Indonesia’s forestry sector is in deepening crisis. There is an increasing supply-demand imbalance which is the key underlying structural problem that drives illegal logging and trade (Barr et al, 2001). The over-harvesting necessitated by the timber supply deficit has resulted in increasing deforestation, which over the last 7 years has been hovering at around 3 million hectares annually (Sinar Harapan, 28 November 2006). The latest data from the Ministry of Forestry (MoF) indicate that despite numerous efforts to curb forestry crime in Indonesia. This inability can be attributed to many reasons, among others corruption and weak law enforcement. The interesting thing to keep in mind is the fact that official calculations of supply and demand are based only on the available register of the bigger woodworking factories. This means that hundreds of sawmills and chainsaw operators with smaller capacity do not enter the equation – thereby significantly under-reporting the official timber consumption (demand) in Indonesia.

Forests are important to the livelihoods of millions of Indonesians by providing jobs, cash income and various goods such as fuel, medicines, food and construction materials. One source estimates that approximately 48.8 million people live on state forest land and about 10.2 million of these are considered poor (Brown, 2004). Another, more conservative, estimate suggests that approximately 20 million people in Indonesia live in villages near forests, of which about 6 million receive a significant share of their cash income from forest resources (Sunderlin et al, 2000).  In 1997 the Central Statistics Bureau found that a conservative estimate places the total number employed in wood based industries above 800,000. Adding by the number of workers in the logging sector that year, formal forestry activities and their associated industries provided employment for roughly one million workers, (1.1% of the 1997 workforce (CIFOR, 2004). Employment in the informal forest-based sector most probably outnumbers employment in the formal sector (cf. Poschen, 1997). This includes informal logging, activities involving non-timber forest products and small-scale commercial tree planting.

To improve forest governance and reduce illegal practices in the forestry sector, Indonesia entered into the EU-sponsored FLEGT process in 2003. The vehicle for achieving this is a Voluntary Partnership Agreement (VPA) that Indonesia is now negotiating with the EU. In the view of the future negotiations, Indonesia has already undertaken numerous multi-stakeholders' consultations and it is hoped that the final VPA will provide both parties with a sound basis for preventing export and import of illegally-harvested timber. The first formal negotiation took place in Jakarta in March 2007, followed by the 2nd in July 2007. This meeting identified tools for implementing VPA by using independent assessment of the Timber Legality Assurance System (TLAS), including needs for strengthening the capacity of law enforcers, the judiciary, forest operators, as well as marketing.

While FLEGT/VPAs are generally seen as a positive development at the macro-economic scale there are potentially negative implications for rural livelihoods. As the VPA process will result in tighter forestry legal framework, it will exclude the small-scale logging segment, largely dominated by rural communities logging and chain sawing for subsistence.