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.
Highlights
According to Kumari (1995), when we are discussing about sustainable forest management (SFM), it should cover all mechanisms of allocation and not focused on market only
Since this study examined the economic impact of SFM
Under scenario two, where external cost of timber harvesting increased by 74%, the producer surplus reduced from RM88,255, under the baseline case, to RM68,364
Summary
According to Kumari (1995), when we are discussing about sustainable forest management (SFM), it should cover all mechanisms of allocation and not focused on market only. There are many situations and resources which are not and cannot be allocated by market mechanism. Many cultures, including indigenous people, use non-market mechanism for resource allocation. This does not mean that their resource allocation is not at optimal level. With regards to carbon sequestration, nationally or globally would enjoy the benefit of clear atmosphere received from the carbon storage which cannot traded in the market. Nowadays, there is a term known as carbon credit created by economists assigning values on carbon for trading in the market
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