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Forestry Department Food and Agriculture Organization of the United Nations Forest Plantations Working Papers CASE STUDY OF THE TROPICAL FOREST PLANTATIONS IN MALAYSIA Based on the work in 1998 of D.B. Krishnapillay Consultant Edited by M. Varmola June 2002 Forest Resources Development Service Working Paper FP/23 Forest Resources Division FAO, Rome (Italy) Forestry Department ii Acknowledgements This working paper was carried out under the UK/FAO Trust Fund Project Timber Production from Hardwood Plantations in the Tropics and Sub-tropics (GCP/INT/628/UK). The project was funded by the Department for International Development (DFID) of the United Kingdom. Information gained from the various case studies and technical studies has been extensively used. Data from the review of hardwood plantation areas was, for example, used in FAO’s Global Fibre Supply Model (FAO 1998), the Asia-Pacific Forestry Sector Study (FAO 1998), State of the World’s Forests (SOFO) 1997 (FAO 1997), 1999 (FAO 1999), and 2001 (FAO 2001), as well as in a number of other papers and studies. The UK/FAO project, further, formed the basis for a review of recent developments in hardwood plantations in the tropics, one of the studies on trends in plantations for the Global Forest Resources Assessment 2000 (FAO 2001). Disclaimer The Forest Plantations Working Papers report on issues and activities in forest plantations. These working papers do not reflect any official position of FAO. Please refer to the FAO website (http://www.fao.org/forestry) for official information. The purpose of these papers is to provide information on on-going activities and programmes, and to stimulate discussion. Comments and feedback are welcome. For further information please contact: Mr. Jim Carle, Senior Forestry Officer (Plantations and Protection) Forest Resources Development Service Forest Resources Division Forestry Department FAO Viale delle Terme di Caracalla I-00100 Rome (Italy) e-mail: [email protected] For quotation: FAO (2002). Case study of tropical forest plantations in Malaysia by D.B.A Krishnapillay. Forest Plantations Working Paper 23. Forest Resources Development Service, Forest Resources Division. FAO, Rome (unpublished). iii ABSTRACT This report is an output of the project Hardwood Plantations in the Tropics and Subtropics (GCP/INT/628/UK), funded by the United Kingdom and executed by FAO. The overall aim of this project was to contribute to regional and global planning of timber (specifically hardwood timber) supplies in the medium-term. This study covered the case study of Malaysian tropical forest plantations. The study provides an overall historical resume of forest plantations in Malaysia showing that first plantings of rubber (Hevea brasiliensis) were made already at the end of 1800s and in the beginning of 1900s for rubber production. Forest plantations have been dominated by Acasia mangium but many other species like teak (Tectona grandis), sentang (Azadirachta excelsa) and Eucalyptus and Pinus spp. species have been planted on a wide scale, too. Forest plantation area in 1997 was 180,000 ha of which 90,000 ha in Sabah, 77,000 in Peninsular Malaysia and 13,000 ha in Sarawak. Besides forest plantations there are some 1,650,000 ha of rubber plantations. It is estimated that annually around 2 million m3 of hevea wood logs are harvested and utilized for the production of furniture and furniture components. Forest plantation management is discussed to meet deficit in timber supply, to reduce pressure on natural forests and to ensure better land use. Constraints and challenges in forest plantations like ecological issues, land availability, species selection, supply of planting material, labour and mechanization are presented. Planting is constrained by a number of economic factors. These are the high initial capital investment to establish the forest plantations; the long period between initial planting efforts and harvesting and thus the corresponding concern for the high capital cost or interest being carried until harvesting period; the high biological and economic risk involved in forest plantations; and unattractive and inappropriate investment incentives provided by the government for forest plantation investments in the past. The Government has recently offered a monetary incentives package in the form of Pioneer Status (tax exemption from corporate tax of 100% for 10 years on all statutory income) and Investment Tax Allowance (an investment tax allowance at the rate of 100% of the statutory income for 5 years). Economic profitability of six different alternatives are compared namely: Hevea plantations for timber and latex production; Hevea plantation for timber production; sentang plantation; teak plantation; acacia plantation; and mixed plantation:of Hevea-sentang and Hevea-teak. As monoculture teak appears to provide highest return. The profitability of Hevea wood plus latex extraction depends highly on the price of Hevea wood. Mixed plantation of Hevea trees interspersed with sentang or teak is considered appropriate for smallholdings and is intended to maximize revenue from logs while ensuring a continuous flow of annual income during the latex exploitation period. iv ACRONYMS ADB Asian Development Bank B/C Benefit Cost Ratio BRIS Sandy Coastal Soils EIA Environmental Impact Assessment FELDA Federal Land Development Authority FRIM Forest Research Institute Malaysia ICSB Innoprise Corporation Sendirian Berhad IRR Internal Rate of Return MAPA-NUPW Malaysian Agricultural Producers Association, National Union of Plantation Workers MDF Medium Density Fibreboard MTIB Malaysian Timber Industry Board MOU Memorandum of Understanding NPV Net Present Value PFE Permanent Forest Estate R&D Research and Development RISDA Rubber Replanting Development Authority RM Ringgit Malaysia (Malaysian Currency) RSS Rubberwood quality grade SAFODA Sabah Forestry Development Authority SFI Sabah Forest Industries SSSB Sabah Softwood Sendirian Berhad UNDP United Nations Development Programme v CONTENTS 1 Historical background of forest plantation development 1 1.1 Historical resume 1 1.2 Government policy 5 1.2.1 Wood for pulp and paper production 6 1.2.2 General utility 6 1.2.3 High quality timber 7 2 Current status of forest plantation development 8 2.1 Area, location, species and ownership 8 2.1.1 Peninsular Malaysia 8 2.1.2 Sabah 12 2.1.3 Sarawak 14 2.1.4 Malaysia 16 2.2 Management objective 18 2.2.1 To meet the anticipated deficit in timber supply 18 2.2.2 To reduce pressure on the natural forests 19 2.2.3 To ensure better land use 19 3 Constraints and challenges in forest plantations 19 3.1 Strategies in establishing forest plantations - issues to be resolved 19 3.1.1 Ecology 19 3.1.2 Land 19 3.1.3 Species selection 21 3.1.4 Inadequate supply of quality planting material 22 3.1.5 Labour and mechanization 22 3.1.6 Finance and private involvement 22 3.2 Government tax incentives and regulation 23 3.3 Privatization 23 4 Current status of rubber estates as forest plantations 23 4.1 Introduction 23 4.2 Log production and consumption 24 4.3 Total area of land under Hevea plantations 24 5 Economic viability of Hevea, acacia, teak and sentang 25 5.1 Introduction 25 5.2 Different options 25 5.3 Assumptions 26 5.3.1 Product 26 5.3.2 Log volumes 26 5.3.3 Log prices 26 5.3.4 Silviculture and agro-management 26 5.3.5 Latex yield 27 5.3.6 Latex price 27 vi 5.4 Planting density and final stand 27 5.4.1 Log harvesting cost 28 5.4.2 Tapping cost 28 5.5 Limitations of the study 28 5.6 Return on investment 29 5.7 Discussion on viability 31 5.7.1 Mono-culture: wood extraction only 31 5.7.2 Mono-culture: Hevea wood – latex extraction (shorter planting cycle) 32 5.7.3 Mixed plantation: Hevea-teak and Hevea-sentang 33 6 Conclusions 33 References 34 Appendix 1. Assumptions of the various options 36 Appendix 2. Investment returns of various options 38 Appendix 3. Sensitivity analyses for mono-culture plantations: Wood extraction only 39 Appendix 4. Sensitivity analysis for mono-culture plantation: Hevea wood-latex extraction (2,000 ha; 15-year rotation) 40 Appendix 5. Sensitivity analysis for mixed plantation: Hevea-sentang (40 ha; 20-year rotation) 40 1 1 HISTORICAL BACKGROUND OF FOREST PLANTATION DEVELOPMENT 1.1 Historical resume Forest plantations are not new in concept and practice for Malaysia. However, interest in forest plantations lacked the required impetus in the distant past. It has vacillated quite a bit, influenced on one side from fear of impending timber deficits in the future and poor results from planting trials. Up until the 1970s, Malaysia was endowed with vast areas of natural forest. Under such superfluity it was considered unnecessary and unnatural to convert natural forest into unstable monocultures. A brief history of forest plantation trials can be found elsewhere (Appanah and Weinland 1993, Wyatt-Smith 1963). The most notable events in the history of plantation forestry in the country, especially in Peninsular Malaysia are summarised in Table 1. The situation in Sabah and Sarawak are more straightforward, and less illustrative to the changing tides in forest management that Malaysia underwent. Therefore, this chapter will mainly highlight the events on Peninsular Malaysia, and draw on the principal events in plantation development in Sabah and Sarawak Like with the management of natural forests, plantation trials were first begun in P. Malaysia, and then subsequently in Sabah and Sarawak. Records of planting forest species date back as far as 1880, when concern for loss of desired species was expressed (Hill 1900). There was concern over the rapid destruction of the taban forests and it was also becoming increasingly difficult to obtain railway sleepers. This was the gutta percha era when the nyatoh taban (Palaquium gutta) trees were heavily felled for gutta percha which fetched a very high price.