Country Focus: Indonesia

For Forests and Investors, Big Risks in Tangled Web of Debt by Pulp Mills

Up until the end of the last decade, the government of Indonesia pushed to make the country the world’s top producer of plywood, at the expense of Indonesia’s world renowned tropical forests. In 2000, an in-depth report by CIFOR policy analyst Chris Barr revealed another move with serious implications: Pulp and paper companies are scrambling to obtain access to large areas of natural forest to feed an expansion of mills in Indonesia over the past decade.

            The report, which Barr prepared jointly for CIFOR and the World Wide Fund for Nature’s Macroeconomic Programme, shows that a handful of Indonesian conglomerates expanded the country’s pulp and paper mill capacity by 700 percent since the late 1980s. Financed by $12 billion in direct capital loans and international bond offerings, the growth elevated Indonesia to one of the world’s top 10 pulp and paperproducers.

            The companies were willing to take on the huge debt and gamble with their investors’ money, Barr concluded, because several factors made their own financial risk relatively low. Many of the domestic loans came from banks that were controlled by the conglomerates themselves and subject to little oversight. The government subsidised the mill growth directly by giving companies cheap access to natural forests, allocations from the country’s Reforestation Fund and low-interest loans from state banks. And international banks failed to adequately consider where the companies would be able to get the volume of timber needed to keep the mills running near capacity for the long term.

            To secure backing, the pulp and paper producers had said they would obtain their raw material from sustainably managed plantations. Yet so far, Barr found, only 8 percent of the wood consumed by the mills has come from plantations; the rest is mixed hardwood timber from natural forests—as much as 40 percent of it thought to come from undocumented and presumably illegal sources. He estimated that more than 800,000 hectares of natural forest have been cleared since 1988 to supply Indonesia’s pulp mills. During that period, their combined production capacity grew from 600,000 tonnes to more than 5 million tonnes a year.

            Although pulp producers are beginning to bring extensive plantation online, Barr says Indonesia’s largest mills are unlikely to obtain more than about half of their fibre supply from their plantations through at least 2007. In the meantime, as the mill companies exhaust available wood supplies near their base in Sumatra, they may look farther afield to the forests of Kalimantan and Irian Jaya (Papua) for raw material.

            Raising the financial stakes even higher for mill investors are Indonesia’s economic crisis and growing conflicts between the pulp companies and local communities over issues of forest access and environmental concerns. A US$ 600 million Indorayon pulp mill in North Sumatra, for example, has been shut down for more than a year because of community opposition. Some of the largest mills and pulpwood plantations were placed in receivership under the Indonesian Bank Restructuring Agency because of their heavy debt loads. Barr says there have been indications that the agency may write off a substantial portion of the outstanding debts, thereby providing yet another capital subsidy.

            The report suggests a number of measures that government agencies and financial institutions could implement to put Indonesia’s pulp and paper industries on a more sustainable track, such as:

• Declaring a temporary moratorium on further expansion of pulp and paper facilities

• Eliminating wood supply subsidies for the pulp and paper industries

• Applying stricter due diligence by financial institutions investing in major pulp and paper projects.

Building Stronger Community for Forest Research in Indonesia

Indonesia has renowned forests, meritorious research and the offices of two major international forest research institutions—CIFOR and the Southeast Asia office of the International Centre for Research in Agroforestry. Why, then, has the country not been able to better leverage those advantages to link Indonesian research with best practices in forestry?

            In May, Indonesia’s Forestry Research and Development Agency (FORDA) and CIFOR hosted a gathering of national forestry experts from the government, universities and research institutes in the country to discuss the issue and propose initiatives to improve the situation. The attendees identified poor coordination and communication as a major factor hampering the Indonesian forest research community’s potential impact.

            The range of forestry research now being done in Indonesia at the basic, applied and strategic levels is broad. Equally vast in scope is the nature of forest-related problems that must be addressed at various levels: technical, social, economic, policy and institutional. This widely dispersed agenda, it was agreed, has made it difficult to establish priorities for forestry research and seek increased donor support.

            The participants concluded that forest research in Indonesia should be more closely linked with national policy making and the adoption of results in the field. FORDA agreed to lead efforts to move the forest research community in that direction. Agreeing to meet regularly, the group also pledged to improve information sharing and to expand the markets for research proposals and outputs.

            Another area of focus will be increased opportunities for scientific collaboration. CIFOR and ICRAF agreed to provide continued support for measures to strengthen the professional interaction.

Pulp Mill Study Generates Wide Interest

CIFOR scientist Chris Barr’s report ‘Profits on Paper: The Political Economy of Fiber, Finance and Debt in Indonesia’s Pulp and Paper Industries’ was announced in a POLEX message and widely reported on by the media, including Bloomberg’s international financial news service. As a result, CIFOR had more than 400 requests for the paper, many from outside the centre’s usual constituencies—the financial sector. One recipient wrote: ‘A not-for-profit organisation is doing the work that Wall Street is supposed to do’.

            A number of readers sent comments saying the report was much needed and long overdue. From a paper industry specialist in Singapore: ‘It has taken a long time to understand the value of the indirect industry subsidies, the internal functions of the credit flows through central company banks, the shifting status of forest and plantation areas and lastly, the investment debt trap… I was hugely impressed by [your] presentation of the information, some of which has taken me years to realise’.

            In December, CIFOR hosted a forum to discuss the research findings with a wide range of forest stakeholders. Among those attending were high-level officials from Indonesia’s Bank Restructuring Agency and the Forestry, Environment and Financial Ministries, including the Director General and two other key officials of the Ministry of Industry and Trade. Others came from the Indonesian Pulp and Paper Producers Association, banks and securities firms, the international donor community, civil society organisations and environmental groups.

            Notably, a spokesman for Asia Pulp & Paper, whose situation was analysed in the report, attended the meeting and said the company was taking steps to ensure that ample wood supplies would be available for its mills.

            The meeting ended with considerable agreement that Indonesia needs to develop more coherent policies on how the country’s pulp mills can secure adequate raw material from sustainably managed plantations. Also needed: mechanisms by which financial institutions and government regulatory agencies can evaluate pulp and paper companies’ plantation development efforts.

Fire Fighting with a Difference

The dramatic news coverage of major forest fires in Indonesia in 1997-98 attracted world attention. But the problem has a much longer history, extending over centuries. In the past two decades alone, large-scale fires also occurred in 1982/1983, 1987, 1991 and 1994—ElNiño years.

            Awareness and concern have risen along with estimates of the damage. About 9.7 million hectares of forest and land in Indonesia was burnt in the 1997-98 fires, affecting some 75 million people and causing economic losses thought to exceed US$ 9 billion. Some scientists have said that carbon emissions from the burning of peat during the fires were so high they made Indonesia one of the largest polluters in the world.

            A team of scientists from CIFOR, the International Centre for Research in Agroforestry (ICRAF) and the U.S. Forest Service (USFS) is continuing to analyse the fires and their impacts, as the basis for developing policies and specific regulations to combat the problem. Drawing on new findings as well as results from other research, the project is revealing a more comprehensive picture of where the fires are occurring, who is setting them and why, and what factors affect the nature of the fires in different areas.

            The innovative and multidisciplinary methodology combines remote sensing and GIS with in-depth participatory field investigations. Satellite imagery compiled by a number of fire research projects in the region provides information about the location, extent and type of land burnt. But the CIFOR-ICRAF-USFS team is also probing the underlying causes by exploring the social dimensions of the fires. They have been interviewing many villagers and using ‘participatory mapping’ techniques at eight sites in Sumatra and Kalimantan that were heavily affected.

            The results to date show that the causes of the fires are varied and complex, precluding simple or universal remedies. Conflicts over land ownership and use are a big factor in the problem. Different customs in using fire for agriculture also play a role.

            The major fires have been abundant in areas where vast expanses of land are being converted for plantations. Sometimes the underlying peat in coastal swamp forests burns for months after plantation companies have used fire to clear the land. But plantation companies are not the only perpetrators of the fires. Many local people, including transmigrants from other islands who have settled in the area for better economic opportunities, also use fire to clear land for cash crops, especially lucrative export commodities. According to CIFOR scientist Graham Applegate, that is the situation in Lampung, where people have been illegally cutting down trees in the region’s National Park to clear land for growing coffee.

            Benign use of fire to clear land for agricultural has been practiced for centuries. But the researchers found evidence that fire is also being used now as a weapon. Some communities have deliberately set fires to retaliate against plantations companies and other outsiders who have taken over land traditionally used for farming and other activities without consulting or compensating local people. In some instances, especially in drought conditions, the fires have spread beyond the originally targeted areas. The problem is compounded when the fires spread to open-access areas or other land where the local communities have little vested interest in fighting the fires or lack adequate resources to do so.

            The research indicates that cultural customs also are a factor. In some areas of Kalimantan, for example, indigenous Dayaks have traditionally limited their use of fire for land clearing during drought-prone El Niño years. But transmigrant settlers from Java and other regions of Indonesia do not always exercise such caution.

Regional Focus: Southern Africa

Building a Model for Sustainable Use of the Miombo Woodlands

Since 1998 CIFOR has been working with national researchers in five African countries—Malawi, Mozambique, Tanzania, Zambia and Zimbabwe—in a project to promote more sustainable use of the region’s vast miombo woodlands. The woodlands are the most extensive type of vegetation in the savanna-like areas of southern Africa, and an estimated 40 million people depend on them for a variety of needs.

            The miombo woodlands are being degraded rapidly from growing human demand. Population growth in the region is high and economic reforms in some of the countries has made life harder for local people, who cope in part by extracting forest resources for personal use and to sell for cash.

            The project on sustainable use of the woodlands, which is supported by the European Union, involves three areas of focus: institutional arrangements best suited for sound management of the forest; how various policies in the region affect the miombo-dependent communities and the condition of the woodlands; and the impact of industrial harvesting on the woodlands’ vegetation and soil. Godwin Kowero of CIFOR’s regional office in Harare, Zimbabwe, is coordinating the scientific team of 30 researchers from 10 institutions in the region. In October 2000, they met in Arusha, Tanzania, to discuss their latest findings.

            In their policy analyses, the researchers concluded that many people rely heavily on the miombo woodlands for resources because of an imbalance of power—rooted in colonial government control—that has not changed significantly despite a trend in southern Africa toward greater local control of forests and other natural resources.
Poor smallholder farmers remain confined to small plots, which are shrinking over time. As a result, they lack the resources needed to take advantage of other economic opportunities that would enable them to reduce their dependency on the woodlands. Post-independence governments have aggravated the situation by controlling the means of production, distribution and marketing as well as pricing.

            To curb deforestation, the national governments will have to introduce measures that close the wide gap between smallholder farmers and estate and commercial farmers, the researchers say. In the meantime, they suggest that agroforestry may be a good strategy to provide farmers in smallholder areas with more economic options.

            In line with the trend of decentralisation, many countries in southern African countries have been implementing systems of governance for community management of natural resources. But these institutions vary widely in terms of how much local, participatory control over resources they actually provide—and how successful they have been. Based on a large body of case studies, the researchers say community-based management is likely to work best under the following conditions:

• There are high-value resources to control, such as treasured wildlife that may attract tourists.

• Local governing bodies have realpower.

• Control is truly community-based, with power vested to local residents through some kind of corporate entity.

            One ‘success story’ the scientists examined was Duru-Haitemba Village Forest Reserve in Babati, Tanzania. Several factors appear to help explain the effectiveness of its local management. It has clearly defined boundaries and resources, as well as an elaborate system to ensure that all residents benefit from the resource management plan. There are provisions governing collective choice, conflict resolution and the right of the proprietors to devise institutions that are not challenged by government authorities.

            While systems of local forest management may take many different forms, having such institutions in place is crucial, the researchers emphasise.
They found that a kind of open access often occurs in areas where community forests are unallocated or the state has failed to properly manage the resources of public woodlands, leading to degradation.

Capacity Building for Miombo Woodlands Management

For the core team of 30 national scientists involved in the Management of the Miombo Woodlands project, investigating real-life problems is a means to increase their competency in the field. In April and May, two dozen researchers from the countries in southern Africa where the project is being implemented completed training to strengthen their analytical skills.

            In their present research, the national scientists are working to determine how various policies—sectoral, extra-sectoral and macroeconomic—have had a bearing on the management and conditions of the miombo woodlands. Building on earlier training in data analysis, they completed two workshops in 2000 that provided practical experience in using a variety of modeling techniques for multi-fold analysis. For the exercises they used extensive data from Zimbabwe, Tanzania, Malawi and Mozambique.

            The research teams from the various countries will continue modifying and validating the various models they constructed. For guidance and consultation, they communicate regularly by e-mail with the two scientist-trainers, R. Sumaila of the University of British Columbia and I. Nhantumbo of the Department of Forestry and Eduardo Mondlane University in Mozambique (now with the IUCN in Maputo).

Challenging New Ideas About Grazing Limits

The savanna landscape of southern Africa’s miombo woodlands is an important pastureland for farmers as well as a source of fuelwood and other products. But a team of scientists from CIFOR and other institutions warns that new grazing policies in semi-arid regions may not be economically justified and may pose additional ecological threats to the resilience of the grazing systems.

            The new policies, rooted in what natural resource specialists call ‘new rangeland science’, differ from past ideas about recommended herd sizes based on ecological carrying capacity. The new approach, predicated on a non-equilibrium concept of rangeland dynamics, contends that pastoralists should not adhere to a single, conservative stocking rate but adopt an ‘opportunistic’ strategy in which the number of animals is allowed to fluctuate widely in response to climatic variation. Doing so, proponents allege, will yield greater economic return. In addition, it is proposed that mechanisms must be put in place to track the ecological variability of the system—to buy up livestock in times of drought and to supply livestock after droughts.

            A team of scientists from CIFOR, the University of Zimbabwe’s Institute of Environmental Studies, the Shanduko Centre for Agrarian and Environmental Research and the University of Alberta in Canada challenged the new policies in a recent study. Using data from field surveys and the literature, they constructed a 15-year simulation model to compare the economics of four cattle management scenarios ranging from the ‘old rangeland science’ to the newly favoured scenario.

            ‘Economic Comparisons of Livestock Production in Communal Grazing Lands in Zimbabwe’ describes the analysis. The results suggest that strategies based on conservative stocking rates would have higher net present values than those based on ‘opportunistic’ stocking rates. The study did not reflect the environmental costs of the different scenarios in detail, given the lack of relevant data. But from their investigation, the researchers concluded that environmental degradation is likely to be greater in the opportunistic strategy.

            Noting that there is ‘remarkably little new empirical research’ on ‘new rangeland science’, they caution policy makers in southern Africa not to uncritically adopt the approach as the foundation for land use and land reform policies. Doing so, they say, may promote patterns of natural resource use ‘that are both unsustainable and ecologically disastrous and irreversible’.

National Focus: China

In China, Bamboo Grows More and More Important

The bamboo industry in China has grown fourfold in only 15 years, bringing considerable social and economic changes. Since 1994, CIFOR and scientists from several forest research institutions in China have been conducting the most in-depth study ever done of bamboo production in China and how it supports rural development. The results have proven so useful that Chinese officials have consulted the scientists repeatedly on policy questions and technical aspects of bamboo production.

            The project had been scheduled to end in 2000. But growing concern about the environmental effects of the rapid bamboo expansion led instead to the launch of an additional phase of research to examine that issue. A new national partner in China, the Department of Science and Technology of Zhejiang Province, has joined the project, which aims to determine what policy interventions will allow continued economic development from bamboo without destroying the environment. The findings have widespread implications because as many as 5.6 million Chinese depend on the bamboo sector for full- or part-time work.

            The newest phase of the project builds on research that began in China’s Anji County in the 1990s as part of broader research to better understand bamboo production, processing and marketing under different conditions. About a third of the mountainous county, which is in Zhejiang Province, is covered in bamboo, and almost two-thirds of all households grow at least some bamboo along with other crops.

            Bamboo is often viewed as a secondary product, or ‘poor man’s timber’. So the scientists were surprised to find that bamboo production in Anji County was booming—by as much as 50 percent in places, making some farmers relatively rich. The research linked the dynamic situation with a spate of policy changes China had been introducing since 1978, involving land reform, trade liberation and free-market measures. Farmers were given greater control over what and how much to produce, while new investment and export policies stimulated both domestic and international demand for bamboo products.

            Comparing the situation with conditions in areas where the levels of policy reform and socioeconomic development varied, the research team learned that a significant factor determining how much local people benefited from bamboo production was what kinds of products they produced. In general, farmers in China had traditionally produced raw bamboo (culms) for the pulp and paper industries, with processing left to the state. Under the reforms, many areas diversified into higher value products such as bamboo shoots, which brought some households unusually high incomes.

            The strong demand for bamboo and bamboo products undoubtedly will continue. Recent government restrictions on the logging of natural forests in China have given rise to expanded markets for panel board, flooring and other bamboo-derived building materials.

            To take advantage of the boom, people in some areas have been cutting down natural forests and other vegetation to plant bamboo. Because most of China’s forests are on hillsides, erosion has increased. The monoculture nature of intensive bamboo production has also raised mounting concerns about potential biodiversity loss, the increased use of fertilizers and other ecological risks. The latest phase of research will examine environmental issues such as these and potentially helpful policy reforms.

            Findings from this project and other studies in China are providing new insight into the extensive reforms in China since 1978 and their impact on the country’s forests. To explore the issue further, CIFOR is co-sponsoring a major symposium on the topic to be held in June 2001 in Dujiangyan, Sichuan Province.

Regional Focus: Latin America

Improving Forest Practices in the Brazilian Amazon

The Brazilian Agricultural Research Corporation (EMBRAPA) and CIFOR are engaged in a project to introduce good forest management practices, including reduced-impact logging, in an area of the Brazilian Amazon. The project neared a milestone in June 2000 when the two participating timber companies passed the preliminary requirements for certification as a sustainably managed operation. The full certification, awarded by the Forest Stewardship Council, is expected in 2001.

            Timber harvesting is the main economic activity in Amazonian Brazil. It is estimated that some 2,500 timber companies of all sizes operate in the region, reducing natural forests by as much as 1.5 million hectares a year. Current logging practices in the region are generally destructive to the surrounding forest, and Brazil has few examples of good operational management of tropical forests. The EMBRAPA-CIFOR project was launched to develop such guidelines for medium to large-scale timber enterprises.

            EMBRAPA and CIFOR, working with other institutions as well as private timber companies, plan to produce two sets of tools to support sustainable forest production: first, silvicultural tools, such as guidelines for timber harvesting, pre- and post-silvicultural treatments to enhance natural regeneration, and methods for monitoring growth and yield; and second, managerial tools, to aid economic planning of sustainable timber enterprises and for monitoring and controlling overall forest operations. The economic, ecological and sociocultural impacts of the various components will be evaluated in comparison with conventional methods of forest exploitation.

            In the present phase of the project, two Brazilian timber enterprises, Juruá Florestal Ltda. and Cikel Brasil Verde S.A., have been implementing reduced-impact logging techniques developed for use in the Amazon. The methods are now being validated by the partner enterprises, and the project is developing a check-list system for evaluating compliance with the techniques. The two companies significantly expanded their use of reduced-impact harvesting in the past year. Juruá Florestal’s RIL

operations grew to nearly 1,000 hectares, while Cikel Brasil Verde introduced RIL techniques in 5,000 hectares of forest.

            Meanwhile, EMBRAPA, CIFOR and several partner institutions are providing the participating enterprises with technical assistance and on-the-job training in reduced-impact logging and other silvicultural practices.

            Also continuing is the development of monitoring and auditing instruments, based on criteria and indicators, that can be used by forest enterprises and government agencies to guide sustainable forest management. A working set of C&I developed and field tested over the past two years was further refined in 2000 and is ready for validation in 2001.

Municipal Governments and Forest Management in Nicaragua

The trend of decentralisation in the past decade is driven in part by the desire to give local communities greater control over government and resources. It has also gained favour because some central governments see it as a way to share the burden of providing services. Regardless of the motives, many state, provincial, and local governments around the world have become more powerful and taken on more responsibilities, including control over forest management.

            How are they faring? After three years of research in Nicaragua, scientists from CIFOR and the Nitlapan Institute of Central American University found the results are mixed. They looked at forest-related activities in 21 municipalities where local governments have assumed greater control over forests. In each case, the team brought together representatives from public and private organisations to discuss what was happening to the area’s forests.

            The study sites represented a wide range of forest conditions. The initial six were rural municipalities that form the buffer zone of the Bosawas Biosphere Reserve; 10 more were in Leon, Chinandega and Rio San Juan. Leon and Chinandega are largely deforested and municipal governments that focus most heavily on reforestation, forest fire control, and protection of coastal mangrove areas and forest remnants surrounding the region’s volcanoes. In contrast, Rio San Juan still has large areas of humid tropical broadleaf forests, so municipal governments are more concerned with logging. In 2000, the work expanded to the pine forests of Nueva Segovia.

            Nitlapan recently completed a summary report on the major results of the studies. It shows there is now better cooperation and coordination between the municipal governments and the country’s Ministries of Agriculture and Environment—but much more remains to be done to increase the benefits of local control.

           About half of the municipalities studied now have environment commissions, many have passed ordinances on forests and tree nurseries are common, as are municipal reforestation and fire-fighting brigades. A number of local authorities have their own environment or forestry personnel. In general, the larger, wealthier municipalities have advanced more rapidly, as have those where civil societies organisations participate more in local government.

            On the other hand, most of the municipalities in the study continued to focus more on urban problems. Some have been directly implicated in illegal forestry activities; others have shown little or no interest in environmental issues.

            The World Bank and others are financing a number of projects in the region designed to strengthen governance by rural municipalities and increase forest protection. The research findings by Nitlapan and CIFOR have been helpful in shaping these projects, and are also of much interest to the Nicaraguan Ministry of Environment and Natural Resources.

The Value of Plant Diversity

The World Health Organisation says that as many as 80 percent of all the people around the world depend on medicinal plants as the main source of their primary health care, especially in developing countries where most plant diversity is concentrated. Yet little of this valuable ethnobotancial knowledge has been documented. Many species are at risk of extinction even before their benefits are fully known.

            In Peru, where half of all the land is covered by rainforests, the government is eager to cash in on the country’s botanical wealth by producing more plant-based medicines for world markets. CIFOR’s Wil de Jong and two colleagues from the Agricultural University La Molina warn in a recent study, which was published as a book-length report, that the government’s strategy to do that could hurt many of the country’s poorest people and threaten the long-term availability of some key plants. Aggressive marketing of plant-based medicines for international sales could drive up domestic drug costs, for example, making it difficult for local people to obtain traditional medicines.

            Drug manufacturers in Lima have traditionally relied on a highly informal system of acquiring the plants they need for production. They put out orders to traders in towns around the country, who would mobilise local people to collect the plants from the forest. Now, in an effort to guarantee higher standards of quality and a steady supply of raw material, the government has introduced regulations to control production. Any plants sold to Lima factories or foreign buyers must come from certified, well managed natural populations of plants. And all plant-based medicines sold to the public must be registered, which requires, among other things, evidence that reliable studies were done to determine the drugs’ effectiveness.

            ‘Obtaining certification would be impossible for most collectors’, robbing many local people of an important source of income, notes de Jong, who studied the situation along with Walter Nalverte and Gilberto Domínguez. Moreover, the researchers say, the government regulations fail to include adequate safeguards to prevent over-exploitation of plants that may become popular.

            In Brazil, CIFOR is involved in a study to compile local knowledge about plant resources that rural households derive from secondary forests to meet a variety of basic needs. The study is part of joint research on the management of secondary forests in northeastern Pará being done by EMBRAPA Eastern Amazon, the Faculty of Agricultural Sciences of Pará State and CIFOR. Funding is provided by PRODETAB, a World Bank and Government of Brazil programme to promote the development of agricultural technology.
An illustrated manual of local plants used for medicine and food will eventually be produced, targeted to farmers and extension agents.

            The work is being conducted in a community of small-scale farmers in the Bragantina Region of Brazil, one of the oldest colonised areas in the Amazonian Brazil. Preliminary results reported in 2000 provided data on 192 useful species found in secondary forest stands from six months to 150 years old.
The main uses were for medicines,
food, handicrafts, hunting, construction and other domestic needs. Medicinal plants were found to be especially valued. Two appreciated for their
healing properties were Psychotria colorata (Willd. ex R. & S.) Müll. Arg. (Rubiaceae) and Dalbergia monetaria L. (Fabaceae), locally known as ‘perpetua’ and ‘verônica’, respectively. The latter one is widely used by local women to treat diseases of the reproductive system.

Top