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16. The role of rural energy

Jike Yang

1. The energy consumption of peasant households in China

The damage caused by biomass burning

Each year, about 500 million tons of biomass fuel are burned by rural households. This figure is one-third of China's total energy consumption. In the plains region, where there is a large population and limited arable land, biomass is used as a substitute for fuelwood. In the townships of mountain regions, distances to fuelwood harvesting sites are much greater than before. In the dry area of north-west China, the fuelwood shortage is becoming a serious problem. If we calculate rural household energy consumption in terms of standard agricultural output values, energy consumption per 10,000 yuan output is 9 tons of coal equivalent (tce). This figure is far higher than the energy consumption level of China's consumer goods industry and close to the average level of heavy industry. It is therefore important in the Chinese rural economy to cut this figure to 4.5 tce. This target could be achieved by widespread use of the straw-saving stove, the biogas stove, and the solar stove (known as the "three stoves").

The coefficient of heat conversion of rural biomass burning is as low as 10-15 per cent. Taking a typical rural family relying mainly on straw burning as an example, the average effective thermal quantity needed every day for five people is about 3,100 kilocalories (kcal); in mountain areas where rural families rely on fuelwood, this figure is about 4,200 kcal. Compared with the straw- or fuelwood-saving stove, with a coefficient of heat conversion as high as 30-40 per cent, at least 50 per cent of biomass is wasted. Given that there are 192 million rural families in China, the total annual loss is about 280 million tons of biomass, which is equivalent to 77 million tce.

Another big loss from biomass burning is that the organic nitrogen content in biomass is released into the air as oxides of nitrogen and cannot return to the soil as fertilizer. Compared with the biogas digester, in which the organic nitrogen content in biomass can be saved and returned to the soil, the annual loss of organic nitrogen from biomass burning in China is equivalent to 5 million tons of ammonium sulphate or 6 million tons of ammonium carbonate. In energy-deficient rural areas, large-scale biomass collection and burning is causing serious damage in terms of the ecological balance and further shortages of biomass resources. A vicious cycle is thus formed leading to serious problems such as soil degradation in plains areas, deforestation in mountain areas, and devegetation in the grasslands.

Corrective action

As described later in this paper, at every level of official and nonofficial organizations, remarkable efforts have been made in order to reduce rural energy expense and to tap new energy sources. In many regions, the serious problems of household energy are being solved or ameliorated. A beneficial ecological cycle is gradually being formed.

Straw- and fuelwood-saving stove

In order to prevent huge energy losses from small stoves, the Department of Agriculture has introduced the straw- and fuelwood-saving stove in several hundred counties. It is becoming very popular and is spreading quickly among peasants. A statistical survey was conducted in Fuyang County, Anhui Province, with a random sample of 107 rural families. The results show that the household straw-saving stoves have greatly increased the coefficient of heat conversion, a quarter of them up to 20-30 per cent, half of them up to 30-40 per cent, and the other quarter up to 40-50 per cent. This shows that peasants have indeed mastered this innovation. If applied to the whole country, by 2000 huge amounts of biomass equivalent to 7.5 million lee would be saved. By solving the household energy problem, eco-agriculture could be developed in China. A 100,000 km "green great wall" has been planted in 20 counties in the plains of northern Anhui Province, and crop yields have increased every year.

The biogas digester

Biogas is not only used for cooking, heating, and lighting in rural households, but also has ecological benefits. Through anaerobic fermentation, elements of hydrogen and carbon are separated from nitrogen, phosphorus, potassium, boron, molybdenum, zinc, and iron, which are used as both fuels and fertilizer. The methane gas produced in rice fields as a pollutant can be converted into a useful fuel in a biogas digester. Therefore biogas technology utilizes biomass energy and also provides one of the best environmental protection measures.

Fuelwood forestry

There are many fast-growing tree shrub species that could be selected for fuelwood forestry. In this selection process local conditions must be considered and breeding experiments conducted. For instance, a shrubby legume called purple-spike locust is a good choice because its branches can be used for fuel or for making baskets and lining mine tunnels, the leaves and twigs can be used for feed, and the green plough-under becomes a good organic nitrogen fertilizer owing to its nitrogen-fixing capability. It is a perennial plant and it is hardy. In addition to optimized species selection, a combined configuration of trees, shrubs, and grasses should be adopted for maximum utilization of solar energy through photosynthesis.


The eco-agriculture idea could be realized in the plains areas by keeping one-third of the land for crops while using another third for forestry, and another third for forage grasses for livestock raising, and by rotating usage of the land. In the alluvial plain of the Yellow River and Hui River, this idea is gradually being realized. Rural families are making a lot of money by selling timber and fuelwood products from plains forestry. Combined with the straw-saving stove, the rural fuel shortage has been solved. Further consideration should be given to the comprehensive utilization of the remaining biomass, as both fuel and raw materials for the chemical industry. The economic benefits of plains forestry are invaluable.

Solar energy

The annual average solar radiation on earth is 120 kcal/cm. Over two-thirds of China it is more than 140 kcal/cm. and in Qinghai, Gansu, Xinjiang, and Tibet it is more than 200 kcal/cm. This renewable energy could be put to daily use by technologies such as the solar stove, which collects heat by focusing sunlight, and the water heater using the black-body conversion technique. In rural areas, solar energy can be utilized not only for cooking and heating, but also for growing rice seedlings, incubating, greenhouse planting, and drying processes. Solar energy stoves are becoming a valuable compensating energy source in energy-shortage areas, especially in north-west China which has higher than average solar radiation intensity. In China, there are 66 counties, cities, and districts and more than 30 research and development institutes and manufacturers engaged in developing, utilizing, and introducing solar energy. A new solar energy industry is beginning to appear.

Overall achievements by 1992

The Department of Energy and Environment of the Ministry of Agriculture has provided me with some figures on the rural energy situation. By the end of 1992, about 150 million rural families in China had replaced their old stoves with straw- or fuelwood-saving stoves and 5 million rural families had installed biogas digester pits. The capacity of small hydropower stations was over 14.42 gigawatts (GW) and annual power generation was 44 terawatt hours (TWh). Fuelwood forests covering 4.5 million hectares had been planted. Around 140,000 rural families had installed solar stoves, and solar water-heating devices with a total effective area of 1.55 million m had been installed. Energy-efficiency technologies for use in kiln combustion and in tea and tobacco drying had been developed. Altogether, in China's rural areas, the energy saved and new energy developed is equivalent to 8 million tce, making this a leading project in terms of the investment to energy output ratio. More than 1,000 technical personnel in over 100 research institutes have been working on rural energy development. By 1992, over 2,700 enterprises, 1,400 township-level petrol stations, and over 16,000 construction teams in the rural energy industry had been established.

2. The energy consumption of township enterprises in China

The boom in township enterprises is a significant step in the reform of China's rural economic system. Along with the rapid development of rural enterprises, more peasants are leaving their land to go to nearby towns to work in these enterprises and other trades or professions. This will create more energy demand. The development of township enterprises will reduce the labour available for farming and accelerate the growth of intensive farming practices. On the other hand, owing to the imbalance between the supply of and demand for commercial energy sources, rural energy development is urgently needed. Another important factor is that a prosperous township economy provides more financial support to the development of rural energy resources. Rural energy development is fundamental to township enterprises and, in turn, it relies on the vigour and prosperity brought by newly emerged township enterprises.

The rapid growth in township enterprises is creating many social, economic, and environmental problems, of which the problems of energy and environment are the most serious. The energy shortage in rural households has been partly solved. One reason is that more straw is available with increasing rates of growth in agriculture. Other reasons are the widespread use of straw-saving stoves, biogas digesters, and solar stoves and the cultivation of fuelwood forestry. The energy shortage in township industries, however, is becoming increasingly serious, and there are growing demands for commercial energy sources such as coal, petroleum products, and electricity. The implications raise several issues.

The value of low energy consumption in agriculture

Agriculture in the United States is totally mechanized, 90 per cent of it being petroleum powered. For each kcal of farm product, 15 kcal of energy is invested. Hence during periods of oil price crisis, American farmers could not make ends meet even if the output of their farm products was increased, and subsidies from the government were required to support their farming activities. In developed countries where agricultural mechanization is adopted as a measure to promote productivity, this might be a common situation. A serious problem of energy efficiency is also induced by such practices. Many international economists take a critical view of oil-powered agriculture and have suggested that China's agriculture should emphasize land productivity rather than labour productivity through petroleum-powered agriculture.

The dependence of agricultural production on commercial energy in China is far less than in developed countries. Although agricultural machinery power has reached well over 300 GW in China, it accounts for less than 40 per cent of the total power used in agriculture. The rest is still provided by manual and animal labour. It is likely that rural household energy will continue to rely on all sorts of biomass energy and other renewable energy sources. Commercial energy consumption per 10,000 yuan of agricultural output is only 1.0 lee for agriculture, which is much less than the figure of 5.5 lee per 10,000 yuan for heavy industry, and also less than the 1.2 lee per 10,000 yuan for light industry. The low consumption of commercial energy by agriculture is an advantageous feature that could also be introduced into the processing and transportation of farm products. Biogas-fuelled small power stations and farm trucks are typical examples. The benefits in terms of society and the environment are significant.

The high energy intensity of township enterprises' consumption

A team investigating township enterprises' energy consumption sampled 22 counties in different parts of China. The statistical data show that energy consumption per 10,000 yuan output ranges from 1.1 lee in Ningbo County, Zhejiang, to 16.7 lee in Xingyang, Henan. The median is 7.9 lee in Rongcheng, Shandong. This median figure is 2.6 times higher than the figure for China's light industry. A major factor in township enterprises' high energy consumption is the building materials industry. In Xingyang County, the coal consumption by the building materials industry is as high as 60 lee per 10,000 yuan output, accounting for 23 per cent of the county's total coal consumption, whereas in Ningbo County the figure is 5.5 tce, accounting for only 7 per cent of the county's total coal consumption. Thus, in addition to energy saving by technology and management, attention also needs to be paid to structural energy saving for township enterprises.

The energy-saving potential of household handicraft industries

The characteristics of household handicraft industries are:

1. They are labour intensive and could combine into enterprises with a substantial scale of production.

2. They could be divided into many specialities and distributed among households, thus reducing energy consumption and increasing the economic benefits.

3. They comprise many production levels and could cooperate voluntarily to produce a series of products.

4. The techniques are simple and easy to learn. This makes it easier to switch types and kinds of product whenever demand in the market changes and therefore to increase competitiveness.

The concept of "one town, one product" has recently been spreading. This involves handicraft products from thousands of rural households, all powered manually. For instance, in the region of Dabie Mountain where bamboo trees are abundant, a handicraft processing industry is emerging. Bamboo shoot fibre is shredded by rural households. This material, with high tensile strength and good elasticity, can be used as a good-quality filling in the furniture industry, so it is in great demand in domestic markets. These energy-saving household rural handicraft industries not only support various light industries, but also dramatically increase the incomes of poor rural families through hard work and utilization of local resources without damaging the environment.

Employing surplus rural labour

By 2000, China will have a surplus of 70 million entering the labour market. In addition, 110 million peasants will transfer from farming to other trades. This labour corps is certainly too huge to be absorbed by China's cities. One solution would be to coordinate their labour, capital, and farm products with other productive elements such as investment capital, government subsidies, and new technologies. In this way, it might be possible to give them a good chance to be employed in various kinds of nearby township service or light industries rather than looking for jobs in cities far away from their homeland.

China's rural population increase will also increase the demand for energy, and the rise in peasants' standard of living will further increase this demand. It is obvious that problems of energy, population, employment, and environment are closely interconnected. Given the potential for expansion of township industries and the pressure to absorb more surplus labour from the surrounding rural regions, we must try our best to control the population by all effective measures.

Increasing energy supply shortages

It is expected that there will 300 million people working in township industries by 2000. If each worker's output amounts to 3,000 yuan, and assuming average energy consumption per 1,000 yuan drops from the present 790 kilograms of coal equivalent (kgce) to 310 kgce, the commercial energy supply will amount to 200 million tce. In China, 37 per cent of villages still lack a power supply, and average rural power consumption amounts to only 60 kWh per capita, which is only 1 per cent of US consumption. The total power capacity of farm machines (mainly tractors) is 150 GW, but the average yearly worktime is a mere 300 hours owing to insufficient supplies of diesel fuel. The yearly energy requirements of villages and towns in 2000 are estimated to be 300 TWh of power and 20 million tons (Mt) of diesel fuel. In view of the fact that demand for energy in urban areas is increasing faster than that in rural areas, the ever-increasing shortage of energy supply in city industry will make township industries lag further behind. It will therefore also be difficult to fulfil demand in rural areas.

The value of emerging service industries in townships

If China's more than 60,000 townships could each develop a competitive product that suits local conditions, then all service industries supporting the development of this product should play their part in order to enable it to sell well in the market. As the practice of "one town, one product" becomes more widespread, linked occupations such as industrial plantation, livestock farming, storage, manufacturing, transportation, marketing, information, construction, finance, insurance, researching, consulting, and other service industries are also increasing. Most of these occupations belong in the category of tertiary industries, and would provide jobs for young workers. If an average of 3,000 workers in each town could be absorbed into these trades, 180 million workers could be employed and the problem of their influx into cities could be avoided. In terms of energy consumption, no more than 100 kgce per 1,000 yuan GDP would be needed to support these service industries, and their output-input ratio would be one of the highest. However, effective training of managers in each business category should have priority. It would be logical for them to come from cadres willing to change jobs as well as from educated young people returning to their own villages and towns.

The potential energy output of human and animal power

There are 300 million rural labourers in China providing energy equivalent to 18 GW. Suppose each of them works 250 days per year and 8 hours per day, their total work would be equivalent to 36 TWh. However, other than manpower-operated machines such as bicycles and sewing machines, neither R&D institutes nor machine industries have paid much attention to the development and production of similar machines or equipment that are highly efficient but consume little commercial energy other than manpower. A large part of this energy is wasted owing to the use of inefficient old-fashioned equipment, although this situation is improving since the opening of commodity markets everywhere.

As for the number of draught animals, this is expected to increase from a recent figure of 80 million to 200 million by 2000. The energy output of 80 million animals is equivalent to 33 GW. Suppose they work 140 days per year and 8 hours a day, their total work would be equivalent to 37 TWh. The same amount of work of 37 TWh would consume 17 million tons of diesel oil per year if generated by diesel engines. Research shows that the average draught animal's yearly work is only 70 days or 16.5 TWh, with an efficiency less than 50 per cent. However, the energy of animals is indirectly derived with great efficiency from solar energy and should not be neglected in rural agro-industrial activities. In some developing countries such as China and South-East and South Asia, they are still major power suppliers for farming. Quite a few environmental workers consider the efficient use of animal power in rural areas instead of petroleum as a matter of progress rather than retrogression.

The advantages of small-scale hydropower plants

Small-scale hydropower potential in China amounts to 150 GW, of which 70 GW can be exploited. Construction of new small hydropower stations is planned to add 25 GW by 2000, using less than one-third of the total potential. Analysis of available data reveals that the capital requirement of these stations was 1,250 yuan per kW, which is affordable by rural communities. Since they satisfy the essential requirements of both economy and technology, these new stations should be constructed as soon as possible. With a national effort, capacity of 45 GW could be constructed. Such a power supply would greatly facilitate industrial development for township enterprises in mountainous regions. For power stations where over 60 per cent of their drainage area is covered by vegetation, it would be feasible to raise funds on liberal terms from the local community or bank for their construction.

The capacity of numerous small hydropower stations would add up to quite a large figure despite their individual small scale. The power from each plant could be consumed locally, thus avoiding the necessity to invest in long-distance transmission lines. In addition, small stations could be constructed in far less time than is required for large projects. They could also have the benefit of providing flood-control and irrigation for local regions if integrated with other water and soil conservation projects. Fuelwood harvesting would end if the hydropower supply were used for cooking, as already happens among about 20 per cent of local inhabitants in China's 700 counties where hydropower is available. Hydropower is used, too, in township enterprises such as pottery, tobacco, and tea industries for their thermal energy demands. The outcome of all these measures is that: forests are preserved, the environment is protected, and tourists are attracted.

3. The benefits of energy efficiency improvements and the use of new and renewable natural resources

Reduced use of synthetic fertilizers

There are several ways to reduce expenditure on energy and to tap new resources in China, such as the development of straw- or fuelwood-efficient stoves, biogas digesters, solar stoves, and fuelwood forestry. All these measures could save large amounts of biomass from being burnt. The renewable biomass thus saved could be digested either in biogas pits or by herbivore animals to produce valuable organic fertilizers to be returned to arable land after the production of biogas or animal products. This is a good way to reduce the amount of synthetic fertilizers used in farming, and to maintain the quality of the soil, which is an important factor in sustaining high yields on arable land. Biogas has another function of killing rats and pests in grain bins, thus lessening the loss of grain in storage.

Maintenance of soil quality

It has become common knowledge that excess use of synthetic fertilizers has a destructive effect on soil quality, and their diminishing returns on China's arable land have already given warning to the government as well as to peasants. Since the development of renewable energy sources in rural areas produces large quantities of organic fertilizers to replace synthetic fertilizers, this in turn is of great help to the development of sustainable eco-agriculture. In fact, whatever the model of eco-agricultural system, it must be built on the basic reconstruction of rural renewable energy resources.

Increased rural incomes from backyard-farming

In China's vast areas of farming districts, family-size backyard-farming is popping up everywhere. Although the type of business varies, the outcome is quite similar; i.e. the family works harder and makes more money both of which are good for the rural socio-economy. For instance, a typical family in Funan County has installed a biogas digester pit in their backyard. Depending on the supply of biogas, jobs such as cooking, seedling and vegetable cultivation, fertilizing, pest control, grain storage, and animal feeding keep the whole family a lot busier but also a lot richer than before.

Amelioration of the energy shortage

China has a large variety of biological resources, yet on a per capita basis they are quite low and they are far from completely and comprehensively utilized. Their economic potential is limited, and wastage is considerable. If people could make full use of them, their potential outcome would be tremendous. In hundreds of projects set up by China's National Committee of Science and Technology, many have been enabled to develop this potential under prevailing conditions in China's rural areas. One of the problems that has arisen is, of course, the inadequate supply of energy for farm production. In view of the fact that the supply of commercial energy to rural and township agro-industry is likely to be limited for rather a long time, this increases the importance of developing rural renewable energy resources such as solar energy, wind energy, biomass energy, tidal energy, geothermal energy, etc. to higher levels as the best solution to this energy shortage.

The sustainable development of rural agro-industry

A high proportion of peasants have made a fortune from domestic livestock rearing. Pigs, cows, cattle, rabbits, geese, fish, crabs, and silkworms are the prevailing products in Funan, Feixi, Jieshou, Fuyang, Lu'an, Jiashan, Wuhe, and Jinzhai counties, respectively, in Anhui Province. In Funan County, biogas enthusiast Shen Chaojun invented the technology of using fermented liquid drawn from biogas digester pits as an additive to raise pigs with great success. Another technological invention worth mentioning here is the successful interplanting of wheat and paulownia trees in the vast East Henan and North Anhui regions. This new method of combining farming and forestry not only increases peasants' incomes, but also greens the rural areas and humidifies the micro-climate. Rural families could benefit from using liquid from a biogas digester pit to raise pigs, or from a biogas lamp, a manpowered sewing machine, and a biogas iron to run a garmentwork business. It is clear that different kinds of renewable energy resources could aid the sustainable development of rural agro-industry in developing countries such as China's vast rural areas.

The dispersion of culture and industry from urban centres

There are many links between urban and rural areas. Apart from commodity trading, communications and transportation, information transmission, technology transfer, and the export of training and labour services, the dispersion of culture and industry from urban centres into the surrounding rural areas also needs consideration. According to business research, the most economic industrial layouts are those of light industry and the textile industries, and in particular the food industry. For example, the primary processing of products such as tobacco, tea, and sweet potato (mostly dehydration processes) is carried out in situ, whereas subsequent processing and packaging into finished products occur in township factories. Those factories require an adequate supply of raw materials from the surrounding rural areas to keep both sides in business.

Reduced energy intensity

Past agro-industrial development in China involved incompatible demands for economic inputs for agriculture and energy development. This is the main reason for the declining output-input ratio in agriculture in recent years. Considering that agriculture and energy are China's two focal strategies, a joint strategy appears even more important. From the point of view of outputs and inputs, rural energy development has a large output-input ratio. It has already been seen that the straw- or fuelwood-efficient stove can improve thermal efficiency by 30 per cent at very little expense. In comparison, a coal mine project to produce 4 million tons would require an input of 800 million yuan and a construction period of 8 years. The same thermal value could be saved by installing millions of efficient stoves in rural families at a fraction of both the inputs and time required in investment and research and development. It is no exaggeration to say that the output-input ratio of this rural project would rank first not only among all energy-efficient projects, but also among all other industrial projects.

Other socio-economic, environmental, and resource benefits

The spectrum of research and development of high and new technologies in the field of energy conservation in China's rural areas has broadened quite a lot since 1978. The socio-economic, environmental, and resource benefits have thus been greatly improved.

For example, ever since improved pig-raising started in Funan County of Anhui Province, there has been an upsurge in the combined construction of biogas digester pits, pigpens, and latrines, which is spreading far and wide. Peasants have found that the addition of fermented liquid from the pit to feeds makes pigs disease resistant and gives them a better appetite. This is because bacteria and the eggs of parasites are completely killed in the process of anaerobic fermentation in the sealed pit, and nutritious ingredients such as the B vitamins and amino acids are produced in the same process. For instance, lysine, which is lacking in natural pig or chicken feed, shows up in the pit liquid samples. If these developments were further combined with the sinking of water wells and water filtration measures, both environmental and health conditions in rural areas would be greatly improved.

4. Summary

Rural energy consumption in China is spreading from household to industry nowadays, and is leading to a nationwide energy shortage.

Thus, the rapid advance of township industries is incompatible with the present energy supply, which must be treated as an important element in the national reconstruction of more than 60,000 townships in China. In spite of there having been a good start in the development of renewable energies in rural areas, a large amount of work still remains to be accomplished in order to develop the land sustainably, not only for ourselves but also for coming generations. As the statistics show, although China leads the world with some 5 million biogas digester pits having already been constructed, this is a tiny figure in relation to China's 192 million rural families. If the total energy content of the biomass accumulated through photosynthesis were to be fully utilized, this would tap a hundred-fold larger amount of energy resources. Other statistics show that only a quarter of the 20 GW capacity of small-scale hydropower stations in east and south China's seven provinces had been exploited. Furthermore, the 300 counties with successful rural electrification experiments represent only 17 per cent of the total number of counties in China.


Statistical data on the development of rural energy and environment after 1988 were submitted by Deng Keyun, head of the Department of Energy and Environment, Ministry of Agriculture of China, to the Committee on Environmental Protection, National People's Congress of China. Statistical data on the development of small-scale rural power after 1988 were submitted by Zheng Xian, head of the Department of Hydropower, Ministry of Water Conservancy of China, to the Committee on Environmental Protection' National People's Congress of China.

Comments on part 5

Yujiro Hayami

I have little disagreement with Dr. Takase on the issues covered by his comprehensive and well-balanced review. Therefore, I will mention only one critical issue that is not covered, that is the need to design institutions that are compatible with the incentives of local people to conserve natural resources in developing economies. I will draw on two examples of forest conservation programmes that I observed in South-East Asia.

The first example relates to a programme of privatization of forest land management in Viet Nam. Since 1981, Viet Nam has moved from the socialist-style cooperative-managed farming system to a household-managed system. The cooperative farms were subdivided and allocated to individual households to be privately managed. It is well known that this reform has resulted in major increases in crop yields, especially for rice. More recently, Viet Nam has begun to experiment with a programme that transfers forest land to individual household management. Under this programme, state-owned forest lands hitherto managed by cooperatives are allocated on long-term leases to individual households if they agree to reforest and manage them properly and to hand over a share of the timber harvests as ground rent.

In comparison with arable land, forest land is less amenable to private management by a single household, partly because of the externalities involved in the use of forest land and partly because of the difficulty of demarcating it into distinguishable parcels for exclusive use by individuals. To my surprise, despite the theoretical difficulties involved in the privatization of forest management, this scheme appears to be highly successful. Reforestation has been speeded up, and forest conservation has been strengthened. Usually, a hill neighbouring a farmer's residence is allocated to his household, so that protection of the forest against fire and timber theft can be efficiently accomplished by the family with little opportunity cost. Further, when land is allocated that is a long way from home, farmers have built temporary huts where family members stay to guard the plot. It was also remarkable to find in the site we visited that the boundary between allocated sectors was clearly demarcated by an open space, sometimes marked by stones, which was used as an access road into the forest.

Typically, households that are allocated forest land plant seedlings of eucalyptus, pine, and acacia, mainly using family labour during the slack season for farming activities. For a few years they grow upland crops between the seedlings, then, as the trees become taller, the forests begin to provide employment and income from thinnings and prunings for fuel and other uses as well as from grazing for animals.

It is too early to judge the success of this household-managed forestry system. It appears, however, that this scheme has great potential for solving the difficult problem of how to achieve the socially optimum conservation of forest resources while producing current income and employment for local people not only in Viet Nam but also in other developing economies in the third world. In many developing countries, such as Indonesia, Thailand, and the Philippines, most forest land is under state ownership and management. Yet, partly because of the weak administrative capacity (and, often, corruption) of public agencies and partly because of the difficulty of organizing local communities for collective action, serious depletion of forest resources has been ubiquitous.

To reverse this trend it is necessary, but not sufficient, to strengthen government administrative capacity and community organizational power. A crucial requirement is incentives for individuals to undertake resource conservation efforts in a way consistent with social welfare criteria. The household management of forest lands in Viet Nam appears to represent a highly promising example of "incentive-compatible" institutional arrangements.

In contrast, an institutional design based on a miscalculation of local people's incentive mechanism can result in devastating failures in natural resource management. Such a case was observed in a reforestation project in the Philippines about a decade or so ago. This project attempted to mobilize local people's labour for reforestation by paying a fee per seedling planted. This scheme speeded up reforestation, but, as hills and mountains in nearby villages were planted with seedlings, people found their employment opportunities disappearing. They therefore began to destroy the seedlings by setting fire to them at night.

The effective design of institutions for the conservation of natural resources in the third world must be based on a full understanding of human behaviour and incentive systems in local communities.

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