No 16, February 2014
THE GREAT PLANTATION EXPANSION
International Tropical Timber Organization’s (ITTO) Tropical Forest Update has
recently published an article “The great plantation expansion” by Sepul Barua and
Petri Lehtonen of Indufor. The article summarises findings of our recent analyses on
the future trends and investment opportuntities in forest plantations. The total area
of industrial fast-growing forest plantations in 2012 was 54.3 million hectares (ha).
Indufor has projected that the global industrial forest plantation area will increase to
91 million ha by 2050. The key driver of industrial forest plantation development will
be the increasing demand for wood, driven by population growth, growing
economies and per capita consumption, especially in emerging economies such as
Brazil, China and India.
At present, forest plantations satisfy about one-third of the global industrial roundwood
demand. Indufor has estimated that by 2050 plantation-based wood could satisfy 35% of
total industrial wood requirements. This implies that the supply of plantation wood will grow
at about the same rate as demand for industrial roundwood, and that forest plantations
alone will be unable to meet the increasing demand for industrial roundwood. Natural and
semi-natural forests in the boreal and temperate zones, which currently supply the majority
of global industrial roundwood, will continue to be the biggest source of this raw material.
The article also presents key challenges: (i) changes in investor types; emergence of small
and medium-sized forest growers, (ii) increasing land-use competition, (iii) risks related to
environmental degradation, (iv) land conflicts and other social issues, (v) poor governance,
and (vi) financing gaps mainly related to business climate problems in countries with
otherwise suitable physical conditions for plantations. Solutions to overcome these
challenges are proposed in the article: (a) building alliances, coalitions and cooperatives
among small and medium-sized forest growers, (b) increasing availability of financing for
responsible and sustainable investments, (c) building awareness and capacity related to
plantation investments among financing institutions, (d) improving sector governance and
transparency, (e) providing secure land tenure, (f) introducing targeted incentives and
removing disincentives, (g) developing tested plantation models, and building R&D
capacity, and (h) developing and disseminating risk mitigation tools.
Indufor is constantly supporting our clients in identifying new plantation investment
opportunities. We are also helping our clients to plan, execute and monitor plantation
investments in a manner that meets the highest international standards and best practices.
We strongly believe that expansion of responsible and well-managed plantation
investments, by all types of investors, small and large, will reduce the pressure on natural
forests, and therefore plantation investments are also good for the global environment.
The Royal Swedish Academy of Agriculture and Forestry, established in 1811, has selected
Indufor’s Anders Portin as its member. I wish to congratulate Anders for this recognition and
honour.
In this issue of our Newsletter we focus on sustainability of plantation development,
particularly in China.
Jyrki Salmi, Managing Director
Indufor Newsletter No 16, February 2014
1
FAIR TREATMENT IN LAND-USE RIGHTS - MAIN CHALLENGE OF FOREST
PLANTATION DEVELOPMENT IN CHINA
Indufor has gained valuable experience while assisting the European Investment
Bank to ensure the sustainability of its forest sector lending in China. This country,
with the highest population on the globe, has to adapt to a radically changing
demographic structure. The demography is changing due to strict family planning
regime, fast urbanisation and high economic growth. In rural areas the development
has caused acute labour shortages and changes to land use and land-based
production systems.
The demand for all forest products is increasing and
there is a heavy dependence on imports. At the same
time, an increase of forest and vegetation cover is
considered critical, not only to satisfy the growing
demand for forest products, but to mitigate climate
change and prevent anticipated natural disasters. The
on-going structural changes have already caused
conflicts in local land use and land-use rights.
However, these changes also present an opportunity
in the Chinese countryside. Forestry in a broad sense
can be developed and integrated with high value production chains, with the
associated social and environmental benefits.
The European Investment Bank (EIB) finances
ecologically critical forestry projects in China. The
projects are implemented by local province or
county level entities such as enterprises, farmer’s
cooperatives, and state farms, or individual
farmers. The projects cover most of the ecological
regions of China: the boreal northern areas, the
temperate eastern and central parts, as well as
the southern sub-tropical region including low
lands and high lands. The planned tree
plantations comprise ecological protection forests,
timber trees, fruit
trees as well as
several trees producing non-timber forest products such as
medicines and essential oils. The species are mainly native
long-rotation species with the ability to store carbon and
maintain biodiversity.
The big challenge is to ensure that the projects are sustainable
in every respect. Indufor was contracted to carry out technical,
financial, social and environmental due diligence of the
projects as well as to monitor their implementation in
cooperation with the EIB. This article is largely based on the
experiences of the Indufor team since February 2013.
Indufor Newsletter No 16, February 2014
2
China has ambitious aims to develop forest plantations
The principal reason for China’s plantation development is climate change mitigation and
prevention of potential natural ecological disasters. In terms of deforestation, there had
been an estimated loss of one-fifth of agricultural land since 1949 to soil erosion and
economic development. Severe flooding in 1998 caused by deforestation along the
Yangtze, Songhua and Pearl Rivers caused the loss of many lives and resulted in
USD26 billion worth of damage. In response, the government introduced a policy in 1999 to
return much of the low-quality farmland to forest. Simultaneously harvesting in natural
forests was banned. The Chinese Government launched the National Climate Change
Programme in 2007, which confirmed the important role of China’s forestry sector in
reinforcing the capacity to absorb greenhouse gases, and to support ecological protection
and development. The aim is to increase the land under forest cover in China, which is still
below the international standards.
Another key reason for plantation
development is that China has a
chronic shortage of wood and fibre and
almost half of the processed raw
material is imported to the country. The
gap between demand and supply of
roundwood in China has been filled
with imports of roundwood, wood pulp,
recycled paper and processed wood
products. The gap is currently widening
although China is actively developing
new plantations.
The Government’s aim in 2007 was to develop an additional 12.5 million ha of forest
plantations by 2015, an ambitious target that made it the world’s largest afforestation
programme.
Changes in demography drive the social and economic dynamics of rural China
China remains the world’s most populous country
with its 1.38 billion people. Even more important and
alarming is that China’s demographic structure has
changed radically over the past three decades.
These changes will drive the country’s economic and
social dynamics, and in Chinese rural areas imply
major alterations in land use and land-based
production chains.
China’s aged population (60 and above) will increase dramatically, growing from present
200 million to about 300 million by 2030, while the overall population will not grow. At the
same time the number of internal migrants is estimated at 220 million; especially the
working-age men migrating to urban areas from the rural areas. It is inevitable that the era
of young cheap Chinese labour is over and there will be workforce shortages.
Indufor Newsletter No 16, February 2014
3
Is leasing land causing conflicts or creating opportunities?
In rural areas labour-intensive land uses and production
farms cannot be sustained by ageing farmer families. It
is thus typical that the old agricultural and other
production areas are leased to those who have means
for production. This has also meant a shift from annual
crops towards less labour-intensive perennial crops and
forest trees.
Leasing land became a common practise especially after
the significant legislative change that occurred in 2003
with the Forest Land Rights Reform. This created the
opportunity for land occupiers to formally register their
association with the land that they were farming. They
could then in turn grant contractual entitlements to other
parties to use the land for defined lease periods.
There have been conflicts related to land leases and so
called “land grabbing” where all the farmers leasing their
land have not been fully aware of their rights. Many farmers have also entered into deficient
and unfair contracts, where their benefits have been marginal. This has caused severe
conflicts and cases have been reflected in the media.
However, land leasing is in many cases
the best opportunity to develop larger
land areas with sustainable and less
labour-intensive production chains. This
is a great opportunity for many tree
growers of different scales. It is critical
that there is a mechanism in place that
ensures the fairness and transparency of
land leases. In the case of the EIB loan
projects, the due diligence conducted by
Indufor focuses on key sustainability
criteria and it has been evident that one
of the most important criterion has been
the contractual arrangements between
companies or other entities and local
farmers.
One way to improve the sustainability of
forest development is certification, which
is discussed in a separate article in this
Newsletter.
Petri Lehtonen, Senior Partner
Indufor Newsletter No 16, February 2014
4
CHINA FOREST CERTIFICATION SCHEME ENDORSED BY THE PEFC COUNCIL
The China Forest Certification Scheme gained the PEFC Council’s international
endorsement. The decision was made based on Indufor’s evaluation of the scheme
development and implementation. A certification system that meets the international
requirements set by the PEFC Council has the potential to improve stakeholder
dialogue as well as socially and environmentally responsible forest management in
the country.
The PEFC Council endorsed the national China Forest
Certification Scheme in February 2014. Indufor carried out
the independent assessment of the scheme and its
development process, which provided the basis for the
PEFC Council’s endorsement decision. The national forest
certification scheme is fully compatible with national
regulations that restrict the introduction of foreign
organisations, such as certification bodies, or practical
adoption of international requirements, e.g. international
conventions, unless they are officially approved. Despite
the strong link to national regulations, the scheme
succeeds in setting practical requirement levels that are
compatible with PEFC Council requirements for forest
management, third-party certification and chain of custody
that provides evidence of the origin of the timber and
related products.
Development of the National Forest Certification Scheme paved the way for engagement of
national non-governmental organisations into discussions on the use of state-owned and
private forest resources. The research community also participated actively in the standards
development. A challenge is to further expand discussions with the third sector at national
and regional levels in the future standard revisions.
Forest certification introduces new third party verification into forestry. The certification
procedures will comply with international ISO standards and certification bodies shall have
internationally recognised accreditation for forest certification.
The national scheme has been tested over a total of 1 million
hectares of pilot certification areas, mostly in Northern China.
In China, growing of almost any woody plant producing wood
fibre, fruits, nuts, etc. is considered to be forestry. China’s Forest
Certification Scheme has taken a broad approach to forest
certification and plans to expand the current scheme in the future
to provide certification standards and procedures tailored for
plantation forestry, bamboo forestry and non-wood forest
products.
Hanna Nikinmaa, Senior Consultant -Corporate Responsibility Management
Indufor Newsletter No 16, February 2014
5
SUSTAINABLE FORESTRY ON THE ÅLAND ISLANDS
The Åland Islands, with a population of around 28 000, comprises one main island
and about 6 500 skerries and islands in the southwestern part of Finland. While
tourism has an immense importance for the islands, the role of forests is essential
from a landscape perspective. Indufor has advised forest organisations on Åland on
the way forward to obtain group certification for FSC.
The small, privately owned forests, with a total area of 65 000 ha, provide wood for two
small local sawmills. Situated in the Baltic Sea between Finland and Sweden, Åland has
good shipping connections to both these countries. Some of the wood is sold locally, and
some is processed and sold to customers in Europe and North-Africa. The pulpwood is
chipped and sold to a mill in Sweden.
The wood on the windy Åland archipelago grows slowly and is of very good quality. The
forest organisations on Åland are considering FSC-certification as a means to achieve a
price premium for certified wood and to increase market opportunities. However, the impact
of certification is likely to go beyond forests and forestry. For the overall economy,
agriculture, fishery, tourism and forestry are essential. The agriculture on the islands is
small-scale and food production is local, with restaurants serving game and fish from the
wild and vegetables from around the corner. FSC-certification is likely to strengthen the
overall image of Åland as green islands where small-scale agriculture and forestry create
high added value and largely benefit tourism.
Anders Portin, Senior Consultant
INDUFOR ACTIVELY PROGRESSES IN THE “BEST” PROGRAMME
From the beginning of 2013, Indufor has been actively involved in the Sustainable
Bioenergy Solutions for Tomorrow (BEST) programme 2013-2014. The programme
crosses the confines of traditional business areas by bringing together for the first
time CLEEN Ltd and FIBIC Ltd, two Strategic Centres for Science, Technology and
Innovation, and their owners and stakeholders in a joint research programme.
This cross-boundary programme, partly funded
by the Finnish Funding Agency for Technology
and Innovation (Tekes), aims at building a
solid common understanding of the future
bioenergy
business
opportunities
and
necessary know-how and capabilities for
seizing these. As a Finnish expert organisation
with global operations, Indufor’s skills and
experience bring valuable input to the
programme in assessing the operational readiness and global competitive positioning of
bioenergy companies with regards to social sustainability and responsible business in
different global contexts. It is widely acknowledged that the diffusion of bioenergy
technologies is not driven solely by environmental benefits, technological advantages and
favourable economic conditions. Social acceptance, consisting of a wide range of
components of socio-political, community and market acceptance, a good understanding
and a strong support of bioenergy by the general public, is also essential.
Indufor Newsletter No 16, February 2014
6
Indufor carries out studies on the key elements and phases of social sustainability in
different life cycle phases of various bioenergy supply chains. Consequently, identification
of common elements for bioenergy acceptability can help with the exchange of positive
experiences between different types of bioenergy supply chains. Moreover, companies
involved in bioenergy production can be vulnerable to environmental, social and economic
risks related to sustainable biomass sourcing and land use changes, as well as to economic
viability of bioenergy production. Indufor is identifying such risks and assessing the
companies’ strategies on sustainability risks and conflict management in order to estimate
how well they are prepared to meet the current and future social expectations and
contribute to sustainable development.
Indufor carries out this assignment in close cooperation with the other programme
participants: small and large companies in the forest, energy, technology and consulting
sectors, as well as universities and research organizations. The results are expected to be
published by the end of 2014.
Vasylysa Hänninen, Consultant, Corporate Responsibility and Markets
NEWS FROM INDUFOR
 Indufor is supporting the European Commission in the implementation of the EU Timber
Regulation (EUTR). The work will concentrate mainly on the assessment of
applications of monitoring organisations and helping the Commission in its reporting
duties. The EUTR prohibits the placing on the European market of illegally harvested
timber or products derived from such timber. It has been effective as of 3 March 2013.
Indufor was selected as a service provider through a competitive bidding process
together with a UK-based team of technical experts, Efeca, and the Department of Land,
Agriculture, Environment and Forestry of University of Padova, Italy. The work is
foreseen to be completed by the end of 2015.
NEW STAFF MEMBERS
 Miikka Malmström has been appointed as Consultant, Forest
Economics at Indufor. He holds a master’s degree in forest
economics (MSc For) from the University of Helsinki. His expertise
includes economic optimisation, forest asset valuation, plantation
studies, forest policy analysis, market research and financial
analysis. He has experience in different timber regulation policies,
certification schemes for plantations and assignments with forest
industry.
Indufor Newsletter No 16, February 2014
7