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

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

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 Assoc Prof Dr TRAN HUU TUAN HOANG THI MY HANH Agreement of acceptance:

PHAM THI THU HA

DAO THI NGOC BICH ……….

K45 ADVANCED PROGRAM

BACHELOR OF AGRICULTURAL ECONOMICS-FINANCE

Hue, 2015, December

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

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 productsMARD 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

Forests play a very important role in the national economy and social life.Nowadays, pressure of population growth and the impact of economic development havemade a decline on forest area and forest resources People only notices in harvesting, they

do not know combining harvest with the economic development and sustainablemanagement, so illegal harvesting activities have still occurred Many laws and programshave been implemented, contributing to considerably increase in forest area Besides,Forest Certification is an interesting initiative that is supplement for public regulation topromote better forest management Worldwide, there are many countries havesuccessfully adopted the model and contributed to sustainable forest management,especially the protective forests and special-use forests In 2010, Trung Son has beenawarded as one of two first Groups in Viet Nam certified against Forest StewardshipCouncil (FSC) required This research represents the benefits of FSC Forest CertificationGroup in Trung Son in economic, environmental and social aspects In term of economiceffect being analyzed by cost-benefit analysis, FSC forest plantations brought greatefficiency to farmers with Net present value of VND52.378 million per hectare over 7years, it’s approximate VND20 million larger than Non-FSC plantations Moreover,through 10 Principles and 56 Criteria, it has positively contributed to society and theforest sustainable management Finally, this research figures out some problems inparticipation as well as management the FSC certification group and then suggests theirsolutions Some recommendations are also provide in order to enhance its efficiencies andpromote the expansion of forest certification

PART I INTRODUCTION

1 Rationale

Forests play a very important role in the national economy and social life In theLaw on Protection and Development of Forests has mentioned the role of forests asfollows: "Forests are valuable resources of the country that has capable of regenerationand is an important part of the ecological environment, great value for the nationaleconomy, associated with the life of people with the survival of the nation” [1] The foresthas 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 havemade a decline on forest area and forest resources Natural forest area has fallen from14.3 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 hasdeclined while the area of poor and regenerating forest has rapidly increased [2].Forestresources are difficult to recover and increasingly depleted, many forests are unable toregenerate, land becomes barren hills, desert… To remedy this situation, in 1980 theGovernment has launched greening barren hills program, whereby forestation wasconcerned on a national scale and forest area has increased significantly [3]

Although the forest area and forest coverage has increased considerably, but thequality is still very low, most natural forests are average and poor forest that are unable tomeet current production needs, plantation productivity in recent years has increasedgreatly but still not meet the demand of raw materials for the production of society[4]

The forestry sector is important position in economic development - economicdevelopment of each country Nowadays, the globally climate change tend to rise, theirregular phenomena of nature are more difficult to control The forests and forest-relatedactivities have attracted the attention of not only individual people living close to theforest 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

with the economic development and sustainable management, the illegal harvestingactivities have still occurred.

Accordingly, laws of protecting and developing forests and National ForestryStrategy has had a clear mandate on sustainable forest management, however it has notyet built up stable forest management policy for existing types of forests in our country,especially forests planted by households, private organizations National Forestry Strategyperiod 2006 -2020 mentioned the task of the Forestry is to sustainably manage 8.4million 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 andagroforestry forests Besides, the forestry sector still managed 5.6 million hectares ofsustainable 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 Standardizationcertification providing to forestry business, timber and forest products The certificationprocess involves an evaluation of management planning and forestry practices by a third-party according to an agreed-upon set of standards [5] So far, the certified forestincluding both natural and planted forests Worldwide, there are many countries havesuccessfully adopted the model and contributed to sustainable forest management,especially the protective forests and special-use forests Until 2013, there are above 183.1million ha of forest in 79 countries are issued the FSC certification [6] Besides, forestcertification also brings efficiencies in terms of economic, social and environmentalbenefits for people Price of certified wood is higher than non-certified wood, andregulation of FSC imposed on forest holders such as limiting chemical use and banningfarmers from burning forests , are consistent with environmental protection However, inVietnam, the concept of forest certification is very new There are few forestrycompanies, organizations and individuals interested in forest certification There are only56,000ha of forests is certified accounting for less than 1 percent of the government’starget area The project is developed in Dac Lac, Kon Tum, Gia Lai, Nghe An, ThuaThien Hue and Quang Tri In year 2010 and 2011, the first two smallholder groupshave sold their first Forest Stewardship Council Chain of Custody (FSC/CoC) certified

Acacia timber products into free market with a certain amount of price premium This isgood news for small forest plantation holders in Quang Tri in particular and Vietnam ingeneral However, almost the forest plantation holders in the region have not well knownand 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 internationalmarkets Even for some members of the household groups, they are still lack of fullcertainty on future development of FSC group certification in the region [7] Therefore,

we chose a research project to investigate “Economic efficiencies of the Forestcertification groups in Trung Son commune, Gio Linh district, Quang Tri province” withthe aim of evaluating the positive effects, limitations and difficulties in the application offorest 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 Forestcertification, propose some solutions to encourage remaining farmers to participate in thisprogram and enhance those efficiencies

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 includingthose participating and non-participating in the forest certification project)

- Time: Examining and assessing the effectiveness of forests from 2007 to 2014

4.1.2 Primary data

According to Trung Son Communal People’s Committee, by 2013 there are 57households, in Kinh Mon and Giang Xuan Hai village, participated FSC forestcertification program To choose the representative samples, we randomly chose 29households from the list (account for 50% households with FSC forests), of which, thereare 15 households in Giang Xuan Hai and 14 households in Kinh Mon In addition, wealso randomly select 30 households that have non-FSC forests in Trung Son, which istreated as status quo, to get information from direct interview and then compare betweentwo 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

- Using CBA analysis to analyze indicators, performance, economic and financialefficiencies for both FSC and non-FSC forests, which take into account indicators such asnet 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 Excelsoftware.

- Step in CBA analysis

+ Step 1: Identifying scenarios

There are two options to compare, that is non-FSC forest plantation (treated asstatus 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 forestplantation 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 foranalyzing 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 discountrate change in different scenarios The worst case is when discount rate equal to 15%, thebest case is 5% The base case is when discount rate equal to 10%, which is theopportunity cost for farmers

+ Step 5: Make recommendation

Based on result of CBA and sensitive analysis, the research will makerecommendation to enhance efficiency of forest certification

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

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 andnatural forest land

On the other hand, forest resources are special assets of the country so that weshould need to understand the forest resources in many different angles:

From the perspective of biology, forest resources are unified and completeecosystem between creatures and surroundings According to Christopherson (1996),forest is an ecosystem consisting of all plants, animals and micro-organisms (Bioticcomponents) 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 o ther[8]

Under an economic perspective, forest resources are particular materials forproduction, primarily in forest industry As the object of labor, forest resources are thesubjects of human impact through the cultivation, harvesting forest products to satisfysocial needs As the materials, forest resources have the function of protection, waterretention, soil retention, air regulation Under a legal perspective, forest resource is anational asset that is managed and used by government

1.1.1.2 Roles of forest

Forests are the sources of many extremely valuable resources, it holds a veryimportant role in the development and growth of humanity.Forests are watersheds,and have economic, environmental and climate control benefits Forests help regulateclimate (produce oxygen, regulate water, prevent storms, control soil erosion ),conserve biodiversity, protect habitat Forests also play a particularly important role foreconomic 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 projectiondown to earth, due to large forest cover, forests also have very important roles in themaintenance of regulating the amount of carbon on Earth Trees and soils help regulateatmospheric temperatures through a process called evapotranspiration This helps tostabilize the climate Additionally, they enrich the atmosphere by absorbing bad gases(example CO2 and other greenhouse gases) and producing oxygen Trees also helps toremove air pollutants Therefore, forests have a direct effect to the global climatechange The living plants have capacity to store carbon in the atmosphere, so theexistence of forest vegetation and forest ecosystems have a very important role inconfronting the global warming

Forests protect soil, increase fertility and foster potential for soil Forest treestake nutrients from the soil and returned to it a huge biomass, make the soil becomemore fertile

Another important role of forests is water regulation, reduce runoff, increasegroundwater levels, limit the deposition of river, lake, increase the amount of water inthe dry season The flow rate in the areas that are cover by forest is lower than theagricultural area from 2.5 to 27 times These are important elements of forests inpreventing and reducing the impact of floods Forests also significantly reduce thenoise Fifty meters of forest along roads could reduce 20-30 dB (sound sensitivity)

Forests are also important economic sectors, especially with an important role insupplying 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 aspeople in urban areas For people living near forest areas, forests help locals solve food

shortages, stabilize social life, maintain security, generate revenue and create jobs forpeople Therefore, development of forests is geared towards low-income people inmountainous areas For urban areas, it creates jobs for the labor in factory that produceand process forest products The forest is the available "stock" material, it can helpreduce 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 labelingtimber, wood and pulp products and non-timber forest products, where the quality offorest management is judged against a series of agreed standards Certification processinvolves an evaluation on management plans and forestry activities by an independentthird party conformity with the criteria These standards ensure that products areproduced from well-managed forests – it follows the original principles and criteria forenvironmental, social and economic Credible forest certification covers much morethan just logging practices – it also accounts for the social and economic well-being ofworkers and local communities, transparency and inclusiveness in decision making.Forest certification is widely seen as the most important initiative of the last decade topromote better forest management Forest products are renewable, which is anadvantage compared to many other natural resources Therefore the sustainable use ofrenewable forest products can help provide forest dependent people with shelter, fuel,medicine and other services, while providing essential habits for plants and animals andwell as a safeguard against climate change

Responsible forest management is an important solution and a credible system ofcertification can ensure the sustainable management of these vital resources However,certification is not a universal remedy against the world’s forest crises - it cannotreplace scientifically sound regulations and legislation Forest Certification was created

as a complement to the policies and activities of the government to control illegalmining has failed, especially for the world's tropical forests

It was developed as a means of market-based and voluntary taken to by pressurefrom non-governmental organizations - under the third-party evaluation based on theminimum standards of sustainable forest management

Today there are a plethora of forest certification schemes Certification will onlyensure responsible forest management if the system has comprehensive managementstandards, rigorous control mechanisms and broad involvement of economic,environmental and social stakeholders.

Otherwise it’s just a green label, the Forest Stewardship Council (FSC) isconsider 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 responsiblemanagement 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 tomake informed choices about the forest products they buy, and create positive change inthe forest products market [11] The WWF Forest Certification Assessment Tool hasshown that FSC, with its robust system and balanced decision-making process, providesthe most credible forest certification scheme at present Independent research alsoconfirms that FSC certification has positive impacts on the environment, socialdevelopment and governance

The FSC’s stated mission is to "promote environmentally appropriate, sociallybeneficial and economically viable management of the world's forests" To this end thebody 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 anddeveloped through six program areas [13]: Forests, Chain of Custody, Social Policy,Monitoring and Evaluation, Quality Assurance and Ecosystem Services

The FSC claims that forests managed to its standards offer benefits to both localand wider communities These are said to include cleaner air and water, and acontribution to mitigating the effects of climate change.

FSC directly or indirectly addresses issues such as illegal logging, deforestationand global warming and some reports indicate positive effects on economicdevelopment, environmental conservation, poverty alleviation and social and politicalempowerment

Use of the FSC logo is intended to signify that the product comes fromresponsible sources- environmentally appropriate, socially beneficial and economicallyviable The FSC label is used on a wide range of timber and non-timber products frompaper and furniture to medicine and jewelry, and aims to give consumers the option ofsupporting responsible forestry [14]

 Standards

FSC is a global forest certification system established for forests and forestproducts From the perspective of the WWF this voluntary mechanism can be regarded asone of the more interesting initiatives of the last decade to promote better forestmanagement [15] A number of alternative national and regional forest certificationbodies also exist around the globe

FSC has 10 Principles and associated Criteria (FSC P&C) that form the basis forall FSC forest management standards and certification FSC International sets theframework for developing and maintaining international, national and sub-nationalstandards This is intended to ensure that the process for developing FSC policies andstandards is transparent, independent and participatory

The FSC P&C apply to all tropical, temperate and boreal forests and many toplantations and partially replanted forests Though mainly designed for forestmanagement 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 carbonsequestration The FSC Principles are a complete package and their sequence does notrepresent an ordering of priority, the FSC P&C including 10 Principles [16]:

- Principle 1: Compliance with all applicable laws and international treaties

- Principle 2: Demonstrated and uncontested, clearly defined, long–term land tenureand 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 andmaintenance 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 thecondition of the forest, management activities and their social and environmental impacts

- Principle 9: Maintenance of High Conservation Value Forests defined as forestscontaining environmental and social values that are considered to be of outstandingsignificance or critical importance

- Principle 10: In addition to compliance with all of the above, plantations mustcontribute to reduce the pressures on and promote the restoration and conservation ofnatural forests

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 theratio 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 Efficiencycan be understood under multiple angles and perspectives: general efficiency, economicefficiency, social and political efficiency, direct effect, indirect efficiency, relativelyefficiency and absolute efficiency

Economic efficiency is an economic category that reflects the quality of economicactivity and is a measure of the management ability Economic efficiency is reflectedthrough economic indicators determined by the ratio between the input and output of theproduction, reflecting the level of using resources and the creation of benefits to achievethe economic and social objectives

There are so many concepts of economic efficiency However, in general, theessence of economic efficiency is improving labor productivity and labor saving Thesetwo sides of issue closely linked to each other and connected with two corresponding tothe rules in production: labor productivity and time saving

Following Farrell’s (1957) seminal paper, economic efficiency can be decomposedinto two components: allocative efficiency and technical efficiency Thus, achievingefficiency in technique or allocation is just necessary but not sufficient condition toachieve economic efficiency When the using of resources achieves both technical andallocative efficiency, then new production is economic efficient [17]

Technical efficiency is the effectiveness with which a given set of inputs is used toproduce an output A firm is said to be technically efficient if a firm is producing themaximum output from the minimum quantity of inputs, such as labor, capital andtechnology [18]

Technical efficiency is the amount of output can be achieved on a unit cost ofinputs or resources used in the production of the specific terms of technique or technology

applied in agriculture Thus technical efficiency related to the physical aspect ofproduction, it indicates amount of output produced from one unit of input Allocativeefficiency is effective indicator that takes into account product prices and input prices toreflect the added value of the products obtained from one additional value of input Oncetaking the prices of inputs, outputs, we would use the inputs in a certain ratio to achievemaximum profit [19].

In general, we can conclude that economic efficiency is the category that reflectsquality 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 theproduction process The concept of production efficiency includes two criteria: outcome(outputs) and cost (the inputs) to evaluate the efficiency of production In theory andpractice of business administration, these criteria can be determined by unit of product orvalue However, using unit of product to determine economic efficiency will facedifficulties because "input" and "output" do not have the same unit of measurement whileusing 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 theefficiency 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 availableresources in economic activities These are objective demands of every productionprocess

- Economic efficiency is the correlation between outcomes and cost The aim of theproducers and managers is to produce a largest amount of output with limited resources

This shows that the production process is the close relationship between inputs andoutputs, 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 theproduction cost per unit of product

- The nature of economic efficiency stems from the purpose of producing anddevelopment, 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

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, inthis calculation, scales of producers are not considered, thus it cannot compare economicefficiency 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 helpmanufacturers have specific impacts on the inputs to reduce costs as well as enhanceeconomic efficiency

- Second: Economic efficiency is defined by the ratio between outcomes and costs

In fact, when assessing economic efficiency we often combine two methods, whichwill 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 isoften 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 optimaldecisions However, this criterion does not analyze the effect, impact of nature such assoil, climate [20]

In fact, we often combine the formulas together so that they can complement eachother Thus, the assessment will be more accurate and comprehensive Depending on thecircumstances, 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 assessthe 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), Valueadded/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,

Internal Rate of Return, Benefits to Cost Ratio In this research, these long-term criteriaare what we use in this research because forest includes perennial crops In other words,

we use cost-benefit analysis method to evaluate the economic efficiency of forestcertification

- Net present value: The difference between the present value of the cash flows

from forest and the amount of cost Present value of the cash flows is computed bydiscounting them at the required rate of return [21]

NPV =

Where: NPV: net present value

B t : value of benefit at year t

C t : value of cost at year t r: discount rate

t: year n: period of time (in years)

NPV is used to evaluate the efficiency forests that have same investment andstructure, the forest which has higher NPV has more efficiency

- Internal Rate of Return : Internal rate of return is the interest rate at

which the net present value of all the cash flows (both positive and negative) from

a project or investment equal zero [22] It is used to measure and compare theprofitability of kind of forest IRR refers to the fact that its calculation does notincorporate environmental factors, such as bank interest rates, inflation or deflation IRRcalculations are commonly used to evaluate the desirability of investments The higherIRR, the more desirable it is for the kind of forest

then r= IRR Benefits to Cost Ratio : the BCR is calculated by dividing all benefits by all costs[23] If

the resulting ratio exceeds 1.0, this means that benefits exceed costs, which suggests that,

in economic terms, the forest is efficient This ratio is also used to compare moreprofitable kind of forests.

BCR =

BCR is used to evaluate the efficiency of investment in forest plantation

If BCR> 1, then the forest has economic efficiency The greater the BCR the moreefficient it is for forest and vice versa

by NGOs, and some by a combination of all three sectors

These are four of the most commonly used forest certification programs

- Forest Stewardship Council ( the program applied in Trung Son)

- Sustainable Forestry Initiative

- Canadian Standards Association – Sustainable Forest Management

- American Tree Farm System

- Additional forest certification programs

Currently, the Forest Stewardship Council is the most credible certification system

to ensure environmentally responsible, socially beneficial and economically viablemanagement of forests [24] Until 2013, there are above 188.1 million ha of forest in 79countries are issued the Forest Stewardship Council certification Forest certification is asystem of inspection and tracking timber, pulp and other forest products to ensure theyhave been harvested according to a strict set of guidelines It’s more than just which trees

to cut – forest certification also accounts for the social and economic well-being ofworkers and local communities The certification process begins in the forest and

continues through the entire chain of custody, so the end consumer can be certain he orshe is buying an environmentally sound product [25].

In Germany, The Program for the Endorsement of Forest Certification (PEFC)system is used as a tool to prove the legality of timber and wood products One third ofGermany is covered by forests, more than 11.1 million hectares (ha) Most of the forestsare located in the Southern part of Germany in Bavaria, Hessen and Baden-Württemberg

Of which, more than 7.3 million ha of German forests, the equivalent to two thirds of thewhole forest area, are PEFC certified, including all state-owned forests As of November

2014, more than 2,000 PEFC Chain of Custody certificates had been issued in Germany[26]

Finland is the most densely forested country in the European Union Forests cover

23 million hectares which represents about 75% of the total land area Private persons ordinary Finnish citizens - own 52% of all forest land The number of private forestholdings of at least one hectare is about 440.000 The number of individual private forestowners is estimated at 920.000, which means that almost every fifth Finn is a forestowner Of the annual increment around 65-70% and of the commercial felling of timber80-85% comes from privately owned forests The certification is done here since the1990s in the form of voluntary, forest owners can apply for certification for individuals or

-in groups The -inspection and test will be conducted annually applies to forest ownerschoose any, the results of inspection by an independent evaluation agency Currentlyforest certification system of Finland has 37 standards that apply nationally About 21.9million hectares - 95% of Finnish forest area - are certified under the national FinnishForest Certification System (FFCS) In 2000 the FFCS was endorsed by the internationalPEFC certification About 311 500 family forest holdings are certified according to thissystem Forest area certified in compliance with the Forest Stewardship Council inFinland is about 10.000 hectares [27]

In Swedish, the work with formulating a national FSC-standard was initiated 15th

of February 1996, when the Swedish FSC Working group was formed After one and ahalf year of intense work the proposed Swedish FSC-standard was submitted to FSC forapproval in September 1997 The Swedish standard was principally approved in January

1998, and after minor corrections, finally endorsed 5th May 1998 The stakeholderssupporting the proposed standard were Swedish Union of Forest workers, the SwedishForest Industry Workers Union, the World Wildlife Fund for Nature, the Swedish ForestIndustries Association, the Forestry Society, Kinnarps AB, IKEA of Sweden…Forestcertification system here can be considered as the most strict in all the systems forcertification in the world It was built with the aim of conserving nature in all areas ofproduction forest Also in this country, the standards for FSC forest certification arecompulsory so the country's forest area increased significantly Alliance of forest ownerswere very actively involved in negotiations on the system of FSC standards However,many standards in their system are not in agreement and Sweden's certification systemwere criticized by the forest owners One of the main reason is that their standards areinconsistent with the small-forest owners FSC suggested issuing certification for a group

of small forest owners but the Alliance disagreed, they argued that they could not issuecertification to thousands of households with small-scale forest area while their timbertrading takes place everywhere so it is difficult to retrieve the source of wood material.Forest owners think that the certification system should be harmonized internationally andare similar rules for standards other countries Thus can assess where the FSC standardshave caused economic damage to private forest owners or individual families for followFSC estimates if the application of standards that will have up to 14% of forest area notbeing exploited to target for conservation [28]

In Canada, forest management certification has been adopted quickly since itemerged in the 1990s, and now more than 46% of the country’s forests are certified.Canada has 3 forest certification systems, three forest certification systems are used inCanada, those of the Canadian Standards Association, the Forest Stewardship Council andthe Sustainable Forestry Initiative As of 2014, Canada had 161 million hectares ofindependently certified forest land That represents 43% of all certified forests worldwide,the largest area of third-party-certified forests in any country [29]

In Asia, since 1990s, when discussing the forest issues, the sustainable forestmanagement and issuing forest certification has become controversial topic, theintroduction of standards are also considered carefully to ensure conformity with different

policies of countries However, there are different types of forests so making a commonset of standards has remained unfulfilled.

Issuing forest certification is an important tool in forest management in Asia Asiancountries participated in the many activities related to forest certification: participated inthe Earth Summit in 1992, became members of ITTO organization, built set of nationalstandards based on the principles and criteria of FSC There are some natural forests,plantations had certified However achievements of Asian countries are not significantbecause of the unsustainability, difficulties in land policy, illegal exploitation…are issuesaffect forest management and issuing forest certification [30]

1.2.1.2 In Viet Nam

Up to now, Vietnam has more than 13 million ha of forest, 10 million of which isnatural forest and 3 million is plantation forest Its forest cover amounts to 40.2% (2011),classified into three categories: production forest (6.3 million ha), protection forest (4.8million ha) and special-use forest (almost 2 million ha) [31]

The sustainable management and development of forest resources were identified

as one of the five fundamental objectives clearly stated in the National ForestDevelopment Strategy 2006-2020 (passed by the Prime Minister in 2007) Following theStrategy, by 2020, about 30% of Vietnam production forests – equivalent to around 1.8million ha – is expected to meet criteria of sustainable forest management and to bequalified for certification To achieve this objective, models of sustainable forestmanagement have been piloted in some provinces To date certified forest areas, however,remain relatively insignificant According to the report by the FSC International, as of

2012 Vietnam has above 46 000 hectares of FSC certified forests in sustainable forestmanagement[32]

Table 1: Current State of Sustainable Forest Management Certification in Vietnam

Institutions/

Organizations

CertifiedArea (ha)

9,444 Plantations account for more than 72% of certified

forest area, the remaining area being natural forest.Sustainable forest management certification has justbeen awarded in 2012

Vietnam Paper

Corporation

(VINAPACO)

10,175 Plantations, self-invested by enterprises Forest

certification was awarded for the aggregate forestarea of five Corporation-affiliated enterprises

Forest certification

for household

groups in Quang

Tri province

317 Plantations established and owned by households

Households were supported with investment capitaland techniques from an external certification projectbefore having applied for certification Some

plantations are being harvested

Quy Nhon Forest

Plantation Limited

Company

9,777 Plantations that were established on the land area that

were allocated to the company and were self-invested

by the company and are now being harvested

Vietnam Rubber

Corporation

11,696 Rubber timber plantations that are just qualified for

harvest Certified plantation belongs to Dau Tiengand Dong Nai Rubber companies

Dak To Forest

Company

16,318 The company has just awarded FSC Controlled

Wood certification, a critical step toward sustainableforest management certification Certified forestsinclude both natural forests and plantations which arecurrently being harvested

Total certified

forest area

46,031 As of March 1, 2012, a total of 46,031 ha of forest

have been certified, of which only 29,713 ha werecertified as sustainable forest management

(Source: http://info.fsc.org, updated 2 March 2012)

1.2.2 The situation of exporting and importing wood and certified wood in Viet Nam

1.2.2.1 Exporting

Export markets for Vietnamese timber products are constantly being expanded.According to Vietnam’s General Statistics Office in 2003, timber products of Vietnamwere only exported to 60 countries and until now, Vietnam have exported its timberproducts to over 120 countries and territories Vietnam’s wood processing industry forexport is expected to reach more than USD 4.5 billion in 2014 and USD over 8 billion by

2020 (an average of 9% per year) To date, Vietnam has become an exporter of varioustimber processing products in the world’s top ten and to be the second biggest exporter inAsia (after China) and being the leading exporter of South-east Asia It is worthmentioning that the sector's potential is very large to be able to continue furtherdevelopment

Up to now, Vietnam's wood products have been exported to more than 120countries and territories Largest export markets and also markets that have highestconsumption of this industry (account for more than 70% of total exports) are the US, the

EU, China, and Japan In 2013, Vietnam became the biggest wood-product exporter inASEAN, the second in Asia and the sixth in the world

The industry's export revenue has been on the rising trend from Quarter I toQuarter II and this trend continued in Quarter III of 2014 The export value in October

2014 was USD 577.35 million, up 13.8% comparing to September 2014, bringing thetotal exports of the first 10 months of this year to USD 5.02 billion, up 13.8% year-on-year (see table 2)

The industry's main markets in the first 10 months of 2014 were the US, Japan,Korea, Canada, China, England, Germany, France, Taiwan, etc The US remained thelargest market of the industry, with USD 1.82 billion of export revenue, up 18.3% year-on-year, and accounting for 36.6% of total exports The most common type of productsbeing exported to the US are desk, closet, bed, chair

Table 2: Export markets of Vietnam's wood and wood products in the first 10

Jan-Oct 2014 compared to Jan-Oct

In the first 10 months of 2014, wood and wood products exports grows in mostmarkets as comparing to the same period last year; Noticeable is Kuwait market, thoughtotal exports only reached USD 5.89 million, but that equals an incredible rise of 75.4%year-on-year.

Figure 1: Vietnam's wood and wood products export structure by market in first 10

months of 2014

(Source: General Department of Vietnam Customs, 2014)

Up to October 20th 2014, artificial forest stretched 198.3 thousand hectares, up8.8% year-on-year Of the figure, 17.1 thousand hectares are protective forest, down20.2% year-on-year; 176.8 thousand hectares are production forest, up 12.7% year-on-year About 152.6 thousand production trees were grown, down 12.6% comparing to thesame period last year [33]

When Vietnam deeply integrated into the world economy for wood products, oneproblem is the certification of raw materials US Lacey Act controlled wood materialoriginated Since 2009, all exporters and importers must submit the declaration ofproducts to ensure legality Besides, Forest Law Enforcement and Governance (FLEG) isimplemented in all countries The EU also launched "The voluntary partnershipagreement" These are huge barriers for our timber industry According to the Analysis ofImport and Export Department - Ministry of Trade and Industry, the demand for certified