Wednesday, 5 March 2014

Choosing the Good Wood

We have a special guest post this week from John Alexander Gomez.  John is a student of environmental economics at the University of the Andes in Bogota,  Colombia.  John's post is about government policies designed  to reduce the level of illegal logging in Columbia.  These kinds of policies could be very useful for countries who import timber from countries where illegal logging is a problem, and will undoubtedly be useful in global efforts to reduce carbon dioxide emissions from deforestation.

"Currently, the World Bank affirms that 42% of the total timber production in Colombia comes from illegal logging (Ministerio de Ambiente, Vivienda y Desarrollo Territorial, 2011).   In Colombia, illegal wood is timber which is extracted, transported, processed, purchased or sold in ways that are contrary to the law. Illegal logging is associated with two interrelated problems.  First, illegal logging places pressure on forest ecosystems.  Second, it jeopardizes the survival of many endangered species.

The Colombian government has been working to control this phenomenon but there are several limitations. It recognizes that regulatory mechanisms are used poorly because of operational weaknesses, insufficient infrastructure and resources, and low local population participation. Additionally, because illegal forestry can be performed at low cost and with low investment, it can be performed either on big scales or just for satisfying basic needs, which makes it an activity that is difficult to detect.   

The fight against illegal timber is a priority for the current government. It is one of the stated goals in the National Development Plan 2010-2014, which provides the guidelines for national government policy. Up until now there have been no effective results on the topic.  The most relevant achievement to date has been a non-binding intersectoral agreement that has helped to highlight the problem of illegal logging on the national agenda.

Because the effects of illegal logging represent a welfare loss for society, different economic agents could be willing to compensate those timber producers who have responsible production methods. Whether they are the final consumer or just an intermediate producer, they could gain some type of reward for assuring their resources come from a legal activity. However, all producers have incentives to present themselves as legal producers, even if they are not. If the producer does not have an accurate way of signaling themselves as legal producers, those who derive utility from knowing their timber comes from a legal source have less incentive to reward legal producers.  In the end, the lack of information is punishing responsible producers who follow the law and because of that incur additional expenses.

If the government can provide the needed information to the market, the consumers could identify with more certainty which product comes from legal sources. Certifying responsible products could do this. That means that the government should assure that the certified products come from legal methods of extraction and management. It should assure also that intermediate producers should not lie to their customers about the legitimacy of the timber. Timber producers and suppliers would have three incentives to participate in a certification program. First, legal timber can fetch a price premium, so there is a market based incentive. Second, there may be a first mover advantage. The producers who achieve certification earliest will be able to capture a larger share of the early benefits and may therefore generate a comparative advantage in producing and selling certified timber. Finally, producers could be interested in protecting themselves against potential strengthening of the already existing government regulation, which could imply more onerous fines or greater probability of capturing banned activities of those producers or retailers who still use illegal timber. The certification procedure could help lead to an easier transition to a wholly legal and sustainable market for timber.

For this policy to be successful it needs industry support.  Because illegal wood implies activities against the law at different points of the supply chain, it is important to have support of the different agents involved in it.  Continued illegal logging could reduce the credibility of the certification scheme, so certified participants have an incentive to punish those who defect.  The government also needs to gain the trust of the relevant agents in the market.  The credibility of the information, as well as government’s capacity to disseminate that information is an essential feature for getting firms to participate. Even so, the government´s credibility could be doubtful.  It is still the institution with the greatest power of coercion in the country. The government might need to seek support from other entities to strengthen its credibility. Traditionally private-public or international alliances have been useful to gain credibility.  Institutions like the Forest Stewardship Council (FSC) already have experience in the timber certification process. Finally, the government should try to keep the program as cheap and simple as possible so really efficient results could be achieved. 

A successful policy would also use existing programs and experiences to complement certification policy programs. For example for guaranteeing the supply of legal timber this policy should work with the government’s commercial reforestation policy. This project has been an effort to provide incentives to producers of forest services and products to cultivate their own “forests”. Because of Colombia’s geographical characteristics, we have a comparative advantage in commercial reforestation, although it has not been used because it was cheaper to use natural forests (Ministerio de Agricultura y Desarrollo Rural, 2011). Commercial reforestation could be used to facilitate legal supply and provide an alternative to those who need to transition from illegal to legal activities. The government has already gained recognition with the non-binding agreement mentioned above. With it, government has already constructed a relationship with different agents at different points of the supply chain, and has obtained their commitment to achieve legality of the timber industry. 


Ministerio de Agricultura y Desarrollo Rural. (2011). Plan de Acción para la Reforestación Comercial .
Ministerio de Ambiente, Vivienda y Desarrollo Territorial. (2011). Pacto Intersectorial por la Madera Legal en Colombia. Ministerio de Ambiente, Vivienda y Desarrollo Territorial."