Video of IMM presentation providing an overview of the global tropical timber trade and commenting on implications for the FLEGT VPA process delivered to the Chatham House Illegal Logging Update meeting in November 2018.
Transcript of the presentation:
- Introductory slide
- IMM Background
- Global tropical wood trade by product group between 2004 and 2017
The chart shows the development of global trade in tropical wood between 2004 and 2017. I’ve put this up partly to show the products included in my definition of “tropical wood”, that is everything in chapter 44 for wood products in the HS coding system, plus products made out of wood in HS chapter 94 for furniture.
The chart highlights that the long-term trend in global trade in these products has been upward, although there was a major bump in the road during the financial crises. Another blip came with the bursting in 2015 of a bubble created by a speculative boom in rosewood, which is highly valued for traditional Chinese furniture.
Most of the volatility in trade has been in logs, sawn and panels. Growth in the furniture trade has been more consistent. There’s also been a consistent increase in trade in biomass, although most consists of hardwood chips exported by Vietnam to Japan.
- Global tropical wood trade by region of import between 2004 and 2017
This slide shows the global tropical wood trade by region of import between 2004 and 2017.
It highlights how the EU’s role in global tropical wood trade has fallen, with EU import value declining dramatically during the financial crises and remaining flat at around 4 billion US dollars between 2013 and 2017.
In contrast, imports into China increased rapidly to a peak of close to 12 billion dollars in 2014 at the height of the rosewood boom. Imports into China fell away to around 8 billion dollars in 2016 and recovered only a little ground in 2017.
Imports of tropical wood into North America have been rising rapidly since 2011 as the US economy recovered after the crises and due to the relocation of furniture manufacturing activity during this period away from the US to Asia.
Much of this rise is due to increased US wood furniture imports from tropical countries, particularly Vietnam, and consists of products made from imported temperate timbers as well as tropical wood.
5 China has cooled but remains dominant
Imports of tropical wood into China have come off the boil a little in the last two years, with weakening of the speculative boom in rosewood. There has also been tightening of both export control and available supply in some countries, notably Myanmar and Malaysia. That has coincided with some cooling in the pace of economic growth in China.
However, China remains hugely dominant in the global market for primary tropical wood products. Total imports of tropical logs in 2017 were 9.6 million metric tonnes. The main suppliers are Papua New Guinea, Solomon Islands and a range of African countries.
It’s notable that large volumes of wood continued to be exported from Nigeria to China in 2017, and this can only be rosewood, despite the CITES Appendix II listing from the start of the year. That led to a decision by the CITES Standing Committee last month to suspend commercial trade in rosewood from Nigeria until Nigeria has made a non-detriment finding for the species.
Chinese buyers still generally prefer tropical logs over sawn timber. However, imports of tropical sawn have also risen in recent years, hitting 5.6 million metric tonnes in 2017. Much of this comprises rubberwood and other plantation timbers from Thailand.
- Rapid growth in Vietnam exports
This slide shows the export trend of tropical wood products by main supply countries. It highlights that export growth has been concentrated in just two countries, Vietnam, and Thailand. As we’ve seen, the growth in Thai exports is due mainly to plantation timber destined for China.
Vietnam is emerging rapidly as a major player in international wood markets, both as an importer of wood material and large exporter of finished wood products. Vietnam signed a FLEGT VPA only last month and this presents unique opportunities and challenges.
The value of Vietnam’s wood product exports stood at close to 10 billion US dollars in 2017 and is rising by around 1 billion dollars every year. The vast majority comprises furniture destined for the United States, although exports to Japan and China have also risen. Exports to the EU have been more stable, but introduction of FLEGT licensing may help boost long term growth in this market.
- Vietnam’s imports
Vietnam’s wood imports have also been rising rapidly and in 2017 included 1.7 million m3 of logs and 1.8 million m3 of sawn wood. Cameroon is the leading supplier of tropical logs to Vietnam, while Cambodia is the main supplier of tropical sawnwood. A significant challenge for the TLAS is to prevent illicit imports from Cambodia and Laos. As a large manufacturer of interior furniture, Vietnam also imports large quantities of temperate hardwood from the US and Europe.
Fragmented wood supply chains will present a challenge for TLAS implementation in Vietnam. The timber sector comprises around 4,500 enterprises, mainly small and medium sized. Most wood harvest in Vietnam now derives from plantations, which supply around 23 million m3 of wood and rubberwood each year and are primarily managed by smallholders. There are around 1 million plantation smallholders in Vietnam.
- Indonesia’s achievement
The total value of Indonesia’s exports of tropical wood products has remained quite stable at just under 6 billion US dollars in the period 2015 to 2017. However, Indonesia’s exports of pulp and paper have been rising and, if these products are included, Indonesia was the world’s largest exporter of tropical forest products in 2017.
Indonesia became the first VPA partner to issue FLEGT licenses in November 2016, a major achievement in a country with a forest area of around 91 million hectares, annual log production of close to 50 million m3 and a complex forest industry exporting mainly secondary and tertiary products.
In 2017, Indonesia issued over 200,000 V-legal certificates covering 15 million tonnes of timber product exports, with total value of nearly 11 billion US dollars.
While FLEGT licensing applies only to exports to the EU, V-legal certificates based on the SVLK system are required for all exports, most of which are destined for other markets in Asia, particularly China, Japan, South Korea and India.
- Africa’s continuing dependence on primary wood exports
The position of Africa in tropical timber supply has changed since the financial crises, and overall these changes have not been positive. The low international competitiveness of timber industries located in sub-saharan Africa, combined with China’s strong preference for logs, has meant continuing heavy reliance on exports of primary wood products. The level of investment in infra-structure for downstream processing remains very low in many African countries.
This is clear from the trade data shown here. The Chart on the left shows that the share of logs in wood exports from Africa has been rising, while the share of further processed products such as mouldings, joinery, even plywood, has declined. The chart on the right shows that this has coincided with a sharp rise in exports to China, largely at the expense of exports to Europe.
The challenges faced by European operators in the African region were highlighted this year when the French Group Rougier filed for bankruptcy blaming persistent difficulties in Cameroon, especially logistical problems in the port of Douala and a taxation system which undermined competitiveness. Other European companies have scaled back or sold their operations in Africa.
I expect the next speaker, Mr Karsenty, will provide more commentary on this issue.
- Large domestic demand
The role of domestic demand for tropical wood is often overlooked, partly because a large proportion of supply is from unregulated operations and there is so little data on consumption. Recent work by CIFOR and CIRAD has gone some way to rectify that gap in African countries.
Again, I won’t go into detail because the next speaker is much more familiar with this work, but the results are startling and should be highlighted. In some countries the volume of wood produced by informal chainsaw logging to supply the internal market is over double the volume of production for export.
- Stasis in European imports of tropical timber
Moving on to look at the current state of the EU market for tropical wood products. EU import value of these products was 3.8 billion euros in 2017, having declined slightly in the previous two years. FLEGT licensed imports from Indonesia increased 1% in 2017, to 800 million euros, 21% of total EU tropical wood-product imports.
EU Imports from the 5 African VPA-implementing countries have been highly volatile in recent years, increasing 25% in the 2015-16 period and then declining 21% to 340 million euros in 2017. African VPA implementing countries currently account for 9% of total EU tropical wood-product imports.
- Share of tropical countries in total EU imports
The share of tropical countries in total EU wood product import value fell continuously from 36% in 2004 to 21% in 2014 and bumped along at that level for the next three years.
The loss in share was initially to China, and more recently to the US, Russia and European countries outside the EU.
- Drivers of tropical timbers decline
Through trade consultations and surveys, IMM has been exploring the reasons for this loss of share of tropical wood products in the EU market and the potential for FLEGT licensing to help halt and reverse this trend. We’re finding that there are multiple reasons for the loss of share, some of which are summarised on this slide.
I won’t go into detail. The key point from an IMM perspective is that concern about legality and challenges of EUTR compliance are only part of the story. This implies that while FLEGT licensing can provide a foundation for long term market development in the EU and other markets, it’s not a magic bullet. There are other competitiveness issues that also need to be addressed through improved investment and wider market development initiatives.
- Indonesia-EU trade
For this reason, it should come as no real surprise that there has been no consistent increase in Indonesian trade with the EU following the introduction of licensing. There are some positive signs for a few product groups, such as plywood and paper, and in a few EU Member countries, notably the Netherlands and the UK.
It is also worth pointing out that the start of licensing in Indonesia coincided with the introduction of quantitative easing by the European Central Bank which significantly weakened the value of the euro on foreign exchange markets.
One effect of this was to boost the price competitiveness of manufacturers in the euro-zone. So not an easy environment for Indonesian suppliers in this market, particularly when it is considered that local manufacturers account for at least 80% to 90% of supply of most timber products in the EU.
So that’s a fairly rapid-fire run through of some key trends in the international and European tropical wood trade. I’ll close by highlighting a few IMM outputs where more information is available.