Existing policy instruments for conserving tropical forests have shown limited success. This paper investigates the feasibility of improving the technical efficiency of the wood processing industry as an alternative approach to forest conservation, using sawmills in Sri Lanka as a case study. Improved wood processing efficiency decreases the volume of raw material (logs) required to produce a given quantity of processed wood products and, therefore, decreases the pressure on forests lands. A stochastic frontier production function was estimated to assess the technical efficiency of sawmilling in Sri Lanka. Given the considerable inefficiency found in sawmilling operations, current sawn wood output can be obtained with 28% less inputs. Compared with other policy measures, technical efficiency improvement has a potential to play a noteworthy role in conserving natural forests.



The opinions reflected in this paper do not represent the views or the policies of the Asian Development Bank.


These innovations include: (1) best open face technology, which optimizes the initial line for sawing; (2) edge-glue and rip method, which reduces the wood lost in edging; (3) saw-dry-rip method, which increases the defect-free lumber available from hardwoods; and (4) use of sharper and more stable blades, which can increase lumber recovery from logs by 5% to 10%.


In Thailand, the average is 7000m3/year and in Indonesia it is 30 000 m3/year. Thus, the average output of a sawmill in Sri Lanka is lower than that of other Asian countries.


Wastage here refers to using more inputs than necessary to produce the current output.


The first regression equation estimates the production function to calculate efficiency scores.


In general, protected natural forests are the least disturbed forests and historically remained intact due to high cost of timber extraction. In addition to the location and related high cost of harvesting protected forests, there are additional costs of being caught and punished for illegal logging. Such costs are highest for the protected forests.

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