Chapter 5
FOREST PRODUCTS TRADE AND POLICY IN RELATION TO OUTGROWER SCHEMES

Jeremy Broadhead

Overview of future trends in forest products trade and markets

This section provides an overview of global forest product markets, focusing on the Asia-Pacific region. Five product groups are discussed:⁵

· Industrial roundwood: Roundwood is used in the production of other goods, comprising (i) saw logs and veneer logs (ii) pulpwood and (iii) other industrial roundwood, excluding wood fuel. It is measured in cubic metres, excluding bark.

· Sawnwood: Wood is produced from domestic roundwood by sawing, with the exception of wooden flooring, which is measured in cubic metres solid volume.

· Wood-based panels: These include veneer, plywood and several types of board manufactured from wood particles or fibre. They are reported in cubic metres solid volume.

· Wood pulp: This is measured in metric tonnes.

· Paper and paperboard: They are measured in metric tonnes.

The reasons for which these groups were selected are that (i) they cover all the major marketed forest products; (ii) national level statistics and information are widely available from FAO and the International Tropical Timber Organization (ITTO); and (iii) they include the products with the greatest potential for outgrower schemes, i.e. those associated with large capital-intensive manufacturers to whom secure resource supplies and thus contractual supply agreements are attractive (William Hyde, personal communication, 2002).

Note on available forecasts Comparison of trade and consumption forecasts from the Global Forest Products Model (Shushuai, Tomberlin and Buongiorno, 1998) and the Asia-Pacific Forest Products Model (Zhang, Buongiorno and Zhu, 1997) with actual trends, shows that the predictions made before the Asian economic crisis are misleading in many cases. Therefore, the analysis here relies on actual changes in volumes over two periods, 1980-1990 and 1990-2000, together with qualitative information from more recent literature. At the country level, qualitative information was more heavily relied upon because reported figures often show dubious trends (e.g. negative apparent consumption) and in several cases, there is well-substantiated proof of underreporting, often as a result of illegal activity.

Figure 5.1 Industrial roundwood consumption 1980-2000

Global consumption of industrial roundwood increased at an average annual rate of 1.6 percent between 1980 and 1990. It then decreased at 0.6 percent per year between 1990 and 2000 (Appendix 1). The reduction was due to the Asian recession, as can be seen in Figure 5.1, and also a dramatic fall in production in the USSR/former USSR.⁶ FAO (1998) estimates that between 1994 and 2010 the average annual rate of consumption growth in the Asia-Pacific region will double that between 1980 and 1994, with Japan, China, Malaysia, Indonesia and India expected to remain the region's main consumers. Although these growth rates have been tempered by the Asian recession, as Figure 5.1 shows, expectations remain that future demand growth will be strong. Trade in the Asia-Pacific region decreased between 1980 and 1997 as a result of increased domestic processing and log-export bans, although there has been some recovery since 1998.

Figure 5.2 Sawnwood consumption 1980-2000

Global sawnwood consumption has remained stable over the last 20 years but fell rapidly in Asia and the Pacific after 1995. The lack of growth in consumption is due in part to the decreasing supply of large saw logs and rapid substitution, particularly by reconstituted panels and plywood (FAO, 1998). Trade has been increasing rapidly across the world with the exception of the Asia-Pacific region where exports declined from 1989 to 1999. The average annual consumption growth rate of 1.5 percent between 1980 and 1990 reversed to a decline of 4.6 percent per year between 1990 and 2000, whereas trade increased markedly (Appendix 1). FAO's 1998 outlook for the Asia Pacific region predicts relative stagnation of sawn timber consumption due to increased product substitution, scarcity of large logs and the preference in Southeast Asian developing countries for concrete apartments. Japan, China, India, Indonesia, Malaysia and the Republic of Korea are expected to remain the largest consumers (FAO, 1998; ITTO, 1997).

Figure 5.3 Wood-based panel consumption 1980-2000

On a global level, wood-based panel consumption increased rapidly between 1990 and 2000 compared to the previous decade (Appendix 1). Worldwide imports and exports also increased rapidly between 1980 and 2000, although rates fell between 1990 and 2000 in the Asia Pacific region. Predictions and actual figures to date indicate that consumption of wood-based panels will expand quickly over the coming years. FAO (1998) estimated that in the Asia-Pacific region, wood-based panel consumption will increase at an average annual rate of 2.4 percent between 1994 and 2010. In the coming years the plywood share is expected to decline owing to the diminishing supply of large peeler logs and substitution by other board types.

Figure 5. 4 Wood pulp consumption 1980-2000

The rate of increase in global wood pulp consumption slowed down over the 1990-2000 period (1.0 percent average annual increase) in comparison with the previous decade (2.2 percent). All world regions, except North and Central America, showed a rapidly increasing consumption, especially South America, and Asia and the Pacific (Appendix 1). Trade is also increasing rapidly in all regions except Africa where imports have stagnated. Exports in the Asia Pacific region showed particularly steep increases between 1994 and 2000 from a low starting point. Consumption growth in the Asia-Pacific region seems set to be well above the FAO (1998) predicted average annual growth of 1.1 percent between 2000 and 2010.

Figure 5.5 Paper and paperboard consumption 1980-2000

Global consumption of paper and paperboard increased steadily between 1980 and 2000 at an average annual rate of 3.3 percent. In the Asia-Pacific region growth rates were much higher (5.7 percent) as shown in Figure 5.5. The most dramatic changes in trade were the huge increases in both imports and exports in the Asia-Pacific region between the late 1980s and 2000. There has also been massive expansion in paper and paperboard production, with increases in North Asia and Southeast Asia of 230 and 400 percent, respectively. Overall, pulp and paper capacity in the region is projected to increase by more than one third by 2010 with very large current investments in Indonesia and China, which is expected to be the major producer in the region (FAO, 1998). FAO's estimates suggest that consumption of paper and paperboard in the Asia-Pacific region will grow at an average annual rate of 3 percent to 2010, mostly due to increases in China, but also in Japan, the Republic of Korea, Indonesia, India, Thailand and Malaysia. With respect to trade, it is expected that although the Asia-Pacific region will be a significant net importer by 2010, increased capacity will lead to a reduction in imports and a slight increase in exports.

Supply and trade of forest products in the Asia-Pacific region and Southeast Asia

Figure 5.6 Industrial roundwood production in Southeast Asian countries, 1980-2000
(Source: FAO)

Although abundant, wood and fibre supplies in the Asia-Pacific region vary significantly, both sub-regionally and within countries. In Southeast Asia, log production from natural forest is close to its maximum, especially in countries with large wood-processing industries, such as Malaysia and Indonesia, where exported products are increasingly being diverted to domestic consumers. India, Thailand, the Philippines and China also face difficulties in meeting demands, and several countries, including Myanmar, Lao People's Democratic Republic, Cambodia and Viet Nam, have become a focus for future supplies (FAO, 1998; ITTO, 1997). The situation in Southeast Asia is well demonstrated in Figure 5.6. However, as supplies from natural forests have declined, there has been a shift towards plantation-grown wood in Asia, which contains around half of the world's plantation forest. The majority (77 percent) is concentrated in China, India and Japan, with most of the balance in Indonesia, the Democratic People's Republic of Korea, the Republic of Korea, and Viet Nam (Brown, 1997). Although much of the growing stock is presently below harvestable age, the proportion of industrial roundwood supplied from plantations is expected to increase from 32 to 46 percent of total production between 2000 and 2020 (ABARE-Jaakko, 1999).

ITTO's forecasts indicate that demand for forest products will continue to rise in the Asia- Pacific region as economies continue to grow. Although dependent on future restrictions to supply and export logs from major producing countries, falling log supply is not expected to constrain forestry sector development (ITTO, 1997). In contrast, developments will largely be determined by the substitution rates and the supply of conifer logs into the region; as a result, future price rises seem unlikely. At the global level, FAO (1998) predicts that prices of industrial roundwood prices will remain stable, while prices of sawnwood and plywood are expected to increase slightly, and those of the other wood-based panels, paper and paperboard will change little or decrease slightly. During 1999-2000 the only increases in log prices were for teak (ITTO, 2000).

With respect to trade, tariff and non-tariff barriers have consistently been greater in developing than developed country markets. However, tariffs will continue to decline in the Asia-Pacific region as a result of negotiations led by the Association of South East Asian Nations (ASEAN), the Asia-Pacific Economic Cooperation (APEC) and the World Trade Organization (WTO). The effect of reduced barriers will depend on the competitive and comparative abilities of the nations involved. Although trade will be stimulated, development prospects for emerging economies may be dampened in the absence of measures protecting against strong competition (Barbier, 1996; Brown, 1997).

The main features of the forest products outlook predicted by FAO (1998) and ITTO (1997, 2000) are as follows:

· Demand in the Asia-Pacific region for all forest products will increase significantly due to population growth and anticipated strong economic performance.

· For the Asia-Pacific region, the supply-demand balance to 2010 will change little from the present level of shortfall, with the exception of large logs.

· Supply from Russia and demand from China and India have potentially substantial effects. It is likely that China's demands will soar.

· Shortages in the supply of large logs in the Asia-Pacific region will lead to an increased emphasis on fibre, increased consumption of reconstituted panels and a reduced use of sawnwood and plywood.

· Increased processing in timber producing countries will result from market forces, emphasizing export of value-added products and log export bans/constraints.

· Increasing dependence on trade to meet growth in demands for forest products is predicted in the Asia-Pacific region where wood production is unlikely to increase markedly.

· Huge demands for paper could emerge, particularly if economic growth accelerates in India and China.

· Price increases for most timber products are unlikely.

Market trends and policy: country profiles

Cambodia

Forest product market trends

There is great difficulty at present in accessing reliable forest product information for Cambodia. Carle (1998) stated that without immediate intervention log supply to the forestry sector would be in severe jeopardy within five years. Furthermore, following the Asian economic crisis, costs of veneer and sawn timber production in Cambodia exceeded international market prices and as a result some operations were suspended pending price recovery.

Policy influencing outgrower schemes:

· Reports suggest that Cambodia is not adhering to its log export ban (Hong-Narith, 1997; Carle, 1998).

· The administrative system for forest industries' exports is complex and disruptive compared to illegal systems and systems involving facilitation payments (Carle, 1998).

· The major barriers to the expansion of the Cambodian logging and processing sectors are lack of infrastructure and institutional capacity, and a political and economic environment that discourages investment (ITTO, 1997).

China

Forest product market trends

Domestic demand for wood products in China is projected to increase rapidly with economic growth. Recent restrictions on logging in natural forest combined with growing demand has led to increased imports of all wood-based products. In particular, log imports have soared, with Malaysia, Gabon, Papua New Guinea and the Russian Federation as the main suppliers. The scarcity has resulted in reduced sawnwood production that is expected to cause increased consumption of wood-based panels as substitutes (ABARE, 2002). The current heavy investment in paper production will place further demands on wood fibre. It is expected that supplies will be derived from an increase in imports of logs, woodchips and wood pulp, as well as from the extensive areas of planned and recently established plantations (FAO, 1998; ABARE, 2002; Kunshan et al., 1997). Predictions show that very large stocks of agricultural tree crops and trees outside of forests will also contribute to increases in wood product output (FAO 1998; ITTO, 2000).

Policy influencing outgrower schemes:

· In 1984 a policy stating that "the tree belongs to he who planted it, and the jointly planted trees belong to the collective" was implemented prior to the launch of several joint forestry initiatives (Kunshan et al., 1997).

· China is investing heavily in plantations both directly and through subsidies. Incentives include low-interest loans, fifty-year leases on land and tax-free income from thinnings. The Government also allows private forestry on public land (ABARE, 2002). However, private investment in plantation establishment is constrained by insecure tenure, high taxation, unfavourable natural and geographical locations and shortages of finance, labour and cost/benefit information (Xu, 2002).

· The current harvesting quota system limits the attractiveness of acquiring forest use rights since farmers are limited in their ability to reap rewards from adopting more productive forestry techniques. Even if they improve productivity and shorten required forestry rotations, they may not be allowed to harvest their trees (Xiaoyi, 1995 cited in Xu, 2002).

· Logging bans covering large areas of China have created uncertainty for smallholder investors in planted resources; the implications for future investment and marketing have not been evaluated (J. Carle, personal communication, 2002).

· To encourage forest product export the Chinese Government's policies include establishing export-oriented production and processing bases and providing a range of incentives to organizations that support these bases (Kunshan et al., 1997).

· In order to raise domestic wood and fibre supply, China aims to reduce exports of all logs and sawnwood to zero (Kunshan et al., 1997).

· Five new paper mills were to come on line in 1998, and 32 new projects were announced, each with a capacity exceeding 100,000 metric tonnes (FAO, 1998).

India

Forest product market trends

India is facing a scarcity of wood, which has caused price rises of 9 to 13.5 percent per annum since 1982, compared with 7-8 percent for wheat and rice. The paper industry in particular is plagued by raw material shortage in the face of continually increasing demand. The supply of timber from natural forests has also declined drastically. However, there has been a major shift to plantation-grown wood, and it is expected that future demands will be met (Ahmed, 1997; FAO, 1998). At present, imports of forest raw materials, promoted by industrial and trade liberalization, are filling the lack. Farm forestry is also playing an important role and it is estimated that approximately 40 percent forest products are supplied from outside forest areas. In particular, poplar, a plywood raw material, has shown good economic returns to the farmers, and its trees may also be extracted early to produce reconstituted wood or fibreboard (Ahmed, 1997; see also Pande 2002 for a synopsis of outgrower schemes).

Policy influencing outgrower schemes

· Under the 1981 Rural Development and Rural Employment Guarantee Programmes, State-run schemes were formulated to support marginal and small farmers. Tree planting incentives include subsidies, exemption from sales tax and direct planting on small farms and marginal lands (Pande, 2002).

· Policy changes in 1988 greatly reduced wood supply to industries from government forests. The new policy states that as far as possible, the forest-based industry should work with individual suppliers supported with credit, technical advice and final harvesting and transport services. The policy also recommended that the subsidized supply of raw materials to forest-based industries should cease; however, past commitments are still being honoured (Pande, 2002; Ahmed, 1997).

· Under the 1999 National Forestry Action Programme the annual afforestation/rehabilitation of two million hectares are planned, 10 percent of which should be "farm forestry". However, the financial resources available are far below the requirements (Pande, 2002).

· Supplies of government-subsidised seedlings, although declining, are hampering Farm forestry by discouraging private nurseries, which could supply better planting material (Ahmed, 1997; Pande 2002).

· In most Indian states, farmers can only harvest and transport wood products after a long and cumbersome process to obtain permits. However, in the states of Haryana and Punjab there is no such regulation, and other states have exempted agroforestry species (Ahmed, 1997).

· Import policy for wood and wood products has been liberalised since the mid-1990s. Yet, there is a ban on timber export and restrictions on interstate movement of high quality wood (Ahmed, 1997).

Indonesia

Forest product market trends

Indonesia's harvests from natural forests are at or above the sustained yield limit, and timber supply from clearing of conversion forests is scheduled to decline markedly by 2010 (FAO 1998; ITTO, 1997). Wood-based industries have experienced log shortages since the 1990s when the production of sawnwood stagnated due to favouring of plywood, a priority product for export. Presently, few sawmills have processing equipment suitable for small logs, but increasing scarcity of larger timber has heightened interest in conversion. Indeed, the prospect of smaller logs has made the manufacture of plywood substitutes more attractive (ITTO, 1997). Log consumption is likely to continue to increase in the future, since substitution by non-wood products is limited (ITTO, 2000). Consumption increases will be facilitated by opening of trade and Indonesia has been considering log imports from Viet Nam, Myanmar and the Solomon Islands to offset declining domestic supplies (ITTO, 1997; Ministry of Forestry, Indonesia, 1998).

Policy influencing outgrower schemes:

· In October 2001 the Indonesian Government imposed a log export ban (Pribadi, 2002). The export of sawnwood is also subject to substantial tariffs (ITTO, 1997).

· The Government plans to decrease production from natural forests by 2 percent per year, and increase reliance on plantations. Developing fast-growing plantations, predominantly of teak, pine, mahogany and agathis, is thus being encouraged (Hammond, 1997).

· There are no plans for the further expansion of the wood industry capacity; on the contrary, the existing capacity will be reduced to match sustainable raw material supply (ITTO, 2000).

· Indonesia has proposed huge investments in paper mills, announcing capacity increases totalling nearly 5.9 million tonnes (FAO, 1998).

Japan

Forest product market trends

Japan has been the world's dominant importer of forest products for decades, mostly in industrial roundwood. Its imports provide about three quarters of total world consumption. This high dependency on imports is not expected to change drastically in the next few decades. Although demand for timber is expected to continue, a drop in housing starts has dampened demand (FAO, 1998; Forestry Agency, Ministry of Agriculture, Forestry and Fisheries (MAFF), Japan, 1998). Demand for timber for wood panels is anticipated to continue increasing, but with greater consumption of coniferous plywood, medium density fibreboard and particle board. In contrast, it is anticipated that tropical hardwood timber consumption for plywood will decrease due to falling volumes from supplying countries in the region (Forestry Agency, MAFF, Japan, 1998). Demand for pulpwood has continued to grow along with the demand for paper and paperboard; it is anticipated that these trends will continue in line with economic growth. (Forestry Agency, MAFF, Japan, 1998)

Policy influencing outgrower schemes:

· Japan's influence on wood products markets is through its considerable leverage on trade in the Asia-Pacific region. Accordingly, changes in trade barriers, domestic harvesting levels and the competitiveness of suppliers are likely to have the greatest effects on markets for wood products. Japan's reduction of import tariffs during the Uruguay Round discussions were greatest with respect to wood-based panels. A temporary zero tariff on all imports of woodpulp and newsprint was also agreed upon although no long-term commitment to this was made (Brown, 1997).

Lao People's Democratic Republic

Forest product market trends

In Lao People's Democratic Republic, the main wood-based industry is sawmilling. (There are no pulp and paper mills.) However, owing to log shortages, the utilization rate of the installed wood processing capacity is only around 50 percent. The most important export products are sawnwood, logs, stumps and knobs, parquet and plywood. Downstream processing is predominantly limited to parquet production for export and furniture manufacture for the domestic market. The low efficiency of wood processing has reduced the competitiveness of wood products in foreign markets and sustainable utilization of natural forest resources precludes the expansion of exports. However, growth in the forest plantation sector will improve supply, especially with respect to pulpwood and wood chips for export to Thailand (Kingsada, 1998; Sanonty, 2002). At present, Lao PDR is practically self-sufficient in logs and forest products, although some special panel products like medium-density fibreboard are imported in small quantities. Increasing demand for forest products and for higher quality products will be met by imports if they cannot be produced domestically (Kingsada, 1998).

Policy influencing outgrower schemes:

· The Department of Forestry's "Vision 2020" made allocation of land to rural families and enterprises to encourage plantation development a priority (Sanonty, 2000).

· In principle, there is a log export ban but logs, mainly pine (Pinus merkusii), are still being exported (Kingsada, 1998).

· The Lao Government has determined that forestry plantation will be concentrated in the hands of many small farmers rather than a few large companies. Large-scale forest plantation establishment by foreign companies in joint ventures with Lao enterprises will also be promoted. These ventures will establish their own plantations but they will also contract farmers to plant trees on their own land (Kingsada, 1998).

· Based on The First National Conference on Forestry in 1989, a loan scheme for commercial tree plantations has been initiated, a Compensatory Plantation Fund has been established and log sale procedures have been streamlined. An incentive scheme for promoting tree planting by farmers is also being prepared (Sanonty, 2002).

Malaysia

Forest product market trends

Production of forest products is declining due to previous over-cutting and the subsequent lack of accessible merchantable forest. Projected sustainable supply of logs from Malaysia's permanent forest estate and plantations is expected to fall short of primary processing capacity by 1.5-2 times (Forestry Department Headquarters, Malaysia, 1997). Imports of hardwood logs are expected to grow up to 2010 and Malaysia's dominance of non-coniferous sawnwood exports in the Asia-Pacific region is expected to weaken owing to harvest cutbacks and diversion of logs to veneer and plywood mills (ITTO, 1997; FAO, 1998). In contrast to logs and sawn timber, exports of downstream products such as plywood, veneer, mouldings and furniture have been increasing rapidly due to focusing on value-added activities. The furniture subsector is rapidly becoming a major foreign exchange earner for Malaysia, fuelled mostly by domestically-produced rubberwood. However, competition for rubberwood from other wood-based subsectors has caused the price to escalate in recent years (Forestry Department Headquarters, Malaysia, 1997). Paper products, which in 1994 comprised 83 percent of total forest product imports, dominate Malaysian forest product imports. This is due to there being only one pulp and paper mill in Malaysia; however, two more pulp and paper mills are planned and should reduce Malaysia's dependence on imports (Brown, 1997; Forestry Department Headquarters, Malaysia, 1997)

Policy influencing outgrower schemes:

· A ban on round log exports from peninsular Malaysia and a partial ban in Sabah have been established since 1995 (Forestry Dept. HQ, Malaysia, 1997).

· Through various policies, the Government aims to make Malaysia a major global producer of high value added wood-based products, specifically furniture and joinery/mouldings (Forestry Dept. HQ, Malaysia, 1997; ITTO, 2000).

Myanmar

Forest product market trends

At present, although only teak and a few hardwood species are commercially harvested, other hardwoods and bamboo resources are expected to be further utilized as a result of market liberalization (Myanmar Forest Department, 1997). Myanmar's imports of forestry products are almost non-existent except for a small quantity of paper products. Export earnings of the forestry sector in 1994-1995, on the other hand, comprised 32 percent of the national total, with teak and hardwood timbers being by far the most important products. In spite of the large number of wood processing facilities, including furniture and mouldings factories, the export of value-added products from Myanmar is limited by the low standards in the quality of products (Myanmar Forest Department, 1997). ITTO (1997) pointed out Myanmar's opportunity in expanding log exports in the short term while the major regional suppliers in Southeast Asia reduce exports. However, this opportunity may be foregone owing to existing barriers to the expansion of logging and processing. Such barriers include a lack of infrastructure and institutional capacity combined with political and economic environments that discourage investment (ITTO, 1997).

Policy influencing outgrower schemes:

· Log export is gradually being reduced to promote downstream processing, yet because of a lack of infrastructure and appropriate technology, a complete ban on log export may be slow in coming. Logging and log export by the private sector have been banned owing to indiscriminate cutting and the failure to follow procedures (Myanmar Forestry Department, 1997).

· The Forestry Department promotes the private sector and forest-based industries as well as the liberalization of trade and tariff policies (Myanmar Forestry Department, 1997).

The Philippines

Forest product market trends

The Philippines has departed from its previous role as a net exporter of traditional forest products such as logs, lumber, plywood and veneer. It has now become an active importer of all products except pulp, as a result of the dramatic decline in domestic timber supply (Forest Management Bureau, Department of Environment and Natural Resources [DENR], Manila, 1997; FAO, 1998). In contrast, the export value of wood-based manufactured articles increased by 2.5 times between 1984 and 1994, and the export of wood-based furniture has expanded enormously (FAO, 1998). It is possible that the increase of log export bans in countries that provide imports may interrupt supply to the wood-based industries. However, having recognized this, the Government has accepted that supplies will increasingly have to come from plantations (Hammond, 1997).

Policy influencing outgrower schemes:

· Log and lumber export bans were imposed in 1986 and 1989, respectively (Forest Management Bureau, Department of Environment and Natural Resources [DENR], Manila, 1997). The issue of imposing a total logging ban against selective logging is currently under review (Catindig, 2002).

· The Government of the Philippines provides incentives for investment in plantations, including exemptions from a number of different taxes, such as import and export taxes and duties (Forest Management Bureau, DENR, Manila, 1997).

· Corporate sector involvement in establishing industrial plantations is encouraged through land leases granted at minimal rates. In addition, investment costs can be written off as expenses, and plantation produce can be exported in raw or processed form, unlike that from natural forests (Hammond, 1997).

Thailand

Forest product market trends

Since the 1989 logging ban and the consequent reduction in log supply, sawmills have relied on imported wood. Although this trade is expected to continue, sawmills are also using plantation wood, including rubberwood and eucalyptus (ITTO, 2000). Thailand is a net importer of logs, sawnwood and panels, but exports large quantities of wood-based furniture, especially rubberwood (FAO, 1998). The manufacture of rubberwood furniture is the fastest growing sub-sector within the furniture industry. Growth of the rubberwood furniture industry is expected to continue due to an abundance of the raw material, increasing the scarcity of other raw materials, growing international demand and Government support (Sutthisrisinn and Noochdumrong, 1998). The Thai paper and paperboard industries have also expanded rapidly, almost doubling their capacity between 1985 and 1998 (Sutthisrisinn and Noochdumrong, 1998).

Policy influencing outgrower schemes:

· A ban on logging in natural forests has been in force since 1989.

· The 1992 Reafforestation Act exempted investors from paying royalties on plantation-grown teak and Dipterocarpus alatus. No reference is made to other economically important plantation species (Jintanugool, 2002; Mahannop, 2002).

· Through the Private Reforestation Extension Project (1994-2005), the Thai Government provides plantation establishment subsidy for five years to all classes of farmers (Mahannop, 2002; Jintanugool 2002).

· A review of the present investment climate for forest plantations has shown that the policy, and legal and land tenure conditions are not supportive, and in some cases repress plantation establishment (Sutthisrisinn and Noochdumrong, 1998).

Viet Nam

Forest product market trends

Value-added manufacturing is partly driven by the current shrinkage of forested area which has led the Government of Viet Nam to limit both timber extraction from natural forests and the export of roundwood and semi-processed timber. An apparent benefit of the policy is that despite a rapid decrease in annual roundwood removals, export earnings from forest products have rebounded with earnings from the rapid increase of cabinet work (FAO, 1998). According to ITTO (1997), Viet Nam has an opportunity to expand log exports in the short term as the major exporters curtail their trade. However, it is also reported that although Viet Nam has considerable potential for increasing log supply from natural forests, infrastructure and institutional capacity are lacking, and political and economic environments discourage investment.

Policy influencing outgrower schemes:

· The Vietnamese Government plans to eventually ban wood and timber extraction from natural forests and is strongly emphasizing forest plantation, protection, regeneration and restoration (Van, 1997).

· Low-interest loans are available to farmers for plantation establishment and plantation products are subject to a land use tax of only 4 percent (products from natural forests can be taxed at 15-40 percent; Van, 1997).

· A plan to reafforest 5 million ha between 1998 and 2010 has been approved; incentives include low-interest credit for forest plantation and tax holidays (Hoai and Dien, 2000).

Concluding remarks

As wood product prices are not generally expected to increase, products from outgrower schemes will either have to compete with supplies from existing sources, as well as those from current plantation programmes, or focus on niche or local markets. Given that supply contracts are likely to be more attractive to large, capital-intensive industries, the greatest opportunity for outgrowers may be to seek contracts with pulp and paper mills. As statistics on wood supply at the sub-national level are generally not available, the best way to gauge supply prospects is likely through sector publications (e.g. Jaakko Pöyry Consulting, 1997) or contact with the mill operators themselves.

Prospective outgrowers will also have to work within existing policy environments, which vary greatly between countries. Log export bans and timber price controls are likely to work against outgrowers by pushing down national wood products prices, thus making it difficult for outgrowers to compete. Subsidies and incentives aimed at large plantation developments are likely to have the same effect. Accordingly, the best indicator of potential for outgrower schemes, in addition to policy appraisal, is the presence of smallholder plantations, such as in the Philippines, Lao People's Democratic Republic, India and Thailand (FAO, 1998).

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Forest Products Consumption and Trade Statistics (Source: FAO)

INDUSTRIAL ROUNDWOOD

SAWNWOOD

WOOD-BASED PANELS

WOOD PULP

PAPER AND PAPERBOARD

⁵ All data used in this paper are derived from FAO databases.

⁶ Figures used exclude the USSR before 1992 in all but the world total; after 1992, constituent countries are included in either Europe or Asia. This caused a 21 percent consumption jump in Europe between 1990 and 1992, but no significant change in Asia. Prior to 1992, the USSR consumed 18-19 percent of the world's industrial roundwood. This proportion subsequently declined rapidly, due both to changes in reporting and a fall in production. The 1990-2000 fall in global consumption can largely be ascribed to this decline. If the USSR/former USSR is excluded, the average annual rates of global consumption growth are 1.8 percent for 1980-1990 and 0.4 percent for 1990-2000.