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Economic and Financial Analysis Forestry and Climate Change Project

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Despite the difficulties in obtaining a global economic analysis for all the subcomponents of the Forestry and Climate Change Project, as well as the Total Economic Value (TEV) of the areas that this Project will be supporting, some research has shed light on the potential key outcomes and impacts related to the typical investment expected.
Payment for Environmental Services (PES) is a very popular program in Mexico that globally covers the land opportunity cost (from US$30 to 84 according to INE) to enable forest protection by small farmers and indigenous communities, and has probably contributed to reduce to zero the deforestation rate in 2010. However, degradation remains a strong issue because this threatens the supply of environmental services. Efforts have been made by CONAFOR to focus financial support on the areas where the services have a higher environmental value, due to water scarcity, high deforestation risks or biodiversity presence, as well as the poorer communities. Regarding environmental worth, studies conducted by scientists showed that there is a wide range of economic values derived from water infiltration supported by PSA-H (from USD 0.61 to 15,78 /m3/ha/year). However, if sequestered carbon and other non commercial values are also included, as recommended by Cubbage et al (2011)1, the accumulative value could be balanced and favorable for global economic benefits.
If CONAFOR, forest communities and landholders prepare to take into account sequestered carbon and avoided emission they could benefit from international programs like Clean Development Mechanism (CDM) and REDD+ which are moving forward with the implementation of financial incentives in protected and well managed forest lands. A project for reforestation and tropical forest protection elaborated by CONAFOR in 2007, demonstrated that the Internal Rate of Return (IRR) would be 14.2% without selling carbon, and 16.4% including the value of sequestered carbon and avoided CO2e (in this case water filtration was not included).
Competitiveness of Community Forests is threatened by several internal and external factors. In order to tackle this situation, the Project will improve forest management practices and road maintenance in forest areas, which will bring about reduction of operating costs and yield increases on harvested timber. There are few economic studies available on this topic but a research conducted in a typical Oaxaca temperate forest (Plancarte et Al in 2010), revealed that practices like pruning and thinning are able to increase the diameter of the trees by 44% as well as the commercial value of sawn wood by USD 0.5/bd.ft.
Regarding the profitability of Community Forest Enterprise (CFE), economic assessments were carried out from 1998 to 2009 on two samples of initiatives supported by CONAFOR/PROCYMAF on timber and non timber transformation and trade. It is estimated that more than 75 percent of these CFE are still operating and generating net income with IRR from 14 to 150 percent. Also, full-time and part-time employment has been increased by 27% in poor and indigenous communities. However, a specific field study conducted for this analysis showed that some enterprises are more vulnerable to a decline in their traded volume of production. This is the case of the spring water bottling unit analyzed in this study, which requires a strong investment in delivery systems and high maintenance costs. For these CFE, a specialized and medium-term technical assistance system should be implemented to support the formulation and implementation of strategic business plans.

Investment in capacity building and social capital strengthening is likely to facilitate the development of CFE, enabling their integration on supply chains in timber and non timber trade, improving forest management practices, as well as facilitating access to potential carbon market programs. Additionally, enhancing capacity of technical services who are suppliers for CFE and communities involved in PES, will be also a strategic mean to foster a sustainable capacity building system for the forest sector.
For FIP investment, two regional governance structures were analyzed in order to assess whether additional benefits are provided with the implementation of CONAFOR programs. This study demonstrated that the subprojects promoted by these entities, such as PES, solid waste management units and silvo-pastoral systems have IRR from 15.5 to 30 percent, as well as a high positive impact on environment. Moreover, while the “traditional” scheme of PSA-H has not been very successful in promoting the participation of other institutions, these structures have enabled its member to obtain sizable funds from other national and international organizations (from USD 1.05 to 3.45 million on a 3 year period), benefiting poor communities and ensuring their sustainable operation. During the same period, 30 Fondos concurrentes have also increased each one from USD 340,000 to 530,000 per year, in addition to CONAFOR PSA-H allocation. These funds enabled these regional bodies to invest in strengthened environmental services and benefit more than 750 poor communities, as well as insuring a sustainable operation.


Autores: Edouard, Fabrice