Markets forforest goods and services

Objective of this session

Discuss the basic elements for creating markets for forest goods and services

Discuss selected market based financing mechanisms for forestry

Elements of markets

Ask yourselves:

What is a market?

Elements of markets

“Demand” as the basic concept

Product or serviceBuyersSellers

The “Willingness To Pay” (WTP)

Without existing or latent demand there can be no market

Elements of markets

Values:

Financial versus economic valuesPositive and negative values associated

with the same goodStock values and flow valuesCurrent and future valuesValue in exchange and value in use

Elements of markets

ProductsServices

Site specific and user specific orMore general and global demand

Creating markets

Costs to establish markets for goods and services from natural resources can be high

Initial costs

Operational costs

Creating markets

Initial costs Technical costs (on how to transform the product into

payments) Organisational costs (elaborate network, of supporting

organisations, new roles) Legal costs(definition of property rights for instance)

Creating markets

Operational costs

monitoring performance, enforcing rules and renegotiations of contracts

Innovative (market-based) Financing Mechanisms

What are they?

Key features

Flexibility to those who know best Choice

Innovative (market-based) Financing Mechanisms

Why?

New source of financing They can potentially benefit the poor They are a cost-effective way to

achieve environmental goals

Market-based Financing Mechanisms: Examples (1)

Conventional markets for timber and NTFPsPayment for Environmental Services (PES)Environmental performance bonds Conservation concessions Conservation easements / contracts Service concessions Concession biddingCarbon offset trading (a PES)Certification

Market-based Financing MechanismsExamples (2)

Bio-prospecting contractsBiodiversity business sharesBiodiversity credits/offsetsCommunity – private sector partnershipsJoint private sector and public/private

partnerships“Green” equity capital and associated

investment instrumentsTradable development rightsUser fees

Markets for services: Payment for Environmental Services (PES)

PES is often innovative but not a panacea

PES however can be important for diversifying financing sources

PES can catalyze efforts to improved practices

PES can contribute to sector development and pro poor policies

Stakeholders involvement

Markets for ecological services are multistakeholders affairs Commercial enterprises Governments (local, regional, national) NGO’s (local and international) Donors Community groups Individual landholders

Stakeholders involvement

Stakeholders play different roles: Buyers and sellers Primary and intermediary Roles of governments

Governments and Institutions

Good Governance is critical for emerging markets: Effective and appropriate national

laws/policies Transparent decision-making Functioning institutions Adequate market infrastructure Well conceived fiscal regime Stable macro-economic horizon (investors)

Enabling Institutional context

Key role of Governments to assist in market development for forest services

Raising awarenessReducing transaction costs and trading

risksProviding secure property rightsIntroducing strict environmental

standards