Land Use Policy 69 (2017) 56–63

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Land Use Policy

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The financial benefits of forest certification: Case studies of acacia growers MARK
and a furniture company in Central Vietnam
Tek Narayan Marasenia,⁎, Hoang Lien Sonb, Geoff Cockfielda, Hung Vu Duyb, Tran Dai Nghiac
a
University of Southern Queensland (USQ), Toowoomba, Queensland, 4350, Australia
b
Vietnamese Academy of Forest Science (VAFS), Vietnam
c
Institute of Policy and Strategy for Agriculture & Rural Development (IPSARD), Vietnam

A R T I C L E I N F O A B S T R A C T

Keywords: The demand for forest products is growing and plantation forests are supplying an increasing proportion of wood
Acacia plantation to industry. There are also increasing market requirements to demonstrate the sustainability of timber supply.
Certified forest Vietnam has some 3.9 M ha of plantation forests, 44% of which is on short-rotations managed by smallholders.
Vietnam More than 80 percent of the harvested volume from the plantation forests is used for woodchip production to
Grower
serve domestic and international markets. The Vietnam Government has goals to increase the domestic supply of
Sawmill
suitable wood for furniture production to international markets by increasing the supply of larger logs grown in
Furniture industry
plantations and the supply of certified wood to industry. However, it is not clear that these objectives will
necessarily benefit growers and processors. This study compared financial returns from certified and non-cer-
tified forest products for: (1) growers with 10-year rotation acacia plantations; and (2) a furniture processing
business (battens for chair and table) in Quang Tri Province, Central Vietnam. The data were collected from
smallholder tree growers and a sawmilling company, triangulated with and supplemented by formal and in-
formal interviews with other stakeholders. Currently, much of the cost of certification is met by external aid
donors. Results showed that net returns from both certified and non-certified timber products are positive for
both actors and are higher from certified timber production than non-certified timber production. When the full
costs of certification are included, the benefits to growers of certification are much reduced and potentially
negative unless the fixed costs can be spread over a large group of growers. A minimum of group with 3000 ha
may be required to make certification cost effective. In recent years, the price difference between the certified
and non-certified logs is narrowing and this may discourage farmers from attaining certification. For the saw-
miller, the benefit of certified timber production is greater. It would be in their interests to increase prices paid to
growers for certified logs. Government policy measures to support certification should include consideration of
who bears the cost, support for aggregation of smallholder growers and improved communication in timber
supply chains.

1. Introduction ‘decollectivisation of agriculture’ and ‘distribution of forestlands to

The demand for forest products is increasing, and the planted forest
area has been increasing globally and supplying an increasing propor-
tion of total wood supplied to industry (Maraseni and Cockfield, 2015;
Schönfeld, 2015; Tim et al., 2015). The planted forest area in Vietnam
has been increasing rapidly, from about 2.5 M ha in 2006 to 3.9 M ha in
2015 (Luong, 2014; MARD, 2016a). Approximately 44% of the planted
forests are managed by smallholders, with an average lot size of 1.27 ha
per household, and these contribute to the livelihoods of more than 1.4
million families. The rapid expansion of smallholder plantations may be
due in part to three policies introduced in the 1990s –
local households’ – and accession to the World Trade Organization in
2006 (Meyfroidt and Lambin, 2008). Other factors include the avail-
ability of an appropriate fast-growing tree species, increasing national
and international demand for forest products, and agricultural in-
tensification (Byron, 2001; Meyfroidt and Lambin, 2008; Truong et al.,
2016).
The Ministry of Agriculture and Rural Development
(MARD)–through its Forestry Sector Reform Proposal (2013)–aims to
improve the quality, efficiency and competitiveness of the forestry
sector. In order to realise this goal, the MARD is giving high priority to
value-adding in the forestry sector, particularly through planted forests

⁎
Corresponding author.
E-mail address: Maraseni@usq.edu.au (T.N. Maraseni).

http://dx.doi.org/10.1016/j.landusepol.2017.09.011
Received 9 June 2017; Received in revised form 24 August 2017; Accepted 8 September 2017
Available online 12 September 2017
0264-8377/ © 2017 Elsevier Ltd. All rights reserved.
T.N. Maraseni et al.
and the timber processing industry (MARD, 2013). Moreover, the
MARD (2007) aims to increase forest cover from 38% in 2006 to 45%
by 2020 to result in 8.4 M ha of productive forests, including 4.15 M ha
of plantations. The intention is that tree plantations will assist in
meeting economic development and poverty alleviation goals and will
also reduce the pressure on natural forests and Vietnam’s reliance on
imported timber (Pistorius et al., 2016).
The wood processing sector in Vietnam has also been expanding
rapidly. From 2006, the number of registered timber processing and
furniture exporting industries grew at an annual rate of 16%. There are
more than 3900 timber-processing companies in Vietnam, with 72%
and 25% of those being of extremely small size and small size with
financial capital less than US$223,7141 and US$223,714 to US
$2,237,140, respectively (MARD, 2014). Despite their relatively small
scale, these processing companies provide employment and livelihood
opportunities for thousands of people. In 2014, Vietnam earned US$6.3
billion from the export of timber, timber products and non-timber forest
products, with 13–15 M m3 of wood produced from planted forests
(MARD, 2015). Currently, Vietnam is ranked as the fourth largest fur-
niture exporter in the world after China, Germany and Italy (Lam,
2016). Many foreign companies are interested in furniture manu-
facturing in Vietnam because of the availability of cheap labour and
accessible transport systems (Hoang et al., 2015). Therefore, the po-
pularity of Vietnam as a major furniture exporting country is growing
rapidly, with more than 120 export destination countries (ITA, 2014),
and in 2015, major markets in the US (>US$2.5 billion), Japan (>US$
1 billion), China (>US$ 0.9 billion), the EU (> US$ 0.5 billion) and
Korea (US$ 0.5 billion) (I and T, 2016).
A relatively small amount of the harvested wood from smallholder
plantations in Vietnam is used for timber and furniture production, with
more than 80 percent used for exported woodchips (Midgley et al.,
2017; Maraseni et al., 2017). There is a high local and export demand
for woodchips for medium density fibre (MDF) and pulp and therefore
smallholder growers prefer short rotation plantations for quick returns
from these markets (Forest Trend, 2013). This demand and associated
good prices, the relative ease of handling and transporting smaller logs
and the relatively low technology and management requirements, are
driving production of small-sized, lower quality wood, grown on short-
rotations (MARD, 2014).
In Vietnam, it is relatively easy to import wood from elsewhere and
to meet furniture and construction needs. In 2015, Vietnam imported
raw wood materials valued at $1.639 billion, mainly from Laos,
Cambodia, the US, China and Malaysia (MARD, 2016b). With shipping
and raw wood costs varying over time, wood processing companies are
facing difficulties in competing with those in China and Malaysia
(MARD, 2015). While, Vietnam has a population of more than 90
million, the value of their average furniture consumption over the last 5
years was only about $25 per person (MARD, 2015). With their
economy booming, domestic demand for furniture is expected to in-
crease, supplementing the demand for exports. Therefore, the Vietnam
Government is developing policies such as land title reform and value
chain development to promote smallholder plantations (Nambiar et al.,
2015). Moreover, there is an intention to generate greater benefits to
smallholders, processing companies and the timber industry by building
partnerships and encouraging value adding activities.
The Vietnam Government has the policy objective of increasing the
supply of domestic, plantation-grown wood to the furniture industry.
One strategy to achieve this is to encourage growers to increase the
rotation age of plantations and produce more sawlogs. The target is to
increase the production of furniture wood from 4.5 million tonnes to
6.5 million tonnes by 2020, with a stated policy goal for woodchip
exports to decrease from 6 million tonnes to 3 million tonnes by 2020
(MARD, 2015). Given that the furniture sector sells into international
1
US$1 = 22,350 VND (Vietnamese dollar)
57
Land Use Policy 69 (2017) 56–63
markets within which there is an increasing demand for certified pro-
ducts, the Vietnam Government’s aim is to increase the area of certified
production forests to 30% by 2020 (MARD, 2007).
Forest certification is a market-based instrument, first established in
1993 under the Forest Stewardship Council (FSC) (Hain and Ahas,
2007). Nearly 500 M ha of forest are now certified worldwide under
two dominant global schemes, the Forest Stewardship Council (FSC)
covering 191 M ha (FSC, 2016) and the Programme for Endorsement of
Forest Certification (PEFC) covering 301 M ha (PEFC, 2016; FSC,
2016). There are three main reasons for Vietnamese interest in certifi-
cation: (1) As a response to criticisms of Vietnamese operations in, and
imports from, natural forests in Cambodia and Laos and other parts of
south east Asia; and (2) major customers such as EU and USA need
proof of legality and, often, sustainability of sourced logs; and (3) the
buyers of certified logs require for a minimum log size and therefore
growers supplying this market are obliged grow trees over a longer
rotation period. As these are the policy targets for Vietnam, the Gov-
ernment sees benefits of certification (Hoang et al., 2015a) and are
actively pursuing a national standard consistent with the Programme
for Endorsement of Forest Certification. So far the area of certified
forests in Vietnam is small. As of July 30, 2016 only about 86,193 ha of
natural forest and 113,008 ha of planted forests have been certified
(FSC, 2016). Therefore, meeting the expected 30% certification target
by 2020 (MARD, 2007) is highly unlikely. Barriers to adoption could
include costs of certification, the ease of managing and financing cur-
rent systems and a lack of reliable information about the financial re-
turns of plantations with FSC certification. Research that compares fi-
nancial returns from certified and non-certified timber production will
inform decisions as to whether producers and processors may be better
off over time, with certification.
A study by Hoang et al. (2015b) compared the financial returns
from certified and non-certified acacia plantations for growers in Quang
Tri Province. They found that the management of certified forests does
not increase the cost that much, while the income of selling FSC wood
logs for growers is very promising. However, the calculated cost of
certification for growers was relatively low at US$60/ha, which was
based on number of working days people spent for FSC related work,
although this is only a small part of the actual costs. They applied a
relatively low discount rate (6%) and prices for logs did not vary by
size. Also, they did not consider costs for sawmill and furniture com-
panies.
This study aimed to further explore the implications of rotation
length, certification costs and benefits and different discount rate for
farmers that reflect the costs of capital to smallholder growers. The
overarching goal is to provide better information for developing plan-
tation policy in Vietnam. Specific objectives are to compare financial
returns from certified and non-certified forest products for: (1) growers
with 10-year rotation acacia plantations; and (2) a furniture processing
business (battens for chair and table) in Quang Tri Province, Central
Vietnam.
2. Methods
This study was undertaken in 10-year rotation acacia plantation in
Kinh Mon Village, Gio Linh District, Quang Tri Province. In this area,
WWF and SNV (Netherlands Development Organization) are organising
growers supporting group certification. The donor is responsible for
recurrent costs of certification and farmers are paying nominal fees.
2.1. Study region
Quang Tri province is located on the North Central Coast region of
Vietnam and is characterized by steep slopes, sharp crests and narrow
valleys covered mainly by a dense broadleaf evergreen forest. It is
surrounded by the provinces of Quảng Bình, Thừa Thiên-Huế,
Savannakhet (Laos) and the East Sea in the north, south, west and east,
T.N. Maraseni et al.
Fig. 1. Showing study area, Gio Linh District and Quang Tri Province.
respectively. It is frequently affected by natural disasters, and is highly
influenced by floods, storms, landslides, droughts, salinization, etc. The
annual average temperature is 24 °C, but temperatures can drop to as
low as 7 °C during the rainy season. The Agriculture-forestry sector
contributes 22.7% of the total economy. This province covers
437,982 ha of land, of which 241,105 ha is forests. Of the total forest
area, 108,114 ha is production forests, 74,097 ha is protected forests
and 58,894 ha is special use forests. The area of planted forests has been
growing rapidly during recent years. In 2014, the total area of planta-
tions was 75,221 ha and about 399,000 m3 of timber was harvested
from these planted forests. Most planted forests is acacia (Fig. 1).
In 1992, acacia accounted for 7% of the national plantations but, by
2016, it accounted for more than 40% of total plantations (De Jong
et al., 2006; Nambiar et al., 2015; Harwood and Nambiar, 2016).
Acacia is a preferred species because: (1) it can be grown on shorter
rotations than other plantation species such as teak and pines (Nambiar
et al., 2015); (2) it can be used for both the production of high value
furniture and also for woodchips (approximately 70% of woodchips
produced in Vietnam are from acacia (Forest Trend, 2013); (3) it grows
rapidly (mean annual volume increment of 10–25 m3/ha/yr), de-
pending on the site quality, climatic factors and management inputs
(Nambiar et al., 2015); (4) being a leguminous species, it can grow on
degraded sites and increase soil nitrogen and carbon (Maraseni and
Pandey, 2014); and (5) unlike many other species (Baral and
Katzensteiner, 2015), this can increase production in the second rota-
tion compared to the first (Hardiyanto and Nambiar, 2014).
2.2. Data collection
This research is part of a larger research project “Improving policies
for forest plantations to balance smallholder, industry and environ-
mental needs in Lao PDR and Vietnam”, funded by the Australian
Centre for International Agricultural Research. Data for this project
were collected in August 2016 and January 2017. The supply chains of
different plantation production options were mapped and key in-
formants, including farmers, representatives of producer organisations
and processors, were interviewed to gain an understanding of the
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Land Use Policy 69 (2017) 56–63
supply and value chains and identify sources of information on pro-
duction costs and returns. Primary data were taken from farmers and a
SFC and several other forest stakeholders including people from gov-
ernment departments and non-governmental organisations. Records of
costs and benefits for farmers were taken from the register of a co-
operative that represented 15 farmers managing 82 ha of plantation.
These data were transcribed to English for analysis.
For the SFC, the processes and activities were observed, and timber
recovery rates and costs of different resources/inputs and benefits from
different products were documented. This information was further
verified from the factory registers. All these data were triangulated and
supplemented by formal and informal interviews with several other
forest stakeholders such as the Department of Industry and Trading,
Department of Forest Protection, FSC Association, Forest Co-operatives,
State Forest Company and middlemen.
2.3. Costs and incomes for farmers and the sawmilling and furniture
company
The production system in this analysis is not a typical smallholder
regime for Vietnam, which involves higher stocking and shorter rota-
tions. It involves seedling planting density of 1660 trees/ha and a ro-
tation age of 10 years (Table 1). Mortality is generally low and the
analysis assumed replanting in the second year so the original density is
maintained. Planting at this density and growing on a 10 year rotation
would likely meet the log size for the producer selling into a market
requiring FSC certification. The analysis is based on thinning at five
years of age, resulting in 13 t of woodchips, sold to a trader for export at
a price to the grower of US$44.70/t. At the end of rotation, all the trees
were harvested and sold to SFC by growers themselves. In total, 50 t of
woodchips and 130m3/ha sawlogs were estimated to be produced in the
final harvest. Out of 130 m3 logs, about 25% of sawlogs were >19 cm
diameter, 40% of were 15–19 cm diameter and 35% sawlogs were
10–14.9 cm, small end diameter. The amounts and prices of these logs
(both certified and non-certified) are given in Table 2.
The price difference between logs suitable for certified products and
non-certified products is dependent on their size. According to the
T.N. Maraseni et al. Land Use Policy 69 (2017) 56–63

Table 1
Costs and income (US$/ha) from 10-year rotation acacia plantation in Kinh Mon Village, Central Vietnam.

Description Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Cost of planting and maintaining

Seedling for planting & replanting 118.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Tools & machine for land preparation 192.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Fertilizer 111.4 74.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Labour for planting, replanting, fertilizing, grass cutting & pruning 143.2 107.4 80.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Materials, equipment & transportation of thinning products 0.0 0.0 0.0 0.0 134.2 0.0 0.0 0.0 0.0 0.0
Labour for transportation of thinning products 0.0 0.0 0.0 0.0 134.2 0.0 0.0 0.0 0.0 0.0
Forest protection fees for cooperative 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2
Forest protection fees for CPC 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.9
Forest protection by using household labours 8.9 17.9 8.9 4.5 4.5 4.5 4.5 4.5 8.9 0.0
FSC related fees
FSC annual fees 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
FSC fees on the basis of logs price 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 113.0
Cost of harvesting 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Direct cost of harvesting & transportation: includes cost of labour, tools & machinery 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2205.8
Indirect cost of harvesting: includes management fees of US$89.48/ha and protection fee of US$93.95/ha 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 183.4
after harvesting
Total costs 577.6 203.1 93.1 8.1 276.5 8.1 8.1 8.1 12.5 2514.8

Incomes
Income from thinning products (13 t of woodchip @ US$44.74/t) 0.0 0.0 0.0 0.0 581.7 0.0 0.0 0.0 0.0 0.0
Income from harvest (130m3 FSC sawlogs, price based on size) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10411.6
Income from harvest (50 t of woodchips @ US$44.74/t) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2237.1
Total income 0.0 0.0 0.0 0.0 581.7 0.0 0.0 0.0 0.0 12648.8

Note: 1 US$ = 22,350VND; some figures could vary due to rounding error.

Table 2 Table 3
Factory gate prices and certification fees for farmers for certified and non-certified logs. Financial returns of FSC certified and non-certified forest products for the sawmill owner.

Acacia timber in Factory gate price (US Price FSC fees (US No Amount Price Total Price Total
diameters $/m3) difference $/m3)* (US value (US$) value (US
3
$/m ) (US$) $)
(total production: FSC certified FSC non- (US$/m3) (7% of price Non-certified forest Certified forest
130m3/ha in 10 year) certified difference) products products

Sawlog with diameter 102.9 87.2 15.7 1.1 I Total Cost 224.4 255.2
>19 cm (25%) 1 Raw logs 2.4612 m3 69.4 170.7 81.9 201.5
Sawlog with diameter 85.0 71.6 13.4 0.9 2 Processing cost
from 15 to 19 cm Labour cost 26.9 26.9
(40%) Depreciation of 1.8 1.8
Sawlog with diameter 58.2 49.2 8.9 0.6 fixed assets
from 10 to 14.9 cm Electricity, water, 7.2 7.2
(35%) spare parts
3 Dry killing cost
Note: * In addition to this fee, annual FSC fees of US$1.3 is also applied. Some figures Labour cost 6.7 6.7
could vary due to rounding error. Electricity, water, 9.8 9.8
spare parts…
Depreciation of 1.3 1.3
fixed assets
sawmill owner, the average price difference between these two pro-
ducts was US$12.50/m3. As per the decision of the sawmillers’ asso- II Income 260.0 304.7
Main product 1 m3 246.1 246.1 290.8 290.8
ciation and Farmers’ Co-operative, certification costs for the farmer are
Firewood 0.777 t 17.9 13.9 17.9 13.9
based on the relative market prices of certified and non-certified logs.
III Profit 35.6 49.5
At the time of the fieldwork, the cost for a farmer of selling certified
(III = II − I)
wood was about 7% of the price difference between the certified and
non-certified logs. In addition, a farmer also needs to pay an annual Note: 55% of 2.4612 m3 is recovered as fuelwood. Mean wood density of acacia hybrid is
certification fee of US$1.30/ha of plantation. 574 kg/m3 (VAFS, 2011). Some figures could vary due to rounding error.
The sawmilling and furniture company processes logs and produces
battens (semi-processed materials for tables and chairs). This company on labour (RoL) were used to compare outcomes for the farmer. We
had processed non certified logs prior to switching to certified in 2015. compared outcomes for the actors across different scenarios, using
According to owner, the difference in selling prices for factory products profit per m3 of final product as the measure of comparison, a common
was US$44.7/m3, with approximately US$290.8/m3 for certified pro- practice in value chain analysis (Purnomo et al., 2009).
ducts and US$246.1/m3 for non-certified products (Table 3). Increasing demand for timber for the furniture industry may in-
crease prices of certified and non-certified timber. On the other hand, a
2.4. Data analysis rapid expansion of planted forests could lead to oversupply and thus the
price of timber could decrease. Sensitivity analyses considered varia-
All costs and benefits were discounted at rates of 7% or 12%, the tions of −20% to +20%. Improvements in seedling quality, soils and
range of bank interest rates in recent times. Different financial in- management may increase production in future rotations (Hardiyanto
dicators such as net present values (NPV), benefit cost ratio (BCR), and Nambiar, 2014) while climate change and increased natural dis-
internal rate of return (IRR), annual equivalent value (AEV) and return asters (such as hurricanes and typhoons) could lead to decreased

59
T.N. Maraseni et al. Land Use Policy 69 (2017) 56–63

Table 4 including the income from fuelwood. In the analysis, the same pro-
Financial returns of FSC certified and non-certified forest products for the farmer.7. cessing costs were assumed for the certified and non-certified products
but the cost of the raw uncertified logs is US$12.50 less than certified
Financial indicators At 7% interest rate At 12% interest rate
raw logs. The selling price of uncertified product is US$45 lower (US
Non FSC With FSC Non FSC With FSC $246/m3). Therefore, the net profit of one cubic metre of uncertified
product will be about US$36.
Net Present Value, NPV (US$/ha) 4159.6 4866.3 2525.4 2992.1
NPV (US$/m3) of final product 32.0 37.4 19.4 23.0
Benefit Cost Ration (BCR) 2.82 2.98 2.38 2.54 3.3. Comparing the returns for farmer and sawmiller
Internal Rate of Return (IRR) 33% 35% 33% 35%
Annual Equivalent Value (AEV) 592.2 692.8 447.0 529.5
Comparing the sawmiller’s returns with the farmer’s returns per
(US$/ha)
Return on labour (US$) 29.8 30.4 18.1 18.7 cubic metre of final product (Table 5) indicates that the farmer’s return
much higher than that of the sawmiller and that there is a gain in
Note: AEV is discounted NPV of investment. The lower the value of AEV the lower the having certified products for both actors. The benefit of certified pro-
total life cycle cost. Some figures could vary due to rounding error. ducts for the sawmiller is more than 1.4 times higher than for un-
certified products, while for the farmer it is about 1.2 times higher.
productivity Hoang et al. (2015b). Therefore, yield variations of −20% On average, the sawmiller buys 15,652 m3/year of logs, or
to +10% were considered. 156,520 m3 over 10 years. Farmers have an average holding of 1.27 ha
per household and, given average production rates, might produce
3. Results about 165 m3 of logs over a rotation of 10 years. Therefore, total re-
turns for the sawmiller is much higher than for individual growers.
3.1. Financial returns of FSC certified and non-certified forest products for
farmers 3.4. Sensitivity analyses

Table 4 reports the IRR, NPV, BCR and AEV from both certified and
non-certified acacia timber production. The analysis found that with a
7% discount rate the NPV was US$4866/ha for certified timber pro-
ducts and US$4160/ha for non-certified timber products. IRRs were
33% and 35% for non-certified and certified products respectively. As
would be expected given the 10 year rotation, NPVs and IRRs for both
certified and non-certified material were considerably lower with a
12% discount rate. Both financial indicators imply that both certified
and non-certified acacia timber plantations businesses are profitable.
The results also show that the financial returns from certified forest
products are much higher than for non-certified forest products for the
farmer, both at 7% and 12% interest rates. However, these differences
are dependent on the donor organisation bearing most of the costs of
certification.
3.2. Financial returns of FSC certified and non-certified forest products for
the sawmilling and furniture company
For the sawmilling and furniture company recovery rate for the
conversion of long logs (with bark) to small logs (without bark) is about
92%, small logs to small battens is 46% (from 92%) and from fresh
battens to dried battens is 96% (from 46%). Therefore, the net recovery
rate from logs to final products is 41%. Therefore, to produce 1 m3 of
final product, the sawmill needs to buy 2.46 m3 of raw (with–bark) logs.
This produces 777 kg of fuelwood, with a market price of equivalent to
US$17.90/t, giving an income of US$13.90 per cubic metre equivalent
of final product. After processing, the battens go to the IKEA Furniture
Company in Dong Nai Province to produce tables and chairs that are
exported.
The total cost of producing of a cubic metre of certified final product
is US$255/m3 (Table 3) with a selling price at the factory gate
equivalent to US$291/m3, producing a net profit of US$49 per m3,
Results of sensitivity analyses for price and timber yield variation
(Table 6a–6c) suggest that even if the price decreases by 20% or the
yield decreases by 20%, the NPV for farmers will remain positive and
therefore plantations could still be profitable.
For the sawmiller, even if the buying price of raw logs for the
sawmill increases by 20%, processor will still receive a positive return
from both the certified and non-certified forest products. If the selling
price of products (batten and firewood) decreases by 10%, processor is
still profitable but with a decrease of 20%, they are not.
4. Discussions
The results of this study indicate that, growing acacia plantations
for timber over a 10 year rotation can result in net benefits to both tree
growers and sawmiller. Assuming most of the costs of certification are
borne by external parties, there are higher returns from producing
product for a certified market, with a greater relative return to the
sawmiller from certification.
Similar research in the Quang Tri Province by Hoang et al. (2015b)
reported that the NPVs for farmers from certified and non-certified
acacia plantations was US$4777/ha and US$3401/ha, respectively. Our
results are a little higher for each scenario, because they assumed a
7 year rotation period and a 6% discount rate and here we have used a
10 year rotation period and a 7% discount rate. Their certification fee
was assumed to be US$60/ha and they assumed no certification fee for
harvested products. In our case, we included a total certification fee of
US$126/ha. In addition, there was a variation in the price difference for
certified and non-certified logs in our study (US$8.9/m3) for smaller
logs and US$15.7/m3 for larger logs (Table 2) while Hoang et al.
(2015b) assumed a much larger single price difference between certi-
fied and non-certified logs for all sizes (US$23.3/ha).
Implementing forest certification has several benefits to forestry

Table 5
Returns per cubic metre of final product for farmer and sawmiller at different interest rates.

Actor Return in US$/m3 at 7% at interest rate Returns in US$/m3 at 12% interest rate

Non FSC With FSC Difference in US$ Ratio of certified/non-certified Non FSC With FSC Difference in US$ Ratio of certified/non-certified

Farmer 32.0 37.4 5.4 1.2 19.4 23.0 3.6 1.2

Sawmill 19.7 26.9 7.2 1.4 12.8 17.9 5.0 1.4

Note: Some figures could vary due to rounding error.

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T.N. Maraseni et al. Land Use Policy 69 (2017) 56–63

Table 6a
Sensitivity analysis for farmer (if price of products change by various percentages).

NPV (US$/ha) NPV (US$/m3 of final product)

Price of product changed by 0% +10% +20% −10% −20% 0% +10% +20% −10% −20%
At 7% interest rate Non FSC 4159.6 4759.8 5360.1 3559.4 2959.2 32.0 36.6 41.2 27.4 22.8
With FSC 4866.3 5548.1 6230.0 4184.4 3502.5 37.4 42.7 47.9 32.2 26.9
At 12% interest rate Non FSC 2525.4 2923.3 3321.2 2127.5 1729.6 19.4 22.5 25.5 16.4 13.3
With FSC 2992.1 3444.1 3896.2 2540.0 1265.7 23.0 26.5 30.0 19.5 9.7

Note: Some figures could vary due to rounding error.

management, marketing and compliance as it calls for logical planning,
forest inventory, tending and cultural practices, sustainable harvesting,
and several other environmental provisions (Auer, 2012; Paudyal et al.,
2017). These could also be achieved with other systems such as a na-
tional code of practice. With wide adoption it can add value and pro-
mote the reputation of a country as a wood producer. However, because
of additional costs and other management issues, certification may not
be a desirable option for a smallholder (Auer, 2012; Flanagan and Laity,
2015; Hoang et al., 2015a).
So far, our discussion has been based on current practices in which
the SNV and WWF are organising farmers into a group and support
them by covering most of the certification costs and the farmers
themselves are bearing only a nominal certification fee. Under this ar-
rangement and the scenarios presented here both the farmers and the
sawmiller have positive returns from engaging in a supply chain for
certified forest products. The difference in returns per unit of final
product between the certified and non-certified forest products is
higher for the sawmiller than for the farmer. The sawmiller has a higher
amount of total output and therefore gains a greater total benefit from
certification. In our analysis we have not included the costs of capital
for the sawmiller, or the opportunity costs of other investment options,
nor have we included the potential risks to the farmers of holding trees
over a 10 year rotation. Although our sensitivity analyses indicate that
NPVs from growing trees over this period can still be positive with a
reduction in yield and price of 20%.
Applying the full cost of certification to the grower will change
these results considerably, depending on who bears the costs of certi-
fication. Current policy developments also need to be considered. The
2012 Workshop on “Sustainable Management Certification:
Opportunities and Challenges to Vietnam” in Ho Chi Minh City iden-
tified six issues for forest certification, with a major one being the cost.
It was reported that about US$40,000 is needed for an assessment of
about 10,000 ha of plantation forests and another US$20,000 for an
assessment two subsequent years after certification (Forest Trend,
2012). This cost can vary by forest status, area and topographical
conditions. For example, the actual assessment cost for 2100 ha of
plantation in the Phu Tho province was about US$70,000 and for
11,700 ha rubber plantation was about US$200,000 (Forest Trend,
2012). In addition to this cost, forest owners need to develop sustain-
able forest management plans that can be expensive and difficult to
produce (Forest Trend, 2012). Therefore, certification is considered a
potentially onerous financial burden for a smallholder that may not be
compensated by the additional returns reported in our study.
To meet certification requirements, farmers need to manage the
paper work and implement more restrictive practices to maintain the
certificate. For traders to sell certified logs requires grading of logs
based on diameter, labelling with the FSC logo and keeping records
(Hoang et al., 2015a). These activities consume time and total costs
could be US$60/ha for a 7 year rotation (Hoang et al., 2015b). In our
case, with 10 year rotation plantation, it could be more than US$85/ha.
Group certification could reduce costs. When the FSC certification
processes started in Quang Tri in 2010, the supporting bodies (WWF
and SNV) paid US$12,000 for the initial FSC audit fee and are paying an
annual audit fee of US$7000 for a group of farmers (Hoang et al.,
2015a). This is independent of area, so would be beyond the capacity of
the individual farmers as their individual annual income is about US
$1000.
During field research in January 2017, we heard some estimates of
the minimum area of plantation necessary to make certification viable.
The Director of Department of Forests Protection and the Chairman of
FSC Association in Quang Tri Province suggested that the collective
forest area should be at least 3000 ha. A WWF staff member who is
directly involved in the group forest certification project in Quang Tri
Province suggested a minimum area of 2000 ha (Forest Trend, 2012).
Our analysis (Table 7) suggested that 2000 ha is not adequate to cover
the certification cost but that an aggregation of 3000 ha of smallholder
farmers might receive sufficient overall return from selling certified
wood to cover the costs of certification. The benefits are greater with a
larger area. However, these cost and income estimates are non-dis-
counted and do not include the cost of management plans. Also, the
price difference between the certified and non-certified forest products
may not remain the same and the actual or perceived risks of growing
plantations on a longer rotation are not considered.
In 2014, to promote group certification, the Quang Tri Provincial
Government supported the formation of the ‘FSC Association’ which is
chaired by the Vice Director of the Department of Department of Forests
Protection. The aim of this Association is to bring many farmers to-
gether and increase their collective bargaining and negotiating power.
They can also provide a guarantee for a grower to borrow from a bank.
Currently, 564 smallholder farmers from six districts, with 1722 ha of
certified forests, are involved in this Association. The Association col-
lects funds from the FSC certified smallholders, currently equivalent to
the 7% of price difference between certified and non-certified logs. By
the end of 2016, they had collected US$4027. The head of the FSC
association mentioned that, although they have successfully increased
the number of farmers and the size of the certified forests area (it was

Table 6b
Sensitivity analysis for farmer (if yield of products change by various percentages).

NPV (US$/ha) NPV (US$/m3 of final product)

Yield changed by 0% +5% +10% −5% −10% −15% −20% 0% +5% +10% −5% −10% −15% −20%
At 7% interest rate Non FSC 4159.6 4398.9 4638.2 3920.4 3681.1 3441.8 3202.6 32.0 32.2 32.4 31.7 31.5 31.1 30.8
With FSC 4866.3 5146.4 5426.4 4586.2 4306.1 4026.0 3745.9 37.4 37.7 37.9 37.1 36.8 36.4 36.0
At 12% interest rate Non FSC 2525.4 2684.0 2842.7 2366.8 2208.2 2049.5 1890.9 19.4 19.7 19.9 19.2 18.9 18.5 18.2
With FSC 2992.1 3177.8 3363.5 2806.4 2620.7 2435.0 2249.3 23.0 23.3 23.5 22.7 22.4 22.0 21.6

Note: Some figures could vary due to rounding error.

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T.N. Maraseni et al. Land Use Policy 69 (2017) 56–63

Table 6c
Sensitivity analysis for saw mill owner for 1m3 of final product (if buying rice of raw logs and selling price of products change by various percentages).

Change in buying price of raw logs by 0% +10% +20% −10% −20%

FSC Non FSC FSC Non FSC FSC Non FSC FSC Non FSC FSC Non FSC

Profit 49.5 35.6 29.4 30.8 9.2 1.5 69.7 52.7 89.8 69.8

Change in selling price of products by 0% +10% +20% −10% −20%

FSC Non FSC FSC Non FSC FSC Non FSC FSC Non FSC FSC Non FSC
Profit 49.5 35.6 80.0 61.6 110.5 87.6 19.1 9.6 −11.4 −16.4

Note: Some figures could vary due to rounding error.

Table 7 and required forest area for certification. Due to the additional financial
Costs of group certification for a 10 year rotation plantation by two area scenarios. burden of holding trees for a longer time and high perceived risk of long
Source: Hoang et al. (2015b). rotation plantations, some certified forest owners are exiting from the
Sources of cost and income Cost and income for collective group
system (Hoang et al., 2015b).
certification (US$) To address these issues with certification, the Government of
Vietnam developed a Program of work for the Vietnam Forest
Collective forest Collective forest Certification Scheme (VFCS), which is aligned with the PEFC. The
area of 2000 ha area of 3000 ha
Vietnam Academy of Forest Science (VAFS) has been appointed a key
Paperwork & grading of logs (US$85/ha 170,000 255,000 partner of the Program (BMWi, 2016). This Program is intended to be
in 10 yr)* operational from January 2018. It is likely to face some of the same
Initial audit fee 12,000 12,000 challenges we describe above for the FSC scheme.
Annual auditing fee (US$7000/year) 70,000 70,000
Total cost over 10 year 252,000 337,000
Income (payment from farmers at a 252,000 378,000
current rate (US$126/ha over 10 5. Conclusions
years))
Difference in income and cost 0.00 41,000 Several policies were developed to support expansion of tree plan-
tations in Vietnam with a focus on smallholder tree growers. Increasing
the area of certification and certified forest products is part of a strategy
345 households with 925 ha of forests) since its establishment in 2014,
to enhance the country’s international reputation and retain or expand
it is still not enough to cover the full costs associated with certification.
markets for processed forest products. Processing companies producing
According to him, meeting the 3000 ha target would be difficult be-
for certified timber markets require larger logs grown on longer rota-
cause farmers are not interested in long rotation plantations, a pre-
tions. This study compared the financial returns for smallholder
requisite to producing logs with diameter that meets the FSC buyers
growers and a sawmiller from producing and using certified and non-
requirements, due to the high demand of woodchips and frequent oc-
certified forest products.
currence of typhoons and the farmer’s plantations are highly frag-
The results indicated that, if most of the certification costs are met
mented and scattered throughout the province.
by external parties, there are significant benefits to tree growers and
When comparing our results with those of Hoang et al. (2015a) that
processors from selling certified wood, with greater returns from larger
were done at an earlier time, the prices of both certified and non-cer-
logs. In addition to US$1.3 FSC annual free, smallholders are paying 7
tified raw logs are increasing, but the difference between them is nar-
percent of the price difference of certified and non-certified logs for
rowing. For example, in 2010, the price difference between the certified
certification. If the smallholder growers are required to bear all costs of
and non-certified logs was 19% to 22%, depending on the size of the
certification, it will only be marginally profitable to grow for this
logs (Hoang et al., 2015a) but now our findings show that the difference
market, unless there is a significant increase in the price of certified logs
has narrowed to 15–16%. If this trend continues, certification may be
or the costs of forest management plans and paperwork can be reduced
even less attractive to the farmer. The price benefits of certified pro-
or spread over a large number of growers. Analysis suggests that a
ducts for growers have often been exaggerated and many tree growers
minimum aggregation of 3000 ha may be required to spread the fixed
are often obliged to be certified simply to access key markets.
costs of certification over a sufficient large number of growers to make
For the sawmiller, engaging in a certified supply chain would still be
it cost effective. There are also risks for smallholders in holding trees for
profitable if the price of certified raw logs increased by 20% or the
longer rotations to produce larger logs and in recent years, the price
selling price of certified products decreased by 10%. The costs of cer-
difference between the certified and non-certified logs has narrowed,
tification for sawmillers are much lower than for the growers, as all
which may discourage farmers from participating in forest certification.
they require is a chain-of-custody certificate and a relatively simple
Sawmiller is in a different position and buying, processing and
annual audit of their bookkeeping. They also reported other benefits of
selling certified wood would still be profitable even if the price of raw
certification, including reduced fire safety compliance processes, as the
logs increases by 20% or the selling price of the product decreases by
system automatically covers this. It would be in the sawmiller’s interest
10%. Therefore, it would be in the sawmiller’s interest to increase the
to offer considerably higher prices to the growers for certified logs,
price of larger, certified wood and support measures to reduce costs to
particularly larger logs. This could be facilitated through stronger
smallholder growers through group certification. Forest certification is
communication links between sawmillers and growers.
complex and challenging. The Vietnam Government is implementing
More generally, it is widely recognised that, if the complex ad-
administrative arrangements to support certification but it may take
ministrative procedures are not simplified and costs are not reduced,
time to get large areas of smallholder growers certified. All parts of the
the current (non-collective) certification scheme in Vietnam is not
timber supply chain from planted forests need to work together to ad-
sustainable (To 2012; Hoang et al., 2015a,b,c). Similar conclusion is
dress these issues and realise the broader benefits of certification for
drawn within the Lao PDR context (Flanagan and Laity, 2015). Even the
forest growers and processors.
current group certification schemes, supported by the WWF and SNV in
the study area, have found it difficult to attract enough smallholders

62
T.N. Maraseni et al.
Acknowledgement
This study was funded by Australian Centre for International
Agricultural Research (Project No: ADP/2014/047). We are highly in-
debted to Professor Peter Kanowski (Australian National University,
Canberra) and Professor Rodney John Keenan (University of
Melbourne, Melbourne) for their reviews and constructive comments
and suggestions. We are extremely grateful to all key informants and
interviewees for their time for meetings, discussions and interviews. We
cordially thank anonymous referees and editor for their highly valuable
suggestions which were gratefully acknowledged.
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