important timber species planted, totalling around one million ha.
Indonesia has 9.8 million ha of predominantly industrial plantations. Rubber (Hevea brasiliensis) is the most widely planted species, followed by teak, pines and Acacia mangium.

Thailand’s plantations are similarly dominated by rubber, with teak being the second most important plantation species.

Overall, pine, eucalyptus and rubber are the most import plantation species grown in the region (Figure 2).

Source: FRA (2000).

Figure 2: Distribution of species in Asia and the Pacific

The dominant plantation species in Oceania is Pinus radiata. This species accounts for 89.2 percent (MAF 2004) of the plantation area in New Zealand, and 59 percent in Australia (NPI 2004). Other pine species, most notably Pinus caribaea in Fiji, and Pinus caribaea and P. oocarpa in northern Australia make up the bulk of the softwood plantations. Eucalyptus species in Australia predominate in hardwood plantations although Fiji also has significant areas of mahogany (Swietenia macrophylla).

Both New Zealand and Australia commenced plantation programmes prior to 1930. Significant areas of plantations have now reached maturity and are being harvested. Substantial plantation areas in New Zealand and Australia are in second rotation, with a few in a third rotation. New Zealand, Australia and Fiji all anticipate significant increases in their plantation wood production during the next decade.


New Zealand, Australia, Chile and South Africa comprise a group commonly known as the southern plantation countries. These four countries are characterized by large, mainly Pinus radiata, plantation estates, with significant export potential and age-class profiles that imply rapid increases in production over the next 15 to 20 years. These new plantation supplies seem likely to significantly alter the composition of Asia-Pacific wood and fibre markets.

Figure 3 illustrates a significant trend in wood production during the past 40 years, with wood production shifting from the natural forests of the traditional Southeast Asian producers to southern plantation countries. Large tracts of natural forests are likely to confer an advantage in the short-run, but that advantage will eventually diminish owing to advantages that plantations offer, that is, the ability to grow uniform trees quickly in accessible areas. Hence, the Philippines, having exhausted its natural forests during the 1960s and 1970s has become a minor player in forest product markets. Malaysia and Indonesia commenced logging in natural forests later and have exploited their natural advantage through the 1970s and 1980s. During the 1990s, the fast-growing plantations of the southern plantation countries began capturing the market share from Indonesia and Malaysia. At present the southern plantation countries account for more than 60 percent of the roundwood production share of the seven countries, up from about 40 percent in the mid-1980s.

Source: FAOSTAT (2004).

Figure 3: Comparative shares of wood production: Southeast Asian countries versus Southern plantation countries


The future production of wood from plantations is of great interest to both the public and private sectors. Brown (1999) modelled three scenarios for future wood supply from forest plantations, as part of the Global forest products outlook thematic study on plantations.

Scenario 1 provides a baseline forecast, by assuming that forest plantations are not expanded beyond their current area and that all areas are replanted after harvesting.

Scenario 2 assumes that new planting will increase the forest plantation area at a constant rate of 1.2 million ha per annum in total (equal to one percent of the area of forest plantations in 1999).

Scenario 3 assumes that the annual rate of new planting estimated in 1995 (4.71 million ha in total) is maintained until 2010, after which it is reduced by 940 000 ha at the start of each of the following decades (that is, until it declines to zero in 2050).

Figure 4 compares future wood production from industrial plantations under each of the three scenarios, with a forecast of total industrial roundwood consumption derived using long-term trend analysis, to 2050.

Source: Brown (1999).

Figure 4: Comparison of projections for industrial roundwood production with three plantation scenarios

Several points of interest can be noted from Figure 4.

1. The difference between the three forest plantation scenarios until 2010 is not significant. This is because trees already in the ground will determine production over the next decade.

2. The heavy weighting towards the youngest age-classes in the global distribution means that even Scenario 1 (zero new planting) shows a significant increase in wood production from forest plantations. Scenario 1 shows an increase in production from 331 million to 712 million m3. Note, however, this growth production would be insufficient to keep pace with the forecast growth in roundwood consumption, and additional new sources of wood or fibre would need to be found to meet further new demand.

3. Scenario 2 increases at approximately the same rate as projected new demand for roundwood. It shows an increase in plantation wood production to 906 million m3. Note, however, that current levels of harvesting in natural forests, recycling, etc. need to be maintained if no other new fibre sources are found, or efficiency is not significantly improved. This is, however, unlikely as the levels of harvesting in natural forest are decreasing and are likely to continue decreasing in the future due to the smaller area of available forest resources, increasing inaccessibility of the remaining forests and an increasing number of policies such as logging bans that have been imposed to protect the remaining natural forest resources.

4. Only Scenario 3, with its relatively large land-use implications, would enable forest plantations to substitute for wood production from natural forests. Scenario 3 expands plantation production to 1.5 billion m3, approximately equal to current levels of global industrial roundwood consumption. Under Scenario 3, the forest plantation share of industrial roundwood production is estimated to increase from the current 22 percent, to 64 percent in 2050.

The long-term production forecast from forest plantations is very sensitive to the assumptions made about future forest establishment rates. The future rate of plantation establishment will be determined to a considerable extent by the availability of suitable and affordable land, policies, incentives, profitability of alternative crops, the opportunities that the Clean Development Mechanism (CDM) may offer, and perceptions of supply-demand balances for wood and fibre. In general, it is expected that plantations will supply a high proportion of raw material to fibre-based industries and for the production of utility sawntimber. High-quality hardwood timbers are likely to continue being sourced from natural forests, although plantation-grown teak can be expected to become increasingly important.


The increasing demand for wood and fibre has resulted in the identification of various alternative sources. There are a number of interesting sources in Asia and the Pacific including coconut palm, oil-palm, bamboo and agricultural residues. Although these sources cannot replace timber, they can supplement traditional wood resources, especially in the form of fibre.

Coconut palm (Cocos nucifera L.) has a long history of cultivation in the tropics, spanning some 4 000 years. The main product of the palm is the coconut oil. There are some ten million ha of coconut palm plantations in the Asia-Pacific region (Durst et al. 2004). Large quantities of stems become available at the end of a rotation (50-60 years depending on the variety). The anatomical properties of the stem make it difficult to process the stem using conventional tools. Despite the fact that the lumber is not very durable, the relatively low cost of the material make it appealing. Another advantage of coconut is the green image of the product, as it is a plantation by-product.

Oil-palm (Elaeis guineensis Jacq.) is a plantation species widely grown for its oil. The area under oil-palm is rapidly increasing and many rubber plantation owners are switching to oil-palm due to the higher profit margins. As of 2001, there were approximately six million ha of oil-palm plantations, of which 80 percent is located in the Asia-Pacific region (Killmann 2001). Unlike the coconut palm, the stem of the oil-palm is not suitable for direct use as a wood substitute. However, research on the use of the empty fruit bunches for the production of Medium Density Fibreboard (MDF) has been completed and subsequently, two plants have been established in Sabah and Peninsular Malaysia (Durst et al. 2004). Other potential uses for oil-palm residues include: moulded furniture, sawing and laminating palm stems, particleboard manufacture and the production of activated charcoal (Razak 2000).

Although bamboo has a long history of use in Asia, it is increasingly becoming an important source of raw material for further downstream processing, as new uses for it have emerged. Traditionally the culms were used as a wood substitute for construction and scaffolding and the shoots of certain species were eaten. New processes use bamboo as raw material for particleboard, fibreboard, plybamboo, laminated boards, bamboo flooring and pulp and paper (Ruiz-Perez et al. 2001). Bamboo furniture is also a rapidly growing market segment. China and India have the world’s largest bamboo resources, with four million ha and ten million ha respectively (Ruiz-Perez et al. 2001; Ganapathy 1997).

Agricultural residues are also becoming increasingly important. Straw, a by-product of grain production, is used extensively for the production of pulp and paper. It is also possible to produce a panel board, with similar characteristics to MDF, using straw. Bagasse, the fibrous residue that is left over after the extraction of juice from sugar cane, is used for producing paper in several countries, including India, the world’s largest sugar-cane producer. The use of rice husks for the production of reconstituted panel boards is being investigated in Malaysia.


The Kyoto Protocol was negotiated in December 1997. It requires developed countries to reduce their greenhouse gas (GHG) emissions by 5.2 percent compared to 1990 levels, between 2008 and 2012. The Kyoto Protocol recognizes forests, their soils and products in climate change mitigation. According to the protocol, reductions can be achieved by two means: (i) reducing the amount of emissions and (ii) increasing storage. Three so-called “flexibility mechanisms” were included in the Kyoto Protocol to help developed countries meet their reduction targets cost-effectively. These include Emission Trading, Joint Implementation and the Clean Development Mechanism (CDM). The latter enables developed countries to achieve a portion of their emission reductions by implementing carbon sequestration projects in developing countries.

Afforestation and reforestation were recognized as the only eligible land uses under the CDM. This offers interesting perspectives for the establishment of plantation forests for sequestering carbon. It has led to a steep increase in the establishment of plantations in developing countries with some four million ha of plantations having been established for GHG mitigation (Carle et al. 2002). Most of these plantations have been established by international investors and international development banks, such as the World Bank. Despite the fact that certain aspects of the CDM are still under negotiation and the technical instruments and standards for carbon accounting are still under development, forest plantations have interesting prospects to be utilized as carbon sinks. It is anticipated that forest plantations will play an increasingly important role in carbon sequestration and the implementation of the Kyoto Protocol.


The Asia-Pacific region has a large plantation resource, accounting for 61 percent of global forest plantation resources. Five of the top ten plantation countries are located in the region; together these countries account for 91 percent of the total plantation resource in the region. The rate of plantation establishment has increased dramatically during the 1990s. There has been a shift in wood production in the region, from predominantly natural forest production to plantation forest production over the past 40 years.

Modelling excercises for future plantation wood production indicate that the demand for plantation wood is likely to increase in the future. The wood from plantations will be used as feedstock for fibre-based industries and for the production of utility sawntimber. High-quality timbers are most likely to continue being sourced from natural forests, with the possible exception of teak.
Other sources of wood and fibre are becoming increasingly important. Coconut palm, oil-palm and bamboo are a few of the promising alternatives. Although these sources cannot replace timber entirely, they can supplement traditional wood resources, especially in the form of basic fibre.

The inclusion of reforestation and afforestation activities in the Kyoto Protocol offers interesting possibilities for plantation forests. To date, some four million ha of plantations have been established for GHG mitigation.


Brown, C.L. 1999. Global forest products outlook study: Thematic study on plantations. Working Paper No. GFPOS/WP/03. Rome, Food and Agriculture Organization of the United Nations.

Brown, C.L. & Durst, P.B. 2003. State of forestry in Asia and the Pacific. RAP Publication: 2003/22. Bangkok, Food and Agriculture Organization of the United Nations.

Carle, J., Vourinen, P. & Del Lungo, A. 2002. Status and trends in global forest plantation development. Forest Products Journal. 52(7/8): 12-23.

Durst, P.B., Killmann, W. & Brown, C.L. 2004. New woods of Asia. Journal of Forestry 102(4): 46-53.

Del Lungo, A. 2003. Planted forest database: analysis of annual planting trends and silvicultural parameters for commonly planted species. Planted Forest and Trees Working Papers, Working Paper 26. Forest Resources Development Service, Forest Resources Division. Rome, Food and Agriculture Organization of the United Nations.

FAO. 2001. Global forest resources assessment 2000. FAO Forestry Department. FAO Forestry Paper 140. Rome, Food and Agriculture Organization of the United Nations.

FAOSTAT. 2004. Last updated February 2004. Rome, Food and Agriculture Organization of the United Nations.

Ganapathy, P.M. 2000. Sources of non-wood fibre for paper, board and panels production - status, trends and prospects for India. Asia-Pacific Forestry Sector Outlook Study: Working Paper No. APFSOS/WP/10. Rome, Food and Agriculture Organization of the United Nations.

Killmann, W. 2001. Non-forest tree plantations. FAO Forestry Department: Forest Plantations Thematic Papers: Working Paper FP/6. Rome, Food and Agriculture Organization of the United Nations.

MAF. 2004. A national exotic forest description. Wellington, Ministry of Agriculture and Forestry.

NFI. 2004. National plantation inventory update - March 2004. Canberra, Bureau of Rural Sciences.

Razak, A.M.A. 2000. Recent advances in commercialization of oil palm biomass. Malaysian Timber 6(3): 12-15.

Ruiz-Perez, M., Fu, M., Yang, X. & Belcher, B. 2001. Bamboo forestry in China: toward environmentally friendly expansion. Journal of Forestry 99(7): 14-20.

3. Incentives: key concepts, typology and rationale - Thomas Enters[8]


While there is no dearth of definitions for incentives, a single agreed definition does not exist (Meijerink 1997). Defined in very broad terms, an incentive is anything that motivates or stimulates people to act (Giger 1996; cited in FAO 1999). Sargent (1994; cited in Tomforde 1995) defines incentives as signals that motivate action. Other definitions refer to the “incitement and inducement of action” (Enters 2001). Within the context of development projects, incentives have also been described as “bribes” and “sweeteners” (Smith 1998).

Two points are illustrated by the various definitions and descriptions. First, incentives can be financial or non-financial in nature. Second, if incentives include “anything” that motivates, then surely they cannot just be policy instruments. In fact, there are incentives that cannot be influenced through intervention or can be changed only with great difficulty. Reliable rainfall and low fire danger are certainly factors - or enabling incentives - that determine investment decisions related to tree growing. While rainfall patterns are virtually impossible to change, the danger of fires breaking out and burning down a plantation can be managed to a certain extent. The following analysis concerns only those direct and indirect incentives that can be provided or withdrawn through policies.

To be of interest and to have an impact, incentives need to affect the cost-benefit structure of economic activities such as plantation management. Hence, in the context of the regional study, incentives can be defined as policy instruments that increase the comparative advantage of forest plantations and thus stimulate investments in plantation establishment and management.

This definition is broader than the more narrow definition for subsidies. The latter are of a purely pecuniary nature and usually viewed as payments provided to reduce the costs or raise the returns on an activity. The broader definition includes research and extension, which are important elements in supporting plantation development.[9] The definition also includes sectoral and macro-economic policies which, as will be argued in the concluding chapter, establish much of the general investment climate and heavily influence the economic behaviour of individuals and corporations. Consequently, the spectrum of incentives is considerably broadened and a distinction is made between direct and indirect incentives (Figure 1).

The distinction between direct and indirect incentives is somewhat blurred. Direct incentives are designed to have an immediate impact on resource users and influence returns to investment directly. Indirect incentives on the other hand have an indirect effect through setting or changing the overall framework conditions within and outside the forestry sector. There are some overlaps. For example, tax concessions for plantation investors are a direct incentive, whereas general tax reductions for fuel are considered indirect incentives, as they lower production and transport costs within as well as outside the plantation sector.

Subsidies for plantation schemes

Subsidies to the forestry industry in the developed world have far exceeded those provided by developing country governments. At present the average subsidy for plantation schemes in 11 EU countries is US$1 421/hectare, with an additional US$761/hectare for maintenance. This compares with subsidies of less than US$400/hectare for most plantation schemes in South America. However, most developing countries with significant plantation interests have used, or continue to use, incentives and subsidies as a means of encouraging the industry. For example, between 1974 and 1994, the Chilean Government spent some US$50 million on afforestation grants. In Brazil, subsidies and taxation incentives were used to encourage the establishment of plantations, and in recent years Ecuador and Colombia have adopted a similar incentives model to Chile. Ecuador currently provides planting and maintenance incentives amounting to US$300/hectare. Paraguay provides US$350/hectare for planting and US$100/hectare for maintenance for the first three years.

Source: Cossalter and Pye-Smith (2003)

Direct incentives are provided directly by governments, development agencies, non-governmental organizations and the private sector. They include the following:

Figure 1: Typologies of incentives

Indirect incentives can be divided into variable incentives and enabling incentives (Table 1). Variable incentives are economic factors that affect the net returns that producers earn from plantation activities. Enabling incentives on the other hand mediate an investor’s potential response to variable incentives and help to determine land use and management (FAO 1999). They can also be viewed as elements in the investment environment that affect decision-making behaviour. A country’s enabling incentives determine to a considerable extent investment risks, and information on them needs to be constantly updated to guide investors.

Table 1: Distinguishing variable from enabling incentives

Variable incentives

Enabling incentives



Input and output prices
Specific taxes
Trade restrictions
(e.g. tariffs)

Exchange rates
General taxes
Interest rates
Fiscal and

Land tenure and resource security
Accessibility and availability of basic
infrastructure (ports, roads, electricity etc.)
Producer support services
Market development
Credit facilities
Political and macro-economic stability
National security
Research and development

In the Asia-Pacific region, virtually all of the incentives in Table 1 have been or are used to stimulate tree growing. As we will see later, there has been a gradual evolution in the way that governments in the region have provided encouragement, with increasing recognition that provision of enabling incentives, the removal of structural impediments and market distortions or the creation of an “overarching climate of enterprise” is the most effective (and economically efficient) incentive in the long run. This shift in thinking has also unfolded in Latin America with a move from subsidies as corrective measures to the removal of impediments (Haltia and Keipi 1997).

The “new” conventional wisdom

The “new” conventional wisdom does not advocate subsidies as corrective measures to offset distortions existing elsewhere in the economy; rather it proposes the direct elimination of those distortions.

Source: Keipi (1997)


Why are incentives necessary, or more specifically, what is the rationale for providing incentives to potential investors in forest plantation development? Why should taxpayers be interested in supporting the economic activities of others? Why should the private sector provide support to small-scale growers? If potential investors are dissatisfied with the low returns on their investments in plantations, would it not be more appropriate to suggest they invest in a more profitable land use?

Meijerink (1997) argued that incentives should only be applied for public goods. From the economist’s perspective, incentives are meant to correct a discrepancy between the financial attractiveness and economic (that is, social) desirability of an action (FAO 1999). Gregersen (1984; cited in Pardo 1990) pointed out that incentives from the public to the private sector are justified in an economic sense when one or both of the following conditions exist:

Where plantations provide environmental services such as watershed protection and carbon sequestration, incentives are appropriate because private net returns are often lower than social benefits. Real world incentives that fall into this category include those offered under the:

In each of these cases, incentives bridge the divergence between public and private goals and support activities that are primarily in the public interest.

Rice for trees

The “Grain for Green Programme” (in full, Conversion of Farmland into Forests and/or Grasslands Programme) introduced in western China in 2000 aims to reverse land degradation and soil erosion through the conversion of almost 15 million ha of steep lands that are currently cultivated or barren into forest and pasture by 2010. It will do this by providing a mixture of food and cash subsidies in the first eight years (2 250 kg of grain in South China and 1 500 kg of grain in North China, and 300 yuan [US$36] for management annually) and 750 yuan for seedlings costs per hectare in the first year.

Source: Liu (2003)

Incentives are not needed when the private returns from plantation management exceed those from other land uses (Haltia and Keipi 1997; Williams 2001). In this case, the provision of incentives translates into a misallocation of public sector resources, merely enabling investors to earn “above normal” returns.

While addressing environmental concerns is an important justification, others include the goal of generating employment (particularly in less developed rural areas), and to jump-start the development of national forest industries in countries with comparative advantages such as Indonesia and Chile (Williams 2001). Incentives may be particularly justified to increase the pace of plantation development where a developing industry requires a minimum supply of raw material (Scherr and Current 1999). A rapid increase in scale is especially critical in commodity industries like pulp and paper, where economies of scale are essential for competitive operation (Clapp 1995).


The use of incentives, especially direct incentives, to induce particular behaviour, has been at the centre of intense, and sometimes fierce, debates. Incentives, particularly subsidies[10], are not without their critics who contend that incentives can lead to economically incorrect allocation of productive factors.

Programmes pressured to show progress frequently offer incentives to people “to win friends and influence people by resorting to handouts under the guise of incentives” (Smith 1994, p. 8). This should not come as a surprise considering that a hand-out for project desk officers, consultants and on-site project staff defined incentives in the following way (GTZ 1995):

Incentives are understood to be project measures geared to motivating the local population to use their natural resources on a sustainable basis.

Attractive incentives offered in the early stages of a new initiative or project run the inherent risk of simply “buying” participation; the interest shown is not of a long-term nature and participation is just a pretense. Especially in natural resource management projects, subsidies have often succeeded in stimulating the adoption of conservation measures that were abandoned or even actively destroyed once payments ceased (Lutz et al. 1994). The same has been observed for plantations (Sawyer 1993). It should be obvious that particularly with regard to commercial activities, incentives should act as a catalyst and should not be the cause for change. As a cause for behavioural change, the discontinuation of incentives is likely to become a cause for reversal.

Related to the issue of triggering activities for the wrong reason, sometimes people delay desired activities they would normally initiate on their own until they have been given an anticipated incentive. In the worst-case scenario, the provision of incentives might have unintended, perverse side effects. For example, incentives for plantation development may contribute to unplanned conversion of natural forests. A lack of financial support for the management of plantations coupled with incentives limited to plantation establishment may lead to intensive planting activity without any real expansion of the total plantation area in the long run. Young plantations are simple destroyed and the land replanted to capture the financial support.

As Tiffen (1996, p. 168) has pointed out, “even poor people can find capital for what is really profitable....” Hence, low levels of investments in plantations, especially by small-scale farmers, may not be caused by a lack of capital but rather by insufficient information about suitable technologies, market opportunities and legislation, particularly related to environmental issues and taxation. The risk is that the reasons for inaction may not be properly understood and that financial incentives, provided in lieu of advice, are wasted. Technology transfer and extension programmes are the appropriate medicine for lack of knowledge.


Clapp, R.A. 1995. Creating competitive advantage: forest policy as industrial policy in Chile. Economic Geography 71(33): 273-296.

Cossalter, C. & Pye-Smith, C. 2003. Fast-wood forestry - myths and realities. Bogor, Center for International Forestry Research.

Enters, T. 2001. Incentives for soil conservation. In E.M. Bridges, I.D. Hannam, S.J. Scherr, L.R. Oldeman, F.W.T. Penning de Vries and S. Sombatpanit, eds. Response to Land Degradation. New Delhi and Calcutta, Oxford and IBH Publishing Co. Pvt. Ltd. pp. 351-360.

FAO. 1999. Incentive systems for natural resource management. Environmental Reports Series 2. FAO Investment Centre. Rome, Food and Agriculture Organization of the United Nations.

GTZ. 1995. Incentives and the NARMS approach. Eschborn, German Agency for Technical Cooperation (GTZ).

Haltia, O. & Keipi, K. 1997. Financing forest investments in Latin America: the issue of incentives. Washington, DC, U.S.A., Inter-American Development Bank.

Keipi, K. 1997. Financing forest plantations in Latin America: government incentives. Unasylva 188: 50-56.

Liu, J.L. 2003. Support to private and community farm forestry in China. Unasylva 212: 57-62.

Lutz, E., Pagiola, S. & Reiche, C. 1994. Cost-benefit analysis of soil conservation: the farmers’ viewpoint. The World Bank Research Observer 9: 273-295.

Meijerink, G.W. 1997. Incentives for tree growing and managing forests sustainably. Werkdocument IKC Natuurbeheer nr W-140. Wageningen, Stichting BOS, Organisatie voor International Bosbouw Samenwerking.

Pardo, R.D. 1990. Incentives in establishment of industrial tree plantations. Paper prepared for the FAO Advisory Committee on Pulp and Paper. 14 to 16 May 1990, Rome.

Sawyer, J. 1993. Plantations in the tropics - environmental concerns. The World Conservation Union (IUCN), Gland, Switzerland and Cambridge, UK in collaboration with UNEP and WWF.

Scherr, S.J. & Current, D. 1999. Incentives for agroforestry development: experience in Central America and the Caribbean. In D. Sanders, P. Huszar, S. Sombatpanit & T. Enters, eds. Incentives in soil conservation: from theory to practice, pp. 345-365. Enfield, New Hampshire, U.S.A., Science Publishers Inc.

Smith, A. 1994. Incentives in community forestry projects: a help or hindrance? Network Paper no. 17c. London, Rural Development Forestry Network, Overseas Development Institute.

Smith, P. 1998. The use of subsidies for soil and water conservation: A case study from western India. Network Paper No. 87. London, Agricultural Research & Extension Network. Overseas Development Institute.

Tiffen, M. 1996. Land and capital. Blind spots in the study of the ‘resource-poor’ farmer. In The Lie of the Land, eds. M. Leach and R. Mearns, 168-185. London, Vielliers Publications.

Tomforde, M. 1995. Compensation and incentive mechanisms for the sustainable development of natural resources in the tropics: their socio-cultural dimension and economic acceptance. Report prepared for the German Agency of Technical Cooperation (GTZ), Eschborn.

Williams, J. 2001. Financial and other incentives for plantation forestry. In Proceedings of the International Conference on Timber Plantation Development, Manila, the Philippines, 7-9 November 2000, pp. 87-101. Quezon City, the Philippines, Department of Environment and Natural Resources.

[1] National Forest Programme Facilitator, FAO Regional Office for Asia and the Pacific, Bangkok, Thailand.
[2] Readers interested in the broader role of incentives in natural resource management should consult Sanders et al. (1999) and FAO (1999).
[3] The United States of America was included in the study as part of the Asia and the Pacific region, since it borders the Pacific Ocean, has territories in the Pacific and is a member of the Asia-Pacific Forestry Commission. The contribution from Malaysia focuses on the experiences of only one company, Sabah Softwoods Berhad (SSB) in Sabah, East Malaysia.
[4] Associate Professional Officer - FAO Regional Office for Asia and the Pacific, Bangkok Thailand.
[5] Consultant to the FAO Regional Office for Asia and the Pacific, Bangkok Thailand.
[6] Senior Forestry Officer (Plantations and Protection), Forest Resources Development Service (FORM), FAO Rome.
[7] Please note that most figures are taken from FAO (2001). They have been updated whenever possible.
[8] National Forest Programme Facilitator, FAO Regional Office for Asia and the Pacific, Bangkok, Thailand.
[9] Extension, awareness raising, and public investments in education and research have been described as social instruments (Enters 2001) but can also be subsumed under the category of “enabling incentives”.
[10] In 2001, the World Bank welcomed subscribers to an electronic seminar on “The political economy of persistent and perverse subsidies”.

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