Trade

Trade in tropical timber and non-timber forest products is conducted in a large variety of ways, depending on the product, the nature of producers and buyers and the socio-economic context in which the trade takes place. The links in the trade chain from production to end user may be consolidated in the hands of one or just a few players, or be in the hands of a large number of intermediary players. At each step in the trade chain, value is added and volume is lost, increasing the value per unit product several fold.

Trade between forest-bound producers and consumers in markets that value forest conservation is seen as an opportunity to stimulate behaviour that conserves forests and brings improved livelihoods to forest-based people. Forest certification is an important mechanism of communicating information between these two groups - producers in tropical countries, consumers in environmentally sensitive markets - and an indispensable but not sufficient tool for stimulating trade in such goods.

Specific issues of the trade in tropical timber must be dealt with by any business (industrial or community-based; conventional or environmentally/socially sensitive). The commodity is harvested from natural forest, implying that quality is highly variable and that the volumes of merchantable timber are frequently low. The managerial challenges of harvesting and processing timber in the tropics are high: it is difficult to maintain high quality standards in remote areas under very difficult and often dangerous working conditions with a workforce that has received limited education. This results in low and variable product quality and irregular supply of timber.

Producing timber implies, more than anything, producing waste. More than 50-60% of the harvested volume may be lost, wasted, rejected or consists of useless cut-offs and trimmings, even before it leaves the sawmill. Only if this waste can be converted into energy or marketed (requiring nearby markets) this volume contributes to meeting the costs of forest management. The timber market is a buyers market - the supply is large and buyers can impose quality and volume conditions that will be difficult to meet by many smaller producers. In many cases, shipments are rejected at the place of destination, when all costs have already been made.

There are many useful species in the forest that are unknown on local and, in particular, international markets. Strict requirements in, e.g. building codes and a general conservativeness of the market are impediments to introducing these lesser-known species on the market. For producers it is very attractive to access markets for new species as it allows higher production without additional investment in forest area and infrastructure. Timber scarcity stimulates end users to explore alternative species. Examples are the (transient) scarcity of certified tropical timber on the Dutch market, which has provided opportunities for some companies to introduce lesser-known but certified species into a hungry market (Mil Madereira) and the proliferation of the use of lesser-known species on the domestic timber market in Costa Rica, which followed the strong decline in forest area available for timber production.

Small-scale producers face the additional difficulty that they often cannot produce the volumes that are required by international markets, or that they cannot maintain a steady flow of it. This problem is not limited to very small community-based operations, but also to industrial operations, particularly if the species occur in low density. This impediment can be avoided by collaboration between producers to meet sales orders, or, in some instances, by marketing lesser-known species under trade names of other species with similar wood characteristics.
Most of the value of timber is captured at the downstream end of the product chain. Raw timber is very cheap, but even simple processing such as drying, planing or molding may already add much value. Many strategies to improve the profitability of the industry include efforts to stimulate value-added downstream processing. This is the rationale for log export bans that have been imposed in many tropical countries: by barring log exports a local processing industry is stimulated, which helps to increase timber-derived income (and profitability) and creates jobs. It also floods local processing industries with large quantities of round wood, which depresses prices for producers and provides a disincentive for improving processing efficiency. This is one of the reasons why log bans are gradually relinquished again. In countries such as Indonesia, log bans may have contributed to the installation of a very large capacity of, e.g., plywood mills, far too large to be fed by sustainable levels of timber supply. These mills thus create a "pull" on the forests that is already leading to their degradation (and to log imports to feed the mills).

A producer problem that is related to this is that few processing plants are installed on the basis of an adequate insight in the extent of the resource. Too often, inventory is seen as an unnecessary burden rather than a tool to collect information about the volume and quality of produce to be had from a concession or property. Processing plants represent large investments for forest producers of any scale (whether this is a mobile sawmill for a community or a highly sophisticated veneer plant for a multinational enterprise) and must be used at maximum efficiency if it is to recover the investment. Overdimensioned plants (or "poor resources", as this problem is usually phrased) thus exert a large and unsustainable demand on the resource and, eventually, the viability of the business itself.

Developing trade on the basis of culturally or environmentally labelled produce in community-based businesses poses many additional challenges over trade conducted by businesses. Ground-breaking (but controversial) work was conducted by Cultural Survival on developing business from NTFP's. Other examples include small community based trade in certified timber (e.g. SWIFT, work in Guatemala) and the work that was conducted by the Biodiversity Conservation Network to test hypotheses about the conditions under which community-based enterprises can lead to conservation.

The principal lessons from this work are summarised below:

Lessons Learned from Projects Aimed at Marketing Forest Products Produced by Indigenous Peoples

TBI sources

TBI publications on this subject

Further reading:

Biodiversity Conservation Network
Community business models (timber and NTFP)
NWFP marketing experiences (FAO)
Making markets work for the poor (CGIAR)