Malaysia
Tightening forest degazetting and replacement processes
Under the Malaysian Constitution, forestry is under State jurisdiction. The National Forestry Act coordinates forestry matters nationally and recently amendments to the Act were passed.
Among the key changes were the tightening of the degazetting and replacement process for permanent forest reserves, the introduction of a public investigation process before the degazetting of any forest reserve and the simultaneous replacement of the degazetted forest.
The Natural Resources and Environmental Sustainability Minister, Nik Nazmi Nik Ahmad, urged State governments to adopt the amendments as, so far, only Perlis and Selangor States have fully adopted the amendments.
Efforts to bring deforestation levels down recognised
Free Malaysia, a news portal with a focus on Malaysian current affairs, published a story in which it reports the EU’s Commissioner for Environment and Fisheries, Virginijus Sinkevičius, commended Malaysia’s efforts to bring deforestation levels down.
It is reported that this comment was made during a virtual conference with the Malaysian Minister of Plantations and Commodities, Johari Ghani. Sinkevičius also reportedly acknowledged Malaysia’s commitment to certified sustainable commodity production.
“The EU and Malaysia will continue to work closely together on the implementation of the forthcoming EUDR and how the MSPO certification provides readiness and assurances for supply chain partners and regulators in the EU,” said a statement.
Johari emphasised the role of the Malaysian Sustainable Palm Oil (MSPO) Certification Scheme in strengthening efforts to meet EUDR requirements on traceability, being deforestation-free and with legitimate land titles and good labour practices.
Sinkevičius is reported as saying the EU is ready to continue working with Malaysia to enhance deforestation-free supply chains.
In related news, with the December 2024 implementation of the European Union Deforestation Free Products Regulation (EUDR) in mind the Malaysian Timber Council (MTC) organised a webinar to provide updates to stakeholders and equip them with the knowledge they need to navigate through this regulation as well as facilitate strategic and sustainable business approaches. Efforts by the Government and MTC have been ongoing to aid Malaysian timber exporters in satisfying the EUDR.
Automation and digitalisation the way forward
The Malaysian timber industry is being urged to adopt automation and digitalisation to tackle increasingly complex global challenges. To assist with this transformation the Malaysian Wood Moulding and Joinery Council (MWMJC), in collaboration with the Malaysian Timber Industry Board (MTIB), has organised programmes and initiatives aimed at strengthening the competitiveness of the sector.
In addition to supporting its members the MWMJC also provides feedback on government policies and promotes sustainability within the sector. Its chairman, George Yap, acknowledged the multifaceted challenges confronting the industry including raw materials scarcity, demands for timber certification and the imperative of adhering to environmental, social and governance principles.
Exports of wood products fell by 13 percent to RM 21.9 billion in 2023 compared with RM25.21 billion in 2022. The major wood products exported from Malaysia last year were wooden furniture, plywood, sawnwoodr, builders' joinery, mouldings and fibreboard. Among the top export destinations were the US, Japan and India.
MWMJC members primarily focus on downstream production and supply the international and domestic markets. The finished products include mouldings, doors, windows, flooring, decking, skirting, picture frames, furniture and wooden structures for building and marine applications.
Sabah rainforest project generates first carbon credits
The Kuamut Rainforest Conservation Project (KRCP) has achieved a milestone by generating its first tranche of verified carbon units. The project is a public-private partnership between the Sabah Forestry Department, Yayasan Sabah and United Kingdom-based Permian Global's local subsidiary, Permian Malaysia.
Permian Global chairman, Stephen Rumsey, said the verification demonstrated the project's compliance with internationally recognised standards. This achievement enables the conservation initiative, aimed at protecting and restoring 83,000 hectares of tropical rainforest in the Tongod and Kinabatangan districts, to generate its first saleable carbon units.
Permian Global had provided investment for the project that involved State authorities along with scientific and community partners such as the South East Asia Rainforest Research Partnership (SEARRP) and the community organisation PACOS Trust.
Longest running tropical forest certification
The Deramakot Forest Reserve in Sabah has received its fifth cycle of forest certification under the Forest Stewardship Council (FSC) certification; the first cycle began in 1997.
This re-certification extends to another five years, from March 2024 to March 2029 making Deramakot Forest Reserve the longest running FSC-certified tropical forest in the world.
Frederick Kugan, the Chief Conservator of Forests in Sabah praised the efforts and hard work shown by all officers involved in maintaining the world standard of forest management in Deramakot which is an outstanding achievement not only for Sabah and Malaysia but also for all the tropical forests in the world.
As of March 2024, the SFM system, as practiced in the Deramakot area, has multiplied to 43 Sustainable Forest Management License Agreements (SFMLAs) covering some 1.53 million hectares.
However, Sabah still faces challenges in obtaining FSC and MTCS-PEFC certification for forest plantations. These can only be granted for forest plantations established before 2020 for FSC and before 2010 for MTCS-PEFC along with some other restrictions.
Solid growth forecast
The World Bank, in its East Asia and Pacific April 2024 Economic Update, maintained its forecast for Malaysia’s economy to grow 4.3 percent this year as household spending accelerates amid moderate inflation. This forecast is in line with Malaysia's own projection of growth of between four percent and five percent in 2024, versus a 3.7 percent expansion in 2023.
Adapt businesses to the green economy, adopt advanced technologies The timber industry in Sarawak is advised to adjust their business models focusing on the green economy and high technology within the framework of the Fourth Industrial Revolution (IR 4.0).
The Deputy Prime Minister, Awang Tengah Ali Hasan, said, like all other industry players, the timber industry needs to look at new ways for their businesses to be more competitive while being in line with the Post-Covid Development Strategy 2030 which focuses on the green economy.
He said, for example, the bioenergy industry has great potential to be explored as there is a growing demand for wood pellets in Japan, South Korea and France.
At the same time, he suggested that State timber industry players adapt to IR 4.0 technologies as this emphasises the use of automation and digital technology which enables the industry to be more competitive both at home and overseas.
Indonesia
Mission to discuss EU Forest Map data
The government will embark on a mission to discuss the global forest map (GFM) on the European Union Forest Observatory (GFM EUFO) platform which serves as a reference for the European Union’s Deforestation-free Regulation (EUDR) implementation.
Scrutiny by Indonesia has revealed accuracy issues with the GFM EUFO. Acting Director General of Sustainable Forest Management at the Ministry of Environment and Forestry, Agus Justianto, explained that Indonesia’s mission will be carried out through the Indonesian Embassy in Brussels.
A comparison of the GFM EUFO map with the SIMONTANA (National Forest Monitoring System) reveals differences.
To strengthen Indonesia’s position in facing the challenges from EUDR the Ministry of Environment and Forestry has requested all holders of Forest Management Units (PBPH) to overlay the EU’s GFM map with their PBPH maps and PBPH Operational maps and check for variations. The results of this analysis and ground check will be used for negotiations with the EU.
Countries seek changes to EUDR
The regulatory initiative developed by the European Union the EU Deforestation-Free Regulation (EUDR) represents a significant challenge for exporters to the EU.
While the modalities for implementation are not yet released Indonesia, along with Malaysia and the EU, agreed to establish an Ad Hoc Joint Task Force on the EUDR to address various issues related to the implementation of the EUDR.
This task force will identify the best solutions and resolutions regarding the implementation of the EUDR.
A bipartisan group representing the Republican and Democratic parties in the US has also highlighted challenges and there has been consideration of requesting a delay in implementation or changes to the regulation.
Indonesia seeks 1% of global furniture market
Indonesian furniture exporters aim to capture one percent percent of the global furniture market following a significant decline in exports last year.
In 2023, Indonesia's furniture exports totalled US$2.1 billion, marking a 23 percent decline from the previous year.
Global furniture sales are estimated to have reached US$730 billion last year, with a projected increase to US$766 billion this year according to the Indonesian Furniture and Handicraft Industry Association (Asmindo).
The US remains the largest export destination for Indonesia's furniture, accounting for 55 percent of exports with almost 70 percent being of wooden furniture.
In related news, the Chairman of the Indonesian Furniture and Handicraft Industry Association (Himki), Abdul Sobur, said that exporters are welcoming the strengthening of the US dollar.
Indonesia uses 80-90 percent domestic raw materials, thus avoiding high priced imports.
Sobur said he is optimistic that export earnings from the furniture, furnishings and crafts industries can grow by at least 10 percent compared to the 2023 performance.
According to Sobur, the industry is determined to explore non-traditional markets outside of the European market such as South Korea, China, Japan and ASEAN countries while at the same time building capacity in order to meet the EUDR requirements for exporting to Europe.
Indonesia’s forest-based economy explained
Indonesia presented its forest management accomplishments at the 19th United Nations Forum on Forest (UNFF) and emphasised its commitment to developing a forest-based economy.
Alue Dohong, Deputy Minister of Environment and Forestry reported that Indonesia has successfully surpassed its national target of reducing deforestation rates to below 0.45 million hectares. Additionally, Indonesia has also committed to achieving the target of social forestry allocation, which is set at 12.7 million hectares.
Deputy Minister Alue also mentioned Indonesia's efforts to develop a forest-based economy through community empowerment in the public economic sector. During the meeting, the Indonesian Delegation participated in several strategic discussions related to forest policy developments.
Gen-Z and millennials to play a key role in forest management
Agus Justianto, Acting Director General of Sustainable Forest Management at the Ministry of Environment and Forestry (KLHK), has reiterated that forest businesses in the future will not only rely on timber harvesting, but will adopt a multi-business approach. He said to achieve this the younger generation, which includes individuals from the Gen-Z and Millennial age groups, can bring creativity, innovative ideas and technological skills that can be utilised to support the multi-business approach.
He added "it is hoped that the younger generation of the Gen-Z and Millennial groups who are creative, innovative and able to leverage technological advancements can become the key players in implementing Multi Forestry Business”
He emphasised the importance of sustainable management of forests, which besides having a foundation in economics, also has ecological, hydrological and climatological functions.
APP Joins the World Business Council for Sustainable Development
A media statement from the World Business Council for Sustainable Development says “the APP Group has joined more than 200 leading global companies as the newest World Business Council for Sustainable Development (WBCSD) member.”
APP Group oversees multiple pulp and paper manufacturing and forestry enterprises in Indonesia to meet the growing global demand for tissue, packaging and paper products in over 150 countries.
By joining forces with other industry leaders within WBCSD, APP is set to further enhance its sustainable development efforts and integrate these principles into its business operations, align with WBCSD’s mission to accelerate the required transformation of businesses, their value chains, and the systems in which they operate, to limit the impact of the climate crisis, restore nature and tackle inequality.
APP has implemented a comprehensive sustainability approach and is committed to transparent ESG disclosures.
Its ERM aligns with key ESG risks. APP’s participation as a WBCSD member also aims to advance progress toward achieving its ambitious sustainability goals—including net-zero emissions by 2050, setting targets for forest conservation, upholding human rights, promoting inclusion and diversity, and maintaining transparency in accordance with the International Financial Reporting Standards (IFRS)”.
Andrie Setiawan Yapsir, Director of APP Group said “joining the WBCSD is a crucial step for APP Group in reinforcing our dedication to environmental and social responsibility and assuring our stakeholders of our commitment to not only meet but exceed global standards.”
“This collaboration aligns with our goals, set out in our Sustainability Roadmap Vision 2030 and enables us to further enhance our capacity to implement effective solutions for a sustainable future”.
Be ready for carbon trading by October 2024
Presidential Chief of Staff, Moeldoko, has emphasised that President Wiodo wants to see carbon trading in Indonesia running smoothly before the end of his term as President.
Moeldoko stressed the need to speed up preparation and alignment of regulations, particularly in sectors that fall under the Nationally Determined Contribution (NDC). This includes areas such as energy, waste management, industrial processes, the utilisation of agricultural products, forestry and other sectors that are affected by advancements in science and technology such as blue carbon.
In response the Director General of Climate Change and Control at the Ministry of Environment and Forestry (KLHK), Laksmi Dewanti, explained that in preparing the regulations the Ministry will ensure that measures set for carbon trading can contribute to reducing emissions following the NDC targets in the Paris Agreement.
Myanmar
Myanmar delegation visits Vietnam
A delegation from Myanmar recently visited the Vietnam Forest Certification Office (VFCO) to gain insights and strategies regarding the development of the Vietnam Forest Certification Scheme (VFCS).
The Myanmar delegation and the VFCO affirmed their commitment to continued collaboration in promoting sustainable forest management certification within their respective countries, the region and globally.
The Myanmar delegation comprised senior management personnel from the Forest Department and Myanma Timber Enterprise. This visit was facilitated by the Myanmar Forest Certification Committee (MFCC) under the ITTO project ‘Strengthening SFM Standards and the Timber Legality Framework of Myanmar.’
Taking about the visit, Barber Cho, Secretary of the MFCC, said the visit aimed to facilitate engagement with key stakeholders in Vietnam pivotal to successful timber exports.
These stakeholders include the Vietnam Department of Forest, Vietnam Forest Certification Office, smallholders of group-certified forests, intermediate and small sawmills in Hanoi and leading furniture exporters in Ho Chi Minh City.
Given the project's objective to establish a certified plantation forest the MFCC orchestrated the visit to enable the Myanmar delegation to observe how Vietnamese entities collaborate for the advancement of forest certification and timber legality to support the timber industry and exports.
Insights garnered from this visit will be used in framing recommendations in the project report.
India
Wooden furniture gaining in popularity
India’s furniture industry is growing rapidly and almost 65 percent of Indian furniture is made of wood.
The demand for wood raw material in India’s furniture manufacturing industry has increased. The interest in wood products in the home has grown over the past few years as home owners, especially young people stared to use wood for interior decoration along with increased interest in wooden furniture.
It has been estimated that the domestic Indian furniture market will grow at a compound annual growth rate (CAGR) of 13 percent between 2020 and 2024. Because of the growing salaried class, the number of metropolitan families and the rise in disposable income demand for furniture is expected to continue to grow.
Companies rebalancing their supply chains
The results of a poll of global business leaders undertaken by Price Waterhouse Cooper says many are looking at India and Southeast Asia as alternative supply chain destinations as trade relations between China and the US remain unsettled.
The poll, commissioned by Eastspring Investments, found that over the next decade in the rank of supply chain importance India will become the third most important link, up from the current fourth and Southeast Asia will also move up one place in the supply chain ranking.
In contrast, the poll determined Germany will move down one place and Japan will drop to sixth.
According to the survey, boosting supply chain resilience is a key business priority with most stating that rebalancing their supply chain would cost less than the potential risk by not rebalancing.
Investment poised to fuel growth
According to a regional economic outlook presented by the IMF's Asia and Pacific Department, Asia will contribute around 60 percent of global economic growth in 2024, an upgrade of its view on the region.
Overall, the region is projected to grow 4.5 percent this year before slowing to 4.3 percent growth in 2024.
In terms of real gross domestic product, India is forecast to grow 6.8 percent this year, the fastest pace of any major economy, while China expands by 4.6 percent.
Growth in the ASEAN-5, Indonesia, Malaysia, the Philippines, Singapore and Thailand are forecast to rise 4.5 percent and Vietnam is projected to achieve gross domestic product growth closer to six percent.
The shape and drivers of Asia's growth, however, will vary significantly among countries. Investment looks poised to fuel much activity in China and India, while private consumption provides the main engine for other emerging markets according to the IMF.
India to become the third-largest construction market globally
The construction sector accounts for nine percent of India’s GDP and is the second-largest employer in the country and the country is seeing a construction boom.
Union Minister for Housing and Urban Affairs, Hardeep Singh Puri, has suggested that next year the country is set to become the third-largest construction market globally after China and the US.
It has been estimated that the industry could grow to US$1.4 trillion by 2025. In the 2023 July to September quarter, construction expanded 13 percent year-on-year, marking its best performance in the last five quarters.
The impressive growth has been attributed to higher and rising incomes, a significant housing shortage in major cities, population growth and robust government expenditure on infrastructure development.
The construction industry in India comprises two main segments, real estate and urban development. Within the real estate segment there are residential, office, retail, hotel and leisure projects.
The urban development segment encompasses sub-sectors, including water supply, sanitation, urban transport, schools and healthcare facilities.
In the 2024-2025 budget announcement, The Minister of finance, Nirmala Sitharaman, announced an allocation of Rs 11.11 lakh crore (US$134 billion) for infrastructure development worth 3.4 percent of the GDP. This was up from Rs 10 lakh crore in 2023-24.
Infrastructure development is also one of the leading recipients of foreign direct investment (FDI) occupying sixth place overall and has attracted over US$32 billion since 2000.
The Real Estate sector boasts of connections with over 250 ancillary industries and provides employment for more than 18 percent of the workforce.
In related news, the government has reported that GDP expanded 8.4 percent in the October to December quarter thanks to brisk manufacturing and construction. The government also revised up its GDP growth forecast for the year ending in March 2024 to 7.6 percent, from its January projection of 7.3 percent.
The third-quarter GDP number was the highest in six quarters and was the result of 12 percent rise in manufacturing activity and a 10 percent expansion of the construction sector.
The previous two quarters' GDP growth rates were also revised up to 8.2 percent for April-June, from 7.8 percent, and to 8.1 percent for July-September, from 7.6 percent.
Vietnam
Wood and wood product trade highlights
Customs data shows that in April 2024 W&WP exports reached US$1.3 billion, up 0.2 percent compared to March 2024 and up 19 percent compared to April 2023.
WP exports accounted for US$893 million, up 0.7 percent compared to March 2024 and up 141 percent compared to April 2023.
In the first four months of 2024, W&WP exports earned US$4.8 billion, up 24 percent over the same period in 2023. WP exports alone, contributed US$3.3 billion, up 26 percent over the same period in 2023.
Vietnam's W&WP imports in April 2024 amounted to US$265 million, up 37 percent compared to March 2024 and up 57 percent compared to April 2023.
In the first four months of 2024, W&WP imports were valued at US$801 million, up 26 percent over the same period in 2023.
Vietnam's imports of logs and sawnwood in April 2024 reached at 498,200 cubic metres worth US$166.9 million, up 38 percent in volume and 37 percent in value compared to March 2024.
Compared to April 2023, imports of logs and sawnwood rose 50 percent in volume and 39 percent in value. The increased log and sawnwood imports in April 2024 resulted from the increased demand from export manufacturers.
In the first four months of 2024, imports of logs and sawnwood stood at 1,421 million cubic metres worth US$472.5 million, up 12 percent in volume and three percent in value over the same period in 2023.
In the first four months of 2024, the W&WP exports to Canada totalled US$74.4 million, up 27 percent over the same period in 2023.
In April 2024 exports of kitchen furniture brought in about US$107 million, up 31 percent compared to April 2023.
In the first four months of 2024, exports of kitchen furniture totalled US$397 million, up 34 percent over the same period in 2023.
Vietnam's poplar imports in April 2024 were at 44,000 cubic metres worth US$14.4 million, up 38 percent in volume and 37 percent in value compared to March 2024.
Compared to April 2023, imports were up 46 percent in volume and 14 percent in value.
In the first four months of 2024, imports of poplar wood were estimated at 108,800 cubic metres, worth US$39 million, up 35 percent in volume and 17 percent in value over the same period in 2023.
Imports of logs and sawnwood from the EU in April 2024 reached 50,000 cubic metres at a value of US$16 million, up 13 percent in volume and three percent in value compared to March 2024.
The total volume of wood materials imported from the EU in the first four months of 2024 reached 184,020 cubic metres, at a value of US$59.40 million, down 3.5 percent in volume, but up two percent in value over the same period in 2023.
Rays of optimism emerging
In late 2023 the global furniture trade outlook seemed quite gloomy. Yet, the Vietnamese wood industry has seen certain rays of optimism.
In the first two months of 2024 the W&WP exports to the US, as the top export market, earned over US$1.2 billion equivalent to 53 percent of total exports.
China, as the next major market, consumed US$306.3 million, up 25 percent over the same period in 2023 while Japan shared US$270 million, up 0.2 percent and EU reached US$106 million, up 36 percent.
Information from many W&WP manufacturers reveals that many retailers have come back to Vietnam with orders as furniture inventories in their home countries are low and their economies are slowly recovering.
Japan
Enforcement of new law for decarbonised society
On 16 April 2024, the Japanese government approved a Cabinet decision that the new law for the decarbonised society will be enforced as of 1 April 2025.
According to the local media this will include 20 trillion yen (US$137.4 billion) available for decarbonisation support to encourage companies to participate in the emissions trading system (ETS).
Private sector company participation in the ETS, which began on a trial basis in Japan last year, is still optional but the government will make participation a requirement for companies to receive its financial support for going greener.
The government will establish industry-specific guidelines for reducing greenhouse gas emissions with a view to setting targets. It will also consider providing guidance and recommendations to companies that fail to meet their targets based on these guidelines from fiscal 2026, when the ETS comes into full effect.
Companies will be able to set their own reduction targets based on ministry guidelines. Whether the targets are appropriate or not will be subject to certification by a third-party organisation.
Currently, companies are free to choose whether or not to participate in the ETS and can set reduction targets on a voluntary basis. The Ministry will not mandate participation even after fiscal 2026 but will establish a mechanism to encourage participation in the programme.
China
Production license management for plywood and blockboard
To ensure the quality and safety of industrial products, strengthen product management and source control, prevent major risks from product quality and ensure the safety of people's lives and property the State Council has adjusted the coverage of production licenses for some industrial products.
The new production license management applies to six products such as cold-rolled ribbed steel bars, bottled liquefied petroleum gas, steel wire rope, plywood, blockboard and safety hats. The provincial industrial product license authority is responsible for implementation and this authority shall not be delegated.
Decline in China’s log imports
According to China Customs, log imports in the first quarter of 2024 totalled 8.85 million cubic metres valued at US$1.503 billion, down five percent in volume and six percent in value compared to the first quarter of 2023.
In addition, the average price for imported logs was US$170 (CIF) per cubic metre, down two percent from the same period of 2023.
Of total log imports, softwood log imports dropped eight percent to 6.20 million cubic metres, accounting for 70 percent of the national total.
The average price for imported softwood logs declined nine percent to US$134 (CIF) per cubic metre over the same period of 2023.
Hardwood log imports rose four percent in the first quarter of 2024 compared to the same period in 2023 to 2.65 million cubic metres, accounting for 30 percent of the national total.
The average price for imported hardwood logs rose four percent to US$254 (CIF) per cubic metre over the same period of 2023.
Of total hardwood log imports, tropical log imports were 1.52 million cubic metres valued at US$391 million CIF, down slightly in volume (1%) but up 1.5 percent in value from the same period of 2023. Tropical logs accounted for 17 percent of the national total log import volume.
The average price for imported tropical logs was US$257 CIF per cubic metre, up three percent from the same period of 2023.
Sharp decline in log imports from Germany
China’s log imports from Germany dropped 65 percent to 413,000 cubic metres valued at US$62 million, both declining by 68 percent in the first quarter of 2024.
The average CIF price for China’s log imports from Germany fell 10 percent to US$150 per cubic metre.
The dramatic decline in China’s log imports from Germany was because the Russia-Ukraine conflict has led to a general rise in energy prices in Europe and the costs of major manufacturing and industrial production in Germany have increased significantly.
Germany has lost its position as the second largest supplier of log to China, ranking just sixth in the first quarter of 2024.
New Zealand still was the largest supplier of logs to China in the first quarter of 2024. China’s log imports from New Zealand rose 13 percent to 4.29 million cubic metres valued at US$552 million, both up 12 percent over the same period of 2023. The average CIF price for log imports from New Zealand fell two percent to US$129 per cubic metre.
The proportion of China’s log imports from New Zealand accounted for 48 percent of the total log imports volume.
Home furnishing enterprises relocating overseas
China's home furnishing manufacturing industry has been steadily relocating overseas, in the past it was mainly based on contract manufacturing for export back to China.
More and more of China’s home furnishing enterprises have begun to expand and diversify their overseas operations in recent years. Many well-known domestic home furnishing companies announced that they would open stores overseas with their own brands targeting the Indian and Southeast Asian markets with mid-to-high-end products.
The driving force behind the trend in relocating is the weak domestic demand and a real estate market that will take years to recover.
On the downside, some overseas countries have low urbanisation rates, an undeveloped real estate sector with diminished potential and a weak domestic industrial base whereas Chinese brands have begun to have international competitiveness in design, production and marketing after years of development.
The biggest issue for the long term for Chinese home furnishing industries is that growth in domestic demand is forecast to continue to decline due to the aging population, falling birth rate and weakness in the housing sector.
According to data recently released by the National Bureau of Statistics, retail sales of consumer goods in 2023 reached RMB47.15 trillion, an increase of seven percent over 2022.
After the epidemic containment measures were lifted many sectors saw a rise in consumption for example catering which increased by 21 percent year-on-year, jewellery sales which increased by 13 percent and clothing, which increased by 139 percent.
However, furniture consumption only increased by three percent and the consumption of construction and decoration materials recorded a decline of eight percent.
Many institutions predict that the annual transaction volume for new homes will only be maintained at about one billion sqm, down by about 40 percent compared to the high point in 2018.
This will affect the manufacturing sector such as home furnishing. Businesses have assessed there is no chance of expansion in the domestic market.
National policies have promoted the pace of home furnishing enterprises relocation overseas. The government encourages enterprises to "go global" and provides a series of supportive policies and measures such as tax incentives and financial support creating favourable conditions for enterprises to expand overseas.
In late 2000, many Chinese home furnishing enterprises chose to set up businesses in Europe and America, but more recently, companies have vigorously targeted the Indian and Southeast Asian markets.
This is because these countries have a large population and growing consumer demand. As these economies expand and people's living standards rise the demand for household products increases.
These new target markets have cultures and consumption habits closer to those in China which is conducive to the rapid adaptation and integration of domestic household enterprises into the local market.
In addition, the policy environment in India and Southeast Asian countries is also relatively open providing a good investment and development environment for domestic household enterprises.
Some countries, in order to attract foreign investment and promote economic development, provide tax incentives, land leasing and other preferential policies reducing the establishment cost of incoming enterprises.
Europe
Certification schemes lay out EUDR compliance support
Given the huge dependence on FSC and PEFC by suppliers into and out of the EU and for internal EU trade for provision of data on provenance and forestry practices, the extent to which these systems can adapt, or not, to the new requirements of the EU Deforestation Regulation (EUDR) will have a strong bearing on access to the EU market and on the continuing global competitiveness of European wood product manufacturers and traders in the future.
FSC webinars in recent weeks have detailed its guidance and support to help certified companies meet EUDR obligations. PEFC is also progressing alignment of its system and standards with the EUDR to aid PEFC-certified businesses’ compliance.
The FSC webinars, recordings or which are available on its website, covered its FSC EUDR Aligned Standard which will be launched in June this year as an added option for all FSC certified companies.
Within this, its EUDR Regulatory Module will provide added components on avoiding implication in deforestation and forest degradation and take companies through EUDR alignment of due diligence processes and reports.
FSC has also been explaining how its new ‘FSC Blockchain’ platform will work. This is designed to enable certified companies to meet the EUDR obligation for geolocation coordinates identifying the origin of timber and wood products.
This obligation is imposed directly on companies that first place regulated products on the EU market, that export these products from the EU market, and companies which are not SMEs trading inside the EU.
The new FSC platform aims to enable businesses to transmit product origin and harvest date data throughout the supply chain. Confidentiality of sourcing information is key, says the FSC, and only those who upload data to the system will be able to say who can access it.
EU Competent Authorities are also being kept informed on how it will operate and help generate due diligence statements for submission to the EU.
Ahead of the EU benchmarking supplier countries under the EUDR as low, standard or high risk of commodity production causing deforestation and forest degradation, FSC is additionally revising 20 of its 60 country risk assessments, looking at risks of illegality and unsustainable practice. Its new Risk Assessment Framework will be unveiled in June, with the 20 revised national assessments available by January 2025.
The PEFC ran a webinar ‘On the path to EUDR alignment’ on 27 February delivering the latest on development of its sustainable forest management and chain of custody standards to help certified companies to satisfy the regulation.
A PEFC Sustainable Forest Management Working Group has worked on ‘identifying and validating gaps between its sustainable forest management standard and EUDR requirements’ and revisions of the standards are out for consultation through February/March, with the final versions available in May.
PEFC is also developing an EUDR-adapted due diligence system (DDS) to enable companies to implement the regulation, which will be compatible with the existing PEFC DDS in its chain of custody standard. The new system, says PEFC, will actually go further than EUDR requirements by also covering its controversial sources definition.
By implementing the PEFC EUDR Module alongside the PEFC SFM and Chain of Custody Standards, PEFC says operators will ensure they are undertaking due diligence in line with the EUDR’s requirements, including on risk assessment and definitions of controversial sources and deforestation.
The organisation is also focusing on the EUDR’s demand for timber geolocation data. “Certified organisations and PEFC members can expect guidance on how best to approach EUDR compliance data issues, including, where appropriate, suggested standardised methods for obtaining, storing, and presenting necessary data,” it states.
A proposition is that PEFC-certified forest concession owners/managers upload timber origin geolocation coordinates to a PEFC database and be assigned a PEFC identification number. PEFC-certified operators will then access the geolocation data using that number.
The data will be confidential to the operator. Those further down the supply chain will be given the number as proof that geolocation information is available if required, but they will not be able to access the data themselves.
Both FSC and PEFC have also revised their deforestation/forest land conversion cut-off date, after which they cannot be certified to the end of 2020 to match the EUDR. The FSC proviso is that forest restitution and restoration has taken place between its earlier 1994 cut-off point and the new date.
FSC and PEFC stress that their certification schemes will not give business a ‘green lane’ through the EUDR. It will be the responsibility of individual certified companies to undertake the requisite due diligence. But they claim the adaptation of their systems and standards to its requirements will go a long way in aiding and providing guidance on compliance.
European wooden furniture consumption fell 11% in 2023
The last four years, marked from the start of 2020 by the Covid-19 pandemic and from February 2022 by war in Ukraine, have seen unprecedented changes in Europe’s wood furniture sector.
During this relatively short period, there have been major alterations in patterns of supply and demand, trade flows, consumer preferences and working conditions, distribution channels, design, and fashion trends. Companies throughout the sector are having to evolve new strategies in response to a transformed world.
Europe’s wood furniture sector has passed through a period characterised by an initial but very short-lived fall in demand in the second quarter of 2020 during the first Covid-19 lockdown, followed by very rapid demand escalation in 2021 with the onset of the home improvement boom. This occurred at a time when material shortages and other logistical challenges greatly reduced availability.
The war in Ukraine and other geopolitical challenges then drove a rapid escalation in energy prices, adding greatly to the existing inflationary pressures. Rising interest rates and declining consumer spending, after demand had been satiated by high spending in the previous two years, then led to a sharp decline in demand starting in the second half of 2022 and continuing throughout 2023.
These trends are all evident in the changing value of production, trade, and consumption of wood furniture in the EU27+UK in recent years.
After the sharp upturn in the European market for wood furniture in 2021, when large investments were made in home improvement during the Covid-19 pandemic, production and consumption fell back respectively by 11 percent and 12 percent in 2022.
Production and consumption then fell by another eight percent and 11 percent respectively in 2023. In 2023, wood furniture production in the EU27+UK was valued at €39.7 billion while consumption was €39.4 billion.
Other than in 2020, when the market fell sharply at the height of the Covid-19 pandemic, such low levels had not been since 2014 when Europe was emerging from the 2010-2012 Sovereign Debt crises.
These figures underline the extent of the downturn in the European economy.
In 2023, Europe faced increased uncertainty, sluggish economic performance, and a marked slowdown in the construction industry.
As a result, European consumer demand for furniture was under strain, particularly in the lower and mid-price segments.
Demand was hit by the higher cost of living caused by inflation, particularly for energy, and rising interest rates. Renewed interest in other discretionary spending categories, such as travel, added to the challenges in the furniture market last year.
The costs of producing furniture in the EU also continued to rise in 2023. High energy prices, costs of capital and rising labour costs could not be passed onto customers, greatly reducing profitability.
Extra-EU export prospects, particularly in the US and China, were also cooling and were not buoyant enough to support EU production. Various bankruptcies, layoffs and downsizing plans were reported in the industry last year. European furniture manufacturers were forced to revise their list prices upwards during the year.
Furniture sector performance has varied widely between European countries in recent times. Eurostat data shows that while overall EU27 furniture production in 2023 was close to the level prevailing in 2015, some countries including Romania, Belgium, Sweden, Germany, Netherlands, Denmark, and France, had fallen well below that level.
Most of these countries recorded only a modest rebound in furniture production in 2021 followed by a dramatic downturn from the second half of 2022 onwards.
In contrast, furniture production in Poland and Lithuania continued strong even during the first year of the pandemic in 2020 and increased very rapidly during 2021 and 2022.
Although there was a sharp downturn in 2023, production in Poland and Lithuania remained well above the pre-pandemic level. Furniture production in Spain, Italy, and Portugal was less volatile than in other European countries during the 2019 to 2023 period and remained well above the pre-pandemic level despite sliding last year.
The European furniture industry is highly integrated from both a market and an industrial perspective with most furniture components (such as wood and wood-based panels) being sourced from European countries. Almost 80 percent of furniture consumption is met by European production.
However, imports from Asian countries, particularly China, were increasing rapidly in the years to 2021.
The rise in European internal trade and in imports from outside the region which began in 2013 as the European economy gradually recovered from the Sovereign Debt crisis, continued throughout the pandemic in 2020 and accelerated in 2021.
European exports of wood furniture to countries outside the region, which were flat in the period between 2013 and 2020, also increased in 2021. However, all these trends reversed starting in the second half of 2022. European imports, exports and internal trade in wood furniture declined by 18 percent, nine percent and four percent respectively in 2022. In 2023, imports fell a further five percent, exports were down 17 percent, and internal EU trade declined 12 percent.
The total quantity of EU27+UK imports of wood furniture from outside the region fell five percent to 2.28 million tonnes in 2023. This followed an 18 percent fall the previous year.
The decline in imports in 2023 was less dramatic than forecast by ITTO in October, primarily due to a revival in imports from China after the Covid-19 lockdowns in that country ended and as freight rates fell quickly last year.
This meant that Chinese goods could again be shipped into the European market at competitive prices, just at a time when prices for goods manufactured in Europe were rising.
In 2023, wood furniture imports into the EU27+UK from China increased by six percent to 1.25 million tonnes, still well down on the peak level of 1.51 million tonnes in 2021, but above the pre-pandemic level.
European wood furniture imports from non-tropical countries other than China fell nine percent last year to 600,000 tonnes, following a 19 percent decline the previous year.
Imports from Turkey, Ukraine, and Serbia all recovered some ground last year but not enough to offset the decline in imports from Belarus—now subject to European sanctions—and falling imports from Bosnia, Switzerland, and the US.
EU27+UK imports of wood furniture from tropical countries fell 23 percent last year to 430,000 tonnes, following a nine percent decline in 2022 from the peak levels of 2021. European wood furniture imports from tropical countries were hit by a big decline in demand for outdoor furniture last year, a sector where tropical furniture still dominates.
The reemergence of China as a major force in European wood furniture supply in 2023 also contributed to the sharp decline in tropical countries share of European imports.
Imports from all tropical countries supplying wood furniture to the EU27+UK declined very sharply last year including Vietnam (-28% to 148,900 tonnes), India (-20% to 73,400 tonnes), Indonesia (-23% to 73,400 tonnes), Malaysia (-15% to 72,800 tonnes), Brazil (-15% to 48,300 tonnes), Thailand (-19% to 5,400 tonnes) and Singapore (-74% to 2,900 tonnes).
There was a big fall in tropical wood furniture imports into the UK, the largest European market, in 2023, down 22 percent to 138,700 tonnes. Large declines were also recorded by France (-22% to 72,000 tonnes), Germany (-33% to 52,600 tonnes), Netherlands (-24% to 44,300 tonnes), Belgium (-34% to 23,200 tonnes), Ireland (-23% to 10,700 tonnes), Denmark (-26% to 10,500 tonnes), Italy (-26% to 9,100 tonnes), and Poland (-27% to 8,900 tonnes).
Of all large European markets, only in Spain did imports hold up well in 2023, rising three percent to 28,100 tonnes.
CSIL forecast gradual recovery in European furniture market demand
According to CSIL, the Italy-based furniture industry research organisation in their latest quarterly issue of World Furniture Online, this year prospects are slowly improving for the European wood furniture sector.
The major challenges that have recently weighed heavily on the European furniture industry, such as price increases and supply chain disruptions, appear to be easing.
Furniture demand is expected to gradually improve in the second quarter of 2024 and to recover in 2025.
Based on interviews with European furniture companies, CSIL also identify key recent changes in the structure and strategies of the sector.
Most furniture manufacturers surveyed by CSIL in 2023 said they were increasingly shortening supply chains by becoming more local (at country or regional level). Within Europe, Portugal, Italy, and Spain were identified as the main beneficiaries of this perspective.
The relocation is driven by various reasons, including shortening time to market. However, business sustainability, liquidity and security of supply have emerged as key issues that are intensified by international events.
The implementation of the EU Deforestation Regulation (EUDR), due from 31 December this year, which imposes strict wood traceability requirements, is another factor that might intensify the trend towards shortening supply chains in the future.
CSIL’s analysis of the structure of the European furniture industry highlights that the sector is still predominantly made up of small and medium-sized enterprises (SMEs).
The sector employs a significant number of people, with more than one million workers in over 135,000 manufacturing companies. While the industry remains SME-based, both manufacturing and retailing are becoming increasingly concentrated.
According to CSIL, the top 100 European companies generate more than 30 percent of the total value of furniture produced in Europe, an increasing share compared to 10 years ago.
On the distribution side, the top 15 EU furniture retailers also account for almost 30 percent of the market.
CSIL comment that over the past few years, from 2019 to 2023, there have been many strategic mergers and acquisitions (M&A) in the European furniture manufacturing sector.
According to CSIL “this has highlighted the dynamic and evolving nature of the industry, with companies strategically positioning themselves to strengthen their market position and leverage synergies. Furthermore, the M&A landscape within the European furniture industry shows a predominant focus on local transactions with the vast majority of total deals being acquired by companies within the region”.
