In many countries, forest resources represent a significant natural asset that can be used to produce a wide range of economic, environmental and social goods and services. Revenues from harvesting forest resources generate income for resource owners and encourage the conservation and sustainable management of those resources. Taxes paid by the forest industry also generate revenues that the government can use to support economic development and other government policies and programmes.
In 1988, a report by the Food and Agriculture Organization of the United Nations (FAO) identified a number of economic issues in the forestry sector in Fiji that should be considered further (Rizer, 1988). These included the following:
• Royalty rates: a study should examine the royalty payments made to landowners to examine the appropriate level of payments and determine a workable royalty system for Fiji;
• Taxation of the industry: a study should examine the taxes paid and subsidies received by the industry to determine whether these are in the long-term interests of the Fijian economy;
• Cost-benefit analysis of the industry: a study should examine the full social, economic and environmental costs of the forestry sector in Fiji to guide future forestry policymaking;
• Input-output study: an input-output model should be constructed to examine the linkages between the forestry sector and other parts of the Fijian economy to guide future forestry policymaking;
• Stabilisation study: a study should examine the need for a revenue stabilisation fund to ensure a stable flow of income in the industry and tax receipts from the industry to government; and
• Industry restructuring: a study should examine the economic and financial implications of different administrative and institutional arrangements for government involvement in forest management and processing.
A further request for FAO assistance in the above areas was made by the Permanent Secretary of the Ministry of Fisheries and Forests (MoFF) in 2003 (Mathias, 2003). This report addresses the first two of the above issues and will also comment on the remaining issues, in particular the cost-benefit analysis of the sector.
The remainder of this report is in seven main sections. Section two briefly describes the concept of economic rent: what it means; how it is calculated; and why it is so important. The third and fourth sections of the report describe the trends and current status of the forestry sector and the forest revenue system in Fiji. Section five describes the data and calculations used in the analysis of economic rent in the sector and presents the results of this analysis. Section six discusses the taxation of the industry and section seven presents some information about the costs and benefits of the forestry sector to Fiji. Conclusions and recommendations are presented in the final section of the report.
