Report No. 13114-ME Mexico Resource Conservation and Forest Sector Review March 31, 1995 Natural Resources and Rural Poverty Operations Division Country Department II Latin America and the Caribbean Regional Office Document of the World Bank CURRENCY EQUIVALENTS (November 1994) Currency Unit Nlexican New Peso (N$) US$1 = N$3. 10 US$322,581 - N$I million FISCAL YEAR January I - December 31 WEIGHTS AND NIEASURES I meter (in) 3.28 feet (ft) I kilometer (km) 0.62 mile (mi) I hectare (ha) 10,000 m' = 2.47 acres I square kilometer (km') = 0.38 square miles (mi2)= 100 ha I metric ton (m ton) = 2205 pounds ABBREVIATIONS AND ACRONYMS ALBAMEX Alimentos Balanceados de Method of Silvicultural Mexico Development Mexican Livestock Feed NAFTA North American Free Trade Company Agreement BANRURAL Banco Nacional de Credito NGOs Nongovernmental Rural Organizations National Rural Bank NTFP Non-Timber Forest CITES Convention on International Products Trade in Endangered Species PROCAMPO Programa Nacional de of Wild Fauna and Flora Modernizacion del Campo FAO Food and Agriculture National Farm Organization of the United Modernization Program Nations PRONASOL Programa Nacional de FICART Fideicomiso para Credito en Solidaridad Areas de Riego y de National Solidarity Program Temporal SARH Secretaria de Agricultura y Trust Fund for Rainfed and Recursos Hidraulicos Irrigated Areas Secretariat of Agriculture FIRA Fondo de Garantia y Fomento and Water Resources para la Agricultura, SEDESOL Secretaria de Desarrollo Ganaderia y Avicultura Social Trust Fund for Agriculture Secretariat for Social GDP Gross Domestic Product Development GEF Global Environment Facility SEDUE Secretaria de Desarrollo GLASOD Global Assessment of Soil Urbano y Ecologia Degradation Ministry of Urban GNP Gross National Product Development and the INE Instituto Nacional de Ecologia Environment National Ecology Institute SFF Subsecretaria Forestal INEGI Instituto Nacional de Forest and Wildlife Estadistica, Geografia, y Subsecretariat Informatica SINAP Protected Areas System National Institute for UAF Unidad de Statistics, Geography and Aprovechamiento Forestal Informatics Forest Development Unit INI Instituto Nacional Indigenista UCODEFO Unidad de Conservacion y Indigenist National Institute Desarrollo Forestal MMOM Mexican Method of Forest Development and Harvesting Conservation Unit Metodo Mexicano de UNDP United Nations Ordenacion de Montes Development Programme MDS Metodo de Desarrollo UNEP United Nations Silvicola Environment Programme MEMCO RESOURCE CONSERVATION AND FOREST SECTOR REVIEW CONTENTS Prologue ......................................... vii Executive summary ................................... x I. THE VALUE OF MEXICO'S FORESTS AND WILDLANDS ...1... Description of the Physical Resource ..................... I Biodiversity ..................................... I Environmental Values of Forests and Wildiands ............... 5 Social Values of Forests and Wildlands .................... 12 Economic Value .................................. 15 II. THE CONTEXT: PAST POLICIES AFFECTING FORESTS AND WILDLANDS .......... ........................... 20 Land Tenure Policies Affecting the Sector .................. 21 Community Organization ............................. 24 Agricultural and Livestock Policies ...................... 28 Policies in Forest Sector ............................. 31 Parks and Protected Areas ............................ 36 III. CONSEQUENCES OF UNDERVALUATION: DEFORESTATION AND DEGRADATION ................................... 39 Deforestation .................................... 39 Forest and Wildland Degradation ........................ 45 Consequences of Deforestation and Degradation .... .......... 52 Consequences of Undervaluation: Underutilization of the Resource . . . 55 IV. THE TRANSITION: CHANGING THE POLICY FRAMEWORK ... 64 Current Economic Climate ............................ 64 Policy Changes, Population Shifts and Deforestation .... ........ 65 Population Growth and its Effects on Deforestation .... ........ 67 The Rural Income Support Scheme-PROCAMPO .... ......... 68 Land Tenure: Reform of Article 27 ...................... 69 Current Natural Resources and Environmental Policies .... ...... 71 This document, prepared by a World Bank team, is based on collaborative analysis of policies and recommended actions by the Bank and a Mexican government team from SARH, SEDESOL, NAFIN, and SHCP, and on background studies by consultants. The Bank team was A. Molnar (Team Leader), L. Constantino (Resource Economist), W. Beattie (Forester), and M. Ramos (Ecologist). The government team was A. Clares, N. Zaidenweber, 0. Ortega (SARH), C. Munioz, and J. Baez (SEDESOL), R. Benitez, G. Medina (SHCP), and R. Casillas (NAFIN). Principal consultants were S. Nahmad, S. Madrid, M.E. Castro, R. Cervigni, M. Collins, L. Snook, E. Puustjarvi, A. G6mez-Pompa, R. Dirzo, F. Velez, and R. de la Torre. The Department Director is E. Segura, Division Chief is M. Baxter, and Principal Economist is F. Lysy. iv Mexico Resource Conservation and Forestry Sector Review V. TOWARD SOLUTIONS: ELEMENTS OF A NEW FRAMEWORK . . 75 Defining Principles of Mexico's Forest Policy ................ 75 Role of the Public Sector ............................. 77 Biodiversity and Watershed Protection .................... 79 Capturing Environmental Values ........................ 80 Pursuing Mexico's Comparative Advantage ................. 85 Poverty Alleviation and Support to Ejidos and Communities ... .... 88 Institutional Options-Government Responsibilities .... ......... 89 VI. CONCLUSIONS AND RECOMMENDATIONS ............... 95 Conclusions ..................................... 95 Recommendations ................................. 96 ANNEXES 1. Working Papers Prepared for the Study .................... 101 2. Policy Matrix .................................... 104 3. Criteria for the Selection of Protected Areas ................. 110 4. A Recommendation for Environmental Zoning ............... 118 5. Competitiveness of the Timber Producers in Mexico .... ........ 121 6. Statistical Tables .................................. 131 7. Methodology Used in Background Studies of Economic Evaluation and Policy Impacts ................................ 138 8. Bibliography .................................... 157 TABLES 1. 1 Extent of Forest and Wildland Resources in Mexico .... ....... 2 1.2 Diversity and Endemism of Mexican Vertebrate Groups ... ...... 4 1.3 Cost of Carbon Losses from Forest Conversion .............. 6 1.4 Actual Ecotourism and Its Potential in Six Forest Resources ... .... 8 1.5 Quasi-option Value of Pharmaceuticals from Mexico's Forests ... .. 9 1.6 Evidence of Existence Value in Mexico ................... 10 1.7 Subsistence Values of Non-Timber Forest Products .... ........ 14 1.8 Estimated Values of Mexican Forests ..................... 19 2.1 The Viability of Indigenous and Non-indigenous Forest Management .................................... 27 2.2 Nominal Protection Coefficients for Nine Major Crops ... ....... 30 2.3 Current Forestry Institutional Structure .................... 32 3.1 Estimates of Deforestation Rates in Mexico, Mid-1980s ... ...... 41 3.2 Deforestation and Reforestation Rates by Forest Type, M id- 1980s ..................................... 41 3.3 Regional Deforestation Rates .......................... 42 3.4 Growth in Planted Agriculture Area and Beef Cattle Herds, 1970-90 . ...................................... 43 3.5 Main Sources of Deforestation by Forest Type ............... 44 3.6 Calculation of Elasticities for Planted Agricultural Areas and Beef Cattle .................................. 45 Contents v 3.7 Species Diversity, Endemism and Ecosystem Disturbance in Mexico ...................................... 54 3.8 Average Distance and Transportation Cost for Pine Sawlogs .... .. 57 3.9 Mechanical (Sawn Products) Industry Capacity ..... .......... 58 3.10 Chemical (Pulp and Paper) Industry Capacity ................ 59 3.11 Average Costs and Prices of Domestic and Imported Forest Products ................................... 60 3.12 Internal Rates of Return to Forest Plantations ..... ........... 62 4.1 Elasticities of Consumption with Respect to GNP per Capita .... .. 65 5.1 Optional Allocation of Responsibilities .................... 93 FIGURES 1.1 Map of Mexico's Forests ............................ 3 1.2 Map of Poverty Areas in Mexico and in Northern Forested States, by Municipalities ............................. 11 3.1 Forestry and Manufacturing (including Forest Processing), GDP 1987-90 ................................... 58 5.1 Mexico's Place on the Forest Policy Continuum .... .......... 78 BOX 2.1 Union of Communities and Forest Ejidos of Oaxaca .... ....... 26 PROLOGUE This Resource Consenrtion and Forestry Sector Review is the product of a collaborative effort by the World Bank and the Mexican Govenment. Prpared by World Bank staff and a Mexican Government team, the review is based on a policy matrix (Annex 2) that also was developed jointly by the World Bank and Mexico. The objective of the World Bank in undertaking a comprehensive review of the forestry sector was to provide a basis for future lending strategies. This required analysis of (a) the broader issues in the sector, and the social, economic and environmental values of the forests and wildlands in Mexico; (b) the adequacy of the Government's new policy framework for forestry and environmental protection, including the implications of changes in Article 27 of Mexico's Constitution; (c) the expected impacts of trade liberalization on forestry; and (d) the role of public sector institutions and the appropriateness of their resource allocations for addressing national concerns and complementing the role of local governments, the private sector, and voluntary and productive organizations, including ejidos and indigenous communities. The objective of the Government was to undertake a comprehensive review of the forestry sector under the overall direction of the Forestry Subsecretariat but involving all other relevant ministries. The focus of concern for the Govemment included (a) analysis of the changes needed to implement its new policy framework for forest and wildiand management; (b) identification of potential issues related to trade liberalization and policies in other sectors; (c) definition of a clearer allocation of responsibilities between the Forestry Subsecretariat and other agencies working in the sector; and vil viii Mceico Resource Conservation and rmstry Sedor Reiew (d) identification of the potential role of private enterprises and the ejidos and communities in forest development, management, and conservation activities, examining constraints to private investment in the sector. The objectives and policy goals of the Bank and the Government of Mexico (GOM) are fully consistent and have facilitated the consultant studies, working papers and drafts of the study. Many important issues have already been resolved in the workshops held to discuss the implementation of the review, and some recommendations have already been carried out. Not the least of these recommendations is the deregulation of productive forestry activities by GOM and a shift in its role from command and control activities to more-normative technical assistance. In view of the transition to a new six-year presidential term (1994-2000), the exercise was also intended to provide important information to help shape the policies and actions of the incoming administration. The review has been carried out in three stages: diagnosis, analysis, and (currently) strategy development. A World Bank team was constituted in January 1993 by the Latin America Region's Department 2, Natural Resources and Rural Poverty Division (LA2NR); an interagency Mexican team was constituted with representatives from SHCP, Secretarfa de Agricultura y Recursos Hidraulicos (SARH), Subsecretaria Forestal y Fauna (SFF), (Secretaria de Desarrollo Social (SEDESOL), including Instituto Nacional de Ecologia (INE) and NAFIN. This working group agreed on a terms of reference (IOR) in May 1993 and, with grants from the governments of Japan and Finland, contracted eight background studies to international and national consultants. The focus of this TOR was a broad review of forests and wildlands, eamining the historical situation, analyzing the new policy framework and the potential impacts of North American Free Trade Agreement (NAFrA) on forests and wildlands, and recommending adjustments for the implementation of Mexico's new resource conservation and forest strategy. These studies focused on biodiversity and protected areas, the competitiveness of forestry currently and projected under NAFrA, silvicultural issues, valuation of environmental goods and services, policies affecting the sector, gender roles, institutional issues, and the social and indigenous issues of community forestry. There were a number of successful consultative exercises included in the diagnostic and analytical stages involving more than forty people and two trips by Mexican officials to %Wshington, D.C During the diagnostic phase, consultations were held with indigenous forest ejidos and other forest producers Prologue ix in seeal case study areas and biological and park specialists The findings of the protected areas workshop have become the proposed National Protected Areas System (SINAP), presented in Annex 3. A series of workshops were held with members of the worldng group, Mexican government experts in the sector, and consultants to analyze the findings and strategic recommendations. The policy matrix in Annex 2, summarizing the outcome of these workshops, was developed initially by the World Bank and Mexican working group, and then discussed by the consultant teams and other technical experts from the World Bank and Mexico. MEXICO RESOURCE CONSERVATION AND FOREST SECTOR REVIEW EXECUTIVE SUTNMARY Background 1. Forests and wildlands cover 72% of Mexico, and they have broad importance both nationally and globally: (a) biologically, as ecosystems that are repositories of species, genetic material, and aesthetic beauty; (b) environ- mentally, as stabilizing elements in soil and water regimes and to capture carbon; (c) socially, as the source of a range of subsistence and informally marketed products used by a poor, rural population; and (d) commercially, as the source of timber and non-timber products for domestic consumption or export and as a base for tourism and recreational enterprises. But despite their critical importance, these forests and wildlands are under intense pressure from deforestation and degradation, and the resources that remain are underutilized. 2. Over the past five decades, wildlands have declined considerably and forests have declined more than 50% in area, with deforestation concentrated in the humid tropics. There is clear evidence that the continued deforestation- estimated conservatively at 230,000 hectares (ha) per year-is resulting in conversion of forest lands to less productive uses with negative environmental externalities. 3. In addition, the resource base is degraded and underutilized. Degradation stems from (a) the conversion of fragile forests and wildlands to unsustainable agriculture or livestock uses, with loss of soil and moisture regimes; (b) the overharvesting of accessible timber and non-timber resources so that the productivity of the forest and wildland declines; and (c) the loss of distinct (including endemic) ecoregions and their respective species and genetic material. Underutilization stems from (a) the inefficiency of timber and non- timber product industries and small-scale enterprises; (b) the failure to capitalize on latent environmental goods and services or to adequately develop sustainable tourism industries that capitalize on forest and wildland existence values; and (c) the haphazard harvesting by the mrual population of a variety of domestic goods, including fuelwood, wild foods and game, thereby losing potential production. 4. This situation has arisen because historically Mexican policies and development strategies have almost exclusively valued forests and wildlands for x Excutive Summary xi their commercial timber only or, in its absence, their conversion to agricultural or pasture lands. Agricultural and trade policies and incentives, inadequate authority and resources for state agencies to manage and protect forests and wildlands, and insecure and ill-defined land tenure have all discouraged wider resource use and conservation. Environmental and social values and the commercial potential of nontraditional products have been largely ignored, even though these combined values greatly exceed timber and alternative use values alone. 5. Past agriculture and trade policies favored the use of forests for timber or the conversion of forest lands into pasture, agricultural land, and other enterprises with short-term returns. Subsidies for agricultural and livestock products and water resources, coupled with import barriers both inside and outside the forest sector discouraged more-rational resource use. In addition, timber industries were given fairly easy access to extensive timber extraction areas to generate jobs and revenues and were not encouraged to develop sustainable extraction systems. 6. Although forest laws were passed in 1926 and 1986 to regulate forest and wildland use, their effectiveness have been undermined by the more powerful impacts of policies outside the sector. Direct protective measures have also failed. Less than 5 % of the national territory is included in SINAP, and many of the national and state reserves are protected only on paper. State agencies have consistently been too underfunded to assume major responsibility for the resources and too weak to counter powerful timber or livestock interests. Effectiveness is further diminished by inappropriate institutional organization: the environmental agency and the forest agency, which are in separate ministries, share regulatory and enforcement responsibilities. This is both inefficient and confusing to forest producers. 7. The land tenure system historically has also provided an incentive to forest and wildland degradation, due to five main factors. First, the system favors the allocation of cleared parcels over forested ones. Second, the boundaries between public land and land belonging to communal land reform blocks (ejidos) and indigenous communities are ill-defined. Tenure is therefore insecure and this discourages investment by ejidos and communities in forest conservation or protection. Third, although 70% of the forests and wildlands are owned by communities and ejidos,1 most of these lands historicaUly have not been put under management, apart from traditional indigenous forests. With the 1. Another 15-20% are in private parcels averaging 15-20 ha up to a maximum of 1,000 ha or in the protected forests, parks and reserves (5-10%). xii Merico Resource Conservation and Forestry Sector Review undervaluing of forestry activities, management has not usually been a community priority. This has led to progressive degradation of the resource from uncontrolled timber harvesting, even in areas with commercial management. Fourth, even those ejidos and communities interested in better management lack the technical support needed for implementing sustainable systems. Fifth, the mutual distrust between the forest industries, ejidos and communities discourages the joint ventures that could maximize access to capital and technology. Recent Institutional and Policy Changes 8. While new laws, policies and institutional arrangements have been introduced for forests, water, land and environmental management, they are not adequate for the desired level of forest and wildland management. Legislation for regulation and control of forests and conservation areas continues to be overambitious, covering too big an area and too many aspects of management and conservation and requiring too many personnel to administer. Federal and state agencies have not been able to fulfill their previous duties, so it seems unlikely they will be able to cope with yet more. Responsibilities are overcentralized and duplicated across federal agencies, and financial and human resources are not efficiently allocated. There is no technical or financial support for producers organizations, NGOs or the private sector to enable them to improve resource management and use. 9. In 1988, a law for ecological balance and environmental protection was passed. In 1992 a new Forest Law focused the forest subsecretariat's role on regulation, monitoring, and promotion of forest management activities by the private sector, including communal entities. It maintained responsibility for environmental norms and regulations in the environmental agency, but made their application and interpretation the responsibility of the forestry agency. 10. Article 27 of the Constitution was changed in 1992 to permit greater property rights in communal lands and titling of agricultural parcels, giving smalUholders, ejidos, and communities greater legal rights to their forests. For a number of reasons, however, these changes do little to clarify ownership of and therefore responsibility for forest lands. First, actual titling applies only to private forest or agricultural land; this could encourage deforestation as individuals seek to clear common lands and claim them as private holdings. Second, common land has not been demarcated or adjudicated to ensure new property rights in practice; hence, neighboring communities and ejidos are still able to encroach on or illegally extract from forests. This also means that ejidos and communities have limited incentives to develop this resource intensively and invest over the long term. Third, communal ownership of forests might have been strengthened in the law, but mechanisms for managing forests within most Execuaive Summary ]di non-indigenous communities do not exist. Fourth, the law permits the selling of communal non-forest land holdings should the community or ejido choose to disband, but does not provide for compensation for forest holdings that have to revert to government. This actually encourages deforestation. Fifth, the constitutional recognition of the rights of indigenous communities to maintain traditional management systems and autonomous government is not upheld in the Forest Law. This allows government foresters to refuse to approve the indigenous management plan if it is deemed unsustainable. Potential Effects of Economic Liberalization and NAFEA 11. Economic liberalization, including the implementation of NAFTA and related agreements, will impact forests and wildlands in several ways. While it has already removed incentives favoring agricultural development, suitable incentives for forestry and conservation activities have not yet been established. As farmers and livestock owners begin to react to the removal of those incentives, the area of land under basic grains will decrease, and agricultural and livestock production will be concentrated on higher-quality lands. This will reduce pressure on the forests and wildlands. However, in the short term the urban and manufacturing sectors may not absorb rural labor entering the market, and the threat of deforestation for agriculture or pasture from subsistence farmers could remain. 12. NAFTA will lower the cost of imported wood relative to the national resource. With current costs of transporting raw material and processing wood, the sector cannot compete in the bulk of wood products. Demand for timber products is expected to rise in Mexico, but unless the industries and ejidos increase efficiency, many forests will become uncompetitive, as Mexican wood is 10-30% more expensive than equivalent U.S. or Canadian wood. Substantial investment is required to modernize equipment and provide training in marketing, business management and modern technologies, even at the cottage industry level. On the one hand, if investment is not forthcoming, there could be less logging, which would be good for the environment. On the other, a reduction in forestry could bring about an increase in the conversion of lands for agriculture and livestock. Recommendations 13. An improved institutional and policy framework is needed to better establish priorities for regulation and promotional activities. Realizing this goal will require considerable political will as well as sustained effort and allocation of funds within and outside the public sector. However costly, this adjustment will not exceed the costs of inaction. While deforestation appears to have slowed, at xiv Mexico Resource Conserwtion and Fore*ry Sector Recrw least 230,000 ha of forest disappear every year, irreversibly. Further degradation of existing forests and wildlands will result in an enormous loss of economic potential, further impoverishment of the rural poor and marginal ejidos whose livelihood depends on access to forests and wildiands, a threat to the cohesion of indigenous cultural and social structures, and the irretrievable loss of unique ecoregions and their related species and genetic stock. 14. This review recommends a number of strategic and institutional changes and specific actions. (a) Strategic Changes. * Forest and wildland strategy should address a comprehensive set of goals, include all relevant sectors, and allocate resources commensurate with the combined environmental, social and economic values. D Dialogue on forests and wildlands should become a responsibility of senior government policymakers, perhaps within the context of the Environmental Action Plan discussions, so that crosscutting issues that extend beyond the responsibilities of individual agencies can receive the needed attention. 3 A new conceptual zoning exercise that includes ejido, community and small-holder lands is required to consolidate SINAP and better prioritize which forest and wildland resources require dirct government intervention, which require govenmment regulation coupled with incentives, and which should be removed from govemment control. * The importance of forestry should be recognized as a potential source of income and therefore of poverty alleviation for marginalized ejidos and communities. Their ability to generate income should be maximized, at the same time drawing upon their efforts to protect the resource. This will reduce the governmental costs of protecting the resource from land clearing or illegal logging. * Any lack of capacity to clarify forest property rights or lack of long-term investment capital for forest owners to adopt sustainable methods should not undermine the efforts in other aspects of the strategy. Ecuawve Swnma,y xv (b) Institutional Changes. No single institutional model is proposed, but options recommended have common elements. * The relative responsibilities of government agencies for conservation and forestry activities should be clarified. * Agency budgets for parks, forests and wildlands management should allow for more funding to be channeled to local offices. * Significant responsibilities should be transferred to state and municipal governments in a phased manner. * A clear strategy for involving the regional consultative bodies for forest implementation should be designed, perhaps combining their activities where appropriate with those of biodiversity councils. * -The emerging networks of ejidos should be supported so that they can provide technical assistance and guidance to fellow members. * Lack of capacity to clarify forest property rights or the lack of long-term investment capital for forest owners to adopt sustainable methods should not undennine the efforts in other aspects of the strategy. (c) Specific Actions. * Protected Areas Management. Expand SINAP to include priority biodiversity and areas with watershed conservation value; consolidate research efforts and available databases; explore self-fnancing mechanisms and options for international contributions; and involve local communities and NGOs, as appropriate, in management. * Support to Ejidos and Communities. Consolidate forest property rights in communal holdings; decentralize technical support and training to forest ejidos and communities so that they can more efficiently and profitably manage their resources, drawing on private and voluntary sector resources and building on the self-development initiatives of successful forest ejidos. xvi Mexico Resource Conservation and Forestry Sector Review * Seek Mexico's Comparative Advantage. Remove constraints to the development of environmentally friendly timber and non-timber enterprises in the forested areas that could competitively supply local, regional or international markets; make training and technical assistance available; develop key road infrastructure; disseminate information on credit, new technologies and raw material markets, including ecolabelling; remove policy constraints and other impediments to the development by the private sector of better industrial capacity that is also environmentally sustainable. * Applied Research on Tropical Forests and Non-timber Product Development. Develop an institution to promote and fund public, academic, and private research on more- sustainable tropical forest management systems, extraction or propagation, and non-timber forest products that could have important and more-extensive commercial markets. 15. This report is organized as follows: Chapter I describes the multiple values of forests and wildlands; Chapter II analyses the history of policies shaping the sector; Chapter IH examines the extent as well as the proximate and underlying causes of resource degradation and deforestation; Chapter IV analyzes recent policy changes and their impact on the resource base; and Chapters V and VI lay out the elements of a more optimal resource conservation and forest strategy, including the institutional alternatives. I. THE VALUE OF MEXICO'S FORESTS AND WILDLANDS 1.1 Mexico's forests and wildlands are of tremendous environmental, social and economic value both for the nation and the global community. This chapter describes the forests and wildlands and the rich biodiversity they contain. It then discusses each type of value, pointing out the importance of protection and sustainable management. Description of the Physical Resource 1.2 Mexico is the third largest country in Latin America after Brazl and Argentina. It covers 197.3 million ha, including 10,000 kilometers (km) of coastline, 1.2 million ha of lakes and 1.6 million ha of estuaries. Forests and wildlands comprise 137.5 million ha, or 72% of the total land area. They are made up of 50 million ha (35%) of tropical and temperate forest; 55.5 million ha of bush, grassland, and scrub (37%); 0.5 million ha of mangrove (0.3%), 2.2 million ha of desert (1.5%), 7.7 million ha of thorny scrub (5%), and 21.6 mfllion ha of degraded forest land (15%). One percent of the forests and wildlands is wetlands (Synnott, 1993, Working Paper 14, and Annex 5). Figure 1.1 maps Mexico's temperate and tropical forest lands (SARH Gran Visi6n, 1992, cited in Synnott, 1993, Working Paper 14), and lable 1.1 provides a summary of all forest and wildlands resources. 1.3 Nearly half (24.1 million ha) of the forests are mixed, broad-leafed tropical moist forest found in the southern half of the country. The states of Campeche, Chiapas, Oaxaca, Quintana Roo and Veracruz contain over 80% of the tall and medium tropical forest timbers. Another 25.5 million ha are mixed temperate forests, dispersed along the spine of the Sierra Madre on the Pacific side of Mexico, with three-fourths of the conifer timbers concentrated in the states of Chihuahua, Durango, Guerrero, Michoacan, and Oaxaca. There are also small areas of temperate cloud forest (MichoacAn) and mangrove stands (scattered along the Gulf of Mexico and the Pacific coasts). Deserts and thomy scrub areas are concentrated in the northern states, and dryland and scrub are scattered throughout the northern and central states. Based on slope, quality of resource, and legal zoning status, 34 million ha of forest have potential for sustainable productive use for commercial timber. Biodiversity 1.4 With 10% of the world's biodiversity, Mexico is considered one of the megadiversity countries, ranking fourth after Brazil, Columbia, and China. Its 1 2 Mcrico Resource Conservation and Forestry Scdor Review Bible 1.1: Extent of Forest and Wildland Resources in Mexico (million hectares) Vegetation type Inventory 1961-85 Gran Visi6n or land use (average 1973) FAO 1990 1991-92 Temperate forest 27.5 25.5 Conifer 17.0 Broad-leaved 8.4 Mesophyl 0.1 ______ _____ Tall 1.7 High and medium 11.4 8.7 7.0 tropical forest l Low tropical forest 17.9 15.4 Deciduous 13.7 evergreen Evergreen 1.8 FORESr SUBTUrAL 56.8 51.7 49.6 Bushland and other 69.0 70.3 Dry 55.5 Tanl 2.8 Chaparral 7.7 Mangrove 0.5 Desert 2.2 _____ _____ Other 1.6 Degraded forest land 17.8 21.6 18.1 Severely disturbed 3.5 Non-Forest use 52.2 54.3 51.5 Water 2.3 .______________ Urban 0.5 TCTAL 195.8 195.8 195.8 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 There are an estimated 30,000 species of flowering plants in Mexico, covering 220 families and 2,410 genera. Fourteen percent of these genera and 40-50% of the species are endemic. Tropical humid and temperate forests contribute to its biological richness. The pine-oak forests are the richest on the planet, consisting of 55 species of pine (85% of which are endemic) and 138 species of oaks (70% endemic). The temperate cloud forests cover only 1% of the territory but house 10% of the plant species of the country; the temperate pine- oak forests have the highest species diversity of any such forests on the planet. Mexico is ranked fifth in the wvrld in the extent of its mangroves 3 Figure 1.1 Map of Mexico's Forests IBRD 26040 UNITED STATES OF AMERICA MEXICO TEMPERATE FORESTS ft A _._t \~~~~k,\ Au NoG O " k .ltA 5t GuIlf of Mexico C.Uc,/~~~~~~~~~~~-LC" P A C I F I C O C E A N s,< TEMPERATE FORESTS - - - - STATE BOUNDARIES - -- INTERNATIONAL BOUNDARIES r.rp- HGUANEMAURAS NICARAGUA UNITED STATES OF AMERICA MEXICO -S.t . TROPICAL FORESTS O S~~ONOAA \ Vh -< S O N o 1 ^ AG { s%\ '~~~ l~\'rof '' ErlurGulf f M) iJ PACIFIC'OCE NACAr t r P A C I F I C O C E A N Ai 4 -^Irs, < --?L__CH1AC.C UZ a TROPICAL FORESTS -~ - - - STATE BOUNDARIES _ O; I ~-.- INTERNATIONAL BOUNDARIES A P I The boundaries, colors, denominaions ord aon oa r information LIATEMALA shouq on this n?p do not ipl a t prt e or Bn Grou p, DUkAS any judgment on the legal sbaus of any territory, or any endrsem ent or occeptance of such boundaries. o 100 200 300 MILES MICA JUNE 199A 4 Mvdco Rasource Conservation and Fomstry &ctor PbWew (Cloud and Tbledo 1988) and desert scrub forests. Mexico's deserts have the highest number of cacti of countries uvrldwide. 1.6 Mexico has the highest reptile diversity in the world; the greatest mammalian diversity in the Neotropics (and second only to Indonesia, globally); nearly 30% more bird species than the United States and Canada together; and the second highest (after Brazil) number of terrestrial vertebrates. It has 8.7% of the wvrld's amphibian species; over 11 % of all reptile, bird and mammal species; and over 14% of aU fish species (see summary in lIhble 1.2). Table 1.2 Diversity and Endemism of Mexican Vertebrate Groups Group #Mexican sp. % World sp. % Endemic sp. Fish (sea) 3,600 14.4 0 Fish (river) 461 6.6 48.8 Amphibians 282 8.7 62.0 Reptiles 707 11.4 56.0 Birds 980 11.2 11.8 Mammals 439 11.4 33.0 Soure: CSERGE, 1993, Wbrdkng Paper 15. 1.7 Mexico is also the most important wintering area for many of the U.S. and Canadian migratory bird species, hosting 51% of all migratory bird species from the twv countries every year. These birds spend six to nine months in Mexico (Rappole et al., 1983, cited in Gomez-Pompa and Dirzo, 1993, Working Paper 10). Butterflies, fish, whales, bats, and turtles pass through the country seasonally. The Monarch butterfly (Danaus plexippus) is the most notable insect that migrates north-south annually; populations reach an estimated 200 million in approximately 30 colonies in small fir-forested areas in the Transvolcanic belt (Bower and Lanting, 1988, cited in Gomez-Pompa and Dirzo, 1993, Working Paper 10). Insectivorous bats and the whales that breed at Ojo de Liebre and Laguna de San Ignacio in the Baja California peninsula are additional examples of internationally shared resources. 1.8 Mexico's diversity varies geographically and ecologically. Highest species diversity is found in the warm humid regions of the south and southeast, particularly in the states of Chiapas and Oaxaca and extending eastward and northward to Veracruz in the east and Sinaloa and Durango to the north- Chapter 1 The Valuc of Mexco's Forests and Wildiands S northwest. In the Yucatan Peninsula, also, the highest species richness is in the south and decreases northward. Biological richness varies according to the type of ecosystem: humid and dry tropical regions generally have higher numbers of species than temperate and desert ecosystems. 1.9 The regional distribution of endemism is the opposite of that for biodiversity. While tropical, warm and humid regions have the highest species diversity, the deserts (desert scrub and grasslands) have the highest endemism at the family and generic levels (Rzedowski, 1962 cited in Gomez-Pompa and Dirzo, Working Paper 10). At the species level, however, the pine-oak forests have the highest endemic numbers, followed by the desert scrub and grasslands and the dry tropical forests. In contrast to species diversity, the humid tropical region species of Mexico are only 5% endemic. As noted, for example, Mexican deserts have the highest number of cacti on the planet, many of which are endemic-and severely threatened. Twenty-five percent of the species in Baja California Peninsula are endemic, compared with 28% in the Chihuahua Desert, 26% in the Islas Revillagigedo, and 25% on Guadalupe. The importance of Mexico's endemism has been highlighted with the recent discovery of a primitive, perennial form of Zea diploperennis, which is resistant to seven of eight critical diseases found in maize. Environmental Values of Forests and Wildlands 1.10 Forests and wildlands are important for carbon sequestration, watershed protection (quality and flow of water, soil conservation, etc.), tourism and recreation, pharmaceuticals and genetic products (potential drugs, gene banks, etc.) and have significant existence and bequest values (defined in para 1.19). Measuring these values has improved remarkably in recent years, but much work still needs to be done. While these values vary considerably, they are generally very high and can exceed those of the standing timber, although often not in terms of commercial use or cash income. Most of these values accrue to the international community. 1.11 Carbon Sequestration. The capacity of forest biomass and organic matter to sequester carbon is of tremendous international importance to counteracting global warming. Establishing who will pay for this environmental value either within or outside the country, however, is a difficult task. Mexico can follow the example of other countries and tap international and national capital to help fund the preservation of its forests (Schneider, Brown and Pearce, cited in CSERGE, 1993, Working Paper 15). It is already a signatory to the Climate Change Convention that fosters international investment for carbon sequestration. Governments are prepared to offset their own emissions through investment in forest projects and other initiatives in other countries. Private 6 Mexco Resoure Conservation and Fomy Sector Review domestic emission regulations or perceive a public relations benefit from taling the initiative. Another source of funding for forest maintenance is revenue from taxes on carbon emissions. Nevertheless, even if Mexico does gain some international capital to fund this environmental value, it will still have to invest its own resources. 1.12 The cost to the global community and, in part, to Mexico of not protecting the forests-for example, if they were converted into pasture and carbon were released into the atmosphere-could range from US$3436 per ha for temperate coniferous to US$693 per ha for temperate deciduous. These values exceed their agricultural value as marginal agricultural lands (see Tlble 1.3). Table 1.3. Cost of Carbon Losses from Forest Conversion Converted Land Use Formet Type Permanent Pasture Agricultur (S/ha) (S/ha) Tempento Conifrrous 3,436 3,410 Tehmpeoe Deciduous 693 643 Tropical Everreen 3,633 3,337 Tropical Deciduous 1,887 1,863 Source: CSERGE, 1993, Abridng Paper 15. 1.13 Watershed Protection. Forests and wildlands are very important for climate and environmental stability, particularly for protecting water catchments. In the Sierra Madre mountains there are temperate forests at elevations between 1,000 and 3,500 meters (m) that play an important role in watershed protection and reducing off- and on-site costs of erosion. Throughout Mexico there are 320 hydraulic basins, but water resources are very unevenly distributed for both agricultural and urban areas. Most sources of water for urban use are less than 500 m above sea level, whereas most urban centers are located above that level, making pumping costs extremely high. It is therefore important that groundwater sources be well protected in these high-altitude sites. 1.14 Wter-related externalities of deforestation include increased soil erosion, which entails on- and off-site sedimentation costs, accelerated water run-off leading to localized flooding, and reduced hydrological cycling and recharge of groundwater and watercourses. Off-site costs (not easily internalized by the landowner) of forest loss or degradation in watersheds include (a) damage to water storage and conveyance, reservoirs and irrigation systems; (b) siltation of dams and hydroelectric installations; (c) reduced water quality and availability; (d) altered hydrological balance, groundwater recharge and increased flood chapter I The Value of Mer.co 's Forsu and WRldand 7 (d) altered hydrological balance, groundwater recharge and increased flood hazard; and (e) wetland and lagoon siltation with loss of biodiversity (see details in Chapter III). 1.15 Tourism and Recreation. Forests and wildlands are becoming increasingly popular locations for tourism and recreation. Tourism to nature resorts can be divided into two market segments: (a) multipurpose tourism, which comprises, as part of a larger trip, visits to national parks or other protected areas, lasting one or two days; and (b) specialized ecotourism, usually organized in tours of longer length. Official statistics seem to underestimate the importance of ecoturism. In contrast, estimates made for this study indicate that ecotourism expenditures could be about US$14 million per year, or 0.4% of total expenditure of foreign visitors. The total benefits to Mexico from ecotourism could be in the range of US$30-$34 million (see Table 1.4). There is considerable potential to expand ecotourism even further. 1.16 Pharmaceutical and Genetic Values. The value of Mexico's forests for pharmaceutical use can be roughly estimated based on the concept of quasi-option value: the value placed on the possibility that a future discovery will make useful a species currently thought to be useless. This value could range from a minimum of US$26 million per year to US$4.6 billion, depending on assumptions regarding the probability that a species will yield a useful product, the royalties on such products payable to Mexico, a coefficient of rent capture, the likelihood of an internationally traded product, and the area of the forest. Values per hectare per year could range from US$1 to US$90, and these would be lost if the forest disappeared through deforestation (Table 1.5). 1.17 Some 25 plant species are used as sources of drugs in western bio- medicine, and approximately 120 pharmaceuticals are derived from plant materials. Over 25% of all drugs prescribed in the US are plant based, and, together with over the counter purchased plant-based drugs, had an annual value in 1985 of US$18 billion. Zea diploperenis, a wild relative of maize, which is resistant to seven diseases, has a use value of about US$7 billion annually for its use in the creation of perennial hybrid only. The world society is willing to invest money to preserve the last few remaining wild individuals of this species because of its potential value, by demarcating its habitat as a protected area in Jalisco (CSERGE, 1993, Working Paper 15). 1.18 Unfortunately, there are many gaps in the scientific knowledge for all Mexican biota, particularly in regard to their ecology and population biology; little is known beyond the distribution of known species. It is clear from the number of new species now being recorded, especially through studies of flowers Table 1.4 Actual Ecotourism and Its Potential in Six Forest Resources I I I Average Number Price Paid or Visitors/Year Estimated Revenues/ Tourist Name of Resort Area (years of Willingness to Revenues/ Year/Hectare Market (State) Type (hectares) reference) Pay (US$) Year (US$) (US$) Source El Triunfo Biosphere 119,177 150 i) 17.15' i) 2,572.5 i) 0.02 Touval (1992) Ecotourists (Chiapas) Reserve (1989-1991) ii) 752 ii) 11,250 ii) 0.09 Sian Ka'an Biosphere 528,1473 500 1154 57,500 0.11 Amigos de Sian (Quintana Roo) Reserve (1989-1993) Ka'an a.c. Izta-Popo National 55 12,406 I5 12,406 225 Boo (1990) (Mexico, Park Morelos, Multipurpose Puebla) l Tourists Arrareko Lake Complejo 20,000 7,500 i) 3.336 i) 24,975 i) 1.24 Comision de (Chihuahua) Ecoturistic (1992-1993) ii) 4.427 ii) 33,150 ii) 1.65 Defensa de los o Ejidal Derechos Humanos A.C., _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ C reel Mariposa Special 16,110 47,500 i) 5s i) 237,500 i) 14.7 SEDESOL Monarca Biosphere (1986-1992) ii) 309 ii) 1,425,000 ii) 88.4 (Michohacan) Reserve __ Barranca del Declared 450,000 55,000 i) 3.27 i) 179,850 i) 0.40 SECTUR, Cobre as (1992) ii) 8.20 ii) 451,000 ii) 1.01 Acuerdo Mexico- (Chihuahua) National Alemania, Park Author's Survey 1. Average estimate of individual visitor's expenses for services in a nature tour (transportation, meals, guide services). 2. Suggestion of a possible individual donation based on an average consumer surplus of $470, in tum calculated with a travel-cost analysis (Touval 1992). 3. This number refers only to visitors to the Reserve taking a one-day tour boat. The number of total visitors is likely to be much higher, but many of them enter Sian Ka'an through the many uncontroUed entrance points and therefore remain unreported (Bezauri 1993). 4. Price of a one-day boat tour in the reserve. 5. The higher figures refer to ovemnight visitors only, who pay an entrance fee of under US$1. 6. Individual entrance fee. 7. Entrance fee plus weighted average of other services purchased by visitors (hire of boats, mountain bikes, horses, camping space). S. Admission ticket to the sanctuay (adults). 9. Average price of a standard tour fromn Mexico City (transport, pick-up drive and admission ticket). Source: CSERGE, 1993, Working Paper 15. Chapter 1 7he Value of Mexico's Forests and Wildlands 9 Table 1.5 Quasi-Option Value of Phannaceuticals from Mexico's Forests Level of Quasi-Option Value Quasi-Option Value Quasi-Option Value Biodiversity Moist Tropical Forests Moist Tropical All Forests US$1ha/yr Forests US$million/year l____________________ US$million/yr Low 1 5 26 ] Medium 6 66 332 High 90 875 4,646 Note: It is assumed that since 5,000 species is the lower estimate of the number of species in moist tropical forests (MTF) in Mexico, this number represents the lowest estimate for all forests. (See Annex 7 on methodology of this table.) Forest areas: 9.7 million ha MTF; 51.5 million ha all forests. Probability of identifying a species of value is 0.0005, royalty rate 0.05. Low estimate: appropriation rate = 0.1, drug value = US$0.39 m/yr Medium estimate: appropriation rate = 0.5, drug value = US$I bn/yr High estimate: appropriation rate = 1, drug value = US$7 bn/yr Source: CSERGE, 1993, Working Paper 15. (such as from Uxpanapa and Los Chimalapas in Veracruz and Oaxaca) and invertebrates, that there is much yet to be discovered. The information available is not sufficient to permit well-informed management decisions except on a very broad scale, which creates tremendous risks and possibilities of error. The great diversity of species found in Mexico demands management systems more finely tuned to the various ecosystems. Mexico cannot afford to lose this diversity while waiting for more data on its scope and potential economic value. Either the resource should be protected for future investigation or extensive research should be initiated immediately before it is lost. Most likely a mix of the two is needed. 1.19 Existence and Bequest Values. Existence value derives from the knowledge of a resource's continued existence independent of any use, while bequest value derives from the knowledge that the resource will be left for future generations' benefit. Estimates of existence value for other countries range from US$1.2 to US$64 per person per year for wild species, while estimates of willingness to pay for scenic and wilderness areas range between US$9 and US$107 per person per year. Table 1.6 presents elements of revealed value for a sample of transactions related to area conservation in Mexico. Total existence value for the entire current system of protected areas in Mexico is estimated at about US$60 million. 10 Mexico Resource Conservaion and Forestry Sector Review Table 1.6 Evidence of Existence Value In Mexico Willingness to Pay Amount of (WTP)/ Type of Organization Area Trmnction hectare Evidence Involved Involved Size (ha) (USS) (USS) Comments Debt for Conservation Selva 385,000 4,000,000 10.38 nature swap International Lacandona; Montes Azules (Chiapas) Donations Amigos de Sian Ka'an 528,147 34,000 0.06 Sian Ka'an report for Nature Sian Ka'an biosphere 0.05 that only 10% of Conserva- (Cancun, reserve donors have tion Or- Quintana Roo) (Quintana actually visited ganizations Roo) the reserve. Promatura Dispersed n.a. 809,622 n.a. The figure refers (Mexico City) sites to total 1992 rec-eipts of Pronatura, including donations and other sources of income. On-site Barranca del 450,000 100,000 4.4 A survey carried evidence, Cobre out in Barranca visitor's (Chihuahua) del Cobre survey suggests a WTP/person/ year related to existence value of US$1.82. Multi- plying this by the number of visitors per annum (55,000 in 199) gives a total of US$100,100; and at a 5% discount rate, a present value of US$4.4. US contri- World Several area 190,869 5,528,809 0.029 Areas involved in butions to Resources the calculation are biodiversity Institute, those contained in conserva- Washington, a WRI tion pro- D.C. biodiversity jectsin projects datae. Mexico n.a Data not available. Souwce: CSERGE, 1993, Working Paper 15. 11 Figure 1 .2 IBRD 26041 UNITED STATES OF AMERICA MEXICO :. POVERTY AREAS IN MEXICO AND IN NORTHERN FORESTED STATES SONORA I - . - . * .- -/f- . OAHUIlAJ> - T ^. %CHIHUAHUA U\ DURANGO I,41S,t't'0"<'DB$o CN ^.-^\HHUAHUA SONORA I S . A ~~COA HU/I A ) iDrnOS .Dur, go ZACATECAS DUJRANGO SINAI CA NAYAI 0 50 IDD 150 KWOMETER.S 0 40 80 120 KILOMETERS JUNE 1994 12 Mcxdco Resource Conservation and Forestry Sector Review Social Values of Forests and Wildiands 1.20 Land reform has ensured communal ownership of 70-80% of forests and wildlands and consequently a broader distribution of forest income than in most other countries where commercial forestry dominates. Some 18 million people live in these forest and wildland communities. They are ethnically diverse and,for the most part, poor, and their needs are not adequately internalized by the country's economic system. The poorest areas of Mexico are indicated in Figure 1.2. Poverty is concentrated in the heavily forested southern states, while Chihuahua and Durango are relatively prosperous. The inset maps of municipal areas (in Figure 1.2) show poverty to be concentrated in the south and in the western parts of the states precisely where forests are also concentrated (compare to Figure 1.1). The forests and wildlands provide products such as fuelwood, foodstuffs, wood for furniture, and medicine that do not require cash payment,thus reducing the need for a poor population to raise quite so much money to survive. Forests also provide employment opportunities that would be difficult for this largely unskilled population to find in urban areas. In sum, forests and wildlands have enormous social value for rural communities. This section examines the subsistence values for the population as a whole and then discusses the social values particular to indigenous and non- indigenous communities and women. 1.21 Forests yield a wide variety of plants and animals used in the traditional life and farming system: (a) foodstuffs (including mushrooms, fruits, nuts, roots, game, and leaves) to complement diets or generate small amounts of cash; (b) medicinal plants and seasonings, either used domestically or sold in local markets; (c) construction materials and materials for household utensils, including furniture wood, roofing materials, mats, trays, storage containers, and house timber; (d) fuelwood for cooking and small-scale enterprises; and (e) commercial extraction of chicle and resins. Ethno-botanical studies indicate that over 2,000 plant species are utilized from Mexico's forests (Bye, 1993, Working Paper 13c). Forests are also supplementary areas for grazing, and in the tropical zones are used in rotation in the traditional slash and burn agricultural systems (Bye, 1993, Working Paper 13c). 1.22 Fuelwood. While not providing a global set of figures, case studies have yielded some noteworthy data on the subsistence value locally of the forest resource. Ninety percent of rural households burn fuelwood, consuming almost five times more than the legal annual cut of timber (Masera, 1993). Domestic fuelwood consumption is estimated at 37 million m3/year, 4.6 times the volume of commercial timber harvested nationally. Typically, cooking is done over a three-stone fire, a system that is notoriously inefficient in heat transfer. In cold climates, wood fuel is also used for heating, and household consumption may reach 14.8 tons/year (as compared to 3.5 tons/year in temperate climates) (Snook Chapter 1 The Value of Mexico's Forests and Wildlands 13 and Hammond, 1989a; Masera, 1993, cited in Snook, 1993, Working Paper 11). Fuelwood for domestic use is usually harvested close to home, and small diameters (like branches) are preferred, since they do not require splitting. A significant proportion of domestic fuelwood is gathered from fallen and dead wood, but where population density is high or fuelwood markets are available, fuelwood is cut from live trees (Snook, 1986; Snook and Hammond, 1989a; Snook and Hammond, 1989b; Masera, 1993). Where oak is available and preferred for fuelwood (for example, in the temperate zones of Chiapas), many oak species, lopped of their branches, sprout repeatedly, replenishing supplies. This is not the case for firs, another favored fuelwood species, and other conifers. In tropical areas, much domestic fuelwood is typically cut from young, regenerating stands on agricultural fallow lands (Murphy, 1990). Nonetheless, due to the high cost of transporting fuelwood from wood-rich to wood-poor areas, the volumes of fuelwood consumed have resulted in local scarcities in some areas. 1.23 Furniture and Thatch. A considerable informal sector uses timber for the production of beams, boards, and rustic furniture in individual or family workshops. Case study information on subsistence use of non-wood products gives an indication of the high value of these goods (see Table 1.7). For example, the local market value of roof thatch in the Yucatan is more than US$ 147 million, and the value of individual medicinal herbs, such as cuachalatate, is considerable (US$ 4,800 a year in one state's markets). While some domestic non-timber products are likely to be substituted for manufactured goods as these become more accessible or as cultural values change, the majority will continue to be important over the short to medium term. The loss in standard of living should the availability of such products decrease is a clear issue for concern (HUKS, 1993, cited in Bye, 1993, Working Paper 13c). 1.24 Indigenous Groups. Indigenous communities share certain characteristics across distinct ethnic groups and regions but differ substantially in others. They all place a high value on forest resources and their conservation even when these provide a very small part of their income in comparison to other activities such as agriculture, fishing, and cash crops. Most households depend mainly on income from marginal agriculture and livestock activities, supplemented by the sale of artesanal products, wage labor, and home production of a variety of articles from raw materials collected from forests, wastelands, or homesteads that substitute for purchased goods. While these households are to some extent integrated into the market economy, there is a fair amount of barter of locally produced goods and socially controlled exchange of labor and services. Social levelling mechanisms exist in many communities that discourage conspicuous consumption or accumulation of wealth. For some indigenous groups forests also have a spiritual 14 Mcdco Racore Conwerztaion and Foreshy Secor Riew Table 1.7 Subsistence Values of Non-limber Forest Products Aggegated Value Non-Timber Products Uses Unit Value (Domestic Value) (US$) Mexican Sabah or Ceilings in the US$210/ceiling 147,312,000 Sabah Yapa Yucatan peninsula (81,000 houses) Cental region US$7.5 -11.6 kgs. 8.629/ha. Wild Mushrooms cooking Cuachalatate Medicinal bark US$0.88/100 kgs. 4,841/year at Morelos local (Amphyptergium used to treat markets adstringens) gastric ulcers Nanche (Byrsonima Fresh or canned US$6.6/30 kgs. 9946/year at Tepalcingo porteri) fruit Municipality Chuchupate (ligusticum Medicinal tea for US$8/dry kg. 24.7/ha. pine forest wholesale; porteri) arthritis and other 70/ha. market price uses Sowrve: Bye, 1993, Working Paper 15. value. Religious sites can be found in the forests, and specific plants and animals have ritual significance that imputes a high value, regardless of their economic use. 1.25 Some indigenous communities are involved in the commercialization of their forest areas, but this is a recent trend. In mixed indigenous/non-indigenous ejidos, the mestizo population tends to control commercialization, even when it is a minority. This does not mean that commercialization is inconsistent with indigenous identity, rather that the historical relationship impeded this development. In the southern tropical and cloud forests, the Huastec Mayan communities have developed a complex system of multi-canopy cultivation in the forest groves, known as te'Uom, that can yield US$1,540/ha/year (Alcorn, 1989, cited in Snook, 1993, Working Paper 11). A significant area in southern Mexico is also managed under indigenous systems of shifting cultivation. While population growth has reduced the fallow period in some areas, elsewhere the fallow period is artificially short because people fear losing tenure if land is left fallow for more than three years and therefore classed as unallocated. If the tenure laws were changed, it is unclear how much of the area now under shorter rotation agriculture would revert to a longer fallow, slash-and-burn system. 1.26 Non-indigenous Communities. In some respects non-indigenous communities vary: for example, where forests are commercially managed, ejidos range from those that are well organized for competitive and integrated business Chapter I The Value of Mrico 's Forests and Wildlands 15 enterprises to the relatively inefficient and low-technology extracting and processing enterprises. In other respects, they share some characteristics that differentiate them considerably from indigenous groups. First, they seldom have a strong attachment to the forest other than as an exploitable resource rather than as a good with a multitude of values. Second, they have little history of community-mandated regulation on its use. Third, as would be expected from historical circumstance and market orientation, a larger number of competitive forest enterprises are found in non-indigenous ejidos than in indigenous ones. Fourth, they do not view entrepreneurial activities that allow a few to become wealthy as negative to social cohesion. Fifth, while many non-indigenous communities also face problems related to low educational levels, lack of access to investment capital, limited business acumen, etc., these problems are not further exacerbated by cultural factors and lack of access to non-indigenous power structures, as is the case with indigenous groups. 1.27 Women and Forest Values. Information on women's role in forestry in Mexico is very sparse (Arizpe, Paz, and Velasquez, 1993, Working Paper 1). Women have primary interest in the fuelwood values of the forests. Men collect most of the timber products in the course of their travels to and from the household, but both women and men collect domestically important and commercially important products. As in many developing countries, women tend to have a greater interest in conserving the resources in the environs of their village, since they view remaining on the land as a more desirable strategy than migration and are often left to look after the farm with older family members and children when men migrate temporarily for employment. Unlike in Africa and Asia, however, women in Mexico do not normally collect a much greater range of forest products for domestic consumption and sale compared to men, nor are forests very important for sustenance to the poorest populations or in times of famine or natural disaster when crops fail. Regionally, however, this picture can vary. In areas with long-term habitation, women have a strong working knowledge of forest products in their environs and are the main transmitters of this knowledge to other generations. In areas of new settlement (e.g., in the tropical agricultural lands), women are much less familiar with the local ecology and tend to use very few forest products. Economic Value 1.28 Non-timber Products. Official statistics grossly underestimate the total economic value of non-timber products-only 0. 1 % of GDP, counting all officially recorded trade. A preliminary inventory applied an estimate to temperate and tropical forests, based on the regional market values of plants assuming one-quarter of the exploitable plants was marketed. The temperate forests, with 613 useful plant species, could generate 1.17 million tons of 16 Merico Resource Conservation and Forestry Sector Revew biomass with a market value of US$528 million. The tropical forests, with 574 plant taxa used locally, could generate 1.6 million tons of vegetal material with a market value of US$729 million (see Table 1.7). Although the market prices underlying these calculations reflect much smaller traded volumes and exclude the costs of extraction, they still highlight the importance of these products in the Mexican formal and informal economy. 1.29 Additional independent estimates confirm these results. In local markets, medicinal plants, the most important non-timber category, are worth US$6-23 per kilogram (kg), while edible mushrooms can reach a value of nearly US$300 per hectare. In the international herb market north of Mexico City, the prices of single medicinal ingredients average US$41/kg. The value of medicinal plants that move through Mexico City could exceed US$1 billion per year, but not only medicinal plants have high value. Edible mushrooms in temperate forests of central Mexico reach prices of US$7-12/kg, and 1 ha of pine-fir forest could produce around US$572.2 per year of just one edible mushroom species. Chuchupate, an odoriferous perennial herb of the moist, shady sites of the pine- oak forests, sells for more than US$8/kg in the regional market and reaches US$18/kg in Mexico City. Chicle production from the Yucatan has a market value of US$2.8 million per year. Informal trade in ornamental plants is also important. The camedora palm (Chamaedorea) alone brings about US$20 million to Mexico's local markets; most of its seeds and leaves consumed in the United States are derived from wild populations in Mexico. Many other species of ornamental plants are collected in the wild and shipped to other countries. Value and quantity data was obtained for two categories of plants representing 150 plants in Mexico City and about 50 ornamental plants in the informal trade. The annual economic value for formal and informal trade of about 296 medicinal plants and ornamentals approaches US$1.5 billion, but even this figure grossly underestimates the total value of non-timber products, as species traded and consumed could approach 1,500. The trade value for this larger number could exceed US$7 billion annually (Bye, 1993, Working Paper 13c). 1.30 Timber Products. The 1991 National Forest Inventory (Gran Visi6n, cited in Synnott, 1993, Working Paper 14) estimates the total volume of timber in forest areas to be 2,799 million m3, of which about 1,000 million m3 is tropical. The annual increment of temperate forests (the source of 95% of Mexico's industrial timber) has been calculated by the SARH to be 25 million m3/year. Extrapolating from the standing volume data for the tropics, one can estimate the annual increment in the tropical forests to be 13.5 million m3, which combined with the temperate forests yields 38.7 million m3 for the whole country. Official data on timber production show a decline to an average of 7-9 million m3 annually (mainly from the 17 million ha under the management plans legally required for any extraction activities). This estimate is extremely suspect, Chapter 1 The Value of Mexico's Forests and Wildlanks 17 however, given that only one-third of the forested area is under a management plan, a large amount of illegal logging occurs even in some managed areas, and the scale of domestic extraction of timber and fuelwood from areas not under management plans. SARH estimates the strict commercial value of timber to be slightly less than 1% of GDP (a decline of 23.6% of its share in 1987), or 1.8% if paper, pulp and printing industries are included, and about 7.7% of the GDP of the agricultural sector (Synnott, 1993, Working Paper 14). Official extraction of roundwood is about 8 million m3/year. Imports of pulp, paper and roundwood were US$ 823 million in 1991, up from US$ 580 million in 1981. Perhaps because of the apparently small contribution of forests to GDP, this sector has been neglected in budget allocations. Only 4% of the total agricultural budget is allocated to the SFF, which is responsible for the implementation of forest policy and public investments in the sector. 1.31 Official statistics are hampered by the large quantity of unrecorded illegal harvesting. Official figures estimate per capita industrial roundwood consumption at 0.08 m3 compared to 0.45 m3 in Chile and 0.49 in Brazil. Given that roundwood consumption is a good indicator of economic development, it is unlikely that Mexican consumption is only one-sixth that of Chile, despite the difference in level of income per capita (HUKS, 1993, cited in Bye, 1993, Working Paper 13c). 1.32 Timber Industry. The forest industry, a total of 2,612 installations, is dispersed throughout all the states and includes 1,659 plants involved in sawnwood and lumber, 659 woodbox plants, 14 impregnation plants, 18 panel plants, 32 plywood mills, 9 particle board plants, 2 fiberboard, 13 resin- processing plants, and 309 secondary workshops. Ninety percent of the industry is small scale and is geographically distributed as follows: Durango, 29%; Chihuahua, 18%; Michoacan, 16%; and all other states, 37%. The industrial base includes a modem pulp and paper industry (satisfying less than half the national requirements), as well as a very large number of sawmills and other industries, of which a few are large, modem and efficient, while the great majority are old, inefficient, and poorly located. The data on industrial potential and capacity are extremely weak, and there is controversy therefore regarding the extent of overcapacity in both the mechanical and chemical (e.g., wood pulp) industries. Table 1.8 below shows the official figures on installed and utilized capacity in these industries. SARH figures for Chihuahua for installed capacity in 1992 are double the local figures (3.7 million m3/year rather than 1.8 million m3/year) In addition, studies carried out in Durango (Hemandez, 1992 cited in HUKS, 1993, Working Paper 13) and Oaxaca (Zabin, 1992, cited in Snook, 1993, Working Paper 11) record capacity/utilization for particle board to be 88% and 66% compared to official figures closer to 60%, and for triply to be 73% and 70% compared to official figures closer to 35% (HUKS, 1993, cited in Bye, 18 Mexico Resource Conservation and Forestry Sector Review 1993, Working Paper 13c). The discrepancy is probably due to both overestimation of capacity and underestimation of actual supply. 1.33 Despite the presence of a large standing volume, the forest industry is not very competitive internationally because production costs (including transport) are high, community-managed forests are inefficient, few forests are actively managed, and lack of infrastructure makes most of the timber inaccessible. Only 30% of the forests in the six main timber-producing states are accessible for harvesting (HUKS, 1993, cited in Bye, 1993 Working Paper 13c). As was mentioned earlier, only 7 million ha (or 14%) of the total 50 million ha of productive forests are managed, and of that, less than half (2.8 million ha) is under the newer and more productive M6todo de Desarrollo Silvfcola (MDS)2 rather than the more traditional M6todo Mexicano de Ordenaci6n de Montes (MMOM).3 An even smaller proportion is under the integrated forest management model derived from the MDS, which is the forestry and environmental laws promote. However, the integrated model is likely to reduce the rate of timber harvesting in favor of non-timber products and environmental values. 1.34 Mexico's forests are 3.5 times less productive than those in the United States and 2.3 times less than those in Canada. In one sense, Mexican forests are a forester's dream in that large expanses have yet to be brought under intensive and scientific management, but it remains to be seen whether these forests can compete internationally now that trade is being liberalized, given the constraints on reducing production costs of the timber industry. 1.35 A very rough calculation of the broader economic values, incorporating the social and environmental elements into the analysis, suggest that the forest 2 The MDS (Method of Silvicultural Development) is a silvicultural model that employs a seed tree method of regeneration in the natural pine-oak forest, combined with a series of thinnings to obtain an even-aged stand structure to maintain sustained yields. Rotations are determined by the age of maximum mean annual increment (MAI) (of 50 to 100 years) and cutting cycles are 10 to 16 years. The purpose of this method is to extract those trees that are older or younger than average, then thin them sufficiently to give the remaining stems space to develop, taking from 20-30 percent by volume at each thinning. Ecologically, forest diversity is maintained across stands, since different blocks within the overall areas managed are cut in different years, creating a checkerboard of even- aged stands of different years' growth. 3 MMOM (Mexican Method of Harvesting) is a selection system for natural pine-oak forests, which because of its poor implementation led to high-grading (repeated extraction of the best and most accessible trees) of the pines and an over-regeneration of noncommercial oaks and pines of poorer genetic quality than those harvested. The competitive advantage of this system in the short term is that more wood of larger diameter with a better market is harvested. While this method deteriorates the commercial value of the forest, it may in fact favor great biodiversity in oak and pine species and other flora and fauna. Chapter 1 The Value of Mexco's Forests and Wildlands 19 sector may have a much higher economic gross domestic product (GDP) than assumed both for the agricultural sector and for the economy in general (see Table 1.8). 4 Table 1.8 Estimated Values of Mexican Forests Values (USS millions/hectare/year) Non- Timber Area Forest Watershed Option Forest Type Forest (m/ha) Products Carbon Protection Value GDP Total Tropical 9.7 $330 $100 S6.4 435 Evergreen haWyr Tropical 16.1 $56 $56 Deciduous Temperate 16.9 $103 $103 Coniferous Temperate 8.8 $330 $20 $350 Deciduous Total 51.5 n.a. $3788.3 $2.3 $331.7 $60.2 $4,214 n.a. Data not available. Source: CSERGE, 1993, Workdng Paper 15. 4 The importance of non-timber products (NTFP) was measured as value of output rather than value added and this should be seen as an upper limit on its economic value. II. THE CONTEXT: PAST POLICIES AFFECTING FORESTS AND WILDLANDS 2.1 This chapter (a) examines the history of policies relevant to forests and wildlands, within and outside the sector; (b) describes how these policies shaped the sector, particularly for the communal ejidos and indigenous community forest owners; and (c) enumerates the institutions responsible for forest and wildlands management and the constraints to their effective support of timber and non- timber management and conservation activities. 2.2 Throughout the colonial and post-colonial history, Mexico's forests have been undervalued. The policies that determine the commercial and noncommercial use of the forests have favored commercial timber returns over the long-term environmental values to society. While some parks and protected areas were established at the start of this century, the majority of the forests were considered by policy as raw material for industry and a frontier for future agricultural and livestock expansion. Conservation policies within the sector, such as conservation of biodiversity, were overridden by the force of policies outside the sector-general economic development, agricultural, and land reforn policies. 2.3 This chapter argues that past economic and agricultural policies affecting the forest resource in Mexico have led to underutilization of the resource potential described in Chapter I. Most of the incentives for deforestation and degradation originated in land tenure and agricultural policies that taxed long-term investments and conservation of forests. Policies and laws designed to favor noncommercial uses of the resource by the population, the conservation of environmental goods and services (including biodiversity), or aesthetic and cultural values have therefore not been effective. 2.4 Specifically, these policies effectively divided the sector as follows: (a) the resource was given largely to the social sector (ejidos and communities) with small landowners retaining about 30 % and industrial entities being prohibited from owning land; and (b) the industrial area remained largely in private hands and the regulatory role remained with the government (but with very little effectiveness). The ineffectiveness of the government was largely due to its lack of leverage (few resources for enforcing laws and regulations or for providing technical or financial assistance) and credibility (e.g., many actions, such as the creation of parastatals and the forced takeover of the resource for several decades, alienated most ejidos and communities). As a result of all of these factors, there has been no chance for building an efficiently integrated system of 20 Chapter 2 The Context: Past Policies Affecting Forests and Wildiands 21 forest enterprises countrywide. Some ejidos have been able to gain the necessary technical skills and financing to develop relatively efficient, integrated enterprises, but the status of most forests, harvesting and transport systems, and social sector manufacturing enterprises is very poor. This has led to the steady degradation of most of Mexico's temperate forest resource; the tropical areas are being even more rapidly depleted and poorly utilized. Land Tenure Policies Affecting the Sector 2.5 Of the three types of relevant policies-land reform, agricultural, and forestry-land tenure policies have had the most negative impact on the forests. After independence, basic categories and parameters of land rights were defined in Article 27 of the 1917 Constitution, allowing three types of property: ejidos, small property, and communal property (comunidades). 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. Small property is privately owned and is subject to size limits according to the quality of the land and type of crop or economic activity. Communal property is based on the historical rights of pre-hispanic indigenous communities who have maintained their traditional communal property structure. Many of the specific decisions as to whether a population group received ejido or community property rights depended on the group's historical circumstances, and there are large number of indigenous populations that have ejido rather than community property rights. 2.6 Agrarian Reform. The Agrarian Reform of 1934, which operationalized Article 27, promoted occupation 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 while preventing the privatization of forests, which remained state or community lands. The focus of the agriculture reform legislation on agricultural activities contributed to the general lack of interest in the forest sector and is indirectly a cause for the deforestation that took off in the 1940s (LEEC, 1993, Working Paper 4). The Constitutional Reform of 1947 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 trees and the advance of the agricultural frontier. 2.7 Land was not distributed to ejidos immediately after the 1917 Constitution and only began to proceed in 1930. In subsequent years land distribution would vary considerably between presidential periods. When first distributed in the 22 Mexico Resource Conservation and Forestry Sector Review 1940s, all ejido land was communal, but many ejidos have since opted to parcel part or all of their land to agriculture. Thus, some ejidos have communal land only (about 7% of total ejidos in 1991), some have communal and parcelled land (65 %), and some are completely parcelled (28%) (DNWGI 1992). 2.8 Between 70% (SARH/SFF, 1984) and 80% (SRA, cited in Comisi6n de Seguimiento, 1992) of Mexico's forest lands are owned by 7,831 (SARH 1984) to 9,047 (Belasteguiguoitia and Fernandez, 1993, cited in Snook, 1993, Working Paper 11) ejidos and indigenous communities. This ownership resulted from the ejido-based land reform in which boundaries were drawn around groups of smallholders and their agricultural, pasture, waste, and forest lands (ejidos) and independent, indigenous communities were given rights over their traditional territories or the lands to which they had moved (comunidades). These communities and ejidos (nearly half of which are more than 9% indigenous populations) control areas ranging from 100 ha to 100,000 ha (SARH, 1984). Between 7 and 10 million hectares of the remaining forest land is owned privately, mainly by smallholders with forests averaging 3-20 ha in size. Until 1993, the ceiling on private forest holdings was 1,000 ha. The rest of the forests and wildlands is either designated as protected areas or declared as national forest. Since park and national forest figures do not differentiate forested land from desert, barren, or scrub land, it is impossible to report accurately the total area of government forest, but it is likely to be 5-10 million ha. The picture is further complicated by the fact that national parks and protected areas sometimes include settlements within their boundaries and some land reported as ejido forest is actually within government-owned land boundaries or vice versa. 2.9 Incentives for Deforestation in Land Redistribution. The process for allocating land and resource rights had far-reaching implications for efficiency in land and resource management. Parcelling gives the ejidatarlo (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 many ejidos. Because of the lack of tenure security and of a formal market for land where land transactions have taken place, land has usually been undervalued. This attenuation of property rights has also depressed land investments, which could presumably include forest conservation and plantations. 2.10 Incentives for Degradation in Land Tenure Rights. Community resource ownership can be as efficient as private ownership, and there are growing numbers of examples worldwide of communities doing a better job than individuals or public managers in internalizing local environmental values Chapter 2 The Context: Past Policies Affecting Forests and Wildlands 23 (Participation Handbook, World Bank, 1994).5 While the potential clearly exists in Mexico for efficient community resource management, the historical picture has been negative overall, due to the insecurity of forest and wildland property rights under land reform and the resulting failure of most communities to evolve or maintain (in the case of indigenous communities) strong resource management systems-particularly where competing interests have been brought in by commercial timber exploitation. A significant number of indigenous communities maintain respected, traditional mechanisms for distributing resource use rights to community members and, in such cases, have buffered themselves against the insecurity of the formal tenure system. The best examples are from Oaxaca, where many communities have opted for very conservative forest management that leaves the forest nearly intact and leads to little depletion (Snook 1993, Working Paper 11). Other examples are found in Quintana Roo (in the chicle- extracting areas), Durango, Chihuahua, and Michoacan (Madrid, 1993, Working Paper 2). 2.11 At the opposite extreme, are a large number of ejidos that either never developed effective resource management systems due to the lack of incentives and the diversity of the ejido population or had systems that progressively deteriorated with the competing interests of the members and outside timber and non-timber interests-again, a situation that was exacerbated by the lack of legal or government support of their communal forest tenure boundaries. This open access gave an incentive for each member of the community to deplete the resource as fast as possible, before someone else did. In addition, it was common for a small group within the ejido to appropriate more of the resource, further undermining the possibility of effective cooperation. Many example of this are documented in case studies (Snook, 1993, Working Paper 11). 2.12 Lack of Entrepreneurship in Ejidos. Another problem resulting from land reform was the domination of the land reform process by local political bosses and ejido officials who, in many cases, controlled ejido land distribution and profited by brokering the access of ejido members to credit institutions and development projects. In areas with mixed mestizo and indigenous populations, these bosses sometimes succeeded in excluding minority indigenous populations from ejido membership, thereby reducing their resource base and preventing their political participation. In many ejidos, an atmosphere of distrust developed that made all resource management decisions difficult. The government adopted a relatively paternalistic relationship with many ejidos in an attempt to spur their 5 The Food and Agricultural Organization of the United Nations and the Overseas Development Institute in London have documented numerous examples from India, Nepal, Bolivia, Ecuador, Panama, and selected forest ejidos in Mexico (Forest, Trees and People Network, FAO, and Rural Development Forestry Network, ODI). 24 Mexico Resource Conservauon and Forestmy Sector Review development, micromanaging decisions on programs and ejido member participation in them. The government also required a 25 % tax on ejido sales, which was intended as a forced-savings program but which prevented the ejidos from making effective use of the funds. The end result was that few ejidos developed the entrepreneurial skills needed to foster efficient resource management or strong forest-based enterprises. Community Organization 2.13 Ejido and Community Forests. Forests ejidos and communities have a rich and varied history by region and type of resource. Social organization of the ejidos and communities and their forest use patterns depend on cultural and social circumstances as well as the extent and quality of the forest resources. It is not possible to characterize the ejido sector nationally by resource quality and extent, although there are some case study figures. Ninety-five million of Mexico's 197 million ha (49%) of national territory are owned by communities, while the figure for Oaxaca, a timber-rich state, is 79 %. In the two northern timber-rich states, Chihuahua and Durango, 2,398 ejidos and communities own 83 % of the 29 million ha of forest land. In Oaxaca, 52% of forest ejidos are deficit in wood, 11 % are in equilibrium, and 37% produce a surplus. Of the 7,000-9,000 ejidos and communities with forests, 5,148 exploit their forests commercially (18.4% of the ejidos). The others have forests in their boundaries that supply limited but significant products such as fuelwood, medicinal plants, foodstuffs, omamentals, household construction materials and utensils, frames and posts for agricultural and artesanal use, matting, etc. (Madrid, 1993, Working Paper 2). 2.14 Typology of Ejidos. Aside from the small number of large forest- processing companies, the efficiency and productivity of Mexico's forestry enterprises are strongly related to the nature of ejidos and communities owning the bulk of the forest resources. Industrial community forestry (particularly the sale of logs or transformed products) has improved the economies of forestry communities, although sometimes this is visible only in new community buildings and not in a consistent increase in the standard of living of community members. Although in many cases group forestry is plagued with problems of inefficiency and rent dissipation, there are a few success stories that demonstrate the potential of forests for helping improve the well-being of rural populations. Where there have been relatively few community members in proportion to the forest area (where ejidos have forest holdings above 2,000 ha for example) and the community's social structure has allowed for development of adequate management of forestry activities, community members live quite well from the income from forestry (for example, San Isidro, Durango; San Juan Nuevo, Michoacan; and Noh Bec, Quintana Roo) (from Madrid, 1993, Working Paper 2 and Nahmad, 1993, Working Paper 3). Chapter 2 7he Conte=s: Past Policies Affecting Forests and Wildkands 25 2.15 Typing communities according to their level of organization, ethnicity, and level of forest commercialization is complex. Nearly half of the 7,000-9,000 forest ejidos have at least 9% indigenous populations in their boundaries, and even primarily indigenous ejidos have some non-indigenous inhabitants, who, although a small minority, tend to have disproportionate power over forest-related decisions. Of the forest ejidos, about 65 % have forests of commercial potential, but only half of these have management permits or management plans allowing legal extraction. Based on the populations's cultural aspirations, the level of commercialization of forestry activities, the potential quality and current management of the forest resource, and the social organization and educational level of the members, the following rough typology of the forest ejidos and communities emerges from the available information: (a) Mainly non-indigenous ejidos that are able to compete successfully in a highly commercialized market and that have adjusted the social structures to allow the forestry enterprise in the ejido to function fairly similarly to those enterprises in the industrial sector (10-20, less than 1 %). (b) Mainly non-indigenous ejidos that could compete in a highly commercialized market given greater business management acumen, better knowledge of markets, and some essential inputs like better road networks, more sophisticated processing equipment, etc. (140-180, less than 2%). (c) Primarily indigenous ejidos or communities with similar possibilities but different social parameters for decisionmaking (140-180, less than 2%) (see Box 2.1). (d) Indigenous and non-indigenous ejidos with relatively poor forest resources that would have to limit their income from the forests to a relatively small percent of their overall income and that need business training, better inputs, and access to capital on flexible terms to make their forestry enterprises viable (1,980, about 20%). (e) Indigenous and mixed communities and ejidos with relatively good resources but with little business acumen, strong social constraints on managing their enterprise as a traditional business, and considerable history of exploitation by outsiders and savvy community members; mostly living where land tenure boundaries may also be in question (2,000, about 30%). 26 Mexico Resource Conservation and Forestry Sector Review (f) Indigenous and non-indigenous communities and ejidos where the non-timber benefits of the forest resource (ecotourism, non-timber forest products, recreational values) may be greater than timber (800, about 10%). (g) Indigenous communities and ejidos with poor resources and considerable problems of internal organization, education and awareness of the opportunities in the market, and social marginalization (2,000, about 30%). (h) Indigenous communities with a history of slash-and-burn or agroforestry-based farming systems (100-150, less than 2%). 2.16 In addition to the more general indigenous/non-indigenous distinction, a continuum of indigenous groups was identified by this between those ethnicities that have developed more-efficient forestry enterprises to those with less-efficient ones. This data is presented in Table 2.1 From most to least efficient, the groups are: mestizos del sureste, mestizos del norte, mestizos del centro, Purepechas (Tarascos), Mayas, Otomies, Zapotecos, Tarajumaras, Chinanatecos, Tepehuanos, and Zoques de Oaxaca (Chimas). This is not to say that the present Box 2.1 Union of Communities and Forest Ejidos of Oaxaca (UCEFO) One of the exciting examples of indigenous ejido forest enterprises is the UCEFO, a union of ejidos in the state of Oaxaca, that lobbied during the 1970s and 1980s to take over a forest industry concession on 260,000 ha of their land. The battle for control of their forests helped them develop a strong organization, and after winning control of the concession, they formed a forest enterprise that has become increasingly efficient, technologically and organizationally. The union has received technical assistance from several foundations and nongovernmental organizations, including Estudios Rurales y Asesorfa (ERA), which is now expanding its capacity to provide technical assistance to a wider net of forest ejidos. The UCEFO has hired its own technical foresters and has attempted to train a large number of ejido members in business management and organizational skills as well as forestry. The union still has many problems to resolve to reach the desired level of financial stability, business efficiency, and long-term sustainability, but has made remarkable progress in a relatively short period of time. This experience has helped to catalyze similar movements elsewhere and the UCEFO is part of the National Forest Ejido Network (NOCAF), which includes other successful experiments, such as Plan Piloto Forestal (PPF) in Quintana Roo, San Juan Nuevo in Michoacan, and ejido unions in Chihuahua and Durango. Table 2.1 The Viability of Indigenous and Non-Indigenous Forest Management Cust. Indigi- Rules High Job nous Incorp. High High Level Commu- Commu- Rota- Govt. into High Level Accultu- Techni- nity Municipal nity tion Not Involved Forest Fiscal Local ration cal Controls Control of Controls Specia- in Deci- Manage- Respon- Cacique TOTAL Ethnic Group Forest Type Level Skills Harvest Decisions Benefits lization sions ment sibility Control SCORE NORTHERN REGION Mestizos Temperate P p p p P R P P p R 90 Tepehuano Temperate N N N R N N N I N N N 14 Tarahumara Temperae N N N P N N N N N 19 CENTRAL REGION Tarascos or Temperate P R R R N R R N R P 52 Purepecha Otimies de Ternp/Trop R R N R R N R N N R 33 Vcracruz Mestizos Temperate P R P P P P P R R p 85 OAXACA REGION Zapotecas Ternp/Trop P R N N N R N N J R N 31 ChinPntecas Temp/Trop R R N N N N N |_ N R N 18 Zoques Tropical N N N N N N N | N | N N 10 Mestizos No Forest _ _ _ _ J J_1 ____ SOUTHEAST REGION Mayas [Tropical J N [ N R P N R | R N N R 35 Mestizos Tropical | P P | P R R P | P R P 90 Scoring key: P= Positive, 10 points, R= Regular, 5 points, N=Negative, 0 points Source: Nahmad, 1993, Working Paper 3. 28 Mexico Resource Conservation and Foresnry Secor Review position of an ethnic group on the continuum will control its future position, but there is clearly a wide range of ability to compete as well as a historical lack of support to ejidos (Nahmad, 1993, Working Paper 3). Successful groups include San Juan Nuevo in Michoacan, the Oaxaca communities, and the Zona Maya communities in Quintana Roo. Agricultural and Livestock Policies 2.17 Deforestation. In Mexico, as in other countries, forests are often converted for agriculture and livestock. With an FAO-estimated annual deforestation rate between 1981 and 1990 of 1.3%, Mexico has a lower rate of deforestation than any other country in Central America, but has been losing forests at a faster rate than the South American countries of Brazil, Colombia or Peru. In terms of average annual area lost, Mexico, with 678,000 ha converted annually between 1960 and 1985, ranks second after Brazil, which is converting 3,671,000 ha annually. Mexico's deforestation is a cause of concern, however, because most of it is concentrated in the tropical south and thus the regional incidence is greater than aggregate figures would indicate. 2.18 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% a year, outstripping population growth and surpassing any other Latin American country. Expansion in cultivated (120%) and irrigated (85%) area induced this period of growth. However, crop yields between 1947 and 1950 dropped dramatically and recovered to the pre-1945 levels only by the mid-1960s. The decline in yield was due partly to a faster expansion of the rainfed area over irrigated area and partly to the negative incentives created by direct and indirect agriculture taxation. The rapid growth of the agricultural sector could not be sustained. By 1965, most of the better quality land was under cultivation and productivity per hectare showed no improvement. The cumulative result was that between 1965 and 1980, agricultural GDP grew only at 2.4% 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%, matching growth in consumption which was 16%. The area devoted to fodder production also increased by more than 100% between 1970 and 1985. Growth in livestock put considerable pressure on forests lands, as will be dealt with in more detail in Chapter IH. 2.19 Direct and indirect subsidies 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. Chapter 2 7he Context: Past Policies Affecting Forests and Wildlands 29 In 1987, the total cost of these subsidies exceeded US$ 2 billion (World Bank, 1989a). Combined subsidies and transfers for fertilizer alone reached over US$600 million in 1986. 2.20 Policy was neutral, with one exception, in the earlier period. The exception was rice, which was taxed at a rate of more than 50 percent. Policy grew more protectionist from 1970 to 1988 for maize, sorghum, barley, and soybeans, and less for wheat. There was little change in the protection to rice, which remained heavily taxed. The permanent crops-sugar cane, coffee, and cocoa-were heavily taxed in all periods (Table 2.2). Maize, the most important staple, has been subsidized since 1960. The aggregate protection is revealed to be much higher if one accounts for all the interventions in the input markets. In addition to administered and guaranteed prices, govermnents used input subsidies, targeted lines of credit, trade restrictions and subsidized imports. Until recently, GOM parastatals also were assigned important roles in marketing, storage, and processing. Various other kinds of subsidies were put in place to increase production levels. One central result of these policies was to expand land under agriculture. 2.21 Livestock has also been heavily subsidized. Price subsidies to livestock were given though low feed prices. Until Alimentos Balanceados de Mexico (ALBAMEX) was eliminated in the early 1990s, it received significant fiscal transfers from the government and undertook substantial loans, which further lowered the cost of feed to the producer. This encouraged expansion of livestock and pasture to the detriment of forests. Coffee crops that can coexist with trees, have been implicitly taxed. While expansion of these crops could be beneficial to maintaining forest cover because these crops can be cultivated under shade, the incentives created by the policies encouraged expansion of annual crops instead. 2.22 Agricultural Credit. Subsidies implicit in lending were substantial. The main lenders to the agricultural, livestock and forest sectors are the Rural Bank (BANRURAL), the agricultural trust fund in the Bank of Mexico (FIRA), the trust fund for credit in irrigated and rainfed areas (FICART), and commercial banks. Producers have received loans directly from BANRURAL and commercial banks, who discount the loans with FIRA and FICART. The interest rate used by BANRURAL and other banks in their loans to the rural sector has varied according to the type of credit, income level of the producer, whether or not they are ejidatarios, and the products produced. Credit disbursements to the three sectors are currently evenly distributed. Between 1983-87, agricultural and livestock lending represented on average 57% and 28%, respectively, of the total lending by these institutions. Subsidies in lending did represent a substantial cost to the government. Government transfers between 1982-86 averaged 0.45% of GDP. However, by 1989 transfers had been lowered to 0.09% of GDP. Until 30 Mexico Resource Conservation and Forestry Seaor Review Table 2.2 Nominal Protection Coefficients for Nine Major Crops (annual values averaged by sexenio) [PEr3od Maize Wheat Sorghum Barley Rice Soybeans Sugar Coffee Cocoa 1950-58 0.85 1.06 na 0.57 na na 0.45 0.75 0.66 1959-64 1.16 1.18 0.99 0.90 0.45 0.88 0.62 1.20 0.91 1965-70 1.24 1.15 0.88 1.04 0.51 0.95 1.19 1.08 0.95 1971-76 1.05 0.86 0.87 0.81 0.49 0.92 0.42 1.00 0.87 1977-82 1.36 0.93 0.99 0.95 0.48 0.93 0.64 0.73 0.79 19°83-88 1.45 0.92 1.14 1.02 0.52 1.08 1.17 0.81 0.52 1989-92 1.72 1.19 1.15 1.46 0.53 1.16 1.19 0.46 1.06 Source: World Bank, Mexico: Agriculture Sector Memorandum, 1994.and cocoa, the main perennial recoveries of only 49% in 1987 and 65% in 1988. BANRURAL imposed few or ineffective sanctions on loan default by ejidos (Heath 1990). Since ejidos have not been able to use their land as collateral, BANRURAL had to waive this requirement, and without incentives among individual ejidatarios to repay, many loans went into default. 2.23 Forestry Credit. Credit was and remained an obstacle to more intensive forest management or establishment of plantations. There have been very limited sources of credit apart from informal loans by industries for ejido and community producers and truckers (SARH 1994). In the formal sector, these are mainly loans by FIRA channelled through first-tier banks. Forest activities, mainly forest industry lending, are considered part of FIRA's agroindustry and make up on average 15 % of total loans. Less than 10% of FERA and BANRURAL agroindustry loans went to forest industries in 1991 and only 1.5% of formal agricultural sector credit was channeled to the forest sector. In addition, the terms of this credit are predetennined by the financial institutions who perceive this as a high-risk sector. Ejidos are therefore provided with very narrow ranges of forest management and business management options to generate the needed profits to pay back the loans. Where such terms of credit are inappropriate, ejidos and communities have the choice to adapt themselves to these terms, whatever the social and developmental costs, or go without. The informal loans to individuals and communities by industry have not led to positive growth of private and ejido enterprises because they have often been made only on the condition that forest owners would give an exclusive right of sale to the lender or because significant parts of loans were co-opted by more powerful ejidatarios. Chapter 2 7he Context: Past Policies Affecting Forests and Wildlands 31 2.24 Policy Impact. The incentives created by tenure and economic and agricultural policies, combined with the negative signals sent by the land reform's focus on agriculture over forestry, have strongly discouraged forest management. The detailed deforestation impacts will be described in the next chapter, along with an analysis of the dynamics of the underlying causes. A substantial portion of this deforestation is believed to have been negative, although there is a dearth of detailed studies to provide concrete evidence. Data indicate that the level of deforestation has exceeded the availability of lands appropriate for other uses and that many of the lands now being deforested cannot be used productively for pasture or agriculture. Of the roughly 33.4 million ha classed as appropriate for cropping, only 8.2 million ha are in the "very high" or "high" potential classes, with another 9.2 million ha in the average class. The area under crops exceeds the area suitable for agriculture or livestock, which suggests that deforestation has gone beyond what would make economic sense. The current policy framework put in place by the government, which is the subject of Chapter V, has tried to redress the past situation and has succeeded to a significant extent. In recent years all commodity guarantee prices, except for maize and beans, have been eliminated. Except for credit subsidies, which remain pervasive, all input subsidies have been eliminated. Policies in Forest Sector 2.25 The Legislative and Regulatory Framework. Forest policies have exerted a countervailing force to land reform and agricultural and economic policies to preserve forests and wildlands and promote forestry. The policies have been partially successful in this attempt. Mexico has had forestry legislation since 1884, but in practice this has often been overridden by other policies, particularly land reform legislation and agricultural growth policies. Most of the legislation has been heavy on regulations and de facto control, limiting the users' decisionmaking power over the resource. Regulations imposed costs on forest users and added to the incentives for conversion of agricultural land to forestry. 2.26 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 and oak forests in the Sierra Madre range. These firms built a number of large-capacity sawmills (100,000 board feet per day, or about 225 m3 per day) in Chihuahua and Durango and constructed a dense network of forest roads, many of which are still in use today. In this period, a significant proportion of the old growth timber of both states was harvested. 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 Table 2.3 Current Forestry Institutional Structure Main Participants M Privatized Field Federal Forest Offices State Primary Private Activity Level (UCODEFOS) Government Producers Industrial NGOs Sector 1. Planning Subsecretarfa a. Resources Management Forestal (SFF) b. Forestal Inventory c. Regional Development 2. Forestal Policy Subsecretarfa Proposals Research a. Forestal Management Forestal (SFF) and proposals b. Levels of Deregulation agreements c. Incentives d. External Sector 3. Rules and Regulations Subsecretarfa a. Permits Forestal (SFF) b. Technical Services and Regulation National c. Tapping Supervision Ecology Institute (INE) 4. Protection of Forestal Subsecretarfa Privatized Own actions Own actions Actions to Participation Resources Forestal (SFF) Forestry and in co- and in agree- support and support to a. Fires Regulatory Technicians ordination ment primary primary b. Forestal Sanitation Staff (UCODEFOS) producers producers c. Waste Regulation Implementation 5. Protected Natural Areas Subsecretaria SFF state Coordination Agreement Agreement Concession a. Management Forestal (SFF) delegation b. Norms and fines and National INE and c. Policing Ecology Procuradurfa Institute (INE) Medio Ambiente 6. Assessment of INE Privatized Environmental Impacts Procuradurfa Forest Field Medio Offices Ambiente (UCODEFOS) 7. Technical Services Own services Concession 8. Primary Use Owners Plantations Small size owners 9. Industrial Development Raw Material Production of Fabrication a. Raw Material Supply supply raw materials b. Manufacture agreements 10. Transportation of Own Service Foroaty Products 11. Markets- Through Own Commercialization middleman 12. Financing PRONOSOL National National Water Advances Reforestation development Commission at Protected Areas banks important basins 13. Social Promotion SFF, INI INI Support to producers 14. Promotion Private SFF Associations Associations Participation 15. Forestal Infrastructure Regulation Roads Roads 16. Training Regional To producers 17. Research INIFAP; Own Own Own CONABIO Sorce: Castr et al., 1993, Working Paper 8. 34 Mexico Resource Conservation and Forestry Sector Review 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 to another, 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 some processing centers are quite high relative to the available source of raw material. 2.27 After the 1910 revolution, the forests of Mexico were largely transferred to the "social" sector (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 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. 2.28 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 (private landholdings were limited to a maximum of 1,000 ha). 2.29 Institutional Responsibilities. With the 1986 Forest Law, the current institutional responsibilities for forestry emerged. The two main government agencies responsible for actions in the forest sector are: the Forest and Wildlife National Subsecretariat (SFF) within the Ministry of Agriculture and Hydraulic Resources (SARH), and the Institute of Ecology (INE) within the Ministry of Social Development (SEDESOL). Prior to 1991, there was no SEDESOL, but the Ministry was the Ministry of Urban Development and Environment (SEDUE), which included INE. The 1986 Forestry Law introduced much greater environmental regulation within the context of the management plans, and gave INE a greater role in plan approval and monitoring. The 1986 Law continued the spirit of heavy state intervention through management plans, transport permits, lading and processing permits, and selling permits initiated in the 1942 Law. Chapter 2 The Context: Past Policies Affecting Forests and Wildiands 35 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 law did not include technical norms in its regulations, leaving the determination of these to the discretion of SFF and SEDUE, which helped create a high level of insecurity among private and social groups regarding their legal rights. 2.30 The main regulatory function was assigned within SARH to SFF. The 1986 law mandated two very different roles to the SFF: (a) a regulatory and monitoring role to define and enforce compliance; and (b) a promotional role for reforestation, the development of forest-based enterprises at ejido and smalUholder level, and conservation and physical reforestation activities in public lands. However, the budget for carrying out such activities was always small. While staff posts and their salaries were approved, most of the operating budget of the SFF was concentrated in reforestation and fire control, leaving field officers little budget for promotional or regulatory visits outside their headquarters. For example, federal and state delegation budgets are divided equally in SFF although there are more "posts" approved at state level and more field activities. The policy department at federal level has "posts" for 297 employees while only 140 of the approved posts are filled. The firefighting units hired only 1,467 (67%) of the expected 2,385 firefighters in 1993, due to budget restrictions. Budget restrictions, combined with restrictions on changes in the composition of personnel has resulted in underfunding of field activities due to lack of funds for maintenance of vehicles and travel costs. Delegation officers may try to compensate for this constraint by borrowing vehicles from the privatized forest technical offices, at the expense of the forest owners who fund the technical offices (Castro et. al., 1993, Working Paper 8). In addition to the programs of SFF, INE was given responsibility for the biosphere reserves and protected biological reserves. Under the 1986 law, some afforestation and programs of support to forest ejidos and communities in indigenous areas, which include community organization and training and some financing of management plans, have been the responsibility of the National Indigenist Institute (NI), which has hired its own staff for this purpose. 2.31 SARH (Forestry Subsecretariat) has technical and administrative staff assigned to the state offices and also supervised technical offices (UAFs) that prepared management plans for small producers, including ejidos. These UAFs covered the cost of their services through fees to producers based on the extracted timber volume. Regions without UAFs were served by SARH, which levied a fee (sent to the federal budget). In the latter part of the 1980s, the UAFs were concessioned and the forest producers provided services at a cost approved by SARH. These offices were renamed UCODEFOs (Offices for Forest 36 Mexzco Resource Conservatwion and Forestry Sector Review Conservation and Development) to reflect their mandate under the 1986 Forest Law to prepare more environmentally integrated management plans and to collect inventory data to provide FIRA with investment information. The SFF retained a monitoring function and where INI had staff assigned to forestry, these offices provided parallel technical assistance to indigenous forestry communities. The different responsibilities of the various state agencies are presented in detail in Table 2.3. 2.32 The policies related to forestry deprived the private sector of a resource base and created a three way split of the sector: the social sector 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 peasants, but failed to provide the needed resources for proper management. In the tropical forest areas, concessions existed to a smaller extent for mahogany and cedar forests, but given the weaker tenure rights of communities in the southern frontier region, communities and ejidos had even less control over the timber exploitation. Disobedience of forest regulations has been widespread. Forest policies did not achieve the counterbalancing of positive incentives to agriculture and livestock and forest conversions continued. Perhaps the most striking feature of forestry legislation has been the historical omission or inadequate treatment of non-timber products and specific environmental services, except for the limited accomplishments achieved under the national parks system. Parks and Protected Areas 2.33 Types of Protected Areas. In addition to forest policy for private and community land, Mexico also used a system of protected areas to conserve natural resources. A large number of parks and protected areas were established during the last century by official decree. By the beginning of this century, about 380 protected areas were under decree under more than 50 categories of management, the oldest of which were National Resource Reserves and Forest Reserves. With the 1926 Forest Law, Forest Protection Zones and National Parks were added, limited to forest areas for protection or recreation. In the 1970s National Parks and Wildlife Refuges were differentiated. 2.34 National forest protection areas were subject to government-approved logging where feasible, and many parks had and have private and ejidal land within their boundaries (Gomez-Pompa and Dirzo, 1993, Working Paper 10). Chapter 2 The Context: Past Policies Affecting Forests and Wildlands 37 The amount of land "protected" by official decree in the process of establishment, and proposed, included 7.4 million ha, or 3.8% of the national territory. However, subtracting the areas that are proposed (approximately 600,000 ha), the national historical parks (666,000 ha) that are not really biological protected areas, and the areas that are in the process of establishment, the official protected area total is reduced to 1.6 million ha, that is, 0.8% of the national territory (Toledo, 1988, cited in Gomez-Pompa and Dirzo, Working Paper 10). Very few of these areas are officially recognized by groups such as the International Union for the Conservation of Nature and Natural Resources (IUCN) because they are managed poorly. Boundaries of these areas were not well demarcated in most cases, and a large number of decrees subsequently are canceled or superseded, implicitly or explicitly by subsequent decrees. In some states, the total area protected under various decrees exceeds the total territory of the state, e.g., 215 % in Aguascalientes and 230% in the Metropolitan Area of Mexico City. The latest draft zoning report from SARH lists five federal categories of protected areas, but these figures may include land under other uses and generally exclude state-decreed, as opposed to federally-decreed, areas: (a) 56 National Parks (746,196 ha) (b) 13 Biosphere Reserves (6,614,667 ha) (c) 20 Special Biosphere Reserves and Areas of Flora and Fauna Protection (3,676,498 ha) (d) 3 National Monuments (13,023 ha) (e) 1790 Protective Forest Zones (59,178,992 ha). 2.35 There is no reliable information regarding the extent to which SINAP is publicly owned or to which it can be physically identified against the legal decrees. To fill this gap, the review analyzed the existing protected areas network and a follow-up study funded by the Mexico Environmental Project is mapping all of the nationally declared existing and proposed protected areas. The SINAP has two fundamental problems. First, it is too small, the sites are badly distributed among possible geographic and ecoregions, and many high diversity areas are excluded. Second, it is very poorly managed and in several reserves it is questionable that biodiversity is in fact being protected. This system is clearly inadequate to conserve the full diversity of flora, fauna and ecosystems in Mexico, plus many areas are too small to be viable over the long term. The average size of a national park is around 2,000 ha. The SINAP is not based on clear floristic/ecological criteria (such as species richness, endemism, and critical ecosystems) to set conservation priorities. Even worse, some of the biologically richest and most threatened areas, many with important endemisms (e.g., Punta Banda and Punta Arenas in the arid zone and Sierra Otontepec in the cloud and humid tropical forest), are not included under any category of protection. 38 Meaco Rasource Consermwion and Forestry Secaor Review Chapter V presents criteria and makes recommendations for revising the SINAP, with suggested inclusion of all areas listed in Annex 3. 2.36 In conclusion, this chapter has described the historical context in which forest policies have operated within the anti-forest constraints of the more general economic and land reform policies. These combined policies have helped neither to counteract the negative incentives for forest conservation from land tenure and agricultural policies nor to maximize the multiple values of the forests and wildlands for commercial timber and non-timber potential and environmental services. Government institutions, particularly SFF in SARH, have had increasingly broad mandates to manage forests for multiple use and to conserve environmental values, but have not been effectively structured or funded. Nor have they supported local initiatives of ejidos and indigenous groups living in forested areas. The next chapter will examine the results of these policies on the resource base in terms of deforestation, degradation and underutilization. m. CONSEQUENCES OF UNDERVALUATION: DEFORESTATION AND DEGRADATION 3.1 With low perceived value to the public, private and social sectors, only by a stroke of luck could Mexico's forests have been conserved according to the national interest. The public sector enacted a plethora of policies that promoted expansion of areas under agriculture and livestock, accelerating deforestation and degradation; the private sector mined the resource and failed to invest in a more efficient use of the resource and its long-term growth; and most of the social sector, faced with open access to the resource and lack of entrepreneurship and know-how, depleted timber and non-timber products. 3.2 The end result of adverse policies in the agricultural and livestock sector and the nearly exclusive focus of forestry development on commercial timber has been twofold: (a) environmental and productive degradation of the resource, including deforestation; and (b) underutiiization of the resource, including inefficient timber commercialization and failure to capture other values. This chapter analyzes the importance of these consequences and their implications for Mexico. Deforestation 3.3 Changes in Land Use. Livestock and agricultural policies created incentives to convert forests to pasture and agricultural land as opposed to maintaining the forest for timber production, harvesting of non-timber products, tourism, watershed protection and other uses. Before deciding to convert forest land to an alternative use, such as agriculture or livestock raising, the loss of any other forest land use options ought to be considered. The failure to consider the foregone returns from alternative uses essentially assumes that the opportunity cost of forest conversion is zero, which is rarely the case in most developing countries. As a result of this faulty assumption, decisions are biased toward excessive forest conversion (Barbier 1991; Burgess, 1992, cited in LEEC, 1993, Working Paper 4). 3.4 For example, consider the choice between clearing tropical forest land for agricultural production and sustainably managing the forest for timber production. If clearing the land for agricultural production is to be an optimal land allocation decision, then the full opportunity costs (in terms of foregone benefits of maintaining the forest) need to be taken into account. In this example, the latter benefits are from maintaining the natural asset, the forest, through sustainable timber harvesting. Any positive incentives to competing activities such as 39 40 Mexico Resource Conservation and Forestry Sector Review agriculture or livestock or any negative incentives to forest land uses will create incentives to deforest. Too often the value of sustainable timber management is not taken into account in the decision to convert forest land to agricultural production in the tropics and margins of temperate forest boundaries, resulting in more conversion than is financially or economically attractive. 3.5 There are controversies over the exact rate of deforestation in Mexico, with estimates ranging from about 250,000 ha of closed forest per year to 1.5 million ha/yr (Table 3.1). FAO estimates an annual deforestation of 678,000 ha between 1981 and 1991. Discrepancies result partially from different definitions of forest type-some estimates are only for tropical forests, others are for both closed and open forests, and most are based on measurements of evergreen forests with little information on deciduous and broadleaf forests (Masera, Ordoiiez and Dirso, 1992, cited in LEEC, 1993, Working Paper 4). A 1992 inventory compared forest areas from the 1980 and 1990 inventories to calculate a deforestation rate of 365,000 ha/yr, but did not include any field work (SARH Gran Visi6n, 1992, cited in LEEC, Working Paper 4, 1993). Field Reports of SARH state offices during the 1980s confirmed a forest loss of about 370,000 ha/yr. Non-official sources, which rely on analysis of imagery and vegetation maps combined with case study data, show much higher rates. A new SARH/FAO analysis is under way using vegetation maps and 1990 LANDSAT TM imagery, and SARH estimates that 242,000 hectares were cleared in 1993. Causes of deforestation certainly differ by forest type-much of the temperate deforestation results from illegal logging and forest fires rather than clearing for other land uses. 3.6 Estimates of Deforestation. With a historical deforestation rate of 1.3% per year, Mexico's deforestation has not been among the highest in Latin America. In the tropical areas, however, deforestation is a much more serious problem. While in the mid-1960s Mexican temperate forests were being lost at a rate of 0.6% per year, the deforestation rate in tropical areas was three times greater, approaching 2% per year (Table 3.2) (LEEC, 1993, Working Paper 4). Deforestation was particularly dramatic in the 1960s in the tropical areas, resulting in the loss of one-third of forested areas to other uses. The forest area declined by at least 50% in the last five decades while government actively promoted forest clearance by settling ejidos in forest areas and providing support for ranching. Deforestation has led to severe biodiversity and habitat losses in important ecosystems (LEEC, 1993, Working Paper 4). 3.7 The eight states displaying the highest deforestation rates are Campeche, Chiapas, Guerrero, MichoacAn, Oaxaca, Tabasco, Veracruz and Yucatan. The incidence of deforestation in some sub-regions of these states is very high, as shown in Table 3.3 summarizing case study findings. In Palenque, Chiapas, Chapter 3 Consequences of Undervluation: Deforestation and Degradation 41 Table 3.1 Estimates of Deforestation Rates in Mexico, Mid-1980s (thousands of hectares per year) Source Temperate Tropical | Total PND 1983^ n.a. n.a. 400 Toledo 1989^ n.a. n.a. 1500 Repetto 1988 n.a. 460 460 Myers 1989 n.a. 700 700 FAO 1988; WRI 1990 125 470 595 SARH 1990b 127 202 329 Castillo, et al. 1989' 273 473 746 Masera, Ord6fiez and Dirzo 1992 167 501 668 n.a. Data not available. a. Figures include open forest deforestation. Estimates from PND quoted in Jardel (1989). b. Adjusted to exclude open forests. The original figure was 370,000 ha lost per year. c. Figures correspond to annual averages for projected deforestation during the period 1988-94. Source: Adapted from Table 8 in Masera, Ord6niez and Dirzo, 1992, cited in LEEC, 1993, Working Paper 4. Table 3.2 Deforestation and Reforestation Rates by Forest Type, Mid-1980s | Temperate Temperate Tropical Tropical | Activity Coniferous Broadleaf Evergreen Deciduous Total Forest 16,900 8,800 9,700 16,100 51,500 (000 ha) Deforestatio 108 59 195 306 668 n (000 ha/yr) Reforestatio 13 3 6 0.8 19 n (000 ha/yr) Deforestatio 0.64 0.67 2.00 1.90 1.29 n Rate (%/yr) Source: LEEC, 1993, Working Paper 4. annual deforestation rates reach 12.4%, in Selva Lacandona, Usumancita River, 4.5%; and in Los Tuxtlas, Veracniz, 4.3%, with a decline of 56% of vegetation cover during the past two decades (Dirzo and Garcia, 1992, cited in LEEC, 1993, Working Paper 4). 3.8 Expansion of Farmed Area and Beef Cattle Herd. While there are no studies that have found conclusive links between the expansion of livestock and the deforestation of areas more economically maintained under forest, there is 42 Mexico Raource Conservation and Forasty Secor Review Table 3.3 Regional Deforestation Rates Region Forest Type Deforestation Rates Los Tuxtias, Veracruz Tropical evergreen 750 ha/yr 1976-86 4.3 %/yr Selva Lacandona, Usumacinta River Tropical evergreen 14,700 ha/yr 19801988 4.5 %/yr Southeast Mexico Tropical evergreen approx. 40,000 ha/yr 1974-86 7.7 %/yr Palenque, Chiapas Tropical evergreen 9,500 ha/yr 1973-81 12.4%/yr Chamela, Jalisco Tropical deciduous 26,700 ha/yr 1982 3.8%/yr Purepecha Highlands, Michoacan Temperate Coniferous 1,800 ha/yr 1.5-2%/yr Source: Adapted ftom Table 10 in Mawm, Ord6ifz ant Dirzo, 1992, cited in LEEC, 1993, Woddng Piper 4. evidence from a variety of sources that cattle raising has had a major impact on deforestation. In the southern states, much of the expansion of agriculture and cattle ranching has occurred at the cost of forests, and a growing portion of this at the cost of sustainable land use. From 1970 to 1990, the cultivated land area in Mexico grew by about 39%, while the total of beef herds grew by 15%. At the same time the total forest area declined by 13%. The sharpest increases in agricultural area were in the YucatAn, Quintana Roo and Chiapas, while cattle herds grew the most in Quintana Roo followed by Chiapas and Campeche (Table 3.4). While not all livestock expansion took place at the cost of forests, a large portion did. Table 3.5 summarizes the generally agreed causes of deforestation from one of the more reliable studies (Masera, OrdoiAez and Dirzo, 1992, cited in LEEC, 1993, Working Paper 4). 3.9 To provide a stronger analysis of the correlation, this review attempted an econometric analysis of the relationship between planted agricultural area and size of the beef cattle herd and the economic variables explaining it (LEEC, 1993, Worling Paper 4). While recognizing that not all change in planted or grazing area equals deforested area, it was assumed that a large proportion was in fact linked. Variables examined included real guaranteed maize prices, real fertilizer prices, income per capita, population levels, real rural wages, road density and real credit disbursement. The model included a dummy variable for Veracruz, which has the largest agricultural planted area and has experienced oil-based industrial development. Chapter 3 Consequnces of UnderWa1uaion. Deforestaton and Degradation 43 Table 3.4 Growth in Planted Agriculture Area and Beef Cattle Herds, 1970-90 (percentage change from 1970) State Planted Agricultural Area Boef Cattld' Aguascalientes 29 9 Baja California Norte 4 40 Baja Californian Sur 82 -1 Campeche 67 50 Coahuila 18 6 Colima -9 34 Chiapas 104 55 Chihuahua 30 6 Distrito Federal 42 -17 Durango 15 6 Guanajuato 7 7 Guerrero 60 8 Hidalgo 58 1 Jalisco 39 20 Mexico 77 17 Michoacan 29 34 Morelos 45 1 Nayarit 12 32 Nuevo Leon 4 13 Oaxaca 51 8 Puebla 36 7 Queretaro 0 8 Quintana Roo 166 106 San Luis Potoaf 101 t0 Sinaloa 45 12 Sonora -2 7 Tabasco 49 26 Tamaulipas 58 10 Tlaxcala 22 3 Veracruz -2 8 Yucatan 203 5 Zacatecas 74 9 Total 39 1S a Change fmm 1972 to 1985. Source: LEEC, 1993, Working Paper 4. 3.10 Table 3.6 summarizes the results in elasticity form. These show the percentage change in area planted if the variable increases by 1 % of its value. Real mural wages across states have the greatest impact on agricultural planted area. A 1% increase in niral wages leads to a decline on planted area of 1.17%. An increase in wages reduces deforestation because labor is a major input in crop production, and it is also an input in forest clearing. Increased urbanization as reflected in rising road density also reduces agricultural expansion. In contrast, 44 Mexico Resource Conserwztion and Forestry Setor Rewew increasing the relative returns to maize production leads to further pressure on the forest. Rising populations at the state level also have a positive impact on forest conversion. A 1% increase in the maize-fertilizer price ratio leads to a 0.87% increase. Increased income per capita of 1 % at the state level reduces planted area by 0.25%. This may be because increased economic development is usually associated with concentration of populations in urban centers and with economic changes away from agriculture. In contrast, increased population leads to a larger agriculture planted area due to higher demand for food and possibly more rural workers and subsistence families. An increase in road density of 1 % leads to a 0.21% decline in planted area. Although roads can be a key factor in deforestation, they may also help reduce it if associated with the existing network and not with expansions into frontier areas. Credit disbursement was not a significant determinant of planted area. 3.11 For the beef cattle industry, the most significant influence is the returns to cattle operations, as reflected in the relative price of beef to real wages. A 1 % increase in the ratio of beef price to rural wages increases the number of cattle by 0.89%. Increasing credit disbursements and, to a lesser extent, population levels are also important factors. For example, a 1 % increase in cattle loans increases the number of beef cattle by 0.34%, while a 1 % rise in population increases the number by 0.13%. An increase in road density, an indicator of urbanization, decreases the number of beef cattle by 0.15% (LEEC, 1993, Working Paper 4). Table 3.5 Main Sources of Deforestation by Forest Type [ Forest Type Main Sources of Deforestation Temperate coniferous Forest fires (largely anthropogenic), livestock production (bovine, caprine and ovine), timber extraction, agricultural production Temperate broadleaf Forest fires, livestock production (bovine, caprine, ovine), agricultural production, timber extraction Tropical evergreen Extensive cattle ranching, agricultural production, oil extraction, mining and road construction, forest fires, timber extraction Tropical deciduous Extensive cattle ranching, agcultural expasion, timber extraction, forest fires Source: Adapted ftom Table 1 1 in Mawac, Ord6acz and Dirwo, 1992. Chapter 3 Consequences of Undervaluation: Deforestation and Degradation 45 Table 3.6 Calculation of Elasticities for Planted Agricultural Areas and Beef Cattle I Variable Elasticity Planted Agricultural Area ('000 ha) __ Ratio of guaranteed maize prices to fertilizer prices 0.8712 Income per capita -0.2536 Population 0.2372 Rural wages -1.1749 Road density -0.2056 Dummy for Veracruz 0.0651 Beef Cattle ('000 head) Ratio of livestock price to rural wages 0.8877 Population 0.1329 Credit 0.3360 Road density -0.1494 Dummy for Veracruz 0._0723 Source: LEEC, 1993, WoH&ng Paper 4. 3.12 While the analysis carried out by LEEC (1993, Working Paper 4) does not demonstrate a direct linkage, it is clear that rapid expansion in livestock and planted area occurred during the same period as deforestation and that past policies favored other uses over sustainable forestry. It is of course important to keep in mind that the negative incentives were created by agricultural policies only in combination with other factors such as the lack of attention to forestry in the land reform policies and the resulting insecurity of tenure over forests and wildlands. The next section will examine the dynamics of degradation and deforestation within the historical incentive structures and identify problems for forest development that emerged from these land use changes. There are complex dynamics at work. For example, some of the deforestation related to livestock has not been from clearing per se, but from the use of fires to increase grass production in and adjacent to forest areas, resulting in degradation and eventual conversion of forest stands. Forest and Wildland Degradation 3.13 The Economics of Degradation. In addition to deforestation or forest clearing, there has been a large amount of forest or wildland degradation, resulting either from lack of management or from active mining, that has led to the long-tenn decline in quality of the forest resource. Mining, which involves extracting all trees with a positive value, leaves behind only those that cannot be 46 Mexico Resource Conservation and Forestry Sector Review profitably sold, and the remaining trees are often of poor genetic quality. Combined with damage to non-timber products, this results in low-quality trees and products. Either mining or lack of management can damage the overall ecosystem, threatening the wildlife and plants in the forest. Degradation thus implies a decline in the quality of the genetic material, a diminished regenerative capacity, or the loss of important environmental values such as biodiversity, hydrological buffering or carbon sequestration. Degradation is difflcult to measure and no reliable countrywide estimates exist. Site-specific case studies reveal significant degradation, mainly in the temperate forests, but also in the slash-and-bum areas of the tropics and areas around urban centers. A main cause of temperate forest degradation is high grading: the misapplication of the MMOM system of selection cutting has degenerated the forests mainly in the northern states. 3.14 Degradation is not necessarily bad and often is economically justified. Trees should be left in the forest only as long as the value of services they yield (in volume growth and environmental returns) exceed their value if they were cut and the income reinvested elsewhere in the economy. Often, however, degradation extends far beyond what would make economic sense. In these cases, the natural capital is depleted without compensating gains elsewhere in the economy. Eventually the country experiences a loss in economic welfare. The factors affecting the value of forest products, such as prices and the structure of property rights, the weight given to future revenues by resource users, and the ability of private, social and public sectors to internalize environmental services from forests, are the most important determinant of whether the resource is degraded or not. As we discuss below, non-economic degradation is in part a result of the pervasive structure of incentives in land tenure, agricultural, and forestry policies and the failure to develop instruments to help the private and social sectors internalize environmental values. 3.15 Open Access and Imperfect Community Structures. Perhaps the most important cause of degradation is the open access arising from the structure of resource rights. Open access to a resource is said to exist when no one has or can enforce their rights to the resource. Often, however, an open access, low- value resource, such as some community forests or brush lands, exists side by side with a privatized, high-value resource (e.g., agricultural land). The history of forest development in many countries is one of moving from an open-access resource to increasingly more sophisticated forms of forest tenure as population pressure and the level of technology-and therefore the value of the resource-increases. The practical implication of open access is that it makes optimum the strategy of extracting immediately anything that has a positive value before someone else extracts it. There are three main open-access problems in Mexico: (a) lack of tenure security of communities and ejidos over their common Chapter 3 Consequences of Undervaluation: Deforestation and Degradation 47 lands and forests, including lack of clear boundary definitions; (b) internal divisions of mixed-indigenous and non-indigenous communities; and (c) conflict of interest over management of forests for commercial timber and other uses. 3.16 Lack of Tenure Security. Although rights to common lands have been allocated to ejidos and indigenous communities in Mexico, these rights have been difficult to enforce against outsiders. Traditional regulations have not been effectively developed or enforced to prevent the emergence of a quasi open-access situation. Open access has been exacerbated in many ejidos by the lack of clear tenure allocation over forests combined with the weak social control over forest use by the members. The frequent presence of boundary conflicts between ejidos, communities and private owners adds to the tenure security problem and encourages overexploitation of forests along boundaries. Informal and contraband timber cutting by individuals also competes with community organized industrial forestry activities. In Cheran, Michoacan, the community sawmill is used only for the waste wood left in the forest by the majority of community members who cut trees for sale in the informal or contraband system. Because this logging is carried out in disregard of the management plans, the forest is apparently being overcut (Snook, 1993, Working Paper 11). 3.17 Internal Divisions in Ejidos. The degree of open access varies widely across communities and depends primarily on their social organization and cultural and ethnic integrity. Indigenous communities with limited integration into the mestizo value system and market economy have strong social customs that link the natural resource to the identity and well-being of the group, and some communities may practice excess conservation rather than overextraction. Where their control over the resource is not secure, however, and they live with non-indigenous populations, as in the case of the northern dispersed Tarahumara, Huichol, or Tepehuano, mestizos may take advantage of the lack of interest of indigenous groups in forestry commercialization and take all of the profits from this activity. Indigenous groups may be too timid to fight for their rights or may avoid engaging in the commercial exploitation that would generate large profits their egalitarian society is ill-prepared to distribute in a socially cohesive way. 3.18 As discussed in Chapters I and II, ejidos with mixed indigenous and non- indigenous populations, such as in Chihuahua or Durango, often have dual political systems, whereby decisions related to the outside society and interaction with municipal and state authorities are dominated by non-indigenous leaders, while the internal affairs of the indigenous population are decided by traditional leaders in traditional political forums. Decisions regarding timber enterprises may, in these situations, be dominated by the nontraditional or mestizo leaders, and traditional leaders may have very little role in or knowledge of these decisions. In northern Mexico indigenous populations are very dispersed, and the 48 Mexico Resource Conservation and Fores"y Sector Review more remote indigenous hamlets may be almost cut out of the flow of decisionmaking and information. Even where the poorer members are part of the decisionmaking process, ejidos and communities may tend to mine the resource to generate cash for social improvements or infrastructure, due to their limited access to municipal or other budgets and their lack of other sources of cash. 3.19 Many ejidos with forest resources do not have adequate social structures to maintain transparent systems or distribute the returns from organized extraction. Where distribution works comparatively well, community or ejido leaders are granted the authority by the assembly to make contracts with log buyers or invest in community processing plants. Community members participate in and earn wages from extraction or processing activities, and the assembly decides how profits will be used. Typically these are distributed to community or ejido members, after some portion is reinvested in forestry activities (the purchase of vehicles or machinery) or community infrastructure (clinics, schools, or public buildings). This is the case in indigenous communities, where profits from the timber enterprise are spent on community activities or in social or religious festivities, rather than reinvested into capitalizing the timber enterprise and, over time, increasing its profits. Religious and life cycle rituals serve to cement social ties that are important for ensuring community support in difficult times and diffusing personal conflicts. 3.20 Although logs could be sold in the market for a higher value, communities prefer to process them, in most cases in an inefficient sawmill, thus losing profits. The reason for this apparently non-economic choice is that community members prefer a certain income as wages rather than a higher income as profit shares. Distribution of profits (resource rents) is a controversial matter within the community and often a source of conflict. Thus community members may prefer to capture their share of the rents as jobs rather than rely on less than transparent and monitorable community arrangements for redistributing profits. Many indigenous and mestizo groups view the ejido timber enterprise primarily as a means of generating local jobs, and the managers of the timber enterprise are under considerable pressure to generate more days of work and more jobs than to maximize profits and lower the costs of production. There are anecdotes about communities where wages were considerably above market value and where labor was paid before the products were sold, thus putting the operation in financial distress. For community members that can get a job, incomes are higher than if resource rents were simply redistributed within the community. Most of these enterprises are economically inefficient and losing money. Labor is paid well above the value of its marginal product. These forest industries have not been able to provide year-round employment for all those community members who seek work. Often, this employment is shared by rotating jobs among workers. Chapter 3 Consequences of Undervaluation: Deforestation and Degradation 49 3.21 Such absorption of rents through employment generation need not always lead to financial indebtedness, if there is creative reinvestment of profits from the enterprise into increasingly integrated industrial activities to provide employment opportunities for all the available labor without sacrificing economic efficiency (Alvarez 1991, cited in Nahmad, Working Paper 3). 3.22 Conflicts over Different Product Extraction. Although a slow process, the combined extraction of wood by thousands of people several days a week, where local population density is high and urban markets are within a day's travel, has degraded large areas of more-accessible forests. In the Meseta Tarasca of Michoacan, foresters estimated that these practices were extracting higher volumes than the legal annual cut (Caro, 1987 and Caro, 1990, cited in Snook, 1993, Working Paper 11). In some areas this pressure is the third most- significant factor after land conversion and forest fires for forest degradation (Caro, 1987 and Caro, 1990, cited in Snook, 1993, Working Paper 11). 3.23 Timber extraction is not the only type of extraction that has led to degradation in Mexico. Over-extraction of non-timber forest products to a limited extent, and unsustainable levels of hunting to a greater extent, have depleted the forests and wildlands. For example, hunting of forest animals is an important subsistence activity for forest communities. Jorgensen (1992) found that a Mayan forest community in Quintana Roo obtained nearly 2,000 kg of wild meat a year from hunting (although this is an illegal activity). Twelve species of animals were obtained from different types or stages of forest, including agricultural fields (milpas) and post-agricultural forest follows as well as mature forest. Ten of these species were being hunted at unsustainably high levels. Another study found that deer were being overhunted in a Zapotec community forest in the Sierra de Juarez, Oaxaca (Snook, 1993, Working Paper 11). Conservation practices such as control of hunting by season, sex of animal, or hunting technologies were not practiced in either case. 3.24 Much of the current literature assumes that Mexico, like some other highly indigenous societies, has traditional sustainable management systems for non-timber products of forests and wildlands. But surprisingly, there are few examples of these systems in the country. One reason is that historically population levels have not been high enough to induce such behavior. Another argument is that Mexico has shown a historic lack of conservation strategies for plants and animals, and this is currently exhibited in the lack of traditional strictures against hunting young game or females and the lack of traditional systems of seeking game through magical means, systems that randomize the choice of hunting grounds. In contrast to this non-conservationist attitude, a number of indigenous conservation practices have been documented (Bye, 1993, Working Paper 13c) for a medicinal root, chuchupate, and other high-value non- 50 Mexico Resource Conservation and Forestry Sector Review timber forest products designed to ensure adequate regeneration of the root stock for sustained harvest. Notwithstanding these various examples, it is difflcult to judge the potential of indigenous groups to conserve resources since these groups are often competing with outsiders in the harvesting of products, be they wild game or wild plants, and therefore tend to overharvest to prevent outsiders from capturing all of the rents of the resource. 3.25 Forest Concessions and Shifting Cultivation. Problems between ejidos and the private sector became very apparent during the forest concession period prior to 1980. In the 1950s and 1960s, the companies given the right to extract timber from ejido forests had to pay a fee to the ejido for this right (derecho de monte), as this fee was lower than the economic or financial stumpage value. Forest resources were quickly depleted in many instances. This depletion was often due to the rapacious behavior of ejido elites and the companies or, in noncommercial areas, to the lack of community or government mechanisms to control access to the forest resource for fuel, timber, non-timber products, hunting, or pasturage. In the tropical areas, there was historically extensive slash and burn cultivation in the forest lands, but traditional use rights and fallow periods were not consistent with the need to practice relatively continuous cultivation to establish individual or ejido land rights. Indigenous farmers in the tropical forests have kept their fallow cycles short in forest areas where they fear expropriation-to the detriment of their traditional slash and burn systems. This has been exacerbated by population growth and the scarcity of communal lands. 3.26 Logging Practices. Another cause of forest degradation is poor logging techniques, resulting from poor technology, the low-efficiency incentive to harvesters who do not own the resource, and the inability of community forest producers to reward members for efficient logging. The cutting of large-diameter trees, which are converted by axe, chainsaw, or bandsaw into beams and boards or cuartones (squared logs) for sale to carpentry workshops (almost all without the required legal permission from SARH to operate), can have a devastating effect on forests. Since these informal individual harvests are illegal by the forest law and its regulations requiring management plans, they face high risks which makes them disregard the possibility of future cuts. Good-quality trees are felled with no regard for technical guidelines and management plans. In the absence of large or long-term capital investments, the technologies used for extraction and transformation are primitive, and a tremendous amount of waste wood is left in the forest, creating a significant fire hazard in temperate areas and representing a significant financial loss elsewhere. 3.27 Forest Fires and Grazing. Much degradation is caused by forest fires resulting from carelessness or firesetting to create pasture. A major economic strategy for a large number of subsistence farmers in Mexico has been and Chapter 3 Consequences of Undervaluation: Deforestation and Degradation 51 continues to be the small-scale production of cattle and smaller ruminants to add to fanning incomes. This small-scale livestock production depends almost entirely on the grazing of fallow and barren lands and forest areas. Fires are started to clear the understory for additional pasture production and to claim timber as "dead" wood in areas lacking a harvest permit (Masera, Ordonez, and Dirzo, 1992, cited in Snook, 1993, Working Paper 11). Trampling and grazing by livestock has also contributed to degradation, although less than in tropical areas. In the highlands of Oaxaca, cniollo races of cattle are let loose in temperate forests where they can survive for months on what they find to eat in the understory. Sheep are commonly grazed in natural pastures (Ilanos) in highland forests in Michoacan and Mexico (Snook, 1993, Working Paper 11), and the Tarahumara graze goats in forested areas in Chihuahua. 3.28 Wildlife Trade. While the impacts of wildlife trade on biodiversity have not been quantified, its magnitude is a cause for alarm. Mexico is one of Latin America's leading exporters of wildlife and has only recently signed the CITES Convention. Trade in wild animals and plants is rapidly depleting Mexico's natural resources. It has been reported that I million cacti were imported by the United States in 1979 alone, about 100,000 cacti in 1983, and 80,000 in 1984 (Gomez-Pompa, 1993, Working Paper 10). A single permit allowed the legal export of 1 million cactus plants from Mexico in 1982 (Gomez-Pompa, 1993, Working Paper 10). Specialists believe the situation has not improved since these years. 3.29 There is also high-volume trade in birds. Nilsson (1981) and Ramos (1982) (both cited in Gomez-Pompa, 1993, Working Paper 10) recorded a legal annual trade of live birds between Mexico and the United States in the range of 100,000 per year and conservatively estimated the total annual traffic reaches 150,000 individuals. Nilsson further suggested that mortality rates for illegal birds in transit reach 75 %, making the number of birds trapped for the traffic in Mexico possible as high as 600,000 per year. Mexican parrots, sea turtles, cacti, cats, iguanas and caimans are among the most favored and endangered items traded to countries in the developed world, many of which Mexico exports legaly and illegally every year. This need not be so. The trade of wild flora and fauna could be a sustainable source of national and foreign income if properly managed (CSERGE, 1993 Working Paper 15). 3.30 Industrial Use of Wildlife. The impact on biodiversity of industrial use of wildlife is unknown. A number of species of wild animals are used in (a) the food industry for human and animal consumption, e.g., as a source of protein in balanced diets for cattle, chicken fish and pigs; (b) for crafts as stuffed animals, handbags and wallets; (c) in the perfume industry; and (d) for colorants (e.g., the purple snail). Unfortunately, the lack of studies documenting distribution, 52 Mexico Resource Conservation and Forestry Sector Review abundance and population dynamics prevent the establishment of management strategies. The full extent of the damaging effect of these activities is often unknown or unappreciated since many of them may go unrecorded. 3.31 Hunting. Hunting also threatens Mexico's biodiversity. Hunting has been a very important subsistence activity all over the country and has been an important source of revenue for various industries such as tourism and the buying and selling of firearms and ammunition. The most important species sought are birds, marine and freshwater turtles, and mammals taken for commercial purposes, although legally many of them cannot be currently taken. Other species such as frogs and salamanders are also taken but mostly for local consumption. The use of furs and skins in industry has increased in recent years, even though the Federal Hunting Law (1951) prohibits hunting for commercial purposes. The funds collected by the Federal government for hunting fees has been high, and there is more control now because hunting organizations are better monitored by federal agencies. The number of hunting clubs has increased to over 1,000 (in 1985), and the number of subsistence hunters throughout the country has been estimated at 1.5 million (CSERGE, 1993, Working Paper 15). Consequences of Deforestation and Degradation 3.32 Equity Implications. Resource degradation is particularly hard on the poorest sector of rural Mexico. Many of the 8,000 communities who live in forest areas depend primarily on the forests for their livelihood. Where forest and wildlands are not being maximized to provide income and subsistence products, there are few, if any, alternative sources of income and there are few safety nets to prevent a worsening of standards of living. Likewise, there are no support mechanisms to facilitate entry into higher-income regions. In Chiapas, for example, where a total logging ban was introduced to arrest deforestation, some of the poorest communities were the hardest hit because of foregone timber incomes and difficulties in obtaining permits for traditional shifting cultivation (Snook, 1993, Working Paper 12). 3.33 Habitat Loss. Environmental degradation leads to a decline in habitat quality, and in time, results in habitat loss. Of the approximately 2,000 species of vertebrates in Mexico, 342 are threatened or in danger of extinction, according to conservative estimates. Of these, 169 are endemic species. Of the approximately 2,000 species of vertebrates, conservatively, 342 are threatened or are in danger of extinction. Of these, 169 are endemic species. Of the 26,000 species of flowering plants, approximately 600 are known to be in danger of extinction. Of these, approximately 30% are endemic (Table 3.7). Chapter 3 Consequences of Underwiuation: Deforeslation and Degradation 53 3.34 Watershed degradation. In Mexico the historical and current loss of forest cover in watersheds is undoubtedly a principal factor in accelerating soil loss. Maas, Jordan, and Sarukhan (1988, cited in CSERGE, 1993, Working Paper 15) report up to a hundredfold increase in soil loss through forest conversion in experimental trials in Jalisco (0.20 t/ha/year compared to a highest value of 130 t/ha/year under maize). There is also severe soil erosion recorded for the degraded oak and pine forests of Sierra Mixteca, Sierra de Juarez and Chilpancigo (CSERGE, 1993, Working Paper 15). 3.35 Soil and moisture losses caused by erosion can lower crop yields, encourage inappropriately short fallow periods, or accelerate agricultural encroachment onto lands not suitable for fanming. With continuing erosion, farmland may lose all of its top soil and no longer be suitable for crops. Though degraded land can be used for grazing, this sometimes exacerbates erosion by further depriving land of vegetative cover. Agricultural encroachment onto forest lands may reduce the availability of fuelwood and timber and the wind protection and moisture-storing capacity of the trees. 3.36 The Global Assessment of Soil Degradation (GLASOD), which classifies areas according to erosion hazard at an original scale of 1:7,500,000, examined the type (water, wind or chemical), degree (slight, moderate or heavy), extent (infrequent, common, frequent, very frequent and dominant) and rate of erosion (slow, medium and rapid) for major land forms of Mexico (Anaya-Garduiio, et al., 1989 cited World Bank, 1994). This information is not detailed enough to permit an evaluation of productivity losses from land degradation, but it does give an overall impression of degradation. The GLASOD classification indicates that 80% of the surveyed land is eroded at least slightly. The principal type affected by water erosion is rainfed crop land. Rainfed land is about 54% of all land surveyed (58.5 million ha of the 107.5 million ha identified as suitable for crops, livestock, or forestry). Rainfed land is more likely to be moderately eroded (19.4 million ha of 53.8 million ha classed as moderately eroded) or severely eroded (35.9 million ha of 44.9 million ha classed as severely eroded). Most of the severe erosion is also on rainfed land. Maas and Garcia-Oliva (1990, cited in World Bank, 1994) report the share of the national area affected by rapid erosion to range from 64% to 100%. 54 Me4co Resource Consenuton and Fores" Sector Review Table 3.7 Species Diversity, Endemism and Ecosystem Disturbance in Mexico Species Diversity _ | 1 Ranking of State by Degree of Disturbance State j Species Diversity' |(:%) Oaxaca 1 53 Chiapas 2 50 Veracruz 3 75 Guerrero 4 25 Michoacan 5 30 Jalisco 6 37 Puebla 7 85 Sinaloa 8 54 San Luis Potosi 9 61 Nayarit 10 15 Species Endernism I Number of Degree of Degree of State Endemic Species Endemism (%)b Disturbance (%) Baja Califonia Surc 48 80 73 Baja California 23 59 64 Oaxaca 83 15 53 Coahuila 7 11 65 Veracmuz 40 10 75 Guerrero 31 10 25 Michoacan 22 7 30 Chiapas 28 6 50 Sonora 8 5 73 Tamaulipas 7 4 50 a. According to vertebrate fauna, does not necessarily correspond to highest floristic diversity. b. Vertebrate species endemic to Mesomerica. c. Includes species occurring in the Islands of the Gulf of California. Source: Adapted from Tables 7 and 8 in Masera, Ord6nez and Dirzo, 1992, cited in CSERGE, 1993, Working Paper 15. 3.37 Although they are perhaps less important in total cost, it is the off-farm effects of erosion that are not internalized by farmers and therefore should attract government attention. In the Chilpancigo valley, for example, soil erosion has completely filled a dam just above the city. Extensive measurement of micro- watersheds across hydrological subregions indicate an average soil loss range of 0.2-7.43 tlha/year. In extreme cases soil loss reaches 50 tlha/year (CSERGE, 1993, Working Paper 15). Martinez-Menez and Fernandez (1984, cited in World Bank, 1994) estimated an average annual figure of 365 million tons of soil lost into water regimes. Of this, 69% is lost to the sea and 31% is discharged in waterways and other hydrological infrastructure. The costs of water purification to counterbalance these are estimated at only about US$2.3 million per year. Chapter 3 Consequences of Undervaluaton: Deforestation and Degradation 55 Thus, likely savings to the water treatment industry from reduced erosion are relatively minor. However, more-vulnerable watersheds with high sediment loading rates may have significant problems. A cost estimate of $50-$150 /ha of water quality benefits has been calculated (CSERGE, 1993, Working Paper 15). Similarly there is little analysis on the severity of infrastructural damage from sedimentation. Casual evidence on major dam projects in Mexico suggests that sedimentation rates have been underestimated, causing diminished life spans and consequent efficiency costs. Such costs are often amplified by the social costs of habitat destruction and community relocation to make way for new flood sites. Examples of sites with high costs of relocation are the Aguamilpa hydropower project in Nayarit and Zimapan project in Queretero and Hidalgo. 3.38 Carbon Sequestration. The doubling of atmospheric concentrations of carbon dioxide from pre-industrial levels is projected to occur in the next few decades (Intergovernmental Panel on Climate Change, 1992, cited in CSERGE, 1993, Working Paper 15). The associated impacts include the shift of agro- ecological zones, rising sea levels, and shifting disease vectors, all of which could have serious impacts on humans. The global value of forests as carbon sinks is related to the potential damage to the world from climatic change. Forecasts of various climate change models suggest that Mexico would become warmer and drier, with temperatures increasing 2.50 to 5°C. This would reduce water availability due to greater evaporation of surface water and subsequent lowering of groundwater recharge. The sea level would rise, threatening the coastal wetlands of Yucatan; water supply for irrigation systems would decline; and there would be negative impacts on agricultural yields. Consequences of Undervaluation: Underutilization of the Resource 3.39 The issues raised above relate to the problem of degradation, including deforestation. The second main problem of forest and wildlands use has been the underutilization of the resource base. Mexico has not utilized forests to their full potential, and in many occasions utilization has been inefficient, both for timber and non-timber products. Underutilization means (a) inefficiency of commercial forestry enterprises and subsequent underuse of available wood and tree products or waste of raw material during processing; (b) lack of management of non- timber products of subsistence important or actual or potential economic value; and (c) failure to capture value from conserving the forests and wildlands that provide important environmental or social goods and services. 3.40 Inefficiency of Forestry Enterprises. The generally high costs of raw material make forest industries uncompetitive. Raw material costs are high because transportation distances are great, road infrastructure is limited and in poor condition, and the harvesting is inefficient. While Mexico has vast 56 Mexico Resource Conservtion and Forestry Sector Review quantities of good-quality timber, only a fraction of what is officially recorded as commercial can be profitably extracted. This study developed a simulation model (see Annex 5) of raw material availability in Chihuahua, Durango, Jalisco, Michoacan, Guerrero and Oaxaca (HUKS, 1993, Working Paper 13, Annex A). The model identifies Mexico and the state capitals as markets, defines 110 clusters of sawmills, and defines forest units of 100 square kilometers. Sawmilling capacity was assumed to hold constant. This is appropriate since the scenarios modelled contemplated a decline in sector output, in which case sawmills would stay idle but operational. Parks and inaccessible regions were excluded from the model. It was assumed that the growing stock was evenly distributed within the state but it was allowed to vary from state to state. The model then estimated transportation costs along the network and estimated which part of the existing forests could be economically accessible, that is, the magnitude of the economic timber stock supply (defined as the timber that generates positive resource rents if logged). Resource rent, or stumpage value, is defined as the market price minus the costs of bringing the resource to the market. User costs, the opportunity costs from not leaving the trees in the forest, were ignored. The study further estimated how this economic timber supply was likely to change given different scenarios. 3.41 The model yields an estimation of the potentially commercial forest area that can be economically harvested, based on (a) transportation costs, (b) natural growth and price appreciation, and (c) monopsonistic markets. Large areas of high-quality forest are uneconomic to harvest, as is analyzed in the next three paragraphs. The factors leading to high transportation and extraction costs are multiple and a major obstacle for Mexican industry. Transportation costs are high due to (a) the seasonality of supply, (b) the lack of good roads, (c) poor transportation equipment, and (d) the lack of competition in the transportation industry (see Table 3.8). Because unit costs for transporting roundwood are so much higher than for sawnwood, the location of processing industries away from the resource base contributes substantially to the problem. This location was itself a result of past forest policies, which created high uncertainty in timber supply and encouraged processing facilities to locate near markets rather than their source of supply. As a result, the transportation costs average 28% of the total raw material costs at the mill, and road building costs alone could reach 17% (HUKS, 1993, Working Paper 13). Chapter 3 Consequences of Undervaluaton: Deforestation and Degradation 57 Table 3.8 Average Distance and Transportation Cost for Pine Sawlogs (N$/m3) | Average Distance Costs Percentage of State (Km) | (N$/m3) | Total Costs (%) Chihuahua 44 64 31 Durango 54 86 37 Jalisco 25 44 17 Michoacan 18 31 11 Guerrero 55 64 23 Oaxaca 65 90 38 Average 67 67 28 Source: HUKS, 1993, Working Paper 13. 3.42 Loss of Market Share. There a number of causes for the international noncompetitiveness of Mexico's forest industry. Some stem from the relationship between ejido forest producers and industries, and others from the historical protection afforded to the trade in forest products, which encouraged industries to become and remain inefficient. Production of forest products declined by 22.7% between 1986 and 1991, with the largest declines in Chiapas, Quintana-Roo, Campeche, Jalisco, Chihuahua and Durango. Between 1985 and 1990, commercial wood production declined by 25 %, pulpwood by 43 %, and tropical timbers by 42 %. Sectoral GDP declined 23.6% in real terms in the last five years, in contrast with the growth of the agricultural sector (0.5 % per year in real GDP), and the manufacturing sectors (see Figure 3.1). Imports of forest products increased by about 100% between 1988 and 1991, 60% of imports being pulp products. Trade in non-pulp (mechanical) wood products is balanced, but there is a large deficit for pulp and paper products. Imports of these products increased from US$500 million in 1981 to US$1000 million in 1992, to become the seventh largest category of imports from the U.S. 3.43 Low Capacity Utilization. Another factor contributing to the high cost of production is inefficiency of processing (the model indicates that about 30% of the higher cost of production can be attributed to this inefficiency). According to official statistics, the forest industry has low capacity utilization (Table 3.9). While this is partly due to the high raw material costs and the prohibitive cost of supplying raw materials to some plants, there are other factors involved. First, there is a question as to the reliability of the capacity utilization figures. State data, which shows higher utilization, suggest that much of the recorded over- capacity is equipment that is totally obsolete and that timber adds another 30% to the unofficial capacity utilization. Pulp appears to be a special case within the industry as a whole. Capacity utilization in the pulp industry is 50 % (Table 3.10), one of the lowest in the world (John Wadsworth, personal communication, 58 Mexico Resource Conservation and Forestry Sector Review Figure 3.1 Forestry and Manufacturing (induding Forest Processing), GDP 1987-90 (million 1980 pesos) Forescry Manufacturing GDP GDP 42000 1200000 Forestry Share GDP 41000 40000 - = - 1150000 39000 1100000 38000 37000 Manufacturing GDP 1050000 36000 35000 - l l l , \ - 1000000 1987 1988 1989 1990 1991 Table 3.9 Mechanical (Sawn Products) Industry Capacity r ~~~Capacity Industry Number of Factories Installed Used Number of l____________ .1 W orkers (thousands in3) Sawmills 1,543 12,344 45 18,615 Wood boxes 1,144 740 -- 8008 and containers Impregnators 14 868 38 280 (thousands in3) Plywood 35 556 33 8,568 laborers Particleboard 14 685 30 2,213 employees Fiberboard 2 125 36 652 technicians Source: HUKS, 1993, Working Paper 13. Chapter 3 Consequences of Undervuuation: Deforestation and Degradaion 59 1994). There is no production of market pulp. Existing pulp mills are integrated with paper mills, but even these underutilize capacity. With the reduction in the world price of pulp, the situation has been exacerbated. A main constraint is the cost of transporting small wood and non-pine species, including oaks, that otherwise should provide a good source of supply to an integrated pulp industry. 3.44 Undercapacity utilization of the mechanical industries is due to the poor quality of the sawmilling in the ejidos. Ejidal sawmills are highly inefficient, because they use very little timber grading, their equipment is often outmoded or poorly maintained, and their workers are poorly trained and poorly supervised. There are long work stoppages during equipment breakdowns and workers are generally not available during busy agricultural periods. The plywood and higher- value processing plants tend to be vertically integrated and provide their own sawmilling to ensure a higher quality raw material. Ejido inefficiency is tied to a series of constraints, including the lack of access to credit, the lack of information about business opportunities, markets and technologies and the high personal discount on investment due to the insecurity of ejidos towards their long- term control of the resource base. The evidence that inefficiency is somewhat tied to resource ownership is seen by comparing ejido facilities with private plywood mills and maquiladoras (re-exporters to the U.S.), that are efficient and operate close to full capacity. Table 3.10 Chemical (Pulp and Paper) Industry Capacity (percentage) type of Plant Installed Capacity Actual Production Chemical paste 44 50 Annual factories 30 43 Thermo-mechanical paste 26 7 Source: HUKS, 1993, Working Paper 13. 3.45 Extensive Forest Management. A third cause of inefficiency is the loss of productivity from the inadequacy of forest management. There has been controversy over the competitiveness of the traditional management system (MMON), which was designed to ensure continuous ground cover but which favored mining of high value trees, versus the newer integrated models (MDS), which are more environmentally sound but potentially less profitable. Part of the modelling exercise on competitiveness discussed in paragraph 3.40 compared the traditional (MMOM) and newer management regimens (MDS for example) and found that as long as Mexican labor costs remain lower than those across the border, the MDS with its more intensive silviculture is the more profitable even though it entails harvesting of smaller timber. The drawbacks of the MDS rest with the lack of a market for the smaller wood produced, but on the whole, the 60 Mexico Resource Conservation and Forastry Sector Review financial returns are equal for MMOM and MDS over the short term and better for the MDS over a full rotation (50-100 years). This model found that MDS, with its intensification of management, conflicts with non-timber forest products and should be modified or abandoned where these are economicaUy important. Nevertheless, the difference between the two methods is not sufficiently large to warrant a change in policy (see Table 3.11). Table 3.11 Average Costs and Prices of Domestic and Imported Forest Products Plywood Variable 2.7 mm 16 mm Particleboard Sawnwood Average production costs of forest products in Mexico (N$ per n3)l Price FOB Mexico City Freight Durango, Mexico City 848.0 485.0 212.0 283.0 29.0 29.0 29.0 29.0 Cost FOB at mill Freight raw material at mill 819.0 456.0 183.0 254.0 Raw material (round or chips) 297.7 165.7 20.7 52.3 Resins 297.7 165.7 56.1 141.4 Energy and Electricity 38.3 21.4 44.0 141.4 Labor 25.1 13.9 31.0 9.1 Others 129.1 71.9 22.1 37.7 31.1 17.4 9.1 13.5 Average costs and prices of forest products imported from the U.S. (N$ per rn3) Price FOB Mexico City 680.0 297.0 183.0 223.0 Freight Mexico City (El Paso) 92.5 57.7 24.9 30.0 Price FOB at Mill 314.8 128.2 84.7 114.4 Freight 74.8 30.5 20.1 24.5 Commissions 37.4 15.2 10.1 12.3 Customs 160.5 65.4 43.2 41.5 Source: HUKS, 1993, Worldng Paper 13. 3.46 Efficiency would improve if small timber could be marketed. The MDS with liberation thinnings, regeneration thinnings and thinnings would be by far the most profitable management regimen, due to the possibility of selling lower- quality products. Given that these products have no market value, the question is would a pulp mill, which could consume this timber, be economically viable? Assuming lower size and quality timber is available, the analysis carried out for this study indicates that the economic returns to a pulp mill would be very high, while financial viability would depend primarily on the price of wood. The economic returns are high because domestic pulp production would substitute Chapter 3 Consequences of Undervaluation: Deforesaion and Degradation 61 imports. A diminutive pulp industry is a major proximate cause of the lagging sector contribution to economic growth. The question then is why this industry has not developed, given the apparent availability of lower-quality material. The main reasons are historical. Investment was not attractive to the private sector because of the restrictions that land reform legislation placed on the size of private land and resource holdings created insecurities in timber supply, and the restrictions on foreign ownership restricted foreign investment. 3.47 Regulatory Costs. The forest management plans required by law can be very complex and therefore expensive. The cost of preparing the plans varies. At the end of the 1970s, the Forest Development Units (UAFs) (see para 2.31) were formed to provide technical services to small producers, charging fees against allowable cut. When these UAFs were converted to Forest Development and Conservation Units (UCODEFOs) at the end of the 1980s, these offices also charged for services, but now under much more stringent requirements to generate environmental impact data as part of the management plan, in line with the 1986 Forest Law. The current 1992 Forest Law opened the provision of technical services to the market, allowing forest producers to contract preferred technicians. It is only required that such technicians register as trained professionals with the National Forest Registry. This should encourage greater competition and a drop in the costs of preparing management plans. However, there is still a transitional situation in which UCODEFOs continue to provide the only available service at a high cost. 3.48 Technological constraints. Regulations specify in great detail the methods and techniques to be used in resource management-measuring systems, methods of calculating allowable cut, types of areas to be retained, and logging methods. These technical constraints have harmed rural ejidos and communities because they impose inflexible standards and target wood products that are not linked to market conditions or relevant to local conditions. Subsistence goods may be of overwhelming importance in many communities, but technical regulations force the production of industrial timber. A single national silvicultural system based on low-intensity selective cutting, imposed by law from the late 1950s to the late 1970s, was intended to conserve Mexico's forests but has had at least two negative impacts on forest productivity. First, this system has severely impeded regeneration and growth of pines in Mexico's temperate forests, a legacy that will reduce forest productivity decades into the future. Second, this system reduced foresters to followers of recipes rather than stimulating them to observe, record and analyze how different forests responded to different kinds of silvicultural treatments. Regulatory changes in the 1980s have led to the intensification and improvement of forest management in temperate zones. However, opportunities exist to greatly increase the benefits obtained from technically sound resource management, particularly in the case of 62 Mexico Resource Conservation and Forestry Sector Review tropical forests and non-timber forest products, where technical guidelines are either lacking entirely or are embryonic. 3.49 Lagging Reforestation. One response to the problems confronting the forest industry from natural forest management might be expected to be the establishment of plantations. The productivity of plantations in most countries is much higher than that of natural forests. In Mexico, however, despite considerable public investment in reforestation since 1909, there are only 150,000-200,000 ha of commercial forest plantations, of which only 50,000 ha are utilized for pulp production. Plantations could be financially attractive to a private investor in Mexico (Table 3.12). Internal rates of return for the sites analyzed vary between 2% and 26%. Plantations can be profitable, so why is the area of plantations so small? The major reason is that the states with the highest rates of return are also those with a Table 3.12 Internal Rates of Return to Forest Plantations Quintana Roo, Michoacan, Veracruz, Oaxaca, Durango, Durango, 1Type of Plantation Tabasco Guerrero Chihuahua Chihuahua Financial (%) Eucalyptus pulpwood 26 15 7 2 Pine or Gmelina, pulpwood and 18 9 5 3 small sawlogs Pine or Gmelina, pulpwood, 18 9 5 4 small and large sawlogs __ Economic_(%) l Eucalyptus pulpwood 29 18 10 6 Pine or Gmelina, pulpwood and 22 16 6 4 small sawlogs Pine or Gmelina, pulpwood, 20 10 3 2 small and large sawlogs Source: HUKS, 1993, Working Paper 13. comparative advantage in agriculture. Another discouraging factor is that, due to the land tenure regimen, investors faced considerable risk of not being able to reap the benefits from establishing a plantation. Land could also be expropriated in the context of the agrarian reform legislation. The economic analysis, which shadow priced labor, capital, energy, foreign exchange and land, revealed even higher rates of return. The implication is that there may have been considerable economic losses for Mexico for having policies that depressed forest plantations. Chapter 3 Consequences of Undervaluation: Deforestation and Degradation 63 3.50 Until recently, public agencies have paid little attention to non-timber forest products. Part of the reason may be their relatively low value at the producer level, despite the fact that official statistics considerably underestimate the value of these products. Although non-timber products can reach high values, collectors only receive a small share of this value. There are usually four to five levels of intermediaries in the distribution chain. Where producers are organized into cooperatives some of the distribution levels are avoided. On average, collectors receive 5-15 % of the consumer value of the non-timber products, while intermediaries receive 25-50% (Bye, 1993, Working Paper 13c). Because little is known about the markets for these products, it is difficult to evaluate the anecdotal evidence that the costs of intermediation are unnecessarily high. It cannot be established with certainty that the apparently high returns to intermediaries are a consequence of imperfect market structures or are a means to cover their opportunity costs. 3.51 This chapter has examined the apparent and underlying causes of deforestation, degradation, and underutilization of the forests and wildlands in Mexico from a social, environmental and economic perspective. It has argued that while all deforestation is not counterproductive, much of the ongoing deforestation is now occurring on lands that cannot sustain other uses and, together with degradation, is leading to a loss of economic, social, and environmental goods and services. It has also argued that the underutilization of timber and non-timber potential reduces the contribution of forestry to the national economy and has a negative impact on the quality of life of the poor, rural population. The next chapter will examine the current policy framework that Mexico has put in place to combat these problems and evaluate its adequacy to promote balanced and sustainable forest and wildland management. IV. THE TRANSMON: CHANGING THE POLICY FRAMEWORK Current Economic Climate 4.1 Mexico has taken bold steps to change its economy through major and far- reaching policy reforms affecting all sectors. This transition from an economy characterized by high government intervention toward a market economy, where the role of the state is more that of providing public goods and dealing with social inequalities, is having fundamental impacts on natural resource management. In the last three years, Mexico has joined NAFTA, changed its land reform policy, and introduced a new forest law and a new environmental law, all of which change the focus of policy in the forest sector. Current economic priorities for the government are to increase economic growth and accelerate poverty alleviation. This chapter analyses the current land tenure, agricultural, environmental and forest policy framework and its potential impact on the forest sector. 4.2 As a result of the economic liberalization in the 1980s, the overall fiscal balance went from a deficit of 15.6% of GDP in 1982 to a surplus of 1.6% of GDP in 1992. The recovery of growth, however, was still modest. Total GDP was almost unchanged between 1982 and 1988, which implies a decline in per capita by 11 %. During 1989-91 growth in total GDP averaged 3.7% annually. Economic growth will increase the demand for timber based products in general (Table 4.1). Depending on the expansion of the construction sector, demand for wood products could increase substantially (Merino, 1992). If economic growth is accompanied by gains in income per capita, consumption of pulp and paper products is also likely to expand rapidly (HUKS, 1993, Working Paper 13). Fuelwood and roundwood consumption would increase, but, because they are inferior goods, consumption per capita would decline. For a sustained growth rate of GNP of 3% per year (and a population growth rate of 1.9%), fuelwood and other roundwood consumption would increase at about 1.2% per year. Under the same assumptions for growth in GNP and population, roundwood consumption would increase at about 2.7% per year, particleboard at 3.9%, newsprint at 3.3%, and printing and writing paper at 3.5%. 4.3 Faster economic growth, through increased demand for timber products, could also increase the incentives for deforestation and forest degradation. On the other hand, a more stable economy will also foster a positive climate for 64 Chapter 4 The Transinon: Changing the Policy Framework 65 Table 4.1 Elasticities of Consumption with Respect to GNP per Capita (percentage) Product Elasticity (%) Fuelwood -0.62 Other industrial roundwood -0.06 Sawnwood 0.77 Plywood 0.89 Particleboard 1.79 Fiberboard 1.13 Newsprint 1.29 Printing and writing paper 1.45 Other paper and paperboard 1.21 Source: Buongiomo (1991) investment in longer-term initiatives, like forest management and plantations, and help create employment in intensive agriculture and in non-farm sectors. The potential negative impacts of economic growth on forests through increased demand for timber can be mitigated with a sound strategy to protect environmental values and priority biodiversity areas (discussed in Chapters V and VI). Policy Changes, Population Shifts and Deforestation 4.4 Four major changes need to be examined in regard to the land allocation between the agricultural, livestock and forest sectors. These are: (a) liberalization, including in connection with NAFIA; (b) population growth; (c) the replacement of the agricultural price support scheme by an income support scheme; and (d) the end of the land redistribution program. 4.5 Continued Deforestation Pressures after Liberalization. This study included analyses of models of the potential impacts of NAFTA and overall price and trade liberalization on deforestation. The results of these analyses were not conclusive, but given the strong interest of the Mexican government in the outcome of these analyses, a summary is included in Annex 7. These studies were not conclusive because although the modernization of the agricultural sector is likely to reduce pressures on land and therefore on forests, population growth pressures will remain and thus deforestation may continue. 66 Mexico Resource Conservation and Forestry Sector Review 4.6 Deforestation is expected to continue in the tropical and marginal areas for several decades after trade and price liberalization for a number of reasons. First, it is anticipated that subsistence farmers, the "other Mexico" concentrated in marginal and forest areas, will be largely unaffected in the short term by liberalization in their choice of crops. These farmers grow maize and other basic grains largely for subsistence purposes and do not sell significantly to the commercial market. While modernizing agriculture in the productive areas will lead to intensification, in the marginal areas where forests and wildlands are prevalent, farmers will continue the existing cropping systems and, with continued population growth, the current expansion practices. Or, if landless, some farmers will try to acquire land holdings through deforestation where property rights are not secure. 4.7 Implications of NAFIA and Liberalization for Timber Supply. Liberalization could also affect the economic stock of the resource. The magnitude of the economic stock is a key determinant of future timber supply. It is defined as the area and volume of the timber resource that can be extracted at a profit. The relevant question here is whether NAFTA will lead to an increase or decline in the economic stock of the resource. The simulation model discussed in Chapter m developed by HUKS (1993, Working Paper 13, and Annex 5) was used to investigate the area that would become non-exploitable if Mexico were to face international prices. Domestic timber prices are substantially higher than international prices, which will be the relevant ones with NAFTA. The analysis was carried out for forested regions of Chihuahua, Durango, Jalisco, Michoacan, Guerrero and Oaxaca. Although all these regions are currently forest producers, after free trade only Jalisco, Michoacan and Guerrero would be able to compete at the lower international prices. Total exploitable volume would decline to just 14% of its present magnitude, and exploitable area would decline from 10.7 million ha to about 0.6 million ha, 5 % of its current size. Under this scenario most of Mexico's forest industry would be wiped out. Most likely the outcome of NAFTA for the forest sector of Mexico will not be as bleak. There are supply constraints in Canada and the U.S. that will push up prices, and many localized markets in Mexico will continue being supplied by local producers. Nevertheless, these results support the results of the general equilibrium analysis and suggest that timber production activities are likely to decline substantially after NAFTA comes into effect. 4.8 To illustrate this point further, the HUKS study (1993, Working Paper 13, and Annex 5) calculated that a 10% fall in end product prices would bring about a reduction of stumpage prices for pine lumber by US$ 6-19/n3. Should the end product prices fall to international levels (a reduction of 27%), the impact on stumpage prices would be US$15.5-42.6/m3. To weather this, the Government can undertake certain activities, which were analyzed by HUKS, namely road Chapter 4 The Iansition: Changing the Policy Framework 67 improvement (which on average would reduce costs by US$1.6-3.2/r3), technical assistance to ejido sawmills (or equivalent) in selected areas (costs savings estimated US$10-20/m3), and improved utilization of allowable cut in selected areas (savings of US$1.6-17/m3). These figures indicate that no single measure is adequate to counter the assumed effect of NAFTA, and therefore the efforts to cut costs need to be concentrated in selected areas, shown in the maps of Annex 5. Finally, it can be noted that the picture of a disappearing timber subsector may not be as gloomy as the above analysis seems to suggest because it is based on stagnant productivity, whereas in reality the private sector will undoubtedly be able to increase efficiency, particularly once the sector is opened to foreign investment and technologies. Population Growth and its Effects on Deforestation 4.9 The overall growth of population in Mexico is 1.9%, but is higher in poorer, marginal areas where many forests are located. In the short term, the urban and manufacturing sectors may not absorb all the rural labor entering the market and there may then be continued pressure to deforest for agriculture or pasture. In productive areas, ranchers may intensify their production due to a reduction in feed grain prices. In marginal areas, lower feed prices may allow marginal farmers to expand livestock holdings, continuing to raise livestock less intensively on a combination of grain and pasture. Were forest boundaries and holdings well secured, there would not be cause for alarm. This study argues, however, that with the uncertainty of forest boundaries, there may be continued pressure to convert forests at the margin. This also represents a danger to protected areas where boundaries are not well demarcated and where there are pressures to extract products or clear land for other uses. 4.10 Mitigating Deforestation Impacts. Three steps are necessary to discourage deforestation and degradation. First, remaining pricing and other policies in the agricultural and livestock sector that artificially "subsidize" the returns to conversion activities on forest land or the costs of conversion need to be reformed. These would include subsidized credit. Second, land tenure, forestry and environmental laws also need to be tightened to reduce the incentives for rent seeking behavior on the frontier or to improve the "internalization" of any environmental impacts associated with forest conversion and degradation. Third, specific investments for improving productivity, infrastructure and research and extension should be targeted toward bringing existing idle arable land into agricultural production as well as improving productivity on rainfed land already under cultivation. 4.11 An investment program in land improvements to increase the productivity of rainfed land could involve investments not only in irrigation infrastructure for 68 Mexico Resource Conservanon and Forestry Sector Review 1.1 million ha of rainfed land (LEEC, Working Paper 4) but also in drainage, land leveling and soil conservation. The distributional impacts of maize liberalization in Mexico are particularly reduced when a land improvement program with the above investments is combined with greater access for Mexican farmers to the U.S. fruit and vegetable market, as NAFTA will allow. Consequently, expansion of rural farm employment opportunities on existing agricultural land, or off-farrm employment opportunities generally, could be an important mitigating factor in reducing deforestation. This suggests that a land improvement investment program for existing rainfed farmers, particularly in states and regions prone to high deforestation rates, could provide indirect incentives for controlling deforestation by increasing the demand for rural labor. The Rural Income Support Scheme-PROCAMPO 4.12 Overview. In October 1993, President Salinas announced a new support program for Mexican farming that will replace agricultural price supports (in particular for maize) with direct rural income support. The program, PROCAMPO (Programa Nacional de Modernizaci6n del Campo), has two components: agricultural trade liberalization and direct producer income support. 4.13 The GOM intends to free agricultural trade almost immediately and provide direct income supports to producers during a 15-year transition period. There will be a move to world prices for all farm commodities after October 1, 1994. This will cause the domestic producer prices of some major crops-maize, beans, wheat, barley, and sorghum-to fall quickly, though by varying degrees. For maize, the most important crop, the guarantee price of US$250/ton that held throughout 1993 dropped to US$213/ton in the fall/winter season of 1993-94 and to US$200/ton in the spring/summer season of 1994; for beans, the next most important crop in area, the corresponding changes will be from US$700 to US$600 and then to US$535. 4.14 PROCAMPO includes a direct producer income support component to compensate fanners for some of the effects of the lower prices. PROCAMPO will grant direct income support payments to farmers who have sown maize, soybeans, dry beans, sorghum, wheat, rice, cotton, barley, and safflower. All products benefit at present from government support programs. Farmers who have not historically planted areas with the aforementioned crops are not eligible for payments under PROCAMPO. Payments will be granted on a per hectare basis and will be calculated as the average of the areas planted with eligible crops in the three years prior to December 1992. The income support will be roughly US$113 per hectare, given to 3.3 million farmers in 1994, the transition year. Those farmers will receive a like amount in real terms for ten years beginning on Chapter 4 7he Thansujon: Changing the Policy Framework 69 October 1, 1994. Beginning in the year 11, the amount given will decrease linearly and become zero at the end of year 15. 4.15 Risks for Deforestation. In all likelihood, PROCAMPO will buffer against potential risks from liberalization. Since income support will not be tied to current crop output, thereby not giving incentives to expand agricultural or pasture land, it will help reduce deforestation relative to what happened under past support schemes. There is a risk, however, of deforestation. The risk is that PROCAMPO ties income subsidies to past areas under certain agricultural crops. Given the difficulties of quickly identifying lands for PROCAMPO, there may be incentives for farmers to convert to qualifying crops, claim that the area has been cropped for some time, and obtain the PROCAMPO payment. The solution is to identify eligible areas quickly, and assess penalties for any attempts at deception. Land Tenure: Reform of Article 27 4.16 The 1992 reform of Article 27 of the Constitution introduced fundamental changes in land rights: (a) land redistribution was eliminated; (b) transactions of ejido lands were authorized; (c) ejido farmers now have the right to sell their land; and (d) agrarian courts to solve land claim conflicts were created. By offering more secure land rights, the legal reform is likely to lead to gains in agricultural productivity. While before the reform, use contracts could not exceed one year due to the legal risks involved, now long-term use contracts are permitted. Long-term contracts create a better environment for investments. With the new law, an ejido can decide, in general assembly, to distribute the agricultural land parcels to its members under full private ownership or to continue the present system. However, in common use lands, where most of the forests are found, only long-term utilization contracts are valid, and these lands cannot be parcelled or sold. 4.17 The reform of Article 27 will both create new opportunities for forestry and pose risks. On the positive side, it appears that most forest ejidos and comunidades are in favor of retaining their status as collective entities and that some indigenous ejidos aim to become comunidades for the special status this entails. Under the reforms, these entities have clear rights over their collective resources, including forests, and can, upon demarcating their collective resources, form legal associations with private enterprises to enter into joint ventures for forest management and exploitation. Thus, although forest lands cannot be parceled and privatized, they can be held by a joint venture in which ejido members would hold tradeable shares. Individuals can sell their privately held forest holdings to whomever they choose and private companies can obtain up to 20,000 ha of non-agricultural land for forest management or plantations. 70 Mexico Resource Conserwaion and Forestry Sector Review Provided the ejidos follow transparent and rational rules for allocating rights or shares within the community in a way that avoids the open access problem that has existed in the past, this system is likely to provide an efficient management as private holdings and to be a superior method of facilitating the internalization of local environmental values or the distribution of resource rents. 4.18 On the negative side, there is a risk that the reforms do not provide any counterweight to continued deforestation or degradation of ejido and community forests and wildlands. The poor boundary definition of these forests and wildlands is unlikely to be defined more clearly in the near future, given the focus of the land reform agencies on the more productive ejidos requesting privatization. Already forest technicians are reporting incidents in which unscrupulous people have laid claim to forests at the margin, in the hopes of privatizing new parcels. In addition, boundary disputes are common over the forest and wildland areas that span the boundaries of two or more ejidos. In these situations, the common practice has been for neighboring ejidos to try to exploit the disputed forest before the other ejido can put it under a formal management plan. There is an added incentive for those communities that are aware of the changes in the constitution to lay claim quickly, before land adjudication authorities begin to prepare a survey map of the ejidos. 4.19 There is a risk, however, that results from the uncertainties around the reform of Article 27. What will happen to communal lands if the ejido decides to privatize its agricultural parcels completely, and the community basically disaggregates with members leaving the ejido? The law foresees in this case that communal forests will revert to the public domain, but fails to mention the process by which this would happen. Would there be any fair compensation from the government for the value of the resource? If not, then there are clear incentives for ejidos that decide to disaggregate to get rid of the forest in any possible way in order to pocket all rents, before turning the forest to the government. 4.20 A series of steps are needed to avoid these risks: (a) government agencies should explain to the various ejidos the options available and their implications; (b) parcelling and privatization should not favor agricultural land over forested land, but treat both types of lands equally; and (c) public control and monitoring over community forests should be maintained to avoid open access situations. To counter the risks associated with ejido disaggregation the government could consider two options: (a) allow the ejido to sell the forest land to the private sector or another ejido and distribute the revenues among its members; or (b) pay the ejido a fair price for the forest land, consistent with the commercial value of the resource and its environmental assets, and then resell the land to the private Chapter 4 he Thrnsition: Changing the Policy Framework 71 sector, manage it through a concession, or, if it has high biodiversity value, integrate it into the protected area system. Current Natural Resources and Environmental Policies 4.21 The 1992 Forest Law. The Forest Law of 1992 is a notable departure from the long history of government intervention and heavy regulation of the sector. The law is an ambitious step in the deregulation of the sector. For example, transportation of forest (timber) goods, which used to be highly regulated, has been partially deregulated (controls remaining only on the origin of logs). Other activities that have been deregulated include felling (no permits are now required) and the UCODEFOs (no restrictions on their geographical operation). The centerpiece of forest policy on resource use is still the forest management plan.6 The management plan must include: (a) the objectives of the program; (b) the location of plot or plots and the physical and biological characteristics of the forest ecosystem; (c) the dasonometric studies of the area; (d) the techniques that will be used for extraction, forestation or reforestation; (e) the measures that will be taken to conserve and protect threatened or endangered wild fauna species' habitat (note: the law does not mention flora); (f) the measures to prevent, control and combat pests and fires; (g) the measures to prevent and mitigate environmental impacts during the different stages of the forest management plan; (h) the commitments for forestation or reforestation; (i) the planning, if needed, of the necessary infrastructure for raw product transportation; and (j) any other requirements that are established by the forest law regulation and Mexican official norms emitted jointly by SAHR and SEDESOL. 4.22 The law limits bureaucratic intervention in the sector and creates more incentives for sustainable management. The authorization of the environmental arm of SEDESOL is required regarding environmental impacts only in the case of tropical forests or forest species of difficult regeneration and activities within 6 The management plan is required for all forest exploitation as well as forestation or reforestation activities. Use of non-timber forest products and household use of fuelwood do not require a management plan, but must conform to the official Mexican norms as regulated by SARH and SEDESOL. 72 Merico Resource Conservation and Forestry Sector Review natural protected areas (reserves). This procedure replaces the earlier regulations whereby both SEDESOL and SARH were required to review management plans in aU forests, leading to duplication of bureaucratic efforts, contradictory judgements, and additional transactional costs to the producer. The 1992 law dictates a greater coordination of efforts between the two agencies with less duplication of initiatives; it also allows authorization of timber use for the length of the management plan, rather than for a single year. 4.23 This law has not sufficiently deregulated the sector, however, either in coverage of the regulations or in simplifying their contents. Some regulations are unrealistic to implement and create incentives for noncompliance. In general there are two main justifications for regulations in the forest sector: (a) to protect environmental values that otherwise would not be properly internalized by private and community decisionmakers; and (b) to deal with open-access situations likely to arise in communal forests where communities have organizational weaknesses. Each of these goals probably deserve separate instruments, and regulation may not even be the most appropriate instrument for achieving compliance with a desired behavior. Under the 1992 law, all timber extraction activities, irrespective of whether they are in private, community or public lands or whether they play an important environmental role (with the exception of those for home consumption), continue to need SARH authorization. 4.24 The complexity of the management plan requirements places a heavy cost burden for their preparation and implementation on the producer as well. While the law states that ejidatarios, community members and other owners or holders of forest land without the means to contract private technical services, can ask SARH to provide them with technical assistance, current budgetary and staff constraints in the Forest Department of SARH prevent this. For tropical forests and species of difficult regeneration, an environmental impact assessment is also required but the feasibility of its financing and review has not been studied. While a plan for economic activities, especially those which are long term like forestry, is important, in the Mexican case it may place an economic burden on a segment of ejidos and lead to forest land conversion or simple non-compliance. 4.25 More importantly, management plans create considerable opportunity costs for the poorest owners, as they must forego profits to manage forests according to regulations. Moreover, in most cases, these regulations may not be justified by environmental considerations alone or by the likelihood that the community will deplete the forest due to an open access situation. In Oaxaca, for example, many indigenous communities appear to be cutting less than the SARH recommended cut, rather than too much. Forcing forest owners to cut according to prescribed guidelines when it may be in their best interest to do something else is likely to lead to non-compliance and illegal cutting, thus undermining the Chapter 4 The 7ransition: Changing the Policy Framework 73 government's credibility. In addition management plan costs and harvesting restrictions reduce the incomes of forest owners, many of which are among the poorest elements of rural Mexico. 4.26 Scarce public, private and social resources and resource rents are currently being dissipated in elaborating plans that serve no clear economic purpose. A more realistic policy would be one that would restrict the use of management plans to areas of high environmental importance. Elsewhere, the private and ejido sectors are likely to be able to follow harvest strategies that maximize their income, thus contributing optimally to the economy. For those communities lacking technical and marketing skills to effectively manage their forests, technical support in these areas would appear to make more sense than top down, complex management plans. 4.27 Environmental Policy. The 1988 Environmental Law (General Law on Ecological Equilibrium and Environmental Protection) offers the opportunity to decentralize conservation activities important for biodiversity at the state and municipal level, but only a few state and municipal governments have the capacity to respond. Legal provisions on the environment have been adopted, although they are not fully applied, especially at the state and municipal level. The law aims to establish the basis for: (a) defining the principles for ecological policy and regulating the instruments for its application; (b) ecological management; (c) preservation, restoration and improvement of the environment; (d) protection of natural areas and wild and aquatic flora and fauna; (e) rational use of natural resources in such a way as to make economic benefits compatible with ecosystem equilibrium; and (f) prevention and control of air, water and land pollution. 4.28 In terms of water resources, the law makes certain stipulations if the forests are to be used commercially. An environmental impact assessment will be required for the use of forests and species of difficult regeneration. All activities requiring an evaluation of their environmental impact are regulated by the Regulation of the Environmental Law in matters of environmental impact. Under this regulation and according to the origin of the timber product, two general types documents can be required: (a) preliminary action notices; and (b) environmental impact manifests, which can be general, intermediate or specific. 4.29 Tropical forests and species of difficult regeneration require both documents.7 The objective of these documents are to make the user specify what 7 The 1992 Forest Law states that only use of tropical forests and species of difficult regeneration are required to present an environmental impact manifest. However, (continued...) 74 Merico Resource Conservation and Forstry Sector Review the environmental impacts will be and the actions necessary to prevent and mitigate the environmental impacts. The implications of these requirements are that they impose costs on the forest user and delay the start of forest use, both of which can be incentives to deforest rather than comply with regulations. Three costs are involved in meeting the requirements of the Environmental Law. One is the cost of preparing the documents. The second results from a fee paid to the government to review the documents. These costs range from about US$50 to US$500 depending on the source of timber (classified according to climate) and the type of forest. The third and most important category of costs is the opportunity costs of foregoing practices that maximize income, due to restrictions of use associated with the management plan. Delays stem from the mandated waiting periods required for the government to evaluate the environmental impact of the proposed activity. These costs are more damaging to the poor than to the rich. 4.30 In conclusion, the current policy framework has introduced major changes to the overall development and forest and wildland management objectives and removed many of the distortions outside the forest sector which encouraged deforestation, degradation, and underutilization in the past. There remain, however, some areas of concern for which a revised framework is outlined in Chapter V. 7(... continued) tenperate forests are included as requiring such a document in the 1988 Environmental Law. V. TOWARD SOLUTIONS: ELEMENTS OF A NEW FRAMEWORK 5.1 This study outlines the need for greater emphasis on non-timber products and environmental values, without underplaying the potential for better timber utilization. Public institutions have not given forests a priority commensurate with their value to the country, and much needs to be done to ensure that private, community and public decisions fully internalize the broader set of forest values in priority areas of the country. This chapter discusses the steps needed to better prioritize strategic actions for the sector and thereby improve the effectiveness of government intervention, as well as capitalize on the complementary strengths of the private and local institutions, both governmental and nongovernmental. It begins by analyzing ways of improving the property rights over Mexico's forests and then examines the options for best balancing regulatory and incentive measures to promote optimal resource management. It examines the appropriate blend of institutional responsibilities for promoting a prioritized strategy and outlines a set of criteria based on the protected area concept for prioritizing conservation and production areas and applying incentive mechanisms and more- targeted regulatory measures. Finally, it discusses ways in which public intervention could be improved by establishing a clearer mandate, better targeting of services, and a greater use of decentralization. Defining Principles of Mexico's Forest Policy 5.2 Property Rights. Property rights are both a limitation and a positive instrument of public policy. They are a limitation because they typically are embedded in a long political process, with many traditional and cultural elements. In Latin America, for example, some countries have a strong respect for long and constitutionally established private rights, and any attenuation of these rights is not tolerated. In other countries, Mexico included, community structures, some based on traditional indigenous rights, still predominate. Changing these property structures may be costly and possible only over the very long run, and the benefits, if limited to a small sector in the economy, may not justify the political costs of change. Thus, forest and environmental policy must often operate within these rights, or only attempt to make changes at the margin. The policy choice should be consistent with the more general development strategy of the country and the corresponding policy decisions regarding private and communal property rights, centralized versus decentralized planning and execution, top-down versus participatory budgetary allocation, and regulation versus deregulation. Mexico falls quite differently along these axes in terms of forest policy than, for example, Chile (due to its greater community ownership of forests) or China (in its degree 75 76 Mexico Resource Conserwawon and Forestry Sector Review of decentralization). Mexico has also shifted its position on these axes over time, as Figure 5.1 shows. 5.3 Mexico is moving along the above axes on the side of community ownership of the resource, top down priority setting, more centralized fiscal allocation, and approaching less regulation. The direction Mexico will likely continue to follow is already outlined in the new liberalization and environmental policies. The reform of Article 27 preserves ejido rights, but allows for greater security of individual private tenure for private investment. With the move toward decentralization and greater participation in environmental concerns, Mexico is likely to continue to move away from central control and heavy regulation. For example, the 1992 Forestry Law introduces a certain degree of deregulation by devolving management plan preparation to the private sector and divesting the National Ecology Institute (DNM) within SEDESOL of its management plan review responsibilities. It maintains, however, a fairly high level of control over forest management compared to other countries. There are advantages and disadvantages to deregulation and to control that must be weighed carefully in devising an effective strategy for forest and wild land management. Heavy regulation implies an allocation of considerable government resources to encourage and force compliance; these resources might be better invested in technical assistance or in channeling positive incentives. There are advantages and disadvantages to top-down and participatory priority setting. Where there is little local environmental consciousness and a tendency to prioritize other activities before forest development or conservation, the country may choose to set priorities for fiscal expenditure from the top to foster environmentally sound spending at the local level. If, on the other hand, there are nascent environmental movements and interest at municipal levels that participation will foster and strengthen, the country may choose to let local jurisdictions and interest groups spend money according to their own priorities and divest its microplanning and administrative role to local levels. 5.4 Mexico is unique in having institutionalized the ejido/comunidad system of property rights. With the reform of Article 27, ejidos and communities have the option to disband to enter a modern, agribusiness sector or to eliminate social injustices where communities were dysfunctional. Yet both Article 27 and the 1992 Forest Law clearly prevent the privatization of communally held forest lands, returning these lands to state jurisdiction in the event of ejido privatization. Burning questions for Mexico are where ejidos and communities will be on the community-private continuum in two more decades, and what the pros and cons are of encouraging community versus private management. While public control of formerly ejido forests may seem an attractive way for government to reallocate these lands to more-productive actors or preserve them for national use, in reality it may be more practical and less resource-intensive to sustain ejido and Chapter 5 Toward Solutions: Elements of a New Framework 77 community management of these resources where such communities will provide a force for sustainability and long-term management interest. The value of such management must be weighed against the resources required to foster it and the poverty alleviation objectives it may also serve. Role of the Public Sector 5.5 As Mexico is evolving from a period of heavy government control toward deregulation and liberalization in markets, it is timely to ask what the role of the public sector should be in natural resource management in a liberalized and privatized economy. The most important roles are: * Environment: Protecting environmental values by ensuring, through a variety of instruments, that the private, public and community sectors internalize these values. * Economic growth: Promoting the sector's contribution to economic growth by supplying the public services-infrastructure, research, and dissemination of information, and capturing of global environmental values-necessary to engineer that growth. - Sustainability: Ensuring optimum management of timber and non- timber products, including optimum rates of resource depletion and accumulation, where, due to weak community organizations, imperfect property rights, or other sources of market failure, private and social management decisions are not likely to be in the public interest. * Poverty: Supporting low-income, resource-dependent communities with poverty reduction measures, which may be related to forest management. 5.6 Prior to the identification of specific instruments to tackle these four general roles or responsibilities, the priority each role should receive in resource allocations by government must be determined. This study concludes that, given the many needs of the sector, resources must be allocated according to clear prioritization, based on the environmental, social, and economic values of forests and wildlands identified by the study. The goal of setting priorities should be (a) to focus government financial resources on thee forests and wildlands that provide maximum environmental and social values, and (b) for those forests with mainly economic values, to restrict government intervention to promotional and technical assistance activities and targeted interventions to address market distortions. 78 Mexico Resource Conservaton and Forestry Sector Review Figure 5.1. Mexico's Place on the Forest Policy Continuum Regulation/Control Centralization Top Down X = Mexico pre-198 Community Private X - Mexico/ 1992 \ X - Mexico future trend Participatory Decentralized Decentralized 5.7 One means of defining priorities is through the adoption of the concept of overlapping environmental zoning and social value zoning and the collection of the information needed to zone forests and wildlands into three land use categories for the purpose of regulation and government support.8 The first category includes land that traditionally set aside by the protected areas system, both national set- asides (the SINAP) and state-level set-asides. The second category should include those forests and wildlands that are not of sufficient watershed protection or biodiversity value (environmental) to be included in the strictly protected areas 8 The current regulatory framework in Mexico exacts a high cost from forest producers as well as from the government (for administration of monitoring, promotion, execution, and enforcement). Forest legislation targets all lands in the country with consideration for their different lands possess different environmental values and different threats. The result is that the government is trying to do too much with too little, while large areas of forest continue to be degraded or deforested. Chapter 5 Toward Solutions: Elements of a New Framework 79 system, but that have so much important environmental or poverty alleviation (social) value as to warrant more attention from the government than other forests and wildlands. The third category includes the remaining forests and wildlands (and the economically productive resources) that are not deserving of scarce government resources and that, with a proper policy framework, are likely to be put to best use through the rational decisions of their owners and private investors. A proposal for elaborating this categorization further in the case of Mexico is included in Annex 4. Biodiversity and Watershed Protection 5.8 There is no overall synthesis of Mexico's biota and overall representation of ecosystems on which to base the preparation of a systematic plan of protected areas that would protect the full range of Mexico's biological diversity. An initial listing based on a literature review and expert consultation, however, has been made by Mexican ecologists (Annex 3). There are two noteworthy aspects of this list: (a) many of the new proposed areas are identified by Mexican experts as of importance to protect Mexico's natural heritage, and (b) many of the areas listed are not protected, suggesting that the current system of protected areas is far from adequate to protect Mexico's rich biodiversity. Four types of criteria should underlie the choice of SINAP areas: representation of important ecosystems and biota; presence of endemic, threatened or endangered taxa; scenic or natural beauty; and importance in protecting key watersheds. Annex 3 is the first stage in recommending changes to the protected areas system and outlining the directions of future work.9 5.9 Property Rights. Ideally all SINAP areas would be publicly owned, and their integrity would be strictly enforced. Where there are legal or illegal occupants inside the area who are a threat, land must be bought from the private or community sectors to secure the occupants' voluntary departure. Other than land buy-outs, land swaps and exchange of housing for land could be used to bring those areas into the public domain, which should then be managed under strict protection criteria. Where land buy-out is not feasible, for example, because the lands are the traditional lands of indigenous people, other mechanisms must be sought. The principle would be the same: the government should compensate, either monetarily with public 9 Further study of the proposed areas is being undertaken under the Global Environment Facility in the Mexico GEF Protected Areas Program (report no. 10358-ME), including an analysis of pressure from surrounding populations and the degree of variation in biodiversity within recommended protected areas. In addition to such interim work carried out by World Bank consultants, there is a need to objectively and systematically evaluate the conservation potential and degree of threat of each Mexican eco-region in order to provide additional input into the design of the national protected areas system. This approach is being taken in a study on the status of biodiversity in each eco-region in Latin America (including Mexico), that is currently being undertaken by the World Bank and the World Wildlife Fund. 80 Mexico Resource Conservatwion and Forestry Sector Review services or other goods, very strict and protective management of the land (e.g., Loscandones in the Selva Lacandona). 5.10 Financing the SINAP. Trust funds and endowments can provide stable, long-term funding sources capable of surviving changes in donor preferences and the effects of periodic economic downturns that commonly lead to reduced government agency budgets for conservation. These long-term funding commitments guaranteed by the use of trust funds and endowments make such an important contribution to the conservation of biodiversity it probably could be said that conservation efforts have little chance of success without them. However, trust funds require large amounts of capital to consistently generate even modest annual sums of disbursement. Financial sustainability could be strengthened by bilateral and multilateral donors; donor coordination could act as a catalyst for other international agencies, donors, private sector or international NGOs. 5.11 Protecting Watersheds. Watersheds needing protection would not be included necessarily in the SINAP. Those that are not included should be protected through regulations and positive incentives to compensate landowners for conserving the environmental value. The incidence of sediment-related degradation and inherent costs are highly site-specific. Interventions need to be designed for site-specific features such as topography and soil type. Criteria for establishing those watersheds needing protection would include: (a) the economic value associated with the presence of costly infrastructure in watersheds; (b) the propensity for accelerated soil erosion in the particular hydrological areas; and (c) the demographic pressure on resources in upstream areas. The management schemes already operating at the watershed and micro-watershed level should be supported. Capturing Environmental Values 5.12 Mexico's Share in Global Environmental Costs. Mexico should not incur the cost of environmental protection beyond the benefits that extend from it. Where global environmental values are concerned, and notwithstanding international agreements and conventions signed by Mexico, the government should seek to capture the environmental value of those services provided. These would include biodiversity and carbon sequestration. Economically, the values that accrue to the international community as a free good and that Mexico should try to capture include foreign nature tourism, value of carbon storage, option and existence values, and exports of non-timber values. 5.13 Capture Mechanisms. The mechanisms available for capturing these values include: (a) easements and franchise agreements, which consist of contracts involving a transfer of rights on land from individuals, community or state to conservation organizations or individuals; (b) debtfor nature swaps, involving Chapter 5 Toward Solutions: Elements of a New Framework 81 purchase of secondary debt in exchange for conservation; (c) offsets, projects funded by private companies in foreign countries to enhance carbon sinks; (d) contracts for biodiversity prospecting, involving agreements between pharmaceutical companies with public agencies or NGOs; and (e) differentiatedfee structures, in protected areas to capture more of the foreign willingness to pay. 5.14 Nature Tourism. Central and local governments show a growing interest in the prospects of nature related tourism (Paredes, 1993; Portillo, 1993; Janka, 1993 cited in CSERGE, Working Paper 15, 1993). This interest is justified for various reasons. First, there is the established and growing importance of ecotourism worldwide. According to Lindberg (1991, cited in CSERGE, Working Paper 15, 1993), the revenue contribution from nature tourism worldwide ranged between US$2 billion and US$ 12 billion, and it has been growing at about 30% per year. Second, Mexico possesses vast amounts of natural resources that are well suited for ecotourism activities but that, to date, are largely unexploited despite the country's worldwide reputation and infrastructure for tourism. Ecotourism sites could either target current traditional tourists, to whom nature alternatives would be offered, or specifically target ecotourists. Ecotourism is characterized by low number of visits and high willingness to pay. Encouraging a higher number of visits could lead to a significant increase in value. For instance, just diverting 1 % of foreign tourists from conventional tourism (with an average expenditure of US$40/person/day) to ecotourism (with expenditure of US$70/personlday) would generate an increase in revenues of about US$8.8 million per year. 5.15 A sample survey in the Barranca del Cobre demonstrates that the recreational experience has a value in excess of the price paid by visitors. Differential fee structures are suggested as a mechanism to capture some of this willingness to pay. A key issue for capturing international benefits of recreation is to increase the supply of infrastructure for highly priced ecotourism activities. These include transportation and communication facilities, long-stay resorts and organized tours. The initial investment could be partially supported by government or by lending or donor agencies. There is little experience among ejidos and communities in managing the forest for nature tourism. Entrepreneurial capacity at the ejido or community level is not adequate for ecotourism. However, often the attraction of these areas for tourism is dependent on indigenous people and their traditional lifestyles and cultural diversity. An appropriate share of ecotourism revenues should be passed on to these local people, who should be trained in ecotourism management. 5.16 Carbon Storage. The function of storing carbon represents a global value of Mexico's forests, estimated between US$650 and US$3,400 per hectare. This global value can be partially captured through international payment for deals to offset emissions of greenhouse gases. International public and private capital is 82 Mexico Resource Conservation and Forestry Sector Review being put into carbon sequestration forest projects as the potential costs of global warming become apparent. The Climate Change Convention allows for joint implementation of the Convention by offsets in other countries. Governments of industrial countries are therefore searching for opportunities to offset their own emissions through forest projects and other initiatives. In some cases, the revenues from domestically initiated taxes on emissions are being directed to such activities. Private capital is also involved in offset deals, as companies anticipate emission regulations domestically or even for the beneficial publicity of involvement in forest conservation. Recently the Global Environmental Facility, which is managed by the World Bank, UNDP, and UNEP and includes funds for payment of carbon sequestration, was replenished to US$2 billion. 5.17 The decision to invest in forest carbon sequestration projects by national governments or by private companies is essentially a private one and does not relate to global values as much as to the costs of control. Success in enhancing carbon sequestration and the task of monitoring will be the key determinants of which deals go forth. Direct investment in forest protection and tree planting are relatively promising carbon sequestering activities since they are tangible and benefit local users who have the lowest costs in protection. The example in Mexico, implemented through a union of ejidos, involves both the enhancement of sinks through intensive agricultural practices and the protection of existing forests. 5.18 Option Values of Pharmaceuticals. Option values reflect the willingness of a risk-averse society to pay a premium, on top of the use value itself, for guaranteeing access to a resource of uncertain future supply. Quasi-option values can be calculated for a species of unknown worth; it represents the value placed on the possibility that a future discovery will make useful species currently thought to be useless. The value of pharmaceuticals from Mexico's forests is strictly a quasi- option value, but here we refer to it as an option value. The main obstacles to maximizing the option value of pharmaceuticals include: (a) lack of information on unknown and unscreened species; (b) loss of stock of biodiversity by both the accelerated loss of species and habitat and the loss of indigenous technical knowledge, including folk taxonomy and plant use; (c) lack of clearly defined intellectual property rights, including patent protection; and (d) lack of institutional and research and development capacity to shorten the delivery of a pharmaceutical product. 5.19 The strategy to capture this value should include a comprehensive inventory of species, accepting, however, that there are trade-offs between protecting species and researching them. More money put into protection will delay the time of a likely productive use, while more money put in research will make such use more likely in the short run but could more quickly deplete species, thus reducing the universe of species available. A biodiversity-prospecting institution could undertake Chapter 5 Toward Soluions: Elements of a New Framework 83 preliminary screenings of samples to identify those with promising biological activity, thereby raising their potential market value. Such work could be undertaken with no intent to seek a patent; indeed, it could be undertaken in a country without patent protection for biological materials. The increased commercial value of the species would stem from the new information on the material's potential use. In the pharmaceutical industry, it is common to receive royalties of 1-6% of net sales for unscreened chemical samples, 5-10% for materials backed by pre-clinical information on its medical activity, and 10-15% for fractionalized and identified material with efficacy data (Reid et al, cited in CSERGE, Working Paper 15, 1993). 5.20 Intellectual property laws require clarification, especially with respect to the Biodiversity Convention and developments under NAFTA. Possibilities for intermediary arrangements to facilitate access to genetic and biochemical resources and their transfer to the pharmaceutical, agricultural or biotechnology industry should be investigated. A wide variety of such institutions already exists and more are being planned. 5.21 Policies that protect indigenous knowledge of plants should be fostered. Evidence suggests that knowledge about the ecology and traditional uses of plants as medicines is dying out. Policies that protect the rights and knowledge of indigenous peoples should therefore be strengthened, especially since these benefits have value as well for the conservation of ecological and cultural diversity. 5.22 Use of Management Plans to Conserve Biodiversity. The conservation of biodiversity and other environmental values outside the SINAP and state protected areas is guaranteed in the environmental and forestry laws through the elaboration and carrying out of forest management plans. One finding of the study has been that the mandatory requirement of management plans of the same sophistication and coverage for all forests and wildlands, including new plantations, has been impossible to enforce and administer and, even more seriously, has proved costly to forest ejidos and communities and smallholders. This has undermined their ability and incentives to engage in productive but sustainable extraction. Most management plans have also not addressed the issues related to multiple use and multiple users as distinct from commercial users or to the management tradeoffs required to generate both timber and non-timber products. 5.23 A modification in the norms regarding management plans is required both to better target their use to areas with greater environmental values and to keep their costs reasonable. An evaluation is needed of the present regulations and modifications made to simplify management plans in those areas that are less environmentally sensitive. A social dimension is also needed. Forest management plans in communal lands can serve the additional purpose of ensuring that a process 84 Mexico Resource Conservtion and Forestry Sector Review of regularizing decisions over multiple uses is carried out, preferably involving community members in a participatory fashion. For communities and those land owners requiring more-detailed plans for environmental reasons, the government should cover a portion of the costs of this plan through a system of payments to be designed for transparent and relatively simple administration. 5.24 Promotion of Multi-product Forest Management Models. Management plans could generate much greater social and environmental services with farming systems, domestic needs (including fuelwood), and the potential of all commercial forest products (including non-timber), appropriately considered. Adequate incentives and good technical support for community-organized forestry activities, as per the socioproduccion model supported in the 1986 Forestry Law and regulations, should be supported. In the past, these have been associated with the production of timber and non-timber products for industrial ends, but good forestry could be practiced for any number of end uses, including cottage industries. As sawmills become less viable in the current economic climate, it is important to think about diversifying community forestry activities to permit them to compete. 5.25 An integrated forest management plan for environmentally and socially sensitive areas can provide the mechanism for payment of environmental services. Payments for environmental services could be monetary, vouchers, a restriction on the sets of goods and services available, public services, or support for productive investment (e.g., better zone development programs such as that in Selva Lacandona or price support to organic coffee producers). The integrated management plan would be a kind of contract between ejidos, communities, or private owners and the government, by which the owner who abided by the plan would receive public payments or services. 5.26 For areas of less environmental concern, a more simplified management plan is recommended, which would ensure only that extraction be prohibited above a certain degree of slope, along watercourses, on unique wildlife resting areas. Alternatively, these same regulating principles would be retained without management plans but through the use of fines for violation of norms or resource taxation. 5.27 Traditional Shifting Agricultural Systems. Another area in which there has been little attempt to evaluate the ecological trade-offs of local systems is traditional shifting agriculture. While there is a need in many areas to intensify agriculture because of population densities, there are also shifting agricultural systems in less populated areas that, with their associated forest fallow, generate important environmental benefits. These systems in the tropical lowlands can create and maintain a mosaic of forest stands of different ages, providing habitat for different kinds of wildlife and enhancing biodiversity values (Gomez-Pompa and Bainbridge, Chapter 5 Toward Solutions: Elements of a New Framework 85 1989; Toledo and Ordofiez 1993; Jorgensen 1992). Abandoned agricultural fields provide ideal regeneration conditions for valuable timber species including pines in the temperate zone (Negreros and Snook 1984; Snook and Negreros 1986) and mahogany and cedar in the tropics (Snook 1992; Snook 1993b). In some cases, traditional diversified agricultural or agroforestry systems include practices that enrich the diversity of regrowing forest stands with useful species (G6mez-Pompa and Brainbridge 1989). Pursuing Mexico's Comparative Advantage 5.28 Where envirommental values are not very important, and thus decisions can be left to market forces, the government should offer equal conditions to forests, agriculture and ranching and to forest utilization as well as forest preservation. Where agricultural subsidies are still present but forest subsidies do not exist, the former should be removed. Tenure and titling must also treat the two sectors equally. Particularly in agriculturally unproductive land, the market incentives should allow for long-term investment in forestry development where it is economic. 5.29 Infrastructure. One key limiting factor to forest development is roads. Much of Mexico's timber resource lies beyond the extensive margin, due in part to high transportation costs of logs and sawnwood. Forest roads in certain areas are a high-return public investment. Even though the decision process for road building is complex, involving many agencies, the government should ensure that the opportunities for forestry development are considered when allocating road budgets between competing areas. Due to the limited weight that forests and forestry have in the institutional apparatus, it is likely that opportunities to build roads to favor forested areas are being missed. 5.30 One problem with roads in forest areas is that they may threaten wildlands by making it profitable to convert or exploit them. Thus, the following criteria for road building is proposed. The government should identify all lands with a comparative advantage for timber or non-timber production, and these should receive priority for road building. However, the risks of environmental damage should be minimized and the likelihood of economic returns maximized. For environmentally sensitive lands, road building decisions will be more strictly conditioned by potential negative impacts from creating new access. The guiding principle should be that new access for commercial activities can be built only if other mechanisms for environmental protection are put in place for accessible sensitive areas. 5.31 Tropical Forest Exploitation and Management Issues. In contrast to those of the temperate forests, the ecological and commercial characteristics of the humid tropical moist forests of Chiapas, Campeche and Quintana Roo represent a 86 Mexico Resource Conserwujon and Forestry Sedor Review significant silvicultural challenge. The only timber species with unlimited market potential are mahogany (Swietenia macrophylla) and cedar (Cedrela odorata), which occur at an average density of one commercial-sized tree per hectare within a matrix of several hundred trees of other species with limited or non-existent market value. Because mahogany and cedar require open areas to regenerate, current selective harvesting practices seem destined to mine them out (Snook 1991; Snook 1992; Snook 1993). Furthermore, since mahogany lacks annual rings, harvesting rates are based on estimates of growth rates rather than research results, and apparently exceed replacement rates. Mahogany harvesting rates must be reduced, with significant economic implications in order to be sustainable (Snook 1992, cited in Snook, Working Paper 11, 1993). 5.32 Although considerable investments have been made in replanting harvested areas with mahogany seedlings, the success of these efforts should be evaluated, since similar practices have failed in the past (Snook 1992, cited in Snook, Working Paper 11, 1993). It seems that management for sustaining and increasing mahogany populations will require the development of markets for many other species and the implementation of costly site preparation and tending operations (Snook 1993). However, competition with cheap (largely contraband) mahogany mined from Guatemalan forests creates an inhospitable economic climate for sustainable management of these forests. 5.33 There are numerous benefits to be gained, however, from management practices that increase mahogany densities. This is the most effective way to increase the productive value of each hectare. Tropical timbers represent one aspect of Mexico's comparative advantage in the NAFTA timber market (Belastaguigoitia 1993, cited in Snook, Working Paper 11, 1993). There is also an intemational constituency fighting to sustain this species through its listing on the CITES convention (Working Paper 10, 1993) and a limited but growing demand for tropical timber that is harvested only from sustainable sources. 5.34 Non-Timber Forest Product Potential. The harvesting of non-timber forest products (NTFP) can contribute greatly to the values obtained from standing forest. Chicle latex, for example, accounts for at least one-half of the annual income of tappers in forest ejidos that earn high profits from mahogany harvesting (Snook 1991). Furthermore, they usually require less capital investment than timber harvesting operations and are more accessible income sources for rural people. These products can provide an incentive for conserving forests without affecting the ecosystem as much as the extraction of trees, as long as they are extracted sustainably. However, the management of NTFP is considerably more problematic than timber management. In part, this reflects the multiplicity of products, the diversity of species involved, the variety of plant parts that are harvested, and the different impacts on the source organism from harvesting. Chapter 5 Toward Solutions. Elements of a New Framework 87 5.35 With the exception of pine resin, there has been very little research on the production potential of NTFP and the information necessary for designing technical guidelines for obtaining maximum sustainable yields is lacking. In addition, since NTFP are generally harvested by hand and transported by individuals, the control of extraction processes is much more difficult than it is for timber harvesting (which requires machinery and transportation infrastructure). As a result of these two factors, harvesting intensity has had little relationship to sustainable levels of resource production. Instead, resource extraction has reflected market demand and the need for forest income on the part of collectors. When these factors are high, the resource base tends to be mined to depletion. 5.36 Unregulated or contraband timber abounds because technical forestry has focused on timber production for large forest industries. Since in the late 1970s, technical forestry has also been applied to supplying timber to community sawmills. However, the extraction of non-timber products, fuelwood, building materials, or timber for cottage industries, has fallen outside the purview of the field forest technicians preparing management plans for the ejidos. If community uses of the forest were legitimized and adequate forestry extension services provided, the negative impacts of these uses could be reduced, and yields of desired products increased. Since forestry communities bear the cost of forest technician services, communities should redefine the role of these foresters to focus on the forestry activities that the communities consider most important or most economically worthwhile. There is no inherent reason why cottage industries should be less viable than sawmills, and many reasons they might be more so. 5.37 Over 2,000 plant species are utilized from Mexico's forests with a value likely to be high relative to other non-captured values. The main obstacles to maximizing and capturing the values of NTFP are: (a) lack of accurate data on at both national and local level; (b) a licensing/permit system that stifles exploitation of NTFP, forces trade into the "contraband" sector, and makes collection of accurate information difficult; and (c) over-exploitation of valuable species due to a lack of well-defined property rights. 5.38 A full inventory of NTFP in Mexico is urgently required. This could use a good deal of the already existing ethnobotanical data, supplemented by information on likely yields. The market potential of most NTFP also needs investigation. For example, ornamental palms (xate), allspice and mushrooms have been identified in earlier studies as marketable species. It is important to help develop further markets locally and internationally. 88 Mexico Resource Conservaion and Forestry Sector Review Poverty Alleviation and Support to Ejidos and Communities 5.39 There is a need for special attention to the needs of forest ejidos and communities to develop their ability to compete in areas of comparative advantage and to ensure they can maximize income generation and collection of subsistence products in other areas, as well as undertake ecotourism or other conservation based activities. 5.40 There are a number of opportunities to increase the returns from forestry in the forested areas with significant environmental and social values. While there are ejido and community forests with very little potential to support the surrounding populations, there are a large number of forests that could become more productive and sustainable through (a) demarcation of forest boundaries and community and private tenure rights; (b) integrated forest management, including the promotion of ecotourism activities, NTFP extraction, sale, and processing; (c) technical assistance and financial support for forest management plan preparation; and (d) transfer of knowledge and skills. Where the potential is low, government strategy should be to protect the forest lands if their environmental value is significant, compensate the owners, and develop programs for the least-painful transfer of the population to areas of reasonable economic activity. Where there is potential of economic exploitation, a wider view of the resource is needed. 5.41 The Knowledge Failure. The study has identified a great gap in technical marketing, and business management knowledge at the ejido level, which needs to be filled by investment in information and training. Three kinds of assistance are needed. One is technical assistance for the elaboration of management plans, including their environmental components for ejidos with sensitive forest areas. Where environmental and social values are present, ejidos and communities should have the right to govermment resources to help cover the cost of a management plan, whatever their commercial interests. Where these are not present, the landowner should pay the full cost of the management plan. A second kind of assistance is technical training for logging and processing operations. A third kind is technical training and training for the marketing and distribution of forest products. A well- designed and budgeted technical assistance scheme could be needed, possibly including vouchers for management plan preparation or environmental protection measures. 5.42 Lagging Investment. Ejidos have limited access to capital, which limits their ability to invest in resource management and processing. For ejidos, some aspects of the problem have been removed through the reform to Article 27, although forests do not benefit from this change to the extent of agriculture. Ownership of the forest is common and thus collateral would be provided by the community as well, creating pervasive incentives for community members to default Chapter 5 Toward Solhtions: Elements of a New Framework 89 on the loan. It is unclear at this time whether timber shares owned by ejidos will have a market value and be tradeable. Should the government offer direct credit to forestry? Where there are social values at stake and this is a temporary mechanism to address lagging investment, it should be considered, particularly if there are environmental values also at stake. 5.43 There will be a significant number of ejido and community forests that can be successfully managed only under a more culturally appropriate model. In some cases it will be in the nation's interest to pay the community to manage its forests rather than encourage outmigration or short-term logging to pay for its members' transition to a different economic system. The policy action needed is to determine in which situations the cost of outmigration to urban centers (in the form of providing jobs and services) will exceed the capacity of the government and the economy. This is parallel to the decision regarding the value to the nation of the environmental services that a cohesive rural community, including the indigenous communities, can play in maintaining their forest resource base under a sustainable management system. Regardless of the extent to which a significant part of Mexico's forests are managed by a nationally or globally competitive set of business enterprises, there will continue to be a need for community management of a certain share of the nation's forests and wildlands. 5.44 Indigenous Rights. At present, there are laws and conventions governing indigenous rights such as Article 4 of the Constitution and the International Labor Organization Convention 169 on Indigenous People, to which Mexico is a signatory, that allow indigenous groups to uphold customary laws and practices despite other legislation to the contrary. There is a urgent need to reconcile forest and environmental laws and related legislation on property rights to uphold the independence of indigenous systems and local governing structures. 5.45 Undoubtedly, outmigration from marginal, forested areas will continue, and the total number of smallholder agriculturalists in Mexico will shrink. However, during the transition, there is a need for mitigation of the negative social impacts of these changes. In addition, some areas, particularly indigenous ones, will continue to have smalUholder populations who will adapt to the changing economy but retain a distinctive cultural outlook on their economic choices. Institutional Options-Government Responsibilities 5.46 The new policy framework changes the focus of responsibilities of the SFF within SARH and of INE within SEDESOL as well as adds a much stronger promotional role for involving forest owners (ejido and community as well as individuals and industries) and a stronger responsibility for environmental concerns (including wildlife protection, national parks, and forest reserves). While it is 90 Mexico Resource Conser,tion and Forestry Seaor Review possible for the existing agencies to adapt their present structure to the new emphasis and the priority responsibilities, there are important questions for policy- makers in Mexico regarding the adequacy of human and financial resources as they are currently allocated and the ability of federal and state agencies to complement responsibilities rather than duplicate or omit important functions. 5.47 To achieve better forest and wildland resource management, some restructuring of government responsibilities and staffing structures cannot be avoided; it is premature, however, to make judgements among identified alternatives. Table 5.1 presents three possible alternatives for defining the broad responsibilities and structure of forest and conservation agencies. These options adhere to the following general set of principles regarding the government's role in the management of forests and wildlands and the ways in which responsibilities should be allocated: (a) Main Areas of Responsibility of Government (1) Management of Public Lands Protected Areas and Parks National Forests (which allow extraction) (2) Promotion of Sustainable Private Forest Use Support to ejidos and communities, especially indigenous Support to smallholders Promotion of efficient, sustainable industries Promotion of non-timber and timber products Marketing information, statistics (3) Regulation and Control/Protection Responsibilities Application of norms and criteria from INE Organization of fire control Permission for infrastructure development (4) Wildlife Protection and Regulation of Use Inside and outside of Protected Areas System (b) Principles Underlying Structuring of Responsibilities Within and Between Agencies (1) Each involved agency should have a clear mandate for its responsibilities and not have combined mandates within an agency or shared budgets) (2) There should not be an unnecessary duplication of specialists between agencies. (3) Public land management should be combined into a single agency to ensure continuity of management and promotional authority Chapter 5 Toward Solutions: Elements of a New Framework 91 should be focused intensively on the local community or population management of the 90% of national resources that are non-public. (4) Decentralization should be the long-term objective of any strategy, whereby local government (state and municipal) assume increasing responsibility for protection, application of norms, conservation, and promotional activities, and federal agencies assume the responsibilities for supervision and guidance. (5) The agency responsible for protected areas authority should have a separate chain of command and budget from the promotional authority for forest and wildlands. (6) The agencies for forests and wildlands should be deconcentrated. (7) Decentralized capacity should be developed in the state and municipal government to engage actively in planning and management of forest and wildland use and conservation, and greater use should be made of fiscal incentives from the federal level to the states, municipal governments, and social sector to promote proper forest and wildland management, rather than using regulation (for which enforcement capacity is often limited). 5.48 The three structuring options presented in Table 5.1 have several elements in common: (a) They would provide for deconcentration of these agencies to ensure their budget is not subject to reallocation to other sub-agencies that are underbudgeted. (b) There would be a concentration of all SINAP geographic areas under one authority. (c) There would be a reorientation of Subsecretarial Forestal y Fauna to a promotional role overseeing the protection and afforestation responsibilities rather than assuming responsibility for their implementation. (d) Regulatory responsibilities would be more effective by focusing on stricter evaluation of a small, random percentage of management plans and development activities, with strong sanctions for noncompliance. (e) Social organizations and NGOs would be more involved in forest and wildland management at state and local levels, and there would be more contracting of responsibilities to them. (f) A large number of state and federal protected areas would be managed privately by academic institutions, communities, NGOs, and private foundations. (g) The consultative Forest Councils mandated in the 1992 Forest Law at state level would be strengthened and would perhaps form technical 92 Mexico Resource Consernwaon and Forestry Sector Review committees to review channeling of resources to private and social forest and wildland owners. 5.49 There are a number of emerging networks and unions of forest ejidos and communities that can be strengthened. Recognizing the need for improved organization and better management of their forest and other natural resources, the forest ejidos in regions throughout Mexico are working with the NGOs with long- term involvement in the sector to develop strategies and capture the needed resources to implement strengthening programs. Workshops have been held to create the Mexican Sustainable Forestry Council since June 1993, and this council is represented in the National Forestry Technical Consultative Council. The Council's planned work program includes both a training and technical assistance component and an advocacy component to increase forest ejido and community participation in developing criteria for sustainable forest management that reflects regional and ethnic needs. Participating NGOs include la Red NOCAF, Grupo de Estudios Ambientales, Programa PASOS of Centro de Estudios Agrarios, Centro de Apoyo al Movimiento Popular Caxaqueiio (CAMPO), Servicios Altemativos para la Educaci6n y Desarrollo, Uni6n de Comunidades Indfgenas de la Zona Norte de Istmo, Laboratorio Natural Las Joyas, Proyecto Sierra de Santa Martha, World Resources Institute, Interamerican Foundation, Organizaci6n de Ejidos Productores Forestales "Zona Maya," and Estudios Rurales y Asesorfa (Madrid, 1993, Working Paper 2). 5.50 Community-level initiatives are not limited to timber-extracting communities; there is a developing interest in local conservation management as well. A number of reserves have been managed by research institutions and centers of higher learning (e.g., La Michilia, Mapimi, and Manantlan Biosphere Reserves, the biological stations in Los Tuxtlas in Veracruz and Chamela in Jalisco), or private organizations (e.g., Pronatura Yucatan or Pronatura Chiapas). There is also interest and some experience (e.g., ejidal reserves in Tiscao and Agua Azul, both in Chiapas) where local and indigenous communities are Chapter S Toward Soiwions: Elements of a New Framework 93 Table 5.1. Optional Allocation of Responsibilities Option Responsibilities Advantages [ Disadvantages OPTION 1: SINAP Agency: two sub- 1. Clear mandate 1. National forests Two separate agencies, one for SINAP, 2. Deconcentrated budget to include logging, so agencies for including public forests, ensured allocation for duplicate forest service Protected Areas one for flora and fauna responsibilities efforts and Promotion 3. Protection not mixed with 2. Possible lack of of Private Land Forestry Promotion: three exploitation interaction between Management subagencies, one for 4. AR public lands under one Parks and Forest support to private and authority Service leading to lack social forest owners, one 5. Biologists in wildlife of sharing of for protection (overseer of office of Parkcs can work information and state responsibilities, one with both agencies and at separate relation with for information (maps, local levels on this issue local populations GIS, statistics, 6. Allows for new staffing-- 3. Transition time will dissemination of research, discharging staff with less lead to disruption--may and marketing useful professional skills and be politically unfeasible information) recruiting multi-disciplinary skiUs OPTION 2: 1. SINAP agency as 1. Potential sharing of 1. Potential conflict of One above specialist staff between interest between parks deconcentrated 2. More sharing of agencies at federal and at and private forest land agency with information resources- state and municipal levels to use decisions. two relatively maps, inventory, save fiscal resources 2. Information needed autonomous biological data can be 2. Consistency of message to by forest service may sub-agencies- housed in one information forest and wildland owners differ from parks one for SINAP unit and users agency so conflict over and one for 3. Separate marketing and 3. Promotes more holistic equipment, budget, Forest Service research dissemination view of forests and wildland. map techniques etc. duties unit with PR function also OPTION 3: 1. Unlikely to move 1. Less political change and 1. Less sharing of Deconcentratio National Forests to loss of efficiency during information. n of forest SINAP since these include transition 2. Less sharing of service in some exploitation 2. Concentration of SINAP expertise SARH and 2. Wildlife responsibility in one authority even if still 3. May allow SINAP strengthening could be housed in SINAP under separate ministry service to be less of INE to have with strong mandate to rather than in private land people-oriented and attached a fuU provide services to Forest activities interested in people and SINAP agency Service 3. Can focus forest service parks linkages on more extension-oriented, 4. SINAP may be more people-responsive duties linked to NGOs and 4. Can reduce pressure on Forest Service may not Forest Service from be forced to develop industries those linkages outside of timber-rich areas 94 Me;ico Resource Conservation and Forestry Seaor Review managing "small" indigenous reserves. The proposed Chimalapas reserve managed by indigenous groups would generate good experience in a larger setting (350,000 ha) (G6mez-Pompa and Dirzo, 1993, Working Paper 10). 5.51 This chapter has identified the need for a more integrated strategy for improved forest and wildlands management and conservation. Part of this strategy involves the establishment of clearer priorities for conservation, sustainable management, and deregulated production. This chapter has outlined criteria for three land use zones, based on the protected areas concept of zones, and identified different levels of regulation and incentives to promote the desired resource use and level of conservation. A number of mechanisms have been identified to further level the playing field between agricultural, livestock development, and forestry. The restructuring of govermment institutions has also been explored, examining options to focus public sector institutions more clearly on priorities and to complement the initiatives in the private and NGO sector and at local government and ejido levels. VI. CONCLUSIONS AND RECOMMENDATIONS Conclusions 6.1 The findings of the study cover a wide range of issues, with complex current and historical interactions. The main conclusions, taking into account these considerations, can be summarized as follows: (a) Past agricultural and sectoral policies have been based upon only a small portion of the environmental, social, and economic values of forests and wildlands to Mexico, as well as globally, with a consequent undervaluation of the resource and the persistence of incentives that have promoted an uneconomic conversion of forests and wildlands to other uses. (b) The multiple values of forests and wildlands can be captured through a more comprehensive strategy of government intervention, including the design of creative capture mechanisms, the promotion of sustainable forestry and conservation activities, and government collaboration with the private sector, local, and nongovernmental institutions. (c) One important and underdeveloped role of forests and wildlands is poverty alleviation. About 9,000 forest ejidos, half of them with significant indigenous populations, depend on forests for commercial forest-based activities: the collection of fuelwood, use as a locale for cultural events, and exploitation for subsistence timber and non-timber products, including wild game, housing materials and medicines. (d) A major constraint to forest management by ejidos and communities is the lack of tenure security over forest and wildland property due to the lack of boundary definition and measures for conflict resolution. (e) A lack of controlled management, vertical integration of processing, transport infraestructure and efficient technologies has limited the forest's commercial competitiveness relative to imported material from the United States and Canada, even though the productive potential of Mexican forests is high in a significant number of areas. Pursuing Mexico's comparative advantage in timber and non-timber can significantly increase economic returns as well as create incentives to maintain areas under forest. 95 96 Mexico Resource Conservation and Forestry Sector Review (f) New policies, including forest and environmental laws, put in place by the Government have improved conditions for forest and wildiands management, but there continue to be important adjustments needed in some of these policies. Attention should also be given to building government institutional capacity to provide the needed implementation support. (g) NGOs, local associations, local governments, and the private sector can be helped to play a stronger role in the sector, complementing the actions of Government and fostering local initiatives. Recommendations 6.2 The following are the detailed recommendations that emerged: Policy and Legal Framework Recommendation 1: Government should analyze and remove the remaining pricing and other agricultural policy distortions that disfavor forestry investment relative to other land uses. Recommendation 2: Tenure rights should be clarified for private, ejido, communal and public forests and wildlands, including protected areas, through a program of boundary demarcation and adjudication. Recommendation 3: Government should review procedures that affect the ability of ejidos and communities to enter into joint ventures with private partners in order to facilitate investment in this resource base. Recommendation 4: Forest regulatory framework and criteria for aceptable management practices should take into account indigenous customary laws and cultural values. Institutions Recommendation 5: Develop a comprehensive forest and wildland strategy that is based on a broad definition of forest resources as natural forests, wildlands, wetlands, and plantation areas, including protected areas; and allocate complementary responsibilities to SEDESOL, SFF, and INE with SEDESOL. Recommendation 6: Restructure SFF into a Commission or independent agency to give it sufficient independence to operate effectively. Concentrate Chapter 6 Conclusions and Recommendations 97 Recommendation 6: Restructure SFF into a Commission or independent agency to give it sufficient independence to operate effectively. Concentrate SFF responsibility on forest development promotion and extension, diffusion of improved technologies and market information, promotion of standards of sustainability, and monitoring of compliance with regulations, while gradually devolving responsibility for infrastructure and its maintenance and fire control to state and local government. Recommendation 7: Consolidate responsibility for all types of protected areas into one agency, perhaps part of the new Forest Agency or perhaps independent, but with a deconcentrated structure. Recommendation 8: Identify ways to strengthen the role of consultative bodies, NGOs, local communities and their associations, and private sector in the planning and execution of programs and to complement their role in technical assistance and the financing of forestry and conservation. Recommendation 9: Carry out a zoning exercise out for all forests and wildlands with the objective of identifying criteria to clarify priorities for the conservation of protected areas and identifying those lands outside of protected areas that should receive more attention from Government due to their environmental and social values. Biodiversity Conservation and Protection of Watersheds Recommendation 10: Consolidate the protected areas system, ensuring coverage of ecoregions currently underrepresented and important species habitats, according to endemism, biological richness, degree of threat, environmental services and viability. Recommendation 11: Decentralize the planning, management, and monitoring of protected areas, drawing upon local interest in conservation and the availability of sustainable resources and developing local capacity through Government support. Recommendation 12: In collaboration with international academic institutions and foreign parks, identify mechanisms to support needed research and consolidate existing research findings on priority genera, species, and subspecies; ecosystem restoration; biological corridors; ex-situ conservation opportunities; and extractive reserves. 98 Mexico Resource Conservation and Forestry Secor Review Recommendation 13: Explore self-financing systems for protected areas, including trust funds, fees, ecotourism opportunities, and special taxes on the users of the resource. Recommendation 14: Revise the laws regulating flora and fauna extraction, sale and export. The Capture of Environmental Values Recommendation 15: Capture environmental values through two main principles: (a) payment for environmental services to the one who conserves, and (b) charges to the one who benefits from the services. Values to be captured include ecotourism, carbon sequestration, watershed protection, genetic stock, and biodiversity with aesthetic value. Recommendation 16: Explore the potential for carbon offsets for natural forest and plantation management, including fuelwood plantations. Recommendation 17: Seek contracts for research and development based on option values of forests and wildlands, and establish the necessary legal framework to give investors in this and carbon offsets the confidence to enter into agreements. Recommendation 18: Formulate a strategy for ecotourism, drawing upon experience to date, but exploring ways to reduce negative impacts and opportunities to involve local communities. Pursuit of Mexico's Competitive Potential Recommendation 19: Seek Mexico's comparative advantage in timber and non-timber commercialization, and create conditions for the development of competitive areas through technical assistance, diffusion of technological and market information, operational research, and selective development of infrastructure. Recommendation 20: Support the improvement of economicaly worthwhile and environmentally compatible road infrastructure in competitive areas, seeking complimentary financing, including the involvement of communities in road construction and maintenance. Recommendation 21: Study the reasons behind the lack of private finance for longer-term forestry investments and devise solutions. Chapwtr 6 Conclusions and Recommendations 99 Recommendation 22: Analyze the productive chain, price structure, and markets to better transfer information to private foresters and forest owners regarding opportunities, including diffusion of information about opportunities to capture "green label' markets. Recommendation 23: Improve the knowledge base regarding non-timber forest products, their sustainable extraction and propagation, their subsistence and commercial values, and their co-existence with timber products. Recommendation 24: Create a fund for operational research and development of methods of sustainable tropical forest management, commercialization of non-traditional timber and non-timber products, efficient processing technologies, and innovative technology transfer. Poverty Alleviation and Support to E3idos and Communities Recommendation 25: Provide strong technical assistance for technology and market-information transfer and capacity-building to those ejidos and communities with the potential to develop forestry and conservation activities, drawing upon governmental and nongovernmental resources. Recommendation 26: Design mechanisms to channel resources to ejidos and communities to pay for their sustainable management of their forest and wildland resources with important environmental and social values and allow investment in their resource base. Recommendation 27: Support expansion and strengthening of producers' organizations, both through technical assistance and through mechanisms such as the Fund for Solidarity Enterprises and environmental trust funds, encouraging the development of rotating funds and self-sustaining seed capital investment activities. Recommendation 28: Review the existing private credit avenues for forestry and identify the impediments to the adequate flow of capital to forestry and ecotourism activities. Recommendation 29: Promote the expansion of forest-based micro- enterprises, particularly those that are of interest to women and that diversify the use of forest products. Anngr I Working Papers Prepared for de Study 101 Annex 1 WORKING PAPERS PREPARED FOR THE STUDY Social Aspects Worldng Paper 1. Arizpe, Lourdes, Ma. Fernanda Paz, and Margarita Velazquez. "Estudio Sobre la Participaci6n de la Mujer en el subsector Forestal." October 1993. Working Paper 2. Madrid, Sergio. "Obstaculos y Oportunidades de los ejidos y communidades forestales en M6xico (draft)." June 1993. Working Paper 3. Nahmad, Solomon et al. "Participaci6n Social de los Pueblos Indigenas y Campesinos el el Manejo y Conservaci6n del Recurso Forestal." November 1993. (This study includes a background summary of the consultative workshop with indigenous groups held in Oaxaca: Martinez, Juan. "Conclusiones y Recomendaciones del Taller de Evaluaci6n Participativa de Lideres de Comunidades y Ejidos Forestales." May 1993) Policy and Legal Aspects Working Paper 4. London Centre for Environmental and Economic Studies (LEEC). "Sub- study of Economic Issues for Implementation of the New Forestry Policy", October 1993. Working Paper 5. de la Torre, Rodolfo, and Felix Velez. "El Subsector Forestal en Mexico: Politicas y estructura de incentivos." October 1993. Working Paper 6. Villal6n Ezquerro, Fco. J.. "Subestudio de Problemas Legales de la Nueva Poiftica Forestal: Diagnosticos, Sugerencias, Recomendaciones, Alternativas y Soluciones Propuestas." October 1993. 102 Mexico Resource Conservation and Forestry Sector Review Worling Paper 7. Boyd, Roy. "NAFTA Deforestation: A General Equilibrium Perspetive". January 1994. Institutional Aspects Working Paper 8. Grupo de Asesores Interdisciplinarios (Maria E. Castro, et al). "Analisis de la Estructura Institucional." December 1993. Working Paper 9. HemAndez Murietta, Antonio. "Analisis Institucional del Sector Forestal." (September 1993 2d. draft). Biodiversity and Silvicultural Aspects Working Paper 10. Gomez-Pompa, Arturo, and Rodolfo Dirzo. "Proyecto sobre Areas Protegidas." (Preliminary Report, August 1993); Annexes 1-4. Working Paper 11. Snook, Laura. "Forest Management in Mexico: Social, Technical, and Institutional Aspects (Manejo Forestal en Mexico: Aspectos Social, Tecnico e InstitucionaO." July 1993. Working Paper 12. Snook, Laura. "Production Models for Mexican Forest: A First Approximation." October 1993. Economic and Competitiveness Aspects Working Paper 13. (a) Helsinki University Knowledge Systems (HUKS). "Economic Analysis." October 1993 (2d draft) and "Analisis Economico" (December 1993) Vekhamaki, Seppo. "Economic Appraisal of Forest Policy Change (Annex 1)." (December 1993); (b) Wadsworth, John. "Market Analysis (Annex 2)(b)." (July 1993); (c) Bye, Robert. "Non-Wood Forest Production (Annex 3)." (December 1993); (d) Loumakangas, Jorma. "Mechanical Forest Industries (Annex 4)." (July 1993); (e) Heitto, Pertti. "Chemical Forest Industries in Mexico (Annex 5)." (August 1993); Annex I Working Papers Prepared for the Study 103 (f) Puustjirvi, Aki and Esa. "Cost Strucutre of Timber Procurement (Annex 6)." (December 1993). Working Paper 14. Synnott, Timothy J.. "Diagnosis of the Sector (Statistical Review)." Fifth Draft, London Environmental Economics Centre. "Foresty and Conservation Sector Review." October 1993. Working Paper 15. Centre for Social and Economic Research for the Global Environment (CSERGE). "Mexico Forestry and Conservation Sector Review: Substudy of Economic Valuation of Forests." (Revisi6n del Sector Forestal y de Conservaci6n del Sub-estudlo de la Valoraci6n Ecn6mica de los Bosques.) November 1993. Annex 2 TABLE A2.1 POLICY MATRIX ENVIRONMENTAL AND FORESTRY DECLINE: The methods used until now in the maagement of forests in Mexico have caused a serious decline affecting ecosystems and biodiversity and producing a subsantial reduction in their productivity. This trend could cause serious problems related to the number and distribution of the flora and fauna, loss of forests, nd erosion. The depth of the decline is not known, but there are evident socio-economic repercussions. As a result of this problem, deforestation and loss of environmental services such as basin protection and maintenance of biodiversity can be seen. PROBLEM ISSUES/CAUSES SOLUTIONS | ACTIONS ALREADY TAKEN 1. DEFORESTATION Higher Profits in Regulations support agriculture and livestock Eliminate distorted credit PROCAMPO Agricultural and Livestock - Subsidies Activity - Guaranteed prices Substitute subsidies that are not distortionaay - Credit vailability for agriculture and and that do not favor other sectors livestock - Cleaing program (southeast) Pay for environmental services - Lack of support to forestal sector - Consider a type of PROBOSQUE with - Road infiastructure flexible schemes - Establshment of roads committees - Lack of access to credit - Accessible credit having the forests - Lack of effective forest management, s guarantee harveeing, manufactuing and Increase forest road infrastructure investment maketing technologies - Access to those technologies Forest prperty rights Uncertain tenure over forest Speed up process of forests titling Refonrs to Art. 27 and Land legislation - Lack of definition of boundaries - Disseminate information about changes - PROCEDE (Rights Certification (lawsuits) in land legislation Program) - Provision of titles favored agriculture - National land registry and livestock Look at family planning and education Privatization of UCODEFOs - Inefficiency in coping with titling linges Support for the private sactorfNGO demand taing over this crucial role of training - Land ownership problems hmits access to capital Restructure credit avenues in light of titling - Prevalence of informal markets of difficulties credit - Different legal treatment of forests in | ____________________ ejidal privatization process historically Social and Cultural Educational barriers Support systems for education Factors - Lack of enterprising preparation - Business administration - Lack of access to training (technical, Foster integration )administratve) PROBLEM ISSUES/CAUSES SOLUTIONS SOLUTIONS ALREADY TAKEN Cultual banriers Exchange of experiences among - Non-enterprising organizational communities/ejidos systems (hamper the transition) - Support producer's adaptation to the - Assocition with private sector market system resulted in negative experience Institutional barriers Create extension models - Unsuitable shategy of extension - Issue complete policies with programs: corresponding programs Not based on locally-perceived priorities No feedback to beneficiaries - Litfle coordination among agencies furnishing extension services - Insufficient resources for training programs I 2. LOSS OF ENVIRONMENTAL VALUES l Unsuitable Regulation - Breeding season not closed to hunting Update legislation and hunting controls - Legislation and hunting controls not Environmental education up to date Involve livestock issues in mangement - Lack of regulation of non-timber sategies items Involve NTFP extraction in management - Inadequate control of wood trade plans - Industrial use of unregul livestock Open Access to Forests - Weak stucture at communities Decentralize the regulatory framework to The New Forests Law considers easing - Insecure tenure rights local levels the regulatory system. More needs to be More participation of owners in management done under the zonal concept. plan rules Reform to Article 27 may be needed. Lack of Mechanism to - Lack of market for all products Tools to encourage markets Promote Maket of Non- Labelling (green labeling) Tinber Products and Publicity Environmental Services Producers organization in relation to market strategies Disseninate greater information about value of biodiversity - Uncontrollable external market for Eliminate legal barriers to create new flora and fauna mrkets (ewourism) o tn PROBLEM ISSUES/CAUSES SOLUTIONS SOLUTIONS ALREADY TAKEN Payment of Envonmal Lack of payment/collect mchanimn Subsidy to preserve biodiversity ServieO Agreeenwt to preserve carbon Payment/ooLection for basin preservation Problem in Mangenient and Decentralization Clasification Foreal Law 1992 Diahlstion of Protected gh degree of biodiverity (fed. - Integrated mangemnt plans Naturl Area gob.) - Conservation with local - Le biodiverwity adminired by comnunities Represenaivenesls of areas and ecosysems school institutons, NGO's - Consejos Tecnicos Conaulivos - Aesthetic and recreation (private sector) - Basins (st and mnunicipa govs.) Environmental Law 1988 Creation of new areas - Resrves under SEDESOL Financing Creation of trusteeips with: - Parks ad foress under SEDESOL - Local govern., NGO, co _munite, - Local parficipaion in protected ci.o, piva sctor) a munagement and protection Obtining resource - Acquisition of reources - New SINAP (ecotufism,payment of services ganted by the area, itratona agencis) Prioritie - Demarkation Disribution of protd areas - Comnmunity participation in die creation nd management of protected area - Creation and eliminaton - Infimtmture - Dat invesigation and distribution Lack of Stgy for - Current orientaion of the state capacity Introduction of a straight-forward concept of Them is a system of ecological zoning Resources Conversation towards regulabtion in forest reas zoning, dividing forests in three categories: but is more for progrmming than a Outside of Protected Areas insad of priotizing areas of grater protected areas (zone 1), areas of general sategy or a bas for reguatory envwironmental valhe environmental values (zone 2), and judgment; Should avoid full bans on - Lack of strucdira incentives to foster production areas without regulation or mibsidy forest use (such as Chiapas) which only positive envionmeal attit (zone 3), and the creation of an appropriate hurt the poor and do not help the intead of relying on regulation progrm of incentives, subsidies and resource - Lack of subeector concept and lck of regulation for each zone inmdtdiond coordination - LAck of mechaims to internalize Create teut fund with local government, extrnties NGO's, comunites, ejidoa, and the privat sector UNDERUTILIZATION: Despite its vast forest and wildiand wealth, Mexico is not taking advantage of its forest resources in a sustainable way, discouraging the owners of such resources. These owners, not seeing tangible benefits from their forests, lose irterest in their protection and wise exploitation. This trend cannot continue in the long run. PROBLEM ISSUESICAUSES SOLUTIONS SOLUTIONS ALREADY TAKEN 3. UNDERUTILIZATION Lack of Competitiveness Productive Process - High costs of production New private and social financing - Quany/qality of road infraoucture mechaisams - Technical and technology deficiencies for raw ateral production More pubic investment in - Lack of transformation technology infrastructure Opration of foreuos - Operation plans Simplification of forest operation plns based - High coms on zonification - Is it necessary? Maketing - Lack of technical capacity - Maket characteristicA (information) Information dissemintion - Lack of marketing channels - Timber classification - Honoring of past contract - Contracts legal mhppoit - Learning curve - Public investmnent - Groups of power (mafia) anrawuz (ack) Incrase promotional role of forestry and - Lack of information other relevant agencies - Close sason - Lack of coacts between producer. and owners of resources: . Learning curve (confidence) Past experence with fuhty contracts - Timber monopooies Program to foster benter relations between - Inency in timber qnulity selection producen and owner of resources methods (obsolete machinery) Open chanels of communication I- PROBLEM ISSUES/CAUSES SOLUTIONS SOLUTIONS ALREADY TAKEN o At local level Explore alternative markets - Timber products are inportant, but Create funding source for promotion of should not be the only product promoted multiple management and alternative products - Little marketing of non-timber products - Informal markets At national level Raise level of policy-makers awareness of - Underestimation of Ecoturism's value of this resource economic potential Promote local initiatives with high participation - Low priority for basin protection of social sector - Lack of mechanisms to finance Involve NGOs with experience or interest in conservation this area At world level Create mechanisms to compensate for carbon - Lack of mechanisms to take sequestation with mulliatera orgaizaions advantage of carbon's sequeshation and/or private internaiowl corporations economic benefits - hamacetcal industry to take advantage of high biodiversaity genetic potential and eademism - Existence value SOCIAL INEQUALITY: Approximately 10 million people live in forestal areas, mostly indians, who historically have not benefitted from the value of forests. The living standards of these people is very much lower than the national average. This situation causes uroan migration and higher poverty for those living in such areas. If this trend continues, besides the pressure over the resource (underground, lack of protection, deforestaton and decay), social inequality will spiral with the pressure arising from it. PROBLEM ISSUES/CAUSES SOLUTIONS SOLUTIONS ALREADY TAKEN 4. SOCIAL INEQUALITY l Poor ditution of - Middleman - Decentrlization of Policies and decision - Forestal law forest's rent - Poor diribution of public making - Technical Advice Councils resources to neglected foretl - Elimination of parlicpaion hindrances - Mininmum operaon rules should region - Foral Technical Advisory Councils be opernfional - Close seaaon promots change in more active - Better TA for the ejdos land use) - Joint investnt - Better ability to use available - Capitl ace - Expore the neaity of sbsidy to services - Markt flaws marginal population in the way of - Lack of basic education differential sccs to training, investment - Lack of acoes to lWg system of capitl or tehnkal sevices - Lack of acce to tehnology - Create finds to extend FONAES model to - Women eegation foretal coinancing (projects of - Plicy deeign does not take into productive ecology, soldaity companies) account culbral diversty - Explore the role of NTFP in the - Not tng into account comnities improvemnt of this Population i__ _ _nd re_ _l____ Propety Right - Unguaranued propety tidles - Differentil demarcation of ejid/community - Lock of acces to legal system lnd/ Forest rights - - infoation tnsfer Aote: This policy nitrix w prepared uthugh a co_saave proce with the Mexican government working group, eciassta in the field, and the conunta who undertook the diag i inWis. It was gened in a workshop in Oxaca with the Wodd Bank and MexicAn wodring groups and then temed' in a workshop with a larger group of cosbats, Bank ia4 and governt tchnl pecialis. I- 110 Mexico Resource Conservation and Foresny Secor Review Annex 3 CRITERIA FOR THIE SELECTION OF PROTECTED AREAS The following list of criteria should govern the selection of new areas for protection and the prioritization of existing areas. Priority areas should: * Be rich in biodiversity and culture with large expanses of intensive natural resources exploitation. * Have with environmental values where the local people have a strong interest in protection and where they are well organized to help the government in this effort. * Contain sites of strategic importance. - IHave high value where past or present social pressures (land invasion, unclear land tenure, spontaneous colonization, movement of the drug trade) pose a threat, and protective measures are urgently needed to preserve the area. * Preserve different types of ecosystems and contain many endemic species. * Be important to indigenous populations for the Large quantity of useful animals and plants within, and be currently under sophisticated, indigenous systems of resource management of value to preserve. * May not currently be under great threat, but should have high species diversity or endemic species. Table A3. 1 identifies existing and new areas and taxa for priority protection. Because of a lack of data, the areas presented in Table A3. 1 could not be evaluated according to all these criteria, although the areas conform to one or more of them. A more complete analysis is currently being undertaken by the Institute of Ecology, in collaboration with the World Bank-funded Environmental Project. Table A3.1 Priority Areas for Protection State Name Declared Type of Ecosystems Votes by Experts ESTABLISHED NATURAL AREAS: Baja California Norte Constituci6n de 1857 Yes Temperate, desert scrub Isla Guadalupe Wildlife regue Isla Rasa Yes Desert Sierra de Hansen Forestry reserve Mesa del Pinal y Forestry reserve San Pedro Martir Yes Temperate, desert scrub Sierra de Juarez Yes Coniferious forest 1 Sierra de San Medro Martir Yes Temperate, desert scrub Valle de los Cirios Yes Arid scrub 1 Baja California Sur El Vizcaino Yes Coastal, marina Islas del Golfo de California Yes Marine-Island I Campeche Calakmul Yes Humid tropical forest 1 Chiapas Bonanpak Yes Humid tall tropical forest Caion del Sumidero Yes Dry tropical forest: fresh- water system Cascada de Agua Azul Humid Chan Kin Humid tall tropical forest El Triunfo Yes Cloud forest, dry tropical forest 7 Lacantun Tropical medium humid forest Lagunas de Montebello Yes Temperate, cloud forest Montes Azules Yes Humid tropical medium & tall 7 forest Palenque Yes Humid tropical Selva del Ocote Yes Humid, tall tropical forest Yaxchilan Yes Humid tropical forest State Name Declared Type of Ecosystem! Votes by Experts Chihuahua Cascada de Bassaseachic Yes Temperate CoLima El Jabali No Forest, humid I Federal Distriaosque de la cafiada de Contreras Yes Temperate I Cumbres de Ajusco Temperate Desierto de los leones Temperate Durango La Michilia Yes Temperate, desert scrub, grasslands Mapimi Yes Aridl Mexico State Insurgente M. Hidalgo y Costilla Yes Temperate, grasslands 1 Iztaccihuatl - Popocatepetl Yes Temperate, high grasslands, snow-capped mountains Nevado de Toluca Yes Volcano, temperate, grasslands, snow-capped Jalisco Sierra de Manantlan Yes Temiperate, gmsslands Volcan nevado de Colima Yes Temperate, grasslands Michoacan Mariposa Monarca Yes Temperate, cloud forests Morelos Corredor Biologico Chichinautizin Yes Temperate Nayarit Isla Isabel Yes Grasslands, low dry tropical forest/marine, coastal Nuevo Leon Cumbres de Monterrey Yes Arid, temperate 1 Oaxaca Lagunas de Chacahua Yes Dry tropical forest, mangrove 5 swamp, aquatic vegetation, coastal dunes Quintana Roo Isla Contoy Yes Island I Sian Ka'an Yes Humid tropical medium & tall 4 forests, coastal marine Tulum Partly Tropical humid medium forest3 marine, coastal Sonora El Pinacate y Gran Desierto Yes Arid, dry scrub 2 del Altar dry scrub Isla Tiburon y San Esteban Yes Las Sierras de los Ajos, Buenos Aires No Tabasco Pantanos de Centla Yes Humid tropical, mangrove 1 swamp, coastal Veracruz Cofre de Perote Yes Temperate Pico de Orizaba Yes Temperate Forest 3 San Jose de los Molinos Forestry reserve Santa Gertrudis Forestry reserve Sierra de Santa Martha Yes Humid tall tropical forest 1 Sistema Arrecifal Veracruzano Coastal, marine Volcan de San Martin No Tropical, humid tall forest 2 Yucatan Ria Lagartos Yes Coastal, marine, mangrove Ria Celestum Yes Coastal, marine, mangrove State Name Declared Type of Ecosysten? Votes by Experts F-I PROPOSED NATURAL AREAS Baja California Punta Banda No Arid Baja California Siunta Arenas- Cabo Falson Sierra de la Giganta No Arid scrub I Chiapas El Manzanillal State Laguna Belgica Tropical humid forest Los Bordos Volcan Tacana No Dry tropical forest, cloud forest 1 Coahuila Cornubacion La Laguna Desert scrub, temperate Guerrero Omiltemi Cloud forest Papalutla Nayarit La Tovara Region de Marismas Nacionales No Dry tropical forest, mangrove 2 Oaxaca Chimalapas No Tropical humid forest, cloud forest 8 Sierra de Juarez No Mesophilic forest 6 Puebla Lagos de la Cuenca Oriental No Lakes, temperate, dry scrub I de Puebla Quintana Roo Yalahau No Jungle, humid2 San Luis Potosi La Cienaga Temperate Laguna de la Media Luna No Wetlands, fresh water Sierra Alaquines Sierra Abra-Tanchipa Sonora Bahia de Lobos No Arid El Carrizo Mesa El Campanero- Arroyo El Reparo Sierra Bacha Sierra de Alamos- Rio Cuchujaqui No Dry tropical forests Sierra de Mazatan Sierra de San Luis No Pine-oak, dry scrub Tabasco Serrania de Tapijulapa State Humid tropical forests Serrania Madrigal State Humid tropical forests Veracruz Sierra de Otontepec No Humid lowland and cloud 1 forests Yucatan Arrecife Alacranes No Reef, coastal, marine I Bocas de Dzilam de Bravo Yes Coast,dry tropical forest 1 Punto Put Dry tropical forests Za7atecas Sierra Organos No Temperate, dry scrub a. Most areas will include more than one ecosystem type, agro-ecosystems of various types, and second growth regeneration of various ages. -a 116 Merico Resource Conservation and Forestry Sector Review Table A3.2 Priority Taxa that Should Be Protected State Name Baja California Odocoileus hemionus cerrosensis Neotana bryanti Baja California Sur Lynx rufus peninsularis Bassariscus astutus insulicola Bassariscus astutus saxicola Baja California Sur, Vulpes macrotis macrotis Baja California Norte y Antilocapra americana peninsularis Sonora Chiapas Zamia soconuscensis Vovides & Dehgan Phragmipedium estaminodium Castano, Hagsater & Aguirre Lycaste skinneri (Batem. ex Lindley) Lindley Cabassous centralis Chihuahua Uma paraphygas Reptilia: iguanidae Coahuila y Uma exsul Reptilia: iguanidae Durango Durango Aquila chrysaetos Linnaeus Gopherus flavomarginatus Hidalgo Yucca filipera Chabaud Decatropis bicolor (Zucc.) Radlk. Guerrero Tyto alba Tecolote blanco Solandra guerrerensis Martinez (Solanaceae) Sceloporus mucronatus omiltemanus Dicotyles tajacu Linnaeus (abalf) Anolis omiltemanus Nuevo Le6n Poecilia latipunctata Meek Megupsilon aporus Miller & Walters Cypronodon longidorsalis Lozano & Contreras, 1993 Cyprinodon veronicae Lozano & Contreras, 1993 Cyprinodon alvarezi Miller, 1976 Cyprinodon ceciliae Loxsno & Contreras, 1993 San Luis Potosi Pantherm onca Hylocereus undatus Harpalyce arborescens Felis yagouroundi Felis wiedii Annex 3 Criteriafor the Selection of Protected Areas 117 State Name Felis pardalis Felis concolor Chamaedora radicalis Brahea dulcis Boa constrictor Ardea herodias Amazona autumnalis Xenoophorus captivus exsul Hubs & Turner, 1939 Sonora Phocoena sinus Gopherus agssizii Fouqueria columnnaris (cirio) Cyprionodon mnacularis Antilocapra americana sonoriensis Lepus flavigularis Tabasco Zamia cremnophila Vovides, Schutzmnan & Dehgan Veracruz Ceriatozamia euryphyllidia Vazquez-Torres; Sabato & Stevenson Psilocybe uxpanapensis Guzman Magnolia dealbatia Zucc 118 Mexico Resource Conservation and Forestry Sector Review Annex 4 A RECOMMENDATION FOR ENVIRONMENTAL ZONING The new 1988 Environmental Law mandates systematic, national and state, environmental zoning of the natural resource base (ordenamiento ecol6gico). This zoning will build upon existing zoning concepts already in place that designate the protected areas system (SINAP), identify critical watersheds, and support the rules of forest management plans on conservation and enviromnental protection. While a regard for the environmental values of the forests and wildlands underlies the current zoning system, these concepts have not been very well reflected in the system's operations for various reasons: (a) the system does not set aside the highest priority areas for protection; (b) it attempts to regulate behavior in all forests and wildlands, even those with more limited environmental or social values; and (c) it imposes a myriad of environmental norms on regulations that cannot be implemented with the available human and fmancial resources of the responsible agencies. A revised zoning system that takes into account environmental, social and economic values should serve as a basis for more-detailed environmental zoning. This revised system builds on the general concepts underlying the current zoning system, but attempts to be more selective in identifying priorities for protection and promotion of sustainability, while advocating that scarce resources be more concentrated on priority areas, rather than dispersing efforts over too large a resource base. The concept of environmental land classes. The guiding principle behind the proposed zoning system is that not all lands have the same environmental values and thus not all the proposal should receive the same treatment from public policy and budget and resource allocation. The current regulatory framework exacts a high cost both from forest producers and from the administration for monitoring, promotion, execution, and enforcement. Current forest legislation targets all lands in the country without consideration for the differences in their environmental values and the threats they are subject to. The result is that the government is trying to do too much with too little, while large areas of forest continue to be degraded or deforested. An alternative strategy is to identify broad zoning classes that divide forest and wildlands into: (a) those lands with priority values where biodiversity or landscape losses could be unrecoverable and therefore should be highly protected (Environmental Class 1); Annex I Working Papers Prepared for the Study 119 (b) those lands where environmental and social values are important-watersheds, ecotourism, soil conservation, carbon sequestration, pharnaceutical products-but where irreversible loss is not an issue and where some incentives are required for local people to manage them sustainably (Environmental Class 2); and (c) those lands where commercial, subsistence, and production objectives can be allowed to drive forest and wildland use since the environmental values are more limited than in other land classes (Environmental Class 3). Environmental Class 2 would include the buffers around SINAP areas and other fragile lands with significant environmental values, for example, riparian and coastal forests such as mangroves. Lands in this class could be publicly, privately, or community owned and privately or community managed. The government should offer positive incentives to whoever holds management and use rights to foster management according to environmental objectives. Commercial activities could be allowed as long as these are consistent with environmental management objectives. Environmental Class 3 includes all the other lands. In this class, environmental values would be secondary to commercial or subsistence production objectives. The class would include, for example, areas of high potential for plantation establishment, natural forests with a comparative advantage for commercialization, and areas with potential tourism or recreational value lacking public good characteristics and thus suitable for privatization. Lands in this class could be converted to pasture or agriculture, or from agriculture to forestry, at the owners-private or community-leisure. The guiding principle for development in this zone should be to create a level playing field in which the various activities could compete on their own merits and in which the government would abstain from favoring one activity over another. A forest policy that identified the regulatory and incentive framework based on the special characteristics and values of these three zones would allow for the optimization of scarce public and private resources and would help to better integrate the external returns from forestry into the general economy. For its implementation, simple criteria for each land class would be designed and lands would have to pass the criteria to be accepted in one of the classes. Table A4.1 presents a rough classification of Mexico's forest resource base according to the three zones. Public attention in terms of technical assistance and promotion should be highly concentrated on Zones 1 and 2 and public regulation concentrated most strongly on Zone 1 and those portions of Zone 3 where large- scale, market-driven activities can cause negative enviromnental impacts. Table A4.1 Regulations and Government Support in the Three Environmental Classes I GOVT REGULATION HIGH GOVT. SUPPORT HIGH GOVT SUPPORT HIGH GOVT. REGULATION LOW ZONE 1 =PROTECTED AREAS Protected Areas under public ownership and management Ejidos with environmentally Indebted ejidos/comun. Tarahumanra/Tepehuan priority resources but good resources commwtities/ejidos weak institutions high social/environmental values NGOs managing Protected Areas with local community Comuunities with environ- mental priority resources Stronger institutions for conservation Ejidos/Commuwities with tourism Tropical forests owned by and recreational potential ejidos/communities with weak institutions; harrest high value, timber/chicle products, e.g. Ejidos with few forest resources, poor organization ZONE 2 = ENVIRONMENTAL/SOCIAL PRIORITY Ejidos/communities with low environmental priority AREAS NTFP potential Smallholders Integrated ejidos forest with forests enterprises, non-industrial good social organization traditional te'lom slash ZONE 3 = PRODUCTIVE AREAS and burn agriculture Private industries integrated Private industries with Private Industries large leasehold/private own plantations without own resource natral forest, GOVT SUPPORT LOW GOVT. REGULATION LOW GOVT REGULATION HIGH GOVT. SUPPORT LOW Annex 5 Competitiveness of the Timber Producers in Mexico 121 Annex 5 COMPETITIVENESS OF THE TIMBER PRODUCERS IN MEXICO One of the background studies (Puustjarvi and Puustjarvi (1993, Working Paper 13) modelled the current market value of timber products and the costs of production in several sample sites in Mexico and then estimated the competitiveness of these products in the international market (a) at 1993 prices, (b) at current levels of productivity with the expected 10% in tariff reduction toward the end of the NAFTA transition period, and (c) with the expected tariff reduction but assuming a 10% increase in harvesting, transport, and processing efficiency. The results of these three scenarios are attached in this annex in the three maps on the following pages. Based on the quality of timber production in the temperate and tropical forested areas of the country, the modeling exercise shows that many areas of forest are currently uncompetitive due to their distance from roads or other infrastructure and markets. With the transition to NAFTA, however, a much larger area of forest will become noncompetitive due to the high costs of transport and timber processing. The last map shows that an increase in efficiency due to better road infrastructure in areas of comparative advantage and a reduction in the costs of harvesting and processing due to more- efficient use of technologies and better business management would result in competitiveness of large forest areas in Mexico after trade liberalization is complete. Objective of Study Raw material costs are a major cost item for Mexican forest industries. The objective of the study was to analyze the cost structure of timber procurement in Mexico through a simulation model. The impact of selected means to achieve cost savings was analyzed. Basic data Software. The software program was implemented using MapBasic programming language and Mapinfo software package. Map data. The analysis covered the states of Chihuahua, Durango, Jalisco, Michoacan, Guerrero and Oaxaca. The area of coniferous and non- coniferous forests was digitized from the map of the National Forest Inventory of 1991 with coarse generalization. Road and state boundaries were digitized from small scale maps. Mexico City, six other cities corresponding to local markets and 110 clusters of sawmills were added to the map. Forests were automatically 122 Mexico Resource Conseration and Forestry Sector Review covered with 10*10 km squares. Nature parks and inaccessible regions were deleted from the grid. The more significant deviation is in the state of Durango, where the digitized area is approximately 25 % larger than that indicated by the Inventory, but as the difference could not be accounted for, the digitized area was used in the model without modification. Growing stock and removals. It was assumed that the growing stock is evenly distributed over each state, in other words, that the volume per hectare is uniform within the state. The maximum annual removals were assumed to equal the annual growth. The average volumes of the growing stock and increment were obtained from the National Forest Inventory. However, it was assumed further that the actual removals would be below the maximum level as suggested by the ratio actual authorized removals/total authorizations. As no other information was available, this ratio was supposed to be similar over each state. This information on actual authorized removals and total authorizations was available from the annual statistics of Camara Nacional de Industrias Forestales (CNIF) for the year 1991. The log share of the removed volume was assessed based on the case studies analyzed by the mission as wel as expert judgment by the staff of Helsinki University. The share in Durango and Chihuahua was established at 60%; in Jalisco, Guerrero and Oaxaca, at 67%. Transportation. The road network was divided into four road classes and three classes of terrain. The estimated unit costs for transportation of sawnwood and plywood were based on data collected by the mission. Terrain type was used as a distance multiplication factor to the digitized road. Terrain type factors were computed by averaging a set of actual distances and measured distances for each terrain type. Three terrain types-mountainous, hilly and plain-were used. Roads belonging to the highway class were scaled with the hilly factor even in mountainous areas. Marketplaces and mills were assigned to closest nodes in the road network. The cheapest transport costs and corresponding distances from Mexico and local markets were computed to each cluster of sawmills. The transport cost from each sawmill to each (10km x 10km) forest square was computed. The computation was accomplished in fours steps. First, for a given road all intersecting squares were picked, and the cost from both ends of the road was computed to each square using the assigned road class and terrain type. These squares were defined as entry squares. Second, for each entry square aU squares within 50 km were picked, and the cost from entry square to all other squares was computed using euclidean distance, terrain factor and road Annex 5 Competiriveness of the Timber Producers ir; Mexico 123 class Dirt Road. Third, three costs-sawmill/entrynode, entrynode/entrysquare, and entrysquare/square-were summed to get the cost and distance from all sawmills to all squares. And finally, the minimum cost for each sawmill/square pair was then selected. The unit transportation costs for roundwood were estimated on the basis of random observations and expert judgement. The costs for transportation on paved roads were slightly lower than those obtained from Chihuahua, whereas those for secondary roads were higher. However, it seems that on the average the costs match satisfactorily. However, the most striking feature, which could not be fully accounted for, was that the unit costs for transporting roundwood were more than four time higher than those for sawnwood and plywood. The difference may partially be explained by the longer transportation distances for processed goods such as sawnwood and plywood that tend to reduce the unit costs. It is probably also easier to obtain return freight for journeys between the mill and the main markets than for those between the mill and the forest areas. Demand and processing capacity. The demand for sawnwood and plywood in the six states was estimated by multiplying the total demand for sawnwood and plywood of 1992 by the share the six states have of the total industrial capacity. The demand was then distributed between the states according to their industrial capacity and reported utilization grade. It seems that the above capacities are somewhat lower than those reported by CNIF, which reports total capacities of 12,344,000 m3 and 556,000 m3 for sawmills and plywood mills respectively. Assuming that the figures obtained from the state level and included in the model are correct, more than one-third of the total capacity would be located outside the six states. As the authorized removals in these states represent 80% of total removals, such a low share seems unlikely and suggests that the CNIF estimate of the total industrial capacity is slightly exaggerated. Based on the capacities and utilization grades included in the model, the total demand for sawnwood and plywood in the six states would be 84% of the total demand, which seems to be well in line with the information on removals. The share of demand originating from the within the state was assessed based on the state GDP and its capacity of secondary wood processing. However, the utilization of this parameter was excluded from the analysis, because it was assumed that the price level at the local level can be derived from the price level of Mexico City by deducting the transportation costs from it. 124 Mexico Resource Conservation and Forestry Sector Review The recovery rate for sawmills and plywood factories is 0,47 for softwood processing and 0,43 for hardwood processing. The operation costs excluding raw material were assessed at 530 m3/ha, which includes an assumed margin of 33 % for covering the fixed and financing costs as well as the mill's operational surplus. Harvesting cost. The harvesting costs excluding transportation costs were estimated using data from the case studies and from the SARH statistics that were available for a limited number of states. The range of variation was large; the indicated costs varied between 55 and 125 MPE/m3. The average cost was established at 95 MEP/m3. Price formation. Theoretical stumpage prices were determined for softwood and hardwood (with emphasis on softwood), working backwards from the given end product prices on the marketplace and subtracting costs on the way to the forest. Two stumpage prices were then determined corresponding to the buyer's and seller's market. The sawnwood and plywood prices for coniferous species in Mexico City, which were the starting point of the calculation, was estimated on the average of 1,200 MEP/m3. That for non-coniferous species was assumed to be 1,080 MEP/m3. Maximum purchase power for each sawmill was computed with the formula: eff x [(PM - TCM - CC) x DM + (PL - TCL - CC) x DJ BP = DM + DL where, BP = Maximum purchase power (MXP) P = End product price at market TC = Transport cost CC = Conversion cost eff = Conversion efficiency D = Demand. Subscript M refers to Mexico and L to Local market. Simulation A fixed cost (harvesting cost) was added to transport cost; the costs were ordered in ascending order. The principal assumption was that the squares with Annte 5 Competitiveness of the Timbr Produwers i Mexico 125 minimum cost would be bought first, although this did not mean that maximum stumpage prices would be paid in these squares. The square with minimum cost from factory to square was picked, and the "offer" from each potential buyer was computed by subtracting cost (fixed + transport) from the maximum purchase price at factory. The buyers were ranked in descending order by their offer. If the buyer who gave the best offer had capacity left, he would get the deal. The seller's market price corresponded to that offer, and this in effect meant that the sawmills in each cluster competed heavily with each other and no cartels were formed. The buyer's market price was the next best offer-the offer that a sawmill in another cluster could offer. The second best offer could win if the first buyer had no capacity left. If neither of the buyers had capacity left, the deal was not closed: it was assumed that the seller would not settle with the third best offer since the price level in the area was higher. In the simulation no lower limit was set to the stumpage price (other than zero). The next square was then picked, and the simulation went on as long as the demand for each state was satisfied or until all squares had been checked. Results General. The results from the stimulation were a matrix of stumpage prices, distances and costs. It should be noted that due to deficient data, these results are still preliminary. The indications on relative differences in cost and price are more reliable than the absolute figures obtained from the analysis. The average residual stumpage prices for pine lumber in the six states were estimated based on two alternative assumption, which were considered to best reflect the conditions on the Mexican wood market. If instead it is assumed that the market is dominated by buyers to the extent that they pay only the prices that are high enough to beat the competition, the stumpage prices fall to a somewhat lower level. The difference in price between these two scenarios is 15-26 MEP/m3 depending on the state. As actual markets rarely conform to one specific pattern, the best price estimates are probably somewhere between these limits. However, the buyer's market scenario was selected as a reference point for the discussion. Transportation costs. The average transportation distances for pine lumber vary between 45-65 km in Chihuahua, Durango, Guerrero and Oaxaca, and 18-25 km in Michoacan and Jalisco. The average distance for all six states is 44 km, and average cost 66 MEP/m3. The transportation costs represent on average 28% of the total raw material cost at the mill. As the model depicts an 126 Mexico Resource Conservation and Forestry Sector Review ideal case in terms of practical organization of transportation, these figures may still be slightly underestimated. Stwmpage. The stumpage level for pine in Chihuahua and Durango is 70-75 MEP/m3, and it is only slightly higher in Oaxaca. However, the estimate for Oaxaca is probably an underestimate because Oaxacan timber enjoys a 5-15% premium on the market, and this was not included in the model. If the premium had been considered, the prices in Oaxaca would be 20-60 MEP/m3 higher than in the present calculation. The average stumpage prices in Jalisco, Michoacan and Guerrero are considerably higher and vary between 132-162 MEP/m3. As expected, the model explains the gap principally by the difference in transportation costs. The stumpage represents on average 33% of the total raw material cost at the mill. The share in Durango and Chihuahua is lower, only 22- 23%, whereas in the other states it is around 50%. Should the price level for sawnwood and plywood fall by 10%, the stumpage prices would generally fall by 25-55 MEP/m3. This would mean that in Chihuahua and Durango, in particular, the present volume of supply could not be maintained, because the area where stumpage prices above zero could be paid would shrink dramatically. The model indicates that the supply in Chihuahua and Durango would be only 62 % of the previous level and altogether in all six states 77 % of the current volume. In absolute terms the total stumpage paid in Chihuahua and Durango would be reduced by 70%. In other states the change would be less dramatic, although the stumpage would still decline by 45 %. However, these figures probably represent too optimistic estimates, because the model assumes that any stumpage price above zero would be enough for a selling agreement to be made and that falling prices would not have any effect on sellers' propensity to sell as long as the prices paid are above zero. In reality, however, falling prices reduce this propensity. If sawnwood and plywood fetched the same prices that imported sawnwood and plywood theoretically do at their lowest limit (a reduction of 27% from the prevailing price level in Mexico), hardly any positive stumpage prices could be paid in Mexico. Potential for Cost Savings Improved Utilization of Harvesting Opportunities. If the assumption that utilization of allowable cut is currently done as suggested by the ratio of actual authorized removals/total authorizations holds true, better utilization of harvesting opportunities could induce significant cost savings. If individual owners would utilize their harvesting opportunities up to the level of annual allowable cut, the transportation distances would be reduced on average by 20%. Annex 5 Competitiveness of the 7unber Producers in Meuco 127 The effect would be most marked in Oaxaca, Guerrero and Durango where the costs could be reduced by 15-30 MEP/m3. In other states the effect would be less significant. Inproved Utilization of Raw Material. Better utilization of raw material in the transformation process would reduce the costs considerably. If the recovery rate in the sawmilling process could be improved by approximately 10% (e.g., from 42% to 47%), this would result in cost savings on the order of 2-35 MEP/m3. The profitability of a technical assistance program targeted on primary forest industries was included in the analysis. The program was supposed to be operational for five years, employ fifty-four experts (50% local, 50% intemational), and have an impact over a period of fifteen years. The main impact was assumed to be a 10% improvement in the recovery rate at one-third of the sawmills and plywood mills. Although the benefits of such a program would not be limited to an improved recovery rate, the other probable effects were excluded from the analysis due to lack of data. The analysis yielded a rough estimate for IRR of 16%, which can be considered satisfactory given that the other potential benefits were not included. Construction of Strategic Roads. The impact of constructing strategic forest roads was analyzed in the states of Durango and Oaxaca. "Strategic" roads are those that collect wood flows from large areas. The improvement was supposed to be done by upgrading existing dirt roads to gravel roads (from secondary to primary). The benefit was defined as the difference in the total transportation costs at state level-with and without improved roads. It is possible that the reduction of transportation costs would induce an increased demand, but based on the results of the analysis, it was concluded that this effect would not be very significant and therefore it was excluded from the analysis. Based on the analysis, road construction in Durango is very profitable, and an indicative IRR of 113 % was obtained. In Oaxaca a positive IRR was obtained only by reducing the costs by 50%. The main factors explaining the difference was in demand and transported volume, better placement of roads, and better utilization of harvesting opportunities in Durango. However, it was obvious that the profitability of road construction would have been considerably higher in Oaxaca, had the road been placed differently in areas where the transportation of wood is concentrated. Theoretical stumpage price for pine lumber (Preclos residuales te6ricos para pino de aserrio) Sellers' market, maximum stumpagp prices (Mercado de venddores, preclos residuales miximos) b~~~~~~~~~~~~~~~~~~~~~~~~~~P .om ( s.. \ -... \ o - i ' \ * 1 s t v t \ 1 X (' '-t L a * - so "~~(\ \ ' *140r . \ ~ J I , 100-140 /~~~~~~~~ .cK/ 1i,'. k~~~~~~~~~~~~~~~ iR ~ ~ ~ ~ ~ ~ ~ ~ i .. N > ''-UE4 G " . < +.{'~~ s,r- Theoretical stumpage price for pine lumber (Precios residuales te6ricos para pino de aserrio) Buyers' market, intn'l price level for end products (Mercado de compradores, nivel de precios internacional) j 0 > mu l i ° \ | Stumpage Price (MXP) ..\ Prclo ralual (MXP) \. K. \ r [Pn r i ,'4 \ * 140- U 100-140 > \. \ U l L | ~t \ 21 60-100 : 20 - 0 N\rv - ._ c g > * / . _ "20 ., . , G 4 t@ \ ' \~~~~~~~~f' I.. \ \-.,. l _ 81t g -9.L REM K~~~~~~._ VK' /:: V ~ ~ G rWr4 . /\ ~ ) \ | mu . . . . . . S tbD | l |! i '\ \-. U . . I . . s i-ti N *i j \ , . .V%nJOD. r f!/ \., ) \ 9 .+ u w-, a t \ \ \ m t .. > : }~~~~~~~Kr \ \ . oottB P X /; V Theoretical stumpage price for pine lumber (Precios residuales teoricos para pino de aserrio)! Buyers' market, end product prices reduced by 10 % (Mercado de compradores, preclos reducidos en un 10 %) N..~~~~~~~~~~~~~~~~~N Stumpage Price (MXP) 0 \ t X r t s Preoco residual (MXP) U100 -140 \ \k \ u g < rb c > / * 60-100 Q 20- 60 .20 \ \ ''\ '~~~~t v.e R~k \t', t ? \ K m > M i ;, I X, >#s1~~~~~~~~~~~~~~~~~~~ . . .. .. . .. . ~~\ \ - Nv I~~~vl itS ~~~~~~~~~~~~~~~~~- *iS "'-C''.>t... -'-- ~~ '' .1*X -J ~ ~ . ANNEX 6 STATISTICATA TABESABE Page 1 of 8 STATISTICS 131 Table 1. Mexico: Basic Economic Indicators, 1960-1986 Groa Domestic Popula- GDP per Contribution to GDP Percentage of GDP Year Product tion Capita (m million of (millions) (in 1980 Agricul Livestock Forestry 1980 pesos) pesos) tu Agricul- Livestock Forestry (in millions of 1980 pesos) 1960 1,228,485 34.9 35,177 111,110 85,351 9,358 9.0 6.9 0.8 1970 2,338,268 48.2 48,487 165,868 102,711 11,895 7.1 4.4 0.5 1980 4,276,490 66.8 63,975 217,161 109,836 18,522 5.1 2.6 0.4 1986 4,632,405 79.6 58,211 258,213 163,021 16,317 5.6 3.5 0.4 Mexico: Trade in Agricultur, Livesto&k and Forestry Produc 1960-1986 (000 USS) A. EXPORTS Total Year Agriculture livestock Forest Exports Percentage of Total Exports ________ |_______ Agriculture Livestock Forest 1960 353,200 53,120 7,200 739,253 47.8% 7.2% 1.0% 1970 515,840 135,520 22,560 1,281,277 40.3% 10.6% 1.0% 1980 1,629,673 174,597 40,044 15,307,479 10.6% 1.1% 0.3% 1986 1,863,342 362,380 32,576 16,030,998 11.6% 2.3% 0.2% B. IMPORTS Total Year Agriculture livestock Forest Imports Percentage of Total Exports ________ ________ ________ ________ Agriculture Livestock Forest 1960 NA 10,080 17,200 1,186,400 NA 0.8% 1.4% 1970 NA 46,480 72,480 2,328,300 NA 2.0% 3.1% 1980 2,185,752 465,272 223,660 18,832.300 11.6% 2.5% 1.2% 1986 936,829 436,793 111,759 11,432,400 8.2% 3.8% 1.0% I I I_ Souce: SARH, 1988. Estadisticas Basicas 1960-1986 pan la Plancaci&n del Desarrollo Rural Integral, Tomo 2. Masdison and Associates (1992) Table 2 Mexico: Economic Indicators, 1960-1985 Population (persons) Population Density (persons/ha) Income per Capita Road Density (km/ha) | State 1960 1970 1980 1960 1970 1980 1970 1980 1970 1980 1985 Aguascalientes 243,363 338,142 519,439 434.7 604.0 927.9 7,300 50,301 1.30 3.67 3.77 Baja California Norte 520,165 *881,153 1,177,886 74.2 0.0 168.8 20,134 81,808 0.21 0.50 0.97 Baja California Sur 81,594 128,019 215,139 11.1 17.4 29.2 12,875 80,772 0.14 0.68 0.78 Campeche 168,219 251,556 420,553 32.5 48.5 81.1 7,766 48,460 0.23 0.51 0.65 Coahuila 907,734 1,114,556 *1,560,851 59.9 73.5 0.0 11,101 98,292 0.19 0.64 0.67 Colima 164,450 241,153 346,293 301.5 442.1 634.8 7,941 58,096 0.98 2.85 2.91 Chiapas 1,210,870 1,569,053 2,084,717 163.9 212.4 282.1 4,573 55,638 0.41 1.34 1.40 Chihuahua 1,226,793 1,612,525 2,005,477 49.7 65.3 81.2 9,361 60,182 0.12 0.39 0.38 Distrito Federal 4,870,876 6,874,165 8,831,079 32494.2 45858.3 58913.1 17,813 121,800 0.34 1.01 1.01 Durungo 760,836 939,208 1,182,320 63.6 78.5 98.8 6,638 46,066 0.18 0.73 0.73 Guanajuato 1,735,490 2,270,370 3,006,110 52.5 68.7 90.9 6,591 41,378 0.08 0.19 0.18 Guenrcro 1,186,716 1,597,360 2,109,513 186.0 250.4 330.7 4,776 33,804 0.40 1.41 1.38 Hidalgo 994,598 1,193,845 1,547,493 473.9 568.8 737.4 4,970 41,780 1.25 2.93 2.97 Jalisco 2,443,261 *3,334,505 4,371,948 304.9 0.0 545.6 13,220 64,228 0.41 1.25 1.26 Mexico 1,897,851 3,833,185 7,564,335 884.3 1786.1 3524.7 9,989 61,835 1.70 3.62 4.08 Miehoacan 1,851,876 2,324,226 2,868,824 309.3 388.3 479.2 4,851 35,318 0.62 1.69 1.72 Morelos 386,264 616,119 947,089 781.8 1247.0 1916.8 7,793 48,805 1.75 4.66 4.77 Nayarit 389,929 544,031 726,120 141.2 197.0 262.9 6,997 45,253 0.45 1.07 1.05 Nuevo Leon 1,078,848 1,694,689 2,513,044 167.1 262.5 389.3 15,425 100,432 0.39 0.91 1.01 Oaxaca 1,727,266 2,015,424 2,369,076 181.1 211.3 248.4 3,258 25,376 0.44 1.22 1.22 Puebla 1,973,837 2,508,226 3,347,685 581.9 739.5 987.0 5,747 41,429 0.72 2.16 2.18 Queretaro 355,045, 485,523 739,605 301.9 412.8 628.9 7,276 54,725 0.90 2.92 2.95 Quintana Roo 50,167 88,150 225,985 10.0 17.5 44.9 9,246 76,287 0.20 0.69 0.74 San Luis Potosi 1,048,297 1,281,996 1,673,893 166.8 204.0 266.3 5,402 37,155 0.37 1.11 1.13 Sinaloa 838,404 1,266,528 1,849,879 144.3 218.0 318.4 8,660 48,260 0.45 1.71 1.84 Sonora 783,378 1,098,720 *1,513,731 42.4 59.4 0.0 12,826 69,128 0.20 0.62 0.61 Tabasco 496,340 768,327 1,062,961 201.3 311.6 431.0 6,705 159,777 1.03 2.06 2.06 Tanaulipas 1,024,182 1,456,858 1,924,434 128.3 182.5 241.1 9,708 65,520 0.33 1.33 1.48 o" | Tlaxcala 346,699 420,638 556,597 885.8 1074.7 1422.1 4,213 35,124 1.92 7.81 7.59 m 4 Veracruz 2,727,899 3,815,422 5,387,680 374.6 524.0 739.9 7,522 46,145 0.70 1.58 1.62 Q Yucatan 614,049 758,355 1,063,733 156.1 192.8 270.4 6,633 45,652 0.47 1.40 1.48 o ZaCatecas 817,831 951,462 1,136,830 109.0 126.8 151.5 4,764 30,004 0.34 1.22 1.30 x Total 34,923,129 48,225,238 66,846,833 177.5 245.1 339.8 9,212 63,974 0.37 1.08 1.13 * Indicates population figure from a different source Source: SARH, 1988. Estadisticas Basicas 1960-1986 para la Planeacion del Desarrollo Rural Integral, Tomo 1. Population figures indicated by INEGI/Spp. Sistemas de Cuentas Nacionales de Mexico. Estructura Economica Regional, PIB por Entidad Federativa 1970, 1975 y 1980 Teble 3 Mexio - EJldo end oonunwty aea, nunbr of rnenbe nd deogee of paroebation, 1991 (awean heata'eal. Number of *jido Total area Area and commnits membe Total eldo parceled wido id Cormmunitiee Number 5% of Not With Without are per r member Total Parcelled Partill Pacmeled Not Parceled State of elidos Total Total Parceled Parceled Total Parcel Parcel member with parcel number area nurber area number are Aguaccarentes 190 241.235 12,082 102,071 139,184 15,800 14,928 872 15.3 0.84 15 7,784 183 231,820 2 1,531 Baja Calfornia N. 224 5,916,699 295,830 413,918 6,602,881 10,218 10,523 5,695 384.8 39.33 80 270,938 8 1,290,701 78 4,354,960 Baja Califomia S. 100 6.478,391 273,920 24,470 5,463,921 6,076 2,611 3,465 901.6 9.37 1 200 02 3,494,370 37 1,983,816 Campeche 401 3,498,252 174,913 781,490 2,710,7e2 39,076 31,707 7,909 88.2 24.05 71 204,411 280 2,713,195 44 580,646 Coahulla 891 7,087,020 354,351 312,892 6,774,328 55,131 46,S17 8,614 128.6 6.72 38 20,096 752 5,500,080 93 1,666,843 Colima 153 334,101 16,705 227,389 106,712 13,130 11,688 1,442 26.4 19.45 56 116,112 95 215,853 2 2,136 Chiapas 2,072 4,063,563 203,178 2,278,911 1,784,65Z 248,097 235.386 12,711 16.4 9.68 705 970,848 1,249 2,375,963 58 718,762 Chihuahus 953 9,897,017 494,851 990,421 8,910,596 105,839 84,709 21,070 93.5 11.57 34 109,993 822 8,814,919 97 1,172,108 Distrito Federal 43 59,067 2,953 13,602 46,455 33,374 10,469 22,905 1.8 1.30 7 2,222 34 66,080 2 775 Durango 1,083 8,416.947 420,797 944,878 7,471,069 138,252 88,064 60,198 80.9 10.73 49 27,290 873 6,622,146 161 1,760,506 Guanajuato 1,480 1,224,047 61,202 697,959 526,089 98,245 93,537 4,708 12.5 7.48 469 229,218 997 976,977 24 18,952 Guerrero 1,223 4,4e8,730 224.437 1,935,303 2,653,427 198.201 175,430 22,771 22.6 11.03 245 502,989 948 3,732,138 30 263,603 Hidalgo 1,167 1,072,810 53,841 624,530 548,280 1t0,037 148,104 11,933 6.7 3.54 187 104,101 896 914,065 84 54,654 Jalico 1,389 3,148,372 157,319 1,768,628 1,379,944 131,628 117,800 13,726 23.9 16.00 421 639,881 866 2,303,480 102 203,004 Mexico 1,238 1,155,186 57,759 691,845 463,340 287,330 252,135 36,195 4.0 2.74 329 210,0988 863 013,417 40 30,781 Michoacan 1,848 2,750,829 137,541 1,477,235 1,273,594 197,230 159,080 39,160 13.9 9.34 501 592,103 1,229 1,907,406 116 251,320 Morelos 239 381,905 19,095 190,733 191,172 47,983 45,330 2,653 8.0 4.21 54 39,052 181 336,494 4 6,369 Nayarit 401 2,199,951 109,998 759,424 1,440,627 63,045 56,431 6,614 34.9 13.46 74 140,947 290 1,565,942 31 503,062 Nuevo Leon 808 2,273,571 113,679 242,696 2,030,876 34,246 28,623 5,022 08.4 8.48 2 0,690 589 2,203,601 17 63,380 Oaxaca 1,640 7,803,694 383,180 2,884,050 4,779,539 424,260 355,784 88,490 18.1 8.11 342 762,317 1,218 6,584,048 86 317,230 Puebla 1,146 1,578,598 78,929 692,462 886,120 175,941 158,041 17,900 9.0 4.38 329 215,275 765 1,207,215 52 156,098 Queretaro 360 694,592 29,730 189,483 405,109 34,377 30,692 3,895 17.3 6.17 36 34,750 316 551,238 8 8,604 Quintana FPoo 267 2,795,084 139,753 6165,39 2,179,626 29,024 21,496 8,129 94.4 28.64 10 78,914 201 2,293,824 SO 424,326 San L(Ls Potosi 1,2a3 4,177,816 208,891 1,006,379 3,172,437 138,340 128,790 7,560 30.0 7.81 277 228,198 959 3,921,185 27 28,434 Slnaloa 1,263 3,728,481 186,424 1,684,289 2,044,192 137,060 121,085 15,971 27.2 13.91 484 782,782 727 2,806,408 52 140,292 Sonora 851 5,811,793 290,590 930,459 4,881,334 72,734 34,416 38,318 79.9 27.04 81 285,498 342 3,283,885 428 2,242,410 Tabasco 761 1,114,778 56,739 826,403 288,376 63,801 50,549 3,052 20.8 16.35 439 501,580 265 580,660 67 62,648 Tamaudpas 1,370 2,449,224 122,461 1,051,781 1,397,443 76,262 88,983 6,289 32.5 16.25 297 323,403 1,025 2,067,911 48 07,910 Tlaxcala 240 194,675 9,734 151,929 42,746 39,771 39,541 1,230 4.9 3.94 111 56,403 120 137,696 3 S16 Veracruz 3,612 2,944,094 147,206 2,474,809 469,485 256,748 236,580 20,168 11.5 10.46 2,310 1,723,217 1,085 1,084,902 217 155,975 Yucatan 726 2,295,243 114,762 840,776 1,0654,467 113,582 71,828 41,754 20.2 8.92 123 202,508 630 1,969,825 73 223,910 Zacatecas 775 3,844,206 192,213 927,203 2,917,002 100,227 93,454 8,773 38.4 9.92 25 29.810 717 3,700,808 33 115,047 Total 29,951 102,876,789 5,143,839 28,440,523 74,430,269 3,539,948 3,022,340 516,808 29.1 9.41 8,230 9,417,382 19,653 75,994,923 2,168 17,464,496 Source: INEGI (1992). w c 0 0, ANNEX 6 Page 4 of 8 134 Table 4 Mexico: Distribution of Labor for the Agricultural, livestock and Forestry Sectors, 1970-1980 (000 persons) Total Year Working Distribution of Labor Percentage Distribution of Labor Population Agnculture Livestock Forest Agriculture Livestock Forest 1970 12,910 4,648 173 75 36% 1% 1% 1980 22,066 5,521 3,928 46 21% 18% 0% Table 5 Mexico: Production of Timber Products 1961-1990 (000 cum.) Year Roundwood Coniferous Non Coaiferous Fuelwood & Industrial Cbarcoal 1961 9,303 4,280 4,681 6,707 2,596 1962 10,156 4,908 4,894 6,926 3,230 1963 10,751 5,340 5,045 7,151 3,600 1964 11,282 5,713 5,191 7,384 3,898 1965 11,743 5,970 5,383 7,623 4,120 1966 11,627 5,761 5,464 7,874 3,753 1967 12,710 6,503 5,793 8,133 4,577 1968 13,071 6,573 6,072 8,399 4,672 1969 13,594 7,003 6,147 8,682 4,912 1970 14,267 7,347 6,464 8,965 5,302 1971 14,123 7,066 6,583 9,263 4,860 1972 14,703 7,487 6,730 9,564 5,139 1973 15,421 7,852 7,065 9,880 5,541 1974 16,434 8,513 7,399 10,207 6,227 1975 17,155 8,868 . 7,747 10,542 6,613 1976 17,739 9,287 7,900 10,860 6,879 1977 18,452 9,655 8,209 11,457 6,995 1978 16,838 8,026 8,202 11,746 5,082 1979 18,073 8,892 8,563 12,043 6,030 1980 18,684 9,284 8,770 12,339 6,345 1981 18,900 9,272 8,980 12,647 6,253 1982 19,482 9,655 9,167 12,955 6,527 1983 19,849 9,654 9,517 13,273 6,576 1984 20,769 10,321 9,752 13,592 7,177 1985 21,386 10,695 9,977 13,913 7,473 1986 21,259 10,362 10,171 14,230 7,029 1987 21,948 10,768 10,436 14,552 7,396 1988 22,138 10,725 10,651 14,877 7,261 1989 22,281 10,630 10,871 15,204 7,077 1990 22,205 10,395 11,018 15,525 6,680 Source: Fooi and Agriculture Orgaization of the United Nations, 1991 Computerized information series, Agrostat, PC. ANNEX 6 Page 5 of 8 Table 6: Extent of the Forest and Wildland Resource in Mexico (in million hectares) 135 Vegetation Type or Inventory 1961-85 FAO 1990 Gran Vision Land Use (average 1973) _ 1991-92, of which Temperate Forest 27.5 25.5 17.0 conifers 8.4 broadleaved 0. 1 mesophyl __________________1. 7 tall High and Medium 11.4 8.7 7.0 tropical forest ___ ___l Low tropical Forest 17.9 15.4 13.7 deciduous evergreen 1.8. evergreen Forest Subtotal 56.8 51.7 49.6 Bushland and others 69.0 70.3 55.5 dry 2.8 tall 7.7 chaparral 0.5 mangroves 2.2 desezts 1.6 other Degraded Forest LAnd 17.8 21.6 18.1 l_________________ 3.5 severely disturbed Non-Forest Uses 52.2 54.3 51.5 2.3 water 0.5 urban TOTAL (in millions) 195.8 195.8 195.8 Note: The total of Forest, Busb ad and others and Degraded Fo est makes up 141.5 M bL ciassiied as Forest land over which SAR- (Subsecretaria Forestal) has normative responsibility. ANNEX 6 Page 6 of 8 136 Table 7: Forest Area by State in Forested States STATE Total Area "Forest Land' "CIosed Forest' 'Production Foresta Campeche 5081 4158 3468 2460 Chiapas 7421 4853 3092 2783 Chihuahua 24494 15553 5047 4949 Durango 12318 9361 4218 3852 Guerrero 6428 4717 3133 1971 Jalisco 8084 522 3076 2550 Mexico 2136 839 483 472 Michoacan 5993 4267 2408 1836 Nayarit 2698 2077 1247 1000 Oaxaca 9395 6482 3107 2260 Quintana Roo 5021 4755 3175 1571 Sinoloa 5833 4202 3251 1751 Sonora 18205 14347 2897 1407 Veracruz 7170 2993 1562 796 Yucatan 3840 2535 975 71 Zacatecas 7345 5344 779 721 TOTAL (Above 131,462 87,005 States) (All Mexco_1582_11,9_464_306 TOTAL (All Mex~co) ~ 195820 141,79 49648 34061 Annex 6 Statistical Tables 137 Table A6.8 Standing Tlmber Volumes (million cubic meters) Temperate Forests Conifers 1,408 Broadleaved 356 Mesophyl (high altitude) 9 Tropical Forests High & Medium 725 Low evergreen & semideciduous 45 Low deciduous 256 Total 2,800 Note: Estimated volumes of tinber of presunsbly commercial sizes, asl species. Somme: SARH-SFF 1992. Table A6.9 Reforestation in Mexico during 1992 (hectares) Agent/Entity |_Area Reforested Objective | Area Reforested SARH-SFF 25,622 Protection 56,368 State govenmments 31,108 Commercial 12,315 UCODEFOS 19,634 Agroforesty 13,898 PRONASOL 6,964 Urban 15,900 CONAZA 2,700 Others 14,453 Total 100,481 Source: SARH-SFF-PRONARE 1992. Table A6.10 Employment in limber Enterprises (thousands) | Harvesting and j Total Forestry Year | Management | Forest Industry Employment 1987 92.8 121.8 214.6 1988 94.1 118.6 212.7 1989 90.5 116.2 206.8 1990 88.5 114.0 202.5 Source: HUKS, 1993, Working Paper 13a. 138 Mexico Resource Conservation and Forestry Sector Review Annex 7 METHODOLOGY USED IN BACKGROUND STUDIES OF ECONOMIC EVALUATION AND POLICY IMPACTS Economic Evaluation The methodology used in CSERGE (1993, Working Paper 15) to estimate the option value of pharmaceuticals from Mexico's forests is adapted from Pearce and Puroshothaman (1992) and calibrated for Mexico. The basic formula, which expresses the value on a per hectare basis is then: Vp(L) = {N.p.r.a.V/n}/H per annum where, Vp(L) = The phannaceutical value of a hectare of forest (US$/ha) N = The number of plant species in forests p = The probability of a "hit" r = The royalty rate a = The appropriation rate, or rent capture V/n = The average value of drugs developed (US$ per year) H = The area of forest (ha). These components and their empirical magnitudes are discussed in turn below. N: The number of plant species in Mexico's forests. As already noted, Mexico is especialy rich in biological diversity; the country itself has been identified as a megadiversity country. This richness of diversity results in part from the range of ecological and climatic conditions as well as from the cultural diversity of its people and their traditional land use. Current estimates calculate up to 30,000 species of flowering plants, with a 13.9% rate of endemism for higher plants (WCMC 1992; Bye, 1993). Of these, 21,600 are vascular plant species. A high proportion of the vascular plants are likely to be found in Mexico's forests rather than in the non-forest habitats. Toledo et al. (1992) states that the vascular plant flora of Mexico's moist tropical forests consists of 5,000 species. We can therefore assume that the range is somewhere between 5,000 (estimated for tropical moist forests alone) and 21,000 (the number of species in all habitats), though we make the following calculations based on the lower estimate. Annex 7 Methodology Use in Economic Evaluation and Policy Impacts 139 p: The probability of a successful rmd. By most estimates, for every 10,000 randomly selected plant or animal species screened against one screen, fewer than ten will yield chemicals used in clinical trials and fewer than 25 % of those chemicals will gain final approval as a new drug (Daly 1992). Principe (1991) confirms this. He estimates, based on discussions with drug company experts, that the probability of any given plant species giving rise to a successful drug is between 1 in 10,000 and 1 in 1,000. We therefore used a mid-point estimate of 5 in 10,000. r: The royalty rate. The royalty rate depends on patent and intellectual property protection, but existing royalties are in the range of 5-20%. Given Mexico's lack of patent protection, we assumed a low rate of royalty, at r=0.05, though even this may be a high estimate. This is certainly an area for policy action. a: The appropriate rate. Ruitenbeek (1990) as discussed above, relates this to institutional capacity, and Mexico has greater resources than many countries in terms of local R&D facilities. Although the lack of patent protection has facilitated a degree of development of domestic firms, it has not reduced in any significant manner the leading position enjoyed by TNCs which have more than 80% of market share in Mexico (Chudnovsky 1983). Ruitenbeek suggests a range of values from 0.1, where rent capture is only 10%, to 1, where host country could capture rent perfectly. V/n: The average value of pharmaceuticals. The method of valuation is important as it significantly affects the size of the estimate. As explained by Pearce and Puroshothaman (1992), the price of pharmaceuticals reflects many more things than the cost of the plant source material, and in this respect the price of the drug price grossly overstates the value of the plant. However, market prices understate the true willingness to pay for drugs, and since the evidence suggests that such drugs tend to be price inelastic, this "consumer surplus" element may be substantial. While there is no empirical basis for supposing that the consumer surplus element exactly offsets the overstatement in the price estimate, the two factors do work in opposite directions. The average value of plant-based pharmaceuticals, again from Pearce and Puroshothaman (1992) is in the range of US$390 million to US$7 billion per year. H: The area forest. In order to correspond with the number of plant species used (see N above), we will consider the moist tropical forest area, as defined by Masera, Ordonez, and Dirzo (1992) as tropical evergreen forest, at 9.7 million ha. 140 Mexico Resource Conservaton and Foresny Sector Review Therefore, Vp(L) = {5,000*0.0005*0.05*0.1*390,000}/9,700,000 = US$0.503/ha/year as a lowest estimate, given a lower appropriation rate, and lowest estimate of drug value. Alternatively, Vp(L) = {5,000 * 0.0005 * 0.05 * 1 * 7,000,000,000} / 9,700,000 = US$90.21/ha/yr given highest appropriation rate and highest drug value. Both of these estimates assume the lowest number of vascular plant species in moist tropical forests only; this excludes the possibilities of compounds derived from animal and insects, fungi or micro-organisms (remembering that the biggest group of therapeutic drugs, antibiotics, are derived from Penicillium molds (Oldfield 1984). We also assume an average probability of a hit, which assumes no improvement in screening technology, nor the fact that Mexico probably has a relatively well-developed knowledge base, considering the number of on-going ethnobotanical and screening programs. The average value of pharmaceuticals developed from plant compounds seems highly variable. The range of values obtained by Pearce and Puroshothaman derives from their adoption of different methods of calculation; the high estimate is derived using their value of a "statistical life" method. A successful "blockbuster" drug may be expected to earn US$1 billion worldwide per year (Reid et al. 1993); this is within the range provided by Pearce and Puroshothamnan. If we take IS$l billion per year as the drug value but retain the other conservative estimates, we derive: Vp(L) = {5,000 * 0.0005 * 0.05 * 0.5 * 1,000,000,000} / 9,700,000 = US$6.44 per hectare per year This may represent a "best guess" estimate for the option value of pharmaceuticals from moist tropical forests in Mexico at the present time. This is equivalent to US$65.5 million per year for the total area of moist tropical forests and, if we extrapolate, US$ 331.66 per year for all Mexico's forests, (assuming a total of 51.5 million ha, as in Masera, Ordonez, and Dirzo (1992). Annex 7 Methodology Use in Economic Evazuation and Policy Impacts 141 Analysis of Demand for Agricultural and Pastoral Land To help clarify the policy effects of agricultural and livestock policies, LEEC analyzed the underlying factors behind deforestation trends in Mexico (1993, Working Paper 4). The following focuses on the methodology for the analysis of the demand for agricultural and pastoral land. Quantitative analysis of deforestation trends is hampered by insufficient and imprecise time series data on the state of the forest stock and agricultural and pastoral land expansion in Mexico (see section 3). To avoid this hindrance, the LFEC analysis focused on analyzing the demand for planted agricultural area and beef cattle numbers as proxies for these land use changes. The results are significant and show that, to the extent these two factors drive forest conversion and degradation in Mexico, key policy and socio-economic variables have an important influence on deforestation. 1: Other Relevant Analyses on Deforestation in Developing Countries. Several previous studies of deforestation in developing countries are relevant to the approach undertaken here and are thus worth reviewing briefly. It is useful to distinguish between those studies that analyze the direct impacts on deforestation of key socio-economic and policy variables and those that analyze the indirect impacts, for example, through the influence of the variables on the demand for agricultural land, which is considered to be the main cause of deforestation. Although there are an increasing number of case studies examining the factors behind tropical deforestation and agricultural frontier expansion, there have been few attempts to explore these linkages through statistical analysis. Those that have been conducted are generally fairly aggregate and regressed on a cross-country level. One such analysis by Palo, Mery and Salmi (1987) for seventy-two tropical forest countries identified a strong link between tropical deforestation and population density, population growth and increased food production. A study by Capistrano (1990) and Capistrano and Kiker (1990) examined the influence of international and domestic macroeconomic factors on tropical deforestation. The econometric analysis indicated the role of high agricultural export prices in inducing agricultural expansion and forest clearing, as well as the influence of domestic structural adjustment policies such as exchange rate devaluation and increased debt servicing ratios. A more recent statistical analysis by Burgess (1993) of fifty-three tropical countries supports the hypothesis that both population pressure and industrial roundwood production were positively associated with forest clearance in the tropics over the period 1980-85, although the former was much more significant in its impact. Economic development, as represented by rising per capita GNP, and 142 Mexico Resource Conservaon and Forestry Sector Review improvements in agricultural yields reduce forest clearing. However, the analysis also indicated that countries with relatively small forests to total area are depleting these forests at a high rate. Nevertheless, in recent years some important cross-sectional analyses of the causes of deforestation have been conducted for specific Latin American countries. For example, Reis and Margulis (1991) analyze the relationship between the spatial density of major economic activities and the share of deforested areas across 165 municipalities in the Brazilian Amazon. The model examines the densities of population, cattle, logging, crop area and roads as major factors in the deforestation process. They found the highest value of the elasticity of deforestation to be 0.40 in relation to the density of crop areas, although elasticities for road density and population density are also relatively high. However, the elasticity of deforestation with respect to cattle density was nearly one-third the value for crop area, and the coefficient on logging density was not statistically significant. With respect to cattle raising, the authors argued that although its role in deforestation is grossly overstated, the process of cattle raising after crop expansion has made forest conversion irreversible in the Brazilian Amazon. Southgate, Sierra and Brown (1989) examine the causes of agricultural colonization and deforestation in eastern Ecuador in the early 1980s. They analyzed the statistical significance of rural population pressure, local demand for agricultural commodities, infrastructure development, and tenure security as factors explaining forest land clearing across twenty cantons. First, the area's agricultural labor force, a proxy for rural population pressure, was regressed against the factors thought to determine agricultural rents-urban population (increased demand), soil quality (productivity constraint) and roads (market accessibility and opening forest areas). Second, the extent of land clearing was regressed on the rural population pressure variable and an index of relative tenure security. The results of the analysis support the hypothesis that the incentive to capture agricultural rents is the main driving force behind forest conversion and is further induced by tenure insecurity. The study emphasized the role of population pressure in encouraging deforestation, directly through an increasing rural labor force and indirectly through rising urban food demand, but also emphasizes the role of misguided government policies on land tenure arrangements and extending the road network into forested areas. In Mexico, Munioz (1992) attempted a cross-sectional analysis of forest cover and agricultural intensity for 434 rural "productive" units (e.g., holdings by ejidatarios and others). The basic source of land use data was the 1980 Censo Agropecuario y Ejidal (Rural Census). The independent variables explaining the changes in the percentage of land area per holding under forest or agriculture Annex 7 Methodology Use in Economic Eialuation and Policy Impaas 143 included climatic conditions, road density, population density, size of plot, type of property and measures of rural poverty. The results of the analysis indicated, as expected in a logic model, that explanatory variables have opposite effects on the two types of land use. Road and population density have an important influence on the probability of finding forest cover as opposed to agriculture on a plot; the size of the plot has a positive effect on forest cover but not agricultural area; ejidatarios are more likely to have agriculture than forest cover on their plots; and in humid as opposed to dry regions, the probability is higher of having forest rather than agricultural cover. Unfortunately, however, this promising analysis is marred by some significant flaws in the logic analysis, which cast doubt on some of the statistical results. As noted, the difficulty in obtaining data on forest cover or deforestation rates often leads to the analysis of deforestation indirectly through examining the factors explaining expansion of agriculture or other conversion activities. For example, many of the direct deforestation analyses has pointed to expansion of cropping and possibly livestock production as major factors underlying deforestation. A recent study in Thailand highlights the complex linkages between agricultural crop prices, the relative returns from different crops, and the demand for land (Phantumvanit and Panayotou 1990). In Thailand, approximately 40% of the increase in cultivated land in recent years has been met by converting forest land. The statistical analysis indicated that the most important factors affecting the demand for cropland, and thus forest conversion, appear to be population growth followed by non-agricultural returns, although agricultural pricing also has a significant influence. Higher aggregate real prices may have a slightly positive influence on the demand for cropland and thus increased forest clearing; however, this direct effect may be counteracted by the indirect impact of higher agricultural prices on raising the productivity of existing land and increasing the cultivation of previously idle land, thus reducing the demand for new land from forest clearing. Changes in relative prices also influence the demand for new cropland by affecting the relative profitability of land-saving as opposed to land-extensive cropping systems. Finally, the relative retums to land- saving cropping systems can also be affected by the relative costs of inputs (fertilizer, seed, credit, irrigation, Agrochemicals, etc.) where these differ between land-saving and land-extensive systems. Presumably then, the relative prices of crops to inputs would also affect the comparative returns of land-saving as opposed to land-extensive systems. A comparative analysis of twenty-four Latin American countries also highlights the strong but indirect relationship between population pressure and frontier expansion and thus forest clearance-increasing numbers of urban 144 Mexico Resource Conservation and Forestry Sector Review consumers raise the demand for domestic production and hence for agricultural land-and the countervailing role of increased agricultural productivity and yield growth in slowing agricultural expansion (Southgate 1991). An important addition of this analysis is the inclusion of a land constraint variable (for countries with low potential agricultural land availability). Where there is little appropriate land available for conversion, the growth in arable land, and thereby forest clearance, is significantly reduced. In Mexico time series data on tropical forest area and conversion trends are not yet sufficiently disaggregated or complete to conduct a direct analysis of deforestation in Mexico. Yet there is substantial evidence to suggest that forest clearance for agricultural and livestock production is prevalent throughout Mexico. However, data on total agricultural area and pastoral land are also insufficient and unreliable. Nevertheless, it is possible to conduct an indirect analysis of the factors influencing forest conversion in Mexico by focusing on the increases in agricultural planted area and beef cattle numbers disaggregated by state and over time. The key assumption in the following analyses is that increasing agricultural expansion and livestock grazing have been the principal proximate causes of deforestation in Mexico over the past twenty-five years and that the factors determining agricultural and livestock expansion are thus the underlying causes of forest conversion and degradation. In addition, Figure A7. 1 plots some of the key data points and linearized trends for forest area, agricultural planted area and beef cattle head for Mexico. Over 1970-91, as forest area has fallen, agricultural planted areas and cattle numbers have increased, although the latter have started to decline in recent years. This would again support the hypothesis that agricultural and livestock expansion are proximate factors influencing deforestation in Mexico. However, it is important to stress that this assumption remains only a hypothesis that at this time has not been statistically proven. More importantly, the exact magnitudes of the relationships between increasing agricultural and livestock expansion and deforestation cannot be reliably estimated. Nevertheless, by taking this (untested) hypothesis as our starting point, it is possible to focus on the underlying causes of forest conversion by analyzing the factors behind increases in agricultural planted area and numbers of beef cattle head in Mexico. Annex 7 Methodology Use in Economic Evaluation and Policy Impacts 145 Figure A7.1 Mexico Land Use Patterns, 1970-91 (Thousands) 60 50 40 - 30 . - 20- 10 - -- 10 0ulat tropicreas. Moreover agh proportion in ag riculur land-almost one-quaiter-is idle or falow. This would suggest that expansion of planted area is through bringing additional land into cultivation rather than utilizing the existing stock of arable land. The extent to which planted area increases in each state should therefore provide a good indicator of forest land conversion for agriculture. A panel analysis of planted agricultural area was conducted across the thirty-one states of Mexico plus the Distrito Federal (Federal District), in 1970, 1980 and 1985. Several explanatory variables were examined, including real guaranteed maize prices, real fertilizer prices, income per capita, population levels, real rural wages, road density and real credit disbursement. In addition, a dummy variable was generated for the state of Veracruz, as it consistently had the largest agricultural planted area in Mexico over 1970-85 while simultaneously experiencing significant oil-based industrial development over the same period. Details on the relevant variables and sources are indicated in Table A7. 1. 146 Mexico Resource Conservation and Forestry Sector Review Table A7.1 Definition and Sources of Data for Analysis of Agriculture Area Planted and Numbers of Livestock Abbreviation Definition and Data Source MAAP Agriculture area planted (state level, 'OOOha). Agricultural area planted data derived from:SARH (1988). 'Estadisticas Basicas 1960-1986 para la Planeaci6n del Desarrollo Rural Integral'. Tomo 1, Sector Agropecuario Forestal. MLH Livestock head (state level, '000 head). Livestock numbers derived from SARH (1988). 'Estadisticas Basicas 1960-1986 para la Planeaci6n del Desarrollo Rural Integral'. Tomo 1, Sector Agropecuario Forestal; and, INEGI (1992). 'Estados Unidos Mexicanos Resultados Preliminares', VII Censo Agropecuario 1991. MGMFP Ratio of guarantee maize prices to fertilizer prices (national level, constant Mxp/tn). Maize and fertilizer price data derived from: SAHR (1988). 'Estadisticas Basicas 1960-1986 para la Planeaci6n del Desarrollo Rural Integral'. Tomo 1, Sector Agropecuario Forestal. MLPW Ratio of livestock prices to rural wages (state level, constant MX$/kg (to constant MX$). Livestock price data derived from: SARH (1988). 'Estadisticas Basicas 1960-1986 para la Planeaci6n del Desarrollo Rural Integral'. Tomo 1, Sector Agropecuario Forestal; and, Robles, R. (1992). 'La decada perdida de la agricultura Mexicana'. El Cotidiano (50): 169- 185. Rural wage data derived from SAHR (1988). 'Estadisticas Basicas 1960-1986 para la Planeaci6n del Desarrollo Rural Integral'. Tomo 1, Sector Agropecuario Forestal. MYC Income per Capita (state level, constant MX$/population). Income data derived from: SARH (1988). 'Estadisticas Basicas 1960-1986 para la Planeaci6n del Desarrollo Rural Integral'. Tomo 1, Sector Agropecuario Forestal. Population data derived from: SARH (1988). 'Estadisticas Basicas 1960-1986 para la Planeaci6n del Desarrollo Rural Integral'. Tomo 1, Sector Agropecuario Forestal; INEGI/SPP. 'Sistema de Cuentas Nacionales de M6xico. Estructura Econ6mica Regional Producto Interno Bruto por Entidad Federativa. MP Population (state level, number). Population data derived from: SARH (1988). 'Estadfsticas Basicas 1960-1986 para la Planeaci6n del Desarrollo Rural Integral'. Tomo 1, Sector Agropecuario Forestal; INEGI/SPP. 'Sistema de Cuentas Nacionales de Mexico. Estructura Econ6mica Regional Producto Intemo Bruto por Entidad Federativa. Annec 7 Methodology Use in Economic Evaluation and Policy Impacts 147 |Abbreviation | Definition and Data Source MRW Rural wages (state level, constant MX$). Rural wage data derived from: SARH (1988). 'Estadfsticas Basicas 1960-1986 para la Planeaci6n del Desarrollo Rural Integral'. Tomo 1, Sector Agropecuario Forestal. MRD Road density (state level, km/ha). Road and state area data derived from SARH (1988). 'Estadfsticas Bdsicas 1960-1986 parm la Planeaci6n del Desarrollo Rural Integral'. Tomo 1, Soctor Agropecuario Forestal. MC Credit (state level, constant MX$ mn). Credit represented by loans made by FIRA and BANRURAL, data derived from SARH (1988). 'Estadfsticas Basicas 1960-1986 pars la Planeaci6n del Desarrollo Rural Integral'. Tomo 1, Sector Agropecuario Forestal. DVC Dummy for Veracruz. Dummy for Veracruz = 1, all other states = 0. Regression results and basic statistical data on dependent and explanatory variables appear below. The regression for both "with" and "without" the dummy variable for Veracruz (DVC) are included for comparison. On the whole, the regression incorporating DVC has the slightly better fit. (a) Without dummy variable' MAAP = 663 + 419 MGMFP - 0.018 MYC + 9.2E-05 MP - 20.9 MRW - 77.9 MRD (2.34) (2.19) (-2.6) (4.32) (-1.65) (-2.48) R = 0.26, Adj-R2 = 0.22, Obs. = 96, F-stat = 6.23 (b) With dummy variable MAAP = 778 + 452 MGMFP - 0.013 MYC + 6.4E-05 MP - 28.8 MRW - 79.1 MRD (3.09) (2.67) (-2.14) (3.25) (-2.55) (-2.84) + 1110DVC (5.09) R2 = 0.42, Adj-R2 = 0.39, Obs. = 96, F-stat = 10.9 1. In all cases t-statistics are shown in parenthesis. 148 Mexico Resource Conservation and Forestry Sector Review The analysis for planted agricultural area shows that the significant variables are relative maize-fertilizer prices, income per capita, total population, real rural wages, road density and the dummy for Veracruz. Surprisingly, credit disbursement was not a significant determinant of planted area and was therefore excluded. In addition, both real guaranteed maize prices and fertilizer prices were tried separately, but were also not significant. Table A7.2a summarizes the resulting elasticities, showing that real rural wages across states have the greatest impact on agricultural planted area. This is not surprising, given that labor is a major input into crop production in Mexico, particularly maize. In addition, labor is the most important input in forest clearing. Thus, to the extent that planted area is increasing at the expense of forest area, the sensitivity of planted area to a rise in real rural wages can be expected to be doubly strong. The analysis indicates that this effect is elastic; a 1 % increase in real rural wages would lead to a 1.17 % fail in planted area. Table A7.2 Summary of Elasticities for Planted Agricultural Area and Beef Cattle Variable Coefficient Mean Elasticity A. Planted Agncultural Area ('000 ha) | MAAP 532.84 MGMFP 452.11 1.0267 0.8712 MYC -0.0132 10,280.77 -0.2536 MP 6.362 E05 I1,986,278 0.2372 MRW -28.8362 21.7102 -1.1749 MRD -79.0852 1.3856 -0.2056 DVC 1110.617 0.0313 0.0651 B. Beef Cattle ('000 head) MLH l l 958.05 MLPW 1961.58 0.4336 0.8877 MP 6.41 E-05 1,986,278 0.1329 MC 0.9275 347.06 0.3360 NIRD -103.283 1.3856 -0.1494 DVC 2215.86 0.0313 0.0723 Notes: For variable definitions, see Table A7. 1. Source: Calculations for the analysis. Relative maize-fertilizer prices also have a large impact on agricultural planted area. A 1% increase in this price ratio will lead to a 0.87% change in planted area. As this is an output-input price ratio, it is an approximation of the Annex 7 Methodology Use in Economic Evaluation and Policy Impacts 149 returns to planting maize and related crops. In addition, as discussed in Section 4, any change in the returns to maize and similar crops would have an important influence on the allocation of forest land among competing uses. the comparative retums to existing versus frontier agricultural land, and the "rent seeking" motivation for frontier agricultural expansion. Thus, an increase in the relative returns from this major crop could be expected to have an important influence on the total agricultural area planted across Mexico and, therefore, possibly on forest clearance. Increasing income per capita at the state level is associated with a reduction in planted area. Income per capita is usually counted as an indicator of economic development, and thus one would expect that as development proceeds in Mexico's states, dependence on agriculture would decline. In our analysis, a 1 % increase in per capita income leads to a 0.25 % reduction in planted area. As it is generally considered that the poorer members of society (e.g., subsistence farmers with a lack of alternative employment opportunities and displaced landless workers) may be responsible for opening up new areas of forest for increased planting, this income effect may be significant in reducing deforestation in Mexico. For example, other studies of deforestation confirm that increased economic development may be associated with reduced pressure on forest resources through: (a) an increasing concentration of the population in urban centers which reduces the direct pressure of rural populations on the forest; (b) sectorial economic changes away from primary extractive industries (e.g., agriculture) to manufacturing and services, thus reducing indirect pressure on the forest base; and (c) improving efficiency in resource use, again reducing indirect pressure on the forest (Burgess 1992). In contrast, increasing population at the state level should be associated with an increased area of planted agriculture. There are essentially two reasons. First, a higher population could mean that the agricultural sector has to absorb more workers and subsistence farm families, thus putting more pressure on the land base, including forests. Second, higher populations create this pressure indirectly through demand for food, fuel, fodder, and other consumption goods. In our analysis, a 1 % increase in state populations leads to a 0.24% rise in agricultural area planted. Increasing road density is generally considered to be associated with the opening up forest area for agricultural expansion (Reis and Margulis 1991). However, a distinction should be made between an increase in the road network as represented by the absolute number of road kilometers built and road density as represented by the number of road kilometers built per square kilometer of total state area. Deforestation usually results from the extension of the road network into previously remote areas. Thus, as discovered by Southgate (1991), the 150 Mexsco Resource Conservaton and Foresty Sector Review absolute number of road kilometers built can be a significant factor in land clearing. However, increasing road density at the state level may actually be reflecting rapid urbanization and modem-sector development. As argued above, this would reduce pressures on agricultural land expansion and forest clearing. The current analysis appears to be picking up this latter effect. An increase in road density by 1 % leads to a 0.21% fall in planted area. To summarize, if increasing agricultural planted area is correlated with deforestation, then the results of our analysis reveal some important factors underlying forest conversion in Mexico. Higher rural wages, and to a much lesser extent, rising income per capita appear to reduce pressure on forests. Increased urbanization as reflected in rising road density at the state level also has an influence in reducing agricultural expansion. In contrast, increasing the relative returns to maize production, as reflected in the maize price ratio, leads to further pressure on the forest. Rising populations at the state level also have a positive impact on forest conversion. 3. Analysis of Beef Cattle Head. Beef cattle production is a highly land-extensive process. There are limits to the number of cattle that can be grazed on a given plot of pasture land before it is irrevocably degraded. Degradation of pasture land, in any case, can lead to the abandonment of that land in favor of new pasture formation. Moreover, legally each farmer is restricted to a maximum of 500 head of cattle (Maddison and Associates 1992). Consequently, an increasing number of cattle in a region or state is an indication that new farns and pastures are being established. Increases in the number of beef cattle per state is therefore a good approximation of the extent of pasture land expansion in Mexico. Thus an additional panel analysis of beef cattle numbers was also conducted across the thirty-one states of Mexico plus the Federal District during 1970, 1980 and 1985. Several explanatory variables were examined, including real beef prices, income per capita, population levels, real rural wages, road density and real credit disbursement. A dummy variable for the state of Veracruz was again incorporated. Details on the relevant variables and sources are indicated in Table A7. 1. Regression results and basic statistical data on dependent and explanatory variables appear below. The regression with the Veracruz dummy included has the slightly better fit. The significant explanatory variables include the relative price of beef to rural wages, population, credit and road density. Income per capita proved not to be significant and was omitted from the analysis. In addition, beef prices and rural wages were not significant when they were analyzed separately in the model. Annex 7 Methodology Use in Economic Evaluation and Policy Impacts 151 (a) Without dummy variable2 MLH = -144 + 1542 MLPW + 0.0001 MP + 1.02 MC - 106.9 MRD (-0.29) (1.43) (3.21) (6.38) (-2.2) R' = 0.41, Adj-R2 = 0.38, Obs. = 96, F-stat = 15.85 (b) with dummy variable MLH = -268 + 1962 MLPW + 0.00006 MP + 0.93 MC - 103.3 MERD + 2215 DVC -0.64) (2.19) (2.12) (6.96) (-2.57) (6.62) RF = 0.60, Adj-R2 = 0.58, Obs. = 96, F-stat = 27.41 Table A7.2(b) summarizes the resulting elasticities. The relative price of beef to rural wages has the largest impact on the number of beef cattle per state. A 1 % rise in this price ratio leads to a 0.89 % increase in the number of cattle. As labor is a major input into pasture formation, livestock raising, and beef production and as the price of beef is the output price, the relative price of beef to rural wages is a good indicator of the returns to cattle raising, particularly the returns to labor invested. Any increase in these returns would therefore have an important influence on the allocation of forest land among competing uses, the comparative returns to existing versus frontier pasture land, and the rent seeking motivation for frontier pasture expansion. An increase in real credit disbursement also leads to greater beef cattle numbers at the state level. As discussed in Section 4, over the 1970-85 period, much credit was extended to the livestock sector, and these loans were heavily subsidized. Thus, one would expect that higher cattle numbers and pasture formation would result from an increase in credit disbursement. The analysis indicates that a 1 % rise in loans increases the head of beef cattle by 0.34%. As in the case of planted agricultural area expansion, increases in population at the state level and in road density area also are significant factors determining greater cattle numbers. A 1 % rise in population causes cattle numbers to increase by 0.13 %, whereas a 1 % increase in road density causes cattle to fall by 0.15 %. The same interpretations apply to these effects as in the case of planted area. Rising populations mean more direct pressure on the land base, including the forest, for establishing farms and ranching operations, and more indirect pressure through increased demand for beef and other livestock 2. In all cases t-statistics are shown in parenthesis. 152 Meico Resource Conservuaon and Foresty Secaor Review products. An increase in road density at the state level reflects greater urbanization and modern sector development, which signify a move away from primary production such as beef ranching. To summarize, if increasing beef cattle numbers in Mexico are correlated with forest conversion to pasture, then several factors appear to play an important role. The most significant influence appears to be the returns to cattle operations, as reflected in the relative price of beef to rural wages. Increasing credit disbursements and, to a lesser extent, population levels are also important factors underlying forest conversion for cattle raising. On the other hand, increasing road density as an indicator of urbanization seems to reduce pressure on the forest arising from greater cattle numbers. 4. Conclusions. Previous studies of deforestation suggest that agricultural land expansion and pasture formation are two major causes of forest conversion. Evidence indicates that this holds true for Mexico. The factors determining increases in the land under agricultural production and pasture would also be the underlying causes of deforestation. However, because this analysis was unable, through lack of data, to examine the relationships influencing deforestation directly, a more indirect approach was taken of using panel analyses to estimate relationships for agricultural planted area and beef cattle at the state level. We believe such an approach gives strong indication of the factors underlying forest conversion, as both increases in land under agricultural production and beef cattle numbers seem to be correlated with loss of forest area. In the case of increased planted area as a proxy for forest conversion to agriculture, higher rural wages, and to a much lesser extent, rising income per capita appear to reduce pressure on the forest. Increased urbanization as reflected in rising road density at the state level also has an influence in reducing agricultural expansion. In contrast, increasing the relative returns to maize production, as reflected in the maize price ratio, leads to further pressure on the forest. Rising populations at the state level also have an impact on forest conversion. In the case of rising beef cattle numbers as a proxy for forest conversion to pasture, the most significant influence appears to be the returns to cattle operations, as reflected in the relative price of beef to rural wages. Increasing credit disbursements and, to a lesser extent, population levels are also important factors underlying forest conversion for cattle raising. On the other hand, increasing road density as an indicator of urbanization seems to reduce the pressure on the forests attributable to greater numbers of cattle. Anne= 7 Methodology Use in Economic Evaluation and Policy Impaas 153 Analysis of the Potential Impacts of NAFTA Three of the background studies on the relationship between agricultural and trade policies and forest and wildland management examined the potential impacts of trade liberalization in general and NAFT7A in particular. The following hypotheses were tested: (a) conversion of commercial forests to agriculture or livestock at the intensive margin of forestry; (b) increased logging or conversion of pristine forests to agriculture or livestock at the extensive margin of forestry. Two Computable General Equilibrium (CGE) based analyses were carried out: one was prepared by LEEC (1993, Working Paper 4), and the other was developed for modelling impacts on the forestry sector by Boyd (1993).3 An analysis of studies from the Autonomous Technology Institute of Mexico (ITAM) was prepared by Rodolfo de la Torre and Felix Velez based on their ongoing analyses for NAFTA (1993, Working Paper 5). These working papers are available from LA2NR. None of the analyses proved conclusively either positive or negative impacts, but there was sufficient evidence of possible negative impacts to indicate a need for the government to continue to analyze the impact of liberalization on forests and wildlands. The potentially positive impacts identified were that: (a) maize and other crop prices will fall to international levels and cropped area will decline; (b) labor intensive agricultural sectors such as vegetables and fruits will grow; (c) livestock sector will not expand; (d) urban-based economic activities and manufacturing will expand; (e) rural labor released by the crop subsector and returning labor from the United States will be absorbed by irrigated and nontraditional agriculture, manufacturing and urban-based activities. (f) timber prices will fall to international levels and commercial forestry will decline; (g) marginal agricultural areas will revert to forest cover; (h) subsistence farning and migration toward the frontier will decline, reducing deforestation; (i) logging in frontier areas and mining of the forest will decline; and (j) conversion of forests to pasture will cease. 3. The LEEC analysis drew heavily on the models prepared by Hinojosa-Ojeda and Robinson (1991) and by Levy and van Wijnbergen (1991). Boyd's analysis for this study was based on the CGE model developed for modeling industrial effects by Boyd, Krutilla and McKinney, (1991, cited in Working Paper 7). Boyd's exercise is the only model that explicitly looks at the forestry sector. 154 Mexico Resource Conservation and Forestry Sector Review The potentially negative impacts identified (and correlated here to the positive impacts listed above) were that: (c) livestock sector will expand; (d) manufacturing and urban based activities will expand little; (e) rural labor released by the crop subsector will be only partially absorbed by manufacturing and irrigated and nontraditional agriculture; (g) agricultural in marginal lands will be more important than in the positive scenario; (h) subsistence farming and migration towards the frontier will increase; and (j) more forests will be converted to pasture. The Maize Subsector. Most analysts agree that liberalization and NAFI'A will bring about a decline in cropped area, particularly of maize, since domestic prices are much higher than international prices. Levy and van Wijnbergen (1991a, cited in LEEC, 1993, Working Paper 4), for example, predict a reduction of 50% in the rural price of maize. Such a decline could lead to a decline of 44%, as an order of magnitude, in area planted. This would provide support to the positive scenario since the NAFTA effects stemming from the maize subsector alone would help decrease deforestation, and marginal agricultural lands would eventually revert to a forest use, with a corresponding increase in environmental services. The elimination of all credit subsidies for pasture formation and cattle raising should also significantly reduce the pressure to deforest. Impacts on deforestation. The key issue is what happens to the land currently under maize that is taken out of production. If, as Levy and van Wijnbergen (1992a) assume, one-half of the released rainfed land is converted to pasture (1.6 million ha), the demand for additional forest land for pasture may also lessen. This latter effect will of course depend on the comparative returns of released maize and forest land for livestock grazing. Identifying the pattern of migration resulting from economic changes from NAFTA is critical to assessing the impacts on deforestation. The reduction in the maize subsector will release labor. Will this labor migrate to urban centers, to other agricultural subsectors, or to the frontier as subsistence farmers? In the extreme case, migration to the frontier could lead to the conversion of additional forest lands. However, in the future, there may be limitations on large-scale migration to forest areas as most of this land is allocated to ejidos, which now have legal ownership rights. Employment Implications. Price liberalization could affect migration through changes in rural employment. A decrease in the returns to maize Annex 7 Methodology Uise in Economic Evaluation and Policy Impacts 155 cultivation will also negatively impact lower-income rainfed farmers. According to Levy and van Wijnbergen (1991), approximately 3.2 million ha of rainfed land and 0.3 million ha of irrigated land would be taken out of maize production (LEEC, 1993, Working Paper 4). As irrigated land would be switched to non- maize production (e.g., of vegetables) that is likely to be more labor-intensive, there would be a net employment gain. However, approximately half of the released rainfed land would be converted to pasture for grazing, with the remainder devoted to other crops or put into fallow. Under this scenario unemployment on rainfed land would therefore increase by 145,000 workers, putting downward pressure on the rural wage rate and lowering the opportunity costs of migrating to the frontier. These results appear to support the negative scenario since they point at more migration, which, if it happened toward the frontier, would imply more deforestation. But no real work has been done on whether this migration would be primarily urban or rural driven. The Elinojosa-Ojeda and Robinson CGE Model. While most analysts such as Levy and van Wijnbergen (1991a), concur that maize area will decline with NAFTA, they also acknowledge that the responses for other crops and subsectors may be different. A three-sector, computable general equilibrium model developed by Hinojosa-Ojeda and Robinson (1991) and further work by Robinson et al. (1992) lend support to the positive scenario. These authors compare the pre-liberalization situation with what might occur after the completion of the full 15-year transition. They predict a substantial decline in food corn, program crops other than agriculture, and food processing under a trade and all agriculture liberalization scenario, while fruits and vegetables would grow. Real rural wages would climb slightly, and there would be a large migration flow from rural to urban areas in Mexico. As a result deforestation would decline, since there would be less pressure to convert forests to agriculture, and many marginal agricultural lands might revert to a forest cover. Implications of NAFTA for the Forest Sector. Unfortunately, none of the above analysis explicitly includes the commercial (timber) forest sector. Pre- NAFTA Mexico domestic prices of most forest products were much higher than their international equivalents. To further highlight the potential impacts of NAFTA for the forest sector of Mexico, Boyd (1993, Working Paper 7) made a CGE analysis of the Mexican economy including forestry, agriculture and livestock as separate sectors of the economy, plus another twenty-four sectors. Rather than investigating the specific case of NAFTA, Boyd compared the pre- liberalization situation in 1988 with the situation of a fully liberalized economy and ignored the transition path. Boyd's results suggest that commercial forestry will decline more than the agriculture sector with liberalization, and thus marginal agricultural lands are less likely to revert to commercial forestry. Moreover, Boyd's results cast doubts on the ability of the 156 Mex=co Resource Conservation and Forstry Sector Review urban sector to absorb excess rural labor and strengthen the case for the negative scenario because of a predicted expansion of the livestock sector. Nevertheless, Boyd, the only author to actually simulate changes in land use, also recognizes that any impacts on deforestation are likely to be negligible. That is, very few forests would be converted to agriculture or livestock. His most important result is the decline in commercial forest sector output. This reduction of logging at the extensive margin would benefit the enviromnent, since fewer forests would be degraded. Implications of NAFTA for Timber Supply. Liberalization could also impact the economic stock of the resource. The magnitude of the economic stock is a key determinant of future timber supply. It is defined as the area and volume of the timber resource that can be extracted at a profit. The relevant question here is whether NAFTA will lead to an increase or decline in the economic stock of the resource. The simulation model discussed in Chapter m developed by HUKS (1993, Working Paper 13, and Annex 5) was used to investigate the area that would become non-exploitable if Mexico were to face international prices. Domestic timber prices are substantially higher than international prices, which will be the relevant ones with NAFTA. The analysis was carried out for forested regions of Chihuahua, Durango, Jalisco, Michoacan, Guerrero and Oaxaca. Although all these regions are currently forest producers, after free trade only Jalisco, Michoacan and Guerrero would be able to compete at the lower international prices. Total exploitable volume would decline to 14% its present size, and exploitable area would decline from 10.7 million ha to about 0.6 million ha, 5% its current size. Under this scenario most of Mexico's forest industry would be wiped out. Most likely the outcome of NAFTA for the forest sector of Mexico will not be as bleak. There are supply constraints in Canada and the United States that will push up prices, and many localized markets in Mexico will continue being supplied by local producers. Nevertheless, these results support the results of the general equilibrium analysis and suggest that timber production activities are likely to decline substantially after NAFTA comes into effect. This scenario, however, assumed a continuation of current levels of productivity. The picture in regard to timber production may be overly gloomy, given that in reality the private sector could increase efficiency, particularly once the sector is opened to foreign investment and technologies, should other distortions be removed through overall liberalization policies. Anne 8 Bibliography 157 Annex 8 BIBLIOGRAPHY (Citations from Working Papers listed in Annex 1) Alcorn, Janice. "An economic analysis of Huastec Mayan forest management." Advances in Economic Botany 7:63-77. Alvarez, I.P. 1993. "Forestry as a social enterprise." Resource and Sanctuary, Cultural Survival Quarterly (Spring):45-47. Arizpe, Lourdes, Fernanda Paz and Margarita Velazquez. "Estudio Sobre la Participacion de la Mujer en la Subsector Forestal de Mexico," Octubre 1993. 44pp. Baffes, John. 1993. "A Background Note on Forestry Review." Background Document. October 1993. 7pp. "Price Responsiveness and Structural Adjustment in Mexican Agriculture." Mimeo. LA2AG, World Bank, Washington, D.C. August 1993. Barbier, E., J. Burgess, M. Collins, and C. Clancy. "Sub-study of Economic Issues for Implementation of the New Forestry Policy." Background Document. October 1993. 21 pp. Belausteguigoitia, J.C., and J.C. Fernandez. 1993. Los Bosques en Mcxico: Situaci6n actual y perspectivas ante la Nueva Ley Forestal y el Tratado de Libre Comerao. Draft internal Document. World Wildlife Foundation International. Boo, E. 1990. Ecotourism: lhe Potentials and Pitfalls. 2 Volumes. Washington, D.C.: WWF International. Bye, Robert A. "Non-Wood Forest Production". Universidad Autonoma de Mexico/Helsinki University Knowledge Systems study. Background Document. 1993. 18pp. Castro, Maria Elena. "Analisis de la Estructura Institucional con la Vision del Usuario". Background Document." June 1993. 39pp. Capistrano, A.D. 1990. "Macroeconomic Influences on Tropical Forest Depletion: A Cross-Country Analysis." PhD Dissertation. Gainesville: Food and Resource Economics Department, University of Florida. Capistrano, A.D., and Kiker, C.F. 1990. "Global Economic Influences on Tropical Clos ed Broadleaved Forest Depletion 1967-85." Mimeo. Gainesville" Food and Resource Economics Department, University of Florida. 158 Meaaco Resource Conserwvuion and Forestry Sector Review Centro de Investigaciones de Quintana Roo (CIQRO). Personal communication. 1994. CONAPRO. 1993. Indicadores Socioecon6micos e Indice de Marginaci6n Municipal. Mexico, D.F.: Direcci6n General de Estudios de Poblaci6n. Food and Agricultural Organization of the United Nations (FAO). 1990. Mexico Report. Evaluation of Forest Resources Project 1990. Mexico, D.F.: FAO Office. 63 PP. Gomez-Pompa, A., and D.A. Brainbridge. 1989. Tropical forestry as if people mattered. Paper presented at the 50th Anniversary of the Tropical Forestry Institute of the U.S. Forest Service in Puerto Rico, May 1989. 23 pp. To be published in A.E. Lugo and C. 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October, 1993. 47pp. de la Torre, Rodolfo y Felix Velez. "El Subsector Forestal en Mexico: Politicas y Estructura de Incentivos." Octubre, 1993. 22pp. Toledo, et al. 1993. "The Biodiversity scenario of Mexico: A review of terrestrial habitats. In Rammamoorthy, et al. Biological Diversity of Mexico: Origins and Distribution. Oxford: Oxford University Press. Touval, J.L. 1992. Analysis of Ecnomic Impacts Resulting from Ecotourism at El Triunfo Biosphere Reserve, Chiapas, Mexico. Baltimore: University of Maryland. Vehkamaki, Seppo. "Evaluacion Economica en los Cambios de Politica Forestal." June 9, 1993. 18pp. Villalon, Francisco Xavier. "Estudio de Problemas Legales de la Nueva Politica Forestal- Problemas, Cuestionainientos, Traslapes y Vacios-Diagnostico, Sugerencias, Recomendaciones, Alternativas y Soluciones Propuestas." October 11, 1993. 17pp. Wadsworth, John. 1993. "Market Analysis." HUKS, August 1993. 81pp. World Bank. Mexico Agricultural Sector Memorandum. 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