The benefits and options associated with outcome based indicators were developed and 

discussed with a Tim Kajian from the MoFr.  The interest expressed during this process resulted 

in linking this approach to establishing community forests.  Real concern was expressed about 

the use of this approach for commercial concessionaire based logging.  To date, there has been 

no further development of policies or pilots to test and evaluate the suggested framework, and 

these are urgently needed.  For the most part, this reflects the perception among forestry 

officials of a power shift, in which logging decisions would move out of their control to the private 

sector.  Higher authority than that represented in the Tim Kajian will be necessary to achieve 

positive action. 

2.5  Lessons Learned: Reducing Natural Forest Undervaluation  

Forest resources are of lower value to forest managers because policies have depressed 

market prices for logs and non timber products.  While non market values could raise the value 

of forest resources (NRMP Report No's. 64 and 67), translating these intangible values into 

tangible incentives has proved difficult.  Here,  value  refers to the open market demand for 

forest products.  While policies may not have been designed to reduce the value of logs, they 

have resulted in an undervaluing of forest resources in several ways: i) encouraged wasteful 

utilization, ii) favored land conversion to non forest uses that offer higher economic returns, and 

iii) reduced revenues from timber and other forest products.   

Prohibitive taxes on a range of forest products were applied in an attempt to force added value 

on the timber sector.  The taxes effectively ban or limit the marketing or use of logs to the 

domestic wood processing industries and exclude international uses, which cannot afford the 

logs inclusive of these taxes.  This strategy was initially applied to logs and later extended to 

domestically produced sawn timber and thus reduce the profitability of sawn timber exports.  

The intended impact of such taxes was to reduce log demand for the production of sawn timber 

and to protect the emerging domestic plywood industry (NRMP Report No's. 44, 71, 72).  A 

similar rationale was used to discourage exports of raw and semi finished rattan, and thereby 

stimulate development of manufactured rattan for export, particularly as furniture (NRMP Report 

No. 40, Bennett et al. 1997).  As with most policies of this type, the beneficiaries receive windfall 

gains and then invest their energies and economic power to protect the status quo.  With these 

processing industries now well established, the policies remain in place.  These policies protect 

the industry but place the integrity of the forest resources base at risk.  Taxes have created a 

number of undesirable outcomes, including: 

Reduced price of domestic logs, which encouraged wasteful utilization (NRMP 

Report No.37). 

Increased the relative value of other land uses, particularly in more remote areas.  In 

the rattan industry, for example, the export ban reduced domestic prices due to over 

supply, and forest gate prices plummeted as a result.  Rattan harvesters then had 

few incentives to maintain forests that once supplied rattan. 

World prices increased by the withdrawal of Indonesia's supply, encouraging other 

nations to enter the market or substitute products and thus effectively increasing 

competition with Indonesia.  

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