Linking Business with Responsible Forest Management
Addressing Legality in China Wood Supply Chains
Presentation to the Chatham House/IUCN Update Meeting on Illegal Logging & Associated Trade
Matthew Brady
TFT China Project Manager
April 26th 2007; Beijing, China
Linking Business with Responsible Forest Management
What is the TFT?An International membership based Organization
Offices in the UK, Switzerland, Indonesia, Malaysia, Viet Nam, China & Gabon (USA & Australia in 2007)Registered as a non-profit in UK & US
44 members & growing
56 staff and growing
Linking Business with Responsible Forest Management
What do we do?
We help our members
Link their supply chains
From here
To here
Using FSC wood…OR
Wood moving toward FSC
OR, at a minimum, wood that is legal ‘beyond reasonable doubt’
Linking Business with Responsible Forest Management
TFT’s work with trade & industry
• Assists those trading in tropical wood products to link supply chains to well managed forests.
• Help forest managers to achieve FSC certification.
• Activities centered in South East Asia, Africa, South America, Vietnam and China
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TFT’s work with trade & industry
• Work with factories & buyers to monitor wood sources & supply chains.
• Verify that raw material is legal & from well managed forests.
• This helps to establish environmental credibility for timber product traders.
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TFT in China
• Member services
• DEFRA Project (Started in 2006)
• Sponsored by U.K. Department of Food & Rural
Affairs (DEFRA).
• Partner: UKTTF, GEI
• To improve the capacity of China mills to
supply legal and sustainable source produced
timber product to the U.K. market (Plywood and
Flooring)
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TFT in China
TTAP Project
• Began March 2005, extended to Latin America and China January 07
• Co-funded by EC (total euro 7 million), with funding from TTF
partners of Belgium, Netherlands and the UK and TFT
• Partner countries: Cameroon, Congo Brazzaville, Gabon, Indonesia,
Malaysia, Brazil, Bolivia, Guyana and China
• Overall objective
To ensure wood products imported to the EC are verified legal
• Working with individual supply chains, linking buyers with their
suppliers
• Policy, communications, tools for buyers and suppliers
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China Wood Supply Chain Study
• DEFRA-sponsored analysis of China’s wood industry
supply chains, with particular focus on the plywood and
flooring sectors;
• Drew upon TFT’s own experience with China mills,
industry interviews, and independent research;
• Findings highlight the complex nature of supply chains
and the difficulty of ‘proving’ legality, even for
domestically sourced materials
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Chinese Wood Processing Industry
• Highly dependent on international supply – particularly in the
export processing sector; estimates that 46% of China’s fibre
supply (including pulp and paper) is imported; 70% of imported
wood is estimated to be re-exported;
• Emergence of private firms and industry ‘clusters’
• Industry highly competitive with immense cost pressures
• Thousands of processors, many small to medium size
• Little product differentiation, little pricing power – Few brands
• Overproduction and excess capacity across all sectors
• Result – low profitability and a cutthroat market
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Wood Distribution in China
• Many links in the chain
• Dominated by traders and middlemen
• Much of local supply dependent upon small farmers
• Small to medium processors cannot go direct due to
lack of capital and access to international markets – and
as such need to utilize traders and middlemen
• Each step, or hand, in the chain increases difficulty of
providing proof of legality – as well as costs
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Wood Supply Chains in China
• Supply from illegal or ‘questionable’ sources is widely
acknowledged to be common (Russia, SE Asia, Africa)
• Driven by demand and supply factors – lower costs, no
requirement from international buyers for proof of
legality
• Most local firms lack the capability to implement WCS
• Chinese government now starting to recognize that they
cannot ignore sources and legality of their wood
products imports
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‘Typical’ Plywood Veneer Supply Chain
Farmers/Village/Township
harvest trees
Delivery to village log yard
(private)
Logs trucked to central log yard (Pizhou/Linyi)
Veneer peelers purchase logs
Veneer shipped to plywood mill
Mill buyers arrange veneer
sales
Logs peeled into veneers
Logs trucked to veneer peelers
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Plywood F/B Supply Chain
Forest concession
(small)
Plywood Mill
PRC Agent -Importer
(logs)
Other PRC plywood
mills
Forest concession
(large)
Exporting Country Agent
Veneer Processor
Veneer Processor
Other veneer mills and/or processors
Other PRC agents
Veneer Processor
Log buyer
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Flooring Supply Chain (A)
Company A sawmill (Russia)
Company A sawmill (Brazil)
Local sawmills SE Asia/ South
America
External Customers
Company A Factory
Forest concession
Company A
Local log trader/
producer
Local log trader/
producer
Local log trader/
producer
Raw Materials
sawnwood
Forest concession
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Flooring Supply Chain (B)
Dealer
Dealer
DealerOther PRC Agent
Forest Concession
(small)
Other PRC plants
SE Asia Agent
Forest Concession
(large)
Local log trader/
producer
Sawmill(s)
Company B
PRC Agent
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TFT Case Study in China
Member needed:A high volume……of tropical hardwood plywood
Of good quality,
delivered on time at the right price point
Sourced in line with the customer’s wood purchasing policy
…which means no illegal wood or controversial sources…
…and preferably FSC wood or wood from forests moving toward it
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What to do? (1)
Find the right partner supplier
Which means Forests…
…with a legal right to harvest..
…the right volume of wood…
..of the right species, at the right price..
…with an interest in certification…
…and a willingness to engage in a program to achieve it…
…AND that will enter into a deal to sell to the supplier!!
It’s not easy!
Linking Business with Responsible Forest Management
How to do it
SE Asia log supplier (legal
supply)
PRC plywood mill
UK customer
China forest concession
(logs)
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Lessons Learned
What we know now – or what we know better – that will impact the ability to determine legality of Chinese wood products:
•Lack of transparency of supply systems in overseas source markets
• China’s domestic wood distribution systems, with individual farmers, small traders and small manufacturers all prominent players
• The number of ‘hands’ through which a single piece of wood may transit, both for domestic and imported raw materials
•Lack of capability within Chinese firms, or an ignorance of the need to monitor or track their wood resource supply chain
• Costs for firms to implement a WCS and to source legal wood from overseas deters them from taking these steps
• No incentives/demand from overseas customers to require documents attesting to the legality or sustainability of raw materials
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How to Get to Legality
• Market incentives/disincentives from industry
and consumers;
• Assistance extended to Chinese industry to
provide tools for wood tracking and access to
legal raw material resources;
• Governance issues in supplying countries
addressed and improved;
• Work with Chinese authorities on the
importance of issue, and how to improve
control systems
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Summary
• The demand for legality is gaining influence;
• Chinese producers can make progress on legality issues, given the right incentives;
• Current state of many Chinese producers supply chains means that proving legality is a tricky and daunting prospect;
• Legislation, boycotts, and/or aggressive PR campaigns cannot in themselves resolve this ;
• Government, NGO sector, and INDUSTRY – buyer and seller – need to work together to have the greatest impact
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Contacts & Further Information
Tropical Forest Trust
Matthew Brady, China Project ManagerTel +86 136 0225 9480
E-mail [email protected]
Lewis Du, China Project Officer, ShanghaiTel +86 136 0101 5640
E-mail [email protected]
Web: www.tropicalforesttrust.com