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6.1 General development of PWA

Precious Woods Amazon completed its pre-operational trial phase in 1997, when the company began full-scale production and its forests were certified by the Forest Stewardship Council (FSC) as sustainably managed. It was only in 1999, however, that the company was able to reach an equally important benchmark by achieving a positive operating cash flow. This was due to a combination of increased sales (attributed partly to the FSC certification), reduced operating costs, and devaluation of the Brazilian currency. A reduction in annual operating costs of US$1.903 million between 1998 and 1999 was the largest single factor in achieving the positive cash flow, with about US$1 million of this being due to currency devaluation (Precious Woods 2000).

The volume of wood products sold by PWA increased 51% from 1997 to 1998, with a further increase of 69% from 1998 to 1999. The associated net revenues from sales increased by 52% from 1997 to 1998 but only by 5% from 1998 to 1999. The relatively low increase in net revenues from sales between 1998 and 1999 resulted from an increased share of plywood sold, as the selling price of plywood is comparatively low. A positive aspect of the increase in sales volume over this period is the fact that sales increased in both national and international markets, although the increase was stronger in international markets. The graph in Figure 1 shows the trend in sales volumes and net revenues from sales between 1997, the first year of full operation, and 1999.

Figure 1. Development of sales volumes and net revenues from sales at Precious Woods Amazon, 1997–1999. Black bars represent annual sales volumes in cubic metres and the gray-shaded bars represent annual net revenues from sales in thousands of US dollars.

Figure 1

Recently a plywood company located near Itacoatiara, Gethal Amazonas SA, also received certification from FSC indicating that its forests are being managed sustainably. As a result of this, PWA and Gethal have been able to conclude an agreement to exchange roundwood: PWA will deliver softwoods to Gethal for plywood production, and Gethal will deliver hardwoods to PWA for sawnwood production. Both companies can thus improve wood supplies for their main businesses while maintaining the FSC chain of custody.

6.1.1 Development of the forestry sector

In the period since 1997, several significant problems have been identified by PWA that could influence the future of the PWA project:

Several unusually long rainy seasons in recent years have caused great difficulties in forest harvesting, both in log extraction and log transport. In 2000, for instance, a rainy period of six months, compared to the more usual period of three months, made it difficult to provide a sufficient supply of logs to the sawmill.

An even larger problem is the fact that the stocks of harvestable wood in the forests are substantially lower than estimated in the general forest inventory conducted prior to the beginning of the PWA project in 1993. Many areas within the PWA project, which apparently were not sampled during the general forest inventory, are poorly stocked due to natural reasons such as poor soils, or as a result of exploitation by the former landowner.

As a result of the 1993 inventory, it had been estimated that the volume of harvestable wood in commercial species averaged 80 m3/ha over the entire PWA project area. This led to a conclusion that 35 m3/ha could be harvested on a sustainable basis using a polycyclic cutting cycle of 25 years. In reality, the harvestable volumes on at least parts of the area are substantially lower. The volume of harvestable wood in several recently harvested compartments (G, H, and I) averaged only 13.2 m3/ha.

At the same time, in order to meet sawmill production requirements the annual volume of roundwood harvested has increased from 41,118 m3 in 1997 to 86,458 m3 in 1999. The latter was the first year in which the volume of roundwood harvested was adequate to permit year-round operation of the sawmill.

The principles of sustainability prevented any increase in the volume of roundwood harvested per hectare. As a consequence, the area of forest harvested per year increased rapidly, so that the cumulative area of forest harvested has far exceeded the area anticipated in the General Management Plan (GMP). Whereas the GMP calls for harvesting trees from 21,800 ha through mid-2000, the actual area harvested through that period was 44,990 ha, or 56% of the total PWA project area of 80,571 ha.

If PWA is to provide an adequate supply of roundwood to the sawmill over the long run, the company's options include the following:

  1. Increasing the harvesting intensity (i.e., the volume harvested per hectare) of commercial species in the annual cutting units. This option has been dismissed by the company on the grounds that it would violate the principles of sustainability.

  2. Shortening the harvesting cycle. Considering the actual level of knowledge about growth and yield in the PWA project area, this seems not to be a good option. Unless a decision to shorten the harvesting cycle were based upon detailed results from permanent sample plots, PWA would risk damaging its reputation and possibly even losing FSC certification. Both of these are critical elements in the company's marketing strategy.

  3. Applying silvicultural treatments to increase growth rates is an option that has been considered but not yet applied. The efficiency and cost of such treatments would have to be considered carefully in relation to other options.

  4. Utilising lesser-known species (i.e., species that are not currently recognised by the markets as being of commercial value). This would be a way to increase harvesting intensity without interfering with the principles of sustainability. The viability of such a strategy would depend on whether such species could be marketed effectively at prices that would justify their removal and processing.

  5. Purchasing additional forest land. This measure seems inevitable given the current situation. Together with options to utilise lesser-known species and to apply silvicultural treatments, this seems the best choice for assuring long-term sustainability at PWA. The area of new land needed has to be calculated carefully and a careful inventory of the volume available from such land must be undertaken. At the current rate of harvesting, the purchase of another 50,000–100,000 ha should be considered. In the event that a satisfactory area of forest cannot be purchased nearby, more distant forests might also be considered if the possibility of long-distance transport by river seems feasible.

Assuming that the right combination of measures will be chosen by the management of PWA and approved by the company's investors, the success of the PWA project will continue to provide an excellent example for other forest companies operating in primary tropical forests. At the same time, if PWA is to retain its reputation as an outstanding example it must give continued attention to maintaining its practice of environmentally sound harvesting, training harvesting crews, and carefully maintaining its infrastructure.

6.1.2 Development of the processing sector

PWA's processing operations have undergone several re-orientations since 1997, the first year of full operations. As shown in Figure 2, the total volume of wood products sold increased from 7,971 m3 in 1997 to 27,460 m3 in 1999. At the same time, the overall conversion factor (the ratio of roundwood inputs to product outputs) increased from 19% to 31%. As a result of the increase in the conversion factor, the share of high-grade sawnwood produced for external markets decreased from 17% in 1997 to 12% in 1999. One effect of the improved utilisation rate is the trend of lower net revenues from sales shown in Figure 1 and described in Section 6.1.

Figure 2. Annual production of roundwood, sawnwood, and all wood products. Black bars show the level of annual roundwood production, gray-shaded bars correspond to annual sawnwood production, and white bars represent annual production of all wood products.

Figure 2

Options that might be considered by Precious Woods Amazon in an effort to improve revenues from the company's processing sector include the following:

  1. Improving the utilisation rate for high-grade sawnwood that can be sold at higher prices in international markets. This is the only product that currently receives a premium as a result of FSC certification. Improving the utilisation rate will require considerable effort, not only in the sawmill but also in improved felling and bucking practices in the field.

  2. Increasing utilisation of the sawmill residues, for example by recovering short pieces of higher value and marketing them intensively. This strategy is already being followed by PWA but can be intensified.

  3. Introducing new uses for low-quality residues such as charcoal production and the generation of thermoelectric power.

  4. Aggressively developing markets for lesser-known species.

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