In welfare economics, a competitive market will promote efficient resources allocation in an economical way. However, it is almost impossible to find a perfect competitive market condition due to difficulty in complying the precondition of a ’good competition’ condition. One of the factors causing failure in achieving a competitive market is the asymmetrical information.

Asymetrical information is a characteristic commonly found in business situations. In simple words, the producers understand their product quality better than the consumers. In an ideal situation, the consumers should have the power opt for higher quality products rather the lower ones. Although some consumers will choose low quality products for its inexpensive price, there are consumers who prefer to pay more for high quality products. Unfortunately, it is not easy for the consumer to decide on the product quality until they purchase one.

The market failure generated from the asymmetric information is adverse selection. This occurs when products of different qualities are sold at one price and consumers do not have adequate knowledge to determine the actual quality at the time of purchase. As a result of this situation, more low quality products will be available in the market rather than the high quality ones. The above implication of asymmetric information was analyzed for the first time by George Akerlof in 1970 (Pindyk et al, 2001).

The explanation on the above asymetric information is relevant to review the current forest product trade, particularly for the timber products. The question here is how to minimize the impact of the asymetric information so that both producers and consumers can get benefits from the transaction. In addition to that, what role should the government play to ensure that forest products are generated from forest resources that have been managed based on sustainable principles, thus enabling consumers to transparently receive the product’s information.

Paradox of Sustainable Forest Management Certification
Sustainable forest management becomes a credo of many stakeholders since 1990s. The increasing consumers’ awareness on timber products originated from sustainable managed forest areas and the increasing size of forest degradation areas all over the world have led to initiatives to set up the standard of and certification on sustainable forest management. The above initiatives derived from civilian community members. Several initiatives derived from Forest Stewardship Council (FSC) and Programme for the Endorsement of Forest Certification (PEFC) – previously known as The Pan-European Forest Certification. In indonesia, a national initiative also emerged and LEI is the realization of the above initiative.

With intensive support from environmental organizations, voluntary driven forest certification becomes a special market control tool. The producers must comply with standards, in which regulations and limitations are stated, so that their products can be accepted by the market. On the other hand, buyers or consumers are free of limitations. In other words, producers or forest managements must commit to the principles of sustainability while at the same time consumers are free from the burden to give more appreciations to certified timber products. Thus, paradoxially, certification as a market control tool is separated from the market itself (Cris van Dam, 2003).

Efforts on providing accurate information to consumers will very much depend on the producer’s credibility and reputation. Standardization becomes the key word for this context. The question here is how to set a standard on which all stakeholders can fully trust? The standards must come from parcitipative processes involving all stakeholders. Thus, voluntary certification will morally binds both the producers and consumers.
Sustainable forest management certification also becomes the instrument to overcome asymetric information through market signaling. The market signaling concept developed by Michael Spence (Pindyck et al, 2001) indicates that in the market, both producers and consumers give signals on product quality. The timber product labeling (ecolabeling), is actually the point in where producers and consumers compromise with each other. Producers, through their standardized label, inform their product’s quality, while consumers as end users can verify the product’s quality to the institutions providing guarantee on the products.

Government’s Intervention
Despite the strong pressures from global environmental organizations, it does not necessarily mean that forest managements and producers possess strong commitments to implement sustainable forest management standard ina voluntary way. The existing market gap tolerant to non certified timber products, the low market incentive for certified products, and the inadequate enabling conditions to meet the standards such as illegal logging, forest clearing and tenurial conflicts, have all resulted in the slow development of sustainable certified forests in Indonesia.

Therefore, the endorsement of Forestry Minister Regulation No. P-38/Menhut-II/2009 on Standards and Guidelines of Performance Assessment on Sustainable Production Forest Management and Timber Legality Verification of the Concessionaries or Forest Right as government intervention to address the low compliancet of forest management performance based on sustainability principles. Nevertheless, this intervention is also due to the pressures from overseas countries which takes the form of Voluntary Partnership between the government of Indonesia nad EUto eradicate illegal logging activities.

Forest is public goods and common property resources, accessible by community members for free. As a result, forests are exceivelly used and result in externality. This means that the usage of the current resources will disadvantage future generation. Therefore, through regulations, the government can issue management permit for private sectors. This can act as a legitimation for the government once sustainable forest management certification and legality verification become mandatory in the future.

What effort should we take to increase the market acceptance on the above mandatory system? First, the assessment and verification process must be able to proof the principles of credibility, transparency and accountability.

Second, the market has different preferences on mandatory and voluntary certified products. Civilian community’s role, such as social and environmental organization, is very powerful to provide information on the assessment standards and procedures to the consumers.

Mandatory certification will compete with voluntary certification, like FSC and PEFC which have provided strong preferences to the consumers at international level. LEI, as national voluntary initiative, have recieved recognition in Japan and Europe markets. It would be better if KAN which has been appointed to conduct mandatory certification and verification processes sits together with LEI, creating synergy and strategic alliance to compete in international market. The Government should also give recognition on the initiatives of business community which has implemented voluntary certification. In this way the market will also respond positively to government’s recognition.

Third, there should be clear information on the position of sustainable forest management performance certification and mandatory legality verification, to avoid bias in the consumers’ side. Legality should be a part of the process towards sustainable forest management. What LEI has developed through the staged certification scheme can provide clear description on both processes’ position.

It takes some time to see the market’s response to the mandatory scheme. However, consumer’s preference level on forest product will continuously change, thus the implementation of sustainable forest management standards, both mandatory and voluntary, in order to reduce asymmetric information, must be reviewed and updated continuously.

Jakarta, 16 Juli 2009
*) This article was published in AgroIndonesia Tabloid, No. 259, July 21 – 27, 2009

Should the Indonesian government wish to seriously handle the corruption cases, they should learn it from the dayak Iban in Sungai Utik in the regency of Embaloh Hulu of Kapuas Hulu District, West Kalimantan. The Ibans live as if the have no ambition of making excessive profits by conducting corrupted practices. They choose to live simple an in a communal way. The have no ambition of which the “modern people” possess nor to perform corruption practices. They never think of destroying the forest area in where they reside and manage. But one should not take the effort of the Ibans perform in preserving forest areas for granted. At the moment the Ibans reside in the katumenggungan of 7 villages namely Jalai Lintang’, Lauk Rugun,Mungguk,Pulan, Apan(Langgan Baru), Ungak, dan Sungai Tebelian

The Dayak Iban serious effort in preserving forest areas finally drew the attention of the central government. In Agugst 7, 2008, the son of Dayak Iban Bandi Alnak Ragai, also called Pak Janggut received the Sustainable Forest Management Certification for Kampung Sungai utik community. The certificate was handed over by MS. Kaban, the Forestry Minister.

Since 2004 to 2006 Lembaga Ekolabel Indonesia (LEI), Aliansi Masyarakat Adat Nusantara (AMAN), Forest Watch Indonesia (FWI), and European Union have conducted collaboration work program in Kampung Sungai Utik, Embaloh Hulu Regency, Kapuas Hulu District of West Kalimantan Province. The work program involved 3 community extension organizations in assisting and preparing the Sustainable Forest Management standard implementation of which the traditional community groups are capable of playing the role.

Taufik Alimi, the Executive Director of LEI said that since March 2008, PT. Mutu Agung Lestari (PT.MAL) –acting as LEI accredited quality certification provider — has conducted series of Sustainable Community Based Forest Management assessments. Forest certification (ecolabel) assessment is an appreciation that what the Sungai Utik community has performed in preserving the forest area deserves to be acknowledged by granting them the Sustainable Forest Management Certificate .

The successful handing over Sustainable Forest Management Ecolabel Certificate was held in a Rumah Panjang located in ; Jl. Lintas Utara Putussibau-Badau Km. 77,8, Embaloh Hulu Regency, Kapuas Hulu District of Kalimantan Barat Province.

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