Returns to Vietnamese smallholder farmers from managing acacia plantations for sawn wood over 4-10 year rotations
Introduction
Between 1990 and 2015, the area of land covered by forests in Vietnam increased from around 27% to more than 42%, mainly due to the establishment of Acacia plantations. Acacias are nitrogen-fixing trees that can assist in the rehabilitation of degraded soils (Pistorius et al., 2016). They are preferred by many growers as they can be grown for a number of uses and in rotations that are much shorter than traditional plantation trees such as pines, or teak (Nambiar et al., 2015), although recently their susceptibility to disease in some parts of the tropics has forced a transition away from acacias to other species such as eucalypts (Nambiar et al., 2018). In 1998 the Five Million Hectare Restoration Program (5MHRP) set a target for Vietnam to establish 2 million ha of plantation forests for wood production (Ministry of Agriculture and Rural Development- MARD, 1998). With a reliable demand for pulpwood logs, these plantations have provided state forest companies, communities and smallholder farmers with a relatively quick return from their forestry land (Pistorius et al., 2016), which has seen Vietnam emerge as the world's largest exporter of hardwood woodchips (Forest Trends, 2013). With a rapidly growing furniture industry, the Vietnamese Government recognised the potential to increase local sawlog production and sought to investigate if farmers could receive improvements in the economic performance of their plantations through growing acacias for sawlogs (Ministry of Agriculture and Rural Development- MARD, 2015).
In the last decade, Vietnam's wood processing industry has more than doubled in value, making the country the world's fifth largest wood exporter, with a market share of 6% (Vietnam Briefing, 2018). In the first 11 months of 2018, Vietnamese wood and timber product exports reached a record high of US$7.22 billion, up 16% compared to the same period the previous year. Vietnam is now one of the world's largest exporters of furniture, producing over US$10 billion worth of products annually (Vietnam Investment Review, 2019). To meet this demand the country must import up to 80% of the timber to be processed (Pistorius et al., 2016). In 2015, the country imported raw wood materials valued at about US$1.64 billion, mainly from Laos, US, Cambodia, China and Malaysia (Pistorius et al., 2016), including logs from tropical Acacia trees (Keenan et al., 2018). The demand for sawlogs continues to rise, driven by the need to meet the increasing demand from the furniture manufacturers and construction industries. At the same time, over one million hectares of the country's Acacia plantations are managed to supply wood chips for pulp and paper, an industry where low-income smallholder farmers account for around 50% of the domestic wood supply (Beadle et al., 2015).
Acacia species trees are renowned for being robust and adaptable, which makes them suitable plantation trees for both pulp- and sawlogs. To provide a regular and a predictable income in as short a time as possible, most smallholder farmers grow pulpwood trees in short clear-fell rotations of 4 to 6-years (Harwood and Nambiar, 2014; Huong et al., 2015). Shorter rotations are preferred because they provide income to smallholder farmers sooner, and reduce the risk of loss due to typhoons and disease (Keenan et al., 2018). A socio-economic analysis by Blyth and And Hoang, 2013) indicated there was potential for net income advantages for farmers to extend plantation rotation periods to include sawlog production, but their study relied upon projected yields and returns, rather than actual. To meet the predicted furniture production targets for export markets, the Vietnam Government is now encouraging tree growers to increase rotation lengths of plantations and produce sawlogs (Ministry of Agriculture and Rural Development- MARD, 2015). Acacia plantation trees have the desired wood properties for furniture and construction products (Hai et al., 2010), though progress towards achieving production targets has been slow, as smallholder growers are concerned about increased losses from natural disasters, as well as the costs associated with increasing rotation periods and the lack of detailed information on the different financial outcomes from alternative management strategies (Greenhill et al., 2019; Zhunusova et al., 2019). Typical log prices that growers receive for pulpwood and small diameter sawlogs (15–18 cm small-end diameter- SED) are approximately half of what is returned for larger (>18 cm SED) logs (Blyth and Hoang, 2013).
Silvicultural intervention strategies, such as thinning, provide Acacia pulpwood plantations with the potential to be managed for larger diameter and thereby higher-value sawlogs (Huong et al., 2016) over shorter rotations. Additionally, older-age sawlogs with improved wood properties suitable for furniture and structural products may command premium prices and provide economic advantages for the growers to target sawlog production, as well as pulpwood production (Blyth and And Hoang, 2013).
With application of thinning practices, increased end-of-rotation yields of valuable larger-diameter sawlogs can be realised by growers, but compared to growing pulpwood logs, this requires improved knowledge, higher levels of investment over longer periods, and acceptance of higher risk. To-date the economic benefits for smallholders to transition from pulpwood to sawlog production have not been clear (Huong et al., 2016). Maraseni et al. (2017) found very positive returns for sawlog production from longer (10 year rotations) in central Vietnam. They noted that shorter rotations were favoured by smallholders, and there is a demand for shorter-rotation sawlog production that can potentially be achieved through judicious thinning, though the trade-off between wood volume and log size needs careful analysis of the costs and returns. Additionally, Nambiar et al. (2015) suggested that a critical examination of the risks and benefits of management for sawlogs for smallholder growers was needed to justify policies to encourage greater adoption of sawlog management. To encourage smallholder farmers to grow plantation sawlogs, a pre-requisite is that any proposed policy changes result in farmers making more attractive returns than the current situation, and ideally in relatively short rotations. These growers must also consider that Acacia plantations have low resilience against the increasing impacts of extreme weather events and pests, which presents a major risk to smallholders that depend on their plantations for their livelihood.
The objective of this study was to understand the match between the higher level (government-led) demand for greater domestic solid wood production with the realities of smallholder farmers in Vietnam. Do the financial costs and benefits of growing acacias for sawlog production (preferably over shorter rotations) attract sufficient returns to offset the higher risks compared to pulpwood production? This work aimed to fill the gap in knowledge around the potential for smallholders to be able to benefit from this local demand for short-rotation sawlogs, and inform the policy development to lead to an improvement in their livelihoods. This outcome will enable policy makers and smallholder growers and their advisors to determine the most attractive returns from choice of product. A further aim of the study was to identify the risks of production associated with sawlog rotations, and the potential loss of income, and to consider how these risks could be mitigated to safeguard those incomes.
Section snippets
Methodology
Capital budgeting was used to calculate the economic value of the different options. A spreadsheet model was developed to account for the costs and returns from various scenarios of rotation length, thinning, and productivity. The spreadsheet was developed in Microsoft Excel, and utilised the assumptions shown below. All outcomes presented in this study are forecast from the use of actual industry cost and price information. As far as the authors are aware this level of detail has not supported
Results
The Excel modelling tool that was developed allowed for the comparison of financial performance of the different acacia plantation scenarios in regards to net present values, cash flow (net income, including depreciation), and internal rates of return. The predicted financial performance and sensitivity analyses are shown below.
Scenario outcomes
Scenarios modelled in this study demonstrate that 4-year rotations are the least profitable option for farmers. This is a management strategy commonly employed by growers (Greenhill et al., 2019), but the modelling indicated they are unlikely to cover costs under the assumptions of our modelling, unless they accept a discount rate of less than 7%. Only when the rotation length was increased to five years or more was the net cash flow (undiscounted) of an unthinned scenario sufficient to cover
Conclusions
Presently a high demand for woodchips, a need for regular cash income, and a recognition of risk factors encourages smallholder farmers in Vietnam to grow acacias in shorter rotations, mostly suitable for producing pulp logs. However, more recent Vietnam Government policy supports the production of larger diameter logs for processing to meet export furniture industry resource demands. The financial modelling of smallholder plantation operations modelled in this study presents a strong argument
Funding
Funding for this study was provided to CSIRO's division of Land & Water by the Australian Centre for International Agricultural Research (ACIAR) through Project FST/2014/064, Maximising productivity and profitability of eucalypts and acacias in Indonesia and Vietnam.
Modelling tool
The modelling software tool developed in this study is the Intellectual Property of Australian Government's Commonwealth Scientific and Industrial Research Organisation. The tool may be made available upon request to the corresponding author.
CRediT authorship contribution statement
David Blackburn: Methodology, Writing - original draft. Vu Dinh Huong: Conceptualization, Methodology, Data curation. Daniel Mendham: Conceptualization, Methodology, Writing - review & editing, Project administration.
Declaration of Competing Interest
The authors of this report state ‘Declarations of interest: none’.
Acknowledgements
The authors would like to thank staff at the Southern Centre of Application for Forest Technology and Sciences for providing data acquired during previous field trials. In particular the authors also thank Ms. Luyen Pham Thi (M. Econ.M). of the Vietnamese Academy of Forest Sciences (VAFS) Forestry Economics Research Centre for releasing Vietnamese forest industry survey data. We also thank the inputs from 2 anonymous reviewers on the first version of this manuscript.
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