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Tropical ForestPlantations andNatural StandManagement:A NationalLesson From EastKalimantan?Lachlan Hunter aa School of Forestry University ofCanterbury , New ZealandPublished online: 17 Aug 2006.

To cite this article: Lachlan Hunter (1984) Tropical ForestPlantations and Natural Stand Management: A National LessonFrom East Kalimantan?, Bulletin of Indonesian Economic Studies,20:1, 98-116, DOI: 10.1080/00074918412331334552

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TROPICAL FOREST PLANTATIONS AND NATURAL STAND MANAGEMENT:

A NATIONAL LESSON FROM EAST KALIMANTAN?

Lachlan Hunter’ School of Forestry

UniversiQ of Canterbury, New Zeoland

The purpose of this paper is to consider the probable effect of the log export prohibition and the development of domestic forest product industries on timber supply from the natural rainforest and to compare, for a single location in East Kalimantan, the economics of managing natural forests with the alternative of forming exotic plantations to meet the projected industrial demand. The paper concludes by discussing some of the wider implications of the choice between plantations and natural forest.

INTRODU(XI0N

The historical pattern of timber harvesting in East Kalimantan has already been extensively described in previous issues of the LUES (Manning, 1971; Koehler, 1972; Ruzicka, 1979; Daroesman, 1979). In 1980, forest products still contributed 7% of export revenue, ranking next after the 75% contributed by petroleum products. A log export control policy initiated by the Government in April 1979 was progressively tightened until, in February 1982, the objective of a total prohibition by 1985 was announced. The attempt to encourage domestic processing follows the pattern set

‘The author would like to thank officers of P.T. International Timber Corpora- tion Indonesia (ITCl), tn particular Ir. Rum Ginting, for their services and information provided at Kenangan. East Kahmantan. The company is not respon- sible for any statements made below. Research for this paper was undertaken in Indonesia and at the University of Melbourne’s Faculty of Agriculture and Forestry whilst on study leave.

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by Malaysia and the Philippines. The effect of this policy is shown in Figure 1 which illustrates how the proportion of logs exported has declined from a peak of 83% in 1976 to the estimated figure of 24% in 1982. Evidence that the prohibition is effective can be found in the statistics of Indonesia’s main customer, Japan, which imported 56% by volume of Indonesia’s 1982 log exports (Figure 2). The Indonesian share of Japan’s shrinking hardwood log import volume declined from 44% in 1979 to 18% in 1982. Whilst it is true that Japanese import figures consistently exceed Indone- sian export figures, only from 1981 onwards was the difference substantial (about 25%), and the log export policy is still clearly operating. Current regulations link export quotas to plymill wn- struction, and failure to prepare construction plans has been one of the main causes for the recent confiscation of concessionaires’ harvesting rights. Positive measures have included the reduction of export taxes on sawn timber and the easing of regulatory con- straints on export enterprises, such as harbour fees and export credit facilities. Additionally, the pulp and paper industry is a development area under Repelitu III.

FIGURE 1 Production and Export of Logs, 1969-85‘

\I,u,n “3%

..... ..f“Duh I . . . . . . . . . . . . . . . I

I p w 71 13 is 77 79 R I 82* 83 cm5

Ye.,,

Yrian Jaya is excluded from the log export policy bat has a quota. Only 41% of

“1982 figures provisional.

Source: Direktorat lenderal Kehutanan (1983).

its 28.8 million ha. of forest are zoned for timber production.

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FIGURE 2 Japan’s ‘South Seas’ Log Imports, 1979-83

1979 1980 1981 1982 1983‘

22.6Sb

“Eitimated. bMillions of cubic metres. “Other’ countries are P a p a New Guinea, Brunei and the Salomons.

Source: Japan Forestry Agency (1983)

PROCESSING DEMANDS ON THE RAINFOREST

By 1982, log exports compriccd only 38.4% of the value of all wood exports. This section examines the major components of the forest industries sector, whose products are planned to replace these log exports, and combines estimates for each product to give an overall indication of demand for roundwood. The intention is to discover whether, in fact, there will be a marked conservation effect as logs are directed to domestic processors at cheaper prices.

Plywood and Veneer. Plywood has led the movement to domestic processing. Figure 3 illustrates production and export figures to 1982 and projections to 1985 made in late 1982 by the Indonesian Plywood Manufacturers’ Association (APKINDO) These plans, particularly the expected share of the Pacific market, were very ambitious. and were fuelled by the rapidly expanding supply capacity shown in Table 1.

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FIGURE 3 Plywood and Veneer Production and Erport Proiections"

Million m'

R -

7 -

6 -

5 -

upply to major hardwood plywood

3 - lmpurrlng coumne,

Domestic consumption

I I i IY811 19x1 IYX? 1983 19x4 1985

Years

'Plywood volumes are based on 4 mm. panel. Major importers: USA, EEC, Middle East & Far East. Suppliers: Singapore, Korea, Taiwan, Philippines, Malaysia & Brazil.

Source: Indonesian Plywood Manufaclurcrr' Association (APKINDO).

TABLE 1 Plywood Industry Development

Umts Capacitp IYRO 1981 1982 1980 1981 1982

Under application 87 99 52 3.6 4.9 2.4 Under construction 17 39 63 1.0 1.8 3.0 In production 28 32 56 1.5 1.8 2.9

Total 132 170 171 6.1 8.5 8.3

"Milhons of cubic metres per year (2 shift basis). Source: APKINDO (1983)

However, by December 1982, the f.0.b. price in US$/m3 for plywood had fallen to $257, compared to $349 in January 1980. Veneer prices moved from $174/m' in January 1980 down to $124 in January 1981. but returned to $185/m' at the end of 1982. Major purchasers of logs are I-eluctant to accept further processed products; Japan, for example, took 56% of Indonesia's logs in

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1982, but only 17.4% and 1.7% respectively of Indonesian veneer and plywood. Although there are alternative buyers, such as Hong Kong, Singapore, and the Middle East, it is surprising that Government incentives did not favour veneer as an intermediate step to full plywood production. There are quality control prob- lems in the US market, and present plymill design is not yet fully integrated to ensure efficient recovery of waste. In 1983, existing millers turned more to veneer and new applicants were meeting refusals from the Capital Investment Co-ordinating Board (BKPM). The four Kalimantan provinces, especially East Kali- mantan, accounted for nearly 50% of provisional or confirmed licences, and nearly 75% of new applications (Japan Lumber Journal 1983).

Sawn Timber. Owing to capital requirements, sawmilling is commonly the first choice in establishing forest industries. Indeed, concessionaires have argued that the twenty-year limit on conces- sions introduces an element of risk to raw material supply which prohibits consideration of any development beyond a sawmill. Sawmill development is shown in Table 2 and projections in Figure 4.

TABLE 2 Sawmilling Development in Indonesia

Units CapacitP 1980 1981 1982 1980 1981 1982

Application 81 19 102 2.2 2.1 2.1 Construction 28 30 21 0.8 1.0 0.8 Production 189 239 264 5.5 7.1 1.1

Sub-total 298 348 393 8.5 10.2 11.2 Non-HPHb 1,510 1,957 1,957 3.5 5.4 5.4

Total 1,8W 2,305 2,342 12.0 15.6 16.6

‘Millions of cubic metres per year (2 shift basis) bHPH = with cutting rights. Source. Direktorat Jenderal Kehutanan (1983).

F.0.b. prices for sawn meranti, quality classes 1 and 2, fell from US$323/m3 in January 1980 to $165 in mid-1981. rallying to $1951 m3 by December 1982. Sawn timber exports still showed an increase in both volume and value during 1982, although total sawn timber production registered a 36% reduction in volume, domestic prices being about one half export prices (Direktorat

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FIGURE 4 Sawn Timber Production and Export Projections

Million m3 1

7 -

6 -

5 -

4 -

3 -

2 -

1 -

Domestic consumption

I I I I I 1 1979 1980 1981 1982 1983 1984 1985

Yean

Source: Indonesian Sawmilled Association.

Jenderal Kehutanan 1983). Export destinations are very diverse with the two largest buyers, Italy and Singapore, taking only 18.7% and 19.2% of the total 1.362 million cubic metres exported in 1982, while countries accepting less than 2% comprised over 45% of the total. Diversification lessens the risks inherent in the log export market with its concentration upon one or two buyers.

Problems in the sawmilling industry include poor grade out- turn, payment of employees by volume rather than quality, and conversion factors (ratio of sawn volume to log volume) which are low for such large logs (Dulkifli 1980), but there is evidence (for example in the increase of kiln-dried export timber) that other obstacles are being overcome. Not until 1982 did plywood exports exceed sawn timber in value (US$256 million compared with US$217 million), and it may be expected that sawn timber needs will continue to exert the major secondary demand on the forest resource.

Pulp and Paper. Of Indonesia’s 29 paper manufacturers, only 14 are integrated units with pulp-producing sections, and in 1980 only 20% of the total raw material tonnage was derived from wood, the remainder being furnished by rice straw, bagasse, bamboo, and wastepaper. Moreover, of the planned developments in capacity

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which will utilise wood as a raw material, the majority will manufacture longfibre pulp from Pcnus merkusii; only one firm, P.T. Sabindo, now building a factory at Sesayap in East Kali- mantan, will use tropical hardwoods. to a projected level of 1,388,000m’ input per annum (Direktorat Jenderal Kehutanan 1982). Other enterprises. for example, P.T. Banto Pulp and Paper, plan to couple their mill with a pulpwood plantation project in South Kalimantan.

Utilisation of tropical hardwoods in pulp manufacture is still constrained by the extent of knowledge on the quality of pulps made from these species, and, ultimately. by technical limits on the substitution into long-fibred pulp when certain grades of paper are required. Continuing research may discover new methods which will overcomc these obstacles. and probably per capita consumption in Indonesia will rise from its present level of 3.7 kg closer to that of other Southeast Ayian countries, for example, Thailand (8 kg) and Singapore (60 kg). Already derived demand effects from thc cement and foodstuff industries are increasing the need for sack kraft and packaging papers, whilst in 1982 nearly two-fifths of domestic production was of printing and writing paper. Despite these trends, the assumption adopted here is that the pulp and paper industry will not be a major consumer of tropical hardwoods within the next decade.

This brief review of the major forest industries and their probable demands on the rainforest resource is integrated in Table 3 which furnishes estimates of roundwood removals based on assumed (and constant) conversion factors and the projections of the various industry and government organisations. Discrepancies between actual recorded removals and those estimated from processed product volumes may be due to both measurement and computational errors, underestimates of log export figures (recall the Japanese statistics in Figure 2), or better actual conversion factors than the ‘optimistic‘ ones quoted in Table 3 . However, the main interest in the table lies in the projections which imply that the declining harvests experienced in recent years (a fall of 26% in 1980-81, 31% in 1981-82) would be replaced by increasing harvests (+ 45% in 1982-83, + 16% in 1984, and + 6% in 1984- 85) under the conservative choice. Nor are these reflections of full capacity production. Peak roundwood removals during the log export boom in 1971 and 1978, were of the same order of magnitude (26,000,000m3).

Some commentators (for example, Australian Bureau of Agri- cultural Economics 1982) have suggested that, given the current relativity between world prices for hardwood logs and those for

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TABLE 3 Summary of Roundwood Requirements

Roundwood 1980 1981 1982 1983 1984 1985 (m' million)

C 0 C 0 C 0 C 0 C 0 C 0

Plywood 2.43 2.13 3.49 3.06 5.66 4.95 7.99 6.99 12.18 10.66 14.27 12.4 Sawn Timber 9.72 7.78 11.51 9.21 7.31 5 90 12.50 10.00 13.50 10.80 14.46 11.6

1.3 ~ Pulp & PapeP - - - - negligible - - - - - Log Export 14.58 14.58 6.21 6.21 3.20 3.20 3 . w 2 . w i s o b 0.90' 0 . 8 0 ~ 0.8 Total Roundwood

Actual Removals 21.63 21.63 16,MJ 16.00 13.61" 13.61' Removals (26.73) (24.49) (21.21) (1R.48) (16.23) (14.05) 23.49 18.99 27.18 22.36 29.53 26.2

C = Conservative, based on conversion factors u l 2 4 for plywood, and 2.0 lor sawn limber. 0 = Optimistic, based on convecsion factors of 2.1 for plywood. and 1.6 far sawn timber. "Only one tropical hardwood pulpmill project (P T Sahmdo) assumed lo be a poraihlr producer by 1985 '1.iig export levels for 1983 and 1984 are based upon progressive 1982-5 decrcase to zero. 'Irian Jaya's continued contribution. 'Estimated, May 1983 Source: Actual recorded quantities from Kehutanan Indonesia, Data dan Informasi, 1982.

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processed products, Indonesia may he able to secure the same export revenue from a lesser volume of processed material as formerly accrued from logs. This, however, presupposes a ‘satis- ficing’ objective rather than a ‘profit-maximising’ one, and, given the downward trend in oil prices and the Government’s efforts to promote non-oil exports, there seems no reason why timber harvests should not rise, as a pure derived demand effect, in conjunction with improving fortunes on the world market for plywood and sawn timber. Even a switch in emphasis from plywood to veneer, permitting a conversion factor of, say, 1.7, will have a limited effect on the demand for roundwood.

Nevertheless, the direction of production and export trends to 1982 is quite the opposite of the optimistic projections for 1983 onwards. Income elasticities of demand for domestic sawnwood and plywood implied by these figures seem improbably high, and the difficulties of achieving product quality and marketing effi- ciency may he under-estimated. Moreover, there are doubts ahout the actual capacity of existing sawmills (Waring 1981) and ahout the true rate of capacity expansion in the plywood industry. If the projections in Table 3 are adjusted to accord more closely with actual performance in 1981 and 1982, total roundwood removals may rise to no more than 16 or 17 million cubic metres by 1985. This level is still equivalent to the depressed year, 1975, of the log export boom. The objective in assessing processing demands on the natural forest has not been to make another projection in a highly uncertain forecasting environment hut rather to stress and adduce evidence for two important aspects of the contemporary scene:

i) The log export prohibition policy is being earnestly

ii) Industrialisation of itself will not necessarily engender con-

The remainder of the paper is devoted to considering whether exotic plantations can he grown economically to reduce pressure on the existing natural forest resource and assist its careful management in perpetuity.

EXOTIC PLANTATIONS

Intensive plantation forestry in principle allows one factor of production, land, to he used more sparingly by efficient substitu- tion of capital and knowledge. In New Zealand in 19x3, for example, an exotic forest estate of 992,000 ha. (about 3.7% of the total land area) supplied the nation of three million people with

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nearly 10 million cubic metres of roundwood, comprising 95% of its total requirements in all categories of forest products, including about 4.5 million cubic metres of exports (in roundwood equiva- lent). The indigenous forests on the other hand, occupying 23.3% of the land area, supplied the remaining 5% of total roundwood removals (New Zealand Forest Service, 1983). Admittedly this national dependence on a man-made resource is unique. The early history of forestry in New Zealand consisted of cutting down the slow-growing natural forest, clearing it for agriculture (slash-and-burn pastoralism) in a manner not quite analogous to shifting cultivation in the tropics since the process, despite conti- nuing erosion problems, eventually led to settled farming on approximately half the land. A similar pattern is revealed in the less polarised case of Australia, where in 1981 a total exotic plantation resource of 31,300 ha. (only 0.07% of land area) produced 4.52 million cubic metres or 28% of all roundwood removals, compared to a native forest area of 40.87 million ha. (5.3% of the land area) supplying the remainder of the domestic harvest. In the Australian case, both imports and exports are also significant (Australian Department of Primary Industry 1982).

A rough translation of ratios of these orders of magnitude into the East Kalimantan situation with 21.1 million ha. and 75% forest cover would imply that full productivity of the natural forest could be sustained if around 550,000 ha. were replaced by exotic plantations. Of course, the actual proportion would depend on relative growth rates and other factors, but the most advanced exotic plantation program in East Kalimantan (that belonging to P.T. International Timber Corporation Indonesia at Kenangan) had only 5,300 ha. of a 600,000 ha. concession established in plantations by 1981. Only three or four other concessionaires, according to ITCI staff, had plantation programs by 1983.

Long and Miller (1980) summarise the arguments for developing plantations in the tropics, citing factors such as the need for conserving the natural forest whilst maintaining harvest revenues, the changes in stand structure following logging which lead to delays in maturation of second generation dipterocarps (the major timber species), and the costliness of enrichment plantings and their maintenance. Superior growth rates and concentration on a smaller area giving economies of location are also characteristic features of plantation forestry. Developing a plantation program in Kalimantan must involve a transfer of silvicultural technology into a local complex of soil types, species choices, research to determine the best management regimes, and education of fores- ters in the practical aspects of plantation forestry.

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The author visited the ITCI plantations at Kenangan, East Kalimantan, which were originally established when the company was a joint venture of Tri Usaha Bakti and the Weyerhaueser Company. Using cost data furnished by internal and other publica- tions (Adsubratd and Ginting 1981; Ginting 1982) the following comparison can be made of the economics of natural stand management with plantation forestry.

As shown by Figure 5. two of the many trial species, Pinus caribbea and Eucalyptids deglupta. have been favoured, with average increments of 11-15 and t5-20 cubic metres per hectare per annum respectively and anticipated rotations of 20 and 15 years. By comparison. ITCI research estimates growth rates in the natural forest after logging as only 2 or 3 cubic metres per hectare per annum, and under the Indonesian Selective Cutting System, a minimum rotation of 35 years is envisaged for the second-generation dipterocarps. Although trials of many 5pecies are an essential prerequisite tor a successful plantation program. the maintenance of divcrsity, which foresters tend to regard as a golden rule, has often provcd to be very costly. Recent studies (Whitehead 1982) reveal the paucity of evidence for commonly held beliefs in the pathological vulnerability of monospecific forests, the high stability of very diverse ecosystems, and even the fixed nature of the climatic climax concept. It is not the purpose of this paper to discuss the roles which might be played by even faster growing species such as AIbizzia falcata or Acacia mangium, or the multiple use feature of Leucaena leucocephala, hut rather to consider a standardised plantation regime for direct economic comparison with natural stand inanagcment. A theore- tical blend of Pinus caribbea and Eucnljptus degliipta has been assumed for this purpose, growing on an intermediate rotation of 17.5 years which allows two rotations to be compared with one 35 year cycle of natural stand management. Silvicultural costs comprise site preparation, planting and fertilising with phos- phorus, weeding and vine cutting; finally there are road and camp construction costs, felling costs, and, throughout the rotation, annual supervision and overhead costs. Using a 10% interest rate, growing costs for Pinus caribbea are US$9.47/m3 and for Eucalyptus deglupta, $3.95:m3. Revenues accruing to the forest operation are calculated as residual values after deducting taxes. milling costs, logging costs. and royalties trom f.o.b. or local sales values (Table 4) A range of prices over the three years to December 1Y82 is used: and the value of exotic sawn timber exports derivcd from comparable trade in the Pacific Basin for Pinus sawn timber.

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FIGURE 5 ITCl Plantations, East Kalimanran"

I IYlS-h

I IY70-7

TABLE 4 Approximate Residual Values (uS$/m.')

Praduct Sale Export Milling Logging Residual Prices Taxes Costs Costs Values

Export f.0.h. - 179 3s 5 131-negative

Export Sawn f.o.b 18-8 26 35 5 236-83

Plantation f.0.h. 4 26 Ma ?b 40-20

Plywood 350-220

Timber 320-165

Sawn 100-80 Timber

Sale - 35 5 28-10 Local Log 68-50 -

- . . ^ . ^^ "r -, .* Lxport Logs f . 0 . D . 54-LL - 33 3 w-'+.l

'Logging costs for plantation timber are likely to he less than those for natural forest timber owing to proximity to thc mill but this effect will be diminished by the smaller piecc-size, which ~ncrea%s handlmg costs.

1s not known whether royalties will be charged an timber grown by the conccss~onai~e Prrbent agreements would probably still permit thc Government to do this, on the basis oi its continued input of land to the production process.

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The range of finished product prices over the last three years gives rise to large differences in residual values. Figure 6 attempts to provide a comparison by examining high and low revenues from exported sawn timber of both natural and plantation species, besides local log sales. The lower-priced plantation choice proves to be of similar profitability to the higher-priced natural stand management choice (curves P and N), a fortuitous correspondence since, if a sufficient fraction of the concession is converted to plantation to enable a sustained yield from the remaining natural forest, then the reduced supply will tend to give rise to higher prices, or to substitution into plantation timber. Competitive advantages enjoyed by plantations and natural forests lie in the former’s shorter rotation and the latter’s higher prices. These advantages can be combined in a manner yielding significant economic and ecological benefits.

FIGURE 6 Net Present Values of Plantations and Nutural Stand Management

-5 ”.e

A major assumption underlying these simple discounted cash flow calculations is the 35 year regeneration cycle implicit in the Indonesian Selective Cutting System. The author’s observations of logging in East Kalimantan accord with the comments of Kartawi-

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nata (1980) that logged areas quickly regenerate with pioneer species (of which Anthocephalus chinensis is probably the only useful one). that up to 50% of residual trees can be damaged by logging operations. and that further mortality occurs due to impeded drainage. Although only 10 to 12 trees per hectare are harvested, inadequate planning of logging trails and lack of supervision over skidder movements leads to far greater canopy- removal than the 30% which occurs with systematically spaced crop trees. As a consequence, advanced meranri growth does not survive under full isolation, and the light-demanding pioneer species ensure that micro-climatic conditions are not favourable to the dipterocarps until perhaps two or three decades have elapsed, with the ultimate result that cycles of 60 to 70 years are more likely than the 35 years postulated. Two tacit assumptions underlie the comparison made; firstly, that the sustained yield objective is economically desirable, and secondly that discounted cash flow analysis is an unbiased tool for determining profitability. These are now examined in more detail.

Sustained yield, as a bare principle little amplified by explora- tion, has become a widespread policy instrument in many coun- tries, not just in the tropical world (see Qureshi 1978). Frequently confusion surrounds what meaning is intended by the term. Characteristically, economists have attacked foresters’ supposed devotion to sustained yield, assuming that the principle is a normative goal rather than a reference point for planning (Wag- gener 1969). The concept is best conceived of as an application of the factory principle, with its attendant economic benefits, to a natural biological system. Although Figure 6 illustrates the profit- ability of one cycle of natural stand management and two cycles (rotations) of plantations, the analysis could he conducted on a perpetual basis, showing the empathy of sustained yield with both ecological and economic criteria.

In practical terms, sustained yield could involve either clearfel- ling systems or selective logging. The Queensland Department of Forestry (1983), in summarising the results of research over the last twenty years, concludes that properly conducted selective logging does not systematically remove particular species from logged areas, nor does it cause long-term changes in species composition by altering the composition of the regeneration. Furthermore, stands have responded to logging by increased increments and rapid re-establishment of physical structures, with damage to the residual stand being of negligible effect. Similarly, the fauna composition is altered only in the short term, with no evidence of extinction caused by logging. The need to follow

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stringent guidelines in respect of hydrological effects was, however, strongly reinforced.

Clearly, there are quite different kinds of logging which entail diverse consequences for regeneration and growth. The foregoing analysis derives from an optimistic view of the manner in which logging will be conducted.

The second assumption, that discounted cash flow analysis is an unbiased tool for determining profitability, can be traced back to the work of Martin Faustmann in 1839. Critics have pointed out the subjective nature of the determination of the discount rate and they have also argued that the technique is remote from normal business criteria. In Figure 6, lowering the discount rate would tend to improve the performance of natural stand management, while raising the rate would have the opposite effect. But the relativities would not change greatly. The second criticism is more serious, since the demonstration of long term profitability for plantation forestry arguably ought to be ignored if the year to year business of earning foreign exchange and improving the Indone- sian balance of payments is given priority. Plantation forestry is undoubtedly expensive, especially in the development period when there are no direct revenues, hut if this difficulty can be viewed in a long term context, then the analysis suggests there is a case for permitting a proportion of concession areas to become permanent plantations. complemented by sustained yield manage- ment on the remainder.

A GLOBAL PERSPECTIVE

Development of a plantation resource cannot he undertaken by any country without regard for changes occurring elsewhere in the tropics. Speculative projections on the rate of removal or degrada- tion of tropical rainforests abound, and at the alarmist end of the spectrum can reach rates of nearly 40 hectares a minute. Neverthe- less, the most authoritative statement for the time being must be a comprehensive F A 0 study (1-anly & Clement 1982), whose data are adapted in Figure 7 on a semi-logarithmic scale for area to emphasise the difference in orders of magnitude between natural forest and plantation areas. Only one half of the latter may consist of high yielding species (mean annual increment > 15m’/ha. overbark) by 2000. Success with tropical plantations has been limited, with some exceptions, such as soft woods in Kenya, Brazil and Fiji, and teak in Java; the only feasible time to establish them is whilst there are still supporting revenues from the natural forest. Natural forest, also, may provide profits from logging where it is

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not intended to restore the forest cover, as in transmigration projects (Ross 1980) and it is apparent that primary forest undergoing conversion may furnish net present values in excess of those shown for both natural forests and plantations in Figure 6 (see Table 4 in Burbridge et al. 1981). Plantation establishment will lessen the need for large supply areas. makmg available more land for agriculture, and possibly also acting as a suppression agent in alang-along areas.

FIGURE I Area Projections of Operable Natural Closed Forest and Industrial Pluntations in the Tropics

vcan

Source: Lady & Clement (1980).

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CONCLUSION

Major obstacles to plantation development in Indonesia today relate primarily to risk:

The grower cannot he assured that he may harvest the plantation trees, nor of what the royalties might he. Concession contract lengths of 20 years are barely long enough for one rotation, and do not encourage sequential planting to develop a sustained flow of timber.

3. Plantation forestry is expensive, although rewarding. Gov- ernments with experience in this enterprise, such as Chile and Brazil, generally provide incentives at the start of the rotation. The New Zealand Government, for example, now covers 45% of all costs of establishment and maintenance, including interest to individuals or companies engaged in plantation forestry (this rate is the same as the corporate rate of taxation). Existing plantations are still young, and there is residual uncertainty about their performance for the remainder of the rotation.

The most difficult hurdle, however, is almost always the inability of governments to perceive the enormous potential of plantation programs until revenues from the natural forest have diminished to the point of being unable to support them. The first step should be for the concessionaires involved to form a Forest Growers’ Association much like the Plywood Manufacturers’ and Sawmillers’ Association, to which government corporations like Perum Perhurani should also belong. The next stage would be to develop appropriate joint venture agreements between Govern- ment and industry. Such agreements may allow access to trees planted on non-owned land under a profir u prendre or other suitable legal agreement. The Government would provide land and a grant in return for taxation of the harvest; the concessionaire would contribute full management from planting to felling. All costs, including the agrecd rent of the land: may he compounded forward to the end of the rotation at a rate which reflects the average real rate of return on forestry investment in Indonesia, following which the proceeds may he divided between Govern- ment and concessionaire in direct proportion to the cost inputs. Alternatively. the Government might adhere to its usual royalty schedule and rate of taxation, although it has been demonstrated (Ruzicka 1979) that this route usually fails to capture the resource rent for the landowner. Ruzicka’s conclusion is familiar in coun- tries with a long history of Government royalty policies for natural

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forests (for example, see Byron and Douglas 1981). It should also be noted that higher rates of interest used in the calculations tend to redistribute proceeds from the landowners to the forest inves- tor. Since company books are normally available to tax authorities anyway, there seems no reason why such a cooperative venture cannot be operated. It would be wiser if the State Forestry Service could undertake independent operations, but at present the level of staffing in Kalimantan seems to preclude this. Rotation lengths may be specified to accord with the contract, and rights of renewal based upon fulfilment of the terms of the agreement, which assures landowner and forest grower of fair returns, and which need not he complex.

This paper suggests that although the Government of Indonesia’s determination to promote domestic forest industries is strong; this policy may not necessarily lead to conservation of the resource, especially if world markets in processed forest products recover. The establishment of fast growing exotic plantations on smaller areas could suitably complement sustained management of the natural forest, and a profitability analysis of a program in East Kalimantan (actually the only directly comparative site in the country) indicates that, even at lower prices, plantations could be as economic as natural stand management. World tropical indust- rial plantations are minute in extent, but suitably drafted agree- ments between government and concessionaire could promote planting, and remedy this situation with subsequent economic benefits.

REFERENCES Adisubrata, Slamet & Rura S. Ginting (1981). ‘Supply Bahan Baku Dart

Kornhinas, Produksi Hutan Alam dan Hutan Tanaman’, paper to Diskusi Industri Pekayuan IV. 29-30 April, Jakarta.

Australian Bureau of Agricultural Economics (19x2). Assistance io the Ausrrolian PIjwood and Ve‘eneer MOIU~OCIWWZ~ lnduilrres and Zlrveioprnenrs m the Forest- bosed lndrcstnei of Indoneria, 22101ajr~n and the Plrilrppines: Implicanons for Aunralra. Occasional Papers 64 and 67. Canberra

Australian Dcpartment of Primary Indurtry (1982). Australran Forest Resources I Y X I , Australian Gavernmcnt Publishing Szrvice, Canberra.

Burhndge, Peter, John A Dixon and Redjo Soewardi (1981). ‘Land Allocation for Transmigration‘, BIES 17 ( I ) , pp. l(18-117.

Byron, R N. & J J. Douglia (1981) Log Pnczngin Australia: Policies, Praclicesand

Daroesman, R. (19791, ‘An Economic Survey of East Kalimanran’, BIES 15 (3), Consequencer, BFE Press, Canberra.

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- (1983), penanal cornmumcation. Dulkifli, Soebagyo (1980), 'A Glance at the Difficulties of Sawmills in Samarinda',

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Koehler, K.G. (1972). 'Wood Processing i n East Kalimantan: A Case Study of Industrialisation and Foreign Investment in Indonem', RIES H (3).

Lanly. J P R J Clement (19R2). 'Prescent and Future Forest and Plantation Areas in the Tropics' in Oldemann, R.A. (ed ) lraprcd Hardwood L'rilizatton Practice and P~o.spcpects. Nilhoff & Junk, The Hague.

Long, Alan J. R Tom B. Miller (1980), 'Tropical Forest Plantatmns m East Kalimantan'. papcr to Diskusi lnduatri Perkayuan. Hotel Horison. 26 March, Jakarta.

Manning, C. (1971). 'The Timber Boom with Special Reference to East Kali- mantan. BIES 7 (3).

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1980, Jakarta.

Queensland Dept. of Forestry (1983). 'Rainforest Research in North Queensland A Position Paper'. QDF, Brishane.

Qureshi. Ata H (1978). Surturned Yield from Tropical Forests- A Practical Policy for Resource and Environment Mmapemenr7, Research Pruspcctus. East-West Environment and Policy Institute, Hawaii.

Ross, M.R. (1983). A Method for Selecting Agricultural Land from Producrion ond Conversron Forest, m Indonesro, Occasional Paper No. 22. Commonwealth Forestry Institute. Oxford.

Ruzicka, I. (1979), 'Rent Appropriation in Indonesian Logging: East Kalimantan 1972313-19161777'. BIES 15 (2)

Waggener, Thomas R ( I 969) Some Economic Implm~tions of Sustained Yield ar a Forest Regularton Model, Contemporary Forestry Paper No. 6. University of Washington.

Waling. L (1981). Primnry Wood-Based Indumies - Foresrry and Forerr Products Development Indonesiu. F A 0 Working Paper No. 11

Whitehead, David (l982), 'Ecological ASPCIS of Natural and Plantation Forest'. Commonwealth Foreslry Bureau Forestry Abstracts Rwiew Article 43 (10).

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