Indonesia:
Stopping Illegal Logging Depends On Country's Strength To Change
By Tony Halstead, Agricultural Economist 

Indonesia’s forests have been severely impacted by unsustainable forestry practices and illegal activities in the forest sector.  In the early 1960’s, Indonesia’s forests covered over 160 million hectares of the country’s 192 million hectares.  By 2000, the Ministry of Forestry categorized just 120 million hectares as forestland.  However, this figure only reflected the forest status of the land and did not incorporate estimates of deforestation occurring on these lands.    

In 2001, the World Bank conducted a study that estimated Indonesia’s forest area to be no more than 96 million hectares in 2000.  The World Bank also estimated that Indonesia’s annual rate of deforestation was 1.7 million hectares, an area the size of Hawaii.  To put Indonesia’s rate of deforestation in perspective, approximately 15 million hectares of forests are lost globally each year as a result of forest fires, agricultural conversion, development, and other factors that include illegal harvesting.   

During the September 2001 Forest Law Enforcement and Governance (FLEG) East Asia Ministerial Conference, a Ministerial Declaration was signed committing participating countries to take immediate action to intensify national efforts and to strengthen bilateral, regional, and multilateral collaboration to address violations of forest law and forest crime.  The United States Government attended and cosponsored the conference.  To date, the Government of Indonesia has signed four bilateral agreements addressing the issue of illegal logging and has initiated a number of national efforts to stop the problem at its source.   

In April 2002, Indonesia signed a Memorandum of Understanding (MOU) with the United Kingdom, pledging to work together to reduce and eventually eliminate illegal logging and the trade in illegally logged timber and wood products between the two countries.  The MOU included the following commitments:

• Regulatory reform
• Implement a system of chain-of-custody tracking and identification
• Provide technical and financial assistance to implement these compliance systems and to address regulatory reform
• Involve civil society in monitoring the implementation of compliance verification
• Collect and share timber trade data
• Develop effective collaboration between enforcement agencies
• Encourage industry to eliminate illegal timber and wood product trade by only sourcing materials identified as legal through a compliance verification system

  In August 2002, Indonesia signed a letter of intent with Norway that was similar in structure to its MOU with the United Kingdom.  This was followed by an MOU with China in December 2002 and another with Japan in June 2003.  Indonesia has also discussed signing an MOU with the European Union.  The MOU’s provide these governments with a framework to begin looking at the issue of illegal logging and could eventually lead towards concrete steps to reduce illegal logging.   

Although these agreements demonstrate strong political and economic commitments from importing countries to reduce the trade of illegal timber products, the future of Indonesia’s forests will largely be determined by the effectiveness of its own government’s ability to enforce laws aimed at reducing illegal logging. 

Following the September 2001 FLEG East Asia Ministerial Conference, Indonesia implemented numerous national efforts intended to reduce illegal logging.  A partial list of efforts follows: 

• In October 2001, the Indonesian government banned the export of logs in an attempt to reduce the country’s problem of illegal logging.

• In July 2002, Indonesia’s Minister of Forestry signed a decree to only allow forest concessions operating legally and sustainably to continue harvesting.  Also, the Minister for the Environment announced the formation of a special task force made up of investigators, lawyers and judges whose mission was to reduce illegal logging.  

• In August 2002, the Ministry of Trade and Industry and the Ministry of Forestry established the Agency for Forestry-Based Industry Affairs and Sustainable Raw Materials.  The agency’s mission includes reducing illegal logging, boosting export performance of the forestry-based industry, and resolving raw material shortages.  

• In October 2002, the Ministry of Forestry established the Independent Verification Institute (LPI) to help determine whether logging concessionaires were applying sustainable approaches to their operations.  LPI was allocated $16 million to review the country’s 413 forest concession estates.  Of these concessions, 296 are scheduled for audits by December 2003.

• In November 2002, the Indonesian navy seized three ships carrying nearly $5 million in illegal timber and over 40 smaller boats carrying $4 million in illegal timber.  

• In December 2002, the Minister of Forestry lowered the annual allowable cut from 12.6 million cubic meters in 2002 to 6.9 million cubic meters for 2003.  The target harvest for 2004 has been set at 5.7 million cubic meters.  

• In January 2003, LPI  reported that 14 of 25 forest concessions that were audited failed to meet the requirements of sustainable operations, prompting the Minister of Forestry to temporarily suspend their licenses.  

• In April 2003, the Minister of Finance announced that imports of raw material for exported finished products were exempt from paying the 10 percent value added tax and the 2.5 percent sales tax.  The Forestry Industry Revitalization Agency had urged the government to grant the tax break to timber-related industries in order to maintain competitiveness of their products in export markets and to reduce the incentive to use illegally sourced logs.  

These actions suggest that illegal logging in Indonesia will be greatly reduced and that forest product output will decline.  However, the goal of reducing illegal logging hinges on Indonesia’s ability to effectively implement and enforce regulations aimed to reduce illegal logging.  Weak enforcement of regulations and inconsistencies between central and local governmental policies governing forest management hinders this effort.  This situation has been exacerbated by Indonesia’s regional autonomy policy, which relinquished many central government powers to the local level.  Also, poverty and overpopulation have played a central role in the country’s high rate of illegal logging and related trade.   

At the central government level, the Ministry of Forestry lowered the forest harvest 45 percent to 6.9 million cubic meters for 2003.  Many observers doubt that this will have much of an impact on production at the local level.  In 2002, although the Ministry of Forestry set the annual harvest at 12.6 million cubic meters, total production of logs sourced legally and illegally was estimated between 60 million cubic meters and 70 million cubic meters. 

Clearly, Indonesia’s wood-related infrastructure has a huge appetite for logs.  Each year, an estimated 20 million cubic meters are consumed by the pulp and paper industry, 25 million cubic meters are consumed by the sawmill and furniture industry, 15 million cubic meters are consumed by the plywood industry, and 10 million cubic meters are exported.  Because the capacity for these industries is even higher, it further complicates Indonesia’s desire to reduce harvests.  Many companies incurred debt to expand production over the last several years, and they will be reluctant to have newly installed equipment stand idle.   

As Indonesia continues to recover from the aftermath of the Asian Financial Crisis of 1997 (GDP has yet to return to the pre-crisis level), exports of wood-related products have played a vital role.  In 2002, exports of wood-related products (pulp and paper, wood, and wooden furniture) accounted for $7.6 billion, or 13 percent of Indonesia’s total exports, second only to oil.  It remains to be seen whether politicians and policymakers will be able to accomplish their goal of reducing the trade of illegal timber products. 

Trip Report: Guatemala and Belize
by Lashonda McLeod, Agricultural Marketing Specialist

As the FFPD wood products Marketing Specialist covering Central American export promotion programs, I work with Market Access Program (MAP) participants (http://www.fas.usda.gov/ffpd/industry.html) as well as FAS overseas offices, to promote U.S. exports.  In Belize, Goodrick and Associates is involved in an Emerging Markets Program (http://www.fas.usda.gov/mos/em-markets/em-markets.html) project, promoting the export of U.S. wood products.  The project is intended to promote the variety of U.S. species available and U.S. grading procedures among the trade.  I participated in Goodrick and Associates’ technical seminar, held in Belize City and Belmopan, Belize, April 28-30, 2003.  I also had an opportunity to visit Guatemala City, Guatemala, to evaluate potential marketing opportunities for U.S. wood products. 

Belize

The Goodrick and Associates Emerging Markets Program project is aimed at Belizean carpenters who are unaware of the structural performance, sizes and grading system of U.S. wood products.  The project is centered on educating professional builders, developers, architects, and engineers on building with U.S. wood products in lieu of conventional concrete block construction. The project featured technical seminars and classroom training over roughly a one-year period.  The April technical seminars educated 37 specifiers and the trade on U.S. wood products grading, durability, and quality assurance systems.     

The seminars were effective activities in discussing the specifications and applications of U.S. treated lumber products in high wind areas (Figures 1 and 2).  Constraints included lack of technical and product knowledge about the superior structural performance, durability, quality, and grading system of U.S. wood products.  The seminar survey results indicated that most of the participants thought the seminar was useful and additional technical seminars are needed in Belize.  It was requested that a follow-up seminar be done with more in-depth discussions on the same topics. 

Figure 1: Seminar Participants and Presenters, Belize City, Belize  

Figure 2:  Technical Seminar                     

Belize has one of the smallest economies in Central America and in all of Latin America, with a GDP in 2001 of only $830 million.  However, with only 262,999 inhabitants, Belize has one of the higher per capita GDP rates in the region at nearly $3,250 per person.  In the past, Belize’s economy was heavily dependent on exporting mahogany logs and sawn wood.   Currently, tourism attracts the most foreign direct investment.  The Government of Belize has designated tourism as its second development priority after agriculture.  In 2001, tourist arrivals to Belize totaled 195,955 (Table 1). 

Unlike the other countries in Central America, there is a tradition in Belize of using wood for building homes.  This is likely a result of Belize’s cultural ties with the United Kingdom, rather than with Spain.  Wood usage in housing and other construction such as restaurants is widespread. Tourists visiting Belize often have their first meal ashore in a seaside wooden building, sitting on wood decks and in wood gazebos.

The Government of Belize has pledged to build 10,000 new homes over the next five years.  Many of these houses will be built near Belmopan, the capital of Belize, which was built inland in the 1970s after a hurricane razed Belize City in 1962.  The government wants to encourage the populace to move inland around Belmopan.  Of the 2,000 houses, which the government pledges to build each year, 800 will be funded through the Ministry of Housing.  Most of the construction in the current housing program is inexpensive concrete block construction, with only a small amount of treated lumber used in the roof trusses. 

The United States has no major competitors in the Belize softwood lumber market.  Guyana is the major competitor in the plywood market while Brazil has also begun to export plywood to Belize.  Assuming that the region remains stable politically, and the country’s economy continues to improve, there should be opportunities to expand wood products consumption in housing.

In 2000, imports of southern yellow pine lumber and plywood, $2.8 million and $6 million, respectively, from the United States were due almost entirely to the importation of “packaged housing units” from Florida by a Belizean developer building houses for the government sponsored housing program.  In 2002, exports of U.S. wood products to Belize totaled $2.1 million.

The construction trade in Belize uses local wood that is readily available.  Thus, imports are rarely needed and not often stocked.  In Belize, the current use of wood products for housing construction does not require the quality of lumber that is being used.  Tropical hardwood is often used to build wood homes (Figure 3), but treated lumber would often be more suitable.  Therefore, in Belize, U.S. treated wood prices are not reflective of international prices.  One remedy to lower the price of imported wood from the United States could be to provide technical assistance to Belizean domestic companies to develop overseas markets for their tropical pines, while exporting treated common boards to Belize. 

Figure 3. 

Guatemala

I visited a company in Guatemala City, Guatemala that currently imports oriented strand board, plywood, and shingles from the United States and other countries.   According to the importer, U.S. wood products might have a competitive advantage from May through October.  During these months, the Guatemalan loggers’ supply of wood to the industry is limited because of heavy rain combined with the hilly terrain.  There are increasing opportunities in Guatemala for U.S. wood products.  One opportunity is for complete, or partial, wood frame construction systems targeting upper-middle class consumers.  This targeted audience could be used as a showcase for the remaining segments of the housing industry.  Most homes in Guatemala are built of concrete blocks and roofed with metal beams covered with galvanized steel.  Most Guatemalans believe that concrete block homes are cheaper to build and are more durable than wood frame homes.  Wood in Guatemala is considered to be a luxury, with the exception of pine.  Pine wood is not used for construction applications; it is used almost exclusively for furniture. 

U.S. wood product exports to Guatemala increased from $3.4 million in 2000 to $9.1 million in 2002.  The largest category of U.S. wood product exports to Guatemala in 2002 was “Other Wood Products,” which totaled $6.1 million, consisting primarily of wooden coat hangers. The second largest category was hardwood logs, primarily cherry, which totaled $862,000.  Other notable categories were builders’ carpentry and hardwood lumber.  Despite an apparent need for high-quality wood construction material in 2002, U.S. southern yellow pine exports to Guatemala were valued at only $3,000 due to competition from non-wood materials. 

Medium density fiberboard (MDF) is mainly imported from Chile.  MDF from Chile is said to be priced 10-20 percent lower than comparable U.S. products.  In Guatemala, there are no standard sized windows or doors.  The door sizes could range from 27 to 42 inches.  MDF has become popular for the production of doors and cabinets in this market.   

For more information on the markets in Belize and Guatemala contact Lashonda McLeod at lashonda.mcleod@fas.usda.gov