The UN FAO issues a statement on forests and climate change. Meanwhile, the cutting continues in Indonesia....
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Down in the woods
Mar 23rd 2006
From The Economist print edition
In the developing world, where policing has not stopped illegal logging, environmentalists are trying a new weapon: economics
IN A muddy clearing in the jungles of Borneo, an environmentalist surveys some fresh-cut ramin, a durable tropical timber. Huge logs, over a metre in diameter and ten metres long, lie heaped in piles around him. Dirt tracks fan out into the surrounding forest, to allow access for chainsaw crews and their vehicles. Heavy trucks, laden with wood, have dug deep ruts in the viscous, rust-red soil. It is a scene from a green nightmare, yet the activist is grinning contentedly. This is, he hopes, the sort of logging that will help to preserve the dwindling forests of Indonesia.
The key to the environmentalist's enthusiasm is the barcode that is stapled to either end of the log. For anyone with a scanner and access to the right database, this tag identifies the forest where the tree was cut, its current location and ultimate destination, its species, diameter and length, and so on. A logging firm using this tracking system can prove that its timber is both legally and sustainably harvested, and thus distinguish it from the bulk of wood and wooden goods produced in the country. That, in turn, should provide the company with easier access to western markets and win it higher prices.
In other words, the concessionaire in this instance, a firm called Sumalindo Lestari Jaya, believes that there is money to be made by following the law and taking care of the forest in which it operates—a revolutionary theory in Indonesia and much of the developing world. To prove the theory, ecologically minded firms and governments, egged on by activists, are trying to increase the financial incentives for well-behaved timber companies, and the disincentives for wayward ones.
Travelling up the Mahakam River to Sumalindo's concession, the need for new tactics in the battle against illegal logging is obvious. Indonesia's Ministry of Forestry sets a maximum harvest for the area's concessionaires, to allow the jungle to regenerate between cuttings. But the sawmills and plywood factories that line the lower reaches of the river, near the prosperous port of Samarinda, consume far more wood than the forests can legally produce. In Indonesia as a whole, processing capacity is three times greater than the officially sanctioned harvest. Foreign timber mills in places like Malaysia and China also help to swell demand for logs, although the export of raw timber from Indonesia is theoretically illegal. The result is over-cutting and steady decimation of the closest trees.
For the first 100km (60 miles) or so, the riverbanks, long ago deforested, are given over to farms and villages. Later, abandoned timber concessions begin to appear: a landing stage, a few rusting cranes, and a dirt track leading into a jungle stripped of its most valuable species and overgrown with bamboo. Over half of Indonesia's commercial timber tracts are thought to be in the same degraded state. Finally, towards the mountainous interior of the island (the third biggest in the world), the river passes through working concessions. Mammoth trucks ferry timber from distant cutting zones to riverside staging posts. Other logs, lashed together into rafts, arrive by water down the Mahakam's many tributaries. Branches and stumps, abandoned amid the frenzied harvest, drift slowly downstream.
Similar scenes are being played out all across the country. According to the Food and Agriculture Organisation (FAO) of the United Nations, Indonesia is losing almost 2m hectares of forest a year—an area about the size of Wales or Massachusetts. Over the past 15 years, that amounts to one-quarter of its total forest cover. For virgin forest, the most commercially and ecologically valuable sort, the statistics are even worse: one-third of Indonesia's stock has vanished over the past 15 years, and it continues to disappear at a rate of 3% a year. In some countries, such as Nigeria and Honduras, the destruction of tropical forests is proceeding even faster, although globally, the rate is rather slower, at 0.62% a year.
Illegal logging is not the cause of all deforestation. Some trees are cut down to make way for plantations or ranching, or to provide farmland or firewood for the poor. But in most cases, farmers and developers follow in the loggers' wake, taking advantage of the roads they have built and the land they have cleared. In fact, would-be loggers sometimes contrive phoney agricultural schemes purely as an excuse to clear-cut forests. In Borneo, environmentalists are currently denouncing a dubious proposal to convert 1.8m hectares of forest into palm plantation as a logging project in disguise.
As that example suggests, illegal logging can also be difficult to define. Indonesia and other developing countries view forestry and wood-processing as important industries, and encourage their development and expansion. But most countries also have rules stipulating that these activities should be sustainable. Duly licensed concessionaires often do the most damage to the forest, by ignoring environmental rules, while paying officials to look the other way. Even unlicensed loggers usually procure paperwork from some pliant bureaucrat or other, declaring their wares to be legal. Furthermore, in Indonesia at least, the national government and local authorities often issue contradictory regulations, leaving the few logging outfits whose practices are ever challenged with plenty of wriggle room.
Whatever the legal niceties, however, there is no doubt that the costs of runaway logging are enormous. Environmentalists tend to dwell on damage to the habitats of photogenic animals such as Borneo's orang-utans. The island also boasts a greater diversity of trees than any other spot on Earth: botanists once counted 1,175 species in just 52 hectares of forest in the Malaysian bit of the island. Only 52 tree species, by contrast, are found north of the Alps in Europe. In the last decade alone, Borneo has yielded up 361 new creatures, according to the World Wide Fund for Nature. Indeed, the WWF considers the island's biodiversity so valuable that it has started a last-ditch campaign to preserve its most rugged and remote reaches from logging. It is already too late for the lowland forests: by 2010, observers predict, there will be none left.
Illegal logging also carries big costs for the human beings involved. Well-managed forests continue to provide wood, and therefore revenue, indefinitely. But those that have been overexploited, or simply carelessly run—let alone razed—will yield little or no money in the future.
Illegal logs also tend to be cheaper than legal ones, on which royalties have normally been paid. That obviously benefits consumers to a certain extent, but it also stimulates demand, and so encourages more logging. At the same time, it puts pressure on legal operations to cut their costs to compete, generally leading to lower wages and poorer working conditions for their employees. In 2004, the American Forest & Paper Association (AFPA), an industry group, calculated that illegal wood depressed world timber prices by between 7% and 16%, depending on the specific product. That competition, it argued, cost American companies alone some $460m every year.
Finally, illegal logging deprives governments of revenue from royalties. In 2002, the World Bank put the global annual cost of such evasion at $15 billion. More recently, the government of Indonesia (which has the world's third-biggest tropical forests, after Brazil and Congo, but the biggest timber trade) estimated its annual losses at around $3 billion. Given that the total value of Indonesia's legitimate exports of wood and wood products is only about $6.5 billion a year, that is a disturbingly heady sum.
Add in hidden costs such as soil erosion, the increased risk of fire (thinned-out forests let in more sunlight, and so dry out faster) and the loss of livelihoods for those who gather forest products, and the true bill becomes much bigger. The infamous South-East Asian haze of 1997 gives a sense of the scale and expense of the side effects of deforestation. The haze, which darkened skies and polluted the air across much of Indonesia, Malaysia and Singapore, rose from fires originally set by developers trying to clear forest for palm plantations in Borneo and Sumatra. The World Bank estimates that the fires released 8% of total global emissions of greenhouse gases that year. In addition, the smoke affected the health and livelihoods of some 75m people. Airports, schools and businesses closed because of poor visibility and the sheer physical discomfort of going outdoors. The incidence of respiratory ailments jumped: in a recent study, Seema Jayachandran, of the University of California, Los Angeles, calculated that the haze may have caused the deaths of as many as 16,000 infants.
In theory, the police, army and forestry officials are responsible for stopping illegal logging. Last year, amid a much-publicised crackdown, the Indonesian authorities did arrest 1,673 people for forest crimes and confiscate 155,185 cubic metres of timber, according to the police. They also seized 11 barges, 114 boats, 478 trucks and plenty of other logging equipment. But that rash of activity barely scratched the surface of the problem. In a recent report on illegal logging in Indonesia, a pressure group called the Environmental Investigation Agency (EIA) estimated that 3.6m cubic metres of wood are smuggled from Papua province alone to China each year. Many more illegal logs, of course, would have been smuggled abroad from other provinces or consumed domestically.
In part, this feeble record stems from the fact that security services are severely under-funded and under-equipped. The Indonesian authorities have hardly any serviceable ships and planes with which to patrol the seas between Papua and China. The personnel involved are also hopelessly underpaid, and therefore easily tempted. Much like the illegal drug trade, when there is so much money to be made, suppression is bound to be ineffective. The EIA calculated that wood harvested in Papua sold for around $120 per cubic metre in Indonesia, twice that in China, and as much $2,288 when made into flooring and sold in America. Junior civil servants in Indonesia, by contrast, earn $100 a month. Army generals take home perhaps $750 a month including various allowances. So the proceeds from the felling of a single tree could easily outstrip their monthly wages.
To make matters worse, most of those who are implicated in forest crimes get off scot-free, thanks to Indonesia's crooked courts. The minister of logging himself recently complained that judges were quick to convict sawmill workers, but strangely reluctant to jail their bosses. The judges' gavels, he added, were probably made of illegal timber. So far, the crackdown notwithstanding, the most senior officials to be charged with illegal logging are district chiefs and mid-ranking police officers.
To snare bigger fish, suggests David Kaimowitz of the Centre for International Forestry Research, the authorities should follow the money. After all, illegal logging, like any other big business, requires both financing before the fact and a place to park the proceeds afterwards. Indonesia's new money-laundering law explicitly mentions funds from illegal logging as ill-gotten gains to which it might be applied.
Laws in other countries contain blanket bans on transactions involving the proceeds from illegal activities. Under “know your customer” rules now in force in America and other jurisdictions, banks can be prosecuted if they do not make a reasonable effort to establish the uses and source of the funds they handle. Institutions that provide letters of credit for the export of illegal logs, for example, or finance palm plantations on illegally cleared land, might find themselves liable to prosecution.
No firms or individuals have yet been prosecuted for financial crimes related to illegal logging, although both Indonesian and German prosecutors are said to be looking into possible cases. But as Mr Kaimowitz points out, the mere possibility of legal action might cause financiers to change their ways. International banks, at any rate, are beginning to grasp the risks of relationships with poorly regulated forestry firms. In 2001, ABN AMRO, a Dutch bank, declared that it would not “finance companies or projects that are involved in, collude with or purchase timber from illegal logging operations.” More recently, HSBC and Citibank have both pledged not to lend to illegal loggers. Dozens of other big banks subscribe to the Equator Principles, which commit them to lending only to environmentally minded projects. Considering that foreign banks lent $7 billion to Indonesian forestry firms before the Asian crisis of 1997, these worthy promises could have a real impact.
Banks might also bear in mind that companies that are cavalier about their environmental responsibilities often prove lax when it comes to their fiduciary ones too. The forestry and paper industries accounted for one-quarter of the bad debts acquired by the Indonesian government when it took over failed banks in the wake of the Asian crisis. It ended up writing off roughly 70% of the value of these loans. One company alone, Asia Pulp and Paper, racked up $14 billion in bad debts. It is still bickering with its creditors to this day.
But those who want to do business only with blameless logging firms will have trouble finding any. Foreign donors and NGOs helping to rebuild Aceh province after the devastating tsunami of 2004, for example, undertook to use only legal wood. But since Indonesian forestry laws are so laxly enforced, and paperwork so widely forged, they could not tell good wood from bad. Indeed, one of the problems hindering prosecutions of illegal loggers in Indonesia is the lack of a clear definition of legal wood. Britain's Department for International Development is currently helping the government to draft such a standard. In the meantime, the donors are importing most of their wood from Australia and New Zealand.
Much the same problem afflicts wood-buyers around the world. In 2004, Greenpeace denounced the European Commission for using illegally harvested wood from Indonesia in the refurbishment of an office building in Brussels, despite its stated policy to stick only to legitimate suppliers. According to the AFPA, some 80% of the tropical timber imported into Europe comes from illegal sources. This week, the EIA released a report accusing several big retailers in America and Britain of selling floorboards made from contraband wood.
That is where firms like Sumalindo, the eco-friendly logging outfit in Borneo, come in. In January, the Forest Stewardship Council (FSC), an independent monitoring agency, “certified” operations at the SLJ2 concession. Certification schemes, whereby outsiders inspect companies' logging practices, to make sure that they conform to certain environmental or legal standards, have been around for about 15 years. Logging companies in rich countries, dogged by poor publicity and threatened by boycotts, quickly signed up to them in the 1990s, usually at their own expense. But in the developing world, where pressure from activists and consumers often has only negligible impact, progress has been much slower.
Since western logging firms already operate under relatively strict government scrutiny, the costs of complying with the certifiers' standards are usually not especially onerous. But in places such as Indonesia, it can be a bureaucratic nightmare just to obtain certified status. For Sumalindo, the process took five years. Moreover, unlike western logging firms, which often submit to certification for the sake of their image, those in developing countries are usually hoping to improve their margins or market access. Amir Sunarko, the boss of Sumalindo, says he is hoping to sell the firm's certified plywood at a premium to American firms with procurement policies that bar suspect wood.
The idea is not so far-fetched. The same activists that pushed western logging firms to submit to certification are now pressuring importers of tropical wood to ensure that their wares are also certified. Many big retailers, such as Home Depot, IKEA and B&Q, have promised not to sell products made with uncertified wood. Sumalindo already has one customer willing to pay above the odds for its certified wood: a garden furniture-maker called Falak Jaya, which has customers in America who demand certified goods.
At the moment, however, premiums do not seem to be high enough to spark a rush to certify. Surveys by Britain's Timber Trade Federation, an importers' club, suggest that certified tropical wood sells for only 2-3% more than the ordinary kind. That, explains John White, the head of the federation, is partly because demand remains unreliable. In fact, some buyers prefer to avoid tropical timber altogether, rather than get involved in the whole rigmarole of establishing its provenance.
Procuring a solution
That could soon change. Five EU governments, including Britain's, have adopted or are adopting procurement policies that would oblige state-funded construction projects to use certified wood. Since roughly 70% of wood is used in construction, and governments account for perhaps 40% of construction work, Mr White argues, demand for certified timber should jump. The European Commission is planning to go further. It cannot demand that all wood entering Europe be certified, since that would break the rules of the World Trade Organisation. But it is currently negotiating voluntary deals with producer countries to exclude suspect wood. It is hoping to sign the first such deal, with Ghana, later this year.
According to Heiko Liedeker of the FSC, demand for certification is already picking up in Africa, which exports mainly to Europe. The process is currently under way for forests covering over 2m hectares. Interest should climb further when the FSC introduces a watered-down form of certification designed to make life easier for timber companies in the developing world, albeit only as a step towards a full-strength version. This would do away with some onerous requirements concerning land tenure, for example, which is often murky in poorer countries. It would also ensure that wood is legal in the eyes of the local government, and does not come from a conflict zone or a virgin forest.
Advocates of certification still face plenty of obstacles. At a recent meeting of the G8 countries, America poured cold water on the idea of standardised government procurement rules, not to mention anything more than voluntary curbs on imports of suspect wood. Increasing amounts of timber pass through China for processing en route to the western world, making it easier to disguise its origins. But as Mr White puts it, “If there's a business opportunity there, people will gravitate towards it.” Or so, at any rate, Indonesia's hard-pressed environmentalists hope.
Do you think Indonesia will ever take notice?
Posted by: tscd | 28 March 2006 at 06:11 AM