MTCC suspends certification certificate for Kedah
A press release from the Malaysian Timber Certification Council (MTCC) gives details of the suspension of forest management certification for the Kedah State forest management Unit (FMU).
An announcement on the MTCC website reads “ (The) Certificate for Forest Management issued to the Kedah State FMU (FMC 0003) against the requirements of MC&I (Natural Forest) have been suspended with effect from 8 May 2019 until further notice.
SIRIM QAS International made this decision after the Kedah State FMU failed to close a major Corrective Action Request (CAR) following the second surveillance audit carried out by SIRIM QAS International. It is required that any major non-conformity raised must be adequately addressed within the given time for the FMU to maintain its certification.
In light of the above development, all logs sourced from the Permanent Reserved Forests (PRFs) in the Kedah State FMU beginning 8 May 2019 (i.e. all logs accompanied by Removal Passes issued dated 8 May 2019 and onwards) will not be recognised as PEFC certified material under the Malaysian Timber Certification Scheme (MTCS).
Nevertheless, the logs originating from Kedah State FMU can be accepted as PEFC Controlled Sources, provided that a due diligence system has been implemented and does not involve sourcing of logs from conversion areas.”
Sabah export update
The latest statistics released by the Statistics Department of Sabah show exports of major timber products for the first three months of 2019 were worth RM265 million.
Of the total, RM59.4 million was from sawnwood exports, (22.4% of total), RM188 million from plywood exports (70.5% of the total) and almost RM18 million from exports of veneer.
The volume of sawnwood exports in the first quarter was 28,409 cubic metres with China being the main buyer (10,200 cubic metres) followed by Taiwan P.o.C (7,274 cubic metres) and Thailand (1,856 cubic metres).
For plywood, the total volume exported was 86,667 cubic metres with most being shipped to Japan (16,429 cubic metres) followed by South Korea (14,591 cubic metres) and the US (13,570 cubic metres). For veneer, exports were 9,466 cubic metres and the main buyers were South Korea (3,305 cubic metres), Japan (2,251 cubic metres) and the Philippines (1,993 cubic metres).
ASEAN determined to conclude Regional Comprehensive Economic Partnership
Leaders of the Association of Southeast Asian Nations (ASEAN) are determined to conclude the Regional Comprehensive Economic Partnership (RCEP) this year according to the chair of the recently concluded 34th ASEAN Summit held on 23 June in Thailand.
“All member states agreed that the RCEP is important for this region because of the uncertainty of the world economy. The partnership will be an important strategy to drive members’ GDP growth and attract investments to ASEAN”, said Thai chairperson, Lt. Gen. Werachon.
The RCEP comprises all 10 ASEAN members plus China, Japan, South Korea, India, Australia and New Zealand which have a combined population of 3.56 billion, with trade worth US$10.3 trillion or 29 percent of the world’s trade.
Development of commodities sector the focus of government
The Federal Government intends to focus on expanding the commodities sector of the economy (including timber) according to the Minister of Primary Industries.
To support this the ministry is seeking a bigger budget allocation under the 12th Malaysia Plan (2021-2025).
Minister, Teresa Kok, called on players in the commodities sector to come with proposals for increasing output as this, in turn, will boost government revenues.
Sarawak to maintain forest cover
Sarawak Chief Minister, Abang Johari Tun Openg, said the State government would continue to maintain the 63 percent forest cover in the state because of the important role the forestry sector has in the State.
He said the government has a very clear land use policy under which six million hectares is permanent forest reserves while another one million hectares is totally protected areas.
He added that the State government would implement policies to restore and regenerate degraded forests, including swamp forest using indigenous tree species.
He also said the government would allocate funds for forestry R&D and work with the private sector to further develop Sarawak’s forestry resources in a sustainable manner.
In related news, the Sarawak Forest Department Director, Hamden Mohammad, said his Department had planted an area of 528,238 hectares covering hills, swamps and coastal area forests in collaboration with various stakeholders.
Seeking new markets and raw materials—MTC to open new offices
Richard Yu, the Malaysian Timber Council (MTC) CEO has stated that the MTC will open regional offices in Houston and Rotterdam to promote Malaysian wood products and to help Malaysian companies source raw materials.
The Rotterdam office is set to open in mid-year while the Houston office could be operational in the second half of the year.
Mr. Yu said the European office would cover the Middle East and African countries adding that the function of the new offices will be aligned to widen MTC’s access to niche markets and new raw material sources.
In a related development, Mr. Yu announced that the function of the MTC office in Bengaluru, India will be expanded to cover South Asia while the MTC office in China will now cover East Asian countries such as South Korea, Taiwan and Japan.
Sabah working with NGOs to restore forests
The Sabah Chief Minister, Mohd. Shafie Apdal, said to enable the sharing of expertise in planting local species, the State, through the Sabah Foundation, would support non-government organisations (NGOs) in carrying out activities to conserve the forest areas in the State.
In November 2012, the Sabah State government and the Tropical Rainforest Conservation and Research Centred (TRCR) signed an agreement on cooperation towards the sustainability of the forest in Sabah.
TRCR is an NGO which was entrusted to protect the Dipterocarp tree species in Sabah through reintroducing it to its original habitat.
Plywood production threatened by declining log supplies and rising costs
The media in Sarawak recently highlighted the impact declining log production and rising production costs are having on the plywood industry in Sarawak.
Hashim Bojet, General Manager of the Sarawak Timber Industry Development Corporation, (STIDC) said he is concerned that, because of the log shortage and rising production costs, some plywood mills, including the major producers in Sarawak, have had to cut production and that some are considering closing operations entirely.
Industry analysts point out that increased charges by the State such as the ‘cess’ and ‘premium’ are the main causes for the higher production costs.
Since July 2017, the Sarawak government has raised the ‘premium’ to RM50 per cubic metre for all species from hill forests as well as logs of hill species from agro-conversion areas. Previously, the ‘premium was RM0.8 per cubic metre.
The increase in hill timber ‘premium’ and the rehabilitation and development ‘cess’, which amounts to RM55 per cubic metre has raised the cost of logs and timber products by around RM110 per cubic metre (assuming a recovery rate of 50 precent). (Note: Premium and Cess are financial mechanisms which allow States in Malaysia to capture payments from concessionaires).
According to Mr. Hashim, the Sarawak government has allowed plywood mills to import logs adding this is exactly what other countries such as India, Vietnam and Japan doing in order to maintain production.
Review of Criteria and Indicators for Forest Management
Every five years the Malaysian Timber Certification Council (MTCC) undertakes a review of its ‘Criteria and Indicators for Forest Management Certification or MC&I and the latest review is underway. An Enquiry Draft has been published and can be found on the MTCC website.
The Enquiry Draft is a revised standard that combines the requirements of both the MC&I (Natural Forest) and MC&I Forest Plantation.v2.
The MC&I Forest Management Certification maintains the format as in the previous standard with updated requirements based on feedback from the first public consultation as well as the key requirements of the ISO 17021-1 and the PEFC benchmark standard on sustainable forest management.
The major changes proposed in the revised MC&I Forest Management Certification are summarised below:
•Incorporation and streamlining of the requirements under Principle 10 of the MC&I Forest Plantation.v2 into the corresponding Principles 1-9 of the MC&I Forest Management to reduce redundancy. All the requirements in the standard apply to both natural forest and forest plantation, with requirements that apply only to natural forest or forest plantation clearly specified.
•Inclusion of requirement on conversion of degraded forest to forest plantation that is not subject to the cut-off date of 31 December 2010 for conversion of natural forest to other land uses.
•Stronger requirements on social aspects through the incorporation of all core ILO Conventions and the principle of gender equality.
•Incorporation of requirements that provide guidance for internal audit and management review and improvement.
•Improved clarity on the requirements for communicating claims from certified areas.
Currently, MTCC is undertaking regional consultations in Sabah, Sarawak and Peninsular Malaysia. As of May 2019, Malaysia had 4.27 million hectares of PEFC Certified Forest (14 FMUs and 7 FPMUs). There are 362 PEFC Certificates for Chain of Custody holders.
Joint Palm Oil Council and Sabah Forestry Department initiative to restore forests
The Malaysian Palm Oil Council (MPOC) and the Sabah Forestry Department (SFD) have agreed a project to plant 1 million native trees in the permanent forest of Lower Kawag in Lahad Datu, Sabah.
An agreement was signed to formalise the pledge from the Ministry of Primary Industries (MPI) to collaborate with the SFD to plant one million trees in Lower Kawag which is part of Ulu Segama Malua Forest Reserve as the first site for the restoration project.
Sabah Deputy Chief Minister, Christina Liew, thanked the MPI for their initiative in getting the major oil palm industry players to fund the planting of native forest trees in the east coast of Sabah over a period of 10 years. SFD has identified 2,500 hectares of degraded forest in Lower Kawag for restoration.
The first stage of the project involves providing a wildlife reserves and also creating wildlife corridors (between adjacent forests). This, said Ms. Liew, will help protect the Borneo Pygmy Elephant and the Orang-Utan both of which are endangered species.
Trade War could mean a flood of exports to Indonesia
Sanny Iskandar, Deputy of Regional Economic Development in the Indonesian Chamber of Commerce, said the trade dispute between the US and China is expected to impact Indonesia’s export and domestic trade.
He said China may become more active in promoting sales into Indonesia and it may also eat away at market share held by Indonesia in overseas markets.
Mr. Iskandar warned a surge in Chinese imports could disrupt domestic sales as local industries are not prepared to face the tough competition from Chinese imports, an issue of relevance to domestic furniture makers.
Industry calls for review of regulations to stimulate exports
With the Indonesian election concluded the private sector is looking forward to more export friendly government policies. The Executive Director of APHI, Purwadi Soeprihanto, said the export value chain for forest products needs to be optimised.
This can be achieved, he said, if the new government can overhaul the procedures for licensing of forestry entrepreneurs by expanding the One Single Submission (OSS) across the country.
According to Mr. Soeprihanto, while the One Single Submission works well in the capital, permit applications in the regions still rely on the manual system.
In related news, Bambang Supijanto, Chairman of the Indonesian Wood Panel Association, identified some issues that he hopes the government can address to support the Indonesian wood panel and veneer industry: first, remove VAT on roundwood and secondly set the reforestation funds payment in Rupiah not US dollars as at present.
The other issues that should be addressed are facilitating access to credit lines with commercial banks and exemption of import duty on manufacturing machinery important for industry restructuring.
Plans to accelerate replanting in degraded forests
The Ministry of Environment and Forestry (KLHK), the Association of Indonesian Forest Concessionaires (APHI) and other stakeholders intend to develop plans to accelerate the replanting in degraded forests.
APHI Chairman, Indroyono Soesilo, said that the use of drones for seeding may be a viable option especially in areas that are difficult to access. The ministry has targeted planting 230,000 hectares this year.
Government sees opportunities in trade conflict—offers to help exporters
President Joko Widodo recently met with business leaders to offer government assistance to local industries trying to secure opportunities created by the ongoing trade conflict between the US and China.
He told members of the Indonesian Chamber of Commerce and Industry (Kadin) and the Indonesian Young Entrepreneurs Association (Hipmi) that efforts must be focused on economic matters now that the election is over.
He called on the business community to offer policy suggestions which would help the country benefit most as there are opportunities in the electronics, textile and furniture markets in the US.
Permanent moratorium on forest clearing
Forestry and Environment Minister, Siti Nurbaya Bakar, has indicated her preference to permanently maintain the ban on forest clearing for oil palm plantations.
Since 2011, there has been a moratorium on clearing covering more than 60 million hectares of primary forest and peatland in an effort to reduce emissions from fires caused by deforestation. Every year fires break out on peatland forests drained for agriculture.
Responding to the comments by the Minister the Association of Indonesian Forest Concessionaires (APHI) agreed with suggestion of a permanent moratorium saying the existing production forest area for timber production is enough if it managed well.
At the same time, once again, APHI asked the government to allow the export of planation logs and wood chips to help address the country’s trade deficit.
Indroyono, speaking on behalf of APHI, said the short-term solution to Indonesia’s trade deficit is to optimise the use of natural resources and encourage exports.
He pointed out that in meetings with South Korean companies there was great interest shown in securing raw material and chips from Indonesia as they do from Vietnam.
Platinum Teak—30cm in 5 years
‘Platinum’ teak, developed by the Indonesian Institute of Sciences through tissue culture, can become the mainstay of Indonesia’s furniture exporters because ‘platinum’ teak is different from other teak say analysts. Platinum teak has been found to grow to a diameter of 30 cm in just 5 years.
Expansion of customary forests held back by land rights issues
The Ministry of Environment and Forestry is targeting the establishment of Customary Forests to provide income sources and employment in rural areas.
The Minister, Siti Nurbaya Bakar, said the process of establishing such forests will likely be lengthy as many stakeholders are involved.
Siti said her Ministry took the initiative to determine the area of customary land so that the establishment of customary forest areas can be undertaken. The area targeted consists of around 380,000 hectares of State Forest, Other Use Areas covering 68,935 hectares and existing Customary Forests of 1,950 hectares.
Activities will be undertaken initially in Sumatra, Java Bali Nusa Tenggara, Kalimantan, Sulawesi, Maluku and Papua.
In related news, according to government officials efforts to hand back control of customary forests to indigenous people is being hampered by overlapping land claims for mines, plantations, forests and public land.
The Indonesian President vowed to return 12.7 million hectares of land to indigenous people following a historic 2013 court ruling lifting state control of customary forests, but land rights activists say the progress has been is slow because of boundary issues.
Prabianto Mukti Wibowo, Assistant Deputy Minister for Forest Governance in the Ministry, said there are too many maps. Apparently there are 85 thematic maps for forestry, mining, plantations and customary forests, many with overlaps which need to be reconciled on the ground.
Trade deal with US sought to boost exports
The Ministry of Commerce will take advantage of the trade dispute between the US and China to export more furniture, handicrafts and textile products to the US.
The Ministry of Trade's Director General for Export Development, Arlinda, has announced the government would make efforts to secure an agreement with the US to import more products from Indonesia.
In return, the government would be willing to offer wider market opportunities for US products in Indonesia.
In addition to the US, the government will also boost Indonesia's exports to target markets such as Mozambique, Chile, Pakistan, India, Bangladesh and Sri Lanka.
Higher plantation log production forecast in second half 2019
Purwadi Soeprihanto, Executive Director of the Association of Indonesian Forest Concessionaires (APHI), said log production between January-May 2018 reached 19.26 million cubic metres while between January-May this year production was around 18.71 million cubic metres, an almost three percent decline.
The latest data corrects earlier statements that there was an increase in production in the early part of 2019.
Purwadi said the decline in production was due mainly the impact of the ongoing peatland restoration in industrial timber plantation concessions [HTI] and revision of the targets in the Business Work Planning Document [RKU].
Log production from natural forests in the period January-May 2019 increased sharply to 2.73 million cubic metres compared to 1.85 million cubic metres last year.
Although plantation log production declined, Purwadi was optimistic that in the second half of 2019 log production from industrial plantations would rise as peatland restoration will be completed and controlled harvesting of peatland plantations will commence.
APHI noted that the average price of logs from natural forests currently range from Rp1.4 million/cubic metre to Rp1.5 million/cubic metre while the average price of logs from industrial plantations such as acacia, eucalyptus and jabon is currently around Rp600,000/cubic metre to Rp700,000/cubic metre.
Market downturn—plywood industry proposing changes to fiscal policies
Indonesia’s panel product exports fell almost 20 percent year-on-year in the first half of 2019. Plywood exports to the US are currently down 38 percent from a year earlier.
The Executive Director APHI has reported that stocks of plywood are mounting up because of sluggish demand.
There has been a decline in plywood prices since the beginning of the year (see index below) and this is affecting demand for domestic natural forest logs.
To help the sector weather the current downturn the industry is proposing changes to number of fiscal policies including accelerating the VAT refunds and a review of wood pricing assumptions used to determine taxes and a waiver of the Land and Building Tax. The industry is also again pursuing a decision to allow log exports.
Diversify production to raise sector output
Forestry sector players estimate that, if the so-called ‘multi-forestry concept’ that would have companies extensively diversifying to produce a wide range of products can become a reality, then export values from the forestry sector could rise from the current US$12 billion in 2018 to US$70 billion in 2045.
Purwadi said this projection was based on two scenarios:
•First, through optimising utilisation of forest areas which cover over 68 million hectares
•For production of upstream and downstream products.
•Second, developing markets for non-timber forest products, environmental services and ecotourism.
Purwadi said, he has identified 12 non-timber forest products that can be commercialised more effectively by the forestry sector including pine gum, rattan, honey, agarwood, citronella, bamboo, coffee and rubber.
Myanmar Reforestation and Restoration programme proposed
The Myanmar Timber Merchants Association was one of the agencies visited by a World Bank delegation. The delegation also met with government and other non-Government organisations.
The forestry sector in Myanmar is an important economic sector and historically timber exports consistently ranked among the top-five exports.
Today, despite reduced timber harvest and lower revenue from forestry, the sector still generates over eight percent of government revenues and is a vital supplier of non-market forest products such as fuelwood and non-wood forest products.
There are plans for a 10-year Myanmar Reforestation and Restoration Programme (MRPP) supported by the World Bank and the Forest Department will be the implementing agency.
This project has four components: community forestry and community enterprises, strengthening of protected areas, creating an enabling environment for the MRPP and institutional investments in project management, monitoring and evaluation.
US/Japan alliance could advance shared aims in Myanmar
A recent report “Forging a Stronger Economic Alliance between the United States and Japan” proposes strategies the two countries can implement to improve their economic partnership in third countries and advance shared interests. Myanmar was a case-study.
The report says “By strengthening infrastructure, human capacity and governance practices, Myanmar can become a stronger, more democratic, more stable nation, better able to negotiate relations with neighbouring countries on its own terms.”
Foreign investments continue pour into Myanmar
According to the Myanmar Directorate of Investment and Companies Administration (DICA) over US$2.5 billion in foreign investments flowed to Myanmar up to May this fiscal year. The transportation and communications sectors topped the list of foreign investment.
In 2013, in cooperation with Japan International Cooperation Agency (JICA), the Myanmar Investment Commission developed its foreign investment policy and this was implemented in 2014.
Myanmar, 51st PEFC member
The Myanmar Forest Certification Committee (MFCC) and PEFC International have announced the conclusion of PEFC membership for the MFCC. The MFCC is the latest and 51st national member of the PEFC Alliance said Ben Gunneberg, CEO of PEFC International.
Under a banner headline: “Myanmar’s forests gain visibility through PEFC membership” the PEFC CEO said “It is great to see that the collaboration with MFCC has been successful and has already led to the acceptance of Myanmar as a member. We are collaborating with MFCC on a three-year project to support the country as it transitions to the sustainable management of its forests. The project is co-funded by the Prince Albert II of Monaco Foundation.
Commenting on this significant step, Barber Cho, Secretary General of MFCC, said “Forest management is not a matter of one country or one region anymore it is a global issue”.
He continued “By becoming a PEFC member, we send a message to the world and show our commitment to sustainable forest management through an internationally recognised system”.
However, this is just the beginning said Mr. Cho who reemphasised
MFCC’s aim of establishing a fully operational national forest certification system in line with PEFC standards within a few years.
Certification and sustainable forest management are of special importance in Myanmar. In the last thirty years, forest cover in Myanmar has fallen from 60 percent to 40 percent.
A sharp decline in forest cover was seen in the period when forests in Myanmar were exploited for quick economic returns rather than long-term sustainability, explained Mr. Cho.
Mr. Cho stressed that forest resources are of enormous value for the people of Myanmar as many in the country are heavily dependent on forests for their basic needs. In meeting these needs, Mr. Cho stressed the participation of civil society groups who can contribute to the development of forest management systems.
To move forward with CSOs in the country there are several challenges, one of which is the financial strength of the MFCC.
At present, no forest in Myanmar is certified to any certification system and the forest are administered and conserved by Forest Department through Work Plans.
Issue of ‘CoC Dossier’ unresolved—causing major problems for exporters
During the past seven months of the current budget year the export of forest products was valued at US$102 million. Myanmar exporters are facing tough times in the international markets especially the EU where the EUTR is impacting market access.
Exporters complained that EU buyers continue to refer to the so-called ‘CoC Dossier’ and demand many documents to verify the legality of shipments some of which are not readily available as most of the documents are held by district offices. This issue would be resolved when all information related to each harvest was computerised, this is currently being piloted.
Exporters are anxious that third party certification should be in place as soon as possible so they can maintain exports to international markets.
The ‘CoC Dossier’ was compiled at the beginning of this year by Ministry of Natural Resources and Environmental Conservation merely to demonstrate the multiple steps along the supply chain from the pre-harvest planning to the shipment.
It was never intended that all documents identified along the supply chain in the Dossier would be provided to overseas importers.
Calls for lower taxes on imported logs
It has been reported that the Myanmar Timber Merchants Association (MTMA) will submit a proposal to the government to reduce the import tariff on the imported logs.
The Managing Director of one company which imports logs from Africa said the company has to pay 15% Custom Duty, 5% Special Commodity Tax, 5%
Commercial Tax plus the 2% advance settlement of corporate tax. The high tax is discouraging development of the industry, say analysts.
Myanmar Timber Enterprise (MTE) Deputy General Manager, U Khin Maung Kyi, responded saying the matter will be taken up with the Forest Department, the Custom Department, Myanmar Port Authority and other importers.
Commenting on the proposal analysts pointed out that imported logs help balance supply and demand in the domestic market as well as create export opportunities so would encourage the government to review the taxes and charges on imported logs.
MTE Tests QR Code for traceability
The MTE has announced the results of a pilot test of QR Code traceability covering about 500 logs from the Gan Gaw area which is acknowledged as ‘the home of good teak’.
The Myanmar Timber legality Assurance System (MTLAS) Gap Assessment Project undertaken in 2016-17 recommended the simplification of the traceability mechanism and introduction of an IT system.
The Forest Department and MTE worked on a system to address the concerns identified in the Gap Analysis. It was this review that led to the publishing of the so-called CoC Dossier which detailed the log flow process and relevant documents along the supply chain.
Myanmar EITI calls for greater data transparency
The Myanmar EITI (MEITI) office has just published its second report for Myanmar which includes the forestry sector.
The MEITI report has attracted mixed reactions from the forestry sector as it points out significant inconsistencies in the data reported from various government agencies.
MEITI has called on the authorities to reconcile the data and establish greater transparency in the sector.
Industrial output slips but GDP holds up well
Data from the Indian Central Statistics Office is showing that, month on month, the industrial output index fell slightly in March, the first time in nearly two years.
The manufacturing sector accounts for over 75 percent of the industrial production index and it was the decline in the manufacturing sector that pulled down the index.
In other news, GDP growth is holding up well with the last quarter 2018 data showing a 6.6 percent expansion.
GST adjusted to boost affordable homes sector
At its mid-March meeting the GST Council discussed the implementation of recommendations for lower GST rates of one percent in case for affordable houses and five percent on construction of houses other than affordable house.
The GST Council formally reduced the GST rates for underconstruction flats and affordable housing to five percent and one percent.
The Council also increased the so-called ‘carpet area’ defining affordable homes as up to 90 sqm from 60 sqm in a move aimed at attracting more buyers.
These changes are aimed at giving a boost to the affordable homes sector and are a welcome move which could lift wood product consumption.
Booming housing growth in Southern cities
The Vestian Quarterly Newsletter has reported that the pace of new residential launches in the three southern cities of Bengaluru, Hyderabad and Chennai in the first quarter of this year were up around 17 percent on the last quarter 2018.
The authors of the article interpret this as signalling finally that real estate companies have adjusted to the recent regulatory changes and are increasingly active. The Vestian newsletter notes recent launches were mainly in the affordable and mid-price market segment.
A boost to the ‘Green Building Movement’ in India
The Confederation of Real Estate Developers’ Associations of India (CREDAI) has signed a memorandum of understanding (MOU) with the Indian Green Building Council (IGBC) to accelerate the push towards the Green Building Movement in the country.
The MOU will also see the two organisations come together and construct green building projects in five cities. By joining forces, CREDAI and the IGBC intend to collaborate and share knowledge and extend industrial support to reinstate the importance of constructing environmentally friendly buildings for sustainable growth of the Indian real estate sector.
Calls for re-think of Forestry Act 1927 amendments
Less than a month after the Bharatiya Janata Party (BJP)-led National Democratic Alliance government was sworn in for a second consecutive term parliamentarians are calling for a rethink on the draft amendments to the Indian Forest Act, 1927.
Principal among the concerns is that the National Forest Policy should be agreed before any amendment to the Indian Forest Act of 1927.
The parliamentarians avoided commenting on the draft amendment which is controversial because it would classify commercial plantations as forests and because the amendment would authorise state governments to relocate people living in areas of forest where development or conservation efforts would be directed.
Plantation teak imports
Analysts report signs of change amongst teak importers. It appears that many importers are gradually beginning to see a business advantage in importing durable hardwood alternatives to teak.
Behind this change is the continuing weak demand for teak products and the financial burden of rising production costs and the high tax rates. To help reduced transaction costs concerted efforts are being made by importers’ to ease the advance payment requirements demanded by exporters.
While the rupee/US dollar exchange rate favours importers, African and Central American shippers are trying to attract buyers but market conditions are working against any immediate increase in imports.
Economic Survey forecasts 7% GDP growth next year
Prior to the discussion on the latest national budget the Economic Survey 2018-19 was presented to the Indian parliament.
This suggests the Indian economy is likely to be the fastest-growing major economy in the world as GDP is expected to rise to seven percent in fiscal 2020, driven higher than the 6.8 percent growth this year by accelerating investment and private consumption.
Calls for increased import duty on wood raw materials
Vadiraj Kulkarni, Chief Operating Officer of the Paperboard and Specialty Papers Division of the diversified ITC (previously known as the Imperial Tobacco Company), has said, in order to encourage domestic sources of raw material and processing, the customs duty on timber imports should be raised to 10 percent as the current rate (nil from ASEAN countries under preferential agreements) discourages investment in forestry in India.
ITC’s pulp mill at Bhadrachalam utilises pulpwood from sustainably managed sources across the country. This raw material can substitute for imported pulp, said Kulkarni and an expansion of local raw material production will generate income for rural communities.
2018 timber imports almost 10 million cubic metres
Vietnam is increasing its imports of primary wood products, especially hardwoods, from over 100 countries to meet the demands of the rapidly expanding processing sector in the country.
In 2018, Vietnam’s wood processing industry imported the roundwood equivalent nearly 10 million cubic metres of timber that provided around 25 percent of the total input required by the domestic industries. The value of this wood raw material was US$2.34 billion in 2018 up by seven percent compared to 2017.
The EU-Vietnam VPA/FLEGT is to be implemented soon according to analysts who say this is expected to generate many export opportunities for domestic manufacturers.
However, implementation will challenge the sourcing of wood raw materials as Vietnam still depends on imports from so-called ‘high-risk’ countries in terms of verification of legality.
Most of Vietnam-made finished wood products are exported to developed markets such as the US, EU, Japan and South Korea so must meet the legal and technical requirements in these countries. This can be achieved by utilising domestic planation material such as acacia, eucalyptus and rubberwood and importing verified legal timber raw materials.
Among the top 15 raw wood supplying countries there are seven high risk sources in terms of legality and these currently account for a high proportion of Vietnam’s timber imports.
The implementation of the VPA will also impact imports of high value precious species used mainly for domestic consumption and imported from countries with weak forest management and law enforcement.
Sourcing high value species a challenge
The Vietnamese timber sector is facing to a serious shortage of logs and sawnwood due first to the domestic logging ban and secondly to the various restrictions and regulations on raw material exports in many nearby Asian supply countries such as Laos, Cambodia and Myanmar which were once major suppliers of tropical timber for Vietnam.
High import prices threatens competitiveness of Vietnamese companies
Over the past few years, there has been a rise in raw material imports from the US, the EU and some African countries but the Vietnamese industries complain the CIF prices are very high and there are high logistics costs and that this is threatening the competitiveness and productivity of the Vietnamese companies in international markets.
The industry is now relying more heavily on domestic plantation resources for both exports and for domestic sales.
Vietnam captures opportunities from US/China trade dispute
In the first three months of 2019 Vietnam’s wood product exports were valued at around US$2.3 billion, some 16 percent higher than in the same period in 2018.
The top export markets for wood products are traditionally the US, EU, China, Japan and South Korea.
According to the Ministry of Agriculture and Rural development (MARD), the export growth rate is expected to rise once the EU/ Vietnam Free Trade Agreement enters into force.
As is the case with several other countries the US/China trade conflict is creating opportunities for expanded investment and exports for Vietnam-made wood products to take advantages of preferential tariffs into the US.
However, some Vietnamese exporters have fallen into the trap of relabelling Chinese imports as made in Vietnam.
Vietnamese authorities are now addressing this and have stepped up Customs checks.
Vietnam jumps to top of ASEAN wood product exporters
PhamVan Dien, Deputy Director of the Department of Forestry, has reported that in the first half of 2019 Vietnam jumped to the top of the list of ASEAN wood products exporters.
It also became the 5th largest globe wood product exporter because of the sustained high growth of industrial production.
He pointed out that the top international markets US, EU, Japan and South Korea accounted for over 80 percent of Vietnam’s wood product exports in the first six months of 2019 and this contributed to the positive socio-economic development of the national forest sector which now supports millions of jobs.
In the first half of 2019 around 110,000 hectares of new plantations were established however, currently, there is a drought in many areas in Vietnam and this is increasing the risk of forest fires especially in provinces such as Nghean, Hatinh, Quangbinh, Quangtri, Thuathienhue, Danang, Quangnam, Quangngai and Phuyen.
Rising demand for verified legal raw materials
Recently, Vietnam has become more dependent on imported timber raw materials to produce wood products for export and a large volume of American hardwoods is being imported.
Robert Hanson, Head of the Foreign Agricultural Service of the US Embassy in Vietnam, has said Vietnam is now one of the main S.E. Asian importers of American hardwoods accounting for over 70 percent of US timber exports to Southeast Asia.
He continued, “American wood is known as highly traceable, legally planned and harvested, as well as fully documented which meets the legal requirements and technical standards of the major finished product importing countries”.
At an ASEAN Conference on ‘American wood in furniture design and production’ held in June, Ha Cong Tuan, Vice Minister of MARD has said US is the Vietnam’s biggest partner in the trade of wood products and that the trade is in both directions with finished products being shipped to the US.
Nguyen Ton Quyen, Deputy Chairman of the Vietnam Timber and Forest Product Association, has said Vietnam is aiming to export wood products valued at US$11 billion in 2019 and to meet this target Vietnam needs about 35-40 million cubic metres of raw timber, much of which must be imported.
Vietnam has halted exploitation of natural forests for three years and has been pushing afforestation. The 3.5 million hectares of plantations will provide about 35 to 40 million cubic metres of timber in the next five to 10 years in which time Vietnam will be dependent on imports of raw materials.
Young mainland Chinese changing furniture market
The Hong Kong Trade Development Council has released the results of its latest survey of Chinese consumer trends which focuses on furniture consumption in the mainland. This is one of several very information reports prepared by the Council on furniture markets and consumption in China.
The report published 21 May is titled ‘Mainland Furniture Gets Smarter as Target Buyers Get Notably Younger’ says the younger generation tends to look for modular, intelligent units for every item from beds and sofas to desks.
Quoting from the Council report “Typically, many manufacturers have turned to modular designs in order to streamline the process of integrating smart devices, a move seemingly welcomed by the many consumers looking to upgrade and renew their home furnishings. In particular, it is the younger consumer demographic that is now the most demanding when it comes to smart furniture specifications.”
Chinese companies seeking alternatives to US timbers
At present, Chinese companies have been able to absorb the increased tariff levels on imported US timber raw materials, but if these are raised further then their businesses will be at risk.
To avoid this Chinese companies have started to look for alternative raw material sources and substitutes for US logs and sawnwood.
According to China Customs data, imports from the US were mainly softwood logs such as douglas fir, spruce and fir but close examination shows there is no real price advantage over other sources.
This is leading importers to look at douglas fir from Canada and more softwoods from New Zealand as well as spruce and fir from Russia.
China’s imports of douglas fir from the US, Canada and New Zealand were 98,000, 480, 000 and 380,000 cubic metres in 2017 respectively. The average price for douglas fir from the US was the highest at US$186 per cubic metre, from Canada US$172 per cubic metre and from New Zealand US$138 per cubic metre.
China imports spruce and fir are mainly from Russia, US and Canada and amounted to 3,080,000, 790,000 and 780,000 cubic metres in 2017 respectively. Smaller volumes came from Estonia, France and Denmark.
The average price for imported spruce and fir from the US was US$184 per cubic metre, from Canada US$161 per cubic metre, and from Russia US$124 per cubic metre.
China also imports sawn hardwood from the US such as oak (1.32 million cubic metres), other US hardwoods (570,000 cubic metres), ash (340,000 cubic metres) and cherry (190,000 cubic metres).
Analysts suggest that most of sawn hardwood from the US can be replaced by sawn hardwood from Canada, Russia and European member states.
Tariff impacts production in Fujian Province
The 10 percent import tariff on Chinese exports of forest products is a serious blow for exporters and they have begun lobbying the government for support to help them get through these difficult times.
As an example some 80 percent of production from a company in Fujian Province is exported to the US. Because of the tariff issue, output by the company between January to May this year dropped by 15 percent year-on-year.
The company is expanding efforts to diversify and lower production and distribution costs.
Nankang a centre for rubberwood import and processing
A Rubber Industry Development Conference was recently held in Nankang district, Ganzhou City. Participants heard that China imports about three million cubic metres of rubberwood logs and sawnwood annually for production of furniture.
Across China there are around 10,000 wood furniture manufacturing enterprises with an output value of RMB70-80 billion.
As a major rubberwood import and distribution centre companies in Nankang district consume around 2.5 million cubic metres of rubberwood annually.
Export certificates for ambila to be scrutinised
In order to effectively implement obligations under the International Trade Convention on the International Trade in Endangered Species (CITES) efforts are being stepped up to manage imports of ambila/kosso (Pterocarpus erinaceus) in accordance with the relevant provisions of CITES.
The authorities have indicated China will carefully scrutinise shipments to ensure the provisions of CITES and the exporting country regulations are followed.
The forest products industry in 2018
According to the 2018 Statistics Bulletin released by the State Forestry and Grassland Administration, the total value of national forest products industry output was RMB7,627 billion, a year-on-year increase of seven percent, about three percent lower growth than in 2017.
There were nine Provinces where the value of forest products industry output exceeding RMB400 billion. Guangdong Province ranks first in terms of total output value exceeding RMB800 billion.
Classified by industries, the leading forest industry sectors with an output value of more than RMB1 trillion in 2018 were: economic forest products, planting and collection industries, wood processing and wood bamboo products manufacturing and forestry tourism and leisure service industries.
The output value of three leading sectors was RMB1.4492 trillion, RMB1.2816 trillion and RMB1.3044 trillion respectively. The growth of output from forest tourism grew the fastest at 20 percent.
2018 output of main forest products
The output of commercial logs in 2018 was 88.11 million cubic metres, a year-on-year increase of five percent. The log harvest volume by farmers was 4.46 million cubic metres, down 15 percent year-on-year. The volume of farmer fuelwood harvests was 16.42 million cubic metres, down nine percent.
The output of wood-based panels in 2018 rose 1.4 percent to 299.09 million cubic metres. Of the total, the output of plywood, fibreboard and particleboard was 179 million cubic metres, 62 million cubic metres and 27 million cubic metres respectfully.
The output of other panel products was 31 million cubic metres (53 percent of which was blockboard).
The output of plywood rose four percent, but the output of fibreboard, particleboard and other wood-based panels fell two percent, two percent and three percent respectively.
The output of wood and bamboo flooring fell four percent. Of the total, the output of solid wood flooring, solid composite flooring, laminate flooring and bamboo flooring was 117 million sqm, 203 million sqm, 394 million sqms and 75 million sqm respectively.
The output of laminate flooring grew nine percent year-on-year. However, the output of bamboo flooring, solid wood flooring and solid composite flooring declined in 2018.
Rise in China’s plywood exports in 2018
According to the data from China Customs, the volume of China’s 2018 plywood exports was 11.33 million cubic metres, up four percent from 2017.
The average price for 2018 China’s exported plywood was US$489 per cubic metre, a year-on-year increase of four percent.
China’s plywood exports to the top 10 countries amounted just 54 percent in 2018 as market diversification continues.
The pace of growth of China’s plywood exports to Vietnam was the highest, surging 25 percent. That is because more and more Chinese wood products manufacture enterprises have been transferred to Vietnam. In addition, the volume of China’s plywood exports to UK and the Philippines rose 18 percent and 15 percent respectively.
However, the volume of China’s plywood exports to South Korea and US declined drastically, falling 34 percent and 22 percent respectively. The main reason for the decline in exports to South Korea, say analysts, was rising prices.
Increased tariffs and anti-dumping penalties on China’s wood products resulted in sharply higher transaction costs to the US market. The US was the largest market for China’s plywood exports in 2018 but accounted for just 11 percent of total plywood exports.
Decentralisation of logging quota approvals
China intends to amend one of its Forest Laws giving provincial governments the authority to determine logging quotas. Once a decision has been reached by the provincial governments details of the quotas should be submitted to the State Council for approval.
With regard to forest harvesting, the draft clearly decentralises the approval authority for harvesting quotas, narrows the scope of logging licenses and strengthens the status and role of forest management. In addition, the draft also removes reference to the planned economy, such as timber production plans and timber transport certificates.
In terms of supervision, the draft added a section on “supervision and inspection”, introducing a standardised evaluation system for the development of forest resource protection, strengthened the supervision and inspection measures for the protection of forest resources and clarified the public interest concerning compensation for damage to the environment.
Wooden furniture exports in 2018
The value of China’s wooden furniture exports was US$13.489 billion in 2018, a year-on-year decline of two percent.
The US still is the main destination for China’s wooden furniture exports. The top 10 markets accounted for around 75 percent of all wooden furniture exports.
The value of China’s wooden furniture exports to South Africa in 2018 surged 46 percent to US$312 million. However, the value of China’s wooden furniture exports to Hong Kong declined greatly (27%) to US$804 million.
Decline in wood based panel output in Guangdong
In the first 5 months of this year, wood-based panel output in Guangdong Province declined.
Output of plywood in the first five months fell five percent to 1.08 million cubic metres, MDF output dropped five percent to 1.24 million cubic metres and output of particleboard dropped 27 percent to 760 000 cubic metres.
The output of plywood in May alone fell 15 percent to 213,000 cubic metres, middle and MDF output dropped 16 percent to 244,000 cubic metres while particleboard output dropped 25 percent to 163,000 cubic metres in May 2019.
Slowing pace of EU wood furniture imports
The generally slow development of the EU wood furniture market in 2018 is also apparent in the import data. After rising seven percent in 2017, the value of EU imports of wood furniture from non-EU countries fell one percent to €6.21 billion in 2018.
Imports from China, by far the largest external supplier, fell four percent to €3.1 billion in 2018 and imports from tropical countries fell 0.5 percent to €1.69 billion. However, there was a seven percent rise in import value from non-EU temperate countries, to €1.46 billion, notably Ukraine, Belarus and Turkey.
While the total value of EU wood furniture imports fell in 2018, import tonnage increased indicating a decline in the price and/or a change in the mix of products. Total import tonnage increased five percent in 2018, to 2.26 million metric tonnes (MT).
Import tonnage increased by one percent from China to 1.12 million MT, and by four percent from tropical countries to 609,000 MT. However, continuing the trend of recent years, there was a sharper increase in imports from countries bordering the EU, including Ukraine (+30% to 97,000 MT), Belarus (+22% to 85,000 MT) and Turkey (+16% to 82,000 MT).
These broad trends have continued in 2019. In the first quarter of this year compared to the same period in 2018, EU wood furniture imports from tropical countries increased by only one percent to 171,000 MT and imports from China were up two percent to 302,000 MT.
Meanwhile, imports from non-EU temperate countries increased 16 percent to 148,000 MT, with imports rising 35 percent, 23 percent and 16 percent respectively from Ukraine, Belarus and Turkey.
While China remains the largest external supplier of wood furniture to the EU, the overall decline in EU imports from China between 2015 and 2018 is notable. In recent years, China’s competitiveness in the EU wood furniture market has been impeded as prices have risen on the back of growing domestic demand and new laws for pollution control pollution in China.
EU furniture importers also continue to question the variable quality of product imported from China and some have struggled to obtain the legality assurances required for EUTR conformance when dealing with complex wood supply chains in China.
Of tropical countries, Vietnam is the leading supplier of wood furniture to the EU. EU imports from Vietnam increased six percent to 233,000 MT in 2018, but were slow in the first quarter of 2019, falling back six percent compared to the same period last year, to 70,000 MT.
The trends are different in euro value terms. EU import value from Vietnam was flat in 2018, at €723 million, but increased two percent to €230 million in the first quarter of 2019.
In the EU, the Vietnamese furniture sector has gained a reputation for supply of large volume mid-range products, both for exteriors and, increasingly, for interior use.
Market research by the FLEGT Independent Market Monitor, hosted by ITTO with EC funding, indicates that the Vietnamese furniture industry is regarded by EU importers as technically more evolved than most other Asian producer countries and increasingly able to supply products to high European quality standards.
EU imports of wood furniture from Indonesia declined three percent in tonnage terms to 99,000 MT in 2018 but increased two percent to 27,000 MT in the first quarter of 2019 compared to the same period last year. In value terms, imports from Indonesia declined two percent to €301 million in 2018 and increased seven percent to€89 million in the first quarter of 2019.
The relative lack of growth in EU furniture imports from Indonesia since the start of FLEGT licensing in November 2016 may seem disappointing, but the trend is influenced by wider stagnation in EU furniture market growth and by intense competition in the sectors targeted by Indonesian manufacturers.
Indonesia’s furniture exports to the EU are dominated by outdoor products, particularly due to relatively abundant plantation teak supplies.
However, there is now intense competition in this sector from a wide range of modified temperate wood and non-wood products which are taking share from tropical hardwoods.
Indonesia's long woodworking tradition has also meant it has gained a reputation for supply of good quality specialist hand-made furniture, a niche market in the EU where it competes most directly with India.
In 2018, EU imports of wood furniture from India increased 21 percent to 81,000 MT, and the rising trend continued in the first quarter of 2019 with a further increase of 10 percent to 23,000 MT. In value terms, EU imports from India increased 18 percent to €238 million in 2018, and by 15 percent to €66 million in the first quarter of 2019.
Imports of wood furniture from Malaysia increased five percent to 101,000 MT in 2018 and by a further 20 percent to 29,000 MT in the first quarter of 2019. In value terms the trend was slightly different, with imports from Malaysia falling one percent to €197 million in 2018 but recovering 19 percent to €57 million in the first quarter of this year.
Malaysia is supplying the EU market with high quality furniture products but a much smaller range than Vietnam with a heavy focus on rubberwood and other plantation species.