Value of Timber Resources
Attributes
Medium: Animals, Plants and/or Others
Country: Malaysia
Analytical Framework(s): Market Price of Output, Other
Study Date: 2002
Publication Date: 2003
Major Result(s)
| Resource/Environmental Good | MYR, per hectare (2002) |
MYR, per hectare (2014)1 |
USD, per hectare (2014)2 |
|---|---|---|---|
| Stumpage value (lower bound)3 | 7,078.00 | 9,152.21 | 2,651.55 |
| Stumpage value (upper bound) | 42,532.00 | 54,996.00 | 15,933.25 |
About the Inflation Adjustment: Prices in Malaysia (MYR) changed by 29.31% from 2002 to 2014 (aggregated from annual CPI data), so the study values were multiplied by 1.29 to express them in 2014 prices. The study values could be expressed in any desired year (for example, to 2025) by following the same inflation calculation and being sensitive to directional (forward/backward) aggregations using your own CPI/inflation data.
Study Note: The forestry sector has played an important role in the Malaysian economy in the last few decades. The forest sector developed rapidly in the 1960s and 1970s because of significant timber harvests as a result of large-scale conversions of lowland forests for agricultural development. The total areas opened for logging in Peninsular Malaysia from 1989 to 1998 are presented in Table 1. The trend of areas logged has been decreasing since 1989. The total areas logged were 93,517 ha in 1998 compared to 235,831 ha in 1989, a decrease of about 60% over the decade. The decline in area logged was due to the reduction of the conversion of stateland natural forest areas for permanent agriculture. Agro-conversion has primarily been in rubber, oil palm and sugar cane. Rapid expansion of manufacturing sectors in themid-1980s has altered the overall development of the agricultural sector. The latter was beset with problems such as labour shortages, rising wages, and increasing competition for land uses. Favourable policies toward industrialisation have also created conditions not attractive for agriculture investment for further expansion.
Study Details
Summary: Forest pricing policy has profound effects on sustainable forest management in developing countries. There are many forms of pricing policies such as taxes, royalties, levies, premiums and other types of forest charges, which affect decision-making and therefore optimum allocation of timber resource in different ways. A well-designed forest pricing policy will ensure greater utilisation of forest resources, encouragement of timber processing, long-term sustainable timber harvest, and minimum ecological and environmental damage. Empirical evidence on these effects in developing countries is still lacking and not well studied. This report presents the results on the amount of stumpage value at the concession in several logging compartments in two states, Pahang and Terengganu, in Peninsular Malaysia. The estimate of stumpage was done using a residual value technique based on pre-felling (pre-F) inventory data, log price and assumed logging cost. The results suggest that most of the timber that could be harvested are commercial timber species. Most of the sites have a substantial potential stumpage value (or potential rent value [up to MYR 42,532 (USD 11,193) per hectare] ). About 90% of this value is prescribed stumpage value (stumpage value or rent above the prescribed cutting limit). The implementation of cutting limit under the Selective Management System (SMS) appears to be economically justified only if one assumes low interest rates (discount rates) and high non-timber benefits by imposing greater cutting limits. The government is expected to capture about 65% of the potential prescribed stumpage value based on trees above the cutting limits. Based on actual data of government revenue in some compartments, the actual stumpage (rent) captured by the government is low, averaging about 10% of the potential stumpage value. Tendering the compartment for timber harvest seems to be the most preferred revenue system as it will provide a "fair market value" to both the government and the concessionaires.
Site Characteristics: All the research sites are located in the states of Pahang and Terengganu. These states were chosen for several reasons: their importance as log producers; their broadly similar forests; their proximity to each other; and a history of cooperation between their state forest offices and researchers. The forest revenue systems in the state of Pahang and Terengganu can be characterized as follows:Pahang: High royalty, high premium, royalty and premium comprise almost equal shares of forest revenue, and some forest reserves are allocated through tendering.Terengganu: Moderate royalty, moderate premium, royalty comprises lare sae (large sums) of forest revenue than premium, and tendering is recently introduced by the new ruling state government.
Comments: This study assesses the performance of the forest pricing system currently in force in Peninsular Malaysia. It estimates the hypothetical value of timber resources in two states in the region and compares this with the actual revenue the government receives from logging companies. It finds that government revenue is small relative to the commercial value of the trees. The study advises that such underpricing encourages the rapid depletion of forest resources, wasteful extraction methods, and a bias against conservation. Based on an investigation of alternative pricing mechanisms, the study recommends that a competitive bidding system should be introduced to increase government revenue and so encourage sustainable forestry.