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Indonesia

Economy

According to the World Bank, population was 261.1 million in 2016, of which 10.9% were estimated to earn less than $1.25 per day and 48% are rural. Gross National Income per capita was $3,400 in 2016. Annual GDP growth was 5.0% in 2014, 4.9% in 2015, and 5.0% in 2016. The OECD forecast of GDP growth is 5.0% in 2017, 5.2% in 2018 and 5.4% in 2019.

Forest area

According to the FAO Forest resource Assessment, Indonesia’s forest area in 2015 was 91 million hectares, almost 50% of national land area. In 2015, Indonesia accounted for 5% of the 1770 million hectares of forest in the tropical zone, and for 20% of the 447 million hectares of forest in all countries either implementing or negotiating a VPA at that time.

Indonesia has six forest types: mixed hill forests, submontane/montane and alpine forests, savanna/bamboo/deciduous/monsoon forests, peat swamp forests, freshwater swamp forests, and tidal forests (mangroves), according to ITTO’s latest Status of Tropical Forest Management report. Mixed hill forests account for about 65% of the natural forests and are the most important for timber production. Commonly harvested species include meranti, keruing, kapur, mersawa, and teak.

Illegal logging and associated trade as well as land clearance for agricultural purposes continue to pose problems for the forestry sector in Indonesia, by generating considerable financial loss as well as environmental degradation. Periodic serious fires have affected large areas of forest, most recently in summer/autumn 2017. FAO estimate that forest cover declined by 684,000 hectares per year between 2010 and 2015, a rise from 498,000 hectares per year between 2000 and 2010.

Forest regulation and management

Most of Indonesia’s forest is owned by the state, according to ITTO. The state also
holds the management rights to about 38.2 million hectares of forest, while private corporations and institutions directly manage 51.2 million hectares, individuals about 32,000 hectares and communities only 3,300 hectares.

In 1999, Indonesia introduced a new Forestry Law, which is the primary source of authority on forest stewardship, forest ownership and forest management, according to ITTO. The Ministry of Forestry has set five priority policies to halt deforestation and forest degradation and to support efforts towards SFM. These policies include the elimination of illegal logging, overcoming forest fires through preventive measures, restructuring
the forest sector by increasing the efficiency and effectiveness of forest resource management, the conservation of forest resources through the rehabilitation of degraded forests and land, and
the decentralisation of the forest sector.

In May 2011, Indonesia announced a moratorium on awarding new forest concession licenses in primary natural forests and peat lands. The moratorium was extended by two years in 2013 and again in 2015.

Forest harvesting is only permitted in forests categorized as production forests. The forest sector in Indonesia includes large-scale production as well as significant numbers of small and medium enterprises (SMEs), most of which have less than five workers, according to the EU FLEGT Facility.

Compared to most other tropical countries Indonesia has made significant progress in terms of third-party certification by internationally acknowledged schemes: by November 2017, thirty-eight FSC forest management certificates were issued for a total of 2.93 million hectares of forest and 254 FSC-CoC certificates had been issued. PEFC endorsed the Indonesian Forestry Certification Cooperation system in December 2014, the system having been developed to align with and build on the verification procedures established for Indonesia’s mandatory timber legality verification system (known as the SVLK). By September 2017, there were 3.5 million hectares of PEFC certified forest in Indonesia and 32 PEFC CoC-certificates had been issued.

VPA process

Indonesia completed implementation of the VPA and the underlying legality assurance system SVLK in 2016; the first FLEGT licenses were issued on 15 November 2016. Full VPA implementation means that besides the national rollout of SVLK certification, Indonesia has structures in place to issue FLEGT licenses as well as manage, monitor and evaluate the system. Continuing multi-stakeholder processes ensure the system is working as envisaged. Moreover, monitoring and evaluation programmes propose improvements regarding the implementation and future development of the VPA.

To satisfy the terms of the FLEGT VPA, Indonesia's legality assurance and licensing system had to: 

  • Include a timber legality definition stating aspects of national laws with which the system requires compliance
  • Meet strict chain of custody requirements, as set out in the VPA’s Appendix V, ensuring unverified products do not enter supply chains
  • Be subject to ‘Periodic Evaluation’; a minimum annual assessment to ensure the timber legality assurance system is functioning properly and effectively (VPA Annex VI)
  • Be backed by market monitoring, assessing the impact of FLEGT licensing on Indonesia's trade in the EU market (VPA Appendix VII)
  • Be subject to civil society monitoring 
  • Include set procedures for issuing FLEGT licensing documents, licensing document formats and for information exchange procedures between EU authorities and licensing authorities in Indonesia (VPA Attachments III and IV

Forest industry

According to FAO, the formal forestry sector employed 445,000 people in Indonesia in 2011, around 0.4% of the work force. 103,000 were employed in roundwood production, 211,000 in wood processing and 131,000 in pulp and paper. In 2011, the sector contributed $14.6 billion of gross value added, 1.7% of national GDP, including $5.9 billion in roundwood production, $1.8 billion in wood processing, and $6.7 billion in pulp and paper.

Production

Ministry of Environment and Forestry data shows that industrial plantations are becoming increasingly important in wood supply in Indonesia while the share of supply from natural forests is falling. Production from sustainably managed concessions in natural forest was stable between 2009 and 2016, but there was a sharp decline in forest conversion operations

In 2016, Indonesia produced 47.5 million m3 of logs of which 69% derived from industrial plantations (HTI), 15% from people’s plantations (Hutan Rakyat) and wood lots (Kayu Perkebunan), 12% from natural forest concessions (HPH), less than 1% from land clearing, and 4% from a variety of other sources. This compares to 2009 when log production was 34.8 million m3 of which 55% was from industrial plantations (HTI), 11% from Hutan Rakyat and Kayu Perkebunan, 13% from natural forest concessions (HPH), 18% from land clearing operations, and 3% from a variety of other sources.

Indonesia-EU trade

Ministry of Environment and Forestry data shows that total forest product exports covered by Indonesia’s V-Legal system were 17.46 million metric tonnes with a value of USD9.27 billion in 2016. Of these exports, the EU accounted for only 4.7% of tonnage and 9.4% of value. The large majority of Indonesian forest product exports are destined for other Asian markets (86% of tonnage and 71% of value) while exports to North America are also significant (4.3% of tonnage and 10.7% of value).

While the EU has a low share of Indonesia’s total forest product exports, the data is influenced by the small proportion of Indonesian pulp and paper destined for the EU. In the EU, Indonesia faces very stiff competition from domestic and Brazilian producers in the market for chemical pulp (which derives from fast-growing plantations of eucalyptus and other hardwood species) and from domestic European producers in supply of finished paper products. The large majority of Indonesia’s pulp and paper product exports are destined for China and other Asian markets.

The EU is relatively more important in Indonesian exports of some wood products, most notably furniture. Of Indonesia’s total wood furniture exports of 435 000 tonnes with a value of USD1.34 billion in 2015, 127 000 metric tonnes (29%) with a value of USD319 million (24%) were destined for the EU.

In Europe, the timber trade has traditionally viewed Indonesia primarily as a source of tropical hardwood plywood and decking. While these products are still significant, Indonesia has evolved a very diverse wood manufacturing sector and supplies the EU with an increasingly wide range of more added value wood products such as furniture, doors and other joinery.

In 2016, the value of EU imports of joinery products from Indonesia was close to €75 million and wood furniture around €300 million. This compares to EU imports of around €70 million of decking and other mouldings and €75 million of plywood from Indonesia.  

In 2016, the EU also imported pulp and paper products from Indonesia with a total value of €225 million.  Although this is only a very small proportion of both EU and Indonesian trade in pulp and paper, the industry is so large that this value is comparable to that of wood products.

If all these products are considered and Brazil is excluded (since most Brazilian wood product exports now derive from outside the tropical region), Indonesia is the largest tropical supplier of forest products to the EU by a significant margin.

Total EU forest product imports from Indonesia were just over €1 billion in 2016, up 3% on the previous year. This compares to EU imports of €816 million from Vietnam and €550 million from Malaysia (both of which unlike Indonesia exported less to the EU in 2016). In 2016, Indonesia accounted for 24.4% of EU imports of timber and timber products from the tropics (by value), up from 23.8% the previous year. 

 

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