THE GREAT PLANTATION EXPANSION

Transcription

1 No 16, February 2014 THE GREAT PLANTATION EXPANSION International Tropical Timber Organization s (ITTO) Tropical Forest Update has recently published an article The great plantation expansion by Sepul Barua and Petri Lehtonen of Indufor. The article summarises findings of our recent analyses on the future trends and investment opportuntities in forest plantations. The total area of industrial fast-growing forest plantations in 2012 was 54.3 million hectares (ha). Indufor has projected that the global industrial forest plantation area will increase to 91 million ha by The key driver of industrial forest plantation development will be the increasing demand for wood, driven by population growth, growing economies and per capita consumption, especially in emerging economies such as Brazil, China and India. At present, forest plantations satisfy about one-third of the global industrial roundwood demand. Indufor has estimated that by 2050 plantation-based wood could satisfy 35% of total industrial wood requirements. This implies that the supply of plantation wood will grow at about the same rate as demand for industrial roundwood, and that forest plantations alone will be unable to meet the increasing demand for industrial roundwood. Natural and semi-natural forests in the boreal and temperate zones, which currently supply the majority of global industrial roundwood, will continue to be the biggest source of this raw material. The article also presents key challenges: (i) changes in investor types; emergence of small and medium-sized forest growers, (ii) increasing land-use competition, (iii) risks related to environmental degradation, (iv) land conflicts and other social issues, (v) poor governance, and (vi) financing gaps mainly related to business climate problems in countries with otherwise suitable physical conditions for plantations. Solutions to overcome these challenges are proposed in the article: (a) building alliances, coalitions and cooperatives among small and medium-sized forest growers, (b) increasing availability of financing for responsible and sustainable investments, (c) building awareness and capacity related to plantation investments among financing institutions, (d) improving sector governance and transparency, (e) providing secure land tenure, (f) introducing targeted incentives and removing disincentives, (g) developing tested plantation models, and building R&D capacity, and (h) developing and disseminating risk mitigation tools. Indufor is constantly supporting our clients in identifying new plantation investment opportunities. We are also helping our clients to plan, execute and monitor plantation investments in a manner that meets the highest international standards and best practices. We strongly believe that expansion of responsible and well-managed plantation investments, by all types of investors, small and large, will reduce the pressure on natural forests, and therefore plantation investments are also good for the global environment. The Royal Swedish Academy of Agriculture and Forestry, established in 1811, has selected Indufor s Anders Portin as its member. I wish to congratulate Anders for this recognition and honour. In this issue of our Newsletter we focus on sustainability of plantation development, particularly in China. Jyrki Salmi, Managing Director Indufor Newsletter No 16, February

2 FAIR TREATMENT IN LAND-USE RIGHTS - MAIN CHALLENGE OF FOREST PLANTATION DEVELOPMENT IN CHINA Indufor has gained valuable experience while assisting the European Investment Bank to ensure the sustainability of its forest sector lending in China. This country, with the highest population on the globe, has to adapt to a radically changing demographic structure. The demography is changing due to strict family planning regime, fast urbanisation and high economic growth. In rural areas the development has caused acute labour shortages and changes to land use and land-based production systems. The demand for all forest products is increasing and there is a heavy dependence on imports. At the same time, an increase of forest and vegetation cover is considered critical, not only to satisfy the growing demand for forest products, but to mitigate climate change and prevent anticipated natural disasters. The on-going structural changes have already caused conflicts in local land use and land-use rights. However, these changes also present an opportunity in the Chinese countryside. Forestry in a broad sense can be developed and integrated with high value production chains, with the associated social and environmental benefits. The European Investment Bank (EIB) finances ecologically critical forestry projects in China. The projects are implemented by local province or county level entities such as enterprises, farmer s cooperatives, and state farms, or individual farmers. The projects cover most of the ecological regions of China: the boreal northern areas, the temperate eastern and central parts, as well as the southern sub-tropical region including low lands and high lands. The planned tree plantations comprise ecological protection forests, timber trees, fruit trees as well as several trees producing non-timber forest products such as medicines and essential oils. The species are mainly native long-rotation species with the ability to store carbon and maintain biodiversity. The big challenge is to ensure that the projects are sustainable in every respect. Indufor was contracted to carry out technical, financial, social and environmental due diligence of the projects as well as to monitor their implementation in cooperation with the EIB. This article is largely based on the experiences of the Indufor team since February Indufor Newsletter No 16, February

3 China has ambitious aims to develop forest plantations The principal reason for China s plantation development is climate change mitigation and prevention of potential natural ecological disasters. In terms of deforestation, there had been an estimated loss of one-fifth of agricultural land since 1949 to soil erosion and economic development. Severe flooding in 1998 caused by deforestation along the Yangtze, Songhua and Pearl Rivers caused the loss of many lives and resulted in USD26 billion worth of damage. In response, the government introduced a policy in 1999 to return much of the low-quality farmland to forest. Simultaneously harvesting in natural forests was banned. The Chinese Government launched the National Climate Change Programme in 2007, which confirmed the important role of China s forestry sector in reinforcing the capacity to absorb greenhouse gases, and to support ecological protection and development. The aim is to increase the land under forest cover in China, which is still below the international standards. Another key reason for plantation development is that China has a chronic shortage of wood and fibre and almost half of the processed raw material is imported to the country. The gap between demand and supply of roundwood in China has been filled with imports of roundwood, wood pulp, recycled paper and processed wood products. The gap is currently widening although China is actively developing new plantations. The Government s aim in 2007 was to develop an additional 12.5 million ha of forest plantations by 2015, an ambitious target that made it the world s largest afforestation programme. Changes in demography drive the social and economic dynamics of rural China China remains the world s most populous country with its 1.38 billion people. Even more important and alarming is that China s demographic structure has changed radically over the past three decades. These changes will drive the country s economic and social dynamics, and in Chinese rural areas imply major alterations in land use and land-based production chains. China s aged population (60 and above) will increase dramatically, growing from present 200 million to about 300 million by 2030, while the overall population will not grow. At the same time the number of internal migrants is estimated at 220 million; especially the working-age men migrating to urban areas from the rural areas. It is inevitable that the era of young cheap Chinese labour is over and there will be workforce shortages. Indufor Newsletter No 16, February

4 Is leasing land causing conflicts or creating opportunities? In rural areas labour-intensive land uses and production farms cannot be sustained by ageing farmer families. It is thus typical that the old agricultural and other production areas are leased to those who have means for production. This has also meant a shift from annual crops towards less labour-intensive perennial crops and forest trees. Leasing land became a common practise especially after the significant legislative change that occurred in 2003 with the Forest Land Rights Reform. This created the opportunity for land occupiers to formally register their association with the land that they were farming. They could then in turn grant contractual entitlements to other parties to use the land for defined lease periods. There have been conflicts related to land leases and so called land grabbing where all the farmers leasing their land have not been fully aware of their rights. Many farmers have also entered into deficient and unfair contracts, where their benefits have been marginal. This has caused severe conflicts and cases have been reflected in the media. However, land leasing is in many cases the best opportunity to develop larger land areas with sustainable and less labour-intensive production chains. This is a great opportunity for many tree growers of different scales. It is critical that there is a mechanism in place that ensures the fairness and transparency of land leases. In the case of the EIB loan projects, the due diligence conducted by Indufor focuses on key sustainability criteria and it has been evident that one of the most important criterion has been the contractual arrangements between companies or other entities and local farmers. One way to improve the sustainability of forest development is certification, which is discussed in a separate article in this Newsletter. Petri Lehtonen, Senior Partner Indufor Newsletter No 16, February

5 CHINA FOREST CERTIFICATION SCHEME ENDORSED BY THE PEFC COUNCIL The China Forest Certification Scheme gained the PEFC Council s international endorsement. The decision was made based on Indufor s evaluation of the scheme development and implementation. A certification system that meets the international requirements set by the PEFC Council has the potential to improve stakeholder dialogue as well as socially and environmentally responsible forest management in the country. The PEFC Council endorsed the national China Forest Certification Scheme in February Indufor carried out the independent assessment of the scheme and its development process, which provided the basis for the PEFC Council s endorsement decision. The national forest certification scheme is fully compatible with national regulations that restrict the introduction of foreign organisations, such as certification bodies, or practical adoption of international requirements, e.g. international conventions, unless they are officially approved. Despite the strong link to national regulations, the scheme succeeds in setting practical requirement levels that are compatible with PEFC Council requirements for forest management, third-party certification and chain of custody that provides evidence of the origin of the timber and related products. Development of the National Forest Certification Scheme paved the way for engagement of national non-governmental organisations into discussions on the use of state-owned and private forest resources. The research community also participated actively in the standards development. A challenge is to further expand discussions with the third sector at national and regional levels in the future standard revisions. Forest certification introduces new third party verification into forestry. The certification procedures will comply with international ISO standards and certification bodies shall have internationally recognised accreditation for forest certification. The national scheme has been tested over a total of 1 million hectares of pilot certification areas, mostly in Northern China. In China, growing of almost any woody plant producing wood fibre, fruits, nuts, etc. is considered to be forestry. China s Forest Certification Scheme has taken a broad approach to forest certification and plans to expand the current scheme in the future to provide certification standards and procedures tailored for plantation forestry, bamboo forestry and non-wood forest products. Hanna Nikinmaa, Senior Consultant -Corporate Responsibility Management Indufor Newsletter No 16, February

6 SUSTAINABLE FORESTRY ON THE ÅLAND ISLANDS The Åland Islands, with a population of around , comprises one main island and about skerries and islands in the southwestern part of Finland. While tourism has an immense importance for the islands, the role of forests is essential from a landscape perspective. Indufor has advised forest organisations on Åland on the way forward to obtain group certification for FSC. The small, privately owned forests, with a total area of ha, provide wood for two small local sawmills. Situated in the Baltic Sea between Finland and Sweden, Åland has good shipping connections to both these countries. Some of the wood is sold locally, and some is processed and sold to customers in Europe and North-Africa. The pulpwood is chipped and sold to a mill in Sweden. The wood on the windy Åland archipelago grows slowly and is of very good quality. The forest organisations on Åland are considering FSC-certification as a means to achieve a price premium for certified wood and to increase market opportunities. However, the impact of certification is likely to go beyond forests and forestry. For the overall economy, agriculture, fishery, tourism and forestry are essential. The agriculture on the islands is small-scale and food production is local, with restaurants serving game and fish from the wild and vegetables from around the corner. FSC-certification is likely to strengthen the overall image of Åland as green islands where small-scale agriculture and forestry create high added value and largely benefit tourism. Anders Portin, Senior Consultant INDUFOR ACTIVELY PROGRESSES IN THE BEST PROGRAMME From the beginning of 2013, Indufor has been actively involved in the Sustainable Bioenergy Solutions for Tomorrow (BEST) programme The programme crosses the confines of traditional business areas by bringing together for the first time CLEEN Ltd and FIBIC Ltd, two Strategic Centres for Science, Technology and Innovation, and their owners and stakeholders in a joint research programme. This cross-boundary programme, partly funded by the Finnish Funding Agency for Technology and Innovation (Tekes), aims at building a solid common understanding of the future bioenergy business opportunities and necessary know-how and capabilities for seizing these. As a Finnish expert organisation with global operations, Indufor s skills and experience bring valuable input to the programme in assessing the operational readiness and global competitive positioning of bioenergy companies with regards to social sustainability and responsible business in different global contexts. It is widely acknowledged that the diffusion of bioenergy technologies is not driven solely by environmental benefits, technological advantages and favourable economic conditions. Social acceptance, consisting of a wide range of components of socio-political, community and market acceptance, a good understanding and a strong support of bioenergy by the general public, is also essential. Indufor Newsletter No 16, February

7 Indufor carries out studies on the key elements and phases of social sustainability in different life cycle phases of various bioenergy supply chains. Consequently, identification of common elements for bioenergy acceptability can help with the exchange of positive experiences between different types of bioenergy supply chains. Moreover, companies involved in bioenergy production can be vulnerable to environmental, social and economic risks related to sustainable biomass sourcing and land use changes, as well as to economic viability of bioenergy production. Indufor is identifying such risks and assessing the companies strategies on sustainability risks and conflict management in order to estimate how well they are prepared to meet the current and future social expectations and contribute to sustainable development. Indufor carries out this assignment in close cooperation with the other programme participants: small and large companies in the forest, energy, technology and consulting sectors, as well as universities and research organizations. The results are expected to be published by the end of Vasylysa Hänninen, Consultant, Corporate Responsibility and Markets NEWS FROM INDUFOR Indufor is supporting the European Commission in the implementation of the EU Timber Regulation (EUTR). The work will concentrate mainly on the assessment of applications of monitoring organisations and helping the Commission in its reporting duties. The EUTR prohibits the placing on the European market of illegally harvested timber or products derived from such timber. It has been effective as of 3 March Indufor was selected as a service provider through a competitive bidding process together with a UK-based team of technical experts, Efeca, and the Department of Land, Agriculture, Environment and Forestry of University of Padova, Italy. The work is foreseen to be completed by the end of NEW STAFF MEMBERS Miikka Malmström has been appointed as Consultant, Forest Economics at Indufor. He holds a master s degree in forest economics (MSc For) from the University of Helsinki. His expertise includes economic optimisation, forest asset valuation, plantation studies, forest policy analysis, market research and financial analysis. He has experience in different timber regulation policies, certification schemes for plantations and assignments with forest industry. Indufor Newsletter No 16, February