OVERVIEW OF FOREST POLICY REVIEWS IN BHUTAN

D.B. Dhital

Introduction

In Bhutan, forest degradation, caused by anthropogenic and natural factors, is a major problem. Over the last 41 years, the broadleaved forest area has decreased between 4 and 6 percent (Table 1). Coniferous forests have also been reduced by 6 percent compared to the base year, while scrub forests have been increasing steadily, replacing natural broadleaved and coniferous forests. Shifting cultivation has decreased significantly compared to 1978. The area of agricultural land has not increased since 1989. The main causes of forest degradation are overharvesting of timber and firewood, poor logging practices, forest fires, overgrazing, habitat destruction and pollution.

Table 1. Change in forest types according to various studies

* Includes degraded forest as well.

The National Forest Policy of Bhutan emphasizes forest conservation and the need to meet the increasing demand for forest products. The first National Forest Policy was ratified in 1974. It covered aspects of forest management, development and utilization. The most important objectives of the policy have been preserving and promoting the sector to obtain maximum revenue for the national economy. The policy stipulates that at least 60 percent of the country should remain under permanent forest cover. Although the policy was very comprehensive, some inadequacies were perceived due to rapid socio-economic development; which necessitated a revision. Consequently, the National Forest Policy of 1974 was replaced by the National Forest Policy of 1991.

The National Forest Policy of 1991 is still in a draft stage and has not yet been passed by the National Assembly. It has four guiding statements and its purpose is to ensure that forest resources are used according to sustainable principles, and contribute to social justice and equity. The policy primarily aims to ensure the conservation of the environment, and only thereafter aims at deriving economic benefits from forests. The policy statements are listed below, in order of priority.

Protection of the land, its forest, soil, water resources and biodiversity against degradation, such as loss of soil fertility, soil erosion, landslides, floods and other ecological devastation and the improvement of all the degraded forestlands, through proper management systems and practices.

Contribution to the production of food, water, energy and other commodities by effectively coordinating forestry and agriculture.

Meeting the long-term needs of Bhutanese people for wood and other forest products by managing the production forests sustainably.

Contribution to the growth of national and local economies, including exploitation of export opportunities, through fully developed forest-based industries, and to contribute to balanced human resource development, through training and creation of employment opportunities.

The main thrust of the National Forest Policy is to bring the reserved forest under effective and scientifically prepared forest management plans. Accordingly, approved forest management plans for the commercial harvesting of forest produce have become conditional. Thus, the primary objectives of forest management are to:

• Conserve the fragile environment.
• Ensure a sustainable supply of timber, fuelwood, fodder and non-wood forest products (NWFPs) for local consumption.
• Allocate forest products, in excess of local needs, to promote value-added forest-based industries.

Important criteria have been identified to guide the development of forest management plans to achieve these objectives. They include:

Managed forests will attempt to satisfy local requirements for timber, fuelwood, fodder, compost litter and other traditional products as a first priority.

Forests will be managed on a long-term sustainable yield basis, with allowable annual cuts based on detailed forest inventories and scientific growth and yield studies.

Forest harvesting systems will ensure environmental protection by minimizing soil erosion and land degradation, protecting natural drainage systems and avoiding permanent changes in the composition of vegetation.

Forest management will be holistic and consider not only the production of forest products but also watershed protection, wildlife conservation, maintenance of biodiversity and social uses.

Silvicultural systems will ensure regeneration of the principal species by natural means and artificial regeneration techniques will be adopted only if natural regeneration fails.

A review of the National Forest Policy was carried out for the first time in October 1999, with technical assistance from The World Bank (IDA) and the Swiss Development Co-operation (SDC). The forest policy stresses the need to manage forest resources on a systematic and scientific basis. Effective management will require the allocation of land for conservation, watershed protection areas, production forests and community forest. The policy recognizes the importance of effective people’s participation to ensure multi-purpose forest management. The policy also proposes a more rational economic valuation of forest resources as a means to promoting efficient domestic use and the development of viable forest-based industries.

The forest policy review assessed mainly the implementation of:

• Timber marketing and pricing, introduced in January 1999.
• Supply of subsidized timber for rural house construction, introduced in July 1999.
• Community and private forestry, introduced in 1995.

Timber marketing and pricing

The Royal Government of Bhutan (RGOB) began implementing this policy in the urban, commercial and industrial sectors in January 1999 along with the following modalities:

Export of logs, sawntimber and firewood is banned.

The sale of roundwood is conducted in open auctions, to which only Bhutanese citizens are invited to participate, except when there is an oversupply on the domestic market (special auctions are held where both domestic and international buyers participate).

Buyers are free to decide on the end use of the timber within the country.

Roundwood and sawntimber prices are determined by domestic market forces (the only relationship to the international market is through the export of processed products or through the "special" auctions).

Until 1998, there were four different price categories for roundwood (i.e. rural, urban, industrial and export). Rural and urban timbers were both subsidized. Industrial timber had a fixed price that was based on the most recent export prices. In turn, these prices were based on recent auctions.

Under the new policy, only two prices remain; (1) a rural price for supplying rural people for bona fide uses; (2) the urban category, which includes all timber for commercial, construction and industrial purposes. Wood prices under this category are determined by the market.

The RGOB expected that the new timber marketing and pricing policy would lead to:

a gradual increase in the value of forest resources with positive impacts on environmental conservation without adverse impacts on the Bhutanese population;

affordable access to forest resources for all Bhutanese citizens;

efficient wood flow from the production sites to end users without unnecessary delays;

adequate availability of raw materials for domestic use, providing in particular a basis for the development of viable national wood-based industries; and

employment and income generation through the use of forest resources.

Proposals for changes in this area date back to the early 1990s. The RGOB decided to formulate the new policy due to the following deficiencies in the previous policy:

the threat to environmental and conservation goals from the export of timber in its primary form;

the high level of subsidies provided on timber prices undervalued the forest resources;

the complex system of regulations, controls and permits caused unnecessary work and delays in wood flow;

the national wood-based industries lacked access to a constant and affordable supply of raw materials due to log export to India; and

the diversion of highly subsidized rural timber for urban consumption.

Although Bhutan is rich in forest resources, the development of wood-based industries has not progressed significantly. The revision was aimed at improving transparency, encouraging local timber-based industries and providing equal opportunities to all citizens for accessing forest resources.

According to the provisions of the Forest and Nature Conservation Act (1995), commercial timber production is to be undertaken by the agencies of the Ministry of Agriculture based on approved Forest Management Plans. The sale and use of timber was based on the following provisions:

The Ministry of Agriculture, through its agencies, will continue to harvest and market timber.

The sale of timber is to be conducted through open auctions by the timber producers.

Only Bhutanese nationals can participate in the auctions.

Timber will be auctioned in small volumes, if practical, to enable small-scale consumers to take part in the auctions.

Buyers will be allowed to decide on the use of timber purchased at the auction within the country.

Export of timber as roundwood, sawntimber or firewood is banned. Only finished products can be exported.

Timber prices are determined by market forces based on demand and supply.

The Ministry of Agriculture will intervene, depending on the circumstances and situations, to stabilize prices.

Prices of finished products will be decided by the manufacturers.

The conclusions of the review are tentative because:

The market is highly fragmented, i.e. both supply and demand parameters vary considerably among geographic areas due to the difficult terrain and lack of market access; there are insufficient data to reflect the diversity and to form a precise judgement of what changes are occurring at local levels.

Policy measures are very recent; medium term. The results of policy changes may well differ markedly after the market has absorbed first round impacts.

At the national level, the increase in the commercial wood supply is due to the rapidly growing demand from both private and institutional users. In the medium term, supply should be more than adequate because the RGOB has developed enough forest management units (FMUs), from where the timber is supplied. However, in the long term the following issues need more attention:

More FMUs need to be identified, based on demand, and management plans developed for the FMUs.

Timber demand for each ‘dzongkhags’ needs to be estimated in advance so that the gap between local needs and the capacity of the Forestry Development Corporation Limited (FDCL), in charge of commercial harvesting operations, can be bridged.

The FDCL’s revenue is not determined by the market because it also has social responsibility, in particular, supply of subsidized timber to rural populations. Although it still keeps the monopoly of harvesting operations, the FDCL contracts some of the logging and transport activities to the private sector to disengage from the execution of activities that can be performed effectively by private operators.

The Department of Forestry Services and the FDCL should collaborate in determining how best to allocate the resources and coordinate their activities so that the demand at the local level is met effectively.

The FDCL’s social mandate needs to be reviewed.

The domestic wood demand is fueled by expanding wood-based and construction industries. The rapid increase is due to the lack of wood substitutes, particularly as a source of energy (the impact of alternative sources of energy is small). The demand is price inelastic because of the pre-eminence of institutional users (e.g. schools, hospitals and the military). Another characteristic is the extreme fragmentation of the demand due to transport difficulties and a corresponding lack of market integration. Demand has considerable local variation depending on the presence of sawmills and other wood-processing facilities. The demand is generally greater close to the Indian border (traditional importers of wood products) and close to the large urban centres.

Wood marketing and pricing are based on a systematic auction process. This has led to:

Higher prices for roundwood than the formerly administered prices.

Some difficulties in meeting the demand of small consumers.

The increased prices for roundwood are due to high demand. This demand emerged under the previous system due to the difficulties that users were experiencing because of the existing procedures for accessing wood resources. As this demand becomes satisfied through the auctions, the pressure will abate and prices should decrease. The auction system has worked well so far and should be allowed to continue. Prices should eventually stabilize at a lower level.

To enable all Bhutanese citizens to participate in auctions, the auctions should be organized in such a way that:

They meet the characteristics of the domestic demand, in particular the demand of smaller consumers.

Timber lots are made more homogeneous. This will enable meeting domestic demands more adequately and generating revenues for the country as well.

Concerning timber stock, accumulations are likely to occur in the near future if an efficient mechanism for liquidating wood stocks is not in place.

There is a need to better delineate auction lots so as to better serve domestic users’ needs and avoid an accumulation of stocks.

Wood-based industrial development should be private-sector led. The RGOB's intervention should be limited to creating the enabling environment and leaving productive investment to the private sector. Currently, the establishment of economically viable wood-based industries still faces obstacles. Potential investors perceive the forest policy as volatile, they are not sure of the availability of raw material, they do not have proper knowledge of national and export markets for value-added products and lack access to sufficient skilled workers. It should address, in particular, the availability of skilled workers by embarking on a major training program on wood processing for Bhutanese workers and technicians.

Overall, recent sawntimber prices have reached a much higher level than under the former policy but there have been marked differences at the district level due to competition amongst sawmillers. In certain dzongkhags, the only existing sawmiller has had a de facto monopoly over the supply of timber, and hence, has taken advantage of this position to push prices higher. It is suggested that:

The current high prices will motivate sawmillers to establish themselves in certain districts where high prices prevail. This will increase competition and lower prices.

The FDCL's involvement in sawmilling needs to be reviewed further. What is needed is an enabling environment for private-sector development in wood-based industries that will facilitate the involvement of investors in the districts where their presence is most required.

The following tentative conclusions can be drawn:

• The market is highly fragmented and both supply and demand vary considerably among locations.
• The market is in a state of flux due to the policy changes.

Supply of subsidized timber for rural house construction

The Review Mission recommended continuing the provision of subsidized timber for rural households. However, it also suggested narrowing of the price difference between commercial timber and subsidized rural timber, and decreasing the number of households that are eligible to receive subsidized timber. The proposed rural timber allotment policy introduces the following measures:

Redefine urban areas according to the distance to the major cities, transport facilities, level of industrialization and overall infrastructure. Many areas previously defined as rural have thus become urban areas.

Making only rural dwellers who have land tenure certificates (‘thram’ or ‘gung’) eligible for subsidized timber.

Increasing the period of entitling households to receive subsidized house construction timber from the present 25 to 30 years.

Fixing the ceiling of the quantity of allowed subsidized timber.

Increasing the level of royalty (decreasing the subsidy).

People can use either standing trees, or sawntimber, or logs or any combination thereof.

Decentralizing the approval procedure at the dzongkhag level.

Monitoring the implementation of the policy by the Department of Forestry Services.

The rural timber allotment policy has implications on commercial timber markets, especially in the following areas:

Despite large regional differences in internal markets, domestic consumption is unlikely to absorb all the available roundwood in the short term. Further, some specific species/types of timber are unlikely to find places even in the domestic market. If the FDCL achieves the timber production target then there will almost certainly be a glut in the timber market especially in some dzongkhags.

Auctions have generally speeded up the timber flow from the production areas (FMUs) to the factories. However, there are some regional differences. In the eastern part of the country, there is a tendency towards wood accumulation and in other parts of the country, there is the problem of wood availability. The transport of excess timber from the eastern part of the country to other parts is not profitable commercially.

The log grading system is not practised fully by the FDCL. The FDCL has the prerogative to auction less merchantable species and low quality logs by mixing and making lots. This may be a disincentive for the development of smaller scale wood-based industries.

Community and private forestry policy

A preliminary review of the Community and Private Forestry Policy was carried out by the Ministry of Agriculture in 2001. According to Section 10 of the Bhutan Forest Act (1969), "the Government reserves the rights to the absolute ownership of trees, timber and other forest produce on private land". Before the enactment of the Forest and Nature Conservation Act (1995), the government had absolute ownership of trees, timber and other forest produce grown on private land. This provision was repealed and invalidated by the Land Act (1979) and the Forest and Nature Conservation Act (1995).

Implementing institutions

The Ministry of Agriculture (MOA) is responsible for implementing the forest policy. The MOA and its department and divisions have the normative role in all questions related to forestry administration and management. The Department of Forestry Services (DoFS) with its functional division (Forest Resources Development Division) prepares the forest management plans for specifically defined and approved FMUs. The DoFS also constitutes the authorizing and controlling body for all roundwood extraction and sale in Bhutan.

To access rural wood supplies the applicant must submit a request to the Dzongkhag Administration, which subsequently forwards the request to the concerned and responsible divisional forest officer. The Dzongkhag Administration is also responsible for forestry extension and matters related to social forestry. The Ministry of Trade and Industries approves operating licenses for the wood-based industries.

The authorized wood harvesting and marketing agency is the FDCL (Forestry Development Corporation Limited), which has commercial (harvesting and marketing) and social responsibilities (e.g. road construction, afforestation and provision of rural timber from the FDCL’s depots). The FDCL harvests and extracts timber through contractors using cable cranes and other equipment. The Ministry of Agriculture controls the FDCL directly through its board of directors. The commercial activities and the social responsibility of the FDCL need to be delineated clearly in future for the FDCL to function properly.

The private sector operators comprise contractors and industrial entrepreneurs. The contractors build the forest roads, carry out logging operations and transport the harvested wood. All wood-based industries are owned and managed by the private sector.

Bibliography

Davidson, J. 2000. Ecology and Management of the Broadleaved Forests of Eastern Bhutan, Third Forestry Development Project, Field Document No. FD00/7.

Lehtonen, P. 2000. Forest Policy Review, Bhutan [World Bank (IDA) and Swiss Development Co-operation (SDC)].

Royal Government of Bhutan. 1969. Bhutan Forest Act, 1969.

Royal Government of Bhutan. 1974. National Forest Policy, 1974.

Royal Government of Bhutan. 1979. Land Act (Volume KA), 1979.

Royal Government of Bhutan. 1991. National Forest Policy, 1991.

Royal Government of Bhutan 1995. Forest and Nature Conservation Act, 1995.

Royal Government of Bhutan, 1998. Strategy and Procedure for Implementation of the Revised Timber Marketing and Pricing Policy.

Royal Government of Bhutan, 2000. Forest and Nature Conservation Rules, 2000.