I.L. Eastin, A. Addae - Mensah and J. de-Graft Yartey
Ivan L. Eastin is research associate at the Center for International Trade of Forest Products, College of Forest Resources, University of Washington, Seattle, WA, USA.
Augustus Addae Mensah and John de-Graft Yartey are, respectively, head of and research scientist with the Timber Engineering Section of the Forest Research Institute of Ghana. University of Science and Technology, Kumasi, Ghana.
The importance of European markets for tropical hardwood products has caused many developing countries to view with concern the efforts of European governments and environmental organizations to restrict market demand for tropical hardwoods. These efforts range from proposed EEC legislation restricting tropical hardwood imports and banning the use of tropical timber in publicly funded building projects (troth at the local and national level) to proposals for consumer boycotts of tropical hardwood products (often sponsored by environmental groups) (Hamilton, 1991). This article examines the impact of European consumer boycotts of tropical timber on the Ghanaian timber industry, as perceived by the managing directors of 52 sawmills in Ghana.
The fundamental objective of a consumer boycott is to restrict consumer demand for the boycotted product to such an extent that the action imposes an economic hardship on the producer. In this way the boycotting group hopes to induce the producer to change his behaviour. A successful boycott can provide special interest groups with the opportunity and leverage to influence public and private policy decisions.
In boycotting tropical hardwood products, environmental groups have appealed to consumers to stop purchasing products manufactured from non - sustainably managed tropical forests. Environmentalists hope that by restricting demand for tropical hardwoods they can persuade tropical countries to adopt and implement sustainable forest management practices (FOE, 1990). Unfortunately, the various environmental groups have not agreed on common goals or on a common definition of sustainable forestry. Some groups insist that species diversity within the forest be maintained, others simply require that annual harvests not exceed annual growth while yet others demand that the rain forests and their gene pools be preserved for posterity. Furthermore, the environmental groups have yet to develop and agree upon a reliable mechanism for verifying and monitoring sustainable forest practices.
While the goals of the environmental groups are commendable, producing countries argue that the principal effect of a boycott would be to diminish the economic potential of tropical forests. A reduction in economic rents lowers incentives to protect and manage tropical forests and can result in increased rates of deforestation as forest lands are converted to other more profitable uses.
This is particularly true in the case of debt-burdened developing countries which are forced to balance the use of their forest lands as a source of revenue against alternative economic opportunities. As a result, the loss of timber markets can contribute to the accelerated conversion of tropical forests into agricultural land without a proper analysis of whether or not the land base is suitable for sustained agricultural production.
Ghanaian tropical hardwood industry
The Ghanaian timber industry represents one of the most important industrial sectors in the domestic economy. In 1989 the timber industry produced more than 10 percent of the gross domestic product and timber exports ranked third in foreign exchange earnings behind cocoa and minerals (Attain, 1991). According to Ghana's Timber Export and Development Board (TEDB, 1990), foreign exchange earnings from timber exports were almost US$ 135 million in 1990, providing approximately 13 percent of total foreign exchange earnings for Ghana.
There were 169 logging companies and 118 sawmills operating in Ghana during 1990 (TEDB, 1991). Despite the large number of firms, an analysis of the structure of the timber industry indicated that production capacity is highly concentrated. For example, the top four firms in 1990 produced 17.3 percent of total log production while the top ten firms accounted for 33.1 percent of production. Similarly, in the sawmill industry the top four firms manufactured 21.9 percent of total sawnwood production while 42.8 percent of sawnwood production was produced by the top ten firms (TEDB, 1991). The Ghanaian timber industry is primarily composed of privately owned firms, although the eight state-owned enterprises were responsible for almost one-fifth of sawnwood production (TEDB, 1991).
The majority of the smaller sawmills in Ghana operate with outdated and inefficient equipment and they compensate for this by employing a large labour force to perform many operations (FPRI, 1990). The net result is an industry that is labour-intensive, a desirable trait in developing countries with high unemployment rates. The TEDB reports that the timber industry provided direct employment to over 250000 people in 1988 (TEDB, 1988). In addition, it estimates that, across the economy, the industry directly and indirectly supported several times that number of people.
European tropical hardwood imports Europe represents an important market for tropical hardwood products. In 19X8 Europe imported 2.78 million m3 of tropical hardwood logs (FAO, 1991; UN/ECE, 1990) (Fig. 1). More than 95 percent of these tropical hardwood logs originated from the region of West and Central Africa (UN/ECE, 1990).
In addition, European countries imported 3.24 million m3 of tropical hardwood sawnwood, approximately one-half of all hardwood sawnwood imports in 1988 (Fig. 2). Although Southeast Asia was the principal supplier of tropical hardwood sawnwood, West and central Africa provided approximately 20 percent of total European imports (UN/ECE, 1990).
Europe represents the principal market for tropical timber exports from tropical African countries. The trade relationship that exists between many European and African countries is predicated on geographic considerations as well as trade patterns developed during the colonial period.
Like its African neighbours, the Ghanaian timber industry is highly dependent on European countries to provide markets for its timber exports (Fig. 3). In total, European countries imported 84 percent of Ghanaian log exports and 85.4 percent of Ghanaian sawnwood exports in 1990.
The Ghanaian timber industry's dependence on European markets suggests that the tropical hardwood boycott could have a devastating effect on the timber industry, and even on the economy of Ghana as a whole. The implications of the boycott for the timber industry, domestic employment levels and foreign exchange revenues are substantial. Therefore, national public and private policy-makers need to understand how the boycott is likely to affect business and investment decisions made within the timber industry.
In order to determine the effects of the tropical hardwood boycott on the development of business and marketing strategies, 52 sawmills in Ghana were visited. These sawmills represented 35 percent of Ghanaian log exports and produced over 95 percent of total sawnwood exports. The managing director of each firm was interviewed to obtain their views on how the tropical hardwood boycott would affect their business strategies and investment decisions in both the short term and the long term. The director of the Ghana Timber Millers Organization and the Chief Conservator of Forests for the Forestry Department were also interviewed.
Perception of risk
Most of the managing directors interviewed indicated that they were aware of the tropical hardwood boycott in Europe. When they were asked to identify and rank the factors representing the greatest threat to their firms, the tropical hardwood boycott was identified as the most significant, despite the poor economic conditions and uncertain political situation that exist in Ghana (Fig. 4). Over three-quarters of the executives surveyed felt that the boycott was currently responsible for, or had contributed to, a reduced demand for tropical hardwoods in Europe. It is noteworthy that it was impossible to separate the economic effects of the current recession from those of the boycott as they relate to market demand for tropical hardwood products in Europe. The key point is that industry leaders perceived the boycott as having contributed to a reduction in the demand for their products in the European marketplace.
Issues related to raw material supply, such as government concession regulations and timber availability, were considered to pose a lesser threat to the timber industry. These concerns stem from the fact that the government is currently in the process of formulating new concession policies and, during the interim period, no new concessions are being issued. As a result, many mills have recently begun experiencing problems in maintaining reliable timber supplies. The domestic economy was also perceived as posing some threat to the industry, although the primary concern here had to do with the availability of capital and high interest rates in excess of 30 percent.
Nonetheless, the new concession policy and the domestic economy were generally perceived as representing less of a threat to the industry than was the tropical hardwood boycott. This was simply because the former are issues determined in the context of the domestic political arena where the managing directors felt that they could contribute to the debate and wield a degree of power in the formulation of policies affecting their industry.
On the other hand, the managing directors saw the proposed timber boycott as a factor to which they could only react, as opposed to participating in the decision-making process. Moreover, during the discussions it became obvious that many of those interviewed did not have a clear understanding of the boycott objectives. It was apparent that the European environmentalists proposing the timber boycotts had not established an effective mechanism through which to communicate their objectives to the groups they are boycotting. In the absence of this communication, there is no way of ensuring that the producers will implement policies that correspond to the environmentalists' objectives.
Strategic business responses to the boycott
The managing directors were asked to evaluate the potential effectiveness of various business strategies in responding to the boycott. Most indicated that holding discussions with the environmental groups and implementing sustainable forestry practices would be an effective method.
However, it was felt that discussions with the environmental groups should be trilateral, involving the Ghanaian government as well. This format would ensure that all groups were represented while providing the participants with an opportunity to recognize and address the specific concerns of each group.
Many of those interviewed felt that the environmental groups were not amenable to discussions. Concern was expressed by many managing directors that the tropical timber industry was being unfairly portrayed by environmentalists in developed countries as the primary agent of tropical deforestation. They observed that the environmental groups oversimplify the issue of deforestation by overemphasizing the role of the timber industry and virtually ignoring the more basic forces that are responsible for the majority of tropical deforestation. By deemphasizing such issues as high population growth rates, low per caput incomes, inequitable land-tenure systems, low soil fertility, shifting agriculture and fuelwood demand in their advertising campaigns, the environmentalist groups were viewed as attempting to reduce the complexity of the deforestation issue in order to galvanize popular support for their objectives.
FIGURE 4. Ghanaian hardwood producers evaluation of perceived risks in the business environment
This concern has resulted in the common perception within the tropical timber industry that the environmental groups are not interested in cooperating with tropical countries in the development of pragmatic solutions to deforestation.
In the absence of this cooperation, two strategies were identified as being potentially effective in responding to the boycott. The first involved the development of new markets for tropical hardwoods in other regions of the world. Several sawmills have already begun to shift their export emphasis away from European markets toward more regional African and Near Eastern markets. Exports to these markets more than doubled between 1985 and 1990, rising from 14291 m3 to 32633 m3. While this strategy fails to address tropical deforestation, it provides the industry with a potentially effective short-term strategy to minimize the economic effects of the boycott.
The second strategy regards the more efficient use of the tropical hardwood resource. The managing directors felt that this could be achieved by increasing the number of timber species utilized, reducing wastage with more efficient processing operations and increasing the value-added processing of products prior to exportation. This strategy would help to reduce the need for the extensive exploitation of forest resources while continuing to move the timber industry toward more sustainable forest management practices.
Effects of the boycott on short-term business strategies
One of the most significant impacts of the boycott was felt to be its effect on short term capital investment decisions within the timber industry. This finding has serious implications for the future competitiveness of the Ghanaian timber industry.
In general, industrial firms are reluctant to initiate new capital investment projects during periods of falling demand. particularly in their principal markets. Consequently, the response of the Ghanaian timber industry to the boycott has been a significant reduction in new equipment expenditures, with the exception of spare parts required to keep the mills operating. A strategy of minimizing capital investment is understandable given the current reduced demand for tropical hardwood products, together with the uncertainty regarding future market demand in the European market-place.
Many of the interviewees indicated that the boycott was at least partially responsible for their decisions to delay mill modernization plans and new equipment purchases. This impact of the boycott is extremely significant since many in the industry as well as the government consider mill modernization programmes, the development of custom production capabilities and new product development to be the most important areas for increasing the timber industry's competitiveness over the next three to five years.
The net effect of reduced investment in the long term will be a further erosion in the efficiency and competitiveness of the Ghanaian timber industry. Given the role of the industry in the domestic economy, as well as the desire of government to move the industry toward higher value - added manufacturing, it is essential that the industry be encouraged to invest in mill modernization programmes in order to improve its competitive position.
Another factor that the managing directors considered to be important in both the short term and the long term is the acquisition of timber concessions. The acquisition of timber concessions is seen as vital for ensuring a stable, long-term raw material supply. Additionally, holding a long-term concession - subject to the verification of appropriate timber harvesting practices provides firms with an incentive to manage the forest sustainably and encourages capital investment in the firm. Adequate concession sizes can also affect viability and sustainability.
The Ghanaian Government has recently implemented several policies aimed at achieving more sustainable forestry practices. Log exports of 17 traditional timber species have been banned in an effort to increase the utilization of less traditional species, and log exports of all timber species, are expected to be banned by the end of 1993.
An inventory of 43 forest reserves was recently completed with the assistance of the United Kingdom's Overseas Development Administration. The second phase of the inventory exercise is currently under way and is expected to cover the remaining forest reserves. Based on the results of the first inventory, the timber royalty policy has been modified to cover timber species, stocking volumes and tree volume. These moves to assess timber royalties more accurately reflect the value given to the forest and should result in the more efficient utilization of harvested trees.
The government has also decided that exports of green, rough-sawn lumber will be banned by the end of 1994. Finally, the government has drafted new timber concession guidelines that group smaller sized concessions into larger units which can be more effectively managed on a sustainable basis (François, 1991).
Tropical forests provide the basis for an industry that is essential to the economies of many tropical countries. Restricting the demand for tropical hardwoods through boycotts will inevitably reduce the economic value of tropical forests. Failure on the part of environmental groups to recognize this relationship will contribute to the conversion of large areas of tropical forests to agricultural and other applications.
In Ghana, the health of the timber industry has a substantial impact on the domestic economy. The tropical hardwood boycott has already provided a disincentive for capital investment in sawmill modernization programmes.
This will have serious implications regarding the competitiveness of the Ghanaian timber industry in the future. It will also adversely affect the government's strategy aimed at shifting the export emphasis away from low value-added products toward higher - value added products.
If the environmental groups sponsoring the tropical hardwood boycott genuinely wish to assist tropical countries in the implementation of sustainable forestry practices, they should now demonstrate their willingness to enter into constructive dialogue with these countries as well as with international development agencies.
In the long term it is most desirable that environmental groups reach a consensus on sustainable forestry management policies with tropical countries, international development agencies and lending institutions within the context of a programme such as the Tropical Forests Action Programme (TFAP). In the short term, because of the serious economic implications of the boycott for many tropical countries, other strategies should also be considered. One short-term strategy of interest would involve one - to - one discussions between environmental groups and individual producer countries. These discussions would address strategies for implementing sustainable forestry practices in the countries concerned. Following the implementation of such practices, environmental groups could endorse timber exports from those countries as being sustainably harvested.
Many firms in Ghana have indicated that they would support such discussions involving environmental groups, industry associations and the appropriate government ministries. This format was seen as providing an effective method for encouraging individual countries to move toward sustainable forestry while discussions continue at the international level.
Tropical forests are important to both developing and developed countries, both for wood products and the myriad of other benefits they provide. Developed countries (and environmental groups) should be willing to provide both economic and technical assistance to developing countries to assist them in achieving sustainable management of their forest resources.
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