Forest Products Association urges balanced approach to industry development

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Forest Products Association urges balanced approach to industry
development
Kaieteur News, 9 June 07


The Forest Products Association (FPA) in a release yesterday, indicated
that it welcomes the recent statement made by Agriculture Minister,
Robert Persaud, pointing out that over extraction of our forest by the
logging companies is “a myth” and that, in fact, extraction in Guyana
is a mere twenty percent (20%) of acceptable levels.

The FPA was keen to highlight that, “The Forestry sector last year
contributed some G$359 billion to Guyana 's Gross Domestic Product,
directly employs about 22,000 persons and close to 100,000 indirectly
and the major forest producers represent a capital investment in the
region of G$160 billion. The maintenance and welfare of this industry
is, therefore, extremely important to the economy of Guyana ”.

The Association noted that it has repeatedly advised the Guyana
Forestry Commission and Ministerial Committee on Forestry that a
national policy governing timber production, processing and export must
be based on an informed review of the industry buttressed by credible
research and the collection of reliable data.

The FPA says it is firmly of the view that commercial market forces,
the implementation of sustainable forestry practices and environmental
care, the realization of maximum revenue earning and employment
potential must drive the development of the industry and be the
criteria directing national forestry policy.

It is essential, the FPA asserts, for government to take a balanced
approach to sustain timber production and allow the production of
primary and processed products to develop in response to export and
domestic market demand and pricing.

The body believes that the indiscriminate imposition of restrictions
and/or a ban on exporting logs would be counterproductive and
unrewarding for Guyana . It opines that such actions would curtail
timber production, cause the loss of employment, discourage major
private investment in the industry, restrict export markets, result in
significant export revenue loss to the country, disable sound
environmental practices which are being developed and rupture the
confidence of present overseas customers and future investors.

The FPA added that it has pointed out that a recent survey conducted by
the GFC on aggregate milling capacity in the industry is inaccurate.
The survey reports an installed aggregate milling capacity in the
industry which ignores the fact that the majority of mills are
technologically outdated and many are inoperable and beyond economic
rehabilitation.

According to the release, the FPA said it has provided ample warning
“that there is currently insufficient operational milling capacity in
place to absorb the current and projected expansion of total log
production capacity of the industry”. It was also noted that the GFC's
report to the government, while well intentioned, has failed to make
any assessment of the labour capacity necessary to satisfy the
increased demand which would result from expanded sawmilling
activities.

“Both Barama and DTL and other companies, for instance, are reporting
shortages of skilled and unskilled labour needed to satisfy even
present demand.

The fact that any decision to convert timber production from the export
of logs to sawn lumber would significantly increase the demand for
containers which are already in short supply, has been completely
overlooked. Container availability for export is entirely dependent on
the quantum of shipments into Guyana . The cost of shipping empty
containers to facilitate a substantial demand for export shipments
would be prohibitive,” the release informed.

It continues, “Advocates of expanding downstream production to add
value to the industry claim that there is “adequate funding from income
earned in the industry for retooling milling capacity”. The claim
completely ignores the reality that producers would not commit to the
substantial investment needed for restoration unless it is evident that
it would result in a commensurate return on the investment.

There is no adequate research or business analysis in place to support
that such an investment would be undertaken at this time by the
industry, nor have any incentives been provided to encourage the
industry to do so. In fact, the industry is now faced with significant
disincentive to expand its production and milling capacity”.

The entity notes that, “VAT, for instance, has been levied on a large
number of forestry items that were not previously subject to import
duties or Consumption Tax. In addition, VAT has been imposed on the
sale and purchase of logs for local sawmilling, yet, much of the
sawmilling output serves the construction industry and housing uses for
which the sale of logs is already eligible for zero rating.

Adding value to the industry by restricting the export of logs for
processing into sawn lumber and for downstream processing is valid only
when it can be established that there is sufficient milling capacity
and processing demand to absorb current and expanded production of all
grades. Also, value is added only when market availability and price
for the processed product is consistently superior to that which is
obtainable by exporting the primary product. This is not now the case”.

The FPA points out that advocates of imposing a total ban on log
exports “have not considered the fact that the limited availability of
specific species on the export market such as purpleheart, greenheart,
walaba and mora, has increased their value and that the market would be
rapidly saturated with a resultant fall in attractive prices if all log
production of these species were to be processed for domestic and
export use.

The GFC, in its report to the government, has inflated the average
recovery rates for sawn lumber and has seriously underestimated
processing costs, particularly for the larger mills, resulting in a
miscalculation of its income projections for domestic and exported sawn
lumber”.

The release adds that using a realistic milling recovery rate of 40%
and discounting the actual average processing costs, the current best
domestic and export earnings for sawn lumber of prime species average
about US$374 per cubic metre. This compares very unfavourably with the
current export price of US$475 for the equivalent of 2.5m³ in log form
that includes lesser known species which are not saleable on the local
market.