NLBI Report - Food and Agriculture Organization



Financing for the implementation of the Non-Legally Binding Instrument on Forests

Background analysis

A contribution to the CPF advisory group

FAO, 2008.

I. Purpose, background and methods

1. Purpose

This report identifies some sources of financing that may assist developing countries in their efforts to implement the Non-Legally Binding Instrument on Forests (NLBI)[1]. The report also examines the closeness of fit of some of the existing funding sources to specific elements of the NLBI. Additionally, illustrations are provided regarding fund delivery and proactive efforts by countries to address the issue of forest finance. These have been added to illustrate the challenges of tracking financing flows and to illustrate funding available at the national level. The report does not intend to be comprehensive but rather it provides examples and food for thought.

2. Background

This report is prepared to support the work of the advisory group on forest finance organized by the Secretariat of the United Nations Forum on Forests (UNFF). The advisory group seeks to provide background documentation on the issue of forest finance for the Ad-hoc Expert Group that will meet in November 2008 in order to advance discussions on the topic in anticipation of the 8th session of the UNFF.

During the deliberations of the advisory group, FAO agreed to lead a review of the financing sources identified in the Sourcebook on Funding for Sustainable Forest Management (SFM). The Sourcebook[2] is an initiative of the Collaborative Partnership on Forests.

3. Methods

From an analytical perspective, the NLBI has a very compact structure, rich in concepts and ideas reflecting several years of intense inter-governmental negotiation. At the time that this study was launched, CPF members were not aware of any funding source devoted solely to the implementation of the NLBI. As a result, FAO proposed to examine the sources of finance identified in the Sourcebook and seek to understand how they may assist in the implementation of the NLBI. Specifically, the funding sources were to be examined to understand the alignment of their stated objectives with those of the NLBI.

In looking at the specific requirements of countries under the NLBI, it was decided to examine first the national measures[3] since they present very specific challenges to countries in its implementation. Careful examination of the national measures shows that many of them contain several distinguishable topics thus the ideas in each national measure were further disaggregated for the purposes of the analysis.

The UNFF Secretariat provided FAO with a preliminary analysis of the elements found in each NLBI national measure. FAO then dissected each national measure into a series of sub topics that could be identified by specific keywords. At the same time, the funding sources identified in the Sourcebook were examined closely to understand their stated objectives and these were also dissected into a series of substantive topics identified by keywords. With these two pieces of information, NLBI and funding sources sub-topics, we proceeded to “map” each potential source of funding identified in the Sourcebook to the NLBI national measures that it could in principle be considered as supporting. It was understood that each funding source could map to one, many or none of the national measures. It was anticipated that the mapping might well show some national measures supported by many existing sources, others by only a few and possibly some national measures not obviously supported by any of the sources of funding identified in the Sourcebook.

The analysis of the sourcebook database was complemented with case studies of fund delivery to illustrate the relationship of fund objectives with NLBI national measures (see section V), examples of proactive efforts by countries to address the issue of forest finance (section (VI), and relevant information on the linkages between national forest programmes and forest financing (section VII).

4. Limitations

This analysis has many limitations and was never intended to answer all the very difficult analytical or political questions that the Ad-hoc Expert Group and the UNFF must face.

There are several important funding categories not addressed by this analysis. Many sourcing of national funding relate solely to national governmental appropriations. The Sourcebook is intended to serve the general forestry public in a search for funding that is open to application. Thus there are several whole categories of funding beyond the scope of this analysis. Another example is the investment undertaken by the forest industry. This is known to be a large if not the largest flow of funding to the forest sector. Again, the Sourcebook offers the public information about funding sources more visible or accessible to a range of constituencies. Clearly, proprietary investments by forest industry or other private firms (other than philanthropic foundations) are not included although they are known to be significant. Additionally, the analysis focuses on number of funding sources with only limited information on financial flows; the analysis is constrained to stated funding intentions and not actual disbursements; and finally, some of the funds in the sourcebook are, at the same time, providers and receivers of funding. Therefore, the analysis is intended to be illustrative rather than exhaustive.

Notwithstanding these limitations, the analysis offers some perspectives as to which beneficiaries are targeted for financial support, from where, and for which activities, specifically the activities related to NLBI measures.

II. Principle findings

A number of initial findings emerge from the above analysis. They include:

• Sources of funding to support sustainable forest management are fragmented and rarely individually cover the full breadth of activities considered as elements of sustainable forest management (as described by the seven thematic elements).

• While all measures included in the NLBI are supported, there was no single fund identified that explicitly supports the full set of measures included in the NLBI.

• Funding across the various NLBI measures varies greatly. Some attract much more interest than others. Funds identified in the Sourcebook are strongly weighted towards capacity building and conservation, less towards production and technical activities.

• Similarly, availability of funding by region varies - e.g. applicant eligibility for sourcebook funding suggests fewer funding sources available to Africa and Latin America. However, other funding sources may redress any imbalance of funding between regions (e.g. national funding in Latin America and donor funding in Africa). 

• Funds listed in the Sourcebook are clearly targeted towards specific objectives, competitively awarded and with relatively rigorous approaches to implementation, monitoring and evaluation. More competition for funding is also being introduced in some schemes (e.g. UK grant schemes, US Millennium Challenge funding, NFP Facility, GEF Small Grants), but a lot of donor funding is still largely targeted solely on governments with little or no competition between countries and/or with opportunities for other implementers.

• Implementation of innovative financing arrangements varies greatly between countries. As might be expected, innovation seems to thrive in situations where forestry is not a major productive venture (e.g. various schemes in Costa Rica, Joint Forest Management in India, new grant schemes in England). In contrast, major wood producing countries continue to use a traditional forest revenue model based around forest concessions although, in a few cases, improvements to that model are being tested. More could be done to increase revenue capture and finance SFM in major developing country producers but it remains very unclear who will pay for this and how it should be done.

• Experience in Latin America suggests that funding to support SFM is difficult to locate. This is particularly so for SFM activities like natural forest management, incorporating social and ecological criteria in SFM, and for supporting small and community forest producers. (Funding for plantations and, to a lesser degree, conservation, is less challenging to locate). Furthermore, the process for seeking funding is arduous and lengthy. Many organizations find it difficult to survive the very long gestation period (5 – 60 months) typical for most funding sources of any size or scale.

• Some developing countries appear to have been more successful at financing certain aspects of SFM. These countries are typically characterized by a supportive policy and institutional environment (including clarity of land tenure), alignment with long-term national priorities and commitments; and synergistic incentive packages that combine financing with favorable investment, credit and trade policies.

• From an assessment of financing mechanisms available in Latin America emerged that: national forest programmes (NFPs) and their financing are key processes in the promotion of better resource management and in linking forest development to economic development, particularly for the rural poor; value is added by building bridges between the forest sector and other sectors, particularly the financial sector..

These finding and analysis yield several possible recommendations:

• Proposals to expand funding at the international level may wish to consider more rigorous, competitive mechanisms for awarding funds.

• National forest financing strategies that are part of or aligned with the national forest programme (NFP) process are needed to promote SFM more effectively

III. CPF Sourcebook

1. Coverage and scope

The CPF Sourcebook on Funding for SFM seeks to identify publicly visible sources of finance available from charity foundations, non-governmental organizations, multilateral and bilateral donors, international organizations and private sector entities that could relate to sustainable forest management in a direct or indirect way. The database also includes information about funding for a wide range of other activities that could contribute to sustainable forest management, such as overseas study and training, grants for feasibility studies, scholarships and research activities.

FAO, on behalf of CPF, and in close collaboration with the National Forest Programme Facility maintains the sourcebook. Its database, available at , is intended to help users locate funds to develop and implement their projects. The sourcebook was created and is maintained to facilitate this access to users, especially from developing countries or disadvantaged situations.

2. Criteria for funds inclusion in sourcebook

The criteria used for inclusion of a funding source in the database are as follows:

• The source is clearly identifiable with full contact, scope and eligibility information

• The fund provides funding as a grant, a loan or as equity to defined members of the forest sector for purposes that relate either directly or indirectly to SFM

• The fund is actively disbursing funds

• The fund consents to being included in the Sourcebook database

3. Type of support

The type of support elaborated in the database can take the form of grants, loans, equity investments, fellowships/scholarships, or direct financial support to travel, project and training. A majority of the sources provide grants (see Figure 1) to enhance country institutional capacity, to support governmental and non-governmental institutions and to finance project formulation, policy reform and sector management and development. A large share of this kind of support is also dedicated to educational projects. Percentages given in Figure 1 refer to the number of sources, and not the funding disbursed.

[pic]

Figure 1 - Types of support available in Sourcebook

4. Targeted fund recipients

Funds are given to the following target categories of beneficiaries: individuals (especially for scholarships); academic and research institutions; governments; international organizations; NGOs; and private sector. Figure 2 summarizes the percentage of funding sources that targets these categories of beneficiaries.

[pic]

Figure 2 – Target groups served by sources in Sourcebook

5. Geographical coverage

Defining geographical aspects of financing is often very complex. While we can easily obtain information on the geographical origin of funds, it is more difficult to locate their ultimate beneficiaries. For example, a US NGO may be funded by a US foundation (it thus appears in the database as a US beneficiary) but to carry out development activities in a developing country (which is then the ultimate beneficiary). The type of project supported can also influence the geographical definition of the assistance: educational project can be used in a developed country by a developing country national or be related indirectly to sustainable forest management in developing countries.

Figure 3 summarizes the number of funding sources by region of origin. The majority of donor organizations are based in North America (47%) and Europe (30%). This list excludes domestic government funding in developing countries.

[pic]

Figure 3 – Number of funding sources by region of origin

Regarding the ultimate beneficiaries of sourcebook funding, not all funding sources included in the database indicate a specific geographical area (see Figure 4). In the database there are 177 funding sources that either do not specify the geographic location of possible applicants or limit their funding to, say, developing countries. Analysis of the sourcebook sources reveals that, in general, special attention is given to developing countries. For example, a substantial proportion of the sources displayed through the sourcebook (26%) make funds available in Asian countries, while 12% and 16% make available funds in Latin America/Caribbean and Africa respectively. About 30% of funds are available to European and North American applicants. However, some of these applicants use financing to fund activities in developing countries. (It is not known the degree to which this is happening). Figure 4 illustrates the distribution of sources by the region eligible to receive financing.

[pic]

Figure 4 – Distribution of sources by the region eligible to receive financing

6. Sourcebook update process

The information provided in the sourcebook is often subject to change. The links to the organizations’ website, contact addresses and phone numbers are the major changes. In addition some organizations regularly change their grants/loan programs geographical focus, priority areas and deadlines, and in some other cases the programs are discontinued for some years. Maintenance of accurate keywords is also very important to keep the Sourcebook relevant and useful. Revision of this information is needed frequently in order to maintain the database up to date.

During April and May 2008, a complete update of the contents and of the keywords has been carried out along with the analysis on financing NLBI elements.

The database now contains more than 700 sources of funding, among which 150 are still to be published.

IV. Comparison of Sourcebook elements with the national measures of the NLBI

1. Methodology:

In order to analyze the possible sources of financing for the implementation of the NLBI national measures and the gaps that may exist, the current information available on the Sourcebook was examined as a sample of the existing funding sources. The work has been carried out in five phases:

a. Study of NLBI elements and concepts

b. Association of specific keywords to each NLBI element

c. Inclusion of additional keywords into Foris[4][5], when needed

d. Mapping sourcebook funds with NLBI keywords and elements

e. Analysis of the results – principle findings

Keywords were useful for a double purpose: linking each element to the relevant funding sources while updating and restructuring the search system at the same time.

Considered was the list of keywords already used in the sourcebook and therefore already associated with the funding sources, as well as the whole Agrovoc[6] list. Some expressions or words not present in the Agrovoc were also used. The new keywords have been added to the Foris list of keywords. To facilitate the mapping exercise, an excel file containing the entire list of funding sources in the database, and their relations to the NLBI elements was used.

2. Principle findings (funds grouped by NLBI elements)

From the excel file, we generated a graph (Figure 5) showing the distribution of funding sources for NLBI national measures. This representation is based on a sample of 556 funding sources obtained from the source book.

 

[pic]

Figure 5 – Number of funding sources supporting NLBI elements[7]

General observations

- Funding across the various NLBI measures varies greatly. Some attract much more interest than others. Funds identified in the Sourcebook are strongly weighted towards capacity building and conservation, less towards production and technical activities. In a way, funds in the sourcebook may complement private-sector funding and national funding that are most likely focused on productive activities and, perhaps, conservation. Orientation of other donor funding (non-sourcebook) is unknown, but possibly also focused on capacity building and conservation (less on production). There may well be a mis-match between availability of funding and funding requirements of each element.

 

- Similarly, availability of funding by region varies - e.g. applicant eligibility for sourcebook funding suggests fewer funding sources available to Africa and Latin America. However, other funding sources may redress any imbalance of funding between regions (e.g. national funding in Latin America and donor funding in Africa). Again, it would be interesting to know whether the complete picture is balanced between funding availability and need (or not)?

 

- Sourcebook funding is generally clearly targeted towards specific aims and objectives, competitively awarded and with relatively rigorous approaches to implementation, monitoring and evaluation. Donor funding and national funding is also usually targeted (although the targets shift) and quite rigorously implemented. More competition for funding is also being introduced in some schemes (e.g. UK grant schemes, US Millennium Challenge funding, NFP Facility, GEF Small Grants), but a lot of donor funding is still largely targeted solely on governments with little or no competition between countries and/or with opportunities for other implementers. Proposals to expand funding at the international level should consider more use of rigorous, competitive mechanisms for awarding funds.

 

- Implementation of innovative financing arrangements varies greatly between countries. As might be expected, innovation seems to thrive in situations where forestry is not a major productive venture (e.g. various schemes in Costa Rica, JFM in India, new grant schemes in England). In contrast, major wood producing countries continue to use the traditional forest revenue model based around forest concessions although, in a few cases, improvements to that model are being tested. More could be done to increase revenue capture and finance SFM in major developing country producers and but it remains very unclear who will pay for this and how it should be done.

- The following table highlights and briefly explains the most and the least supported NLBI elements.

|NLBI National |Observations on funding opportunities based on funds included in the Sourcebook |

|Measure | |

|u |Access to education is the most represented national measure. The interventions supported under this group are |

| |mainly scholarships and fellowships. Although many of them are intended to support environment or conservation |

| |oriented education, a large number of foundations do not specifically focus on forest related education. |

|p |Many funding sources support conservation activities. These are often directed to the protection of particularly |

| |endangered ecosystems or areas with a high biodiversity value. Some foundations also promote the advance of |

| |knowledge and education of conservation through their programs. |

| |The Global Conservation Fund finances for example the creation, expansion and long-term management of protected |

| |areas in the world's biodiversity hotspots, high biodiversity wilderness areas and important marine regions. The |

| |desired outcome for all its projects is a newly created or expanded protected area supported by an adequately |

| |capitalized long-term financing mechanism. |

| |The Critical Ecosystem Partnership Fund is a global program that provides grants to nongovernmental and private |

| |sector organizations located in biodiversity hotspots in highly threatened regions to protect vital ecosystems. |

|t |Numerous foundations are supporting public awareness of environmental issues in the form of, for example, |

| |production of awareness materials, films, and campaigns. |

|r |The majority of the organizations funding this element give support to general research programs. Only some of |

| |them, such as the Africa Rice Center, explicitly refer to incorporating the results in national programs. |

|v |Examples of organization that support educational projects involving local communities are the Africa Educational |

| |Trust (AET) and United Latino Fund (ULF). |

| |Programs can be directed at supporting education for people living in areas of conflict in developing countries; |

| |grants can be given to students studying outside their country; beneficiaries are girls and young women who have |

| |been denied access to education, children in primary school, young ex-militia men who have had no education or |

| |vocational training and young men and women working with local and non-government organizations in conflict |

| |situations. |

|s |A consistent part of the resources available are intended to support the development of scientific and |

| |technological innovations. The African Forum on Science and Technology for Development, for example promotes the |

| |application of science and technology for economic growth and poverty reduction. |

|w |A number of programs are committed to involve local communities and major groups in their development programs, |

| |also promoting cooperation between non-governmental organizations, local governments and private sector. |

| |The Brazil Rural Energy Enterprise Development offers rural energy entrepreneurs or existing companies looking to |

| |enter or expand into the sustainable energy business, a combination of enterprise development services and start-up|

| |financing in the form of debt or equity. The FAO Facility is another form of funding that can be attributed to this|

| |element. |

|i |There are a few funding sources from the CPF database for supporting NLBI measure “i” on developing financing |

| |strategies for achieving sustainable forest management. Green Development Foundation (GDF) can be directly linked |

| |to this form of support in some African countries, while Aavishkaar India is a good example in India. |

|h |It is not easy to single out a funding source that directly supports creation of enabling environment to encourage |

| |private sector investment, as well as investment by and involvement of local and indigenous communities, other |

| |forest users and forest owners and other relevant stakeholders, in sustainable forest management, through a |

| |framework of policies, incentives and regulations. The reason may be that such task is not in the hands of the |

| |forestry sector per se but in overall government policy frameworks. |

| |Examples of foundations that fund this element can be the ones related to emission trading (e.g. Face foundation); |

| |or those on Governance. |

| |Another category of funding for this element is more general: it includes foundation such as the Harwood Foundation|

| |that seeks to cultivate leadership and foster opportunities to bring about solutions that promote sustainable |

| |forests, healthy economies and vital rural communities. |

|o |Only a few funding sources explicitly give funds to analyse the causes of threats to forest health. However, |

| |research and conservation programs (elements R and P)could partially have funds accounting for this element as well|

| | |

|q |Only a few funding sources explicitly give funds to assess the conditions of existing protected forest areas. |

| |However, this could be partially included in the general conservation activities (element P). |

|b |The 7 thematic elements include all SFM aspects. Therefore it is very difficult to isolate sources of funding for |

| |this specific element. It is possible that more funding sources jointly fund all the aspects included in the 7TE. |

|l |This element on integrating nfps or other strategies into national development strategies is mentioned explicitly |

| |by only a few sources. Cirad is an example of financing for this national measure. |

|n |Environmental laws and regulations are mainly considered as a strategy to implement forestry activities, some funds|

| |go specifically to support governance and legal aspects related to forestry (E.g. Alaska Conservation Foundation) |

|g |This is weakly supported. |

| |ITTO pioneered the development C&I for the sustainable management of natural tropical forests in the early 1990s |

| |and devotes considerable resources to the practical application of C&I in tropical member countries especially by |

| |forest concessionaires, industry workers and government officials. |

V. Fund delivery -- Examples of fund objectives and their relation to the NLBI

The few randomly picked examples of fund delivery illustrated in this section show the difficulty in pin-pointing funding specific to forestry. Funding partners have multiple financial mechanisms through which they support countries, however, in many cases it is difficult to identify where these funding mechanisms coordinate or synergise to support forestry interventions. Furthermore, much bilateral funding goes into national budgets, where priorities generally lie in the social sector (health, education) and for economic enhancement. The choice of funds described below is meant to be illustrative only, not implying critique of the funds’ policies. Instead, the analysis reveals how challenging it is becoming to finance sector-specific interventions like the NLBI as more and more funds shift focus to thematic issues.

The ITTO case underscores the important role national governments play in mobilising resources and creating partnerships

a) ITTO

ITTO is an intergovernmental organization with 60 members (including 10 in West and Central Africa) that develops and implements policies for sustainable tropical forest management and promotes the international trade of tropical timber. Since 1987 the Organization has provided grants worth over US$300 million to fund over 600 projects designed to promote sustainable forest management, conservation and sustainable development.

ITTO elicits co-financing from national governments, private sector companies, regional and international organisations, to support the implementation of specific NLBI country measures. The table below gives an example of the support provided by ITTO during its 43rd session. The bulk of projects financed at the 43rd session were from Asia and Latin America.

|Activity |ITTO |

| |contribution |

| |($) |

|INAB (excl PINFOR) |$7.4 |

|PINFOR |$16.9 |

|ODA financed INAB projects |$3.8 |

|Sub-total |$28.1 |

| | |

|Conservation based forest funding | |

|CONAP conservation-based revenues (income) |$0.2 |

|CONAP |$4.6 |

|ODA financed CONAP projects |$12.6 |

|Sub-total |$17.5 |

| | |

|Total |$45,6 |

Source: Adapted from Gudiel (2008), Flujos Financieros al Sector Forestal de Guatemala.

From this Table, one concludes that public sector financing to the sector accounts for about two thirds of all forest financing, with the percentage being significantly higher for forest activity with a productive component (86% of INAB projects and programs are funded with national public sources) than for conservation activities (72% of CONAP activities are ODA funded).

The PINFOR case exemplifies the reality of several Latin American countries which have stepped up significantly public sector investment in the forest sector.

b) Mexico is committing significant public budget resources to forest sector development. The financial flows to forestry increased from 256 million pesos (about $28 million) in 2001 to 5,400 million pesos (about $500 million) in 2007. Most of these funds come from national budget allocations, with a small percentage coming from water charges. They are being used to promote conservation and better natural forest management through payments for environmental services, promotion of reforestation and rehabilitation of degraded forests, among other activities[10].

2. Earmarking of government taxes

A number of countries have earmarked government revenues for specific forestry activities in situations where there is strong political support for an issue. Some examples include:

- Ecological State VAT in some Brazilian states, where part of the state’s VAT receipts are used to fund the creation of conservation areas and funding takes into account the proportion of each municipality occupied by conservation areas and the land-use restrictions and quality of conservation in these areas;

- Costa Rica’s National Forest Financing Fund (FONAFIFO), which is largely financed by a 3.5 percent tax on gasoline (and an additional water tariff earmarked for watershed protection has just been introduced);

- Earmarking of ten percent of stumpage and forest product fees to support operational costs of the Protected Forest Areas Network in Liberia; and

- Zambia’s Forestry Department receives additional income from the Ministry of Finance and National Planning whenever it meets a target revenue collection. The additional income amounts to a 25% share of the revenues it collected beyond the target.

3. Public-private partnerships

In light of the difficulties of raising public finance for forestry activities, many countries have entered into a range of different public-private partnerships to engage and support local community involvement in the management of forests on public land. The many and varied arrangements include the following.

- Joint Forest Management: Perhaps the longest-running example of a public-private partnership in forestry in a developing country is the case of Joint Forest Management in India. Joint Forest Management originated in West Bengal in 1971, where a Divisional Forest Officer - noting the problem of grazing and illegal harvesting in government forest reserves - negotiated an agreement with an ad hoc Forest Protection Committee involving 612 local families to protect and rehabilitate 127,000 ha of degraded forest in return for a 25 percent share of any revenue from future harvests. This experimental approach was expanded in West Bengal and Haryana and then made national policy in 1988. At present, Joint Forest Management is present in 27 Indian states with around 63,000 Forest Protection Committees managing over 14 million ha of forest land. Similar arrangements have also developed rapidly in Nepal and are being considered and/or piloted by a number of other countries all over the World.

- Cost and benefit sharing arrangements in Africa: A number of African countries have implemented cost and benefit sharing arrangements to encourage local engagement in forest management and protection. For example, in Mali and Niger, part of the money raised from forest charges is used to support local development, with larger shares going to local communities if harvesting in their areas is controlled in some way (up to 90 percent in Niger and 45 percent in Mali). Furthermore, a proportion of the revenue shared with communities is reserved for expenditure on forest management. Gambia has a similar arrangement, where local communities enter into Community Forestry Management Agreements with the Forestry Department that allows them to retain 85 percent of any revenue from forestry activities in their designated areas so long as they demonstrate an ability to manage the forest and 40 percent of revenue is reinvested in the forest.

- Modified Taungya: In Ghana, “Modified Taungya” was introduced in 2002 as a way to encourage local people to participate in reforestation activities. In contrast to traditional taungya (where people can grow crops in between immature trees for the first few years of establishment), farmers are given a long-term incentive to protect the plantations with a 40 percent share of any final revenue from timber harvesting (another 40 percent is kept by the government and the remaining 20 percent is shared with local communities and traditional landowners). This scheme has resulted in the replanting of 103,000 ha of degraded forests since 2002, with over 200,000 people participating in the scheme. It is also estimated that farmers have earned approximately USD 230/ha from the sale of crops grown under the immature trees.

It should be noted that the arrangements described above are only examples where revenue sharing is linked to forest management by local communities. There are also many countries where revenue is shared with local communities or local government without them actively participating in forest management. While these may have some benefits in terms of reducing land-use conflicts, they do not represent financing in support of sustainable forest management.

4. Improved mechanisms for forest revenue collection by governments

In the majority of developing countries where governments award forest concessions for roundwood production, forest charges are set administratively and revised infrequently. Thus, it is often the case that forest charge collection is well below the amounts that could be obtained. However, in recent years, a few countries have started to use competitive bidding procedures for awarding such rights. Countries that have used such mechanisms include Cameroon, Ghana and Liberia. Although these policy changes have had mixed results so far, they appear to have increased revenue collection compared to the systems that they replaced. However, it should also be noted that increased revenue collection due to such methods is not always reinvested in sustainable forest management and may be used for other purposes.

5. Grants or incentives for forestry activities

Grants or other incentives to promote forest management have been used in developed countries for many years, but they are a more recent phenomenon in developing countries. In addition, some countries have implemented more sophisticated incentive schemes that link incentives to specific targets and/or objectives.

Brazil is one country that has invested considerably in its forest sector. For example, a concerted financing strategy that included favourable credit and a supportive investment climate has been used to support afforestation. This has increased the rate of new planting towards the target of 500,000 ha/yr in 2007 and it has also increased the proportion of small landowners establishing new forest plantations. Two programs in particular have been designed to support small and medium forest operators - the PRONAF Florestal and PROPFLORA - that, in 2004-05, disbursed about R$50 million (about $19 million) in support of afforestation.

Zambia is operating a Forest Development Credit Facility, in which local people willing to invest in forestry activities are offered micro-financing ranging from US$ 15,000 – 85,000. The intention is to increase sector economic activity so that the Forestry Department benefits from increased volumes on royalty fees.

China has also embarked on a programme of significant and rapid afforestation for commercial and ecological reasons using various innovative incentive arrangements. One such programme is the Conversion of Steep Cropland to Forests and Grassland Programme (also known as “Grain for Green”). This includes a mixture of cash grants, free grain (at the time it was designed, China had a significant grain surplus), tax exemptions and guarantees of tenure security that have encouraged farmers to convert cropland on steep slopes to forest. During 1999-02, 7.7 million ha of steep land was converted into forest nationwide, including 3.72 million ha of farmland and 3.98 million ha of barren hills. In 2002 alone the Grain for Green Programme involved 5.162 billion kg of grain and RMB458 million in cash grants that were distributed to 10.31 million farmer households.

Vietnam has also invested significant amounts of money to increase forest cover in the country under the 5 Million Hectare Reforestation Programme. From 1998-03, investments of about VND 3,848 billion (about USD 256 million) have resulted in planting of about 1.7 million ha of forest (0.5 million ha for production and 1.2 million ha for protection and special-uses), again with a focus on afforestation of steep land where environmental benefits are likely to be highest.

An example of a sophisticated incentive scheme is the Woodland Creation Grant currently used by the Forestry Commission in England to encourage afforestation. Until quite recently, afforestation in England was supported by simple flat-rate grants based on species and size of planting. Gradually, over time, additional payments were made to reflect planting on better land, planting on agricultural land and planting for recreation and amenity purposes in and around urban areas (all of which have been policy objectives of afforestation in England). The latest grant scheme continues this trend towards incentive payments linked more clearly to forestry policy objectives and has added another feature, which is the scoring of applications (to assess priority for grant awards) based on how well each grant application meets objectives.

Uganda and Malawi are piloting successful cases in Africa where communities involved in forestry and planting activities are directly benefiting from voluntary carbon offset payments made under the Plan Vivo system.

Payments for environmental services schemes, favourable credit, subsidies and tax exonerations fall within this category.

6. Improving the policy and institutional environment

Several countries have improved their policy and institutional environment to allow for more creative channelling of funding to forests and forestry. For example, countries in Latin America have passed legislation aiming at encouraging the development of PES schemes (e.g., Costa Rica), or to enable the more flexible implementation of capital market instruments (e.g., Chile, Mexico, Colombia, Guatemala).

VII. National forest programmes and forest financing

Between 2005 and 2007, FAO and its partners undertook an assessment of the forest financing mechanisms available in Latin America, a region that has provided global leadership in the experimentation with innovative forest financing mechanisms. This assessment has produced a deeper understanding of the variety of sources and mechanisms available to finance SFM, of the prospects for identifying additional forms of financing, and of the steps needed to increase the effectiveness of existing ones.

This project was conceived as a knowledge management and sharing initiative aimed at: (a) producing a comprehensive assessment of the Latin America experience with financing mechanisms, and (b) increase the capacity of national forest programmes for the participatory development of national strategies of forest financing. It was not focused on producing an assessment of the financing needs of the countries.

Several messages have emerged from this work. First, that national forest programmes and their financing are key processes in the promotion of better resource management and in linking forest development to economic development, particularly for the rural poor. Second, that much value added can be created by building bridges between the forest sector and other sectors, particularly the financial sector. Finally, that national forest financing strategies are needed to promote SFM more effectively.

While most countries do have a strategy to fund forest development, the hypothesis raised by the project is that SFM will be served to the degree that the national forest financing strategies will abide to the following criteria:

• Embrace the multi-functionality of forests as the basis for an improved appreciation and management of this resource

• Consider the diversity of actors in forest policy and management, including the different levels (local, national) in which forest sector development occurs.

• Consider the diversity in forest types and their quality.

• Promote diversification in the sources of and mechanisms for financing to include both sources and mechanisms for investments as well as for payments/market development for forest goods and services

• Promote integration and harmonization (packaging/bundling) among different sources and mechanisms, as to obtain maximum synergies among them

• Acknowledge the diversity of local conditions, including different development goals and priorities among countries.

• Take place in a supportive institutional, legal and socio-economic environment for investments and market development, or otherwise propose measures to correct those distortions that adversely impact the competitiveness of sound forest management.

• Reflect a process of dialogue, negotiation and agreements that is both participatory and inclusive of all key stakeholders. They are the result of a process with a strong and long-term commitment and co-responsibility of the parties involved.

• Built on and reflect national forest programs principles. It is country-led, holistic in scope, and arrived at in such a way to enjoy broad, multi-sector support.

The region contains some examples of countries with forest financing strategies that, while they did not incorporate all the criteria mentioned above, have nonetheless successfully financed forest development. They led, for example, to the significant expansion of plantations in countries like Chile, Uruguay, and Brazil.

Uruguay. In Uruguay, subsidies and tax relief have been used effectively to promote plantations that now account for half of the total forest cover of 1.5 million ha. The effectiveness of these instruments was augmented by a favourable credit policy and investment and trade laws and ended up attracting international private investors. Overall, these instruments worked well when they reflected clarity of priorities and a willingness to allocate resources to meet those goals. Because only tax-paying operators could benefit from these investment incentives, these instruments have typically favoured large, relatively better off landowners.

Brazil. Brazil offers a series of financing mechanisms to promote industrial plantations and natural forest management. For example, a number of credit lines are available through the Brazilian National Forest Program – Ministry of the Environment and can be reviewed at . As of 2006, the results have been encouraging with increases in the area of annual industrial plantations to approach the 500,000 ha/yr in 2007 (up from less than 300,000 ha/year in 2002), an increase in the proportion of the contribution of family and small producers to commercial plantations from less than 8% in 2002 to 25% in 2006, an increase in the area of natural forests under certification from 0.3 million ha in 2002 to 3 million ha in 2006, and a decrease in the area of deforestation from 25,000 Km2/year in 2002/3 to 13,000 Km2/year in 2005/6 (although recent figures show an increase in deforestation as a result of higher food prices).

The factors that appear to be associated with the success of these plantation programs all point to a conducive and supportive institutional and legal environment that included:

• Clarity of land tenure;

• A supportive policy and institutional structure;

• Alignment with long-term national priorities and commitments; and

• A synergistic incentives package that included subsidies, tax exonerations, and favorable investment, credit and trade policies.

Examples of financial needs assessments

While most countries with a forest sector strategy have some statement addressing how to fund the sector’s development, we note that:

• Few countries have made comprehensive efforts to quantify the financing needs of their national forest programme (NFP) or the entire scope of SFM;

• Even detailed analyses often need to be considered illustrative due to ongoing changes to national forest strategy and financial allocations;

• Seriously produced needs’ assessments appear to translate into increased funding by governments; and

• Without a NFP-type instrument it is practically impossible to assess a country's financing needs for SFM (or NLBI implementation).

In Appendix I we offer illustrative examples of the financing requirements that Mexico, Guatemala and Costa Rica have identified to support SFM. While any generalization is to be avoided, these limited illustrations suggest that reliance on international funding is still sought, particularly to support market development for environmental services, forest related poverty alleviation and social development, capacity building, information and planning processes. There may well be a mis-match between availability of funding and funding requirements of each NLBI element.

Appendix I: Financing requirements in Mexico, Guatemala and Costa Rica

[pic]

[pic]

[pic]

Financing requirements in Guatemala

[pic]

Source: Gómes A.M., Cáceres R. (2006). Mecanismos de financiamiento para el sector forestal de Guatemala.

Costa Rica

[pic]

-----------------------

[1] Adopted by the seventh session of UNFF and by the United Nations General Assembly in 2007 (A/RES/62/98)

[2]

[3] United Nations Forum on Forests, Report of the seventh session (24 February 2006 and 16 to 27 April 2007) E/2007/42 E/CN.18/2007/8

section V National policies and measures.

[4] It is evident for the reasons cited earlier that this is not a random sample and a statistically robust inference cannot be made.

[5] Foris is the technical platform upon which the sourcebook is built.

[6] AGROVOC is the FAO multilingual, structured and controlled vocabulary designed to cover the terminology of all subject fields in agriculture, forestry, fisheries, food and related domains (e.g. environment).

[7] Note: in parenthesis is the corresponding national measure as defined by ECOSOC Resolution 2007/40.

[8]

[9] Programa de Incentivos Forestales.

[10] North America Outlook report: Mexico.

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download