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ECOLOGICAL ECONOMICS

Ecological Econornics 16 ( l 996) 147-159

Analysis

Is sustainable tropical timber production financially viable? Ã comparative analysis of mahogany silviculture among small

f armers in the Brazilian Amazon John O. Browder ª· *, Eraldo Aparecido Trondoli Matricardi h,

Wilson Soares Abdala b

• Urban Affairs anti Plannlng, Yirginiu Polytechnlc lnstttute and State Unioersity. Blacksburg, VA 2406/-01 /3, USA b Secretaria Estadual de Desenooluimento Ambiental de Rorulonia, Rondonia, Bruzll

Received 6 November 1994; accepted 19 August 1995

ELSEVIER

·ECOLOGICAL ECONOMICS

The Journal of the International Society for Ecological Economics

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ECOLOGICAL ECONOMICS

ELSEVIER Ecological Econornics 16 ( 1996) 147-159

Analysis

Is sustainable tropical timber production financially viable? A comparative analysis of mahogany silviculture among small

f armers in the Brazilian Amazon John O. Browder ª·*, Eraldo Aparecido Trondoli Matricardi b

Wilson Soares Abdala b

a Urban Affairs and Planning, Virgínia Polytechnic lnstitute and State Uniuersity. Blacksburg, VA 24061-0113. USA b Secretaria Estadual de Desenuoluimeruo Ambiental de Rondonia, Rondonia, Brasil

Recei ved 6 N ovem be r 1 994; accepted 19 August J 995

Abstract

Conservationist arguments for international trade restrictions on tropical hardwoods, along with counter-argurnents by the wood industry, are both based on the clairn that key hardwoods, líke mahogany, can be either sustainably rnanaged in their natural forest habitat or sustainably produced in silvicultura! settings. This paper examines the financial feasibility of three rnahogany planting regimes found among small-scale family farmers in the Brazilían Amazon State of Rondonia: degraded fallow enrichment, agroforest consorciation {e.g., mahogany and coffee), and pure-stand plantation. Toe sensitivíty of net future and present values from each of the three systems to changes in real interest rate of capital, opportunity cost of labor. production time, seedling survival rate, and producer roundwood price was tested under I O scenarios. Overall, rnahogany production was found to be financially viable in 21 of the 30 altemative scenaríos considered, with pure-stand plantations offering the most profitable alternative. Based on financial cri teria alone the -rnost prornising approach to blending tropical timber trade with natural forest conservation would be through mahogany plantations, especially if they are located outside the tropical forest zone of the Arnazon region.

Keywords: Tropical tirnber productlon: Mahogany silviculture; Tropical agroforestry: Shifting cultivators: Brazilian Amazon

1. Introduction

The extensive harvesting of "Brazilian ma­ hogany" (Sweitenia macrophylla) over the last sev­ era! decades has led to growing international concern about the population status of this comrnercially important hardwood, 1 Three different strategies to

1 For a general description of lhe three mahogany species (Swierenia macrophylla, S. mahogani. S. humilis), their range. uses and history, see Lamb (1966). Tois study refers only to S. macrophylla, henceforth '·mahogany." Two recent evaluations of its population status (Barros et al., 1992; Figueroa Colon, 199-1. funded by the Brazilian and U.S. governments, respectively) claim that mahogany is not in any danger of extinction and .. that the regulation of internacional trade will have little positive effect on the conservation of the species" (Figueroa Colon, t 994, p. iv ). This analysis has been widely criticized (Campbell, 199-1; Syn­ non, t 994; Zwecde, 1994). Other appraisals of the population status of mahogany are more sobering (see Rodan er ai., 1992. for a review; also Veríssimo e! ai.. n.d.).

• Corresponding author. Fax: ( + t-540) 231-6217.

0921-8009/96/SIS.OO © 1996 Elsevier Science B.V. All rights reserved SSDI 092 l-8009(95)00084-4

148 1.0. Browder et ai./ Ecological Economics 16 U996) /47-159

monitor or restrict the international trade in ma­ hogany products have been proposed by different conservation groups: "selective boycotts" (Hayes, 1992, n.p.; FOE, n.d.); certification and labelling (Ussach, 1992, p. 2); and the proposed listing of mahogany on the Convention on lnternational Trade of Endangered Species of Wild Fauna and Flora (CITES) (Hartshom, 1992; MacBryde, 1992; Federal Register, 1994). Proponents of different trade-ori­ ented approaches argue that Sweitenia macrophylla is potentially endangered and that the intemational dernand for mahogany timber is driving its depletion from the wild, Effective trade-oriented measures to encourage tirnber-exporting countries to plant ma­ hogany, so the argument goes, will reduce pressures on the tropical forest ecosysterns that this species inhabits,

Critics of these trade-oriented proposals are varied and include influential members of the conservation cornmunity as well as tirnber trade industry groups (Sayer, 1992). Timber trade representatíves, often citing a controversial study by Barros et ai. (1992), argue that there is no immediate threat to the popula­ tion of mahogany in Brazilian Amazónia, where this species is believed to occur in the greatest abun­ dance. Moreover, apart from the considerable eco­ nomic benefits to developing countries that arise from the international trade in mahogany, private trade representatives point to the efforts of exporters to promote sustainable production of mahogany through various silvicultura] regimes (ITIC, 1990, p. 203). To deflect criticism that U.S. importers are uninterested in tree planting, the International Hard­ wood Products Association recently launched a cam­ paign called "Johnny Mahoganyseed " which hopes to tum Amazonian small-holders into future ma­ hogany suppliers (F. Campbell, pers. comrn., 4/27 /94). Critics of trade sanctions argue that such restrictions would discourage private efforts to shift the basis of that trade frorn tropical forest extraction to sustainable silviculture.

Central to both conservatíonisr and industry posi­ tions is the prernise that sustainable mahogany pro­ duction (either through natural forest harvesting or through silviculture) is viable. To assess the financial feasibility of mahogany production this paper evalu­ ates three different silvicultura! regimes found among small-scale cornrnercial farrners in the western

Brazilian Amazon State of Rondonia. It draws upon a comrnissioned study by two Brazilian forestry spe­ cialists (Matricardi and Abdala, 1993). 2 Rondonia, situated in the heart of the mahogany timbershed as described by Larnb (1966), has seen significam eco­ nornic impacts from the extensíve harvesting and basic processing of wild mahogany tirnber. Despite its probable local depletion from the wild, few ef­ forts have been initiated in Rondonia to cultivate rnahogany.

Following a brief review of the settlement history of Rondonia, three planting regimes found on a small sample of fárms are briefly described and evaluated: degraded fallow enrichrnent systern; agroforest con­ sorciations with perennial crops (coffee, cacau, pas­ ture); and pure-stand plantation. The field research confirrns the existence of severa! well-known biolog­ ical and econornic factors limiting the viability of rnahogany silviculture in various forros: shoot-borer moth (Hypsipyla grandella), 3 low rates of natural regeneration (Rodan et al., 1992), the long growing period for mahogany, uncertain future producer prices of mahogany, and the unstable and generally high long-terrn interest rate on capital. Financial sensitiv­ ity tests were undertaken to determine the impacts of different assurnptions concerning these factors on final incarne generated by each planting system on a one-hectare plot.

It is concluded that the most promising alternative from a financial perspective-e-plantation monocul­ ture-is the léast attractive ecologically, the most capital-intensive (and hence most risky for the small resource-poor farmers) and, therefore, least likely to

i 1

1

l 1 1 l 1 !

'

2 This report, entitled Mogno em Rondonia ( l 993). was com­ missioned by lhe author and the Natural Resources Defense Council and financed, ín part, by lhe U.S. Fish and Wildlife Service. The findings and recomrnendations of this report belong to its authors, of course, and do not reflect lhe policy of the United States governrnent,

J According to Rodan et ai. ( 1992. pp. 333-334), shoot-boring rnoths, mainly Hyps;py/11 grandella (broca dos ponteiros) •.. bur­ row inside Lhe terminal part of the srern, destroying lhe shoot-apex causing branching. Iorkíng, or defonnauon of the bole." Toe reason mahogany is susceptible to attack is unclear, but its occurrence is widely thought to be lhe major ecological impedi­ ment to silvicultura! production of mahogany (see, for instance, Bauer, l 991). Toe effectíveness of conventional pesticides is problematic.

Iraws upon orestry spe- Rondonia,

nbershed as .ificant eco­ vesting and Jer. Despite i1d, few ef­ to cultivate

ment history id on a small id evaluated: roforest con- , cacau, pas­ ield research nown biolcg- : viability of ;: shoot-borer .es of natural long growing roducer prices ,enerally high ncial sensitiv­ the impacts of se factors on .g system on a

.ing alternative tion monocul­ ally, the most y for the small least likely to

( l 993). was com­ ~esources ~fense F1sh and Wildlife f thrs report belong lhe policy of lhe

-334), shoot-boring •.1· porueiros ). ·· bur- 1ying lhe shoot-apex of lhe bole." Toe is unclear, but its r ecological impedi­ y (see. for lnstance, itional pesticides is

J.O. Browder et ai./ Ecological Economics /6 ( 1996) 147-159

be widely adopted into family farming systerns in Amazonía. However, íf mahogany plantations could be successfully established in Brazil outside of lhe Amazon region (outside the Hypsipyla habitat), the financial feasíbílíty of sustainable productíon on small family farms and private corporations alike may be enhanced. ln this case, lhe potential conser­ vation benefit of mahogany silviculture would be the market dernand for intact areas of rnahogany's natu­ ral habitat (upland tropical forests) as a source of germplasm (i.e., mahogany seeds), rather than tim­ ber.

2. Rondonia: geographical description and hístor­ ical background

The western Brazilian Amazon State of Rondonia encampasses an area of 243 000 km2 (roughly the size of lhe U.S. State of Montana) (Fig. 1). Physio­ graphically characteristic of the southern Amazon fringe, the domínant type of vegetation is '' transition

1~9

forest" or · 'open tropical-seasonal moist forest." extending over approximately 75% of the States area. The hurnid, tropical climate is predominately Awi on the Koppen scale, with annual rainfall rang­ ing from 1800 to 2200 mm and a mean annual ternperature of 26ºC. Approxirnately 90% of the land area of Rondonia is covered by a relatively thin and infertile layer of dystrophíc latosols. Only 10% con­ tains eutrophic podsols, considered suitable for an­ nual or pennanent cultivation (World Bank, 1981).

Twenty years ago existing surveys indicated that as much as one-third of Rondonia's surface area possessed soíls suitable for commercial farming un­ der prevailing forms of '' primítive managernent" (i.e., shifting cultivation). In an effort to alleviate pressures for agrarian reforrn in Brazil's populous South and Southeast, regíons undergoíng extensive agricultura! transformation from farnily coffee-based mixed farms to corporate soybean and wheat planta­ tions, the Brazilian government opened the frontier in Rondonia to landless settlers, From 1970 to 1990. Rondonia's population soared from 111 000 to an

- .. SETTLEMENT AREAS IN RONOLlNIA, BRAZIL

~- .. ,.;).~-·-·-·· 8 -.. •..• , ""' -.o.l lw<I ••••

;. .,, ...• o e:, " o "' "' o

Fig. 1. Scttlemcnt arcas in Rondona, Brazil.

150 1.0. Browder et ai./ Ecological Economics 16 ( 1996) 147-159

estirnated 1.2 million. By 1990 an estirnated 100 000 families were cultivating crops in and around 13 different settlement areas, as well as in various pro­ tected areas and indigenous reserves. Between 197~ and 1988 the proportion of the State's area defor­ ested grew from 0.3% to 24% (Mahar, 1989).

The expansion of the lumber industry accompa­ nied the rapid settlernent of Rondonia. Between 1975 and 1980, the contribution of the industrial wood sector to Rondonia's total industrial output grew from 28 to '61.2%, based largely on mahogany ex-

traction and stimulated by government export promo­ tion programs (Browder, 1987). B y 1986 mahogany accounted for 50% of the sawn timber exports from Brazil (Oldfield, 1992). Over 95% of the lumber imported into the United States from Brazil was mahogany (Reilly, 1989). Given the high economic stakes and environmental costs associated with the mahogany trade, the sustainable production of ma­ hogany in silvicultura! settings should be a high priority for timber merchants and forest conserva­ tionists alike. Indeed, mahogany is seen by rnany as

Table 1 Characteristics of mahogany plantings

2 3 4 5 6 7 8 9

l. l 3/92 var. 7.00 0.63 na. 0.63 na. na. o t.2 3/88 6X6 7.60 5.93 6.04 1.18 1.2 42 0-99 2.1 3/88 9X8 15.0 3.21 5.38 0.64 l.07 50 100 2.2 2/91 4X5 7.00 l.70 3.00 0.85 1.50 34 100 2.3 3/88 12X6 11.6 5.87 7.00 1. 17 1.40 36 100 3.1 3/88 IS X 7 7.40 4.19 8.18 0.83 1.63 31 100 3.2 3/92 2X5 5.00 1.50 na. na. 1.50 34 100

Notes: Columns: 1. Date implanted Cmonlh/year). 2. Spacing of seedlings (In rneters), 3. Mortality rate by December 1992 (percent). 4. Current height (December 1992) (in rneters), 5. Diarneter at breast height (DBH) (in centimeters). 6. Average annual increment in height (in meters). 7. Average annual increment in DBH (in centimeters). 8. Ex pected years to harvest o f 1 .5 m 3 per tree, 9. Rate of shoot-borer auack (percent of individual seedlings afflicted).

Rows: 1. l. Primary forest enrichrnent: line planting in selectively thinned prirnary forest. 1.2. Secondary forest enrichment: line planting in degraded fallow, 2.1. Agroforest, mahogany with pasture. 2.2. Agroforest, mahogany with coffee, 2.3. Agroforest, mahogany with cacau. 3. 1. Mrxed-stand reforestation (3 species): mahogany, freijo and Brazil-nut. 3.2. Mixed-stand reforestation (2 species): mahogany and bandarra.

Note: Referring to lhe row numbers in Table 1, the planting sites are located on lhe following farms: 1.1. Harald Shimitz (Iot 23, Gleba 16. LC-20. Cacaulandia). 1.2. and 2.3. Pedro Ochiai (Iot 2, Gleba 7, LC-60. Ariquemes). 2.1. Juarez Becária de Almeida (km. 16. BR 421, Ariquemes). 2.2. Enio Trintinaglia (to: 9. Gleba 43. LC-90. Alto Paraíso). 3.1. Alcir Araujo (lot l , TB-40. LC-65, Aríquernes). 3.2. Reditário Casso! (Fazenda Cassol, LC-45. Santa Luzia).

iort prorno- rnahogany l cports from 1 the lurnber 1

' Brazil was l h economíc ed with the 1 tion of ma- l be a high l st conserva- by many as

! ' ! ! '

9 o 0-99 100 100 100 100 100

J.O. Browder et ai./ Ecological Ectmomics 16 ( !996) 147-159

a rest case for sustainable management of tropical forests (Newton, 1992).

3. Prevailing mahogany planting regimes

Hardwood silviculture is not widely practiced by Rondonia · s farrners, ln 1992 an estimated 1300 rural producers planted commercial wood species on their farm lots in Rondonía. 4 About one-fifth of these farrners planted mahogany seedlings on a total area of only 400 hectares (Matricardi and Abdala, 1993). Toree general mahogany-planting regimes are found among srnallhclders in Rondoriia: degraded fallow enrichment, agroforest consorciations, and pure and mixed-stand plantations. These planting systerns, as found on seven farms visited in October-December J 992, are described in Table 1.

4. Financial analysis of different mahogany-plant­ ing systems

Based on the actual silvicultura! practices ob­ served among a small sample of Rondonia's farmers, three planting regimes were chosen for evaluation. Our financial feasibility analysis compares the net future value and net present value of incarne derived from these three planting systems under various sce­ narios based on unit cost data specified in Matricardi and Abdala (1993): ( 1) degrade d fallow enrichrnent; (2) agroforest consorciation (mahogany and coffee); and (3) pure stand reforestation. The financial analy­ sis considers the sensitivity of net revenues to differ­ ent thresholds of the following five variables: ( 1) tree survival rate; (2) rnaturation period or years before harvest (financial planning horizon): (3) real interest rate; (4) the opportunity cost rate of labor; and (5) the producer (farm-gate) price of harvested mahogany roundwood. Toe hypothetical base case,

• The most commonly planted species, in addition to ma­ hogany. are: Bandarra or Pinho Cuiabano (Schi:ollobium amazon­ icum). Cedro Rosa (Cedre//a odorara), Cerejeira (Torre~ia acre· ana), Ipe (Tabebuia spp.}, and Sumauma (Ceiba pentandru),

151

derived from the assurnptions explicit in the Matri­ cardi and Abdala study, are cornpared with two alternative scenarios for each variable. Costs and revenues are presented on a one-hectare basis. 5 La­ bor costs are held constant (in US dollar tenns) to US $3.40 per day, which is approximately the cur­ rent minimum daily wage in Rondonia. However, the opportunity cost value of labor is likely to vary among households depending upon the availability of household labor and the season of the agricultura! calendar. For exarnple, for larger families the oppor­ tunity cost of labor in silviculture is likely to be lower than for smaller households, We atternpt to accommodate these seasonal and demographic varia­ tions in the sensitivity analysis. Each scenario as­ sumes a unifonn yield of 1.5 rrr' of marketable roundwood per tree at harvest, a reasonable estirnate given observed annual incremental growth rates (Ta­ ble 1 ). 6

ln the hypothetical base case we assume a seedling survival rate of 70%, a 40-year production period, a producer príce of US$ 150 per cubic meter, a 10%

5 Unit costs per hectare for key inputs are the actual curreru prices reportcd in Ariquemes, Rondonia in Decernber 1992 con­ verted into U.S. dollars at the actual rnarket exchange rate and are indrcated below: Input fertilizer insecticide fungicide ant killer seedlings transport cost

Unir price (USS) 0.50/kg 14.00/licer 25.00/kg 2.00/kg 0.20/seedling 0.014/seedling or 1.34/km

Labor costs includc secondary forest clearing (enrichrneru). plant­ ing. planting site rnaintenance (weeding, mulching. manual shoot­ borer rernoval, input application, etc.), but not harvest cost. Read­ ers desiring to know thc unit quantities of different inputs applicd rnay write the first author for such information.

6 The analysís assumes a constam growih rate although yield functions for each regime are probably differcnt. Matricardi and Abdala's analysis accounts for these theoretical differences by adopting different growth períods to harvest for each planting regime based on thcir professional judgrnent. ln this analysis. we trcat the problem of diffcrcntial yield functions by consideríng different growth periods in all regimes 10 a yield of 1.5 cubic mcters as part of the financial scnsitívity test,

152 1.0. Browder et ai./ Ecologlcal Economics 16 ( /996) 147-159

Table 2 Degraded fallow enríchment system: sensitivity test results

Scenarios Gross revenues Total ínvestment Revenues/ in vestmen t Net revenue Net presem value

Base case 43650 31098 l.40 12552 277 l 43650 41204 1.06 2446 54 2 43650 25598 1.70 18052 399 3 43650 44503 0.98 -853 - 12 4 43650 22403 1.95 21247 756 5 37350 30132 1.24 7218 159 6 49800 32041 1.55 17759 392 7 58200 31098 1.87 27102 599 8 29100 31098 0.93 -1998 -44 9 43650 77929 0.56 -34279 -757 10 43650 21824 2.00 21826 482

Specifications: Base case: a. Labor wage rate = $3.40 • b. Y ears to harvest = 40 · e. Loggíng costs = $23/m' • d. Planting density = 6 X 6 (277 seedlings/ha). e. Survival rate = 70%. ' f. Yield per tree at harvest = 1.5 m 3• •

g. Average mahogany producer price in year40 = S150/m3• •

h. Average mahogany seedling establishrnent cost (on-farm) = S0.10/seedling. i. Labor opportunity cost rate = 8%. j. Real díscount rate on capital investment = 10%. ' Source: Matricardí and Abdala ( 1993).

Altematiue scenarios: Scenario !: Base case except 2 percentage point increase in mahogany labor opportunity cose rate (from 8 to 10%). Scenario 2: Base case except 2 percentage point decrease in mahogany labor opportunity cosi rate (from 8 to 6%). Scenario 3: Base case except 12.5% increase in planning horizon or years to harvest (from 40 to 45 years), Scenario 4: Base case except 12.5% decrease in planning horizon or years to harvest (from 40 to 35 years). Scenario 5: Base case except 10 perceniage point decrease in yield at harvest (frorn 70 to 60%). Scenario 6: Base case except 10 percentage point increase in yield at harvest (from 70 'to 80%). Scenario 7: Base case except 33% increase in mahogany producer price (from $150 to S200/m3).

Scenario 8: Base case except 33% decrease in mahogany producer price (from Sl50 to S100/m3).

Scenario 9: Base case except 5 percenrage point increase in real discount rate (from 1 O 10 15%). Scenario 10: Base case except 5 percentage point decrease in real discount rate (frorn 10 to 5%).

real discount rate on capital and an 8% opportunity cost rate of labor. 7

1 Seedling survival and growth rates represem best estimares based on observations of actual plantings found on the study sites. Given the extrernely limited current state of existing knowledge about mahogany growth performance in lhe planting regimes studied, actual survival and growth rates can be expected to vary considerably. The producer price of export-quality mahogany roundwood at lhe time the srudy was undenaken was US $143 per cubic meter (we adopt SISO for convenience). A 10% real dis­ count rate on capital is widely used in Amazon investment analyses (such as those used in World Bank Staff appraisal reports of the POLONOROESTE Joan). Our estimated 8% opportunity cost rate of labor assumes that capital will be discounted at a higher ~te ~an_labor.

4.1. Degraded fallow enrichment system

Degraded fallows includes relatively young, sparsely vegetated abandoned annual crop fields and pastures to biologically more cornplex older bush fallows and secondary forest formatíons. Previous land uses would likely affect the input requirements. Our estimated input requirernents represent a hypo­ thetical average across a wide ranging domain of existing site conditions.

For degraded fallow enrichrnent planting 2- rneter-wide tines are cleared through the bush fallow at ô-meter intervals allowing for 17 lines on the one-hectare planting area. Planting points are spaced

1.0. Browder et ai./ Ecological Economics 16 ( 1996) 147-159 [53

Table 3 Agroforest (mahogany-coffee) system: sensitivity test results

Scenarios Gross revenues Total investment Revenuesy ínvestment Net revenue Net present value nt value 1

Base case 22777 22696 1.00 81 1.78 22777 29699 0.77 -6922 -153

2 22777 18517 1.23 4260 94

3 22777 32822 0.69 -10045 -138

4 22777 16110 1.41 6667 237

5 19627 22213 0.88 -2586 -57

6 25927 23179 1.12 2748 61

7 30027 22696 1.32 7331 162

8 15527 22696 0.68 -7169 -158

9 22889 54247 0.42 -31358 -693

10 22672 16102 1.41 6570 145

stem

·latively young, J crop fields and .plex older bush iations. Previous put requirements. epresent a hypo­ nging domain of

.ent planting 2- h the bush fallow 17 lines on the points are spaced

Specificcuions: . Base case: Sarne as degraded fallow enrichrnent system (Table 2) except: a. Mahogany planting density = 10 X 10 (197 seedlíngs/ha). b. Coffee planning horízon = years 1-6. e. Coffee establishment costs = $0.25 per seedling. d. Coffee planting density = 3 X 3 (J l 11 seedlings/ha). e. Coffee seedling survival rate = 70%. f. Average coffee producer price = S0.35/kg. g. Labor opportunity cost of coffee = O%. h. Coffee outpur/'bush beginning in year 3 = 0.32 kg; year 4 '"" 0.684 kg; year 5 = 1.45 kg; year 6 = 0.58 kg. After year 6 coffee production ceases (based on average yields and production schedules from among 59 coffee fanners surveyed in Rolim de Moura. 1985).

Alternariue scenarios: Sarne as degraded fallow enrichrnent systern (Table 2) Source: Matricardi and Abdala (1993).

1

l

1

1 '

at 6 X 6 rn. At a radius of 0.6 meter around each point, the soil is tilled and vegetation removed to elirninate vines and to avoid competition for nutri­ ents, water, and sunlight. At each point a planting hole is dug. Appropriate quantities of chemical fertil­ izer (nitrogen, phosphorus and potassiurn) and or­ ganic matter are added. Toe financial analysis con­ siders the labor inputs of clearing and regular main­ tenance of fire breaks around the entire perirneter of the planting area (I hectare). It is assumed that 20% of the seedlings will be replanted in the first year. Initially 277 seedlings are planted, 194 (70%) of which are assumed to reach commercial size, produc­ ing 290.85 cubic rneters (1.5 cubic meters per har­ vested stem). Toe lines are cleared and the planting sites weeded annually until harvest, Insecticides, fungicide and forrnicide (ant poison) are applied annually for the first 4 years, after which only fermi­ cide is applied annually until harvest. Between years 5 and 7, secondary vegetation is cut Jeaving only rnahogany trees. At 7 years the planting is thinned of deformed mahogany trees as well. Harvest occurs at 40 years. Toe results of the sensitivity tests are summarized in Table 2.

\ ! !

' 1 l

1

1

1 \

4.2. Agroforest system (mahogany and coffee)

In this system, the entire planting area is cleared of all vegetation, as is comrnon in planting coffee. Mahogany ;and coffee are inter-planted at 12 x 6 meter intervals. Mahogany seedlings grow to harvest in 40 years. Coffee production occurs only frorn year 3 through 6, based on farrn-level surveys in the study area. 8 Consequently, the impact of coffee produc­ tion on lhe financial performance of the agroforest system overall is minimal. Moreover, we assume a zero labor opportunity cost of coffee production since household labor would be engaged in this activity whether or not the timber cornponent was

8 Based on Browder's 1985 survey of 59 farms in the Rolim de Moura municipio coffee ylelds and productive life periods are quite ]ow and short. ln the best cases coffee bushes begin to fruit in lhe third year and reach maximum output in the fifth year, After the síxth year, yields found in the sample did not cornpensate labor to harvest beans. Average yields (kg/bush) are given in the notes to Table 2.

154 J.O. Browder er ai./ Ecologica/ Economias 16 (1996) 147-159

Table 4 Pure-stand plantation systern: sensirivity test results

Scenarios Gross revenues Total investment Revenues/investment Net revenue Net presem value

Base case 78750 44636 1.76 34114 754 78750 57418 1.37 21332 471

2 78750 37807 2.08 40943 904

3 78750 62654 1.25 16096 221 4 78760 33000 2.39 45750 l 628 5 67500 42907 1.57 24593 543 6 90000 46357 1.94 43643 964 7 105000 44632 2.35 60368 1333 8 52500 44632 1.18 7868 174

9 78750 117153 0.67 -38403 -848

10 78750 30688 2.57 48062 1061

Specificat ians: Base case: Sarne as degraded fallow enrichment systern (Table 2), except: a. Mahogany planting density = 4 X 5 (500 seedlings planted).

Atternatiue scenarios: Sarne as degraded fallow enrichment system (Table 2). Sources: Matricardi and Abdala (1993).

included, At 9 years the coffee bushes and defective mahogany trees are removed. Other planting area treatrnents (mainly pesticide applications) are as in the fallow enrichment systern (above). The results of the sensitivity tests for the mahogany-coffee consor­ ciation are surnmarized in Table 3.

4.3. Pure stand mahogany reforestation system

Mahogany seedlings are planted in 4-meter inter­ vais with 5 meters between lines following the sarne site preparations as those applied to the fallow-en­ richment system. Annual applications of insecticides are the sarne as in the fallow-enrichrnent systern. Toe results of the sensitivity tests are summarized in Table 4.

5. Discussion

The financial viability of mahogany silviculture in the prevailing small farrner planting regimes in Ron­ donia is sensitive to severa] economic forces, rnost notably interest rates, producer roundwood prices, labor opportunity costs and the length of the produc­ tion period. Significam differences between planting systems are evident, Overall mahogany plantings generate a positive net present value in 21 of the 30 scenarios considered (Tables 2 and 3, and 4). The pure-stand plantation system shows the highest net

present value, followed by degraded fallow enrich­ rnent and agroforest systems.

ln the base case, which represents the expected case, two of the three mahcgany planting regimes (degraded fallow enrichment and pure-stand planta­ tions) generate incarnes that compare favorably with rnost alternative non-silvicultural land uses in the Amazon. 9 In Scenario 1, in which the opportunity

9 Uh! (personaí communication) estimares the net presem value of production from four land uses at a 12% real discount rate. extensive ranching, intensive ranching, extensíve (slash and bum) agriculture, and intensive tree-cropping (combined pure-stand pas­ sion fruir, pepper and orange plantation). Adapting the rnahogany base data to the time frame of the other land uses and using a 12% real discount rate on the net revenue flows, we find that the mahogany regimes out-perform other land uses in 6 out of 12 possible cornparisons (see table below), Interestingly, pure stand regimes (both mahogany and intensive fruir tree cropping) pro­ duce much higher net retums than any biologically diverse or extensive monocultura! altemative land uses.

Net present values of alternative Arnazon forest land uses (USS/ha) Exten- Inten- Slash and lnten- Mahogany Mahogany Mahogany sive sive bum sive fallow agro pure ranch- ranch- fanning tree ----~ ing ing

-279 - 8 384

enrich- crop- ment ping

6049 191 -104 662

.ent value

fallow enrich-

:s the expected .anting regimes re-stand planta- favorably with nd uses in the the opportunity

he net present value real discoum rate:

ive (slash and bum) ined pure•stand pas­ pting the mahogany ses and using a 12% s. we find that the ises in 6 ou! of 12 .estíngly. pure stand tree cropping) pro­ -logically drverse or

n fores: land uses

ahogany Mahogany :ro pure «est stand

· 104 662

J.0. Browder et al./ Ecological Economics 16 ( 1996) 147-159

cost of labor dedicated to mahogany production in­ creases frorn 8 to 10% (a 25% increase), the net present value of all three systems drops significantly, and becornes negative for the agroforest system. The opposite effect occurs when the opportunity cost of labor is reduced by the sarne amount-from 8 to 6% (Scenario 2). Ir is reasonable to expect that opportu­ nity cost rates vary among households depending, in part, upon the availability of household labor, the seasonal dernands for labor associated with different types of fanning systems, and the opportunities for off - farm employment. It is also reasonable to ex­ pect that for resource-poor farmers the real discount rate for capital would be higher than for labor.

ln Scenario 3, we assume a 12.5% increase in the planning horizon, from 40 to 45 years (to harvest). Given the 10% real interest rate presumed in the base case, this prolongation of production time has calamitous effects on net present value in two of the three systems; only the pure-stand plantation would be viable. A comparable reduction in planning hori­ zon (frorn 40 to 35 years) would have the opposite effect-enhancing the net present values of ali three systems to their highest leveis of ali scenarios tested (Scenario 4). Observed mahogany growth rates under different planting regimes vary from 1.08 to J .63 cm diameter at breast height (DBH) per year during the first 5 years, indicating projected planning horizons ranging frorn 30 to 46 years to reach a standard 50 cm diameter at breast height harvest size (Matricardi and Abdala, 1993, p. 20). 10 Yield functions un­ doubtedly vary depending on site conditions and silvicultura! rnanagernent practices, so a l O-year variation in the rotation age to reach the assumed yield of 1.5 m3 per harvested tree is not unreason­ able.

In Scenario 5, we consider the effects on the base case outcome of a 14% decrease in yield at harvest (frorn 70 to 60% yield of seedlings planted/re­ planted). Not surprisingly, net present value drops in ali three systerns, becorning negative only in the agroforest systern. Reversing the trend in yield to a comparable 14% increase (frorn 70 to 80%) elevates

10 Toe growth period (30-46 years) is considered short by some mahogany experts who suggest that a longer period {e.g .. over 100 years) is more Iikely (Laura Snook. personal comrnunicaríon).

155

net present value in all systems (Scenario 6). Varia­ tions in survival rates are likely for the sarne reasons as variability in growth rates and rotation ages.

ln Scenario 7, the producer (farrn-gate) price is increased by 33% (from $150 to S200 per cubic meter). Such an evenruality would push net presem values up to their second highest leveis across the board. A comparable reduction in producer price would pull net present value down to the second lowest leveis; only the pure-stand plantation systern would tum a profit (Scenario 8). Establishing price pararneters for any commodity over a 40-year plan­ ning horizon is an exercise of sheer guesswork. Producer prices have varied widely over time. tend­ ing upward as natural mahogany stocks decline in response to public policy as well as to global market condítions (Browder, 1986, 1987, 1989). Stumpage prices for mixed-quality mahogany roundwood in the wild of Rondonia have ranged from $6-20 per cubic meter in the mid- l 980s to $40-80 more recently. As existing stocks of natural mahogany dímínish, it is Iikely that stumpage prices will continue upward.

Finally, in Scenarios 9 and 10 we consider the effects on financial viability of positive and negative changes in real interest rates. ln Scenario 9 a 50% íncrease in real ínterest rate on capital (from 10 to 15%) generates financial deficits for ali three sys­ tems-no system of rnahogany production would be financially viable holding constant ali other base case assumptions. A 50% decrease (Scenario l O) leads to a.substantial increase in profitability.

In sumrnary, the agroforest systern represents the highest risk alternative, being financially feasible in only 50% of the scenarios evaluated, Risks dimínish in the degraded fallow enrichment systern, where 70% of the scenarios generate a positive net present value. Pure-stand plantation systems offer the most promising alternative, in which 90% of of the sceriar­ ios are financially feasible.

Financial feasibility increases in relation to plant­ ing density. The pure-stand plantation maximizes yield per hectare. However, it is not without prob­ Iems for srnall-scale farmers, the most serious of which is the higher capital intensity of its input requirernents (Table 5).

In the degraded fallow enrichrnent and agroforest production systerns the labor/ capital ratio exceeds 1.0 in 80% of the scenarios. Both are cornparatively

156 J.O. Browder et ai./ Ecological Economics 16 ( 1996) 147-159

Table 5 Labor/capital ratios (excludes logging costs)

Scenario a Degraded fallow Agroforest Pure-stand enrichment systern plantation

1 1.96 2.12 1.63 2 0.62 0.71 0.49 3 1.00 1.12 0.81 4 1.18 1.31 0.96 5 1.09 1.22 0.89 6 1.09 1.22 0.89 7 1.09 l.22 0.89 8 1.09 1.22 0.89 9 0.22 0.25 0.17 10 5.32 5.50 4.60 % > 1.00 80% 80% 20%

ª For description of scenarios, see Table 2.

labor-intensive systems and more likely to be inte­ grated into small family farrning systems. However, they are also the highest risk systems, in terms of (capital and labor) resources invested, being prof­ itable in only 70% and 50% of the scenarios, respec­ tively.

The most profitable system-the pure-stand plan­ tation (profitable in 90% of the scenaríos)-is the most capital-intensive. Labor/capital ratios exceed­ ing 1.0 occur in only 20% of the scenarios. Toe pure-stand plantation system is therefore less likely to be adopted by cash-poor farmers. Toe capital requirements (at a I 0% real interest rate) over the initial 5-year period are $561 in the pure-stand plan­ tation system. For the degraded fallow enrichrnent and the agroforest systerns, capital requirements over the first 5 years are only $309 and S190 per hectare, respectively, roughly half of the pure-stand planta- tion.

There are ecological trade-offs as well. 11 Toe agroforest system is the least remunerative systern,

11 We recognize that our analysis excludes any quantitative evaluation of ecosystem benefits of lhe different mahogany plant­ ing regimes, su~h as lhe value of biodiversity that might be conserved in these different systerns. Toe purpose of our study is to evaluate the financial viability of different mahogany produc­ tion systerns from the microeconomic perspective of small-scale farmers. The relative irnponance given to ecosystern benefils as a decision criterion by small farmers is an open question (see, for exarnple. Browder. 1995).

but probably provides the most envíronmental ser­ vices over the long terrn, especially if multi pie species are planted. While the notion that net income from consorciated annual crops might subsidize mahogany capital input and labor costs in the short term is intuitively appealing, empirical evidence of such fi­ nancial outcomes is wanting. Acknowledging valu­ able work accomplished to date (e.g., EMBRAPA, 1994), additional future research might be profitably directed to exploring the various types of other perennial plant species that are ecologically cornpat­ ible with rnahogany in long-term agroforest forma­ tions.

Toe pure-stand plantation is the most remunera­ tive systern, but also the least desirable planting system from a restoration ecology perspective. How­ ever, it might have a positive tropical forest conser­ vation impact if future studies encourage private capital investment in mahogany pure-stand planta­ tions outside the Amazan region. 12 Indeed, ali three systerns would be financially more viable if the regular input costs associated with controlling vari­ ous tropical pathogens were obviated. If producers succeeded in rnahogany silviculture outside of its tropical forest habitat, a sensible political and eco­ nomic case could be made to protect remaining natural forest areas of the mahogany tirnbershed intact. Silvicultura! systems require natural germplasm to remain vital. Until mahogany seeds can be produced in captivity (l.e., in laboratories and nurseries), silvicultural systems of mahogany produc­ tion will necessarily· require fairly vast areas of natural tropical forest as a natural source of genetic material.

Most small farmers could not adopt the capital-in­ tensive plantation strategy for mahogany production without a sizeable subsidy. Yet, small-scale farmers do cultivate mahcgany in various agroforest or sec-

12 The potential for mahogany plantations outside lhe tropical fores! zone is presently unclear. However, mahogany does thrive in some unlikely habitats. For exarnple, as of this writing 6-year­ old rnahoganies, some over 30 rneters high. line several side streets in Braz il 's capital city. Brasília. plarued as urban shade trees, Yet no one has undertaken any known experimental re­ search on mahogany behavior in lhe open rolling casiinga outside the capitals rnetropolitan area. or in any other non-tropical forest environment.

.ntal ser-

.e species

.me from aahogany t term is f such fi- .ing valu- IBRAPA, profitably of other

y compat- est forma-

remunera- ~ p1anting tive, How- est conser- ge private nd planta- d, all three ible if the olling vari- producers

side of its 11 and eco- remaining timbershed ~e natural ,gany seeds ratones and l any produc- st areas of

1 e of genetic

.e capital-in- f production cale farmers orest or sec-

ide the tropical ;any does lhrive writing 6-year­ ne severa! side as urban shade .xperirnental re­ castinga ou tside m-tropical forest

J.O. Browder et al./ Ecological Economics 16 (/996) 147-159

ondary forest enrichment regimes recogmzmg that there can be possible short-terrn benefits, Farmers in Rondonia who successfully establish even a few promising mahogany trees on their fanns may see their real estate values increase and, with this, their borrowing capacity,

Agroforestry proponents should not despair of these findings either. Our analysis is confined to one of a myriad of agroforest combinations (mahogany and coffee). Other combinations based on annual cash crops (especially com, beans) are likely to produce different results.

Having demonstrated the financial viability of rnahogany plantings, especially pure-stand planta­ tions, a key question is: could individual mahogany­ planting fanners in the Amazon in the aggregate produce a sufficient quantity of export quality round­ wood to supply intemational markets and, so, reduce pressure on remaining natural forests? There is evi­ dence in both North American forestry and agricul­ ture that where planting is intensified, pressures on natural forests and ecologically sensitive lands are alleviated (Hyde, 1981). Using the yield functions of the three mahogany-planting regimes evaluated, the arnount of land area necessary to produce the total volume of mahogany sawnwood exported from Brazil in 1992, or 244685 m3 (FUNATURA, 1993), would range from just 3374 hectares in the Ieast efficient planting system (i.e., agroforest regime) to merely 932 hectares by the most productive rnethod (i.e., pure-stand plantation). On a 40-year rotation, these land requirements become 134 960 and 37 280 hectares, respectively. Brazil's entire current ma­ hogany export volume could be produced by a single large company or by a network of fanner coopera­ tives involving between 373 and 1350 farmers (each producing on 100 hectares) under any of the three planting systems.

6. Conclusions

1 l l 1

Ignoring ecological constraints, especially the shoot-borer, and with rising mahogany roundwood prices, the financial prospects for mahogany silvicul­ ture appear to be good. Assuming shorter rotation periods, or low and stable real interest rates, these prospects further improve. ln practice, relatively large

157

capital investment requirements, long growing peri­ ods, and high interest rates are likely to deter many small-scale farrners from making a substantive com­ mitment to mahogany production. ln addition, oligopolistic marketing channels are likely to prevent small farmers from receiving fair market prices for their roundwood (Browder, 1986, 1987). Rather, ma­ hogany plantations are most likely to be developed by a few large companies who would be better able to overcome the financial and marketing obstacles that typically overwhelrn srnall-scale producers.

This analysis points to the classic dilemma of our failing to see (save) the forest for the trees. On the one hand, there is the paradox that efforts to promete sustainable mahogany silviculture could lead to the remova! of diverse tropical forests for more lucrative homogenous mahogany plantations. On the other hand, perhaps we have not seen the forest for what it is really worth. Given the findings presented here that, from a strictly financial perspective, support the plantation alternative, the true value of the natural forest rnay be not in its harvestable timber, but in its harvestable germ-plasrn that only healthy trees in natural tropical forests produce.

Intensive rnahogany production, especially out­ side the tropical forest zone of the Amazon region, should create a new market demand for large tracts of undisturbed mahogany habitat-tropical forest­ the genetic seed bank on which commercial ma­ hogany roundwood production would come to rely. Given the potentially high value of future mahogany exports that might be derived from plantation sys­ .terns, some producers might be willing to buy or rent Jarge tracts of natural forests for their seed supplies, just as some firms vertically integrate their produc­ tion process by buying out their input suppliers. ln other words, if the rental value of the forest as a repository of genetic material were to exceed the opportunity cost of the land in altemative non-forest uses, the rnarker might come to regard the forest as a gene-shed from which seeds, not tirnber, are har­ vested. Of course, this speculation ignores a host of institutional and political economic considerations. We might take the lessons of Brazil's history of promoting rubber production to heart (Dean, I 987). Yet, frorn a strictly financial perspective, mahogany plantations would be highly competitive with other Amazon land uses. Whether or not the value of

158 J.O. Browder et al./ Ecological Economics 16 (1996) /47-159

plantation production could actually justify the con­ servation of large traces of undisturbed primary for­ est as a rnahogany seed bank rernains to be seen.

Acknowledgements

Toe research leading to this paper was supported by a small grant from the United States Fish and Wildlife Service administered by the Natural Re­ sources Defense Council (NRDC) to Virginia Poly­ technic Institute and State University. Toe authors acknowledge the logística! assistance and intellectual stimulation provided by Faith Campbell and Bruce Rodan and the Secretaria de Estado do Desenvolvi­ mento Ambiental (SEDAM). Other helpful com­ ments were received from William Hyde, Johan Zweede, Dick Rice, Laura Snook and three anony­ mous reviewers, Toe authors alone are responsible for the findings of this research which do not neces­ sarily reflect the policies of the U.S. Govemment or the State Govemment of Rondonia,

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