Regulating the journey of timber: legality and sustainability governance in Indonesian wood value chains

Abstract

Illegal logging and the trade in illegal timber are significant contributors to deforestation and forest degradation in the Global South. Both public and private forest governance initiatives have emerged to address these problems, internationally and nationally. In Indonesia, the world’s largest producer of tropical timber, a Timber Legality Verification System (in Bahasa Indonesia, Sistem Verifikasi Legalitas Kayu – SVLK) was introduced in 2009 in conjunction with negotiations on a Voluntary Partnership Agreement under the European Union Forest Law Enforcement, Governance and Trade (EU FLEGT). SVLK requires all wood in Indonesian value chains to be legally harvested, transported, processed, and traded. SVLK comprises legality (VLK) and sustainability (PHPL) standards: forest concessions and state forest enterprises must comply with both standards; other actors in wood value chains are required only to meet VLK requirements. Some exemptions are allowed for small-scale growers, processors and traders.

This thesis explores the architecture and implementation of SVLK, actors’ compliance with SVLK, and implications of the results for forest governance in Indonesia. It draws on the concepts of transnational experimentalist regimes, smart regulation, and holistic compliance, and interactions between public and private governance; and uses a value chain framework to structure case study investigations of three wood value chains representing the different forest resources bases in Indonesia, viz. natural, plantation, and private smallholder forests. Around two months of value chain mapping, field observations and semi-structured interviews were conducted for each case; these were complemented by literature review, and analysis of audit reports and policy documents.

Case study results show that some elements of the architecture and implementation of SVLK at each stage of the value chain worked well, but others did not. Legality and sustainability standards are assessed inconsistently and with inadequate emphasis on field performance, and provide no incentive for continuous improvement; inadequacies in the wood traceability system may allow illegal wood to be included into value chain; and witness auditing and independent monitoring are inadequate for the role intended in SVLK design. In the natural forest and tree plantation concession cases, sustainability assessment was problematic in various respects, and less rigorous than that under voluntary forest certification. In the plantation case, other reports suggested SVLK assessments had not identified significant sustainability issues. In the plantation and smallholder cases, there was evidence of noncompliance – in the forms of wood legalisation and illegalisation – at various stages of the case study value chains.

Nevertheless, results from the three case studies suggest that SVLK has been successful in fostering legality compliance, primarily in the value chains dominated by large-scale actors. This outcome is consistent with previous studies of both regulatory and voluntary systems, and reiterates the challenges of regulating value chains with many small-scale actors. However, the non-compliant elements of smallholder-based value chains are largely administrative, and have little adverse environmental or social impact. This is not necessarily the case for the natural forest and tree plantation concession-based value chains, where the limitations of SVLK architecture and implementation, and of actor compliance, appear to be associated with adverse environmental or social impacts.

These findings suggest a number of ways to improve the architecture and implementation of SVLK: by revisiting national legality and sustainability standards, shifting sustainability audit to be more emphasis on field performance, developing a national integrated online wood system and limiting access to only SVLK-verified actors, adopting a product classification, and increasing resources for and the frequency of witness auditing and independent monitoring. To address non-compliance, the roles of the state agencies can be strengthened by stronger collaboration and coordination within and between relevant Ministries and subnational governments; increasing education, financial and technical assistance to encourage smallscale actors’ compliance; enhancing transparency and accountability mechanisms; and investing more financial and human resources in law enforcement. In addition, the state can better harness the capacities of non-state actors by mandating third-parties to enforce SVLK compliance, providing incentive mechanisms to foster compliance, and enhancing access of data and information for independent monitoring and to civil society. Small-scale actors would benefit from effective SVLK-compliant value chain partnerships with large-scale actors.

The results of these case studies are consistent with those of other studies of SVLK as an element of the transnational experimentalist timber legality regime, of the interplay between mandatory and voluntary instruments, of the design and implementation of smart regulatory systems, and of actors’ behaviour. While SVLK has been successful in enhancing stakeholders’ participation in some key elements of Indonesian forest governance, and in fostering the legality of wood products, primarily those directed to international markets, it is not improving the sustainability of forest management to the extent it could. Nor is SVLK designed to address other long-standing underlying challenges in Indonesia’s forestry sector, such as corruption and tenurial conflict. As part of an experimentalist regime, SVLK needs to be adaptive and responsive to experience. Therefore, refining elements of each of the architecture and implementation of SVLK, and of compliance mechanisms, will be necessary to further foster legality and sustainability compliance in Indonesian wood value chains. Show more