Those who demand a total ban on log exports fail to understand the market

http://www.stabroeknews.com/index.pl/article?id=56523194

Those who demand a total ban on log exports fail to understand the
market
Sunday Stabroek, June 24th 2007

Dear Editor,

The Forest Products Association (FPA) is pleased to respond to a letter
published in the Stabroek News on June 14, 2007, by Mr. Mahadeo
Kowlessar headlined "Better log-to-lumber conversion rates can be
achieved with appropriate equipment."

Mr. Kowlessar's letter simply underlines and reinforces the appeal made
by the FPA for government to take a balanced approach in arriving at a
national policy to govern and direct the sustenance and development of
the forest industry based on an informed review of the industry relying
on credible research and dependable data.

Demands such as Mr. Kowlessar's on our government to impose
indiscriminate restrictions, or worse, an overnight ban on exporting
logs, based on unrealistic and theoretical assessments of our industry,
in pursuit of "maximizing net social benefit" will have entirely the
opposite effect and could very quickly destroy the industry.

Mr. Kowlessar, in fact, endorses the very point made by the Association
in our statement that "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" in place, when he describes the current
milling capacity as "decrepit and unprofitable." He confirms the FPA's
own position that the "majority of mills are technologically outdated
and many are inoperable and beyond economic rehabilitation."

Impose, therefore, an overnight ban on exporting primary product and
there would be immediately, as we have stated, "insufficient milling
capacity and, indeed, "processing demand" to absorb the current, never
mind any expanding production of logs. The effect: curtailment of
production, withdrawal of investment, loss of income, reduction of
employment, net value subtracted, minimized social benefit.

The FPA has long advised the Guyana Forestry Commission (GFC) that its
members support adding value to the industry by converting from
reliance on the export of primary product to the export of processed
and manufactured product. Always providing, however, that there is a
commensurate return to the producer, whose investment is at risk, and
that sufficient incentives are in place to encourage the substantial
investment that this would involve.

Mr. Kowlessar argues that "recovery rates can be improved with more
appropriate equipment" and advocates the use of "lighter, cheaper,
mobile band saw mills." Perhaps, but that is yet to be established. It
remains highly debatable whether portable mills can be a direct
alternative replacement for the older mills.

While it is true that portable mills are cheaper, they do not have the
capability of cutting bigger sized baulks and longer lengths of lumber
produced by band and gang mills. Guyana's production must respond to
global commercial market forces and preferences. Established markets
like Korea and Japan, for instance, purchase generally better grades of
sawn lumber milled by band and gang saws.

The average recovery rate of 40% is inclusive of prime, select,
standard and merchantable grades and is taken from records kept over
many years by our members who are producers and saw millers, who
understand the processing business and the requirements for complying
with market criteria.

Saw milling rate recovery is, we know, an extremely subjective
business. It depends on the quality of log inputs that is, the saw mill
grade of the log input. It depends on the market criteria. Export grade
of sawn timber will not accept sapwood, ring shakes, knots, soft heart,
end splits and trimming loss of log lengths.

The requirement, therefore, for high quality contributes to lower
recovery rates.

The FPA's members have years of experience in the industry. We know
that market preferences such as species and specification of grades,
sizes and lengths and reliability of supplies dictate saw milling
equipment choices and influence recovery rates.

We understand Mr. Mendes's promotion of mobile mills. He sells them.
Market demonstrations, using ideal logs can and will produce higher
recovery rates, but the bottom line for recovery in the industry is
determined by the commercial specifications of the product and large
scale log input quality, very different demands to a sales promotion
exercise.

Importing countries like China and India achieve higher recovery rates
than the norm in Guyana due to their recovery of "fall down" sizes and
the grades acceptable for processed lumber used by "cottage
industries". They are able to utilize the sawn products for mainly
local markets with lower quality demand. Guyana does not have "cottage
industries" creating this kind of market, so statistical comparisons
have little bearing on industry realities in Guyana.

Again Mr. Kowlessar, quite erroneously, compares Purpleheart with the
merbau timber of Malaysia.

The reliable supply of merbau is well established in the global market
place and differs appreciably from Purpleheart in a number of
specification aspects. While Purpleheart is gradually gaining
acceptance, its availability globally is yet to be established.

Mr. Kowlessar is quick to climb on the hobby horse of the industry
critics that FPA members "landlord their concessions to foreign
loggers." Partnerships between large concession holders and smaller
local producers are perfectly legal, are approved by the GFC.

These partnerships make eminent business sense where the synergy of
large and small companies holding different resources pool their assets
to work together to create employment and generate revenue for the
country. These partnerships are approved for fixed and limited periods
and expire when the local partner develops sufficient management
capacity and financial strength to make full use of their resources.

We repeat that the advocates of imposing a total ban on log exports
have not considered the facts of the industry, fail to understand the
market, continuously resort to theory rather than practice in assessing
recovery rates for sawn lumber and miscalculate income projections from
export. Any policy so developed will result in disabling the industry.

The FPA speaks for those in the industry whose investment is at risk,
for the producers and millers who are the major stakeholders. There is
nothing which prevents those who so readily criticise and who believe
they have the answer to the challenges which face the industry, from
themselves investing and doing it better.

The FPA welcomes constructive criticism, new investors and new and
practical ideas. It is the armchair critics that do our country harm.

Yours faithfully,

Forest Products Association