English

Abstract

The main objective of this study is to analyze the impact of sustainable forest management (SFM) practices on the timber market in Peninsular Malaysia. A partial equilibrium model was applied in this study covering domestic timber market namely supply and domestic demand of timber. It was analyzed by using a system of equations approach. All data were compiled from published sources of Malaysian Government publications namely from the Department of Statistics and Annual Report of the Forestry Department of Peninsular Malaysia. All of the data are annual time series basis from 1970 to 2008. Impact analysis was conducted based on three scenarios that arise from SFM practices (that is (1) reduced by 24% in harvested area, (2) increased by 74% in external cost of timber harvesting and (3) increased by 47% in the cost of internalization the externalities). These scenarios will be incorporated in the timber market model. Results show that changing from the conventional logging (CL) practices to SFM practices reduce the equilibrium quantity of timber and increase the price level. The welfare economic impacts of SFM provide empirical evidence that there is a loss in welfare economic impacts on the timber industry in Peninsular Malaysia. However, an increase in the domestic price of timber would help to compensate for the loss volume of timber. The state government and any related agencies should be able to use these results as a reference to come out with good mechanisms in strengthening the effectiveness of SFM policy. Hence, they should be able to assist domestic timber industry by supporting them to fetch various potential incentives such as price premium, carbon credit and market access for timber produced from sustainably managed forest.   Key words: Consumer surplus, producer surplus, equilibrium price, equilibrium quantity.