An Application of System Dynamics Modeling to The Question of a Log Export Ban for Indonesia with Comments on Illegal Logging

System dynamics modeling allows us to examine various scenarios within a complex system. By using this approach we not only learn about the response of the system to test inputs which could never be tested in the real world, but we also learn to question our assumptions about the system itself. This leads to a better understand of its workings. This paper presents a preliminary system dynamics investigation into the potential effects of a log export ban on the Indonesian forest sector. As a preliminary model its primary purpose is to help us better visualize potential effects of a log export ban rather than to predict, in detail, actual outcomes. The model provides relatively simplistic overviews of the wood processing sector, demand – price feed back loops, forest standing stock and log availability, capacity of the harvest sector, as well as export demand, price and log exports. In spite of its apparent simplicity the model examines important feedbacks that must be understood if the effects of a log ban are to be properly examined. Introduction Indonesia’s forestry sector has been in turmoil for the past several years following the removal of President Soeharto from power in May 1998. Since then there has been a major decentralization of governmental authority to the provinces and districts. This was done without careful planning of laws and regulations, including those related to natural resources. During this period of weakened legal control, there has been a substantial increase in the amount of illegal logging, so that in 2001 roughly 50% of the timber harvest was illegal. The illegal logging situation in Indonesia as of mid 2000 is well documented by Scotland et al (2000). For a discussion of possible causal links leading to increases in illegal logging see Dudley (2001). A significant portion of the illegal harvest is thought to be exported. Consequently, some concerned agencies and NGOs have suggested a log export ban as a means of limiting illegal exports, thus reducing illegal logging. The idea of a ban on all exports to prevent exports of illegal logs might appear illogical, since one might expect that logs would merely be exported illegally. However, proponents of a complete log export ban believe that terminating all exports would make an export ban workable. In their view a partial ban (e.g. on certain species) would be ineffective since it could be easily defeated using PRELIMINARY SD MODELING OF LOG EXPORT BAN 4 phony documentation. With a total ban, any log leaving the country would be illegal and could thus be easily identified as such. Several analysts have pointed out that there are many other ramifications of a log export ban. Most often cited are the loss of export tax revenue, and possible effects on the domestic timber related industries. The effects on domestic industry are generally considered either: good – due to increased access to cheaper raw materials, bad –a lack of competitiveness fostered by over protection, or both. Also, employment in the logging and wood processing sectors: might decrease – due to a decrease in log harvest, or might increase – due to a stimulation of the wood processing sector. A meeting held in September 2000, to discuss possible effects of an export ban included participants from industry, government, academia, NGOs, and donor and donor project representatives. Of the subjects discussed they agreed on 13 and disagreed on 28 items. Significantly, several items where no consensus could be reached were those which involved prediction of the outcomes of a log export ban. Prediction of complex situations without an understandable and agreed upon framework is difficult. Illustrated herein, using the log export ban as an example, is one established approach for looking at this type of problem: system dynamics modeling. Modeling Approach Starting Point The overall purpose of this model is to examine, in a preliminary way, the effect that a log export ban might have on the Indonesian logging and wood processing industries. A secondary purpose is to illustrate the utility of the system dynamics approach for this sort of policy analysis. The starting point for this overview is a causal loop diagram – a type of rigorous picture model (Figure 1) modified from that presented in Dudley 2001. In this diagram four balancing 1 Roundtable On Log Export Ban. 27 September 2000. World Bank Office, Jakarta. (meeting summary). Figure 1. A causal loop diagram illustrating interconnections between the wood processing and logging sectors. Our interest is to investigate how foreign demand for logs might affect this system. Profitability of Wood Products Demand for Indonesian Logs Number of Wood Processing Mills Purchase Price of Logs Amount of Timber Harvest Capacity Amount of Timber Cut Supply of Logs + +