Chapter 7
COMPARISON OF THE EUROPEAN MARKET FOR HIGH-VALUE TROPICAL SAWNWOOD, VENEER AND PLYWOOD WITH THOSE IN NORTH AMERICA AND JAPAN

7.1 Introduction

This chapter briefly compares the market for tropical hardwood products in three distinct economic regions, Europe, Japan and North America. The situation in these three areas is different, Japan is well recognized as being a consumer of primary tropical products - particularly tropical logs for the production of plywood, though this situation is now changing. North America, in contrast, is a minor consumer of tropical logs, sawnwood and plywood having its own well-established forest industry based primarily on softwoods. North America, however, does represent a significant market for secondary processed wood products and, in this respect, represents an important market for tropical timber exporters. As has been explained in Chapter 2, Europe is also moving increasingly towards the importing of secondary products though it still represents an important market for exports of primary products.

7.2 Forest resources and self-sufficiency in forest products

The role of tropical timber products in the three regions is influenced by the size and use of their forest resources and their overall self-sufficiency in wood. This section therefore highlights some key characteristics of the three regions in this regard. Table 7.1 shows forest area and growing stock relative to population for each region.

Table 7.1: Forest resources of the European Union, North America and Japan

⁽¹⁾ Forest areas refer to "forest available for wood supply"

(Source: UN-ECE/FAO, 2000)

North America has by far the largest resource that is over three times the size of the European Union area and 14 times the Japanese resource. However, Japan is the most intensively forested area with 64 percent forest cover, an intensity equalled in the temperate world only by Finland and Sweden. Relative to population levels, North America has four times the growing stock per head of the European Union and five times the Japanese level. The European Union figures are strongly influenced by the inclusion of Scandinavian countries and if they are omitted the levels of growing stock per head in the rest of the European Union are similar to those of Japan.

There are also substantial differences in the self-sufficiency of these regions in terms of wood supply/forest products consumption. Europe as a region is 66 percent self-sufficient² with wide variations in the European Union ranging from 5 percent in the Netherlands to 310 percent in Finland. The United States of America is 71 percent self-sufficient and in Canada, the world's largest exporter of forest products, the figure is 305 percent. Most of the United States import requirements are drawn from Canada, and consequently North America as a whole is a net exporter of forest products. Whereas North American and European roundwood production has increased over the last 40 years, Japanese wood production has fallen from 50 million m³ in 1960 to 21 million m³ in 1997 and self-sufficiency has fallen over the same period from nearly 100 percent in 1960 to 20 percent in the late 1990s. This marked decline in domestic production and self-sufficiency in Japan reflects a number of interrelated causes including: economic growth leading to rural depopulation, the opening up of the economy to imports in the 1960s, and increasing competitiveness of imported timber bringing about falling domestic log prices. Tropical timber products have been an important component of Japan's import growth, partly reflecting the drop in domestic production of hardwoods from 14 million m³ in the mid-1960s to 4 million m³ by 1997.

These differing resource endowments and trends in use of domestic forests influence the dependence of countries and regions on tropical timber imports and also the product form of these imports.

7.3 Log imports and use

Since the mid-1960s, Japan has been the world's leading importer of tropical logs. Imports peaked in 1973 at 26 million m³, fell in the mid-1970s recession and climbed to 23 million m³ in 1979. Since then they have followed a long-term decline and in 1999 totalled only 3.5 million m³. European imports have followed a broadly, but less dramatic decline since the early 1980s. Imports of tropical logs by the United States of America have always been negligible. Table 7.2 compares tropical log import figures for the three regions over the last decade; and the sharp decline in import volumes is clear.

There have been significant shifts in the countries supplying Japan since its imports started in the 1960s. In the 1960s the Philippines was the principal supplier but as supplies became tighter shipments from the Philippines declined and from 1970 to the early 1980s Indonesia was the leading supplier. Restrictions (bans, export taxes) on log exports by Indonesia in the early 1980s left Malaysia (mainly Sabah and Sarawak) as the leading supplier up to the late 1990s, but over the period Malaysia's exports fell from 12 million to less than 3 million m³. Over half Japan's much reduced level of imports are now drawn from Africa (Gabon, Cameroon, Congo), Latin America (Guyana, Ecuador) and other Asian countries (Papua New Guinea, Myanmar). In contrast to Japan, Europe's tropical log imports have always been drawn principally from African countries, though individual sources of supply have shifted over time reflecting resource constraints and changing export policies in exporting countries.

Table 7.2: Tropical log imports by the European Union (15), United States of America and Japan

(Source: FAO, ITTO)

The different sources of log supply obviously reflect important species differences in the two regions. For the most part Europe's use of African timbers has been of the well-established West African timbers, e.g. African mahogany, afrormosia, ekki, iroko, obeche, okoume, sapele, utile (sipo). Japan's imports have mainly been of dipterocarp species from Southeast Asian countries.

Europe's main use of imported logs has been in the production of sawnwood and other solid wood products (see Section 2.2), though plywood and veneer production have important uses in selected countries. By contrast, in Japan tropical logs are used overwhelmingly in the production of plywood and the usage for plywood has gradually increased over the last 30 years. It now represents 80 percent of tropical log use. However, although this share has increased, the large falls in the total imports of logs have led to a steep decline in tropical plywood production in Japan (see Section 7.5).

7.4 Tropical sawnwood imports and use

In the 1970s and early 1980s the policy of many exporters, particularly in Southeast Asia, was to stimulate the export of sawnwood in place of logs. Over the last 15 years the policy has shifted to one of encouraging exports of secondary processed products (including plywood). As a consequence of this policy, imports of tropical sawnwood by Europe and Japan have shown no long-term growth over the last decade, though there have been substantial annual fluctuations reflecting short-term changes in trading conditions. Table 7.3 shows imports of tropical sawnwood into the three regions and the share of tropical sawnwood in total sawn hardwood consumption. The figures exclude volumes of sawnwood produced from imported logs in Europe and Japan.

Table 7.3: Tropical sawnwood imports by the European Union (15), United States of America and Japan and market share of total sawn hardwoods

(Source: ITTO FAO/ECE, UCBD)

In the European Union, tropical sawn timber imports hold a 20 percent share of consumption of all sawn hardwoods. Temperate hardwoods, mainly produced from Europe's hardwood resource account for the bulk of the market and a slowly growing market share.

Recent imports of tropical sawnwood into Japan have fallen sharply driven by the slowdown in the Japanese economy and the construction sector. Tropical sawnwood's shares of apparent consumption has also fallen during the economic downturn.

In the United States of America, tropical sawnwood plays an insignificant role in consumption. Here domestically produced hardwoods dominate the market reflecting the huge resource in eastern United States of America.

The differing resource endowment is also reflected in the use of sawn hardwood in the three regions. Based on 1998 data, the United States of America has a consumption of 114 m³ per thousand capita, Europe 30 m³ and Japan 17 m³.

End uses of tropical sawnwood in Europe were examined in Chapter 3 where it was shown that joinery (windows, doors, shopfitting, specialist joinery) and furniture were the main end uses.

In Japan, a study carried out for ITTO in 1990 estimated that the end uses of tropical sawnwood consumption (including domestically produced sawnwood from imported logs) were:

Construction 37%
Furniture 29%
Packaging 13%
Others 21%

Within construction, most of the tropical timbers were reported to be used for internal and external fixtures such as closets, stairs, doors window frames, skirting boards. They are used mainly because of their good workability, small shrinkage and attractive appearance. They are normally finished with a clear lacquer. In broad terms, the types of uses and reasons for use are similar in Europe and Japan with appearance being a key attribute.

7.5 Tropical plywood imports and use

Certain tropical producers, notably Indonesia, Malaysia and Brazil have greatly expanded their plywood industries over the last 20 years as part of their strategy to add value to their raw material domestically. This can be seen in the following figures of plywood production by these countries (thousand m³).

Note: Figures for Brazil include coniferous plywood

(Source: ITTO, FAO)

Most of this industrial expansion has been export orientated and this has had substantial impacts on the plywood industries and plywood markets in Europe, Japan and North America. For Europe and particularly Japan, the development of these export orientated industries needs also to be seen alongside the reduction in imports of tropical logs.

Table 7.4 shows the trends in imports and market shares of tropical plywoods over the last decade.

Table 7.4: Tropical plywood imports by the European Union (15), United States of America and Japan and market share of all plywoods

(Source: ITTO FAO/ECE, UCBD)

European imports declined from the early to mid-1990s in line with the slowdown of European economies but have grown since 1996 as Western European economies and construction markets have recovered. As markets declined, imported tropical plywood lost market share but this has been regained over the last four years and roughly one-third of the plywood market is accounted for by imported tropical plywoods. Adding the estimated European production of 575 000 m³ from imported logs this pushes the market share to 45 percent.

In Japan, there has been a strong growth in imports of tropical plywood during the 1990s pushing the import share in total consumption from 30 percent to 52 percent. However, this has been accompanied by a steep fall in Japanese production of plywood based on tropical logs from 6.7 million m³ in 1990 to 2.5 million m³ in 1999. The overall market share of all tropical plywoods (imported and home produced) is therefore estimated to have fallen from almost 100 percent in 1990 to 80 percent in 1999. The decline in tropical plywood production and consumption in Japan has been caused not only by restrictions in log exports by producer countries but also by other factors including:

· shifting production nearer to the raw material source and a cheaper work force in the exporting countries;
· substitution by cheaper logs such as imported softwoods;
· substitution by cheaper/alternative materials such as softwood plywood and OSB;
· construction industries developing techniques to allow the reuse of shuttering plywood;
· building regulations/pledges to reduce consumption of tropical plywood;
· relative price increase for tropical logs;
· changing patterns in house building, particularly an increasing `western-style' housing favouring the use of other panel products.

These pressures have led to a switch by some Japanese mills from tropical to coniferous logs from the United States of America, Russian Federation and New Zealand which in turn resulted in 36 percent of Japan's plywood production in 1998 being of softwood species.

The United States of America has been a long-term importer of tropical plywoods initially in the 1960s from the Philippines, but now mainly from Indonesia, Malaysia and Brazil. The United States plywood market is twice the size of the Japanese and three times the size of the European Union market and supports a large, efficient and mainly softwood industry. Consequently, although United States imports of tropical plywoods are broadly comparable with European Union levels, the market share in the United States of America is much lower at about 9 percent. Moreover, unlike Japan and Europe there is no production of tropical plywood in the United States of America to add to imported supplies.

In Europe, tropical plywood is used in a wide range of applications in the joinery, construction and furniture industries (see Section 3.3.2). Structural uses of plywood in Europe are mainly satisfied by coniferous and temperate hardwood plywoods from North America, Finland and Sweden and tropical panels are usually specified because of their working properties, appearance and availability in a range of thicknesses for non-structural applications.

In Japan, ITTO reported the following end use breakdown of tropical plywood in 1989:

House construction 66%
Furniture 9%
Packaging 4%
Others 21%

The overwhelming use of plywood in construction is for sheathing, concrete shuttering and partitioning, which is strongly associated with traditional post and beam housing and the increasingly popular prefabricated wood housing sector. Tropical plywoods are now losing market share in sheathing and formwork applications as softwood plywoods become more readily available. There has been pressure from some cities and prefectures to reduce the amount of tropical plywood used in public works programmes, largely for environmental reasons (Blandon, 1999). In furniture, plywood and sawnwood are used in the manufacture of storage cabinets, shelves, racking systems and beds. In packaging, coniferous plywoods and OSB provide strong competition to tropical plywoods.

In the United States of America the structural uses of plywood, e.g. sheathing of timber framed housing are fulfilled almost wholly by coniferous plywoods, and increasingly OSB. Virtually no tropical plywoods are used in these types of applications. Tropical plywoods are mainly used in joinery, door manufacture, furniture (mainly cabinet backs and drawer bottoms), interior panelling and renovation work.

In all three regions all plywoods, including tropical, are coming under fierce competition from substitute products. OSB is a major competitor in sheathing and other non-decorative `gap filling' applications such as packaging. MDF including thin MDF is a major competitor in furniture, joinery and flooring uses. These products benefit from low raw material costs, efficient large-scale plants and their availability with an increasing variety of synthetic surface finishes which simulate real wood.

7.6 Secondary processed wood products

In Chapter 3, the rapid growth of imports of secondary tropical products by Europe was emphasized and similar trends can be seen in Japan and the United States of America. Indeed, Table 3.14 points out that the Japanese and United States markets are, in general, more important than the European market for the main exporters in Southeast Asia and Latin America (Malaysia, Indonesia, Thailand, Brazil).

Table 7.5 compares the trends in the value of primary and secondary imports in the three regions.

Table 7.5: Import value of primary and secondary processed tropical timber products by the European Union, Japan and United States of America, 1995-1999

(Source: ITTO)

In the two main importing regions for primary products, the European Union and Japan, there were substantial falls in imports of these products, particularly in Japan. In the much smaller United States market primary product imports increased by 13 percent. By way of contrast, in Europe and the United States of America there was strong growth in imports of secondary products by 35 percent and 57 percent respectively, but the smaller Japanese market experienced modest growth to 1996 after which imports fell back. The market in Europe is mainly in northern and central Europe and in Germany the value of secondary products now approaches that of primary products while in the United Kingdom imports of secondary products have already surpassed primary products in value.

Table 7.6 shows the product mix of imports of secondary tropical products (top of table) and the share of total imports of these products held by tropical suppliers (lower half).

In all countries, furniture and furniture parts account for the largest share of tropical products but are considerably higher in both the United States of America and Japan. Builders' woodwork (which includes doors) accounts for 20 percent of Europe's imports but substantially less in Japan and the United States of America.

Although imports of these products have risen rapidly, Part B of the table shows that tropical products still account for a relatively small share of total imports, with a significantly lower share in Europe than United States of America and Japan (except for cane and bamboo furniture). The main suppliers to the European Union market are other European countries including Eastern European countries like Poland. In the United States of America, Canada is a major supplier.

Table 7.6: Share of secondary processed tropical imports by product type and of total secondary product imports in 1998

It is clear that the major exporting countries now place greatest emphasis on encouraging the development of secondary, export orientated industries rather than primary products. They see these as the major growth markets and policies will further encourage expansion in these product areas rather than logs and sawnwood.

7.7 Plantation species

As in Europe, virtually all log, sawnwood, plywood and veneer imports by Japan are from natural forests not plantations. Lesser used natural forest species are certainly used in plywood production; usually as core veneers and for exports of mouldings. The main plantation species which is exported to Japanese, United States and European markets is rubberwood which is shipped overwhelmingly in the form of secondary products, mainly furniture and furniture parts.

7.8 Competition for primary products by secondary products

The rapid increase in imports of secondary products (tropical and non-tropical) raises the question of whether this has caused the decline in imports of primary products and if so, to what extent. Only a superficial examination of this question is possible.

In the course of interviews for this study in the European market, there was evidence that substitution had occurred. A particular case in point is with garden furniture where European producers have stopped manufacturing in Europe and have either transferred all manufacturing to exporting countries or simply assemble finished components in Europe. There is also evidence of this trend in the furniture, door and window industry in Northern Europe but here the main substitution is for temperate species (softwoods and hardwoods) rather than tropical timbers.

Substitution of primary tropical products in this way is not occurring to the same extent in the United States of America simply because imports of primary products are mainly of plywood. Here the growth in secondary products, mainly furniture, is largely associated with the economic expansion of the United States of America over the last decade.

Similarly in Japan, tropical timber is primarily consumed as plywood (either manufactured in Japan or imported as plywood) and the imported secondary products, 70 percent of which are furniture, will not be replacing this plywood.

The most direct affect of secondary products on markets for primary products is therefore in the countries of Northern Europe. The substitution which is taking place is driven by the factors mentioned in Section 3.4 and relate fundamentally to cost advantages.

7.9 Certification

Forest and timber certification is one of the most important and contentious market developments of the last decade. The relationship of certification to the tropical timber market in Europe was discussed in Section 6.3.2. To date, the market impact of certification has been far greater in Europe (and here only in certain countries) than in Japan or the United States of America. Very few tropical forests have received FSC forest management certification and those that have are often plantations. Consequently, the supply of FSC-certified tropical products is negligible, particularly to United States and Japanese markets. For these reasons it is concluded that the impact of certification as such on importation of primary and secondary products in Japan and the United States of America has been negligible.

7.10 Main economic drivers of consumption of tropical timber products

Chapter 6 (Section 6.2.1) explained that European consumption of primary tropical timber products was driven mainly by the construction industry. The same is also true in the United States of America and Japan.

In the United States of America the 1990s was a period of unprecedented growth in the housing market. From a low point in 1991 of 1 million housing starts there was continuous growth over the decade and in 1999 the figure reached 1.7 million units. This long and substantial growth has been one of the most important influences on world trade in sawnwood, wood-based panels and added value timber products over the decade. It is the principal reason for the growth in tropical plywood imports over this period. The growth in imports of tropical and temperate secondary wood products is also associated with the housing boom but the overall strong economic growth of the United States economy has been a major contributor to increased consumer spending on furniture.

In Japan consumption of tropical timber products is also strongly linked to the construction market and in particular the housing sector. The mix of housing types, i.e. traditional post and beam, North American `platform frame' and `2 x 4 construction' also influences materials use. The Japanese new housing market grew in the early 1990s from a level of 1.35 million units to a peak of 1.64 million units in 1996. In the following two years they fell by 27 percent and there has been only a modest recovery in 1999 and 2000. This steep decline in the housing market and the low economic growth rates have resulted in the decline in tropical timber consumption noted above. The shift to non-traditional forms of house construction has boosted the market for North American softwoods at the expense of tropical hardwoods. The relative stagnation of imports of tropical secondary processed wood products in Japan compared with the United States of America and Europe also reflects the decline in the housing market and low economic growth of the late 1990s.

2 Estimates are based on roundwood removals as a percentage of the consumption of forest products expressed in roundwood equivalent. No allowance is made for the use of wood residues or waste paper and consequently self-sufficiency rates are understated.