An FAO interview highlights how Nepal’s community forests support millions and drive green jobs, while policy, finance and market barriers hinder scaling a sustainable forest-based economy for long-term growth inclusive.
Nepal’s forests cover around 46% of the country’s total land area. The forestry sector contributes approximately 3 to 4% to the national Gross Domestic Product (GDP) and supports more than 150,000 jobs through 30,000 community-based forestry institutions.
According to the Government of Nepal, revenue generated from the sale of timber and fuelwood (USD 50.19 million) was higher than the total revenue collected from protected areas (USD 37.58 million) and Non-Timber Forest Products (NTFPs) and Medicinal and Aromatic Plants (MAPs) (USD 6.9 million) over the past 15 years.
More than 2.9 million households are involved in community forestry groups. This shows that forests are not only ecological assets but also key drivers of rural livelihoods, local economies and sustainable development in Nepal. It also aligns with Nepal’s climate commitments including the target in its third Nationally Determined Contribution report to maintain 45% forest cover and strengthen sustainable forest management.
On the occasion of World Forest Day, Mukesh Pokhrel, Nepal Editor at The Climate Watch, spoke with Ken Shimizu, FAO Representative for Bhutan and Nepal, about forests, livelihoods and the economy in Nepal. Here is his full interview:
What does the theme “Forests and Economy” mean for Nepal?
The theme underlines that forests are not only environmental assets but also major economic drivers. In Nepal, forests support millions of rural households through timber, non-wood forest products, ecotourism, ecosystem services and forest-based enterprises.
With nearly half of the country under forest cover and a globally recognized community forestry system, Nepal has strong potential to make forests a pillar of a green, inclusive and resilient economy. More than a third of the population, around 35%, belongs to community forest user groups that collectively manage about 2.4 million hectares.
Since its establishment in Nepal on May 24, 1977, FAO has promoted productive landscapes in both agriculture and forestry. As of 2025, FAO Nepal has mobilized around USD 14 million in this sector through projects such as the Forest and Farm Facility (FFF), Building a Resilient Churia Region in Nepal (BRCRN), Scaling up Climate Ambition on Land Use and Agriculture (SCALA), the Eastern Hills initiative and Restoration of Forests and Mountain Ecosystems (ReFaME) in Far-West Nepal.
How is FAO supporting forest-based economic transformation in Nepal?
FAO supports Nepal through policy advice, technical assistance and capacity building to strengthen sustainable forest management and forest-based economies.
A major area of support is designing integrated landscape-level interventions that focus on climate-resilient landscape management, forest and farm producer organizations, forest-based enterprise development, sustainable harvesting and stronger market systems along with data and governance improvements.
These efforts are already showing results. For example, the FFF supports local forest and farm producer startups and sustainable forest and farm management. The BRCRN project, funded by the Green Climate Fund, targets ecosystem and community resilience in the Churia region.
What approach does FAO Nepal follow to promote forests and forest-based economies?
FAO Nepal’s approach is based on a simple principle: sustainable forest management must go hand in hand with economic empowerment and inclusive rural transformation.
Nepal’s community forestry model provides a strong base. FAO has worked closely with the Ministry of Forests and Environment as well as civil society partners including FECOFUN to strengthen forest user groups and their networks. It has also invested in transparent governance, policy dialogue and multistakeholder coordination so that the sector moves forward in an integrated and comprehensive way.
One key initiative is FFF, which helps producer organizations move beyond subsistence management and rise up the value chain through value addition, sustainable marketing channels and responsible resource management in forest landscapes.
In Nepal, FFF has focused on the central and western Churia landscape, working in Makwanpur, Nawalpur, Nawalparasi, Kapilvastu, Dang and Chitwan.
Forests are also central to Nepal’s climate commitments. FAO supports carbon sequestration, restoration of degraded forest and land and provides technical support for forest monitoring and reporting. The economic incentives promoted by FAO and its partners are aligned with conservation outcomes.
Is this enough to improve people’s livelihoods and prosperity? What still needs to improve?
There are several areas that need improvement.
First, Nepal needs a more integrated approach to strengthen sustainable production and value addition in forest-based industries. There is a strong opportunity to scale up successful practices and focus on key commodity hotspots to generate greater economic benefits for local communities.
Second, forest users, producers, civil society, value chain actors and investors have long called for improvements in the regulatory and investment environment. Stronger policy implementation and better market integration are necessary to attract greater private sector participation while maintaining sustainability standards.
Third, community forest enterprises need stronger service delivery, market linkages, finance and entrepreneurship support to grow beyond small-scale operations.
At the same time, forests must continue to provide critical ecosystem services such as watershed protection, carbon sequestration and disaster risk reduction. Economic opportunities must strengthen, not weaken, these functions.
Nepal’s forests have the potential to move beyond subsistence use and become a strong engine of green growth, employment generation and resilient rural livelihoods.
How do forests contribute to Nepal’s economy in practice?
Forests contribute by creating rural employment and green jobs, promoting small and medium forest enterprises, increasing income through value addition of non-timber forest products, supporting ecotourism and nature-based businesses and strengthening carbon finance and ecosystem services.
FAO Nepal has continued to support forest-based value chains including timber, bamboo and non-timber forest products such as medicinal and aromatic plants and plant fibre. These efforts have strengthened community enterprises, cooperatives and producer groups and contributed to employment and income generation.
They have also helped connect sustainable forest management with enterprise development and markets, with visible progress in moving from subsistence use of forest resources toward commercially viable and sustainable forest-based businesses.
In Makwanpur, women entrepreneurs revitalized an allo enterprise through these initiatives. Local partners supported women-led businesses and a community forest included allo in its climate-resilient strategy by planting more than 3,200 allo plants to strengthen raw material supply and restoration.
In Chitwan, FFF-FAO supported 50 self-employed women producers with training in biodegradable packaging, financial literacy, digital literacy and marketing. It also supported the use of a moulding machine that converts agricultural by-products such as corn husks into packaging, helping strengthen value addition and market positioning.
What is FAO doing to strengthen private sector engagement, markets, trade and investment readiness?
Strengthening forest-based economies requires moving beyond simple production toward competitive market systems where private sector engagement is central.
Through programmes such as FFF, BRCRN, SCALA, ReFaME and the Eastern Hills initiative, FAO supports producer organizations with business incubation, marketing, financial services and stronger links to buyers and service providers.
At the landscape level, it also promotes investment pathways by using climate and restoration finance to connect ecosystem restoration with resilient and market-oriented livelihoods. In the next phase, FAO will place greater emphasis on quality standards, public-private partnerships and blended finance so that community-led and women-led enterprises can scale sustainably and meet both domestic and export market demand.
Despite such support, why has the private sector not grown more strongly?
The slow growth of the private sector in Nepal’s forest-based economy is not simply due to a lack of support. It reflects deeper structural challenges in the way the sector has evolved.
Nepal has made remarkable progress in community forestry, which has helped restore forests and empower local communities. However, the sector has historically focused more on conservation, subsistence use and welfare-oriented practice than on building a strong forest-based economy.
The forestry sector also operates within a complex regulatory and institutional environment. This can make it difficult for private investors and service providers to build partnerships with forest-based enterprises and expand operations. Harvesting permits, transport rules and compliance procedures can create uncertainty and delays.
Another major challenge is the weak development of integrated value chains and processing infrastructure. In many cases, timber, medicinal plants and other non-timber forest products are sold in raw or semi-processed form, with little value addition happening locally. As a result, much of the potential economic value leaves the production areas and sometimes even the country.
Access to finance, technology and market information is also limited, especially for small and medium enterprises in rural areas. Financial institutions often view forest-based businesses as risky because of long production cycles and uncertain returns.
At the same time, Nepal’s community-centered forestry model remains a major strength. What is needed now is stronger collaboration among community institutions, the private sector and government agencies to unlock the full economic potential of forests.
What global lessons from FAO’s experience are relevant for Nepal?
FAO’s global experience shows that forest-based economies perform best when communities have secure tenure and clear rights supported by enabling frameworks that reduce barriers to sustainable harvesting and trade. Sustainable finance mechanisms for small-scale enterprises are also critical.
FAO has also documented strong evidence that economic incentives must be aligned with conservation goals. Nepal already has strong community forestry institutions. The next step is to scale up green economic interventions and competitiveness while maintaining sustainability.
How does forest-based economic growth align with climate and sustainability goals?
A sustainable forest economy helps prevent and reduce forest and land degradation, strengthens climate adaptation, protects biodiversity and enhances carbon sequestration.
When forests are used sustainably, economic value creates stronger incentives for conservation rather than exploitation. This fits directly with Nepal’s climate commitments and green growth vision.
FAO Nepal’s support for forest-based economies is aligned with national policy frameworks including Nepal’s Forest Policy 2019, the Sustainable Forest Management Guidelines 2024 and Nepal’s Nationally Determined Contributions.
What are the main challenges in developing Nepal’s forest economy?
As highlighted earlier, the challenges include limited access to finance and investment in forest-based industries and enterprises along with complex regulatory requirements governing timber and NTFP trade.
FAO and its partners are supporting reforms and capacity development to address these bottlenecks through initiatives at local, subnational and national levels while linking lessons and experiences with global initiatives.
These bottlenecks matter because they reduce incentives and returns for sustainable management and limit resilience investments that could lower disaster risks such as floods, erosion and landslides.
Finally, what would you like to say on the occasion of International Forest Day?
Forests are economic assets that, when sustainably managed, promote livelihoods, generate employment and strengthen resilience. Under the theme “Forests and Economy,” FAO reaffirms its commitment to support Nepal in transforming its strong community forestry foundation into a dynamic, inclusive and climate-resilient forest-based economy that benefits people, planet and prosperity.
Moving from pilots to market-ready portfolios requires a focus on investment readiness, regulatory simplification and robust digital data systems to unlock nature finance and create decent green jobs for women, Indigenous Peoples, youth and marginalized communities. By strengthening local governance and value addition, these forest-based enterprises can deliver on Nepal’s climate goals while also boosting rural incomes and watershed health.
With the right investments and partnerships, FAO Nepal will continue working to help make forests a powerful engine for inclusive economic growth, climate resilience and sustainable rural development.
