MARKET AND WELFARE ECONOMIC IMPACTS OF SUSTAINABLE FOREST MANAGEMENT PRACTICES—AN EMPIRICAL ANALYSIS OF TIMBER MARKET IN SABAH, MALAYSIA

Abstract

ABDUL RAHIM AS, MOHD SHAHWAHID HO, MAD NASIR S & AWANG NOOR AG. 2012. Market and welfare economic impacts of sustainable forest management practices—an empirical analysis of timber market in Sabah, Malaysia. The Sabah State Government has given its priority to Sustainable Forest Management (SFM) practices. The widely known tool, reduced impact logging option has been adopted in order to achieve SFM practices. Hence the main objective of this study was to analyse the impact of SFM practices on the timber market in Sabah, Malaysia. Impact analysis was conducted based on four scenarios arising from SFM practices, i.e. reduction by 24% in harvested area, increase by 49% in external cost of timber harvesting, increase by 47% in the cost of internalisation of the externalities and 20% gain in market access. Based on the first three scenarios, the results showed that the equilibrium quantity and price of timber had decreased and increased respectively after converting conventional logging (CL) practices to SFM practices. The economic impact of SFM provided empirical evidence that loss was incurred in the welfare of timber industry in Sabah. However, there was also an increase in the domestic price of timber, which would then help to compensate for the loss of timber volume. In addition, the scenario of 20% gain in the market access showed that Sabah’s timber industry could benefit from this advantage. The State Government and other related agencies should be able to use these results as a reference in designing good mechanisms to strengthen the effectiveness of SFM practices.