NOVEMBER 1995 · VOLUME 16 · NUMBER 11

---

H A R V E S T I N G    S O U T H    A M E R I C A

---

Spanish conquistadors of present-day Chile encountered huge forests of coigue, rauli, lenga, alerce, araucaria, and pitao -- trees that were named by the Mapuche, or "people of the earth." With the defeat of the defiant Mapuche south of the Biobio River in 1891, the conquistadors razed area forests to deprive the Mapuche of protective cover. Wealthy landowners cleared another 300,000 hectares of forest for pasture and agricultural fields a decade later. But this historical deforestation was minor compared to what began after General Augusto Pinochet seized power in 1973.

Deforestation by decree

Between 1965 and 1973, the Chilean government invested in national parks, forest research and management, reforestation and the timber-processing industry. The military leaders who seized power through a bloody coup in 1973, viewed Chile's public forests as an asset to be quickly plundered, all but giving away logging rights. Where the government had previously invested in the reforestation of public lands, it now helped reforest lands that were owned and cut by timber companies, subsidizing private-sector profits. The new government decreed Law 701 in 1974, directing the state forestry agency, Conaf, to reimburse private firms for most of their reforestation costs.

Law 701 sped the destruction of native forests and concentrated ownership within the forestry industry. Seeking the fastest return possible, timber companies planted quick-growing imported species of pine and eucalyptus. From 1975 to 1985, more than 100,000 hectares of native forest were lost in central Chile alone, according to Chile's oldest conservation group, the Committee for Defense of Flora and Fauna (Codeff). Approximately 30 percent of native coastal forests were eliminated and replaced by pine between 1978 and 1987. Although environmentalists identify 11 native trees as endangered and 26 others as vulnerable, the state only bars the cutting of two species, alerce and araucaria.

The government reimbursed reforestation costs at a flat rate and, since big timber companies enjoy lower unit costs, Law 701 encouraged industry consolidation. Larger timber companies bought up smaller ones, as well as buying state timber land at preferential prices. In 1977, 14 firms owned 88 percent of the forest land, with the remainder divided up among 47 other companies. By the end of the 1980s, four timber groups controlled 95 percent of the industry: the Matte Group with 47 percent, Cruzat-Larrain with 29 percent, Vial with 10 percent and Luksic with 9 percent.

Two giants, commodity exporter Copec and CMPC, the Chilean Matte Group's pulp and paper interest, dominate the industry. CMPC manages more than 480,000 hectares of eucalyptus and pine in Chile. Copec is jointly owned by two timber interests, Chile's Angelini group (60 percent) and Carter Holt Harvey of Wellington, New Zealand. Carter Holt's controlling shareholder, in turn, is New York-based International Paper.

On paper, Law 701 provides for relatively stiff penalties for logging done without approval by Conaf. If the company cuts trees without authorization and gets caught before it has sold the forest products, it is subject to a fine of twice the commercial value of the extracted products. If the products are sold before Conaf detects the crime, the penalty can rise to three times the value of the cut timber. Penalties, however, are rarely enforced.

Codeff conservationists studied forest law infractions occurring between 1989 and 1993 in Region 10, in the heart of Chilean forest country, to the south of Santiago in south-central Chile. The data revealed that more than 60 percent of illegal logging cases brought to local police courts by landowners, citizens or rangers were dropped. Moreover, when illegal cutters were penalized, the courts imposed fines that were substantially lower than the recommended fines. In some cases, the imposed fines were 85 percent less than the recommended ones.

Because of lax regulation, no one knows for sure how much forest land Chile has left and what condition it is in. An inventory of Chilean forests has not been conducted in 30 years, according to Maria Luisa Robleto of Greenpeace South Pacific.

Shredding trees

While Law 701 sped the destruction of native forests and concentrated ownership of the forestry industry, another Pinochet-era law encouraged multinational timber companies to literally shred Chilean forests for wood chips.

In 1985 and 1986, the Pinochet regime decreed a series of laws to stimulate exports and foreign investment through such incentives as tax deferments on imports of capital goods and exempting value-added imports from customs duties. For example, Law 18.480 of 1985 was designed to promote non-traditional exports, which included wood chips, eucalyptus leaves, rosehips and agar, a seaweed extract. The law offered a 10 percent rebate of the export value for goods worth less than $2.5 million.

Wood chips were the main non-traditional export pursued by foreign companies, most of which were from Japan, New Zealand and Switzerland. Wood chips offer a convenient way to transport wood to distant processing plants, where they can be converted into particle board and paper.

Wood chips are also an export that provides Chile with a minimal economic return for the heavy environmental toll that the export extracts. Under Pinochet's permissive policies, multinationals gained easy access to Chilean forests. With little incentive to process the wood in Chile, many timber firms simply feed the trees into shredders and vacuum the wood chips into the hulls of waiting ships. "We've seen with our own eyes how [timber companies] take immense trees and shred the whole thing, branches and all," says Adriana Hoffmann. Approaching Puerto Montt, a seaport in logging country 650 miles south of Santiago, three large hills made of wood chips rise up from the docks -- one of eucalyptus, another of pine and the largest of native species.

Native species account for 75 percent of all wood chips produced in Chile, with 99 percent of native species chips destined for the export market. In contrast, Chile's domestic plywood, furniture and cellulose pulp industries use approximately half of the chips made from faster-growing, introduced species such as eucalyptus and radiata pine.

International demand for wood chips and pulp has outstripped Chile's current ability to regenerate forests. Since eucalyptus and pine plantations have not been able to keep pace with demand, native forests are being cut to pick up the slack. In another five years, tree farms are expected to be able to meet this demand. But by then, with Chile cutting 20,000 hectares of native forests a year and with annual wood chip exports of 8 million cubic meters, a heavy toll will have been exacted on the country's remaining native forests.

Although just 11 percent of Chile is forested, compared with an average of 50 percent for the continent, Chile is Latin America's largest wood chip exporter. Despite its modest territory, Chile is the world's third-largest chip exporter, after Australia and the United States. Japan is the largest importer of Chilean wood chips, followed by Finland.

Chile's high ranking as a wood chip exporter has less to do with natural endowments than its highly permissive laws. Many countries place restrictions on wood chip production because it provides little economic return relative to its environmental devastation. The United States and Canada, for example, only convert wood scraps into chips. South Africa and Australia require that exported wood chips only come from tree farms.

Competitive edge

Chile's forest industry has come a long way since the 1950s, when it did little more than mill boards from native forests for the internal market. At that time, 80 percent of all lumber exports traveled to neighboring Argentina.

Chilean lumber exports earned less than $100 million in 1970, representing less than 6 percent of the country's total exports. By 1994, lumber accounted for 12 percent of Chile's expanded export income, bringing in annual export revenues of more than $1 billion. This performance made forest products the second most important Chilean export, after copper.

With a recent recovery in international prices, Chile's forest product exports in the first half of 1995 were worth almost $522 million, up 65 percent over the same period in 1994. Japan is the most important market for Chilean timber products, accounting for 23 percent of these exports. South Korea and the United States each buy between 10 percent and 11 percent of the total, with Belgium, Italy, Argentina and Taiwan accounting for most of the rest.

Environmentalists and lumber executives realize that Pinochet's legal legacy is the key to the country's competitive advantage in forestry products, which the industry is determined to preserve.

It is only in the last 20 years that the private sector has been given the confidence to develop, says Hugo Knockaert, executive secretary of the plantations department of the Chilean Wood Corporation (Corma), an industry trade group. The industry is relieved that Patricio Aylwin and Eduardo Frei, the two presidents who have been elected since Chile's 1990 democratic transition, "have maintained precisely the same forest policy inaugurated by Pinochet," Knockaert says. "The success that can be achieved by stable policies has been proven."

Lucio Quenca, an economist at the Political Ecology Institute (IEP) in Santiago concedes that there is little chance of reforming the Pinochet lumber laws in the near term. The first democratic transitional government under Aylwin failed to muster the votes for a native forest bill. A new, even tougher bill is in the works, but is unlikely to fare better. "If Corma doesn't like it, Congress will never make it law," Quenca says. Meanwhile, the Frei government has proposed that the Congress extend Pinochet's original forest give-away decree, Law 701, for another 15 years.

Chilean environmentalists, Knockaert says, unfairly single out the forestry industry, ignoring the fact that farmers are clearing forests to grow foreign species like kiwi, potatoes and wheat. "It is easy to criticize the big guys, but no one dares criticize the campesino who cuts down trees for firewood," Knockaert says. "If we exhausted the forest resources, we would be putting ourselves out of business. The industry is the forest's best friend."

Fernando Raga, Corma vice president and general manager of Forestal Mininco, a CMPC subsidiary, agrees that the "stable political and economic climate" since 1973 was key to Chile's forestry boom. But Raga calls for "reasonable" environmental legislation, given that "today, the world judges a country by its environmental record." To address these environmental sensitivities, Raga says that the Chilean wood industry will soon put a green seal on finished wood products, certifying Chile's "first-class forest management."

Environmentalist Adriana Hoffmann suggests that the industry go one step further, asking, "Why don't they stamp green seals on wood chips?"