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forests ISSN 1999-4907 www.mdpi.com/journal/forests Article

Financing Sustainable Small-Scale Forestry: Lessons from Developing National Forest Financing Strategies in Latin America Marco Boscolo 1,*, Kees van Dijk 2 and Herman Savenije 1 2

2

FAO, Forestry Department, viale delle Terme di Caracalla, Rome, 00153, Italy Tropenbos International, Lawickse Allee 11, 6701 AN Wageningen, The Netherlands; E-Mails: [email protected] (K.v.D.); [email protected] (H.S.)

* Author to whom correspondence should be addressed; E-Mail: [email protected]; Tel.: +39-06-5705-4424; Fax: +39-06-5705-5514. Received: 27 October 2010; in revised form: 17 November 2010 / Accepted: 17 November 2010 / Published: 6 December 2010

Abstract: The problems that hamper the financing of sustainable forest management (SFM) are manifold and complex. However, forestry is also facing unprecedented opportunities. The multiple functions and values of forests are increasingly recognized as part of the solution to pressing global issues (e.g., climate change, energy scarcity, poverty, environmental degradation, biodiversity loss and raw material supply). Emerging initiatives to enhance forest carbon stocks and cut greenhouse gas emissions associated with forest clearing (known as REDD+), together with voluntary carbon markets, are offering additional funding options for SFM. Indigenous peoples, local communities and small scale farmers feature as key players in the discourse on implementing such initiatives. Based on the experience of countries developing national forest financing strategies and instruments, we suggest the following points be considered when financing such initiatives, particularly for small scale forestry: (1) Integrate financing of REDD+ and similar initiatives within broader national strategies for SFM financing; (2) Design REDD+ finance mechanisms that are ‗community ready‘, i.e., tailored to local realities; (3) Consider existing livelihood strategies as the starting point; (4) Build on existing structures, but be mindful of their strengths and weaknesses; (5) Be strategic with your priority actions; and (6) Promote innovation, knowledge sharing and information exchange. Keywords: forest financing; REDD+; small scale forestry; Latin America

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1. Introduction In recent years, the question of how to broaden and diversify the financial basis for sustainable forest management (SFM) has received increasing attention in policy, research and development fora. One of the main challenges countries face in reducing forest degradation and deforestation—and in enhancing the contribution of forests to development—is how to increase the competitiveness and attractiveness of SFM compared with other land uses. Achieving this requires additional financing for inputs, as well as increased revenues from the provision of forest goods and services. If forest users do not derive a sufficiently high return from SFM, in comparison with unsustainable uses or land conversion, deforestation and forest degradation are clearly the rational outcomes to expect. Financing is needed to solve cash flow problems where costs are incurred before revenues are earned. The time gap between costs and revenues can be several years, as in the case of establishing plantations and natural forest rehabilitation; several months, as in the case of developing a nature-based business; or less, as in the case of financing operating capital or labor. Financing is also needed to adopt efficient technologies (e.g., machinery, know-how, business plans) or to perform a catalytic or demonstration role. Adoption of new technologies can help reduce product waste and environmental impact whilst increasing profitability. Financing is needed to manage risks (e.g., through guarantees, risk-sharing arrangements, etc.), thereby containing the impact of uncertainties such as market fluctuations or fires, and to improve, maintain and adapt, the overall policy and institutional environment (e.g., participatory policy and legislative processes, technology acquisition, information management, communication, law enforcement, processes and procedures, research, extension, other core institutional functions). Regardless of the time gap between costs and revenues, lack of affordable or accessible financing options prevents the implementation of economically attractive forest management activities. Equally important is finding ways to increase SFM‘s ability to finance itself, such as through the sale (adequate compensation) of the multiple products and services it generates. In other words, it is essential to look also at enhancing the economic benefits that users derive from sustainable forestry. 1.1. The Challenges and Opportunities The problems that hamper the financing of SFM are manifold and complex. Such problems include: undervaluation of the multifunctionality of forests; strong dependence and focus on timber as the main source of income; inequity in the division of costs and benefits in the wood chain; the long-term nature of forestry cycles; and the low prof