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2 Guidelines for defining financial, economic, environmental and social information

2.1 Financial considerations
2.2 Economic considerations.
2.3 Environmental considerations
2.4 Social considerations
2.5 Further reading

2.1 Financial considerations

2.1.1 Costs
2.1.2 Work study
2.1.3 Forest revenue

2.1.1 Costs


Costs are important in tropical forest management and are used for:

· Decision-making involving expenditure on possible alternative courses of action,
· Monitoring actual costs against budgets,
· Evaluation of alternative economic options in management planning,
· Calculation of financial returns,
· Budgeting,
· Detection of fraud.

Costs should be recorded or derived for all forest operations forming a part of the annual forest budget, or where required for economic and financial studies on specific aspects of forest management. They are usually made up of several components, including labour, equipment purchase and operation, materials, supervision and other overheads.

Types of Costs

There are several ways of classifying costs, as follows:

· Absolute and Opportunity Costs:

· Absolute Cost: Measures the loss in value of assets.

· Opportunity Cost: Is the value of the next best alternative that is foregone by directing resources into a particular investment. It can also be expressed as the value of an alternative opportunity that is foregone in order to achieve a particular objective or investment.

· Prime Costs and Overheads:

· Prime Costs: Direct wages and salaries, direct material and direct expense costs.

· Overheads: All costs which are not direct costs.

· Fixed Costs and Variable Costs

· Fixed Costs: Fixed costs accumulate with the passage of time, rather than with the rate of work. Fixed costs are incurred once and must be spread over the number of hours, or days, of work during the year. They include capital purchases, equipment depreciation, interest on borrowed funds, taxes and insurance.

· Variable Costs: Variable, or operating, costs vary directly with the rate of work, or production. Examples include the cost per m3 for logging, cost per km for road construction or the cost per hectare for enrichment planting or thinning.

· Total Cost and Unit Costs

There is almost always more than one way of undertaking a particular forest operation and it usually has both fixed and variable cost components. It may be possible to change the amount of the fixed or variable cost, or both, and determine a minimum total cost. The relationship between production and costs is expressed in the two following formulae:

TC = Cfixed + (Cv. O) and

UC = (Cfixed / O)+ Cv


TC = total cost
Cfixed = fixed cost
UC = unit cost (of one unit of production)
Cv = variable cost
O = output (or the number of units of production).

Determination of Minimum Total Cost

Determination of the point of minimum total cost involves fixed and variable costs for undertaking an operation with the aim of bringing the sum of the two costs to a minimum. It is helpful for minimising expenditure of a forest operation. Determination of minimum total cost involves changing the fixed and/or variable costs for an operation, summing these to derive a total cost and then showing the results in a table. The minimum total cost is determined by inspection from the table. Annex 9 shows how to calculate the minimum total daily cost for an enrichment planting operation. Break-even Cost Analysis

Break-even cost analysis determines the point at which the costs of one possible method for accomplishing a forest operation are equal to the costs of another method for achieving the same task. The relationship is expressed as follows:

FC1+ (VC1.O) = FC2+ (VC2.O)

The equation compares the fixed and variable costs for one method of work (FC1 and VC1) with those of a second method (FC2 and VC2). O (output), can be calculated as follows:

O = (FC1 - FC2)/ (VC2 - VC1)

An example of how the break-even cost can be found for a "cut-and-fill" road formation operation using manual or mechanical work methods is shown in Annex 9.

Calculation of Unit Costs

The use of break-even and minimum cost point methods require the collection of unit costs. Unit costs should be divided into sub-units, each measuring specific parts of a total cost, and should be selected carefully because they are the key to successful cost studies. Unit costs should be determined from daily or hourly records of operations, obtained from labour or equipment time-sheets, or from time-studies of individual operations. Examples of unit costs are:

· Costs per m3 for cut-and-fill in road formation, or for selective harvesting of logs.
· Cost per 1000 trees for growing nursery transplants.
· Cost per ha, or m3, for pre-harvest inventory.
· Cost per ha for thinning.

A simple-to-use computer programme, called PACE (Production and Cost Evaluation), has been developed to assist in calculating machine rates, road construction costs and log harvesting costs. Readers are referred to FAO Forestry Paper No. 99 (1992), Cost Control in Forest Harvesting and Road Construction for details on forest management cost control issues and for access to and use of the PACE system.

Daily Costs of Operations

Calculation of the total daily cost of forest operations is an important aspect of the business management of tropical forests. First identify the separate elements that make up an operation, calculate or estimate their costs and transform these to a total per work day. A costing structure for a harvesting operation is shown in Figure 16.

Work days are those days of the year when the operation is preferred; costing is sensitive to the number used. In a large forest operation where contractors can work all year, between 200 and 250 days are worked. The number varies depending upon weather conditions, access to a forest, markets and prices for logs and how often crews move from one work site to another. The elements that should be included in the total daily cost are:

· Machines: For each machine used, such as tractors, derive the cost on an hourly basis, then multiply by the average number of hours worked in a day. The cost should include allowances for depreciation, interest on capital, insurance costs, fuel, oil, repairs, tyres and rigging, such as wire ropes.

· Chainsaws: There are two approaches. Either cost on the same basis as machines, or if chainsaws are provided by workers, add the rate of the chainsaw allowance paid to the costs of fuel and oil supplied by the contractor.

· Labour costs: Summarise all of the costs of employing labour for a year, then divide the total by the number of work days in a year.

· Transport: Crew transport, if applicable, should be costed on a per kilometre basis and then multiplied by the actual (or an estimate) number of kilometres travelled per work day. Use the same allowances as for machines (such as fuel and insurance) but also include vehicle registration and road tax (if applicable).

Figure 16: A costing structure for A harvesting Operation

· Operating Costs and Overheads: Calculate on an annual basis. Divide the total by the number of work days in a year.

· Profit: Add component daily costs to derive a total daily cost to which is added a percentage that is called profit. The profit percentage can vary, depending upon the business interests of a company and the amount of competition it experiences. On the average, it may range between 5 and 30 per cent but may differ.

2.1.2 Work study

The Role of Work Study in Sustainable Tropical Forest Management

Work study is a generic term for those techniques, particularly method study and work measurement, which are used in the examination of human work in all its contexts, and which lead systematically to the investigation of all factors which affect the efficiency and economy of the situation being reviewed, in order to effect improvements. Reduction of inefficient steps in tropical forest management leads directly to lower costs and to more economic performance.

Two work study techniques are defined in Figure 17. It invariably involves interaction between groups of people, such as management and workers, or between machines and people. An important role for work study is to assist often reluctant local people who are employed in tropical forest management to make changes in working habits but which lead to easier, or quicker and always to less costly working procedures.

The main type of work study in forestry has often been work measurement, with the objective of setting realistic targets for production operations. There are five main steps in this process:

· Develop work standards for forest operations.

· Develop procedures which identify the main forest variables which may then be applied to work standards.

· Introduce monitoring, or quality control, arrangements which ensure that work is carried out in line with agreed standards.

· Make workable arrangements to resolve problems that might arise during a forest operation.

· Introduce incentive systems that provide adequate rewards for workers, or groups of workers such as logging teams, who exceed work standards at an acceptable quality level. Three main incentive systems are commonly applied:

- Piece work: payment for each "piece", or item of work, that is produced, e.g. a payment per thousand, for tree planting.

- Task work: payment for satisfactory completion of a whole task, or job, e.g. building a specific length of road and logging landings.

- Bonus payments: payment of a bonus, in addition to wages, for satisfactory completion of work above an agreed production target, e.g. for weeding or release thinning.

Figure 17: Work Study Techniques

Method Study: Method study is the systematic recording and critical review of existing and proposed ways of doing work, as a means of developing and applying easier and more effective working methods and for reducing costs.

Work Measurement: Work measurement is the application of techniques for measuring the time taken for a qualified worker to carry out a specified job at a defined level of performance.

Readers are referred to the following references for details on the application of work study procedures.

· Introduction to Work Study. 1981. ILO, Geneva.

· Grundzuge forstlicher Zeitstudien und ihrer Auswertung (The Principles Of Forestry Time Studies And Their Evaluation). 1990. Haberle, S. Institut fur Waldarbeit, Universitat Gottingen, W-3400 Gottingen, Germany.

· Work Study, Currie, R. M. 1980. Pitman for Brit. Inst. Management, London.

· Work Study In Forestry. 1973. Wittering, W. O. (Ed.) Forestry Commission Bulletin, No. 47. London.

Time Standards

Time standards are formulated and derived from actual time measurement studies of operations in different forest types, in different divisions of a company or forest enterprise where specific conditions apply. There are two practical and easily applied methods:

· The continuous timing method of individual operations provides data that can be compared with other more broadly based standards for similar conditions elsewhere.

· Sampling systems are a variation of the continuous timing method that enables one work study observer to follow several workers, or several operations.

Specific time standards are only applied to a prescribed operation using a specified method and specified tools. Divergence from a time standard will inevitably result in unrealistic targets, creating needless problems to both workers and managers. Time standards should cover the following points:

· The limits of the range for standards.
· The equipment to which the standards apply.
· The work method.
· Standards for each work element.
· Procedure sheets describing target calculation methods.
· The target assessment sheet.

Detailed examples of time standards determination for harvesting a bamboo plantation and natural bamboo stands in the Philippines are described in FAO Forestry Paper No. 87, Small Scale Harvesting Operations of Wood and Non-Wood Forest Products Involving Rural People (1988).

Quality Control

The purpose of quality control is to ensure that forest operations are carried out in accordance with prescriptions and contract schedules. Quality control is determined by making measurements of variables related to a management plan prescription, using temporary sample plots placed at random within areas of forest where a treatment has been applied. Data measured on quality control plots indicates the standards of work achieved and provides objective standards that cannot be determined from visual assessments. This approach can be applied to silvicultural operations.

2.1.3 Forest revenue


Tropical forest pricing policies have an important function in the management and conservation of tropical forests and also in financing long-term sustainable forest management. Revenue can be expenditure or income, or money spent or received from, raw materials or other items intended for resale which benefit a business. Frequently used forest revenue terms are shown in Figure 18.

Forest Fees

Forest fees are payments that are set at levels to reflect the value of a forest resource and provide economic incentives for better management and more efficient forest utilization. Forest fees can include:

· Stumpage prices of the logs harvested.
· Fees and charges applied by forest owners on forest concessions.
· Export taxes and other fees that are applied to forest products by governments.

High forest fees that more fully reflect the value of tropical wood can deter over-exploitation. High fee levels can also generate revenue that should be used to finance long-term forest management, making tropical forestry both financially and economically sustainable. Low forest concession fees indicate abundance rather than future scarcity and make commercial logging and wood processing highly profitable and also encourage over-harvesting and depletion. Low fees tend to encourage concession expansion into areas that would not otherwise be utilized economically for wood production.

Summary of Forest Revenue Charges

Forest revenue charges vary depending upon the base and location at which they are levied, how they are determined and the reason why they are made. Forest charges that relate directly to the management of a forest management unit are summarised to provide a working guide to the relationship between each class and type of charge.

Wood Values and Prices

The concepts of value and price are central to the establishment of a system of forest revenue charges and have a direct bearing upon sustainable forest management. The distinction between value and price is often overlooked and for this reason the basic concepts are summarised here.

Figure 18: Frequently Used Terms in Relation to Forest Revenue

Ad Valorem: A payment made in proportion to value. The amount to be paid in ad valorem charges or taxes is proportional to the value of logs, sawn timber, rattan, bamboo or other forest products.
Bonus Bid: At an auction the price that is bid over and above an upset price that is set by a seller.
Conversion Return: The selling price of logs or processed forest products, less the operating costs, including depreciation.
Demand: The quantity of a commodity that will be bought at a particular price and within a specific period of time.
Economic Rent: The excess of total payments to a factor of production, such as land, labour, capital or raw materials, over and above the earnings necessary to keep it in its present use.
Open-Bid Auction: A sale in which interested parties bid openly for the purchase of wood.
Royalty: A payment made to an owner of a forest for the right or privilege of cutting it, generally based on a rate per unit of produce harvested, such as an amount per cubic metre.
Sealed-Bid Auction: A sale in which interested parties submit written bids at a specified time and place.
Shadow Price: Value measured by opportunity cost principles instead of market prices, related to costs or values of goods and services not normally quantifiable by costing, or valuing, according to opportunities foregone.
Stumpage Value: The value of wood as it stands uncut, expressed as an amount per cubic unit.
Stumpage Appraisal: The estimation of financial value to a concession or licence holder of standing wood to be harvested and marketed as logs or as processed forest products.
Upset Price: A reserve price, or a predetermined minimum price, generally with reference to auction sales of wood.

Financial values and price are the same only in certain situations, such as in competitive markets where there are many buyers, sellers and transactions. Under less competitive situations in which wood is sold in log, sawn or other forms, financial values and prices are likely to diverge. The financial value and the price of wood are summarized as follows:

Classes of Forest Revenue Charges

· The Charging Base at which Charges are Levied

· Forest area

· Log volumes

· Log Value

· The profits of an operation.

· Location at which Charges are Levied

· In the forest (stump)

· Roadside, landing or railway

· Processing plant

· Port

· How Charges are Determined

· By negotiation

· By competitive tender, or auction

· By administrative decision.

· The Timing of Charges

· Initial charge

· Annual charge

· Progressive charge, or as wood is cut.

· The Purpose of Forest Charges

· Stumpage fees to government

· Royalty payments to government

· Payments to local communities

· Reforestation fees

· Fees for post-harvest silviculture
(silvicultural fees)

· Public works charges.

· Fees for forest research

Types of Forest Revenue Charges

· Forest Concessions

· License fees

· Annual Land Rentals

· Fees based upon standing wood, the AAC or property values.

· Charges On Wood Harvested

· Per tree charges

· Volume based charges

· Charges based upon the area harvested.

· Charges on the Production of Forest Products

· On processed forest products

· On non-wood forest products.

· Charges for Services

· Fees for services provided.

· Charges on Productive Factors

· Charges on equipment and workers.

· Charges on Companies and Cooperatives

· Company or corporation tax

· Value added tax

· Profit based royalty.

· Financial value to a buyer: This is the estimated range of potential prices a buyer would be prepared to pay, based on alternative uses to which the wood can be put. It is based on a buyer's willingness to pay, the perceived uses which the wood has and the perceived revenues and costs involved. The range of potential prices is limited by the price a buyer would be prepared to pay for a given quantity of wood based on its best use.

· Financial value to a seller: This is the estimated range of potential prices a seller would be prepared to accept, limited by an estimated acceptable minimum price. Willingness to sell values depend upon the seller, the perceived alternative uses, and the revenues and costs of these alternative uses.

· Market price: Market price is the amount actually paid by a buyer and accepted by a seller for a commodity or service when a transaction takes place.

There is one market price established for a specific sale and purchase transaction, but there are a range of values, based on the values to potential buyers and sellers. The value of a commodity or service also depends on potential uses, the circumstances of the potential buyers and the costs and limitations faced by a buyer as well as assumptions and the judgement of a buyer. For example, high quality tropical forest logs have different values as domestic sawlogs, as peeler logs for veneer or as export logs.

Information on Local and International Market Prices for Wood

A reliable and constantly updated source of international and domestic price information for logs, sawnwood, plywood and veneers and added-value products is Tropical Timber Market Information published twice monthly by ITTO as a valuable contribution towards greater transparency in tropical timber markets. Producer and consumer reports are included in each issue.

Tropical Timber Market Information is available from the International Tropical Timber Organization (ITTO), Pacifico-Yokohama 1-1-1, Minatomirai, Yokohama 220, Japan.

A Simple Model of Exchange

A simple model of exchange, shown in Table 8, helps to identify values to buyers and sellers of wood and to distinguish values from price. This model of exchange framework shows relationships for (a) a single buyer and a single seller and (b) several buyers and a single seller of wood. A buyer and a seller are able to reach an agreement and establish a price, called the forest charge, for wood within an overlapping range of values. The price can be set by negotiation, by open-bid or sealed-bid auction or by prices administered by the seller. Although a buyer-seller transaction involves a range of values to buyers and sellers, only one price is agreed to.

Two examples show how the simple model of exchange helps to clarify value - price relationships.

· Single Seller - Single Buyer: A buyer's willingness to buy values might range up to $120 per m3 while a seller's willingness to sell values might range upwards from $100 per m3. The overlapping range of values between the buyer's maximum and the seller's minimum is $20. It is within this range that agreement on price will be reached.

· Several Buyers - Single Seller: Four buyers each have different willingness to buy values, - $110, $120, $130 and $140 per m3 - while values of a seller's willingness to sell might range upwards from $100 per m3. Four different overlapping values occur within the sellers willingness to sell values. It is within the range of the maximum buyer ($140) and the next best buyer ($130) that agreement on price will be reached.

Stumpage Appraisal - Deriving the Stumpage Value for Wood

The stumpage value of wood to a concession holder or a cooperative reflects a buyer's evaluation of the wood in alternative uses and also the buyer's own circumstances and costs. For a concession holder, a cooperative or a short- term wood buyer who produces logs, sawn timber or plywood, stumpage values are derived from the market price of the logs or processed products.

Table 8: Diagram Showing a Simple Model of Exchange

A. Single Buyer -Single Seller

Buyer's Range Of Willingness to buy Values

< = = Buyer's Maximum

Seller's minimum = = >


Seller's Range of Willingness to Sell Values

Maximum Values for Each Buyer

B. Several Buyers -Single Seller

Buyer A




< = = Maximum

< == Area of Overlapping Values = = >

Seller's minimum = = >

Seller's Range of Willingness to Sell Values

$0 < = = Value of Merchantable Wood Standing in a Forest ($/m3) = = >

Stumpage values can be derived by Stumpage Appraisal which is the estimation of the financial value to a concession holder or cooperative of the wood in standing trees to be harvested and marketed as logs or as processed wood products. Stumpage appraisal can provide a guide for establishing forest charges in situations where:

· There is competition among buyers of wood in standing trees, as in open-bid or sealed-bid auctions.

· There is no competition among wood users.

· There is a requirement for establishing the level of an administratively set fixed-rate charge, the level of ad valorem rates, or in guiding negotiations on forest charges.

If charges are set too low there will be loss of revenue and a tendency to overcut the forest. If charges are set too high there could be loss of revenue because there is a tendency for logs to be left in the forest.

The following general guidelines for conducting a stumpage appraisal are suggested:

· The starting point is the average export price of logs, or forest products such as plywood, for specified species and grades. Prices used should reflect competitively determined average prices for the species, grades and qualities of logs being appraised.

· Deduct port handling charges and log transport costs from the export price, giving a derived value for the logs on a roadside or landing. This is the Conversion Return, the amount available for profit and stumpage charge and is the maximum price the buyer would be prepared to pay for logs on a roadside. Costs must be accurate, or derived stumpage charges will be set too low or too high.

· Deduct log production costs, giving a derived demand value of the wood in standing trees in a forest. It is the maximum price that a buyer would be prepared to pay for wood for export logs.

· If a log market is not competitive with well defined market prices, or if the processed products represent an alternative use of the logs, or if the logs are directed to a processing plant operated by a concession or licence holder, then the stumpage appraised should start from the market prices of processed products.

· An alternative starting point for a stumpage appraisal is the first point in the marketing channel in which a competitive, defined price can be determined. This point can be logs stacked on a forest landing, logs in log pond, logs in a mill yard or at a railway landing. The closer the stumpage appraisal can begin to a forest the fewer the costs to determine and the easier is the calculation.

· Specialized assistance is desirable for the design and conduct of a stumpage appraisal.

The costs involved will vary depending on port handling costs, the hauling distance and road conditions, topography, climate, harvestable wood volumes per hectare and logging costs. The derived demand stumpage value incorporates a profit based on the fixed capital assets, working capital requirements and other expenditure. The allowance for profit has a direct impact on appraised stumpage values. If it is too generous, appraisal values will be too low. If the profit allowance is too low, appraised stumpage might be higher than a company is prepared to pay for wood. In equation form the relationships are:

SP = C+ M+ S


SP = selling price (per m3)
C = operating cost, including depreciation (per m3)
M = profit allowance (per m3)
S = stumpage value (per m3)

Conversion Return = SP-C = M + S
Stumpage Value = SP - C - M

Three worked examples of stumpage appraisals are shown in Annex 10. Leaders are referred to Forest Revenue Systems in Developing Countries, 'FAO Forestry Paper No. 43 (1983), for details on stumpage appraisal procedures, the value of concessions and timber rights and criteria for evaluating forest charges and revenue systems.

2.2 Economic considerations.

2.2.1 The economic viability of sustainable forest management
2.2.2 Compounding and discounting of costs and benefits
2.2.3 Discounted cash flow (DCF) analysis as an aid for forest management
2.2.4 Uncertainty and the use of sensitivity analysis
2.2.5 Use team work for investment analysis
2.2.6 Other Economic Values of Tropical Forests

2.2.1 The economic viability of sustainable forest management

The following economic issues can influence the sustainable management of topical forests for wood production:

· Tropical forest tends to survive and be managed as a permanent natural resource if the land upon which it is growing is considered to be more valuable when the cover is retained than if the forest is cleared and the land converted to another use.

· Forest location, topography, accessibility, soil and forest types, climate and weather patterns and harvestable volumes.

· Stumpage values, prices of processed wood products, interest rates on borrowed funds, length of a cutting cycle and a recognition of and the reliability of operational costs.

· Non-market environmental values of watersheds, including the value of water flowing in streams, the significance of biological diversity, landscape and recreation, wildlife conservation and gene pools.

· Traditional community dependency and other social values of forests for food, medicinal plants and other products.

· Management of natural regeneration offers an annual return from year one, to amortise costs. By comparison, planted seedlings incur an interest cost each year until maturity. Natural forest management is, by comparison, more viable than forest established by planting.

2.2.2 Compounding and discounting of costs and benefits


Compounding finds a future value of a present payment, or value, that is compounded annually for a specified number of years. The value may be a cost or an income. The basic formula for compounding is:

Fvn = PV (1+ i)n


PV = the present value
i = discount rate, e.g. 6% is 0.06
Fvn = a future value, in year n
n = the number of years until a future value occurs


Discounting adjusts a future value to the present time. The "adjusted" value is the present value and can be calculated using the following formula:

The expression, 1/(1+i)n is the discount multiplier. A practical example of discounting a future value to a present value is shown in Annex 10 A. An individual discounting calculation can be made easily using a scientific calculator that has a yx key. It can also be derived using a simple calculator in conjunction with discount multipliers. A table of discount multipliers is shown in Annex 11.

2.2.3 Discounted cash flow (DCF) analysis as an aid for forest management

General Guidance

Economic evaluation is important when forest planners and managers make or recommend decisions on alternative management options. The most acceptable method for evaluating long-term forest management programmes and specific short-term operations is discounted cash-flow analysis involving the computation of net present value. The key feature distinguishing DCF from other methods is a recognition that money has a time value. It assumes that money today is worth more than the same sum in the future, because money can be invested today to yield a return sum in the future. DCF analysis is designed to assess the value, or worth, of a possible investment, taking account of the timing as well as the amount of the cash flows.

The main use of DCF analysis for tropical forest management is that it allows comparisons of alternative options to be made rather than in providing an absolute measure of their value. DCF analysis can be used for evaluating management options for a whole forest, or at the compartment level, or for evaluating alternative ways of implementing a specific operation. An example of a compartment level analysis is evaluation of the benefits and drawbacks of the timing and frequency of weeding following selective cutting, thinning or other silvicultural operations. It can also be used for determining and evaluating comparative economic returns from changing the length of the cutting cycle.

Comparative valuation uses current prices, costs and interest rates for comparing forest management options. It assumes that the present is "knowable", and the future is not, so comparative valuation can be justified with the use of known data to compare alternatives as being more attractive and less attractive, not to derive their absolute value. Interpretation of results should be cautious because results can become distorted when high discount rates and long time periods are involved.

The following guidance is suggested when undertaking DCF analysis:

· Care in the Formation of a Value-Flow Table: A value flow table should be formed carefully and should be a realistic profile of both benefits and costs. The term "cost" is used to denote actual operational expenditure. It specifically excludes non-cash expenditure, such as depreciation which should not be included. Administrative overheads are a "cost" and should be included.

· Use Sound Data: Ensure that data are of high quality; data of questionable quality should never be used. The likely consequences of making an analysis using unreliable data will be to convey a false sense of confidence to a management proposal which might be quite misleading. Accurate and realistic yield, price and cost information is essential.

· Inflation: Because it is impossible to predict the long-term effect of inflation on costs and prices in forestry, the general practice is to "freeze" data used in a DCF analysis in present-day values. This approach assumes that, in the long term, inflation will affect costs and prices in the same way and that costs and prices will inflate at the same rate.

Figure 19: Some Commonly Used Terms in Forest Investment Planning

Cash Flow: The flow of cash payments to or by an organization. Costs may be regarded as negative cash flows, revenues as positive cash flows.

Capital: The stock of goods which are used to produce specific products and which have themselves been produced. It also means stocks of money which are the result of past savings or borrowings.

Benefit-Cost (B/C) Analysis: A technique for evaluating an investment in terms of the costs and benefits related to it, including social benefits and costs.

Discounted Cash Flow: A cash value defined as the present value to allow for the time factor.

Discount Rate: The rate at which future costs or revenues are decreased to a value at the present time.

Internal Rate of Return (IRR): The discount rate at which discounted costs equals discounted revenues, or the present value of cash flows is zero.

Marginal Cost: The additional cost of increasing output by a small amount, such as one unit of production.

Net Present Value (NPV): The algebraic sum of die present value of a series of individual cash flows. It is synonymous with Net Present Worth. Land Expectation Value is a variant of the NPV used in plantation forestry; it is a theoretical price which may be paid for land so that an investment programme breaks even at a given discount rate.

Opportunity Cost: The cost of goods or services measured in terms of foregoing the next best alternative investment. The real cost of satisfying an objective, expressed in terms of the cost of the sacrifice of alternative activities given up.

Overhead Costs: Costs that are not directly attributable to specific units of production, mainly fixed costs and common costs.

Present Value: The value of a cash flow or flows discounted to the present time at a pre-determined discount rate.

Sensitivity Analysis: A technique for examining the sensitivity of the outcome of an investment to changes in costs or revenues, or to physical variables.

Shadow Price, or Cost: An estimated price or cost, derived from the best available information available, that is used as a substitute for a market price or cost.

Social Cost: A cost which does not feature in sets of accounts but which represents a real cost to society, for example, the cost of water pollution or soil erosion.

Uncertainty: Refers to events whose possible occurrence can be recognised but cannot be measured in probability terms.

DCF analysis should not be relied on to provide all of the guidance needed in management decision making. It is only one link in a stream of information that is needed. The method does have limitations caused by difficulties of data projection but despite this constraint it is recognised as being superior to other methods. Properly applied, DCF analysis can be a very useful aid to forest management but if misapplied it may cause unjustifiable and unrealistic decisions to be made.

Net Present Value

Net Present Value (NPV) is derived by subtracting the sum of the present value of a cash flow of costs from the sum of the present value of a cash flow of benefits. It is represented by the following formula:


Bt = total value of benefits for a period of years, t
Ct = total value of costs for a period of years, t
r = discount rate.

The basic steps to be followed for deriving an NPV are as follows:

· Construct a value flow table. A value flow table sets out the value of benefits and the value of costs for each year of an analysis. The value of benefits is derived by identifying the volume of a benefit and multiplying it by its value in the year in which it is received. The value of costs is calculated in the same way, by identifying relevant cost factors, such as each separate forest operation, and multiplying it by its cost in the year in which the cost is received. A value flow table is the economic analysis equivalent of a financial cash flow table.

· Select an appropriate discount rate. There are two common methods for determining a discount rate:

- Cost of Borrowing: If money is borrowed commercially at x% per annum, the discount rate may be set at x%. If NPV at x% is greater than or equal to zero, the cost of borrowing is covered and the investment breaks even or shows a profit over and above the cost of borrowing.

- Opportunity Cost: If an investor can earn y% on an investment A, the return foregone by investing in an alternative B is y%. In this case, the opportunity cost of B is y% and the appropriate discount rate is also y%. If NPV is positive at y% then investment B is worthwhile.

· A practical way for carrying out a DCF analysis is on a personal computer using commercially available spreadsheet software. The value flow table in a spreadsheet comprises:

- Rows, being the values of separate sets of costs and separate sets of benefits,
- Columns, representing years.

· An NPV is derived by applying the @NPV function that is available in spreadsheet software to the sum of net values (benefits less costs) in the value flow table for the range of years to be included in the analysis.

· In general a positive NPV can be interpreted as an immediate return, while a negative NPV indicates a loss. The general rule is to accept an investment if the NPV is positive at a pre-determined discount rate, and to reject it if negative. Where a number of alternative options are being evaluated, that with the highest NPV at a given discount rate is the best proposition.

A simple worked example of a value flow table is shown in Table 9. It is able to be modified by adding columns to extend the time frame, or adding, or deleting, rows to modify the benefits (revenue) and cost flow structure of the analysis. In this example, benefits and costs involved in both wood and non-wood aspects of forest management are shown. An example of a DCF analysis generated using a spreadsheet on a personal computer is shown in Annex 10 B.

Internal Rate of Return

The Internal Rate of Return (IRR) is the discount rate, at which discounted costs equal discounted revenue, or the rate at which the NPV of a projected future cash flow is zero. It is the rate of discounting at which the present value (worth) of benefits becomes equal to the present value (worth) of costs. The IRR relationship is shown in Figure 20 and described by the following formula.

This approach has the practical advantage to a forest manager or planner of not having to select a discount rate because it is determined by calculation. In Figure 20, NPV is plotted against several discount rates and cuts the X-axis, or the zero value, at 13 per cent, indicating an IRR of 13 per cent. In practice an IRR can be computed using a DCF spreadsheet analysis on a personal computer by using the @IRR function.

In general, management options having an IRR higher than a pre-determined discount rate, 13 per cent in this example, can be accepted, while those with a lower rate would be rejected. Where several alternatives are being assessed the most attractive is that with the highest IRR.

Analysis of the Cost of Growing, or Break-even Stumpage

Analysis of the cost of growing, or break-even stumpage, is helpful for deriving the cost of growing wood per cubic meter at a specified discount rate. Break-even stumpage is the stumpage price required for a forest

Table 9: An Example of a Value Flow Table for DCF Analysis


Year 0




4 to 28




AMOUNTS (wood - m3/ha) non-wood products - kg/ha)

Non-wood, e.g. rattan






Veneer Logs



VALVES (wood - $/m3; non-wood products - kg)

Non-wood, e.g. rattan






Veneer Logs




REVENUE ($/hectare)

Non-wood, e.g. rattan














Veneer Logs















B. COSTS ($/ha):

Planting (inc. treestocks)


Release Weeding







Climber Cutting


Log Harvesting



Rattan Harvesting



Diagnostic Sampling



Watershed Management




Fire Protection







Admin. Overheads























Note: The value flow table has been compressed between years 4 and 28 so it can be printed on this page. The principles applied in its construction are the same for the years not shown. Values enclosed in brackets in the Net Cash Flow row are negative values. management investment to "break even" at a given discount rate. It can be computed using a spreadsheet designed for DCF analysis.

The cost of growing analysis has the important practical value of providing a standard reference point against which current stumpage for wood can be compared. If the calculated cost of growing timber in a proposed forest management programme is less than current stumpage, then the investment is probably worthwhile; but if the calculated growing cost is greater than current stumpages, the investment is probably not economically worthwhile.

Benefit-Cost Ratio

The Benefit-cost Ratio (B/C ratio) is the present value of benefits divided by the present value of costs. Benefit-cost ratio analysis is a method of evaluating a proposed investment in terms of all relevant forest costs and benefits associated with it, including social costs and benefits.

· If B/C is greater than 1, it means that an investment could be economically worthwhile but if

· B/C is less than 1, then it means that the investment should be redesigned, or abandoned.

The B/C Ratio is shown in the accompanying formula. It is computed in practice using spreadsheet software on a personal computer, by discounting the total flow of benefits and the total flow of costs separately, then dividing the sum of the benefit flow by the sum of the cost flow. The Benefit-cost

Ratio is sometimes called the Profitability Index of a proposed investment in forest management.

Which Economic Indicator Should Be Used?

It is the total net value that is the economic objective in production forest management and it is the total net value that should be maximised when making forest management decisions. The NPV should not be the only economic indicator used but it should be given some weight because it is a tool that indicates net value when evaluating alternative forest management options. The following guidance should be considered:

· Where one or more proposed forest management options are not mutually exclusive and there are no cost constraints, all options which yield positive NPV results can be selected.

· Where not all proposed forest management options can be selected because of cost constraints the aim should be to select those which yield the total greatest NPV.

IRR and B/C Ratio indicators do not show the size of the net effects. Too strong a reliance on either the IRR or B/C Ratio can easily lead to a result in which the total economic effects from an investment that has been selected are smaller than if the NPV indicator is used.

2.2.4 Uncertainty and the use of sensitivity analysis

The long term nature of investment in forest management presents a problem for the projection of data relating to events into the future because of the uncertainty associated with the data used in analysis of options and in the final results. A statement of results as single value estimates from a single DCF analysis provides no indication of the effects of other possible results. A forest manager may ask, "what happens if the value of a cost or a benefit is changed, or if the discount rate is changed, and what effect will these changes have on the result?" For example, what happens to the NPV if the silviculture costs are increased, or if the expected stumpage is not realised?

In many studies small changes in some data can lead to large variations in others. A sensitivity analysis identifies the physical and financial elements which have the greatest effects on results. The next step is to test the sensitivity of results to changes in these key elements.

The effect of increasing and decreasing all costs and all revenues respectively on an NPV of $205 is shown an example in Table 10. The discount rate used was constant at 10 per cent.

Table 10: The Effect of Increasing and Decreasing Costs and Revenues on the NPV by 10%

NPV = $205


+ 10%


No Change in Costs

Benefits (Revenues)

+ 10%

$226 (+ 10%)

$378 (+ 84%)

$302 (+ 47%)


$33 (-84%)

$185 (-10%)

$109 (-47%)

Sensitivity analysis can be applied to individual costs or benefits. The effect of changing the discount rate can also be tested.

2.2.5 Use team work for investment analysis

A team approach is desirable when comprehensive forest investment analyses are planned and undertaken. Forest managers or foresters having first-hand knowledge and experience of practical operational conditions, especially costs and the values of benefits, should always work with an experienced forest economist whenever substantial investment analyses for a forest management unit are planned.

These guidelines only consider the most basic approach to investment analysis. Readers are referred to Economic Analysis of Agricultural Projects (1972) Gittinger, J. P. and FAO Forestry Paper No. 17, Economic Analysis of Forestry Projects (1979) for detailed guidance on the topic.

2.2.6 Other Economic Values of Tropical Forests

Non-wood Forest Products

The role of non-wood forest products should be clearly recognised in social, environmental and economic terms in sustainable tropical forest management. Free access to non-wood forest products is essential to millions of people in rural areas, especially women, having close and traditional relationships with forests. Food plants, honey, meat, medicines, fungi, dyes, gums, resins, silk and building materials are amongst the more important types. Rattan and bamboo poles are significant non-wood forest products.

The following themes covering NWFP should be considered when planning and implementing sustainable forest management programmes:

· Encourage cooperation with rural communities having traditional relationships with forests and recognise and accept that their interests in a range of non-wood forest products can increase the forest revenue for rural communities.

· Recognise the positive value of non-wood forest products, both saleable and non-saleable, in the planned management of tropical production forests. An example of the value of rattan has been shown in the DCF analysis spreadsheet in Annex 11 B. Rattan, bamboo, lianas and other saleable non-wood products are sources of intermediate income between cutting cycles of crop trees. Earnings from eco-tourism and recreation can comprise an intermediate income.

Water and Soil Resources

Effective soil conservation and regulation of the water flows in streams and rivers is a primary benefit of carefully implemented forest management activities. Thoughtful planning and sensitive implementation of operational programmes will contribute to effective watershed conservation. Sustainable supplies of water from stable watersheds are essential for agriculture, for domestic use and for industry. Nutrition is a part of food security and sustainably managed tropical forests provide a wide range of fruits and foods, medicinal plants, fungi, honey, aromatic plants and wildlife.

Forest planners, managers and economists should always consider the positive roles of water and soil conservation in tropical forest management. Practical steps that should be taken in respect of specific forest management units can include incorporating the views of agricultural, water supply and conservation authorities into forest management plans.

Eco-tourism and Recreation

Increasing interest is being shown by urban people and by overseas visitors in the eco-tourism and recreation opportunities that can be gained from visits to tropical forests. These include adventure trekking, viewing wildlife, forest ecology studies, photography, rafting and canoeing, visiting traditional forest communities and forest education. Where it is appropriate, eco-tourism and recreation opportunities should be considered as having economic value in the context of a planned forest management programme.

2.3 Environmental considerations

2.3.1 Environmental issues
2.3.2 Environmental impacts and benefits
2.3.3 Environmental acceptability of forest management proposals

2.3.1 Environmental issues

Watershed Conservation

Forests have a fundamentally important role in forested tropical regions, both physically and socially, for the conservation of water and soil resources through the protection of hill and mountain slopes from erosion by rainfall and the flooding of rivers. Protection of sloping land and soils is the single most important physical and biological function of forests. In addition to the local effects of loss of soils and land productivity there may be serious repercussions downstream. Eroded soil carried in streams settles in slower moving parts of rivers, in reservoirs and in the sea. The capacity and life of irrigation and hydropower assets are reduced and the quality of water and the flow of rivers deteriorates.

Case Study 5: Financial Study of Sustained Yield Management in the Deramakot Forest Reserve, Sabah. Malaysia

The shift from high cutting rates to sustainable levels of log harvest-vests from secondary forests will reduce revenues and increase investment and operational costs. A major question is whether sustainable tropical rainforest management will cover operational costs and provide an acceptable financial return to the Forest Department in Sabah and to private sector companies. Key features of management of the Deramakot Forest Reserve that recognise this and other questions are:

· A focus on key resources - soil, water, trees, biodiversity and community needs.
· Sustained yield harvesting, enhancing growing stock and forest regeneration.
· Investment in rehabilitation, silviculture and low-impact harvesting techniques.
· Equitable distribution of benefits between forest owner and the licensee.

A financial study on the Deramakot Forest Reserve examines stumpage values and resource supply costs for tractor and skyline yarding of logs under Forest Department and concession management respectively. From a financial viewpoint tractor skidding is to be preferred but skyline yarding causes less forest damage. In easy terrain not having technical restrictions the costs of tractor skidding are lower by RM 39/m3 compared with skyline yarding. In difficult terrain it is expected that the cost difference narrows, especially if the costs of environmental damage is taken into account. Tractor and skyline yarding do not exclude each other but are complementary systems.

Price and Cost Elements (Values in RM/m3)

SFD Management

Concession Management





A. Sales from exported sawn timber
(0.5 m3 sawn timber = 1 m3 logs)





Production & overhead costs, profit & risk





B. Log Value, ex Sawmill





Production & overhead costs, profit & risk





C. Log Value, ex Forest Road





Road construction, maintenance & harvesting costs, profit & risk





Concession management costs





Profit & risk (25 % of all ex. sawmill cost)





D. Stumpage Value





* RM = Malaysian Ringgit.
Source: Malaysian - German Sustainable Forest Management Project.

Issues that should be considered by forest planners and managers are:

· Topography, climate - especially rainfall - and the season of harvesting.
· Location of roads and skid trails, construction quality, drainage and maintenance.
· Cutting system used, number and volume of trees per hectare cut,
· Types of hauling operations and the types and power of machinery used,
· The character and extent of silvicultural tending.

For detailed guidance on the topic readers are referred to the following Watershed Management Field Manuals in the FAO Conservation Guide series:

· Vegetative Measures and Agricultural Projects, No. 13/1 (1985),
· Gully Control, No. 13/2 (1986),
· Slope Treatment Measures and Practices, No. 13/3 (1988),
· Landslide Prevention Measures, No. 13/4 (1988),
· Road Design and Construction in Sensitive Watersheds, No. 13/5 (1989),
· Watershed Survey and Planning, No. 13/6 (1990).

Conservation of Biological Diversity

Conservation of genetic forest resources and the maintenance of biological diversity is essential for sustaining the productive and protective values of all tropical forest lands. Long term sustainability of tropical forest ecosystems is an essential part of a balanced production forest management programme and in large part depends upon the effective conservation of biological diversity. Practical steps that can be taken are as follows:

· Recognise and define sites where localised or rare species of plants and animals are known, or are thought to exist.

· Where necessary, plan and undertake local surveys in consultation with specialist ecologists, including NGO specialists, to better define the extent of specific sites and the conservation status of plants or animals that might occur.

· Where appropriate, consult with representatives of local communities to determine the nature of traditional interests that may exist in sites having endangered or rare plants or animals.

· Reach agreement through consultation between the forest owner, forest planners and managers, local people living in and around the forest, ecologists and interested conservation groups to identify sites that should be reserved from wood production and protected to conserve biodiversity values.

· Where it is technically appropriate and practicable to do so, combine forest land having biodiversity, watershed, wildlife and non-wood forest products conservation values, including streamside buffers.

· Define the boundaries of forest land to be reserved and protected from wood production with markers and notices.

Wildlife Conservation

There is a growing interest in conserving wildlife in tropical forests through the creation of reserved land where habitats and species can be protected. Forest planners and managers can contribute towards effective wildlife conservation by promoting practical action along the following lines:

· Reserves or refuges, representing all major forest types, especially having a high species diversity and endemism, in a forest management unit should be protected. Priority should be given to forest where endangered species are known to occur.

· Corridors connecting refuges should comprise part of a reserve's network. Corridors should physically connect two or more reserves and aim to provide undisturbed habitat access that allows free movement of animals in either direction. They should be maintained as far as possible in a natural state.

· Major animal feeding grounds that maintain specific wildlife populations should be protected. Tree species that are important food sources for animals should be protected from damage or loss during wood harvesting and subsequent tending operations.

· Hunting by forest concession company employees should not be allowed because it can lead to loss of endangered animals and weaken the basis for maintaining sustainable forest ecosystems.

· Wildlife populations should be regularly monitored in a systematic manner in order to detect and then respond to changes in populations and distribution of animals.

Buffer Zone Formation

A buffer zone is an area that is peripheral to an ecological reserve (such as a national park or protected forest) where restrictions are placed upon forest use and management in order to protect or enhance the conservation value of the reserve. It provides a gradient between totally protected land, and land can be managed for wood production. A diagram of a buffer zone surrounding an ecological reserve is illustrated in Figure 21. Practical steps that can be planned to implement buffer zones are:

· Tree cover and habitats should be maintained as far as possible in a natural state.

· Buffer zone vegetation should resemble that of the protected area, both in species composition and structure.

· Buffer zones should have similar biological diversity to that in a protected area.

· The capacity of the ecosystem in the buffer zone to retain and recycle nutrients should be retained as far as possible.

Forests and Global Climate

Forest clearing and burning have led to increased amounts of "greenhouse" gases in the atmosphere, mainly carbon dioxide. At the same time worldwide losses of forests have reduced global capacity for atmospheric carbon dioxide to be sequestered from the air by growing trees. Balanced and sustainable forest management programmes in tropical forests for both wood production and for environmental conservation objectives can contribute towards atmospheric carbon dioxide sequestration.

Figure 21: Diagram of a Buffer Zone Between an Ecological Reserve and a Production Forest

2.3.2 Environmental impacts and benefits

Environmental Impacts in Production Forest Management

The linkages between ecology and economics are particularly strong in the management of tropical forests for wood production, mainly because of the physical impacts that can be caused to the forest environment by careless roading and harvesting. Environmental impacts can be of four types:

· Positive: Thoughtful planning can lead to beneficial environmental impacts. For example, maintaining forest cover may lead to improvements in water quality and to protection of the interests of communities having a traditional dependence on forests.

· Negative: A poorly planned and carelessly implemented programme can lead to a deterioration of desirable environmental qualities. Adverse impacts can be caused by roading and harvesting to the structure and composition of forests, to soil stability, to forest hydrology and watershed relationships and to disruption of traditional community relationships with forests.

· Direct: A forest management programme can have a direct effect on an environmental factor. For example, protection of a watershed forest will have a direct impact on maintaining biological diversity.

· Indirect: A programme can lead to an indirect environmental impact on forest resources. For example, where an increasing resident population is associated with increased employment opportunities in forest utilization, there is an increased but indirect fire risk to a forest.

2.3.3 Environmental acceptability of forest management proposals

Overview of the Environmental Assessment Procedure

Environmental assessment is a practical tool for minimising adverse environmental impacts that can occur during tropical forest operations. Environmental impact assessment (EIA) is a part of the environmental assessment procedure that identifies and assesses the magnitude of impacts, both positive and negative, of a management proposal. It is a systematic procedure which gathers information and evaluates the likely impact of a change of circumstances that will or might result from implementation of a proposal. EIA can be applied as a part of a management plan formulation programme.

The process aims to provide answers to the following questions:

· What changes will occur within and near the forest environment as a result of implementing a forest management programme?

· What will be the extent of such changes?

· Do the changes matter and what can be done about them?

· Can a proposed forest management programme be modified and are there better alternatives that will cause less environmental impact?

These Guidelines do not go into detail on how to plan and undertake an EIA. This is a specialized role and is beyond the scope of these Guidelines. Readers are referred to the following publications for advice on conducting an EIA:

· Environmental Impact Assessment. 1995. Gilpin, A. Cambridge University Press.

· Training Manual for Environmental Assessment in Forestry. 1996. FAO Field Doc. 8/1996. Bangkok/DANCED, Denmark.

The Environmental Assessment Procedure

Environmental assessment commonly involves four practical steps that can be coordinated and carried out by managerial personnel on a forest (Figure 22.). The four steps for identifying, evaluating and minimising adverse environmental impacts during the formulation of a forest management plan are:

· Screening of a proposed forest management programme,
· Preliminary assessment of environmental impact,
· Management programme revision,
· Environmental monitoring.

· Step One - Initial Screening of a Programme: Screening identifies significant environmental issues and eliminates insignificant ones. Screening should identify and refer to as many of the affected parties, such as communities and conservation groups, as possible. In practice, screening involves consultation between forest planners and managers with representatives of other parties. The outcome of screening will be a consensus opinion of one of the following options:

· Specific environmental aspects are poorly known or are unknown and a preliminary assessment is required.

· Impacts have been identified that can be prevented or moderated by a revision of some management proposals.

· A management proposal is located in an environmentally sensitive locality that will lead to severe impacts, and a detailed environmental assessment is required.

Figure 22: The steps involved in screening and making a preliminary environmental assessment of a forest management programme

· A proposed programme has no harmful effects, or has positive environmental impacts.

· Step Two - Preliminary Environmental Impact Assessment: If an initial screening indicates that a preliminary EIA is necessary, then further planning should take the outcome of this assessment into account. EIA must be an integral part of forest management planning and not a separate process running parallel to it. Once a decision has been made during Step One - Initial Screening of a Programme, then the planning procedure must include it. The following steps should be followed:

· Assemble all available information: Much of this information is likely to have been assembled during the normal course of management planning. Specific information is required on:

- Climate, soils, rock types and vegetation with an assessment on the sensitivity to disturbance. Identify basic information on biodiversity values that are likely to be affected.

- Make a brief analysis of the communities that are likely to be affected, directly or indirectly, by a proposed management programme.

- Identify existing direct or indirect uses within the forest management area.

- Identify the institutional context within which the proposed programme will operate and the institutions that are likely to be affected.

- Identify planned or potential conservation areas likely to be affected by a proposed management programme.

· Prepare a checklist of likely impacts with an assessment of the magnitude of the impacts: The preparation of a checklist of likely impacts is a useful way of checking that nothing is overlooked and should be specific for the proposed management programme. An example of an Environmental Impacts Checklist for production forest management is shown in Annex 12. The following guidelines should be considered when assessing impacts:

- Consider all aspects of an operation and look at positive as well as negative impacts.

- Make assessments in relation to the facts that have been assembled for the locality. Do not make judgements that cannot be supported by facts.

- Focus on the main issues. Do not try to cover too many topics in too much detail.

- Be realistic and use common sense. Remember, the most important part of an environmental assessment is to predict the possible changes which would be brought about by alternative management options, and having predicted the changes, to decide how much these changes really matter.

Decide whether to revise a programme based on an impact assessment: The information gathered and presented in the form of a checklist should enable a decision to be made, if necessary, concerning redesign of parts of a proposed management programme, or to conduct a detailed Environmental Assessment.

· Step Three: Revision of a Proposed Management Programme: The preliminary Environmental Impact of a proposed management programme may lead to a decision to revise aspects of it. Be realistic in considering alternative management options. Revision may require only simple modifications, such as relocating roads or changing the seasonal timing of road construction or harvesting. Avoid preconceptions and do not make prejudgements on possible action.

· Step Four: Environmental Monitoring: Environmental monitoring is an extension of the information collection process and should be applied to those topics in an EIA where there is an incomplete knowledge of the impacts of a proposed management programme. A management programme should be sufficiently flexible to incorporate any observations from monitoring that might be made as a management programme proceeds.

Detailed Environmental Assessment

If a proposed forest management and wood utilization programme is considered to have substantial environmental impacts, as might occur in an environmentally or socially sensitive locality, then screening is likely to recommend a detailed environmental assessment. This is a specialized topic that will require considerable new information and study. It is beyond the scope of these Guidelines and should be undertaken by technically qualified people having previous experience in environmental assistance.

2.4 Social considerations

2.4.1 Background
2.4.2 Involvement of local communities
2.4.3 Social surveys using rural appraisal methods
2.4.4 Guidelines for planning and conducting a rural appraisal
2.4.5 Guidelines for the integration of wood with non-wood forest products production

2.4.1 Background

A large number of the people who live in or near forests and are at least partly dependent on forest resources live in tropical forest localities. Each distinct ethnic group has its own cultural inheritance and its own social and economic relationships with forests that cover religion, ceremonial activities, art, food supply, medicine and economic use. Where community-forest relationships have evolved, the social organization and culture of individual communities have adapted to the characteristics of the plants comprising the forests as well as to local soils and climates.

Sustainable tropical forest management is concerned not only with technical management but also with the integration of agriculture with forests for food production, the production of wood for community use and for the supply of non-wood forest products. It should lead to social and economic development of local communities, including the provision of basic needs and to income generation and employment. A balanced programme of forest management can contribute to these objectives by supporting opportunities to share information, experience and the responsibilities of management with local communities. A definition of community forestry that recognises a degree of local control and participation amongst rural communities is shown in Figure 23.

Figure 23: A Definition of Community Forestry

Community Forestry: ".. the control and management of forest resources by the rural people who use them especially for domestic purposes and as an integral part of their farming systems ".
Source: Fisher, R.J. "Collaborative Management of Forests for Conservation and Development". IUCN. 1995.

The sustainability of tropical forest management depends upon having local communities work together with government agencies, concession holders, NGOs and other institutions involved in forest management in assessing, planning and monitoring management operations according to locally defined concerns, needs and goals. The aim is for rural communities, government agencies and forest managers to work together.

2.4.2 Involvement of local communities

Principles and Approaches

Involvement of local communities in sustainable tropical forest management can be secured, depending upon locally prevailing conditions, as follows:

· By adapting the conventional technical tools and methods of land use planning, watershed management, market assessment, agroforestry and wood production management, to the participatory approaches of rural development, such as Participatory Rural Appraisal, farming systems analysis, and Participatory Assessment Monitoring and Evaluation.

· By incorporating nutrition, population and gender analysis into the development of balanced management programmes.

· By using participatory tools adapted to local conditions, throughout the analysis, design, management and evaluation phases of local community development programmes, to increase mutual learning opportunities for local people and their technical partners.

· By encouraging local community participation in forest products marketing. One example is the development of local market information systems managed mainly by local communities.

Conflict and Conflict Management

Conflict is an inevitable feature of all societies. What varies from one culture to another is its scope and scale, whether it is valued or avoided, and the manner in which it is managed or resolved. Conflict management is a broadly-based field of study and action that addresses questions of how people can make better decisions by cooperating together. It attempts to focus upon the reasons why conflicts occur by building upon shared interests and finding points of agreement that accommodate the respective needs of the various parties involved. During some conflict management processes, there can be changes of awareness and recognition, minds can change, people learn about themselves and others and new patterns of significance can arise.

The main features of conflict management having practical significance in sustainable tropical forest management are:

· Trust, Understanding and Communication: The parties involved in problem solving need to develop trust and understanding, exercise good communication skills and collect credible data. Forest managers should foster and encourage productive communication and collaboration with rural communities, addressing the underlying causes of conflict prior to the outbreak of serious confrontation. "Tools" that can be used for conflict resolution are negotiation, mediation, conciliation, and consensus building.

· Ownership: The conflict management process should encourage a sense of ownership of the solution, as well as the problem.

· Indigenous Knowledge Systems: Explore local perspectives and mechanisms for dealing with disputes, including the local knowledge base, local practices and methods that are in use. Key questions to be considered can include:

- How are conflicts managed at a local level?

- What indigenous methods and mechanisms, both formal and informal, exist for dealing with conflicts?

- What is their authority in the context of the structural changes localities have, and continue to experience?

- How can effective conflict management techniques be transferred between communities at the forest level?

· Promoting Equitable Dialogue under Unequal Conditions: Very often local groups are not well organized, or are unable to adequately represent themselves. Under these conditions communication, or dialogue, is liable to be unequal, and even strongly one-sided. Key questions leading to more equitable dialogue can include:

- What is the link between power relations and conflict management in forest management?

- How do power differences (economic, social and political) impact on conflict management and dispute resolution strategies?

- How can powerful groups be brought to the conflict management process?

- What institutional and other mechanisms are needed to promote a more equitable dialogue?

· The Role of Ethnic Minorities and Women: At the heart of the involvement of local communities is participation and promotion of ethnic minorities and women. Key questions are:

- What is the role, perspective and interests of minorities and women in relation to forestry and land use conflicts?

- How do they differ from other members of the wider community?

- How can they be better integrated and taken into account?

- What is the nature of their participation and to what extent are they further marginalised or more empowered by the conflict management process?

- How can conflicts be managed to take into account the views and needs of disadvantaged groups?

· Be Practical: Care should be taken to ensure that the various solutions and agreements reached are practical and are capable of being implemented.

2.4.3 Social surveys using rural appraisal methods

Types of Rapid Appraisal

Social surveys using rural appraisal methods are intended to acquire practical information on development issues in local communities quickly. Two common reasons for undertaking rural appraisals are:

· So that villages can create plans to make better use of forest resources available to them.

· To inform and influence national policy and legislation concerning forest resources management.

There are two main types of rapid appraisal, rapid rural appraisal and participatory rural appraisal, the key difference between the two being who undertakes the study, as follows:

· Rapid Rural Appraisal: The study process is mostly managed by outsiders, often comprising a team of specialists who determine the study objectives, conduct field inquiries in a community, undertake analysis and determine what happens to the results.

· Participatory Rural Appraisal: The community manages the study process. An outsider's role is limited, at least initially, to providing training in study methods and, later, in the use of the results. Local communities determine the study objectives, collect and analyse information and decide how the results will be used.

In practice the situation is often not as strictly defined as this and there can be a mix of the two broad approaches. Very often, outsider specialists may initiate the process and then ask the community to select representatives to join the team as active members. In time, a local community that becomes familiar with the techniques may take control of the appraisal process.

Triangulation - a Way of Avoiding Study Bias

When undertaking any study, a field researcher must be aware of bias. If a study is biased, it means that the results do not reflect the reality of a situation, or that there has been a preference for one particular position.

Triangulation is one of the features of rural appraisal that tries to ensure that a study is as objective and as unbiased as possible and means looking at a problem in several different ways, but always at least three ways. When designing and undertaking a study the following features should be recognised:

· Triangulation of the study team perspectives by involving at least three people having different points of view, for example, women/men, social scientists/forest managers, insiders/outsiders, young people/older people.

· Triangulation of the perspectives of the people providing information by ensuring that a range of people are interviewed and that all information collected is verified by at least three different groups, such as women/men, diverse ethnic groups and young people/older people.

· Triangulation of information gathering methods by addressing the same issue using at least three different tools, for example, historical interviews, maps and seasonal calendars.

All rural appraisal methods use a variety of techniques to gather information in the field, rather than relying on questionnaires that have been written beforehand in an office. Techniques include mapping exercises, semi-structured interviews with groups of people and individuals, and ranking activities.

2.4.4 Guidelines for planning and conducting a rural appraisal

A rural appraisal can be divided into three stages:

· Preparation,
· Field collection,
· Information analysis and use.

Where a comprehensive rural appraisal is to be applied in a specific forest situation, the forest manager should secure the specialist assistance of an experienced rural sociologist to provide detailed guidance on the design and conduct of an appraisal.

Preparation of a Rural Appraisal

· Setting the Objectives; The objectives define the purpose of the study and determine exactly what will happen in the field. Objectives should be clear, not too broad and should be related to providing information that will solve pressing community and forest management problems, including conflicts.

· Choosing a Study Site: A decision on how many specific sites, or localities, should be studied will depend on the study objectives, the time frame, costs and the size, character and variability of the area in question. The area chosen should not be so large as to be impractical, nor so small that an appraisal is unlikely to be effective.

· Selection of a Study Team: A study team should be between three and six people. Where village representatives join a team as active members, a larger team may be necessary but the team should not exceed eight people because it can become unmanageable. A diversity of interests, experience and views should be represented. Team members should have compatible personalities so they can work together effectively.

· Review Background Information: Review existing information about the study site or area. Information can include maps, data on the distribution and nature of forest types, village locations, ethnic background, village populations, social structure, farming systems and the uses of traditional plants. Some information may be available in a forest management plan.

· Make Logistical Arrangements for Field Work: Arrangements should be made for transport, village accommodation for team members, arrangements for villages to meet and receive a study team and keeping local authorities informed of the purpose and progress of an appraisal.

Information Collection

· Collect Physical Information About a Study Area: Describe the physical character of a study area from the viewpoint of community-forestry relationships. Features that should be noted are the "territory" of villages, how boundaries are recognised, which part of a "territory" is used by all village families (a "commons") and which parts are family land holdings. Information can be recorded and presented in the form of simple sketch maps and as transects that show a cross-section of the "territory" of a village.

· Collect Information About Forest Resources Use: The aim is to identify and collect information that is directly relevant to the objectives of an appraisal. Don't collect information that will not be useful but be flexible in deciding what information is important. When information is collected the concern should be with what kinds of resources are being used or not used, how and for what purpose they are used and who the users are. This information provides a basis for determining where there are constraints in the use of different forest resources, who has greater access to them, who has limited use or who has no access at all. Although information can be assembled in various ways, depending upon the appraisal objectives, four useful headings for assembling information are:

· Structure of communities and the relative standing of its members, including women as well as men.

· Wealth ranking of community members, both men and women.

· The community calendar of seasonal changes in work, seasonal changes in earning power, seasonal changes in agricultural activities and other changes that might occur during the year.

· A two-dimensional classification matrix for making comparisons between resource use and community structure can be formed. A simple example of a classification matrix is shown in Table 11. It shows the relative importance, or frequency, of occurrence of use of specific resources for three groups of users - men and women, wealthier and poorer people and elderly, adult and younger people.

· Collect Information About Community Management of Forest Resources:

Information that should be collected about community management of forest resources includes the local rules that are applied, the different levels of decision-making and who arranges settlement of disputes that inevitably arise over the management of different forest resources. Many decisions concerning community forest resources management are made informally and by individuals, others are made amongst families whilst others are made by village committees or by powerful individuals. The role of women is often important in decision-making.

Table 11: An Example of an Information Classification Matrix

User Groups Þ








Resource Types ß









Bottom Land








Hill Slopes
































Medicinal Products








· Information Collection Techniques:

· Semi-structured interview: A semi-structured interview can be used at any time and involves asking questions on topics of interest, using a checklist of issues that an interviewer wishes to examine.

· A Conflict Matrix: A two-dimensional conflict matrix lists the disputing parties on one axis and the nature of conflicts on the other. An example is shown in Table 12. It is formed by asking specific questions on forest resource use conflicts amongst people or communities and then expressing the relative frequency of their occurrence in the form of a matrix.

· Analysis of Information: Information analysis is an ongoing process that begins during information collection; for example the formation of a classification matrix can be undertaken by villages using help build up a knowledge base in a village about itself. This provides opportunities for communication with communities, for summarising ideas, identifying trends, for evaluating the results of a study and making proposals to concerned local villages about a forest management plan and the community's role in it. The approach taken will depend upon the type of appraisal being made, as follows:

Table 12: An Example of a Conflict Matrix

Disputing Groups Þ

Between Villages

With Neighbouring Villages

With Strangers

With the State

Nature of Conflict ß


























· In participatory rural appraisal the planning, information and analysis phases are likely to be run together. Analysis and discussion will be a community-wide process that might take place over several days after information has been collected. Members of concerned communities will be able to share in discussion.

· In rapid rural appraisal information analysis is likely to be completed away from local communities. There should however be some community participation in order to share preliminary findings and to clarify questionable points.

Readers should refer to Rapid and Participatory Rural Appraisal: Past, Present and Future (1990) and Rural Appraisal: Rapid, Relaxed and Participatory (1992) both by R. Chambers, and also to FAO Community Forestry Field Manual No. 4, Tree and Land Tenure: Rapid Appraisal Tools (1994) for greater detail of these methods.

2.4.5 Guidelines for the integration of wood with non-wood forest products production

The following guidelines should be considered for achieving effective integration of non-wood forest products issues into tropical forest management:

· Cooperation with local communities and NGOs will usually lead to managerially relevant knowledge of NWFPs be provided. Local communities should be encouraged to be actively associated with forest resource management, including wood harvest scheduling.

· NWFPs should be considered in a positive and balanced manner in the planning and operational management of tropical forests in relation to wood production. They should not be an "add-on" topic that is introduced as an afterthought in management planning.

· NWFPs should be defined in specific inventories in order that reliable information is available for short- and long-term planning. One aim will be to provide continuing access to NWFPs by communities having a traditional dependence upon them.

· Ethnobotanical references on a region where wood harvesting is taking place or is planned should be consulted to supplement information on traditional uses of plants that might have been gained through consultation with local communities. Literature searches can provide ideas on plant products as well as on traditional plant management practices.

· Where it is relevant to do so, harvest planning for wood production should be dispersed so that adjacent or nearby compartments are at different stages of recovery following harvesting and mature and near mature compartments are located close to each other. By minimising forest fragmentation greater species diversity is likely to be maintained and the risk of loss of NWFP species is minimized. The following guidelines are suggested:

- Management planning should aim to conserve NWFP species where significant plants occur. Incentives and disincentives can be offered to harvesting crews to encourage a positive response to this. Road and skid trail planning should include arrangements that do not disrupt and perhaps will facilitate harvesting and transport of NWFPs.

- The method and scale of wood harvesting should accommodate any existing NWFP harvesting and trade patterns of local communities if well developed and where disruption that might be caused by logging would become a source of conflict.

- Where it is realistic and practicable, a diversity of non-wood forest products should be extracted. This approach can lead to seasonally complementary harvests and to less vulnerability to fluctuations in market demand for a particular NWFP.

- Traditional systems of NWFP management and harvesting should be used, or adapted, to the needs of wood harvesting programmes.

- Local communities should be invited and encouraged to work with forest managers on pre- and post-harvest assessments to ensure that NWFP species are properly considered.

· The choice of a silvicultural system should consider the impacts it might have on the sustainable production of NWFPs. It should not change the ecological structure to the extent that significant NWFP species are endangered or lost.

· The ecological sustainability of all NWFPs should be assessed, as far as practicable, based on the plant part that is of interest, the forest composition, the type and intensity of harvesting and the particular species or type of NWFP that is being harvested. Changes in NWFP development should be monitored using PSPs.

2.5 Further reading

Chambers, R. 1990. Rapid and Participatory Rural Appraisal: Past, Present and Future. Paper for a Seminar at University of Chiang Mai, Thailand.

Chambers, R. 1992. Rural Appraisal: Rapid, Relaxed and Participatory. Institute for Development Studies Discussion Paper No. 311, University of Sussex, Sussex.

Currie, R. M. 1980. Work Study. (4th Edition). Pitman for British Institute of Management, London.

FAO. 1979. Economic Analysis of Forestry Projects. Forestry Paper No. 17, Rome.

FAO. 1982. Environmental Impact of Forestry. Conservation Guide No. 7, Rome.

FAO. 1983. Forest Revenue Systems in Developing Countries. Forestry Paper No. 43, Rome.

FAO. 1987. Guidelines for Economic Appraisal of Watershed Management Projects. Conservation Guide No. 16, Rome.

FAO. 1988. Small Scale Harvesting Operations of Wood and Non-Wood Forest Products Involving Rural People. Forestry Paper No. 87, Rome.

FAO. Watershed Management Field Manuals. Conservation Guides, Rome.

· Vegetative Measures and Agricultural Projects, No. 13/1 (1985),

· Gully Control, No. 13/2 (1986),

· Slope Treatment Measures and Practices, No. 13/3 (1988),

· Landslide Prevention Measures, No. 13/4 (1988),

· Road Design and Construction in Sensitive Watersheds, No. 13/5 (1989),

· Watershed Survey and Planning, No. 13/6 (1990).

FAO. 1992. Cost Control in Forest Harvesting and Road Construction. Forestry Paper No. 99, Rome.

FAO. 1994. Tree and Land Tenure: Rapid Appraisal Tools. Community Forestry Field Manual No. 4, Rome.

FAO/DANCED. 1996. Training Manual for Environmental Assessment in Forestry. Field Doc. 8/1996. Bangkok.

FAO. 1997. Aménagement des Forêts Naturelles des Zones Tropicales séches. FAO/Sveriges Lantbruksuniversitet (SLU)/CIRAD/SIDA; Cahier. Conservation Guide No. 32. Rome.

Fisher, R. J. 1995. Collaborative Management of Forests for Conservation and Development. Issues in Forest Conservation, IUCN-The World Conservation Union, Gland.

Gittinger, J. P. 1972. Economic Analysis of Agricultural Projects. John Hopkins University Press, Baltimore and London.

Gray, John A. 1997. Forest Revenue and Pricing Policies for Sustainable Forestry. Paper to 11th World Forestry Congress, Antalya.

Haberle, S. 1990. Grundzuge forstlicher Zeitstudien und ihrer Auswertung (The Principles Of Forestry Time Studies And Their-Evaluation). 1990. Institut fur Waldarbeit, Universitat Gottingen, W-3400 Gottingen.

Hammond, D. 1995. NZIF 1995 Forestry Handbook. The New Zealand Institute of Forestry (Inc), Christchurch.

ILO. 1981. Introduction to Work Study. ILO, Geneva.

Kennedy (cited in Gilpin, A.) 1995. Environmental Impact Assessment. Cambridge University Press.

Kollert, W. Uebelhöt, K. Kleine, M. 1995. Financial Analysis of Natural Forest Management on a Sustained Yield Basis: A Case Study for the Deramakot Forest Reserve in Sabah, Malaysia. Report No. 200, GTZ Malaysian-German Sustainable Forest Management Project.

Laird, Sarah 1995. The Natural Management of Tropical Forests for Timber and Non-timber Products. O.F.I. Occasional Papers No. 49, Oxford Forestry Institute, University of Oxford.

Leslie, A.J. 1987. A Second Look at the Economics of Natural Management Systems in Tropical Mixed Forests. In Unasylva, Vol. 39 (155), FAO, Rome.

Sayer, J. 1991. Rainforest Buffer Zones: Guidelines for Protected Area Managers. IUCN-The World Conservation Union, Gland.

Stohr, G. W. D. &, S. 1978. Importancia e aplicacao do estudo do trabalho. (The Importance And Application Of Work Studies). Floresta Vol. 9 (1). S. Univ. Federal do Parana, Curitiba, Parana.

Poore, D. & Sayer, J. 1991. The Management of Tropical Moist Forest Lands: Ecological Guidelines. IUCN-The World Conservation Union, Gland.

UNESCO. 1992. Forests and Culture in Asia. International Fund for the Promotion of Culture. Paris and the Regional Unit for Social and Human Sciences in Asia and the Pacific, Bangkok.

Wittering, W. O. (Ed.) 1973. Work Study In Forestry. UK Forestry Commission Bulletin, No. 47. London.

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