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close this bookCERES No. 097 - January - February 1984 (FAO Ceres, 1984, 50 p.)
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View the documentHeavy social costs raise doubts about Brazil's fuel scheme
View the documentRegional effort helps Near East to boost food output
View the documentLack of funding hampers campaign against rinderpest
View the documentPricing of timber concessions draws exporters' interest
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Pricing of timber concessions draws exporters' interest

Unlike many other commodities, such as sugar and rice, that are widely traded within well-established markets, timber is usually traded in a few large transactions between governments and transnational companies. This situation makes it difficult for developing countries dependent on timber exports for foreign-exchange earnings to establish a value for the commodity and to obtain a fair price for it.

A recently published FAO study, "Forest Revenue Systems in Developing Countries", is designed to help governments of developing countries to overcome this problem. The comprehensive work discusses many complex issues affecting pricing policy and outlines some of the possible solutions. Above all, it seeks to make developing countries aware that the forest resources they possess are a valuable commodity not to be lightly traded away.

Developing countries have never received fair returns for their timber. In colonial times, only a nominal fee was paid for timber extracted, on the apparent reasoning that timber was of little or no value to local populations. Some residual effects of this attitude are still felt today.

The situation has been changing, however, and many developing countries are determined that the price of timber, an important and increasingly scarce commodity, should reflect that situation. The price of timber rose dramatically at the time of the petroleum crisis of the early 1970s, and since then timber prices have continued to fluctuate at higher levels than before, representing an increase, in real terms, of between 30 and 40 per cent. However, the higher timber prices have not always been reflected in increased stump age fees for standing timber.

The FAO study draws attention to the three basic components of any forest revenue system: annual ground rentals levied on forest concessions; volume-based charges on timber cut export charges and domestic processing incentives. These elements can be used as policy levers to achieve a controlled management and exploitation of the resource.

Domestic processing incentives are just one symptom of the increased awareness of the value of timber as a commodity. Countries such as the Philippines, Indonesia, and Malaysia now specify in their concession agreements that only a small percent age of unprocessed timber can be exported. In this way they hope to ensure that they are not exporting potential for employment and value added earnings. Indonesia, for example, which had round wood exports of 20 million cubic metres in 1976, had reduced this flow to a mere three million cubic metres by 1982, while boosting exports of processed timber significantly.

An FAO forest economist, Philip Wardle, points out some of the difficulties involved in obtaining a proper price for timber. "Measuring timber is a highly intricate and technical matter, and there is an extraordinary variety of grades and quantities." What's more, forests are usually the property of governments which are dealing with the task on a vast scale, while the purchasing bodies with whom they must negotiate are generally multinational companies with much specific expertise in timber marketing arrangements.

Much forest is also being destroyed by people eager to get at the land. The value that they attach to land clearance inevitably reduces the value of the timber as a commodity. But he is optimistic about the future of the commodity in the long run. Increasing awareness of its scarcity should give it an added strength in the marketplace, a trend especially true for rare tropical timbers.

Improved processing techniques will allow the utilization of a greater number of species. "The forest has an increasingly valuable future and the real value of timber will increase," he maintains.