PROJECT ABSTRACT

Title: Timber and Timber Products Trade Flow Study in the Philippines

Field: Economic Information and Market Intelligence

Summary

      Timber production and timber products trade are among the important activities that provide livelihood to many people in the upland areas of the Philippines. Therefore, it is important that people and entities who are legally engaged in these activities and the institutions tasked to assist them have access to information that will help them find solutions to their common problems. This will enable the former to maximize returns from their efforts and the latter will be provided with inputs to design programs to improve the timber and timber products trade situation in the country.

     At present, there exists a situation where some suppliers and some users of timber and timber products may not be aware of each other’s existence. In some cases, timber producers are complaining of low demand for their products while some users are complaining of lack of raw material supply. The project aims to find solutions to the information gap by identifying bottlenecks and other problems in the flow of timber and timber products from their sources to end-users. The project will also come up with a database of timber and timber products suppliers and end-users that can be accessed by anyone interested. This will eventually lead to improved market intelligence in the timber market and spur demand for products that are the outcome of sustainable forest management strategies, e.g. community-based forest management and timber plantation development of the private sector.

      The Development objective of the project is to contribute to the attainment of a better timber and timber products trading situation in the Philippines by providing market information to producers, processors, wood importers and government. Its specific objective is to analyze the flow and market of local and imported timber and timber products in the market by grade, by species grouping, by forest source, and by type of processor.

Implementing Agency: FOREST MANAGEMENT BUREAU (FMB), DENR

Mailing Address: Visayas Avenue, Diliman, 1100 Quezon City , Philippines
   Telephone No: (632) 926-23141/9252135
             Fax No: (632)920-8650
              E-mail: fmbdenr@mozcom.com

Duration : Twenty four (24) Months

Budget :                         (In US$)               (In PHPesos )

                TOTAL --------- 196,727             10,229,804

Source

                             ITTO : US$126,937     PH (Pesos) 6,600,724

Government of the
Republic of the Philippines: US$69,790    PH (Pesos) 3,692,080

 

PART 1: CONTEXT

1. Origin

     The project proposal derives from the following studies/analysis/activities: 1) Paper entitled: Developments in the Philippine Forest-Based Industry from 1990-1999. Prepared by the Forest Management Bureau in 2001, this paper shows declining trends in production of timber and timber products in the Philippines and the country’s transformation from net exporter to net importer of timber and wood-based products.; 2) Annual Review and Assessment of the World Timber Situation. Prepared by the ITTO in 1999, the document cited the slowdown of all wood using sectors in the Philippines except for the furniture sector due to the Asian economic downturn; 3) Strategic Planning Workshop of the Chamber of Furniture Industries of the Philippines. Held in July, 2001, the workshop cited raw material sustainability as one of the necessary conditions for the industry to generate US$1 Billion in export revenue by 2004; and 4) International Conference on Timber Plantation Development .Organized by the DENR, ITTO and FAO in November 2000, the Conference’s general statements and major recommendations include plantation information systems for planning and policy formulation.

2. Sectoral Policies

    The Project is in line with the principles outlined in the following related policies:

• Provision of the 1987 Philippine Constitution on environment and natural resources;
• Presidential Decree 705;
• Philippine Strategy for Sustainable Development;
• Philippine Master Plan for Forestry Development.

     The Master Plan for Forest Development (MPFD, 1990) provides the following long term development goals of the forestry sector in the Philippines:

• Attainment of equitable access for all Filipinos to opportunities to develop and manage the forest and partake of benefits derived from it:
• Achievement of scientific management, conservation, and utilization of the forest resources by the private sector and the local communities in partnership with the national government; and
• Provide on a sustainable basis, forest based-commodities, services and amenities to the people.

    Among other MPFD’s specific concerns is the development of timber-based industries within the purview of sustainable development.

3. Programs and Operational Activities

      The country’s current tropical forestry policies, as recommended in the MPFD, hew with the principles of sustainable forest management. Programs along this line, e.g. Community-Based Forest Management Program and the Industrial Forest Plantation Program are currently being implemented. These two programs have been actively supported by the ITTO and other multilateral organizations such as the Food and Agriculture Organization (FAO), the Asian Development Bank (ADB) and the United States Agency for International Development (USAID). By providing a better trade situation for products produced by beneficiaries and participants of these programs, the project will contribute to the cause of sustainable forest management in the country.

PART II. THE PROJECT

1. Project Objectives

    1.1 Development Objective

    Contribute to the attainment of a better timber and timber products trading situation in the Philippines by providing market information to producers, processors, wood importers and government.

    1.2 Specific Objective

    Analyze the flow and market of local and imported timber and timber products in the market by grade, by species grouping, by forest source, and by type of processor and identify problems and solutions affecting such flow.

2. Justification

    2.1 Problems to be addressed

    The rapidly declining forest resource base in the Philippines led to the implementation of strict forest conservation policies during the past decade. These policies included the imposition of logging moratorium in certain areas of the country, the non renewal of expired licenses of corporate loggers, the gradual transfer of forest management to organized communities through the Community Based Forest Management Program (CBFM), and the promotion of timber plantation establishment.

      These policies eventually led to the downtrend in the production of naturally grown logs. In year 2001, there were only 7 operating logging concessionaires and about 29 People’s Organizations who harvested from the natural forests. Total log production had gone down from 2.50 million cu.m in 1990 to only 588.50 thousand cu.m in 2001.

      This situation was seen by some people as a good opportunity to establish tree plantations in the hope of making a fair return for their investments. Thus, one can see in the countryside today patches of small plantations that range in size from 2 hectares to 20 hectares. Whereas in 1990, logs from natural forests comprised 94% of total log production. By the year 2001, this figure went down to only 27% of the total log production. The greater bulk or 83% of the year’s production was composed of plantation logs that came from a few large plantations and mostly from small plantations scattered in the country (Table 1).

      The shift in the sources of logs from large tracts of natural forests held by a few corporations to small plantations altered the previous timber trading situation in the country. Way back in 1990, the log production of 2.50 million cu.m came from about 97 timber concessionaires who were each producing an average of 26,000 cu.m. It was possible then for wood processors to find a consistent source of raw materials by entering into log supply contracts with the logging concessionaires.

      The situation has changed since then. In the year 2001, a much smaller log production volume was recorded at 588.50 thousand cu.m.. However, these volume came from a collection of several large companies and thousands of small tree farmers. The number of Timber License Agreement holder companies that operated during said year was reduced to 7 with an average log production of 15 thousand cu.m per company. On the other hand, there were 20 Industrial Forest Management Agreement licensees, 334 private forest owners, 29 Community- based POs and 3,339 private plantation owners with average log production of 9,672 cu.m, 45 cu.m, 254 cu.m and 80 cu.m, respectively:

Table 1. Log Production by Type of Producer: 1990 and 2001
              (volume in cu.m)

      Most of the logs produced by the big companies end up as raw materials for their own processing plants. Eventually, other wood users/processors such as sawmills and furniture plants resorted to wood importation for their requirements rather than to locate and deal with many CBFM People’s Organizations and small plantation owners whose capability to provide a continuous and steady supply of quality timber is perceived to be inconsistent. In 2001, the volume of log imports amounted to 551 thousand cu.m while that of lumber imports totaled 371 thousand cu.m.

      A study conducted by Centeno et.al in 2001 supported the above description of the current timber trading situation in the Philippines. The study entitled: Marketing Strategies for Selected Industrial Tree Plantation Species in the Philippines was conducted to analyze the market situation of an industry that grows and processes selected industrial tree plantation species (ITPS) in the Philippines.

      The study found that there are indeed many opportunities for expanding the market of ITPS since there is a huge demand for wood both in the domestic and international markets. Wood processors continue to search for alternative sources of raw materials to replace scarce and expensive wood from natural forests. Current market trends also indicate a preference for light colored wood which is a common characteristic of some plantation species.

      However, the study also showed that a mismatch in demand and supply existed between the plantation owners and the wood users since most processors still prefer to use dipterocarp species from the natural forests. On the other hand, those processors who use plantation species generally prefer sourcing their log requirements from large tracts of contiguous plantations. Therefore, there is a need for small farmers to attain economies of scale by organizing themselves to supply the raw material requirement of the wood based industry. Effective marketing intermediaries are also needed as plantation owners practiced poor marketing strategies. All of these recommendations can be supported by an information database that will show their current and future capacities to supply timber, their location as well as the needs of existing wood processors/users.

      Therefore, the main problem to be addressed by the project is the weak trading situation for locally sourced timber and timber products. At present, there exists a situation where suppliers and users of timber and timber products may not be aware of each other’s existence. For example, People’s Organization (PO’s) under the CBFMP and private plantation owners are complaining of the low prices being paid for, implying lack of demand for, their products. A study conducted by the Forest Management Bureau in 2001 indicated that small tree farmers are worried if they can be able to sell their timber at prices that will give them a fair return for their investments.

      On the other hand, the local furniture industry are looking for a sustainable source of wood raw materials to achieve their export revenue target of US$ 1 billion by the year 2004. Some of these furniture makers have been importing their wood material needs. With the rapid deterioration in the value of the local currency (peso) against the US$ dollar, this option may no longer make their operation as profitable than before. The production from CBFM projects and private plantations, if they are made accessible through information, may answer part of the needs of the furniture industry and other tertiary wood processing industries.

      The project aims to find solutions to this seemingly contradictory situation by identifying bottlenecks and other problems in the flow of timber and timber products from their sources to end-users. The project will also come up with a database of timber and timber products suppliers and end-users that can be accessed by anyone interested. Figure 1 diagrams the Problem Tree for the Project.

      2.2 Intended situation after project completion

      At the end of the project, problems that constrain the flow of timber and timber based products in the Philippines shall have been identified and given recommended solutions. Inputs will be generated by the study to formulate appropriate policies that will facilitate or remove unnecessary restrictions in the movement of products from legitimate sources

      The project also intends to establish a strong link between timber plantation owners and wood processors. The destination and quality/grades of imported timber and timber products in the local market will be examined for their competitive edge. Such information will provide local timber producers with information on consumer tastes and preferences that will enable them to adjust production systems to produce competitive products. This will eventually lead to increased and further processing of tropical timber specifically those coming from timber plantations.

    Another intended situation after the project is the improvement of economic information on timber and timber products production and trade. The availability of relevant information such as prices, supply and demand of timber and timber products will enable both sectors to make realistic long term production and investment plans that would hopefully lead the timber market to a steady and stable growth.

    Should the project gain the participation of the wide segment of timber and timber products producers and processors, the possibility of later turning over the database and information system to the private sector will be explored before the end of the project. It is hoped that the upkeep of the system will be financed through user subscriptions by paying for the posting and accessing of information therein.

      2.3 Project Strategy

       Undertaking a project that will analyze the timber and timber products trade flow and later link timber and timber products producers and users in the country is considered to be an effective and efficient means of attaining a better trading situation for said products for the following reasons:

a) On a macro level, the outputs of the project, which include, a directory of producers and users, a web site containing such directory, and project document containing analyses of the state and potentials of timber and timber products trading will act as catalyst in spurring trade activity in the wood producing and processing sectors. Useful information such as demand and supply projections for various forms and quality of timber and timber products and market price thereof will be disseminated;

b) The project will cover the various stages of the trade flow and bottlenecks that impede it will be identified and provided with possible solutions in the form of recommended government policies. Products to be covered by the analysis will include timber, poles and piles, lumber, plywood and other forms of wood boards.

c) On a micro level, it will provide market information to individual and small market players such as Peoples Organizations (POs) participants of the community based forest management program who otherwise can not afford to generate such information;

       An alternative option that can attain the objectives of the project is to just allow market forces to take their natural course in terms of trading. This means leaving the individual market players to look for market information on their own. However, considering the prevailing situation especially in the upland areas, taking this option have opportunity costs that put at a disadvantage small producers like CBFM POs and small timber plantation owners. Without much resources to go around for even something as the basic as the survival of their organization, spending for market information is a further strain to an already limited financial resources. This situation is also true for small processors which also include some CBFM POs who are attempting to go into processing to add value to their products.

      2.4 Target beneficiaries

      The beneficiaries of the project include:

a) Producers of timber and timber products including both small and large timber producers such as CBFM POs, private timber plantation owners on government and private lands;

b) Small and large lumber, plywood, particleboard, fiberboard, wood wool producers;

c) End users of timber and timber products and processed wood products such as furniture makers;

d) Government planners in the forestry, trade and industry and national economic planning sectors;

      The information that will be generated from the project will be organized in various forms. The analysis of the timber and timber trade flow will be printed and published as a study document. This will be initially disseminated through a workshop at the end of the project and will be later provided to producer and user groups. These groups may include: Philippine Wood Producers Association, Chamber of Furniture Industry of the Philippines, Community-Based Forest Management Federation and Tree Farmers Federation.

      A database containing the directory of timber and timber products producers and end users will be developed and housed in the Project Office and maybe accessed by anyone interested. From the database, a timber trading web page will be developed from which a list of producers and users can be found. The web page can also contain postings on the availability of, and demand for, certain products indicating volume, specification, prices and location of products.

      2.5 Social Aspect

      The project area covers all regions in the country where there are known production and processing of timber into secondary and tertiary products. Thus, the social aspect of the project is very significant. Among the target beneficiaries of the project are the POs in CBFM areas who are either into timber production or processing. As of year 2000 CBFM areas cover 5.48 million hectares of which 4.28 millions hectares are tenured to some 478 thousand household beneficiaries.

       Another sector who will benefit socially from the project is the furniture producing sector. Recognized as one of the top export earners in the country, the sector is comprised in large part of small and medium enterprises. It is estimated that there are 15,000 furniture manufacturers in three main furniture producing centers in Metro-Manila, Cebu and Pampanga provinces. The estimated workforce of the industry is around 481 thousand direct worker while another 300 thousand people are indirectly employed as subcontractors.

      2.6 Risks

      The risks that may impede the successful implementation of the project are the following:

a) A possible market downturn for timber and timber products in the local and international markets – This will adversely affect the timber and timber products trade situation in the Philippines. This has been taken into account by the project through its timber trade study and database. With these project outputs, strategies/policies can be developed to spur demand in case of a market downturn. Among the strategies that can be explored include.: 1) Linking local wood producers and processors and import substitution in case wood importation become unviable because of extreme local currency devaluation, and; 2) Requiring government projects to utilize locally sourced wood instead of imported wood.

b) Unstable social and institutional/governmental condition - Changes in government/administration brings about uncertainties in project implementation. Usually, heads of government agencies are routinely replaced by incoming administrators. This has been anticipated by the proponents of this project by proposing a flexible management structure. Although the executive committee includes the Director and Assistant Director of the Forest Management Bureau who may both be affected by such changes, the study team who are the project proponents and implementers of the project’s activities are not. As such, continuity of the project is assured in the event of a change in administration. Past experiences in other ITTO projects in the Philippines that continued on notwithstanding political changes in the country also negate this risk.

c) Cooperation and interest of project stakeholders are not sustained – The success and sustainability of the project largely depends on the sustained interests of timber producers and processors who are its main beneficiaries. In this regard, the project has included in its management structure a representative each from wood producers and wood processors groups who are major project stakeholders. To further ensure the usefulness of the project’s outputs to these stakeholders, a data needs assessment will be conducted as an initial activity in the establishment of the database.