Plywood industry faces uncertainty with planned ruling

Plywood industry faces uncertainty with planned ruling
OR
New ruling makes future of plywood industry uncertain

Rendi A. Witular
The Jakarta Post
Jakarta

The future of the country's plywood industry could be at risk if
the government proceeds with plans to issue a forest
rehabilitation ruling, which industry players say would severely
reduce the supply of logs as raw material.

The Association of Indonesian Wood Panel Producers (Apkindo)
said the ruling would cause about 75 percent of existing plywood
companies to close operations, rendering at least 500,000 people
jobless.

Foreign exchange revenue would also plunge as some 80 percent
of Indonesian plywood products are exported, according to the
association. Plywood has been one of the country's primary non-
oil and gas export commodities.

But the government, under pressure from international donors,
is determined to protect the country's forests, which
environmentalists say have been seriously damaged by forest-
related industries.

According to the new ruling, to become effective early next
year, forest concessionaires whose licenses expire will be
granted extensions and allowed to continue felling trees only if
the concession area can produce at least 75 cubic meters per
hectare of logs with a minimum diameter of 50 centimeters.

In comparison, the existing ruling only stipulates that
concession holders are not allowed to fell trees with a diameter
of less than 50 cm. But there is no minimum volume requirement.

According to the Ministry of Forestry, the license of some 375
forest concessionaires will expire next year.

Apkindo said the ruling was effectively a logging moratorium
because few concession areas could meet the new requirement.

"We appeal to the government to drop the plan ... because it
will only kill the (plywood) industry," Apkindo chairman Martias
told The Jakarta Post.

If the Ministry of Forestry implements the ruling, total log
supply at home is expected to drop to around 6.8 million m3 next
year, compared to more than 12 million m3 estimated for this
year. Of this log output volume, some seven million m3 goes to
the plywood industry, which has an existing production capacity
of 10.5 million m3.

But Apkindo said that if only 6.8 million m3 of logs were
available next year, the plywood industry could only take up some
three million m3 while the remainder would be consumed by other
timber-related industries.

"So it's no exaggeration to say that around 75 percent of the
plywood companies could go under," said Martias.

Some 90 percent of logs for the plywood industry come from
forest concession areas, while the remainder comes from
industrial forest estates.

The Ministry of Forestry said the moratorium measure was
crucial to rehabilitating forests that had experienced severe
deforestation.

According to the ministry, deforestation has reached 40.26
million hectares out of the country's total natural forested
areas of 119.7 million hectares.

The ministry also said that some 43 percent of the forest
concession areas were either in critical condition or no longer
productive.

Such a situation has alarmed international donors, and has put
strong pressure on Indonesia to take protective measures as a
precondition for new badly needed loans.

"The destruction of our forests has been caused by
uncontrolled exploitation. We need to introduce prompt and stern
measures to prevent further forest destruction," said Ministry of
Forestry spokesman Koes Sarjadi.

Koes said that forest concessionaires whose areas were
classified as critical would be forced to rehabilitate the forest
if they wanted license renewals. It will take concessionaires 10
to 20 years to rehabilitate their areas before they can fell
trees again.

As a longer-term solution to the problem of raw material
shortage faced by the plywood industry, the ministry is currently
encouraging people to open forest plantations under a program
called home-scale forest estate industry.

"We persuade people to open a forest plantation in which we
will help them with the capital. Their logs can be sold directly
to the plywood industry," said Koes.

Another program is to boost log supply from industrial forest
estates.

Koes said it was also important to boost the production
efficiency of the local plywood industry.

He said the country's plywood industry had not been efficient.

He pointed out that the local industry needed two cubic meters
of logs to produce one cubic meter of plywood, while companies in
other countries needed only 1.6 cubic meters of logs to produce
the same volume of plywood.

Currently, there are some 128 plywood companies operating in
the country that employ some 16 million workers. Total investment
in this sector has reached US$27 billion.

Some 80 percent of the country's plywood output is exported,
providing nearly 100 percent foreign exchange revenue since the
import component is very small.

From 1993 to 1997, foreign exchange earnings from this
industry averaged around $4 billion per year, which accounted for
9.29 percent of the country's total foreign exchange revenue.

However, due to the economic crisis, earnings from the
industry have plummeted to an average of $2.5 billion per year.