1

Mexican and German Communal Forestry: An Accountability Framework for Comparing

Governance

Camille Antinori, Visiting Economist, University of California at Berkeley, Department of Agricultural

and Resource Economics

Chantal Ruppert, Albert-Ludwigs-Universität Freiburg Germany, Institute of Forestry Economics

2

Goals of Research

1. Define and compare common property forestry in each country

2. Show that, although large differences exist, each can learn from the other because of:

• Shared issues of management accountability and accessing expertise • Both have system of collective action at the local level • Both share issues of controlling their managers and accessing

expertise

3. Developing a framework to compare governance patterns an the base of agency theory and transaction cost economics

Result: Fruitful insights for each country emphasizing control mechanisms and merging responsibilities among the actors

3

What is “Common Property Forestry”

• Mexico: – Agrarian sector: ejidos / comunidades– Ag land: individual use– Forest land: common use– Since 40’s: policies of closing then opening local

access to forest for commercialization

• Germany: – Forest owned by municipalities– Post WWII – state consolidated both in East and West– Post-”unification”: devolution to municipal control

4

Mexican and German Communal Forests

• Mexico: – About 60 million ha of forest– 60-80% (37m ha. in one estimate) are “communal”– “Megadiversity country” in climate, and tree species

• Germany:– About 11m ha of forest– 20% (2m ha) are “communal”– Moderate climate, and moderate tree diversity

5

Goals in Forestry Management

• Mexico:– Income– Jobs– Environmental services, reduce deforestation

• Germany:– Recreation– Conservation– Self-financing as a minimum requirement / income

6

Shared issues: Need of…

• ... Access to knowledge of technical and business management skills for forestry

• ... Accountability of both internal and external actors

• …Greater scope to implement transparency and control measures to carry out community-motivated management objectives

7

Comparing governance structures of community forest management

We look for balance of decision-making powers and suggest:

• The oversight of measurement / accountability measures has big affects on the ability of organization, to invest and to manage.

• That recent institutional innovations in each country are exactly in response to this need but have to be enhanced.

8

Political-Economic System

Green=Community; Yellow=State; Blue=Private

Example: Mexican Stumpage Community

ASAMBLEAGENERAL

SERVICIOS TECNICOS

FORESTALES

JEFE DE MONTE DOCUMENTADOR

COMISARIADO CONSEJO DEVIGILANCIA

Private firm

SEMARNAT

PROFEPA

Example: German Forestry Management

Mayor/council

Municipality citizens

State Forest Office

State / municipality / private workers

State Managers

9

Decision Monitors:Ratify decisionsMonitor decisions

Decision Managers:Generate proposalsImplement decisions

Owners:Residual Risk Bearing

Actors in Productive Organization

10

Decision Monitors:GAJVAdvisory councilsNGOsSemarnatProfepa

Decision Managers:ForestersCBCGeneral managerJefe de Monte/Patio

Owners:Community members

Mexican Agrarian Communities

11

Monitors:State forestry officeMayor/CouncilForest CouncilMunicipal SupervisionAuditors Certifiers

Managers:Statemunicipal official private managerprivate ranger

Owners:Municipality

German Municipalities

12

Ideas from Agency Theory

• Internal control e.g. for in-house management, special forest technical advisory board

• External control e.g. independent controller

• Nonfinancial control by agents – Agent signaling– Agent securities

e.g. contract arrangements and hands-tying like reputation

• Incentive systems– “Hard” incentives

e.g. benchmarking circles – “Soft” incentives

e.g. trust and value orientation

13

In forestry, organizing forestry management and timber operations can

take the forms of

1) Market (e.g. private company) leading to a separation of roles

e.g. hiring a private company to manage a non divers forest

2) Hierarchy (e.g. community-managed operations), leading to a

greater combination of roles

e.g. vertical integration in Mexico

3) Cooperatives/associations, leading to hybrid of separating and combining roles

e.g. special purpose association in Germany

Ideas from Transaction Costs Economics

14

Experience from “Field Work”: Different Patterns

Why do German municipalities open their doors to private companies for management?

Respectively

Why don't we see this in Mexico?

15

Mutual lessons: Example for Germany

Germany needs help with exploring ways to develop local involvement and break away from the state.

Mexico offers to Germany a variety of decentralized contractual arrangements for their timber operations.

16

Mutual lessons:Example for Mexico

For Mexico external controls is still necessary, as well as internal controls.

Germany offers to Mexico ideas for external control like community benchmarking circles and stronger court systems, using certification system

17

Conclusions

• Paper is motivated by a perceived need to systematize the many case study observations across disciplines to improve local accountability to improve management.

• We looked at where there are accountability weaknesses and strengths by comparing two different but similar cases.

• Our analysis suggests that the measurement and monitoring problem at various stages of decision making challenge the organisation for forestry.

18

Thank you for your attention

19

Both Theories highlight Moral Hazard Problem

• The organizational structure is chosen to minimize the costs of moral hazard and the costs of mechanisms to reduce it.

• In both theories, uncertainty gives rise to the measurement and monitoring problem and affects the organizational structure.

• Moral hazard is mitigated through the institutional environment for exchange and contractual safeguards.

20

Possible institutional mechanisms - Germany

Status quo Ideas with regard to theory Ideas from status quo in Mexico

Risk-bearing attitudes and ability

municipality bears the whole risk Better definition of goals and objectives of the production activityHaving at least one person with specific knowledge about forest in the councilSpecial contractual relation to reduce natural risk (e.g. leasing) but be aware of moral risk

General meetings among membership to discuss forestry mattersOutsourcing harvesting services (stumpage contracts)

External control

state officials control the keeping of law and their control the management planState sponsored management plansCertification company controls the keeping of the certification standardsaccounting control by the public office

separating managing and controlling in the case of state managementUsing benchmarking circlesContracting the forest plan maker for controlling the observing the plan by the manager/ Contracting other external institution for this functionContracts in more details for using the court, when the manager is breaking the contract

NGO involvement in some cases

Internal control

Quantitative inventoryCameralistic accounting systemCouncil, mayor and in some cases a special forest council with political members

Quanitative and qualitative inventorydouble-entry accounting systemreporting systemadvisory board with representatives for the different interests of the municipality / having at least one person with specific knowledge about forest in the municipal councilbuild reserves for the forest because of possible calamitiesincluding citizens

General managers responsible for forestry onlyDecisions more related to the citizens

Hard Incentives

10 year contracts, without fixed goals and details

Neoclassical contracts with variation in length and details, special arrangement/ securities to reduce the riskNo officials so that the manager can be fired if he is not acting in the sense of the municipality

Soft incentives

Education“Waldgesinnung”

Reputation/ asking for other signalsGiving special securities fixed by contractSame values (manager from inside the municipality)

21

Possible institutional mechanisms - Mexico

Mexico

Status quo Ideas from theory Ideas from status quo in Germany

Risk-bearing attitudes and ability

Formulation of objectives in General AssemblySelf-financing Individually based government supportGovernment forestry programs

Greater access to capital, technical knowledge, marketing and managerial expertise

External control SemarnatProfepaUnions

Market information clearing houseContract enforcementTrade assoc separate from production services

state officials control the keeping of law and their control the management planBenchmarking circlesCertification company controls the keeping of the certification standards

Internal control General AssemblyJefe de VigilanciaWork groups

More advisory councils and general managersInvolvement of forester in community decisionsimproved access to business expertise to create business plans and access loansAccounting practices More financial creativity to provide collateral for loan

Hard Incentives Some long-term contracts or relationships

Neoclassical contracts with variation in length and details, special arrangement/ securities to reduce the risk

Soft incentives Manager from inside the communityReputation of contractors

More training with focus on marketing Training in sustainable practices

22

Mexico: b/w 14*32’ and 32* 43’ lat N; 86 * 42’ and 118* 27’ long westGermany: b/w 47°- 55° lat N; 6°-15° long W

23

Forests

24

Uses

25

Shared Issues

• Both economic and political organization combined into one governance system

• Challenges: – Germany: move to more local control– Mexico: enhancing local management

• Controlling managers is a question

• Accessing expertise