FPA against 'indiscriminate' restrictions on log exports

http://www.stabroeknews.com/index.pl/article?id=56522198

FPA against 'indiscriminate' restrictions on log exports
Monday, June 11th 2007

The Forest Products Association (FPA) believes that the indiscriminate
imposition of restrictions or a ban on log exports would be counter
productive and unrewarding for Guyana and it disagrees with several
findings in a recent forestry commission survey.

A release on Friday from the body said that the decision could result
in significant revenue loss to the country, disable sound environmental
practices that are being developed and rupture the confidence of
present overseas customers and future investors.

A Ministerial Committee on Forest Policy has been established and is
looking at the possibility of implementing a phased ban on the export
of logs, something the FPA is against. And amidst a flurry of
complaints from researchers and letter-writers, the Govern-ment earlier
this year imposed a ban on log exports for Chinese company Bai Shan Lin
for its delays in getting downstream processing going, and suspended
the Timber Sales Agreement for Jaling Forest Industries Inc, for that
company's failure to live up to commitments in its agreement.

The FPA pointed out that a recent survey that the Guyana Forestry
Commission (GFC) conducted 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majority of mills are technologically outdated and many are inoperable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," the FPA said.

The FPA warned 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. "The GFC's report to the
Government, while well intentioned, has failed to make any assessment
of labour capacity necessary to satisfy the increased demand which
would result from expanded sawmilling activities," the release said. It
reminded that both Barama Company Limited and Demerara Timbers Limited
are reporting shortages of skilled and unskilled labour needed to
satisfy the present demand.

The release said 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 overlooked. "Container availability for export is entirely
dependent on the quantum of shipments into Guyana. The cost of shipping
empty containers to facilitate substantial demand for export shipments
would be prohibitive," the press release said.

The FPA said that advocates of expanding downstream production to add
value to the industry say 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
substantial investment needed for restoration unless it is evident that
it would result in a commensurate return on investment," said the FPA.

"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
release said.

Value Added Tax (VAT), the release said, has been levied on a large
number of forest items which 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.

It was also argued by the FPA that advocates of a total ban on log
exports have not taken into account that the limited availability on
the export market of species such as purpleheart and greenheart has
upped 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 FPA also contended that the GFC in its report has inflated the
average recovery rate for sawn timber and has significantly
underestimated processing costs leading to a miscalculation of income
projections for domestic and exported lumber.

"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$374M per
cubic meter. This compares very unfavourably with the current export
price of US$475 for the equivalent…in log form" which includes lesser
known species which are not marketable here.

The FPA welcomed the recent statement coming from Minister of
Agriculture Robert Persaud who said that over foresting by some of the
country's logging companies is a myth and that extraction in Guyana is
at a mere 20 per cent of acceptable levels. Critics have however said
that the 20% figure neglects to explain that prime species in one area
could be over-harvested.

In the press release, the FPA said that the forestry sector last year
contributed some $359 billion to Guyana's Gross Domestic Product. The
FPA said too that the sector directly employs about 22,000 people and
indirectly employs close to 100,000. The major forest producers
represent a capital investment of around $160 billion, the FPA said,
adding that the maintenance and welfare of this industry, is extremely
important to the economy of Guyana.

"The Association has repeatedly advised the GFC 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 press release said.

The FPA said that it was firmly of the view that commercial market
forces, the implementation of sustainable forestry practices and
environmental care, the realisation 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 believes, 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 FPA said.