PHILIPPINE I_ISTITUTEFOP DEVELOPMFNT STUDIES l_lorking Paper 83-05 COMPARATIVE ADVANTAGE ANDGOVER_.,!ME:_T _ICE.INTERVENTIONPOLICIES .If! FORESTRY by John H. Power and Tessie D.....Tumaneng
COMPARATIVE ADVANTAGE AND GOVERNMENT PRICE INTERVENTION POLICIES IN FORESTRY
by
John H. Power and Tessie
I.
D. Tumaneng
iIntroduct.$gn
Porast
resources
years with
the traditional
of great importance environmental especially
earnings.
countryVs
product
earners;
external
efficient
the government efficiency
l_ks
the
together_Ith
flows, which
to the forelgn as well
focus:is.on
the
reforestation
they havebeen
countries,
challenges
or savlng
and forest
the
constitutes
presently
the country
to find
exchange.
for promoting foreign
domestic
protection,
faces
and slow growth
forelgn
as for attracting of
among
product.
trade sector
promotion
foreign
c0mblnedoutput
with high o11 prices
means of earning
and growth,
from their
substantial
net domestic
developing
environment,
trade and capltal
additional
forestry,
llke most
and other
on tlgerproducts,
arises
and their
and their
about five per cent of the natlon_s
in world
products
For the last 30 years
The Phillpplnest
Although
and veneer.
of these timber
top ten dollar
a dlfflcult
of watersheds
has been centered
plywood
to the national
over the
that they are inexhaustible.
attention
logss lumber,
contribution
view
have been utilized
for their protection
values,
The Importance
exchange
in the Philippines
economic
capital.
processing as means
long-run
capaclty
to earn and save foreign
In
of wood, of enhancing e
the sector's
Thus,
exchange.
--
The
production
of
forest
2--
8oods
and services
of forest land and trees, but also Of labor, forestry
sector
competes
with other
resources. _ It is important, resource use. social
opportunity
objective
of
cost
the
saving,
foreign
(1979)
has
in
The efficiency
out,
open
economy
exchanse
can
be
ectlvity.
converted
less
than
In
addition
activities,
it
on
these
other
..
to is
judging
assess:the
'
to
transform one, not
sector
powerful '.. ,
and pervasive
the
on
affects
foreign
is
the
possible
and
vice
in pesos
exist
and
in effect,
of opportunity economic
indicated
if
the
exchanKe.
impact
Of forest of
In
price
this
sector
government
advantageous
versa.
goods
a particular is
through
a socially
tradable
represents,
efficiency
assess
as Bautiata
distortions
activity
of
(e.g,..export
tradable of
only
sector
tax
effects forest
government or
• of
export
the
products.
specific
policies.
policies ban
policies
intervention
activity connection
tariff In many
specific on
loss)
system instances
the
or
and
into we
a primust
..
forestry
pOliCy
it
of
in
earning and,
for
throush
that
relative
to
For
effects
,..
the
important
measured
for
of
a measure;
policy
'exchanse
The
a 8iven
cost
The DRC measure
foreign
only
can be measured by
achieve
relevant trade
not
its efficiency
resource
foreign
price
to
•such
resources,
shadov
activities.
.
where
advantage
unattractive
• .
particularly
is
into
the
policies
vately
it
domestic
Comparative
DEC is
represents
use
and management.
activity
used
(DRC)
is deemed scarce.
the rate at which cost
resources
the
its use of these
to assess
The domestic
exchanKe
in
of an economic
the
activity.
pointed
a small,
foreign
Of
capital
sectors
therefore,
entails
and
to but
.the
also
exchange these
can
the. rate tramp
-3-
Accordingly, tage
of the
lumber
and plywood,
of
resources
2.
Policies
interests.
total
forest
of
the
and regulations
ciples
of sustained
forest Angeles,
the
such as
quantify
the protactio:
(2)
co.pare,lye,
by government
forestry
advan-
policies;
results
logs,
and
and suuest
the efficiency
oÂŁ allocation
sector.
night
1981).
managed jointly
the
forests;
enterprises
their
hecearee,
management
and selective
led
estimated been
to
as hlgh
which
In 1979 which
the
'ltinber
during
the
as 200,000
the
charges is
logging.
the diminution
that
system
under
and pay cutting
to implement
owned,
is
the about
area. concessions
Nominally,
8 have
have
million
and private
publicly
a licensing renewals.
land
forest
are
including
was 8.26 total
by public
which
through
government;
yield
It has been
are
of
removed.
louin
loss
products
maximum tenure,
and failure
selective
forest
to improve
resources
country's
of
of timber
1979).
the
manage
volume
of
help
under license
" The licensees
overcutting
major
from the elpirical
to private
area
cent
the
and Performance
a S0-year
land
assess
activities
The exploitation
for
26 per
on these
to and within
delegated
allows
(1)
the DRC criterion;
that might
Philippine
are
using
iiplications
measures
to:
aims
in producing
conferred
draw policy
policy
study
Philippines
or penalty (3)
this
based
supervision based
on the prin-
In practice, stand of 1970s
hectares
however,
improvement
the forests the
on the
annual
phase"
(Revilla, rate
(Sesura-de
of los
-4-
The consequences land
erosion,
his
argued
through
view
would
this
not
be
benefits
appears
inadeq-scy
inadequate cation,
land
of
to
be
forest
&ovemment
for violations
in
productive of
at
the
to
crop
management
clogging To reverse
forest
unproductive expense
general
of
irrigation
this
process,
could
almost
systems, Revilla
double
over
and brush.
agriculture,
production
include
of
grasslands
but
through
agreement
management supervision
In
indeed
renewing
plywood. practices,
This
comparative Considerin&
concessions,
presents advantage
the
one m/ght
those methods
logging
the implication
methods.
external
readily
a number los
and
of
and
incomplete
land
in
the
social
conclude
is not comparatively
efficient s problem
production costs
advantageous.
interest
rates,
charges. of for_t
pro-
or socially in
assessing
of
logs,
associated
that production
as a penalty
short run
with high
is that the production
by the most
classifi-
of l_censes
and low cutting
for
1981):
of regulations),
combined
us with
reasons
Angeles,
(plus cancellation
ducts has not been accomplished
Philippines'
(Segura-de , biased
selective
small~sized
In any case,
desiEable
on
in lieu of finn enforcement
of implementlng
uneconomically
with
floods,
croplands,
too short a lease term
costs
of
forest
watersheds.
There the
net
sub-optimal
of
conversion
would
provide
extending
that the
of
frequency
productivity
has
mainly
years
increasing
and decreasing (1980)
of
with
of those
the lumber
and
past products
40
years,
- 4a
That
is,
industry
foreign
has been achieved
environment. measures. among
exchange
earnlng
•Rather it reflects and private
Should we then conolude advantage
in forest
appears
forest
product of the
back with quantitative consensus
The implication
does not have a comparative
would
and transferred
be that resources
to other more comparatively
The prlncipalresource,
of course,
it to other
crops would
is land; but only make
worse.
Alternatively,
the implication
be halted completely. forestry
as simply
replanting
the harvesting
bordered
by estimating
of sustained
consensus
resource
costs
the government
and enforce
well
This means
that we
.sustained yield methodology
are assessing
•
yield
activity
forestry.
of foreign will
economically
advantage
should of for
Past practices
and, as noted
that this_not
a sustained
forest activities.
below.
the economic
comparative
heroicassumptlonthat reasonably
views
that logging
Of trees, with no consideration
to assessing
domestic
be simply
on "mining' I the forests;
there seems to be a general our approach
might
This, however,
and ot_er aspects
have, perhaps,
In
the
to be a general
that the Philippines
to take land out of trees and devote matters
in
experts;
products?
activities.
saving
that we cannot
what
should be taken out of forestry advantageous
and
at far too high a cost in degradation
This is a judgement
government
-
above, advantageous.
in •forest products
exchange,• we have made
the
in future be able to supervise
yleld
the potential We return
management comparative
of the forests. advantage
of
to this in the section
on
-
Policies.
5
-
Comparative advantage depends on relative social costs and
benefits, but actual performance of an industry depends on private costs and gains, including the effects of government policies on these. c/pal policies, management,
in addition
to the licensing
are the cutting
charges,
export
and supervision
The prln-
of forest
taxes, and the export
quota
on logs.
Forest
tlmberto
Charges.
the licensees.
forest charges
to
be the selling
extension
imposed
to finance
services,
In 1981 these were consolidated
research
nonetheless,
been
the trend of forest steadily
of
down
since
various
activities
and forest protec-
into fees of _30/m 3 and FlS/m 3,
respectively, for two broad species group. While stantial increase,
price
Before 1981, they consisted of the regular
and other charges
such as reforestation, ion.
These are considered
charges
these represent a sub-
as ad valorem
the 1950s.-Even
two rates represents only about 4.4 per
rates has,
the higher
of the
cent of the wholesale price of
logs in 1981, as compared to an average of 6_3 per cent in 1956-59_.* Prior
to the consolldatlonand
rate had fallen
increase
in 1981, the average
ad valorem
to less than two per cent.
*By 1983 forest charges were between five and slxper value, owing to the lower prices of logs.
cent Of log
5a
Total revenues while
8overnment
from forest
expenditures
1974, as can be seen expenditures almost will
I.
however,
include
and income
roughly
the 1970s
increased
substantially
first half
of the decade
matched,
while
the former
rose to
Even the 1981 increase These
taxes, as well
after
in rates
revenues
do not.
as sales_ property
taxes.
Export
taxes were
other major exports,
the devaluatlon
of the peso.
the rate on lumber_ dity prices the export
level over
far short of expenditures.
those from export
Export Taxes. along with
remained
In the
slx times the latter by 1979.
leave revenues
several
charges
on ÂŁorestry
in Table
and revenues
-
plywood
While
years export
in 1970 on wood products,
as a stabillzstlon
The rate on logs and veneer.
in the mid-1970s, tax.
imposed
a premium
the original
to generate
10 per cent,
temporarily
was
to phase
they were
revenue.
are 20 per cent for logs, four per cent for lumber for plywood.
accompanying double
the boom in world
duty was
taxes on all products,
•pres,-..bly for their capacity
was
During
intention
measure
commo-
added
to
out over
instead
The present and veneer_
retained, rates and zero
-
The Export Quota. a desire forest
to encourage
destruction.
The policy
6
on log export
wood processlngt On May
as well
January
and the alleged
that the domestic
cessed
products
sluggish
which
condition.
allow log exportation
unreadiness
market would
the foreign Hence,
allowlng
taken
not take due to suspend
and limited
ing 25 per cent of the total allowable ban was to have
could
basis.
for a total cut.
effect.
earnings plants
it was pre-
not be able to absorb
market
on a selective
exchange
In addition
for a
to the ban
of the processing
size.
PD 865 was issued
1979' FD 1159 was implemented
a complete
from
the rate of
Opposltlon
of the foreign
of less than economic
dlcted
as to reduce
It 1976.
has been aired owing to the importance
which were mostly
ban arose mainly
19, 1975, PD 705 was issued providing
total log export ban effective
from log exports
-
the proto its
the ban and On June
11,
log export not exceed-
Finally,
on May
It 1982,
-7-
Table 1.
ExpendituresI
Revenues 2
1970
66,514
67,247
1971
51,668
72,486
1972
61,105
65,780
1973
71,373
91,489
1974
65,314
115,639
1975
105,838
95,835
1976
235,536
100,770
1977
215,139
75,259
1978
270,625
73,119
(est.)
356,903
61,548
1980 (est.)
394,501
1979
I
Goverument Forestry Revenues and Expenditures 1970-I979 (in _000 at current prices)
Principally by the Bureau of Forest Development. fÂŁscal years, while 197.6-1979are calendar years.
1970-1975
are
2 Principally from forest charges and inspection fees.
(Fiscal years)
-
The quota limitations
countries. • Table
data from Japan for1977-80,
cent of Philippine
-
have not at all been effective
by the trade data from impozting with
8
during
which
as is evidenced
2 illustrates
Japan
took about
this 75 per
log exports.
JL,,
Table
Hardwood
Year
Quantlty
1977 1978 1979 1980
1,522,112 1,616,047 985,450 502,458
to Japan,
(i_000 cu. met.)
Phil. data
(I)
Log Exports
2
Japan
data
(2) 1,614,488 1,754,952 1,342,741 1,119,451
(1)/(2) .943 .921 .734 .449
1977-80
Value
(i,000 us $)
Phil.
data
(3) 124,455 131,993 132,130 78,105
Japan
data
(4) 138,131 158,579 206,812 203,962
(3)/(4) .901 .832 .639 .383
-
While
the reporting
Japan's
reporting
greatly
in the next
Growth output
and exports.
While
exchange
1980 what
the overall
declined
in physical
from almost
wood products
under-reportlng
economic
output
we could
growth.
shrinking
declined
of
not contriWhile
GNP
wood products
(in 1972 prices) of wood
were
3.5
products In value
as a share of total exports Even
if we could
of log production
as a stagnant
rapid
hardly
sector
Actual
of agricultural
What elements the processing
management
and export
correct
for
in 1980,
in the Philippine
eco-
growth.
demands
Even with
ideal
for forest
output to keep up with overall
practices,
base.
the competing
have,
It should
tripled
of course,
be noted,
led to a
however,
that
over the same two decades,
owing
in yields.
of dynamism
of logs.
population
crops almost
increases
given
expect forest
of the forest resource
to substantial
and growth have been present
This is revealed
and export of logs, lumber growth
products-have
in terms
over the same period.
is not surprising,
land that accompany
management,
increased
reduced.
importance
exports
to
remain.
This, of course, scarce
exports
by one-thlrd
the image of forest products
sharply
of the major
20 per cent to eight per cent.
the substantial
nomy would
output
in 1960, while
volume
(U.S. dollars)
forest
close
the discrepancy
growth of the economy.
Total
they were
were
was reasonably
the continuing
earnings,
by only one-third.
tlmesln
terms
exports
in !977 and 1978,
over the past two decades,
increased
-
two years when quotas
buted slgnificantlyto tripled
of Philippine
of imports
and foreign
9
in Table
and plywood/veneer
of output and exports
3where
are shown
of the processedproducts
are found
in
the production
for 1959-80. stand Insharp
The
0
oCP
°
,r,-,
'¢'
O
_"
.,,1",._" r,,, ,.-+ ...,I
It II
ii
II
. il
,,-_ cO 0_, 0
I
II
i o"1¢".,I r,'l i_'_,,,_p
t,r',
u
|
,
_
_
e,5 _'_ -,,,.-.-_ -,,_ ¢0
m
¢",I ¢'+,I_'_ umicsi
,c_ _
_
.-I
,-4 ,.-4 _,._¢-,4e,,I
,,.,-It¢'.5<_,
,.,@¢3"_,_,-¢¢'_ ,.,..-_
|
++ u ,,_it _ II
,-.+ c',4 ,,-+
_¢_._0 e,,i
r,-, r_ ,,,._
,...4
00, O_ _,,-,
_
•
II ,, ,II | o, | li
_
il
it
m_ Oil
_i
II
RB
H
u
°_'I il
:
| | M
_' it
o
+' m
_J_
0
- I0-
0
u
_"'a}
U I
,,_ _ ',_-! ,l.tl
fl
_ t
_
fl ii
II
II
_,,'_•
I_
I II If
0
¢,n it
a
_",, II
..............
o m_.,
.
•
I,,I
It i
M i
It I!
- II -
Table.4.
Historical prices of log, lumber and plywood, 1955 : 1980.
: PRICE OF LOGS-1/ ,
1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977. 1978 1979 1980
(_ ./m 3 ):
.L_esa__/: 54 67 63 60 64 77 89 88 97 102 102102 111 126 131 150 188 199 251 354 304 347 430 456 550 676
PRICE OF LLI_BER (_ [. I_.P):
: Wholesaler_.; 45 41 40 40 43 50 --1_)" 98 85 93 99 86 99 150 165 157 270 311 267 441 490 490 946 990
205 228 217 186 186 186 241 240 258 286 290 297 232 359 370 404 487 522 611 917 793 I091 1.550 1645 1986 2728
Export 213 226 253 183 251 123 --432 --413 515 571 557 547 567 697 778 958 ,' 1434 1678 1825 2362 1550 2363 3411 4022
PRXCE O1' PLX'WOOD(_II_S! . Wholesale=.. 680 680 670 610 700 600 570 780 800 800 980 980 980 980 I010 1180 1260 1200 1820 2624 3120 3270 -24_6, 2540 5705' 6355
Price of white lauan logs Wholesale price _/
ex-Manila
Export price is FOB converted into pesos by multiplying by the official exchange rate.
Sources:
Central Bank Bureau of Forest Development. 1976 & 1980. Phil; ForesC._y Statistics PREPF Technical Paper Nos. 3:4,5 World Bank. 1980. Price prospects for Ma$or Primary Co_noditles.
484 484 409 - = " '771 682 --!014 1059 20 780 820 900 1010 1420 1160 !230 _820 2500 2180 2830 3108 3390 4720 3610
-12-
contrast
to the picture
far short of overall at a pace only mainly
for logs,
GNP growth,
slightly
Still while
ahead of GNP.
by stagnation
of lumber output
output of plywood Moreover,
in the 1960s and early 1970s.
characterized
the growth
and veneer
grew
this growth occurred
The latter half of the 1970s
in wood processing,
fell
accompanying
is
a decline
in log production. Again,
we must be cautious
the likelihood duction. exports
of substantial
tightened,
1978, this represented sharp increases
Economic
Analysis
a broad and complex tions.
Here
The pollcy
quota,
a sharp
increase
because
of
and pro-
in lumber
at the end of the decade
output of lumber declined
after
in response
to
in 197g and 1980 (see Table 4),
Policies
policies
system of controls,
affecting
regulations
intervention
forestry
represents
and price
policies;
interven-
and a number
are made.
instruments
on logglng
(4) export
of Forestry
assumptions
of log exports
to the export market
the focus is on price
of simplifying
latlons
Since
price
set of government
these figures
in log exports
a diversion
in the export
The whole
suggests
with a decline
as lo8 export quotas
3.
under-reporting
The table nonetheless together
in interpreting
considered
concessions, (5) export
land rent, and (7) sales tax.
are
(2) cutting
subsidy
(1) direct
controls
charges,
(3) export
on processed
wood
and regu-
products,
tax, (6) forest
- 13
The first aim of the government purpose
uses--
is to conserve
e.g., as watershed.
the area of logging
concessions
-
forest
for multi-
To this end, the government
and sets rules
limits
and regulations
regarding
their use. In addition,
we set a number
respect
to the forestry
society
and economic
industry.
rents*
who owns the forest.
of other Fist,
from
but this is the only one considered in this regard communities
is the question
and their access
which warrants foreign
separate
exchange
consistent
with
raise revenue with respect
for forest to forestry
distribution,
foreign
Associated effects
with
of policies
assumption
made
log production were
administration. policies
exchange
conservation could be very
or export
and revenue
complex
also are the questions,
benefits
and costs,
price
had decided
*By economic rents we mean returns elsewhere, adjusted for risk
aim to promote that this is
Third,
intervention
of the government
to conservation,
to quantify.
policies
of The basic
land.
decisions--both
If it
such as
as we shall
of forestry
what
income
to limit and regulate
logs are cut, which
beyond
it should
the area of forest
of the effects
these various
issue
goals and the analysis
limit production_ where
in the forest
raising.
and difficult
or augment
taxes could
Since many
to relate
are multiple
question,
to the extent
In sum, the goals
here is that the government
and how they are cut. external
earnings
should
advantage.
are assumed
omission
This is a major
the government
of comparative
in order to conserve
charges
But important
Second,
to consider;
serious
of the people
resources.
for
it is society
goals
An especially
from forest products
simply a quantitative
cutting
to forest
the principle
since
income d_stribution
here.
with
aim to capture
conces%ions,
of the livelihood
study.
earnings
it should
logging
There are other
aims for government
see below.
logs are cut,
activity
involve
quantitative
and
investments
would
yield
-
qualitative--cannot addition
concessions
locetlon,
the government
regarding
their use.
direct
controls
arrangements
must,
of forest
can, however,
reinforce
and regulations.
private
exporting
incentives
to forest
10gs or processed
of foreign
demand.
Thus,
in
their
set rules and regulations that operate
through
(and, in turn, be reinforced
by)
Moreover, ••there can be institutional
the granting
between
forces.
land, and determining
of necessity,
of concessions
and social
The question, offoreignexchange • the overall
market
Price Interventionpollcles
surrounding
complementarity
-
be left solely to private
to limiting
marketincentlves
14
is also complex,
exports,
wood products,
These will be given
promote
interests.
earnings
product
that would
the choice
and the optimum
special
attention
involving
between,.
exploitation in the analgsis
that follows. i.
Direct
Controls.
on cutting. limitation
We describe on output
latlonsmust demand price
pertain
(D)and
supply
(Pw) as given.
is also
the domestic
in contrast
This refers
to limits
this graphically
inFigure
at Q*, though we noted to more
on concessions
than just the
and regulations
I simply as a
in the introduction level of output.
Domestic
(S) curves are shown; and we initially In the absence of price.
Domestic
price
intervention
that regu-
take world
policies
use is QD and exports
to the level QF - QD' which •would obtain without
•this
are Q* - QD' controls.
_ 1•$-
The results of•this policy can be .listedas follows: I)
The conservation goal is met, if the control on output is met together with the qualitative goals.
2)
Foreign
:3)
Ifwe
exchange assume
necessary
that
•there
equal
to
intra-marginal
4)
There
is
5)
Users
are
are
lower.
S represents
profits,
production, are
earnings
are
the
rents
uo government unaffected.
long-run excess
distaac_, that
are
supply
profits ac; not
and,
price,
at
includin8
the marSin
in addition,
captured
for
of there
society.
revenue. There
isno
promotion
of processing,
(The implicationsof this are considered below). 6)
Since Pw is assumed to be given, the
quest_ol_
tation of world demand does not arise. p
S'
Pw Pa
V--
o
i/-
qD
-,x o
Q*
Figure
QF
1
of optimum exploi-
- 16 -
Cutting charges is
Charges.
can be represented
represented
in Figure
The world, price, to meet
the qualitative
itself,
would Q*.
(if
principal
PwacPn
constrain
(net
of
of a cutting
differences
charge)
to
charge
This
from S co S_.
and there are direct
the
desired
concessionaires
is
differ
to
controls
acp taken by conservation Pu"
from those of direct controls
in some respects
that there
is government
they ere similar. revenue
output
is eliminated
is an ad valorem
tax on exports
and that rent on marginal
of cut logs.
by the distance,
output
ways, though are
cutting
goals.
charge, •represented
The price
that various
in the supply curve
taken as given
conservation
in a number of i_0rtant The
i as a shift
effective)
The effects
it is assumed
by e tax per t_ait of output
Pw, is again
Thus, a cutting
level,
Fo_ simplicity
equal
so that
to
total
rent is reduced. _.
This
in Figure
2 (similar
to Figure
1) by the difference
as given) and Pn (price net of export
tax).
between
We are assuming
P
•,.d
e ....
a
b_
I
II
'° "--tT-'l•
,
'
I 1 ' o ............. •
_
.
_..
QD Q_ Qs
I
.
l
s
"DI |
Q* QF Figure
2
and is represented
q
Pw
(still taken
competition,
- 20-
jS
•' -
•
•
•
..,
./
t
s
. /'
Pd
+
|
o
,
m
-_--
QD Q, _' ,-, '_E Q,• QT
,.
q
Q6 Figure.• 3
As above,
in
the
analysis
of ,the effects
of an export
lose (area PoabPd), government gains (area PwcdPd), and users PoefPd).
tax,
producers
gain (area
But in this case the tax is not .adistortion but a correction
of a distortion -~ the gap between Pd and MRw that would exist in the absence of the optimum export tax. use of logs is MRwp not world price.
For the opportunity cost of domestic While users gain, this means that
they no-longer have to pay for logs in excess Of their opportunity cost, Hence, a bias against processing is removed. The fact that producers lose is immaterial if other policies are properly in place -- cutting charges plus•direct controls torestrlct output•to the desired level and achieve other conservation goals•,plus •
some means of capturing
a
intramarginal rents (for this,,
see below).•
- •21 •-
The price producers export
receive
represents
the real
social value
of their
sales.
'
The above analysis
atomistic
competitors,
retaliation
Capturing
forest
land.
attract
What
policies,
the most
This
have little
tend to eliminate to do with
should be considerably .some hardwood rights
longer
for cutting
tition,
hire the cutting
bidding
(Howe,
1979,
p.
areas;
and transport 234).
intr--_rginal
over
But
level of
rents
the
forests,
which
might
present
for concession but thisuay
government
maturation
w)uld
period for
Could;auction
sure of effective
of logs to a market
some
of
intact.
mean
legal,
to
government say
the compe-
for competitive emnagement ,t
of
to be
intervention
bidding
60-year
or, to be
this
to
_he llfe of a lease, which
than the roughly
in specified
by price
excess-profits,
the
goals
of logs is bound
.Competitive
Alternatively,
above
tax, is the elimination
leaving
returns
the other
for the target
output
anticipated
realized
species.
needed
and an export
analyzed
to those just necessary
accomplished
is not easy to accomplish_
leases would
is the
from use of public
to meeting
profits
than can be
(rent) at the margin,
is relevant
rents
supply prlceof
charges
the Philippines
None of the policies
and entrepreneurship
like cutting
profit
Rents.
is to limit
Since the long-run
is no
may be very high.
is desired,• in addition
the capital
upward-sloping,
which
are
and that there
power
What
the private, intramarginal
in the analysis,
output.
excess
of demand,
that exporters
price •as given;
How much monopoly
Intra_arginal
to capture
included
assumptions
log trade is an open question°
elastlclty
is able
taking world
from the world.
has in world long-run
has implicit
nothing
of
administrative, a number present
problems.
(It should be noted,
of li.censes have been an opportunity
Given
experiments
system of licensing,
land would seem to be a logical from the licensees.
instrument
cycle (Howe,
financial
problem
This could
along
these lines).
the property for capturing
It has two disadvantages,
based on the value of the timber stand, cutting
that recently
revoked " for violations.
for government
the present
however,
however.
it might
1979, p. 231).
Second,
for new and young
forests;
tax
on forest
economic First_
if its is
tend to shorten
an annual hence,
rents
the
tax presents
it might
a
discourage
planting
Promoting needed because
Processing.
The promotion
of the bias against
protection
system
(Power,
exportable
and most are already
system
in the •Philippines
market
over exports
undervaluation would require A direct cessed wood
it •that comes Virtually
being
favors industries
processing
an export subsidy
exchange
subsidy
wood products The industrial
of this order of magnitude
optimum
described
remedy
system
protection
to the export
(assuming
An export
second •best.
the
defends
(Medalla,
1980). of
pro-
infinitely
tax on logs beyond
above could also be used as a means
but this would be definitely
is
are
Just to overcome
of 20 to 30 percent
world de,m_nd for these exports).
logs
that sell only in the domestic
that the protection
would be the ideal
Of
from. t.he industrial
all
exported.
elastic
cessing,
the
by a very substantialmargin.
of foreign
products
1979).
•of
of promoting
the
pro-
The same is tr_e of a
- 23-
quota
or ban.
cost.
The
Moreover,
which would
price
an export
logs tax
only by accident
ble for one instrument (optimum
of
output
be
or a quota
put
below
its
has
an output
meet the conservation
(export
limitation,
would
social limitation
target.
tax or qu_,ta) to achieve
optimum
export,
opportunity
and optimum
effect
It is impossi-
three
targets
promotion
of pro-
cessing).
0primal
Set of Policies.
Given
is likely
that an equal number
represent
an optimal
First,
set.
to capture
tive private
biddin&
the number of different
of different
What would
private
in combination
it would
these be7
rents,
for logs should
policies
goals,
government
management
be established.
with
competi-
An alternative
would
I
be a system
of land taxes.
Second,
an export
tax on exports level.
be
to
estimates
rate of implicit
subsidize
protection would
from the protection
Given likely
existing
tax should
log
might
receive
an even
same implicit
the higher
limitation
met via direct controls the export
That
achieve
is,
optimal rate
would
demand
the
of
implicit tax.
subsidy,
target and other charges.
government
revenue
export
and the high
from
Processed
have high&z.world
the implicit
policy might
tax
since
with
the optimum
elasticity
the optimal
export
and cutting
tax would yield
system,
of world
tax and, presumably,
The output
together
tax on exports,
exports.
exceed
be set which,
they
industrial
wood are
actually
products
subject
to
the
demand elasticities.
conservation The latter,
goals
should be
together
with
for forest administration,
To set a target revenue
for such
would require
Promotion a direct
revenue
another
policy
of processing
subsidy,
designed
other
than this determined
instrument
as noted
above
to overcome
-- e.g.,
amounts
general
should be achieved
the in,licit
of
taxation. through
tax from the protection
system. In sum, instruments
to meet
four major
I)
Conservation:
2)
Income
bidding
export
Foreign
Revenue
any shortfall Note
exchange
combined with
(capturing
earnings
charges
for forest
from forest
that cutting
is.illustra_ed
of private
consistent
charges
in Figure
direct controls.
rents);
w_th
competitive
comparative
for conservation.
is limited --
serves
to creating now r_
and
P_.
general
advantage:
plus export
taxation
taxes minus
where
that would
S _ is above
achieve
(In the unllkely While
the cutting
the conservation the appropriate
S by the cutting level of
that Q* > q cutting
charges,
goal, the
wedge
tax) and this
Q*, the desired
event
to make up
subsidies.
are combined with an export
3 _bove)
per unit of output
controls,
administration:
charges
sidles would be required.)
prices
ins-
taxes and subsidies. 4)
direct
be four policy
goals:
forest charges
distribution
there would
for logs.
3)
output
in an ideal set of policies
together
with
role of the export
between
world
sub-
tax
and domestic
- 25 -
..
Existing
Policies
first-best approach we judge present Whatmight
be
the optimal
and
SecOnd-Best
to an optimal
policies
done
to
improve
present
there are direct
dies on some exports sales of processed
the instruments one exception,
products.
First,
above
a
How would
째
as
to
move
closer
to
however,
tion of processing
charges,
and sales
Hence_
aside
are currently
questions
export subsl-
taxes on domestic
is a land tax on forest
policy
Quotas
in use.
conceeeions_
Again, with
the rates
quotas on log exports,
until
have
and depressing
with
The latter,
logging, however,
of a quota allotment,
through
economical
domestic
this
of charges,
as an inept end , perhaps,
processing
for the
pro-
incentive to gain
to
the
to earn profits
This tie-in
costly means
are
is tied to the integra-
than primarily
processing.
is ready
to encourage
an additional
encourages
which
of limiting production,
price
of quotas
there is
rather
and efficient
the industry
the effects
since the granting
benefit
can, then be
of encouraging
processing. _t
Beyond
,
from the last, all of
are mainly
let us consider
ban.
price,
Moreover,
cutting
and their combination.
to be an interim
raising world
dismissed
policies.
qoutas on log exports,
products,
There
the important
complete
controls,
for 3ogs.
discussed
taxes and subsidies
processing.
policies_s_
products,
of processed
but no system of bidding
cessing.
set of forestry
represents
in the light af these same consideration?
taxes on logs and some processed
projected
The above
set?
At present,
considered
Reform.
that, the quota system
is revealed
as inferior
to direct
controls
â&#x20AC;˘
I
-
and
cuttin
export
8 charges
tax
policies
as a means
have
government forest
the
to
revenue
right
and or
would
it
The present
the
in
to
and
demand.
as
inferior
These
revenue
from
taxation
general
to
an
alternative
contributing
Direct with
rules
to
the
to
administration
charges
could
Cutting
charges
also
government.
There
controls
goal_
in
the
Moreover, cannot
significant controls
the
serve amount
to
achieve
quota
about serve
help
to to
appears
finance
past
has
cutting
of
a quota
system.
(and
locating)
of
limit
be
conservation
to
is
cutting
of
trees.
and
reinforce
targets
is
of
against
concessions, These
together
revenue
that
the
in
meeting
so
low
with
the
in
real
goals
what
goals. to
the
administration
administration
perhaps
together
conservation
conservation
The weakness
promise
safeguard
feeling
become
that
administered.
not
contribute
effective have
is
and promote
widespread
charges
revenue.
rents
or the
for it
practices.
output
beeen
to
output
demand,
does
difficult
raises
said
it
limitations
forestry
not
effectively
limit
It
right
foreign be
is
reduce
to
could
it
includglimiting
cutting
of
that
form.
the
on how effectively
of
Moreover,
acute
accomplish
deslgnedto
depends
regulation
more
exploitation
policies
evasion
controls and
of
in
it
The best
do this
the
weakness
would
degree
other
respect. in
same
processing.
could
this
the
right
widespread
corruption
they
of
required
by accident
reinforce
How well
of
amount
S output,
fore_.gn
advantage
ban has only
subsidy
much
lindtin
exploiting
important the
of
-
administration.
limitation,
it
of
reduce
A complete no
as a means
26
lies
conservation terms or of
to
that raise
direct
behind
the
a
-27
urge
to
adopt
however,
is no
cutting
crude
substitute
po!icy
as
a ban
on log.
for strengthening
exports.
The Latter,
administration
and raising
charges.
As
noted above,
on other tion
such.a
_
major
the export
exports,
measure
to
depreciation.
was
accompany
system was continued
instituted
the
Originally
tax on logs,
floating
scheduled
to
along with similar
in
1970
as
of
the
be
phased
a so-called
peso
and out,
apparently
for the substantial
to
a rationale
stabiliza-
its the
taxes
subsequent export
tax
government
revenue
it
produced. It
is
not
easy
along these lines. tion of foreign exports.
With But
tuted.
Prior
exchange
foreign
tax
set
with
this
of rents.
Again,
would
in
set so as to achieve
we have
seen
at
the
same
i.t
is
,dud.
inferior
1970undervaluatms taxing log
export_axwas
is
no evidence
especially
promotion
when
that
the
we consider
to.cutting
rate the
system,
of processing
of heavy Second
and the capturing
that the rate of tax has been cons-
an optimal tax
substi-
We have seen above
from the industrial, protection
export
exports
for such a tax is the goal of optimum
there is no evidence
an
on log
rate disequilibrium
There
include
clously
above,
tax
in the first place?
demand.
tax on all exports
best justifications
a
of the peso an explicit
first best rationale of
implicit
from exchange
the floating
exploitation
for
to the â&#x20AC;˘floating of the pesoln
why tax log exports
that the'only
hasbeen
provide
cannot
subsidy capture
charges
to processing. inttamarginal in raising
revenue.
And, as rents,
while
- 28 -
Nevertheless. cessing
and some means
a general subsidy
second-best
to
aome instances ever,
these
and
to
through
overcome
have
to
above,
the bias against
are export tection
the
general
products.)
five
years.
The first-best
wood
exports
at
that
is
by
to all exports,
liberalization
against
the
fall
protection
would
be
reform
undervaluation
of
system.
But
of tariff protection
the
beyond
in
How-
of
what
we have comes
is
noted from
wood products of tariff pro-
processed foreign
same
to exports
is why,
awarded
over the next four oz
subsidize
That
short (As
to
the principle
fiscal program.
far
all processed gradual
been
industry
but not disappear,
of
.some
is furniture).
in the forestry
rate
have
exporting.
the projected
and to extend
call for a massive
bias
and
since virtually
estimated
tax can serve as
products
(a_ example
solution
to pro-
some.,, rents, providing
wood
general
diminish,
subsidies
revenue.
been
processing
With
the bias will
defended
processed
not
exporting,
the
some
BOI incentives
needed
the bias against
of
direct
rents, am export
for capturing
raisins
exports
subsidies
first-best
of eliminating measure
processing
Subsidies
of
in the absence
exchange
argument
generally
of course,
the projected
applies would
a continuing
first phase
is
so essential. What
is ironic
taxes on processed
in this picture,
wood products:
It is not easy to believe these on top
that world
of the general
penalty
ho,_ever, is the existence
of export
lumber and veneer.* demand
elasticities
on exports.
could justify
An accurate
assessment ,i
would probably
*There
call
for some subsidy,
is no export
instead
tax on plywood
to offset
at present.
the latter.
But
-29
a
second-beat
at least
approach
include
that
if
goverrment
opti_al
set
of policies,
would
include: 1)
Removal
2)
Substantially
3)
Continuation
4.
effects
this
forestry
in
policies
to move at
the reform
on.lumber cutting
of
suuests once
is
to the
the present
system
and veneer; charges;
of an export
tax
control
forest
over
of
the study
activities, policies
on logs
without
export
quotas
administration.
are
including on these
policies
inthe
the positive
followed
the
light
and to preunt
of the
findings.
oÂŁ the study,
them out
comparative
to evaluate
processing,
act_vities,
aspects
in carrying
to assess
represent
the a
The first
and the methods the
subject
of
section, In an ideal
prices
tasks
represent
and procedures
forestry
or unvilling
taxes
vould
taxes. of
steps
policies
and
of government
two tasks
unnble
increased
of government
critique
export
industry
MethOdology.
The principal of
of forest
analysis
first
Strengthened
Research
advancaKe
is
of export
of a ban;
4)
of these
economic
the
or threat
to improvesmnt
re:oval
What the above
-
could
imporcant
world
be expected
qualifications
of perfect to reflect
markets social
where externalities*
and perfect costs are
information
and values, present.
subject
market to
In the real
*"Externalities" are elements of value that the market cannot capture.
- 30 -
world,
however,
costs_because to
or
of
taxes,
power,
market the
subsidies, as
well
shadow
presence
can
be either
positive
which
between
the
resources
"domestic
Protection domestic
may be
or
price
due
opportunity
to price
_ncentives
the various
we estimate
costs.
distortions
or d_sincentives and effective
activities,
which
can
resource port
coat"
(DRC).
(.NPR).
and border
created interventions
by
prices
tariffs,
of
policies.
pj
J
ere
CIP for imports),
are
costs of interna-
rate estimates.
thapEopottiQnal
a product.
discriminating
d
srRj
is
--
which
the opportunity
This
exchange
Border prices,
(FOB for exports,
to represent
Rate
the social opportunity
to earn or save foreign
traded goods in both DRC and protection
"wedge", other
social
these as the nominal
advantage,
at the domestic
Nominal
imperfections
or negative.
used in price comparisons tionally
opportunity
prices.
can represent
(NPR and EPR) accorded
cost of using domestic
world prices
or
cases,
market
social
restrtctions,.andmonopoly
such
to measure
To assess comparative
called
distortions
trade
from
reflect
is given in this study
We attempt
rates
commonly
market
In
diverge
policies,
protection
_ecessarily
controls_
attention
from government
of
externalities.
prices,
Particular
do not
price
as
to producers.
prices
This sales
difference difference
taxes,
quotas,
or
- 31 -
where:
pO. is domestic J
Pb is border price J
into account particular
commodity
j
of j expressed
in pesos
at the official
rate.
exchange
Effective
of
price
Protection protection
activity.
Rate
(EPR).
accorded
Thus,
This
to inputs,
it measures
measure
of
protection
as well as outputs,
protection
of value
takes of a
added.
Vd EPR
where
Vd is
added
at
rate).
value
border
with
estimates
prices
over, price quality. data.
Since
where
comparisons
Manila most
shipments
transport
(protected)
(in
domestic
currency
EPRs were
are directly
both
prices firms
to Manila
to Ranila
is
the
Vb is
official
in
this
value
exchange study,
but
in connection
policies.
at the same point
logging
at
1979) are reviewed
To be comparable
wholesale
prices.and
unddrtaken
et.al.,
of government
must be measured
I
domestic
of
Prices.
_-
vb
at
(Bautista,
the discussion
Domestic
m
prices
No new estimates
previous
for
added
=
to border
in the marketing
meaningful
represent
are
near
their
Moreover,
domestic chain.
More-
only for identical
the most
and to the world
required.
prices,
readily
own regional originate, it is
widely
available ports,
an adjustmentbeI_eved
-
that is
exported
logs
are
of
32
superior
-
quality,
Hence,
a quality
adjustment
alsorequired. Rather
combined and
unit
taxes
ment and
adjustment
export
export of
effects
of
AnOther
will
be
ion
rate,
value
1974. belov
the
from
of
the
estimated
the
period
_odification
is
to
account port in
quotas
want
domestic
net
to
when per
the
Applyln
quotas,
the
producer,
price
and
the
net
export
the
The:_ P
P
is
the
D
is
domestic
X
is
export
e
is
rate
was
producer
substituted
export for
the
which
protect-
which price.
X
formula.for
rate.
nominal
tax. in
estate
the
volume.
pd
to
price
volume. of
s this
doRestic
price.
sales
adjust-
the
D+Z
where
us
of
to
no
differences
enabled
To get
(l-e)
were
protection
price
Pd D
prices
nominal
the
p -
wholesale
quality
on exports, tax.
a
downward
l_anila.
because
of
separately,
there
cent
lgTOs
on
quota
price,
co_paring
for
the
necessary
an effective
export
by
a 14.5
relationship and
adju_ments
1956-69
regional
taxes
With
was
price the
price
these
suggested
wholesale
we really
average
both
This
export
the
estimate
during
costs to
in
for
Manila
transport
began
to
or quotas.
the
adjustment the
r.han attempt
_R.
is
a weighe6d
- 33 -
Domestic exchange
Cost
(DRC),
rate for an activity
resources by
Resource
measured
exporting
or
is_ in effect,
-- the rate at which
in peso social
substituting
_ds
for
values
the
"own"
it can convert
into foreign
exchange
domestic
either
imports.
g + Cd + Ld + Nd DRC
= pbq
Where:
_ (Cf
+ N_)
R
is
lend
rent
(social
C
is
user
cost
of
L
is labor cost
N
is cost of intermediate
capgtal
the
(social
in?uts
at border
price
subscripts_ d and f_ refer to domestic
and border prices
are in terms of
DRCs have previously products_
znd foreign
foreign
been
origin,
1979).
estimated
1977-79
data
estimates
This study supplMents
from a sample
for 1974 were
the capital
structure
for the major
land_ labor and capitalp
tables
and wood processing
also made on the basis firms,
were
costs
forest
this with DRC estimates
of six logging
of the sample
Foreign
exchange.
using data from the 1969 and 1976 input-output
et.al.,
inputs_
value)
(social value)
pbQ is value of output and
value)
of input-output
Social values
estimated
(Bautlst&, based on
firms.
New
data and
for the primary
as explained
below.
-
SOcial
Value,
cost of land
concern
in
recent
apart
from
would,
in
the
past, the
the
value
as
The question
benefits
to
that accrue
farming which
the
that
Of woodproducts)
from
be at
is complicated, from keeping
have the
external
equal
land in
Given.the
already
hectare to its
wide-
disappeared benefits
a marginal
least
opportunity
usa, which
in general.
fores_
be judged
situation,
take
in the best alternative
to crop
might
we would
farming.
extent
it
present
(quite in
direct
forest value
in
farming.
forestry,
the
As
land
forest
margin
to
value
in
between
rent, the
If, land
to
forestp
most,
zero.
the
assumption
question expanded and
uses this
above, the
to
and judge
marginal
benefits
zero,
of
to
land,
Again,
cost
the
in
that
the
st
test
the
the
we somewhat
to represent
sustained
should
be
in
benefits form
of
social
yield forest.
at the
land's
value
of
at
the
difference
the
land
as
margin
benefits. the
exceed as
the
the
external
then
somewhat
land
external
represent
we would
and
the
Expressing
would
limit of _600 per hectare land crop farming.
expect
increase.
well-managed
how much
opportunity
cost
We take
value
the
reasonably
down to
we could
value
comparison,
social
of
comes
opportunity
as
For
our
diminish other
an annual
to
crop
benefits
over
Following
at
its value
upland
including
spread
crop
Normally
by the imp0rtantsocial
forest,
the
Land.
in forest
might be marginal howevert
of
34 -
present the
lower
cost_
the
rent
of would
be,
limit.
sensitivity arbitrarily the rental
arbitrarily,
allocation
of
our assume
value
DRC estimates an upper
in marginal up-
we apply
this to She-half
-
of
the
total
area
assumption suitable
of
that, for
no
the more
method
For the input-output capital
Social with wood
of
the
indicated
80 per
cent
late that
of
reported
Value
of
depreciation
and
was the
equipment.
values
of
of
were adjusted
of
was
as
the
sample
flrms.
operations
are
to minimum
wage
the
after
in the 1974 table.
wage
receiving
'bhadow
The
integrated legislation.
wage
data at
pricd'
cost
of
rate
of
by adjusting in was capital
of
estimate
cost of capital,
inflation
the
user
The
an estimated
Depreciation life
the
costs.
determined
rate
labor
Capital.
rate,
estimated
qualify
of
least
labor
cost
(including the
six
the
minimum
was
put
at
cost.
interest
an
to
that the social'opportunity
A study
Hence
of the replacement
the
likely
80 per cent ¢f the minimum
unskilled
estimate
for
a conservative
rent in a residual
added"
logging
1979)
1970s).
and
cost
Most
(Medalla,
interest
capital
is
is
DRC estima'tes for
and firms are subject
allowances).
Social
of
proportion
to the
Labor.
labor was about in
(plus
we think
data estimates,, we include
processing
c_unskilled
wage
that
applies
It has been estimated
firms
than
on what
cost from "other value
Value
allowances
concession
crops.
The above
deducting
35 -
of
consists
these
requires
a social
depreciation. the
goods
estimated
by For
the
upward to take into account
e prior
(or shadow)
reported prices
the
of
Replacement
original
capital
goods.
capital
over
straight-line latter,
the
cost
acquisition the
age
of
method reported
the fact that equipment
on
- 37-
Table 5.
A/location ratios used in estimating established data.
COST OF INPUT
Interest
_ost
:
DOMESTIC
DRC using
" :
FOREIGN
95
5
100
0
5 I0 85
95 90 15
Depreciation: Building & Structure I/ Production machinery and equipment _/ Transport equipment _/ Other fixed assets _ / Labor
'I00
0
Glue
.0
I00
Fuel and lubricants
0
i00
100
0
Land
i/ --
This is based on theimport content of the "general building Construction" sector in the 1969 & 1974 input-output tables which is less than 2Z.
_/
In the IPPP, the ratio is 0-i00 but this •study used a 5-95 ratio based on the import content • of "special industry machinery" sector in the 1974 input-outputtable which is 96%.
3--/ IPPP Project Technical Note No. 4 determined this as the ratio of domestic value added to total cost• in the transport equipment manufacturing sector. 4/
Consists of items like office furniture and equipment not directly used in the productionprocess. It has been estimated in the IPPP that 15Z of the value of such goods come from foreign sources,
- 38-
a
few firms •areactually engaged in the utilization of logging wastes
and mill residues.
.Sampling and Data Collection.
Datawere gathered from six fi-rms
which were the only acceptable respondents from an initial list of 30 firms obtained from the Presidential Committee on.Wood Industries.Development (PCWID) Directory of Timber
Licenses in the Philippines (1980).
Table 6 gives _he employment level and product lines of the six firms. The survey questionaires
were mailed in the first week of January 1981
to the selected firms and the data were personally collected from the firms from May to July of tbe same year.
Table 6.
SAMPLE FIRM
Employment level and product lines of the six sample firms, 1977-1979.
:
TOTAL : EMPLOYMENT
.PRODUCT LINES AND.Z SHARE TO TOTAL VALUEOF THE FIRM's OUTPUT Log : •Lumber : 'Plywo_du,
F1
1345
23
4
73
F2
1658
0
100
O
F3
708
68
5
27
F4
2659
67
29
4
F5
3215
22
24
F6
2352
21
18
54 61
- 39 -
5.
Protection
and Comparative
Protection:
Logs.
assumed
that prior
quality
adjusted
which
represents
words,
penalized
to 1970, when
border
of export
parisons,
7 shows estimates
for 1970-80.
rate varied
sharply
suddenly
ment of domestic for the period,
tax or quota,
to export
protection
unit value,
rate,
in other
to this generalization
the so-called
interventions
"retention
exchange
rate.
scheme"
The focus
in the 1970s in the form
tax and the sliding
for a limited to year,
period
however,
Quotas began
in
exaggerates
the price
1970-75
comparison
1973.*
There
imposed
tax on logs has recently
rate
and transport
1976-78
raised
Overall
a result close
tax plus premium
The period
been
it , but
temporarily.
yields
for quality
in 1976.
The
is a lag in adjust-
in 1974, but their effect was negligible
limits were
was minuc
or the exchange
the wedge
com-
scale
after
prices
from the export
our adjustment
on price
as we have measured
when international
prices which
based
rate for the years
as they did in 1970 and 1973.
confidence
*The export
of the NPR for logs,
the export
to what we would expect
stringent
export
exceptions
when
The average
from year
this is to be expected
justify
The nominal
Evidence.
4 (above) it is
price was equal
via a less favorable
that was In effect
enough
there was no
1962-1965
is on the major
6 per cent_ reflecting
change
i_ Section
There may have been during
the Empirical
taxes and quotas.
Table
premium
price.
major exports
here, however,
As explained
regionaldomestic
was zero.
-- for example,
Advantage:
to costs.
until more shows, an
to 20 per cent.
- 40 -
Table7.
Year
: • :
Nominal Protection Rate for Logs, 1970-1980
Adjusted Domestic Price -I/ (_ per cu. meter)
:: Border Price : (_ per cu. meter)
} Nominal Protection_2/ _ Rate (per cent) --
-
=
1970
128
150
-15
1971
161
165
-02
1972
170
157
+08
1973
215
270
-20
1974
303
311
-03
1975
260
267
_03
1976
297
441
-33
1977
368
490
-25
1978
390
490
-20
1979
470
946
-50
1980
578
990
-42
Average
'
....
(unweighted):
1970-75
-06
1976-78
-26
1979-80
-46
I/
- ,L -
Manila wholesale price divided by 1.17 for combined quality and transport cost adjustment, as explained in Section 4.
2/
Domestic Prices Border
I
i00 for 1970-1973.
Price
We£ghted Average of
Domestic
and Net Export
Price - 1 "100 for
Border a
P':ice
B nk
Philippine Forestry Statistic, 1976 and 1980. World Bank, "Price Prospects £orHajor Primary
Commodities" 1980,
1974-I
- 42 -
penalty
on the
negligible,
so
IPPP Project
price
of output.
For
that
the EPR is
roughly
set
logs,
this
equal
both NPR and EPR at minus
additional
to
the
10 per
penalty
NPR.
cent,
For the
is
1974,
rate
the
of
export
taX. For lumber, positive major
protection input
the Project again
IPPP Project
overall
more thatn
Plywood
--
the
because
offset
and Venerate estimated
positive
estimated the
depressed
the paenalty combined
a combined
an EPR of 16 per cent
of
in the
the
these export
of the
greater
be inoted
that
of logs
export
as the
tax on output.
input-output
EPR for
because
price
--
products
table;
hence,
at five
per cent
tax on the
principal
input,
logs.
are
Finally,
it
should
calculated
at
the
existing
these
exchange
effective
rate,
which
rates in
the
of protection. 1970s
was esti-
mated to undervalue foreign exchange anywhere from 14 to 24 per cent because of the trade restrictive effect of the eutlre industrial protection.system (Sautista, et. el., 1979). this
extent
as
compared
to ehac
they
All exports, would
then
earn under
free
were penalised to trade
or,
alter-
natively, under what the IPPP Project called an"optimal intervention system". 23 per
In this project we are using a sliKhtly narrower range of 17 to
cent
for
the
estimate
of
the
undervaluation
of foreign
(equivalent to a 20 to 30 per cent overvalua_ion of the peso).
exchange Adjusting
for this we get ranges of net effective protection rates for the major wood products
of: Logging
-31 to -25 per cent
Lumber
'll to
Plywood b Veneer.
-19 to -12 per cent
3 per cent
- 43-
These are measures industrial
of the total penalty
protection • (mainly in the fom
take into account
the effect
the
on logs much
total
penalty
Comparative
Advantage:
sets of estimates the input-output survey
of
six
Section4.
for
them with
was estimated
rate
in 1974.
potential
are
£t is evident,
To
the shadow price to the method
on data from
on data from our
explained
above
in
follows:
as
social
assess
costs
of earning
comparatlve
advantage
of forelgnexchange. of the lPPP Project
the official
rate during
The to be in
the mlddle
s_
of 8.15 to 8,83 for the shadow exchange
then,
advantage.
that these DEC results
It must be stressed
only on the assumption We believe
was
the estimated
for export.
This gives a range
yield forestry, fore stswould
in pesos
according
Two separate
6.04
30 per cent above
comparative
is potentlal
DZCs.
& Veneer
to compare
1970s.
set
6.20
production
late
first
estimation
Lumber.
represent
whichwouldmake
costs.
second was based
5.47
through
a range of 20 to
the
of
Resource
Logging
These figures
latter
log exports,
This does not
The first was•based
The
The method
Plywood
we need
Domestic
table for 1974.
firms.
of tariffs).
taxes and
greater.
of DRCs were made.
The results
one dollar
of quotas•on
from export
of reasonable
that past practices
incur such high social
costs
indicate
strong
that this advanta? _
well
managed
of virtually
as to result
sustained
mining
in very
the
unfavorabi_
- 44 -
Turning to the DRC estimates for the sample firms it should be noted that all were integrated in that they combined logging _th lumber and/or plywood production.
soma
Each had a definite concentrations
however, in terms of value of final product. indicated in the table below, which gives
These concentrations are
DRC estimates for 1977 -1979
on the alternative assumptions of zero rent and _600 per hectare.
FIRM
DRC
ZeroRent .I, Plywood
r6OO_n_
5.78
10.73 8.97
2.
Lumber
6.89
3.
Logging
4.49
13,64
4.
Logging
3.42
4.84
5.
Plywood
4.73
7.14
6.
Plywood
5..55
7.35
With two exceptions, these D_C estimates fall below the shadow exchange rate for 1977-79,
which is in the range, 8.86 to 9.59.
The
two exceptions for firms I and 3, showed much greater:sensitivity to a variation in l_d
rent, the reason being that they had much ithe lowes_
ratios of hectares actually logged to total hectares _nthe concession. Correspondingly, they had by far the lowestvaluee of output per concession hectare.
Sine_concession hectares simply measure space, it is
possible thatfor these two the proportion of concession space that was
-
usable.forest
was lower.
Hence_
45
our rent estimates
too high for them. Alternatively, optimum
levels of logglng
negative
rank correlation
of output, decisive,
and DRC,
-
they may have been
and output. between
Among
operating
indicated
again a very
the present
was very high with
strong
six wood product
showing
firms.
forest management
input-output
practices
of these
the standards
of our assumption
mlght hereto
_ncur additional
It is int_estlng
Table
8, together with
the two years
firms.
consistent
a basis
with
evidence
It is possible yleld
for these
those on
that to
forestry,
the
meet
the firms
costs. these results
forâ&#x20AC;˘the
years
their estimates
(Bautista,
This implies
to provide
We have no direct
of sustained
to compare
for wood and paper products
closer
comparative â&#x20AC;˘advantage
are reasonably
data.
comes
above.
the sample is too small
the results
by value
zero rent.
as we indicated
of potential
While
for strong conclusions, from the aKEregated
situation,
at below
But the rent factor was not
In any case, we think that the zero rent assumption to reflecting
be relatively
the six there was a perfect
size of operatlon_
with rent at _600.
since the correlation
would
et. al.,
wlthlPPPProjeet
1969 and 19_4, as shown in
of the shadow exchange
1979).
estimates
rate for
-
Table 8.
DRC Estimates
_/for
Wood
45a
-
and Paper
Products
:
Industries
1969-1974
DRC ESTIMATE
INDUSTRY
Lumber Plywood Pulp,
and
veneer
paper
and
paper
manufacturing
Paper products Paper and paperboard Shadow
i/
exchange
rate
As determined
Again stands
out in relation products.
6.
Spmm_ry
interest
has been
comparative
6.14
4,65
6.48
6.04
9.14
6.04
II.i0
6.36
II,47
6.48
9.21
1979.
advantage
to less advantage
of efficient
in the Philippines.
not only
mic benefits
3.68
of
wood
or comparative
products
is clear for
disadvantage
and Conclusion.
The importance appreciated
1974
in the IPPP Project,
the potential
paper
their
containers
1969
given recently
of forest resources
The government
in the conservation
to be gained
destructive
management
from forest
has shown an increasing
of forests, products.
to the forest communities
activities
is well
but also in the econoIncreasing
attention
in an effort
and find for them a more
to end
constructive
role.
a_
-
46
This study has notattempted ment
policies
affecting
that most strongly and export given
and
technical
left aside.
forestry,
affect
of forest
to
evaluate
incentives
Conservation
questions
of
The focus instead
the whole
range of govern-
but rather has concentrated
the price
products.
-
efficient
on those
for productlonD
processing
goals have been taken forest
management
has been on broader
aspects
have
as been
of economic
efficiency. Principally, _ines have interest growth
a comparatlve
of efficient
of
the
of course, primary
two questions
forest
the very
or processed
intervention industry?
policies
utilization product
wood
resources
from
the
but also industrial
the indirect, protection
of
between
the
goals
specifically
but powerful,
system.
this
forest
or detrimental
the development
not only policies
Is it in the to promote question
effects
the is,
exporting
how have government
development
been helpful
to meet
to
of the choice Second,
does the Philip-
resources
Subsidiary
products. the
First,
products.?
of Philippine
issue
affected
studied.
in forest
industry?
important
Here we have considered products,
advantage
Have these policies
use of forest
were
price
product to the economic
of the Philippines? directed
to forest
on price
incentives
- 47
.What
we have
found?
mates
-of DRCs both
survey
data
major
wood
goal
of
degree
rate
the
Ratios
product
lower for
our
the
the
estimated
could vary wlthout
can
data
question, and
the
met.
is
of
one the
assuming
substantial
more
advantage
in
plywood
the
DEC to
indicates degree
zero
all
veneer
the Philippines
the
range
which
the
the
shadow advantage advantage. from
prices
comparative
if
of
comparative
rent,
margin within
three
comparative of
land
esti-
detailed
A common measure
ratio
than
our
from
lumber,and
be
greater
sacrificing
first
comparative
less
DRCs,
a very
table
is
A value
the
logging,
forestry
value
to .71 indicating
--
advantage
(SEE).
to
potential
activities yield
respect
input-output
strong
comparative
exchange and
from
indicate
sustained of
With
°
.37
and costs
advantage
in wood products. The DRC results
depend,
of course,
prices
and costs that prevailed
belong
-- for the survey,
the assumptions
about
as on our heroic
assume
1977-79.
Moreover,
assumption
about
future
coefficients
to Variations
in costs
zero land rent -- in effect,
marglnal
external
of land in forest.
the period
the shadow prices
Table 8 shows elasticity DRC estimates
during
on the particular
benefits
compensate
towhich
the results
of land,
labor
levels
of
the data depend
â&#x20AC;˘
also on
and capital,
as well
forest management.
to indicate and value Judging
the sensitivity
of output.
Again,
that in the present
for opportunity
of the we
situation
cost at the margin
-
about
40
per
i.e.,
.without
cent
the
for
be
tempted
to
compare
products
to
throw
the
â&#x20AC;˘survey
results,
a stronger ever,
to
interpret
tively tio_ be
automobile servation each
other
with
other,
The to
policy, for
the
non-forest favorable
tagr
wood
general.
is
better
It
to
would over
that
Clearly
capital
export
conservashould
activity
because
not
in
--e.g., of
the
con-
competition
with
processing
competes
_espectl
the
is
indicate
a
the
average
for
processed
wood
In
this
strongly to
wood
resources
compara-
and
words,
Rather,
is of
economic
and
by conservation
limits
other
how-
lumber
the
are
suggest
by drawing
some
processing
.The to
of
logging
within
is
a mistake,
mainly
beyond
In other
seem
export
dictated
it
plywood,
be
or
compared
--
answer comparative
clear, advan-
manufacturing
to
gain
In
Section
the
advantage
and processing.
now to
we set four major
is
resources.
as
those
data,
labor
activities.
with whether
and
whether
DRC-SER ratio's
logging
We turn
of
lumber
is
to
rate
question
question
and wood
processing
So it both
use
or
export
pursued
steelNaking.
logging
the
manufacture.
logs
or
on
logging,
expand
be
exchange
logging
input-output
log
cannot
remaining
assembly
logs
activity
should
processing
The very for
logging
and
in
shadow
DRCs for
light
favoring
and plywood
advantageous
applied
as
logging
lumber
policy.
from
of
the
from
advantage
Therefore, from
those
the
advantage,
_to export as
this
The rate
policy. sway
well
comparative
plywood.
comperative
Philippines as
-
DRCs above
their
processed
better
pushing
losing
â&#x20AC;˘ One might for
without
49
price
intervention
goals for policy:
policies.
3 (above)
in
-
1)
limit
in S output
meet
. 2)
capturing
private
rents
3)
promoting
foreign
exchange
advantage,
and
4)
raising
We noted
that
expected
to attain
accepted
theory
separate
policies
charges
and they
general
to
sets
last
export
four
economic (or
the
for
policy
all of
have
contribute
revenue
no single
Taking
since
to
50
taxes
other
course,
from strictly forest policy
revenues.)
The point
should not be designed
earnings
consistent
forest
administration.
(e.g.,
export
tax
we concluded
policies)
be
or
cons_tent
first: designed
play.
only
they
revenues is simply to meet
widely
forest
this
do
purpose
raise
can
but revenues
to fill the gap between
forest policies.
be
four
that for
revenue
can
goals.
primarily
What
the
we need
four
we note
comparative
charge)
with
that
to meet
with
forest
of forest administration,
taxation must be used
revenues
concessions,
policy,
to
target,
logging
Indeed,
cannot
the financing
conservation
from
(revenue)
roles
the
goals.
of
one
-
from
this need and the
(If the gap is negative , of
would make
a net contribution
that forest a specific
charges revenue
to general
and export
taxes
target for forest
adminis trat ion. With
respect
ties and the need of the conservation Forest but
charges, could
not
by meet
to conservation, we to meet qualitative, target,
direct
themselves, the
qualitative
could
noted
that, because
as well
controls limit
of externali-
as quantitative,
and regulations output
requirements
(if of
they
aspects
are needed. are
conservation
effective), po!,icy.
- 51 -
Nevertheless,
forest
controls.
charges
We noted
above
could that
play
forest
a role charges
terms over the period
studied;
and
represent
light
on output
six
only
e very
per cent ad valorem.
charges
roughly matched
represent
substantially
the conservation
just profitable
were,
at the margin
put of logs, marginal
available.
competitive
A higher
should
in
the recent
logs
--
less
a decade ago revenue
expenditures
on forestry,
they now
No doubt
reducing incentives
indeed,
raised to the point where
they
to output
to produce
below
be eliminated.
problem.
This leaves
The ideal method
bidding for timber .... be a possible
to determlnej
is not
firstj the extent
normal
rate of return in other
activities
(with due allowances
capture
such
relevant
from forest products. (I) the industrial
protection
over the for risk);
rents for society.
-- promoting
Policies
concessions
a land tax on forest concessions
we turn to the area of policy where
are most
Serious
of intramarginal
in logging
largely
intra-
substitute.
to capital
that would
out-
presently
of returns
of administering
is
of eliminating
i.e._ excess
end second, a means
it
the conservatlon-determined
rents,
findings
than
from forest
without
land tax would
be undertaken
Finally,
real
rise in rates,
probably
of those expenditures.
rents would
rents as a remaining
them -- namely
declined
direct
target.
If forest charges
_udy
government
of
while
supplementing
have
, even with
Moreover,
only about one sixth
could be raised
marginal
tax
in
optimal
that have
system which
this study
foreign
the greatest penalizes
and the
exchange
earnings
impact here are:
all exDort&
via
-
undervaluing
foreign
We have advantage, rather
than
advantage
it
noted is
loss. in
(2)
exchange;
already
that
preferable
to
logs
Section
3 (above)
we noted
also
between
world
domestic
prices
of
demand.
ment
for
inferior
this
addition,
on all
forelgn
Finally, exports
logs
that
range
of
of
17
the
we would
long-run combined
and
the
have
world
effect
a total
is
of
the penalty
export
tax.
tax
from
ideal
instruan
system
imposes
via
undervaluation
Since
at
that the â&#x20AC;˘world demand
all
on logs.
elasticity
It
is
equal
to
undervaluation
the
former
not
a
of
is
in
foreign
probably
other
at
wordsl
loss has an absolute
from undervaluation
that the 17 to 23 per cent penalty
of foreign
that results
It is due solely
exchange
is quite
from disequilibrium to the
distortions
apart
on export
from any peso
in the foreign caused
e is
By "total'*
for this reason
likely,
for Philippine
1/e,where
six.
It should be noted
_arket.
elasticity
demand for logs.
explicit
overvaluation
In
represent
cent
to justify
value less. than
the
ban)
23 per
export
elasticity
of
explicit
tax
export.
world
tax
comparative
a wedge
protection
to
of
for
least _7 per cent, it seems very difficult export
plywood/veneer
creating
(or
subsidies.
.comparative
reflects
quotas the
and
them
that
that
of
indicatlon
an export
export
and
'.
then,
the estimated
exchange
strong
the advantage
that
the
lumber
the
of
quotas
discussion
export
we noted in
the
exchange.
Ideally,
we mean
and
taxes,
and processing
we noted
purpose,
method.
penalty of
In
in
we noted
producing
and
export
above,
Moreover,
both
52 -
exchange
by industrial
any
- 53-
protection.
If it is judged that the present value of the peso is not
an equilibrium
one
-- e.g., because of excessive forei_ borrowing --
this would represent an additional element of distortion in the value of foreign exchange.
Price
This can be easily seen with _he aid oÂŁ Figure 4.
of Foreign.
Ex.change
.S
G
-/
/
" D'
L
â&#x20AC;˘Quantity of Foreign Exchange Figure S and D represent the level
absence that
form of
the
of industrial is
tariffs)
judged
4
supplyanddemand.for
protectionand
to be desirable,
reduces
the
demand for
with Industrial foreign
foreign foreign
exehanse
borrowing
protection exchange
in
at .a
(in
the
(by reduclng .i
- 54 -
imports)
to
•initial
D'.
The price
of
foreign
at
If
we add
•equilibrium
supply
of foreign
E.
exchange
The gap between exchange, gap," the
made
up of
PG. What distortion
to
reduce
of
"distortion
suggests
is
foreign
dependence
There
isj
of
veneer.
excessive
gap," that
on
the
foreign
course,
EFt 17
and
to A3
in view
of
penalty
this in a first-best
by a 20 per cent subsidy./(the latter the first -best package
probably
demand.
case
this
•the and
same
subsidy.
transfer
for
of
the
total
government's
desire
of
lumber
would
and
require and its
also for plywood). ban on
wood exports,
right
export
There
and
is a tacit
tax on logs from
for the optimal of world
exploita-
demand is
however.
package
has
financial
_nplications
We must .consider that not only processed face the same penalty
To.implement
problem
of
estimate
(I) no quota or
elasticity
view,
£irst-best
products., but. all exports
cent
lumber or plywood/veneer,
is about
The implied
that might be disturbing..
be:
that the implicit
too low on a long-run
19 any
might
to processed
of the currency
tion of foreign
to G.
of foreign
tax on these products
tax on logs,
here, of course,
undervaluation
further
manner,
replacement
assumption
the
"disequilibrium
on exports
of the four per cent export
(3) a 20 per cent subsidy
from its
borrowing.
a similar
(2) no export
the per
the
F
borrowings
estimate
the removal
lo8 exports,
to
i_s price
a conservative
exchange,
To correct
Thus
reduced
foreign
is now S', reducing
gap may represent
undervaluation
£s
E and C is the total undervaluation the
this
exchange
the
tha
latter
government.
might
and_ imply
in a sense, an
impossible
wood
"deserve" tax
- 55 -
A second-best on logs both
approach,
for revenue
in SectionS,
via
tar
export
products.
Net
valuation nating help
an even
with
the
the
this
exchange)
wood
re_val
tax
for promoting
net
of
price of
the
tax
processing. of logs
processed
effect
of
wood
under-
but elimi-
tax on lumber and plywood/veneer
on logs
the
the to
There
export
tax
second-best
give
is
some
level
on lumber
foreign
relief for
and
this
would
for balance
might
to
the
be
export
which,
together
plywood/veneer,
protection.
borro_r_ng_ the export
to exporters
if lo8 exports
value
solution
adequate
at least zero net effective
for this reason.)
the net price sequence
export
was seen to be still negativep
is g_ven still greater
again
the
protection
(i.e.,
further,
products. of
i.e., to reduce higher
argument
export
give the latter exchange
continue
that.
higher
processed
to
the domestic
effective
protection
the four per cent export
to correct
be
that depressing
raise
.effective
Carrying
of
could
of foreign
would
and as an instrument
We saw above, an
then
would
(If foreign
of payments
reasons
tax on logs should be
The fact that the tax on log exports
below marginal
are to be phased
--
revenue
puts
is of little con-
out anyway
in favor of processed
wood exports. In sum, a second-best least:
(1) removal
increased logs,
forest (4)
improved
land
of export
charges,
elimination tax
approach
of on forest
(3)
to policy
tax on processed perhaps
quotas
on logs
concessions.
an increase exports,
reform would wood
include
products,
at
(2)
in
the
export
and
(5)
hopefully
tax
on an
- 56 -
Finally,
it
estimatingDRCs
wÂŁi1
we made
be recalled
that
in approaching
the assumption thatthe
the
problem
of
government would be.
â&#x20AC;˘able in future to administer reasonably well an efficient sustained yield system the
of forest
forestry
management.
policy
package.
This,
of course,
is
the
crucial
element
in
- 57 -
REFERENCES
Bautista,
R., Power, J. and Associates, Philippines, Philippine Institute
Decena,
A.S., O _stes Industry , U.P.
Industrial Promotion Policies in for DeveiopMnt Studies, 1479. in an Inte
at Los Banos,
_ated
the
Wood
de Is Cruz, K., Technical and Economic Feasibility of, Utilizin_ LOgatnZ Wastes, unpublished M'S. thesis, U.P. at Los Bae0sS 1975. Howe, C.W.,
Natural
Resource
Economics ,, John Wiley,
Medalla,
E., "Estimatin and Associates,
Revilla,
A.V., "Critical Issues in Forest Resources Management in the Philippines," unpubllshed inagural lecture for the SEARCA Professlonal Chair in Forest Resources Management, College, Laguna, 1979.
for the
S the Shadow Price 1979.
of Labor,"
1979. in 3autista,
Power
, "Framework of a Comprehensive Fozestry Development Program Philippiues," unpublished lecture, College, Laguna, 1980.
Segura-delos Angeles, M., "Research on Forest Policies for Philippine Develop=enC Planning," in Survey Of Philippine DeveloPment Research Philippine Institute for Development Studies, 1982,
II, --