Report No. 1778

Forestry: Sector Policy Paper FILE COPYSeptember 15, 1977

Agriculture & Rural Development Department

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. its contents may nototherwise be disclosed without World Bank authorization.

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TABLE OF CONTENTS

Page No.

SUMMARY AND RECOMMENDATIONS ............. .. ................. i-vi

I. FORESTRY AND DEVELOPMENT .............................. 1

1. Role of Forestry in Development .................. IEcological Effects .................. 1Indigenous Consumption ................ 1Industrial Uses ............................. 2

2. Forest Utilization in Practice .............. 4Environmental Disruption ............... 4Population Growth and Encroachment .......... 5Uncontrolled Commercial Extraction . . 6

3. Toward a Strategy for Forest Development v.. . 7Changing Perceptions . . 7Selected Experiences ............... 8The Way Ahead ......... ..................... 9

II. SCOPE AND PROSPECTS FOR FOREST DEVELOPMENT .... ........ 11

1. Context for Forestry Development .... ............. 11Modes of Exploitation ..... .................. 12Wood Industry Development .... ............... 14Growth of Markets and Trade .... ............. 15

2. Sectoral Conditions and Constraints ............. . 16Forest Development Situations ............... 16Population Pressure and Related Effects ..... 18Institutional and Technical Problems ........ 19

3. Forestry Project Design and Evaluation ........... 21Principal Project Types .......... ........... 21Designing Forestry Projects ................ . 22Appraising Forestry Projects ............... . 24

III. ROLE OF THE WORLD BANK IN FORESTRY .... ................ 25

1. Changing Emphasis in Bank Lending for Forestry ... 25Past Lending .................... . 25Current Program ................... 2......... 26

2. Directions for the Future . ....................... 27Environmental Considerations ................ 27Rural Development ................ 28Industrial Forestry Projects ................ 30Research ............................ 30Institutions ............................ 31Sector Planning ............................ 31

Tbii document ha a restricted distribution and nay be used by recipients only in the performanceof their odfcial duties. Its contents nay not otherwise be disclosd without World Bank authorization.

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Page No.

3. Proposed Future Lending Program .. e............... 32Proj ect Lending ..................... 32Constraints .... ................... 33

1. Glossary

2. World Forest Resources: Growing Stock

3. World Consumption of Primary Industrial ForestProducts, 1961-1975

4. World Consumption of Fuelwood and Charcoal 1961-1975

5. Geographic Distribution of World Consumption of MajorIndustrial Forest Products in 1975

6. Woodfuel Consumption as a Percentage of Total EnergyConsumption 1974

7. Issues in Forestry Project Appraisal

SUMMARY AND RECONNENDATIONS

Forestry and Development

i . Forests play a significant role in economic development. In additionto their important influence on the environment they provide innumerable pro-ducts of vital use to man. The ecological usefulness of forests is mostreadily observed in their beneficial effect on water catchment areas wherethey have a regulatory influence on stream flows; protect soils from erosionand prevent silting of dams and canals. They have pronounced micro-climaticeffects of benefit to hiiman and livestock populations, provide a habitat forwildlife, and attractive places for recreation.

ii. Forest products feature strongly in the consumption patterns of mostsocieties - providing food, fuel, fibre, building materials and industrial-prod-its such as gums, resin, oils, transmission poles, newsprint and otherpapers, packaging materials, textiles and clothing. Almost every modernindustry is to some extent dependent on forest products in one or more of itsprocesses.

Forest Development in Practice

iii. Although the forest area in the developing countries exceeds onebillion hectares, it is being consumed at such a rate for agricultural settle-ment that it could disappear within 60 years unless some fundamental changesoccur in forest areas to alter the current trend, or extensive reforestationprograms are undertaken to offset the losses. Between 1900 and 1965 abouthalf the forest area in developing countries was cleared for agricultureand more than 300 million hectares (or 30% of the world's exploitable soils)are currently under shifting cultivation.

iv. The consequences of continued uncontrolled forest exploitation areof critical concern to mankind and could lead to serious environmental dis-ruption, and increased rural poverty. Over 90% of wood consumption in thedeveloping countries is accounted for by fuelwood. Over-exploitation ofexisting fuelwood resources, exacerbated by the recent energy crisis, isleading in many areas to diversion of agricultural residues and dried lic7e

stock dung to use for heating and cooking instead of improving soil fertility

Forestry and Rural Development

v. For some 200 million people living in the transition zone betweenforestry and agriculture, many of whom are dependent on shifting cultivationin forest areas for their food, fuel and fibre needs, as well as for millionsof small farmers residing in the savannah zone of the tropics - tree farmingcombined with agriculture could significantly improve their quality of lifeand per capita income. Fuelwood which accounts for over 90% of rural energyconsumption in the developing countries is becoming increasingly scarce inmany of the poorer regions. Yet, historically, this whole area of forestryhas received very little attention. The maln resource flows to forestryin the past have been directed towards industrially oriented forest manage-ment projects.

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ci4uch e.aergy oaver the last two decades has gonle into giving identityso the 'forestry sector"' and to the importance of "forestry development" ratheŽ:than to 1forestrv's contribution to development" in its widest sense withparticular reference to its impact on rural lwelfareO A ma4or lorest polic-yissue of the current decade is how to bring about a change :iL direction wbhicth.willI result irn a larger share of resources being allocated to rural area afforestation programs which will directly benefit small farmers. Estab1ish.m>;.o L'nelwood plantations, shelter belts, fruit, nut and fodder tra_es,> rural L--.-

Zoresir2y protection works, including reforestation of eroded catchmainr crcc.sand dune stabilization, are the way ahead.

vii. The possib 1ity of improving total production by combining trees id

agricultura1 crops and livestock has been widely demonstrated in many parts

the trop'-cs. Moire systematic research is needed to find appropriate aom1bin. -

tions of vegetation for different climatic zones and soil conditions. and tode'Jtse prai-ctices that are acceptable to the local population-.

Industrial Festr

Viii. An important trend in the world's industrial wood econcmv i.n.last two decades from the viewpoint of the developing countries, has been -o;growing importance of tropical hardwoods in world production and cansurMp ioTLTropical hardwood log production increased by over 25% per annum in the laerFdecade. Developing countries exports of forest products rose from US$1.5billion in 1970 to over US$3 billion in 197'5. Future world market demandtropical hardwoods suggest that this trend will continue. The developingcountries contain the world's main reserves of tropical hardwood which gic. e-them a maj or advantage in this area.

ix. The favorable climatic and ecological coyditiAons of many de;elop_ .countries also make it possible to establish fast growing plantations withshorter rotations and at cheaper costs than countries siLtuated in the tempai_ate regions. Despite these inherent advantages, the developing countriesonly obtain a fractional share of the potential economic benefit which. coul-'dl'be obtained by local processing of tropical hardwood logs as opposed to lo-exports or from the development of export oriented plantation based woodindustri-es. There is an urgent need to bring about a change in this situat.Lo-.Securing more favorable trade terms for developirng country forest productexports is a key issue.

Forestry and the Environment

x. Forestry's role in-preventing soil erosion, in sand dune stabil--zation, water catchment area protection, and provision of sharde for livestockwand human populations may be less obvious, but is frequently more i tthan production of timber. Ecological considerations have not been of hi.g..

priority in many developing countries. The reasons relate in part,reality of pressing human needs and in part, to the indeterminate andterm nature of social benefits and costs. But awareness of ecoloaica 1

sequaences is growing .rapidly and environmental considerations will incia-ingly affect forest development policies and strategies on a world wire basi.

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Forestryyrciecr_esSign and Evaluation

xi. In their design and evaluation forestry projects differ from otheragricultural projects in two important respects, particularly within a ruraldevelopneeat context. First, the benefits of forestry projects often have alarge environmental component which is both hard to measure and Usually doesnot accrue directly to those who grow the trees. Second, the time requiredfor the forest to become a major source of income is many years and sometimaeseTe n decades. Because many poor rural farmers have an urgent need and desirefor income in the near future, they often fail to consider, or cannot affordto wait for forestry projects to mature.

xii. Special problem areas such as land valuation, ecological benefits,eqn ity ccnsiderations, time saved effects and the long pay back period anduncertainty of forestry projects are discussed in this policy paper. Alt'houghpresentiang coriceptual problems, it is concluded that these are not Iikil; toim.pede progress in Bank forestry project formulation and appraisal=

The Bank s Role in Forestry

xilii Bank lending for forestry or forestry related projects to date hasbeen for fast growing industrial plantations, credit for planting by privatetree farmaers, forestry conservation and protection (as an integral part Ofagricultiral settlement projects), log extraction operations, pulp and papermills and technical assistance for species/provenance trials and strengthen-ing of forest institutions. This program, developed over the last decade, hasbeen essentially an ad hoc approach without any real appraisal of the poten-tial of Eorestry in the context of economic development. However, sufficientexperienre has now been gained to justify a change in this approach. Sucha change is necessary to reflect the reality that the major contribution offorestry to development will come, as for other elements of development strat-egies, from its impact on indigenous people - through watershed afforestationland rehabilitation, dune fixation, land rec:lamation, shelter belts, villagewoodlots, intercropping with plantations, various tree grazing combinations,food fodder trees, house garden/tree planting combinations, labor-intensiveplantations, sawmilling, joinery workshops, and rural wood-based industries- in the less developed countries themselves. This paper attempts to takestock of the way in which we can more effectively contr:Lbute to ecoTnomicdevelopment through our forestry lending program.

xiv. During the last two years there has been a significant change inboth the tempo and emphasis of Bank forestry project preparation activity.Whereas only four of the 17 projects financed between FY53 and FY76 werespecifically intended to benefit farmers in the rural areas, o-ver half ofthe 40 projects currently under preparation are rural forestry as opposedto industrially oriented. This trend is likely to continue as the Bank gexperience in this field.

xV, Proposed Forestry Lending Program. A new program reflecting teobjectives outlined in this paper is proposed, which would provide a dLfiere-en-balance to Bank activity in forestry, including a higher priority being givento:

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(a) Environmental forestry - protection of forests located inwa.er catchment basins, sand dune stabilization in aridareas, forest inventories, land use and soil surveys as anessential prerequisite to Bank involvement in agriculturalsettlement projects in tropical forest regions.

(b) ]-ural development forestry - establishment of village wood-lots for fuelwood poles and timber production, farm forestry,shelter belts, soil conservation measures, planting of fruit,fodder and fibre producing trees, encouragement of smallscale wood using industries in rural areas.

(c) Institution building projects - training, education, forestryresearch with special emphasis on piLlot trials and combinedagro-forestry - crop combinations.

(d) Industrial forest projects - which the Bank should continueto support wherever these can be justified within the frame-work of country programming priorities.

xvi. The main emphasis in Bank forestry lending will be on financing ofbroadly based national forestry programs with a wider range of components thanin the past. About 60% of Bank lending for forestry will be channelled intoprojects 'located in rural areas, including environmental and protectionforestry, rural afforestation, establishment of timber, pulp wood and fuel-wood plantations, institution building, training and research and small scalewood using industries. About 40% will be channelled into infrastructure,logging and larger scale sawmilling and mechanical wood using industries.A tentative lending program of US$500 million is proposed over the nextfive year period of which the 25 projects already under preparation willaccount for about one half. An additional US$300 million is planned forthe pulp and paper industry. In addition to the above program, forestrycomponents will also be included in a number of agriculture or rural devel-opment projects. The average size of such forestry components is small(about US$0.25 million per project) and the total volume of proposed lendingfor such forestry activity over the next five years (about US$6 million)represents a very small proportion of proposed agriculture and rural sectorlending. Nevertheless, the development impact of such forestry componentscan be significant and they will constitute an important element of Bankforestry activity. The proposed lending program is a preliminary targetwhich will be revised in the light of Bank experience and country receptiv-ity to the Bank's proposals for increased forestry lending.

xvii. This changing emphasis in Bank forestry lending will necessitatea radical change in the Bank's approach to forestry development and impliesnew concepts, technologies and institutional approaches. Bank forestry proj-ect activity is evolving rapidly and its policy in this area needs to beflexible and capable of further adaptation. Whilst approaches in some areasare still experimental, enough is already known for some positive conclusionsto be drawn on new directions for the future.

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xviii, Onerational Guidelines. Particular emphasis will be given in futureBank forestay activity to environmental and ecological effects of forestrydestruction, and to rural development strategies which will help low iricomegroups and present a viable alternative to ecologically destructive develop-ment patterns.

xix. Continued expansion of Bank lending for agro-forestry and for fuel-wood plantation development is envisaged. Fuelwood/building pole componentswill be incorporated into agriculture or rural development projects whereverthe need arises. The Bank is actively exploring the possibility of supportingnationally oriented rural forestry programs.

xx. The Bank will use its influence as a development agency to encouragea phased approach to land settlement in tropical forest areas, with specialemphasis on early definition of potential settlement areas. and intensiveresearch well ahead of the settlement process into the capability of fragiletropical forest soils to support intensified agriculture and forest cropping.Economic valuation of alternative land use options and creation of strengthen-ing of the institutions needed to serve the requirements of new settlers willbe given high priority.

xxi. The Bank will encourage and providie finance for forestry research,particularly in the areas of agro-forestry, fuelwood and environmental studies,It will also give particular attention to institution building projects withparticular emphasis on strengthening of public sector agencies charged withimplementation of fast growing fuelwood or industrial plantation programs.

xxii. In relation to large scale wood processing, the Bank will assistmajor log exporting countries in defining appropriate policies for develop-ment of their forest products export trade with special reference to increas-ing local processing of manufactured products and maximizing value added.It will advise Governments on formulation of incentives for the establish-ment of domestic manufacturing facilities. It will be prepared to assistin financing the necessary infrastructure (ports, roads and railways) neededto open up new forest areas for exploitation, and to guide Governments onconcessi.on policy issues. The Bank will also support forest industry train-ing programs and include training components as an integral feature of itsforest industrial projects.

xxiii. Through its sector review and project preparation activity, theBank will continue to assist governments in formulation of appropriate for-estry development strategies with special emphasis on rural and environmentalforest issues.

xxiv. The Bank will encourage and, where requested, assist technicallyand financially those governments wishing to devise comprehensive ruralafforestation development plans. Where governments do not appear interested

in developing a strategy of afforestation in rural areas, the Bank shouldseek to identify and prepare rural development projects which include for-estry components while engaging in a dialogue on possible changes in forestdevelopment strategies and policies. Where governments are interested in

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experimental rural afforestation programs or projects, the Bank shouldsupport them.

xxv. Bank rural sector missions will identify the key technical, policyorganizational, management and manpower constraints which inhibit the devel-opment Df forestry. Such reports will be used as vehicles for consultationwith governments on how effectively to remove constraints through suchactions as sending special identification missions to review the status ofrural forest resources to analyze the underlying causes of their destructionand to identify projects or programs suitable for Bank support.

I. FORESTRY AND DEVELOPMENT

1. Role of Forestry in Development

1.i Forests cover one-third of the land area of the world and over hnalf

of the land of developing countries. Annual world production of forest pro-ducts exceeds US$115 billion and global trade IJS$30 billion. Forests playa significant role in economic development providing subsistence, shelter andemployment, as well as resources for development of other sectors. In addi-tion to being-a readily convertible and largely self-regenerating store ofwealth, forests have a beneficial impact on the natural environment and pro-vide innumerable products of vital use to man.

1.2 Ecological Effects. Forests comprise outwardly grand but fragileecosystems. They have pronounced micro-climatic effects, reducing the rangeof daily temperature variation, retaining a layer of cool moist air andenhancing t:he local climate. The overall impact is to soften the interacti-onof elements which comprise the ecological system with widespread benefits tomankind.

1.3 "he ecological impact of forests is best recognized in their effecton water catchments and the role they play in regulating stream flow. Themain effecl: of catchment area forest is to act as a porous reservoir, retain-ing water in the roots and humus layers and releasing it gradually as a sus-tained flow over a long period. In this way, forests protect the land beneaththem from arosion, reduce flooding and erosion in adjacent areas, and in turn,minimize the silting of rivers, canals and dams. The absorbed water feedsstreams an,d underground acquifers and thus contributes to a stable hydrologyessential to irrigated agriculture.

1.4 In the form of shelter belts and by modifying the micro-climate,forests can also reduce wind erosion and slow the expansion of deserts. Theseeffects can be achieved by man-made plantations and planted shelter belts orby natural forests.

1.5 Forest areas also provide a habitat for wildlife, many species ofwhich cannot survive in a non-forest environment. They are also a recreationaloutlet for urban populations, as well as a place to live for those whose live-lihood comes from forests.

1.6 Indigenous Consumption. At the interface where large trees giveway to settled agriculture and throughout the countryside, forest productsfeature strongly in the consumption pattern of many societies. In varyingdegrees forests provide food, fuel, fibre and building materials. Some groups

-live in the forest and are totally dependent on it. Others find part of theircounsumption needs, plus some items for processing and for trading with neigh-bouring groups. This is generally supplemented by a degree of settle agri-culture.

1.7 The major use of the forest in developing countries is for fuel -

as firewood or as charcoal. Roughly 90% of annual wood consumption in thesecountries as a whole is used for fuel. In most societies wood provides thecheapest form of fuel, since it requires less complex equipment for its useand distribution than most other fuels.

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1.8 There is a substantial positive interaction between forests andfood productioni. Forests provide food through the gathering of fruits, nuts,berries, tubers and mushrooms, as well as through hunting of wildlife. Treesindirectly improve soil fertility by fixing nitroge.n (e.g: certain Acacias)and adding organic matter - a factor that is fundamental to the widespreadpractice of shifting cultivation.

_5i More generally recognized is the role of forests in providing woodfor building poles, sawn boards and furniture making. Wood is the commonbuildLng mnaterial in most rural societies and is frequently preferred evenwhen other materials are available. In addition, the forest provides materialsfor weaving, a source of food for insects which produce such commodities ashoney, silk and waxes, as well as a source of special woods and ashes used inthe manufacture of ornaments and artwork. Through these products, forestscontribute in varying degrees to the livelihood and wellbeing of vast numbersr f people in rural societies, and through trading to many more in urban areas,

1.10 Industrial Uses. More developed economies and the modern sectors ofless developed countries make extensive use of wood and forest by-products inihe production, through industrial processes, of a vast array of wood andpaper products. In an input-output matrix for a modern industrial economy,wood enters more activities than any other single commodity. In addition,leather goods, paint, glues and caulking materials, and even cough medicines,are dependient upon various gums, resins, waxes and oils taken from forests asessential ingredients, though processed wood products are quantitatively themost significant and best known.

1.11 The least processed wood products are poles, pit props and railwavsleepers. These have traditionally been hewn in situ and transported to wherethey are Fo be used. The next category is that of sawn lumber used for allkinds of construction, joinery, furniture, shipbuilding, and other purposes.To some extent solid lumber is being displaced by the use of plywood and woodbased panels in construction, joinery, furniture and shipbuilding.

1.12 Another category, the demand for which grows rapidly with risingincomes, are the products of pulp wood - newsprint, paperboard, writing paper,domestic tissues, containers, packaging, textiles and clothing. These are theproducts of the most complex and most capital intensive industrial processingoL all forest products. The final product is in most cases not recognizableas a forest product due to extensive transformations that have taken place.

1.13 These numerous end-products, their intermediates, and the mode inwhich they are used are summarized in Chart 1. This listing is not exhaustive,but emphasizes the extent to which forests and forest products contribute tohuman ;wsellbeing. Apart from obtaining the advantages from direct consumptior-,as sumimarized in Chart 1, countries with forest-stocks in excess of theirdomestic needs may obtain economic benefits in the form of increased employ-ment and the generation of foreign exchange by the export of both rough woodand finished products. These can in turn be exchanged in international marketsfor the foreign manufactured inputs required for economic development. Depend-ing on the country' s state of development, exports may range from round wood,sawn timber board, al,d Plywood veneer to pulp and paper and manufactured goodsof alL kinds.

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Chart 1: FOREST PRODUCTS

Cat mei ConLro I Icd rt:l, I....... l.Proection watr spplis

trriga.Li r_ soitfrtility, n,.t) n

.Coiogici Ecology an Rration, toucrIm,_ ildlife Conservation National ParKs. pr-crS2-a

_ of ondangoced ccSpci.s os,.flcra an.d fauna

Soil Erosionl Windbreaks, shelter cleics,!Conts-o t |dune fixation, reclamjatio,.

|of eroded lands

Fuetwood & Charcoal ~ Cooking, heatig household 00

Shifting cultivation, forest

Agricutur al Us a _- _grazing, nitrogen fixation,mulches, fruits & nuts

I tHousing, buildings,[Building Poles construction, fencin g,

furniture

Rons truccnd, stri sul cbaskets, furniLure

2. Indigenous Consumptrsn

Apiculc-ure, Silk, honey, wax, cEricult-ure

FSpecial Woods & n cense

- _ _l,:- :l.n

__ Ca, Resins & _ ;Naval stores, truln Oilj ._________ turpentine, iistilla-es, ,

e tein, Essential oils

o 3al _ _ _ .eduction agent lor sreell

making, chemicals, -c'Ldry cells

P -ol Transmissio polereitprops

Sa 8g L:mbr ~iey r o

3, Industc U e-11- 4 Veneer Logs Plvwood, veneer furnit-r,

lco'ntainers, constru'ction.

Newsprint, oaper .oardt,printing & writing papef

Wond containers, packaging,

dissolving pulp, distillaEes,trortiles & clotllig

L V Resid ue Particl hoard, fibr, bo,--d

Waste paper

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2. Forest Utilization in Practice

1.14 Trhe existing forest stock in developing countries (estimated at 1200million hectares of mature forest) is currently being consumed at the rate of15-20 million hectares per year. At this rate, assuming no growth in demand,the remaining tropical forests will be consumed in about 60-80 years. Allowingfor population growth in developing countries, with no growth in exports, thecurrent forest stock is likely to be consumed in less than 40 years. Thisalarming prospect however takes no account of the fact that forests can bea self-regenerating resource - but neither does it convey the far-reachingimplications of too rapid forest exploitation without proper management.

1.15 Environmental Disruption. Large scale removal of the forest cover,if not accompanied by reforestation for catchment protection (or sound agri-cultural practices) may lead to rapid runoff, soil erosion, silting, and flood-ieg in the rainy season followed by reduced downstream dry weather streamflows. ID extreme cases, this has led to the cessation of dry weather streamflow with the subsequent disruption of agriculture. Studies have shown, forinstance, that the incidence of flooding in the Indus River system in Pakistanhas been far higher in the last 25 years than during the previous 60 years.This is at:tributed to the denudation of the catchment areas and has beenaccompanied by serious silting of the dams and canals of Pakistan's irrigationsystem.

1.16 The undesirable effects of uncontrolled forest exploitation havebeen wideLy publicized in the present century - "dust bowls", "flash flooding",landslides, "gulley" erosion, and similar phenomena, all at least partlycaused by uncontrolled forest exploitation in widespread areas such as theTennessee Valley of the United States, the Peruvian Sierra in Latin America,the Ethiopian Highlands of Africa and large parts of Indonesia and thePhilippines in Asia. The rate at which forests are destroyed is a causefor widespread concern. In Latin America, FAO estimates an annual loss ofsome 5-10 million hectares of forest each year, in Africa some 2 millionhectares, and in Asia some 5 million hectares.

1.17 Just how long this process has been recognized and the extraordinaryresistance of the human race to the lessons of our environment, are broughthome sharply by the following quotation from Plato (Criteas, about 400 BC):

"There are mountains in Attica which can now keep nothing morethan bees, but which were clothed not so very long ago withfine trees, producing timber suitable for roofing the largestbuildings; the roofs hewn from this timber are still inexistence. There were also many lofty cultivated trees, whilethe country produced bountiful pastures for cattle. The annualsupply of rainfall was not then lost, as it is at present,through being allowed to flow over a denuded surface to thesea. It was received by the country in all its abundance,sto:fed in impervious potter's earth, and so was able to dis-charge the drainage of the hills into the hollows in the form

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of spriLgs or rivers with an abundant volume and a wide dis-tribution. The shrines that survive to the present day on thesites of extinct water supplies are evidence for the correct-ness of my present hypothesis."

This desolation persists to the present day in the over-grazed regions of thePoloponnese and Mesopotamia, although remedial action, by the replanting offorests, is slowly progressing. The penalties, paid over the centuries, arelowlands flooded by torrents from the bare mountains and seaports left farinland by the advancing deposits of soil and rubble washed down from thehills.

1.18 It is humbling to realize that so clear an analysis was possibleby observation and deduction ten centuries before the birth of the ProphetMohammed and it is alarming that 2,000 years later at least half of ourhuman racE live in rapidly growing communities which make no effective pro-vision for the protection of watersheds.

1.19 Population Growth and Encroachment. Humans are - out of perceivednecessity - destroying the basis of their own livelihood as they violate thelimits of natural systems. Those most vulnerable to these trends are thepoor of the world. Their search for the basic requirements of food and fueloften force them to hasten the destruction of their own productive environ-ment. Somne 10% of the world population live in mountain areas, but another40% live in adjacent lowlands so that fully half of mankind is intimatelyaffected by trends in watershed environments. A further 5% pursue a live-lihood in the drier zones of poor countries, where they are subject to thevagaries of cyclical climatic effects and long-term movements of deserts,such as along the southern and northern edges of the Sahara and the desertsof the Middle East and India.

1.20 Unfortunately, these abstractions are rarely visualized in termsof the actual effects they have on the land and people: increasing popula-tion pressure forces the cultivation of ever steeper mountain slopes wherecrops and topsoil quickly wash away, forest resources which are vital forflood control and soil stabilization are used for fuel, dust-bowls replaceonce fertile pastures. This results from increasing population pressureon existing land, intensified by static farming technology and iniquitousland tenure systems that prevent access to, and fuller use of, the bettercroplands. Despite the insight provided by past abuses, and the advancedtechnological skills of present society, there is a striking disparity inthe quality of diets among the peoples of the world, indicating mankind'sfailure to best utilize lands suited for agriculture and halt trends thatare ecolcgically destructive.

1.21 One manifestation of population pressure is seen in the growingdemand fcr fuelwood. In the Sahelian Zone. for example, each family requiresmore than one cubic metre of stacked firewood per year, the average growthfrom two hectares of natural forest. Until recently, the people of Bamako.the capit:al of Mali, with a population of 300.000 persons. had an averagelength of haul for the family firewood of less than 50 kilometers- in 1975it was 100 kilometers and by 1990 is expected to be 150 kilometers. By

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that time 3amako will need (annually) the wood produced from over 100,000hectares cf forest plantations, which is well beyond the current resources

of the government to plant in the time available.

1.22 Uncontrolled Commercial Extraction. Many developing countrieswith extersive nacural forest stocks allow comnmercial extraction of wood,

especially hardwood, for industrial processing which generates useful eco-omic activity and valuable foreign exchange. Using sensible cutting plans.such that sufficient time is allowed for regeneration - say 25-30 years £or

natural regeneration, or less if a replanting program follows the cutting -commercial cutting can take place without reducing the total area or sus-tainable yield of standing forest and with minimal damage to watershedcover. 11,ny countries including the Philippines and Brazil have failed tointroduce or enforce controlled cutting plans, and extensive loss of forestarea and the most devastating destruction of watershed environments has en-sued, The failure to adopt a controlled forestry policy is attributable toa lack of political will' reflecting a short-sighted view and long estab-lished pr:-mitive attitudes toward forests. This situation has usuallv beenaccompanied by a lack of appropriate institutions through which to implernenrcontrolled extraction programs and introduce orderly forest management.

1,23 Historically, much of the world's forest area has been in publicownership because of the long term nature of forest development and thedivergence of private and social benefits which make private investment oftenunattractive. Government forest institutions have consequently played a majorrole in forestry reservation and development programs. In developing coun-tries, holwever, these institutions are often of recent origin and relativelyweak due to a lack of experience, restricted funds and inadequate trainingprograms. This is reflected in poor planning and regulation of forest man-agement and the consequent accelerated run-down of forest resources,

1.24 Such circumstances are often accompanied by distorted pricingpolicies for forest products (particularly exports) - including tariff andtrade terms which encourage log exports rather than domestic processing andmanufacture of wood products. Due to inadequate funding, reforestation andafforestation has lapsed in many less developed countries, so that they arebelow the level needed to ensure an adequate supply of wcod - for both fuel-wood and other forest products.

1.25 The divergence of economic and social objectives so often observedin less developed countries tends to be accentuated in forestry comparedwith other sectors. The operators of privately owned sawmills, for example,are primarily interested in maximizing current profits from lumber sales,and less concerned with the long term management of the forests from whichthey cut their logs. Similarly, upland peop:Le often exploit the fodder andgrazing potential of forest areas with little thought to ensuring adequateregenerat:ion of tree seedlings or soil protection. Because of this diver-gence of objectives, there is often little political will to divert fundsand staff' resources to forestry and forest development. Afforestaticn p-o-grams in very many developing countries are currently running at less thanhalf the rate recommended by the expert panels of the World Forestry Congress,

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3. Toward a Strategy for Forest Development

1.26 An obvious disparity exists between the perceived role of forestsin developtuent and observable experience in developing countries. In almostevery country the environmental benefits from forestry are ignored and, tovarying degrees, the subtle balances of ecology are upset. In many countries,due largely to population pressure, the acceptable limits to the rate offorest exploitation are breached. Further, in a great many cases, the tenetsof good forest management are disregarded. Yet, while these circumstancesprevail widely and in places tend to worsen, there is an awakening interestin managing forests for development. This awakening is manifest in a reorient-ation of perceptions about the way in which forests can be used to further thegoals of development, and in a number of modified approaches being tried inpractice.

1.27 £Changing Perceptions. The new interest in forestry development islargely a response to current economic realities. Overall, the growth ofpopulation and of individual wealth create a growing demand for forest pro-ducts. Although some wood products are displaced by man-made materials, suchas plastics for furniture and concrete for railway ties and telegraph poles,the emergence of new products, especially pulp and paper items, continuallyexpands the demand for wood. This in turn has lead to higher wood prices inworld markets, enhanced values of standing forests and greater returns toprivate investment in forestry. These changes in price signals have causedboth wood exporting and wood importing nations to examine their potential forexport earnings and import substitution respectively, through domestic for-estry development.

1.28 The growth of population in developing countries is adding pressureto the existing land base and creates a growing demand for fuelwood, as wellas wood fcr other purposes. The expansion of demand for fuelwood has beenreinforced by the "energy crisis" which has increased the cost of alternativefuels such as kerosene and heating oil. Lack of adequate fuelwood supplies isa cause of- social hardship; in many areas of the world the use of animal dufngand agricultural residues as fuel affects soil fertility and reduces potentialagricultural crop yields. In India, for example, lack of fuelwood has forcedmany rural householders to use cattle dung as an alternative fuel, resultingin consumption equivalent to over 6 million tons of nitrogenous fertilizer -a figure slightly more than current total annual fertilizer consumption.

1.29 The adverse impact of growing world population and increased indus-trialization on the stock of natural resources, especially forests, has ledto renewed attention to environmental protection and the emergence of a world-wide environmental protection movement. This has caused individuals and groupswithin society to review their attitudes and policies toward natural resourcesand in turn governments now give more attention to the management of theirresource stocks, including forests.

1.30 As the social benefits or externalities associated with forests -in terms of modifying local climates, protecting watersheds and providingrecreation - have been assessed more accurately, the value placed on forest

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reserves and management programs by governments has increased. This hasresulted in new legislation and the creation and funding of new institutionscharged with responsibility for implementing legislation aimed at improvingthe management of forests, with multiple aims, for the benefit of society asa whole. This movement is observable in Malaysia and Thailand, fo-r example,as well as in most developed countries.

1h31 The impact of population pressure and the extent and intransigenceoL poverty in developing countries has also led to increased attention beinggiven to strategies and programs for rural development. These have laidemphasis an the necessity of meeting the needs of growing numbers of ruralpeople from the existing resource base. Recognition of the contribution offorests in this context, and growing awareness of the numlbers of rural peo-piewho are to varying degrees dependent on forests for subsistence, has causedgovernments of developing countries to respond with concern to thi- addititu-Jaspect of forestry economics. While this response is not: ubiquitous nor unl-form, it is observable at least in some countries.

1i32 Selected Experiences. Some of the best examples of recen,, cffis'aresponses to forestry needs are found in programs relating to fueiwood. Woodis the preferred fuel of poor people for whom it has obvious advantages - itcan be gathered by the family, it has little or no cost and only the simplestequipment is needed, In the form of charcoal it has added advantages - itburns without smoke, is light and easily transportable, and keeps well inboth rairy and dry seasons.

1533 An obvious solution to the critical shortage of fuelwood in someareas is to grow new plantations. By using exotic species such as Australianeucalyptus, plantations can produce more than 20 times the annual growth ofnatural f-orest. One hectare of this kind of plantation can support the fire-wood needs of 15-20 people. Such plantings require littLe technical skilland the f'inancial cost can frequently be kept to below US$100 per hectare.Much of t:he economic cost of plantation establishment is labor input. Pro-vision of an adequate supply of seeds or seedlings and extension advice mnaybe all that is needed to induce villagers to undertake tree planting on theirown land or collectively in village woodlots. Korea has, for example, anannual pr-ogram to plant 50,000 hectares of village woodlots, while Indiaexpects -o establish over 500,000 hectares of fuelwood plantations a year.

1.34 In the Zinder district of south-central Niger, farmers are growingforest trees as part of their farming operation. Beginning in 1974 whenforestry officials sat down with village councils, six villages have takenland out of farming to establish village woodlots that will provide firewoodfor the whole community. Within five years it is hoped 70 villages willhave such woodlots, which will save the family long walks to gather firewood.

1.35 Pakistan's Forest Service is experimenting with various species . r

intensive planting along the banks of irrigation canals in the central plainsarea. They hope these plantations will provide not only wood for fuel butalso windbreaks to shelter crops and livestock.

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1.36 At M'Bidi in northern Senegal the herds have grazed and stripped

away the tree and ground cover surrounding village wells. A scheme of re-forestation, which is a model of integrated land use management, is nowunder way on a 200 hectare site. This will not only produce wood for fuel,

but shelter for vegetable gardens and will produce gum arabic from acaciatrees. Once the multiple source of income is apparent it is expected thatherdsman will be less prone to destroy the tree cover.

1.37 Numerous research projects are under way to develop new tree varie-

ties and appropriate management practices. For instance, in the Philippines

there is E. project concerned with propagating the fast growing Ipil-Ipil(Leucaena leucocephala) for production of fuelwood, charcoal, pitprops, ani-mal fodder and pulp and paper manufacture.

1.38 The Way Ahead. Recognition of the ecological and environmentalimplications of forestry development is growing. The impact of the globalconcern about the environmental effects of population growth, the example ofChina in remedying its earlier ecological devastation, and the successes ofother countries in pursuing programs of forest management, all add to thecurrent momentum for environmental protection. It is important that forestrydevelopment policies reflect these concerns.

1.39 Indigenous needs for fuel and building wood, particularly on thepart of poorer groups, are pressing and, partly as a reaction to increasingawareness of the plight of the rural poor and to energy shortage, there hasbeen a recent worldwide surge of interest in agro-forestry and rural afforest-ation schemes. Forestry policy in the developing countries should reflectthis change in direction.

1.40 Industrial demand for timber is increasing. Consequently, thereis a considerable number of interest groups in favor of controlled forestrydevelopment. The developing countries have a substantial advantage in thearea of industrial forestry. They hold the main world reserves of tropicalhardwood for which market demand is buoyant. During the coming decade asignificant increase in real prices for tropical hardwood is expected whichwill steadily improve the bargaining position of producing countries.

1.41 Developing countries also have a comparative advantage in fastgrowing plantations. Because of their climatic and ecological conditionsshorter rotations are possible, resulting in wood production costs that are

cheaper t:han those in temperate zone countries. Because land prices arerelatively low, it is possible in some places to secure large areas of landclose to suitable industrial mill sites for the establishment of concentratedblocks oi industrial plantations. Because wood is heavy and costly to trans-port, dormestic primary and secondary manufacture is likely to become morecommon and to increase at a faster rate as the value of tropical hardwoodresources rises. The potential for production of cheap pulpwood supplies,and the iact that traditional world pulpwood resources are becoming morescarce and more costly, presents an opportunity to fill part of the risingworld ex-jort demand for pulp and paper products, as well as substitutingfor imports of finished products from abroad.

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1.42 Adoption of technology which will favor employment creation andresult in expansion of domestic manufacturing output can be a viable economicalternative to capital intensive forest industrial projects in some areas.Additional employment and income can be obtained, for example, by organizingreforestation, cutting and extraction along labor intensive lines using locallysuitable l:echnology rather than tree planting machines and bulldozers - withadded benefits in terms of saving foreign exchange. Adoption of new manufac-turing techniques, such as smaller scale pulp mills, can significantlyaccelerate the point in time at which it becomes economically viable to estab-lish a newi industry.

1.43 The buoyant world demand for forest products could provide a substan-tial stimulus to economic development in those developing countries with exist-ing fores. stocks, and also in those with land, climate and human resourcesthat make plantation forests feasible. It is important that forest policiestake accolnt of these possibilities with a view to promoting good forest man-agement and maximizing the contribution of forestry to economic development.

1.44 Forestry programs are in fact proving increasingly acceptable togovernments, since they provide many benefits and are relatively inexpensiveto finance. There is increasing recognition, too, that environmental con-siderations, indigenous requirements and industrial uses and exports neednot be mutually exclusive - rather they are seen as three sequential andreinforcing reasons for the promotion of forest development.

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II. SCOPE AND PROSPECTS FOR FOR'EST DEVELOPMENT

1. Context for Forestry Development

2.1 Forests occupy about 30% of the land area of the world, and over 50%Oof some developing countries. Total world forest area is estimated at aboutfour billion hectares, some 70% of which is classified as closed forest. Ofthis three billion hectares, 40% is located in developing countries.

Table 1: WORLD FORESTS

Total Closed ForestRegion Forest Land Closed Forest 1/ Land Area % of Land Area

m-- million ha -----------------

North Ameri.ca 630 630 1,841 34Central America 65 60 272 22South America 730 530 1,760 30Africa 800 190 2,970 6Europe 170 140 474 30USSR 915 765 2,144 35Asia 530 400 2,700 15Pacific Area 190 80 842 10

World 4,030 2,800 13,000 21

I/ "Clos,sd Forest" is mature forest with a closed canopy.

Source: R. Persson, World Forest Resources, Royal College of Forestry,Stockholm, 1974.

2.2 Jlobal estimates suggest that the world closed forest area may havedeclined by more than half a billion hectares during the period 1963 to 1973,or by more than 15% - affecting all regions of the world. It is furtherestimated that by the early 1970's, the area of forest land per capita inthe developing countries was less than one-third that in the industrializedcountries. Although further erosion of the developing countries' forestrybase seems inevitable in the foreseeable future, in several more developedcountries the national forest estate has begun to increase for the firsttime in many years. A complex pattern of forest exploitation underlies thistrend in the developing countries and provides the focus for programs in thisarea.

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Table 2: FOREST AREA PER CAPITA

1963 1973Forest Closed Forestha/cap. ha/cap.

North America 3.4 2.8Central America 1.0 0.7South America 5.3 2.8Africa 2.4 0.5Europe 0.3 0.3USSR 3.3 3.2Asia 0.3 0.2World 1.2 0.8More industrial 1.9 1.5Less industrial 0.9 0.45

Source: Persson, op. cit., p. 223.

2.3 Modes of Exploitation. The oldest form of forest use is subsistenceforestry, as found in the jungles of the Amazon, Sarawak, New Guinea, Mindanaoand Zaire. Forest subsistence dwellers are typically primitive, eking out asimple existence by gathering, fishing and hunting. They survive in a rela-tively benign though primitive physical circumstance. For them the forestmeets all needs, including food, fibre, fuel, and shelter. They constitutea part of the natural ecosystem and their small number and mode of forestexploitatton does not necessitate the destruction of trees. The populationinvolved :is not large and is relatively static - numbering perhaps a millionor so and occupying about one million hectares at any one time.

2.4 A more common mode of forest use is encroachment or "squatting",which involves destruction of the forest. It is found where there is popula-tion pressure on available land, notably in India, Indonesia, parts of thePhilippines and Latin America, but also in Kenya, Zambia and many parts ofWest Africa. In sub-Saharan Africa the area of closed tropical forest hasbeen redured by at least 100 million hectares in this century largely throughthis form of agriculture. In the Far East an estimated 25 million encroachingcultivators clear 8-10 million hectares annually and cultivate more than 100million hectares of former forest land. The people find fuel, fibre, buildingmaterials and some food from the forest, but also cut down or burn trees inorder to make space for temporary cultivation of crops. Those living in thesemarginal zones are typically subject to malign circumstances and live in vary-ing degrees of poverty. The number involved is relatively large - perhaps200 million persons farming some 300 million hectares on a global basis. Thisuse occupies as much as 30% of the officially designated forest area in somecountries of South and Southeast Asia.

2.5 The most ubiquitous mode of forest use might be termed extractiveexploitation. This is characterized by large scale logging operations, in-dustrial processing, and often the export of end-products. It is typical

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of countries with a substantial stock of natural forest and is often vir-tually unregulated as, for instance, in the Philippines and Brazil, althoughin other countries there is regulated cutting, as in M4alaysia, Thailand orBurma. It involves felling trees, hauling them to sawmills or to ports forexport as logs and is largely a private sector activity. It is estimatedthat more than two-thirds of the natural closed forest area in developingcountries is subject to no regulation or control. The remainder is undersome form of legal and contractual arrangements, usually associated withlarge firms involved in logging for industrial purposes - but this is rarelysubject to supervision - and less than one-third of natural closed forestis subject to supervised working plans. Of the total, some five millionhectares are under actual production in any one year, and an estimated 125million hectares are currently subject to extraction (on a rotational basisof cutting once in every twenty to thirty years) in less developed countries.Generally,, there are only a few people involved in these activities, but ifindustria:L processing is included the numbers employed are significant. Theextraction of this resource, however, provides valuable foreign exchangewhich potentially benefits a much larger population.

2.6 The most modern mode of forest exploitation takes the form ofindustrial plantations or tree farming. This includes large scale industrialplantations, the growing of small plantations on private land as an adjunct tocommercial agriculture, and the establishment of village plantations to providetree products, firewood and building materials. This is a form of controlledforestry listinguished from the foregoing by the institutional framework inwhich it is organized. The ownership of forests is usually vested in nationalgovernment or some form of public or private corporate ownership. Rights ofaccess in a modern context, and rights of usufruct in a traditional context,are regulated by laws or by social rules. Forest farming by contrast ischaracterized by individual or group ownership and direct control, eventhough forest farming as a whole may be regulated by the state. Farm wood-lots are also differentiated in terms of scale, generally ranging from a fewhectares up to plantations of, say, one or two thousand hectares. Industrialplantation schemes on the other hand may extend to a million hectares or more.While the benefits and technical management of this type of forestry aresimilar to other types, the management problems tend to be more tangible dueto the mcre direct control that exists.

2.7 The area of plantation forest in less developed countries was about11 million hectares in 1974 - growing by about 0.5 million hectares per year.This represents about 20% of the total plantation area of the world, and ismainly located in Brazil, Chile, Argentina, Morocco, Kenya, Zambia, Tanzania,Malawi, Angola, Indonesia, South Korea and India. Such plantations containpredominantly fast growing species such as eucalyptus and pine. The areaof industrial tree farms is a very small, but nevertheless important, pro-portion of this - probably in the order of 5%. Trees grown under forestfarming include many varieties in addition to those indicated above.

2.8 About 70% of world forest land is reported to FAO as being publiclyowned. Public ownership has been the historical norm because the land hasgenerally not been formally occupied and thus never subject to private owner-ship or control, and because forestry involves long term investment where

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not aLl thie benefits can be appropriated directly as in the form of wood, andis thus not generally attractive to private investors. Private forestry has,nevertheless, played a major role in Europe and the USA. Fast growing planta-tions have also attracted private investment in some developing countries,notably Chile and Brazil.

2.9 The several modes of development identified above are, of course,not mutually exclusive; frequently more than one type can be found side byside with another. Nor are these categories definitive, in that the modeof f._rest development found in a given country may not fit into any parti-cular type described above. On the other haT;d., this classification doesindicate the range of situations found in developing countries for whichappropriate policies must be formulated.

2.10 Wood Industry Development. Industrial utilization of forests inthe developing countries typically begins as an extractive industry, withforests regarded as a resource to be "mined" rather than a renewable cropfor permanent production. The existence of an industrial log market, eitherdomestic or overseas, usually leads to introduction of merchant's loggingoperatiors, often involving capital intensive technology. Frequently, onlytwo or three of the highest-value species are removed in a "high-grading"operatiorn which utilizes not more than 5%-15X of the total volume of theLropical forest. Since domestic markets are usually relatively small, thegreater part of industrial timber removals are usually shipped as logs.Simple technology such as pitsawing is commonly used to meet local sawn-wood demand, but further processing and manufacture is generally carriedout in the developed countries. The value added and employment opportun-ities, including the developed technical skills, tend not to accrue locally,although the primary exports provide a source of needed foreign exchange.Many of the developing countries with timber resources are in this stageof development.

2.11 The next stage of wood industry development usually involves theestablishment of secondary manufacturing plants and the diversification ofproducts, often utilizing a broader range of species. This type of indus-try produices various combinations of sawn timber, veneer, plywood, pulp andpaper, and particle board. Foreign capital and technology often dominatetr-s stage of development. The large capital requirements tend to force at-tention on and to justify forestry management measures, including controlledcutting and reforestation where needed, to maintain a sustain yield whichwill support this investment. Countries in this more mature stage can oftencompete in foreign markets, though they are usually oriented initially towarddomestic markets created by the growth in per capita incomes.

2.12 Certain features of wood industries make them a favorable vehiclethrough which to promote economic development. Forests are frequently locatedin the lass developed rural areas. Forest development, management, and pro-duction, can be labor intensive, as are most of the primary wood industries.The required skills for these industries are those common to almost allrural populations but they provide a training ground for the developmentof i,anagerial competence. In plantation establishment it is not unusual

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for wages to make up as much as 80% of total costs (excluding land) and thesewages typically go to families in the lowest 40% of income earners. The woodindustries themselves are characterized by strong forward and backward "link-ages" and can produce significant employment multiplier effects as well asstimulating expansion of service industries and transportation systems.

2.13 Growth of Markets and Trade. World recorded production of wood in1975 exceeded two billion cubic meters of which 56% was industrial wood andthe balance fuelwood (this compares with 90% for fuelwood in the developingcountries). About 60% of the industrial wood is logs for building and manu-facturing about 25% pulpwood and the remainder "other industrial wood". Thelast two decades has seen a growing importance of tropical hardwood in worldproducticn and consumption of logs. From the mid-1950's to 1975, annual pro-duction cf logs increased by about 150 million cubic meters, or by 25%. Morethan 70% of this was softwood while hardwood accounted for 30%. In percentageterms, however, tropical hardwood, which is produced entirely in developingcountries, increased several times more rapidly and this trend is expected tocontinue.

2.14 A slow growth in sawnwood demand has occurred recently, due tosubstitution by other wood - plywood, particle board, and fiberboard - andnon-wood materials, which have demonstrated high rates of growth in the lasttwo decades. Substitution has been encouraged by: (a) a declining cost trendfor wood--based panel products relative to those of sawnwood, and (b) the rela-tive ease with which panel products can be installed in building. Demand forpaper and paperboard has grown rapidly, and is projected to grow at 5.3% perannum between 1968 and 1985 - a rate only slightly lower than the 5.9% perannum average for the previous period. According to the projections shownin Table 3, global demand for industrial wood has grown at an average rateof 2.7% per year between 1962 and 1975, and is expected to grow at 3% peryear during the 1975-1985 period, to reach almost two billion cubic metersper year by 1985.

Table 3: WORLD CONSUMPTION OF WOOD AND WOOD PRODUCTS1962 AND PROJECTIONS TO 1975, 1980 and 1985

1962 1975 1980 1985---------million cubic meters 1/

Sawnwood 590.0 723.7 775.1 829.3Panels 65.5 152.7 200.0 (255.3)Paper and Paperboard 217.5 441.8 572.2 742.4Other Industrial Roundwood 176.0 170.0 (169.0) 168.0Total Industrial Wood 1,049.0 1,488.0 1,716.0 1,995.0Fuelwood 1,017.0 1,036.0 (1,049.0) 1,064.0

Total 2,066.0 2,524.0 2,765.0 3,059.0

1/ In roundwood equivalent.

Source: Kenji Takeuchi, Tropical Hardwood Trade in the Asia Pacific Regionand World Bank Occasional Paper No. 17, 1974.

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2.15 In the thirteen-year period from 1961 to 1974, world trade in allforest products increased from US$6 to US$30 billion at an average rate of17% per year - far exceeding the growth of total world trade in all commodi-ties incluiding manufactures. Over this same period exports from developingcountries have risen from US$0.5 billion in 1961 to about US$4 billion in1975 - far exceeding the growth of total world trade in forest products.

2.16 Developing cotntries tend to export products with little or noprocessing and import wood with a high degree of processing; more than halfof their export earnings from forest products stem from unprocessed round-wood. Saloiwood accounts for about one-quarter of export income from woodproducts, and wood-based panels about one-fifth, while pulp and paper exportsof develo,ing countries are negligible. On the import side, over 60% ofthe value of forest product imports of developing countries are pulp andpaper. The heavy burden of pulp and paper imports is evidenced by the factthat more than half of the export earnings from all forest products is off-set by paper and paperboard imports alone, and the need for the latter areexpected to continue to grow rapidly.

2.17 Trade in wood-based panel products has increased most among allforest products since 1960. Although in 1960 about two-thirds of plywoodexports originated in developed countries and only 13% in the developing coun-tries, by 1970 the developing countries' share in world exports had increasedto over 40%. Korea and Taiwan, with very limaited forest resources, have beenthe most successful examples of the growing plywood export trade from thedeveloping countries - importing their logs iErom other developing countriesin South East Asia. Veneer sheets provide another example of fast growingforest product trade from developing countries.

2. Sectoral Conditions and Constraints

2.18 The various elements that define the context for forestry develop-ment create a diversity of situations so disparate that almost every country,and sometimes sub-regions within a country, constitute distinct developmentsituatiorns. These circumstances have to be defined and assessed beforesectoral planning and policy formulation can take place. In an operationalcontext this necessitates studying each situation separately. For the pur-pose of this report, however, it is possible to examine the major issueswith the help of a typology of forest development situations.

2.19 Forest Development Situations. In addition to economic factors,including markets, physical and social conditions help determine the type ofdevelopment that will be successful. For example, the accepted ownershippattern of forested-lands may prohibit plantation forestry but be highlysuitable for the establishment of village woodlots. The more importantcharacteristics of forest development situations are: (a) resource endow-ment and climate; (b) population density and urbanization rate; (c) typeof agriculture; (d) forest ownership pattern; (e) level of development;(f) source of household fuel; (g) wood processing techniques; (h) characterof trade in wood products; (i) forestry management pract-ices. These elementsinteract to produce six major types of development environment within whichfo. -stry investment might occur on a global basis.

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2.20 Wood deficient marginal lands are tyrpified by the countries ofthe Sahelian zone: what little wood source there is consists of low gradesavanna, tickets, or bush which has served historically as a dry weathergrazing reserve and source of wood for domestic needs. Erratic rainfall,shifting agriculture, nomadic grazing and eroding soils contribute to ahostile ecological environment for re-establishing forest cover under desertor semi-desert conditions. Overstocking and periodic burning of the forestresources lead to the spread of deserts, which in turn necessitates resettle-ment of people and their animals and quite frequently results in the loss ofagricultural land.

2.21 Potential afforestation areas are similar to wood deficient marginallands except for crucial differences in the physical environment. Favorableclimatic and ecological conditions combined with low population density allowsfor plantation forestry (Argentina, South Africa). Countries with these favor-able conditions and good forestry institutions have taken advantage of theirscope for forest development and have fostered plantation-oriented forestexport industries (New Zealand, Chile).

2.22 Overpopulated wood deficient areas are found in Bangladesh, Java,and India. High population density results in excessive cutting of uplandwood resources which in turn leads to loss of catchment cover, soil erosion,and adverse hydrological effects - flood peaks and low stream flows. Severefuel shortages throughout the remaining rural areas forces poor peasants toscavenge for fuel wood and fodder, or else to utilize valuable agriculturalresidues for fuel. Institutional problems - forest management services whichare under-budgeted and under-staffed in relation to the severity of the for-estry problem - and policies of fixed forestry reserves frequently lead toconfrontations with poverty stricken farmers.

2.23 In Wood-abundant poor areas where there is sufficient wood fordomestic requirements, vast tracts of natural forest remain. When left underforests, the land can be used extensively because low population densityresults in low demands for agricultural land; yet when used for agriculturalpurposes, the land produces rapidly declining yields because light tropicalforest scils lose their fertility quickly and erode easily. In many areas- e.g., Congo, Gabon, Kalimantan and New Guinea - control of the forestryindustry is in the hands of expatriate companies.

2.24 Wood-abundant areas with high population pressure and low percapita income include much of the world's remaining tropical forest resources.Countries such as Ivory Coast, Nigeria and parts of Venezuela, Colombia andBrazil are typified by shifting cultivation involving clearing and settlementin the forest areas of low inherent soil fertility.

2.25 Wood-abundant rich areas represent the more developed areas of theworld. In Canada, USA, USSR, and Scandinavia, for example, the rapidly devel-oping in(lustrial sector creates urban employment opportunities and forcesthe wood industry to pay relatively higher wages; but industry also createsa rising domestic demand for raw forest products which are processed fordomestic use or export. Forestry institutions strive for better control and

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utilization of forest resources and a high level of investment in forestimpro-vements is maintained.

2.26 Population Pressure and Related Effects. Growing population pres-sure has always been a major cause of forest depletion. Such adverse effectsare now most pronounced in developing countries, a reflection of their typi-c_--ly greater population densities, more rapid population growth, their rural-based ecoaomies with large numbers of relatively low income people, and lackof conservation measures.

2.27 The expansion of encroachment and shifting cultivation is the majorcause of forest depletion. Encroachment is often associated with (i) an in-crease in the size of a growing population with a static farming technology;(ii) tenure insecurity and exclusion of people from better land by inequitable.Patter-ns of land ownership; or (iii) with the use of traditional technology andrelatively infertile soils which make a "slash and burn" approach necessary.If rotations are long enough, and topographic conditions suitable, shiftingcultivation in its traditional form can maintain soil fertility and stability.But it takes up much more land than growing crops under permanent agricultureand results in wastage of much of the original forest cover. Moreover, growingpopulation pressure results in practices which are increasingly destructive ofsoil 9 water and forest resources as fallow periods are shortened and cultiva-tion extended to forest areas on more difficult topography.

2.28 Traditional grazing is also highly detrimental to forest cover,although, with sound practices, this may be carried out in conjunction withproductive forestry. Grazing pressures are highest in the tropical, moistdeciduous and dry forest areas where the ground and herbaceous vegetation pro-vides more plentiful grazing fodder. In India a large portion of the country scattle herd grazes on public forest land. In the Sahel the disaster of theearly 19170's was due in part to the pressures of increased livestock popula-tions on a fragile natural environment. This problem poses a real dilemma forforest policy in the driest regions of the world. These regions, where grazingis a dominant form of land use, are also faced with the most serious shortagesof wood. Without forest grazing, livestock cannot survive during dry periods,so that Large areas of forest and wood land are necessarily devoted to grazing.But, improved agriculture can make it possible to reduce forest grazing, ashas occurred, for example, in some countries of the Mediterranean areas.

2.29 The reduction of forest areas through agricultural expansion issomet.imes lamented as an unfortunate "loss" to society. In cases where treesare cut and burned and the soil resource allowed to deteriorate, such develop-ments do constitute real social losses. But frequently the transfer of forestland to permanent agriculture is an economically rational shift to permit moreproductive social use of these lands as population and demand for food in-crease. In these circumstances ecological and economic trade-offs betweenalternative forms of land use need to be examined. For example, naturalforest is among the most effective means of soil protection, but this lowvalue use must be measured against the greater economic benefits from moreintensive agricultural systems. Malaysian experience suggests that soilerosion under rubber or oil palm (without cover cropping) is very much higher

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than that under virgin jungle, but moderately lower than that from mulchedor bare ground. In order to assess these effects there is need to acquiremore technical information on the environmental effects of alternative landuse systems in different agro-climatic circumstances.

2.30 Many of the sectoral issues relating to these circumstances aresociological. Securing the cooperation of local people who are consumingthe forests in a destructive way (shifting cultivators, nomadic pasturalistsand "squatters") presents formidable social problems. The measures requiredto stabilize these situations are obvious - reduced stocking, voluntarymigration and resettlement in sedentary pursuits. Achieving these, however,is costly and politically unpopular. Further, moving people out is frequentlyimpracticable because there is nowhere else for them to go. Regulating landuse through restrictions is also practically difficult. The best alternativesusually lLe in increasing agricultural production through the use of improvedtechnology - so providing the land occupier with a viable alternative to hispresent ecologically destructive way of life - but this is a relatively long-term solution.

2.31 Institutional and Technical Problems. Afforested grazing lands arefrequently tribally owned. Grazing rights in the Middle East region, forexample, were strictly enforced a thousand years ago when tribal authoritywas effective. With the coming of national institutions the tribal grazingcontrol systems have broken down and been replaced by government bureaucracieswhich have little effective control. Further, many of the present forestryinstitutions in the world were created as self-contained agencies with tech-nical capability for implementation of afforestation or forestry protectionprograms, but frequently with little expertise in. economic planning or landuse matters and little political influence. This "functional" approach toforest management fosters a narrow view of forestry's role in the economicdevelopmEnt process, which in turn, results in inadequate government fundingof forestry programs or in extreme cases to complete exclusion of forestryfrom rural or agricultural development schemes.

2.32 Concession arrangements, fiscal policies and the institutionalframework for forest extraction operations are another critical institutionalproblem area. The main emphasis in forest development policy has been onextraction operations and the development of a log, timber or plywood exportindustry,, Most logging operations have been established by overseas lumbermanufacturing companies located in Japan, USA, or Western Europe who areseeking raw material to feed industrial manufacturing plants located inthe country of origin. Governments frequently offer long term concessionlicenses - often 25 years or more - in order to attract investment capitaland to iaduce overseas firms to construct forest roads. Frequently thesehave unduly favored the licensee. Developirng country governments oftenneed assistance in defining and negotiating the terms of such long termagreements in order to ensure that the country concerned earns a fair shareof the potential economic benefit from timber extraction. Aspects such ascalculating the appropriate level of royalty (stumpage) taxes, clauses re-lating to reforestation or forest managemenit obligations of the licensee,arrangements for cost sharing in relation to forest road and infrastructureprogranis are issues which are encountered frequently in program formulation.

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2.33 The choice between private tree farming and corporate or state ownedindustrial plantations is another institutional issue. If the objective is tohelp the rural poor, priority should clearly be given to encouraging smallfarmers to grow industrial wood - but there are problems. For example, thelength of tree crop rotations (most small farmers can't afford to wait 10 to15 years before they receive any income from their forestry investment), andthe fact that large privately owned pulp corporations usually insist on directlycontrolling a significant portion (at least 25% to 30%) of their wood supplies.

2.34 The technical problems of establishing tree crops in marginal landsare also formidable. The erratic rainfall and long dry tropical seasons ofmany developing country situations require the use of xerophytic frequentlyslow growing species. The ecological climax of marginal lands is usually alow acacLa type "bush" which is perfectly satisfactory for the production offodder, provision of shade, fuelwood, and building poles. But since suchtrees rarely attain "timber" height, supplies of saw logs either have to begrown in higher rainfall areas (1,000 mm plus) or imported. Technical problemsof sand dune stabilization (prevention of desert "creep") are also severe.Much research is still needed in this area, as in relation to problems of treecrop establishment in saline areas.

2.35 A key technical policy issue in many countries has been the questionof appropriate management for cutover tropical forests (e.g., extensive manage-ment by "enrichment" planting compared with the alternative of artificialplantations). Management systems in tropical high forests are dictated by acomplex interrelationship of technical, markcet opportunity and other institu-tional and economic factors, and careful assessment of all these is neededbefore adoption of a particular silvicultural regime. Marketable speciesusually account for a fairly low proportion of the standing forest (for ex-ample less than 10% of the tropical forests of Western Africa and LatinAmerica). The rest of the wood consists of secondary species which have lesswell-known properties or are sometimes more difficult to work than those inpopular demand. Government forestry policy plans tend to be over optimisticin relat:ion to the market prospects for secondary species, although the pros-pects of widening the range of species marketed is enhanced where the domesticmarket is large enough to absorb a significant volume of less well-knowntimbers (progress has been made in this direction over the past decade inNigeria and Ghana for example).

2.36 Much research has also been carried out recently into the technicalproblems of producing pulp and paper from mixed tropical hardwoods. Techni-cally this does not present insuperable problems but the pulp produced hasso far proved less acceptable than that produced from homogenous temperateforests. Technological research into viable alternatives to wood e.g., useof bagasse and rice straw for paper manufacture, and use of mud bricks forhousing construction, become increasingly important in wood deficient coun-tries and an enlightened forest policy should recognize the role that thesesubstitutes play in the economic development process and encourage theirwider use.

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3. Fores:vry Proiect Design and Evaluation

2.37 Principal Project Types. The principal types of forestry projectswith which development agencies are familiar include the following:

(i) Rural Development Forestry - usually, associated with agri-

culture or rural development projects - typically includefinancing of fruit, nuts, fuelwood or fodder trees, soilconservation or sand dune stabilization works, reforesta-tion and protection of water catchment areas, grazingreserves and forest access tracks, small scale forestindustry enterprises such as sawmills, joinery andfurniture plants - special emphasis is frequently neededon institution building aspects such as strengthening ofthe local forest service extension and project planningcapability.

(ii) Natural Forest Management and Industrial Plantation TreeFarming - include the application of silvicultural prac-tices such as thinning and removing undesirable species,planting of improved species in natural forest, estab-lishment of fast growing industrial plantations eitherin blocks or on individual farms, and may include financ-ing of transportation and social infrastructure e.g., anetwork of forest roads, establishment of forest villages,including water supplies, schools and hospital facilities- frequently associated with agricultural developmentprograms, e.g., settlement projects.

(iii) Infrastructure and Extraction Projects - create the trans-portation and timber handling infrastructure needed toopen up new forest areas for logging, including roadconstruction, establishment of logging camps and loggingoperations, financing of forest inventories, preparationof forest extraction and management plans - frequentlysuch projects have included institution building componentsaimed at strengthening the capacity of a local ForestService to monitor logging and extraction operations.

(iv) Industrial Projects - typically include financing ofsawmill, joinery, plywood, particle-board and other woodbased panel plants, pulp and paper manufacturing facili-ties - normally these are associated with training pro-grams for industrial workers, technical and managerialstaff, and may include supplementary studies of specificproblem areas such as development of new markets orprospects for future industrial expansion, as well astechnical assistance for development of small scalerural forest industries.

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(v) Institution building - is usually a component activity inall of the above categories of pro;jects but in some casesan institution building project or program may be justifiedin its own right - in which case the project would normallyinclude establishment of forestry range, technical schoolor university level training facilities as welL as forestindustrial training for logging operations and sawmill.

2.38 Designing Forestry Projects. The design of forestry projects -excluding forestry infrastructure and wood industry projects, the principlesof which are well understood - present particular problems because: (i) theyare frequently located in densely populated areas where the people are ex-ceedingl7 poor and dependent on forest products for a meager survival, butwhere there is little natural forest left and no tradition of reforestation;(Ii) forestry projects can involve long investment and payback periods whenfew bene:Eits are available and relatively little employment is generated;(iii) the risks of investment and the opportunity cost of forestry in termsof alternate land use and other investments are often high, especially forindividual investors; and (iv) many of the benef-ts of forests are in theform of externalities which accrue to society as a whole but not directlyto residents of the area or to the investors.

2.39 A major purpose of forestry projects to promote rural developmentand raise rural incomes, particularly of the poor - can be achieved by pro-tecting the fertility of the soil and by providing directly for consumption.But, because the focus of forestry projects has been, until recently, almostentirely on providing industrial wood products, relatively little integrationof forestry and rural development efforts has taken place. In some cases,however, the area under consideration has soil quality and market accessi-bility such that a much wider range of perennials, often with water and soil-holding characteristics nearly equal to timber forests, can be actively con-sidered, Where such perennials are viable, they can produce returns perhectare much higher than timber forests, have more varied output, and allowrecovery of investment in a shorter time. These crops include coffee, tea,rubber, palm oil, coconuts, bananas, fruit trees, nuts, dates, figs, spices,and many others - many of which can be successfully intercropped with annualspecies and with timber forests. Thus the amount and frequency of incomegenerated per hectare can be substantially increased and the welfare ofthe indigenous population improved concurrently with the generation ofenvironmental benefits and subsequently harvestable wood products.

2.440 With greater emphasis placed on achieving equity in economic devel-opment, and the rising price of oil based products in recent years, there isrenewed interest in the use of wood as fuel. If other alternatives forraising the incomes of the rural poor are rnot promising, fuel wood lots maybe the only way to assure them a supply of fuel, and may provide a means toraise their incomes by diverting dung to use as fertilizer. This kind ofequity consideration is frequently overlooked. It is often possible to setaside poor quality land and allow general access to it, while similar bene-fits cEnnnot be provided through taxation and redistribution. Where the poordo not have a well-managed and accessible fuel source, they will exploit

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whatever source is available and usually overharvest it. Where this occurs,all of the costs associated with subsequent erosion might be set againstproject benefits. This sort of reaction to an alternative that leaves outthe poor must be allowed for in formulating project alternatives.

2.41 There are a large number of ways in which forestry can contribute torural development besides providing fuel wood. Forests supply badly neededlocal building materials. The simplest are wood poles, but with small scalesawmills other types of timber can be used. Wood wastes can be convertedinto charcoal, a product which has the advantage that it is relatively cheapto transport over great distances. Wood availability can encourage processingindustries, artisan activities, carpentry and furniture making. Timber maybe sold commercially to sawmills or pulpmills for eventual export of processedgoods or for sale to wider national markets. In general, there is strongreason for considering labor intensive technical alternatives in the processof project design, and for planning to generate continuing employment activ-ity throughout a project. This relates to the phasing of a forestry project,which also has important implications for the investment and pay-back periods.

2.42 The long investment and pay-back periods typical of forest projectscan be offset in several ways. Most successful has been to introduce specieswhich are naturally fast growing and which frequently do even better whenremoved Erom their natural predators and to better climates. Good examplesare the 'hardwood Eucalyptus species and the Giant Ipil Ipil (Leucaena leuco-cephala). There are likely high returns to a further search for as yetunidentified species, and for fast growing local varieties of known species,as well as from research to breed and select new strains.

2.43 More practical short-run measures to generate a cash flow includeintercropping and using techniques providing multiple outputs. Intercroppingcan use crops such as maize or beans between trees, or alternatively fruittrees such as papaya or banana between timber trees, or even fuel wood betweenplantation trees such as coconut. Multiple harvests are possible where ini-tial plantings are dense and the thinning process provides poles and fuel-wood. Many trees are also sources of marketable minor forest products, suchas leaves for livestock feed, leaves and bark for fabricating, and resins andgums for various manufacturing purposes.

2.44 Further, it is often possible to defer investment costs until laterstages of a project. In particular, the creation of infrastructure such asroads can often be deferred until required for extraction transport afterthe trees are grown. It is also important to build infrastructure of akind that can be readily maintained by the use of local materials and usingthe cheapest means available in order to keep early investment costs to aminimum.

2.45 The diversification of cash flow sources and the spreading of costsalso reduces some of the risk associated with forestry projects, but thereare other purposeful measures that can be aimed directly at risk reduction.Perhaps the most important is that the technical package be well tested andreliable. Careful studies of both agronomic and economic feasibility are

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needed before the viability of any project can be assumed. Yet relativelylittle is known about the yields of many species or the best combinationsof species under the range of climatic, soil, and cultural conditions thatare faced in tropical countries. The importance of pilot programs for thispurpose cannot be over emphasized. In some cases, too, production risk canbe reduced by providing institutional arrangements, including technical ser-vices such as pest control and fire fighting systems.

2.46 Finally, there is a need for explicit attention to be given toenvironumental protection aspects of forestry in projects because of the impor-tance of externalities as a justification for national forestry programs. Inmost cases, this calls for special action to establish ground cover and todesign planting layouts and infrastructure so that environmental benefitsare maximized. Possible measures include the use of initial dense plantings,as mentioned above, and of leguminous species which will build up the soilfertility and promote vegetation growth and moisture absorption. It mayalso be important to follow a contour of slopes when building roads and inplanting.

2.47 The planning and design of forestry projects is a difficult andcomplicated task and frequently the institutional capability in developingcountries is limited. Even where forestry bureaus are adequately staffed, anarrow approach and a lack of experience can result in few innovations beingconsidered in designing projects. There is a clear need for better staffingand expertise in forestry bureaus, more research into species characteristics,distribution and cropping patterns, and more development of appropriate woodprocessing machinery. More resources need to be devoted to examining tech-nical alternatives and training people to :recognize and take advantage ofthem in order to improve the design of forestry projects. This is parti-cularly important because the ability to bring well presented cases to theattention of planners and politicians can ]help them to realize the economicimportance of forestry development.

2.48 Appraising Forestry Projects. There are a number of practicaldifficulties in forestry project appraisal that are characteristic of for-estry. These include the problems of taking into account land valuations,the need to assess ecological benefits, problems in assessing equity impact,evalualting the time effects of forest development, the linkage between ruralforestry projects and industrial processing projects, the long pay-backperiods and related uncertainty, and the assessing of externalities includingcontingent environmental effects. These considerations are discussed morefully in Annex 7. In general, however, they indicate the need for economicresearch to develop means and procedures for taking account of the complexi-ties of forest development. The better the appraisal of forest developmentproposals, the stronger will be the case for taking such proposals seriouslywhen assessing national priorities.

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III. ROLE OF THE WORLD BANK IN FORESTRY

1. Changing Emphasis in Bank Lending for Forestry

3.1 Past Lending. Bank lending for forestry and forest industries todate has been small, comprising 17 projects totalling about US$240 million(see Table 3.1). The program started slowly and has only recently showed arecognizable character. The first project was a US$20 million loan to Chilefor pulp and paper in 1953. Two years later a US$4.2 million loan was madefor the Karnaphuli Paper Mill in Bangladesh (then East Pakistan). After a13 year gap Zambia received the first loan made by the Bank for industrialforestry plantations. On a regional basis Eastern Africa has had the largestshare with six projects totalling some US$44 million in loans or credits,then South Asia with four projects (US$35 million), followed by EMENA (US$130million), !.ast Asia/Pacific (US$11 million) and Latin America (US$30 million),each with two. Although the trend is toward more complex projects with a widerange of c3mponents, the forestry projects financed so far by the Bank fallinto six main categories.

Table 3.1: SCHEDULE OF WORLD BANK FORESTRY PROJECTS 1953-76

Year No. of Projects Total Loan/Credit

1953-68 3 29.51970 2 11.11972 1 20.01973 1 0.81974 5 71.11975 3 33.91976 2 74.0

17 240.4

3.2 Industrial plantations managed by government entities, make up athird of the projects. All were designed to supply logs and pulpwood for thedomestic market, (except the Malagasy pine plantation project, which is in-tended to supply a pulp mill to be established in 1985). The first three werestraightforward plantation projects, the fourth is a component of the ruraldevelopment project in Mauritius and the fifth is noteworthy because it coversthe whole of Kenya's industrial plantation program and includes a land usestudy, sawmilling technical assistance, trial plantations and nature reservecomponents. The average loan/credit per project has been US$8 million overa 5-8 year project period. The foreign exchange component of industrialplantation projects is typically low, frequently 25% or less.

3.3 Three quasi-government forestry extraction projects have beenfinanced; two with mechanical wood-processing facilities followed by settle-ment in Malaysia and Nepal, and one in Burma with sawmill technical assistanceand feasibility study components. The foreign exchange component in theseprojects usually exceed 65% of total project costs because most of the roadconstruction, logging, sawmilling and plywood equipment has to be imported.

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3.4 The first two pulp and paper profects wera loans made in the early1950's to Chile and Bangladesh (then East Pakistan) respectively. Twenty yearslater, the. Bank assisted in developing Turkey's first public, fully integrateoforest inciustrial complex with a pulp and paper mill, sawnill and backwardlinkages into timber extraction, afforestation, and forest management acti-,ities which would ensure the industries' long-term wood requirements. Asecond int:egrated sawmill/newsprint project was financed in 1976.

3.5 Three rural development forestry projects have been financed, aswell as several forestry components in multi-sectoral rural development proj-ects. The first was in Finland to provide loans and technical assistance tosmall private forest owners for reforestation, stand improvement, peat soildrainage, fertilization and road construction; the second in the Phili1 pinssto provide credit for smallholder tree farmers growing pulpwood; and thethird in Krorea, where as an integral part of a rural infrastructure pro1aec2the Bank iinanced a countrywide village fuelwood plantation program. Theapproach caken in the Philippines has application prospects in other areaswhere marg>inal agricultural land can be used for orowing high-yielding speciessuitable Eor industrial purposes. It is now being extended in scope to agro-fore3try crop combinations incorporating fast-growing fodder crop trees.

3.6 Forestry conservation measures to Evoid soil erosion and changesin the hyirological system are an important component of the Caqueta RuralSettlement project in Colombia. They include demarcation, inventory andmanagement of protective forest reserves, partial reforestation of erodedslopes, restrictions on uncontrolled deforestation, and tree planting alongrivers. Although this component only forms a small propcortion of total project costs (2%), it heralds a new approach that shoul.'d be rarefully monn.oredand, if successful, might usefully be incorporated i' future rural settlement.projects.

3.7 Technical assistance credits are a relat:ively recent addition tothe forestry projects financed by the Bank (the first in 1973). These havebeen introduced where UNDP or bilateral aid agencies which usually providethe preinvestment inputs required, have not been able to do so and the ab-sence of such information is holding up deve'Lopment. The Bank can play auseful rcle in offering such assistance. For instance, India is consideredto have a vast potential for producing its own lcng-f½ired pulpwood and fuel-wood requirements, but the establishment of plantations for these purposeshas been delayed through lack of suitably located species/provenance andpilot plantation trials. A Bank supported project located in the BastarDistrict of Madhya Pradesh is designed to overcome this constraint; to in-dicate what has to be done in other areas to achieve sim:ilar objectives; andto prepare a feasibility study to show when, where and what processing faci1--ities should be established to utilize the man-made plantations.

3.8 Current Program. In the last two years, there has been a sharpescalation in forestry sector review and project preparation activity conput&iwith the average program over the previous five years. Currently, the Barn'has under preparation or appraisal, 21 forestry projects and four agricultureor rural development projects which include a significant forestry compone t,all of which are scheduled for financing by FY80.

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3,9 SL:ce 1976, in keeping with its Rural Development strategy, t-herehas been a significant change in emphasis in the Bank's forestry activitywith greater concentration on rural forestry projects and with increased

attentiorn being given to environmental and forestry protection aspects duringproject formulation. Of the 17 forestry projects financed by the Bank benwaen1953 and 1976, 13 were industrial forestry oriented and only four were directlyconcernecd with rural development. By contrast, over half of the 25 proJectscurrently under preparation or appraisal are directly related to rural development. There has been a deliberate shift in policy towards broadening the scopeof Bank forestry lending to include projects with a wider range of components,with special emphasis on environmental and protection forestry and establish-ment of fuelwood plantations in rural areas, also towards supporting on-goingnational forestry programs. Forestry components are now being incorporated inBank financed agriculture and rural development projects wherever local cir-cumstances justify it. The possibility exists for extending this type ofactivity into a concerted project based strategy for future forest developmentas indicated in the following sections.

2. Directions for the Future

3.10 A new emphasis in Bank forestry lending, which reflects the concernsoutlined in Chapter I, implies new concepts, technology packages and institu-tional approaches to meet the opportunities and constraints discussed inChapter II. Forestry project activity is evolving and the Bank's forestpolicy needs to be flexible and capable of further adaptation. While ap-proaches in some areas are still experimental, enough is already known forsome positive conclusion to be drawn on directions for the future.

3.11 Environmental Considerations. There is continuing need for Balnkstaff and member countries to be sensitive to the environmental impact ofdevelopmient projects and strategies. Forestry's role in soil conservation,sand dune stabilization, water catchment protection, and provision of shadefor livestock, may be less obvious but frequently more important than theproducti'on of timber. Ecological considerations have not been of high pror-ity within many developing countries, but awareness of the ecological conse-quences of development is growing rapidly. The Bank can reinforce this pro-cess by striving to inform clients of the wider range of possible socialbenefits and costs from particular projects or development strategies. Forinstance, in countries where adequate natural resource conservation programsand institutions are absent, the Bank should not support projects whichmight result in disintegration of a habitat that is not represented else-where in the country and is not under suitable protection (as in nationalparks and wildlife reserves).

3.12 The Bank should expand its support of natural resource inventorywork among client countries. The value of such activity should be recognizedas extending beyond considerations of narrow economic interest, to includeexamination of indigenous populations, wildlife and flora, rivers, ground-water, wetland and estuary protection - in short, all factors related tothe ecologically-sound use of the resources in question. Experimentalapproaches, already being tried such as inclusion of a forestry protection

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program as an integral part of the Caqueta Settlement project in Colombia, andKenya Phase II project which includes such elements as use of remote sensingimagery and a review of the status of land use planning in relation to fores,.policy) s'hould be included in new projects.

3.13 The Bank should require appraisal docuinents for all forestry-relatedprojects to include an evaluation of the perceivable environmental effects ofthe projects.

3.14 Rural Development. A major part of forest degradatio,a today is theconsequence of low-income groups seeking a livelihood through low-productivityagriculture, frequently on marginal areas and under unstable and inequitabletenure situations. A slowing down of forest: destructiorL in large parts of tbhworld will occur only as governments pursue greatly-expanded rural developmen-:programs which help these people. A continued Bank focus on ier.ding to low-income groups is an imiportant element in the appropriate response toecologically-destructive development patterns. The challenge is to bringabout a change in direction in the developing countries which will result ina larger share of resources being allocated to rural area afforestatior pro-grams with a wider impact on small farmer incomes.

3.15 The Bank has recently become more active in this area. Projectscurrently in the pipeline include a wide range of rural afforestation works -

namely sand-dune stabilization, establishment of shelterbelts, fuelwood pla-ntg>-tions, either as village woodlots or as a crop on farms; planting of foddertrees, pulpwood and other short rotation industrial wood species; soil erosio--works, establishment of nurseries for production and sale of fruit and nuttrees; reforestation of denuded water catchments; protection of dry weathergrazing reserves; planting of soil improvement species; plantations of spe-cializedl forest tree species, such as gum arabic; also the continuation orimprovemnent of small scale rural forest industries, sawmills, joinery work-shops and so on.

3.16 Sufficient experience has been gained to confirm that small farmerswill rapidly respond to incentives for tree planting, such as credit assuredmarket outlets and extension services. In the case of the Philippines Phase ITree Farming Project for example, 1,000 small farmers took advantage of theloans available in the first pilot phase of two years and established an areaof some 8,500 hectares of fast growing Albizzia falcata pulpwood plantations,This scheme is now being greatly expanded in a second phase project.

3.17 Bank studies of the economic impact of such tree farming projectsprovide encouraging evidence that acceptab:Le rates of return can be expectedfrom short rotation fuelwood or pulpwood crops. Tree crops offer the farmerthe prospect of diversifying his cropping pattern, making more effective useof marginal farm land and significantly improving farm family income. Thereis obvtous scope for rapid escalation of Bank lending in areas where ecolo-gical conditions are suitable and land tenure is not a constraint.

3.18 The social and economic consequences of not lncluding afforestaticnworks in rural development projects are much more clearly perceived in the

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Bank today than they were several years ago. Failure to contain sand duneencroachment in countries to the south of the Sahara for example is currentlyresulting in loss of scarce agricultural land and enforced mass migration ofvillages to new lands further to the south. The economic justification forBank investment in rural infrastructure works such as sand dune fixation andshelter belts should adequately take into account these indirect benefits inaddition to quantifying the direct value of the wood produced. Partly inresponse to the energy crisis, Bank investment in rural area fuelwood projectsis also rapidly increasing (eight projects have already been financed and afurther rtwelve are currently under preparation). In its further developmentof fuelwood projects the indirect social and economic consequences shouldfigure cLearly in project justification.

3.19 Probably the most controversial area of current Bank rural forestryactivity is the conversion of high tropical forest by agricultural settlement(e.g. the Brazil Settlement and Indonesia Transmigration Projects). The tech-nical basis for sustained agricultural cropping of the fragile tropical forestsoils is very uncertain. Ensuring protection of residual forest areas onsteeper slopes and along river banks and ensuring rational land use in areasof spontaneous settlement is extremely difficult.

3.20 Wherever time, potential and budgetary considerations permit, theBank should encourage a phased approach to future settlement of tropicalforest areas following a logical sequence of actions which typically mightinclude:

(i) identification of those areas of tropical forest whichare likely to come under serious population pressurein the next 25 years followed by their demarcation aspotential settlement areas (e.g. as Colombia is alreadydoing through its INCORA program);

(ii) making an inventory of the forest resources to determinetheir location and the available volume of merchantablehigh value species so as to ensure that these are removedprior to, or during, land settlement and maximum valueadded by installation of sawmills;

(iii) thorough land use surveys of the area to determine whichsoils have potential for agriculture or livestock production,and those which should logically be retained under forestcover (e.g. steeper slopes of catchment areas or forestsalong river banks);

(iv) intensive research into various agriculture and forestrycropping alternative including, iLnter alia, agro/forestrycombinations such as the "Taungya" system, also researchinto intensified forest management systems, and fastgrowing fuelwood plantations - to be effective, suchresearch needs to be started at 'Least five years andpreferably a decade ahead of planned settlement;

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(v) economic evaluation of various land use settlementalternatives to optimize farm size, cropping patterns,infrastructure requirements, and preparation of projectsor settlement programs; and

(vi) creation of appropriate institutions to administer andimplement future settlement schenmes and initiation of thesettlement process.

This model bears little resemblance to present day actuality. The massivespontaneous settlement movements currently taking place in the tropical forestareas such as the Brazilian Amazon, Venezuela, Indonesia, and Ivory Coast,are proceedings at such a rate (over 15 million ha per year) that only in asmall percentage of this area will it be possible to introduce a more rationalapproach to tropical forest land, use. Nevertheless, the Bank's influence asa development agency could be significant i-n the context of technical assist-ance and research, development of settlemenit institutions and economic researchinto optimal land settlement solutions, and thle Bank should take positive stepsto initiate greater concentration of resour~ces in these areas.

3.21 Industrial Forestry Projects. Xiaile there has been. considerableshift in emphasis in Bank lending towards environmental and rural forestryactivities, the Bank should develop a balanced lending portfolio in forestrywhich adequately reflects the potential of forest industries to contributeto economic development. Current Bank activity in this area is being directed,in part:icular, towards the development of small scale rural forest industriessuch as logging, sawmilling, joinery and furniture manufacture, and prefabric-ated building construction.

3.22 The Bank should encourage and support research and development intosmaller scale technology in forest industries, particularly in the field ofpulp and paper. In this area, the changing raw material availability andprice relationships during the last five years, and the increasingly largecapital requirements for big units, have given a sharp impetus to the devel-opment of smaller scale mills, which should become a reality for a number ofdeveloping countries in the next decade.

3.23 In relation to large scale wood processing, the Bank will assistmajor log exporting countries in defining appropriate policies for develop-ment of their forest products export trade, with special reference to in-creasing local processing of manufactured products and maximizing value added.It will advise governments on formulation of incentives for the establishmentof domestic manufacturing facilities. It will be prepared to assist in finan-cing the necessary infrastructure (ports, roads and railways) needed to openup new forest areas for exploitation, and to guide governments on concessionpolicy issues. The Bank will also support: forest industry training programsand include training components as an integral feature of its forest indus-trial projects.

3.24 Research. Through its project activity, the Bank has already givendirect. support to forestry research programs in a number of countries, and itshoulc continue to support forestry research, with particular emphasis onthose aspects which will help the Bank to implement more effectively itsforest: policy objectives.

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32 25 In relation to environmental and ecologica L research for example,particular emphasis should be given to hydrological studies in forest catch-ment areas, development of low cost catchment afforestation and soil protectiontechniques, land use planning systems using new teclhnology, such as remotesensing imagery. Through its association with the World Meteorological Organi-zati-on, the Bank should support studies of agro/forest/climatic relationships.Conti.nued economic research into methods of quantifying indirect benefits ofLorestry should also be given high priority.

3.26 Zrn its rural forestry programs, the Bank should strongly supportresearch into systematic field crop trials with special emphasis on agro-forestry/crop/livestock combinations, studies of the relative availabilityand cost of alternative fuels in rural areas, technological research into lowcost wood burning, heating and cooking systems with an increased combustionef1i-iencyr

3.27 Ln the industrial context the developing countries, as already noted,have certain inheren-t advantages. They possess the world's main tropicalhardwood reserves for whi.ch market demand is rising. Climatic and ecologicalconditiLons in some developing countries favor fast growing short rotationgrowing species and lower wood production costs than temperate countries.Bank supported research activity in this area should assist developing coun-tries to take full advantage of their favorab:Le position. Priority researchareas include fast growilng industrial plantation species trials, marketoriented research into the use of secondary hardwood species, continued re-search and development in the field of mixed tropical hardwood pulping, andalso in respect of forest and forest industrial institutions. Research intosmall industrial technology (e.g. thermo-mechanical pulp) should be givenparticular emphasis.

3.28 Institutions. The weakness of forest institutions has proved to beperhaps the single most important obstacle to Bank forestry activity in thedeveloping countries. With increasing emphasis on rural forestry, freshapproaches to the institutional arrangements for forestry development areneeded. Bank support for forestry institutions should be directed towardboth loca:L organizations for the management of village forests, and thoseneeded fo:- running rural based forest industries. The Bank should encouragecloser cooperation between forestry and other agencies engaged in the ruraldevelopmenit process. Institutional building elements suitable for Bank sup-port include sector review activities, aimed at quantifying manpower trainingand technical assistance requirements, strengthening of Forest Services andForest- Development Authorities; assistance to governments in the preparationor revision of forest policies, laws, regulations, in the development of landuse p:Lans, and in the allocating of forest concession, timber sale and woodprocessing contracts; assistance in formulating fiscal incentives that willhelp the developing countries to obtain a more significant share of thebenefits from forestry extraction; and establishment of credit, education,training and research facilities.

3.29 Sector PlanniLig. The Bank should continue to assist government inthe formulation of appropriate forestry development strategies, with special

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emphasis on rural and environmental forest issues. Since the Bank's capabilityto provide technical assistance for forestry development is limited, it shouldcontinue to recognize its dependence on other agencies with specialized know-ledge in this field. In particular it should continue to cooperate with FAOtnrough its Joint Cooperative Program as well as other multilateral aad bi-lateral organizations with experience in this field.

3.30 The Bank should encourage and, where requested to do so, assisttechnically and financially those governments wishing to devise comprehensiverural afforestation development plans. This should include financing a trancheof a government forestry programs, or components of it, where this is compati-ble with Bank forestry policy. Where governments do not appear interested indeveloping a strategy of afforestation in rural areas, the Bank should seekto identify and prepare rural development projects which include forestrycomponents, while engaging in a dialogue on possible change in forest devel-opment strategies and encouraging more active local and government involvement,Where governments are interested in experimental rural afforestation programsor projects, the Bank should support them.

3.31 Bank rural sector and forestry sub-sector missions should identifykey technical policy, organizational, management and manpower constraintswhich inhibit the improvement of timber supplies in rural areas. Such reportsshould be used as vehicles for dialogue with governments with a view of remov-ing constraints through such actions as sending special missions to review thestatus of rural forest resources, to analyze the underlying causes of theirdestructicn, and to identify projects or programs suitable for Bank support.

3. Propcsed Future Lending Program

3.32 Reflecting the foregoing concerns, and based on a survey of currentgovernment: forestry development plans, a future Bank lending program for for-estry has been formulated for the period 1979-83. This assumes that flexi-bility exists for inclusion of forestry projects in the Bank's country lendingprograms; that the countries themselves would be receptive to Bank involvementin the forestry sector; and that Bank lending policies, on such matters aslocal cost financing and short grace periods for instance, will not be seriouslyconstraining. The program takes into consideration the limited capability offorestry institutions in many countries to absorb forestry loans or credits.The proposal also anticipates close collaboration with both FAO and UNDP inproject preparation.

3.33 Project Lending. The program envisions a five-fold increase overthe annual lending achieved in the period FY72-76, with a lending target ofUS$100 million per annum. The 25 projects already under preparation or apprai-sal will account for about one half of the total five year target of US$500million. Assuming an average project size of between US$10 million and US$15million, this implies appraising about seven to 10 forestry projects a year(up to a five-fold increase over the number of projects appraised annuallyin the last five years) and forestry lending would increase from 1% to 3% oftotal Bank lending for agriculture and rural development, assuming an average

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annual sector lending target of US$3 billion for the period FY79-83. 1/ Thisproposed lending program is a preliminary target which will be revised in thelight of Bank experience and country receptivity to the Bank's proposals forincreased i-orestry lending.

3.34 Zn addition to these forestry projects, a review of the Bank'sagriculture/rural development lending program indicates scope for inclusionof forestry components in at least five agriculture or rural development proj-ects a years The average size of such forestry components is small (aboutUS$0.25 million per project) and the total volume of proposed lending forsuch forestry activity over the next five years (about US$6 million; includedin the proposed US$500 miLllion lending target) represents a very small propor-tion of total agricultural lending. Nevertheless, the development impact ofsuch components can be significant and they will be an important element ofBank forestry activity.

3.35 The main emphasis in Bank forestry lending will be on financing ofbroadly based national forestry programs with a wider range of components thanin the past. About 60% of Bank lending will be channeled into forestry proj-ects in rural areas including environmental and protection forestry; small-holder/rural community afforestation schemes for various purposes, particularlyfuelwood; institution building, forestry education, training and research;establishment of large scale plantations associated with development of perma-nent forest village communities and small wood using industries located inrural areas. About 40% will be channelled into large-scale industrial planta-tions by government forest services infrastructure, logging, and larger-scalesawmilling and mechanical wood using industries. Although industriallyoriented, large-scale plantations contribute also to employment generationand the development of rural areas, as do logging operations and a consider-able proportion of inputs into infrastructure for forestry. Consequently,it is est:Lmated that approximately two-thirds of the proposed lending wouldreach rural areas and one-third areas which could be urbana or rural.

3.36 Constraints. A number of possible constraints are foreseen inrespect oE such a program, particularly the following:

(i) Institutions -- past experience in forestry lending and tech-nical assistance has clearly established that the key tosuccessful absorption of external funds is existence of wellorganized forestry institutions. The Banks most successfulforestry projects include those located in Korea, Kenya,Finland and the Philippines in all of which well establishedforestry or credit institutions existed at the time of project

1/ The Industrial Projects Department has earmarked about US$300 millionfor pulp and paper project in the same period, so that, together, forestryand pulp and paper projects would amount to about US$800 billion in thenext five years, i.e. a four-fold increase over the level of lendingachieved in the period FY72-76.

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appraisal. However, the absorptive capacity of many forestryinstutitions is weak and in some case!s the only way to resolvethis bottleneck would be a small first phase project or tech-nical assistance credit to build up the capacity of such insti-tutions over three to five years to absorb a larger injectionof outside funds in a subsequent second phase project. Boththe Bank and borrowing countries would need to be receptive tothis approach even where the size of such projects may be smallin relation to the country's absorptive capacity in other sectors.T'here is ample evidence that technical assistance on its own hasrLot been successful in building up the forestry institutions inmany countries despite over a decade of continuous UNDO/or otheraid agency involvement. A combination of technical assistanceplus project lending is more likely to achieve results. Pros-pects for co-financing such projects with UNDP and other agencieswqill be actively explored.

(ii) Local Currency and Total Bank Financing - since many forestryprojects have a low foreign exchange component (25% or less),it will be essential that during the first phase of institutionbuilding Bank policy on local currency financing be flexibleeven in respect of those countries with a relatively high percapita income. This constraint is particularly relevant tocountries in the Latin American region in which forestryinstitutions are generally weak. By raising Bank financingto a substantial percentage of total project cost, the Bankwill be able to play a more significant role in initiatingsound forestry development strategies so as to reap thebenefits from long term environmental protection and forestrydevelopment programs.

(iii) Short Grace Periods - because the gestation period of mostforestry projects exceeds 10 years, current Bank policy onshort grace periods could prove a constraint to more activeBank involvement in forestry.

3.37 The Bank recognizes the importance of more effective land use andforestry protection programs to the developing countries and considers thatthere is sufficient flexibility in its lending policies to enable more activeBank support for such programs.

ANNEX 1

GLOSSARY

Afforestation The planting of trees in unforested areas.

Fibreboard Sheets made from wood or other lignocelulosicmaterial by interfelting of fibres and compactingbetween rollers.

Growing stock Current standing volume.

Industrial roundwood: Includes sawnlogs, veneer logs, pitprops, pulpwood,other industrial roundwood, and chips or particleand wood residues.

m (r) Cubic meters of roundwood.

m3 (s) Cubic meters of sawn lumber.

Particle board Panels manufactured from particles of wood or otherlignocelulosic materials bonded by one or more agentssuch as heat, pressure/moisture catalyst, etc.

Pitsawing Method of sawing logs into lumber in the forestusing a two-man saw with one man above and the otherbelow.

Reforestation The replacement of trees in cut-over forest areas.

Rotation: The period of years required to establish and growtimber crops to a specified marketable size.

Roundwood Wood in its natural state as felled, or otherwiseharvested, with or without bark, round, split roughlysquared.

Sawnwood Cut wood; timber.

Silviculture The art and science of cultivating forest crops.

Sustained yield Forest production achieved per year with an approxi-mate balance between net growth and harvest.

Working plan A written scheme of management intended to ensurethe continuity of policy controlling a forest.

ANNEX 2

WORLD FOREST RESOURCES: GROWING STOCK

Total TotalArea Volume Mean

Covered Closed VolumeRegion by Census 1/ Forests Coniferous Broadleaved per Ha.

million ha ------ 100 million m ---------- m /ha

North America 386 360 265 95 93

Central America 24 22 7 15 92

South Anerica 346 600 5 595 173

Africa 39 52 0.5 51 133

Europe 128 120 80 40 94

USSR 692 733 612 120 106

Asia 353 340 55 285 96

Pacific area 42 13 3 0 31

World 2,010 2,240 1,028 1,200 110

1/ About 70% of wood of forest area.

Source:: S. Persson, World Forest Reserves: Royal College of Forests,Stockholm, 1974.

ANNEX 3

WORLD CfNSUMTION OF PRIMARY INDUSTRIAL FOREST PRODUCTS, 1961-1975

Growth Rate1961-1965

(percentUnit 1961 1965 1970 1975 per year)

Sawnwood million m 335.9 374.2 404.0 385.5 1.0Softwood " 262.9 292.2 311.7 295.0 0.8Hardwood " 73.0 82.0 92.3 90.4 1.5

Wood based panels 31.6 48.6 69.9 83.0 7el

Plywood and veneer 17.3 26.6 36.4 38.4 5.9Plywood 16.6 24.4 33.2 34.9 5.5Veneers 1.3 2.2 3.2 3.5 7.3

Fiberboard andparticle board 13.7 22.1 33.4 44.7 8.8Fiberboard 9.8 12.9 14.3 14.7 2.9Particle board " 3.9 9.2 19.1 30.0 15.7

Paper and Paperboard million t 77.6 97.3 127.8 132.9 3.9

Source: FAO, Yearbook of Forest Products, various issues.

AM4NEX 4

WORLD CONSUMPTION OF FUELWOOD AND CHIARCOAL 1961-1975

Growth Rate1961-1965(percent

1961 1965 1970 1975 per year)

(million m roundwood equivalent)

World 1,023 1,084 1,113 1,183 1.0Developed 138 109 70 56 -6.2Developing 644 715 788 862 2.1Centrally Planned 241 260 255 265 0.7

Developed 138 109 70 56 -6.2North America 48 37 19 17 -7.1W. Europe 69 58 42 33 -5.1Oceainia 4 3 3 3 -2.1Other- 17 11 6 3 -11.7

Developing 644 715 788 862 2.1Africa 190 208 234 256 2.2Latin America 186 207 220 226 1.4Near East 29 38 39 41 2.5Far East 234 258 291 335 2.6Other 4 4 4 5 1.6

Centrally Planned 241 260 255 265 0.7USSR 98 105 86 83 -1.2E. Europe 16 17 15 14 -0.9Asia 127 138 154 168 2.0

Source: FAO Yearbook of Forest Products, various issues.

ANNEX 5

GEOGRAPHIC DISTRIBUTION OF WORLD CONSUMPTIONOF MAJOR INDUSTRIAL FOREST PRODUCTS IN 1975

Paperand

Sawnwood Wood Paper-and Sleepers Based Panels board(Millions of Approx. Millions of Approx. Million Approx.

Region Cubic Meters) % Cubic Meters % of tons %

N. America 99 25 31 37 52 39

W. Europe 60 15 23 28 33 25

Oceania 1/ 43 11 9 11 11 8

U.S.S.R. &East Europe 129 33 13 16 20 15

China 22 6 1 1 4 3

Africa 4 1 1 1 1 2

LatinAmerica 17 4 2 2 6 4

MiddleEast 5 1 1 1 1 1

Asia 14 4 2 2 4 3

Totals 393 100 83 100 132 100

Summary

Developedcountries 353 90 78 94 120 91

Developingcountries 40 10 5 6 12 9

Totals 393 100 83 100 132 100

1/ Japan, Australia and New Zealand.

Sources: Regional Tables of Production Trade and Consumption of ForestProducts, FAO, 1975.

FAO, Yearbook of Forest Products, 1976.

ANNEX 6

WOODFIIEL CONSUMPTION AS A PERCENTAGE OF TOTAL ENERGY CONSUMPTION 1974

Commercial Woodfuelenergy Woodfuel Total as a

million million million sharetons CE 1/ tons CE 2/ tons CE total

World 7,084 456 7,540 6

Developed economies 5,994 53 6,047 1

Developing economies 1,090 403 1,493 27

Southeast Asia and Oceania 100 92 192 48

South Asia 115 88 203 43

China and rest of Asia 492 49 541 9

Near East and North Africa 87 22 109 20

West and Central Africa 12 36 48 75

East and South Africa 13 39 52 75

Central America and Caribbean 110 11 121 9

South America 161 66 227 29

I/ Includes energy generated from coal and lignite, crude petroleum, andnatural gas as well as hydro and nuclear energy; excludes energy fromthe burning of wood.

2/ 1 in woodfuel in 0.33 tons coal equivalent.

CE = coal equivalent.

Sources: UN Statistical Yearbook 1974 for Commercial Energy DataFAO - Yearbook of Forest Products 1973 for Woodfuel data

ANNEX 7Page 1

ISSUES IN FORESTRY PROJECT APPRAISAL

1. Some of the issues characteristic of forestry project appraisal andpossible approaches that might be used in handling them are summarized below.

2. Land Valuation. In the analysis of annual crop projects, land isnot always given a value which is then counted as a capital cost, or annual-ized and deducted from net project benefits. However, a number of likely cropcombinations with and without the investment are shown, thereby ensuring thatthe best use of the land is known and likely to be followed. In forestryprojects, land is typically not costed nor are alternative uses of land givenserious thought or analysis. Often, this is because land of the qualitybeing used is in excess supply and is likely to remain so for the life of theproject. Sometimes, though, the land can definitely be used for othercrops, or is or soon will be in active demand for competing uses. In suchcases, either a cost must be attributed to land and entered as an initialcapital cost, or some estimate of the net value of output from the land inother likely uses should be made and deducted from the net benefits or addedto the annual costs. Only if the land cannot be used for anything else orif land of similar quality is so abundant that no output reduction resultsfrom pre-emption of the project planned in the present or future, is itjustified to ignore land costs. The purpose of the evaluation is to ensurean intelligent use of resources so as to produce the highest addition toincome, suitably defined and subject to equity consideration.

3. Ecological Benefits. It has been argued that forestry projects cansubstantially benefit the surrounding areas due to water catchment and soilconservation, but such benefits are hard to measure. Three approaches arepossible. One is to avoid estimation of benefits by allocating variouslands to annual or perennial crops and, having more or less standardized forecological impact, optimize the species used subject to the land use con-straint. A more sophisticated variant of this would be to specify certaincrops or cultural techniques known to result in acceptable soil or water run-off. A second approach is simply to try, even with highly inadequate inform-ation, to estimate the ecological benefits of a forest. Estimating the costof de-silting canals or lakes is one way to approach this, but the marginsfor errcr are large. A third way is to calculate what environmental benefitlevel wculd be needed to make a forestry project competitive with other alter-natives. The trained observer can usually assess at least in terms of ordersof magnitude what the ecological benefits of a forest are and can comparehis own idea of them with the level needed to make the forestry project eco-nomically attractive. This is a difficult area for cost-benefit analysis anda great deal of judgement is required if the project calculations are to bemeaningful.

4. Equity Considerations. In the proposed social cost-benefit method-ology, :Lt is standard procedure to weight increases in income of the poor moreheavily than the same increases in income going to the better off. If this

ANNEX 7Page 2

methodology is used in appraising a forestry project, the distribution implica-tions of the project must be explicitly identified. If, for example, plantinga wood lot makes more income available to the poor than a banana plantationwhich creates more income but less equity, it is necessary to use the weight-ing scheme outlined and estimate in each case how much accrues to each incomegroup. Obviously, the institutional structure and redistributive capabilitythat exists will determine if a tax and redistribution strategy is a realisticoption. If it is, then the higher paying project without the equity weightsshould be selected, since the poor can have as much income as the society more.

5. Time Saved. One of the major effects of a fuel wood lots is thatmany poor families no longer have to spend large amounts of time going to andfrom distant forests to gather fuel. This is a benefit under standard cost-benefit methodology only if the shadow price of labor, which is the increasein the value of output realized by hiring an extra man, is positive. In manycases, t:he shadow price is positive but nearly zero, so that a very low valueis placed on reduced toil or on time saved. If the saved time is ultimatelyused for education, marketing, or allows different and more productive crop-ping arrangements, the shadow price is likely to underestimate the value oftime saved. If it appears that the dynamic use of saved time is differentfrom the static one, some notation and estimation of this might be attempted.

6. Multiple Projects. If a forest plantation project implies andassumes that a pulp mill will be built to use the project, it is appropriateto regard the two activities as one and derive a single rate of return.Alternatively, one could estimate what cost the pulp wood could be soldat and still allow for a competitive rate of return on the pulp plant. Inpractice, since the pulp plant is often built many years after the plantationis begun, the cost estimates involved are quite uncertain. But even thatdegree of uncertainty is preferable to two improper techniques used in sucha situation. One is to take the actual price of pulp wood, which is oftenfixed at an unrealistically low level, as the proper measure of benefits tothe plantation investment. The result is that the plantation is shown tohave a low or negative rate of return, which in fact may not be the case ifthe pulp mill is making extraordinary profits due to the low pulp wood price.Another alternative approach is to argue that since industry is so badlyneeded, the plantation should be planted even if it doesn't pay. Industrymay indeed be needed, but only if it pays its own way. This kind of multipleproject appraisal also arises when a dam or an irrigation system needs forestsplanted on hills whose run-off might silt up the system. In such a case, thedam or irrigation system can be analyzed both with and without the forestcomponent. In this way, the benefits of the combined projects can be cal-culated, and the costs and benefits associated only with the forest, assumingthe dam is built, can be analysed separately. If a dam or irrigation systemis already built, and if planting forests will extend their life by a givennumber of years, the benefits of this may properly be attributed to theforest project.

7. Long Pay-back Periods and Uncertainty. Forestry projects take along t:ime to begin production and even longer to run to completion. Theability of project appraisers to project prices, costs, demand and so on,

ANNEX 7Page 3

over these time periods is limited. The nornal practice is to take the priceor cost thought most likely and to make some sensitivity analysis of possiblevariationIs. An alternative which may be superior is to estimate several dif-ferent prices and attach probabilities to each price. This would make con-sideration of a range of possible outcomes more likely and would also repre-sent more accurately the true degree of uncertainty. The project's rate ofreturn could be a single number derived by multiplying the different prob-abilities by their prices and adding them, or could be presented as an arrayof possible rates of return with their probabilities attached. A specialcase involving uncertainty arises when the use of the wood from a projectis uncertain. For example, if it is possible that a wood lot will have itsoutput used for poles or pulpwood rather than fuel wood, the probabilities,prices and time of use should be estimated and rates of return calculatedfor each alternative.

8. Contingent Environmental Effects. Predicting environmental effectsis difficult and open to a large degree of error, but project analysis shouldattempt to include some assessment of them. One approach is to examine boththe pro;ject that is being evaluated and an alternative that would not havethe parl:icular environmental impact whether favorable or unfavorable. Forexample, if a fuel wood lot is being considered, it may be appropriate toassess also a banana plantation. The banana plantation might have a higherreturn than the fuelwood lot, but if it is approved there may be continuingand increasing environmental damage due to overcutting of forests outsideof the immediate project area. To be consistent, the change in output result-ing from this overcutting could be either added to the cost of the wood lotor subtracted from the benefits of the banana plantation. While assessingthese behaviorial reactions is particularly difficult, an attempt should bemade to include, and not abstract from, such institutional and distributionalimplicEations.