FOREST REGENERATION AND PLANTATION DEVELOPMENT

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ITTO PROJECT PD 14/95 REV.2(F)

MODEL FOREST MANAGEMENT AREA-SARA WAK-MFMA PHASE IT

CONSULTANCY REPORT

FOREST REGENERATION AND

PLANTATION DEVELOPMENT

A.J. LESLIE

MAY 1999 FOREST DEPARTMENT

KUCHING

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ACKNOWLEDGEMENT

The consultancy report "For~st Regeneration and Plantation Development" is a result of Dr. AlfLeslie's engagement in early.1999 by the ITTO supp.orted Project "Model Forest Management Area, Sarawak" of the Forest Department.· The-policy review was based mainly on expected developments in the timber export markets and is considered timely as Sarawak forest industries are preparing plans for the establishment of tree plantations from 2000 onwards in a situation· of near-total dependence on the export markets.

Dr. Leslie has visited Sarawak frequently. Prior to his engagement by the Project, he participated in forestry reviews organized by World Bank, Washington, and consulted expert-studies on world wood supply levels and tree plantation establishment, carried-out at FAO Forest Department in Rome. His views are based on a long life-time of experience in following market developments and a compilation of existing data, considered the best available at this point of time.

The outlook presented by Dr. Leslie in this report is entirely his own personal view. Significantly, in this respect, he has ended his report with: "Because that is what all of this amounts to - a gamble ... And you will never know much earlier than before 2015 arrives". Nevertheless, it is a point of view based on thorough study of possible development outcomes and worth of serious consideration.

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[PENGU MANGGIL for Director <ffForest

Sarawak

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FOREST REGENERATION AND PLANTATION DEVELOPMENT

TABLE OF CONTENTS

Page EXECUTIVE SUMMARY • 1

• 1. INTRODUCTORY

1.1 The Terms of Reference 4 1.2 A House Built on Sand 4 1.3 "For Whom The Bell Toll" 5

2. THE POTENfIAL OF THE REGIONAL AND GLOBAL PLANTATION RESOURCE .~ "

7 2.1 Comparison of the various sources of resource information 8 2.2 Growth Rates 10 2.3 The sustainable plantation output 11 2.4 The South Pacific Outlook 12 2.5 The Global Plantation Supply Outlook 13

3. INFERENCES FROM THE FOREGOING EVALUATION 15 3.1 The implications for plantation policy in Sarawak 15 3.2 The decline in output from natural forests 16

4. THE OUTLOOK FOR FOREST PRODUCTS DEMAND 17 4.1 The resultant wood supply-demand balance 21 4.2 The South Pacific Plantation Resource 23 4.3 The 10g-pulpwood distribution of demand 24 4.4 Probability Considerations 25

5. THE OUTLOOK 27 ;.~ 5.1 Factors influencing species selection 33 ,"-',

~~~ 5.2 Whose Job is it, Anyhow? 35 5.3 Plantations in the Market for Decorative 36 5.4 Plantation Policy for Pulp and Paper 37 5.5 Plantations for Log Production 39 5.6. Risk and Plantation Programme 42 5.7 The Dilemma in Plantation Strategy 43

6. A STRATEGY FOR PLANTATION DEVELOPMENT WITIDN MARKET AND SIL VICULTURAL LIMITS 48 6.1 The Role of the MFMA in Plantation Strategy 49 6.2 Implications for the MFMA Work Programme 2000 to 2003 51 6.3 A Caveat 54 6.4 Priority Ranking of the Recommendations 57

APPENDIX 1 - For Whom The Bell Tolls 61 APPENDIX II - The Decoratives 65

Forest Regeneration and Plantation Development-MFMA Phase II

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FOREST REGENERATION AND PLANTATION DEVELOPMENT

EXECUTIVE SUMMARY.

1. This report presents an analysis of:- . a) the way that regional and global wood supply - demand balances are likely to

evolve from around 2005 onwards and b) the implications of that for forest and plantation policy in Sarawak.

2. The analysis, the argument and the main findings are summarised below.

3. A combination of four factors is forcing Sarawak into a programme of forest plantation development. These factors are:-

a) the heavy dependence of the State economy on the forests sector and the already. established forest industry,

b) the almost total dependence on export markets for its outputs, c) the rising cost of log production from the natural forests aggravated by the

requirements of Sustainable Forest Management (SFM) and d) the very high probability that, with the coming on stream, initially of the Asia

Pacific region plantations followed soon afterwards by the global plantation resource, the export markets will, from 2003 to 2007 onwards, be increasingly over-supplied with the commodity type timbers that the natural forests largely produce.

4. Of these the dominant driving force is the prospect of oversupply in the export markets.

5. The first substantial surge in the supply from plantations will come in the Pacific rim marketS'~as the south Pacific plantations of New Zealand, Chile and Australia especially, add by'no later than 2007, at least 10 to 15 % to the annual supply of industrial roundwood in the region.

6. A surge of this magnitude is unlikely to be matched by an equivalent increase in regional demand, even allowing generously for growth in the Chinese market. Some downward pressure on price ceilings must, therefore, be expected. This review, however, does not indicate that the subsequent price competition will be more intense than the Sarawak industry can handle.

7. This is, however, no more than a very short-lived reprieve. When the second surge hits, less than ten years later, the global plantation resource will have the potential to meet almost all or even more than the world's total demand for industrial roundwood. Then, with supply greatly in excess of demand, price competition in commodity type timber markets will become increasingly intense. The Sarawak industry, as presently structured, is not well placed to cope with competition of the severity that is likely to prevail.

8. The development of a plantation resource might offer a way for Sarawak to ease, though not overcome the competitive situation, but the maximum leeway of 15 years available before that situation develops to its full extent, affords just enough time to bring the resource into being.

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9. Two markets, however, are less vulnerable than the commodity timber market. One-the market for decorative timber - is almost totally so, but the other - that for pulpwood - is only so in a relative sense.

10. These cannot, however, maintain or substitute for the present industry. The sustainable yield of the decoratives is far too small and it cannot be expanded by plantatiOl). rapidly or certainly enough. Pulpwood is too low - valued a commodity for it to be an adequate revenue replacement.

11. Hence plantation development in Sarawak has to be part of an integrated, three pronged strategy linking and using the inter-dependence of-the natural forests and the plantations. The three prongs are:-

i) Supplementary plantations to provide a low cost roundwood output of probably-cnot less than say 75% of the present log intake capacity of the existing industry. This objective implies a total plantation resource of around 500,000 ha for commodity timber production,

ii) SFM in the natural forests concentrated on the decorative species which, on present indication, seem to have a sustained yield potential around 1. 5 to 2 million m3 and which might have the market capacity to carry the commodity type plantation timbers into the export markets through composite wood products and

iii) Pulpwood plantations for which the potential area is mainly limited by the availability of suitable sites within close range of export ports.

12. Each of these involves a different allocation of responsibility between the public and private sectors.

i) SFM of the natural forests is unavoidably a public sector responsibility. SFM is the key to continued access to overseas markets and as non-wood services

1 ~-, are the essence of SFM they must be safeguarded, which makes timber

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i'production a conditional use. SFM and the maintenance of the timber industry around its present level are both, therefore, sine qua non for Sarawak. Thus the management and utilisation of the natural forests are concerned with the supply of public goods. This is a responsibility that the State is best equipped to meet.

Supplementary plantation could, in principle, be left to the private sector if it were not for one thing - the public goods nature of the continuity of the timber industry. There is no unavoidable compulsion for individual companies or the industry as a whole, to establish, maintain and manage a resource on the scale required. They can, at any time, stop, withdraw or liquidate their investment should financial considerations make it expedient to do so. This option is neither one for the State nor something which Sarawak can afford to happen or allow to happen. The necessity to safeguard the State's vital public interest in the plantation programme, therefore, means that the State must be involved in some form of joint ventures at least, to guarantee that this prong of the plantation programme is not abandoned or curtailed.

iii) Pulpwood plantations have virtually no public goods content. The responsibility for them can, therefore, be left entirely to the private sector.

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13. The maximum interval of 15 years 'before the full impact of the global surplus in commodity timber swamps the export markets is just enough time for Sarawak to establish and have a producing resource adequate to take on the competition and maintain its industry at its present level. The commencement, on a large scale, of the supplementary plantation programme cannot be safely delayed fo.r much longer than another year. •

14. It is fortunate, therefore, that the range of commodity timber species likely to succeed in Sarawak is already known and wide .enough for long term species trials not to be a necessary pre-condition. From a technical point of view, the programme could start today.

15. The MFMA has no essential role in the supplementary plantation programme. It does, however, have a vital role in developing the prescriptjpns for and the practice of SFM and the plantation technology for gap filling with decoratives in the natural forests. Without this the supplementary plantation programme is almost pointless.

16. The role of further processing is not, strictly speaking, a component of plantation strategy. It does, however, have a place in helping to ease the competitive pressure which will confront the Sarawak timber within the next few years. A few companies have developed niche markets especially in Europe and the USA, for specialty knocked down furniture and furniture components, working to customer specified designs. This type of market could certainly be extended geographically and possibly in product range. But. forest poliCY, in general, will have to develop measures to overcome problems experienced with the reliability, continuity and quality of log supply to the smaller companies who have pioneered many of these market developments. The future availability of some of the rare feature timber species which have been brought into these markets does have some relevance to plantation strategy. While this is probably more associated with the SFM issue, it does bring the MFMA into play as part of its experimental work involving gap -filling decoratives.

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1. INTRODUCTORY

1.1 The Terms of Reference

The T.O.R. for this consultancy are to:-1. Review current state policy of plantation development and long-term wood

production prospects for Sarawak. ~ 2. Review natural forest regeneration and regrowth compared to plantation

growth prospects, including aspects of environmental impacts. 3. Advise on development strategy to be initiated as well as planning and

monitoring capabilities required from Forest Department/Corporation and compames.

4. Advise on a strategy for resource development in :MFMA with particular view to a work plan for the period 2000 to 2003 including tree plantation, natural·f~rest management and silvicultural treatments.

5. Prepare a review and recommendation report.

These T.O.R. largely amount to looking at the basis of the formulation and implementation of forest plantation policy in Sarawak, recommending any changes or modifications needed in it and how the policy should then be incorporated in the MFMA.

To that end, two analytical and interpretative processes are involved. Most obvious is the one concerning the choice of species for the plantation programme. This means assessing the suitability and likely performance of a number of possible candidate species under the range of ecological environments in Sarawak.

In the Sarawak context, however, it is the second process which is, initially, more,critical. This takes, as the starting point, the markets for the plantation grown iwood rather than species suitability. If Sarawak is to realise anything more than a tiny fraction of its forest resource potential it will for many years, have to export close to all of its output of forest products. The reality is that it is the export markets of several decades into the future, not the growing conditions in Sarawak, which govern the choice of species, and, in fact, whether there should be a plantation policy at all.

That, of course, is just a restatement of the old aged dilemna in forestry expressed in the adage "To sell what you can grow or to grow what you can sell." With the natural forests there is little choice - to sell what has grown naturally and what can be grown in them. For Sarawak that is a matter of the export markets, but with plantations there is a choice, but more in principle than in actuality. Again it is a matter of the export markets. So the export markets hold the key not just to plantation policy but to forest policy in general and forest industry policy.

It may be worth noting here that this market dependence applies only to plantations for industrial wood supply. Afforestation for other purposes such as land rehabilitation, erosion control, watershed protection, fuelwood, carbon sequestration is best done with species that are known to grow on the sites in

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mind. These are relatively minor objectives in Sarawak so that plantations for wood supply are plantations for export markets. Grow what you can sell ought to be the compelling motive and that becomes what will sell in the export markets, one rotation at least into the future.

And that requires, like it or not, forecasts of regional and even glob.al markets 15 years hence at least and more probably 20 to 30 years and more int<> the fuj:ure. But the future of production in the natural forests also depends on future markets in the short term as well as the longer. The market outlook on a continuous basis in the immediate, middle and long term distance is an unavoidable necessity for an export dependent sector.

An introductory note on this theme - "For Whom The Bell Tolls" - was drafted in mid-1998 and has had some limited circulation (included in this review as Appendix I). The argument in it was that the future markets for most of the Sarawak production would be over-supplied and hence subject to tight and lowering price ceilings. The outlook follows from the likelihood that by the second' decade of the 21st Century the global plantation resource already established by 1998 would have a sustainable output capacity close to the world demand for industrial roundwood. Together with the supply, even if it is declining, from natural forests and additional planting after 1998, the total supply available could well greatly exceed demand within the next 30 years or so." The only thing that could change this outlook is a growth in demand for industrial roundwood considerably greater than the historical record suggests is possible.

The note was prepared hurriedly, at short notice and largely without access to documentary sources. The implications of the outlook outlined in the note are strongly contrary to much of current thinking and opinion. Even if they are only rougb.ly. right, present plantation policy and forest industry strategies would have to be almost completely over-turned.

1.2 A House Built on Sand The elements of a plantation policy all derive from the answers to a single question - why? This is because the purpose or purposes of a programme for plantation development govern what to grow, how much to grow, how to grow it, when to grow it and by whom it should be done, entirely in some cases but largely in all. Fundamental though that question is, discussion of and about plantation policy is almost invariably about the derived elements rather than the one from which they all originate - the question "why plantations?"

Plantation policy is a classic illustration of this approach. In the publication "Planted Forests in Sarawak" of February 1998, one of the definitive public statements on plantation policy, the reasons for the proposed development of plantations in Sarawak are barely mentioned. In the 160 pages of papers the number of places in which the purpose of the plantations is mentioned add up to no more than half a page. The most definitive of those occasional references are:-• "The State had reached its peak in producing timber from natural forests and

needed to find better ways to sustain timber resources"


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• "Reforestation with fast growing species to supplement timber production" • "A good demand for wood for pulp ... .in view of the large pulp and paper

plant to be implemented in the State".

Clearly plantation policy in Sarawak is motivated by timber production but with a twofold purpose. The first is to maintain the existing industry (~nd, .although not specifically mentioned, possibly to provide the raw material basis' for. its expansion). The second is to build up the raw material base for a "large" pulp and paper industry.

On the whole this makes sense, at least in respect of the first objective. The capacity of the existing industry is already greater than the sustainable capacity of the PFE and with much of that capacity in "state of the art" manufacturing plants the industry is well worth sustaining. And in that line of reasoni~g. Sarawak is far from unique. This fact has been and still is the standard thinking behind most of the large scale plantation programmes in the rest of the world.

What is not often made clear is the crucial assumption on which that line of reasoning depends. Underlying it all is the belief that the market for the unprocessed, semi-processed and more fully processed products which can be made from the plantation wood will continue to absorb the present volumes (and probably more) at the same (or higher) prices. The present slump in which the contrary is happening is generally assumed to be a temporary abberation; when it is over the future will resume its pre-slump course.

Nowhere in the proceedings of the conference is this assumption mentioned, let alone questioned. More significantly it is rarely questioned anywhere else either. In effect, the assumption is taken as a fact rather than an assumption. But it is a pseudo-fact.

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Until ll(1)W there has been nothing much wrong with using it. Since the end of World War II, the demand for all industrial wood products has been rising steadily while on the supply side, the area of the world's forest has been declining just as quickly. Putting those two trends together, readily allows the assumption to be translated into fact. But that situation no longer holds. The demand side of the equation has been changing in recent years while the supply side is about to change dramatically. Put bluntly, the global wood supplydemand balance for industrial wood is moving towards over-supply in commodity types and grades of wood. With that, any post-recovery resumption of the pre-slump course and conditions can only be very short lived. The pseudo-fact is reverting to the assumption it really is and always has been. And that assumption is wrong.

1.3 "For Whom The Bell Tolls" This interpretation of the trend in the global (and regional) wood supply-demand balances and its implication for forest policy generally in Sarawak were outlined in the note "For Whom The Bell Tolls" of July 1998. The note was mainly directed at the sustainable management of natural forests. Plantation policy was mentioned but only in passing. Nevertheless the implications for plantation


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policy, if the analysis of the wood supply-demand balance is anywhere near valid, are equally devastating.

But the interdependencies and interactions between the supply from natural forests and any proposed plantations, between the utilization patterns, technologies and potentials of the two wood sources and the~ between the forests sector of Sarawak and the rest of the world are so strong 'andinmcate that it makes no sense to consider natural forest policy and plantation policy independently of each other. Much of the analysis and interpretation in "For Whom The Bell Tolls" applies in fact, with equal force to the plantations.

The implications in that note follow entirely from the anticipations in it of the impact on regional and global wood supply-demand relationships of the world's plantation resource built up over the past 20 to 30 years, as it comes into maturity early in the 21st Century. Especially significant for Sarawak is that part of the resource in the south Pacific area which is on the verge of a large scale entry into the Asia-Pacific' regional supply.

In short, the basis of the "For whom .... " note is that regional over-supply of the general purpose, utility commodity timbers is imminent and the world will move into a similar position not long aftetwards.

The important point at this stage is therefore the validity of this prospect of over-supply. If it is even roughly true as a representation of the outlook for the forest and forest industries sector in the Pacific Rim region then the implications for natural forest management in the tropics are almost inevitable. They, in turn, make much of the current thinking about plantation policy questionable and perhaps, untenable and consequently, a drastic rethinking of plantation policy could well be needed. But if that over-supply prospect is not valid, then present policies .. may be on the right cqurse. May be, of course, does not necessarily mean that they are.

2. THE POTENTIAL OF THE REGIONAL AND GLOBAL PLANTATION RESOURCE

There are certainly plausible grounds for some scepticism about the reasoning and the implication in the note "For Whom The Bell Tolls". For a start, the estimates in it of the magnitude of the south Pacific and the world plantation resource are just that-estimates. There was certainly little authoritative about them. More authoritative figures are now available.

Shortly after the note was written, FAO published a summary and review of the global plantation resources as part of a survey of progress with its Global Fibre Supply Study (The GFSS). The New Zealand Ministry of Forestry also produced its latest "National Forest Description" in 1998, with revised forecasts of its plantation output for well into the 21 st century. Australia also launched the "Plan" announced in 1997 for trebling the area of its plantations by the year 2020. FAO's "Outlook Study for the Asia-Pacific Forestry Sector" has just been approved (November 1998) for publication. Drafts of the final report of the GFSS (now renamed as a "Model" rather than a "Study") and a


complementary "Thematic Study on Plantations" as part of the FAO Global Forest Products Outlook Study are now under review.

All of this work could affect the "For Whom .... " figures and conclusions. Hence, with a lot more and apparently better information available than that which went into the note, a re-assessment of its validity is clearly warranted. Whether it would greatly modify the implications for Sarawak" i:;;' how~ver, problematical. After all neither of the two FAO _ reports on the plantation resource claim any great accuracy for their figures. For example, the Thematic Study is "at best a ball park analysis. . .. aimed at an order of magnitude in the results rather than any definitive prediction". And the FAO paper "The Role of Industrial Plantations in Future Global Fibre Supplies" makes the point that "The present lack of reliable information on almost every aspect of forest plantations, in developed and developing countries and regions alike, makes predictions about future supplies hazardous and liable to gross errors".

In effect, these more authoritative sources of information may not be all that much better than the estimates that went into the note "For Whom The Bell Tolls". In any case, with such a large in-built "error term" the differences would have to be enormously large for them to invalidate its analysis and implications. Nevertheless it is worth seeing whether there are such differences.

Two steps are involved. The first is to assess the nature and magnitude of the differences between the sources and the estimates underlying the "For Whom .... " note. The second then is to work out whether those differences warrant any significant change to the implications and findings of that note.

2.1 Comparison of the various sources of resource information The most recent and more official sources which can be used for comparative purposes are referred to earlier in this analysis (page 7). The three FAO papers and dr~fts superceded its earlier assessments of 1990 and 1992. The two national statements (Australia and New Zealand) are their latest, official accounts. Being as FAO points out, virtually the only fully reliable and clear cut statements of national plantation resources, they can be safely inserted into the FAO global figures whenever a correction seems to be needed.

Even a cursory comparison of the various sources is enough to show some considerable differences. On closer examination four classes of differences show up. These are:-

a) between the estimates underlying the "For Whom ... " note and some of the other sources

b) between the various other sources c) between estimates originating in the same agency, and d) within some of the individual reports and papers

Only the first two sets of differences really matter. The other two sets actually represent the preliminary status of the reports. The inconsistencies will no doubt, be reconciled as the reports go through the review and revision processes before they are released. Take, as an example, the differences within the FAO paper


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"The Role of Industrial Plantations ... " (Unasylva, 193: 37-43 of 1998) between a total area for industrial plantations in South America in the summary total and 7 x 106 ha. for Brazil in the text and between that paper and the 4.2 x 106 ha for Brazil in the thematic study. It is unlikely that such wide differences will show up in the finalised reports.

• The first two sets of differences are another matter. A most obviouS'differeoce is in the global area of the industrial plantation resource. The "For Whom ... " note is based on the estimate of the area in 1998 of 150 x 106 ha. The Unasylva paper has the area at 119 x 106 ha in 1995, the thematic study at 98 x 106 ha in one place and 113 x 106 ha in another. Allowing for the area added between 1995 and 1998, then, depending on the rate at which the annual new planting is estimated would give four figures for the 1998 area, as follows:-

"For Whom .... " note Unasylva Thematic Study Thematic Study

150 X 106 ha 137 x 106 ha (119 x 106 ha + 3 x 5 X 106 ha) 113 x 106 ha (98 x 106 ha + 3 x 5 X 106 ha) 131 x 106 ha (113 x 106 ha + 3 x 6 X 106 ha)

But the 1998 areas depend on the planting rates over the three years 1995 to 1998 and there is no definitive statement of what that global figure was or now is. In the note, a global rate of additional industrial plantation establishment of 5 to·8 x 106 ha was assumed. It is difficult to find a more definitive rate in the FAO reports. The thematic study puts the current annual rate of additional plantation establishment at "slightly more than 4 million ha per annum" in " tropical and sub-tropical countries. If it is assumed, as some of the internal evidence in the reports suggests, that the rate in boreal and temperate countries is roughly the same, then the global rate would be a little over 8 x 106 ha a year i.e. the upper bound assumed in the note. There is a chance then that there is no diffefjence in this aspect between the note and the other sources. Certainly it is safe t6'say that the rates assumed (5 and 6 x 106 ha a year) in deriving a 1998 area from the FAO information for 1995 are unlikely to be exaggerations.

The area estimates underlying "For Whom The Bell Tolls" are not, therefore, so far out of line with the more authoritative estimates as to negate or undermine its implications. A possible exception is the lower figure in the thematic study where the discrepancy between it and, that for sub-regional supply in the note is around 25%. But, given the extent of .approximation, guesswork and unreliability in the data base, a 25% extent difference is probably within the confidence limits of the FAO estimates.

The area of the plantation resource is, however, only one component in assessing the impact of plantations on wood supply outlooks. Equally important are the growth rates and, for the timing of the impact on and flow into the markets, the age class distributions and rotations.

The pivotal feature in the "For Whom ... "note was the age class distribution of the south Pacific Plantations, heavily biased by the great acceleration of the rate of planting in the 1970's and 80's. As a result a sharp and massive increase in the availability of mature plantation timber (mainly radiata pine) was predicated


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from about the years 2003 to 2005 on rotations between 25 and 35 years and growth rate of 15 to 25m3/ha/a.

In much the same vein, a roughly parallel development of the global plantation supply was predicated in the note although on a much larger scale and now the initial surge occurring 10 or 50 years later. The known rotation information (10 to 50 years and even more in some northern hemisphere cases) Rl'ld the-more limited growth rate, information (4 to 30m3/ha/a mai) could not be used in the absence of age class distribution information. So the global surge was taken as occurring around 2010 to 2015 with an overall average mai of 12m3/ha/a.

Now that a much bigger and more detailed set of more up to date information is available it is possible to get some idea on how the approximations us·ed in the note stand up:.

Four elements of the plantation outlook are critical. They are:

• The rate at which the area of the plantation resource is expected to be likely to increase in the future.

• For how long the area will continue to increase at that rate or at a higher (whatever that is) rate or a lower (whatever that is) rate.

• The growth rates to be expected and then

• From these the potential sustainable output of plantation timber.

2.2 Growth Rates Although it is virtually impossible to judge the validity of the 12m3/ha/a. used in the not~ as an estimate of the global plantation M.A.I. it is actually the easiest component to deal with. The FAD thematic study lists growth rates for tropical and sub-tropical hardwood plantations ranging from 1.5 to 25· m3/ha/a, according to species and country and similarly for temperate and boreal plantations ranging from 1 to 24 m3/ha/a . The lists are fairly complete for the main species and cover most of the relevant countries. However, without matching area information, only a simple unweighted mean can be derived from the lists. This, at around 13m3/ha/a. supports the estimate underlying the note.

The Unasylva paper has a much shorter list of sample growth rates both by species and countries but with corresponding area data. The weighted mean of the minimum growth rates quoted is 9.4 m3/ha/a. and of the maxima, 10.2. That is the average MAl could be 15 to 25% lower than in the note.

Neither set - the one questionable because it is unweighted and the other because it is so incomplete - provides much evidence to suggest that the average growth rate of 12 m3/ha/a underlying the note is seriously incorrect.


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2.4 The sustainable plantation output The other two elements which feed into the plantation supply outlook are matters entirely of conjecture. Certainly some countries have set announced targets for additional planting. Some have ideas of how much they anticipate planting or will plant and many hardly have a clue. Not that any of them mean much. Targets can be increased, decreased or abandoned virtually. overnight as the circumstances seem to suit. Expectations similarly may be reali~ed, . may go unrealised, may be upset by new entrants or by unforeseen withdrawals. Future planting rates and changes in them are mere guesses.

Perhaps therefore, it is on this account that many of the attempts to forecast future supply from plantations start with a "basic case" scenario of no additional planting. This is realistic enough in that only plantations which are already established can be confidently counted on for future supply. But it is also often unrealistic in that some additional plantations will be planted, at least over the next few years. Other scenarios are then simulated with different rates of additional planting continuing indefinitely or for various periods into the future or increasing or decreasing at various rates over future time.

None ofthese devices nor any amount of econometric analysis can convincively hide the fact that, in the end, forecasts of wood supply from plantations are largely guesswork. Actually, it cannot be otherwise. Many of the "facts" regarding the area of already established plantation are no more than suspect approximations, while estimates of what might be added in the future are just anybody's guesses.

The FAO thematic study presents three scenarios. The base case scenario is zero increase in plantation areas, the second allows for a 1% increase in the plantation annually over the whole forecast period and the third has the area of additi,Onal planting declining from the current rate in 25% steps for each 10 years and coming down to zero by 2050. The illustrative test of the FAO global fibre supply model is based on reducing the annual rate of planting by 7% per annum until it reaches zero in 2010. Being principally concerned with the development of the model, this scenario is apparently not meant to be taken as a prediction.

None of these fits at all well with projections or outlooks available from some national authorities. The New Zealand scenarios set out three ievels of additional planting at 40,000, 60,000 and 90,000 ha annually, continuing at least until 2040. The Australian vision sets a target of 90,000 ha a year until the total area of plantations is trebled. Chile is reported as continuing with additional planting at around 120,000 ha annually.

The rate of additional planting will no doubt decline, if only because the implications of potential over-supply could become too obvious to ignore. But any prediction based on an early phasing out of additional supply will certainly under-estimate the plantation supply from 2020 onwards.

Hence, despite the greater detail, and presumably the greater precision of the more authoritative information now available, it is still no easy matter to


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evaluate it against the simple basis underlying the note. Nor when that is done is there likely to be much certainty that the comparison would be any more conclusive. All the same it is worth a try; especially for the south Pacific from where any significant impact will first come and for which the information is the least speculative.

2.5 The South Pacific Outlook --The results of an attempt to collate the information now available for comparing it with the estimation basis of the note are summarised in Table 1.

Table 1 Estimates of the Sustainable Supply of Plantation Timber

from the South Pacific

Average Annual Sustainable Yield m3x106 ofIndustrial Roundwood

Country, Source & Scenario 1995 2000 2010 2020 2040 New Zealand, Thematic Study 2 19.9 26.1 28.8 35.6

Thematic Study 3 19.9 26.1 28.8 43.9 Ministry of Forestry 1 17.11 21.8 29.7 32.4 53.0 Ministry of Forestry 2 17.11 21.8 29.7 32.8 64.3 Ministry of Forestry 3 17.11 21.8 29.9 33.3 81.3

Australia, Thematic Study 2 13.1 14.3 15.2 15.6 Thematic Study 3 13.1 14.3 15.5 16.9 Vision 2020 2 12.0 9.0 17.0 18.0 62.0

Chile Thematic Study 2 17.4 17.5 26.9 33.5 Thematic Study 3 17.4 17.5 27.7 45.5 Tasman Forestry 11.4 13.0 39.0 42.0 69.0 Extrapolated at 70,000 hala N~w plantint

Total South Lower Bound 5 40.5 43.8 70.9 82.3 Pacific Upper Bound 5 50.4 57.9 85.7 107.4

Notes: 1 M.O.F. Estimate for 1996

2050 43.6 65.9

20.9 25.4 63.0 37.9 70.9 84.0

102.44

227.44

2 Interpolations from Chart 2.6 ofthe Vision 2020 Document and based on 90,000 ha! of new planting to 2020

3 Extrapolation ofa Tasman Forestry Pty Ltd internal document 4 Including N.z. at the 2040 levels 5 Calculated as the sum for the three countries of the lowest and the

highest respectively figures in each column

The table amply demonstrates how much a predicted outlook depends on who did the analysis, how they did it and the assumptions made about what might happen in the future. The enormous difference for 2050 between the lower and upper bound of the South Pacific total is simply the result of the low rate of additional planting and its early cessation (Thematic Study, Scenario 2) and the continuation of high rates of planting to 2020 at least and even to 2050. Even so the upper bound as calculated up to 2020 is still 20 to 30% higher than the lower bound. And that represents very large amounts of raw material.


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There are also some surprising differences between sources which have nothing to do with assumptions. Even at the starting date - 1995 - when actual data should have been equally available and hence, identical, appreciable differences show up. It would seem that different statistical series are in use in different places. If what should be firmly established fact has a fairly wide error range, differences in conjectural information are hardly a cause for woqder. But it is certainly a cause for treating them with caution if not scepticism: As the:FAO thematic study says they are "ball park" figures at best.

It should be noted also that the levels quoted for 1995 are estimates of the potential sustainable yield from the plantations established by that year. Some may be the actual recorded output for 1995 but others do seem to estimate the potentiaL This could account for the "surprising" inconsistency for 1995. But with the actual cut in 1995 for Australia being well below the corresponding sustainable yield of the existing plantations, the increase in possible output in subsequent years is somewhat greater than would appear from Table 1.

The concern in Table 1 is not, however, with the inconsistencies and the variations in the information now available, striking as they are. The main purpose is to help assess the validity of the estimate of 60 x 106 m3 annually being added to the Asia Pacific regional supply from around 2005 onward and which is the basis of the implications considered in the note "For Whom The Bell Tolls".

Nevertheless, "ball park" figures or not, the contents of Table 1 strongly suggest that 60 x 106 m3 by early in the 21st Century is too high. A more credible figure to plan on would be an increase in roundwood supply in the region of around 40 x 106 m3 annually by 2010 and probably, judging by the N.z. annual predictions, from around 2005. The 60 x 106 m3 level could, however, be reached before 2020··

1 :. - I

2.6 The Global Plantation Supply Outlook For a number of reasons including, especially, data quality, completeness and reliability the outlook on the magnitude and timing of the global plantation resource in global wood supply is even more problematic and even less predicable. The detailed analysis on the FAO thematic study, which omits Europe and the former USSR, shows an age class distribution of the rest of the world's plantation resource heavily skewed towards the younger age classes. "Overall, 67% of the five-region plantation total is less than 15 years of age, with 30% [of the total area] planted between 1990 and 1995". Only 13% of that total area is in plantations of 30 years and older.

On that basis, the total potential sustainable yields as calculated in the study are summarised in Table n.


!"

Table 11 The Global Potential Sustainable Wood Supply from Industrial

Plantations According to the Thematic Study

Millions of m3 la rounded to the nearest 10

1995 2000 2010 2020· •

Under Scenario 2 300 350 490 560 Under Scenario 3 300 350 540 800

Plus Europe and the former USSR Under Scenario 2 370 420 580 650 Under Scenario 3 370 420 630 900

205.0

740 990

860 1330

Again these are "ball park" figures. However, taking them, somewhat riskily, at face value they do also suggest that the impact on world industrial wood supply may not be as great as estimated in the "For Whom ..... " note, but that the timing, 10 years or so after the South Pacific surge, could be right. On these figures, the plantation supply may not, therefore, reach the level of meeting 80% of the world's consumption of industrial roundwood as postulated in the note. Nevertheless the 60% minimum they represent has plenty of potential to upset the world1s wood supply - demand balance within 20 years or so.

More important perhaps, are the two caveats which can be raised against the outlook presented in that summary. The first is that both of the scenarios from the thematic study phase out or greatly reduce the rate of additional planting. Any additional planting over and above the rates assumed will increase the supply potential one rotation later. For instance, the rate of additional planting assumed under Scenario 2 amounts to between 1.0 and 1.30 x 106 ha/a (1 % pa of 9.8 t,o,)3.0 x 106 ha) compared with a present rate of 6 x 106 ha/a. The accumu1ated under-statement of the annual potential sustainable yield under Scenario 2, could at the lowest, be 450 x 106

X m3. by 2020 and 890 x 106

X m3.

by 2020. Add these amounts to those in Table IT and the "For Whom " resource potential is no exaggeration.

There is no evidence yet that the rate of additional planting is declining. In fact, it seems that the contrary is happening, in the short term at least. Certainly there are grounds, as argued in the thematic study for believing that the rate will, indeed must decline. These grounds would be strengthened if a perception of wood over-supply were to develop. But that is more likely to become more apparent and sooner under the "For Whom ..... " outlook than under the lower impact suggested by the above summary.

The second caveat confirms this. The simple but valid approximation of estimating the potential of the global plantation resource as the product of the present area of established industrial plantation (98 to 130 x 106

. ha) and the implicit average MAl (9 to 13 m3·/ha/a) gives the rotential of the plantations already on the ground as not less than 900 x 106 m ·/a and possibly as high as 1700 x 106 m3/a.


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The risk, referred to earlier in taking the figures in Table 11 at their face value is therefore quite real. Actually, the grounds for accepting the estimates in the "For Whom .... " note are probably stronger than those for discarding them on the basis of the most authoritative information now available.

3 INFERENCES FROM THE FOREGOING EVALUATION

3.1

In general then, the informational basis of the "For Whom ... " note is not seriously invalidated by the more authoritative' information now available. There is one major exception - the south Pacific surge in supply will probably be smaller and its timing later than stated in the note. Nevertheless the surge will still be considerable - 35 to 40 x 106 m3'/a - and it will still occur like a tidal wave, but a year or two later than 2005 rather than earlier. The short term impact on the industrial wood supply-demand balance of an addition of 7 to 10% to the annual supply instead of the 15 to 20% in the note could therefore be less dramatic. But it leaves the longer term outlook from 2020 onwards, much the same as developed in the note and, for the moment, the implications remain.

What needs to be investigated in the light of the revised short term figures is the effect of the smaller first wave from the South Pacific resource.

The implications for plantation policy in Sarawak Plantations established from 1995 onwards will mature into the wood supply -demand situation of 2010 to 2020 onwards. Hence it is the longer term outlook for wood supply-demand balances that counts in the formulation of plantation policy. That situation could, as argued in the "For Whom .... " note, be one of potential industrial wood supply considerably greater than demand for the general purpose, utility or commodity grades and species.

Only, tyJo things could upset that outlook and its implications for Sarawak espeCi'aily. One is a much greater decline in production from natural forests than that allowed for in the supply outlook. The second is a substantial increase in regional and global demand for industrial wood products. As a combination of the two would obviously require a lower rate of increase in each than either one operating alone, it is that possibility whose effects need to be examined. But in order to establish the bounds of possible or likely combinations, each factor has to be first considered separately.

Before turning to that however, something does need to be said about the effects of the downward revision in this short term outlook. It has no direct implications for plantation development policy but industrial strategy decisions taken in the light of the possibly lessened threat could have an indirect influence in several ways.

First the smaller size of the surge in supply in the Pacific rim region could be interpreted as assurance that the export markets are not going to be depressed by prices and competition as implied in the "For Whom .... note".


3.2

Then secondly, the possibly delayed onset of the surge gives the sector that much longer to adjust and re-structure to the changed conditions before they amve.

But thirdly there is a danger that the extra time could lull the sector into thinking any recovery from the "economic crisis" would bring a permanent return to the • pre-slump market situation.-·

Only the second of those inferences is both positive and unquestionable. Even so, it is only an advantage if the sector uses the extra time to make its adjustments. But the other two, if they are taken as accurate, would indicate that neither adjustment nor the time to make it, are needed. That however would no more than be a temporary reprieve. Eventually and before long, the longer term global ov~r,..supply would take effect and the need for adjustment and restructuring re-emerge.

The point of that digression was to show how long ·ter:~ considerations can be constrained by how the temporary short term outlook is interpreted. With that out of the way, the deferred discussion of the two factors - declining output from natural forests and increasing demand for forest products - can be resumed, but with that point always in mind.

The decline in output from natural forests A decline in the production of industrial wood from natural forests is allowed for in the supply outlooks outlined above, especially in the GFSM. If the actual rate of decline in production from natural forests turns out to be greater than that allowed for in the supply outlooks, the total industrial wood supply potential would be correspondingly less and the chances of oversupply correspondingly reduced. The converse would hold if the rate of decline turned out to be less.

, A greater rate of decline seems more likely than a lesser. The pressure for the transfer of natural forests into fully or highly protected reserves is not likely to decrease. Silvicultural measures aimed at increasing timber productivity to counter-act the reduction in operable resources will become increasingly difficult to apply under strict definitions of S.F.M. In developing countries especially, conversion of forests to other forms of land use must continue unless economic and social development greatly reduce the social demand for agricultural expansion.

To some degree such trends are already allowed for in the various outlooks of wood supply. But they could accelerate and if they do, the vital question is "by how much?"

Withdrawals from timber production for environmental, watershed or heritage protection tend to occur sporadically and in biggish lumps.

The reported reduction of timber production in mountain region forests of China in response to the heavy flooding earlier in 1998 year is typical. Similar large "lump sum" withdrawals can be expected although neither when, where or extent can be predicted. Perhaps of equal cumulative importance, is the

------------------------------------------------------------------------------------------Forest Regeneration and Plantation Development -MFMA Phase Il Page 16

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continuing withdrawal of small strips and patches as protecting margins and corridors are extended into and within blocks of natural forest designated for multiple use management.

The major cause of loss of forest area in tropical countries - conversion to agriculture - amounting to around 11 x 106 ha/a is already allO''Yed for in the future supply estimates. The problem is how much non-deforestation lQ~s of timber production forest to allow for.

In the GFSM the "area under protection" is reported as having increased by 140% between 1900 to 1990. Most of the increase has taken place over the last 20 to 30 years with the reservations increasing from around 50 x 106 ha in 1970 to just on 120 x 106 ha in 1990. Extrapolation at the annual rate of increase of around 5% p.a. which this represents would virtually eliminate natural forest as a source of industrial woo'dby the year 2050. This seems unlikely to happen but some continuation of the trend to further withdrawal is certain. How much has been allowed for in the GFSM is unclear as the draft report is incomplete. However, to meet the semi-official IUeN target of 10% of the world's forest eco-systems in totally protected areas would involve the transfer of roughly

- another 250 x 106 ha. That could be taken, perhaps, as the minimum of the nondeforestation loss ofthe timber production natural forest resource.

If that were to materialise over the next 30 years then, combined with the continuing encroachment of small scale protection patches into' timber management areas, an average annual reduction of around 10 million ha up to the year 2030 would have to be allowed for. In effect, the sustainable supply would be reduced by around 25 x 106 m3/a. That could, however, set the upper end of the reduction. Protection of reserved areas, even in developed countries, is not always 100% effective and is notoriously ineffective in some developing countries. Hence, allowing for such leakages, for variations in the scale and timing of the reservations target and for the overall lumpiness of the reservation process, could lower the rate of decline in the supply of industrial roundwood from natural forest as a result of non-deforestation losses, at least in the earlier years.

It might, therefore, be more realistic to express that rate of decline as a range of say 15 to 20 x 106 m3 annually on average instead of the 25 x 106 m3'estimated above.

4 THE OUTLOOK FOR FOREST PRODUCTS DEMAND

The informational basis for forecasting the future of the markets for forest products is even weaker on the demand side than it is for supply. For a start the basic data that are available are for consumption which, at best, is only an approximation to demand, being a resultant of demand inter-acting with supply forces. Then in very few countries do their statistics from which the consumption figures are derived, allow for movements into and out of stocks. That is, the consumption data are a step further from demand in approximation. And this is further aggravated by the estimation of production in many countries rather than its actual measurement.


.-.-~-- --- :_------------'-

Then the data, naturally, refer only to the past. Unlike the future supply of wood, which, to a marked degree is limited ,by what has happened in the past, there is much less necessary dependence of future demand on past demand. There is some continuity from the past to the future but no necessary governing or limiting of the future by the past. Nevertheless with the only data available being unavoidably those from the past, most forecasts of future wood demand are direct or indirect extrapolations of or from past trends in consumptipn. Simple, direct projection of consumption ("demand" so called) from trends detected in data from the past have given way to indirect but more sophisticated econometric derivations of consumption from extrapolations of trends detected or assumed of the factors on which consumption is believed to depend.

For many years the lead in this field for the forestry and forest products sector has come from FAO, starting with its series or regional outlook studies i~, the early 1950's. After a lapse in the 1970's and the 1980's this type of activity has now been revived and some comprehensive outlook studies are now coming out. A provisional global outlook published by FAO in 1997 and a regional outlook for Asia-Pacific' which has just been cleared for publication are the latest and most relevant.

FAO has usually been careful to point out that these outlooks are, strictly speaking, not forecasts. Nevertheless, they have almost inevitable, and universally been taken as authoritative statements of the future for forest products consumption. The dangers in doing this ought to have been amply demonstrated over the years. There is, for instance, a marked tendency for projections made at a later date to give lower levels of consumption for a given future year than projections made previously. The examples quoted in Table III show the point and also by how wide a margin the protected consumption level can be lowered in a later projection.

, .

Table III

Global Consumption of Industrial Forest Products In the Year 2010 as projected in 1993 & 1997

(annual consumption in m3 x 106 except for wood pulp in tonnes x m6)

Year of Projection

Source Industrial Sawnwood Wood-based Wood Pulp Roundwood Panels

--------------------------------------------------------------------------------_._-_.

1993 1997

FAO FAO Scenario 1 FAO Scenario 2 FAO Scenario 3

2278 1652 1784 1801

628,9 469.3 473.7 478,9

255.7 143.4 172.6 17l.1

225.7 154,6 172.3 176.0

To take such changing, mutually inconsistent projections as forecasts, obviously sets problems for planning in forestry, Interesting and important though they may be, they are not the concern here. What matters in the context of plantation policy for Sarawak, are the implications for the regional and then the global wood supply-demand balance. And they would clearly be different, using the 1993 proj ection from what they would be under the 1997 one.


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The growth rate of industrial wood consumption implicit in the 1997 outlook is approximately 1.4% p.a. If this rate were maintained global consumption of industrial roundwood would be increasing by about 25 x m6 m3 p.a. by the years 2007 to 2010. However the growth rate from 1983 which is the base year of the 1993 projection and which would be around 30 x 106 m3 p.a. un.der the 1993 projection, would amount to only l3 x 106 m3 p.a under the 1997 projection.

Then to make things worse that 1.4% p.a. projected rate of growth in the consumption of industrial roundwood from 1994 to 2010 could itself be suspect. For instance, over this period 1992 to 1996 the growth was zero, a fact which hardly engenders great confidence in the forecast from 1994.

In fact, the outlook generated from the extrapolation, direct or indirect, of past trends depends not only on the year in which the projection<was made, but also on the base year from which it was made and on the length of the period covered by the data used to establish the trends. The summary of world consumption data since 1965 for industrial roundwood in Table IV shows how widely the average annual rate of change in consumption can vary according to how those variables are combined.

Table IV World Consumption of Industrial Roundwood

From 1966 to 1996 m3 x 106

Fonn of 1966 1971 1976 1981 1986 Industrial R'wood

All 1144 1285 1336 1432 1543 Logs 684 772 805 856 936

Pulpwood 266 310 323 372 390 OtherIRW 170 167 231 205 221

Average annual rate of change in consumption

All IRW 5 year intervals 2.1% 0.8% 1.4% 1.3% 10 year intervals 1.6% 1.5% 15 year intervals 1.5% Over 30 years

Logs 5 year intervals 2.4% 0.8% 1.4% 1.8% 10 year intervals 1.6% 1.0% 15 year intervals 1.0% Over 30 years

Pulpwood 5 year intervals 3.1% 0.2% 2.2% 0.9% 10 year intervals 2.0% 1.9% 15 year intervals 2.4% Over 30 years

1991

1650 992 428 230

1.4%

1.2%

1.2%

Note: Consumption level is mean of year quoted plus previous year Source: FAO

1996

1500 924 421 157

-1.9% -0.2% 0.5% 0.9% -1.7% -0.4% 0.5% 1.0% -0.3% 0.8% 0.9% 1.6%


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Several features of importance in the use or misuse of forecasts/projections are apparent from the figures in Table IV. Amongst them are:-

(1) A steady and fairly well sustained rise in the consumption of industrial roundwood in total and in its main components since 1965 .. This is

• probably why the users of forecasts, consciously or not, envisage the demand for industrial forest products continuing to rise well· into the future.

(2) A reversal of that upward trend over the last five years for which data are available. This does not appear to have changed the "bullish" view of the future, which suggests that the users of forecasts, if they have noticed this global fall, are treating it as a temporary deviation rather than as the start of a new trend. And that could well be right. The downturn coincides with the dismantling of the U.S.S.R. and the near collapse of its forest products sector in the subsequent economic turmoil. The halving that resulted in the Russian output represents a reduction of about 10% in the global level, which is enough to bring about the reversal indicated over 1992-1996.

(3) A noticeably but not consistently faster rate of growth in the consumption of pulpwood than of logs. This reflects the well documented tendencies for wood-based panels to displace sawnwood in its traditional markets, for reconstituted panel boards to displace plywood as well as sawnwood and the almost unbroken continuing rise in the use of paper. It may therefore suggest, although not strongly, that future markets for the pulpwood based products are more assured than those products depending on log quality raw material.

(4) Average annual rates of growth in the consumption of all or any form of industrial roundwood vary greatly over time but in no consistent, discernible pattern. Clearly they are neither definitive nor reliable

,predictors of the future development of demand. Hence the use of past . consumption data in forecasting future demand needs to be accompanied

by considerable qualification and scepticism.

In the light of all this, it would be difficult and, indeed, precarious, to pick out anyone rate which past consumption data show is the most likely predictor of the future. It would be much less hazardous to express the measured rates of changes in consumption in terms of a range rather than as anyone selected rate.

Growth in the consumption of industrial roundwood since 1965 could thus be condensed to within the following:-

Range of growth rate for all industrial roundwood Range of growth rate for logs Range of growth rate for pulpwood

0.5 to 2.1% p.a. 0.5 to 2.4% p.a. 0.8 to 3.1% p.a.

In the FAO 1997 projection the implicit rates of growth in the consumption of industrial roundwood up to 2010 are shown as to 0.88% under Scenario 1, l.12% p.a. under Scenario 2 and l.64% p.a. under Scenario 3. These rates fall neatly within the range of rates experienced over the last 30 years. But that is no reason for adopting anyone of them as the appropriate rate for forecasting future


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demand. Nor, however, does it provide any reason for not adopting anyone of them. But, in view of what has just been said about the hazards of selecting just one rate, it is probably better to stay with a range.

The trouble still is how to pick the range. On what can, with some exaggeration, be called "the evidence" the range seems likely to run from sOlllething above zero at the minimum to a maximum rate not greater than 2.0% p.a. • -.:

Selecting a range of positive rates as covering the possibilities has some dangers. It ignores the negative growth rates recorded during the last 5 years, treating them, in effect, as temporary interruptions to the more or less steady upward trend. If they actually represent early signals of a permanent reversal or change, then projections at any positive rate will greatly over-state future demand. But the case for that is, at thee )1loment, less persuasive than that for their being of a temporary nature.

4.1 The resultant wood supply-demand balance _ , The argument in "For Whom The Bell Tolls' led to the conclusion that global

over-supply of industrial roundwood from early in the next century was almost inevitable. Some implications for Sarawak forest policy in general were drawn from the increasingly, intensified competition that would bring in export ,markets, especially.

The more detailed information available for this review suggests that:-(a) The wood supply potential of the plantation resource may not be as great as

suspected in the note, especially in the earlier years; (b) The demand for industrial forest products will continue to grow at a positive

rate and (c) The supply, potential and actual, from natural forests could decline more

sh~rply than was (implicitly) allowed for in the note. - J

Intuitively, it might be expected that this different configuration of the supply and the demand forces would make quite a difference to the expectation of an over-supply of general purpose/community grade industrial roundwood. But that cannot, however, be taken for granted. The forces tend to pull or push in different directions and act at different times. Hence the effect of the global wood supply-demand balance will have to be calculated from quantified estimates of the magnitude of the supply and demand forces, in combinations built up from the range of values as derived or discussed above.

One important determinant does, however, warrant more consideration first. This is the wood supply potential from natural forests. At present, natural forests are the dominant source of industrial wood, providing around 90% of the world's production. That their supply potential will continue to decline is inevitable and an allowance for that has been assessed earlier. But in examining the possibility of over-supply resulting from the plantation impact, the initial size of the supply potential of the natural resource has to be the starting point.


". ---~----'.------'

The GFSM shows the area of the world's forest resource as 3.22 x 109 ha, rather less than the 3.45 x 109 ha. given in the FAO "State of the World's Forests, 1997". Of this only 1.56 x 109 ha is considered in the GFSM as "available for supply". The remainder being excluded on the grounds of reservation for totally protected services, or economic inaccessibility or workability or the conversion to other land uses. On the basis of the increment estimates in the GfSM, the sustainable potential supply would amount to approximately 4900~~ 106 ~.p.a. The global increment of commercial species i.e. the available roundwood is given, however, at 2700 106 m3 p.a.

The two levels can, for present purposes, be taken as setting the range of values for the initial potential of the natural forest resource.

Th~~ the limits for each of the determinants of the future wood supply-demand bal~mce adopted for the assessment are as follows:-

Ci) Natural Forest Supply Initial 2700 to 4900 x 106 m3 p.a. Declining by 15 to 20 x 106 m3 p.a. over and above reductions in availability already built into the estimates

Cii) Plantation Supply Area established 1997 113 x 106 to 131 X 106 ha with M.A.I. 9.8 to13.0m3 hala Additional planting from 1997 onwards over and above that in the FAO Thematic Study, Scenario 2 of 5 x 106 hala

Ciii) Demand Growing at 0.8% p.a. to 2.0% p.a.

Thes~obviously do not cover the full range of possible levels for all or anyone of the' determinants. The ranges listed are, at best, only those for which the evidence seems to be the least tenuous. But, even within this selection out of the possible ranges, many combinations are feasible. The three combinations whose results are summarised in Tables V, VI and VII are presented, therefore, partly for illustrative purposes. They can, however, be taken as indicative in terms of some of the implications for plantation policy. The outlook summarised in Table V thus represents a future in which a wood supply surplus develops towards the maximum. That in Table VI represents a wood supply surplus more towards the middle of the possibles. On the other hand the future presented in Table VII is of an eventual development of a wood supply deficit under an exceptionally high rate of growth in demand.

From that sampling over the range of possibilities the conclusion is inevitable -a wood supply surplus dominating the industrial roundwood market over most of the first half of the 21st Century. Actually a wood supply surplus already exists. The sustainable capacity of the natural forest resource is rather more than twice the present demand and even at a low base level it remains above demand until after 2020. But that surplus is one of potential only. The sustainable capacity of the world's natural forest resource is under-utilized because there is neither the need nor the pressure, on a global scale, to force


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timber harvesting into the large and largely unused forests of the Congo Basin, the Amazon or Siberia.

With the plantation resource, however, it is altogether different. For the most part the plantations have been and are being established, located and managed with a market, sometimes a specific market, in mind. Hence as t}1ey approach maturity, the pressure from the initial and accumulated investment will force the potential to be realised. Potential supply will become actual supply, but it will not dominate the wood supply balance much before 2015. From around 2010 the plantation supply into world markets will have begun to flow, sharply at first, then steadily until there is another sharp rise about 30 years later. By 2020 the actual supply from plantation sources could be meeting at least 70% of the demand and even, at its highest almost all of the demand.

Thus the plantation resource does much more than just add to the potential global supply of industrial roundwood. It creates, almost on its own, an eventual over-supply.

One of the main purposes behind the above analysis was to test the possibility of a potential global over supply of commodity types and grades of industrial roundwood development as the global plantation resource moves into maturity. That it is a distinct possibility is amply confirmed. Nevertheless the analysis is still incomplete. Three things at least, are missing. The first is the· question which triggered the analysis. That is, whether the wood supply-demand balance in Pacific Rim markets is going to tilt towards over supply now that the surge in supply from the south Pacific plantations will be smaller and possibly start a little later. The second concerns the distribution of the demand for industrial roundwood between the two main components, namely logs and pulpwood. And the third is the likelihood or probability of the outlook inferred from the analysis being~. credible guide to the future for the sector in Sarawak.

, J .'

4.2 The South Pacific Plantation Resource The Pacific Rim Economies, especially those of East Asia, have been the driving force for the Sarawak forestry sector for almost three decades. They seem likely to continue to play that role well into the future, although other markets are becoming increasing significant. Hence what the South Pacific plantation resource could do to the wood supply-demand balance in the region is of vital concern to Sarawak. The sudden addition of30 to 40 x 106 m3 within the next few years must be expected to have some impact. What sort and how big depends, to a considerable extent, on the size of the industrial roundwood market now and how it is evolving. Neither, however, are easy to estimate, let alone ascertain, mainly because the Pacific Rim does not figure as a geographical or economic unit in the statistical collections generally available. Those collections are built up country by country but four of the biggest participants in the forest products sector of the Pacific Rim have economies which stretch well beyond the Pacific Rim. Some gigantic approximations are involved in trying to separate the Pacific Rim content out of the national data.


I I

Nevertheless, an attempt must be made in order to gauge, even in the broadest terms, the South Pacific plantation effect. Table VIII presents the basic and results of such an attempt

From those estimates the increase in the demand for industrial wood in the Pacific Rim would rise, depending on the rate of growth in demand, as follows:-

•

Between 1995-2005 At a low rate 65 At a high rate 102

2005-2010 39 50

2010-2015 52 52

Too much should not, of course, be made of these very bold and rough approximations. Nevertheless they do give some indications which could be useful and valid enough for present purposes. One is that an incre~~e in the demand for industrial roundwood of65 x 106 m3 to100 x 106 m3 per year before 2005 could put pressure on supply if plantations were the only source of additional supply. Very little additional supply can come from the existing resource much before 2005. However natural forests within or adjoining the region have more than enough spare capacity to cope with any such increase in demand. However, from around 2005 the sudden and sharp rise in the availability of plantation wood changes the outlook markedly.

Over supply in the region is nowhere near as likely as it would have been had the surge in supply been the 60 x 106 m3 foreseen in the "For Whom .... " note. The respite, however, is rather fragile. It would not take much of a decline in the assumed rate of growth of demand and/or much of the increase in the magnitude, of the surge in plantation supply to tilt the balance towards oversupply. Even if neither of these possibilities does eventuate, the respite is short lived anyhow. By 2015 the global plantation resource is starting to come on strearpand in a big way. Over-supply is then a virtual certainty.

Thus the answer to the question that triggered this analysis in the light of the more detailed information now available is a little less alarming. The changes of over-supply following the almost certain surge in supply from the South Pacific plantation, while still there, seem low enough for the sector in Sarawak to continue on its present course. But cautiously; over supply is a near certainty once the global plantation resource starts to hit the world supply-demand balance by around 2015.

4.3 The log-pulpwood distribution of demand One very important aspect of plantation policy is the outlook for the two main categories of industrial roundwood i.e.logs and pulpwood. The importance lies in their asymmetry. Logs, if the circumstances call for it, can be used as pulpwood but the reverse, largely by definition, does not apply. Pulpwood, in general, is roundwood which does not come up to log specifications.

The extent to which the pulpwood/log mix in the demand for industrial roundwood is changing can be gauged from the following ratios calculated from the data summarised in Table IV.

Forest Regeneration and Plantation Development -MFMA Phase If Page 24

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Ratio of pulpwood to logs in 1965 0.39 1975 0.40 1980 0.42 1995 0.43

However the 1997 FAO projections are in marked contrast to this historical •

trend. The Scenario 2 projection has the proportion of the pulpwood complment implicitly staying constant from 1994 to 2010 while the other two scenanos have the implied proportion declining.

It is a bit hard to see such a cessation, let alone reversal of the trend occurring so relatively quickly. After all the main driving force behind the trend seems to be associated with the steady and almost unbroken rise in the rate at which the consumption of paper is increasing averaging around 2% p.a. Combined with a relatively low rate of growth in sawn timber consumption of around 0.5% globally, the proportion of pulpwood must continue to rise for as long as such relativities hold. The trend may, however, be slackening as the proportion has increased only slightly over the last 5 years (1991 to 1996).

Nevertheless, if even this recent slower rate of increase in the proportion of the pulpwood component were to continue then by 2010 close to 35% of the demand for industrial roudwood would be as pulpwood from 37% by 2020. As mentioned on p.20 plantations established and managed for pulpwood would "." seem to have a more secure basis than those established primarily for logs.

One other aspect of the distribution is worth mention. While logs for sawmilling may not be as good a proposition as pulpwood in plantation policy in general,

c.. the GFS study indicates that a shortage of hardwood (non-coniferous) logs, .... could develop "within the very near future". This is likely if present logging

practtqes continue more or less unchanged. It is rather less likely if reduced impact logging and other S.F.M. measures are introduced. To some extent, S.F.M. in natural forests becomes an alternative to plantations.

4.4 Probability Considerations The outlook developed so far is, or course, only one view of the way that the regional and the global industrial wood supply-demand balance is evolving. Many other views are equally possible. Although this one is, in my opinion, the most likely outlook, there is no objective reason why any other view should not be adopted instead. The whole procedure is so full of conjecture, contradictions, pre-conceptions, opinions and guesses that there is no way of knowing now, with any degree of assurance, what the future will be like. Any decision about or dependent on the future development of the sector is a gamble. Yet, one of those many pictures of that future has to be selected and acted upon, in order to make~: any decision which involves investment now or before too long.

The trouble is which one out of the many and often contradictory views to select. There is no objective way of ranking the alternative views and, hence, no scientific basis for favouring one over the others. In those circumstances, two complementary strategies seem to offer some defence against disastrous error. One is to apply subjective assessments of the probability of the component


events occuring as predicted. The other is to spread the responsibility for the decision and its consequences over as many decision makers as there are in or interested in the sector.

Some probabilities are fairly obvious. The probability of demand growing at 2% p.a. over long periods seems to be quite low, perhaps no more than 0.25. The probability of a rate greater than 2% p.a. is even lower while tliat for a-.rate around 3% p.a. is virtually zero. At the other end of the scale, the probability of a global tendency to over-supply after 2010 is high (say 0.65) and after 2015, fairly close to certainty (say 0.85 to 0.9). The probability of a Pacific Rim oversupply before 2005 is virtually zero and even relatively low (say 0.4) by 2010 but after 2015 very near certainty (say 0.9).

Others are less easy to pick. The probability that pulpwood demand will continue to grow as a proportion' of industrial roundwood demand relative to saw and veneer logs could be quite high (say 0.7) at least up to the point at which the proportion reaches 40%. That a significant global advance in S.F.M. will relieve the pressure on the supply of veneer logs seems on the other hand , to be fairly low (say 0.4).

The total subjectivity of the process is strikingly clear, hence the term "subjective probability". Putting a figure on an opinion in the form of a Pr value obviously adds nothing to its validity. It is still just one person's opinion but it does clarify, a little, the relative strengths with which the opinions about the components of a system are held. This then does allow a roughly quantitative assessment of the overall Pr to be calculated for the components in combination.

Thus the probability of the outlook for the sector presented in this review could be deduced, from individual probabilities subjectively assigned above to each component, as between 0.65 and 0.7.

J.

The second strategy - a decentralised decision process - follows logically from the unavoidably subjective nature of most of the probability assessments involved. There is no basis for taking anyone of the many possible subjective assessments of the probability of a particular outlook, when they are all equally tenable but there is no fool-proof way of choosing between them.

Thus there are greater risks in developing plantation policy for the State through a centralised policy. Even at the relatively high probability of 0.65 to 0.70 which might apply to the outlook developed in this review, a plantation policy based on it would still be a "35 to 1 against" gamble. The odds would be no better even for central control or influence aimed at guiding private sector investment towards centrally determined policy targets. At those odds, plantation policy for the State would be more realistically determined and implemented through individual (not collectiveO initiatives, investments and management.


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This, on the face of it, would leave the State with a very limited role in plantation policy and development. Facilitation, information and, perhaps, research would be about the sum of it. As an argument for minimal state involvement it might hold, except for one thing. This is the very big element of a public good in the nature of the services provided by the forest and forest industries sector in Sarawak. With the natural forests it is their environmental, hydrological, social and conservation values which are paramou~t. The' public interest with the plantations, lies however, in securing the raw material base for the established and an expanding forest products industry.

That industry, it is well acknowledged, is the mainstay of the State economy and it will be a long time before it is or can be substantially replaced. Continuity of its raw material base is thus of vital concern to the state. However, because the sector is and must continue to be predol1\inantly export oriented, the continuity has to be in a form that maintains Sarawak's competitive ability in the global market.

Given the entirely speculative nature of any forecast of the outlook for regional and global wood supply-demand balances, decisions regarding investments in plantations and other aspects are probably best left to the individual investors. But, because of the public good features of the sector, the State cannot just be a disinterested spectator. It must be an active participant in the process of developing plantation policy. Not, however, as a controller - its guesses about the future can be no better than those of any other player - but as a guarantor of ." the public interest at stake. Just how it does this depends, first of all, on what it sees as the future economic environment for the sector.

5' THE OUTLOOK

Although many views of the outlook for the forest and forest products sector, locally, nationally, regionally or globally are possible and perhaps equally tenable, common to all of them, is some allowance for the plantation resource. And on this, one thing is undeniable. The potential sustainable wood production capacity of the world's plantations already established and irrespective of any additional planting, can, within a few years time, supply most if not all of the world's present demand for industrial roundwood. Depending on how demand is foreseen as growing, on how the supply capacity of natural forests is foreseen as changing, on how the plantation resource is foreseen as expanding and for what purposes the plantations are foreseen as being managed, outlooks range from "faster wood demand growth relating to supply" to severe over-supply early in the 21st Century. The extremes and many of the intermediate positions' have their proponents but only one can be taken as a basis for action. The one, proposed as a result of this review, is towards the over-supply end of the range. ' Supply from the south Pacific plantations will tend to create a slightly oversupplied Pacific Rim regional market by 2005 or thereabouts. The global plantation resource will contribute to an increasingly over-supplied regional market and global markets especially for the general purpose, commodity types and grades of industrial wood from about 2010 to 2015 onwards.


Some effects of that sort of outlook are evident without the need for analysis. The intensification of competition in over-supplied markets makes location close to export ports of prime importance in plantation policy. Or, as another example, pulpwood as the roundwood category for which increasing demand is a near certainty, makes it a safer prospect than logs. Or for another, reliance on

• growth in demand to avert over-supply requires such historically unprecefldeted rates of growth for it to work, as to be virtually impossible.

Even so, these apparently obvious aspects are not fully independent factors. Interactions between them, interactions between them and other factors and then interactions between plantations and the management of the natural forest all affect plantation policy. To work out the implications of that outlook is therefore the task in the second phase of the review.

Forest Regeneration and Plantation Development -MFMA Phase JI Page 28

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TABLE V POTENTIAL INDUSTRIAL ROUNDWOOD SUPPLY-DEMAND BALANCE

6 3 . 6 3 10 m .]l.a. rounded to nearest 50 x 10 m

.... ':t'}"

Surplus Potential Supply Demand growing at Under demand

growth of Year From natural From plantation Decline in Nett 0.8% 1.2% 1.6% 1.8% 2.0 % 0.8% 2.0%

forests available including volume available Potential p.a .. p.a. p.a. p.a. p.a p.a. p.a additionalJ2lanting from nat forest Supply

2000 4900 350 5250 1550 1600 1600 1650 1650 3700 3600 100

2005 4800 350 5150 1600 1700 1750 1800 1850 3300 3300 100

20 ID 4700 950 5650 1650 1800 1900 1950 2000 4000 3650 100

2015 4600 1200 5800 1750 1900 2050 215Q 2250 4150 3550 100

2020 4500 1450 5950 1800 2000 2250 2350 2450 4150 3500 100

2025 4400 1650 6050 1900 2150 2400 2550 2700 4150 3350 100 ,

>. 2030 4300 1800 \. 6100 1950 2250 2600 2800 3000 4150 3100

200 \ , 2040 4100 2550 '. 6650 2IDO 2550 3050 3350 3650 4550 3000

200 2050 3900 2750 6650 2300 2900 3600 4000 4450 4350 2300

Natural Forest Supply :-Initial potential sustainable supply = Area of natural forest available for wood supply 1560 x 106 ha @ global average mai in available naturaliorest of 3.15 m3 ha p.a.

Declining availability of supply from natural forests @ 20 x 106 m3 p.a from 2000 onwards I '

Plantation supply: Thematic study Scenario 2 adjusted for continuing additional planting @ 5 x 106 ha p.a. more than in study until 2030 @ 9.8 m3 !ha/a


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2000

2005

2010

2015

2020

2025

2030

2040

2050

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From na1uraI forests available

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TABLE VI POTENTIAL INDUSTRIAL ROUNDWOOD SUPPLY-DEMAND BALANCE

106m3 p.a. rounded to nearest 50 x 106m3

Demand growth at Balance From plantation Decline in Nett 0.8% 2.0% 0.8% 2.0%

including volume available Potential p.a. p.a p.a p.a additional planting from nat forest Supply

3000 350 3350 1550 1650 1800 1700 100

2900 350 3250 1600 1850 1650 1400 100

2800 950 3750 1650 2000 2100 1750 100

2700 1200 3900 1750 2250 2150 1650 ,,"'. < 100 '1'-

2600 1450 4050 1800 2450 2250 1600 100 », Jl

2500 1650 4150 1900 2700 2250 1450 100

2400 1800 4200 1950 3000 2250 1200

-- 200 2200 2550 4750 2100 3650 3650 1100

200 2000 2750 4750 2300 4450 2450 300

Natural Forest Supply :-Initial potential sustainable supply = Area of natural forest available - 800 x 106 ha in reservations for non-timber purposes Reducing supply by 20 x 106 m3 p.a. as result of additional reservations

Plantation supply: Thematic study Scenario 2 adjusted 'for continuing additional planting @ 5 x 10 llll p.a. more than in study until 2030 @ 9.8 m3 ha/a.


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TABLE VII POTENTIAL INDUSTRIAL ROUNDWOOD SUPPLY-DEMAND BALANCE

106m3 p.a. rounded to nearest 50 x 106m3 except rounded to nearest 10 x 106m3

for decline in natural forest supply and consequently for nett potential supply and surplus • ._

Plantation supply Nett Demand Surplus under Year Natural forest including Decline in natural Potential growing at demand growing

supply additional planting forest supply Supply 3%p.a @3%p.a.

2000 2600 350 2950 1750 1200 70

2005 2530 350 2880 2050 830 70

2010 2460 950 3410 .. 2350 1060 80

2015 2380 2750 70

2020 2300 1750 4050 3200 850 70

2025 2230 2300 4530 3700 630 70

2030 2160 2800 4960 4300 660 70

2040 2090 4200 6290 5750 540 90

2050 2000 5650 7650 7700 - SO

Natural Forest Supply :-Initial potential sustainable supply 2600 x 106 m3 = global increment on area available for

supply GFSM, brought up to 1997 Declining availability by 15 x 106m3 p.a.

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Plantation supply : Thematic study Scenario 2 adjusted for continuing additional planting @ 5 x 10 ha p.a. more than in study until 2030 @ 13.0 m3 ha/a. m.a.i.


TABLEVIll A PROFILE OF THE PACIFIC RIM FOREST PRODUCTS SECTOR ....... 1995

Consumption of industrial roundwood m3 x 106 rounded to nearest 10 x 106 m3

Country or Total Less allowance Nett ,

Less allowance Pacific Rim Demand By Region Consumption forNov P.R Pacific Rim for Exports consumption 2005 2010

Component Outlook P.R (& supply) @0.8% @1.4% @ 1.0% p.a. @1.4% & China p.a & China p.a l.l%p.a 1.8%p .. a

USA 382 229 153 166 176 174 187

Canada 185 102 83 90 95 95 102

China 102 26 76 87: 87 96 93

Russia 93 88 5 5 6 5 6 Central America 10 5 5 5 6 5 6 South America 1 22 24 25 25 27

Asia 1 265 302

Ocenia 1 22 631 24 25 25 27 .. ..

Total 8 623 688 725 727 775

Note: 1 Estimated for countries with a Pacific Rim Seaboard, others excluded, therefore column 4 figure obtained direcrtly


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2015 @ 1.8% p.a.

& China 2.0% p.a.

185

101

106

6

6

27

321

27

779

@1.4% p.a

202

109

100

7

7

29

29

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5.1 Factors influencing species selection The first phase of this consultancy was concerned with assessing the export market prospects for the forestry sector of Sarawak. The reasons for starting in that way derived from the very real possibility of an eventual over - supply of the

• commodity type and grades of timbers which are the main output fr.om the"'.natural forests of Sarawak. The possibility arises from the combination of: -1) a fairly stagnant demand outlook for general purpose solid wood products and 2) the near certainty of a big surge in the roundwood production potential for these

grades as the world's plantation resources come on stream from early in the 21 st.

century.

In the short term, however, the review was moderately re-assuring. The first wave of the surge will come within the first decade of the 21st. century with the maturing of the south Pacific resource. In spite of its considerable magnitude, there is no great likelihood of the development of it leading to an over - supply within the Asia - Pacific region of the commodity grade timbers which fast grown tropical plantations would predominantly produce during the next ten to fifteen years. That possibility, although it does exist, can be fairly safely discounted. But the reprieve will only be temporary. From around 2015 to 2020 a global over - supply situation will begin to prevail and the region will not be insulated from that. From then on only- one primary forest product can be expected to have a demand outlook rising enough to offset, even partially, the impending supply surplus. And that product is pulpwood. On the other hand, the probability is quite high that competition in the export markets for commodity type products based on saw and veneer logs will become and continue to be increasingly and intensively cut - throat for many decades into the 21st. century. The prospects, however, for decorative timbers able to meet the demand at the upper end of the solid wood markets, have a good chance of strengthening in price terms if not in volume .

.I .', . ,

Timing Set by the Market Outlook.

A plantation policy for Sarawak in the light of these circumstances would thus have to be set in two time frames. These are: -

a). the period up to 2015, (or with considerably higher risk, to 2020), during which a fairly low subjective probability could be assigned to the impending global industrial wood supply surplus having an adverse effect on Sarawak's position in the Pacific Rim markets.

b). the period after 2015 with a very high subjective probability ofa global oversupply of industrial roundwood (including the Pacific Rim) which will have a very adverse effect on the prospects for the forestry sector of Sarawak.

The implications for plantation policy and forest policy in Sarawak are diametrically opposite in each of these time frames. In the immediate future a plantation policy could concentrate on planting as much area as physically and financially possible, without risking over-much, a marketing problem in the region, provided relative costs are kept in line with those of the main supply sources for the

Forest Regeneration and Plantation Development-MFMA Phase 11 Page 33

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region (mainly N.Z, Chile and to a lesser extent, Australia) But, as said earlier, this is a very temporary phase and, moreover, it is of much shorter duration than the period that the dates 2015 to 2020 may, at first sight, suggest. The latest safe planting date is 2015 minus the rotation for the fastest growing log producing species. This means that the relatively unrestricted market period doe~ not gQ much beyond 2005 to 2007. Anything planted after those years will enter export markets heavily and increasingly governed by the global over -supply.

Plantation policy is thus determined ultimately by a "grow what you can sell" context, despite the brief reprieve over the next 5 years. And that, in decreasing order of probability by volume, is pulpwood with a rising demand, high quality decoratives with a steady demand followed then by general purpose, commodity grade woods for which demand, if it will rise much at ale will probably be swamped by the increasing global supply. But of these, only the decoratives are likely to combine the volume market prospects with a reasonably high probability of non-declining prices. The commodity types and grades will almost certainly be forced by the supply - demand balance into increasingly intense price competition. In the global pulpwood market a steadily rising demand, although almost assured, will not, for a long time be able to match the potential supply. With the decoratives, on the other hand, the supply from natural forests will continue to decline while the plantation grown supply is regarded as either unsatisfactory in quality or too expensive to grow.

Only subjective probabilities can be assigned to these prospects but it may be worth evaluating them according to one of the plausible outlooks of their relative ratings after somewhere around 2015, as in Table IX.

,: TABLE IX. Probabilities of Global Market Determinants from Around 2015

for the Main Groups of Forest Products.

Demand increasing in volume

Supply increasing in volume

Prices declining @ 0.5% p.a. 0.7% p.a. 1.0% p.a. 2.0%p.a

Prices increasing@ 0.5%p.a. 0.7%p.a. 1.0%p.a

Pulpwood Pr. = 0.8

Pr. = 0.9

Pr. = 0.8 Pr. = 0.5 Pr. = 0.2

Commodity grades / types Pr. = 0.3

Pr. = 0.7

Pr. = 0.8 Pr. = 0.7 Pr. = 0.5 Pr. = 0.3

Decoratives Pr. = 0.2

Pr. = 0.0

Pr.= 0.6. Pr.=0.5 Pr.= 0.3

-----------------_ ... --------------_ ...... _------------------------------------------------------------ ..... _-----------------Forest Regeneration and Plantation Development-MFMA Phase 1I Page 34

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The next logical step in the formulation of a plantation policy would, therefore,

seem to be to match the species which could be grown in Sarawak with these

prospects. But it is not quite so simple. At least two other aspects intervene. First is

the question of on whom lies the responsibility for the actual development of any

resulting plantation programme. And secondly, the answer to that qu~stion clepends

on the complex inter-action of markets, species, financing and risk.

5.2 Whose Job is it, Anyhow? , As for responsibility there are several possibilities between the extremes of State

ownership and management at one end and private ownership and management at

the other. For Sarawak, on the whole, there is no great scope for the neo-liberal

arguments in favour ofthe privatisation of the State's forests. The main value of the

forests lies in the many, some virtually indispensible, non - commercial public .... '

goods they provide. Atypically these include the commercial forest products as,

unlike most ·economies where the wood supply for the forest products can be fairly

safely left to the private sector, the State economy of Sarawak is so heavily

dependent on the timber output of the sector, that this must also be counted as a

public good. The primary responsibility for forest policy must lie, therefore with

the State.

Hence its first function in discharging that responsibility must be to :-

a) ensure the continuity and well being of at least the minimum area of

natural forest needed to safeguard and enhance the hydrological, the

environmental and conservation role and status of that resource and,

b) to the extent that it is needed to contribute to the maintenance of the State

economy, to make sure of a sustained supply of the appropriate timbers for

export.

Giventtie fact that the direct revenue generation capacity from the environmental

services is very limited and the economic benefits from the timber industry go well

beyond private profitability, ownership and possibly the management of the natural

forest resource as well as policy, must also lie with the State.

But it is obvious that the potential sustainable output from these natural forests will,

under multiple use sustainable management, be considerably less than the full

capacity of the existing industry and also more expensive than under less restrictive

sustained yield regimes. Plantations will, therefore be needed to maintain the

industry and the State economy it supports, even at the present level. However,

provided the export markets are there and can be captured by Sarawak, plantations

have the added attraction of being able to provide a base for a considerable

expansion of the present scale and scope of the sector. The area of stateland which

could, within the bounds of a rational and conservative land use policy, be

converted to forest plantations has the potential to add 20 million m3.of industrial

roundwood annually to the sustainable output of the sector.

Forest Regeneration and Plantation Development-MFMA Phase Il Page 35

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The extent to which plantations to serve these ends should be developed is, in the first instance, a matter of markets and species. Obviously species which cannot be grown in Sarawak are out of the question, no matter, how attractive might be the market outlook for them. Similarly, species which can be grown in Sarawak but could not enter or compete in export markets are not worth considerati9n.· _

5.3 Plantations in the Market for Decoratives.

But markets and species are only a small part of the answer to the question of who should carry out the plantation programme and up to what scale. Here the key determinants are finance and riskiness. In this respect the market for decoratives is the most assured. The natural forests of Sarawak have around fifteen or so species which have possibilities of being ma,rketed as high quality, high value decoratives. They will have to be produced as by- products of sustainable management and thus under restrictive conditions which preclude silvicultural measures to increase either their frequency in the natural stands or their growth rates. Rotations are likely' to be lengthy, the occurrence of harvestable trees, in terms of ecologically suitability as well as size is likely to be very scattered. On top of all that, a very expensive, sophisticated and innovative programme of market research and development will probably be needed to cash in to the full on their high income - generation potential. Although as by-products they may be inexpensive to grow, they will be very expensive to harvest and initially expensive to market. The implication is that they may not appeal to the private sector until the groundwork has been laid by or with the support of the State.

Nor at this stage do the decoratives seem to be good prospects for plantation development. Some decoratives, such as Teak, have been successfully grown in plantations in many parts of the tropics. But because Teak is so relatively easy to grow, ·given the right site, the market for it could easily become over-supplied, a factor which could be aggravated by the evidence that short rotation Teak wood does not have the quality that brings much of a. price premium. Mahogany, is another decorative which has been grown quite successfully in plantations, but it is rather more restricted in where it has succeeded. There are also similar doubts about the quality of short rotation wood. However, being much less extensively planted than Teak, it might be less susceptible to swamping the market, in the short run anyhow. But with both of these species the short run is a long time - rotations, for export quality wood, at least 3 to 5 times as long as for the fast growing commodity type species. How the local species with decorative market potential will perform in plantations is as yet unknown.

So on the whole, the possible speculations about the decorative market could be answered as follows.

a) Their potential should be exploited under sustainable multiple use natural forest management.

b) Responsibilty for that management should remain with the State.

Forest Regeneration and Plantation Development-MFMA Phase II Page 36

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c) Harvesting and processing could remain, as it now is, the responsibility of the private sector but under tight control, by self regulation as far as feasible within tough and unforgiving State oversight.

d) Plantations should be limited initially to experimental trials with the candidate local species and gap filling on old log landings and small ctearings:in the natural forests. .

e) The set of 10 to 15 indigenous species with varying degrees of decorative potential include Koompassia, some of the Nyatoh group, Rengas, Dark Red Meranti; Merbau, Agathis and a number of species now grouped as MLR. (see Appendix IT).

t) The technical and market research and the subsequent market development to explore and exploit their decora!ive market possibilities should be a joint venture between the State and industry.

Plantation Policy for Pulp and Paper .. The plantation programme, apart from this limited work with indigenous decoratives, is a different matter. In principle, it is capable of being left, almost entirely,to the private sector. With plantations for the production of pulpwood, the pulp and paper industry is probably in the best position to match the suitability of the species which can be grown in Sarawak to the paper making requirements for the export markets. It is also in the best position to assess the market related risks involved in a plantation programme and hence, to carry them. The State, however, is, initially at least, probably better placed to assess the silvicultural risks. It will also be essential in the facilitation of arrangements for land availability and leasing. To that extent, therefore, a significant degree of State - private sector partnership is an implied essential.

But sh9Uld it go any further? Although an expanding global market for pulpwood is the most 'assured of the prospects for industrial roundwood, this does not guarantee a market for any individual plantation or even anyone State's plantations. The present global plantation resource, without any addition to it, already has the potential to meet most of the demand for pulpwood. Even a relatively short lived continuation of the rate at which the resource is being added to will lead to a global abundance of pulpwood supplies. Whether any specific plantation can capture a share of the export markets for pulpwood or for pulpwood based products will, therefore, depend on other factors than silvicultural or technical comparative advantage. Provided the selected species grow well and the wood is adequate for the end use, then those factors are subordinate to a complex of fundamentally financial considerations. These over-riding factors include, for example, such matters as the form in which the product is to be exported, the location of the plantations relative to export ports, the quality of the transport infrastructure linking the plantations to the ports, the degree and flexibility of vertical integration in the pre-export processing chain, the extent, pattern and nature of ownership participation arrangements between the growing company, the processing company and the market companies, the nature of the capital structure and the financing of the enterprise in total.


In all of these respects, it is most unlikely that the State will have anything like the knowledge that the global private sector has. All of this points to the State being under no necessity to be involved as a financial partner in the plantation or industrial developments in the pulpwood sector. All the same it has a crucial policy role in regulation and facilitation. It should, in conjunction with .the . iIlflustry, identify a likely "economic zone" for the development of export plantations, based on the grounds of proximity and access to export ports. Areas of Stateland released for plantation development should be restricted to that zone. Proposals by the private sector for plantation development outside the identified economic zone should, in principle, be rejected. No doubt, water tight guarantees might be offered that the State will not be called upon to meet any of the of the consequential extra developmental and operational costs, but such guarantees rarely withstand for long, the political tests to which they will eventually be put. Exceptions, should be made almost legally impossible to allow.

The issue of species seleCtion is equally straightfOlward. Almost any species that can be grown in plantations in Sarawak is a suitable candidate for a plantation programme aimed at the production of pulpwood. Although most species can be pulped, the variations between species in pulp quality and the economics of pulp and paper making differ widely. In these respects some species are definitely better and moreover, there are fundamental differences between long fibre (conifers) and short fibre (hardwoods) Both are needed for the manufacture of most papers. But the necessity to combine long and short fibre, however, applies only in paper making. Obviously a wood chip or wood pulp export industry can be based on either. And as a matter of fact, so can a paper export industry be based on growing one type of pulpwood and importing chips or pulp of the other, or even not growing any, importing instead, the appropriate pulp raw material mix.

Softwoocl" plantations have not been a great success, so far, in Sarawak. That does not necessarily eliminate softwoods as candidates for a programme. All it means is that the appropriate technology may not yet have been developed. Further trials of softwood species, establishment techniques and silvicultural regimes could therefore be warranted. But they are not necessary. Logging and mill residues of pulpwood quality from the indigenous forests, supplemented by plantations of the several fast growing hardwood species with good pulp and paper making properties, already known to grow well in Sarawak will quickly establish a more than adequate raw material base. The tropical Acacias of the mangium group alone are enough to start with.

The assignment of responsibility for the development of plantations in respect of those two groups of products is relatively straightforward. There is little freedom of choice. Almost by necessity, the main responsibilty for the implementation as well as the formulation of forest and plantation policy relating to the decorative timbers falls on the State. And, almost equally by necessity, the responsibility for both the development and implementation of plantations primarily for the production of pulpwood lies with the industries. In both groups there is no great problem of


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species selection. For pulpwood plantations the species select themselves. For the

decoratives there is a problem of more precise species identification, but once

identified, natural forest management not plantations is the way to go.

5.5 Plantations for Log Production.

With the third group - plantations for the production of commodity grade timbers

for solid wood uses - neither the assignment of responsibility nor the choice of

:species, is anywhere near as obvious or automatic. Turning first to the matter of

responsibility, the timber industries, on the one hand, probably have a more detailed

and up to date knowledge of the structure, behaviour and dynamics of the export

markets than the State can ever have. But, on the other hand, in the situation of

Sarawak, the State is much less able to afford to lose the continuity and well being

of the timber exporting sector than either the industry itself or any company in it.

This means that some combination of State and private sector interests will have to

be worked out, perhaps more formally and certainly applied more effectively than

the loose connections adequate for the other two groups of products.

Yet the uncertainty about the export market outlook and the risks in them are

considerably greater with the commodity timber group than they are for the other

two 'Product groups. Picking winners in those circumstances is, as the economic

rationalists or the neo- liberals are constantly saying, something at which

governments are notoriously and inherently inept. Then, a partnership in which the

private sector makes the guesses but the State carries some, if not most of the risk,.:

is not much of an investment for the State, unless the private sector nearly always

~guesses correctly. But if the private sector feels the risks are not worth the effort,

the investments needed to maintain the economic base of the State will not be made

and the State, whether it fills the investment gap or not, will be the loser. ' .J ....

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The State, it seems, cannot win. It needs, at least, to keep the export industry that it

presently has. But this cannot be done from its present forest resource. The present

level of output from the natural forests must obviously fall as the combined result of

the drying up of the once only output from Statelend conversion to agriculture and

the lowered output available from the PFE under sustainable management. The only

way to fill the gap is through a substantial saw and veneer log oriented plantation

programme. The outlook for the global wood supply - demand balance from early

in the next century points, however, to an over supply of commodity grade logs

which are what fast growing plantation species normally produce. Hence a

replacement plantation programme is a highly risky business. To have a chance

with those sorts of timbers in the intensely competitive export markets from around

2015 onwards and without a big home market which could support tactical marginal

pricing, the Sarawak forestry and forest products sector will have to be ultra

efficient. The State could help towards this by carrying or under writing the

investment in the plantations, leaving the industry, perhaps with State assistance, to

undertake the technological and research investments needed to stay in the forefront

of industrial capability.


But the chances are quite high that even this may not work. On the plantation side, it is unlikely that the State or anybody else would be disastrously unsuccessful at growing the wood. Enough is known about species and their suitability and performance to be reasonably confident that there are half a dozen or sp possi~i1ities available, without the need for much more experimentation. Much more serious and likely is the possibility of failure on the industry side. The industry may not, for example, be successful enough with its technical investments or it may assess the chances of raising the finance or of achieving what it considers an adequate rate of return on the investment are too low or risky to justify the effort. The combined exercise could thus fail even if the plantations turn out to be an outstanding silvicultural success. The industry can, in effect, legitimately opt out, leaving the State with an irretrievable investment in its silviculturally sUccessful plantatipn estate. Even a most optimistic assessment of the subjective probability of this sort of outcome would have to be over 0.6.

There are several ways of reducing the risk of that being the outcome, although certainly none of eliminating it completely. The crucial point is that the value of the plantation resource to the State lies in the public good it provides through guaranteeing the State's economic base. Relative to that, the royalty value to the State of the wood produced, is insignificant. This means that there is considerable scope in timber sales policy for State plantations to support, if necessary, the sector's profitable and competitive position in the export markets. But if this were to be done at royalties well below the cost of growing the timber, it would be tantamount to subsidisation of the private arm of the sector. And there are clearly all sorts of dangers associated with this. An obvious one is that it could be used by the industry to relieve the market pressures on it to operate at the maximum possible efficiency. Another is the possibility of incurring sanctions through WTO action. Taken together these dangers could convert a theoretically valid procedure into a double ~ edged sword, too dangerous to use.

Again the need for the State to make sure that Sarawak does develop a fairly large scale timber plantation resource leaves the State carrying the risk. And because of the export market outlook after 2015 at the latest, that risk is substantial. Therefore, more important than the silvicultural and other technical aspects, the first essential part of a plantation policy is to devise an institutional structure which will virtually guarantee that the timber industry for whose continuity the plantations are needed, is not just capable of being viable and competitive in the export markets but also actually performs accordingly.

In principle, it is hard to fault the conventional wisdom that there is so much risk and so much speculation involved in plantations for commodity grade timbers that they should be left to the private sector. If the sector makes mistakes, misjudges the prospects or bungles or fails to make the necessary investments, it carries the risk and is better suited to do so. If the private sector fails, whatever the reason, it can, at any time, decide to cut its losses and relocate outside the State or shift into some


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other form of activity. It is of no great concern to the industry that the State is left

with the resulting economic mess and does not have the choice that industry had of

walking away from it.

The trouble with this sort of argument is that it makes sense only when the economy . --

of the State concerned is not heavily dependent on a commodity grade industry and

has no possibility of developing an alternative for a long time to come. This is the

,opposite of the situation facing Sarawak. For Sarawak, the conventional wisdom is,

really conventional nonsense.

But this is no great help to the State in deciding what this part of plantation policy

should look like. It cannot safely leave everything to the private sector. Yet it

cannot take everything upon itself. Some sort of joint venture atr_~lJgement seems

to be unavoidable, not just on the plantation side but also in the industrial

developments and operation. The idea is almost unthinkable given the prevailing

economic philosophy. But without it, the State would be irresponsible to undertake

or underwrite such a risky form of plantation development. It could, of course, take

the chance that the unwanted logs could be sold into the pulpwood markets but this

would only reduce the losses a little, not eliminate them. The choices are either to

work out and apply such a structure or accept a fairly high probability that the

present industry cannot survive in its present form and on its present scale. If theL

latter were to happen, the present economic base of the State economy would go.

with the industry, in which case the State would have to plan for and develop a:

sector based on pulpwood markets and the limited volume but demanding and,

potentially lucrative market for decorative timber products.-

.-. This is not the place to formulate the sort of joint venture arrangement whereby the

: future of the industry as presently structured might be safeguarded. On the fairly

safe as~tiinption that an appropriate arrangement can be worked out, the questions

of species selection, site selection and management regimes then become relevant

and important. Their main purpose would seem to be to replace the commodity

grade and types now taken from the natural forests with similar, if not the same,

plantation grown material. Some of the commodity type species in the natural

forests have already been shown to be suitable for plantation development under

fairly short rotations. A list of around thirty of these emerged from the "Planted

Forests" conference as well as a narrower but still significant range of non-native

species.

The six or so species and hybrids of tropical Acacias can be grown on longer,

though still short, rotations to log dimensions. However, the overall quality of the

logs and the wood that they produce is unlikely to qualify them as particularly

successful substitutes for the indigenous commodity species. Nevertheless they,

may have a place as adequate, low cost core material in plywood, blockboard, L VL

or MDF and thus helping to maintain the present capacity and viability of the well

established industry. Albizzia and Gmelina, are also technically good candidates for

this core material use, as well as producing rather better quality logs. The latter

Forest Regeneration and Plantation Development-MFMA Phase If Page 41

" 1

point hardly matters, however, as the export log market will be tending to oversupply from 2010 onwards with Sarawak more likely to suffer a comparative disadvantage rather than the comparative advantage needed to be price competitive. Gmelina did not show up well in the list informally assembled at the 1998 conference and it also has the disadvantage of being ultra site sensitive to a degree . "-as yet little tested in Sarawak. Among other species which do not seem to have been tested on any significant scale, Cordia alliodora and several of the West African Terminalias may be worth a try. The Eucalypts have not shown any great promise, while the wood properties of those which might yet succeed, such as e.g. E. camaldulensis, torreliana, are not so noticeably better than those of other commodity type species. They do not impress as warranting much experimentation.

S"ome of the tropical pines have performed moderately well in a few places and could be worth more attention. They would have the slight added advantage of providing, also or alternatively, a long.tibre resource for a paper industry. But, unless a need of that sort does" develop or unless Pines can outperform the indigenous and introduced hardwoods, there seems to be little point in any large scale expansion of a softwood resource.

At this stage, however, uncertainty on the market side is so high that there seems to be no point in adding to the risk by speculating on the growing side as well. There are enough species available on which a silviculturally sound programme of commodity wood plantations could be based, without gambling on unknowns and "improbables". Whatever experimentation may be felt to be warranted, should, at the most, be restricted to small scale trials of potentially promising introduced species which have not yet been tried in Sarawak or in expanding the range of indigenous species with plantation potential. Further trials with species whose performance in Sarawak has, so far, been unpromising should be at "owners' risk" entirely. ,.

5.6 Risk and the Plantation Programme.

Again the outlook can be usefully assessed in a ranking by subjective probabilities.

Least risky - plantations for pulpwood. Pr. of success silviculturally = 0.8

in markets = 0.5 Medium risk - plantations supplementing natural forest management for decoratives.

Pr. of success silviculturally = 0.4 in markets = 0.7

Most risky - compensatory plantations for commodity grade timber supplies Pr. of success silviculturally = 0.8

in markets = 0.3


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The ranking reflects the feeling that market prospects are the limiting factor to a

much greater extent than the silvicultural aspects. What happens on the silvicultural

side can, to a large degree, be controlled by and within Sarawak. However,

Sarawak, being so much dependent on exports, is almost entirely governed on the

market side by factors beyond its control. Almost, but not quite, entii:ely,as_-there .

are some measures that Sarawak can take to soften the impact of the external 'forces

where its market power is minimal and some marketing measures it can take to

enhance its advantage where its market power is potentially high. Silvicultural

measures to reduce the impact of the external market forces apply mainly to

pulpwood. But, for the decoratives, the impact can only be reduced by an almost

completely new approach to marketing.

This line of reasoning implies that market forces should be given more weight in

determining plantation policy than the silvicultural ones. In other words it would be

misleading to estimate the joint probability associated with the two independent sets

of variables in combination simply as the product of their two individual

probabilities. But again the choice of an appropriate set of weights is a purely

subjective choice. On this basis, it would be reasonable enough to assign a weight

to the market factors in an almost totally export dependent economy of 2 to 3 times

that of the silvicultural factors. The joint probabilities of success for the three

classes of plantation strategy would then be : -

pulpwood plantations decorative plantations i.c.w. natural management

compensatory plantations for commodity timber

0.6 c.f. 0.65 under equal weighting" 0.6 0.6 .................... .

0.5 to 0.4 ... 0.55 .................... .

. It could be questioned whether the subjective quantification of original rankings

. adds anything worthwhile other than confirming that, for Sarawak, plantations

represenfa fairly risky venture. But actually, it does, despite the fact that weighting

does not make much numerical difference to the estimates of the probability of

success. What it does do is to show that there is much the same level of uncertainty

associated with the "decoratives" and the pulpwood strategies and it is appreciably

less than for the compensatory plantations strategy.

5.7 The Dilemma in Plantation Strategy. This presents quite a quandary for plantation policy. The compensatory

("supplementary" may perhaps, be a more accurate adjective) plantation

programme is the most relevant and urgent one for Sarawak. In fact, it is the main

justification for plantations. Yet it is also the most risky. Moreover the lead time

before it starts to produce the logs needed - 10 years at least - is such that the

output starts to come on stream not long before the global over-supply surge

develops.

Forest Regeneration and Plantation Development-MFMA Phase I1 Page 43

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Plantation policy thus comes down to three questions:-1. To plant or not? 2. If yes, how much? 3. If yes, with what species?

As the second and third questions only arise if the answer to the first is "yes" it needs to be worth examining in some depth.

To plant or not?

In reality, Sarawak does not have much choice. It is so dependent on a substantial forest products industry that thy one it has now, virtually must be~sustained. To do that, from its own resources, plantations will be essential.

But there are alternatives. One of the most obvious is to import logs.' :The global supply of industrial roundwood eventually and the regional supply before long, would allow most of the requirements to be imported at prices probably lower than they could be supplied from the natural forests and competitive with the future supply from plantations in Sarawak.

There are, of course, dangers in being heavily dependent on a foreign sourced log supply but they are more apparent than real. Very substantial, viable and durable forest industries can be built on imported logs as Japan and Korea have shown in recent years and Western Europe in the 1950s to 1970s. In any case, security of supply can be strengthened by entering into long term supply contacts and/or investing in plantations in the exporting countries. In fact, a good financial case could be made for doing the latter rather than compensatory plantation development in SaraWak.

The possible dangers are not, therefore, a particularly compelling objection to this option. The big objection lies in the loss this would entail of much of the employment component of the public goods value of sustaining the Sarawak industry. Plantation establishment, plantation management, timber harvesting and log transport are the most labour intensive and rural based elements in the sector and seem to appeal more to local people than work in wood working faCtories. To go for this off-shore option amounts, therefore, to foregoing most of the social benefits from the sector.

In effect, therefore, Sarawak has to plant to supplement the commodity timber log supply. Thus a fourth question is added to the list - what can be done to reduce, cushion or absorb the risk?


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How much?

The answer to the question "to plant or not" is a fairly emphatic "ye~" to planting. But to answer the second question that then arises of "how much?" introduces a complex of inter-acting factors which includes:-

( a) the growth rates of the several candidate species (b) the rotation required for each to grow to utilisable log size (c) the S.F.M. yield from natural PFE, of the mainly decorative species which

could carry the costs of S.F.M. (d) the nature, rate and timing of technological developments in progressing that

might reduce the size and properties oflogs required and hence the technical rotations' .

(e) the nature, rate and timing of technological development to reduce the costs of plantation management and/or increase growth rates and increments of the candidate species

(t) the extent, location, topography and site qualities of available or suitable land

(g) the annual rate of plantation establishment physically and logistically attainable, the cost of establishment and management

That the list is not exhaustive hardly matters. The complexity of the evaluation is" enough as it is, especially, as so little of the information required is known at all and much of that is ambiguous or even contradictory, most of the information required . is quite unknown and some is unknowable.

I

All the'same the list is more than enough, as the outline in Table X shows, to demonstrate the near impossibility of a definitive calculation of the area of the plantation estate ultimately required or appropriate.


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Table X

A Schematic Outline for the Estimation of the Scale of a Programme for Compensatory Plantations in Sarawak.

A. Sustainable yield from the natural forest PFE of

(1) all currently marketable species - lTIO Mission Estimate 9.2 X 106 m3 p.a.

(2) the mainly decorative species which could capture export markets after c. 2010

NOTKNOWN· GUESS 2.5 to 4.0 x 106 m3 p.a.

(3) the decorative species which could absorb the additional costs of SFM and still capture export markets after c.20 10 NOT KNOWN

GUESS 1.0 to 1.5 X 106 m3 p.a.

B. Capacity of existing processing industry (Log input)

C. :. sustainable yield needed from compensatory plantations (roundwood) = B minus A

D. Area of plantation needed to give that S.Y. If average MAl 5 m3 /haIa

8 m3 /ha1a 10 m3 /haIa 12 m3 !ha/a

E. MAl of candidates species

F. Estimated expected MAl of candidates species With current technology Tropical Acacias

Gmelina I' Albizzia

Engkabang Rubberwood

With improved silvicultural technology

DERIVED GUESS 8.5 to 9.0 x 106 m3 p.a.

1.7 to 1.8 x 106 ha 1.0 to 1.1 X 106 ha 0.8 to 0.9 x 106 ha 0.7 to 0.75 x 106 ha

NOT KNOWN

12 to 20 m3 !ha/a on 8-10 yr rotation 15 m3 /ha1a on 15 yr rotation 15 to 20 m3 !ha/a on 7-8 yr rotation 5 to 8 m3 !ha/a on 15-20 yr rotation 8 to 12 m3 /haIa on 10-25 yr rotation

UNKNOWABLE

GUESS 5 to 20% increase.

G. Reduction in rotation due to improved Processing technology UNKNOW ABLE GUESS 5 to 10% reduction

The OMNI work under the MFMA should fill some of the gaps relating to natural forest management and research plots of the faster growing species should soon amplify and calibrate the estimates for plantation growth rates. However, in the meantime, the conceptual target of 1 million ha. envisaged in current policy is a fair enough basis on which to work. How much of it should be allocated to each of the three classes of plantation does need, however, to be considered in a bit more detail. For instance, around 250,000 ha. of pulpwood plantation would, it seems, be needed to support one viable export pulp mill. The compensatory plantations to maintain the existing industry would require close to another million ha. No set area, however, can or needs to be designated for the decoratives, as their main resource


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base will continue to be the natural forests, provided they are under SFM

supplemented by small scale gap filling and soil rehabilitation plantings. On the

whole, the total land requirement seems to be under - estimated by the area

presently envisaged.

What Species?

There is really no need for this question to be explored any further in this review.

The 1998 conference "Planted Forests in Sarawak" included a comprehensive

analysis of the then conceptually feasible possibilities and nothing has changed

since. In effect, the summary earlier in this review, drawn largely from that

conference is enough. Selection from the narrow range of feasible exotic species

and the wider range of indigenous specie"s' is largely a matter for the individual

investors in plantation development to decide. Trials to widen the range, to increase

productivity, to reduce costs are similarly matters left to the investors. The State, ..

however, would have a role, independent of that associated with its participation in

joint ventures, in exploring the more imaginative, innovative and hence risky

possibilities.

One aspect of species selection does, however, warrant some further consideration.

This is its connection with what might be called a self - insurance type of risk

management.

Risk Management.

Sarawak can, as mentioned earlier, take some internal measures to reduce, cushion

. or absorb the risk involved in plantation development. The first of these is the siting

of the plantations as close to the export ports as is physically possible in order to

minimise'the cost of log transport. The second is to site the plantations on soils and

slopes which enable the cost of harvesting to be kept fairly low. Silvicultural risk

minimisation measures depend, essentially, on the use of species with dual purpose

end use possibilities. Most of the species with log potential can, with varying

degrees of suitability, be used for pulpwood in the event that expectations of log

markets do not materialise. Self insurance in a supplementation timber plantation

would, therefore, minimise the use of species with pulping properties well down the

scale of suitability such as, for example, Albizzia. On the other hand, bole form is

not so critical with pulpwood, so that the reverse may not apply with in the

pulpwood plantation programme. Nevertheless, even in these plantations, risk

minimisation may be worthwhile with silvicultural measures aimed at improving

bole form by planting, at least, some of the plantation area with pulpwood species

that also have good log potential.

However, the best self insurance measure in compensatory plantations would be to

use species which could serve two or more independent and unrelated markets. On

this basis, rubber wood, commercial fruit bearing trees such as engkabang and

Durian and species with aromatic or medicinal properties virtually select


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themselves. In both cases, tree improvement procedures to enhance one or other or both of the market attributes could be worthwhile but at this stage they are not vital. The important thing is the independent market duality .

A STRATEGY FOR PLANTATION DEVELOPMENT WITHIN-MARKET AND SILVICULTURAL LIMITS -

At this point it may be useful to summarise the key points arising from this review of the market and silvicultural bounds within which plantation policy has to be worked out. A combination of four factors force Sarawak into a substantial plantation programme. They are :-

1). the heavy reliance of the State economy on continuity ofthe already . established forest products industry. 2). the almost total dependence on that industry on exports 3) the very high likelihood that the main.export markets will, by 2005 -7, be

swamped by the commodity types and grades of roundwood that the Sarawak natural forests now produce and the largely commodity grade orientation of the industry and the near certainty of all export markets being over-supplied by 2015.

4) the increasing cost of logging in the natural forests, as a result of, importantly though not solely, of SFM imposed by consumer attitudes in export markets and international obligations.

The nett result is that a plantation policy has to be set in two time frames and cover plantations to meet three related but rather different purposes. The two time frames arise from the likelihood that any plantations established between now and 2005 will, provided they are of fast growing short rotation species which will mature before 2015, be slightly less exposed to the intense competition of over-supplied export'I1).arkets than plantations established from 2005 onwards, irrespective of the species. The plantations could be intended to serve three purposes, one being for pulpwood production, another for decorative quality timbers and the third for supplementing the dwindling log supply capacity of the natural forests. Pulpwood plantations are an opportunistic option, justifiable, if at all, on the grounds of economic feasibility alone. Plantations for decoratives are a gap filling option, complementing and perhaps enhancing the supply under natural forest management but not vital for sustainable management. Only the timber supplementation plantations, are the unavoidable outcome of the combination of circumstances that compels Sarawak into a plantation programme. And they are that solely on the grounds of the public goods value of the timber industry.

The timber supplementation plantations are probably the most vulnerable to the intense competition which will dominate the export markets for commodity type timbers and products from early in the next century and, hence, the most risky investment. But this is no reason to shy away from them. The economy of the State is so dependent on its forests sector that the raw material base for the industry must be ensured. This is something which cannot be safely left to the industry alone. An


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industry - State partnership arrangement will have to be worked out, so as to guarantee that the supplementation timber plantations are established and established quickly.

The problem of species selection, which can be a major delaying'factorin new plaatation programmes is not critical in the Sarawak context. Enough is known to allow a wide range of suitable species for the supplementation programme to be matched to sites and markets, without much preliminary experimentation. Initially

-the tropical Acacias provide a reliable and safe basis for the pulpwood plantations while the performance of a sufficient number of the indigenous decoratives is known for a start to be made. Further trials and experimentation can follow, not precede, the programme.

It is not yet clear what scale of supplementation planting will be appropriate. The present notional target of 1 million ha. overall is probably not far off the ultimate figure and is, anyhow, an adequate base at this stage.

The Role of the MFMA in Plantation Strategy. As the name implies the MFMA is meant to offer a model of SFM for the State.

Pulpwood plantations are neither a necessary nor a particularly appropriate part of this -role. But supplementation plantations may be and gap filling decoratives certainly are. One catch with supplementation plantations is that they are very likely, almost by definition, to run counter to the bio-diversity conservation norms of SFM. From this angle, large blocks of supplementary timber plantations in the' MFMA and, for that matter, the PFE generally should be confined to areas of forest·

,land already depleted or degraded by shifting cultivation or cleared for major log landings or storage .

. The c&eial -role of the MFMA in the artificial regeneration or reforestation programme, lies, however, in the development of technologies for gap filling with decoratives and rehabilitation of small areas of heavily compacted soils resulting from ground logging operations. This calls for innovative experimentation. The field is relatively unexplored and it is further complicated by the implied requirement in SFM to maintain the structure and dynamics of the forest eco-system. The planting and development of mixed stands of the ecologically appropriate indigenous species on compacted soils and under relatively shaded conditions is an almost totally new field. It is certainly not an issue which would be tackled by the private sector.

Clearly, the need is associated with the implementation of SFM. The ambiguity, vagueness and confusion in the general understanding of SFM hinders rather than helps the search for a solution. So it may be useful to summarise the relationship between SFM and the emergence early next century of over-supplied export timber markets. The over-supply will be in general purpose utility timbers and the effect will be to make such timbers from the tropical forests almost unsaleable at prices covering cost. Decorative specialty timbers will not, however, be in over supply. As tropical mixed forests produce both, management concentrated on the decoratives will still give the natural forests a future as timber production forests. But it will be a


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very different future from that assumed in continuing with the present approach to tropical forest management. The role of the :MFMA is to develop that type of management system.

That ideal, like most ideal solutions, is, however, unattainable but not'!iimply for the usual reasons. The essence of timber production under SFM tends towards the antithesis of conventional selective felling with ground based logging systems and to natural regeneration rather than planting. The export markets of the post 2010 era will force timber production management into even more selective felling of a few high quality, high value decorative species, resulting in smaller and more scattered canopy openings which may make regeneration more difficult. The combination of SFM and post 2010 markets will force revolutionary changes in tropical forestry. It may be worth at this point outlining what that revolution would incorptfrate.

The shock which will wreck the present system of management is the collapse of the export markets for all but the decoratives. As this is not likely to happen until" . around 2015, although price ceilings for commodity timbers could start to lower some years before that, management planning could continue as at present for the next 10 years or so. But from 2015 at the latest, only those 10 to 15 decoratives will have much of a chance of holding a place in the export markets. The sustainable yield from the PFE will then be market constrained, incidentally as foreseen in the ITTO Mission report, rather than growth constrained and thus considerably less than the 9.2 million m3 estimated in that report. Exactly by how much the sustainable yield will fall is uncertain until more work on the decoratives is done with the OMNI model. However a rough, pro-rata approximation (Appendix II) suggests that the AAC, constrained by the markets to the decoratives only, could be no more than 10 to 20% of the present 9.2 million m3.

But thaLis not the only drastic change. Yield regulation and control will have to be by each of the 10 to 15 decorative species individually. Since they each have different growth rates and hence technical rotations, this probably means a number of different felling cycles with a number of minimum diameter limits. All of this would be impossible to combine in the natural forests under ground logging systems. Helicopter logging completely changes the equation. Topography and soil conditions become almost irrelevant; very short felling cycles become both physically and economically feasible; individual tree selection silviculture becomes practicable. The present system of yield regulation, both in calculation, implementation and supervision would have to be abandoned and much of its associated paraphenalia of inventory, output measurement, revenue control, logging planning and supervision as well. There are two essential keys - helicopter logging and targetted marketing. Without both of them, SFM based on management for high quality, high value timbers is a pipe dream and probably the timber supply plantation strategy.

Pre-existing licence commitments in the :MFMA together with the consequent ongoing logging planning and operations limit the extent to which those methods can


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be developed within the MFMA and the rate at which they can be tested and applied. Yet there is nowhere else where it can be done either. And as this form of management in the natural forests is what carries the supplementation plantation programme the system has to be developed and, apparently in the MFMA. Fortunately the fact that the radically different management system will -1}ot be needed before 2010 to 2015 allows plenty of breathing space during which the preparations can be done, but not much for delay. In working out both a more exact

, idea of what impact the changed market situation will have on the AAC and the . design and implementation of the radically different management system required . in the MFMA will be crucial. So while the MFMA has a limited role in the ~plantation programme, its role in developing overall forest policy could be vital. The two are, however, inextricably linked through SFM for the production of the decoratives.

Nevertheless, in spite of. the circumscribed operational difficulties applying in the :MFMA, that which can be done is crucial to the future of the sector from 2005 onwards. First the informational base for the development of more appropriate management systems can be laid. The decorative species need to be identified; their individual growth potentials established, their summed sustainable yield determined, their regeneration and silvicultural behaviour patterns worked out and the . operational details of the near - zero impact harvesting regime which is required, established, if only in concept at this stage. Then when the opportunity arises a SFM / market consistent system will be ready for testing or application.

At first sight, plantations have no essential part in all of this in the MFMA. The filling of gaps where regeneration has failed or on the compacted soils of heavily used skid tracks and log landings is about all that is called for. Except for one thing; the development of this gap filling planting on the basis of the decorative species within the ecological and bio-diversity objectives of SFM introduces a largely unexplored factor into the overall plantation strategy. And this gives a special significance to the MFMA role in this field.

6.2 Implications for the MFMA Work Programme 2000 to 2003. The foregoing discussion virtually sets the work programme with reference to plantations and natural forest management for the MFMA over the years 2000 to 2003. The driving element is the group of decorative timbers. Set by the export market conditions from around 2010 onwards as virtually the only saleable output from the natural forest resource, the first priority is to establish a firm and definitive list of them. This will be completed by the end of this year. On present indications, it seems that the list will be made up of about 10 to 15 species, representing around 10% of the natural forest growing stock. However, the information on which it is based is necessarily somewhat tentative and speCUlative, the list will need to be kept under constant monitoring and periodically reviewed and up-dated. Some mechanism for putting that into effect should be included in the work programme.


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The next step for the project would be to establish a hierarchical ranking of the identified decoratives in terms of their values and probability of success in each of the main export markets. The list, as it is shaping at the time of writing (April- May 1999) and arranged (hypothetically) in the form of hierarchical series proposed is presented in Appendix IT. It is obviously impossible for the project.to do {his on anything but a pilot scale and then on a very tentative basis. However, even this much is a necessary pre-requisite for the sector wide innovative market research and market development drive which must ultimately be done to take advantage of the potential the natural tropical forests have offers for Sarawak to evade the commodity timber trap. Again constant monitoring, review and up-dating of the rankings will be required and this could be part of the mechanism referred to above.

The next but concurrent step is to establish the silvicultural parameters of sustainable management of the decorative species in the context of SFM. Although this is essentially a matter oflong term research focussed specifically on each of the listed species in order of their hierachical rank, SFM cannot wait on the results before it is implemented. The possibility of the hierarchical ranking also playing an essential role in sustained yield planning and control at the species by species management implied by SFM is suggested by the exploratory analysis of cut versus frequency presented in Appendix H.

Again the project cannot do the lot, but the OMNI analyses should be continued so as to uncover enough for a start to be made as soon as an opportunity occurs in the MFMA. Similarly continuation and expansion of the OMNI work on individual decorative species growth rates and yields is needed to establish the sustained yield capacity of the decoratives individually and by sequential groups in the hierarchical ranking

Wherevefthe local situation allows it, the experimental scale helicopter logging as a means . to near zero impact logging must be continued together with the environmental impact monitoring of it. The work programme must aim to produce a SFM plan for decorative species, which :-

a) incorporates the findings and indications on decorative species so far identified, b) the silvicultural regimes and yield regulation procedures to prevent the selective

system degenerating into high grading or creaming and c) the harvesting methods consistent with the environmental and conservation

standards for SFM.

This programme and the rest of the fact finding work in the MFMA over the first two phases needs to be incorporated into a SFM plan for the project area which can serve as a model for management planning in the rest of the PFE. It is, in effect, the fundamental objective of the third phase. As with the plantation strategy, two time frames are recognizable. But they are very different. Because the natural forests, including those of the MFMA, will have to carry the industry until the oldest age classes of the supplementation plantations reach technical maturity, the first period


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runs until about 2015. After that over-supply of commodity timber in the export markets will force management of the natural forests into sustained yield for the decoratives only. From then on the bulk of the natural forest resource ceases to be a significant factor in the State's supply of industrial wood.

. -This means that the timber aspect of SFM up to. around 2015 is not bound by yield regulation considerations to the sustainable yield of the commodity timber component of the natural forests. There is no technical sense in restricting the ·output from a resource which has a limited life (probably no more than 15 years) in the market to its sustainable yield in perpetuity. This, however, is of academic "interest only. In practice, it would be virtually impossible to plan and control a timber harvesting regime combining sustained yield management for a small fraction of the growing stock and unregulated cutting for the rest. Furthermore it is questionable, to say the least, whether such a management system would qualify for certification as SFM by any outside body.

Consequently, unlike the plantations, the two time frames into which natural forest management planning can be separated have no practical relevance, although in theory they differ greatly. During the first period, running to around 2015, the cut of the commodity timber species is not, technically, restricted to their sustainable yield. In the second period, from 2015 onwards, their sustainable yield is irrelevant. While the difference could certainly be written into management plans covering the. first time frame - the calculations are relatively straight forward - the resulting dual: yield regime would be impossible to administer and control. The plans would be'" unworkable and thus useless.

The yield regulation aspects of the MFMA management plan are therefore quite conveI1tional, for a time at least. Determination of the overall allowable cut could be based,as'at present, on the sustainable yield of all marketable species up to around 2015. But thereafter it would have to refer to the sustainable yield of the decoratives only.

The management plan for the MFMA must, however, incorporate a number of critical departures from currently standard practice. An overall allowable cut is, on its own, almost meaningless. The only allowable cut that really counts is that for the decoratives so it must be calculated, prescribed and controlled, separately. Moreover it must in turn be sub-divided into the allowable cuts for each of the listed species in their hierarchical ranking. One obvious reason for complicating the plan with these elements is the importance of avoiding over-cutting in the first period which could jeopardise the continuity of the flow of the decoratives after 2015 when they are most needed. But equally important is the need to monitor and control the compatabilty of timber harvesting with bio-diversity and eco-system conservation under SFM.


The reforestation elements of the work programme are associated with and derive from the dependence in the MFMA and the PFE generally on natural management systems. Replacement of the harvested timber is by natural regeneration in situ not by plantations elsewhere. The role of plantations, therefore, is limited to relatively small scale rehabilitation of degraded sites, the compacted soils of log landings and . -

skid trails or where natural regeneration has failed. These areas, when the trees eventually mature, could have an appreciable cumulative effect on the sustainable yield, but not for a long time into the future. Therefore, the work programme for 2000 to 2003 should continue this rehabilitation planting with emphasis on decorative species although the results will not be evident until well after the end of the MFMA proj ect in its present form.

Reforestation of the 3 to 5000 ha. under shifting agriculture, some of which will have been completed by the end of the second phase, should obviously continue. Although the location may be somewhat beyond-. the "preferred economic zone" for supplementation plantations, the MFMA plantings are important for several reasons. The first is that they are actually in progress rather than just in prospect. The second is that experimentation is part of the MFMA purpose and species selection emphasising the decoratives and their establishment in mixed stands could be more readily arranged and organised within its jurisdiction.

One point about plantations does, however, need to be taken into account in the MFMA plan. This is that the sustainable yield from the area is unlikely to have much of a supplementation plantation yield. Other areas of the PFE will. In these, the yield of the decoratives will have to be matched with the yield of the plantations as the final processed product will be a combination of both. The MFMA work programme for phase 3 could usefully give some thought as to how this matching could be planned

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The other departures from the standard timber oriented management plan are concerned with the incorporation into the plan of conservation, social and environmental values as objectives rather than constraints. A strict interpretation of SFM would have these as the principal objectives of tropical forest management with timber as a conditional subsidiary use. There is a chance that the SFM performance of Sarawak in particular will be judged externally against such a standard rather than against some less rigid compromise set of standards towards which the present certification processes are heading. Not, perhaps, a big chance but enough to warrant some consideration in the project as to how such an perspective would affect the planning and control of timber harvesting and how it might be done.

6.3 A Caveat. The above discussion and its conclusions rest on a set of assumptions which seem reasonable in the light of the analysis. The first and most obvious of these is that the third phase of the MFMA project will be approved. Then follows a pair of assumptions about SFM. These are, first and most fundamentally, that Sarawak is


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serious about SFM and achieving the year 2000 objective adopted in the Bali declaration by the ITTC. The second is that the essential elements of SFM, if and whenever agreement on them is reached, will include at least the following:-

a) timber production at or below the sustained yield capacity, b) near-zero impact timber harvesting ._ c) regeneration of the harvested parts of the forest so as to maintain -"eco

system integrity"and dynamics and d) no disruption to local forest dwelling or dependent communities other than

that they themselves agree with.

The next four relate to the state and nature of the export markets into which Sarawak will have to sell almost all of its timber. The first and most fundamental of this group is that the economy orSarawak is so heavily dependent on its existing timber industry that its future supply base must be assured. The second market assumption is that the analysis in this review which shows that export ml;l.rk~ts will, before long, be over-supplied with commodity timber is correct. The third then is that value added products combining commodity timbers as interior material with decorative exteriors will escape the low price ceilings set by the intensely competitive markets for commodity timbers and then finally, that the Sarawak decoratives can, in themselves, penetrate, capture and hold a lucrative share of the up -market prestige furniture and panelling export markets.

If any of these seven assumptions does not hold, the foregoing review or the conclusions drawn from it could be in error. However the assumptions do not aU:" exert an equally powerful influence on the findings. For instance, if the third phase of the MFMA project is not approved or is severely scaled down, the associated . work programme is redundant. The rest of the analysis would not, however, be affected. But on the other hand, if for instance, the assumption of an over supply of commodity timber in the export markets is wrong, so is, along with it, the whole analysis and its implications. The same thing applies if the assumption about the importance of the timber industry to the State economy is wrong or exaggerated. It may therefore be worth adding a comment or two on the validity of the set of assumptions.

Assumption 1. A Third Phase for the Project. On logical grounds, the third phase of the project is a necessity. Without the third phase the end result at the conclusion of the second phase will be little more than a bundle of unconnected loose ends. But it can by no means be taken for granted that the approval of the third phase will be decided by logic along those lines. Hence a contingency work plan is needed so that an interim and probably incomplete but usable SFM plan can be put together in what is left of the current phase.

Assumption 2. A Serious Intention to Achieve Objective 2000. It is most unlikely that this assumption would not hold, otherwise there would be no point in proceeding with even the current phase of the MFMA project or, indeed, with forest management of any form beyond revenue maximisation.


- .-....:..:.-~.--------~- .~---~ ---------_.- - '. ------ -"---'~-'~--'--. -' ,--'------,- --'---_.-

Assumption 3. The Essential Elements of SFM. The elements listed above represent a strict interpretation of SFM. The indications are, however, that, in practice, a less onerous standard for SFM will be accepted by • all but the most fanatical environmentalists. Rn, might do instead of near-""" zero impact logging, for instance and something a little less than full eco-system integrity. A soft version of SFM would therefore be a more realistic assumption than the strict version underlying the review. This would mean that SFM would impose smaller increases in the cost of timber management and harvesting on the timber trade, so that the competitive position of commodity timbers from the natural forests in the export markets of the future would not be weakened as much as assumed. This should help their competitive position but whether it does so enough for them to compete successfully, depends on the supply - demand balance in those markets - the subj ect of assumption 5.

Assumption 4. Dependence of the State Economy on the Forests Sector. This assumption holds, almost self evidently. Certainly there are few signs that Sarawak can develop an equivalent alternative, except in the very long term.

Assumption 5. Over-supply of Commodity Timbers in the Export Markets. The analysis in this review of the supply - demand situation in the export markets after the regional and then the global plantation resource comes on stream, concluded that they will be characterised by a tendency towards increasing oversupply of commodity timber and consequently, increasingly intense price competition. This view is contrary to the view of most commentaries on the future of regional and global markets. If assumption 5 is wrong, the inferences drawn from it for plantation policy would be wrong also. This assumption is, therefore, the pivotal/o~e, not just in respect to this review and for plantation policy but, more imporhirltly, for the future of the forests sector in Sarawak as a whole. Its validity is therefore critical.

The first half of the review explored this question at length and the conclusion reached was that it was more likely to be right than any opposite view. The increases in total wood supply as a result of plantation resource are now generally accepted. Whether they lead to over-supply depends on what happens to demand and it is here that the two views differ most. In this review, it is concluded that demand will not increase, if it increases at all, at a fast enough rate to absorb the supply increases. The alternatives assume that it will. Consumption trends and patterns provide little support for that view. At this stage, over-supplied, intensely price competitive markets for commodity timbers seem to be rather more likely than the opposite.

These conditions would not matter much if Sarawak commodity timbers could be put into those markets at costs below the consequent price ceilings and could then beat competitors' prices. The chances do not seem particularly high. Most of the already established plantations and, to an even greater degree, those planned for to


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be developed in the future, have considerable economic advantages over the natural

forest in respect of location relative to export points, uniformity and consistency of

quality, volume yield per ha. and in operating conditions generally. Although these

advantages may, perhaps, be counter balanced by the advantages of the almost zero

cost of growing the natural forests and the lower labour rates in Sarawak, ffiCJ.ny of

the competing sources are better placed than Sarawak for applying marginal cost

pricing to mount and win a price war. In the circumstances, it would be an act of

-extreme optimism and faith to be assume that Sarawak could beat that sort of

competition, simply on the grounds that SFM would not impose significantly higher

;costs or even that SFM would not apply at all.

Assumptj~m 6. Products Combining Commodity and Decorative Timbers.

The chances that various combinations of plantation grown commodity timbers and

decoratives from the natural forests can by-pass the intensely competitive part of

the markets of the future are indeterminable. The only thing that is sure is that, if

they cannot then little else can either. In other words, it is this or nothing for

Sarawak. The assumption, at this stage, has to be taken as holding. Some support

for this approach can be found in the fact that a number of forest products firms in

Sarawak have successfully developed markets for products of this type under

economic conditions which have some resemblance to those which are going to

prevail in the export markets of the future ..

Assumption 7. The Market for Decoratives on their Own.

Markets for two forest products are reasonably safely assured in the plantation~_

dominated future. One is for pulpwood. The other is the up-market use of

·'~;decoratives. Of the 10 to 15 decoratives identified as possibles from the Sarawak

natural forests, a few can be almost guaranteed to succeed, provided they are

specifiyally produced and marketed towards this purpose. The others have

- possibilities whose realisation would depend, initially, on a vigorous targetted but

innovative marketing campaign. Sarawak does not show much evidence, as yet, of

being able to envisage let alone mount and conduct the co-ordinated marketing

campaign needed to convert this assumption into a reality. Nevertheless it is a

realistic enough, though qualified assumption, on which to link plantation

development with natural forest management to form a State policy which gives a

fighting chance for a viable future.

6.4 Priority Ranking of the Recommendations.

Most of the recommendations for action at the MFMA level, the Departmental level

and the indusrty level are included somewhere in the discussion, usually

specifically or, occasionally, implicitly. Of those, the key recommendations can,

for convenient reference, be summarised as follows.


No great urgency applies to either plantations for pulpwood or decoratives. Neither is of such great concern to the State or the MFMA as to call for public sector involvement beyond facilitating the implementation of proposals from the private sector.

Nevertheless the decoratives species are of the utmost importance as they are the ones which underwrite the economic feasibility of the whole strategy. Hence the first set of key recommendations refers to the decoratives. Plantations of decoratives should, however, have no significant priority. The emphasis should be placed on the supply of decoratives from the natural forests under SFM. Gap -filling plantings with decoratives should, however, continue in the MFMA and, perhaps, be applied in the logged over PFE, if only on the grounds of site rehabilitation consistent withSFM. The early establishment of a meclianism for monitoring the way that the species on the list of decoratives actually perform relative to expectations is also a necessary component of this part of th~ strategy for the decoratives so as to ensure timely revision and up-dating of the list.'

Top priority should, however, go to the joint public - private programme for supplementation plantations. Experimentation with additional species for the programme should be well down the priority rank. The two most important considerations in the programme are species selection matching species from the already known, adequate range to already known site suitabilities and the siting of plantations and processing plants close to export points. Research to establish site -species matching on a firmer, wider and more certain basis should be given high complementary priority.

The second highest priority is the extension of the MFMA project into the third phase. I The drawing together of all of all the previously established growth, harvesting and environmental information and elements into an integrated SFM plan which can serve as a model for the PFE is an essential pre-cursor to the whole of the supplementation plantation programme. Yield regulation planning and control for the changed markets after 2015 will depend on the experience gained and the results achieved during this third phase.

For the sector as a whole, equal top priority has to be given to the development of the innovative marketing campaign. Without it, there is little chance of realising the potential of the high value, high quality decoratives which underwrite the economic feasibility of the plantation programme.

Two important matters are not, however, adequately covered in the discussion to this point. The first is concerned with the nature of a monitoring and review facility which must be established for the programme as a whole. The whole strategy, whether it is the one outlined in this review or some other, depends on the way the export markets develop after they are hit by the supply surges from the plantation resources of the region and eventually the world. Constant awareness of the way and the rate at which this external "plantation effect" develops is, therefore, a pre-


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requisite and a continuing requirement for the sector. The information and the analyses based on it must be completely objective, pushing no particular line or any particular interest, yet quickly and freely available to all parties active in the sector. This seems to call for an independent monitoring unit, responsible for this function alone, somewhere in the public sector, adequately resourced and joibtlyfunded by the public and private sectors but safeguarded against interference from either side. For this unit, the old adage that whoever pays the piper calls the tune must be deliberately flouted.

FAO programmes, especially those in its Global Forest Products Study would ,certainly be an important data source, as would also be the ITTO analyses of tropical timber markets. They cannot, however, do the job for Sarawak. Both are too slow and too broad. Nevertheless they both have access to so much information that more frequent and intensive interaction with both agencies would have to be built into the operating procedures of the unit.

In a similar vein and of equally high priority is the design of joint venture arrangements for getting the supplementation plantation going and going fast and going in the direction that the State wants them to go. This involves much more than joint venture financial arrangements. The purpose of these plantations is to safeguard a public good - the resource base for a permanent economically strong forest sector. Profit and its distribution or loss and its distribution are not the major considerations. They, of course, are not to be ignored but they are not the objectives. around which the joint ventures are to be structured.

The details of how these two new arrangements could be made, go well beyond the . scope of this consultancy and probably outside the range of the MFMA. But both are so, critical to forest policy in Sarawak that work should obviously be started

- somehow on putting both into effect, with more than a touch of urgency.

The recommendations, in effect, outline a work programme for the MFMA, the Department, the SFC and the industry and the STIDC. Individually or collectively they might, with justification, regard it as more than they can handle at the moment. The trouble is, however, that is also a programme of the urgent minimum. Unless it is all put into effect fairly quickly, the plantation programme, except perhaps for the pulp and paper side, is in danger of being no more than an unguided, expensive exercise in futility.

Two final points do need to be made, if only in the sense of cautionary notes. The first is that the analysis and the strategy derived from it refer to the forest resource only. It is fairly obvious that the market enforced reduction in the sustained yield from the permanent natural forest estate will have drastic follow on effects on the timber industry. That they might be offset, partly or fully, is, in fact, the purpose of the plantation strategy. What those implications are for the industry and the State, how they might adjust to them and how the State will have to restructure to absorb the consequential changes, call for rather urgent consideration. While that aspect of


:.-!

the overall policy is not part of this review it does lead to one further and quite crucial recommendation. This is that a task force be set up, as a matter of some urgency, from the STIDC, the Forest Dept. / SFC, the STA, the industry not represented in the ST A, the State Treasury and the SAG, given a wide ranging brief to examine the implications of the strategy forced on the forest sectot .and how- any restructurings found to be necessary might be implemented, a tight deadline (no more than 12 months from day one) and the resources needed to do the job thoroughly. A market enforced reduction in the yield from the natural forests is hardly likely to be welcomed but lamenting it or refusing to accept it are not options. The thing is to recognize that it is more than a distinct possibility and that, if it is right, there are only two choices. One is to anticipate it before it occurs; the other to wait until it occurs and then be overwhelmed when it is too late to do anything about it. Refusing to believe it is, however an option and this leads to the second point.

This is a point that has been made several times in this review, but in view of those preceding two sentences it is well worth repeating. This is that the strategy is entirely dependent on the market outlook adopted. While it has been argued that this is the most probable outlook, it is still a long way from being a certainty. There is a risk, therefore, in going along with it, but the risk in not accepting is much higher; All the same, it could turn out that the second of those two choices would, if we had only known, have been the better. With, so much disruption involved in adopting the proposed strategy, it could be tempting to take the gamble of rejecting the market outlook from which it is derived. Because that is what all of this amounts to - a gamble. But, if that alternative course is taken, then, with the cost of being wrong, amounting to near certain and near total elimination of the industry, it could be a very expensive, irretrievable losing bet. And you will never know much earlier than before 2015 arrives. , .


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FOR WHOM THE BELL TOLLS

APPENDlXI

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1. The market after recovery is not going to be the same as or even similar to what it

was before the economic slump.

2. Ifmight be if full recovery occurs very quickly.

3. But even then it would be only temporary.

4. Because the main factor which will change the market is not anything arising from

economic re-structuring, but a massive increase in the supply of plantation wood

which will enter the world and regional demand - supply balance within the next 3 to

5 years.

5.

6.

7.

This addition to supply is mainly on General Purpose/utility timber and pulpwood

grades, and

The age-class distribution of this plantation is such that it will come in more like a

tidal wave than as a steadily rising flow.

This tidal wave will add around 60xl06 m3 (round measure) annually to the supply

sfde of the world industrial wood supply - demand balance from about the years 2000

to 2005.

8. As this i~Jrto more than 3 to 4% of present world consumption, the immediate impact

at the world level is not likely to be great.

9. But the wave will hit the Asia-Pacific Region first because it ongmates in the

maturation of the plantations in N.Z., Chile and Australia during the planting boom

over the 1970-85 period and as it amounts to a 15 to 20% of the regional demand, it

will be too substantial an impact to be disregarded or easily absorbed.

10. And an even greater impact on the global scale will follow 10 years or so later as the

120 to 150 x 106 ha of industrial plantations already established world wide comes on

stream with a potential to meet at least 80% of the world's present consumption of

industrial wood.

11. Moreover the present rate at which additional industrial wood plantations are beinj

established world wide (5-8 x 106 ha/a) will continue to add at least 100 x 106 m

annually to the potential supply.

Forest Regeneration and Plantation Development-MFMA Phase J1 Page 61

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12. Thus in both the Asia-Pacific Region and, before much longer, the world, the outlook is for over-supplied markets for G.P. timbers and pulpwood products unless:-a) supply from natural forests falls or is reduced at a rate of 15 to 20% per year, after

the year 2000 and/or • • -. b) demand for industrial roundwood increases, after the year 2000 at a

corresponding rate

13. The reduction of output from natural forests as a result of reservation or of conversion to non-forest land use by 15-20% annually seems unlikely although it could occur through the elimination of natural forest operations by competition from plantation wood.

14. An increase in demand for industrial wood of 15 to 20% p.a. seems to be impossible given that the rate at present and over the recent past has been less than 2%.

15. A combination of both (such as a reduction in natural forest output as a result of nonprice factors of say 10% p.a. and an increase in demand of 5% p.a.) seems no more likely to occur (for that to occur consumption would have to rise by 15x106 m3 p.a. which is more than 3 times the predicted 4.5 x 106 m3 p.a. for the Pacific Rim countries over 1990-9). Or demand in China plus India, the two potentially biggest markets, would have to increase at 5 times the predicted rates. Not totally impossible, but not a particularly safe bet).

16. The conclusion is almost inescapable: the post-recovery market in the Asia-Pacific Region for the general purposes/utility and pulpwood grades will be fiercely price competitive from the year 2000 to 2005 onwards and for the world from 2010 to 2015 onwards., , :

17. Most of the Sarawak Forest resources and all of the proposed plantations provide woods in the general purpose category and for many years to come, the bulk of it will have to be exported into this fiercely competitive situation.

18. Two consequential questions arise:-a) Can Sarawak take on the competition and beat it? b) If it cannot, what else can it do?

19. The chances of Sarawak being sufficiently competitive in such a market environment cannot confidently be rated as in any way high. In particular, it does not and will not for a long time, have the domestic market base to support a predatory, marginal pricing campaign as a competitive ploy, if necessary.

20. Therefore the future market outlook forces Sarawak into the "what else? alternative.


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21. What else is there? The imminent over-supply brought about by the initial and subsequent waves of plantation wood is in general purpose, utility wood. It is not necessarily the. same case with specialty/decorative woods, although to some degree it will be. Th~ mass~arket specialty/decorative demand can be met through the technological development whereby softwoods can be treated so that they have similar utilisation properties to hardwoods and the decorative features reproduced by overlays. So to that extent, the specialty/decorative market is also subject to the plantation impact. But beyond the mass market only the genuine article will do.

22. So the answer to the question "What else is there" has to be found through the answers to another set of questions such as:-a) Are there markets for genuine products of specialty/decorative timbers? b) If so, where are they and for wpat exactly? c) What are their key supply characteristics (species, quantities, specifications and

prices) and then d) Does Sarawak have timbers that match or could be matched to those markets and

characteristics?

23. At present Sarawak (or anywhere else for that matter) has little more than generalities to work from. Teak, mahogany, rosewood, walnut, cherry etc. show that there are such markets. Prices considerably higher than for general purposes timbers are reported or rumoured (anecdotal evidence in the modern jargon). Other supply 'oharacteristics are, however, almost totally unknown.

24. Because Sarawak has tended to export in mixed bulk lots and largely to a limited set of far eastern Asian markets it does not have much firm evidence on whether it does have tirrllJ'ers which could quality. Nevertheless it is known that some do qualify and it can be suspected that some others might.

25. The fact that Europe and North America have not suffered the economic down turn that has hit Asia suggests that a more vigorous shift to these markets would be worth exploring.

26. But those markets are not log markets. Any drive into them would therefore have to be in processed and further processed products. That means that a shift in markets also requires a shift in production patterns.

27. Before much of an advance can be made in these directions market research to find, measure and assess these new markets and then market development to capture and hold them are first requirements. And all of that will be expensive. Very expensive, in fact, as the key element in the market research - spying out information which is in the nature of trade secrets - cannot be done by conventional or standard market research methods.


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28. And there could hardly be a worse time to embark on it. Cash flows to fund the R & D are down. But the time is never right. When the cash flows were right, servicing the buoyant markets allowed little time for other activities and at the same time, concealed the need for it and its urgency.

29. So the forestry sector in Sarawak is trapped. It will be hard for it to finance the market R & D which might enable it to escape being overwhelmed by the plantation timber tidal waves. It needs a revival of the pre-slump market to get the cash flow going but the post-recovery market will not and cannot be anything like the pre-slump market.

30. And to complicate matters even more, certification of origin from S.F.M. sources, will b~, almost a pre-requisite for the access to markets outside Asia on which the whole alternative strategy depends.

31. Moreover only the specialty/decorative genuine product markets have the pnce potential to carry the costs of the S.F.M. that is necessary to tap them.

32. It is hard, therefore, to see any route open to Sarawak from early in the next century but to disengage from the largely commodity timber trade strategy it has so far developed and establish itself as a high value, high quality specialty/decorative timber products exporter.

33. Somehow or other Sarawak collectively or its industry in groups (e.g. -S.T.A.) or individual firms must take a route in which :-a) a multi-species Brandeis type of S.F.M. with near-zero impact helicopter logging

is the standard practice b) the market research and development for identification and implementation of the

(relatively few) multi-species is done immediately. c) the production, distribution and quality control system to capture and hold the

high value specialty markets becomes the industry norm.

34. Failing that, the forestry sector of Sarawak faces a highly likely future in which:-a) timber production is in fairly rapid decline, regardless of whether economic

conditions recover or not, into a low output, low return and of fragile viability weak competitor, in a cut throat export market for utility, general purpose timbers and products, so that

b) the conservation, environmental and eeo-tourism of its forests will be their main value.

35. As S.F.M. will then be essential for the latter, the timber industry, being in no shape to bear the cost, will virtually disappear.

A.lL. 20.7.1998

---------;..,;...---------------------------------------------------------------------------------------------------------Forest Regeneration and Plantation Development-MFMA Phase 11 Page 64

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APPENDIXll

THE DECORATIVES

A FROM THE TRADE BASED LIST BY HIERARCHICAL RANKING

DEFINITES (AT 7.5.99) Fr~uen~ of occurrence in

Species in descen Scientific Name Inventory Unit 1 Log pond F.D. annual Rank (Genus) m3lhaas %of Count recorded output

average for all % % 1. Nyatoh Palaquium 0.80 3.2 1.39 2. D.R. Meranti Shorea 0.78 0.9 N.S. 3. Rengas Gluta, Melachyla, Melanollihoea 0.53 1.7 1.25 4. Ebony Diospypos 0.03 0.4 1.01 5 .. Bindang Agathis 0.06 0.6 2.66 6. Kembang S. Scaphium 0.49 0.1 -7. Kasai Pometia 0.29 - 0.86

i 1_·· 8. Merbau Intsia 0.02 0.4 0.19 9. Sepetir Sindora, Copaifera 0.43 2.8 0.20

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10. Senumpul Hydnocarpus 0.22 0.2 -11. Bedaru Cantleya 0.02 -

Sub-total 1-11 3.87 10.3 7.56

POSSIBLES (At 7.5.99) • _ _ r'"

Frequency of occurrence in '-:--Species in descending Scientific Name Inventory Unit 1 Log pond F.D. annual Rank (Genus) m3/haas %of Count recorded output

/ average for all % % 12. -Bintangor Calophyllum 0.52 0.9 0.22 13. Yellow Meranti (some) Shorea 3.36 1.3 N.S. 14. Menggiris Koompassia 1.21 3.5 2.88 15. Berangan Castanopsis 0.24 0.1 0.03 16. Segara Aglaia ] 0.07 - -

Amoora ] Sub-total 12-16 5.40 5.2 3.13

Total 1-16 9.17 16.1 10.69

Indicating that all except Sepetir and Bintangor are probably being heavily over-cut


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B COMPARISON WITH THE ORIGINAL, TENTATIVE LIST

No of Speciesl % ofvol (m3/ha) all mer ch. Species Group spe/group in Inventory Unit 1

Trade List Definite 11 ·3.7 -. Trade List Possible 5 5.4 Trade List Total 16 9.2 Original List 34 23.6 Common to both 7 3.9 In original not in tradp/line 24 19:8 In Trade not in original 3 0.6 Original Plus Trade not in original 37 24.2

C INDICATIVE S.Y. FOR STATE P.F.E. (PRO-RA TA FROM ITTO ESTIMATE)

If Unit 1 data are taken as representing all inventory units:-

All merchantable (ITTO Mission Estimate) Trade List Definite & Possible Original List Original List & 3 additional from Trade List

Forest Regeneration and Plantation Development-MFMA Phase 11

9.2 X 106 m3/a 0.80 x 106 m3/a 2.17 x 106 m3/a 2.26 x 106 m3/a

Page 66

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International Tropical Timber Organization cfo Forest Department Headquarters 5th Floor, Wisma Sumber Alam Jalan Stadium, Petra Jaya 93660 Kuching, Sarawak

MALAYSIA Tel: 60-82-442180 Ext 542 Fax: 60-82-445639

-------------------------------------------------------------------------------------------------------------------------------

MODEL FOREST MANAGEMENT AREA, SARA W AK (MFMA)

Dear Sir,

Please find enclosed for your information a copy of an article written by Dr. Alf Leslie in the latest ITTO Tropical Forest Update as well as a copy of his Project Consultancy Report on "Forest Regeneration and Plantation Development" for MFMA-Phase 11.

With regards,

Dr. Svend Korsgaard Assistant Director Reforestation and Forest Management ITTO, International Organization Centre 5th Floor, Pacifico-Y okohama 1-1-1 Minato-mirai, Nishi-ku Yokohama. 220-0012 Japan

Sincerely yours,

Stephan Andel MFMA Team Leader

Forest Department Kuching

REFORESTATION

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For Whom the Bell Tolls

What is the future of the tropical timber trade in the face of a probable glut of plantation timber?

by A. J. Leslie

The prospects for timber and forest

products over the current and next

rotations, a period which takes us well

into the coming century, are fundamental

elements in devising forest policy. They are

especially significant for the tropical forests,

which are the primary concern of ITTO. In the

first instance, this is because of the extent to

which the n:opical forests have become a global

In a broad sense, the plantation effect has

been analysed in a number of recent studies by

or for the Food and Agriculture Organization of

-the United Nations , the EuropeanForestInstitute

and the In~rgovern!l!ental Forum on Forests ..

Few, however, have looked at the specific

implications for the tropical forests or the tropical

timber trade. One study that has is the recently

conducted review made for Sarawakunder ITIO

resource over the last --------------- project PD 14/95 Rev.2

(F): Model Forest quarter of this century

and, with that, the

overriding importance

of sustainable forest

management in their

future. But equally

important is the role of

the global plantation

(In both the Pacific Rim and,

before long, the world, the

outlook is for over-supplied

markets for commodity timbers

and pulpwood. '

Management Area,

Phase 11. Although it~_

is, naturally enough,

focus sed on Sarawak,

some of its findings

have a pan-tropical

resource, which has expanded tremendously

more-or-Iess concurrently.

Those two developments have a mutually

reinforcing impact on the future of the tropical

forests and the tropical timber trade. The first,

the 'sustainable forest management effect', will

inevitably push up the cost of timber harvesting

and management. The second, the 'plantation

effect', will almost certainly put limits on the

extent to which timber prices can be increased

significance. They are

presented here, modified slightly to fit the wider

tropical context, as a preview to what is coming

in the new century.

Tidal Wave of Timber The first thing to rec,?gnise about that future

is that the tropical timber market after recovery

from the East and Southeast Asian economic

crisis of 1997-99 is not going to be the same or

even similar to what it was before the slump. It

might be, if full recovery occurs very quickly,

to cover higher production costs and, depending but even then it would only be temporary. This

on its scale and timing, might even push the is because the main factor that will change the

price ceiling lower. market is not anything arising from economic

Helicopter logging in Sarawak: will this be the preferred method of extraction from natural forests in the 21 st century? Photo: Chung Kueh Shin, courtesy Sarawak Forestry Department

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restructuring but a massive increase in the

potential supply of plantation. wood, which will

start to enter the Asia-Pacific region and then

the world demand-

impact at the world level. But in the Pacific Rim

markets, where the first tidal wave will hit

(originating as it does in the maturation of

plantations established

supply balance soon 'The chances of tropical timber

after the year 2000.

in the planting boom of

the 1970-85 period in

demand for industrial wood of 15-20 per cent

seem any more likely, given that the average

annual rate of increase in the past has been less

then two per cent. A combination of both might

do it but ~ven then}~e required rates of change

- ten per cent per annum decline in output from

natural forests and five per cent per annum

increase in demand - seems highly improbable. Two features of this

being successful in such a

addition on the supply market environment cannot

side are particularly realistically be rated as in any significant. First, it will way high. Even in those be very largely in the countries with the domestic form of general- market base to support a purpose, utility timber

(commodity timbers) predatory, marginal pricing

and pulpwood. Then, campaign as a marketing ploy second, the age class will be very hard-pressed. ' distribution of the

plantation resource is

New Zealand, Australia

and Chile), the addition

amounts to 10-15 per

cent of the regional

demand. An impact of

that scale cannot be so

easily disregarded or

absorbed.

The Second Wave

Tropical Timber: Uncompetitive as a Commodity?

such that it will come in more as a tidal wave

than as a steadily rising flow.

More significantly,

a second tidal wave will follow ten or so years

later as the 100-150 x 106 hectares of industrial

plantations already established worldwide come

on-stream. This resource has the potential to

meet at least 70 per cent of the world's present

consumption of industrial wood. And this

potential is being added to by at least 100 x 106

m3 annually with the 5-8 x 106 hectares of new

plantation being established each year.

The conclusion is almost inescapable. The

post-recovery market for commodity timber

and pulpwood based produce will be fiercely

competitive from around 2005 onwards in the

Asia-Pacific region and from around 2010-15

for the world as a whole. Much of the wood from

the tropical forest resource and almost all of it

from the existing and prospective plantations is

in these categories. So, from around 2010 to

2015, the bulk of the exports of tropical timber

will face over-supplied, intensely competitive

markets. Two questions consequently arise:

This tidal wave will add 35-40 x 106 m3 of

industrial roundwood to the supply within the

Pacific Rim from around 2005. Being no more

than 2-21/2 per cent of "the present world

consumption it is unlikely to have much of an 1) can tropical timber take on that competition

and beat it?

Thus, in both the Pacific Rim and, before

long, the world, the outlook is for over-supplied

markets for commodity timbers and pulpwood.

This will only be avoided if:

2) if it cannot, what else can be done?

The chances of tropical timber being

successful in such a market environment cannot

realistically be rated as in any way high. Even

those countries with the a) supply from natural domestic market base

forests falls or is 'It is hard, therefore, to see any to support a predatory,

reduced at a rate of route open for the tropical marginal pricing 15-20 per cent timber trade after another few campaign as a annually from the

years other than to disengage marketing ploy will be year 2000 or so

from its largely commodity very hard-pressed. onwards; or

b) demandforindustrial timber strategy before it is Seeking the roundwoodincreases driven out of it and to develop High Value after the year 2000 at itself as an exporter of high Markets a corresponding rate. value, high quality, decorative So is there anything A reduction of timbers from sustainably else that can be done?

output from natural managed natural tropical

The oversupply will be forests as a result of in the commodity-reservation for non- forests. ' pulpwood grades but timber use and not necessarily in the

conversion to non-forest use at an annual rate of markets for specialty or decorative timbers.

15-20 per cent seems unlikely, although it could Nevertheless, they will be affected to some

occur if competition from plantation wood degree: the mass market for specialty and

virtually eliminates natural forest operations. decorative products can be met through

Nor does an annual rate of increase in the technological developments that eliminate the

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technical differences between softwoods and

hardwoods and reproduce the decorative features

through overlays. But beyond the mass market

only the genuine article will do. Questions then

arise:

are there such markets for 'genuine'

decorative timbers and products?

.• if so, where are they and for what exactly

and how big are they?

• what are their key characteristics? And then:

which tropical timbers can match or be

matched to those characteristics?

At present, there are little more than

generalities to work froin. Teak, mahogany,

rosewood, cherry and walnut show that there

are such markets. Prices considerably higher

than those for commodity timbers are reported

or. rumoured. Other supply characteristics are

not known, at leastin the public domain. Hence,

before any advance down this track can be

years other than to disengage from its largely

commodity timber strategy before it is driven

out of it and to develop itself as an exporter of

high value, high quality, decorative timbers

from sustainably managed natural tropical

forests.

Somehow, tropical forestry must, fairly

quickly, take a route in which:

a multi-species Brandis-type of sustainable

forest management with near-zero impact

(helicopter) logging is the standard practice;

the market R&D for identification,

characterisation and implementation of the

high-value strategy is started immediately; and

tropical timber industry in no shape to bear the

cost, the industry will virtually disappear.

Author's Postscript The outlook summarised here is only one of

,; .. ~ many possible views 'fJf the way that regional

and global wood supply-demand balances are

evolving. Lower estimates of the effective area

of the established plantation resource, lower

estimates of the rate of additional planting, and

lower mean annual increment estimates,

combined with higherforecasts offuture demand

levels, would reduce the i"!p,.act of the plantation

effect, even to the point of eliminating it.

There is no objective reasonfor choosing any

the production; distribution, marketing and oneoutlookovertheothers. Thewholeprocedure

quality control systems to capture the high- of forecasting the future wood supply-demand

value markets become the industry norm balance is so full of conjecture, contradictions,

without delay. pre-conceptions, guesses and wishful thinking

Failing that, the future for tropical forestry

is highly likely to be one in which timber made, market research. to find, measure and production is in rapid decline and a low-output,

on both sides that almost anybody's guess goes.

Some, though, on admittedly subjective - as

they must be - probability grounds, have rather

more credibility. assess these markets. is a first requirement, low-return, weak and fragile competitor in a

followed by market development to capture and cut-throat commodity timber export market. The

hold them. All of that will be very expensive mainpurposeoftropicalforestswillincreasingly because the key element in the market research

- uncovering information which is very much

in the nature of trade secrets - cannot be done by

conventional market research methods.

Time to Start? There could hardly be a worse time to start,

with cash flows to fund R&D depressed. Butthe

time is never right. When cash flows are good,

supplying the buoyant markets takes up all the

time and hides the need and urgency for it.

So the tropical timber trade is trapped. It

willfindithard to fund themarketR&D program

which might enable it to avoid being

overwhelmed by this plantation effect. It needs

a revival of the pre-slump market to get the

necessary cash flows going again, but this post

recovery market is unlikely to be like the pre

slump market for very long. And, to complicate

matters, certification of sustainable forest

management will be a prerequisite for access to

many of the export markets affluent enough to

want and afford the genuine article at prices

which will carry the cost of sustainable forest

management.

It is hard, therefore, to see any route open

for the tropical timber trade after another few

be in their conservation, environmental and

ecotourism values; since sustainable forest

management will be essential for this and the

The outlook presented here is one of these. -

FOREST REGENERATION AND PLANTATION DEVELOPMENT

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