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Elements of the economic contribution of forestry to sustainable development

M. Simula

Markku Simula is Associate Professor of Forest Economics, University of Helsinki.

An adaptation of the position paper prepared for the Eleventh World Forestry Congress, "The economic contribution of forestry to sustainable development".

Forests and trees must be appropriately valued for sustainable development. In the photo: a mature eucalyptus in Uganda

Macroeconomics and forestry

The sectoral contribution of forestry can be measured in terms of such traditional indicators as GDP share, balance-of payments impacts or export revenue, industrial output, employment or income generation. As is frequently pointed out, the current accounting systems, particularly in developing countries' tend to leave out a significant part of sectoral contribution to GNP and related indicators while changes in physical stocks are also excluded (Gregersen et al., 1997; Poschen, 1997). This undermines the developmental role of forestry in policy decisions on resource allocation.

A substantial effort has been made to estimate backward and forward linkages of forest industries to complete the quantification of sectoral impacts in a national or regional economy. The traditional Hirshmanian analysis fails, however, to account for impacts which are generated through additional final consumption and income. Haltia (1994) has shown that these effects can be significant, noting that, for strategic purposes, such an analysis should also cover efficiency and comparative advantage considerations.

In addition to the quantification of multiplier effects, the linkage mechanisms should be known. Cluster analysis (Porter, 1990) which identifies these mechanisms is a useful tool, providing direct guidance for policy decisions. The example of Finland is relevant here, as only a cluster analysis has revealed the full strategic importance of the forestry sector to national development considering not only intermediate input supplies but also technology and other spin-off effects. Policies promoting forestry and forest industries should also consider what development options the various supporting economic activities (basic and related technologies, expertise, logistics, etc.) offer in their own right, and as instruments to improve the competitiveness of the forestry sector.

Economic growth can have two sources: extensive growth through an expanded use of resources and intensive growth through more efficient use of resources. The higher the level of development, the larger the share of total growth which comes from the latter source as a result of productivity growth. Past development strategies in the forestry sector have probably been biased towards extensive growth.

Productivity has received a lot of attention as a means to maximize physical timber output per hectare, or unit consumption of such production factors as raw material or labour. Considerable research has been carried out on productivity in forest industries (e.g. ECE/ FAO, 1993), but only scant attention has been given to this topic in forestry where a number of methodological problems need to be solved owing to the tune lag between outputs and inputs in silviculture (Castrén and Simula, 1995).

There is a need to look into some linkages between macroeconomics and environment. Macroeconomics influence forestry in a number of ways. First, macroeconomic stability creates necessary conditions for forest conservation. Instability is typically characterized by high inflation rates, large fiscal deficits, fluctuating exchange rates, slow or negative economic growth and high unemployment. These tend to prevent investment in forestry {particularly as long gestation periods are involved), and to lead to perverse incentives contributing to excessive and reckless utilization of forest resources. Second, forest degradation is primarily caused by market and policy failures (Repetto, 1990). Market failures arise when there are no explicit mechanisms to take into account the social and environmental costs in private decision-making, while policy failures are due to the fact that governments are not able to charge an adequate rent for the utilization of forests which would reflect their true value to society. These problems should be addressed through sectoral policies which are subject to conducive macro policies.

Unsustainable forestry practices Have negative macroeconomic impacts in the long term. The effects of degradation of forest resources, soil erosion or disruption of water catchments are gradual and dispersed over very large areas. Therefore, they tend to be ignored in macroeconomic decision-making. Macroeconomic policies tend to lack a long-term vision emphasizing solutions for urgent short-term problems. In the longer term, the result of such an approach may be a situation where the biophysical conditions no longer offer an adequate basis for sustainable development.

The environmental impacts of macroeconomic policies, particularly structural adjustment programmes, have been the subject of much debate. Even though, as is pointed out above, macroeconomic stability is a necessary precondition for forest investments, concern has been expressed on the possible contribution of such programmes to deforestation and excessive use of forest resources in the absence of adequate safeguards. Market liberalization, which is not accompanied by the correction of the sectoral market, and policy failures have the risk of leading to exploitative management practices without due regard to environmental impacts.

With a few notable exceptions, it has proved difficult - often impossible in developing countries - to impose environmental constraints on macroeconomic policies. This will change in the long term, but in the meantime an incremental approach should be applied under which possible negative impacts of macroeconomic policies on the environment and natural resources are measured through appropriate indicators, incorporating sustainability considerations. This also calls for i) revised accounting procedures; and ii) economic valuation of non-marketed (cf. Pearce and Hamilton, 1995).

It is only through a full understanding of the linkages between macroeconomics and forestry that we can expect sectoral issues to be duly considered in higher-level policy decisions. Further research is called for in this area which has typically been at the outskirts of the mainstream economics, on the one hand, and beyond the limits of traditional forest economics confined to sectoral issues, on the other.

Forest-based employment

Sources of forest-based employment are diverse and only part of them are usually recorded (Poschen, 1997). Some new services, e.g. tourism, offer sources of forestry employment but the bulk will continue to come from traditional productive activities.

In forestry and forest industries technological development has been labour-saving owing to progress in mechanization and automation. Rapid increases in labour productivity have led to reductions in employment as productivity has been growing faster than the volume of output. This situation, common in many countries, highlights practical difficulties in applying the concept of sustainability in practice: sectoral employment has to be "sacrificed" to ensure sustainable production that needs to be competitive. The problem of trade-offs in applying sustainability is not limited to weighing economic, social and environmental values; it also occurs within the various types of values. There are clear limitations in the setting of specific employment objectives.

Particular care is needed when technology is chosen and wage rates are established in the case of major greenfield investments such as pulp and paper mills. Experience has shown that, if substantially higher wage rates than the prevailing ones are introduced in a region to attract a labour force, this can lead to negative consequences as well. Artificially high wage rates encourage the premature introduction of mechanized harvesting systems and thus result in a reduction in labour input. If wage rate increases are easily diffused within a region, this creates pressures in other organizations offering similar employment.

Recognition of personnel as the most important resource in an organization requires that abrupt reductions in employment are avoided, or that they are coupled with arrangements to create alternative jobs within or outside the organization.

Valuation of forests

Underevaluation of forest goods and services and other forest attributes (including non-market benefits) has been recognized as one of the key constraints for sustainable forest management (IPF, 1997). Valuation is continuously practiced in the decision-making on forest management but much of it remains implicit, untransparent and biased.

The theory of values related to nature and natural resources is rich and its various dimensions need to be fully recognized. In the first place, decisions on the use of natural resources are political, involving judgement between different values, and only after that can optimization take place (e.g. in economic terms). Value systems incorporate a distinction between i) intrinsic value, the worth some aspects (e.g. nature, species) have in their own right and ii) instrumental value, the usefulness objects have in fulfilling other ends (e.g. economic welfare) (Norton, 1987). As long as biodiversity serves human needs, its conservation is easily justified, but the fundamental question is whether any species other than Homo sapiens possesses intrinsic value. This philosophical question is outside the scope of forest management but the answer certainly has an influence on forest management standards.

The demand for forest products will continue to grow. In the photo: pine and cedar log. from Afghanistan

Within instrumental values, an object has "demand value" if it can provide satisfaction for some felt preference and this value can be derived from the intensity of that preference. The object has "transformative value" as opposed to demand value if it provides an occasion for examining or altering a felt preference rather than simply satisfying it. Transformative values derive from the fact that some preferences are better than others and that the values and preferences held by individuals are altered by the experiences they have (Norton, 1987).

"Deep green" ecologists legitimize their non-anthropocentrism based on intrinsic values (Ferry, 1992). It is beyond the scope of this paper to explore the philosophical underpinnings of the question of the "rights of trees". It is, however, noted that. whichever view is adopted, nature is not devoid of value and, even though nature is not a legal subject, we have duties towards it.

The dynamic nature of values needs to be recognized. In low-income societies aiming at modernization, economic aspects are emphasized but, with rising income levels, social, cultural, environmental and other non-economic aspects are increasingly considered.

Valuation methods in forestry have been the subject of considerable research efforts as it has been recognized that this is one of the key lacunae in decision-making (e.g. IPF, 1997). The work has almost exclusively focused on expressing various demand values in economic terms (e.g. FAO, 1995; FAO, 1997). One of the main purposes of valuation exercises has been to facilitate decisions in capturing these demand values, to make them act as signals for economic agents (forest owners and managers, industry, etc.). As Gregersen et al. (1997) point out, three measures of economic values are generally applied (market prices, surrogate or proxy market prices and hypothetical value measures) but it remains unclear to what extent such information - often a result of costly time-consuming studies - is effectively utilized. The obvious limitation is that values are not recognized if the respective benefits are not realized. Trade-offs do not work if they are not "traded". Value estimation is only the first step and it should be followed by mechanisms on how the information is integrated in policy and management decisions. Kengen in FAO (1997) notes that the credibility of estimates may be a major reason why value information is not better utilized. This is likely to be linked with the complexity of methodologies and lack of recognition of the conceptual and methodological limitations of value estimates. On the other hand, economists should be aware of the fact that there are non-economic values which can never be expressed in economic terms. Therefore, decisions will always have to be based on multiple criteria.

The achievement of sustainability la closely tied to human resource development.
In the photo: an Indian artisan being trained in efficient sawmilling techniques

Another constraint is related to the specification of production function of forest management. Optimization should ideally be carried out within the context of multiple benefits which requires knowledge of their trade-offs and valuing of these benefits in a common measure. Problems arise in both respects. Trade-off values are impossible to construct for all outputs owing to a lack of knowledge, particularly regarding biodiversity. When certain outputs are easier to value in economic terms than others, their role in the decision analysis easily becomes excessive.

A pragmatic approach could be: i) assessment of benefits and costs of those outputs in economic terms which can be converted into monetary units; ii) setting alternative minimum threshold values for other outputs; iii) exploration of the economic consequences of applying these thresholds as constraints to forest management; and iv) making a value judgement between options duly considering the precautionary principle. An adequate impact analysis considering economic, social and environmental aspects would often be sufficient for decision-makers to select between development options.

As a conclusion, priority should be given to making use of forest value information derived from existing methods, with particular emphasis on how these values can guide decision-making at various levels. In addition, there is a need to develop guidelines on how non-economic values can be dealt with. IPF ( 1997) called for new valuation methodologies which should take into account the following criteria: neutrality and scientific validity, practical applicability, simplicity and clarity, multidisciplinarity, cost-effectiveness and orientation towards currently non-marketable goods and services.

Forest-based employment: young men at a carpentry training school in Olagankanda, Sri Lanka

National economic policies affecting sustainable forest management

The range of economic policy instruments influencing forestry is wide, covering both macroeconomic and sectoral tools. This section focuses on policies that directly influence forest management, bearing in mind that such policies can remain ineffective without an adequate macroeconomic or broader sectoral policy framework which establishes the necessary preconditions for a workable forest policy.

Limitations of national policies

Policies tend to be considered in a national or international context. However, they influence the behaviour of enterprises and individual producers, thereby affecting the local community. The objectives at the four levels do not always coincide, as illustrated in the Box, Matrix of possible objectives, p. 52. The purpose of policies is to influence economic agents so that their behaviour results in the achievement of national-level sectoral goals. There is, however, often a conflict of interests which is not limited to that between the private and public sectors, or to the impacts in the short and long term. When the private sector has to make sacrifices, local communities also suffer. The priorities of environmental conservation at the national and local levels can also be different. Clear approaches are lacking on how to deal with such situations, where local and national, private and public interests differ significantly from each other.

Participatory processes to develop coherence in objectives between various interested parties is probably one of the most efficient pragmatic methods to strike a balance between conflicting goals. National forestry programmes (FAO, 1996) and similar approaches in land use planning at the local level are useful instruments in solving this major issue.

Privatization of forests and forest management

There is a general view that government, owing to its inherent structural weakness, is generally a poor operational manager of forest lands in developing countries. In developed countries, government management may deliver good performance but at high costs. In countries in transition, privatization is linked to the change of the political system and restitution of earlier ownership rights. The switch to market economy in developing countries has often been driven by structural adjustment programmes. These developments have led to the conclusion that the public sector should focus on normative activities and on facilitating the action of non-governmental sectors (Oksanen, Salmi and Simula, 1994). The question of how far to go in this direction remains open, however.

Matrix of possible objectives (examples)




· Forestry
· Forest industry


Sustainable supply of raw material

Local community
· Forest owners, farmers
· Employers
· Contractors
· Others

Local employment and income
Tax revenue

Community development
Avoidance of risk of unemployment and lack of income generation
Maintenance of cultural and traditional values & rights
Environmental conservation


Macroeconomic stability
Prevention of pollution

Sustainable development
· economic
· social
· environmental

Global community


Conservation of the environment and global commons

Increasing demands are being put on forest management which now has to address environmental and social goals explicitly. At the same time, public administrations have been provided fewer and fewer resources to manage the sector in this broader framework. As a result, direct public sector intervention has given way to policy instruments targeted at the behaviour of the private sector. The increased environmental requirements placed on forestry mean in practice that private forest owners are expected to produce more public goods than in the past, usually without compensation for such extra efforts.

The experience with privatization processes in the countries in transition has evidenced the complexity of establishing new institutional frameworks, new capacities and a new economic culture (Csóka, 1997).

Recognizing their weaknesses as forest managers within budgetary constraints, some governments have introduced partnerships with local communities, with promising results and benefits accruing both to governments and communities (Lynch and Talbott, 1995). In many cases such arrangements may be the only feasible approach to achieve SFM.

Allocation of concession rights and pricing of the forests

In many countries, allocation of forest land rights is the task of government and large-scale commercial interests tend to dominate decision-making outside the areas settled by, or allocated to, local communities. As much as 90 percent of industrial wood is believed to be harvested under concession agreements, by which the government as the owner of forest resources grants rights to exploit and manage a specific area (Douglas and Magrath, 1996). It is essential that these concessions are allocated through procedures and in terms which promote SFM and provide an economic contribution to overall sustainable development.

Competitive auctioning of long-term, transferable concession rights with necessary safeguards (controls, performance bonds, etc.) has been proposed as a transparent measure: i) to capture a higher share of the economic rent of the forests; ii) to eliminate irregularities in allocation procedures; and iii) to provide the necessary preconditions for SFM. To make it work in practice, there should be a competitive auction market, adequate information on the resource and institutional capacity to manage the system. Experience indicates that these preconditions are met only in a few developing countries and, therefore, other options such as regulatory procedures may have to be continued. Past analyses and policy guidelines on concession rights and resource pricing may not have adequately considered the structural aspects of the market demand for stumpage and the socio-economic consequences of proposed policies to make them palatable to governments.

From the viewpoint of sustainable forest management, higher rent capture is not enough, as mechanisms should be in place to plough back sufficient resources to silviculture. From the viewpoint of industry, the governments may not have adequately considered the high risk element involved in any investment in tropical forestry which has to be borne by the private sector. Governments have been insisting on full transparency with regard to the financial information from the industry to enable them to adjust administrative resource prices. Owing to the financial integration of the trade-industry pipeline, this problem is likely to be more easily solved through monitoring of the world markets and through special studies rather than by insisting on "opening the books".

Forest-based industrialization

Increasing material needs

The essential role of forests in satisfying material needs tends to be underestimated in the international debate which has focused on environmental concerns. The consumption of forest products is attacked because it is perceived as contributing to the destruction of resources. Competing sectors are promoting their products as substitutes which do not involve the cutting of trees. This takes place without knowledge of whether such shifts in consumption patterns represent negative or positive contributions to sustainable development. The dilemma is serious as it is the markets which create the value for forest outputs and provide direct justification for the conservation of resources. Markets have been traditionally considered as created by forest managers, beyond the scope of their influence. This view, however, should be changed, as pointed out by Justin and Lintu (1997). The role of the market in contributing to sustainable forest management still offers unexplored possibilities.

Brooks' (1997) comprehensive review of outlook studies shows that the demand for forest products will continue to grow, even though at a slower rate than in the past, and under increasing uncertainties about the future strength of the driving market forces. At the same time, the composition of the world demand by product and by geographic region will change, partly induced by economic growth, especially in Asia, and partly by technological developments.

World forests are biologically capable of supplying the quantity and type of wood which will be needed in the future but active management will be necessary to ensure the availability of forest-based commodities and services (Solberg, 1996). In spite of this scenario suggesting there is no global crisis in wood supply, many areas will continue to suffer from shortages or deficits as their low purchasing power does not allow expenditures on substitutes. This tends to contribute to further destruction of the remaining forest resources in those areas.

Globalization and sustainability

In the forestry sector "globalization" is not only linked to trade dependency and local supply constraints. It is also driven by liberalization of capital markets and changing ownership patterns in the forest-based industries. Commercialization of technology and the accelerating rate of technical progress and its dissemination are also important contributing factors. International capital flows seek the highest short-term returns. Financial performance is rewarded with access to new funds at favourable terms while other criteria, such as environmental or social impacts, are mainly considered in the context of meeting government regulations and risk analysis (e.g. negative publicity or labour unrest). International capital markets have started to recognize the potential offered by, and the specific characteristics of, forestry investments which are perceived as relatively low-risk long-term opportunities with positive real rates of return complementing traditional portfolios. However, there is a need to educate international capital markets on the specific requirements of sustainable forestry, and new funding instruments are needed to lower the overall risk of SFM investment (Crossley et al., 1996).

Row logs being transported from the timber yard to a sawmill in Zimbabwe

Changing ownership patterns are characterized by i) further concentration through mergers and acquisitions in the pulp and paper industry and ii) expansion of Asian companies to Africa and Latin America in logging and mechanical wood processing. In addition, iii) new strong pulp and paper groups have emerged in Asia which, thanks to their low production costs, are highly competitive. iv) Local constraints in wood supply leave the industry little option other than to expand elsewhere, which is also observed among European, North American and Japanese corporations. Meeting the future demand for forest products in China, India and other Asian net importing countries will be the main dynamic force in the industry in the medium term.

Globalization is both an opportunity and a challenge in the forestry sector. Theoretically, it offers efficiency gains thereby enabling the industry to assume its environmental and social responsibilities better. Economic growth and higher income should also help countries take better care of their own natural resources than in the past. Easy access to global markets will also lead industry to maximize the returns obtainable from economies of scale. This means fewer production units but greater vulnerability to external disturbances.

The very process of globalization calls for increasing harmonization of policies regulating forest management. This is also in the long-term interest of responsible industrial companies operating internationally. However, it is the industry with a short-term profit-maximization perspective which has been the strongest lobby against an international normative framework for SFM. The implementation of quality and environmental management standards (ISO 9000 and 14000 standards) is a step towards better management systems, but a common framework and proper monitoring are also needed for the environmental performance of forestry and forest industry.


In commodity production, resource endowment and cost competitiveness have traditionally been the key factors in choosing locations for production units. Static analysis has typically been applied when alternatives for international investment have been compared. Such an approach is clearly inadequate and disregards dynamic factors such as the potential for productivity growth and the future price development of domestic production factors (notably, stumpage and labour).

Macroeconomic objectives typically include increasing GNP and employment which has led governments to encourage further wood processing rather than exports of roundwood or rough sawn timber. The higher the degree of processing, the less the dependence of the industry on domestic raw material. Excellence in design, productivity and marketing skills can be more important than low labour costs or locally available raw materials, as the examples of Italy and Denmark have shown. If the strategy is built on cheap labour and domestic raw materials only, it is unlikely to be sustainable in the long term.

As Hamilton (1997) points out, technological development has many future challenges. One of the key issues to be considered is how small and medium-scale enterprises (SME) can be made more competitive because of their socio-economic desirability. Many economic factors and technological developments appear to work more towards large-scale production than for SMEs. Both macro- and microeconomic conditions should be conducive before SMEs can become part of mainstream industrial development.

Increasing economic integration in the world will mean that productivity and efficiency will in the long term be the fundamental elements of competitiveness in forest-based industries. Low costs which are mainly achieved through low wages will not offer more than a temporary advantage. Successful forest industries will be drawing on mastering their entire business concept and its uniqueness, rather than relying on cost leadership.

Contribution of trade to sustainable forest management

Linkages between forest, environment and trade policies

Trade has direct and indirect influences on environment, and environmental policies and regulations influence the competitiveness of individual producers, thereby affecting trade flows. The theory of comparative advantage is thereby expanded to incorporate environmental aspects. Trade has also been perceived as a possible agent to contribute to sustainable management of natural resources. On the other hand, trade liberalization and macroeconomic policy reforms have led to expanded exports by developing countries, particularly in commodities. The environmental impacts on natural resources of such policies are not yet fully assessed but evidence is mounting that negative impacts can also be observed.

In the assessment of trade-related policy instruments, three aspects need to be considered: i) effectiveness in achieving their specific goals and whether the particular measures are sufficient to achieve the goals set; ii) trade-offs between environmental and development effects; and iii) efficiency. These typical elements of policy analysis tend to be frequently overlooked in promoting a particular instrument (e.g. log export ban, certification of forest management). The environmental impacts of policies are generally less known than their development impacts and, therefore' subjective assessment is common. When setting environmental objectives to trade policies, it should be recognized that trade intervention is neither the most effective nor the most efficient approach to environmental problems (Brooks, 1997).

Sectoral trade policies

Log export bans or other restrictions (species quota, excessively high log export taxes, etc. ) have been used in many producer countries in an attempt to ensure low-cost raw material to the domestic industry to generate employment and to add value. On the importers' side, the decline in import tariff rates as a result of the Uruguay Round appears to be compensated, to some extent, by the increase of non-tariff barriers (NTB), often mounted for protective reasons (Bourke, 1995). More recently, environmental regulations have emerged as a potential new source of NTBs. In addition, tropical timber bans are being applied by local governments in some key importing countries (Germany, the Netherlands, the United States) as a measure against deforestation in the tropical countries. Barbier et al. (1993) have shown, however, that such selective bans could be counterproductive.

Export bans and quantitative restrictions appear to work against internalization of environmental effects, distorting the economic value of the resource and its output. However, if such restrictions are abruptly removed as isolated measures, there is a risk that increased wood demand could lead to excessive utilization in the short term. For instance, Carret (1997) argues that, if the log export ban in Africa is lifted, as proposed by the World Bank, i) fiscal revenue would collapse, ii) African small-scale logging enterprises would be squeezed out of the market, and iii) the current highly selective logging practices would be replaced by excessive harvesting. As the two key arguments for the removal of log export bans are the need to address inefficiency in harvesting and processing and low rent capture, governments have to assess whether liberalization of the log trade is politically feasible and more efficient than other instruments to deal with these two problems.

As a conclusion, the removal of internal trade barriers would lead to improved economic efficiency, environmental net gains and, possibly, even to distributional benefits. However, each case has to be analysed separately, not only to consider market and environmental impacts, but also to seek a politically feasible way to implement policy reforms.

Trading of global and regional environmental benefits of forests

Recognition of the global environmental values of forests offers a potential to use trade as an instrument in financing conservation. Such benefits can be derived mainly from carbon sequestration and biodiversity conservation, but local hydrological benefits or other externalities can also be significant. In order to complement the public sector mechanisms for international transfer of funds for environmental conservation, new arrangements have been made to tap the resources of the private sector.

Carbon offset agreements are an instrument through which carbon emissions are exchanged for carbon sequestration in forests in another country which may, or may not, be legally required. The potential for such an activity is huge in view of both the current level of CO2 emissions, and the need to expand tree cover through planting, or to bring the existing forests under sustainable management in developing countries. The number of existing carbon offset deals is still limited and accumulated experience will be needed to improve their design for worldwide promotion.

International contracts on the commercial use of biodiversity are another recent trade-related instrument. Several issues, however, need to be addressed to make such deals attractive to local governments and foreign investors, including provisions for biodiversity conservation in perpetuity, duration, exclusiveness and limits of rights and equitable sharing of benefits by local communities.

In addition to the trading of global environmental benefits, there is also the potential and need for regional or local-level arrangements, particularly in watershed management (FAO, 1995). The current approaches in critical watersheds are mostly based on strict regulations which typically suffer from weak enforcement. Equitable sharing of costs and benefits of the hydrological functions of forests is a complex task, particularly if cross-country impacts are involved, and many issues need to be addressed before financing can be ensured (Hues, 1995).

Certification and labelling

Certification of forest management and labelling of forest products (C&L) is seen as a major information-based instrument which could help trade contribute to the sustainability of natural resources. The effectiveness of the instrument in achieving its fundamental objectives, i.e. to improve forest management and to ensure market access, has not yet been proved. It needs to be recognized that certification is not a sufficient condition to achieve these objectives (Baharuddin and Simula, 1994). A set of ancillary objectives can also be attached to certification which may be achieved through improved internal and external transparency of operations. Such objectives can be set at the sectoral level (e.g. better control of forestry operations and land use change, higher recovery of collection of forest fees and taxes) or firm level (e.g. improved total productivity and cost savings).

The development of C&L relies on the assumption of consumer demand for sustainably produced forest products. Hard evidence is still limited as only small volumes of certified or labelled products are currently traded. For the time being, it has not been easy for companies to recover incremental management costs and direct costs of certification through market benefits.

Apart from market aspects, there are other major issues to be duly addressed before C&L can become effective and widely accepted (Baharuddin and Simula, 1996). Doubts have been cast on credibility, which requires reliable assessments within an environment where vested interests are eliminated from the certification process. Cost-efficiency should be achieved and, in particular, procedures should be agreed on for certifying smallholder forests at reasonable costs. Feasible procedures for verifying the chain-of-custody should also be developed considering the special problem of mixed raw materials. However, the most difficult issue appears to be international harmonization.

Harmonization is needed in certification standards and procedures. In the case of standards, several avenues are possible: i) a common international standard to be applied in all countries such as the Principles and Criteria of the Forest Stewardship Council (FSC); ii) developing a regional standard to be applied in the countries in question; iii) developing national standards based on regional SFM Criteria and Indicators; and iv) mutual recognition of nationally developed standards. Each approach has its own strengths and weaknesses and no general agreement has been reached as yet owing to the policy element contained in forest management standards.

For the harmonization of procedures three main options are available: i) reliance on the ISO system to develop standards and guidelines for certification, environmental labelling and accreditation of certification bodies; ii) a global accreditation body which also provides a globally applicable trademark to be used as a label; and iii) regional integrated schemes. The international debate is currently heavily polarized around FSC and ISO. The two options are potentially complementary as ISO 14001 certification does not lead to an on-product label.


The operative definition of sustainability will always be a result of public choice based on an expression of values (Brooks, 1997). The definition changes over time as well as the weights given to economic, social and environmental aspects. Through broadening the scope of forest valuation, possibilities to consider social and environmental aspects as part of the objective function, and not merely as constraints, will improve.

National goals of development and conservation should be formulated based on information that is as comprehensive as possible. Foresters should provide the necessary information on forests and their possibilities and limitations to contribute to sustainable development. However, when making recommendations, care should be exercised with regard to "economic" options based purely on economic criteria. Multidisciplinarity needs to be integrated into the forestry profession.

National policies, if appropriate, can go a long way towards creating the necessary preconditions for sustainable forest management as an economically attractive activity. Economic incentives should also be provided at the international level using appropriate trade and financing mechanisms. However, it appears that, without adequate internalization of environmental and social costs and benefits in the markets for forest products and services, the effectiveness of other actions on SFM is bound to be limited, or even marginal. This major issue would require substantial preparation to build up the range of necessary instruments gradually at national and international levels.


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