9. Can Timber Rents Better Contribute to Poverty Alleviation Through Community Forestry in the Terai Region of Nepal? 1

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9. Can Timber Rents Better Contribute to Poverty Alleviation Through Community Forestry in the Terai Region of Nepal? 1




Only about 10% of the 14,000 officially established community forests in Nepal are found in the 20 districts defined as Terai by the Central Bureau of Statistics.2 These forests cover a little over 200,000 ha, which is less than 20% of the forest cover in the Terai outside protected areas.3 Nevertheless, approximately 16% of the Terai population, or 320,000 households4 (nearly two million people), benefit from 100% rights to forest products through community forests imparted under the Forest Act (1993), Forest Regulations (1995), and 1st Amendment (1998) (Bampton and Shrestha, in press), though a recent series of Financial Ordinances impose some taxes on Terai Community Forests. The remainder of the forests in the Terai is either in protected areas,5 or under Government “management,” with negligible areas under Leasehold or Religious Forestry.

1 A more detailed version of this paper is available at the author’s personal website: www.freewebs.com/jiminnepal
2 Almost half the nation’s population reside in these districts that comprises only 23% of Nepal’s territory (CBS 2005)

The natural forests of the Terai region are rich in economic terms due to the abundance of high-value timber species such as sal (Shorea robusta), sissoo (Dalbergia sissoo) and khair (Acacia catechu) (Van Schoubroeck et al. 2004; Hill 1999), which have relatively fast sub-tropical growth rates (Pesonen 1994; Rautiainen 1995). The relative easy access of Terai forests and markets also makes the realization of timber rents easier. Despite historically providing revenues to the ruling classes,6 it was not until the 1970s that the first attempts at formal forest management planning were made through the Department of Forests (DoF), though these plans were never fully implemented (Adhikari et al. in press; Sigdel et al. 2005; Baral 2002). During the 1990s, recognizing that the existing passive management was unsustainable (Pesonen 1994; Pesonen and Rautiainen 1995) a new attempt was made with Finnish technical assistance, resulting in technically sound (for timber production) Operational Forest Management Plans (OFMPs) for 19 of the Terai districts. However, as these plans did not involve local people or attempt to reconcile their livelihoods needs, and restricted community forests to degraded areas of forest, the OFMPs were not accepted by the local population. A lack of central government funding for implementing these plans, combined with an ill-advised and unclear ban on green tree felling, further hampered the success of the OFMPs (Baral 2002).

Since then, most Terai forests have remained under Government “management,” which in practice involves little more than the collection of illegally cut forest products, or the periodic removal of dead, dying and fallen trees through annual harvesting quotas assigned to District Forest Offices (DFO), the Timber Corporation of Nepal (TCN)7 or District Forest Product Supply Boards (DFPSBs) (Acharya et al. 2006). The important point regarding government management is that timber rents from Government managed forests are not seen to contribute to local poverty reduction,8 except perhaps through the employment generated by those contracted locally to undertake the harvesting. Only timber distribution through the DFPSBs aims at meeting local timber needs and targeting poor people. Unfortunately the DFPSBs are not functioning properly in many districts, resulting in inadequate timber distribution. Due to these inadequacies, local users (including the poor) obtain benefits from government forests through the illegal collection of timber and other forest products.

3 Precise figures for forest areas are difficult to come by as most estimates focus on natural forest within the national forest estate. However, large areas designated as national forest do not actually have forest cover, and 7.7% of CF in the Terai is actually plantations, some of which is outside national forest and therefore not included in overall forest areas.
4 This is the total number of households registered as members of CFUGs. However, there is no data on the degree of duplication, as some are members of more than one CFUG – hence the figure is likely to be a slight overestimation.
5 There are five protected areas in the Terai – two national parks and three wildlife reserves covering 17% of Terai forests (DoF, 2005). Around the PAs are Buffer-zones (BZs), in which at least 57 BZCFUGs currently manage around 14,500 ha (Bampton and Shrestha, in press).
6 For example, sleepers for India’s expanding railway network during the British colonial era (e.g. Adhikari et al. in press).
7 The TCN is a para-statal enterprise established in 1959 with initial objectives of supplying timber and fuelwood to Kathmandu Valley and exporting the surpluses to India, although it soon developed into an intermediary timber supply agent obtaining trees from DFOs at the Government rate and selling at a higher price to private wood merchants. It has passed from the jurisdiction of the Ministry of Forests and Soil Conservation to the Ministry of Supply and back again, and in 1998 the Government of Nepal made a decision that authorized the TCN as a sole dealer for selling timber and fuelwood in 33 Terai and Inner Terai districts (Shrestha R.B., pers. comm.). In 2000, the decision was changed yet again, whereby TCN would be responsible for 50%, and DFOs the other 50%. The TCN has spent a considerable part of its existence in debt.

The socio-economic situation and history of the Terai, in relation to forestry, has been summarized in various studies (Adhikari et al. in press; Bampton and Shrestha, in press; Bampton et al.2004; Laubmeier and Warth 2004). As many authors have noted (Sigdel et al. 2005; Bampton et al. 2004; MFSC 2003; Paudel and Pokharel 2001; Pokharel 1999), the most important characteristic influencing forest management and use in the Terai is the pattern of forest resource and population distribution. The Terai forests are mostly confined to the environmentally sensitive Churia Hills in many districts9 and the Bhabar zone immediately to the south of these hills in other some other districts, while the Terai plains are largely devoid of large intact forests, with the exception of a few districts located primarily in the central and far western Terai.

The majority of the population live in the plains, with many located quite far from the remaining natural forests. It is also frequently noted that those populations living closest to the remaining forests are relatively recent migrants from the Hills, a demographic pattern that is linked to King Birendra’s drive to populate the Terai following the eradication of malaria in the 1950s. Many of these recent migrants are technically illegal encroachers under the law (Acharya and Dulal 2003; Pokharel 1999; Bhatta 1998). Gaurev Integrated Development Associates (2003) estimated that as much as 70,256 ha of forest have been illegally encroached upon in recent years. Though there are celebrated cases of encroachers turning into forest conservationists through Community Forestry (referred to here as CF) (Pokharel 2000), encroachment remains a challenging issue in the region.

It is often argued that CF mechanisms will inevitably favor the few communities living close to the forest resources in the northern Terai districts, as opposed to those communities located in the southern districts that are farther away from the available forest resources (Sigdel et al. 2005; Singh KC, 2005; Baral and Subedi 1999).10 Community forestry will inevitably have less of an impact on overall poverty reduction in these southern districts, unless mechanisms are developed to have them included in, or benefit from, the Community Forestry program. While there is no poverty data to confirm the actual status, it should be noted that personal observations suggest that the southern Terai communities are generally poorer with higher population densities than their northern neighbors.

Complicating this proximity to the forest resource issue is the fact that there is no limit to the forest area that CFUGs can apply for, with situations arising where in some CFUGs, a relatively small number of households have captured an inordinate amount of forest resources, while other CFUGs have inadequate resources to meet even the basic needs of the community, let alone contribute to poverty reduction (Bampton and Shrestha in press; Iverson et al. 2005; Chhetry et al. 2004; Bampton et al. 2004; NORMS/ODG 2003).

8 Indirectly, through central and local government, forest revenues are reinvested in local poverty alleviation and basic services, although 10% of revenues are deposited with District Development Committees (DDCs)
9 57% of forests in the 20 Terai districts are found in hilly regions – Churia or Mahabarat hills (DoF, 2005) Estimates of deforestation in the Terai have reduced from 1.3% for 1978-79, 1990-91 (DFRS, 1999) to 0.06% for 1990-91, 2000-01 (DoF, 2005).
10In practice, CFs are handed over as requested to self-identified groups, and GoN policy has been to hand over small patches along the fringes that can only realistically serve users situated nearby. Unless the size of CFs increases, it is impractical to include distant users in CFUGs. Bampton et al. (2004) demonstrated for 3 Terai districts that on average, CFUGs managed areas/household equal or less than the district forest:household ratio, although this is dragged down by some small CF plantations outside the natural forest with high numbers of users.

For these reasons and others, the Government of Nepal (GoN) issued a revised forest policy (MFSC 2000) that prevents community forests from being handed over to CFUGs in large, contiguous blocks. The policy also mandates that production forest resources would be managed through a new modality called Collaborative Forest Management (CFM), where the management responsibilities and benefits are shared between the central Government through the District Forest Offices (DFOs) and local governments through District Development Committees (DDCs), Village Development Committees (VDCs), and elected CFM committee members representing both nearby and distant forest users. The Government argues that, as it is responsible for Government managed national forests, it can develop management plans through collaboration with whomever it chooses. The legal basis for this position remains disputed (Bhattarai 2006).

CFM attempts to: (i) develop sustainable forest management; (ii) fulfill the needs for forest products; (iii) help in poverty reduction by creating employment; (iv) maintain and enhance biodiversity; and, (v) increase national and local income through active management of the Terai and inner Terai forests.11 This paper compares Community Forestry with CFM, but does not analyze the CFM modality in depth for a number of reasons: it remains confined to less than 7,000 ha where it is still being piloted, cost and benefit sharing levels and mechanisms have not yet been clearly established,12 and some important stakeholders continue to have strong reservations about it.13

This paper principally examines the impact of existing CF legislation, forest policies, and internal CF benefit-sharing practices on the realization of timber rents and their targeted redistribution to poor members of the CFUGs. It also briefly explores other pro-poor timber rent distribution systems practiced in the Terai and compares them with redistribution through CF. Finally, the paper provides some suggestions on how timber rents realized through CF could be increased and better contribute to poverty alleviation in the Terai region.

The case of Community Forestry

Impact of Community Forestry-related legislation and policies on timber rent realization and redistribution

The Forest Act (HMGN 1993) is supposed to give CFUGs autonomy to decide how to manage their allocated forests, and how to use or dispose of the forest products derived from them. However, in reality there are a number of constraints on the decision-making freedom of CFUGs imposed by subsidiary regulations and the dominant paradigms of CF in Nepal, as well as the practice of CFUGs not always reflecting the theory. In order to understand how CF works in the Terai, it is essential to understand the fundamentals of the legislation and how the various instruments introduced over time affect CFUG decision making, as well as the broader socio-economic context in which they operate.

11 For further information on how CFM evolved and where it is now, see Singh KC (2005); MFSC (2003); Sah et al. (in press) and Bampton et al. (in press).
12 Benefit sharing in CFM is currently 75% of revenues to central government, with 25% remaining at the district level – originally envisaged as 10% to DDCs, 10% to VDCs and 5% to CFM Groups. Current MFSC thinking makes benefit sharing of the district level 25% at the discretion of District Forest Coordination Committees (DFCCs), a large part of which would have to be reinvested into forest development (MFSC 2005). Suggestions for the revised CFM guidelines include changing the benefit sharing to 50/50 vis centre/district (Ebregt, A.., pers. comm.).
13 The whole of Hamro Ban Sampada Vol. 3(2), published by ForestAction is dedicated to issues of CFM.

Under the Forest Act (HMGN 1993) CFUGs may be formed to “develop, conserve, use and manage [the] forest, and sell and distribute the forest products by independently fixing their prices, according to an operational plan” (Section 25), “using the forest products for collective benefit … in the prescribed manner” (Section 41). The Act also specifies that “A users’ group … shall be an autonomous and corporate body with perpetual succession”, “… may acquire, use, sell or transfer, or otherwise dispose movable and immovable property like an individual” (Section 43), and “… shall have a separate fund of its own” which “… shall be operated in the prescribed manner” (Section 45).

The main features and spirit of the original legislation were concisely summarized by Joshi (1997):

  • All accessible forests can be handed over to users (no area limit);
  • The CFUGs have to manage the forests as per the approved constitution and operational plan (OP) of the allocated community forest;
  • Any national forests suitable to be converted into community forests will not be given to other uses, such as leasehold forests;
  • District Forest Officers (DFOs) can allocate areas of forest to a CFUG (it was previously the responsibility of Regional Directors (RDs), a higher authority);
  • CFUGs can use surplus funds for any kind of community development works;
  • A CFUG is an autonomous and corporate body with perpetual succession;
  • A CFUG can fix the price of the forestry products irrespective of the government royalty;
  • A CFUG can plant long-term cash crops (e.g. medicinal herbs) as long as they do not disturb the main forestry crops;
  • The DFO can take the forest back from a CFUG if it contravenes the OP (agreement); however, the DFO must return it as soon as possible once the problem is resolved;
  • CFUGs can transport any forest products simply by informing the DFO;
  • CFUGs will not be beholden to any political boundary while handing over the forests;
  • A CFUG can establish forest-based industries;
  • CFUGs can amend the OP by simply informing the DFO;
  • CFUGs can punish misusers (encroachers and thieves), who contravene the rules of the OP; and
  • Any agency can help users to manage the community forest.

This legislation gives CFUGs considerable freedom to determine how they manage their community forest, though “everything” CFUGs want to do should be included in the OPs. The Forest Regulations (HMGN, 1995) detail matters that must be included in an OP, but they do not state the duration of these plans. This is important, as section 26, subsection 1 of the Forest Act states that CFUGs “may make timely amendments according to need in the OP relating to the management of community forests, and must inform the DFO accordingly.” It does not say “seek approval” of such amendments, which involves considerably higher transaction costs. Furthermore, subsection 2 states that only if such an amendment “is considered likely to adversely affect the environment in a significant manner” may the DFO “direct the users’ group not to implement the concerned amendment in 30 days.” Nevertheless, DFOs impose control over OPs, and 5-year plans are the accepted norm, followed by revisions that do require DFO approval. This does not give CFUGs the flexibility to prepare long-term plans for the whole forest, and shorter-term plans for more detailed work in specific areas of the forest, and therefore increases unnecessary transaction costs.

More recent legislation, in the form of the First Amendment (HMGN 1998), prohibits forest-related industries from being located in the forest or within a specific set distance from the forest,14 a further restriction on the prohibition not to locate such industries in a forest area as mandated in the Forest Regulations (HMGN 1995), thus imposing extra costs to transport raw materials to processing sites. The First Amendment (HMGN 1998) also made it necessary to undertake a forest inventory while preparing the OP. The Community Forest Inventory Guidelines (CFIG), first prepared in 2000, were updated in 2004 and remain highly prescriptive.15 Furthermore, they go beyond just inventory, requiring conservative silvicultural prescriptions based on Annual Allowable Cuts (AACs) as a percentage of estimated Mean Annual Increment (MAI), which is simply not appropriate in many cases.16 Forestry officials take these guidelines as if they were a mandatory directive, rather than guidance, as no other standards to evaluate OPs exist. The First Amendment also directs Community Forest User Groups to spend 25% of their income on forest development activities, although a clear definition of “forest development activities” remains elusive. Obviously, forest investment and management costs will vary from year to year, and cost effectiveness and sound financial planning should be encouraged in order to maximize profit.

The most recent legislative impact on timber rents from CF in the Terai comes from the imposition of taxes on the sale of timber of two species outside CFUGs. The idea was originally included in the Revised Forest Policy that was adopted in 2000, though it had no basis in law or regulation. Despite this, DFOs began collecting a flat 40% tax from such sales. The move was challenged by the Federation of Community Forest User Groups Nepal (FECOFUN) in the Supreme Court in 2003, which won the case. The tax was then legally authorized through a Finance Ordinance later in 2003, and has since been renewed every six months. During this time, the tax was momentarily applied to the whole country covering all species with a reduced rate of 25%, and finally restricted to a 15% tax rate on only sal and khair sales outside of the Terai CFUGs. This tax is on gross revenue, but is frequently referred to by forestry officials as a “royalty.” It bears no relation to CFUG investments to realize such revenues, or to the needs of the CFUG for revenues. In addition to this, CFUGs are obliged to pay a 15% VAT on the same sales, though how this is calculated is still a mystery to the authors. The assumption is that the Government will use at least some of these revenues for implementing the 10th Plan, alternatively known as Nepal’s Poverty Reduction Strategy Paper (PRSP), although it is highly unlikely that much of this will filter back to the communities involved in managing community forests in the Terai. Taxes such as these, and the instability of the overall system, encourage some CFUGs to minimize their external sales, which results in a decrease in overall timber revenues. This can translate into a loss of potential income for the CFUGs, and a loss of revenue for the Government of Nepal as well.

In summary, the CF legislation obliges CFUGs to incur management costs, some of which are not necessary, while at the same time restricting production from their forests to lower than potential levels. Furthermore, a share of Terai timber rents is taken by the Government in the form of taxes, irrespective of production costs incurred by CFUGs or their management and community development needs. As a result, the timber rents collected by CFUGs from Community Forestry are never as high as they potentially could be.

14Five km is the limit in the case of the Terai region.
15e.g. CFUGs are required to measure regeneration throughout their forest, regardless of whether they intend to regenerate particular blocks (such as pole stage stands) or not.
16e.g. the permitted allowable annual harvests in Dhuseri CF in Nawalparasi district are calculated to be only a third of sustainable production potential of the predominately sal forest (NORMS 2003) as the growth rates are likely to be significantly higher than those projected in the CFIG.

There are additional factors that contribute to timber rents collected by CFUGs being lower than they could be. A fundamental limitation on CFUGs is the prevailing paradigm that internal demand should be satisfied before any external sales are allowed, and that individual CFUG members should sell their share of forest products. An illustration of this thinking was the Ministry of Forest and Soil Conservation (MFSC) decision in April 1996 to release a circular stating that the forest product consumption demands of the local community and adjacent districts must be first fulfilled before a CFUG can sell forest products in other places (Kanel and Acharaya 2006). This was in conflict with provisions in the Forest Act and Regulation, but was viewed as a good intervention because it helped to meet local needs (Shrestha, R.B., pers. comm.).17 Additionally, and in a typically restrictive fashion that is supposedly for environmental reasons, buffer zone (BZ) CFUGs are not allowed to sell any forest products outside their community (MFSC 2002). Other restrictions on CFUG decision making resulting from the prevailing CF paradigm preclude individual members from receiving a share of income from sales, restricting the use of employment generation as a tool to redistribute rents according to inputs by individual members. The impacts of such thinking will be further explored below.

Impact of internal Community Forestry management on timber rent realization and redistribution

Despite the legal and policy restrictions on CFUG decision making, it is still interesting to examine how CFUGs use their remaining discretionary powers and rents, and how these are influenced by the prevailing paradigm for CF in Nepal. It is noted that in many CFUGs nationally, not only in the Terai, the concept of “equality” is applied in theory, though concepts of “equity” are now being promoted. However, many CFUGs are actually employing a concept of “need” to determine who gets what, and thus the concept of “equality” changes to one of “equality of opportunity” only.

The reality is that these opportunities are not realized by everyone. Take for example the situation of fodder in the Kumarbarti BZCFUG in Nawalparasi district. The users comprise two main social groups, with distinct historical and cultural values and livelihoods systems. One group is composed of higher caste Hindus, many of whom have landholdings and livestock. The other group consists of Bote / Mahji, comparatively landless, fisher folk. The community forest provides fodder for those who need it, i.e. the higher castes with livestock. This has been valued as an annual benefit exceeding NRs 30,000 (US$ 405) per household per year. The Bote / Mahji, who do not have livestock, are excluded from these benefits, and receive inadequate compensation in the form of a few extra headloads of far less valuable thatching grass (Ghimire 2004).

A similar situation arises with timber used within CFUGs, as documented by the detailed NORMS/ODG study (2003) covering 14 CFUGs in Nawalparasi and Rupandehi districts. It was commonly found that CFUGs sell timber internally to members at a price significantly lower than the prevailing market price, and the timber is often only sold in set quantities. However, those who avail themselves of this subsidized timber are those who “need” it, and who can still afford the subsidized price for the set quantity. “Need” for timber usually relates to house construction or maintenance, and this “need” is frequently greater for relatively richer households with larger houses. Furthermore, it is only the richer members who can afford to purchase timber, even at the subsidized price. Typical local market prices for sal timber are around NRs 600–800 (US$ 8-11) per ft3 (NRs 21,200-28,250 or US$ 282-388 per m3). A typical subsidized price for sal sold internally within CFUGs is around NRs 150-300 (US$ 2-4) per ft3 (NRs 5,300-10,600 or US$ 70-141 per m3). Therefore, many CFUGs as institutions are in effect forgoing at least half of the available timber rents, which in practice go to richer households at the expense of poorer CFUG members who can’t afford to buy even at subsidized rates. The NORMS/ODG study refer to these as “hidden subsidies” whereby the poor in fact subsidize the rich.

17A recent agreement between FECOFUN and MFSC maintains this paradigm, as it was agreed that CFUGs should first satisfy their own need, then that of neighbouring CFUGs, then the rest of the district, before being allowed to sell to others (MFSC/FECOFUN press statement 01/07/06)

This research has been recently summarized by Iverson et al. (2005), where they calculate that the potential net benefits for one CFUG, after subtracting administration and harvesting costs, could be NRs 2.3 million (US$ 31,000) on an annual harvest of 5,000 ft3 (142 m3) if sold at market rates. These benefits amount to NRs 3,839 (US$ 51) per member household, which is equivalent to the earnings from around 55 days of female agriculture wage labor. However, because of the CFUG’s timber quota and pricing policies, 63% of the net benefits, worth NRs 1.5 million (US$ 22,500), are usurped by the households awarded timber quotas. Awards of timber quotas in this case show stark distributional bias favoring wealthier households, as quotas are for 50 ft3 (1.4m3) requiring an upfront payment of NRs 15,000 (US$ 200), which poorer households are unable to pay. This policy therefore effectively excludes the poor from availing themselves of the “hidden subsidy.”

Furthermore, the NORMS/ODG study detects a further hidden economy in a number of instances, whereby fund management is far from transparent, and corruption probable. The study reported that the CFUG harvested more than specified in the OP, which was under-reported by the CFUG committee who sold part of the extra volume illegally. There is no legal restriction on individuals selling their shares of CF timber, although the transport permits required and rent-seeking behavior of forest officials means that legal routes are generally avoided. It is known that at least a portion of CF timber is sold in this way (Shrestha, R.B., pers. comm.). Unfortunately it is impossible to get an idea of how prevalent these distribution systems are in the Terai region.

Nevertheless, some CFUGs have developed more equitable timber rent distribution systems. These include:

  • Variable timber quotas based on poverty ranking. Member households are divided into rich, medium and poor households whereby the highest quotas are provided to the poorest families.
  • Variable and affordable pricing based on poverty ranking. Prices for timber are adapted to the wealth of member households. This allows affordable pricing for all members and to some extent prevents inequitable hidden subsidies. Prices applied to the richest member households are closer to the real market price, while prices paid by the poorest households are very low and therefore affordable for them. This system is sometimes combined with timber grading, where grade A timber is sold internally at a price slightly below the local market price, and grades B and C are sold at a minimum price, affordable to all households. If supply exceeds demand, timber grading is sometimes applied to optimize rents by selling grade A timber outside the CFUG to the highest bidder. Some CFUGs will distribute for free a predetermined annual quota to their poorest members or victims of natural disasters.
  • Timber distribution based on demand and poverty ranking where a special sub-committee examines individual annual demands made by members, verifies them and allocates timber using variable pricing based on poverty ranking. If demand exceeds supply, some CFUGs apply a prioritized allocation system where the demands of the poorest households are met first.

Bampton et al. (2004) summarized points from CFUG sample data in 12 districts. They noted that Terai CFUGs actually sell less of their forest produce outside their groups than the hill CFUGs do (only 14% of their production against 24% for the hills). Due to the higher value of Terai forests, overall Terai CFUGs make up 35% of forest products sales from all CFUGs.18 Interestingly, it also appears that forest product sales make up a smaller proportion of Terai CFUGs’ overall income. More recent data from Rupandehi district showed that 89% of timber produced was used internally (Bampton and Shrestha, in press). Although the national CF database held by the DoF contains no information on such matters and CFUGs are extremely lax in submitting annual reports and audited accounts, despite being compulsory by law,19 the existing DoF data of CFUG sales outside their groups gives an indication that timber rents contribute substantially to CFUG income – some 890,000 ft3 (25,200 m3) of sal timber,20 470,000 ft3 (13,300 m3) of other species, and 14.2 million kgs of khair timber21 (from data presented in Bampton and Shrestha, in press). A simple calculation suggests that sal alone could provide an income in excess of NRs 100 million per year to Terai CFUGs at a market rate of NRs 600 per ft3 (NRs 21,200 per m3; and US$ 1.3 million per year). If Terai CFUGs are indeed using 80% of their production internally, and are selling this to their own members at only NRs 300 per ft3 (NRs 10,600 or US$ 141 per m3), they could actually be forgoing double the amount they currently generate from external sales (NRs 200 million or US$ 2.6 million per year), as well as distorting local timber markets.

Regardless of the losses CFUGs experience in relation to the potential timber rents available to them, they still receive significant incomes from the sale of timber in the Terai. However, do Community Forest User’s Group use these funds for poverty reduction? The answer to this is “partially.” Kanel and Niraula (2004) report that only 0.88% of Terai CFUG funds are spent on pro-poor activities. A more recent study by Bampton and Shrestha (in press) shows that, at least in Nawalparasi and Rupandehi districts, CFUGs spent 5.32% and 3.28%, respectively, on targeted poverty alleviation programs. This is attributed to a raised awareness amongst CFUGs and willingness to contribute towards poverty reduction in line with Government, donor, and FECOFUN policy. Nevertheless, the impact of such programs has not yet been evaluated.

Community forestry does not contribute to poverty alleviation through targeted use of timber rents alone. In many cases, more equitable systems of forest product distribution have been developed, whereby the poorer or needier families receive additional concessions, such as free fuelwood (e.g. Janajagaran, Kalika, Sahara and Gautam Budda CFUGs of Kapilbastu district) or free timber for welfare support (e.g. Dhuseri CFUG in Nawalparasi reported by NORMS, 2003). A further initiative becoming more widely adopted recently is the allocation of small areas of community forests to poor families for NTFPs and timber production for their exclusive use. Such provisions are extremely important to poor households.

18 Khanel and Niraula (2004) combine true Terai districts with semi-Terai districts that consist of Churia, inner-Terai valleys and Mahabarat hills. Nevertheless, these districts still only comprise <15% of all CFUGs in Nepal.
19 Bampton and Shrestha (in press) calculated from data available for seven Terai districts that over the last four financial years less than 40% of CFUGs have submitted annual reports. For the last fiscal year, only one CFUG out of the 100 or so in the three districts supported by the Livelihoods and Forestry Programme’s Terai component has submitted its annual report by the stipulated deadline of one month after the end of the year (Paudyel, V., pers. Comm.).
20 This figure for the 20 Terai districts is incomplete (e.g data for Sarlahi district for 2057/58 and 2058/59 is missing as records have been burnt by the Maoists). Similar data for five Churia and inner-Terai districts (Surkhet, Makwanpur, Sindhuli, Udaypur and Ilam) show that these districts have in fact had far more significant sal timber sales outside CFUGs (approx. 1.2 million cuft over the last five years).
21 Khair [Acacia catechu] heartwood is used to extract katha (used for chewing with betel leaves) and cutch (used for tanning and dyeing) (Kayastha, 2002)

A large part of CFUG spending, although not directly targeted, probably also benefits the poor. However, it is argued by some that many community development activities have less benefit for the poor. For example, expenditures on schools will not benefit those too poor to send their children to school, or temple construction that lower castes are not allowed to enter. In addition, both Kanel and Nirauala (2004) and Bampton and Shrestha (2006) find that, in the districts surveyed, between 10% and 30% of fund expenditure is categorized as miscellaneous, i.e. not spent on forest development, CFUG operational costs, or community development (which includes pro-poor programs).

In order to understand how CFUG community expenditures benefit the poor, it is first necessary to know who the poor are, and what community development activities are undertaken. Situations are extremely variable in reality. Allison et al. (2004) demonstrate how CFUGs are able to address the livelihoods of their members through supporting a wide variety of activities of interest to users outside forestry per se. This reinforces interest in, and commitment to, “good” Community Forestry management. There is clear evidence that CFUGs are ranking wealth to identify their poorer members, and that CFUG funds are being used for income generating activities (mainly agriculture or livestock related, although bee-keeping, shop-keeping, and trade skills development are also quite common). Other activities that have positive impacts on the poor are emergency funds for health or natural disasters, or for birth control. Finally, expenditures for improving CFUG governance also have positive impacts on the poor by increasing transparency in, and awareness of, CFUG activities and the poor’s participation in CFUG decision making. However, the difficulties in sustainably reducing poverty are not solely financial, and CFUG funds are inadequate on their own.

Other timber rent realization and redistribution systems

Not all Terai forests have been handed over as community forests. A majority of productive Terai forests (block forests, not including protected areas, etc.) remain under direct government management. For government-managed forests, there are two main management systems producing timber rents. The first one is the direct management by the DFO; the second one is the newly established CFM mentioned earlier. For government forest managed by the DFO, an annual plan is created that allocates harvest quotas to the District Forest Office (DFO) itself, the Timber Corporation of Nepal (TCN) and the District Forest Product Supply Board (DFPSB).22 Allocations to TCN only occur in districts with sufficient forest resources. Timber harvested by the DFO is auctioned (highest bidder) and rents are sent to the central treasury. The same commercial auctioning system is applied by the TCN. The price of timber sold by the DFO and the TCN are not within reach of the poorest within the district. Timber is bought by middlemen who sell it in urban centers where demand and prices are high. In theory, the DFPSB ensures local (within the district) forest product supply for household fuelwood consumption, agricultural implements and the construction and maintenance of houses. The DFPSB sells timber just above the royalty rate (e.g. NRs 250 per ft3 – Rs 8,820 per m3 – for sal) which again is not within reach of the poorest. This system creates the same hidden subsidy as in the case of CF. In exceptional cases, the DFPSB can supply forest products at 10% of the royalty rate, for example to victims of natural disasters, for cremations and other religious rituals, etc. This type of distribution is in theory supposed to target the poorest, but the functioning of DFPSBs is less than optimal (Acharya et al. 2006).

22 The DFPSB and the TCN have their own funds to finance harvesting operations. In general DFOs (Terai districts) receive about NRs 200,000 Government funding each year for the harvesting of their quota. Forest products harvested by the DFO are auctioned (highest bidder) and all revenues, including the harvesting cost, are sent to the central treasury. The minimum auctioning price is based on a set royalty rate plus harvesting costs. The same commercial auctioning system is applied by the TCN. Revenues go to TCN after the payment of royalty to the treasury. The harvest of the DFPSB quota is done by the DFO on behalf of the DFPSB. The price of forest products sold by the DFPSB includes royalty, harvesting costs and a small profit margin. The DFPSB ensures the local (district) supply of forest products for household fuel wood consumption, agricultural implements and the construction and maintenance of houses. The DFPSB can supply forest products at 10% of the royalty rate to victims of natural disasters, for religious rituals, etc.

Problems with the above modalities include:

  • Forests are sub-optimally managed well below their sustainable potential;
  • real management costs are not accounted for so profitability and efficiency is not enhanced;
  • harvesting costs are arbitrarily fixed;
  • sales systems are inflexible, inefficient and open to abuse; 23 and
  • 90% of revenues accrue to the central treasury, with only 10% going to district level governments, such as District Development Committees (DDCs), with none going directly to local communities.

At issue is whether the central government, local governments, or local communities are better at using rents from forests for forest management and poverty reduction. Clearly, central governments are able to redistribute funds to poorer regions, which might not necessarily coincide with forest resource wealth. However, central government is criticized for leakage, unnecessary costs, poor prioritization, and lack of knowledge of local needs, as well as sub-optimal forest management. Local governments have a closer link to the people of their districts and a better idea of needs and priorities relating to poverty reduction. However, local governments have limited capacity and also suffer from non-optimal use of funds through inadequate accountability systems, as well as no role in forest management.

In the case of Collaborative Forest Management, minimum prices for the sale of timber within the CFM User Group (if not sold outside to the highest bidder) have to exceed the government royalty rate as CFM is expected to pay 75% of the royalty to the central treasury. This price, even far below the market price, would again be too high for the poorest CFM members and poses the same problems of hidden subsidy mentioned earlier. In order to sell timber at an affordable price to its poorest members, the CFM committee would have to use internal revenues to further subsidize timber prices.

Conclusions and recommendations

There are a number of policy and legislative constraints that reduce CFUGs’ ability to maximize the benefits from timber rents. This is exacerbated by CFUGs’ own policies of subsidizing sales within their groups. Therefore, if we want timber rents from CF to better contribute to poverty alleviation, we should work on improving internal and external regulations, practices, and corresponding monitoring mechanisms. In order for CF to contribute more to poverty reduction in the Terai, CFUGs would have to cover more poor users, including more distant users, through the allocation of more forest as CF.

Taxation of Community Forestry income should or should not be considered, depending on perspectives on whether governments or local people are better at using timber rents to alleviate poverty, whether the majority of the poor are members or not of CFUGs, whether CFUGs should contribute to the services they receive from the forest agency, and whether forest resources should be considered as a national resource. However, care should be taken to ensure that taxation does not introduce adverse effects (e.g. suppression of sales outside CFUGs), is fair and progressive (related to costs incurred, income/household and/or CFUG poverty ranking, etc.) and is realistic (there should be enough revenue left to motivate people to look after their resource).

23 e.g. standing sales aren’t undertaken, all timber is transported to depots for sale, grading is inadequate, fuelwood is cut into 2-ft lengths precluding alternative uses, large standard lots preclude small buyers, etc.

Timber rents can better contribute to poverty alleviation within CFUGs by developing pro-poor benefit-distribution systems: (i) by giving or selling timber to their poorest members at affordable prices; (ii) by reinvesting timber rents into targeted poverty alleviation activities; and, (iii) by allowing individual CFUG members to share in timber revenues. It is possible that a greater emphasis on maximizing the returns to individual households, and giving them individual freedom to decide how best to use rents from Community Forestry, could go further in alleviating poverty. At the same time, perhaps an emphasis on generating only sufficient group funds to cover management costs and contingencies would enable much more CF income to remain in individual members’ pockets.

Therefore, CFUGs should balance internal subsidies and targeted timber sales, while maximizing income from internal and external sales that will enable them to develop a pro-poor livelihood improvement program. The guiding principle or priority (for obtaining a balance) would be to first address “real” local demands for forest products of the poorest to support their livelihoods. Selling surplus on a commercial basis in order to optimize revenues then requires an open and competitive market without restrictions. The use of such revenues must then be prioritized to the poor, either through CFUG-targeted activities, or by redistributing rents amongst individuals. A greater focus on payment to members for participation in CF management activities might raise interest in, and the intensity of, forest management while acting as an improved redistributive mechanism for CF rents and making it easier to determine the true costs of CF management.

The positive aspect of systems such as the DFPSB and CFM is that they allow the targeted distribution of timber outside CFUGs to a larger number of previously excluded people and distant users. However, DFPSB needs reform and boosting, while CFM still needs to be further developed and improved. A common problem with both systems is that it is difficult to avoid the problem of hidden subsidy, as any system that sells below market price to a selected few allows those selected few to capture the difference between the market price and subsidized price. It should also be noted that applying a high and fixed taxation system to CFM is negatively affecting the opportunities to local users and the means to alleviate poverty. It is also unfair as it is much higher than the rate applied to CFUGs. Progressive and conservative taxation should be applied to both CF and CFM, based on productivity and the number of households.

Finally, inadequate attention has been paid to economic issues pertaining to Community Forestry, both in terms of internal CFUG economies, and the broader economy outside CFUGs. It is therefore urged that practitioners and researchers increase their efforts to test some of the ideas presented in this paper.


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