Tropical Timber Market Report (2022-5-6)

Exports from Southeast Asia have mostly kept the momentum and countries are now looking at promoting their products and making themselves more competitive. Certification has once again come under the spotlight, with developments that may deliver major changes to the industry. ITTO tells us the latest happenings in the industry.


No new plantation projects says ministry

Malaysia has announced there will be no new licences issued for forest plantation projects.

Meanwhile, no state has been reported to have exceeded the annual felling quota set by the government or issued new licences for forest plantation projects says the Federal Energy and Natural Resources Ministry which claims this was due to the government’s proactive action which focuses on protecting the country’s natural resources.

The Ministry of Energy and Natural Resources homepage explains “Under the Malaysian Constitution, forestry comes under the jurisdiction of the respective State Governments. As such, each State is empowered to enact laws on forestry and to formulate forestry policy independently.

The executive authority of the Federal Government only extends to the provision of advice and technical assistance to the States, training, the conduct of research and in the maintenance of experimental and demonstration stations.

In order to facilitate the adoption of a coordinated and common approach to forestry, as well as reconcile cross-sectoral policies that interface with the forestry sector, a National Land Council was established.

The aim of the Council is to enable the Federal and the State Governments to discuss and resolve common problems and issues relating to forestry policy, administration and management, as well as to enhance cooperation between the Federal and State Governments, so as to ensure a coordinated approach in the implementation of policies and programs related to forestry”.

In related news, the Sarawak government aims to establish one million ha. of forest plantation by 2025 to provide new sources of raw material for downstream industries this, says the State government, will relieve pressure on natural forest and also to increase the state’s forest cover to reduce the greenhouse effect.

The change to utilising plantation logs is slow but steady as more plantations become ready for harvesting. An example can be seen with Ta Ann Holdings companies in Sarawak. The group raised its log production from planted forest by 63 percent to 50,319 cubic metres in 2021.

Ta Ann’s forest plantation projects in Sarawak are mainly acacia mangium but other species are planted including kelampayan, sawi, benuang and engkabang.


Labour shortage needs a solution

The shortage of workers continues to plague industries in Malaysia as it had even before the Covid pandemic hit but has been exacerbated by the slow return to the country of workers. This issue needs to be resolved, but there are challenges in finding a solution.

In February this year, the government reported 671,800 people (4% of Malaysian labour force) were unemployed and unemployment among young people. The Star newspaper analysis says the share of low-skilled jobs in Malaysia increased significantly to around 14 percent in 2017 from only eight percent in 2010 while high-skilled employment shrank to 37 percent from 45 percent over the same time period. Skill-related under-employment in Malaysia increased by 6.3 percent to record 1.9 million persons in 2021 (2020: 1.8 million persons).

In an effort help solve the worker issue, the government has announced that the minimum wage is to be increased to RM1,500 per month.


Possibility for boom in timber manufacturing

Business analysts predict a boom in the wood product manufacturing sector in the country. The reaction of Russia in banning wood product exports to what are deemed ‘unfriendly countries’ will mean such countries will be looking for alternative suppliers. 

While most of Russia’s timber exports are of softwoods alternative suppliers of hardwoods, such as Malaysia and other Southeast Asian shippers, could benefit.

In related news, the Minister for Plantation Industries and Commodities, Datuk Zuraida Kamaruddin, said the government is targeting an export value for wood-based products, including wooden furniture, at RM19 billion by 2025 under the National Agri-commodity Policy (DAKN) 2021-2030.

She added the wooden furniture industry has great potential with rising demand from key markets. Malaysia, the world's 10th biggest exporter of furniture and furniture parts, recorded an export value of RM10.41 billion last year with five main export destinations the US, Japan, Singapore, the UK and Australia.


Re-wilding Sarawak forests

The Sarawak Forestry Corporation (SFC) is implementing a ‘Re-wilding’ project in several Totally Protected Areas (TPAs) to support the State’s target to reforest with 35 million trees. 

SFC CEO, Zolkipli Mohamad, said the forests that need ‘re-wilding’ include mangroves, peat swamp and dipterocarp forests.

An estimated 3.2 to 3.5 million trees are needed to ensure the success of the’ Rewilding’ project. This was announced at the inaugural Malaysian Conservation Conference 2022 a three-day conference bringing together conservationists, wildlife authorities as well as park managers to explore key issues in conservation.


Sabah forestry transformation

The ‘Action Plan On Forest Plantation Development 2022-2036’, drafted by the Sabah Forestry Department, will be used as a guide in transforming forest plantations in the State. The Plan provides a roadmap towards achieving sustainable land use especially plantations.

The Sabah Chief Minister said he hoped that by 2035 the target of having 400,000 hectares of forest plantations with a production capacity of at least six million cubic metres per year can be achieved. 

He added, “Achieving this target, however, requires a strong commitment from existing players and new investments. Therefore, I urge all SFMLA licensees to remain committed and work hard in achieving the targets for their respective areas.”

In related news, Jawala Plantation Industries has already planted 915,998 seedlings on 2,151 hectares of land on the Industrial Tree Plantations (ITP) area that it manages. The ITP area managed by Jawala is part of the Forest Management Unit 14 at the Sapulut forest Reserve, Tibow.

The species planted are White Laran (Neolamarckia Cadamba), Albizia (Falcataria moluccana), Khaya Ivorensis and Red Laran with White Laran being the most dominant with 1,548 hectares planted with 630,454 seedlings sourced from its selected mother trees within the concession area.



Expanding SVLK at the global level

At the recent Forest Governance, Markets and Climate (FGMC) Stakeholder Forum held in London the FLEGTVPA cooperation between Indonesia and the UK was strengthened.

The UK Government Minister in charge of International Environment and Climate, Animal Welfare and Forests expressed appreciation for the achievements by Indonesia in improving forest governance. 

Purwadi Soeprihanto, Secretary General of the Association of Indonesian Forest Concession Holders, supports efforts to expand the recognition and the acceptance of SVLK at a global level saying "business to business cooperation needs to be strengthened to promote the FLEGT VPA between Indonesia, EU and UK as well as to build broad recognition of the Indonesian national standard at the global level.


Low cost and efficient timber identification

Indonesia will develop a standardised system for wood identification to support the promotion of sustainable timber to the global market.

The Head of the Instrument Standardisation Agency in the Ministry of Forestry, Ary Sudijanto, said that an accurate and efficient species identification system and data centre for easy and cheap identification and tracking of timber will support verification and trade in sustainable timber.

This system could be the answer to the current situation where customs officials and law enforcement officers have difficulty to validate timber export documents.

A researcher from the National Research and Innovation Agency (BRIN), Ratih Damayanti, revealed that to support the development of a wood identification system Indonesia has developed an Automatic Wood Identification Application (AIKO-KLHK). 

She added “There are about 1,300 timbers that can be identified using AIKO-KLHK". A portable device is currently being developed.


Social forestry aids economic recovery

Indonesia’s social forestry policy can deliver alternative livelihood sources to rebuild the economy after the Covid-19 pandemic as it will provide communities with access to managed forests and assistance in marketing. 

This was stated by Agus Justianto, Director General of Sustainable Forest Management at the Ministry of Environment and Forestry at the Asian Forest Cooperation Organization Ministerial Meeting at the World Forestry Congress in Seoul.

Indonesia seeks ASEAN cooperation in peatland management

Indonesia has invited countries in Southeast Asia to work closely together for sustainable peatland management in support of economic growth and maintenance of ecological balance.

Indonesian Ambassador to the Republic of Korea, Gandi Sulistyanto, said that tropical peatland in Southeast Asia provides many benefits for the region from providing timber and non-timber forest products, water reserves and helping in flood control.

Ambassador Gandi said the Indonesian government is strongly committed to managing peat ecosystems by building a monitoring and control system for forest and land fires. A document outlining a sustainable peat management strategy has been released which can serve as a guide for ASEAN countries. 

Vong Sok, Head of the Environment Division and Assistant Director of the Sustainable Development Director at the ASEAN Socio-Cultural Community said that a project for implementing sustainable peat management is currently being piloted in countries in the Mekong Delta.


Promote products in EU says Ambassador

Desra Percaya, the Indonesian Ambassador to the UK, has said Indonesian wood products have the potential to expand market share in Europe from the current two percent. 

He noted that British consumers demand sustainability so the advantages of Indonesian wood products must be promoted.

The Director General of Sustainable Forest Management Ministry of Environment and Forestry, Agus Justianto, stated that to strengthen market penetration it is necessary to build upon the VPA. To this end, he encouraged the UK government and the European Union to explain to

consumers the efforts made by Indonesia and how the VPA and SVLK is delivering sustainability.


Forest concessions revoked

Bahlil Lahadalia, the Minister for Investment has confirmed that 15 forestry concession agreements have been revoked on the recommendations of the Environment and Forestry Ministry. 

Bahlil said that three companies had forest area release rights (PKH) with a total area of 84,521.72 hectares. The other 12 companies had forest concession business licenses (PBPH) with a total area of 397,677 hectares.

Bahlil explained that there were 192 companies whose licenses would be revoked but that 83 had requested clarification.


Exports set a record in 2021

The Association of Indonesian Forest Concession Holders (APHI) has reported that forestry sector exports were at a record Rp.193.8 trillion in 2021. 

The chairman of APHI, Indroyono Soesilo, said changes in international market demand due to the adjustments to home-working and a focus on renovation were mainly responsible for the export growth.

Based on data from the Indonesian Forestry Society Communication Forum (FKMPI) timber production from plantation forests in 2021 reached 46.43 million cubic metres an increase of 1.2 percent on an annual basis. Meanwhile, wood production from natural forests rose 14.4 percent on an annual basis to 6.013 million cubic metres.

Last year, forestry sector exports increased by 31 percent on an annual basis from US$11.07 billion in 2020 to US$ 14.48 billion. The wood chip industry experienced the highest growth of over 90 percent from US$50.45 million to US$96.24 million. 

The largest contributor to the export growth was the wood panel industry which earned US$3.97 billion, up 83 percent on an annual basis. Second was the paper and pulp industry with the exports of US$ 3.72 billion and US$3.19 billion.


Finnish technology for wood product manufacturing

The Association of Indonesian Forest Concession Holders (APHI) is exploring cooperation with Finnish forestry businesses through the ‘Business Finland’ a Finnish government initiative.

At a meeting initiated by the Indonesian Embassy in Helsinki, both parties agreed to further discuss three areas for possible collaboration:

•the use of satellite data for the forest areas determination and the calculation of carbon sequestration

•the development of forest product-based bio products

•the use of wood biomass for new and renewable energy


Nina Jacoby the Senior Advisor ‘Business Finland’ said Finland used to be known as a producer and exporter of pulp and paper products but not any longer as the country produces more varied bio-products including

nanocellulose as a substitute for plastics, various health products and a variety of other high-tech products.


Digital transformation for sustainable forest management

The Secretary General of the Ministry of Environment and Forestry, Bambang Hendroyono, speaking at a National Seminar on Digital Transformation Supporting Forestry 4.0 Innovation for a Green Economy said digital transformation can support efficient sustainable forest management through integrated and transparent monitoring of environmental conditions. He added that ‘Forestry 4.0’ will lead tech-intelligent forest management.

The development of technology and information systems can be used to monitor changes in the rate of deforestation every year allowing the development of integrated sustainable forest management information systems to increase productivity in accordance with environmental principles.


Promoting legal trade with China

Companies in the forestry and wood products sectors have reached out to counterparts in China in an effort to jointly promote markets for sustainable wood products. 

The chairman of the Indonesian Forestry Community Communication Forum (FKMPI), Indroyono Soesilo, said both countries needed to eliminate trade in illegal timber. 

This was the conclusion of an online forum ‘Promoting Legal and Sustainable Timber Trade Between China and Indonesia’. This can be achieved as China is expected to introduce a green procurement policy to increase the demand for legally sourced and sustainable wood products.

Zhang Liyan, from China’s National Forest Product Industry Association (CNFPIA) said Indonesia continues to be a major wood product supplier to China.



Export registrations revoked - timber companies included

According to the Ministry of Commerce over 300 exporter registrations have been revoked for the failure to abide by the Central Bank regulations on foreign currency exchange.

The Central Bank issued a rule that foreign currency export earnings must be deposited in a domestic bank account within a defined time from the export date.

Export earnings for exports to Asian countries must be credited within 45 days of the export date and export earnings from exports to other countries must be deposited to the bank account within 90 days of the export date.

According to a 6 May statement from the Ministry of Commerce and the Central Bank the government will take action against exporters who do not follow the amended laws. Their export certificates will be suspended until the earnings are banked as required.

In addition to the 346 companies who had their export licenses revoked in 2021, this year, as of 27 April, 177 exporters have also had their licenses revoked for noncompliance with the banking regulation.

It is learnt that about 40 timber manufacturers are among the companies effected. Some complain they were wrongly placed om the list of companies whose export credentials should be revoked.


Logging moratorium extended

The Ministry of Natural Resources and Environmental Conservation (MONREC) has announced an extension of the logging moratorium for one more year. Myanmar implemented a one-year nationwide logging ban in 2016-17 and 10-year moratorium for Bago Yoma Range from 2016 to 2025.

The moratorium did not have much impact on output as the products from the new log stocks are unacceptable in the EU and the US, but not other markets.

Currently Myanmar millers and manufacturers are trying to source logs harvested before the restrictions in the belief that the EU and US sanctions will not apply to products manufactured from such old logs. 

There is, however, controversy on the legal basis for this assumption. It is understood that the Myanmar Timber Enterprise (MTE) may have around 20,000 tonnes of logs harvested before the sanctions were imposed but this has not been confirmed.


New foreign exchange rules

On 3 April, the Myanmar Central Bank (MCB) issued a requirement that incoming foreign exchange must be converted to local currency within one working day which has caused panic among traders in all sectors.

For the timber sector the situation is unique in that millers are required to pay in US dollars for logs purchased from the MTE, the sole legal source of logs. With the new Central Bank requirement millers will have no hard currency to buy logs. 

It is not yet clear if MTE will accept the local currency. Until the recent change exporters had been allowed to keep US dollars for one month.

The latest measure from the administration in Myanmar to tighten the foreign regulation comes as the US dollar has appreciated sharply this year. The Central Bank set a fixed rate at Kyat 1850/US dollar which is far below the unofficial rate. Exporters and importers fear such drastic action will be very disruptive and could impact trade and investment.

The local media has reported some reactions to this new rule saying the Japanese Embassy in Naypyitaw urged reconsideration warning of "significant difficulties" for Japanese companies and aid organisations operating in the country.

In related news, the Central Bank has issued an order dated 1 April instructing banks to allow cash withdrawals for salaries and wages of the factories in industrial zones without limit and a weekly withdrawal of up to Ks100 million for purchase of raw materials and the businesses operating with government budgets.

This was possible according to the Central Bank as cash flow management in the banks in Myanmar has improved.



Rising costs impacting housing sector

An ‘Impact Assessment Survey’ reported in a press release from the Confederation of Real Estate Developers' Associations of India (Credai) says almost 40 percent of developers have expressed concern that it is becoming difficult to sustain their business owing to the rise in input costs. 

46 percent of developers foresee a delay in delivery timelines of ongoing projects and 76 percent of developers will only be able to continue for another six months if they cannot find ways to bring down costs.

The survey also reports that the majority of respondents predicted that the impact of rising input costs will add around 10 percent in the price of properties. 

Credai points out that while the rise in prices has been an ongoing issue for the past two years the current situation, which has resulted in prices of some of the raw materials skyrocketing by over 110 percent, has made it impossible for developers.

Around two thirds of respondents said they will be forced to temporarily stop procurement and shut construction sites if raw material prices do not correct and if they cannot find immediate relief from the ongoing situation.

As the second largest employer in the country any slowdown or stoppage would directly impact the labour force and the security of allied industries.

Credai’s President, Harsh Vardhan Patodia, said “For the last one year, developers have been able to absorb the rise in the cost of construction to steer the industry’s growth post the pandemic. However, with thin margins this will eventually have to be passed on to the buyers which may not augur well for the industry’s growth momentum. 

As the apex body for the real estate in the industry Credai have been in dialogue with concerned ministries to seek their intervention to avoid any delay in the delivery of projects for homebuyers, help kickstart delayed projects and save jobs.

Our recommendations included measures such as setting fixed prices for raw materials, providing GST input credit on these materials, incentivising or subsidising customers through stamp duty discounts or waivers and reducing interest rates”.


High domestic transport and shipping cost defeating exporters

The impact on Indian exporters from rising sea freight charges and container shortages is worse for those companies in the east as goods have to be transported by road to Mumbai, Visakhapatnam or Cochin to find shipping opportunities. 

From Kolkata Port, goods are shipped either to Colombo or Singapore for transhipment. It is generally agreed by businesses and the government that this issue is unlikely to be resolved for several more months.

One exporter has, according to the report in the Times of India, said transport cost per container adds around Rs.1 lakh and then are other charges such as for warehousing, loading and unloading, which add up to another Rs.30,000-40,000 per container. 

What is worse is that few shipping lines are taking consignments from Kolkata to Chittagong countries, resulting in Indian exporters losing out to competitors.


Federation seeks policy change to release potential in agroforestry sector

Plyreporter has highlighted a presentation ‘Small Policy Shift – Big National Change’ prepared by the Federation of Indian Plywood and Panel Industry (FIPPI) which was sent to the government. 

This offers suggestions on how the industry can support the ambition for an Atmanirbhar Bharat (self-reliant India).

A letter written by the Federation President, Sajjan Bhajanka, requested intervention in affecting a policy change with potential for immense national impact through self-sufficiency in production of agro-forestry wood and development of wood based industry in India.

The FIPPI has said at present wood produced from farmlands is classified as forest products requiring regulatory clearances which it says discourages farmers from growing trees. FIPPI proposed shifting agro-forestry from forestry to the agriculture sector to release all the economic benefits given agriculture to the farmers engaged in agroforestry.

They also propose the removal of licensing requirements for wood-based units and all other industries that primarily use ‘farm wood’ as raw materials.


Australia and India free trade deal

Australia and India have signed an interim free-trade deal aimed at diversifying export markets and reducing Australia's economic dependence on China.

Indian exporters from sectors including textiles, leather, furniture, jewelry and machinery will enjoy duty free access to the Australian market. Australia is offering zero duty access to India on about 96 of the value exports. Currently, exports attract four to five percent customs duty in Australia.

Australia and India began talks on the trade deal back in 2011 but discussions became bogged down and were suspended in 2015. Last year the two countries agreed to "re-engage" on the deal when Australia and India upgraded their relationship to a Comprehensive Strategic Partnership.

Australia is the 17th largest trading partner of India and India is Australia's 9th largest partner. Bilateral trade in goods and services stood at $27.5 billion in 2021.

In related news, India’s exports exceeded the US$400 billion-mark last year. Exports grew almost 40 percent compared to the previous fiscal year. India’s imports also rose to a record high. Engineered goods were the largest contributor to the growth in exports.

Piyush Goyal, Minister for Commerce and Industry said that India had significantly boosted exports to key trading partners with outbound shipments to the UAE increasing by 65 percent and exports to the US increasing by 45 percent.

However, risks to a global economic recovery due to invasion of Ukraine by Russia could undermine export growth.



Exports of wood and wood products to rise in 2022

According to the General Department of Customs exports of wood and wood products (W&WP) in April 2022 are estimated at US$1.5 billion, up by 7.3 percent compared to April of 2021.

Exports of wood products alone in April of 2022 are estimated at US$1.13 billion, up by 6.4 percent compared to April of 2021.

In the first four months of 2022, there were five product groups with export values over US$1 billion including wood and wood products according to the Ministry of Agriculture and Rural Development.

The Vietnam Wood and Forest Products Association has indicated the focus of exports is on high value-added items such as wooden chair frames, living and dining room furniture and bedroom furniture reflecting Vietnam's manufacturers strengths.

The timber industries still face many difficulties such as the prolonged Covid-19infections and control measures which disrupted the flow of of workers and the Russian invasion of Ukraine. These issues have pushed up energy and fuel costs and impacted production costs.

In particular, the price of wood raw materials continues to rise but businesses had to maintain production to meet orders.

With the positive results achieved in the first months of 2022, it is forecast that Vietnam's exports of wood and wood products in the first half of 2022 will increase by around five to eight percent compared to the same period of 2021.


Vietnam becoming major wood pellet exporter

Wood pellets are an emerging export commodity in Vietnam. The production and export of this wood product has expanded rapidly over the past five years and Vietnam has become the second largest exporter of wood pellets in the world after the US with exports of over three million tonnes per year worth around US$400 million. 

Japan and South Korea are Vietnam’s largest wood pellet markets. Exports to these two markets account for over 95 percent of the total export from Vietnam.

Risk of stagnation the timber sector—industry associations agree plan for a modern processing sector

Growth in Vietnam’s wood and timber industry is under threat of stagnation but the establishment of an interregional timber centre could help boost the sector.

Vietnam’s furniture processing and exporting industry ranks second in Asia, after China and fifth in the world in terms of export earnings but challenges are emerging putting pressure on the goal of reaching exports of US$20 billion by 2025.

The supply of wood raw material is one of the biggest bottlenecks and could derail the industry. Afforestation could not meet the demand for raw materials for the wood processing industry which is growing at a high rate.

Data from the General Statistics Office showed that the output of timber harvested from planted forests has continuously increased over the years from 3.01 million cubic metres in 2006 to 19.5 million cubic metres in 2019. 

It is estimated that in 2020 it reached around 20.5 million cubic metres, achieving the target set in the development strategy for 2006-2020.

According to statistics, currently the domestic supply of raw materials can only meet about 75 percent of the total processing demand, including the exploitation of cultivated forests and extraction of scattered crops and rubber wood.

Each year, Vietnam still has to import about 8.5 million cubic meters of wood, accounting for 25 percent of the total volume for the wood processing industry. 

At first glance, 75 percent of domestic raw materials is not a small amount, but the problem is that the certified forest area only accounts for 8.4 percent of the total cultivated forest area of the country, covering about 307,000 hectares. However, the area of forest planted by households is mainly for small wood.

Among the major markets with a furniture consumption above US$5 billion a year. Europe and Asia are expected to have the strongest growth in furniture and outdoor furniture. Besides this, the main market for Vietnam’s wood industry, North America will continue to grow steadily.

This forecast fits well with Vietnam’s overall strategy and a plan to develop a modern wood industry that ensures harmony between all stakeholders was approved by the five wood associations including the Association of Vietnam Timber and Forest Product (VIFORESTrest), the Dong Nai Wood and Handicraft Association, the Handicraft and Wood Industry Association of Ho Chi Minh City, the Binh Duong Furniture Association and the Forest Products Association of Binh Dinh.



Companies concerned about the weakening yen

A Kyodo News survey found almost all major companies in the country are concerned about the weakening yen despite this generally benefitting exporters. 

The yen has shed around 15 percent against the US dollar since March and dropped to a 20-year low.

The Governor of the Bank of Japan maintains that the positive effects of a weak yen outweigh the negative and the Bank will continue its easy monetary policy. This could drive the yen down further. Households are feeling the strain of a weak yen as the cost of imports, especially energy, are rising fast.

The government will fund subsidies and other measures aimed at cushioning the economic impact from rising fuel and raw material prices.

The record low yen would encourage inbound tourism and have a positive impact on the economy but only recently has the government indicated it is considering lifting the border closure to tourists.

It has been observed that the border closures late last year failed to prevent a domestic outbreak calling into question the scientific rationale for continued border restrictions.


Dive in consumer confidence flattens out

Japan’s consumer confidence index reversed course in April and rose, the first rise in six months and came as the Covid-19 restrictions were lifted. Despite the positive turn, the index is well below what it was at the end of 2021.

The consumer confidence survey found almost all consumers expect prices of goods to rise in the next 12 months. In this they are correct as price increase for food and fuel has been noticeable. The government recently increased its fuel subsidy.

Japanese homebuyers supporting overseas timber businesses

Unlike other countries homes in Japan become nearly valueless after 20-30 years. If someone moves out of a home before that period, the house is considered as having no value and is demolished to release the value of the land which is seen as being high value.

This approach to home building has been explained by the historic rush to rebuild after the second world war where little attention was paid to longevity and also the frequently changes to the building codes to improve quake resistance. 

With most of the timber used in home building being imported it is the overseas timber suppliers who benefit most from Japanese home replacement.


Sanctions expanded

The Japanese government has been gradually expanding the scope of its sanctions on Russia since late February when Russia launched its invasion of Ukraine and has been in step with G7 countries in imposing sanctions.

Japan will phase out coal imports from Russia.



Financial measures to support enterprises

The State Council decided measures are needed to support micro, small and medium enterprises whose finances have been disrupted by measures introduced to slow the spread of Covid-19.

The State Council called for immediate implementation of the measures which include tax rebates, tax reductions and fee reductions, delayed the payment of social insurance premiums, help with logistics services all aimed at encouraging enterprises to resume work and production.

Tax rebates and tax reduction are key measures to stabilise the macroeconomic. It is estimated that RMB2.5 trillion of tax reductions will be completed for the current financial year. More than 20 tax support policies will be implemented this year.

It is reported that financial and tax departments at all levels are closely cooperating to speed up the progress of tax refunds. As of 28 April 2022, a total of RMB625.6 billion had been refunded. According to the Ministry of Finance it will advance the refund of tax credits for small and medium-sized enterprises in May and will speed up refunds for larger enterprises.

Large state-owned banks will increase small and micro loans up to RMB1.6 trillion this year and the Ministry of Finance is encouraging banks to strengthen proactive services. For small, medium and micro enterprises and individual industrial and commercial households loan renewal and extension or adjustment of repayment arrangements will be adopted. The State Council adopted measures to ‘remove burdens’ and ‘add vitality’ to enterprises.


Manufacturing output drops sharply

Manufacturers in China have seen output drop at its fastest pace in two years as the economic impact of Russia’s invasion of Ukraine and new covid lockdowns bite. This slowdown is likely to impact regional economies which rely on trade with China.

To reduce the economic impact of covid restrictions the government is adjusting its approach to reduce the time that activities will be restricted suggesting there has been some loosening of the Zero covid strategy.

The first round of large-scale covid testing was conducted in Shuyang County of Jiangsu Province and many wood-based panel manufacturers have ceased production.

Production of wood-based panels in Hebei, Jiangsu and Shandong Provinces is now limited and it is difficult to transport finished products or secure raw materials.

Adding to these challenges are the rising prices for fuel and raw materials. However, wood-based panel manufacturers in Linyi City, Shandong Province have said although there is no great impact on production for now many roads are closed which is a challenge.

Manufacturers revealed that transport costs from Guangxi to Shanghai rose from RMB270-280 to RMB420 per tonne. They also revealed that the price of raw materials is still rising, for example the price for veneer rose from RMB1,220-1,240 per cubic metre to RMB,1300 per cubic metre recently.

In addition, demand is relatively weak and order levels are lower this year. With weak demand it is difficult to raise prices to off-set increased production costs.


Forest development plan 2021-2025

China aims to establish a modern forest and grass industry system by 2025 with the total output value expected to reach RMB9 trillion from RMB8.1 trillion in 2020. 

This was included in the Forestry and Grassland Development Plan (2021-2025) released by the State Forestry and Grassland Administration.

China also strives to establish itself as a leading country in the international trade of forest and grassland products with an annual import and export value hitting US$195 billion by 2025 from US$152.8 in 2020.

The output of wood-based panels is expected to be stable at around 300 million cubic metres, the output of flooring at around 800 million square metres and the output of wooden furniture at RMB800 billion by 2025.

More than two million hectares of national reserve forests will be cultivated and upgraded by 2025. There will also be a rise of 20 million cubic metres in annual stocking volumes in national reserve forests. More than eight million cubic metres of stocking will be of rare tree species.


Rise in the fibreboard production capacity

Fourteen fibreboard production units were put into operation nationwide in 2021 with an annual production capacity of 3.36 million cubic metres. 

China's 376 fibreboard manufacturers had 425 fibreboard production lines by the end of 2021 distributed in 24 provinces and municipalities. The number of enterprises and production lines in China's fibreboard industry declined while the total production capacity and average single-line production capacity increased as a whole.

About 33 fibreboard production lines were shut down, dismantled or suspended operations in 2021 removing around 4.56 million cubic metres capacity.

China had 142 continuous flat-pressing fibreboard production lines by the end of 2021 with a total production capacity of 30.37 million cubic metres per year accounting for 57 percent of the national total fibreboard production capacity, which distribute in 18 provinces and regions.

Eight production lines are expected to come on-line in 2022 with a production capacity of 1.93 million cubic metres. The mills are in Eastern China such as Shandong, Jiangsu, Anhui and Jiangxi Provinces as well as the Guangxi Zhuang Autonomous Region of Southern China.

No fibreboard production lines are under construction in North, Central, Southwest, Northwest or Northeast areas. Of the new lines, seven are continuous flat-pressing production lines adding an extra capacity of 1.78 million cubic metres per year.


Rise in particleboard production capacity

13 particle board production lines were put into operation in China in 2021 adding a further production capacity of 2.76 million cubic metres. 

China's 312 particleboard production enterprises had 331 particleboard production lines by the end of 2021.



Intense negotiations underway on EU ‘deforestation-free’ law

Intense negotiations continue within the European Council and European Parliament towards agreement of a final text of the law "on the making available on the Union market as well as export from the Union of certain commodities and products associated with deforestation and forest degradation".

If jointly approved by the Council and Parliament, the new law will replace the existing EU Timber Regulation (EUTR) and extend due diligence obligations to a wider range of ‘forest risk’ commodities. 

As currently drafted, it would prohibit placing of products on the EU market that contribute either to ‘deforestation’ or to ‘forest degradation’, alongside illegally harvested products. 

On 17 March, the European Council of Environment Ministers exchanged views on the legislative proposal. The meeting included clarifications and justifications for the regulation from the European Commission (EC) followed by a short statement by each Member State in turn. The EC identified aspects of the regulatory proposal setting it apart from the existing EUTR and from equivalent legislative initiatives in the US and UK. 


If passed by the EU the law will:

•Build on FAO definitions of deforestation and degradation.

•Include a prohibition on products derived from any deforestation or forest degradation, irrespective of whether legal or illegal according to national laws in the country of harvest.

•Require operators to file each year a due diligence statement to be uploaded into an EU digital database to allow better targeting of enforcement actions.

•Require that the source of all regulated products—excluding only those from countries deemed by the EC to be ‘low risk’—be traced to the ‘geolocation’, defined as the specific plot of land where harvesting took place.

•Set out procedures for benchmarking of countries as ‘high risk’, ‘standard risk’ and ‘low risk’ by the EC for which different due diligence obligations would apply and which thereby ‘provide an incentive for countries to step up their protection of forest’.

•Establish minimum requirements for enforcement actions by EU Member States to better ensure uniform implementation across the EU and a level playing field for operators.


In the same way as EU Agricultural Ministers speaking at their earlier Council meeting in February, Environment Ministers expressed a wide range of views on the legislation.

The most supportive statements came from the German and Dutch Environment Ministers. Germany said the proposed regulation would pay for itself in the long term and be an important improvement over the EUTR and that it contained appropriate measures to reduce the burden on SMEs.

The Netherlands Environment Minister expressed his "full support for the proposal" and said that it is "vital to the green deal" (the EU objective to cut greenhouse gas emissions by at least 55% by 2030). 

The Netherlands also called for "other ecosystems to be introduced as soon as possible" and that it is "key that forest degradation remains part of the proposal". Netherlands said there should be deeper engagement with major producer countries to "avoid negative impacts such as discrimination against smallholders and rising costs".

Ministers raising the most substantive concerns about the draft legislation came from the Nordic countries and Baltic States. Sweden said that the administrative burden and costs of the new legislation would be significantly higher than was the case for EUTR. Sweden believes the legislation does not sufficiently reflect varying national forestry conditions both within and beyond EU and that definitions relating to degradation and sustainable forest management are unclear and likely to conflict with national forest policies. 

Sweden recommended that these definitions either be removed or deleted and called for more steps to ensure full compliance with WTO obligations.

Finland emphasised that deforestation is a global problem and the EU should focus on promoting a multilateral response. Also that due diligence must be justified in relation to impact and proportionality and that the geolocation requirements be examined more closely from the perspective of practicality.

According to Finland, the degradation definition created "many difficult questions", particularly for countries with a large remaining forest area where legitimate changes of land use may be associated with some minor losses to forests at specific locations.

Estonia noted that the new law will have a significant impact on EU businesses, particularly SMEs, and regulatory authorities. According to Estonia, discussions in various EU working groups on the regulation had been too rapid leaving insufficient time for proper consideration to be given to the full implications of the new law. 

Estonia called for more wide ranging input from experts from the individual commodity sectors and in trade law. Estonia noted that sourcing of wood from illegal sources has remained a problem despite EUTR, and that bringing cases to court has been challenging. Estonia believed that definitions, particularly for "forest degradation", must only contain concepts agreed at international level.

Some Southern European countries, while expressing broad support, also raised specific substantive objections. For example, Italy said the scope of the draft law extends well beyond EUTR and will be challenging to implement and called for "reasonable time frames" before full implementation. 

According to Italy, more time is needed to develop "effective new platforms to link together operators" and "new innovative tools, including partnerships with private entities". 

Italy also suggested that existing FLEGT partnerships should be developed before coming up with new partnerships. There was a need too for more consideration to be given to interim arrangements when switching from EUTR to the new regulation.

Greece was particularly emphatic that the new regulation must be in line with WTO rules, must take account of national conditions and natural processes such as forest fires, must be transparent and simple and implemented in harmonised way. 

Greece said that due diligence requirements should be precise and consistent with international standards such as OECD guidelines to minimise costs. Greece felt the "forest degradation definition should be kept out of the regulation allowing countries to adopt national provisions".


European Parliament calls for even more far-reaching regulation

While this debate is on-going in the European Council, on 31 March the ENVI Committee of the European Parliament, the other branch of EU legislature, published a draft report setting out their proposed amendments to the new law. 

In some respects, the amendments proposed in the ENVI Committee's draft report respond to the same problematic issues as those raised in European Council discussions.

But overall, the ENVI Committee draft amendments, if accepted, would significantly expand the scope of the law in relation to land area captured, the products covered and the obligations to be placed on operators.

The key amendments proposed in the ENVI Committee's draft report include:


1. Change to product scope

The ENVI Committee draft report proposes that rubber is added to the list of commodities covered by the regulation, alongside cattle, cocoa, coffee, oil palm, soya, and wood.

The draft report also proposes a specific exclusion for recycled materials and recycling products.


2. Conversion to tree plantations treated as ‘deforestation’

The ENVI Committee draft report proposes that the definition of ‘deforestation’ be extended to prevent any conversion to tree plantations. 

The current draft includes a prohibition against conversion to plantations as a form of ‘degradation’. The ENVI Committee draft would strengthen this prohibition by defining conversion to plantations as a form of ‘deforestation’ and tree crops as a form of ‘agricultural use’.


3. Conversion of ‘other wooded land’ treated as ‘deforestation’

The ENVI Committee draft report proposes that the definition of deforestation be extended to include conversion of ‘other wooded land’ as well as forest land so as to address threats to "forest-mosaic ecosystems and tropical woodlands and savannahs" alongside natural forests.

Drawing on the FAO definition, the draft report proposes that ‘other wood land’ should include "land not classified as forest, spanning more than 0.5 hectares, with trees higher than five meters and a canopy cover of 5 to 10 percent, or trees able to reach these thresholds in situ, or with a combined cover of shrubs, bushes and trees above 10 percent, excluding land that is predominantly under agricultural or urban use."


4. Slightly more flexible ‘degradation’ definition

While the ENVI Committee draft report proposes that the definition of deforestation be extended in relation to tree plantations, it proposes that the definition of ‘forest degradation’ be slightly more flexible. 

This is justified according to the draft report because "FAO states that a

globally agreed definition of sustainable forest management (SFM) is impractical because of the huge diversity of forest types, conditions and socioeconomic contexts worldwide."

The existing draft law indicates that any harvesting of forest products on ‘vulnerable soils’ or involving ‘large clear-cuts’ or any reduction or loss of soil quality or biodiversity, irrespective of timescale, is ‘unsustainable’ and will lead to "forest degradation".

The ENVI Committee draft report proposes that there be no general prohibition on practices such as ‘large clearcuts’ and no specific requirement for low impact harvesting.

Instead, it proposes a more flexible requirement that the forest site must be regenerated through planting or natural regeneration so that there be no overall decrease of forest land


5. Greater focus on ensuring equity for smallholders

The ENVI Committee's draft amendments to the law highlight that "the share of smallholders in the production of the commodities concerned can be as high as 80 percent" and acknowledge that "special attention needs to be paid to the challenges that smallholders will face with the implementation of this Regulation" and that "the new rules should aim to minimise the burden on smallholders in third countries and prevent barriers to their access to the market and international trade".

The one major change proposed by the Committee's draft report to facilitate greater access for smallholders would be to make the ‘geolocation’ obligation slightly more flexible. 

Rather than require, as in the current draft, that all products must be traceable to an individual ‘plot of land’, the requirement would be that products be traceable to ‘production areas’. This is still quite narrowly defined as ‘a plot of land, farm, plantation, cooperative or village’.

This change is justified in the ENVI Committee's draft report on grounds that "it might not be possible to trace back every single cocoa bean e.g. to a particular farm of a smallholder, but rather to the production area from which a cooperative is sourcing. 

Allowing to monitor a certain production area instead of every single plot of land will make it easier to implement the regulation and minimise the risk of excluding smallholders from the supply chain".

Beyond this, the ENVI Committee seems to take the view that responsibility for ensuring equitable market access for smallholders should lie with the operators, noting that "it is therefore crucial that the operators buying from smallholders provide timely financial and technical support to help smallholders meet the new Union market access requirements".

The ENVI Committee draft report also expresses an optimistic view of the benefits that might accrue to smallholders from the setting up of traceability systems to deliver against the geolocation criteria, noting that such systems "can empower smallholder farmers as it can avoid the non-payment of promised sustainability premiums, allow for electronic payments to producers by using the national traceability system thus combatting fraud and enable local authorities to collect knowledge on the

number of producer plots and control the number of farmers."


6. Requiring third party audits of operators' due diligence systems and statements

In the current draft of the law operators would be required to implement a due diligence system and to prepare a due diligence statement covering all the regulated products placed on the EU market. The statements would be lodged with the Competent Authorities who would be responsible for checking on their veracity.

However, presumably due to concerns over the ability of EU Competent Authorities to carry out effective checks, the ENVI Committee draft report proposes that "operators’ due diligence systems should be controlled by a third-party external auditor on an annual basis".

The operators' obligation to submit the due diligence statements would be extended to include "an annual audit report by a third-party auditor".


7. Allow for differential approach between commodities

The current draft law would apply the same due diligence rules to all "forest-risk" commodities. However the ENVI Committee draft report argues that "applying the same rules and definitions for significantly different supply chains does not match the realities on the ground and will make it difficult for both operators and national control authorities to implement the regulation".

The draft report therefore proposes that "where necessary, the Commission should develop guidelines laying down specific rules on due diligence requirements, traceability tools and liability rules in the supply chain for the different commodities. Those rules should also be harmonised as much as possible with the due diligence rules set out in [the forthcoming Sustainable Corporate Governance Directive]".


8. Simplify benchmarking framework

The ENVI Committee draft report proposes that the existing proposal categorising countries/regions as ‘low’, ‘standard’ and ‘high risk’, for which different due diligence obligations would apply, should be simplified.

Instead, the Committee draft report proposes only that ‘low risk’ countries/regions be identified, for which products would be subject to ‘simplified’ due diligence. Competent authorities would not be obliged to ‘apply enhanced scrutiny on relevant commodities and products from high

risk countries or parts of countries identified as high-risk’.


9. Due diligence obligations focused on ‘first placers’

The ENVI Committee draft report proposes that ‘operators’ to which detailed due diligence obligations apply should be restricted to the ‘first placer’ rather than all suppliers throughout the EU supply chain. 

This would align with the current EUTR in which due diligence obligations only apply to the first placer. The draft report proposes that first placers be required to "share their due diligence statements with subsequent operators and traders in the supply chain", thereby helping to avoid duplication at every stage of the supply chain.


10. Require compliance with standards for indigenous and community rights

The ENVI Committee draft report proposes that the current draft requirement for harvesting to be ‘deforestation-free’, ‘degradation-free’ and compliant with national laws should be extended to include compliance with "international laws and standards on the rights of indigenous people and tenure rights of local communities, including customary tenure rights and the right to free, prior and informed consent."

There is a long way to go before any of these proposals—which are just a first draft of comments on a law which itself is still only in draft form—actually make it on to the European statute book.

However, coming as they do from an influential committee within the European Parliament, they do indicate that there is strong strand of opinion within the EU that even the existing legislative proposal for deforestation-free products does not go far enough.

At this stage, there is every expectation that the new law will eventually be passed in one form or another. However, the complexity of the issues involved, and the pleas from some member states for more time to consider the full implications and for wider international consultation, suggest it may be several years before the new law is effectively implemented. 

In the meantime, EUTR remains in place and continues to provide the framework for regulation of timber products placed on the EU market.

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