KEY EU COUNTRY
General Economic Trend
Italy was in strict lockdown from March to the end of May 2020 due to the COVID-19 pandemic. The economic consequences were dramatic: Italian GDP fell by 5.4% in the first and by 12.4% in the second quarter.
After the strong rebound in real GDP over the summer, when the Italian economy recovered almost three fourths of the output loss incurred in the first half of 2020, the COVID-19 pandemic again tightened its grip. According to the EU Winter Economic Outlook published in February 2021, “rising infection and hospitalisation rates required the government to re-impose restrictions on mobility and economic activity, implying an output contraction in autumn that is likely to continue into the first quarter of 2021.”
However, unlike in spring 2020, the second wave of containment measures affected only parts of the economy, with the industrial and construction sectors continuing to operate without restrictions. On the other hand, the service sector and tourism, in particular, continue to be strongly affected.
GDP contracted by 8.8% in 2020 and is expected to grow again by 3.4.% in 2021. According to the EU forecast, the potential growth impact from policy measures related to to the Next Generation EU economic recovery plan is not yet included in this forecast and thus constitutes a sizeable upside risk to the growth outlook.
The Italian timber sector includes 80,000 companies, employing a workforce of about 320,000 (1.5% of all Italian employees). In 2019, the sector generated turnover of about €42.5 billion, an increase of 0.6% compared to 2018, according to the timber sector association Federlegno Arredo.
Italy was the third-largest EU exporter of wood furniture (after Germany and Poland) in 2019. The COVID-19 pandemic had a strong impact on the wood furniture sector, with sharp declines in both domestic and export sales, especially in the second quarter of 2020. In the full year 2020, turnover generated by the furniture sector was expected to have declined by about 20%, according to the 2020 IMM report for Italy.
Fair and events outfitters/contractors, were even more heavily affected by the pandemic and are expected to have lost around 80% of their turnover in 2020, compared to 2019.
Tropical Timber Imports & Trade
The Italian woodworking sector is heavily dependent on imports, with more than 90% of wood raw materials processed in Italy imported from other countries, according to the IMM 2020 report for Italy. In 2019, Italy was the fifth largest EU importer of wood products (HS 44) and the second largest importer of wood pulp. Italy is also a major importer of paper products. A significant proportion of imports stems from tropical regions.
Italian imports of timber and timber products from tropical regions saw strong fluctuations since the financial crisis in 2007/2008. They initially plummeted from $1.541 billion in 2007 to just $920 million in 2013, then recovered to $1.319 billion in 2018, before falling again sharply in 2019 and again in 2020 to $897 million.
Without pulp – by far the most important product imported by Italy from tropical regions – and paper, imports plunged from $964 million in 2007 to $338 million in 2013; there was slight recovery in 2018 ($362 million) and 2019 ($357 million) but in 2020 imports fell again to just $308 million.
Brazil is by far the most important supplier from to tropical regions to Italy and has dominated the import trend in recent years. In 2020, Brazil accounted for $595 million or two-thirds of Italy’s total tropical timber product imports. Brazil’s position was even more dominant in 2018, when it supplied tropical timber products worth $970 million or 74% of the total.
The bulk of Brazil’s timber product exports to Italy is accounted for by pulp as well as some paper and plywood. Even though they only account for a fraction of its overall deliveries to Italy, Brazil has also been the most important tropical supplier of HS44 wood products to the Italian market since 2017, followed by Cameroon, Gabon, Ivory Coast and Indonesia.
When it comes to furniture, Viet Nam is the most important supplier from the tropical regions to Italy, followed by Indonesia, India, Mexico and Thailand.
Trade with VPA Partner Countries
Italy’s trade with VPA partner countries has never really recovered from the global financial and economic crisis. In 2020, imports from VPA partner countries totalled $212 million, compared to $500 million in 2010 and $814 million in 2007, before the financial crisis.
When taking into account all products (HS44, 47, 48, 94), Indonesia has been the most important supplier among the VPA partner countries since 2016, followed by Cameroon, Ivory Coast, Viet Nam, and Gabon.
In 2020, Italian survey respondents again called for completion of VPA implementation in a larger number of countries to help with EUTR due diligence. Respondents were assuming that tropical timber imports from African countries, in particular, were likely to decline further in coming years, due to a shortage certified and lack of FLEGT-licensed material and difficulties in procuring documentation to satisfy EUTR due diligence.
Another factor likely to limit future supply from Africa would be log export bans.
Trade with Top 5 VPA Partners
Italy’s imports from the country’s five most important trading partners among the VPA countries have all declined over the last decade. Indonesia experienced a particularly sharp fall between 2010 and 2015 but has recovered steadily since the beginning of FLEGT Licensing, with the exception of 2020.
In 2020, import from the top 5 VPA partners all showed decline, with the exception of Gabon, where a minor increase was recorded.
Italian imports of timber and timber products from Indonesia were flat in the two years immediately after the start of FLEGT licensing in November 2016. 2019 then saw an increase from $72 million in 2018 to $75 million. However, in 2020, imports fell again to $68 million, with imports of all product groups, with the exception of furniture seats, lower than in 2019.
Paper accounted for around $27 million or 40% of Italy’s timber product imports from Indonesia in 2020. Most of the remainder was made up of furniture seats and “other furniture”, as well as small volumes of plywood and wood mouldings.
Where wood products other than pulp and paper are concerned, Italian importers do not seem ready to change their supply chains to any larger extent in favour of Indonesia at the moment, in spite of the acknowledged advantages regarding EUTR due diligence. One reason for this reluctance is that FLEGT Licences, unlike FSC certification, are not considered a marketing tool and that there are no public or private campaigns promoting FLEGT-licensed timber at the moment, according to the 2020 IMM report for Italy. Another reason identified by the report is the strong tradition of working with African suppliers and using African species.
Cameroon is the most important supplier of HS44 wood products to Italy among the VPA partner countries. Imports from Cameroon underwent some significant fluctuations over the last decade; most recently they declined in both 2019 – to $58 million from $63 million in 2018 – and again in 2020, to $47 million.
According to the IMM 2020 report for Italy demand for timber products from Cameroon and the other African VPA partner countries was strongly affected in the second quarter of 2020 by the COVID-19 lockdown. Business restarted only gradually in the third quarter, with some recovery in demand for exterior cladding and decking.
Italy’s imports of timber products from Ivory Costs fell by more than half between 2010 and 2020, from $115 million to $43 million. Imports from Ivory Coast are mostly made up of sawnwood, veneer and some plywood. Sawn wood used to be the most important product group for many years but was overtaken by veneers in 2018 due to sharp decline in sawn wood import volumes.
The downhill trend in sawnwood imports continued in 2020, while imports of veneers were stable and plywood imports showed a minor increase.
Italy’s timber product imports from Viet Nam peaked in 2008 at $57 million and were cut almost by half during the financial crisis. In 2014, they hit rock bottom ($35 million) and have since recovered some ground.
2019 was the best post-financial crisis year, with imports totalling $40 million. In 2020, imports plunged around 23% and added up to just $31 million. More than 80% of Italy’s imports from Viet Nam last year were accounted for by furniture, with only very small volumes of “other wood products” and some paper products imported besides.
Gabon used to be an important supplier of wood products to the Italian market 10 years ago, but shipments have declined sharply over the last decade, from $58 million in 2010 to just $25 million in 2019. In spite of the COVID pandemic, 2020 saw some recovery in imports from Gabon, which totalled $26 million last year.
Sawn wood was the most important product on average imported from Gabon between 2010 and 2020, followed by plywood. However, while both sawn wood and plywood trade declined on average during this period, imports of veneer showed increases in practically all years since 2014, with the exception of 2018; veneers became the most important product supplied from Gabon to Italy in 2020. Imports of plywood also increased slightly in 2020, while sawn wood imports continued to fall.
Log imports from Gabon practically discontinued after 2010, due to the Gabonese log export ban.
Perception of FLEGT
Recognition that FLEGT-licensed timber meets EUTR and needs no further Due Diligence
In 2020, Italian IMM survey respondents did not report any problems with the acceptance of FLEGT Licences as sole proof of legality. However, Italian survey responses on the ease of importing FLEGT-licensed timber in Italy were significantly more mixed than the average among the IMM key countries. 60% of Italian respondents (key country average: 79%) found that FLEGT Licences were making importing from Indonesia easier. 33% of Italian respondents were neutral on this question (key country average: 16%).
Moreover, 47% of Italian respondents (key country average: 21%) were neutral on the question whether the administrative process of importing FLEGT-licensed timber was easily understandable and manageable and only 33% of Italian respondents (average: 71%) agreed that the administrative process was easily manageable.
This clearly indicates the necessity for training on and communication of import proceedings to Italian importers and possibly also for improved exchange of information between Italian authorities and the private sector.
On a positive note, Italian importers reported no issues with FLEGT Licence mismatches in 2020 and found that all FLEGT teething issues were largely resolved.
How aware are you of the FLEGT VPA process and what it involves? (n=15)
EU trade perceptions of importing FLEGT-licensed timber
Source: IMM 2020 EU trade surveys
Perception of FLEGT as evidence of sustainability
Perception of FLEGT Licences as proof of sustainability in Italy has been improving over the last few years and was better than average among the key countries. 79% of Italian survey respondents fully or partially agreed that FLEGT Licences should be considered as evidence of sustainability in timber procurement policies (key country average 61%). Not a single respondent voted against the inclusion of FLEGT licensing as evidence of sustainability. Moreover 34% (key country average 28%) of respondents fully or partially disagreed with the statement “FLEGT only means legal and has nothing to offer in terms of sustainability”, while 33% partially or fully agreed to this statement (key country average 52%).
Trade awareness and opinion of FLEGT
60% of Italian survey respondents felt “fully aware of the FLEGT VPA process and what it means for countries implementing a VPA; this was slightly more than average among the IMM key countries (57%) in 2020. Another 40% felt “partially aware”, which is exactly the average among the key EU countries. No respondent in Italy felt “totally unaware” of the process.
Read more about the survey result
- Focus on certified timber may expedite substitution of tropical timber in Europe
- Indonesia continues to be rated most important tropical timber supplier five years from now
- More IMM survey respondents report small increases in tropical timber imports due to FLEGT Licensing
- Majority of IMM survey respondents thinks FLEGT Licenses should be considered evidence of sustainability in PP