Tropical forest valuation: has it all been a futile exercise?

Lucy Emerton 1


This paper argues that undervaluation of tropical forest ecosystems has discriminated against their sustainable management. Forest environmental benefits have long been underemphasized or ignored altogether by planners and decision-makers because they are so hard to value, and because many lie outside formal markets and pricing mechanisms. Using traditional definitions of forest value, and employing conventional valuation techniques, there seem to be few economic benefits to be gained from sustainable forest management, and few economic costs associated with forest degradation and loss.

Over the last decade, advances in economic valuation methods have meant that forest benefits can now be much better quantified and expressed in monetary terms. A useful, and growing, body of literature has been established that deals with forest environmental valuation, including many of the non-market values that were omitted from calculations in the past. The paper reviews these methodological advances, and their application to tropical forest ecosystems in different parts of the world.

Yet, in many cases tropical forest valuation has remained a largely academic exercise. In contrast to the considerable advances that have been made in valuation definitions and techniques, there is far less progress in applying the results to real-world forest policy, planning and management. Although environmental benefits are better understood, and can be more accurately quantified, their value is still intangible to many of the public decision-makers, private landholders and resource users whose actions have the potential to influence forest status. Until such values are not just expressed, but also reflected in conservation and development planning, policies and management practice and captured in the prices and profits that forest users face, there is a real risk that forests _ a vital source of economic life _ will continue to be degraded and lost, however great their value has been demonstrated to be.

1. Introduction: How undervaluation has constrained sustainable forest management

Since time immemorial, forests have provided a valuable source of economic life for human populations. Yet the ways in which forests are used and valued depends largely on people's economic needs and priorities in a particular place or at a particular time, balanced against the relative scarcity or abundance of forest resources. Over recent years, a complex array of social, economic and political changes have altered human demands on forests. These changing demands have had devastating impacts on forest status and integrity. We have seen a striking example of the classic "economic problem" in relation to forest ecosystems: how to meet people's unlimited wants from a scarce resource base, in a way which is at the same time efficient, equitable and sustainable. A key and ever more urgent question has become how to measure the economic trade-offs involved in people's competing demands for forest land and resources, and balance the relative returns of forest conservation and sustainable management with those of clear-felling, unsustainable extraction or conversion to other land uses.

Land use and investment decisions have traditionally been based on a very limited view of the economic value of tropical forests. Until recently, forests were seen as only having economic importance in so far as they could support commercial timber or wood extraction. Calculations of the contribution of forest goods and services to household-level production, project profitability, sectoral output or national economic indicators were based primarily on this. Perhaps unsurprisingly, economic policy instruments and analysis of forest management options showed a clear tendency to favour commercial extraction, clearance for agriculture or modification for other seemingly profitable "development" options. There seemed to be few economic benefits to be gained from forest conservation or sustainable management, and few economic costs associated with forest degradation and loss.

Yet tropical forests typically yield economic benefits far in excess of commercial timber and wood products: they also provide subsistence goods and environmental services, which often yield far higher economic values. Traditionally, economists have found these non-market benefits very hard to value or to express in monetary terms. As a result, they have tended to be omitted from decision-making. However, as economic valuation techniques have advanced and as human needs and demands from forests have changed, so there has been an increasing recognition of the importance of such values _ to commercial profits and trade, to national-level economic welfare, and to household production and consumption. At the same time it has become clear that there is a need to be able to express these wider forest values in quantitative economic terms if the full range of social, economic and environmental trade-offs implied by alternative forest land use and management options are to be accurately compared.

This paper reviews the advances that have been made over the last decade in the use of economic valuation techniques to estimate the monetary worth of tropical forest benefits. Today there are a large number of studies that show that these values can be quantified, are usually substantial, and often outweigh the financial and economic returns to alternative land use, investment and management options. Yet a major challenge remains. Although tropical forest environmental values are undoubtedly better understood now, and can be better expressed in monetary terms, this has had only limited impact on "business as usual" _ in both conservation and development sectors. Still, such values are seldom reflected in the policies, prices and markets that shape people's economic decisions and ultimately determine forest status.

2. Advances in defining and measuring forest benefits

One reason for the persistent undervaluation of forests is that, traditionally, concepts of economic value have been based on a very narrow definition of benefits. Economists have tended to see the value of forest ecosystems only in terms of the raw materials and physical products that they generate for human production and consumption, and which are traded in formal markets. However, these direct uses represent only a small proportion of the total value of forests, which generate economic benefits far in excess of just physical or marketed products.

Slowly, this definition of forest economic value has changed. The concept of total economic value (TEV) was introduced a decade or so ago (Pearce, 1990), and has now become one of the most widely used frameworks for identifying and categorizing forest benefits. Instead of focusing only on direct commercial values, TEV also encompasses the subsistence and non-market values, ecological functions and non-use benefits associated with forests. Looking at the TEV of a forest essentially involves considering its full range of characteristics as an integrated system _ its resource stocks or assets, flows of environmental services, and the attributes of the ecosystem as a whole (see Figure 1).

Figure 1. The total economic value of forests

Parallel to the advances made in the definition and conceptualization of TEV, techniques for quantifying tropical forest benefits and expressing them in monetary terms have also moved forward over the last decade (Bishop, 1999; Lette and de Boo, 2002). Today a wide range of methods are available and used, for valuing forest benefits that go beyond direct use values and market prices, and as such present a much more comprehensive picture of forest TEV.

3. What are non-market forest benefits worth?

As a result of these conceptual and methodological advances, a large number of studies have been carried out over the last decade that attempt to value tropical forest benefits. Although most focus on a particular site, or type of benefit, a small number of studies provide insights into the TEV of an entire forest ecosystem or national forest estate. Adger et al. (1995) for example, calculate the TEV of Mexico's forests at some US$4 billion a year. There is now also a much better understanding of the indirect value of forest environmental services for broader commercial and global economic processes. Forest catchment protection in Ecuador's Andean Highlands, for example, has been calculated to have a present value of between US$11 to 15 million for the Paute hydroelectric scheme alone (Southgate and Macke, 1989), the global net benefit of permanently protecting 650 Mha of Amazon forest in order to sequester carbon has been estimated to be worth about US$70 billion, or approximately 0.2 percent of world gross domestic product (GDP) (Lopez, 1997).

Valuation has also enabled another critical, yet long underemphasized, set of non-market forest benefits to be expressed in economic terms _ those relating to household-level forest use. Numerous studies now highlight and quantify the immense economic value of tropical forest goods for local livelihoods. For example, village-level cash income from açai, cacao and rubber on Combú Island in the Amazon estuary of Brazil has been estimated at more than US$3 000 per household per year (Anderson and Ioris, 1992) and the value of forest wildlife utilization has been shown to average US$120/ha/year in the Ecuadorian Amazon (Godoy et al., 1993). There is also increasing empirical evidence that non-market forest use values play a particularly important role for poorer and more vulnerable sectors of the population. In three provinces of northern Zambia, for example, miombo woodland products were found to contribute 55% of annual subsistence and income for the poorest households, more than twice as much as for other households (PFAP, 1998). Around Nam Et-Phou Loei Protected Area in Lao PDR the relative contribution of forest products (up to half of per capita GDP) has been shown to be directly correlated with poverty status, measured in terms of livestock ownership, food security, cash availability and access to land (Emerton et al., 2002).

4. Have forest values influenced economic trade-offs?

Improved capacity to value environmental benefits has the potential to alter significantly the way in which the trade-offs between alternative investment decisions, forest land uses and management regimes are defined, expressed and compared (Lette and de Boo, 2002). Although a high economic value alone is not enough to make sustainable forest management the most desirable option (Barbier, 1991), many studies now show that the returns from sustainable forest utilization and management can be far higher than the profits accruing from forest clearance or degradation. In Tapean Forest in Ratanakiri Province of Cambodia, non-timber forest product (NTFP) collection and environmental benefits have been calculated to be worth more than US$400/ha, almost five times as much as unsustainable timber production (Bann, 1997). Likewise, a comparison of forest utilization values in the Peruvian Amazon finds a "net present conservation value" of nearly US$7 000/ha, far higher than the returns either to clear-cut timber harvesting, or to subsequent plantations or cattle ranching (Peters et al., 1989). Similar conclusions were reached for the Upper Napo region of Ecuador's Amazon region, where sustainable extraction of NTFPs was found to have a net present value of between US$1 250 and US$2 850 _ several times greater than the net present value for agriculture (under US$500), timber clear-cutting (under US$200), or cattle ranching (between US$57-287) (Grimes et al., 1994).

Yet, despite these promising figures, there is less evidence that a better understanding of forest environmental values is actually influencing decision-making or that the economic causes of forest loss are being reduced in any way. Markets, prices and policies continue to be formulated with little regard to environmental values, and often discriminate against sustainable forest management. These underlying causes of forest loss are powerful and complex (Angelsen and Kaimowitz, 1999). At a global level, perverse subsidies are estimated to amount to roughly US$1 trillion per year worldwide (Myers, 1996). Many of these subsidies act directly against sustainable forest management. In the Brazilian Amazon for example, official development strategy and economic policies directed almost exclusively at the expansion of corporate forestry, ranching, agriculture and mining interests, are thought to have accounted for at least 35% of all forest altered up to 1980 _ and interestingly enough, without such distortions and subsidies, it is actually doubtful whether many of these economic activities would in fact have been viable at the start (Barbier, 1989).

Forest values continue to be imperfectly captured and inequitably distributed. While many of the environmental benefits associated with tropical forests accrue as externalities, usually at low or zero cost to beneficiaries, it is national governments who must bear the bulk of the direct expenditures required to support sustainable forest management. As Adger et al. (1995) point out for the case of Mexico, because many forest environmental values fall outside the country's borders, they are not considered to be meaningful by national policy-makers. Typically, forest-managing agencies are able to capture only a tiny proportion of forest environmental values as cash benefits, to a level which is insufficient to cover the costs of sustainable management. In Mount Kenya Forest Reserve for example, Forest Department earnings represent only just over 1% of the total value of forest benefits, and less than 2% of the value of extractive uses (Emerton, 1997).

Perhaps most seriously, a better understanding of environmental values has had little impact on the private land use and investment decisions that directly influence forest status. For the most part, it is still more profitable to degrade or overexploit forests than to manage them sustainably _ despite the wider economic or global costs of doing so (Nasi et al., 2002). As Kumari (1995) illustrates for the case of Selangor, Malaysia, despite the fact that the economic and global returns to sustainable forest management far exceed unsustainable timber exploitation, higher private returns still make the latter a more financially desirable option. Van Beukering and Cesar (2001) reach a similar conclusion for the forests of the Leuser ecosystem in Sumatra, where it remains profitable for logging companies to engage in unsustainable timber harvesting, even though this gives rise to far greater local, national and global costs than the profits that they reap.

Local landholders and forest-adjacent communities in particular, tend to receive little tangible evidence of forest environmental values in the prices and profits they face, while they typically face high marginal costs in shifting to sustainable land use and management practices. The opportunity costs of sustainable forest management, in terms of alternative land and resource uses foregone, are usually substantial, are typically far higher than direct forest management expenditures, and often accrue to rural households and villages who are least able to afford to bear them. In Uganda, for example, the US$110 million a year opportunity costs of forest conservation are some three times higher than local benefits from forests (Howard, 1996), and in Kenya the value of local agricultural production foregone through the existence of the country's protected forest estate is almost six times as high as forest use values accruing to adjacent communities (Emerton, 1997).

5. Can we make forest valuation meaningful in the real world?

Despite these many positive advances and insights, a major challenge remains if forest valuation is to reach its potential. The primary problem affecting tropical forest ecosystems clearly does not stop with demonstrating that that they have a high economic value. Rather the question is: how do we ensure that a better understanding of these values actually makes a difference in the real world _ to conservation and development decisions, to private profits, to national economies and to local livelihoods?

In contrast to the considerable moves forward that have been made in valuing forest benefits, there has been little progress in applying the results of these valuation studies to policy, planning and management. In far too many cases, forest valuation remains a purely academic exercise. Yet, however high the value of forest environmental benefits is demonstrated to be in theory, this has little meaning unless it actually translates into real returns, rewards and profits for the groups who are responsible for sustainable forest management. A very valid critique of environmental valuation, as it has been practised to date, is that it has simply done too little, and may soon be too late, to halt the destruction and degradation of forest ecosystems.

It is clear that overcoming information gaps about the value of forest ecosystems is only a first step in a much longer process. Because, so far, economists have largely failed to rise to this larger challenge, there is a risk that all of the valiant efforts to quantify forest values will prove to be futile. Forest valuation, in the future, will need to drastically change its scope and aspirations _ it has to become a discipline that moves beyond merely aiming to stimulate academic debate and provide heroic arguments for the importance of fast-disappearing forest ecosystems. Ultimately, unless the results of valuation are geared towards changing the economic trade-offs that are involved in sustainable forest management in the real world and capturing forest benefits as real values for the people who influence forest status, there is a real danger that, as we struggle to value forests more accurately and more comprehensively, the subject of this valuation _ and the source of much of the world's economic life _ will disappear altogether.

6. References

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1 Regional Group Head, Ecosystems & Livelihood Group Asia, IUCN _ The World Conservation Union, 53 Horton Place, Colombo 7, Sri Lanka. [email protected]