Unfair competition of illegally produced timber causes legal artisanal mills to operate at a loss

Unfair competition of illegally produced timber causes legal artisanal mills to operate at a loss

Ghana - 16 October, 2014

Artisanal milling has been introduced in Ghana as an alternative to illegal chainsaw milling that supplies more than 80% of the domestic timber market demand. Analysis of the economic feasibility of artisanal milling shows that legal timber production for the domestic market in Ghana cannot be profitable given the unfair competition of illegally produced timber.

This analysis has been done by Sense following a workshop in September 2014 in Ghana organized within the framework of the EU chainsaw milling project.

In June 2014 a one-week training was organized in Kumasi, Ghana, where various business models piloted under the EU chainsaw milling project (artisanal milling, plantation development and charcoal production) were discussed and analyzed. This training was followed up by a workshop in September to finalize the business plans and models for the financial calculations. The economic analysis of the business model for artisanal milling revealed a gross margin of only 7%, which will not be enough to make a profit. Once the fixed cost are taken into account (salaries of management, depreciation and maintenance on buildings, equipment, vehicles and office equipment, interest, etc.) the business runs at a loss.

Options to increase the gross margin, i.e. by increasing sales prices and/or reducing costs, need to be further explored. However, the large amounts of illegal timber, particularly quality timber, reduce the sales prices. For artisanal mills to become more competitive in the long run, law enforcement should be radically improved. In the short run artisanal mills could become more competitive by finding market niches willing to pay a significant price premium for legally verified, quality timber. More market research is needed to establish if such niches exist and where they are.

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