Chapter 5. Conclusions and advice to a new producer

There are two major and distinct operations involved in producing gum rosin and gum turpentine: the tapping of pine trees to produce resin, and the recovery from resin of rosin and turpentine using the relatively simple technique of steam distillation. Production of crude resin alone is unlikely to be economic as a separate operation. A resin price of about US$ 300/tonne close to the tapping operations in the forest will rise to an export price of about US$ 500/tonne when the costs of drums, internal transport and ocean freight are added. This price could not compete with that for the crude resin currently available from Brazil, Indonesia and the People's Republic of China which normally sells at below US$ 300/tonne delivered to the importing country.

Operations in nearly all producing countries combine tapping with processing the crude resin into rosin and turpentine. There may be options for further processing but this usually demands a high volume of output to take advantage of economies of scale. However, if there is a local paper industry, the production of rosin size is a fairly simple process which is worth considering. Despite the existence of a substantial international market for rosin and turpentine, it is recommended that a developing country should base its operation initially on supplying, perhaps, the soap, paper and paint manufacturing industries of the domestic market. This would yield immediate benefits from import substitution and the saving of foreign exchange. Once the raw materials and the technology have been proven in the domestic market, it would be appropriate to expand into neighbouring regional markets and wider international ones.

A gum naval stores operation has several attractions for a developing country with suitable pine resources. It is an industry based on renewable natural resources. The tapping operations are labour intensive and can therefore offer employment and income-earning opportunities to people in rural areas. Although the processing operations have low labour requirements, the total investment cost is also relatively low. In addition to saving and earning foreign exchange from import substitution or exports, local industries should derive some benefit from the resin producer's expenditure on buildings and tapping equipment, as well as on the local fabrication of part of the resin processing plant.

As a guide, the minimum size of plant necessary for a viable processing operation would be one with sufficient capacity for a throughput of around 1000 tonnes of resin annually, working on a single-shift basis. There would be scope for increasing the quantity of resin processed by working multiple shifts, with only marginal additions to fixed capital (storage capacity) and working capital for financing stocks of resin, rosin and turpentine. It is estimated that for an operation of this size in one African country, the total investment costs for the tapping operation are likely to be about US$ 350000; this includes all pre- and startup costs and three months' working capital. The investment cost of the processing operation is about US$ 600000. These figures could vary substantially according to the site and the specific local circumstances; costs, in general, are likely to be about US$ 250000-400000 and US$ 500000-700000 for the tapping and processing operations, respectively.

The viability of any gum naval stores industry depends mainly on the number of pine trees available for tapping, resin yields and resin quality. The above estimates have been based on 400000 trees each yielding 2.5 kg of resin annually. It is unlikely that yields much below 2 kg could sustain an economically viable tapping operation. In favourable circumstances, and depending on the tapping regime, 3-5 kg/year are possible. If a development is contemplated, detailed and reliable information must first be obtained on the identity, availability, age and distribution of the pine species, and on the climatic conditions at the forest sites. All stages of the development process should be undertaken in consultation with the Forest Department or owner of the trees as they will need to be assured that tapping will not injure the trees. In some instances, the preliminary data may indicate that tapping would be unprofitable. If the preliminary survey suggests that the availability of the raw material is satisfactory, limited tapping trials combined with a laboratory evaluation of resin samples should be undertaken. If these results are also satisfactory, more extensive tapping trials, together with a detailed feasibility study, should be carried out.

Any feasibility study must examine carefully the costs of capital (with an adequate allowance for working capital costs and profits) and the annual charge for this, along with annual production costs, so that potential investors can compare their break-even selling price for rosin with the cost of imported rosin. The key elements or questions for any feasibility study are listed below.

Marketing. The local demand for rosin and turpentine, the competition from imports whether from regional producers or international suppliers, the potential for market growth over the next three to five years, and the level of prices from these competitors need to be assessed.

Quality. An estimate will be needed of how locally produced rosin and turpentine will compare with internationally traded material.

Raw materials. The availability of the pine resource and its potential productivity should be determined, taking full account of the felling and replanting policy in the case of plantation pines, and of the possible changes which might occur in end use which would affect their availability for tapping. The ability to bring new trees 'on stream' as worked ones reach the end of their tapping life is crucial to the sustainability of a gum naval stores operation. The intrinsic productivity of the trees, and the efficiency of the work force involved in tapping, need to be sufficient to provide crude resin at an economically attractive price.

Processing. If an existing producer is willing to consider purchases of crude resin, the advantages and disadvantages of initially setting up a tapping operation only, need to be evaluated. The location of a processing plant (availability of energy, water and labour supplies, transport costs, and the relative merits of siting the plant close to either the tapping areas, the end users, or the ports of exit for international markets) also requires consideration.

Labour. The availability and cost of labour, particularly in the forest areas, and methods of organization and payment, need to be determined. Adequate incentives will be required to retain an efficient work force who can collect resin at a low unit price.

Financial and economic appraisal. An assessment of the financial and economic returns will depend primarily on establishing a correct value for the cost of fixed and working capital to the investor(s) planning the project. A realistic annual charge for capital must be included in the calculations to allow an accurate estimate of the full costs of tapping operations and resin processing. The key factors will not be factory and office overheads, marketing costs, depreciation or interest on loans, but the price of crude resin and the project's ability to sell gum rosin, against competing imports, at a price above the operation's break-even production cost level. A cash flow analysis based on discounted costs and revenues over the life of the project should use two or three different prices for crude resin and three different prices for sales of rosin and turpentine. A proper sensitivity analysis will show that crude resin costs and prices and the sales price of rosin will largely determine whether a gum naval stores project is economically viable or not.