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Forest industries in socio-economic development

FAO Forestry Department

This article was prepared by the Forest Industries Division of the FAO Forestry Department, Rome. It is based on a paper presented by Frederick Keenan, Director of the Forest Industries Division, at the Eighth Session of the Committee on Forestry (COFO) in Rome from 21 to 25 April 1986.

BUILDING A WOODEN CART forest industries assist development

The scale of appropriate forest-based enterprises ranges from that of a single craftsperson, through medium-sized enterprises run by village cooperatives or small firms, up to large-scale highly sophisticated integrated industrial complexes. Enterprises with both wood-based and non-wood-based outputs are included. From the concept held not so long ago that "big" alone was beautiful, through a reactive phase in which "small" was regarded as the most beautiful, there has now evolved a growing consensus that small, medium and big can, at the appropriate time and place, all be equally "beautiful".

The emerging role for FAO in forest industries, therefore, is to advise member countries as to the type, size and complexity of enterprises and the products that are appropriate for production under a particular set of circumstances at a particular time and that may evolve with changing circumstances. In this way, the contribution of forest industries to socio-economic development is maximized.

In the first week of October 1985, FAO organized an Expert Consultation on Appropriate Forest Industries in Jakarta. The meeting, which was jointly sponsored by the Finnish Government, had as its objective the identification of appropriate strategies for encouraging sound forest industry growth in developing countries. The Consultation was in line with the Committee on Forestry's 1982 recommendation that FAO organize seminars on the subject of Appropriate Forest Industries.

As a result of the meeting, the FAO Forestry Department has now established a Working Group on Appropriate Forest Industries. The group has representatives from all units in the Department: Forest Resources, Forest Industries, Forest Policy and Planning, and Operations. Its scope will be to review projects involving industrialization to ensure that the full spectrum of factors affecting success has been adequately considered. This spectrum encompasses the resource, the procurement of raw materials, manpower and training, the processing technology, ecological and cultural impacts, institutional capabilities, raising capital, markets and the finished products.

These considerations reflect the emphasis placed by the Jakarta Consultation on a holistic approach both in the planning and in the management of forest industries, an approach that links together the different parts of these industries - resource development, forest management, harvesting, processing and marketing - and pays adequate attention to the economic, social, cultural, commercial and technological environments in which the industry will operate. The role of local populations and the impact of industrial development upon them need to be given particular attention.

This article reviews the major contributions made to socio-economic development by forest industries and by trade in forest products. It is suggested that these contributions fall within three main areas: employment, generation of economic surpluses, and provision of inputs to other sectors of the economy. Within each of these areas, a number of issues are identified and discussed.

The planning and the operation of any forest- based enterprise must include all of the traditional industry- related elements shown in the inner ring, as well as the broader social, ecological, resource management and institutional environments shown in the outer ring

Global background

The establishment of forest industries provides potential either for foreign exchange earnings or - if production is consumed within the country - foreign exchange savings. The magnitude of these values is illustrated by the data given in the Table. As shown, developing countries in 1982 exported major forest products for a total value of US$7100 million, whereas their imports of the same products had a value of US$10100 million. The biggest developing country share of world exports was in industrial roundwood 45 percent - followed by wood-based panels with 35 percent. On the other hand, their share in exports of sawnwood was surprisingly low only 17 percent - and, as might be expected, only 7 percent in wood pulp and 3 percent in paper and paperboard.

The developing countries also had a substantial share in the imports of industrial roundwood and wood-based panels: 20 and 25 percent respectively. Furthermore, they accounted for 18 percent of the total world sawnwood imports and for 31 percent of the pulp, paper and paperboard imports.

If developing country exports of industrial roundwood were reduced and at least some of the resulting savings invested in the production of sawnwood for export, considerable earnings could be made through the increased value added. This would also release processing residues for use as fuel in industrial plants, thus contributing to savings in foreign exchange now spent on imported fossil fuels. Other possible uses for these residues could be as fuelwood for households, wood-based panels or for pulp and paper. In all these cases, the pressure on the forest to provide goods would be reduced.

The greatest import expenditure among the products listed in the Table is clearly in pulp and paper - a total of US$5300 million compared with exports to a value of US$1100 million. However, because of the capital intensiveness and the small markets in most developing countries, there is a question as to whether a substantial change can be expected in the global import/export pattern of pulp and paper in developing countries. While some improvements can be expected in individual countries or groups of countries, the picture for most developing countries is likely to remain the same, at least in the short term.

Regardless of where changes in the export/import pattern might be achieved, it could be mentioned, as one illustration of the possible implications, that if the value of exports from developing countries could be increased by one-third and the value of imports reduced in the same proportion, the net value of these changes would amount to about US$5000 million over one year, based on 1982 prices.

In the context of development of forest industries, both primary and secondary processing need to be taken into account to ensure the best possible developmental impact. According to the existing agreement between FAO and the United Nations Industrial Development Organization (UNIDO), FAO is responsible for the development of primary forest industries whereas the secondary forest industries such as furniture manufacture, joinery, prefabricated housing, etc, are the responsibility of UNIDO. It is obvious that cooperation is needed between the two organizations and this is continuously being given through the FAO/UNIDO Joint Working Group on Forest Industries.

TESTING PAPER IN ITALY developing countries depend on imports

Contributions to employment

Forest-based enterprises provide direct and indirect employment in a variety of ways. In some countries forest industries make up nearly one-fifth of total manufacturing employment. Moreover, recent figures indicate that rural small-scale forest industries provide the principal employment for between 20 and 30 percent of the rural labour force in many developing countries. The proportion of rural cash income de rived from these enterprises can be very high, rising on occasion to over 50 percent. This is especially important for the poor and landless members of society who depend heavily on these enterprises and who may derive most of their income from them.

Forest industries are also vital in stabilizing income throughout the year, as they can frequently provide employment during periods when agricultural activities are reduced.

The employment provided can be an alternative to a shifting agrarian lifestyle which, when badly practiced - as often happens where there is endemic poverty or rapid population growth - is one of the major causes of the diminution of the world's forests. Bearing in mind that about 200 million people in the world earn their livelihood from shifting cultivation, the significance of this activity should not be overlooked. Moreover, because of the cultural and social implications associated with shifting cultivation, the problems it causes must be approached with care.

Value of imports and exports by major forest products in 1982 (in thousand millions of US dollars)


World total


Developing percent


Industrial roundwood








Wood-based panels




Wood pulp




Paper and paperboard









Industrial roundwood








Wood-based panels




Wood pulp 8.5



Paper and paperboard 21.1







Choice of technology Some of the issues that could be considered are the following:

- for existing enterprises (particularly rural small-scale enterprises), an introduced upgrading of technology can result in increases both in productivity levels and also in the size and competitiveness of the enterprise, but only if the application of the enhanced technology is concomitant with the skills that can be transferred to the workers;

- when a new enterprise is being located in a particular rural area, it may be possible to choose technology that the local population can apply immediately or can be readily trained to do so. If not, the industry may have to bring in skilled workers from elsewhere as part of the work force; if the newcomers are sufficiently different in terms of race, culture and lifestyle from the local population, conflicts may arise and the enterprise founder because of labour problems;

- among the problems to be addressed, the choice of technology is, relatively speaking, of minor importance for the processing of non-wood products in general. Such operations are usually less sophisticated and less capital-intensive than those based on wood products. For this reason, the introduction of such industries might show immediate results toward alleviating poverty in rural areas;

- more sophisticated technology does not always require higher labour skills and may, therefore, for certain products and conditions, be more appropriate than simpler technology. For example, a highly automated paper mill will require lesser labour skills for the operation of the mill through the application of technology for paper-making than a simpler process involving the art of paper-making. However, such a choice sets high demands on the facilities available within the country for servicing. The drawback is that the modern technologically more advanced sector tends to create fewer jobs. This is because modern technology has been developed for conditions in industrialized countries; thus some adaptation to the conditions of developing countries needs to be made.

Rural small-scale forest industries provide the principal employment for between 20 and 30 percent of the rural labour force in many developing countries.

Sustainability of small-scale enterprises In spite of me importance of rural small-scale enterprises (SSEs), as indicated above, there often appears to be a bias against them on the part of governments, or at least a lack of institutional ability to promote them. Credit, for example, is more difficult to obtain and government services are, in effect, less available since the SSEs usually have less political appeal and prestige than large projects. They are also difficult to reach by government agencies.

Non-wood forest outputs A considerable contribution to employment and income can be generated from the non-wood-based products and services provided by the forest. A partial list of such products includes rattan, leaf products, bamboo, cork, honey, resins, tannins, fruits, mushrooms, nuts and wildlife for food and for trophy hunting. The services provided by the forest include protection of watersheds, recreation and tourism. Although these outputs can and should be considered along with wood products in an integrated approach to forest management and utilization, this is often not the case. One reason is that different (and sometimes competing) government ministries are responsible for different aspects of the forest. Several ministries may be involved, including natural resources, industrial development, tourism, environment, agriculture and even defence. Often it is a lack of coordination between the forestry service and the industries ministry which results in an uncoordinated approach to utilization of wood and non-wood products.

Non-wood forest outputs

Generation of economic surplus The primary contribution to economic development of any industry is to generate an economic surplus which can be invested in further growth. Therefore, forest industries, like any others, must be judged on their ability to generate an economic surplus. This is a primary objective of both rural small-scale enterprises and large-scale industries.

In the past some projects have been justified largely on the basis of national prestige or social impact but, lacking profitability, these have ultimately failed or required heavy subsidies which take resources away from new, more productive investments.

In the case of an integrated complex of wood industries, the lack of profitability of one component should be accepted only if the total complex is profitable. Even then this component can be accepted only if it produces goods which are a necessity for the country's economy.

Some of the issues relating to the generation of economic surpluses can be considered under two headings: external and internal.

International trade, by expanding markets and allowing countries to specialize in the production of goods in which they have a comparative advantage, provides an important external stimulus to economic development. The developing countries' share of international trade in forest products is relatively small but highly differentiated. Whereas exports of pulp, paper, and wood-based panels are small or even negligible, plywood, veneer and broad-leaved sawnwood are products in which developing countries have substantial and increasing portions of international trade. (For further discussion of this point, see article on South-South trade in forest products by G. Buttoud and M. Hamadou.)

Seven countries in the developing world now earn over US$250 million a year each from the export of forest products. Increased trade in forest products could play a significant role in relieving the serious debt burden of many developing countries, either through direct earning of foreign exchange or through savings in foreign exchange expenditures if domestic resources can be substituted for imported products. Most of the past and present wood supplies in developing countries originate in old-growth or primary tropical forests. However, some developing countries have recently developed well-designed and well-run plantations which supply exports as well as domestic demand. This is an area where continued growth is certainly possible.

Unfortunately, international trade in forest products is restricted by a variety of intentional measures designed to limit trade flows, including direct tariffs, non-tariff barriers and non-tariff measures. Although tariff barriers have been reduced in recent years in both developed and developing countries, the effect of these measures has been more or less cancelled by the introduction of non-tariff barriers, especially for, processed products like wood panels. These include: discretionary inspections, import licensing requirements, time-consuming customs formalities and quotas that restrict the volume of a particular commodity that can be imported. Non-tariff measures such as health and sanitary regulations, packaging regulations and grading can also have important restrictive effects on trade.

With respect to balance of payments, the import of paper products represents a major drain on foreign exchange for some countries. However, the expansion of domestic paper production capacity requires very large investments and is difficult to develop. Nevertheless, if they are managed efficiently and supported by effective marketing and trade policies, pulp and paper mills can make a major difference to a country's balance of payments position.

The internal or domestic market represents the first possibility for many developing countries to put their available forest resources to an industrial use. Sawmilling is an ideal industry for this market as it provides urgently needed timber for construction and allows the installation of production units at costs within the reach of countries possessing sufficient raw material.

One of the issues with regard to the generation of revenue from local markets is that much of the activity is carried out by non-local entrepreneurs (who may nevertheless be nationals). Many of the earnings, in these cases, are therefore not being returned to sustain the economic base for future expansion or to benefit the local people directly.

IFUGAO INDIAN IN THE PHILIPPINES developing remote areas through forestry

Marketing The key to making a successful contribution by forest industries to socio-economic development often lies in effective marketing. (See article on marketing of forest products by L. Lintu.) Local enterprises in developing countries often have inadequate marketing capabilities while foreign transnationals have a well-established and efficient marketing network to sell their products on the same markets. Especially with regard to domestic marketing, developing countries should be as willing to invest in effective marketing facilities as they are to invest in production units. This may be essential to maximize benefits and to ensure competitiveness with imported goods.

Industries in developing countries need distribution channels and trade organizations and agencies which can assist them in marketing their products competitively on the world market. This also requires local personnel trained in marketing.

Because of the widely varying wood requirements in rural areas, marketing activities need to be combined with extension services in wood use and application. Local rural enterprises usually cannot provide essential know-how and technical services. Cooperative efforts between consumer and producer interests, supported by the respective development agencies, should in such cases complement marketing activities. With the establishment of rural cooperatives, marketing could be improved and more of the benefits and experience gained could be directly utilized by the producing community.

If the value of exports from developing countries could be increased by one-third and the value of imports reduced in the same proportion, the net value of these changes would amount to about US$ 5000 million over one year.

Provision of inputs to other sectors of the economy

Forest industries often make a vital local contribution to the economy by helping to develop the physical and social infrastructure of rural areas. In their infancy these industries use the existing infrastructure, such as rivers and coastal waters, to reach markets. However, as the quantity of goods flowing from remote areas increases, roads are built and other means of transport are designed.

This increased economic activity in a community can lead to the establishment of some basic local processing, such as a small sawmill. The output of this primary wood processing unit in turn provides the raw materials for further local processing into higher value added products with the provision of more employment. As industries become more established in an area, the communities become more highly developed. Electricity becomes available, housing is improved and schools, hospitals and other facilities are established. Finally, the industry contributes to reducing illiteracy by providing paper for education and books.

The introduction of forest industries into a community gives members of the local population the opportunity to improve their skills and thus increase their income. These people are generally employed in logging and transport activities since employment in a mill tends to be comparatively small. Additional skills can be nurtured in workshops and services developed around the forest industries.

Trade between the rural and urban sectors, such as the sale of roundwood logs from a logging company to a processing plant, also influences infrastructural development such as highways, railways, power lines and ports.

Another example of inputs provided to the overall economy by forest industries is the production of packaging materials for a country's agricultural industry. It is possible that some agricultural activities might become non-viable if it were necessary to import packaging materials rather than obtaining them within the country. Other forest-based inputs are materials for making farm implements. In ways such as these, forest products can con tribute to agricultural production and food security.

The provision of building materials for a country's construction and housing needs is another important economic stimulus. In practically all developing countries, construction is a major industry as a result of population growth and the large shift of people from the land into urban areas. In many developing countries the products of forest industries, such as lumber, plywood and particle board, often form the basic raw materials of construction, especially in rural areas. An added benefit in the case of sawmilling is that it contributes to the local construction industry using almost exclusively local resources.

Mechanical products industries, however, are often hampered by a lack of support from government institutions, by their frequent inability to get loans and financing from lending agencies and by a limited supply of skilled labour.



Recognition of the three distinct contributions that forest industries can make to socio-economic development - the creation of employment, the generation of economic surpluses and the provision of inputs to other sectors of the economy - will lead national decision-makers to have a greater appreciation of the role that forestry and forest industries can play in meeting other national goals. Halting the often socially disruptive process of urban migration, for example, depends upon finding reasons for rural people to remain in rural areas: new forest industries could provide such reasons. Whether or not to make investments to stimulate development in a remote area of a particular country, either to alleviate poverty among the people living there or to harness its natural resources, is a decision that often hinges on whether economic activity can be sustained in that area: forest industries, because they utilize renewable natural resources, can provide such a guarantee. If the harnessing of new technologies is a national goal, and if biotechnology is one of the principal new technologies, the tropical forests, where most of the world's plant and animal species are found, are likely to be the sources of many new forest-based biotechnological industries.

In meeting these varied goals, it is important to re-emphasize the fact that small, medium and large industries all have important roles to play. Just as a national economy operates through a network of village, urban and regional economies, so can the forest resources of a nation be used to create a network of household-based, village-based, urban-based and region-based forest industries of a variety of sizes and types. The role of these industries in national social and economic development will be substantial.

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