MERCOSUR FOREST SECTOR SIA Final Report Findings Peter Nelson Matthew Ryder LAND USE CONSULTANTS

COMPONENTS TO FOREST SECTOR TRADE Primary (planting, management and harvesting) Secondary (sawn wood, pulp, paper) Tertiary (ie: printing and publishing)

Foreign Direct Investment in South America FDI is a major influence in development of Mercosur Forest Industry. Mercosur relies heavily on FDI = 21.4% of GDP. EU invested €254.2 billion in 2003 in wood panels, pulp and paper industries in Latin America, compared with €176 billion in 2000.

EXISTING TRADE BARRIERS Mercosur has no tariffs/ duty on wood but does on timber products (pulp, newsprint) and machinery for timber processing, Tariff barriers less significant than regulatory controls (eco-labelling and certification).

ECONOMIC DRIVERS High level of FDI already committed, Globalisation of timber industry, Long term investment structure, Deteriorating economic conditions in North America and Europe

SOCIAL IMPACTS Logging in Natural Forest Lack of tenure and community displacement, Loss of traditional hunting and gathering ground, Loss of cultural identity, Ethnic conflicts with migration, Use of child labour, Increased disease.

SOCIAL EFFECTS Development of Plantation Forestry Loss of cultural environment, Loss of economic self-determination, Increased dependency on single product, Fewer employment opportunities.

SOCIAL EFFECTS Secondary Activities Greater dependency on FDI Selective employment with increased poverty for unemployed, Perceived increase in pollution risk and environmental change.

ENVIRONMENTAL EFFECTS Primary Activities Increase in illegal logging Conversion of natural forest to plantations or agriculture Increased erosion Overexploitation of timber Irremediable damage to biodiversity

ENVIRONMENTAL EFFECTS Secondary Activities Increased levels of localised pollution from milling and pulping, Deterioration in environmental quality .

Case Study – Cattle (Beef), BioFuels and Forestry Ethanol produced from Sugarcane Biodiesel from vegetable oils including soybean Soybean also used as food source Main production of soybeans on degraded agricultural land. Expansion of soybean displaces cattle farming which impacts on primary forest areas.

Brazil Produces 66% of Soy products imported by EU (9.5 million tonnes 200 Soybean Production 1980 2005 16 m.t. 50 m.t. 12 m. ha. 21.5 m. ha. Bovine Meat 2.8 m.t. 7.8m.t. Pasture Land 200 m.ha.

EU – Demand for BioFuels EU consumes 32% of global soy products Commitment to 10% use of biofuels by 2020 (EU Action Plan) Requires 8-36% of EU land area. 2-3% increase in biofuels would generate 400,000 jobs (1.2 million to reach 10% target.

Flanking Measures Certification/ Voluntary Licensing Chain of Custody SEA of Forest Development Plans Wells to Wheels audit (Biofuels Research Advisory Council (2006) Cross-compliance Agriculture/Forestry Land Strategies for energy crops & forestry

CONCLUSIONS Principal changes will affect Mercosur, not the EU. Existing market conditions do not support sustainable forestry and trade liberalisation could exacerbate the current weaknesses.

CONCLUSIONS Increased pressures for deforestation, or degradation of existing natural forest. Liberalisation will favour large producers over SMEs. Flanking and mitigating measures required to develop sustainable plantation forestry, certification and chains of custody Integrated solutions are needed for cross-linking economic sectors of forestry and agriculture.