RIDING OUT THE STORM RIDING TECHNICAL SERIES RIDING OUT THE STORM Improving resilience of the tropical timber 41 sector to the impacts of global and regional economic and financial crises FEBRUARY 2013 ITTO T echnical S eries 41 INTERNATIONAL TROPICAL TIMBER ORGANIZATION International Organizations Center, 5th Floor, Pacifico-Yokohama, 1-1-1, Minato-Mirai, Nishi-ku, Yokohama, 220-0012, Japan Tel 81-45-223-1110 Fax 81-45-223-1111 Email [email protected] Web www.itto.int © ITTO 2012 INTERNATIONAL TROPICAL TIMBER ORGANIZATION RIDING OUT THE STORM TECHNICAL SERIES RIDING OUT THE STORM Improving resilience of the tropical timber sector to the impacts of global and regional economic and financial crises ITTO TECHNICAL SERIES #41 INTERNATIONAL TROPICAL TIMBER ORGANIZATION 1 RIDING OUT THE STORM Riding out the storm Improving resilience of the tropical timber sector to the impacts of global and regional economic and financial crises ITTO Technical Series No. 41 By Frances Maplesden (lead author), Alhassan Attah, Ivan Tomaselli, and Nelson Wong The International Tropical Timber Organization (ITTO) is an intergovernmental organization promoting the conservation and sustainable management, use and trade of tropical forest resources. Its members represent the bulk of the world’s tropical forests and of the global tropical timber trade. ITTO develops internationally agreed policy documents to promote sustainable forest management and forest conservation and assists tropical member countries to adapt such policies to local circumstances and to implement them in the field through projects. In addition, ITTO collects, analyzes and disseminates data on the production and trade of tropical timber and funds projects and other actions aimed at developing industries at both community and industrial scales. Since it became operational in 1987, ITTO has funded over 1000 projects valued at over US$350 million. All projects are funded by voluntary contributions, with major donors to date the governments of Japan, Switzerland, the United States of America, Norway and the European Union. Front cover photo: Meryll/shutterstock Back cover photo: ITTO © ITTO 2013 This work is copyright. Except for the ITTO and CITES logos, graphical and textual information in this publication may be reproduced in whole or in part provided that it is not sold or put to commercial use and its source is acknowledged. Disclaimer The views expressed in this publication are those of the authors and do not necessarily reflect the views of ITTO or CITES. The designations employed and the presentation of material do not imply the expression of any opinion whatsoever concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers and boundaries. ISBN 4-902045-98-2 2 RIDING OUT THE STORM FOREWORD ITTO consumer and producer countries were severely impacted by the global financial and economic crisis which stemmed from the US subprime mortgage crisis in 2007. The crisis triggered a sudden plunge in housing starts and consumer demand for wood products in traditional markets, resulting in cancelled orders, depressed prices and a severe rationalization of the tropical wood processing industries in producer and consumer countries. The short term impacts of the global economic crisis included producer countries having difficulty accessing capital, a key source of growth, as domestic stimulus packages began to compete for global finance; a decline in foreign direct investment; reduction in exports by ITTO producer countries as imports by developed countries began to fall; increased competition for export markets; an end to the recent commodity price boom; increased unemployment, particularly in emerging country export sectors; and reduced spending on research and development. ITTO producer countries have not generally been well positioned to manage and recover from this crisis, with many lacking capacity on an individual basis to access the market intelligence required to implement effective measures to manage and recover from these challenges. Predicting market changes requires collective knowledge and information sharing on the experiences and successes of tropical timber and other sectors. While the crisis was the most recent of several economic slumps since the 1980s, the tropical timber sector in general has not developed a knowledge base and effective remedial strategies from the lessons learnt from previous crises. Countries and industries that best weathered the most recent crisis were those that have diversified markets and product lines, including placing an increased focus on value added products. This report was developed through ITTO’s Thematic Programme on Trade and Market Transparency based on concerns expressed by ITTO producer member countries that the global and economic crisis had exposed the vulnerability and lack of preparedness of the tropical timber sector to manage future global and regional economic crises. The ITTO international conference on the promotion of intra-African trade in timber and timber products, held in Ghana 2009, also noted the African region’s lack of access to intelligence on consumer markets (both outside and within the region) and it’s particular vulnerability to external market shocks resulting from the region’s heavy reliance on primary product exports. Given the unforeseen pace of economic changes in the tropical timber marketplace and their devastating impacts, the need to address the tropical sector’s resilience to market change has been paramount. It has become evident that new strategic policy responses/measures are required at both international and national levels to mitigate and manage the impact of global economic changes on the forestry sectors in tropical producing countries. This study draws on a broad knowledge base and experiences in producer and consumer countries in addition to other wood and non-wood industries and recommends a number of measures to be adopted by ITTO, ITTO member countries, regional organizations and forest industry and trade associations, to support the tropical timber sector’s resilience to global economic shocks. The future ability of the tropical timber sector to supply products from sustainably managed and legally harvested sources is inextricably linked to the resilience of the sector to external economic shocks and the policy actions undertaken by ITTO producer countries. I therefore commend this report to all operators in the tropical timber sector and other stakeholders concerned about the sustainability of tropical forests in general. Emmanuel Ze Meka Executive Director, ITTO Yokohama, March 2013 3 RIDING OUT THE STORM ACKNOWLEDGEMENTS The authors would like to kindly thank the following individuals and organisations who were either consulted, interviewed or provided other support for the report: Abdul Rahman Mahama (Ghana Investment Promotion Center); Albert Katako; Alex Dedeckel (BOMACO N.V.); Alexander K. Dadzie (Ghana Timber Association); Amha bin Buang (ITTO); Andres Katz (Alphametrik); Asian Development Bank (ADB); Andre de Boer (ETTF); Bank Negara Malaysia (Central Bank of Malaysia); Department of Statistics Malaysia (DOSM); Chinese Academy of Forestry; Douglas Antonio Granemann de Souza (Triangulo Pisos e Painéis Ltda); Emmanuel Sackey (Antrak Harbour Area, Ghana); Fernando Castanheira Neto (National Forum of Forest Sector); Forestry Department of Peninsular Malaysia (FDPM); Forestry Department of Sabah (FDSH); Forestry Department of Sarawak (FDSK); Forest Research Institute of Malaysia (FRIM); Gerard Horgan (MPI, New Zealand); Guilherme dos Santos Carvalho (AIMEX- Timber Exporting Companies Association); Henry G. Coleman (Timber Industry Development Division,Forestry Commission, Ghana); Isac Chami Zugman (Brascomp Compensados do Brasil S/A); James Hewitt (consultant); Jean-Christophe Claudon (ITTO); Jeziel Adam de Oliveira (ABIMCI); João Carlos Baldasso (CIPEM); John Darko (General Development Company); Li Qiang (ITTO); Luiz Carlos Reis de Toledo Barros (SOMAPAR Ltda); Malaysian Furniture Promotion Council (MFPC); Malaysian Panel-Products Manufacturers’ Association (MPMA); Malaysian Timber Certification Council (MTCC); Malaysian Timber Council (MTC); Malaysian Timber Industry Board (MTIB); Malaysian Wood Industries Association (MWIA); Malaysian Wood Moulding and Joinery Council (MWMJC); Ministry of Finance of Malaysia (MoF); Ministry of International Trade and Industry (MITI); Ministry of Plantation Industries and Commodities (MoPIC); Musah Abu-Juam (Ministry of Lands and Natural Resources, Ghana); Mustapha Seidu (WWF- WAFPO); Nana Dwomoh Sarpong (Ghana Timber Miller’s Organization); Prince Aryee (Ghana Commercial Bank); Qian Xiaoyu (China National Forest Products Industry Association); Ricardo Mueller (SELECTAS S.A.); Roderick Wiles (Broadleaf Consulting); Sam Nketiah (Tropenbos International Ghana); Sarawak Timber Industry Development Corporation (STIDC); Shi Feng (China Forest Product Industry Association); Steven Johnson (ITTO); Timber Exporters’ Association of Malaysia (TEAM); Varlone Alves Martins (Forest Products Laboratory- Brazilian Forest Service); Wellington Baiden (Portal Ltd); World Wide Fund for Nature - Malaysia (WWF-Malaysia); Xinjian Luo (Center for Chinese Forest Products Trade and Research) 4 RIDING OUT THE STORM CONTENTS FOREWORD 3 3 IMPACTS OF THE GLOBAL FINANCIAL ACKNOWLEDGEMENTS 4 AND ECONOMIC CRISIS ON THE LIST OF TABLES 8 TROPICAL TIMBER SECTOR 46 LIST OF FIGURES 9 Impacts on tropical forests