The report by Rizer (1988) also referred to the need for a cost-benefit analysis of the forestry sector in Fiji and the development of an input-output model to explore the linkages between the sector and other parts of the economy. It should be noted that either of these exercises (especially the latter) would involve a considerable amount of work and expense, which may not be justified. However, based on the information contained in this report and discussions with stakeholders in Fiji it has been possible to make some comments on these subjects and suggest activities that may be considered as a priority for further follow-up activities.
This section starts by outlining (and, where possible, quantifying) some of the main costs and benefits of the forestry sector in Fiji. It then briefly discusses the linkages that are likely to be most important and their effects. Finally, it presents an overall assessment of the situation and recommendations for follow-up activities.
Cost-benefit analysis involves the assessment and calculation of all costs and benefits (both financial and non-financial) associated with any project, policy or sector. At the level of individual projects, policies or programmes, the flows of costs and benefits can be assessed and valued for the life of the intervention (or some other suitable timeframe) and the difference between total benefits and total costs (i.e. total benefits minus total costs - which can be negative) is the value of the intervention.
However, for the assessment of a sector as a whole, it is necessary to examine both the flows of costs and benefits associated with activities in the sector and changes in the stock or value of all assets used in the sector (including natural assets - such as soil, water and biological resources - which may not have a financial value). As in normal accounting, asset values are usually measured at the beginning and end of the year and changes in asset values are added to the value of cost and benefit flows within the year. Such an approach (usually called “environmental income accounting”) is, therefore, somewhat more complicated than standard cost-benefit analysis, as it requires the quantification (and valuation) of asset stocks as well as valuation of the flows of costs and benefits through the sector.
A further complication in cost-benefit analysis of the forestry sector is the presence of a wide range of social and environmental costs and benefits associated with the sector. In order to include these in the analysis, it is necessary to quantify and, if at all possible, value these costs and benefits. Typically, the most important non-financial costs and benefits associated with the forestry sector are the value of flows and changes in the value of stocks of the following: soil, carbon and water; biodiversity; recreation and amenity; and the social and cultural benefits associated with forests. These are largely non-financial costs and benefits, which can be valued using a variety of economic techniques (see Table 20) although in some cases (e.g. recreation values) it is possible to convert some of these non-financial benefits into monetary income for the forest owner. In addition, the production of forest products for subsistence purposes (usually woodfuel and non-wood forest products) can have a high value that does not appear in the marketplace.
Table 20 The main costs and benefits associated with the forestry sector and methodologies often used to value different costs and benefits
Name of input, output or asset |
Type of cost or benefit |
Estimation methodology |
Industrial forest products - industrial roundwood - sawnwood - wood based panels |
Financial costs and benefits. These items are largely flows of costs and benefits (i.e. the value of production less production costs). |
The gross or net flows in each year can be taken from national income accounts (gross or net value-added statistics). |
Other forest products - woodfuel - non-wood products |
Mostly non-financial costs and benefits (subsistence production). These items are largely flows. |
Usually valued using market prices (where available) or the prices of similar goods (replacement costs). |
Forest resource - forest stocking - forest health - forest yield (vitality) - stock of NWFPs - forest soil |
This is a stock variable, which should be measured from year to year. If product harvesting is sustainable, the asset value of the forest resource should not change much. |
Usually valued using an expectation value approach, which would estimate the monetary value of the future production of forest products for any given state of the forest resource. |
Forest (and soil) carbon stock |
This is a stock variable, which should be valued from year to year. It is closely related to the condition of the forest resource. |
Market prices for carbon are now available. However, the value of carbon storage is still largely a non-financial value. |
Water services - water quality - water quantity - off-site soil resources |
Changes in the quantity and quality of water flowing from forest areas are largely flow values. In addition, changes in off-site soil resources as a result of forestry activities (e.g. erosion) can be considered as a non-financial cost (flow). |
Changes in water quantity, quality and off-site soil resources are usually valued using a replacement cost (e.g. the cost of water treatment) or changes in production (e.g. changes in agricultural production due to changes in soil). |
Biodiversity |
Biodiversity is a non-financial benefit, which can be both a flow of benefits and a stock value (i.e. changes in the “quality” of the forest biodiversity. |
Valuation of biodiversity can be estimated in terms of the potential financial benefits that might be realised (e.g. from bio-prospecting), but most of the value is from the general public and can only be estimated from surveys of “willingness to pay” for conservation. |
Recreation and amenity |
As above. |
Some recreation and amenity value can be monetised (e.g. through user fees), but mostly this is estimated from surveys of “willingness to pay”, travel cost analysis or analysis of changes in property prices that can be attributed to forest quality, |
Other social and cultural functions |
As above. |
These benefits can only be estimated from surveys of “willingness to pay”. |
The annual net flow of benefits from formal activities in the forestry sector in Fiji are already calculated by the Bureau of Statistics and reported to international organisations such as the United Nations Industrial Development Organization (UNIDO).16 Table 21 shows the statistics produced by these sources since 1990. UNIDO only collects information about value-added in the processing sector and these figures are currently only available for Fiji up until 1994. The Bureau of Statistics produced estimates of value-added for forestry and processing activities in 1995 and has produced statistics for value-added in forestry activities (i.e. roundwood production) alone since then.
Table 21 Value-added in the forestry sector in Fiji since 1990 (in million FJD)
1990 |
1991 |
1992 |
1993 |
1994 |
1995 |
1996 |
1997 |
1998 |
1999 |
2000 |
2001 | |
Forestry, logging and related service activities |
n.a. |
n.a. |
n.a. |
n.a. |
n.a. |
24.9 |
26.9 |
23.0 |
28.4 |
24.1 |
25.5 |
25.4 |
Woodworking |
16.1 |
17.9 |
16.7 |
24.1 |
22.9 |
11.9 |
n.a. |
n.a. |
n.a. |
n.a. |
n.a. |
n.a. |
Paper production and processing |
7.0 |
7.0 |
9.0 |
9.0 |
9.0 |
8.2 |
n.a. |
n.a. |
n.a. |
n.a. |
n.a. |
n.a. |
Wooden furniture industry |
4.6 |
5.7 |
6.6 |
5.2 |
4.5 |
14.6 |
n.a. |
n.a. |
n.a. |
n.a. |
n.a. |
n.a. |
Sources: from 1990 to 1994 - UNIDO (2002); from 1995 - Bureau of Statistics (2002 and 2003).
As the table shows, the value-added in forestry (i.e. roundwood production) amounts to roughly FJD 25 million each year. Based on the economic rent calculations described earlier and recent production statistics, it is estimated that about half of this is value-added in indigenous roundwood production (i.e. production from the natural forest), with the remainder coming from the forest plantation sector. Furthermore, the value-added from indigenous roundwood production is probably shared roughly equally between: official forest charges; unofficial charges; operators’ ROC; and payment of wages and salaries.
On the processing side, there is some value-added from the production of value-added paper products (i.e. packaging materials) but, as this is not based on the domestic forest resource, it can not really be considered as a benefit of the forestry sector in Fiji. Excluding this, the other two main industrial sectors (woodworking - sawnwood and wood based panel production - and the wooden furniture industry) account for a further FJD 25 million in value-added each year.17
Thus, the total net benefit from the production of industrial forest products in Fiji is probably around FJD 50 million per year. The total Gross Domestic Product of Fiji in 2000 was FJD 3.2 billion, implying that the formal forestry sector accounts for about 1.5 percent of national income.
Other forest products include woodfuel and a wide range of non-wood forest products that may be used by people (e.g. for food, medicine, plaiting materials and local building materials). Information about the level and value of production of these other products is not readily available in Fiji and it would probably be difficult to collect such information.
Given the remoteness of much of the forest, the level of urbanisation and the general level of economic development in Fiji, it seems unlikely that the collection of other forest products for subsistence purposes is of significant economic value. However, one area of informal forestry production (which may not be captured in official value-added statistics for the sector) is the production of handicrafts, such as wood carvings, souvenirs, mats and baskets. Considering the significant tourism sector in the country and the interests of tourists in purchasing such products, it is possible that these activities result in a modest amount of value-added in addition to that recorded in official statistics.
With respect to the value of the forest resource and the value of the stock of carbon held in the forest and forest soils, the situation in Fiji is likely to be markedly different in the natural forest and forest plantation sub-sectors.
In the natural forest, the Forestry Department’s statistics suggest that the natural forest area may have declined by about 25,000 ha or 3.1 percent in total since 1986 (equal to an annual loss of around 1,500 ha or 0.2 percent per year). In addition, some Forestry Department staff suggested that, although current harvesting is sustainable in terms of retaining the regenerative capacity of the forest, they did not expect that current harvesting levels in the natural forest could be continued indefinitely (as it is becoming gradually more difficult to find trees that can be commercially harvested) and that a significant period of regeneration might be required in many areas at some time in the future. Thus, it seems likely that there is a modest and gradual depletion in the commercial value of the natural forest resource each year.
The commercial value of the natural forest resource in Fiji may currently be around FJD 250 million (assuming an annual level of value-added from forestry activities of FJD 25 million per year (in perpetuity) and a discount rate of 10 percent). Thus, the current annual loss of natural forest (0.2 percent) would be equal to a decline in the value of the commercial growing stock of around FJD 0.5 million per year. However, this is an absolute minimum. Considering that the current level of production probably can not be maintained in perpetuity, the gradual decline in the quality of the forest (in addition to changes in area) would suggest that the annual change in the value of the resource is probably several times (and possibly an order of magnitude) higher than this.
Based on data from various studies in other tropical countries, the non-market value of carbon held in forests is often roughly equivalent to the value of the stock of commercial timber.18 Thus, the value of annual changes in the carbon held in Fiji’s natural forests (due to changes in forest area and average growing stock) might be of a similar magnitude to those described above.
In Fiji’s forest plantations, the opposite of the above is likely to be the case. The forest plantations have increased in area in recent years and they have matured. This has led to an increase in the stock volume and, more importantly, a considerable increase in the value of this stock (in terms of it being much closer to the age when trees can be harvested).
The current assignment did not involve a detailed investigation of the forest plantation sub-sector in Fiji, but it seems likely that the positive changes in the value of the forest plantation growing stock (in terms of both commercial timber value and the value of carbon stocks) would be larger than the losses in stock value in the natural forest. However, an analysis of the net effect of these changes would also have to take into consideration the current timber income and the costs of planting and managing this resource. Thus, it can not be determined whether the net change in this value is positive or negative (nor the magnitude of this change). This would require a more thorough investigation of the forest plantation sub-sector.
Forests can have a major direct impact on the quality and quantity of water from forested areas and, indirectly, on soil resources in neighbouring areas (e.g. as a result of their effects on soil erosion). The linkages between forests and water are varied and poorly understood. Furthermore, these linkages are believed to be limited to very small catchment areas and the effects of forests on large catchment areas are extremely difficult to assess.
For example, forests are believed to improve water quality, but this is only true under certain circumstances and there are many examples of how forestry activities can lead to a decline in water quality (e.g. through soil disturbance due to harvesting and afforestation). Forests may regulate the flow of water, resulting in a reduction in the negative effects of high rainfall (e.g. floods and soil erosion) but, again, this is not always the case. Furthermore, with respect to water quantity, a scientific consensus is gradually forming that forests reduce water quantity (due to high transpiration rates), which can be a significant cost in areas where water is scarce.
In small islands, water supply is often a crucial issue and Fiji is no exception. However, discussion with Forestry Department staff suggested that they believed that forest-water linkages may not be particularly important in Fiji, due to the location of the main forest areas in relation to the areas where water supply and demand are most critical. A complete evaluation of the costs and benefits of the forestry sector with respect to water resources would require a comprehensive and detailed analysis of where forest and water resources overlap, the explicit linkages between the two (in terms of water quality and quantity) and a study on the value of water. It seems unlikely that this would be a priority for resource managers in either the forestry or water sectors.
Based on the above, at first glance, it seems likely that the costs and benefits of the impact of forests on water resources in Fiji may be negligible.
The value of forest biodiversity can be both a flow of value and a stock of value. The flow of value is the perceived benefit that people obtain each year from the conservation of biological diversity, which is poorly understood and very difficult to estimate. This is what economists refer to as a “non-use” value. In addition, there may be a use value if biodiversity from the forest is (or could be) used commercially (e.g. bio-prospecting for new chemical compounds that might be used as medicines or food additives). Currently, there are no known commercial bio-prospecting activities in Fiji, so the value of forest biodiversity is likely to be mostly a non-use value.
As with the value of the forest resource, the stock of biodiversity value is the sum of the future value of these flows that may be obtained from any given state of the forest resource. This can increase (if the amount of forest biodiversity or people’s valuation of this increases) or it can decrease (if the opposite occurs).
In total, about one-third of Fiji’s forests are protected (280,000 ha - see Table 23), but this includes areas protected for a range of different uses (biodiversity, soil and water protection). Of this, the formal protected areas network covers only 37,000 ha (or about five percent of the forest area). In addition to protected areas, there will also be biodiversity of some value in other forest areas, but the value of this biodiversity may be quite low.
Given Fiji’s current level of economic development, it seems likely that the non-use value of forest biodiversity amongst the local population will be low. In terms of the global population’s valuation of forest biodiversity, Fiji is internationally recognised as part of the Polynesia-Micronesia biodiversity hotspot, so there may be some value placed on the nation’s biodiversity resources. This value is currently unknown, but might be quite significant.
The use of forests for recreation can be a significant value in densely populated countries. The value of forest recreation can be estimated using a variety of economic techniques and it is sometimes possible to capture some of this value through user fees (e.g. entry fees, car parking charges, fees for commercial tour permits and licence fees for other commercial recreation activities). In addition, studies have shown that an attractive natural environment (including trees and forests) can result in increases in property prices compared to similar properties in unattractive areas.
There are currently only a small number of formal forest recreation sites in Fiji and visitor numbers are unknown. However, in addition to the local population, Fiji is a major regional tourism destination, attracting around 326 thousand holiday visitors in 1999 (Bureau of Statistics, 2001). The average length of visit is just over one week and this part of the economy is growing strongly (e.g. holiday visitor numbers were only 256 thousand in 1995).
The majority of holiday visitors to Fiji probably do not visit the forest, so the current value of this use of the forest is probably quite modest. However, given the wealth of most visitors, their average length of stay and the availability of suitable sites, there may be potential for some development of forest recreation in the future.
Other social and cultural functions of forests include historical/traditional uses and the use of forests for educational purposes. These uses are very difficult to value and there is currently no readily available information about the quantity or value of these forest uses in Fiji. However, given the relatively small number of people living in or near the forest in Fiji, it seems likely that the value of these functions would be negligible.
Analysis of economic linkages is used to show the total effect of activities in a sector on the national economy (usually in terms of the income and employment generated by activities). In addition to the direct effect of activities (e.g. value-added, as shown in Table 21), there are also usually indirect effects in terms of income and employment generated in industries that provide goods and services to the sector (e.g. transport, machinery suppliers, fuel retailers) as well as in industries that purchase goods and materials from the sector (e.g. retailing, construction, etc.). Furthermore, some of the income paid to workers in a sector is then spent locally, resulting in additional induced income and employment effects within the local economy.
Studies of economic linkages require the construction of an input-output table for the whole economy, with considerable detail of the purchases and sales of those companies operating in the forestry sector. This is a significant exercise, which usually builds upon existing general input-output tables for the economy as a whole (which may or may not be available for Fiji). Surveys of companies’ expenditures and sales are used to construct the level of detail required for the analysis and the input-output tables can then be used to show how marginal changes in output in the sector lead to changes in direct, indirect and induced income and employment.
The few countries that have produced income and employment multipliers for the forestry sector (e.g. Canada and the United Kingdom) have reported multipliers in the range of two to three. In other words, for every one job created in the forestry sector, an additional one to two jobs are created in related industries and the local economy. Similarly, the total value-added that is linked to activities in the forestry sector is two to three times higher than the direct value-added reported for the sector.
In the case of Fiji, it seems likely that the income and employment multipliers for the sector may be somewhat lower than reported elsewhere. This is due to the nature of island economies and the capital intensity of forestry activities. For example, Canada reports a high forestry sector multiplier because there is a significant industry involved in producing chemicals, tools, equipment and machinery for the forestry sector. In the case of Fiji, it is likely that the majority of equipment is imported. Furthermore, a significant proportion of the forestry sector’s output in Fiji is exported (which would tend to limit downstream multiplier effects). On the other hand, the induced multiplier effects of forestry activities in Fiji could be quite high in areas where the local sawmill is the main employer.
In general, it seems likely that the income and employment multipliers related to forestry sector activities in Fiji would be low, possibly in the range of 1.5 to 2.0. Given the amount of effort required to produce such a study properly and the “disappointing” result that may be obtained, it is recommended that investing in such a study would not be a valuable use of resources.
A summary of the main costs and benefits of the forestry sector in Fiji is given in Table 22. Despite not being able to value many of the different functions of the forestry sector, this shows that the non-financial effects of the sector as a whole are probably slightly positive and that the annual change in the stock value is probably positive (due to the increase in the value of the forest plantation resources outweighing any decline in other values). In other words, annual activities in the sector have a positive net benefit and the value of the asset stock is increasing.
Table 22 Summary of the main costs and benefits of the forestry sector in Fiji
Name of input, output or asset |
Annual net flow |
Annual change in stock value |
Industrial forest products |
Gross value-added of about FJD 50 million. |
Unknown, but probably slightly positive |
Other forest products |
Probably a very small amount of value-added in woodfuel production. Possibly a significant amount of value-added in handicraft production. |
Negligible. |
Forest resource |
Not applicable. |
In the natural forest, annual decrease of at least FJD 0.5 million, possibly several times this amount. Probably significant increase in the forest plantations. |
Forest (and soil) carbon stock |
Not applicable. |
As above. |
Water services |
Probably negligible. |
Not applicable. |
Biodiversity |
Possibly quite significant to the global conservation community. |
Unknown, but likely to be negligible (and probably a small decrease). |
Recreation and amenity |
Probably negligible. |
Unknown, but likely to be negligible. |
Other social and cultural functions |
As above. |
As above. |
A significant amount of further work to quantify and estimate all of these values could probably not be justified. However, if desired, it would seem most beneficial to examine the amount of value-added in handicraft production and the potential to increase the value of forest recreation through development of informal and commercial recreation activities.
16 Value-added is defined as the total value of sales from a sector less the value of purchases from other sectors. Thus, it is the same as the net benefit from activities in the sector. Value-added is distributed as incomes to the owners of the factors of production as rents or forest charges (to landowners and government), ROC (to investors) and wages and salaries (to labour).
17 It should be noted that UNIDO and the Bureau of Statistics show very different figures for these two components of the forest processing sector, but this is probably due to differences in the classification of enterprises into the two different sub-sectors. What is encouraging is that there is no great difference in the totals for the forest processing sector given by these two different sources.
18 The value of carbon stored per cubic metre is much lower than the value of timber (per cubic metre), but this value can be applied to the entire growing stock volume and not just the commercial volume.
