Middle-East Journal of Scientific Research 13 (8): 972-982, 2013 ISSN 1990-9233 © IDOSI Publications, 2013 DOI: 10.5829/idosi.mejsr.2013.13.8.3345 Corresponding Author: A.S. Abdul-Rahim, Faculty of Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia. Tel: +603 8946 7654. Fax: +603 8948 6188. 972 Market and Welfare Economic Impacts of Sustainable Forest Management Policy on Timber Market in Sarawak, Malaysia A.S. Abdul-Rahim, H.O. Mohd-Shahwahid, S. Mad-Nasir and A.G. Awang-Noor 1 1 2 3 Faculty of Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia 1 Faculty of Agriculture, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia 2 Faculty of Forestry, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia 3 Abstract: The main objective of this study is to analyse the impact of Sustainable Forest Management (SFM) practices on the timber market in Sarawak, Malaysia. A partial equilibrium model was applied in this study covering domestic and international timber market namely supply, domestic demand and export demand of timber. It was analysed by using a system of equations approach. All of the data are annual time series basis from 1970 to 2008. Based on the first three scenarios, the results show that changing from the conventional logging (CL) practices to SFM practices, reduce the equilibrium quantity of timber and increase the price level. The welfare economic impacts of SFM provide empirical evidence that there is a loss in welfare economic impacts on the timber industry in Sarawak, Malaysia. However, an increase in the domestic price of timber would help to compensate for the loss volume of timber. In addition, the scenarios of market access shows that Sarawak timber industry could benefit from this advantage. Key words: Consumer surplus Producer surplus Equilibrium price Equilibrium quantity INTRODUCTION species and carbon storage. The full valuation of forest In Malaysia, [1] has conducted a study of total invest in and achieve SFM. economics valuation (TEV) approach in the context of Owing to the externality effects, SFM policy is in Conventional Logging (CL) and SFM practices. The TEV favor to provide greater positive externality effects involves use value, non-use value, direct use value, compared to CL practices. For example in Table 1, [1] indirect use value, option value, existence value and found that at national benefit, the total social benefits quasi-option value. under CL and SFM are RM627/ha and RM1,118/ha Table 1 indicates several goods and services with respectively. This has also increased the global benefits respect to the economic value estimated from the two from RM8,389/ha to RM9,146/ha under CL and SFM types of forest management practices namely respectively. In addition, [2] revealed that the cost of Conventional Logging (CL) and Reduced Impact Logging treating the water is lower under SFM practices with less (RIL) practices where RIL is also represent the externality effects. implementation of SFM practices. Both CL and RIL deal This study will not only analyse the determinant of with the impacts of the forest management practices on Sarawak timber market, but also internalise the externality the goods and services of the forest multiple functions effects in the systems analysis. For example, to minimising through economic analysis. Economic analysis is referring the externality effects from timber harvesting operations, to the social effects or externality effects that might the additional activities and procurement are really occurred due to timber harvesting operations. For needed. This will lead to increase in the operational cost. example, some of these include hydrological, rattan, A study by [5] revealed that the operational cost has bamboo, recreation, domestic water, fish, endanger increased by 47% due to additional activities that may goods and services would yield surpluses for countries to