19827December 1993

LATEN Dissemination Note # 9

Prospects for ImprovedManagement of Natural Forestsin Latin America

December 1993.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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Robert D. KirmseLuis F. ConstantinoGeorge M. Guess

The World BankLatin America Technical DepartmentEnvironment Division

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LATEN Dissemination Note # 9

Prospects for ImprovedManagement of Natural Forests

in Latin America

Deember 1993

Robert D. KirmseLuis F. Constantino

George M. Guess

The World BankLatin America Technical Department

Environment Division

FOREWORD

The "Dissemination Note' Series of the Latin America & Caribbean Region'sEnvironment Division (LATEN) seeks to share the results of our analytical and operationalwork, both completed or in progress. Through this Series, we present the preliminaryfindings of larger studies in an abbreviated form, as well as describe "best practices" withregard to major environmental issues currently confronting LAC countries. Comments arewelcome.

In most cases, these notes represent "work in progress" and as such have not beensubject to either substantial internal review or editing. Therefore the findings,interpretations, and conclusions expressed in these notes are entirely those of the author(s)and should not be attributed to the World Bank, members of its Board of ExecutiveDirectors, or the countries they represent.

This Dissemination Note, by Robert Kirmse, Luis Constantino and George Guess, ispart of a study managed by LATEN on "Policies Affecting Forests in LAC" and is based ontheir sector and project work throughout Latin America. This note concisely surveys theexperience with natural forest management (NFM) projects in Latin America, draws thelessons from experience, highlights best practices and constraints to their implementation,and concludes that the conservative management of secondary forests represents a technicallysustainable alternative to either monocyclic logging or conversion of the forest to ranchingand farming activities.

Dennis MaharDivision Chief

Environment DivisionLatin America and the Caribbean Region

The World Bank

PROSPECTS FOR IMPROVEDMANAGEMENT OF NATURAL FORESTS

IN LATIN AMERICA

Robert D. KirmseLuis F. ConstantinoGeorge M. Guess'

Abstract. Natural forest management can help preserve forest ecosystems in LAC against encroachment by thewell-known forces of agriculture, pasture development, road construction and migration. Because this form of landuse conserves the natural capital, it can help sustain important environmental services, such as carbon sequestration,water and soil conservation, and even biodiversity. A review of LAC project experience (1930-1993) reveals thetechnical feasibility of improved natural forest management. It also, however, exposes the major constraints to itsimplementation, namely: (a) weak baseline and research information for decision-making, (b) unprofitability, (c)contradictory policies that encourage legal high-grading and forest destruction rather than good forest management,and (d) an overcentralized and weak set of public forestry institutions. The paper highlights the conditions that couldhelp increase the chances for successful natural forest management in the region. Since there are risks of failure,natural forest management should be promoted primarily in already logged forests or in threatened forests madeaccessible through the advance of the agricultural frontier. And because public institutions need to actively supportnatural forest management, its economic niche are lands where environmental and social values are important.

WHY FOREST MANAGEMENT?

1. With a total tropical forest area of about 840,000 million hectares (FAO, 1992a)2,which includes more than 60 percent of the world's remaining moist tropical forests, LatinAmerica is the most important tropical forest area in the world. Because of the generallyknown public and economic benefits provided by natural forests--such as habitat of biologicaldiversity, regulator of hydrological systems, producer of timber and other commercial andnon-commercial forest products--these highly diverse forests are important for the presentand future economic and environmental welfare of the region and even for the world. Butbecause of a complex array of economic and policy factors, these resources are beingsquandered in what amounts to be one of the fastest rates of deforestation in the world. Withan average forest loss of 83,000 km2/yr during the 1980s (FAO, 1988), almost 50 percent ofthe worlds total tropical deforestation takes place in Latin America.

Respectively Senior Forestry Specialist, Agriculture and Rural Poverty Division, Country Department IV,Natural Resource Economist, and Public Finance Consultant, Environment Division, Technical Department, LatinAmerica and Caribbean Region, The World Banlc. The authors are grateful to Nalin Kishor, Richard Huber, AndresLiebenthal, Michael McGarry and Francois Wencelius, all Bank staff, for their reviews of earlier drafts of thispaper. The authors also wish to acknowledge the contribution of Johan Zweede, forest consultant with the PilotProgram to Save the Brazilian Rain Forest, who helped write the section on Brazil.

2 This includes the main tropical forest zones, namely: Tropical Rain Forest Zone, Moist Deciduous Forest Zone,Dry Deciduous Forest Zone, Very Dry Forest Zone, Desert Zone, and Hill & Montane Forest Zone.

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2. The factors affecting deforestation in thetropics are well documented and will not be Sntainae ural f mne nt:reviewed here. Rather, this paper attempts to - - icntolei of d30 w-address one of the most controversial issues in the to6 ..o.....d..d.. ..d bneItdebate over deforestation: natural forest i-t Ie y w_h b emanagement. Although the Bank now has an official - ..... .. m......offrest ..

_ ..s r * r s z r iS i-i-Eanxd: appropiiaite r..of ..eas for........definition (see box) of sustainable natural forest - prote'toii ''" thtmanagement (SNFM), there is still no .......eco..g.c p po (peratOnalinternationally acceptable definition that meets all Policies 4.3.. ..re M.0the economic, technical, environmental and social ... -. ._ .. ..... ..._--_-E_-

criteria. The main controversy is over the intensityof intervention. Those opposed to 'utilization" of forests believe that any timber harvesting,whether well managed or not, is a main cause of deforestation. The preservationist view,however, tends to ignore the everyday need for forest generated incomes in Latin Americaand the fact these forests would simply not be left alone if logging were officially banned.

3. In this paper, we argue the position that the only practical way of conserving naturalforest ecosystems in the tropics is to make these forests more valuable to the forest owners asa forest than as crop or pasture land. A strategy of careful utilization of the natural capitalmay have higher chances of success than strict preservation, mainly because local economieswill benefit. And because timber is, after all, the forest product of highest market value,sustained-yield natural forest management (SYNFM) will probably prove to be a principalfactor in convincing people that forests are worth preserving. Moreover, sustained yield, ifbased on the natural capital as opposed to a monoculture of exotic species, will ensure thatthe natural forest is not depleted, which in turn would help to sustain many of theenvironmental services that forests provide. Pursuit of sustained yield timber productiontherefore leads to sustainable natural forest management (SNFM), which is interpreted as asystem where environmental values are conserved with minimal alteration.

4. Skeptics, however, point to the lack of basic research on natural forests in LAC andclaim that policy-makers still lack technical knowledge to implement SNFM. They argue thatecosystems and soils could be destroyed through projects designed and operated by misguidedtechnicians to the ruin of indigenous peoples and their forest habitats. Because few forests inthis region have been managed for more than a few decades, growth and yield informationneeded to specify the precise length and intensity of cutting cycles is not available. In fact,they go on to reason that because of the lack of proof of sustainability in managed tropicalforests and because the effort is so complicated and the yields are so low SNFM in thetropics is not viable.

5. The paradox is that without economic value and institutional incentives to enforceregulations the forests will not simply be left to nature. Forests are disappearing rapidly andthere is urgency to introducing management systems that can sustain critical environmentalservices while also providing income to local communities. There is simply no time to waitfor the long term basic research needed to design the perfect management scheme. This is

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because the alternative to SNFM is often the destruction of forests, mainly due to the postlogging invasion by landless farmers.

6. Most forest management specialists would agree that we now have sufficientknowledge of forest dynamics that with expert opinion and prudent design, workable, yetimperfect, management systems can be fashioned for most forests of the region. But alearning by doing approach would be required. Risk averse strategies can be designed andfeed-back mechanisms put in place so that management becomes adaptive and continuouslyadjusts to new information. As suggested by Cassells and Muttulingam (1993), what isneeded is "an operational definition of sustainable forest management in terns that arespecifically usefulforforest management planning and the evaluation offorest sectordevelopment projects. Such a definition would in essence be a working hypothesis about thenature of sustainable forest management. Like other hypotheses, it would not be able to beproven in absolute terms. However, like other hypotheses it would be subject to refutationand could be accepted in provisional operational terms until such refutation occurs."

7. Since most forest management systems would involve selective logging (i.e.,generally in LAC's heterogeneous forests, only one or two trees are removed per ha), thecanopy is maintained and therefore there is arguably little loss of biodiversity. Undercarefully planned interventions, carbon sequestration and water and soil conservationfunctions would resemble those of a primary forest. Hence, the economic niche for SNFMare forests where these environmental values are important but where irreversible loss is notan issue, such as those forests on high slopes, along watercourses, in buffer zones needed toincrease the viability of protected areas, and in coastal areas. In already accessiblesecondary forest areas, or in forests that are near the agricultural frontiers and where there isa high immigration rate, SNFM can be relatively benign environmentally, with minimalimpact on ecosystem structure and function. In these areas, finding an economic use for theforest resources may in fact be the only realistic approach to preserving the forest, eventhough the forest management system may initially not be strictly sustainable.

8. This is probably not the case in pristine forest areas, however, because exploitationcould make access easier for illegal loggers and squatters through the roads that would haveto be opened. Therefore, SNFM is probably best argued for already endangered forests withenvironmental value, while primary forests, far from human access, should not be targeted.Rather, primary forests, along with forests of high environmental value, should be protectedunder the national protected area program, which, however weak, exists in most LACcountries.

9. Through a review of selected natural forest management projects, this paperdemonstrates that, over the last 25 years, professional interest in Latin American forests hasshifted from exclusive interest in revenue-yielding timber products to the view that forestlands are a resource capable of being managed for multiple outputs, including environmentalservices. Although the well-known obstacles that have impeded SNIFM in LAC--weak public

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institutions, forestry unprofitability, insecure land tenure and lack of information--are stillthere, we now have a clearer understanding of the conditions for success.

Table 1. NFM Projects in LAC: 1930-1993

COtfr4lkkl/ '''' rystm ' T ' YEAR TAR D Why eded Spso

Bolivia-Chimanes Project 1988 ongoing NGOs-CICOIJCIDOB Project 1984 ongoing-MACA-IDB Project 1989 ongoing IDB

Brazil-Tapajos Research Project 1978-1985 economic constraints FAO-Minas Gerais Cerrado Research 1993 ongoing IBRD-Florestas Rio Doce/Mata Atlantica NA NA Private-Jari/pulpwood mgnt 1985 ongoing Private-Curua Experiment Station 1956 ongoing FAO/SUDAM-INPA Manaus 1987 funding constraints-IMAZON experimental management Recent ongoing Donors-FUNTAC/ITTO-Antimari Project 1989 ongoing iTTO-Ceara/CNPC Caatinga Research 1980-1987 institutional constraints USA1)

Chile-Nothofagus chip production Recent Private

Colombia-Carton de Colombia 1974-? social pressures Private

Costa Rica-Portico polycyclic 1987 ongoing Private-BOSCOSA Project 1988 ongoing USAID-FORESTA Project 1991 ongoing USAID

French Guiana-Risquetout/Organabo 1983 ongoing CTFT

Mexico-Quintana Roo-Polycyclic 1983 ongoing GTZ-Sierra Madre (MMOM-MIF) 1940 ongoing IBRD

Peru-Yanesha Strip Shelterwood 1980 ongoing USAID

Surinam-CELOS-Polycyclic 1976-1983 political conflict Wageningen

Trinidad & Tobago-Tropical Shelterwood System 1930-1978 institutional constraints UK-Periodic Block System 1954 State

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LAC'S EXPERIENCE WITH SUSTAINABLE NATURAL FOREST MANAGEMENT

10. Well planned and implemented SNFM programs are scarce in Latin America.Nevertheless, Bank sector work and a review of the literature have confirmed that someefforts at SNFM have been made in most countries in the Region. Except for projects inPeru, Mexico and Surinam, however, these efforts are poorly documented, or if conductedby private enterprises, are not made public. Table 1 summarizes some of the more notablenatural forest management efforts in LAC. This is followed by a more detailed descriptionof some of these projects, as well as some of the factors that have precluded SNFM.

Trinidad & Tobago: The First Experience

11. The earliest work on natural forest management in LAC was initiated in Trinidad &Tobago, Belize, Jamaica and Guyana. However, most of the work was never published anddisseminated and much of the data may now be considered lost. One such example is theTropical Shelterwood System (TSS), established in the 1930s on about 2,500 ha in the ArenaForest Reserve in Trinidad. The TSS system was abandoned in 1978 because of high laborcosts and because of a decline in charcoal demand (FAO/CP, 1993). By the time this systemwas discontinued, it was thought to be successful, but no formal research or measurementswere carried out (Poore, 1989).

12. Today in Trinidad, natural forests are managed under an Open Range System (ORS)or the Periodic Block System (PBS). The ORS, which covers some 40,000 ha of state land,is essentially a "first-come-first-serve" system whereby a registered logger locates treesabove the minimum diameter limit of 50 cms and then applies to the forest service for alicense to fell (FAO/CP, 1993). This system has been found to be difficult to control and itresults in overcutting and stand depletion. An improved system, the PBS, based on stricterarea control, has been evolving since about 1954 and now covers about 10,000 ha of Stateforest land. Under this system, trees (mainly Mora excelsa), within permanently designatedforest blocks of 200-300 ha, and above a specified girth, are selected and marked by theforest service and sold to loggers. Areas logged using this system are showing healthynatural regeneration, with the prospect of providing subsequent harvests at 30 year intervals.But then, Mora, the dominant commercial species, regenerates easily under these conditions.Although data on some 170, one-ha permanent sample plots have been collected since 1980,little data analysis has been done. Of the analysis that has been done, results indicate thatPBS may in fact be an improved system because 30 years after logging the basal area wasfound to be 2.3 times higher under the PBS than under ORS (FAO/CP, 1993).

Surinam: The Best Documented Silvicultural System

13. The Celos management system in Surinam was probably the best planned and welldocumented forest management system in all of Latin America. Building upon some 25years of research on forest dynamics, this system was conceived and implemented in 1976 bythe Agricultural University of Wageningen, together with the Anton de Kom University of

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Surinam. The principal silvicultural aim of this polycyclic system was to stimulate growthof the mid- and large-sized marketable trees to allow for 20-25 year cutting cycles. Betweeneach cutting cycle, two "refinements" were planned (at two and eight years after harvesting)to eliminate competition from the commercial stems by poison-girdling the non-commercialtrees above a diameter limit of 20 cm. Climber cutting (all lianas above 3 cm) wasprescribed to take place shortly before a harvesting cycle.

14. This silvicultural system was complemented by an improved harvesting system aimedat reducing logging damage and costs. This involved mapping the trees to be felled, carefulplanning of skid trails, directional felling to facilitate skidding, winch extraction and log flowregistration.

15. The improved silvicultural treatments were found to increase annual diameter growthby more than two-fold (4mm to about 10mm; Boxman, et. al. 1985) and volume productionby about ten-fold (0.2 m3/ha to 2 m3/halyr; De Graaf and Rompaey, 1990). The improvedharvesting methods reduced skidding damage by about 50 percent. Although the additionalsurveys, planning and pre-harvesting preparations of the improved harvesting methodincreased costs by about 5 percent over conventional methods, this was more thancompensated by a 10-20 percent reduction in skidding costs (Boxman et. al. 1985).

16. This project has gone a long way towards showing that silvicultural problems in themoist tropical forests (MTF) of Latin America are manageable. Unfortunately, as indicatedin Table 1, the project was abandoned in 1983 because of political conflict and insecurity inthe project area.

Flrench Guiana: One of the Largest Programs

17. In 1983, the Office National de Forets (ONF), with funding from the ConseileRegional de Guyane, initiated a pilot forest management project in two forests (Risquetoutand Organabo), covering a total area of 17,500 ha (FAO, 1992). The project employed apolycyclic silvicultural system, with an expected cutting cycle of 30-50 years. Based onearlier research conducted by the Centre Technique Forestier Tropical (CTFT) in Coted'Ivoire as well as on parallel research conducted by CTFT in Paracou, French Guiana(Schmitt, 1989), the system involves selective logging followed by a thinning treatment thatreduces competition of the valuable commercial species by poison-girdling the largeindividuals of the non-commercial species. The management project is being supported by acooperative research program sponsored by CTFT, which has established permanent plots toevaluate the effects and costs of the silvicultural treatments.

18. Based on the information already available from this pilot project, and researchfindings that selective logging of up to 10 trees per ha causes little damage to the forest(Schmitt, 1989), the ONF has planned to phase in a program of forest management on a totalof 105,000 ha over the period 1992-1994. The management plan for these 21 coastal forestareas involves mapping, inventory, road building, and silvicultural treatments, which will be

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adjusted as regeneration and growth dynamics are better understood. Once implemented, thiswill be one of the largest moist tropical forest (MTF) management programs in LAC.

Mexico: The Social Model

19. There are two notable natural forest management systems being applied in Mexico.One is in the tropical forests in Quintana Roo and the other is in the temperate pine forest ofthe Sierra Madre.

20. Quintana Roo. In the LAC region, the Plan Piloto Forestal (PPF) project inQuintana Roo, Mexico is perhaps the best example of a forest management project well-adapted to local socio-economic conditions. Initiated in 1983 by GTZ and the Instituto deInvestigaciones Forestales, the purpose of the project was to promote forest conservation andlocal development through community participation in natural forest management. Theproject's first step for securing popular participation was to have logging rights assigned tothe ejidos, the local communities. The PPF then initiated activities aimed at helping localforest communities organize themselves to manage timber harvesting in a way that wouldensure them of full economic value of forest products. One of the main marketing initiativesinvolved negotiating new contracts with log buyers, designed to provided higher prices and abroader range of species sold.

21. The applied silvicultural system consists of selective logging with minimum girthlimits of 55 cm dbh (diameter breast height). While such a polycyclic selective harvestingsystem had been used for quite some time in these forests, it was not sustainable because of:destructive harvesting methods; lack of regeneration of the principal species (mahogany--Swietenia macrophylla), and agricultural encroachment. Essentially, the PPF applied: (i)better planning of harvesting to reduce destruction of residual trees (e.g. directional felling);(ii) enrichment planting of logged areas; (iii) efforts to harvest more of the available species;and (iv) strict adherence to a permanent forest reserve whereby conversion to agriculture wasprohibited (i.e., area control). While some research has been supported by the project, theseimproved techniques were not dependent upon hard research data, except for the improvedplanning, which required inventory data and maps of the forest reserves.

22. Some interesting work on mahogany is coming out of the Plan Piloto project, much ofthe silvicultural information being generated about the species (e.g., that they are lightdemanding and regenerate best in large canopy openings) is corroborating the 1920's and1930's work done in Belize. Thus, some useful lessons of general applicability are beinglearned.

23. Although the PPF forest management system, which includes the harvesting of non-timber forest products such as chicle3 and honey, has produced profitable results (Dickinson,

3 Tapping the latex for chewing gum from the chicozapote (Manilkara zapota) tree provides about half of thetotal income from the forest management system.

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et. al. 1991), sustained yield cannot yet be confirmed. This is because of the lack of growthand stocking data, which are needed to calculate yield tables. Growth and yield data requirelong term research using permanent plots. Nevertheless, the total area of natural forests inthe Ejidos of Quintana Roo is holding constant, while deforestation in other parts of Mexicoand the rest of LAC is proceeding apace. This can probably be attributed to the project'ssuccess in demonstrating to the local people that good forest management can be at least aslucrative as alternative land uses. Profitability here is mostly associated with the annualincomes from chicle collection; in its absence sustainable management would not befinancially viable. Additionally, other factors contributing to the project's success include:secure land and tree tenure, institutions flexible enough to try new approaches, strongproducer organizations, rapid capitalization and an aggressive marketing strategy (Richards,1991).

24. Sierra Madre. Since the early 1940s, most forests in Mexico's Sierra Madre Rangehave been managed under a very extensive system called the Methodo Mexicano deOrdenacion de Montes (MMOM). It was based on a selection system, which, because ofpoor implementation, led to high-grading (repeated extraction of the best and most accessibletrees) and consequent degradation of the forest. More recently, to improve the economicsand sustainability of forest harvesting, the Methodo de Desarrollo Silvicolo (MDS) wasintroduced. This system, which operates on a seed tree reproduction method with a series ofthinnings, aims to obtain an even-aged stand structure to maintain sustained yields. Rotationsare determined by the age of maximum mean annual increment (MAI--50-100 years) andcutting cycles are 10-16 years.

25. The main principle of the method is to extract those trees that are older or youngerthan the average, then thinning them sufficiently to give the remaining stems space todevelop, taking from 25 to 30 percent by volume at each thinning. When applied properly,this method has the advantages of providing a constant supply of good quality logs, and therelease from competition improves the annual increment of the remaining trees. Therefore,future stands are improved because only the best quality trees remain as seed trees.

26. In a move to improve biodiversity protection, 1986 legislation required that all newmanagement plans include multiple-use and multiple resource criteria. The new forestmanagement system, which is essentially an MDS system with protected areas, is calledManejo Integral Forestal (MIF). In general, however, adoption of this regulation has beenconstrained by the lack of appropriate technical information and because of the real andperceived economic risks. The Forest Service (UCODEFO) has indicated that allowable cutshave been reduced by about 18 percent because of the new environmental protectionrestrictions.

27. A Bank project (Forestry Development Project--Loan 3115-ME) was initiated in 1989,in part to help implement this new management system in a way that would minimize theeconomic hardships on the ejidos. The project also aims to improve definitions ofenvironmental guidelines and skills needed to develop the MIF plans. Throughout the project

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area, regeneration is good. However, there is clearly a need for more intensivemanagement, particularly for non-commercial thinnings which would prevent standstagnation. Such thinnings, which are required by management plans, are not beingimplemented, largely because of their high cost and the lack of any short-term returns.

28. In general, there is no growth or yield information for the forests of the SierraMadre, based on permanent plot data. In the southern region of Durango, where there are 15pine species and some 150 oak species, estimates from inventory (tree ring) data indicate thatthe MAI of the forest is about 2.5 m31ha/yr without management. Preliminary results of aninventory also indicate that standing timber stocks range from 35 m3/ha to 400 m3/ha, withan average of 150 m3/ha. What are now needed are permanent growth and yield plots toprovide more precise calculations of growth and yield under management.

29. Meanwhile, the USDA-Forest Service of the Southwest United States, from whichmuch of the theory for Mexican forest management systems have been adapted, is movingback to a selective system for biodiversity protection concerns. The US Forest Service foundthat, while the MDS system had. improved the economics of forest management, it producedan even aged stand, considered to be less suitable for biodiversity conservation. The systemnow being tested in the Southwest US extracts about 15 percent of the standing volume, but,unlike other selection systems, selects the best trees to remain as seed trees. Applied toMexican socio-economic conditions, implementing such a system might be marginally betterfor biodiversity conservation. But it could also prove to be a situation in which the 'best isenemy of the good". That is, ejidos might agree to implement the financially-viable MDSsystem, but resist the new US system on economic grounds, despite the fact that it wouldensure a better habitat for wildlife.

Peru: A Technical Innovation.

30. Palazcu Vahley. In 1980, an innovative approach to integrated forest managementwas initiated in the Palazcu Valley, located in the central forest area of Peru. This ruraldevelopment project, funded by USAID, included a component aimed at providingemployment to local people through the sustainable management and commercialization ofthe natural forest. The management system was based on ecological observations of the gap-phase dynamics of MTFs and involves long narrow clearcuts designed to mimic natural forestdisturbances (Ocana-Vidal, 1992). The harvest cycle is 40-50 years, which is estimated tobe sufficiently long to allow natural regeneration of the forest. The key managementconsiderations include: appropriate site selection, proper size and orientation of the strips,careful design of access roads to minimize erosion and abstinence from harvesting near thestrips for at least 15 years after the initial harvest.

31. Criteria used for determining the size of the strip is based on the apparent biologicalneeds of the seedlings. The openings must be large enough to allow sufficient light tostimulate germination and growth and, at the same time, narrow enough to allow goodreseeding by neighboring trees. In the Palazcu project, the width of the strip is determined

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by the height of the largest trees in the natural forest. The length of the strip is determinedby the predominant ecological conditions; on flat ground, where there is little risk oferosion, the strips can be long, while they would be shorter on sloping land. The area of thestrips generally does not exceed 0.5 ha. Normally, orientation is from northeast to southwestor northwest to southeast, thus allowing for a uniform distribution of light.

32. Initial studies conducted on some of the early strips indicate that the system may bewell suited to the forest type. It was found that 48 of the fifty most important species had infact regenerated on the two strips under study. Moreover, this system of strips, whereby theneighboring natural forest is left intact, also allows for the management of non-wood forestproducts and the conservation of biodiversity.

33. This project is particularly interesting because it is based on collective management bythe indigenous people, who own the land. The long term success of the activity will dependon the continued interest of these people to undertake all of the management operations,including logging, processing and marketing. To maintain interest, the people must perceivedirect and continuous benefits from the managed resource. This will require fair distributionof the project benefits among community members. The project also uses animal traction, notonly as a means to minimize disturbance to the soil, but also because it requires the use ofmore labor, thus permitting the involvement of a relatively larger number of communitymembers.

Brazil: Selected Efforts

34. Despite the magnitude of the natural forest ecosystems in Brazil, there is an acuteshortage of the technology needed for SNFM. In the Amazonian forests, in particular, littleis known about the ecological response of tree species, about the silvicultural practicesrequired to ensure sustained economic production from these forests, or about theenvironmental impacts of such practices. However, efforts to develop SNFM methods are inprogress in various regions.

35. Tapajos National Forest. The forest management research project in the TapajosNational Forest, near Santarem in the state of Para, was the first practical effort to exploitthe Amazon forest on a sustained-yield basis. This project, initially supported byUNDP/FAO (BRA/78/003), was the most comprehensive attempt at large-scale managementof tropical moist forests in the Americas. The results of this research indicate that SYNFMof the Amazon forest is technically possible at fairly attractive costs. Nevertheless, becauseof the generally free supply of logs from land clearings for agriculture, Tapajos has beenable to sell stumpage from only 100 ha. This constraint has effectively stopped theEMBRAPA management program at Tapajos. Now USAID, ODA, and the Bank throughthe Pilot Program are beginning to revitalize some of those studies.

36. Minas Gerais Cerrado and Caatinga. In March 1993 a forest management researchprogram was initiated in the semi-arid woodlands (Cerrado and Caatinga) of Northern Minas

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Gerais under the auspices of the Bank's "Forestry Development Project' (LN 2895-BR).Two types of research were initiated, both on the property of, and in collaboration with,large landowners. One is based on a rigorous research design of permanent plots in whichsix treatments (various levels of basal area removed) are replicated five times. The othertype of research is less rigorous statistically as it is designed to monitor the effects ofongoing harvesting/management activities of three large companies--Interlagos, Siderpa andEmpresa Colonist--in Cerrado and Caatinga sites. The management information from themonitoring of ongoing harvesting operations has been enhanced by allowing the company toclearcut a portion of the area, as a control, to compare whether or not there is animprovement in regeneration using the Forest Service (IEF) recommended management (i.e,leave 10 % of valuable species and 100 % of all species under 5cm diameter). The IEF hastaken other relevant initiatives, including protection and management of National Parks,making the large industrial pulp and steel companies reforest through small farmers, andcontrol of deforestation and logging through remote sensing and GIS systems.

37. Mata Atlantica. Florestas Rio Doce S.A., a subsidiary of Companhia Vale do RioDoce (a parastatal), is a forestry company engaged in natural forest management research inthe Atlantic forest type of the Linhares Forest Reserve in Espirito Santo. This research,initiated in 1980, comprised 9 treatments of basal area reduction. Preliminary results(Moraes et. al., 1992) quantify how basal area reduction stimulates greater growth of theresidual stock. Results on the environmental impacts of these interventions are not yetavailable.

38. The Jari project. In collaboration with EMBRAPA, the Jari project has conductedresearch on SNFM along the northern side of the Amazon River. The first experimentaltrials were set up in 1982 when a 500 ha block was clearcut for fuelwood and nativepulpwood trials. The first data collection took place in 1985. Three sub-trials wereconducted on a 144 ha plot: natural regeneration management, management for pulpwoodspecies, and management for fuelwood species. Although ten quarter ha plots wereestablished for accurate data collection, EMBRAPA has not implemented this critical stage ofthe research. Hence, there are no results to be reported. In the meantime, EMBRAPAhelped to establish yet another trial to study selective logging. But again, EMBRAPA failedto follow through with data collection (personal communication, Johan Zweede).

39. Curua Experiment Station. In 1956, FAO helped to establish and operate the Curuaforest experimental station. Early research focused on natural forest management, loggingmethods, species trials and silvicultural studies. IN 1970, SUDAM took over managementof the station, with technical help from the University of Para. Under this new management,studies began to focus on inventories, natural regeneration and in-growth. The mainlimitation with this research is the failure to continue trials to maturity and the lack ofcommercial scale operation.

40. INPA-Manaus. In 1987, a 50 ha forest management trial was established someeighty km north of the Manaus INPA research center, in the dense forest. Research included

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inventories, controlled harvesting and natural regeneration. The MAI was found to be4m3/halyr, four years after logging. Again, because of lack of funding and loss ofprofessional staff, the tails have been abandoned.

41. IMAZON. Imazon, a research NGO, has recently initiated an SNFM trial inParagominas, one of the main logging area of the Amazon. The research was designed to berelevant for the conditions under which the local logging industry operates and comparestraditional harvesting methods with planned harvesting systems. Hardner and Barreto (1993)analyze altemative systems of harvest selection from a financial point of view and concludethat long-term investment in low intensity timber production is unlikely to be financiallyjustified. Similar results were obtained by Kishor and Constantino (1993) for Costa Rica.The implications are that government cannot rely on the private sector alone to bring aboutsustainable use of forest resources and that some degree of government intervention is likelyto be necessary.

42. Caatinga. Research in Caatinga management has been conducted by EMBRAPA atCPATSA (Centro de Pesquisa Agropecuaria do Trdpico Semi-Arido) in Pemambuco and atCNPC (Centro Nacional de Pesquisa de Caprinos) in Ceara. The CPATSA research hasbeen limited mostly to the single-purpose conversion of woodlands to pasture. A researchprogram initiated in 1980 by the CNPC with collaboration from USAID's "Small RuminantCollaborative Research Support Program (CRSP), aimed at developing "integrated" Caatingamanagement technology suitable for application by local farmers. This research was"integrated" in the sense that the multiple management objectives included the production ofother forest products (such as wood) and ecological stability, as well as livestock production.Unfortunately, however, that research program was abandoned by CNPC in 1987, beforecarrying out on-farm testing of the recommended technology.

Chile: An Old Growth Controversy'

43. The most contentious issue in the Chilean forest sector today is the harvesting ofnatural forests, which--since the installation of three large chip export facilities over the lastfive years--has rapidly increased. Wood chips are being harvested from decadent old growthforest, in which there is no net volume increment and mortality balances outweighs growth.Forest managers and local communities view the removal of a portion of the standing volumeas generating economic value while it also stimulates regeneration as well as growth ofresidual trees. On the other hand, environmental protection groups argue that the naturalforest should be left intact to maintain biodiversity and prevent soil erosion.

44. Nothofagus management. After 15 years of research by the University of Chile andCONAF (the national Forest Service), a system of forest management has been developed forthe Nothofagus forests of Region XII in Southern Chile, which may succeed in attaining both

4 Extracted from World Bank (1992).

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production and protection values. Under a Shelterwood system ("corta de proteccion"),about 50 percent of the basal area (equivalent to an average extraction of about 100-150m3/ha) of the over-mature (200-400 years old) lenga (Nothofagus pumilio) is removed thefirst year, leaving sufficient cover to provide wind protection and allow natural regeneration.Regeneration has been prolific, producing up to 50,000 seedling per ha.

45. Ten years later, once young trees are established, the remaining mature trees areremoved. Thirty years later (i.e., in year 40), commercial thinning takes place. The MAI ofthis management system is estimated to be about 5-9 m3/ha/yr, compared with essentially nonet growth without management. Although the 100-year rotation management system isexpected to be both profitable and environmentally sustainable, it is still in an experimentalphase and has not yet proven to be financially viable. Nevertheless, the Magallanica deBosques company in Punta Arenas is confident enough in the system that annually it isbringing an average of 3,500 ha under management, out of a total productive forest of483,000 ha.

Costa Rica: Three Initiatives'

46. Most logging in Costa Rica is conducted by independent operators who purchasestanding timber from landowners and sell the logs to sawmills. Extraction practices tend tobe careless and highly destructive to non-harvested trees and to the forest floor as well. TheDGF (Forest Service) is the government agency responsible for controlling logging on allforests of Costa Rica, but in practice, it does not have the staff or the budget to effectivelyimplement its mandate. In particular, it does not monitor the management plans which mustbe submitted by loggers for a permit. Loggers, therefore, view these plans as nothing morethan a bureaucratic hurdle for obtaining a felling permit, and do not use them for theirintended purposes. Illegal harvesting and wastage are the norm. Nevertheless there are somerecent and interesting initiatives on SNFM.

47. Forest company management. PORTICO, a vertically integrated timbercorporation, is the example most often cited for commercial forest management in CostaRica. This company owns and manages most of the forest area from which it harveststimber, mostly Carapa guianensis, for the production and export of fine wood doors. Itsforest management program involves selective logging and area control, with 15-year cuttingcycles. Improved harvesting and extraction techniques are also used to minimize damage tothe forest canopy and floor. Although it is not yet known whether the level of harvesting orthe regeneration period (i.e., 15 years) can support sustainable production, this managementapproach is certainly superior to no management at all, which usually ends in total forestconversion.

S Extracted from Kirmse, 1991.

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48. CATIE. With funding and technical assistance from ODA (United Kingdom) andDDA (Switzerland), the Tropical Agricultural Center for Research and Education (CATIE)has initiated forest management research in the tropical moist forest of the lowlands (AtlanticZone) and in the highlands. The main aim of the research is to develop harvestingtechniques that do not threaten biodiversity.

49. NGO projects. The US Agency for International Development (USAID), togetherwith NGOs, recently initiated two conservation and development projects--BOSCOSA in1988 and FORESTA in 1991-- aimed at stabilizing land use within forest reserves and toconserve the remaining forest cover for neighboring Corcovado and Braulio Carrillo NationalParks. The projects seek to encourage local people to earn income from the management ofnatural forests rather than from cattle ranching. This is in response to the concem thatcampesinos do not currently view the economic potential of forests as an actual productionalternative. The projects are supporting forest management research through the ForestryDepartment of the Technological Institute of Costa Rica (ITCA). Innovative silviculturalsystems, such as strip cutting, on a relatively small scale (i.e., 700 ha in the Osa Peninsula),are being tested. The projects are comparing the economic, silvicultural and ecologicalaspects of traditional utilization systems with improved systems (which include extractionwith oxen).

Colombia: Pressure from Land Invasions

50. Colombia is estimated to be losing an average of about 500,000 ha of natural forestannually, mainly because of spontaneous settlement and the lack of an effective forestmanagement system (FAO/CP, 1991). In principle, logging is controlled by a licensingsystem that requires a management plan stipulating cutting (diameter) limits, felling cyclesand harvesting methods, all of which are aimed at ensuring sustainable harvests. But inpractice there is little control over logging operations, mainly because of staff shortages (only20 persons covering 6 million ha) and institutional weakness of the government agency,INDERENA, responsible for the control of natural forests in Colombia.

51. Carton de Colombia. In the one significant effort to manage natural forests inColombia, Carton de Colombia, a large pulpwood company operated by Smurfit (asubsidiary of Container Corporation), put into place a management system in 1974 on 24,000ha of concession land in the Pacific Coast forest near Buenaventura. The silvicultural systeminvolved selective logging of 150 species of trees for pulpwood and area control, with anexpected cutting cycle of 30 years. Damage to the residual stand was minimized through theuse of aerial cable logging. Of the 125 m3 of wood harvested per hectare, about 80 percentwas processed into pulp and 20 percent was sawn. Although studies have indicated that themanagement system could result in sustainable yields of about 7 m3/ha/yr, the company couldnot control access to the management circles (i.e, areas) and unemployed people moved intothem to extract wood, mine and farni, thus effectively stopping the management scheme.

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Bolivia: Novel Research Efforts6

52. Current Bolivian legislation requires that concessionaires replant or ensureregeneration after trees are harvested, but this is seldom practiced. Management regulationsare not followed because they make little economic sense under the current price and coststructure of forest harvesting. Forest owners rightly perceive high opportunity costs of notliquidating all their commercial mahogany (Swietinia macrophyla). The growth rates ofmahogany in net value is less than 10% per year. In fact, only at age 40 (diameter 24 cm)does growth in volume approach 10%, although mahogany trees are not marketed at thisyoung age. Only 80 cm or greater diameter trees (about 80 years of age) are presentlyharvested. It is therefore more profitable for entrepreneurs to cut the trees as soon as theyreach commercial size and reinvest the income in other activities yielding higher returns (realinterest rates in Bolivia probably approach 17% or 18% today) than to leave the trees in theforest where the returns from value growth are small.

53. Forest harvesting in Bolivia is highly selective for one species, Swietinia macrophyla,which, as currently harvested, is not sustainable. In this area-intensive system, 5 trees per hais the upper average limit on what is extracted from primary forests, and many forests yieldonly as little as 1 tree per 3-4 ha. Logging appears to change the species and size structure ofthe forests, leading to the commercial extinction of the most valuable species (Gullison andHardner, 1993). The current selective logging operations are not very destructive in terms ofabsolute damage to the forest, but they are very destructive on a per-tree basis (Gullison and

'Hardner, 1993). Evaluation of the damage inflicted by logging activities in the BosqueChimanes in Bolivia, by Gullison and Hardner (1993), showed that with a logging intensityof 0.12 mahogany trees per ha: (i) the damage due to tree felling was about 0.47% of thetotal area subject to harvest (604 ha); (ii) the direct damage due to road building was about1.05% (4.9 km of main roads and 8.5 kms of skid trails); and (iii) the indirect damage dueto road building (mostly permanent roads) was about 2.87% (area damaged in addition toarea directly under roads). These findings are consistent with the observation that the scarcefactor of production is capital. Because skidders are the most expensive piece of equipment,loggers tend to use main roads instead of skid trails. As is well known, extension of roadsinto tropical forests is the principal cause of vegetation destruction and soil erosion, and mainroads cause more harm than skid trails.

54. Chimanes project. A few improved forest management initiatives have recently beeninitiated (Kiernan et. al. 1992). The Chimanes project, located in the Department of Beni,was launched by the government, private concessionaires, NGOs and ITTO in 1989 toestablish a model for sustained use of forest resources. The project is testing and putting intopractice improved silvicultural practices (including enrichment planting) on an area of about600,000 ha.

6 Derived from Constantino (1992).

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55. Gullison and Hubbell (1992) found that although the existing harvest of mahogany isnot sustainable in the Bosque Chimanes, it appears that it is technically possible tosustainably harvest the species. This is because mahogany is a species adapted to naturaldisturbances and its seedlings require light and only grow under canopy clearings.Apparently, larger clearings than those occurring from the natural falling of trees arenecessary to ensure good regeneration. Silvicultural interventions to facilitate the growth ofseedlings or to conserve some seed trees may, however, be necessary to ensuresustainability. The reason is that regeneration tends to cluster by the same age and sizeclass. If all are extracted or damaged during extraction, there will be no seed trees left toensure regeneration. Economic conditions permitting, it may be necessary to either savesome seed trees and/or clear vegetation around seedlings to facilitate growth.

56. But again, economic considerations get in the way of natural forest management sinceat present real discount rates, thinning of seedlings does not appear to be a viable practice.With private discount rates in Bolivia approaching 17 percent, the net present value of acluster of 10 trees grown after harvesting followed by cleaning is negative for interest ratesof 5 % or higher for a cut at age 80. Assuming trees could be cut at age 40, or that therewould be an appreciation in value, positive post harvesting interventions might be justified atdiscount rates of 5 %.

57. Other projects. The CICOL/CIDOB project, located in Santa Cruz, was initiated in1984 by the Centro Intercomunal Campesino del Oriente Lomerio (CICOL) and theConfederacion Indigena del Oriente Boliviano (CIDOB) to protect and develop, under asustained-use program, community forests. A main project focus is to consolidate ancestralrights over the forests and to develop small-scale wood processing industry to ensure thatbenefits from the management scheme flow to the local community.

58. Yet another project was initiated in 1989 in the Department of Santa Cruz by theMinistry of campesino affairs (MACA), with IDB financing, to demonstrate on a commercialscale the implementation of a forest management plan. Implemented by a privateconcessionaire on a 57,000 ha forest concession, with technical help from a local university,the project includes research, training and environmental education activities.

LESSONS FOR SUSTAINABLE NATURAL FOREST MANAGEMENT

59. From this review of the LAC region, we have learned that many natural forestmanagement projects have been abandoned because of unprofitability (like in Tapajos,Brazil), land invasion (like the Carton de Colombia project), security problems (like with theCELOS system in Surinam), or simply lack of political will or institutional interest (like atEMBRAPA/CNPC in Brazil). Despite the dearth of empirical work in the region, and theabsence of truly long-term and large-scale results necessary to confirm sustainability, theseprojects offer useful insights about the conditions for improved SNFM.

17.

Technical Conditions

60. If we agree that management of endangered natural forests is needed to prevent theirdestruction, do we in fact have sufficient technical knowledge for implementation? Growthand yield information needed to specify precisely the length and intensity of cutting cycles isnot available. Likewise, little is known about the impacts of logging on the ecosystem'scapacity to sustain environmental services. Most forest management specialists would agree,however, that sufficient knowledge about the effects of harvesting on forest dynamics isalready available, and that, with educated judgement and careful planning, vastly superior,albeit not perfect, management systems can be designed for most forests in the LAC region.

61. Planning with known technology. Relatively modest measures involving simpleplanning have already been shown to reduce the destructive impacts of logging and at thesame time reduce harvesting costs (e.g., Surinam). Ideally, planning would include detailedinventories and topographical data, followed by a transportation plan, designed to avoidproblem areas such as streams, to minimize the area disturbed. In LAC, the followingtechnological prescriptions have been included in successful plans:

(a) Area control. Most of the technically successful projects have used someform of controlled access, referred to as area control (e.g., Periodic BlockSystem in Trinidad & Tobago, Quintana Roo in Mexico, Palazcu Valley inPeru, Boscosa and PORTICO in Costa Rica, Carton de Colombia, Nothofagusin Chile). Because the logging area is known, area control facilitates planningand enforcement of regulations, such as road closure, and monitoring is moreefficient. Area control also allows for better linkages to environmentalservices because particularly sensitive sites can be excluded. For example, themanagement system in the Sierra Madre of Mexico allowed for the isolationand protection of biodiversity reserves. With area control, stand specializationcan be pursued; some stands would specialize on environmental services, andothers on commercial production. The result would be a mosaic ofmanagement models.

(b) Cutting cycles and girth limits. Except for the Strip Shelterwood System inPeru, and to a certain degree the Nothofagus management system in SouthernChile, a polycyclic (i.e., selective) form of forest management is generallyused for LAC forests. The key to success is to select the optimum harvestingintensity, intermediate treatments (e.g., liberation thinning, climber cutting)and cutting cycle that provide an economically viable flow of timber on asustainable basis, while at the same time protecting environmental values.Conservative harvesting systems, based on minimum diameter, could beimplemented now, while pursuing the long-term research on growth and yieldto fine tune the systems as information becomes available. Cycles and girthlimits can be difficult to enforce, however. An alternative, which has not beentried in LAC, could be an area control model where one part of the forest ismanaged on a monocyclic system for commercial production and only very

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conservative interventions are recommended for the forest areas identified forconservation and the provision of mainly environmental services.

(c) Controlled Extraction. Directional felling to protect residual trees (e.g.CELOS, Surinam) and planned skidding trails (e.g. Chimanes, Bolivia) havebeen shown to reduce damage to residual trees by as much as 33 percent(Marn and Jonkers, 1982). In steep and swampy areas, cable yarding has beensuccessfully applied in Colombia and Surinam to reduce road requirementsand concomitant soil disturbance.

62. Research and Dissemination. Management plans should be dynamic and improvedover time through a learning by doing approach. Thus, research should be an importantcomponent of any forest management scheme, which would be improved as new informationbecomes available. All research should be designed to provide the regeneration and growthinformation needed to specify the timing and extent of those treatments and length of cuttingcycles and to calculate the related costs and benefits. Most research would need to focus onthe effect of canopy openings on the regeneration and growth of the more valuable timberspecies so that the design of the harvesting intensity may be adjusted by the amount of lightneeded by those species.

63. But research should also focus on the impacts of silvicultural techniques on theecosystem and on the supply of environmental services. The main reason for promotingSNFM is that it is more environmentally benign than alternative land uses. Still, there areenvironmental risks, and careful monitoring and evaluation is needed. As information on theimpacts of management on the environment is generated, the SNFM system can be modifiedto take those impacts into consideration. Given the controversies over SNFM, it is alsoessential to prove (or disprove) that SNFM is consistent with protection of mostenvironmental values. Some of the projects reviewed-- Palazcu in Peru, CATIE in CostaRica, and the new phase in French Guyana--already include simple biodiversity monitoring.

64. Because silvicultural information is so costly to obtain, it is imperative that the resultsof successful projects be disseminated. Without a systematic dissemination system, forestersare often forced to reinvent costly knowledge. For example, the Mexican Quintana Rooproject generated silvicultural information on mahogany species (i.e., it is a light-demandingspecies and regenerates best in large canopy openings) that was already known in the 1920s-1930s from work done in Belize. Because that information was not accessible, technologytransfer was impossible.

Fmancial Conditions

65. It is usually not the lack of technical knowledge that leads to SNFM termination orimpedes its adoption outside of the project area. Rather, it usually tends to fail for financialreasons. The Tapajos forestry project failed mainly because of the lack of buyers for timber.Mills could simply get their log supply free from farmers who wanted their land cleared.Even the innovative Peruvian Yanesha Forestry Cooperative (Palcazu) lacks financial

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profitability, and the project would probably not be able to repay the $2 million grant forstart-up costs. Only recently did the Chilenos find a lucrative market for wood chips fromthe Nothofagus forests, allowing those forest owners the economic wherewithal to considerimplementing a sustainable management scheme. This is a rare case, however, and thegenerally low prices of wood products and high costs of harvesting and transportation,combined with the long rotations (generally 50 years or more) has been sufficient cause fordismissing the idea of good forest management.

66. Fnancial profitability. Under existing conditions, SNFM has seldom been able tocompete with alternative land uses. Rational private investors tend to leave trees in theforests only as long as their growth in total value exceeds the interest rate7 (e.g. Bolivia).Those conditions usually only occur, if they occur at all, with very intensive forestmanagement under rather artificial technologies. Thus, private farmers have tended to dosomething other than sustainable forest management, such as selling the trees and putting themoney in the Bank or elsewhere in the economy. Kishor and Constantino (1993) have shownfor Costa Rica that large farmers and corporations, well integrated with credit markets,would prefer to log intensively, and then convert a natural forest to a plantation of a fastgrowing tree species, than to invest in sustainable forest management. This is becausedomesticated trees in a monoculture can grow faster than the interest rate, and thusplantations become an attractive investment. On the other hand, small farmers, isolated fromcredit markets and facing higher interest rates, would prefer to mine the forest or to convertto pastures, over a natural forest option. That low intensity forest management is not afinancially profitable investment was confirmed in an independent study for Paragominas inthe Brazilian Amazon by Hardner and Barreto (1993).

67. But there have been some private or community initiatives in SNFM. What madethose forest owners decide to opt for forest management? From the projects analyzed, weidentified five conditions that could help make SNFM financially attractive:

(a) Large industrial investments. Large industrial complexes (e.g., Carton deColombia, Jari project, Florestas Rio Doce), because of their sizeable capitalinvestments, want to sustain raw material production, at least during thelifetime of the processing facility. After initial logging of mature forests,these groups have decided to invest in a future crop. But these are theexception; in most cases the second crop tends to be a monoculture of exoticspecies, where most of the environmental benefits are lost.

(b) International markets. Increasingly, companies exporting toenvironmentally demanding foreign buyers seek to secure their market sharethrough "good management behavior". PORTICO, for example, understandsthat it needs to please environmentally minded foreign consumers to secureaccess to export markets. And because the main species is not adapted tomonoculture planting, the company has chosen a natural management regimen.

7 But tliis is not exactiy true mnvestors alsa face the opportunity costs of not freeing up land for another treecrop, so they will deranti tiiat ces grc shiig1tfy faster tl.an the interest rate.

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Furthermore, companies using high quality natural forest timber may bebetting on real price increases, brought about by an expected scarcity andshortage of substitutes.

(c) Non-timber products. When economically important, non-timber forestproducts, which are dependent on the natural forest structure, can be a keycontribution to the overall financial attractiveness of SNFM. Chicle collection,for example, is one of the principal factors behind the success of the QuintanaRoo model. To sustain chicle production, which is collected annually,community members must also sustain the natural forest. In Brazil, similarconsiderations lie behind the struggle of rubber tappers and collectors of Brazilnuts to stop deforestation, which is threatening the source of their livelihood.

(d) Silviculture. Enrichment planting or other silvicultural interventions thatincrease growth rates of the natural forest may also make SNFM financiallymore attractive. As we saw for the Bolivia case, silvicultural interventionsthat increase growth can help improve profitability at real interest rates of 5%or lower. The Surinam CELOs system was financially viable because itincreased natural growth rates ten-fold. But the more intensive theintervention becomes--usually through focus on a smaller number of species,use of herbicides, cleaning, etc.--the more environmental values are put atrisk. There is thus a trade-off between SNFM profitability and environmentalprotection functions, which policy makers must consider.

(e) Community stability. Where resource depletion may lead to thedisappearance and migration of a community, SNFM may have an invaluablerole to play. In several projects in LAC-- Quintana Roo, Palazcu andBOSCOSA-- the local communities have readily taken up the managementprogram where they stand to benefit. Much more can be done in this area,especially in helping to develop the financial/fiscal mechanisms to channelforest revenues to local communities. For example, Canadian SNFMprograms seek, among other things, stabilization of resource dependentcommunities (Fletcher et al, 1993), and can offer useful lessons.

Social Conditions

68. Social pressure is a major reason why natural forest management schemes areabandoned or disrupted, mainly because the managed forest areas are invaded by local poorpeople. This was clearly seen in Colombia, where the Carton de Colombia forestmanagement project was disrupted when unemployed people proceeded to extract poles andto mine in the forest, thus destroying the regeneration capacity of the management circles.Similarly, community involvement, or sharing in the benefits, has often been one of thecritical aspects leading to SNFM success.

69. The special needs of the local communities must be taken into consideration whendesigning forest management schemes so that they have an incentive to protect the forest andmaintain the scheme. Where local communities hold traditional claim to forest land, secure

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land rights is a prerequisite to ensure that benefits from forest management flow to them.This was demonstrated in the ejidos of Quintana Roo, Mexico and in Palazcu, Peru. In bothcases, job security and community economic stability improved as a result of the projects.The BOSCOSA project in Costa Rica is likely to lead to the same results. On the otherhand, the Carton de Colombia example shows what can happen when local people do notbenefit from the management program. Thus, the private concessionaire, as well as thepublic sector, must consider local needs and develop mechanisms to channel revenuesaccordingly. While efforts to involve local communities in forest management schemes mayinitially appear difficult and time consuming, in fact, protection by local people usually costsless than government protection, and is believed to be more efficient.

70. Local people generally have knowledge of the forests and of the non-timber forestproducts that can be incorporated into management schemes. In fact, traditional forestmanagement is generally criticized for not taking into account other forest products. Wherepossible, more reliance on extraction of fruits and gums and less on timber should help toreduce environmental impacts of extraction activities and create incentives for sustaining thenatural capital. A good example of this is the harvesting of chicle and honey, along withmahogany, in Quintana Roo, Mexico.

Policy Conditions

71. Misguided public policies is another important cause of SNFM failure. In somecases, policies complicate or block the implementation of SNFM; in others, the problem isthe lack of supporting policies.

72. Policies affecting private discount rates. The decision to conserve the naturalforest capital instead of depleting it largely depends on the discount rate of the decisionmaker. When the relative weight given to present benefit of forest land is much greater thanthe value of future benefits, there is little interest to manage forest land as a forest ratherthan as a short term return option such as agriculture. Any policies affecting discount ratesare therefore liable to influence the decision of SNFM. For example, unstablemacroeconomic policies or subsidies to competing activities, such as livestock andagriculture, can deter SNFM by increasing inflation and investment risks, which in turnraises discount rates. Sound and stable macroeconomic policies, therefore, should play animportant, but not complete, role in improving the economic framework for SNFM.

73. Support to competing land uses. Much has been written on policies that promoteforest conversion to pasture or other agricultural use, especially in countries such as CostaRica (World Bank, 1993) and Brazil (Mahar, 1989). Official policies that work againstSNFM have a long history in LAC and are often, not surprisingly, a direct reflection of thepolitical power of landholders. State budgets have tended to supported agricultural activitiesat the expense of forestry in most LAC countries, often to take advantage of quotas andmarkets in industrialized countries. In other countries, such as Argentina, industrializationpolicies have harmed all rural based economic activities, including agriculture and natural

22

forest management. Moreover, in almost every country in the region, land titling implicitlyimposes a tax on forests. Together, these policies have accelerated the conversion of foreststo other uses. With the exception of Belize (Grant, 1976; Guess, 1987) and Trinidad andTobago, which developed forestry to serve mercantilist markets in Britain, LAC countries donot have an indigenous forestry tradition. For centuries, this has amply been reflected incontradictory public policies and laws. For successful SNFM, these distorted policies must bereformed, and support to competing land uses must be removed.

74. Land use policy. Missing from most LAC countries is a clearly defined and strictlyenforced conservation-oriented land-use policy, supported by a land classification systemdesignating appropriate areas for production, protection and conservation. Because SNFMgenerally cannot be justified on financial grounds alone, government intervention will need tobe justified on the related environmental values (e.g. buffer zones, upper watersheds) or inresource dependent communities, where the purpose is community stability or job security.For this to happen, appropriately designed land-use polices are required. The Bank hasalready been instrumental at helping governments formulate these policies and the relatedconservation programs (e.g., Rondonia and Mato Grosso, Brazil).

75. Property rights and tenure security. Insecure resource ownership has tended to bean effective disincentive to good forest management. Only when agents responsible for theforest management activities--whether local communities (as in Quintana Roo) orconcessionaires (as in Bolivia)--have full and long term control over the land, will theseforest owners have a personal stake in their future and, therefore, be expected to have a longterm interest in their preservation. This implies a need for security of land tenure, clear andstable resource use rights, or long duration concession agreements', for which governmentsmust take the lead.

76. Unregulated supplies. In many countries, standing timber has low value because ofan oversupply of unregulated logs. This is caused by an open access to the resource, therapid rate of forest conversion, and failure of institutions to enforce extant regulations. Thisexplains the failure of the Tapajos project, where conversion of forest to farmland caused anoversupply of free, unregulated timber. A similar situation occurred in Paraguay where alegal framework and an official incentive scheme is in place for sustainable management offorests. Despite generous tax deferments, there was little interest in the scheme because ofthe abundance of timber, fed by the deforestation process (Kirmse, 1993). Governments needto tax reckless logging according to the environmental damage it causes. If the value ofunregulated logs to loggers is brought down, through a tax or any other means, the relativevalue of managed timber will increase, and hence the profitability of SNFM will improve.

77. Royalties. Governments must decide if the purpose of royalties is to influencebehavior or to capture economic rents. In most Latin America countries, SNFM has such

8 Or shorter term but with certain renewal if concession agreements are followed.

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low profitability that any attempt to collect rents may preclude any possibility of SNFM.None of the reviewed projects appeared to be generating any rents, and royalties were not animportant component of project success. A better approach would be to try to convinceconcessionaires to invest these rents in SNFM and to close access to critical forests in needof protection.

78. In any case, royalties are usually a rather inefficient mechanism for rent capture.Rather, they are more effective at influencing the behavior of loggers, concessionaires andland owners. LAC countries typically use quantity limits to control resource depletion. Ifthese are well implemented, there is little room to use taxes to affect resource allocation.But, where enforcement is dubious, royalties, by bringing about a price differential betweenunregulated and regulated wood, may be useful as a complement to regulation.

79. Another common policy mistake made by LAC countries is to assess royalties on thebasis of timber removed rather than on forests disturbed. Although this may be justified forlogs of unknown origin, in other occasions it can encourage concession owners to highgrade("cream") the largest and best formed individuals. Higrading tends to leave the poorer stockas seed trees and thereby depletes the regenerative health of the forest. Also, as research inthe Chimanes forest of Bolivia has shown, highgrading, although reducing the number oftrees removed per hectare, results in a more extensive permanent road network. And roadsare know to be the main cause of forest destruction during logging operations.

80. Lack of public incentives. When the private sector assesses the value of a forest,and hence their interest in its management, it generally considers only the timber resource.Where SNFM may be rejected by the private sector for financial reasons, but makeseconomic sense because of its environmental benefits, governments should strive to helpprivate agents and communities internalize the environmental benefits of SNFM. Given thepositive externalities of SNFM relative to competing land uses (see Kishor and Constantino,1993), the public sector may also be justified to use incentives to promote the activity. ThePalcazu project in Peru, which provided income and employment benefits and ensured thecultural integrity of the communities, succeeded in part because it received a $2 million grantfor start-up costs. Although this specific grant may or may not be economically justified, thepoint is, where environmental or social benefits are large, a subsidy or equivalent measure islikely to be necessary to make SNFM viable.

81. Offering direct grants, however, is not necessarily the best way of subsidizing SNFM.Governments may also offer services, support processing, furnish inputs to reduce start-upcosts and maintain price controls. In Brazil, for example, rubber prices are subsidized insupport of rubber extractors. It may also be possible to initiate direct transactions betweenbeneficiaries of environmental benefits of SNFM and providers of those benefits, such as thecarbon offset arrangements that are currently being developed between temperate and tropicalcountries. Another example is the current trend of green labeling. These certificationschemes allow environmentally minded consumers to pay a price premium to benefit SNFM.

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82. SNFM could ... ..also be financed by anetwork of special .-- .. ....funds, similar to the hw sm-ao y 'ud wc...r.Swiss model (see box). m_4sfrIrs angmn n avs andriv se ra.AEssential elements .. i- poo f ld e .a m tdecentoaitioi a pplicble to SNFM. his -is . beaaue the .should be built into a o in cm loei

namely: (1) its receipts . LAC Depsit fro the sal -of tibe It te -eioa foeand expenditures must fun is retundtocmuitie an hrfr ere h upsbe transparent, (2) it of fiaca eqaiaintepdpesd com=te a b

should be replenished l i c- d -scnric -from internal receipts, -f- Q; -:- -4---0- - - -;0:-; -;;0-;t0-f00g-fl- t:- tit - 0 t0400-4000000--ttOwand (3) it should be - -- -$ --- - -$ -i-;-- -- -t ----- lT- -- held to a specificmandate, such asstabilization of forest-based income and employment in target communities. Relevant detailsthat would ensure diversity in the management pians should be worked out at the local level,nrobably by municipal councils.

~~~~~~~~~~~. . . ... ... . . . . .

83. Log export banis. Governments enact log export bans to keep prices below marketlevels as a means to encourage local value added. But by constraining domestic producerprices, domestic suppliers and forest producers end up receiving only a fraction of themarket value for their products. Such policies therefore weaken SNFM profitability andfurther contribute to the rejection of good forest management.

84. Behind the veneer of nationalist production and environmental protection, log exportbans have another dimension: only integrated companies can capture the free trade value ofthe resource. By making forestry highly profitable for an integrated corporation butunprofitable to the small producer, bans also contribute to concentration in the sector. Thishas already happened in Indonesia, where in the 1980s the government banned export ofunprocessed logs to conserve wood and to force producers to add value to their products byexporting more advanced goods like plywood. The main effect was to drive many smallproducers out of business and to hand a monopoly over to a few firms controlling exportlicenses for processed wood (Economist, 1993:8).

85. Although a log export ban is inherently a flawed mechanism for controllingdeforestation, care must be taken in its removal. Without mitigating measures, the removalof a ban (or any other measure that increases timber prices), could also lead to even greaterdeforestation, mainly by pushing logging into new lands. Higher prices alone are insufficientto bring about SNFM. In fact, higher prices may increase the conversion of secondary orpbmary forests to plantations or to pastures, mainly because they would lower the costs ofconversion. However, where appropriate conditions are in place--i.e., community

25

management, appropriate structure of incentives, effective govemment institution, enforcedenvironmental controls--removing the log export ban should over the long run benefit SNFM.

86. Plantation subsidies. To encourage private plantation establishment, most LACgovernments offer forestation subsidies, which, if not properly designed and implemented,can effect SNFM. Unless specifically prohibited, plantation subsidies have been used by theprivate sector to reforest natural forest areas, thus reducing the biodiversity value of theland. Plantation subsidies may also send the wrong signal to the economy; that is, byshifting scarce budgetary resources in the direction of plantation establishment over SNFM,there is also a shift in research priorities in the direction of plantation establishment overSNFM. This happened in Brazil where plantation subsidies generated a large demand forplantation technology and the entire Brazilian public and private research and teachingapparatus specialized in developing those silvicultural technologies, with little attention givento SNFM. The same happened in Chile and Costa Rica. Furthermore, depending on thespecific payment mechanisms, subsidies can lead to concentration in the industry and help toperpetuate the bias towards large producers.

87. Accounting methods. LAC governments typically use cash-based accountingsystems, for which the balance sheets and income statements do not reflect the true cost offailing to maintain forest assets. This accounting technique tends to hide policy failurebecause it underprices tropical forest assets and allows policy-makers to ignore the currentand future costs of failing to prevent the deterioration of the capital stock. New Zealand hasvalued its plantation forest assets and has employed public accrual accounting to makedepartmental managers more conscious of the costs and value of their assets to futuregenerations (Economist, 1992:50). If LAC forest services were to use the same techniques tokeep accrued accounts on tropical forest resources, more rational policy decision could beforthcoming.

Institutional conditions

88. Most LAC countries have rules and regulations for the logging of natural forests,which are intended to ensure sustainable harvests. These guidelines, however, have not beeneffectively enforced. This is mainly because the government institutions responsible forforestry affairs often lack implementation capacity and resources, but it is also because theguidelines work against private interests. Moreover, because the regulations are designed tosustain commercial timber production rather than to sustain environmental values, even ifproperly implemented, they would probably not be effective for biodiversity protection. Thisimplies a need to reform the regulatory framework as well as the responsible institutions.

89. Role of public sector. The degree of government intervention in SNFM varieswidely in LAC. In some countries the Forest Service undertakes most managementactivities, keeps close control over the forest and sells timber to the private sector. Theforests of Trinidad & Tobago, Surinam, and French Guyana are managed in this manner,similar to the USA National Forest model. Public intervention at times goes beyond this,

26

with the government owning and operating processing plants, which are generallyunprofitable. Although these government-run projects are technically among the best, thecosts are very high. In other countries, such as Bolivia or Colombia, most forests are keptunder public ownership and utilization rights are transferred to private firms throughconcessions. These firms undertake most management interventions while the government'srole is limited to revenue collection and regulation enforcement. Still, in other countries,such as Brazil or Costa Rica, most forests are privately owned and the government has aregulatory, enforcement and revenue collection role.

90. Government-controlled management through a National Forests model, a concessionsmodel or a community model makes sense where environmental values are substantial andthe risks of deforestation high. With full private ownership of forests, public intervention ismore difficult. The principle should be to use public ownership models where environmentalvalues are important. Where private ownership prevails, the public sector should bespecifically concerned with environmental monitoring of SNFM. In addition, it shouldsupport SNFM projects by providing regulatory and service functions such as land useclassification and planning, tenure regularization, forestry extension, regulation of loggingand harvesting, applied research and collection of baseline data. Directly productiveactivities-- such as plantation establishment and management, products manufacture,marketing and export--are best left to the private sector. Under the right conditions, privatecompanies, such as Portico, Jari, Florestas Rio Doce, and Carton de Colombia, doundertake environmentally sound forest management.

91. Institutional reform. LAC public sectors have largely been incapable of performingforestry support functions. The literature is replete with references to structural andmanagerial overcentralization, inadequate pay, politicized recruitment and policy-making,lack of mid-level and line discretion and weak project management skills (Wynia, 1984). Aninstitutional reform program is needed to improve institutional performance for the neededsupport and regulatory functions and to reduce the role of government in forestry production.

92. Our review of forest management projects in LAC has shown that some of the mostsuccessful SNFM projects in the region were implemented by NGOs (e.g. BOSCOSA, CostaRica), or actively supported by State or Provincial governments structures (e.g. QuintanaRoo, Minas Gerais). But generally, centralized public sector decision-making and fiscalauthority work against the need of management discretion and accountability at the locallevel, where it counts. By constraining the authority of local governments and linemanagers, who could implement SNFM projects, community control is also inhibited. Theoverall result is a distortion of information flows and wastage of scarce budgetary resources.

93. For improved efficiency, functions, such as support to SNFM, biodiversityprotection, watershed management and environment monitoring, need to be assigned to theappropriate level of government. This end, however, is inconsistent with current unitarystructures in LAC, which reserve most revenue raising and expenditure authority and servicedelivery for the national level. To match expenditure needs with revenue means and to ensure

27

effective service delivery, the first step is to reform expenditure assignment in the legalsystem. Innovative mechanisms to finance and encourage public institutions also need to betried. One approach--which is currently being practiced in Canada and being studied forapplication to other Federal systems such as Brazil--is to create a system of matching grants,whereby the Federal Government explicitly supports the forestry initiatives of localgovernments, when those activites are in the national interest.

94. There are a few successes of decentralization in LAC. The IEF (Forest Service) ofMinas Gerais, Brazil, underwent major reforms, in part financed by a Bank loan. The reformwas far reaching: staff were reclassified, leading to higher pay and a substantial increase inmorale; improved relations were established with NGOs, research institutes and the privatesector; and staff were deployed into several regional and subregional units where they are inclose contact with fanners. As a result, the IEF manages some of the best parks in Brazil,has succeeded in bringing small farmers into reforestation programs, has initiated research onSNFM of the cerrado, and has established an efficient control over logging and deforestation,malding use of remote sensing and the military police. Likewise, recent packages of donorincentives and loan conditions are contributing to the transformation of other regional forestservices--such as COHDEFOR in Honduras--into forest information centers with greaterresponsiveness to local users.

TOWARDS AN SNFM STRATEGY FOR LAC

95. Although there are still many questions on how to implement SNFM, this review hasbegun to shed light on a workable, but still difficult, path. Deforestation continues apace inthe LAC region and time will not wait for the design of the perfect management regimen.While the technical models are not complete, enough is known to implement improved forestmanagement, if carefully designed to minimize risks. To this end, we have reviewed themain conditions that could help increase the chances for successful SNFM. In summary,these elements are:

(a) Technical: Major improvements can be achieved with careful planning and theapplication of known practices such as: area control, conservative diameterlimits, proper silviculture techniques to increase growth rates, directionalfelling, and improved skid trails and road construction. At the same time,these technical packages need to be constantly updated through a learning bydoing program of applied research.

(b) Financial: Profitability of SNFM can be improved under specificcircumstances, namely: where the timber company is concerned withinternational image, where community stability is crucial, where non-timberforest products are important, where techniques can be developed to maketrees grow faster, and where processing facilities require a localized steadysupply of SNFM products.

28

(c) Social: Community sharing in project responsibilities and benefits can becritical to the success of SNFM. For this to work, communities must be giventenure security.

(d) Policy: Distorted policies, if reformed, could help to improve theimplementation environment. First and foremost, macroeconomic stability isneeded to maintain low private discount rates. At the same time, governmentsneed to abolish subsidies to competing activities and ensure that plantationsubsidies, when justified, do not conflict with SNFM. The fiscal systemshould also be reformed to allow for the taxation of unregulated non-managedtimber, and tax breaks or other incentives should be made available for theenvironmental services provided by good forest management. And finally, thetrue effects of log export bans should be reviewed, and mitigating measuresshould be adopted before the bans are abandoned.

(e) b2stitutions: Public institutions, responsible for natural forests, should bedecentralized and reformed in a way that supports private and communitySNFM.

96. We are suggesting that these conditions are needed for improved management andprotection of those forests that have already been selectively logged and are degraded andthreatened with conversion because of their proximity to the agricultural frontier. Webelieve that forest management is probably not the right conservation device for primaryforests. Roads needed for SNFM would open access to previously inaccessible forests andincrease the threat of conversion. Rather, primary forests should be protected under astrengthened, national protected area system. Moreover, a focus on secondary forests isconsistent with the official Bank policy on natural forests: "the Bank Group will not underany circumstances finance commercial logging in primary tropical moist forests" (p.65, TheWorld Bank Policy Paper; The Forest Sector, 1991).

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NFMLAC.212-29-93

LATEN DISSEMINATION NOTES

No Title Date Author

1 Sustainability, Yield Loss and Imediatisimo: April 1993 Robert SchneiderChoice of Technique at the Frontier Gunars Platais

David RosenblattMaryla Webb

2 The Potential for Trade with the Amazon in April 1993 Robert SchneiderGreenhouse Gas Reduction

3 Land Abandonment, Property Rights, and April 1993 Robert SchneiderAgricultural Sustainability in the Amazon

4 The Urban Environmental Challenge in August 1993 John DixonLatin America

5 An Analysis of Flooding in the September Robert J. Anderson, Jr.ParanA/Paraguay River Basin 1993 Nelson da Franca Ribeiro

dos SantosHenry F. Diaz

6 Ecology and Microeconomics as 'Joint October 1993 John A. DixonProducts": The Bonaire Marine Park in the Louise Fallon ScuraCaribbean Tom van't Hof

7 Forest Management and Competing Land October 1993 Nalin M. KishorUses: An Economic Analysis for Costa Rica Luis F. Constantino

8 Pueblos Indfgenas y Desarrollo en America December Jorge E. UquillasLatina 1993 Jean-Carlo Rivera

9 Prospects for Improved Management of December Robert KirmseNatural Forests in Latin America 1993 Luis Constantino

George Guess

For back issues of the above, please contact:

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