I. J. Bourke
Jim Bourke Senior Forestry Officer (Trade Analysis), FAO Forestry Department, Rome.
This article looks closely at domestic markets for timber in developing countries and highlights some of the characteristics, problems and issues associated with them.
More than 90 percent of the total industrial roundwood production of the developing countries is used domestically. Moreover, FAO projections (FAO, 1988) suggest that consumption of the main forest products in the developing countries will continue to grow strongly over the next two decades (see Tables 1 and 2). In spite of this, however, domestic markets do not generally receive the attention they deserve from governments nor from the larger firms engaged in processing and marketing forest products in these countries.
One main reason for this lack of attention is that in many countries domestic markets are overshadowed by export markets. The greater attention given to exports can be attributed to a number of reasons. In particular, forest products are an extremely important source of foreign exchange earnings for many countries. In addition, the larger-scale and more concentrated nature of exporting activities makes them more visible and hence easier for governments to deal with. In many cases the value of forest products in the domestic economy is significantly underestimated and is therefore accorded limited attention by governments.
TABLE 1. Projected average annual growth in consumption of forest products, 1986-2000 (percentages)
|
Products |
Developed countries |
Developing countries |
|
Sawnwood |
2.0 |
3.6 |
|
Wood-based panels |
4.4 |
6.3 |
|
Paper and paperboard |
3.5 |
4.8 |
Source: FAO, 1988
TABLE 2. Developing country share in world consumption of forest products (percentages)
|
Products |
1986 |
2000 * |
|
Sawnwood |
22 |
30 |
|
Wood-based panels |
14 |
19 |
|
Paper and paperboard |
16 |
24 |
* Projections.
Source: FAO, 1988.
At the individual firm level, the larger firms engaged in producing and marketing forest products generally place only limited emphasis on the domestic markets because their main revenue is derived from exports. They may also see only limited additional financial benefits in placing greater emphasis on the domestic market. This is true of both government-operated and private firms. It may be because they hold a monopoly position or because demand exceeds their ability to supply.
Greater attention to the domestic market is, however of considerable importance for a number of reasons. In the developing countries, an expanding population's requirements in the way of shelter and extended and improved infrastructure are clear. It is important that these demands be met as effectively and efficiently as possible.
Increased (and more efficient) use of forest products can help stimulate the local economy. This, in turn, can increase employment in domestically-oriented industries while improving the flow of goods and services. In addition, it may be possible to reduce imports, thus saving foreign exchange.
Domestic markets are an outlet for substantial volumes of industrial wood. For this reason the needs and requirements of these markets must be taken into account if effective decisions are to be made concerning improved management and utilization of the forests. The more efficiently the markets operate, the more efficient the use and conservation of the resource can be.
More effective marketing policies and practices will also enable the commercial organizations engaged in selling products to operate more efficiently and profitably. From the consumer's point of view, greater attention to their requirements will enable them to obtain better products more readily and at a lower cost.
There are wide variances between the conditions and the opportunities that exist within the domestic markets of different countries. A lack of space and, more importantly, a lack of detailed information preclude any attempt at a comprehensive coverage of the subject. Instead, this article attempts to highlight common characteristics, problems and opportunities.
It should be noted at the outset that fuelwood is not taken into consideration here, notwithstanding the fact that an estimated 79 percent of wood harvested in the developing countries is put to this use. Although fuelwood is being sold increasingly on a commercial basis, its marketing is only partially reported in most cases and the marketing systems are generally primitive.
Consumption levels
The importance of domestic consumption to the commercial forestry sector (both large-scale and small-scale operators) varies considerably between countries. For example, in Indonesia in 1989, 20 million m³ of the total production of 39 million m³ of industrial wood was used domestically. Nigeria and India consume all the industrial wood they harvest. China requires substantial imports to meet its domestic requirements while Brazil, another large producer with a large population, directs most local production to the domestic market. Apart from imports of paper and paperboard, Cameroon and Liberia rely on their own production for the bulk of their domestic consumption. Côte d'Ivoire, by contrast, exports 70 percent of its sawlogs and 60 percent of its sawnwood production.
On the whole, domestic use in developing countries has expanded significantly in recent years. Total apparent consumption in the developing countries rose from 161 million m³ in 1970 to 395 million m³ in 1989. Much of the increase in importance of domestic markets relates to a parallel growth in the size of the population. Although per caput consumption levels are low by developed country standards, the absolute volumes of products needed to meet domestic requirements are substantial. The comparison with consumption in the developed countries, shown in Table 3, highlights the dramatic differences in per caput consumption levels and in the volumes of wood involved in meeting domestic demands.
Distribution
Transport problems present major impediments to improved processing and marketing of wood, both for the domestic and export markets. Logs must often be transported substantial distances from the isolated forests to ports or major population centres. For instance, logging sites in Gabon are some 500 to 700 km away from Libreville, and distances in Zaire are even greater. Processing plants are usually established at these points, which are also the main log export outlets.
From these locations products are transported to other centres, often by small private individuals who then sell to other entrepreneurs or small manufacturers who produce a variety of products such as furniture, doors and windows. Some larger companies operate their own wholesaling companies in the bigger centres. Private buyers purchase bigger from small timber wholesalers and entrepreneurs may buy wood directly from the shipper at the ports.
In rural areas, buyers purchase wood directly from the small sawmills or from pit-sawyers. Where larger mills exist, private buyers also make direct purchases, usually of cheaper grade materials.
TABLE 3. Domestic consumption of forest products in selected countries, 1989
|
|
Sawn timber |
Panels |
Paper and paperboard |
|||
|
Total |
m³/1 000 |
Total |
m³/1 000 |
Total |
tonnes/100 * |
|
|
India |
17 465 |
21 |
427 |
1 |
2 182 |
3 |
|
Malaysia |
3 156 |
198 |
429 |
27 |
432 |
27 |
|
Indonesia |
7 582 |
51 |
745 |
5 |
883 |
6 |
|
Pakistan |
873 |
8 |
97 |
1 |
406 |
4 |
|
Malawi |
31 |
4 |
7 |
1 |
10 |
1 |
|
Nigeria |
2 712 |
25 |
256 |
2 |
154 |
1 |
|
Cameroon |
587 |
59 |
64 |
6 |
45 |
5 |
|
United Republic of Tanzania |
151 |
6 |
14 |
- |
50 |
neg. |
|
Côte d'Ivoire |
315 |
35 |
168 |
19 |
23 |
3 |
|
Brazil |
17 639 |
118 |
2 236 |
15 |
3 918 |
26 |
|
United States |
129 349 |
526 |
34 900 |
142 |
72 298 |
294 |
|
New Zealand |
1 688 |
528 |
471 |
147 |
557 |
174 |
* Head of population.
Source: FAO, 1991.
Note: figures rounded.
Products
As with all countries, patterns of wood use in developing countries are a reflection of wood availability (both domestic supply and imports), government policies, culture and tradition, incomes and product prices. The major difference in consumption patterns between the developed and developing countries is that domestic consumption in the latter is heavily skewed toward relatively unprocessed products, and in particular sawnwood. Furthermore, in all cases the quality of the material used and the products produced is generally low.
While the markets are heavily dominated by consumers with little need for more sophisticated products, there are wide differences between the conditions and needs of the different population groups. In particular, the needs and financial resources of the rural population are far different from those of the urban population. And within the urban population there are major differences between the requirements of those with low incomes and those with higher (often very substantial) incomes. Although there is often a segment of the population that is interested in end can afford high-qualify products, domestic markets in developing countries are mainly unsophisticated and price-conscious.
A basic feature of many developing countries is that consumption is closely tied to product availability which, in turn, is generally linked to exporting activities. In Indonesia, Malaysia, Chile, Brazil, the Republic of Korea and Taiwan (Province of China), which have important and substantial export sectors (ranging from logs and sawn timber to various wood-based panels, veneers, mouldings, furniture and, in some cases, pulp and paper), domestic consumption also tends to include these products.
Where export markets for certain products are limited, or the country finds it difficult to compete effectively in these products, production is restricted and, consequently, so is domestic consumption. For example, Liberia, Cameroon, Côte d'Ivoire and Ghana are important exporters of logs and (with the exception of Liberia) sawnwood, and all consume large volumes of sawnwood. They export little or no plywood. With the exception of Côte d'Ivoire, which has more than treble the wood-based panel production of Cameroon (the next largest producer) and also almost three times that country's consumption, they are only minor consumers of wood-based panels.
In Indonesia, growth in domestic consumption of wood-based panels paralleled the rapid expansion in plywood production for export. Consumption rose from 100 000 m³ in 1975 to an estimated 800 000 ma in 1989 signifying an expansion in per caput terms from 0.7 m³/1 000 to 5.4 m³/1 000. Malaysia, with its lower plywood production, has a much lower level of plywood consumption.
It is worth noting that, in most cases, the increase in domestic consumption of export-oriented products initially results from low-grade unexportable material being directed to the local market. In this respect domestic markets can play a valuable complementary role as an outlet for material unsuitable for export. In addition, the domestic market can benefit from lower-priced products that would not otherwise be available.
In a few cases, countries with sufficiently large potential domestic markets (i.e. large populations) to justify the economic investment have developed large domestic markets that are not linked to exports. Thus, with its population of 800 million, India produced 442 000 m³ of panel products and 1 940 000 tonnes of paper and paperboard products in 1989, virtually all for domestic consumption. Nigeria, with a population of 110 million, produces 2.7 million m³ of sawnwood and 230 000 m³ of panels, all for domestic use. In smaller developing countries with relatively small populations, domestic processing is limited by market size.
Government influence
Much of domestic consumption in the developing countries is in some way connected with government. As a result, the markets are heavily influenced by national decisions and policies. Government usually controls much of the forest resource and, in many cases, a significant share of the logging, processing and distribution of forest products. Government infrastructure programmes (involving railways, telephone and electricity transmission, the construction of dams and roads, etc.), government building programmes and activities that need concrete forming or pallets for transport also utilize a large part of the products produced.
At the policy level, governments influence consumption through a variety of processes, including: housing loan policies; public housing schemes; rent controls; and import restrictions. These policies reflect an equally wide variety of objectives such as improving housing standards; protecting domestic industries; conserving scarce foreign exchange; safety; etc. For example, China has a strong centralized control of much of the national resource, its utilization and end-uses. In recent years it has actively followed programmes and policies aimed at reducing wood consumption - both to reduce pressure on domestic resources and to reduce the amount of foreign exchange required for imports. Programmes have included controlling the level of wood allocated through the state planning system; measures encouraging the use of substitute materials, with an emphasis on bricks and concrete in public building programmes; import controls; the direct limitation of wood use for such items as electric transmission poles, railway sleepers, mine and tunnel supports.
In many countries construction is closely associated with state housing development. For example, in its sixth five-year plan (1980-85), the Indian Government allocated Rs21 140 million to housing development. Under this, about one million dwelling units were erected (Razadan, 1990).
Notwithstanding government dominance of domestic wood markets in many developing countries, private enterprise does play an important part. In most countries local private entrepreneurs are involved in a variety of activities ranging from sawmilling to small-scale furniture manufacturing. Large firms, many of which are under foreign ownership, are also heavily involved. Although many of these were initially established to export logs, many subsequently developed sawmilling operations both in order to utilize logs that are unsuitable for export and to obtain export log quotas. More recently, moves by governments to encourage or even force domestic-based processing have resulted in a greater involvement in processing activities.
End-uses
Domestic consumption and the uses wood is put to are greatly influenced by a country's level of development, the sophistication of its processing sector as well as its access to materials and the degree of its market orientation. Although there is considerable variation among countries, the limited information available suggests that, in most cases, the main domestic end-uses are in construction, infrastructure and industry (mining, railway sleepers, transmission poles, etc.), packaging and furniture.
Some 20 percent of China's industrial wood consumption in 1985 was reportedly used in construction (Waggener, 1989). In the United Republic of Tanzania 90 percent of sawn timber was used in building and construction (Kahuki, 1990), 50 percent in Malaysia (APFIDG, n.d.) and an estimated 50 percent in Nepal (Shaikh et al., 1989).
Sawn timber is primarily used in construction and packaging. In construction its main use is for concrete forming, since concrete and bricks are the predominant building materials, and for doors and windows. This is a reflection of local building practices, the availability of alternative materials and relative prices of materials. The relatively low use of wood as a primary construction material, however, is also closely linked to the lack of grading and quality control of products directed toward domestic markets. Little sawn timber is graded or seasoned and few countries have sound and enforced quality-control systems to ensure that the material is adequate for many end-uses.
Two main factors influence this. First, the financial ability of consumers is limited and they therefore look for the lowest price. As a result, even larger sawmills, which could provide graded, dried and seasoned timber, rarely do so since the buyer is unwilling to pay the additional cost required.
Since the bulk of consumers are very price-conscious, in a number of countries attempts by processors to initiate grading schemes have foundered because consumers were unwilling or unable to pay higher prices which reflected higher-quality material. In Malawi, for example, efforts to sell graded sawn timber have been thwarted because timber from small-scale pit-sawing operations has been available at lower prices. In Dominica, the reverse problem exists; because of the small domestic market it has been cheaper to buy imported material from the United States rather than upgrade the processing technology and quality controls to meet this segment of the market.
Second, where demand exceeds supply or monopoly conditions exist, as is the case in some developing countries, there is little incentive for the producers to improve their product since they are able to sell all of their output if prices are kept low. This is often linked to the fact that government-imposed price controls may be used to ensure that a low-priced product is available to consumers; in turn, this limits the producer's ability to improve production and marketing practices.
A further factor contributing to low-quality raw materials and products derived from them is the fact that domestically oriented producers tend to be small and dispersed, with relatively unsophisticated or poor equipment and limited market information. In poorer countries the producers of sawn timber may even be individuals using pit-sawing techniques.
In the photo, sawnwood produced on Santo Antão bland in Cape Verde
In the photo, sawmilling in Bangladesh
In general, domestic markets in the developing countries face a number of constraints that inhibit their effective operation. Some of the main problems requiring attention include:
Poor and/or variable product quality. Products are generally of low quality. This means that the consumer receives poor-quality products which are in many cases poorly suited to certain end-uses. Buyers are also unable to be assured of consistent products.Limited product choice. The range of products available and the choice within products is limited. Consumers are unable to select the type and quality of product most appropriate to their requirements.
Excessive or inadequate competition. In many countries firms operate in a protected environment. This may be either because of government regulations or because of a monopoly control over the resource. In other cases a lack of control results in excessive competition by a large number of small, inefficient firms. Price controls may distort markets, resulting in the inappropriate use of resources. These conditions restrict both the efficiency and cost-effectiveness of the markets as well as their responsiveness to consumer requirements.
Excessive government influence. Heavy government involvement restricts the free operation of markets. Government policies distort the markets while the involvement of protected government operational units can limit the effectiveness of operations. Additionally, the dependence of many end-uses on government decisions (e.g. housing programmes, infrastructure development, etc.) means that changes in policies can have an undue influence on the sector.
Inadequate market information. Information on prices, product availability and product characteristics is limited. It is therefore difficult to compare products and their sources. The lack of such information inhibits the free and efficient operation of the markets, restricting both consumers and, in some instances, producers. It also prevents potential producers from entering the business.
Reduced market efficiency. As a result of the other limitations, costs are greater, entrepreneurs' margins are often excessive and returns are frequently insufficient to attract new, more efficient firms or to allow for the introduction of improvements.
Excessive demand or supply. Controls encourage excessive demand if prices or standards are artificially low. In other cases, excessive supply may be encouraged. Where true costs are hidden, the economic system is unable to allocate resources efficiently, directing then to their most appropriate use.
Inefficient distribution systems. Problems range from excessively costly systems to an inability to move products to areas where they may be required and thus meet consumer requirements.
Inadequate training of management and staff. This reduces the effective development and efficient operation of businesses and limits staff ability to recognize where investments should be made and manage a business profitably.
Domestic markets are already important for the stimulus they provide to the economy through the flow-on effects of commercial activity as well as the contribution they make to improved social and economic conditions. Although the priority to be placed on the development of domestic markets is open to debate and will differ from country to country, most will need to be expanded further in the future.
Their importance is based on the need to provide the expanding domestic population with adequate products, especially improved housing and infrastructure.
Improving incomes in many countries would also allow local timber consumption to expand. This would increase employment in domestically oriented industries and assist the domestic economy by expanding and increasing the flow of goods and services. In addition, it may be possible to reduce imports, thus saving foreign exchange.
Likewise, the domestic market can provide an opportunity to develop skills and expertise and improve products so that increased exports of higher-value products are possible. Industries which have a sound domestic market usually have a more secure base from which to export. They also have the opportunity to improve their products in a less demanding environment than the competitive export market. Conversely, firms which develop successful export activities can and should improve the products and services they provide to the domestic market.
Expanding markets - both domestic and export - must also be viewed against the pressures to reduce deforestation and move countries toward a level of harvest that the resource can sustain.
Many of the conditions that hamper the development of domestic markets are closely interrelated. Consequently, breaking out of one requires an associated improvement in another.
Pressures are likely to occur as a result of the growing demands of domestic markets. For exporting countries there could be increasing competition between export and domestic market demands. Growing demand from domestic consumers could make it more difficult to satisfy export requirements, thereby placing national budgets under some pressure unless government controls are continued. Governments will be increasingly pushed to ensure that export markets do not continue to have first call on materials, even though they may pay more. This could result in national policies being designed to ensure that at least some domestic demand is met despite the fact that export markets may appear more attractive.
One way of reducing pressures caused by the promotion of domestic demand in many countries is to expand plantations. A number of developing countries, including Brazil, Chile, Fiji, Indonesia, Kenya, Malaysia, the Philippines and the United Republic of Tanzania, have established or are establishing such plantations. Another option would be to expand the number of indigenous species that are accepted by the markets. As is the case with any decision to increase plantings, such a measure must be based on an assessment of the market requirements. If the species are to be sold on domestic markets, which in most instances are used to hardwoods, effective marketing programmes must be developed to convince the consumers that the new varieties are acceptable and can meet their requirements.
Similarly, appropriate processing facilities must be developed since plantation species have very different physical characteristics from those of many species currently being used. If plantations are to achieve their goals and be profitable ventures, considerable work will be required in the areas of processing and marketing, The differing suitability of different species for different demands must be clearly established and any constraints that may arise must be identified and solutions sought.
Locally produced furniture at a roadside market in Nicaragua
In the photo, pine plantations in Fiji
Domestic markets and the industries catering for them must be given support and, in many cases, stimulated. As a first requirement, all those involved with the sector, but particularly government and larger firms, must recognize that domestic markets are important and therefore deserve attention.
Government policies must be closely evaluated and policies adjusted to allow both greater freedom in the market and a greater incentive to develop efficient enterprises that cater for the markets' requirements. Where government controls and regulations distort profitability or protect firms against competition, they need to be rationalized. There must, however, be a balance between a free, open economy and the need to work within the financial means of a country. The important point is to ensure that controls do not unnecessarily protect or distort the sector.
Training programmes, improved distribution systems, improved product quality and the development of adequate size to allow for improved technology are all important areas to support. Many of these areas can be improved by assisting producers to cooperate and act together rather than individually. Others require a strong government commitment to improve infrastructure, ensure that quality control systems are enforced and allow sufficient competition to encourage improved management. Just as export activities have been stimulated and rationalized in many countries, similar attention should be paid to assisting the domestic sector.
Improved processing technology and marketing expertise provided under aid programmes is one approach to improving products supplied to the domestic markets. In many countries processing facilities, especially sawmills, are antiquated, inefficient and unable to produce acceptable products profitably. Improving these facilities and establishing new appropriate mills is one area in which FAO and other agencies have been providing assistance. FAO has placed considerable emphasis on training courses in processing technology as well as in marketing. An FAO/UNDP regional project, based in Kuala Lumpur, carried out marketing training courses in Malaysia and Papua New Guinea for people from the Asia and Pacific region and ran training courses on sawmilling and timber treatment in other countries in the region.
In the photo, a saw-doctoring workshop in India
Similarly, activities of the Cameroon-based FAO/UNDP regional project for African countries include training in both these areas. Further activities of this nature would make a valuable contribution to developing countries.
Improved transparency in the markets, if combined with other improvements, would assist in encouraging more effective competition. It would provide potential new entrants with improved information on which to base their business investment decisions and, in a number of countries, the substantial margins claimed by entrepreneurs would be reduced.
The domestic markets of the developing countries represent large and expanding markets for the countries' own products. In most developing countries these markets do not operate efficiently nor do they provide buyers with adequate products at realistic prices. Several factors are responsible for this situation, ranging from government policies, controls and incentives to a lack of encouragement for improving market operations and upgrading the skills and expertise of the firms engaged in them. The size of the domestic markets and the requirements of a growing population would suggest that they merit considerably more attention than they receive at present.
APFIDG. (n.d.). Malaysia: market for primary timber products. Field Document No. 5, Asia-Pacific Forest Industries Development Group. Kuala-Lumpur, FAO/UNDP.
FAO. 1988. Forest products world outlook projections 1987-2000. Forestry Paper No. 84. Rome, FAO.
FAO. 1991. FAO Forest Products Yearbook. 1978-1989. Rome, FAO.
Kahuki, C.D. 1990. Sawnwood and panel products marketing survey in PTA subregion. FAO Consultant Field Report (unpublished).
Kir, A. 1989. Wood products: domestic consumption and marketing. Forestry Studies Field Document No. V-1. Jakarta. FAO/Government of Indonesia.
Razadan, R. 1990. India: the domestic market for primary timber products. Asia-Pacific Forest Industries Development Group. Kuala-Lumpur, FAO/UNDP.
Shaikh, A., Kanel, K. Koirala, D. & Panday, S. 1989. The forest products marketing system in Nepal: case-study of the urban areas of Kathmandu Valley. Kathmandu, USAID.
Waggener, T.R. 1989. Forest products in the People's Republic of China. Working Paper No. 23. Seattle, Washington, Centre for International Trade in Forest Products, University of Washington.
