India - Forestry prospects

Report No. 1745-IN 1ndia Forestr/ Pros npcts April 1978 Agriculture Division B South Asia Projects Department FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients .,nly in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   FOR OFFIClAL USE ONLY INDIA FORESTRY PROSPECTS Table of Contents Page No. SUMMARY AND CONCLUSIONS .................. .i - iii I. INTRODUCTION .......... ............................... 1 II. REVIEW OF PAST PERFORkAJNCE ........................... 1 Background ........... ................................ I Resource Base ......... ............................... 2 Area . ........................................... 2 Volume & Yield ....... ........................... Productivity ........ ............................ 3 Institutional Arrangements ........................... 3 Industrial Base ........ .............................. 3 Contribution to the Country's Economy .... ............ 4 Performance Under Development Plans Allocations ........ .............................. 5 Physical Achievements ....... .......................... 6 III. ISSUE'S AND CONSTRAINTS ............................... 8 Issues . ............................................... 8 Constraints .......... ................................ 8 Framework for Forest Products Development .... ... 9 Balance between Hardwood and Tropical Pine Programs ....... .......................... 9 Quick Growing Plantations Researcn .... .......... 9 Role of Private Sector .......................... 10 Relationships Between Land Use Planning and Forest Policy ............................. 10 Fuelwood Supply ....... .......................... 10 Extraction ........ .............................. 11 Forest Inventories .............................. 12 Project Planning and Implementation Cell .... .... 12 IV. FUTURE PROSPECTS ........ ............................. 13 Features of the Forestry Sector ..... ................. 13 Roundwood Demand and Supply to 2000 AD .... ........... i3 Industrial Roundwood ............................ 14 s docu[entII hias a resiricied disributioni and may ob used by recipients only in the performanzee of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- Table of Contents cont'd. Page No. Coniferous ........... .................. 14 Hardwood ......... .................... 14 Fuelwood ......... .................... 15 Action Program ......... .................... 15 Industrial Forestry ............................. 16 Social Forestry ............................. 16 Environmental Forestry .......................... 17 Export Prospects ............ ................. 17 Investment Possibilities ............................. 13 ALNNE X S 1. 1971 Classification of Forests by Categories 2. Recorded Volume Production of Wood 3. Value of M.ajor and Minor Forest Product Exports 4. Volume of Log Exports 1970-76 5. Public Sector Outlays for Forestry 6. Investment in Man-Made Forests 7. Estimated Financial Commitment to Social Forestry in the Fifth Plan 8. Investment in Environmental Forestry 9. Physical Achievements in Establishing Man-Made Forests 10. Estinated Physical Achievements in Social Fcrestry During the Fifth Plan 11. Estimated Domestic Roundwood (Industrial and Fuel;ood) Requirements to 2000 AD 12. Past and Projected Percentages of Consumption of Various Cellulosic Raw Macerials in Pulp and Paper Industry 13. Financial Rate o. Return on Eucalyptus Territicornis Grown in Uttar Pradesh 14. Forestry Project Possibilities 15. Glossarv and Abbreviations  INDIA FORESTRY PROSPECTS STTMMARY A-ND CONCLUSIONS The forestry sector makes an ideal vehicle to initiate economic develop-ment. Forests, almost by definition, are locatea in the less developed rural and tribal areas. Forest development -- management and production -- -whether based on natural or man-made forests, is highly labor intensive, as are some of the primary forest industries. The required skills are those common to almost all rural/tribal populations (including the women and children), yet the production process is one which lends itself to gradual mechanization whenever labor costs rise. Plantation forests are particularly labor intensive (200-300 man-days per hectare over three years for teak plan- tation establishment in Madhya Pradesh) and it is not unusual for wages to make up 80% of total costs. These wages go almost entirely to families in the lowest 40% of income earners. In the tribal/rural areas, properly located forestry projects are an excellent way of increasing employment, raising income and initiating the first steps to development. ii. Given the potential of India's designated forest lands, which account for 75 million hectares or 23% of the total land area, it i8 perhaps surpris- ing that the forestry and logging sector's contribution to NDP in 1976-77 was a little over 1.5%. This sit1-ation has prevailed s,ince - bfore 'he Firs Plan, primarily because the hardwood forest (which makes up 95% of the forest cover), under tensive fo,s of ma,agement and . u has a low density, low yielding res urce. The average annual gross increment is currently between 0.5 an' 0.9 m /ha/year compared to the world average ror hardwood forest of 2.5 m . In areas where indigenous forest can be converted to quick growing eucalyptus, pine, popiar, casuarina and acacia pian ations, productivity could be increased over ten times to between 7 and 12 m /ha/year. iii. Investment in forestry since 1951 has amounted to about 0.5% of the total plan outlay and has been insufficient to finance the production programs needed to supply projected demand for industrial hardwood and fuelwood by the end of the century. The main reason is that forests were traditionally looked upon by the Government of India as a source of revenue rather than as a sector needing investment. During the First Plan 15% of forestry funds were earmarked for growing long rotation (40-60 years) hardwoods such as teak and sal; none was allocated for short rotation (5-15 years) eucalyptus, poplar, casuarina, acacia or tropical pine species. By the Fifth Plan 36% of funds were allocated initially for man-made forests as a whole, 9% for short rotation species and 8% for fuelwood; the emphasis is still very much on long rotation hardwoods. Environmental forestry activities have received only 7% of total plan alloca- tions to forestry since the Third Plan. Moreover, u,ntil very recentlv little progress was made in financing the afforestation of water catchments. If  - ii - the indiscriminate removal of forest cover in catchment areas continues un- abated as it is doing in some areas (particularly in the Himalayas), it will lead to further soil erosion. rapid run-off and floodinz in the rainv season. followed by reducing down-stream dry weather flow. In extreme cases, for xATmnpl- in the Shiwalikg-s this has alreedy Ld to the comnplre rpcsatinn of dry weather stream flow and the consequent disruption of agricultural development . iv. ~By the enA of the Fifth DI an it i9 -expec-ted that some 3.8 million LV . JJJ L*f- -L~. I LflA I I."fl . LOl LI' ~ . 0 -.L,a 0IL~.. LL * WLJLI hectares of man-made forests including fuelwood plantations (about 5% of the country's forest lansi will be estabullshed. By then eucalyptus, poplar, casuarina, acacia and conifer species are likely to account for only 10% of the established plantations and to comprise Less than 0.5% or the country-s total forest area. v. During the Fifth Plan, special emphasis is being given to (a) pro- duction forestry aiming at clear felling and replacement with man-made forests, (b) establishment of additional wood processing facilities to utilize the timber from clear felled areas, (c) the development of farm forestry and improvement of degraded forests to increase fuel, fodder and timber supply in rural areas, and (d) forest inventory to improve information on standing volume and yields. vi. Domestic roundwood requirements by the year 2000 4re projected to be nearly 290 3million m- (industrial roundwood 65 million m and fuelwood 225 million m ). Demand for industrial roundwood is expected to reach 52 million m for hardwoods and 13 million m for conifers (45% of this is made un of c,onifprous nulpwood)_ eontinuation of existing programs should be able to ensure the supply of industrial hardwood requirements and about half of the coniferous roundwood deand * f big gaps are coniferous pul p- wood and fuelwood. To supply 6 million m of coniferous pulpwood in the year 2000 will rqn abu lhectares of trpc l pir. -lan by 1994 and an investment of some Rs 1,750 million (US$220 million). Regard- ing fuelwood, if it is ass-umed 15J million m (etLimLaedU co-UwUpLloQL in 1970) will continue to be supplied from existing resources--and this could be a rash asSumption--then provision wiii have to oe made ror an additional 75 million m by the year 2000 requiring an annual planting program of 450,000 hectares costing some Rs 1,125 million (US$140 million) annually. This figure is impracticable in terms of availability of both land and financial resources. More realistic might be a target of 225,000 hectares over the next two plan periods. Economic rates of return for quick growing pulpwood integrated with processing facilities usually range between 12% and 20%. Fuelwood plantations are also expected to show a satisfactory economic rate of return if the opportunity costs of alternatives are taken into consideration. vii- Clearly; India has two major tasks to accomplish over the next quarter of a century: first to improve the productivity of its forests to supply the growing neAd of the domestic wood produirts industry (particuilarlv  - iii - pulp and paper), and second to develop its farm forestry programs to supply fuelwood, fodder and farm timber in rural areas. Encompassing both priorities is the vital role environmental forestry plays in soil and water conservation; this will need much more investment than it has been given in the past.   INDIA FORESTRY PROSPECTS I. INTRODUCTION 1.01 This brief report was prepared by Mr. R.D.H. Rowe of the Bank New Delhi Office in Sentember 1977 with three ronnidprations in mind: (i) Tn supporvrt- the foroatr- contri bution torr ~ t 1077 report entitled, "Economic Situation and Prospects in (iL.Lj lo updUate the Bank's 1974 Forestry Sector Survey; arna (iii) To identify project priorities within the forestry sector for Bank lending. In January 1978 it was discussed with GOI in New Delhi. This Gray Cover Report contains the agreed views of the Government and the Bank on the prospects of future development in forestry in India. II. REVIEW OF PAST PERFORMANCE Background 201 Forestrv is an nld pqtahli,hpd Artivitv in Tndia hpbcasi1P merrhants in the 19th century were quick to realize the importance of teak and sal for firr"4tir7D vv1o ,avn~,~ n. 4 --_ .- T,s 1 QA #-Ih- furniture, 1- paelig ve.e flooing moldng ar.d -marine --- -1 n use. -r -186 -he first Indian Forestry Act was passed to control the indiscriminate felling of hardwood forests "an - yi- A i;eld regulation throug..h wori plans This was followed in 1894 by a statement on National Forest Policy which emphasized the r,eed to demarcate, reser-qe ar.d con.ser.ve forests. A reiio n 1952l re- emphasized the environmental protection functions of forestry and suggested 3% Li/ of tne country snould De retained under forest cover. Although some recognition was given to production forestry in the Third Plan it wasn't until the National Commission on Agriculture (NCA) published its interim report on "Production Forestry - Man-made Forests" in 1972 that the full importance of improving the productivity of Indian forests was recognized. For a quarter of a century (1947-72) India had been slow to adopt new devel- opments in forest management, extraction, processing, research and planning that were being used in developed and many developing countries. However, since the State Forestry Corporations started operations in 1974, significant improvements have been made on all fronts. 1/ The criteria supporting this figure were never clearly defined.  Resource Base 2.02 Area: Although India possesses the third largest area of forests in Asia 1/ less than 50% is classified as reserve forest and less still is productive (Annex 1). In terms of total forest area per capita it ranks third to last in Asia with 0.15 ha. Coniferous forests, found mainly in the Himalayas, comprise only 5% of the forest area. Protected and unclassified forests account for 55% and are so burdened with local rights and privileges that scientific forestry management is virtually impossible; this leaves the accessible, productive reserve forests amounting to some 30 million ha as the country's future source of industrial roundwood. 9203 The bulk of Tndia's remaining indigenous forests are concentrated in four major geographic areas: Percent of Forest Area A - A 'L. ~ ra - Ife "Dome Area" (raudhya Pradesh, nldhra Pradesh, Orissa and Maharashtra) 50 - The Northeast (Arunachal Pradesh, Assam, Nagaland, Manipur Mizoram, Iripura & Meghalaya) 14 - Western Himalayas (Uttar Pradesh, Himachal Pradesh and Jammu & Kashmir) 10 - Andaman & Nicobar Islands 1 75 These forests have one feature in common which is perhaps why they still exist relatively intact; poor accessibility. Forest road density in these areas averages less than 0.2 km/sq. km whereas some 0.75 km/sq. km would normally be required to operate the forests efficiently. 2.04 Volume & Yield. No comprehensive national forest inventoryis available, so little information exists on global volumes and yields. nJowe-Ver LL Ls .lear froL UL Are.LVLhoaL LI.V-LL.ven Lr . LaatLed Lin thLle I;19U6 that=6 many of India's fore ts are poorly stocked. The estimated average standing vol e is aDout 25 m /na; in Ene DTome Area- volumes range Detween ov ana 80 m (ha; in the Nort14east and Andaman and Nicobar Islands this can ixceed 200 m-/ha (cf 20-30 m in3Savanna Forests of Central Africa, 50-60 m in Finland a9d Canada, 200 m in temperate zones of Austria and Chile and 300-400 m' in tropical rain forests). 1/ Indonesia - 120 million ha, China - 96 million ha, India - 75 million ha.  -3- 2.05 Yield from India's merchantable forests is Xow. The average annual gross increment is estimated at between 0.5 3and 0.9 m'/ha/year compared to the world average for hardwood forests of 2.5 m . Intensive silvicultural treat- ment of the Sxisting productive forests may produce mean annual increments close to 5 m /ha/year; if the indigenous hardwood forests were converted to quick growing, short rotation eucalyptus, 5ropical pines, poplars, casuarina, nrnria etc. vi1ldc ranging from 7 tn 15 m /hn/vpAr rnil1d hp rpal i7pd 2.06 Productivity. RaeoA r-emov7yl al of ;nAia- rou'nd-wood and fueal- wood from 1970 to 1974 averaged about 24 million m annuilly (Annex 2). When related t1-o gross forest. area tlis amount0s to about n.3 m t/hnaf/year -.-ch is very low compared to the 3-4 m /ha/year normally expected, for example, in 'west Germany or th e -U C'A Institutional Arrangements 2.07 Over 90% of the country's forests are owned and managed by Govern- ment; the balance by civil authorities (3%), corporate bodies (4%) and private individuals (2%). 2.08 An All-India Forestry Service was created in 1966. However, man- agement of the forestry estate continues to be a state responsibility with each having its own Forest Service. At the center (under the Department of Agriculture), an Inspector-General of Forests assisted by a small team of professionals attends to general forest policy and planning. 2.09 In 1972 the NCA recommended the creation of autonomous State WFnrptrv Development Cornorations for establishing and managing man-made forests and forest based industries. Sixteen corporations have been set up and now have a t i tinal financing, mainly through the Agricultural Refinancing and Development Corporation (ARDC). The land an,d its stLandir,g t imbU ier transferred t ot Lthe Corporation are value and together form the basis of equity capital against which it can borrow. 2.10 The training of forestry staff is conducted by the Government of India ( on behalf ofL the states at the IndianL Forest College, anru NiorthLern Forest Rangers College (both at Dehra Dun) and the Southern Forest Rangers College, Coimbatore. Forestry Research on an Ali-India basis is conducted at Bangalore and Coimbatore. Industrial Base 2.11 Forest based industries occupy a relatively minor position in India's manufacturing activities. The forest industries' contribution to NDP in 1975-76 at constant prices was a little over 1.3%. On a world- wide basis, wood-using industries in 1967 accounted for 5% of the total value of production and about 7.5% of employment; in India the figures were about 2.6% and 2.9% respectively. The existing industry is characterized by san-l privatelu own(ed nrntd,ti,in uinits onprating at relatively low levels of efficiency. This is particularly so in the pulp and paper  - 4 - industry where the average size mill is only 15,000 tons per annum (TPA) with a range from 1,000 to 85,000 TPA. Economies of scale in other parts of the world are forcing entrepreneurs to build mills exceeding 150.000 TPA. 1/ The estimated number of mills, annual installed capacity and production for 1976 are shown belonw Prodiirtion value was some Rs 8,148 million (USTs 936 millior). Ar,nnlua Produc- Capacity Produci.-o Installed tion in Utiliza- Value Industry Ur.it Number Capacity 1957 to s crores Sawnwood '000 m3 5,000 ? 6,000 ? 300.0 Plywood & Veneer '000 m 100 215 192 89 53.8 Particle board '000 mt 6 /a 51 8 16 2.4 Fiberboard '000 mt 4 35 18 51 3.6 Matches million 43 /b ? 11,000 ? 15.0 boxes Pulp & Paper '000 mt 69 1,068 880 82 440.0 11o 1 a1Q 1,. Q /a On.ly 3 were operating in 1976. T7 Western India Match Co. Ltd. is responsible for 50% of production from J mLLls. 2.12 Development or tne forest industries sector nas been handicapped by a lack of integration between public sector supplying the timber and the private sector manufacturing wood products. To attract investment raw materials need to be assured on a long term basis; in the past flows have been uncertain. Contribution to the Country's Economy 2.13 The forestry and logging sector 2/ contribution to Net Domestic Product in 1976/77 at constant prices was very small (1.5%). This is pri- marily due to the low productivity of India's hardwood forests, difficulties in marketing secondary species, relatively low royalty rates, poor infrastruc- ture and a reluctance to give un conservation-oriented forest nractices in exchange for higher production man-made forests which, although requiring funds for establishmernt, promise much better returnrs. I.1 I.ATdia's fo ---r*. L 1974/75 re14aleA a grs revenue of Rs 38.04/hLa and a net return of Rs 17.51/ha compared, for example, with West Germany 1/ But profit margins are meager due to exceedingly nign capitai costs; in India manufacturers make reasonable profits in spite of their small sized mills because (a) local equipment is relatively less expensive than its counterpart overseas and (b) the tariff (protection level) is considerable. 2/ Does not include the forest industries sector.  - 5 - where an expenditure in the 1960's of Rs 435/ha brought in a gross income of Rs 565/ha and a net return of Rs 130/ha. In UK the net return was Rs 140/ha and in Switzerland Rs 190/ha. 1/ 2.15 Forestry and logging operations only supply full-time employment for about 0.2% of the working population compared with 70% for agriculture. But part-time work in forestry/logging and the collection of minor fnrest produce may account for as much as 12 million man-years annually. 2.16 Total export of wood based products and minor forest produce amounted to about Rts 713 million (UTS82 million) in 1975/76 or about 1.8% of India's total exports (Annex 3). Imports of wood products during the same year dLour[eeud to abuout Ls 447 mLi.L.LL (US52 mLL1l)on or about 0.9% of Inuia's total imports. Newsprint accounts for over 70% of the wood product imports anra in 19/7i'5 amounted to 141,000 tons valued at Rs 450 million (US$52 mil- lion). In 1975/76 minor forest produce accounted for 53% of the value of exports; the balance was made up by wood-based panel products, paper a d paperboard and logs. During the period 1970-76 an average of 26,000 m of logs was exported annually (Annex 4). The main species exported were rosewood, teak and sal. 2.17 Consumption of newsprint, paper and paperboard since 1970 is shown below: Imports Paper & Apparent Year Production Paper Board Newsprint Exports Consumption ---------------------------'000 tons ----------------------------- 1970/71 795.8 14.7 144.2 23.8 930.9 1971/72 820.8 14.3 206.8 8.4 1,027.5 1972/73 QA.2 Q 1 .7 153.i Q in Q 1,008.5 1973/74 840.2 17.0 117.0 20.3 953.9 1974/75I 6 0 in 10. 14.11 Q 0 1s n 11 1975/76 860.0 16.3 100.8 4.7 992.4 Source: NCA Report, Part IX, 1976 and Monthly Statistics of the Foreign Trade of India, March 1975 and 1976. Per capita consumption in 1976 at 1.63 kg is very low compared with other countries (Egypt 7 kg, USSR 16 kg, Japan 57 kg, UK 106 kg and USA 205 kg). Consumption has suffered a decline during the last few years due, not to lack of demand, but to lack of supply, i.e. lack of capacity, production disturbances and severely restricted imports. The reduction of imports has mainly affected newsprint but the entire paper market is undersupplied; this in the long-term will create a strong upward pressure on paper prices. 1/ Gnost Stutdies i n Tirnnien anre fry, 1967R Rnvya CnGlege of Fnrestry, Stockholm.  -6- Performance Under Development Plans 2.18 Allocations. A review of plan allocations shows that since 1951 forestry has received between 0.4 and 0.6% of the total plan outlay as com- pared, for example, with agriculture which ranged between 12 and 20% (Annex 5). Investment in forestry has been inadequate particularly as far as production programs are concerned. The main reason for this was that forests were traditionally looked upon by government as a source of revenue rather than as a sector needing investment. Lack of funds has curtailed the reDlacement of low density, low production, hardwood forests with higher-yielding planta- ton species. Duri.ng the First Plan prio o nly 15% of funds were earmarked for the establishment of long rotation hardwoods (teak, sal, sissu, etc.), .d t.-he rehabiltation ofl degraded forest: none was allocated to the estab- lishment of quick growing species (tropical pines, poplar, eucalyptus, casuarina, acacia, etc.) (Annex 6) It wasn.t until thIe T.Li r PIan that a start was made on plantations of fuelwood and quick growing species. By the Fourth Plan 50% of funds were allocated to man-made forests as a whole but only 19% to plantations of quick growing species and 4% to fuelwood planta- tions; the emphasis was still very much on teak, sissu, sal, babul, khair, cashew and other miscellaneous hardwoods collectively known as "economic plantations of industrial and commercial use". If the allocations indicated in Annex 6 remained unchanged during the Fifth Plan the proportion of funds allocated to man-made forests relative tco other forestry investments will re- main about the same as they were for the Fourth Plan; but funds spent by the State Forestry Corporations would more than double this amount. An improvement also is the increase in farm forestry allocation to 8%. In overall terms the total amount allocated to man-made plantations will be more than twice that spent in the Fourth Plan. 2.19 Social forestry on a meaningful scale started only in 1974 in response to the suggestion contained in the NCA report that some Rs 770 million choiul be eararkedr fnr these act ivities during the Fifth Plan (Annex 7). Unfortunately less than half this amount (Rs 373 million) has actually been allocated. 2.20 Enviro-enutal forestry activities (nature conseraon y protection and development of pastures and grazing) have received only 7% of the total plan allocation to forestry since the Th1ird Plan (Annex 8). Moreover, little progress has been made in financing the afforestation or reforestation of water catchments, reclamation of ravine lands, afforestation of erodable waterlands or the development of recreational forestry. Physical Achievements 2.21 By the end of the Fifth Plan it: is expected that some 3.8 million hectare of man-made forests including fuelwood plantations will be established made up as follows:  -7- Percent of man- Percent of total made forests / Aha '0 ha f'orest area Ms. sell aneous bjtOroadu=U leaved species 75 2,704 3.61 Teak. 1i 397 0.53 Eucalyptus sp. 8 288 0.38 Sal 4 144 0.19 Coniferous sp. 2 72 0.10 100 3,605 4.81 State Forestry Cor- poration plantations 186 3,791 Source: Ministry of Agriculture. /a Percentages were derived from the total area of man-made forests established by 1973. It is assumed these would remain about the same to the end of the Fifth Plan Period. By 1979 eucalvntus nponlar, casuarina, acacia and conifer species are likely I -_ - - - - - I- I - --- , .7 to account for some 10% of the established plantations and to comprise less than 0.5% of the total forest area of 75 millionr ha. Th.e total area of man= made forests is likely to account for no more than 5% of the country's forest area. Physical achievements in establishing man=made forests by plan periods are given in Annex 9. 2.22 During the Fifth Plan special emphasis is being given to (a) pro- duction forestry aiming at clear felling and replacement with man-made forests, (b) the establishment of additional wood processing facilities to utilize the timber from clear felled areas, (c) the development of farm forestry and improvement of degraded forests to increase fuel, fodder and timber supply in rural areas, and (d) forest inventory to improve information on standing volumes and yields. 2.23 Physical achievements in social forestry activities during the Fifth Plan are likely to fall short of the areas suggested by the NCA (Annex 10). Actual and targeted results for three years (1976-79) are shown below: Achieved Target Target Social Forestry in for for Estimated Activitv Unit 1976/77 1977/78 1978/79 Total --------------------(thousands)----------------------- Mixed forestry ha 3.4 19.4 36.0 58.8 Reforestationf. o Degraded Forests ha 13.1 43.6 69.0 125.7 She'lter BDe'lts, Road & Rail Side Plantations row km 1.2 5.4 3.7 10.3  - 8 - III. ISSUES AND CONSTRAINTS Issues 3.01 Today's foresters in India are faced with three major challenges: (a) How to take advantage of the potential of the forestry -etor to supply goods and services and thereby contribute to economic growth. (b) How to replace low productivity and deforested areas with fast growing plantations at a rate wnich will keep pace with rising demands of fuelwood, fodder, sawnwood, lumber, wood based panel and pulp and paper products. (c) How to protect India's remaining forest resources from indiscriminate destruction and how to preserve the environment. Constraints 3.02 The main constraints currently inhibiting realization of these goals include: - lack of a long-term framework for forest products development; - lack of proper balance between hardwood and tropical -I no n Ion t *,- nfl nrnar ma; - inadequate~~~~~~~- -uc -rwn -lrtto -eerh -p I artiual L t4U aU 4U