Economic efficiencies of the forest certification groups in trung son commune, gio linh district, quang tri province

HUE UNIVERSITY
COLLEGE OF ECONOMICS
THE ADVANCED PROGRAM
FACULTY OF ECONOMICS AND DEVELOPMENT STUDIES

-----  -----

SCIENTIFIC RESEARCH
ECONOMIC EFFICIENCIES OF THE FOREST
CERTIFICATION GROUP IN TRUNG SON COMMUNE,
GIO LINH DISTRICT, QUANG TRI PROVINCE

Group members:

NGUYEN THI THUY MINH
HOANG THI MY HANH
PHAM THI THU HA
DAO THI NGOC BICH

Hue, December, 2015


HUE UNIVERSITY
COLLEGE OF ECONOMICS
FALCULTY OF ECONOMICS AND DEVELOPMENT STUDIES
-----  -----

SCIENTIFIC RESEARCH
ECONOMIC EFFICIENCIES OF THE FOREST
CERTIFICATION GROUP IN TRUNG SON COMMUNE,
GIO LINH DISTRICT, QUANG TRI PROVINCE

Group members:

Supervisor:

NGUYEN THI THUY MINH
HOANG THI MY HANH
PHAM THI THU HA
DAO THI NGOC BICH

Assoc. Prof. Dr. TRAN HUU TUAN
Agreement of acceptance:
…………………………………….

K45 ADVANCED PROGRAM
BACHELOR OF AGRICULTURAL ECONOMICS-FINANCE

Hue, 2015, December


ACKNOWLEDGEMENT
Firstly, we would like to express my sincere gratitude to my advisor Assoc.
Prof. Dr. Tran Huu Tuan for the continuous support of our research, for his
patience, motivation, and immense knowledge. His guidance helped us in all the
time of research and writing of this research.
We would also like to show gratitude to teachers at Hue College of
Economics who have taught us professional knowledge we used in this research.
In particular, we would like to thank all the staffs working at department
of forestry Quang Tri, they were enthusiastic to help me during the time of
research. Also we thank farmers in Trung Son commune who answered our

questionnaires and gave us helpful knowledge for our research.
Last but not the least, we would like to thank our family: our parents, our
brothers and sisters for supporting us spiritually throughout writing this research
and our life in general.
Hue, 2015, December


TABLE OF CONTENTS

ABBREVIATIONS ...............................................................................................................
LIST OF TABLES ................................................................................................................
LIST OF FIGURES ...............................................................................................................
ABSTRACT ..........................................................................................................................
PART I. INTRODUCTION ............................................................................................... .1
1. Rationale .......................................................................................................................... 3
2.Objectives ......................................................................................................................... 3
2.1. General objective ......................................................................................................... .3
2.2. Specific objective ......................................................................................................... 3
3.Scope and study subjects ................................................................................................. .4
3.1. Scope ........................................................................................................................... .4
3.2. Study subjects ............................................................................................................... 4
4. Methodology.................................................................................................................... 4
4.1. Data collection ............................................................................................................. 4
4.1.1. Secondary data........................................................................................................... 4
4.1.2. Primary data.............................................................................................................. .4
4.2. Data analysis................................................................................................................ .4
PART II. CONTENTS AND RESULTS ........................................................................... .6
CHAPTER 1. SCIENTIFIC BACKGROUND ................................................................. ..6
1.1.

THEORETICAL BACKGROUND .................................................................... .6

1.1.1.

Forest and its role in economics, society and environment................................ 6

1.1.1.1. Forest resources................................................................................................... .6
1.1.1.2. Roles of forest ..................................................................................................... .7
1.1.1.3. Concept of forest certification ............................................................................. 8
1.1.2.

Theory of economic efficiency .......................................................................... 12

1.1.2.1. Concept and essence of economic efficiency..................................................... 12


1.1.2.2. Method to determine economic efficiency......................................................... 14
1.1.2.3. Criteria for economic efficiency........................................................................... 15
1.2. PRACTICAL BACKGROUND................................................................................. 17
1.2.1. The situation of forest certification application in the world and Viet Nam........... 17
1.2.1.1. In the world .......................................................................................................... 17
1.2.1.2. In Viet Nam . ........................................................................................................ 20
1.2.2. The situation of exporting and importing wood and certified wood in Viet
Nam

............................................................................................................................ 22

1.2.2.1. Exporting .............................................................................................................. 22
1.2.2.2. Importing .............................................................................................................. 25
CHAPTER 2. EFFICIENCIES OF THE FOREST CERTIFICATION GROUP

IN

TRUNG SON COMMUNE, GIO LINH DISTRICT, QUANG TRI PROVINCE……...26
2.1. STUDY SITE ............................................................................................................. 26
2.1.1. Natural condition ..................................................................................................... 26
2.1.1.1. Geographical location........................................................................................... 26
2.1.1.2. Topography........................................................................................................... 27
2.1.1.3. Climate.................................................................................................................. 27
2.1.1.4. Hydrology............................................................................................................. 27
2.1.1.5. Soil resources........................................................................................................ 28
2.1.2. Social and economic conditions .............................................................................. 28
2.1.2.1.Population and labor force characteristics............................................................. 28
2.1.2.2. Land use situation................................................................................................. 29
2.1.2.3. Facilities and Infrastructure .................................................................................. 30
2.1.3. Overall condition to develop the forest plantation in Trung Son ........................... .31
2.1.3.1. Advantages ........................................................................................................... 31
2.1.3.2. Disadvantages ....................................................................................................... 32
2.2. SITUATION OF FSC CERTIFICATION APPLICATION IN TRUNG SON ........ 32
2.2.1. General situation of forest plantations in Trung Son .............................................. 32
2.2.2. Description of the Forest smallholder certification groups in Trung Son .............. 33


2.2.2.1. Forest smallholder certification group ................................................................ 33
2.2.2.2 Structure of the Forest smallholder certification group......................................... 33
2.2.2.3 Activities in Forest smallholder certification group .............................................. 34
2.2.3. Some difficulties in Forest smallholder certification group management ............. 37
2.2.4. Some advantages, disadvantages for FSC small group in Trung Son..................... 38
2.2.4.1. Advantages ........................................................................................................... 38
2.2.4.2. Disadvantages ....................................................................................................... 39

2.3. EFFICIENCIES OF FOREST CERTIFICATION IN TRUNG SONCOMMUNE...40
2.3.1. Characteristics of respondents ................................................................................. 40
2.3.2. Economic efficiencies ............................................................................................. 40
2.3.2.1. Cost-benefit analysis of FSC forest plantation ..................................................... 41
2.3.2.2. Cost-benefit analysis of non-FSC forest plantation ............................................. 44
2.3.2.3. Sensitive analysis.................................................................................................. 45
2.3.3. Environmental efficiencies ...................................................................................... 47
2.3.4.Social efficiencies..................................................................................................... 48
CHAPTER 3: SOLUTIONS TO IMPROVE ECONOMIC EFFICIENCY OF FOREST
CERTIFICATION……………………………………………………………………….51
3.1. Solutions on land planning ......................................................................................... 51
3.2. Solutions on market and product consumption .......................................................... 51
3.3. Solutions on investment and credit policy ................................................................. 51
3.4. Solutions on planting and caring techniques .............................................................. 52
3.4.1 Varieties.................................................................................................................... 52
3.4.1 Extension .................................................................................................................. 52
3.5. Solutions on infrastructure ......................................................................................... 52
3.6. Solutions on propaganda and popularization ............................................................. 52
PART III. CONCLUSION AND RECOMMENDATIONS............................................. 53
1.1 CONCLUSION ........................................................................................................... 53
1.2. RECOMMENDATIONS ........................................................................................... 54
REFERENCES .................................................................................................................. 56


ABBREVIATIONS
BCA

Benefit-cost analysis

BCR

Benefit to cost ratio

CoC

Chain of Custody

EU

European Union

FFCS

Finnish Forest Certification System

FLEG

Forest Law Enforcement and Governance

FSC

Forest Stewardship Council

IRR

Internal rate of return

ISO

International Organization for Standardization

ITTO

International Tropical Timber Organization

KfW

German government-owned development bank

LACEY

U.S. law which prohibits the trade of illegal timber and timer products

MARD

Ministry of Agriculture and Rural Development

NGO

Non-governmental organization

NPV

Net present value

PEFC

The Program for the Endorsement of Forest Certification

P&C

Principles and Criteria

US

The United State

USD

The United State Dollar

VG

Village Groups

VCG

Village certification group

VGL

Village Group Leaders

VND

Vietnamese dong

WWF

World Wildlife Fund

LIST OF TABLES
Table 1 Current State of Sustainable Forest Management Certification in Vietnam…...21
Table 2 Export markets of Vietnam's wood and wood products in the first 10 months
of 2014…………………………………………………………………………..……….23
Table 3 Distribution of population in Trung Son commune………………….……....…29
Table 4 Organizational levels of the Trung Son Group Certification Scheme…….……34
Table 5 General characteristics of respondents……………………………….…………40
Table 6 Comparison of purchase price between certified and non-certified acacia
timber …………………………………………………………………..……..……...….41
Table 7 Cost and revenue structures of FSC Forest plantation with timber purpose in 7
years…………………………………………………………..…………….....……...….42
Table 8 Cost-benefit analysis of FSC forest plantation with timber purpose in 7
years……………………………………………………………………………..……….43
Table 9 Cost and revenue structures of non-FSC forest plantation with timber purpose in
7 years……………………………………………………………..…………….........….44
Table 10 Cost-benefit analysis of non-FSC forest plantation with timber purpose in 7
years……………………………………………………………………………..……….45
Table 11 Sensitive analysis of two scenarios of forest plantation with timber purpose in 7
years……………………………………………………………………………………...46


LIST OF FIGURES

Figure 1 Vietnam's wood and wood products export structure by market in first 10
months of 2014…………………………………………………………………………..24
Figure 2 Map of Trung Son commune……………………………………………….....26

ABSTRACT
Forests play a very important role in the national economy and social life.
Nowadays, pressure of population growth and the impact of economic development have
made a decline on forest area and forest resources. People only notices in harvesting, they
do not know combining harvest with the economic development and sustainable
management, so illegal harvesting activities have still occurred. Many laws and programs
have been implemented, contributing to considerably increase in forest area. Besides,
Forest Certification is an interesting initiative that is supplement for public regulation to
promote better forest management. Worldwide, there are many countries have
successfully adopted the model and contributed to sustainable forest management,
especially the protective forests and special-use forests. In 2010, Trung Son has been
awarded as one of two first Groups in Viet Nam certified against Forest Stewardship
Council (FSC) required. This research represents the benefits of FSC Forest Certification
Group in Trung Son in economic, environmental and social aspects. In term of economic
effect being analyzed by cost-benefit analysis, FSC forest plantations brought great
efficiency to farmers with Net present value of VND52.378 million per hectare over 7
years, it’s approximate VND20 million larger than Non-FSC plantations. Moreover,
through 10 Principles and 56 Criteria, it has positively contributed to society and the
forest sustainable management. Finally, this research figures out some problems in
participation as well as management the FSC certification group and then suggests their
solutions. Some recommendations are also provide in order to enhance its efficiencies and
promote the expansion of forest certification.


PART I. INTRODUCTION
1.

Rationale

Forests play a very important role in the national economy and social life. In the

Law on Protection and Development of Forests has mentioned the role of forests as
follows: "Forests are valuable resources of the country that has capable of regeneration
and is an important part of the ecological environment, great value for the national
economy, associated with the life of people with the survival of the nation” [1]. The forest
has a very important role in the lives of people and the environment: supplying wood, air,
oxygen, regulating water, habitat for many species and stockpiling of rare genes,
preventing storms, controlling soil erosion, protecting human health...
Nowadays, pressure of population growth and the impact of economic development have
made a decline on forest area and forest resources. Natural forest area has fallen from
14.3 million in 1943 to 9.18 million ha in 1990. In addition to the reduction in forest area,
forest quality has also fallen, the area with rich and medium levels of stocking has
declined while the area of poor and regenerating forest has rapidly increased [2].Forest
resources are difficult to recover and increasingly depleted, many forests are unable to
regenerate, land becomes barren hills, desert…. To remedy this situation, in 1980 the
Government has launched greening barren hills program, whereby forestation was
concerned on a national scale and forest area has increased significantly [3].
Although the forest area and forest coverage has increased considerably, but the
quality is still very low, most natural forests are average and poor forest that are unable to
meet current production needs, plantation productivity in recent years has increased
greatly but still not meet the demand of raw materials for the production of society[4].
The forestry sector is important position in economic development - economic
development of each country. Nowadays, the globally climate change tend to rise, the
irregular phenomena of nature are more difficult to control. The forests and forest-related
activities have attracted the attention of not only individual people living close to the
forest but also managers, economists, politicians and society... Being aware of the big role
of forests, but people only noticed in harvesting, they did not know combining harvest
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with the economic development and sustainable management, the illegal harvesting

activities have still occurred.
Accordingly, laws of protecting and developing forests and National Forestry
Strategy has had a clear mandate on sustainable forest management, however it has not
yet built up stable forest management policy for existing types of forests in our country,
especially forests planted by households, private organizations. National Forestry Strategy
period 2006 -2020 mentioned the task of the Forestry is to sustainably manage 8.4
million hectares of productive forest including 4.15 million hectares of artificial forest,
3.36 million hectares of productive forests is natural forests and 0.62 ha of and
agroforestry forests. Besides, the forestry sector still managed 5.6 million hectares of
sustainable forests and 2.16 million ha of special-use forests [3].
Forest certification is an important tool for forests sustainable management,
especially business forest, in fact this is the International Organization for Standardization
certification providing to forestry business, timber and forest products. The certification
process involves an evaluation of management planning and forestry practices by a thirdparty according to an agreed-upon set of standards [5]. So far, the certified forest
including both natural and planted forests. Worldwide, there are many countries have
successfully adopted the model and contributed to sustainable forest management,
especially the protective forests and special-use forests. Until 2013, there are above 183.1
million ha of forest in 79 countries are issued the FSC certification [6]. Besides, forest
certification also brings efficiencies in terms of economic, social and environmental
benefits for people. Price of certified wood is higher than non-certified wood, and
regulation of FSC imposed on forest holders such as limiting chemical use and banning
farmers from burning forests..., are consistent with environmental protection. However, in
Vietnam, the concept of forest certification is very new. There are few forestry
companies, organizations and individuals interested in forest certification. There are only
56,000ha of forests is certified accounting for less than 1 percent of the government’s
target area. The project is developed in Dac Lac, Kon Tum, Gia Lai, Nghe An, Thua
Thien Hue and Quang Tri. In year 2010 and 2011, the first two smallholder groups
have sold their first Forest Stewardship Council Chain of Custody (FSC/CoC) certified
2

Acacia timber products into free market with a certain amount of price premium. This is
good news for small forest plantation holders in Quang Tri in particular and Vietnam in
general. However, almost the forest plantation holders in the region have not well known
and understood the benefit from achieving the certified forest products even though there
is high demand for such the kind of certified products of both Vietnam and international
markets. Even for some members of the household groups, they are still lack of full
certainty on future development of FSC group certification in the region [7]. Therefore,
we chose a research project to investigate “Economic efficiencies of the Forest
certification groups in Trung Son commune, Gio Linh district, Quang Tri province” with
the aim of evaluating the positive effects, limitations and difficulties in the application of
forest certification. The study also aims to propose solutions to enhance the effectiveness
of the forest certification.
2. Objectives
2.1.

General objective

The main aim of this research is evaluate the economic efficiencies of the Forest
certification, propose some solutions to encourage remaining farmers to participate in this
program and enhance those efficiencies.
2.2.

Specific objectives

- Evaluate the economic efficiencies of the forest certification for households
applied FSC certification.
- Compare the costs and benefits related to the forest with and without the FSC
certification.
- Propose some solutions for farmers to overcome difficulties in participation the

forest certification groups and enhance the efficiencies.

3


3. Scope and study subjects
3.1.

Scope

- Content: Focus to examine the economic efficiencies of the Forest certification
in Trung Son Commune, Gio Linh District, Quang Tri Province.
- Space: Household that have forest in Trung Son (these households including
those participating and non-participating in the forest certification project).
- Time: Examining and assessing the effectiveness of forests from 2007 to 2014.
3.2.

Study subjects

Issues related to the production, costs, results and effectiveness of forest with
certification.
4. Methodolody
4.1. Data collection
4.1.1. Secondary data
Collect and refer to relevant materials from various sources of the agencies in
commune, district, as Trung Son Communal People's Committee, Department of Forestry
Quang Tri. Additionally, the research also takes information from the reports, scientific
studies, books, and related documents.
4.1.2. Primary data
According to Trung Son Communal People’s Committee, by 2013 there are 57

households, in Kinh Mon and Giang Xuan Hai village, participated FSC forest
certification program. To choose the representative samples, we randomly chose 29
households from the list (account for 50% households with FSC forests), of which, there
are 15 households in Giang Xuan Hai and 14 households in Kinh Mon. In addition, we
also randomly select 30 households that have non-FSC forests in Trung Son, which is
treated as status quo, to get information from direct interview and then compare between
two groups.
4.2. Data analysis
- Using statistical methods and data analysis to evaluate the economic efficiencies
of the Forest certification in Trung Son Commune, Gio Linh District, Quang Tri Province.
4


- Using CBA analysis to analyze indicators, performance, economic and financial
efficiencies for both FSC and non-FSC forests, which take into account indicators such as
net present value (NPV), internal rate of return rate (IRR), the benefit cost ratio (BCR),
and conduct a sensitive analysis with different discount rate using Microsoft Excel
software.
- Step in CBA analysis
+ Step 1: Identifying scenarios
There are two options to compare, that is non-FSC forest plantation (treated as
status quo) and FSC forest plantation (treated as alternative)
+ Step 2: Evaluation of costs and benefits of each scenario
Costs of this scenario cover production costs (site preparation, seedlings,
fertilizing, tending, protection, harvesting cost…). In addition, the cost for FSC forest
plantation include FSC certification as well (adjustment cost, annual monitoring cost,
FM/CoC). Benefits come from selling certified timbers and chip wood.
+ Step 3: Calculation of financial indicators for CBA
NPV, IRR, BCR are selected as hey selected as key financial indicators for
analyzing and comparing financial efficiency of two scenarios with interest rate of 10%.

+ Step 4: Perform sensitive analysis
Sensitive analysis is conducted to see how the indicators change when the discount
rate change in different scenarios. The worst case is when discount rate equal to 15%, the
best case is 5% .The base case is when discount rate equal to 10%, which is the
opportunity cost for farmers.
+ Step 5: Make recommendation
Based on result of CBA and sensitive analysis, the research will make
recommendation to enhance efficiency of forest certification.

5


PART II. CONTENTS AND RESULTS
CHAPTER 1. SCIENTIFIC BACKGROUND
1.1.

THEORETICAL BACKGROUND

1.1.1. Forest and its role in economics, society and environment
1.1.1.1. Forest resources
In the broad sense, forest resources are part of a limited natural resource with
resilience, including forest and land.
Forests have complex organisms (animals, plants, microorganisms) and the
elements of the ecological environment (soil, water, weather, climate, hydrology...), of
which the forest vegetation plays key role and are different from other plants of the life
cycle, the ability to provide and protect the environment.
Land in forest resources is divided into two categories: forest land and empty land.
Empty land should be zoned to afforest. Forest land includes land with plantations and
natural forest land.
On the other hand, forest resources are special assets of the country so that we

should need to understand the forest resources in many different angles:
From the perspective of biology, forest resources are unified and complete
ecosystem between creatures and surroundings. According to Christopherson (1996),
forest is an ecosystem consisting of all plants, animals and micro-organisms (Biotic
components) in that area functioning together with all of the non-living physical (abiotic)
factors of the environment, two parts have close and causal relationship with each other
[8].
Under an economic perspective, forest resources are particular materials for
production, primarily in forest industry. As the object of labor, forest resources are the
subjects of human impact through the cultivation, harvesting forest products to satisfy
social needs. As the materials, forest resources have the function of protection, water
retention, soil retention, air regulation... Under a legal perspective, forest resource is a
national asset that is managed and used by government.
1.1.1.2. Roles of forest
6


Forests are the sources of many extremely valuable resources, it holds a very
important role in the development and growth of humanity. Forests are watersheds,
and have economic, environmental and climate control benefits. Forests help regulate
climate (produce oxygen, regulate water, prevent storms, control soil erosion...),
conserve biodiversity, protect habitat. Forests also play a particularly important role for
economic development, such as supplying wood, bamboo, forest specialties, plants,
animals…it also has significance in terms of landscape and national security.
Forest control the climate by reducing the amount of heat from solar projection
down to earth, due to large forest cover, forests also have very important roles in the
maintenance of regulating the amount of carbon on Earth. Trees and soils help regulate
atmospheric temperatures through a process called evapotranspiration. This helps to
stabilize the climate. Additionally, they enrich the atmosphere by absorbing bad gases
(example CO2 and other greenhouse gases) and producing oxygen. Trees also helps to

remove air pollutants. Therefore, forests have a direct effect to the global climate
change. The living plants have capacity to store carbon in the atmosphere, so the
existence of forest vegetation and forest ecosystems have a very important role in
confronting the global warming.
Forests protect soil, increase fertility and foster potential for soil. Forest trees
take nutrients from the soil and returned to it a huge biomass, make the soil become
more fertile.
Another important role of forests is water regulation, reduce runoff, increase
groundwater levels, limit the deposition of river, lake, increase the amount of water in
the dry season. The flow rate in the areas that are cover by forest is lower than the
agricultural area from 2.5 to 27 times. These are important elements of forests in
preventing and reducing the impact of floods. Forests also significantly reduce the
noise. Fifty meters of forest along roads could reduce 20-30 dB (sound sensitivity).
Forests are also important economic sectors, especially with an important role in
supplying wood and non-wood forest products for the processing industry and export.
Forests provide a big social value for the people living in forest areas as well as
people in urban areas. For people living near forest areas, forests help locals solve food
7


shortages, stabilize social life, maintain security, generate revenue and create jobs for
people. Therefore, development of forests is geared towards low-income people in
mountainous areas. For urban areas, it creates jobs for the labor in factory that produce
and process forest products. The forest is the available "stock" material, it can help
reduce transport costs and import from outside [9].
1.1.1.3. Concept of forest certification
Forest certification is a mechanism for forest monitoring, tracing and labeling
timber, wood and pulp products and non-timber forest products, where the quality of
forest management is judged against a series of agreed standards. Certification process
involves an evaluation on management plans and forestry activities by an independent

third party conformity with the criteria. These standards ensure that products are
produced from well-managed forests – it follows the original principles and criteria for
environmental, social and economic. Credible forest certification covers much more
than just logging practices – it also accounts for the social and economic well-being of
workers and local communities, transparency and inclusiveness in decision making.
Forest certification is widely seen as the most important initiative of the last decade to
promote better forest management. Forest products are renewable, which is an
advantage compared to many other natural resources. Therefore the sustainable use of
renewable forest products can help provide forest dependent people with shelter, fuel,
medicine and other services, while providing essential habits for plants and animals and
well as a safeguard against climate change.
Responsible forest management is an important solution and a credible system of
certification can ensure the sustainable management of these vital resources. However,
certification is not a universal remedy against the world’s forest crises - it cannot
replace scientifically sound regulations and legislation. Forest Certification was created
as a complement to the policies and activities of the government to control illegal
mining has failed, especially for the world's tropical forests.
It was developed as a means of market-based and voluntary taken to by pressure
from non-governmental organizations - under the third-party evaluation based on the
minimum standards of sustainable forest management
8


Today there are a plethora of forest certification schemes. Certification will only
ensure responsible forest management if the system has comprehensive management
standards, rigorous control mechanisms and broad involvement of economic,
environmental and social stakeholders.
Otherwise it’s just a green label, the Forest Stewardship Council (FSC) is
consider to be the best certification system to ensure environmentally responsible,
socially beneficial and economically viable management of forests [10].

 Forest Stewardship Council:
Forest Stewardship Council was established in 1993 to promote responsible
management of the world’s forests. Its main tools for achieving this are standard setting,
certification and labeling of forest products, FSC enables businesses and consumers to
make informed choices about the forest products they buy, and create positive change in
the forest products market [11]. The WWF Forest Certification Assessment Tool has
shown that FSC, with its robust system and balanced decision-making process, provides
the most credible forest certification scheme at present. Independent research also
confirms that FSC certification has positive impacts on the environment, social
development and governance.
The FSC’s stated mission is to "promote environmentally appropriate, socially
beneficial and economically viable management of the world's forests". To this end the
body has published a Global Strategy [12] with five Goals:
-

Advancing globally responsible forest management.

-

Ensure equitable access to the benefits of FSC systems.

-

Ensure integrity, credibility and transparency of the FSC system.

-

Create business value for products from FSC certified forests.

-

Strengthen the global network to deliver on goals 1 through 4.
The FSC promotes these goals through activities which are managed and

developed through six program areas [13]: Forests, Chain of Custody, Social Policy,
Monitoring and Evaluation, Quality Assurance and Ecosystem Services.

9


The FSC claims that forests managed to its standards offer benefits to both local
and wider communities. These are said to include cleaner air and water, and a
contribution to mitigating the effects of climate change.
FSC directly or indirectly addresses issues such as illegal logging, deforestation
and global warming and some reports indicate positive effects on economic
development, environmental conservation, poverty alleviation and social and political
empowerment.
Use of the FSC logo is intended to signify that the product comes from
responsible sources- environmentally appropriate, socially beneficial and economically
viable. The FSC label is used on a wide range of timber and non-timber products from
paper and furniture to medicine and jewelry, and aims to give consumers the option of
supporting responsible forestry [14].


Standards

FSC is a global forest certification system established for forests and forest
products. From the perspective of the WWF this voluntary mechanism can be regarded as
one of the more interesting initiatives of the last decade to promote better forest
management [15]. A number of alternative national and regional forest certification

bodies also exist around the globe
FSC has 10 Principles and associated Criteria (FSC P&C) that form the basis for
all FSC forest management standards and certification. FSC International sets the
framework for developing and maintaining international, national and sub-national
standards. This is intended to ensure that the process for developing FSC policies and
standards is transparent, independent and participatory.
The FSC P&C apply to all tropical, temperate and boreal forests and many to
plantations and partially replanted forests. Though mainly designed for forest
management for timber products, they are also largely relevant for non-timber products
(e.g. Brazil nuts) and other environmental services such as clean water and air and carbon
sequestration. The FSC Principles are a complete package and their sequence does not
represent an ordering of priority, the FSC P&C including 10 Principles [16]:
- Principle 1: Compliance with all applicable laws and international treaties.
10


- Principle 2: Demonstrated and uncontested, clearly defined, long–term land tenure
and use rights.
- Principle 3: Recognition and respect of indigenous people’s rights.
- Principle 4: Maintenance or enhancement of long-term social and economic
- well-being of forest workers and local communities and respect of worker’s rights
in compliance with International Labour Organisation conventions.
- Principle 5: Equitable use and sharing of benefits derived from the forest.
- Principle 6: Reduction of environmental impact of logging activities and
maintenance of the ecological functions and integrity of the forest.
- Principle 7: Appropriate and continuously updated management plan.
- Principle 8: Appropriate monitoring and assessment activities to assess the
condition of the forest, management activities and their social and environmental impacts.
- Principle 9: Maintenance of High Conservation Value Forests defined as forests
containing environmental and social values that are considered to be of outstanding

significance or critical importance.
- Principle 10: In addition to compliance with all of the above, plantations must
contribute to reduce the pressures on and promote the restoration and conservation of
natural forests.

11


1.1.2. Theory of economic efficiency
1.1.2.1. Concept and essence of economic efficiency


Concept:

In general, efficiency is a measurable concept, quantitatively determined by the
ratio of useful output to total input. It reflects the level of using resources (human,
financial and material resources, capital…) to achieve the identified objectives. Efficiency
is the indicator used to analyze, assess and choose among different options. Efficiency
can be understood under multiple angles and perspectives: general efficiency, economic
efficiency, social and political efficiency, direct effect, indirect efficiency, relatively
efficiency and absolute efficiency.
Economic efficiency is an economic category that reflects the quality of economic
activity and is a measure of the management ability. Economic efficiency is reflected
through economic indicators determined by the ratio between the input and output of the
production, reflecting the level of using resources and the creation of benefits to achieve
the economic and social objectives.
There are so many concepts of economic efficiency. However, in general, the
essence of economic efficiency is improving labor productivity and labor saving. These
two sides of issue closely linked to each other and connected with two corresponding to
the rules in production: labor productivity and time saving.

Following Farrell’s (1957) seminal paper, economic efficiency can be decomposed
into two components: allocative efficiency and technical efficiency. Thus, achieving
efficiency in technique or allocation is just necessary but not sufficient condition to
achieve economic efficiency. When the using of resources achieves both technical and
allocative efficiency, then new production is economic efficient [17].
Technical efficiency is the effectiveness with which a given set of inputs is used to
produce an output. A firm is said to be technically efficient if a firm is producing the
maximum output from the minimum quantity of inputs, such as labor, capital and
technology [18].
Technical efficiency is the amount of output can be achieved on a unit cost of
inputs or resources used in the production of the specific terms of technique or technology
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applied in agriculture. Thus technical efficiency related to the physical aspect of
production, it indicates amount of output produced from one unit of input. Allocative
efficiency is effective indicator that takes into account product prices and input prices to
reflect the added value of the products obtained from one additional value of input. Once
taking the prices of inputs, outputs, we would use the inputs in a certain ratio to achieve
maximum profit [19].
In general, we can conclude that economic efficiency is the category that reflects
quality of business operations, the level of exploiting resources (labor, machinery,
materials and capital) in business activities to maximize profits.


Essence

Efficiency is the level categories reflect the level of exploiting resources in the
production process. The concept of production efficiency includes two criteria: outcome
(outputs) and cost (the inputs) to evaluate the efficiency of production. In theory and

practice of business administration, these criteria can be determined by unit of product or
value. However, using unit of product to determine economic efficiency will face
difficulties because "input" and "output" do not have the same unit of measurement while
using unit values always put different quantities of the same unit of measurement currency.
The problem here is that economic efficiency in general and economic efficiency
of production process in particular is target or means of business? In fact, sometimes the
efficiency criteria is used to identify objectives and in other cases, it is a tool to identify
"ability" to be achieve target.
In conclusion, we can understand the essence of economic efficiency as:
- Economic efficiency is a category reflects the quality of economic activities.
Improving the quality of economic activities is strengthening exploiting level of available
resources in economic activities. These are objective demands of every production
process.
- Economic efficiency is the correlation between outcomes and cost. The aim of the
producers and managers is to produce a largest amount of output with limited resources.
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This shows that the production process is the close relationship between inputs and
outputs, the expression of relationships that demonstrates the efficiency of production.
- Economic efficiency is the most central problems of every economic process,
which involves all the categories and other economic laws.
- Economic efficiency is associated with the saving of resource, which minimize the
production cost per unit of product.
- The nature of economic efficiency stems from the purpose of producing and
development, with the aim of satisfying demand for material and spiritual of all members
of society [20].
1.1.2.2. Method to determine economic efficiency
Basically, the economic efficiency can be determined based on the output and cost
as following methods:

-

First: Economic efficiency is determined by the difference between the
outcomes obtained with the costs incurred.
E=Q-C

Where:

E: Economic Efficiency
Q: Outcome
C: Cost incurred.

This indicator is usually calculated for a unit cost of money as the total cost,
intermediate costs, labor costs ... the greater this index the higher efficiency. However, in
this calculation, scales of producers are not considered, thus it cannot compare economic
efficiency of firms with different sizes. Moreover, this indicator only indicates the scale
of efficiency but does not specify the level of economic efficiency, so that does not help
manufacturers have specific impacts on the inputs to reduce costs as well as enhance
economic efficiency.

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-

Second: Economic efficiency is defined by the ratio between outcomes and costs
E = Q / C or vice versa E = C / Q
When comparing the efficiency, the use of relative ratio is necessary because it

express the quality of the phenomenon. This measure has advantage of reflecting the level

of using resources. It considers the amount of outcome created by one unit of resource.
Therefore, it helps to assess the economic efficiency of a firm. However, this measure
also has the disadvantage of not representing the scale of economic efficiency. In fact,
firms with different scales could have same efficiency of using capital.
In fact, when assessing economic efficiency we often combine two methods, which
will assess the efficiency comprehensively.
- Third: Economic efficiency can be determined by comparing the additional amount
of the outputs obtained and the additional of cost incurred.
E = ΔQ / ΔC Or vice versa E = ΔC / ΔQ
Where:

E: Economic Efficiency
ΔQ: The increase (decrease) of output
ΔC: The increase (decrease) of cost

This formula represents the economic efficiency of additional investment, it is
often used to determine efficiency in the depth or of the applying science and technology.
This ratio helps manufacturers determine the profit maximization point to make optimal
decisions. However, this criterion does not analyze the effect, impact of nature such as
soil, climate...[20]
In fact, we often combine the formulas together so that they can complement each
other. Thus, the assessment will be more accurate and comprehensive. Depending on the
circumstances, we will choose criteria suitable with the production conditions.
1.1.2.3. Criteria for economic efficiency
There are many criteria for economic efficiency, such as group of criteria assess
the results and efficiency of production: Value added (VA), Gross output (GO), profit (π)
and criteria assess the annual efficiency: Gross output/Intermediate cost (GO/IC), Value
added/Intermediate cost(VA/IC), Profit/Intermediate consumption(π/IC), Profit/Total cost
(π/TC). Finally are the criteria evaluating the long-term efficiency: Net present value,
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