Revisiting the Global Role of Tropical Forest Nations

56 STRATEGIC REVIEW

Revisiting the global role of tropical forest nations

Fitrian Ardiansyahis a Climate and Sustainability Specialist Based in Canberra, Australia. He spent 14 years working in Indonesia and Southeast Asia, including as Adviser and Program Director for climate and energy at World Wildlife Fund-Indonesia.

Rapid development of tropical forest nations has led not only to economic growth but also to environmental deg-radation and greenhouse gas (GHG) emissions. Situated

between the Tropic of Cancer and the Tropic of Capricorn, these nations are home to peatlands, savannas and half of the world’s for-ests, which are considered among the most valuable ecosystems in the world. The trade of timber and other products derived from these ecosystems provides substantial foreign exchange earnings for these nations and contributes to global wealth. Such economic gains, however, are accompanied by a high rate of forest loss, which is turn has been identified as a crucial factor in causing flooding, droughts, wildfires and recently, climate change. Striking the right balance be-tween economic development and environmental protection, there-fore, is an immediate challenge for these nations and the world. Tropical forest nations, according to the United Nations Food and Agriculture Organization (FAO), include 23 countries in the Ameri-cas, 37 in Africa and 16 in Asia. Brazil, Democratic Republic of the

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Congo (DRC) and Indonesia are the three largest tropical forest nations, each repre-senting a different continent (Figure 1). The combined total estimated forest area of these three nations in 2010, as reported by the International Tropical Timber Organization (ITTO), is 771.5 million hectares – more

Brazil

DRC

Indonesia

Source: The Sustainable Trade Initiative (IDH), 2011

Figure 1 : The Map of Brazil, Democratic Republic of the Congo and Indonesia

than half of the world’s tropical forests.For decades, government policies and pri-vate investment in these three nations have been viewed as the root causes of the ex-ploitation of their forests and terrestrial ecosystems. These policies and investments have yielded considerable economic returns. Forests play an important role in the na-tional economies of these three countries and provide livelihoods for local communities.In Brazil, a study written by Eustáquio J Reis and Fernando A Blanco and published

in 2000 revealed that macroeconomic and regional policies implemented after the 1960s played a decisive role in driving forest ex-ploitation and clearance. For instance, credit and fiscal subsidies to agriculture, supported by an expanded road network, pushed the agricultural frontier, particularly cattle ranch-

ing, further into the Amazon, the world’s largest tropical rainforest. In recent decades, however, multiple factors and actors have been considered as the driving forces. These include road, railway and other infrastruc-ture construction, government policies on colonization and subsidies for agro-pastoral projects (mainly cattle ranching), agricul-tural modernization (associated with the diversification of output towards commer-cial crops such as soybeans), timber extrac-tion and mining, and charcoal production.

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This development appears to have pre-sented Brazil with unprecedented economic benefits and a bigger role at the global level. Large-scale cattle ranching, for example, has continuously supplied the global beef mar-ket, with Brazil being one of the world’s largest exporters of beef. The Center for International Forestry Research (CIFOR) reported that between 1990 and 2001, the market share of Europe’s processed meat imports originating from Brazil rose from 40 percent to 74 percent, and by 2003 the growth in Brazilian cattle production – 80 percent of which was in the Amazon – was largely export-driven. In 2010, the Middle East region was Brazil’s major market, tak-ing 42 percent of its beef exports, as recorded by the Brazilian Exporters Association. Commercial crops such as soybeans also have become one of the most impor-tant contributors to the Brazilian economy. The total export revenues from soybeans in the first eight months of 2011 amounted to $17.8 billion, up from $17.1 billion for the whole of 2010. In the near future, Bra-zil may surpass the United States as the world’s leading exporter of soybeans, as China-led demand increases – increas-ing already high soybean prices – and a new variety of soybean is developed.In the case of logging, exports constitute only a small percentage of Brazilian production for all wood products. According to a 2003 report

by the International Institute for Environ-ment and Development, however, Brazil has been a net exporter of wood products since 1978 and the trend for exports is upward. This report states that since 1981, exports have outpaced imports by more than 150 percent. The World Forest Institute Confer-ence held in Brazil in 1997 suggested that government fiscal incentives would drive a rapid growth of plantation forests feed-ing into the timber market, as well as pulp and paper. In 2006, Brazilian forest product exports ranked the highest in South America, with a value of $5.6 billion, according to the FAO’s Forest Products Annual Market Review.

A similar picture presents itself in Indone-sia. Under a heavily centralized govern-

ment system between the 1960s and 1990s, the country experienced intensified forest exploitation and clearance. A 2000 study writ-ten by Beni Nasendi identified rapid popula-tion growth, increasing domestic and foreign timber demand (shaping logging concession policies) and growing demand for vegetable oil (pushing agricultural expansion such as oil palm), coupled with transmigration and infra-structure development, as the driving forces. A paper published by the London School of Economics and Massachusetts Institute of Technology confirmed that a similar pattern of development continued under Indonesia’s current decentralized government system.

Commercial exploitation of natural forests was considered

a major driver of the Indonesian economy from 1980 to

1990. During this period, Indonesia secured substantial

global market share in tropical timber products through

its exports of logs, sawn timber, plywood (the world’s

largest exporter), pulp, paper and other timber products.

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Commercial exploitation of natural forests was considered a major driver of the Indo-nesian economy from 1980 to 1990. Dur-ing this period, Indonesia secured substantial global market share in tropical timber prod-ucts through its exports of logs, sawn tim-ber, plywood (the world’s largest exporter), pulp, paper and other timber products. By 1999, according to the Indonesian Minis-try of Forestry, the export value of forestry products had reached $6 billion (about 16 percent of the total value of non-oil and gas exports), up from about $1.2 billion in 1985. By 2003, the reported value of Indonesian forestry commodity exports had grown to $6.6 billion, although the forestry sector’s proportional contribution to the country’s gross domestic product decreased to 13.7 percent of total non-oil and gas exports. Palm oil as a commercial crop emerged in the late 1990s as one of the most significant contributors to Indonesia’s economy outside oil, gas and mineral products. In 2009, Indo-nesia surpassed Malaysia to become the big-gest producer of crude palm oil (CPO) in the world, and today CPO is considered one of Indonesia’s fastest-growing export commodi-ties. According to figures from the Indonesian Ministry of Agriculture, production has soared from 105,900 metric tons in 1967 to 19.8 million tons in 2010. Similarly, Indonesia’s CPO exports and revenues have increased significantly over the last several decades, from 3.8 million tons (valued at $1 billion) in 1999 to 17.85 million tons ($10.03 billion) in 2010. Indonesia also possesses the largest area of oil palm plantations in the world, amounting to approximately 7.8 million hectares in 2010, as documented by the Indonesian Ministry of Agriculture. In the past, oil palm develop-ment had been concentrated primarily on Sumatra Island. Today, the palm oil sector has

expanded to other regions including Kalim-antan and Papua. The market seems to have clearly driven this oil palm boom, prompted largely by the increase in food demand in Indonesia, India and China as well as the plan to expand biofuel usage in Europe. This increase in demand was reflected by a sharp increase in price. In a 2010 article for the Law and Policy journal, John McCarthy and Zahari Zen showed that the price of crude palm oil had increased by 88 percent from $570 per ton at the beginning of 2007 to more than $1,440 per ton in early March 2008.

In the Democratic Republic of the Congo (DRC), on the other hand, the rate of for-

est exploitation and clearance is not as high as in Brazil and Indonesia. This is likely due to the fact that most of the country’s forests are almost inaccessible, and because of politi-cal and regulatory disincentives to invest in the DRC, as argued by the World Resource Institute (WRI). The lower rate of forest exploitation could also stem from the fact that the DRC has been focusing on the mining sector. The country holds the world’s larg-est deposits of cobalt and tantalum, as well as significant reserves of copper, gold, diamonds and other minerals. Forest resources, there-fore, serve mainly domestic purposes. Many people depend on the forests for their basic livelihoods. WRI estimated that 70 percent of the DRC’s population used timber and non-timber products for food, shelter and artisan products in the 1990s. Fuelwood and charcoal are significant forest products utilized inside the country. In 2000, accord-ing to the Encyclopedia of the Nations, round-wood removals were estimated at 68.6 million cubic meters, about 95 percent of which was for fuel. Exports of forest products in the same year amounted to just $11.1 million.

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The vast timber resources, nevertheless, have begun to attract commercial interest, with companies eyeing the country’s 61 mil-lion hectares of exploitable wooded area. A 2008 report by the University of Gothenburg argued that logging and conversion of lands

Malaysia

Brazil

Indonesia

India

Others 0 10,000 20,000 30,000 40,000 50,000

Figure 2 : Major Tropical Log Producers, 2004-2006 (1,000 m3)

Source: UNCTAD secretariat, based on data from the ITTO, 2011 (Note: The category “Others” includes other ITTO member countries)

could become widespread if stability is en-sured and infrastructure is developed. In 2002, according to this report, more than 40 percent of the Congolese forests (43.5 million of a total 108 million hectares) were earmarked for industrial logging, locked up in 25-year contracts awarded before and during the war. Forestry development will further expand when and if sizable foreign capital pours into the country and the government makes its tax structure and export procedures more attractive. The economic picture of tropical forest nations outlined above, particularly of Brazil and Indonesia, shows that these na-tions play a strategic role in global commod-ity markets. ITTO lists Brazil and Indonesia among the top four tropical log-producing

countries (Figure 2). Brazil and Indonesia are also considered among the top producers of vegetable oils, with soybean oil produced by Brazil and palm oil by Indonesia (Figure 3). In addition, Brazil is among the world’s largest exporters of beef, while Indonesia is one of the top producers of paper (Figure 4 and 5). The economic boost and greater role in global commodity markets enjoyed by tropi-cal forest nations does come at a cost. The aforementioned developments have led to significant negative environmental impacts, the most obvious one being a considerable loss of forest cover. According to FAO’s forest review, The Global Forest Resources Assessment 2010, around 13 million hectares of forests were converted for other uses or lost through natural causes each year between 2000 and 2010, down from around 16 million hectares per year during the 1990s. Satellite imagery and assessments on the ground have revealed a rapid rate of deforestation (Figure 6) in the tropics. FAO figures show that tropi-cal deforestation rates increased 8.5 percent from 2000 to 2005 when compared with the 1990s, while loss of primary forests appears to have expanded by 25 percent during the same period. The FAO also estimates that 10.4 million hectares of tropical forest were permanently destroyed each year in the pe-riod from 2000 to 2005, an increase from the 1990s when around 10.16 million hectares of forest were lost. Brazil, according to the FAO, lost an average of 3.1 million hectares of forest annually between 2000 and 2005 and 2.2 million hectares between 2005 and 2010, as compared with 2.9 million hectares per year in the 1990s. Deforestation rates for Indonesia, meanwhile, were measured at 0.3 (2000-2005) and 0.69 million hectares (2005-2010) respectively, as compared to 1.9 million hectares per year between 1990 and 2000.

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Figure 3 : World Vegetable Oil Production

Share of major countries in soya meal export, in million tons

Source: USDA, 2011; Oil World in the Economist, 2011; Al About Feed, 2011

Although covering less than 10 percent of the earth’s land area, tropical forests and

terrestrial ecosystems harbor the largest ter-restrial reservoir of biological diversity. More than half of known plant species grow in tropical forests. Tropical deforestation is hence responsible for significant destruction of the ecosystem and a loss in species. A 2007 study conducted by Ken Chomitz for the World Bank found that more than 800 million peo-ple depend on tropical forests for fuel, food or income. If deforestation continues at the current alarming rate, the livelihoods of these people are likely to be further eroded. Tropi-cal forests and peatlands also have a vital role to play in the fight against global warming, being storehouses of vast amounts of carbon. The increases in deforestation and forest deg-radation have made tropical forests and peat-lands the third-largest source of greenhouse gas after coal and oil (Figure 7). A global ini-tiative to reduce GHG emissions from tropical deforestation and forest degradation, known globally as REDD+, is therefore a critical part of the global strategy to tackle climate change. Not only are measures to halt deforesta-tion and forest degradation needed to reduce carbon emissions and contribute to carbon sequestration, but they would also provide benefits to forest-dependent people and help maintain or enhance global biodiversity. The Stern Review on the Economics of Cli-mate Change of 2007 suggested that curbing deforestation is a highly cost-effective way of reducing greenhouse gas emissions, sug-gesting that “the opportunity cost of forest protection in eight countries responsible for 70 percent of emissions from land use could be around $5 billion per annum initially, although over time marginal costs would rise.” In another eminent study, Eliasch in 2008 calculated that the costs of reducing global

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Figure 4 : Market Overview Beef and Veal - Global market

Figure 5 : Map of the World’s Largest Wood and Paper Exporters

Source: USDA in Credit Suisse, 2009

Source: World Mapper, 2011 (Note: Canada, Finland, Sweden and Indonesia export the most wood and paper in net US dollars. These territories export almost two-thirds of all net wood and paper exports.)

• Global production grew on average 1.1% p.a between 2005 and 2008.• Brazil is the 2nd largest world producer of beef and veal, and the largest exporter.• Brazil, Australia, and the USA and India account for 65% of global exports.

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Figure 6 : The Global Map of Tropical Deforestation

emissions to half of 1990 levels by the year 2050 could be lowered by 25 to 50 percent by 2030 and by 20 to 40 percent by 2050, if reduced deforestation and forest degradation as well as afforestation/reforestation options were included in emission-reduction schemes. The fundamental concept behind REDD+ is to provide financial incentives to tropical developing nations to make their forests more valuable standing than cut down. Incentivizing options for keeping forests intact is a particularly valuable concept, not only in terms of providing opportunities to mitigate emissions, but also because forests have the potential to serve as a net carbon sink, rather than be the source of approxi-mately one-fifth of greenhouse gas emis-sions, as they are today. Collectively, tropical forest nations have been trying since the 11th Conference of Parties (COP-11) of the United Nations Framework Conven-tion on Climate Change (UNFCCC) in Montreal to make anti-deforestation incen-

tives part of the climate agreement. After intense negotiations and following some fine-tuning, REDD+ was incorporated in the Bali Action Plan of the UNFCCC at COP-13 in Indonesia. REDD+ was also recognized as one of the principal building blocks at the 2010 COP in Cáncun, Mexico. Many tropical forest nations are hopeful of progress with regards to tackling deforestation and promoting economic development. With-out the decisions taken at the UNFCCC, for instance, carbon storage and other environ-mental services provided by standing forests would rarely be factored into the calculation. Forest owners would not receive compensa-tion for supplying these services. Yet, provided their forests are near a road, railway or port, forest owners could often make hard cash by mining a forest for its timber. After logging, the way to raise further income would be to convert the forest into pasture, plantations or cropland. It is these economic realities that drive deforestation in many places of high

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conservation value and significantly contrib-ute to global GHG emissions. In principle, REDD+ aims to cut forest loss by changing the economics. To be able to do this, REDD+ requires the involvement of different layers of government and various sectors and actors. These sectors and actors are regulated under different ministries and agencies (forestry, agriculture, energy and mineral resources, etc) and layers of governments. These institu-tions are known to have issued overlapping policies on land use and land use changes across tropical forest nations, influencing the whole economic structure of the nations. Gradually, market mechanisms and other financial streams would need to be estab-lished to generate adequate financial sup-port for governments of these nations and cash returns for those who maintain natural forests to supply carbon storage services. If done appropriately, these mechanisms would benefit the remaining large intact forests, especially those adjacent to agricultural and other development frontiers. Individually, nations like Brazil and Indonesia have taken proactive approaches to take advantage of opportunities provided by REDD+. In Brazil, such approaches have shaped government policies and programs. The Brazilian Ministry of Environment, for example, has committed

to reducing net deforestation to zero by 2015 in the Amazon region. If this policy succeeds, the total emissions reduction would reach 420 million tons of carbon between 2009 and 2014 (assuming a linear decline in emissions from deforestation between now and 2015).

There are some positive signs that de-forestation may be slowing. Having

had the highest loss of forests in the 1990s, the rate of deforestation in the Brazilian Amazon declined by more than 60 per-cent between 2004 (a peak year) and 2007. The Brazilian Ministry of Environment attributes this decline to the implementa-tion of unprecedented policies such as:

• Establishment of protected areas in zones where agricultural fronts are rapidly expanding (earlier they tended to be established in more isolated areas);

• Improved monitoring of deforestation;• Actions on the ground to enforce laws

against deforestation in municipali-ties with the highest rates, with sup-port from the federal police;

• Closing illegal sawmills; and• Reduced access to credit by landowners

who don’t comply with the law regard-ing forest cover on their properties.

The total rate of deforestation, however, is still very high and the area of primary forest – forests undisturbed by human activ-ity – continues to decrease. Hence, to imple-ment its policies successfully, Brazil ought to further strengthen its efforts to better conserve and manage remaining forests. Ad-ditional financial support such as from the Norwegian government is a good starting point. This performance-based fund, which amounts to up to $1 billion and aims at

FAO also estimates that 10.4

million hectares of tropical

forest were permanently

destroyed each year in the

period from 2000 to 2005,

an increase from the 1990s

when around 10.16 million

hectares of forest were lost.

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reducing deforestation in the Amazon, can help strengthen the further development of Brazil’s systems for monitoring deforesta-tion. The government of Brazil, in particu-lar, still has a Herculean task to coordinate and synergize sectoral and state policies so they are in harmony with policies on defor-estation. Such coordination and synergy are critical because the policy of the Ministry of Environment may not have strong support from decisive sectors such as the ministries of Agriculture, Transport and Mines and Energy. Attributing recent declines in defor-estation solely to policies of the Brazilian Ministry of Environment is probably not accurate, and a strong correlation between deforestation and higher prices for com-modities such as beef and soy may increase forest destruction in the future. The situa-tion could worsen, especially when Brazil embarks on an ambitious program to expand infrastructure throughout the region, primar-ily involving transport (roads) and energy (hydro and fossil fuel exploration). As a result, a number of different policies have been is-sued to address this challenge, including:

• Low Carbon Agriculture Plan of Brazil• National Plan on Climate

Change (Decree 6.263)• National REDD Strategy for Brazil• Plan for Prevention and Control of De-

forestation and Forest Fires in the Cerrado• Plan for Prevention and Control

of Deforestation in the Amazon• Law No 2.308, October 22,

2010 (State of Acre) • National Policy on Climate Change

(Federal law 12187/2009) • Law No 12.114, December 9, 2009

Figure 7 : Global GHG Emissions (2005)

Source: Global GHG Emissions (2005) as quoted by Conservation International; NRDC, 2008

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In Indonesia, the situation is similar to Brazil. For example, the importance of REDD+ appears to have motivated Presi-dent Susilo Bambang Yudhoyono, when he pledged his commitment to reduce the country’s GHG emissions at the 2009 G20 Leaders Meeting in Pittsburgh. At this meet-ing, the president stated that his government was devising a policy to cut emissions by 26 percent by 2020 from “business as usual” levels. The president expressed confidence that, with international support, Indonesia could cut emissions by as much as 41 per-cent. He further stated that his administra-tion was committed to changing the status of Indonesia’s forests from a net-emitter sector to a net-sink sector by 2030. To back up his announcement, the following month Yudhoyono and his cabinet committed to formulating a five-year action plan to ad-dress climate change and environmental degradation. More specifically, the president emphasized sustainable forest management, action against illegal logging, the prevention of forest and land fires and the preservation of areas under forest protection (hutan lindung). Inspired by the country’s pledges, the Norwegian government, as demonstrated with Brazil, agreed to help Indonesia to imple-ment a national REDD+ program. A Letter of Intent was signed by both governments in May 2010. Under this partnership, Norway is expected to provide a grant of $1 billion to help Indonesia significantly reduce GHG emissions from deforestation, forest degrada-tion and peatland conversion. According to the Center for International Forestry Re-search, this partnership is one of the largest-ever bilateral deals to combat environmental destruction and climate change, and has created big opportunities as well as challenges to accelerate the country’s REDD+ program

and move it from the preparation stage to launching pilot programs and, eventually, fully implementing a national REDD+ strategy. To further strengthen the Indonesian-Norwegian partnership, the president announced that Indonesia would halt the granting of new concessions on peatlands and natural forests for a period of two years, which had been slated to begin in January 2011. However, only on May 20 2011, a year after the sign-ing of the agreement, did Yudhoyono issue Presidential Instruction Number 10 of 2011 regarding a two-year moratorium on new permits to clear primary forests and peatlands throughout Indonesia. Later in the year, two other presidential decrees were issued, num-ber 25 of 2011 regarding the formulation of a REDD+ task force, and number 61 of 2011 outlining more than 70 self-funded govern-ment programs as part of the national action plan to mitigate greenhouse gas emissions. Similar to Brazil, Indonesia’s national REDD+ strategy can only be successful if the program actively involves the businesses and various layers of government that are influential in land use change. The forestry sector (logging concessions, industrial timber plantations), agriculture (oil palm plantations), mining and infrastructure are the key players

The forestry sector,

agriculture, mining and

infrastructure are the key

players in Indonesia, and

therefore their involvement

and coordination in

the REDD+ planning

and implementation

process is crucial.

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in Indonesia, and therefore their involvement and coordination in the REDD+ plan-ning and implementation process is crucial. However, a huge challenge remains in gain-ing support without detailing the program’s potential options and benefits for each of the sectors affected. There is also a big question mark as to whether REDD+ incentives can compete with big investments that have thus far been responsible for changing Indo-nesia’s land use patterns. Failure to address this issue may hinder the development and implementation of a national REDD+ strat-egy and consequently disrupt Indonesia’s opportunity to reduce, and perhaps halt, the destruction of its forests and peatlands. Another big challenge is to formulate REDD+ policies and programs that seri-ously reflect local aspirations and incorporate ongoing efforts at the local level. Because Indonesia is a massive archipelagic nation with a decentralized system of government, local governments and people must be part of the REDD+ process, particularly in design-ing positive incentives, including financial ones, and their distribution mechanisms. For these mechanisms to be successful, further clarity is required regarding how incentives

will be allocated among the various actors/stakeholders at different levels. At present, 40 REDD+ pilot or demonstration projects are reported to be operating across the country. These can provide Indonesia and other tropi-cal forest nations with research insights that will enrich REDD+ discussion at the global level, such as the recent COP-17 negotiations in Durban, South Africa. At the sub-national level, various initiatives have been developed, such as the signing of an agreement among 10 governors in Sumatra and four national ministers on saving the ecosystems of Su-matra, as well as the pledges of REDD+ in Papua, Aceh, Central Kalimantan and East Kalimantan provinces made by their respec-tive governors. These initiatives could change the economics of the nation by cutting forest loss but still ensuring economic development. Overall, the collective and individual ac-tions embraced by tropical forest nations have set new precedents for them and strengthened their already increasing role at the global level. Further progress on the new global chal-lenge faced by these tropical forest nations is definitely daunting. It is, however, imperative for the sake of the nations’ economies, the en-vironment and, most importantly, the people.

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