Mexico - Community Forestry Project

Document of The World Bank Report No. 16134-ME STAFF APPRAISAL REPORT MEXICO COMMUNITY FORESTRY PROJECT JANUARY 21, 1997 Sector Leadership Group and Mexico Department Latin America and the Caribbean Regional Office  CURRENCY EQUIVALENTS November 1996 Currency Unit Mexican New Peso US$ 1.00 $ 7.50 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS CONAF Consejo Tecnico Consultivo Nacional Forestal, National Forestry Council in SEMARNAP CONABIO Comision Nacional para el Conocimiento y Uso de la Biodiversidad, National Biodiversity Commission in SEMARNAP COPLADE Coordinacion General del Comite Estatal de Planeacion para el Desarrollo, General Coordination of the State Committee for Development Planning in Oaxaca DAF Direccion de Aprovechamiento Forestal, Forestry Utilization Division in the Forestry Department, in the Sub-Secretariat of Natural Resources in SEMARNAP DGF Direccion General Forestal, Forestry Department in the Sub-Secretariat of Natural Resources in SEMARNAP FAPATUX Fabricas de Papel Tuxtepec, Parastatal Pulp Factory in Oaxaca IDF Institutional Development Fund INE Instituto Nacional de Ecologia, National Ecology Institute in SEMARNAP NAFIN Nacional Financiera S. N. C., the Borrower NTFP Non-Timber and Non-Traditional Forest Products PFPA Procuraduria Federal de Proteccion al Ambiente, Environmental Protection Agency in SEMARNAP PROCAMPO Programa de Apoyos Directos al Campo, Farm Support Payments Program PROCEDE Programa de Certificacion de Derechos Ejidales y Titulacion de Solares Urbanos, Program for Certifying Ejido Rights and Urban Properties PROAFT Programa de Accion Forestal Tropical, Tropical Forestry Action Program in SEMARNAP SAGAR Secretaria de Agricultura, Ganaderia y Desarrollo Rural, Secretariat of Agriculture, Livestock and Rural Development SEDAF Secretaria de Desarrollo Agropecuario y Forestal, Secretariat for the Development of Agriculture and Forestry in the State Government of Oaxaca SEMARNAP Secretaria de Medio Ambiente, Recursos Naturales, y Pesca, Secretariat of Environment, Natural Resources, and Fisheries SHCP Secretaria de Hacienda y Credito Publico, Secretariat of Finance and Public Credit Six Priority Chihuahua, Durango, Guerrero, Jalisco, Michoacan, Oaxaca States with Pine-Oak Forest SNIF Sistema Nacional de Informacion Forestal, National Forestry Information System Vice President Shahid Javed Burki Director Olivier Lafourcade Manager Michael Baxter StaffMember Gisu Mohadjer This project has been prepared and appraised by a team composed of: Ms. Gisu Mohadjer, Ms. Augusta Molnar, Ms. Teresa Roncal, Mr. William Beattie (LASLG); Mr. George Ledec (LATEN); Mr. Ferenc Molnar (LEGLA); Dr. Gerardo Segura, Dr. Ricardo Hemandez, Mr. Victor Sosa, Mr. Jorge Baez, Ms. Lourdes Chambon, Mr. Arturo Ramirez (SEMARNAP); Mr. Richard Owen (FAO). Consultants have also contributed to project preparation, notably Mr. Sergio Madrid, Mr. Carlos Hernandez, and Mr. Carlo Bravi. Project design and implementation arrangements have been improved by the comments and suggestions of the following peer reviewers and advisors: Mr. Shelton Davis (ENVSP); Mr. John Dixon (ENVPE); Mr. Michael Fowler (LOAEL); Mr. Tom Wiens (LATAD); Mr. Juan Martinez, Ms. Valeria Junho (LATEN); Mr. Mark Cackler (LADCN); Mr. Mario Aguilar, Ms. Aysegul Akin-Karasapan, and Mr. David Hughart (LATSO).  MEXICO COMMUNITY FORESTRY PROJECT STAFF APPRAISAL REPORT LOAN AND PROJECT SUMMARY .......................................... i 1. BACKGROUND .......................................... 1 FORESTRY RESOURCES ...........................................1 COMMUNITY MANAGEMENT OF FORESTRY RESOURCES .......................................... 3 POLICY FRAMEWORK .......................................... 5 Land Tenure andAgricultural Policies .......................................... 5 Forestry Policies .......................................... 7 FORESTRY INSTITUTIONS .......................................... 9 WORLD BANK ACTIVITIES .......................................... I 1 2. PROJECT DESCRIPTION .......................................... 13 BACKGROUND .................................................................................................................................. 13 Origin ..........13 Objectives ......... 13 Beneficiaries ......... 14 Government Commitment .......................................... 14 Participation in Project Preparation .......................................... 14 SUMMARY PROJECT DESCRIPTION .......................................... 15 DETAILED PROJECT DESCRIPTION .......................................... 16 Assistance to Communities and Ejidos .......................................... 16 Strengthening the Capacity of Private Service Providers .......................................... 17 Promotion of Non Timber Forest Products .......................................... 18 Institutional Strengthening .......................................... 19 JUSTIFICATION .......................................... 21 Rationale for Project Design .......................................... 21 Rationale for Bank Involvement .......................................... 21 Program Objective Categories .......................................... 21 3. PROJECT MANAGEMENT .......................................... 22 IMPLEMENTATION ARRANGEMENTS .......................................... 22 Line Agencies .......................................... 22 StaffAgencies .......................................... 23 Oversight Agencies and Selection Panels .......................................... 24 PROJECT COSTS AND FINANCING .......................................... 26 Project Costs .......................................... 26 Project Financing .......................................... 26 PROCUREMENT AND DISBURSEMENT .......................................... 27 Procurement .......................................... 27 Disbursement .......................................... 29 Accounts andAuditing .......................................... 30 MONITORING, EVAL UATION, AND SUPERVISION .......................................... 30  4. PROJECT ANALYSIS .................. 32 SOCIAL ANALYsIS ...................................................... 32 ENVIRONMENTAL ANALYSIS .................. 32 ECONOMIC AND FISCAL ANALYsIs ..................................... 33 PROJECT BENEFITS ..................................... 3 3 PROJECT RISKS ..................................... 34 SUSTAINABILITY ............................................................ ..... 3 5 5. AGREEMENTS AND RECOMMENDATIONS ..................................... 36 ANNEXES PROJECT DESCRIPTION ANNEXES Annex 1: Assistance to Communities and Efjidos Annex 2: Strengthening the Capacity of Private Sector Providers Annex 3: Promotion of Non-Timber Forest Products Annex 4: Institutional Strengthening PROJECT MANAGEMENT ANNEXES Annex 5: Cost Tables Annex 6: Flow of Funds Annex 7. Project Implementation Schedule Annex 8: ProjectMonitoring, Evaluation, and Reporting PROJECTANALYSISANNEXES Annex 9: Social Assessment and Participation Plan Annex 10: Project Design Options DOCUMENTS IN THE PROJECT FILES Annex 11: Documents in the Project Files MAPS IBRD 28179 Mexico: Pine-Oak Forests in Oaxaca IBRD 28404 Mexico: Major Ecosystem Types IBRD 28405 Mexico: Temperate and Tropical Forests IBRD 28406 Mexico: Physical Features and Transportation - State of Oaxaca  MEXICO COMMUNITY FORESTRY PROJECT LOAN AND PROJECT SUMMARY Borrower: Nacional Financiera S. N. C. (NAFIN) Guarantor: United Mexican States Implementing Agency: Secretaria de Medio Ambiente, Recursos Naturales, y Pesca (SEMARNAP) Beneficiary: Not Applicable Poverty Category: Program of Targeted Interventions Loan Amount: US$ 15.0 million Terms: LIBOR-based single currency variable rate US Dollar loan, with a grace period of five years, level repay,ment of principal, and a final maturity of 15 years Commitment Fee: 0.75 percent on undisbursed credit balances, beginning 60 days after signing, less any waiver Financing Plan: See Para. 3.16 Net Present Value: See Para. 4.5-4.6 Maps: IBRD 28179; IBRD 28404; IBRD 28405; IBRD 28406 Project ID No.: MX-PA-7700   MEXICO COMMUNITY FORESTRY PROJECT STAFF APPRAISAL REPORT 1. BACKGROUND 1.1 Mexico is unique in that between 70 and 80 percent of its 55 million hectares of forest are under communal ownership by 8,000 forest ejidos and indigenous communities. This unusually extensive communal ownership of Mexico's forests poses important challenges for the sustainable development and conservation of forestry resources. The Government has taken steps in the last five years to remove distortions in the policy framework that were negatively affecting the forestry sector, and to put in place streamlined institutional mechanisms to support the development of the sector. FORESTRY RESOURCES 1.2 Forests and wildlands cover 72 percent of Mexico's territory. Forests in Mexico fall into the following major categories: temperate coniferous and broadleafed; tropical evergreen, semi-evergreen and deciduous; arid and semiarid; and wetlands. The temperate and tropical forests cover 55 million hectares, or 25 percent of Mexico's territory. Sixty percent (31.8 million hectares) are classified as temperate, of which two-thirds are mixed coniferous forests, and the rest broadleafed or cloud forests. The mixed coniferous forests are distributed along the most important mountain ranges of the Sierra Madre Oriental, Sierra Madre Occidental, Sierra Madre del Sur, and Eje Neovolcanico, and are mainly concentrated in the states of Chihuahua, Durango, Michoacan, Jalisco, Guerrero, and Oaxaca. 1.3 Tropical forests include tropical evergreen and serni-evergreen forests (5.8 million hectares), of which eighty percent are located in the states of Campeche, Chiapas, Oaxaca, Quintana Roo, and Veracruz. Tropical deciduous forests (11 million hectares) occur mainly in the coastal plains of the Pacific Coast, the Isthmus of Tehuantepec, and the north of the Yucatan Peninsula. There are also small areas of mangrove stands scattered along the Gulf of Mexico and the Pacific Coasts. Arid and semiarid areas are scattered throughout the northern and central states. 1.4 Based on slope, quality of resource and legal zoning status, 21 million hectares of forest have been identified as having potential for sustainable productive use for  2 commercial timber. Of this total, only 7 million hectares are under management. These forests and wildlands hold an extraordinary richness of flora and fauna in diverse ecosystems over a wide range of altitudes and rainfall patterns. 1.5 Over the past five decades, wildlands have declined considerably. Traditional systems of shifting cultivation, which in some cases are unsustainable, can be the basis of long term management. However, there is clear evidence that the continued deforestation, estimated recently at 620,000 to 680,000 hectares per year, is resulting in conversion of forest lands to less productive uses with negative environmental externalities. As documented in the Mexico Resource Conservation and Forestry Sector Review (Grey Cover Report No. 13114-ME, March 31, 1995), the resource base is also underutilized and degraded. 1.6 Environmental and social values and the commercial potential of non-traditional products have been largely ignored, even though these combined values greatly exceed timber and alternative use values alone. Data is available on the production of traditionally traded non-timber and non-traditional forest products (NTFPs), such as chicle, mushrooms, resin, orchids, asparagus, edible palms, peppers, gladioli bulbs, yuca, nopal, oregano, heno, nogal, honey and oak products, but data is not available on non-traditional NTFPs. Examples of these include traditional medicines, herbs, edible fruits and seeds, flavorings, fibers, dyes, essences, fragrances, and insects. The recorded production of NTFPs is highest in the temperate forests (38,000 tons per annum), followed by output in the arid/semiarid formations (17,500 tons per annum), and the tropical moist formations (12,800 tons per annum). 1.7 The state of Oaxaca covers 9.5 million hectares (4.8 percent of national territory) in southern Mexico and is bordered by the states of Veracruz and Puebla to the north- northeast, Chiapas to the east, Guerrero to the west, and the Pacific Ocean to the south. Two of Mexico's principal mountain ranges, the Sierra Madre del Sur and Sierra Madre Oriental, meet in Oaxaca, creating a unique geography of temperate mountain terrain juxtaposed with tropical vegetation as well as more temperate coastlands. Oaxaca' s vegetation ranges from desert brush to temperate pines, to humid jungle and mangroves. 1.8 Forests and other natural vegetation cover 7.1 million hectares of Oaxaca (74 percent of state territory). About five million hectares (72 percent of state forest cover) are made up of temperate and tropical forests, which represent 9 percent of the national forest cover, and makes Oaxaca the state with the third highest quantity of forests. Temperate forests, primarily pine and oak, cover 2.7 million hectares of Oaxaca and represent 53 percent of state forest cover. Tropical forests cover 2.4 million hectares, representing 47 percent of state forest cover. In addition, Oaxaca has 28,000 hectares of arid brush and related cover, and 2,300 hectares of wetlands. The state has 1.9 million hectares (27 percent of state forest cover) of degraded forest, which includes semi- forested areas encroached upon by farming, grazing, timber extraction, and forest fires.  3 1.9 Besides Oaxaca, the other five priority states with pine-oak forests are Chihuahua, Durango, Jalisco, Michoacan, and Guerrero. These five states comprise about 57 rnillion hectares (29 percent of Mexico's land area) and have extensive pine-oak and other forest resources. The combined area of temperate (mostly pine-oak) forest in these five states is about 17.5 million hectares (31 percent of these states' land area). Chihuahua has the most extensive temperate forests (about 7 million hectares), followed by Durango (about 5 million hectares), Jalisco and Guerrero (about 2 million hectares each), and Michoacan (1.5 million hectares). These five states also contain approximately 4.8 million hectares of tropical dry and moist forests, as well as about 12.7 nillion hectares of other natural ecosystems (including grasslands, deserts, and wetlands). Taken together, natural ecosystems (excluding converted or highly degraded areas) still cover approximately 69 percent of Durango; 68 percent of Chihuahua; 55 percent of Guerrero; 48 percent of Michoacan; and 44 percent of Jalisco. COMMUNITY MANAGEMENT OF FORESTRY RESOURCES 1.10 Article 27 of the 1917 Constitution defines three basic categories of land rights: ejido, communal property, and small private property. Ejidos constitute a land grant for usufruct to a population group, and until the constitutional reforms of 1992, ejido land essentially belonged to the state and could not be sold. Communal property is based on the historical rights of pre-Hispanic indigenous communities who have maintained their traditional communal property structure. Small private property is privately owned and is subject to size limits according to the quality of the land and type of crop or economic activity. 1.11 Over 8,000 communities and ejidos throughout the country have forestry resources within their boundaries, and about 5,000 of these exploit their forests commercially. Other communities and ejidos use their forests as a source of fuelwood, medicinal plants, foodstuffs, household construction materials and utensils, and frames and posts for agricultural use. Forests have an important present and potential role to play for these communities and ejidos: (a) commercially as a source of timber and non-timber products for domestic consumption or export; (b) as the source of a range of subsistence and informally-marketed products; (c) as religious and cultural sacred sites of the different indigenous, ethnic groups in forested areas; and (d) as a resource base for tourism and recreational enterprises benefiting these communities and ejidos. 1.12 Communities have been given more recognition as legitimate local governments. Some communities have begun to prepare communal statutes that formalize customary law agreements regarding political organization, social values, land boundaries and tenure, natural resource management, and identification of sacred sites. These statutes could serve as a vehicle for formally recording aspects of the forest management plans relevant to cultural values. Most commercial resource allocation decisions revolve around timber extraction. A few communities are involved seasonally in the lucrative white mushroom trade, but other foodstuffs and medicinal plants are at present low volume, low market value products.  4 1.13 Of the 1,300 to 1,500 communities and ejidos in Oaxaca, an estimated 40 percent have temperate forest holding within their boundaries, and 228 communities and eight ejidos have significant pine-oak forest areas within their boundaries large enough to warrant commercial exploitation (ranging from 500 to 20,000 hectares and averaging about 5,000 hectares per community). 1.14 There is strong ethnic and cultural diversity among the 236 communities and ejidos with pine-oak forest in Oaxaca, which come from six of Oaxaca's 16 ethnicities, namely the Zapoteca, Mixteca, Nahuatl, Cuicateco, Chinanteca, and Mixe. Some of the common characteristics of these communities and ejidos include: (a) strong cultural values regarding forest resources; (b) strong values for allocating a share of forest profits to social goods and employment; (c) existence of sacred sites within communal forest areas; (d) preference for employing community members as technical forest advisors to ensure cultural values are reflected in forest management; and (e) an independent social and cultural identity of individual communities vis-a-vis other communities, even those of the same general ethnic group. There is wide variation in the extent to which a broad group of community and ejido members participate in forestry decisions. Women, in general, do not participate in the forestry sector, although they are involved in fuelwood and non- timber product collection. Only in the more diversified forestry enterprises have women found roles in accounting and administrative duties. Some of the more developed enterprises employ community members as technical forest advisors. 1.15 Of these 236 communities and ejidos with significant pine-oak forest areas within their boundaries, 114 manage 550,000 hectares of pine-oak forests (only 20 percent of the state's total pine-oak forests) and have management plans, with 41 selling standing timber, 43 harvesting timber, and 30 harvesting and processing timber in their own mills. Ten communities are organized into inter-community unions with integrated forest enterprises. The other communities and ejidos have important forestry resources, but do not manage any commercial timber extraction. 1.16 Oaxaca is one of the poorest states in Mexico, with annual per capita income of 40 percent of the national average, and in Oaxaca the indigenous communities are among the poorest. Land and agricultural policies, combined with high poverty levels in the communities and ejidos of Oaxaca exert strong pressure to expand agricultural production to forested areas. At the same time, the high levels of out-migration in search ofjobs has reduced the pressure on the resource base, and has resulted in some agricultural areas remaining fallow. On balance, the rate of deforestation in Oaxaca seems to be decreasing. 1.17 In the pine-oak forests of Oaxaca, the timber stand in 1994 represented 135.6 million cubic meters, with an annual increment of 1.9 million cubic meters. In that year cutting permits were authorized for 1.1 million cubic meters, with actual extraction of 0.4 million cubic meters. This extraction is only 23 percent of the annual increment, 38 percent of the authorized cut, and about two-thirds of the processing capacity in the state. Clearly there is vast potential for increased sustainable timber extraction in Oaxaca.  5 1.18 Access by communities to information and technical assistance on forestry issues is limited. In recent years, most government-financed technical assistance for forestry has been privatized. Many of the government employees have fulfilled the education and experience requirements to work as private providers of forestry services, and have registered in the national forestry registry, the Registro Nacional Forestal. These private providers provide a range of forestry services, including the preparation of forestry management plans, annual cutting plans, and tree markings. There are at present no registration requirements for the provision of other technical services to forest resource owners, such as forest product processing, accounting, marketing, and environmental assessments. 1.19 About half of the pine-oak area under management in Oaxaca has benefited from the assistance of 6 companies and 17 individuals registered as private providers of forestry services, as well as unregistered private providers of non-forestry services and community forestry specialists. Private providers have traditionally been paid as a percentage of the extracted timber, and communities indicate that their use of private provider services is limited by the number of private providers, and the range of services they provide, rather than by cash flow constraints. While some of the private providers are able to provide high quality advisory services, their skills need substantial upgrading, and their services need closer monitoring by the communities and forestry institutions. 1.20 There is strong potential for communities and ejidos to improve their market niche. Markets for wood for the construction industry have been restricted due to the economic downturn starting in December 1994, although the devaluation of the peso has given Mexican wood a price advantage over imported wood. The limited access of communities and ejidos to diverse markets is related to a number of factors: the high cost of transport due to lack of road infrastructure; the inability of forestry enterprises to supply wood of a given quality and quantity on a timely basis; the lack of working capital for harvesting and processing; and the lack of technical knowledge. Most communities are selling high quality pine into an undifferentiated market, even though there is strong domestic and international demand for higher value products. Cash flow for harvesters is also uncertain, since many of the smaller processing industries that buy wood from communities have their own marketing problems and are often unable to pay on time. POLICY FRAMEWORK Land Tenure and Agricultural Policies 1.21 Land tenure policies have generally had a negative impact on the forests in Mexico. The process for allocating land and resource rights has had far-reaching implications for efficiency in land and resource management. Parceling gave the ejido member exclusive use of an area of land. However, in order to maintain the right to use the land, the ejidatario had to work his land. Legally, the ejidatario could not rent, lease, or sell his land nor hire others to work it. In practice, informal land markets existed in  6 many ejidos but ejido land is undervalued relative to private holdings. In Oaxaca, where there is a high concentration of indigenous communities and only a few forestry ejidos, the incentive to clear forest to create parcels has been lower. 1.22 The Agrarian Reform of 1934, which operationalized Article 27 of the Constitution, promoted the occupation and clearing of forest lands. By legally focusing on agricultural parcels, it ignored forest lands, thus giving open access to those who could in fact convert land to an agricultural or livestock use, a precondition for obtaining a parcel. This, combined with the forest concession policies, was a main force underlying the high deforestation rates that started in the 1940s, while preventing the privatization of forests. The Constitutional Reform of 1947 also followed this pattern. For example, forest lands were not included in the complex system of land distribution and demarcation, and the overall result of the lack of policies on forest preservation was a run on forested lands and the advance of the agricultural frontier. 1.23 Oaxacan forests were seriously affected by the Agrarian Reform of 1934 and the Constitutional Reform of 1947, where land that was either indigenous or nominally state- owned was claimed as private land. Such land claims were most common in broadleaf forests, but also occurred in pine-oak forests. Because these laws focused exclusively on agricultural land, rural residents were encouraged to convert land to agricultural or livestock use to establish recognizable claims. 1.24 Rapid growth in the agricultural sector in the late 1940s through the mid-1960s encouraged forest conversion. During this time the agricultural sector grew more than 4 percent a year, outstripping population growth and surpassing any other Latin American country. By 1965, most of the better quality land was under cultivation and productivity per hectare showed no further improvement. The cumulative result was that between 1965 and 1980, agricultural Gross Domestic Product grew only at 2.4 percent per year, slower than population growth. Demand for grains surpassed production capacity and Mexico became a net importer of grains. The livestock sector expanded mainly between 1972 and 1985. The number of beef cattle grew by 15 percent, matching growth in consumption which was 16 percent. The area devoted to fodder production also increased by more than 100 percent between 1970 and 1985. 1.25 Direct and indirect subsidies to stimulate production included direct investment in the agriculture and livestock sector, producer subsidies, and promotion of production activities through parastatals. An extensive network of subsidies developed supporting: fertilizers, pesticides, fuel, electricity, credit, water, seeds, and crop insurance. The Farm Support Payments Program (Programa de Apoyos Directos al Campo; PROCAMPO) was initiated in 1994 to assist farmers to move to more profitable land uses by channeling a limited-term payment on a parcel basis to farmers formerly qualifying for crop subsidies. In states like Oaxaca, however, where records are imperfect, farmers had incentives to clear new parcels, some in forested areas, in order to become eligible for limited-term payments on these parcels.  7 1.26 The reform of Article 27 of the Constitution in 1992 introduced fundamental changes in land rights: land redistribution was eliminated, transactions of ejido lands were authorized, ejido farmers were given the right to sell their lands, and agrarian courts were created to solve land claim conflicts. With the new law, an ejido can decide to distribute agricultural land parcels to its members under full private ownership or to continue with the present system. However, in common-use lands, where most of the forests are found, land cannot be parceled or sold. An explicit objective of the reform is to create a climate for more sustainable common resource management, encouraging ejido members to rationalize forest management and use. Under the reform, they are also encouraged to seek joint ventures with private investors, with the certainty that their rights over the common-use lands are secure. This lays the groundwork to avoid the open access problems of the past. Forestry Policies 1.27 Forestry policies have attempted to exert a countervailing force to land reform and agricultural and economic policies, with partial success. Mexico has had forestry legislation since 1884, but in practice this has often been overridden by other policies. Most of the legislation has been heavy on regulation and de facto control, limiting the users' decision making power over the resource. Regulations imposed costs on forest users and added to the incentives for conversion of forests to agricultural land. 1.28 The 1884 Regulations were oriented mainly to the regulation of levels of commercial harvesting, with the objective of sustaining yields through a complex system of land classification and use regulations. In the late 1800s, concessions were opened to large (primarily U.S.) lumber firms, mostly in the northern areas of Mexico's pine-oak forests. At the turn of the century and just before the Mexican Revolution, these firms were expropriated and their mills turned over to national owners, who since then have generally faced problems due to lack of sufficient timber supply and inefficient administration. One legacy of this period is the continued location of most timber processing plants away from the resource, near centers of consumption. In part, this was the result of the extensiveness of extraction (once one source of supply was logged out, the industry shifted extraction to another more distant location) and the desire to avoid labor problems associated with drawing upon the same labor pool for extraction and processing. Now that industry supplies are more limited than before, the transport costs for the processing centers in the north are quite high relative to the available source of raw material. In Oaxaca, with the exception of some remote communities in the southern part of the state, distances from communities to potential buyers are much shorter, and high costs are related to inefficiencies in harvesting, processing and transport. 1.29 After the 1910 revolution, the forests of Mexico were largely transferred to ejidos and indigenous communities, although the process was slow and continued well into the 1970s. In 1926, the first Forest Law was introduced with a focus on conservation. This law was progressively conservationist for its time, but was largely neutralized by the land  8 reform that channeled public resources toward crop and livestock production and favored land allocation to those without forest cover or standing trees on their holdings. 1.30 The legal passing of actual control of the forest resources to the ejidos and communities was only possible with the 1942 Forestry Law, and even then government control and interference continued to be heavy, including the establishment of parastatals that essentially had monopoly power over management and harvesting of the forests. Large haciendas and their forests were expropriated and, while ownership rights were legally retained by the federal government, usufruct rights to the trees and land resource were turned over to ejidos and communities. At the same time, private forest products manufacturing firms were prohibited from owning forest lands, which effectively left them dependent on ejido and community suppliers, as well as the small private landowners. The main parastatal established during this period in Oaxaca was the Fabricas de Papel Tuxtepec (FAPATUX), a pulp factory. 1.31 The 1986 Forestry Law introduced much greater environmental regulation within the context of the management plans, and gave the Government a stronger role in plan approval and monitoring. The 1986 Forestry Law continued the spirit of heavy state intervention initiated in the 1942 Forestry Law through management plans, and cutting, transport, processing, and selling permits. This intervention was justified by the view that, left to their own, communities would not be able to manage their forests in the public interest. The law also restricted any change of land use in fragile lands or public forests and reserves. The 1986 Forestry Law did not include technical norms in its regulations, which helped create a high level of insecurity among forest resource owners regarding their legal rights. 1.32 The policies related to forestry deprived the private sector of a resource base and created a three way split of the sector: the communities and ejidos held most utilization rights to the resource; the public sector maintained control of the resource and hence had the power to legislate and, theoretically at least, to regulate the management of the resource and administration of the sector as a whole; and the private sector housed most of the industry. This arrangement, coupled with poorly implemented intervention by government regulatory agencies, virtually guaranteed the conflict and distrust that effectively crippled the sector and still limits relations today. It placed most of the country's forest resources in the hands of poor, unskilled farmers, but failed to provide the needed resources for proper management. In Oaxaca, the main communities supplying FAPATUX effectively blocked renewal of the concession to this parastatal. This fight gave them political will for some to form their own processing unions. 1.33 Mexico passed a new Forestry Law in 1992 and the implementing regulations were issued in 1994. This was a sweeping revision of previous legislation and had as its main objectives the transformation of government forestry agencies from executors and direct interventionists into more normative organizations. As such, the new law eliminated many executive responsibilities and allowed for decentralization to state level agencies. The major change was the transfer of forest management, conservation, protection and  9 improvement responsibilities to the forest land owners and producers, leaving the Government with a normative and supervisory role. Federal agencies would no longer provide direct technical assistance services to the forest owners and producers, or be directly involved in the transportation, warehousing or manufacturing of forest products. As part of these legal changes, the Government sold off any remaining parastatal forest products firms. 1.34 In March 1996, Mexican President Zedillo announced the Forestry Program for 1995 to 2000, with the dual objectives of conservation and protection of forestry resources, and the increase of forestry's contribution to the Gross Domestic Product. The conservation and protection program includes: prevention of forest fires; disease prevention and control; technical assistance to forestry communities; special plantations and production of charcoal; increased inspection; and decentralized permitting procedures. The program to increase productivity includes: the establishment of a Fund to provide seed money for road building, payments to private providers of forestry services, integrated production, and diversified use of the forestry resources including non-timber products, and restoration of critical areas; credit and financing programs with different government institutions, development banks, and agencies, to stimulate the sector; training and technical assistance for communities and industries; and development of a market information system. FORESTRY INSTITUTIONS 1.35 As part of the consolidation of environmental activities under the Zedillo administration, responsibility for forestry activities was shifted from the Secretariat of Agriculture and Rural Development (Secretaria de Agricultura y Desarrollo Rural; SAGAR) to the Secretariat of Environment, Natural Resources, and Fisheries (Secretaria de Medio Ambiente, Recursos Naturales y Pesca; SEMARNAP). Within SEMARNAP, several agencies have responsibility for forestry related activities. The Forestry Department (Direccion General Forestal; DGF) within the Sub-Secretariat of Natural Resources has primary responsibility for forest utilization and management, forest protection, forest development, and commercial reforestation. The Forest Utilization Division within DGF (Direccion de Aprovechaniiento Forestal; DAF), is in charge of forest utilization and management. The National Forestry Council (Consejo Tecnico Consultivo Nacional Forestal; CONAF) serves as the interface between the Government, private sector, academics, and non-governmental organizations. The Tropical Forestry Action Plan Program (Programa de Accion Forestal Tropical; PROAFT) funds activities in tropical forests. The Department of Soil Conservation and Restoration (Direccion General de Conservacion y Restauracion de Suelos) carries out land use planning activities that include forested areas and watersheds. The Sub-Secretariat of Planning assists the Sub-Secretariat of Natural Resources with forestry policies and plans.  10 Figure 1. Federal Institutions in the Forestry Sector SEMARNAP Sub- Sub-Secretariat of INE PFPA CONABIO Secretariat Natur Resources of I Planning I I Forestry Department of Soil CONAF PROAFT Department Conservation Forest Utilization Division 1.36 SEMARNAP also has three autonomous agencies that are involved in the forestry sector. The National Ecology Institute (Instituto Nacional de Ecologia; INE) is responsible for the review and approval of the environmental impact aspects of forestry management programs for both commercial forests and natural protected areas, an activity which is carried out by the agency at state level. The Environmental Protection Agency (Procuraduria Federal de Proteccion al Ambiente; PFPA) is responsible for enforcing compliance with the forestry management plans, an activity which is carried out by the agency at state level, and audited at the federal level. The National Biodiversity Commission (Comision Nacional de Aprovechamiento de la Biodiversidad; CONABIO) is responsible for biodiversity uses and products. 1.37 In line with other Government Secretariats, SEMARNAP is planning the general deconcentration and decentralization of its activities. The current stage is the strengthening of the state level institutions and the deconcentration of activities and resources from SEMARNAP in Mexico City to the SEMARNAP state delegations. This has already been completed for forestry activities. The next stage is the decentralization of activities and resources from the SEMARNAP state delegations to the agencies of the state governments. The final stage is the merging of the resources and responsibilities of the SEMARNAP state delegations and the agencies of the state governments. Progress will not be uniform, but will depend on the capacity of each state. SEMARNAP expects to complete the first two stages in Oaxaca during the life of the project. 1.38 The different agencies within SEMARNAP have been given full responsibility for the forestry sector, but while these new agencies have large mandates, they are uniformly understaffed and underfunded. Institutional strengthening of the federal institutions within the sector is imperative. While coordination is theoretically easier than it was when the agencies were spread across different ministries, better coordination within SEMARNAP is now necessary. 1.39 At the state level, the activities and partial resources of the former Sub-Delegation of Forestry in SAGAR have been transferred to the SEMARNAP delegations within each  11 state. In the case of Oaxaca, the mandate of the former Sub-Delegation of Forestry has been expanded to include all natural resources, but the human and financial resources were not transferred from SAGAR and their lack is a constraint to the proper functioning of the Sub-Delegation. SEMARNAP Oaxaca also includes the Sub-Delegation of Planning which is in charge of all training, and the Sub-Delegation of Environment, which is related to INE and is charged with the environmental review of forestry management plans. PFPA has its own Delegation in Oaxaca. Figure 2. Forestry Institutions in Oaxaca SEMARNAP Delegation in Oaxaca (Federal) SEDAF (State) __________________l ___ I_____ ___ ___