A Review of the Social Costs of Illegal Logging

Department of Agriculture, Fisheries and Forestry June 2010

A REVIEW OF THE SOCIAL COSTS OF ILLEGAL LOGGING

Prepared for

Department of Agriculture, Fisheries and Forestry

June, 2010

Final Report

Table of Contents

Executive Summary 1

1.0 Introduction 4

1.1 Illegal Logging 5

2.0 Methodology 6

3.0 Definition of Forest Dependent Communities 11

4.0 Review Findings 14

4.1 Draft Regulatory Impact Statement 14

4.2 Stakeholder Submissions 14

4.3 Summary of Selected Literature Review 17

4.3.1 Exclusion of Forest Dwellers from Traditional Areas 21

4.3.2 Changed Natural Environment 23

4.3.3 Commercial Distortions 26

4.3.4 Transfers of Welfare Away from the Public Sector 27

4.3.5 Violation of Human Rights 29

4.3.6 Introduction of Social Pathologies 33

4.4 Study Limitations and Directions for Further Analysis 35

5.0 Conclusion 36

6.0 References 38

7.0 Appendix 44

7.1 Summary of Stakeholder Submissions 44

7.2 Literature Resources Reviewed 49

List of Figures

Figure 2.1: Methodology Flowchart 6

Figure 2.2: Elements of the five capital areas 8

Figure 4.1: Matrix 1 16

Figure 4.2: Interconnectivity Analysis 18

Figure 4.3: Matrix 2 20

List of Tables

Table 7.1: Resources Reviewed 49

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Department of Agriculture, Fisheries and Forestry June, 2010

Executive Summary

The Department of Agriculture Fisheries and Forestry (DAFF) is preparing a Regulation Impact Statement (RIS) to assess the costs and benefits of potential policy options to support the Australian Government’s commitment to combat illegal logging and associated trade.

The Centre for International Economics (CIE) prepared a draft RIS in the second half of 2009. The draft RIS acknowledged that assessment of the benefits and costs of policy options should take into account the social costs of illegal logging. The report noted there were “intangible benefits” to Australia of a socio-political nature in pursuing action to restrict imports of illegally logged timber and wood-products.

Stakeholder submissions in response to the draft RIS identified a number of concerns, particularly regarding the analysis of the social costs of illegal logging:

· Australian domestic wood product industry issues

· Undermining of human rights

· Political patronage and conflict

· Intimidation and violence

· Redistribution of wealth

DAFF recognised the need for additional consideration of the moral dimensions of the policy dilemma and this report supplements the draft RIS with a brief analysis of the social costs associated with illegal forest activities in developing countries.

This analysis of social costs involved the use of the Five Capitals model of sustainable livelihoods as developed by the UK Department for International Development. The concept treats a community’s social environment as a stock of assets (or forms of capital) on which a community draws to sustain its way of life.

This framework helps to illuminate how illegal logging activities can have impacts, not just on incomes and economic assets of affected communities, but on many of the important building blocks of sustainable communities – and outlines how an impact on one form of community asset can have consequent impacts on other forms of community capital.

A generic socio-economic profile has been developed to create a snapshot of a typical forest dependent community, identifying the common characteristics of these communities around the world. The profile was developed using the Five Capitals framework, distinguishing the shared aspects of livelihood for each capital held by the communities. The profile is broad in nature, but creates a useful snapshot when considering the social costs of illegal logging on these communities.

Illegal logging and corruption are complex issues. Figure 4.2 in section 4.3 illustrates the interconnected nature of the drivers and impacts of illegal forest activities.

Six key social cost themes emerged from the synthesis of the reviewed literature on illegal logging:

· Exclusion of forest dwellers from areas on which they depend for a livelihood

A number of social costs to forest-dependent communities can arise from their exclusion from logged areas. These include displacement from traditional lands, loss of hunting and collecting areas, and diminished access to natural resources and the loss of context in which traditional knowledge is valuable, with its benefit to traditional livelihoods.

· Changed natural environment from removal of trees

Changes to the natural environment through the practice of illegal logging can have far reaching social costs for forest-dependent communities. Such costs include the loss of biodiversity and ecosystem services such as carbon sinks, as well as the loss of genetic material with potential for commercialisation. Other costs associated with a changed natural environment include a loss of protection from extreme weather events, reduced soil and water protection and an increase in pollutants.

· Commercial distortions

Commercial distortions occur when there are “externalities” involved in an activity. Externalities that present costs to forest-dependent communities arise from increased resource wastage, the redistribution of wealth and the competitive disadvantage to legal loggers. Unequal employment opportunities are a reality for forest dependent communities, along with poor recognition of workers’ rights and the reduced incentive for private investment.

· Transfers of welfare away from the public sector

Distribution of benefits (or welfare) from an economic activity are determined by some combination of market forces and public policy. The social costs that arise from transfers of welfare away from the public sector include lower market prices for timber, a reduction in state taxes and royalties and consequent pressures on service provision, as well as the depreciation of public infrastructure.

· Violations of human rights

The most significant costs to forest-dependent communities that arise from denial of human rights include the disenfranchisement and disempowerment resulting from use of political patronage, intimidation and violence, the use of timber resources to support conflict or persecution and inequity in access to justice for forest dependent communities.

· Introduction of social pathologies

The concept of social pathologies uses a biological metaphor to suggest parts of society, like parts of the body, can suffer breakdown and disease when exposed to something foreign. The social costs to forest-dwelling communities that can result from introduced behaviours include discrimination, violence and disregard for human rights, bribery and the undermining of traditional decision-making structures, prostitution, an increase in sexually transmitted infections, drug use, human trafficking, and organised crime.

An examination of illegal logging in light of the six themes identified above highlights the significance of the social impacts that illegal logging can have on forest dependant communities. The social costs have far reaching implications for indigenous and forest-dependent communities around the world.

The social costs identified and the discussion of the nature of the impact illegal forest activities have on affected communities presents policy makers with an improved understanding of why there is value to the Australian public in what the CIE found to be ‘intangible benefits’ of taking action to reduce illegal logging.

This report aims to inform the preparation of the RIS to examine the costs and benefits of options to achieve the Government’s policy objectives.

Introduction

The Centre for International Economics (CIE) prepared a draft Regulation Impact Statement (RIS) for DAFF that was released for public comment in the second half of 2009.

The draft RIS acknowledged that assessment of the benefits and costs of policy options should take into account social costs of illegal logging and recognised the limitations of an economic welfare analysis in supporting the making of an ethical decision. The report noted there were “intangible benefits” to Australia of a socio-political nature in pursuing a restriction on illegal timber and wood imports. However, further detail of these intangible benefits was not described. In addition, a number of submissions on the draft RIS pointed to a need for more recognition and analysis of the social costs of illegal logging to inform government decision making.

Consequently, in February 2010, DAFF engaged Coakes Consulting to supplement the work of the draft RIS with a brief analysis of the social costs associated with illegal forest activities in developing countries. This report is not a social impact assessment of how the potential policy might affect Australia, nor is it a political analysis any future policy.

The objectives of this study were to examine the 18 stakeholder submissions received on the draft RIS, to identify the key social issues of concern to stakeholders, and to develop a literature assessment of social issues associated with illegal logging as experienced in developing countries of interest.

1.1 Illegal Logging

Seneca Creek (Seneca Creek, 2004) identified several types of illegal forest activities:

· Harvesting without authority in designated national parks or forest reserves;

· Harvesting without or in excess of concession permits;

· Failing to report harvesting activity to avoid royalty payments or taxes; and

· Violating international trading agreements such as Convention on International Trade of Endangered Species (CITES).

Admittedly, in practice, and in the developing world context in particular, there are challenges defining degrees of legality, particularly where there is a possibility of legality being falsified. Human Rights Watch (2009) illustrates the difficulty in defining legality in a study in Indonesia:

“…because the central ministry has little capacity to enforce this change in the field, many local administrations do not respect this restriction on their authority and continue to issue their own permits anyway, thus multiplying the amount of clearcut logging while providing a veneer of apparent legality to what is fundamentally illegal wood.”

Defining appropriate legality is clearly difficult, even within the timber-harvesting component of the supply chain. Therefore, to limit ambiguities involved in defining illegal forest activities across the entire wood product supply chain, this report follows the Seneca Creek definition of illegal forest activities and considers only the timber-harvesting component. Consequently, the focus of this report is mainly on forest dependent communities who are most affected by illegal harvesting.

Methodology

The methodology for the current study is based on secondary data review and key informant interviews. To meet the study objectives, the following chart summarises the methodology employed.

Figure 2.1: Methodology Flowchart

The step process was utilised to ensure best use of knowledge acquired in preparation of the draft RIS, to leverage the expertise of Department personnel, and to respond to the timeframe for completion of the RIS. The steps included:

Step 1 – the draft RIS was reviewed for its coverage of social issues and to provide the context to understand stakeholder submissions.

Step 2 – the 18 stakeholder submissions were examined for identification of social issues and relevant references/resources.

Step 3 – DAFF project officers were interviewed for background knowledge and to provide direction on refinement to the scope of the review.

Step 4 – comprised a review of key literature/resources identified by DAFF, references provided in the draft RIS and a time-bound review of reports and communication material produced by environmental and human rights non-government organisations, intergovernmental organisations and trade bodies. The documents reviewed are included in Section 7.2 of the appendix.

Step 5 – Synthesis of issues raised in the review of literature and systematic consideration of how documented illegal logging practices interact with aspects of livelihoods of forest-dependent communities.

In relation to Step 5, the five capitals model or sustainable livelihoods approach (DFID, 1999) has been utilised to document how logging practices interact with aspects of livelihoods of forest-dependent communities.

This conceptual framework treats a community’s social environment as a stock of assets (or forms of capital) on which a community draws to sustain its way of life. The framework helps to illuminate how illegal logging activities can have impacts not just on incomes and economic assets of affected communities but on many of the important building blocks of sustainable communities; and crucially, how an impact on one form of community asset can have consequent impacts on other forms of community capital.

In the model, there are five types of sustainable capital:

· Natural

· Economic

· Physical

· Human

· Social

Figure 2.2 illustrates some of the key community assets that make up each of the capitals, with further detail provided on each capital area.

Figure 2.2: Elements of the five capital areas

Source: Coakes Consulting, 2009

1.1.1 Natural Capital

Natural capital, or environmental assets, is any stock or natural resource such as oceans, forests, oil and gas, or agricultural land that has inherent value or generates sustainable economic and commercial activities. Relevant natural capital provided by forests includes the ecosystem services (such as pollination, water filtration and earth stabilisation) as well as food sources and wood (for construction of dwellings/means of transport or for trade). In the case of forest communities, access to resources from forest management areas is crucial for ongoing industry sustainability.

1.1.2 Economic Capital

Economic capital is defined as the extent of financial or economic resources within a town or community. The status of a community’s economic resources has significant implications in relation to its resilience and adaptive capacity. For instance, a community lacking in economic capital and which is also predominantly reliant on a specific industry sector such as forestry, is likely to be more vulnerable to change and consequently more likely to experience greater difficulties in adapting to such changes.

1.1.3 Physical Capital

Physical capital is broadly defined as a community’s built infrastructure and services. This may include social infrastructure (e.g., hospitals, schools) as well as soft infrastructure / service provision (e.g., health care, aged care, child care). A sound level of physical capital is important in supporting optimisation of a community’s other key capital areas.

1.1.4 Human Capital

Human capital refers to the health and welfare of human beings, their knowledge and skills, as well as their overall capacities to contribute to ongoing community sustainability.

1.1.5 Social Capital

When assessing interaction of particular activities (such as logging) with how a community functions, it is also important to consider how individuals, groups, organisations and institutions within a community interact and co-operate. Social capital is a multi-faceted concept that is broadly defined as the dynamics and strength of relationships and / or interactions within a given community. Social capital may be referred to as the degree of social cohesion and inter-connectedness between community members.

Matrices were developed to illustrate the clusters and differences of issues raised by stakeholders (Matrix 1); and to illustrate how the social costs of illegal practices affect the various capitals (Matrix 2).

To expand on these relationships, a conceptual chart was prepared to illustrate the interconnected relationship between the key drivers of illegal logging and the impacts on the livelihoods of forest-dependent communities.