Working Paper 33 (117 pages):
Natural Forest Benefits and Economic Analysis of Natural Forest Conversion in Cambodia
Kasper K. Hansen and Neth Top
 

Executive Summary

Cambodia is still a relatively richly forested country. It is mainly covered by state-owned natural forests, which provide a variety of local, national and global services and benefits. At the moment, around 2.7 million hectares of natural forests are in a post-concession management vacuum and under increasing threat of conversion to alternative land uses from an increasing rural population and large-scale land concessions. The government therefore faces important decisions on how future management of natural resources can balance the need for agricultural development with the need for forest conservation and the benefits and services they provide.

The aim of this working paper is to contribute to decision making related to natural forest conversion by valuing natural forests and examining financial and economic aspects of natural forest conversion to alternative land uses. The study focuses on three selected forest types (evergreen, semi-evergreen and deciduous) and nine alternative land uses (eucalyptus, acacia, oil palm, cashews, rubber, rice, soy beans, cassava and maize), which adds up to 27 different natural forest conversion scenarios.

The first part of the study assessed the total livelihood value[1] obtained locally from natural forests, based on 502 household interviews in four provinces (Kompong Thom, Kratie, Mondolkiri and Pursat) on consumption and sale of non-timber forest products (NTFPs) over the previous year. The annual total livelihood values obtained from forests in the four areas were: USD265/household in Kompong Thom, USD424/household in Kratie, USD167/household in Mondulkiri, and USD314/household in Pursat. Data were analysed separately for poor and medium households to identify linkages between poverty and the use of forest resources. The results were that poor households in the survey gained 42 percent of their livelihood value from forests, equal to USD280 per household annually. Medium households obtained on average 30 percent of their livelihood value from forests, or USD345 per household annually. In the present situation, natural forests must be considered a fundamental asset for the livelihoods of rural households living adjacent to forests in these provinces. The government should therefore recognise that centrally based decisions promoting conversion of natural forests without involvement of local people could potentially have significant negative economic impacts on communities living in or adjacent to natural forests. This is especially the case for poor households, which are less diversified in terms of income sources and more dependent on equitable access to forest resources.

The second part of the study examined forest values. To analyse economic aspects of natural forest conversion, the study developed a value flow model, in which the value of natural forests was compared with the value of alternative land uses. Main direct and indirect values of natural forests were assessed on a per hectare basis based on the household survey, forest inventories and environmental valuation studies conducted in other countries. The value of sustainable management of natural forests was estimated at USD1194/ha (USD112/ha/year) for deciduous forest, USD2445/ha (USD247/ha/year) for semi-evergreen forest and USD3721/ha (USD375/ha/year) for evergreen forest. The study found that natural forests may provide significant direct and indirect values, but also that these do not provide incentives for local people to utilise forests sustainably in the current forest management vacuum. Experiences with community-based forest management have slowly evolved in degraded forest areas, and local benefits have been limited to collection of NTFPs. The valuation of potential sustainable timber production showed that net returns from sustainable harvesting in such locations are financially questionable. It should therefore be a high government priority to consider if local involvement in management and sale of timber could be expanded to more commercially valuable forest types in order to determine whether joint forest management models can better contribute to national millennium development goals of poverty reduction and forest conservation.

The third part of the study analysed financial and economic aspects of natural forest conversion to alternative land uses. Data on expected financial and economic benefits from different alternative land uses were collected from interviews and secondary sources and entered into the value flow model. In the value flow model, the net present value (NPV) of different scenarios was assessed based on estimates of yields and environmental services incorporated in a cost-benefit analysis (CBA) framework. The study examined value flows of the 27 forest conversion scenarios over 50 years using real discount rates ranging from 8 to 12 percent. Due to limitations in data availability, the current value flow model does not include variations in productivity and market access from area to area, and this limits the scaling up of results.

The current experiences with wood plantations in Cambodia suggest that financial returns from fast-growing acacia and eucalyptus plantations are questionable. At a growth rate of 26 m3/ha/year, eucalyptus plantations may generate an annualised NPV of USD10/ha/year when using a 10 percent discount rate. This study found much lower growth rates, ranging from 9.0 to 19.5 m3/ha/year. When assuming a growth rate of 15 m3/ha/year, wood plantations generated an annualised NPV of –USD27/ha/year. Large-scale development of wood plantations is therefore not recommended at this point until more knowledge on realistic productivity and market opportunities is obtained. In the development of plantation forestry, it should be acknowledged that alternatives exist to large-scale production of pulp wood. Opportunities for smaller scale plantations with indigenous timber or NTFP species could be explored to try to enhance social and environmental benefits from plantation development.

In the analysis of perennial crops, rubber was the most financially profitable alternative land use. Investments in rubber had an internal rate of return of 20 percent and an annualised NPV of USD379/ha when using a 10 percent discount rate. In the value flow model, this value exceeded the values provided by natural forests, suggesting that converting natural forest to rubber may be an economically viable land use alternative under some circumstances. Cashews and oil palm plantations were not as profitable and could not generate a positive economic NPV when the baseline was natural forests. It is therefore recommended that for the time being, economic land concessions focusing on these crops should be targeted outside areas with natural forests until more knowledge is generated on what realistically can be expected from perennial crops at different locations.

This study’s data collection was limited to a few well-established plantations. It is recommended that data from a wider range of plantations be collected in order to better analyse national variations in productivity and link the results in the model to national maps on soil quality and market accessibility. Also, economic CBA results do not ensure that benefits are distributed equally. A main challenge in the current agricultural development process will be to identify areas suitable for agricultural production and to mitigate local effects by integrating forest management for vulnerable households in the conversion process. A main question to clarify is if large centrally allocated economic land concessions are the best way to achieve rural development and poverty reduction. More focus could be on piloting more locally based management systems and enterprises for plantation crops to evaluate if this can make agricultural development more pro-poor.

The implication of the land use change findings for the current forest management situation is linked to the assumption in the model that sustainable management of natural forests can be implemented in the near future. If new management alternatives are not developed and the current management vacuum in post-concession areas continues, the values of these natural forests will keep declining and potential economic benefits from sustainable forest management will be reduced. It is therefore urgent that different sustainable forest management systems be analysed in a Cambodian context to identify management solutions that can mitigate the local and national impacts from deforestation and forest degradation.

A brief analysis of experiences with forest management in Cambodia over the last decade shows that concession forestry focused on short-term financial benefits and to a large extent neglected social and environmental aspects of forest management. Two or three of the "best" concessions demonstrated some efforts to include these aspects in their strategic forest management plans and may continue to do so in the future if they are allowed to continue. Concerns have been raised that the Forest Administration’s new approach to forest management in annual bidding coupes is highly vulnerable to rent seeking and not compatible with sustainable forest management. It therefore seems urgent that the government strongly commit to creating an enabling environment for other forest management systems in which more accountability is shared between different participants. This process is currently evolving through expansion of community forestry activities. The experiences are, however, limited and need to be monitored continuously to find suitable local and national solutions. In the process, however, it will be important that not all focus is on forest management for subsistence use; much more effort should be allocated to exploring transparent and accountable commercial joint forest management models in more valuable post-concession forests to enhance local benefits from forests and meet the future demand for timber and fuel wood.