PRESIDENT RAMON MAGSAYSAY STATE UNIVERSITY

Graduate School
Master’s in Public Administration

Deforestation in the Philippines

In partial fulfillment of the course Master’s in Public Administration

Second Semester, AY 2021-2022

Submitted by:

Marianne P. Doblado

Submitted to:

Cecilia Garson

March 17, 2022

ABSTRACT:

In the case of a land constraint economy such as the Philippines, the efficient allocation
of land to its various uses is essential. This constraint is further intensified by the growing
population and increased demand for commercial land. The process of land classification is only
the first step in managing land resources. A computable general equilibrium (CGE) model based
on ORANI, a multi-sectoral model belonging to the Johansen class of CGE models was employed
to ascertain the economy-wide effects of the reduction in forestry production due to
conservation efforts. The paper also attempts to show the relative contribution of population
growth and trade policies on deforestation in the case of the Philippines. The study evaluated
some of the forestry policies recommended by the Philippine Master Plan for Forestry
Development (1991-2015). In theory, the policies formulated would be viable and effective. The
problem lies in the implementation especially of reforestation activities, which is the core of the
Master Plan. The Philippine forests require intensive regeneration programs to revive the
domestic logging industry and conservation programs to protect sensitive areas as well as the
establishment of tree plantations. The study evaluated four policies from the Master Plan,
namely the implementation of selective logging, imposition of stumpage tax on the forestry
sector, lowering of forestry discount rates and the establishment of set-aside areas. The study
found that moving into a selective logging regime and the establishment of set-aside areas
would achieve forest conservation with little reduction in economic growth. Moreover, the
results show that (domestic) population per se would not significantly increase deforestation.
Whilst, export taxes are ineffective tools in reducing deforestation, trade liberalization policies
are beneficial to the economy as a whole.

INTRODUCTION:

The deterioration of forest resources and poor economic performance in the Philippines
call for a serious rethinking of economic policies addressing both environmental and economic
objectives. The recent economic literature suggests the possibility of attaining both
macroeconomic growth and sustainability in natural resource use. The Philippines has exploited
its forest resources at least for the last 100 years. Evidence of economic growth and
development could have justified the negative effects on the environment of extensive logging
activities at least before the 1980s when environmental issues are non-existent.

The Philippine population stood at 1.5 million in 1799 and at 7.6 million in 1903. It
grew to 19.2 million by 1948 and by 1960 it stood at 27 million. The Philippines' average annual
population growth rate was around 2 per cent from 1918 to 1948. From 1960 to 1980, the
average annual growth rate was around 2.8 per cent. The period where the growth rate of the
population started to reach almost 3 per cent was in 1960. This is the same period when log
exports started to rise to 57.5 per cent, indicating that factors other than an increase in
(domestic) population were affecting forest cover.

The Philippine government maintains that classified forestland, which is considered in

the public domain, should remain at 40 per cent of the total land area in the country despite the
fact that forested land only amounts to around 13 per cent of total land or 27 per cent of
classified forestland. Land use issues are crucial in the face of increasing population and
demand for commercial uses of land, especially in land constraint economies. Hence, the
Philippine government should determine the right balance between forest areas subjected to
logging, and national parks as well as lands for agricultural and other non-forestland activities.

To address the problem of massive deforestation in the country, which has occurred
since the start of the 20th century, the Master Plan for Forestry Development was implemented
in 1991. It is a 25-year program, which is projected to be completed by 2015. Based on the
policies
brought forward by the Master Plan3, it is clear that the key instruments are extensive
reforestation by natural and assisted means and the establishment of plantations in order to
achieve the goals set under the Master Plan. Nevertheless, reforestation activities in the
Philippines have been dismal (Korten 1994) whereby from 1989 to 1998 stood at 745,395
hectares. Moreover, the Philippine forests have been subjected to land clearing since the 16 th
century. Stenberg and Siriwardana (2002) provide a comprehensive review of historical
developments of deforestation in the Philippines.

This paper is not concern about deforestation per se. Its emphasis is on the possibility of
achieving forest conservation with minimum economic impact in terms of reduction in Gross
Domestic Product (GDP). The paper evaluates the economic implications of selected policies
included in the Master Plan designed to propagate forest resources in the Philippines. Due to
modelling constraints, only four policies from the Master Plan are considered. They are the
implementation of selective logging, the collection of stumpage taxes, the establishment of set-
aside areas and the provision of more secure tenure in forestlands. The paper attempts to
quantify the economic cost (as well as benefit) of forest conservation in the Philippines. It also
examines the general equilibrium effects of population growth and export taxes on forestry.
 The paper is organized as follows: Section II discusses in detail selected policies within
the Master Plan and population and trade policy simulations, which are incorporated in the
computable general equilibrium (CGE) model presented in Section III. Section IV explains the
parameterization of the forestry sub-model. Section V summarizes the results of the simulations
while Section VI concludes the discussion.

Policy Simulation

There are four major recommendations in the Master Plan that are incorporated in the
CGE model presented in this paper. Firstly, selective logging has been implemented in the
Philippines since the 1950s. It assists in the future regeneration of old growth and second
growth forests. This is in contrast to clear-cutting, which is best practiced in plantation forests,
though this cutting technique was the practice in all forestlands prior to 1950s in the
Philippines. In general, the selective logging technique is employed to meet an environmental-
services (non-timber values) target for forest areas. In the case of the Philippines, old growth
and second growth
forests are still the main source of timber. The establishment of plantation forests has not been
successful in the past two decades (Forest Management Bureau 1998). Hence, the effects of
selective logging on the forestry sector as well as on the non-forestry sectors in the economy
can
be significant.

To simulate selective logging or increased selectivity in the logging regime, the authors
make use of α min, the minimum age at which trees can be harvested. The minimum age
requirement can be used to meet a certain level of timber volume left standing in the area,
which
in turn helps in the natural regeneration, maintains biodiversity and other environmental
services provided by forests. The increase in the minimum age at which trees can be harvested
is
calibrated to increase the volume of standing timber after harvest by 41.4 million cubic meters
per year. This is equivalent to one year’s worth of deforestation during 1981-19904. It is
expected that an increase in the minimum age would increase the price of domestically
produced forest products. It is also expected that the volume of timber per harvest per rotation
would decline and the cost per unit of log harvested would increase.

Secondly, the Philippine forest charges, in the past, were very minimal in comparison to
the revenue derived from timber production. That is, only 11.4 per cent of rent was captured by
royalties (Boado 1988; Vincent 1990). It is recommended in the Master Plan that the stumpage
tax rate be increased by 25 per cent of the market price of logs. In the model simulation, the
stumpage tax is increased by 25 per cent. The stumpage tax in the model is treated as a tax on
net forestry revenue. Dee (1991) found that a tax on forest output lengthens the rotation period.
This is intuitively true, with fixed cost per harvest per rotation, an additional output tax
increases logging cost. Increasing the rotation period results in bigger trees, more timber
harvest and less harvesting costs. Nevertheless, the tax increment cannot meet the timber
volume target (i.e., 41.4 million cubic meters). The target is not reached even by increasing the
tax to 50 per cent. This might be brought about by the diminished status of the Philippine
forests.

Thirdly, the Philippines has delineated protected areas by the legislation of the National
Integrated Protected Area System (NIPAS). In 1996, the area designated as national parks was
1.3 million hectares, which was 13 per cent of classified total timberland.5 The Philippine
Agenda 21 has specified a concrete target, that is, the delineation of 2.5 million hectares of
productive forest for 1998-2005 (Bartelmus 1999). Since the establishment of national parks in
the Philippines involves forested areas (old and second growth forests) and forested areas are
estimated to be less than 4 million hectares, Agenda 21 implies that almost 40 per cent of total
forested areas can be set-aside as national parks. To make the model simulations consistent, the
increase in the set-aside areas is calibrated to meet the timber volume target. With increased
selectivity or increased set aside area for national parks, the tendency of the forest sector is to
reduce the rotation period and the volume harvested per hectare per rotation (Dee 1991). In
addition, however, the outcome for annual output depends on the extent to which the smaller
harvests are offset by the greater frequency of harvest.

Lastly, security of land tenure is represented by the discount rate in forestry. It is

assumed that a higher discount rate applied to the forestry sector reflects insecure land tenure
in forestlands. Whilst, a lower discount rate implies a more secure tenure, it also suggests that
there is a small risk and uncertainty involved. In contrast, production activities with a high
discount rate involve higher risk and more uncertainty about the future. The tenure length in
the Philippines is 25 years. This is considered ineffective in encouraging conservation efforts
amongst logging concessionaires. Simulations conducted by Stenberg and Siriwardana (2006)
shows that rotation periods should be around 30 years at least to encourage conservation
efforts given harvest age of around 50 years. In the simulations in Section V, the reduction in the
discount rate is also calibrated to meet the timber volume target. It is expected that when land is
immobile between agriculture and forestry, the required reduction in the discount rate would
be greater compared to when land is mobile. This reflects the characteristics of the land market
in the Philippines. Land immobility would attract a much higher discount rate due to
uncertainty about the future of land use in the country.

The fact that the deforestation rate in the Philippines accelerated in the early 20th
century and coincide with log exports discounts the argument that population pressure is the
main cause at least in the domestic front. Nevertheless, with the rising population pressure in
the Philippines, land use decisions are becoming more important. In this study the effects of
population and trade practices in general are examined using a CGE model. In order to simulate
population growth, a population variable representing the number of households is increased.
In addition, the labor abundant nature of the Philippine economy is simulated using a
technological coefficient, which increases the labor-capital input. The effects of trade
liberalization and imposition of export taxes on timber volume (deforestation) are also
examined using tax variables and shifters.

Population Growth

The household population variable in the model is increased by 3 per cent. This is
consistent with the annual population growth rate in the Philippines. The purpose of this
simulation is to examine the probable effects of population growth on the forestry sector, in
particular and on the whole economy, in general. It is anticipated that there would be a
reduction in the volume of timber in forested areas when population increases.

Technological Progress

Forest extraction or logging is generally a capital-intensive activity. This is consistent

with the 1990 Philippine I-O table data where capital costs amount to 60 per cent of total
forestry production costs. The capital-intensive nature of log production implies that the
substitution of labour for capital in logging might lead to less deforestation (Repetto and Gillis
1988; Angelsen and Kaimowitz 1999). By using less machinery, the damage on saplings, in
particular and on the area, in general can be reduced, notwithstanding the employment
generated by changing from a capital-intensive to a labour-intensive technology.

The model has variables to measure the technological coefficients of capital and labour
inputs. However, due to the production function employed in aggregating the production inputs
(i.e., constant elasticity of substitution) as well as the values of the elasticity of substitution
between the primary factors, it is not advisable to increase the value of the technological
coefficient for capital inputs only. Instead, the technological coefficient of the capital-labour
composite in the forestry sector is increased. This implies that more units of capital-labour
inputs are needed for each unit of log output produced. The value of the technological
coefficient is increased by 10 per cent.

Export Tax

An export tax has the effect of reducing the domestic price as producers expand
domestic sales. In the case of the Philippines, there is no export tax on log exports per se but
there is a log ban imposed on the forestry sector particularly to the export of logs harvested
from old growth forests. It is assumed that an export log ban is equivalent to an infinite export
tax. Hence, in order to examine the general equilibrium effects of an export ban on log products,
the value of the tax is increased by 100 per cent from an initial value of zero per cent.

Removal of Assistance to Industries

There is enough evidence in the literature to suggest that export taxes on logs are
ineffective in reducing deforestation in timber producing countries. The inefficiencies
associated with trade restriction support a more liberalized trade among nations. As world
globalization is embraced by most nations, the push for trade liberalization is attracting more
support. The interaction between trade liberalization and deforestation has been renewed and
given emphasis in recent times. There are three simulations in the model concerning the
removal of assistance to industries. Particularly, the possible effects on the economy of a
removal of assistance in the agricultural sector and the forestry sector are examined. The
economic effects of a uniform reduction in tariffs across all sectors are also examined. The level
of tariffs on these sectors is reduced by 10 per cent. The target set by the Philippine government
was to reduce overall tariff rates to 8.16 per cent by year 2000 (Tariff Commission 1995).

It is worth noting that in this study, non-timber values of forestlands are not accounted
for explicitly. It is having been recognized that forest areas have multiple uses, which are not
confined to timber production. Forestlands offer services such as recreation, carbon
sequestration and biodiversity. Unfortunately, environmental services, in this study, are crudely
represented by the volume of timber left standing after each harvest, which is determined by
the minimum age at which trees can be harvested.
RECOMMENDATION:

Every day, we use resources that forests provide to us, such as timber, firewood,
medicinal and edible plants. Yet if we continue to lose our forests at the current rate, in 80 years
from now there will be no forest left on our “green” planet.

Deforestation is happening everywhere on the planet for many different reasons that
vary from region to region. Vast areas of rainforests in a number of tropical countries, including
Indonesia, Brazil, and Malaysia, have been destroyed to make way for palm oil, soy plantations
and cattle ranches. The increasing global demand for wood products threatens many ancient
forests around the world, whether it is for paper products, furniture or fuel.

Ending deforestation is the best chance we have to stabilize our climate, save wildlife
species and protect our well-being. Protecting the forest is our mutual responsibility, no matter
how far away we live from the nearest one. Adopt some of these strategies to help prevent the
loss of more trees.

The most straightforward personal strategy to fight against deforestation is to plant a

tree. Planting a tree could be considered a lifelong investment into the environment and your
good mental health. The cutting down of trees causes billions of tons of carbon dioxide (a
greenhouse gas) to be released into the air. By planting trees, you are helping to combat global
warming because trees absorb carbon dioxide. You are also helping to reduce run off water
from the hills. Tree roots prevent landslides and rock slides that sometimes can harm animals,
people or damage buildings. Planting and caring for trees is essential for the overall health and
quality of life of the community.

Major environmental problems such as deforestation often continue to occur because of

a lack of awareness and knowledge about the problem. By educating people about the effects of
their actions, such as palm oil consumption, the amount of deforestation can be reduced. Tell
your friends and family about steps they can take to reduce global deforestation or show them
this article. Better awareness and education are important even in the case of farmers.
Education of local farmers about optimizing their land management will ensure that less
forested areas need to be cleared for farming. After all, farmers are the stewards of our lands.

CONCLUSION:
 This paper analyses the economy-wide effects of four policies included in the Master
Plan for Forestry Development in the Philippines as well as population growth and trade
liberalization.
The model adopted in this study is a static CGE model of a small open economy with a forestry
sub-model adopted from Dee (1991). To implement the model, the 1990 Input-Output table, the
1990 Social Accounting Matrix and various data publications on forestry resources in the
Philippines are employed.

The study found that selective logging, set-aside areas and the level of the discount rate
in forestry has the greatest effect on timber harvests. In particular, selective logging regardless
of land mobility conditions can achieve specific targets on timber volume. In contrast, the
establishment of national parks is more effective when land use policies are enforced while
lowering the discount rate in forestry has more impact when land is mobile between forestry
and agricultural uses. The stumpage tax is only an indirect conservation tool.

Addressing population and trade issues, firstly, the study found that the uniform
removal
of tariffs has a negative effect on the employment of farmers, forestry workers and fishermen
but
has a positive effect on real GDP. Secondly, sectoral production and employment in agriculture
benefits from population increase. Lastly, the uniform removal of tariffs benefits sectoral
employment in the non-tradable sectors (except real estate) but reduces sectoral production in
all land-using sectors in the model.

The study also supports the feasibility of attaining forest conservation without
sacrificing economic growth. Specifically, selective logging and set-aside areas are found to
assist forest conservation with only a small reduction in GDP. Furthermore, employment by
farmers, forestry and fishery workers is increased with the implementation of these two
policies. Generally, the Philippines should suffer only a small decline in national income (less
than one per cent) if the conservation policies, as defined in this study, are implemented.

REFERENCES:
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