FPA argues against imposing restrictions on logs export

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FPA argues against imposing restrictions on logs export
Guyana Chronicle, 9 June 2007

THE Forest Products Association (FPA) yesterday welcomed the recent
statement by Minister of Agriculture, Mr. Robert Persaud, that over
extraction by logging companies “is a myth” and that extraction in
Guyana is a mere 20 per cent of acceptable levels.

In a press release advancing proposals for development of the industry,
through Public Communications Consultants Limited (PCCL), the FPA said
the local forestry sector, last year, contributed some $359 billion to
the Gross Domestic Product (GDP).

The FPA said the sector directly employs about 22,000 people and close
to 100,000 indirectly while the major forest producers represent a
capital investment in the region of $160 billion.

?The maintenance and welfare of this industry is, therefore, extremely
important to the economy of Guyana,” the FPA said.

The release said the FPA has repeatedly advised the Guyana Forestry
Commission (GFC) and the 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 is 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,” the release posited.

It said the FPA believes it is essential for Government to take a
balanced approach to sustain timber production and allow the producing
of primary and processed products to develop in response to export and
domestic market demand and pricing.

The FPA is also of the belief that indiscriminate imposition of
restrictions and/or a ban on exporting logs would be counterproductive
and unrewarding to Guyana and curtail timber production, cause 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.

According to the release:”The FPA has pointed out that a recent survey
conducted by GFC, on aggregate milling capacity in the industry, is
inaccurate. The survey reports on 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 has 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 the labour capacity necessary to satisfy the
increased demand which would result from expanded sawmilling
activities.

Both Barama and DTL (Demerara Timbers Limited) 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 shipment would be
prohibitive,” the FPA contended.

It said:”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.”

The FPA said there is no adequate research or business analysis in
place to support the proposition 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.

“Value added tax (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.

&#x201cadding 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 the 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 statement said.

It continued:”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, wallaba 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 statement went on:”In its report to the Government, the GFC 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.

“Using a realistic milling recovery rate of 40 per cent and discounting
the actual average processing costs, the current best domestic and
export earnings for sawn lumber of prime species average abut 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,” the statement concluded.