"Forests are a critical environmental and economic resource for Sri Lanka," the Australian embassy in Colombo said in a statement.
"During the past hundred years Sri Lanka has lost half of its forest cover. Deforestation and forest degradation is a source of poverty for rural households.
"It results in less availability of water for farming and drinking, more time needed to collect firewood and increases the risks of drought and fire.
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"Forests in the dry and intermediate climatic zone are particularly vulnerable but also contain a large number of poor farmer communities that use forest resources to survive."
Sri Lanka's forestry department with Australian support had done a pilot program from 2003 to 2008 in 55 areas in Anuradapura, Kurunegala, Matale, Monaragala and Puttalam.
The pilot had regenerated of 11,000 hectares of forest and increased the monthly income of beneficiaries by almost 100 per cent.
The Forestry Department expanded the community forestry model into