Introspective
By Calixto V. Chikiamco
Yes, why not forestry as a driver of economic growth, together with tourism, mining, and agriculture, which are sources of jobs in the countryside?
We used to export logs, lumber and other forestry products. Now, we are a net importer of forestry products. We import as much as 75% of our wood requirements. Really sad.
There are several reasons why we should promote the forestry industry and make it a growth driver of jobs in the uplands.
We have a competitive advantage in forestry production. The Philippines is in the tropical zone. Trees can reach full maturity in 10 to 15 years, depending on the specie, compared to 20 to 30 years in temperate zone countries. There’s no reason why the Philippines can’t produce forestry products and export again.
According to Petteri Makitalo, Vice-President of the Nordic Chamber of Commerce of the Philippines, the Philippines can be a superpower in forestry. Finland, which is a forestry superpower, produces only six, and in extraordinary circumstances, 15 cubic meters per hectare. The Philippines, being a tropical country, can produce 100 cubic meters or more per hectare.
It can generate jobs in the uplands, where about 25 million people live. Most of them are poor. It’s therefore a poverty-reducing industry.
It can also help combat insurgency in the uplands. The uplands, where the forests are, are a focus of recruitment by the New People’s Army.
However, the tree huggers and environmental Talibans will say that the forestry industry is the cause of the massive denudation of Philippine forests. The only solution to stop denudation is the total log ban which we have in place.
Not true. It’s government policies which caused the massive denudation. In the 1960s, the government promoted logging and mining to generate dollars and feed the import-dependent, inward-looking protectionist economy. However, government policy didn’t put the incentive on wood and logging companies to reforest by giving them long term and secure property rights. Instead, it imposed a reforestation fee on logging companies because it, rather than the private sector, assumed the task of reforestation.
Of course, government being government, the funds from the reforestation didn’t go into replanting and reforestation. It went to the pockets of officials. On the other hand, since the logging companies never got long-term secure property rights (at least 50 years) over their concessions, with short-term concession permits being the norm, logging companies’ incentive revolved on just cutting and exploiting the forests.
Because the main source of dollars to feed our import-dependent, debt-laden economy shifted to OFW remittances in the 1970s, government basically neglected the forestry industry and committed policy error after policy error, driven by political grandstanding, which led to the gradual decline of the industry and the country becoming a net importer of wood products.
The worst grandstanding gesture was made by former President Aquino who imposed a total log ban on natural and residual forests (Executive Order 23 issued in 2011). This resulted in regulatory overreach, affecting even man-made forests or tree plantations. Permits were needed for everything: permit to plant, permit to cut, and permit to transport, even for planted trees. One hundred percent inventory was required prior to harvest. Permits had to be signed by officials high up in the bureaucracy. Moreover, wood processing plants were required to renew their permits every three years, and every purchase of logs was required to show certifications where the logs came from. Extortion and bribery became the norm.
The result, according to Dr. Vic Paqueo, a retired former World Bank economist who had invested in a tree farm in Surigao from his retirement money, was that of 119 wood processing plants in Caraga region, 116 plants closed and demand for planted trees collapsed.
It’s arguable whether the total log ban is successful. Government is incompetent in policing the forests since kaingin farming (slash and burn agriculture) is the main culprit of denudation. Government’s other solution — a massive P7 billion tree planting program — was a failure, according to the Commission on Audit.
In fact, in other countries, most productive forests are privately owned. These privately owned forests are passed on from generation to generation. In Finland, 85% of the forests are privately owned.
In Germany, almost half are privately owned. It’s not hard to see why. Private owners have an economic incentive to maintain and police the forests in order to sustain their business for many, many years.
The solution to denudation is to assign property and tenurial rights to private entities, whether communal or individual. The Leftists, for whom only government is the solution, would probably cry murder.
However, let’s concede to the Leftists and environmental Talibans the policy of relying on government to enforce a total log ban on natural and residual forests. How do we move forward?
We need to customize the policies in order to promote tree plantations. Planted trees should be treated like a vegetable crop and not be over-regulated.
For planted trees, a 5% inventory, instead of 100%, is enough. Issuance of permits should be devolved to the CENRO (Community Environment and Natural Resources Office) of the Department of Environmental and Natural Resources (DENR) instead of it going to the regional level or the DENR Secretary. Permits for the cutting of trees in plantations should be done away with. A system of forest certification by accredited forest certifiers should be enough so that logs can be freely transported and traded. The setting up of wood processing plants should be completely deregulated and treated like any other business.
Fortunately, the DENR under Secretary Roy Cimatu is more enlightened and looking to emphasize promotion of tree plantation rather than regulation. However, investors need more secure and long-term property rights and the passage of the Sustainable Forest Management Act (SFMA), which passed in the House in the last Congress, is urgently needed to boost the industry.
The benefits of tree plantation and forestry production are enormous.
Tree farming can be a hugely profitable business. According to a study, the IRR or Internal Rate of Return on falcata (a type of fast growing wood specie) production with a 12 year crop rotation is 48.2% per annum. For gmelina, another wood specie with an eight year crop rotation, the IRR is 29.7% pa.
It’s an ideal investment for pension and retirement funds, whether local or foreign because of the long-term nature of these funds. Investment yields far surpass that of bonds. Investors could also earn and sell carbon credits. Furthermore, investment in tree farms would burnish the green credentials of any company or individual.
Tree farming is also good for the environment. Not only would more trees result in more carbon capture, they are also essential in water conservation. Water conservation, in turn, is important for irrigation and renewable energy generation.
It will spur the development of the downstream wood industries, such as furniture and housing construction. It can also help narrow the trade gap, initially with import-substitution and later on, export development.
Most importantly, it will promote peace and development in the uplands. It can reduce poverty and curb rural insurgency. With just a million hectares for tree plantation, the industry can generate up to $20 billion in revenues.
Unlike Build Build Build, the government’s infrastructure program, the promotion and development of the forestry industry require no government funds. All it needs is the tweaking of government policies.
So, why not forestry?
Those who want to order the book, Momentum: Reforms for Sustaining Economic Growth, a curated collection of articles in this column by National Scientist Raul Fabella, Dr. Emmanuel de Dios, Romeo L. Bernardo, Calixto V. Chikiamco, and the late Dr. Cayetano Paderanga Jr., may call the Foundation for Economic Freedom office at 3453-2375 or e-mail fef@fef.org.ph.
Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.
