I. Introduction
Indonesia is known to be one of the lungs of the planet since the country is covered by rainforest that can absorb CO2 from the atmosphere. The forest is not only providing this service but more than that it can provide other service such as wood. This one of forest product is mainly used for building materials, furniture, and more recently as biofuel. There are many firms from small to large in Indonesia that can transform this one forest product into reliable building materials and furniture, some firms are able to reach global market such as previously discussed company WOOD. However, the sustainability of their production can be questioned because the production of wood is tied to biological limit that the forest has also the land use competition with other activities.
There are some efforts taken by firms to take the forest into its full potential in producing wood. This activity is facilitated by the government regulation that allow state owned and local private enterprises to have forest concession right. The right allows the enterprise to manage and admit the forest products as their asset within limited time period, therefore it able to optimize production and secure its sustainability by various forest management practice. However, it is hard to find any source that explains the performance of this activity in Indonesia. It is therefore worth to investigate how is the performance of forest concession activity in producing wood to grasp the production of its derived products.
II. Analytical Framework and Regression Results
To investigate this small research used the measure of forest concession performance in producing wood during 2006 – 2018. The data is taken from Indonesia Statistical Agency that include yearly forest concession area and wood production from the right holder. The performance is measured by using one input production function with technology coefficient. Time trend is added to measure the technological change direction and price is added as control for production. The production is therefore,
where Y is wood production, K is total concession area, A is technology coefficient or the productivity of concession are in producing wood which is the function of price (P) and time trend (T), and b is the parameter to be estimated. The production function is transformed into linear form using logarithmic to make linear regression function below,
In the above equation the notation i is for island grouping and t is for year. The equation also accommodates time invariant variation by adding constant for each island grouping a and allows unexplained productivity variation e that expected to have zero mean and constant variance. This technique is known as Least Square Dummy Variables (LSDV) or Fixed Effect estimation.
The regression results are very reasonable. The results show positive b coefficient with high confidence for both without and with control models. This coefficient sounds reasonable because it means wood production is positively related to concession. Additionally, this coefficient implied that a one percent higher in concession area produce more than one percent higher woods. The results also show that productivity varied across the islands with Sumatera is the most productive area for wood production. However, this result found no conclusive evidence for the control variables since both have statistical range from negative to positive value. The coefficient for time trend is negative 0.01 but the standard error is 0.02 which means the coefficient can be negative 0.03 or positive 0.01, both will say different conclusion about productivity trend.
III. Discussion
The regression results concludes that the sustainability of Indonesian wood production within concession area can only be explained by the size of the area. Meanwhile, technological progress plays an unimportant role during the observation period because it is unclear whether it increases or decreases. The conclusion is sustainability of wood production can be seen by the evolution of forest concession area over time and it will not be sustainable if the forest area decreases over time as the data shows during observation period.
This condition might be the best explanation nowadays wood become more luxurious and getting more expensive. It also allows other substitutes for building materials and furniture to thrive in the market such as steel for building materials and plastic for furniture. The furniture manufacturer also innovates to offer more affordable products using various wood products that combined with some chemicals. However, the continuation of this trend combined with an increase in demand for wood products as income rises (see for example Abdulah et. al., 2020) will put pressure in the price of wood products and put halt on the expansion of wood products manufacturer. The higher price of wood-based products will also make it faster for the shift to non-renewable materials such as wood substitutes such as steel, cement, and plastic.
IV. Cited and Uncited Reference(s)
Abdulah, Lutfy, Endang Suhendang, Herry Purnomo, and Juang Rata Matangaran. “Measuring the sustainability of wood consumption at the household level in Indonesia: Case study in Bogor, Indonesia.” Biodiversitas Journal of Biological Diversity 21, no. 2 (2020).
Aryapratama, Rio, and Stefan Pauliuk. “Estimating in-use wood-based materials carbon stocks in Indonesia: Towards a contribution to the national climate mitigation effort.” Resources, Conservation and Recycling 149 (2019): 301-311.
