Economic costs and benefits of allocating forest land for industrial tree plantation development in Indonesia

Abstract

In the late 1980s, large amounts of money and areas of forestland were allocated in Indonesia for the development of fast-growing pulp plantations. The fi nancial costs and benefits of this action—representing only a portion of the actual totals—can be easily accounted, while full economic benefits and costs remain hidden. Knowing the net economic benefits can provide useful inputs for the Government of Indonesia and other interest groups to revise current policies or regulations setting the directions for new plantation projects for the benefit of the national economy in the long term. The total economic costs and benefits of five large pulp plantation projects in Sumatra, Indonesia, are calculated in this document. Four of the five plantation projects generate economic costs above their economic benefits. The estimated economic costs represent over 30 times the actual financial payments the Government receives from each company. The allocation of over 1.4 million ha of forestland for conversion into tree plantations generates net loses of over US$3 billion for the country. This analysis clearly demonstrates that the Government of Indonesia should not allocate any more forestland for conversion into HTI pulp plantations.