A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Israel, Danilo C; Bunao, David Feliks M. Working Paper Value chain analysis of the wood processing industry in the Philippines PIDS Discussion Paper Series, No. 2017-05 Provided in Cooperation with: Philippine Institute for Development Studies (PIDS), Philippines Suggested Citation: Israel, Danilo C; Bunao, David Feliks M. (2017) : Value chain analysis of the wood processing industry in the Philippines, PIDS Discussion Paper Series, No. 2017-05, Philippine Institute for Development Studies (PIDS), Quezon City This Version is available at: http://hdl.handle.net/10419/173582 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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The views and opinions expressed are those of the author(s) and do not necessarily reflect those of the Institute. Not for quotation without permission from the author(s) and the Institute. February 2017 For comments, suggestions or further inquiries please contact: The Research Information Staff, Philippine Institute for Development Studies 18th Floor, Three Cyberpod Centris – North Tower, EDSA corner Quezon Avenue, 1100 Quezon City, Philippines Tel Nos: (63-2) 3721291 and 3721292; E-mail: [email protected] Or visit our website at http://www.pids.gov.ph Value Chain Analysis of the Wood Processing Industry in the Philippines Danilo C. Israel and David Feliks M. Bunao Abstract Wood processing is an important downstream activity of the forestry sector of the Philippines because it adds economic value to log, diversifies the products that can be produced from it, and increases the incomes and employment of involved communities. Despite its many economic contributions, however, the wood processing industry has been on the decline for many years now. This study analyzed the wood processing industry concentrating on its value chain, the major issues and problems it is facing, and the recommend actions to address the problems and issues. Among others, the study found that the wood processing industry is constrained by various technical, financial, economic, marketing, environmental, institutional, and research- related problems and issues. To address these individually, specific recommendations were put forward. In terms of research, in particular, the study suggested the gathering of more detailed and complete data and information on the wood processing sector by relevant government agencies and the conduct on relevant studies not just the whole processing sector but also on specific wood processing activities. Keywords: Philippines, CARAGA region, wood processing, value chain, problems and issues Value Chain Analysis of the Wood Processing Industry in the Philippines Danilo C. Israel and David Feliks M. Bunao1 I. Introduction Wood processing2 is an important downstream activity of the forestry sector because it adds economic value to log, diversifies the products that can be produced from it, and increases the incomes and employment of involved communities. The total national income and employment from wood processing are not known with certainty but in the log producing CARAGA Region (Region 13), alone, the wood processing industry directly employed close to 10,000 workers, mostly in the Agusan provinces (Paqueo and Silfverberg 2016). This employment does not include those in the upward and forward linkages of the industry such as the thousands of tree growers and workers in tree plantations and those involved in the marketing of wood products. Despite its economic contributions, however, the wood processing industry of the Philippines has been on the decline for many years now. Of late, a perceived reason behind this is the imposition of Executive Order (EO) 23 or total log ban. Issued in February 2011, this order declared an indefinite moratorium on the cutting and harvesting of timber in the natural and residual forests. With the implementation of this EO, the number of wood processing firms in the country fell. In the case of the Caraga region, it went down from 119 firms in 2010 to only 27 firms in 2015. There is no study that looked in detail into the value chain in the wood processing industry in the Philippines, identify the major and current issues and problems it is facing, and recommend specific actions to address them. In this light, this paper a) reviews the relevant foreign and domestic literature on wood processing; b) discusses the wood processing value chain in the Philippines; c) analyzes its economic performance in the last ten years; d) identifies the various issues and problems constraining its development; and e) recommends specific policies and other actions that can be undertaken to address them. This paper hopes to contribute to the sparse literature on the wood processing industry in the country and its more effective development in the coming years. The study uses primary data and information sourced through key informant interviews (KIIs) and focus group discussions (FGDs) with related private sector and government stakeholders and secondary data and information from published and unpublished records of private and government institutions. 1 The authors are Senior Research Fellow and Research Analyst II of the Philippine Institute for Development Studies (PIDS). 2Official Philippine statistics has no definition of wood processing. A wood processing plant is described as a mechanical device, machine, combination of machines or set-up used for the treatment of poles and piles or conversion of logs, and other wood raw materials into lumber, veneer, plywood, wallboard, blockboard, paperboard, pulp, paper or other finished wood products. (PFS 2014). The other available and official definitions relevant to wood processing are provided in the Appendix. II. Review of related literature International studies on wood processing There have been a number of country-specific studies conducted on wood processing in other countries3. Palus et al. (2015) studied the trade performance and competitiveness of the wood processing industry of the Slovak Republic vis-à-vis neighboring countries using 2003-2012 data from the Food and Agriculture Organization (FAO) Forest Products Statistics (FPS). Among others, the study found that the Slovak wood processing industry has a comparative advantage in coniferous and non-coniferous sawn wood, and paper and paperboard products and a comparative disadvantage in wood based panels and pulp wood. It also has an increasing trend in comparative advantage until 2008 when the trend started to decline due to an economic crisis. FAO (2013) looked into the wood processing industry in the Congo Basin using data gathered from four workshops organized from September 2010 to June 2011 in Cameroon, Congo. Firstly, the study asserted that there should be a firm political will and favorable business environment for wood processing investors. Secondly, security of land tenure, clear guidelines on sustainable level of forest extraction, and access to financial services should exist to ensure that businesses will continue to invest in wood processing. Thirdly, there should be buildup of profitable formal markets through the promotion of wood. Lastly, a structured wood processing industry value chain should be created. The study further recommended that government, with the help of business organizations, should integrate various industries including big and small- scale businesses should be tied-up and the informal sector of the wood processing should be convened. Putzel et al. (2012) assessed the wood processing industry in the province of Binh Dinh, Vietnam by interviewing 21 private companies and forestry department officials. The study suggested that the national government should provide attention to smallholders in Vietnam. Also, efforts should be made to promote the segmentation of the supply chains for woodchips and timbers for furniture at the plantation level. There