session 8 ic2011 dadzie
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VALUE ADDITION TO WOOD RESOURCES,
THE CASE OF GARDEN FURNITURE PRODUCTION
AND EXPORT IN GHANA-STUDY OF A LOCAL FIRM
BY
DADZIE PETER KESSELS
LECTURER:FURNITURE DESIGN AND PRODUCTION DEPT.KUMASI POLYTECHNIC, GHANA. WEST AFRICA
Email; [email protected] 1
OUTLINE OF PRESENTATION
Introduction
Objectives
Materials and methods
Results and discussions
Conclusions
Recommendations
Acknowledgement
OUTLINE OF PRESENTATION
2
Ghana used to have 8.13Million hectares ofhigh forest (Forestry Department, 1995; Asumadu, 1997)
This has dwindled due to over-exploitationfor mainly log and lumber export to meethigh demand(World Bank, 1988)
Deforestation - 750km2/year ≡1million Ghana Cedis-€877,346.903 loss, (World Bank, 1988)
INTRODUCTION
3
To control deforestation and encourage tertiary
processing of wood, Ghana collaborated with United
Kingdom, through Overseas Development
Administration, to;
strengthen regulations and
stopped export of logs in the 1990s (Pleydell et al, 2002)
All these efforts- not yielding needed results, as
Ghana is still ranked low, relative to some ITTO
countries, in terms of further processing (Johnson, 1997)
Garden Furniture- made with wood is an outdoor type,
used in gardens, at beaches, in porches, etc for people
who want to enjoy fresh air (Plow and Hearth, 2006)
INTRODUCTION
4
Meanwhile, whiles a M3 of kiln-dried (KD) lumber is
about €377.172, a M3 of garden furniture parts is
€1,677.850 showing a value difference of €1,300.717(TIDD,2005a)
this represents 344.85% in value increase
An indication that, further processing lumber to garden furniture for export may be a very profitable venture,
that can yield better economic gains,
and ensure sustainable use of wood resources.
INTRODUCTION
5
However, no organised information has been sighted on;
recovery rate of converting lumber (KD) to garden furniture, and
the processing costs involved,
• To make any meaningful assessment.
INTRODUCTION
6
The question is;
do these factors make garden furniture production
for export economically unprofitable, for which
reason, Ghanaian firms seem not to be interested?
INTRODUCTION
7
OBJECTIVES To estimate the recovery rate of converting
lumber (KD) to garden furniture.
To ascertain the economic viability or otherwise in further processing lumber to garden furniture, in Ghana, for export.
8
Study coverage- three-year period from January 2003 to December 2005
Materials and equipment; Wood, Tape Measure, various records/reports and Vernier Callipers
Data collection process;
In-factory study, Observations, Interviews and Records Reviews
Exchange rate;
€1Gh¢1.139-May 2005 was used
MATERIALS AND METHODS
9
PROCESSED
TO FURNITURE
INCOME (A)
LUMBER (KD)
EXPORT
OTHER/BY-PRODUCT’S
INCOME (D)
-Firewood & Others
EXPORT
INCOME (C)
TOTAL INCOME:(E) ={D+C}
TOTAL COST. (B):
-MAT. COST Raw material
Other materials
differential
-LABOUR COST processing
-OTHER EXPENSES cost
-DIFFERENTIAL SELLING & DIST. COSTS
AND TAXES
RESIDUAL
INCOME
F= (E-B)
(Additional
profit/loss)
COMPARED
WITH A
A model for the study S
plit
–o
ff-p
oin
t
10
Recovery rates of converting lumber (KD) to garden furniture
Eleven (11) wood species were selected based on
availability of both, their lumber and furniture values,
• Included, Odum (Milicia excelsa), Mixed Redwoods,
Mahogany (Khaya spp.), Teak (Tectona grandis), Dahoma
(Piptadeniastrum africanum), Albizia (Albizia ferruginea),
Akasaa (Chrysophyllum spp.), Afromosia (Pericopsis elata),
Avodire (Turraeanthus africanus), Hyedua (Guibourtia ehie),
and Emire (Terminalia ivorensis).
MATERIALS AND METHODS
11
Three replicates of three different garden furniture
types made from each species were used.
Equations 1 and 2 were used for the calculations,
• Equation 1 → Recovery Rate of each garden furniture (RR)
= Output lumber volume X 100%
Input lumber volume
• Equation 2 → Average Recovery Rate for Species and general
= RR1 +RR2+RR3…RRn/N
• where, RR= recovery rates of furniture piece or species and N=
Total no. of furniture pieces or Total no. of species
MATERIALS AND METHODS
12
Income or values of garden furniture and
lumber/m3 {income after further processing-Free-on-Board (FOB) +
‘Other Income’, and raw material cost}
Values of garden furniture;
• Free-on-Board (FOB) values of garden furniture -From
Timber Industries Development Division (TIDD’S) export
reports on wood products
• Values of by-products (‘other income’), -From study
company’s financial statements
FOB values of lumber, - From TIDD’S export reports on
wood products ≡ Raw material cost.
MATERIALS AND METHODS
13
Costs of further processing kiln-dried lumber to garden furniture
Material costs (Raw and ‘other materials’);
•Raw material- export(FOB) value of lumber (KD); found by reviewing TIDD export reports,
• Equation 3-for volume used for 1m3 of furniture,
Equation 3→ Raw material volume = Finished/planed lumber volume X 100%Recovery rate
• Answer multiplied by FOB value of lumber gives value of lumber needed for furniture in €.
MATERIALS AND METHODS
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• ‘Other materials’ cost
• 10 different furniture pieces and equation 4 were used to find % in a furniture piece, -
Equation 4
• answer X annual average value of furniture sold (export + local) = total monetary value,
• total monetary value ÷ annual volume= cost/m3
Differential Processing, and Marketing Costs and Taxes
• interviews and review of study company’s financial statements were used to obtain them.
MATERIALS AND METHODS
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• Costs and ‘other income’ apportionment-to Garden Furniture and Parquet Flooring
• two bases used;
• percentage of average number of workers, -for
labour costs
• percentage annual volume of each product
produced and sold, –for other expenses and
‘other income’
Scenario analyses of Costs and Benefits;
• Five (5) Scenarios based on a cost-volume-profit equation
Required Volume X Unit Price = Total Cost + Targeted Net Profit
(Garrison, 1991; Hilton et al, 2000)
MATERIALS AND METHODS
16
• Scenario 1- (Base Case) (S1); costs + ‘other income’ ÷ company’s two
products
• Scenario 2(S2); total labour given to only garden furniture, other
variables remained at Scenario 1 levels
• Scenario 3 (S3); total other expenses given to only garden furniture,
other variables remained at Scenario 1 levels
• Scenario 4(S4); total labour + other expenses given to only garden
furniture, volume remained at Scenario 1 level
• Scenario 5 (S5)- if company produced only furniture (total volume =
furniture + parquet flooring), all costs remained at base (Scenario 1)
levels
• Economics Analyses’ Computation
• Accounting procedure for ‘sell or further process at the split-off-point’ was used for the calculations (Garrison, 1991).
MATERIALS AND METHODS
17
Table 1: Recovery Rates (%) of Eleven (11) Wood Species
• From GDV, (2005)
• ODUM/IROKO has very good durability, fungus resistance, very minimal insectinfestation and reasonably termite-resistance, and
• AVODIRE has Low durability and high susceptibility to fungal and insect attack
RESULTS AND DISCUSSIONS
Wood SpeciesSpecies Average
Recovery Rates Wood Species
Species Average
Recovery Rates
ODUM/IROKO 65.97 AVODIRE 51.60
MIXED REDWOOD 60.90 DAHOMA 57.35
TEAK 56.10 ALBIZIA 57.23
MAHOGANY 63.78 AKASAA 61.69
AFROMOSIA 55.87 EMIRE 55.28
HYEDUA 63.97
GENERAL AVERAGE RECOVERY RATE = 59.07
RECOVERY RATE OF CONVERTING LUMBER TO GARDEN
FURNITURE
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Values/m3 of Lumber (Raw material costs) and Garden Furniture (Income after further processing)
• Free-on-Board (FOB) Values/m3 of Lumber (Table 2)
Table 2: Annual Cumulative Average FOB Values of Lumber and Garden Furniture
RESULTS AND DISCUSSIONS
Product Type
Yearly Values/m3 (€) of Products
2003 2004 2005 Average Value/m3
Lumber (KD)
Garden Furniture
352.980 363.910 387.100 367.997
1,917.800 2,086.330 1,996.030 2,000.050
SOURCE: TIDD Export Report-2003 to 2005
•Lumber = €367.997 is the raw material cost/m3 for the production of garden
furniture, in general
• with Average Recovery Rate of 59.07%, implies that 1.693m3 is needed for 1m3 of
garden furniture, 19
• Hence FOB value of lumber (KD) for 1m3 of garden furniture
(€367.997 x 1.693m3) = €623.019
• Generally, garden furniture has an average value (FOB) = €2,000.050/m3
• By Products’ income/value= €73.078/m3 ≡ 3.65% of FOB
•Total income from garden furniture =€2,073.128/m3
However, the FOB values of different wood species are different - Table 3
RESULTS AND DISCUSSIONS
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Species of Wood Annual Average
Values/m3 of Lumber
Annual Average Value/m3 of
Garden Furniture Value Difference
Percentage of Difference over
lumber
Odum/Iroko 657.26 2,473.27 1,816.01 276.30
Dahoma 323.05 1,033.42 710.37 219.89
Emire 391.92 961.26 569.34 145.51
Teak 624.68 2,530.18 1,905.50 305.04
M. Redwood 252.95 1,939.32 1,686.37 666.68
Mahogany 605.16 1,722.89 1,117.73 184.70
Avodire 355.87 1,625.58 1,269.71 356.79
Albizia 414.31 792.95 378.64 91.39
Akasaa 525.24 1,179.91 654.67 124.64
Hyedua 511.18 2,283.34 1,772.16 346.70
Otie 333.10 1,598.12* ---------- ---------
Afromosia --------- 2,946.93 ---------- ----------
Papao/Apa 613.71 1,613.54* ---------- ----------
Danta 394.44 1,524.90* ---------- ----------
Walnut 376.74 1,840.68* ---------- ---------
Sapele 548.18 1,328.43* ---------- ---------
RESULTS AND DISCUSSIONS Table 3: Annual Average Values (FOB) /m3 of Lumber (KD) and Garden Furniture from
Different Wood Species (€)
21
Table 4: Average Total Differential/Incremental Costs Due to Conversion of Lumber to
Garden Furniture.
RESULTS AND DISCUSSIONS
Cost Item
Amount involved (€)
Lumber (KD)(value of volume for
1m3 furniture-€623.019)
1m3 Garden Furniture
(€2,000.050)Differential/Incremental
Costs & Their Percentages in Furniture Value
Marketing and Taxes
Labour
Other Expenses
Other Materials Total differential cost
Raw material (lumber)
Total Product Cost
14.42% = 89.839
(623.019-89.839)
13.42% =268.407 178.568 (8.93)
328.298 (16.41)
505.284 (25.26)
323 .808 (16.19)1,335.958 (66.79)
533.180 (26.66)
1,869.138 (93.45)
Source: Study Company and Internal Revenue Service
• Thus, €130.912 ≡ 6.55% of the FOB value of garden
furniture is left as profit
Cost of converting lumber to garden furniture for sale - Table 4
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Scenarios indicate that costs range from €1,750.805
(Gh¢2,451.127) S(5) to €2,007.051 (Gh¢2,809.871) S(4),
S(4) is higher than FOB value (€ 2,000.050) of furniture.
This seem to agree with literature that,
Africa’s poor export performance is mainly from
high production costs and unfavourable policies of
governments(Amjadi and Yeast, 1995).
However, costs differ from one species to another due to
differences in values of lumber and furniture as in Table 3.
RESULTS AND DISCUSSIONS
23
Scenario Analysis of Costs and Benefits of Garden
Furniture (in general)
• Additional incomes,-Table 5
Table 5: Additional Income after Producing and Selling Garden Furniture (€/m3) and their Percentages, in
relation to Average FOB Value (after marketing cost & Taxes) of lumber needed (€ 533.180)
RESULTS AND DISCUSSIONS
ScenariosAdditional income
(€)Percentage
increase
Scenario1(Base case- Vol.=2001.532m3) 203.990 38.25
Scenario 2 (Vol. =2001.532m3) 149.674 28.07
Scenario 3 (Vol. =2001.532m3) 120.393 22.58
Scenario 4 (Vol. =2001.532m3) 66.077 12.39
Scenario 5 (Vol. = 2332.685m3) 334.414 62.72
• Additional incomes range from €66.077/m3 ≡Gh¢75.314, (Scenario 4) to €334.414/m3
≡Gh¢381.163, (Scenario 5),
•represent12.39% and 62.72% value increase respectively, on every 1.693m3 of
lumber used to produce and export 1m3 of garden furniture.
•All are opportunity costs of lumber export24
Scenario Analysis of Costs and Benefits of Garden Furniture from Different Wood Species
Applying the five (5) scenarios, on nine (9) selected wood species,
only three (3) were profitable under all the five scenarios -(Table 6).
Table 6: Profitability (%) of Nine (9) Wood Species in Relation to the Income obtained
from Export of their Lumber Volumes used to Produce 1m3 of Garden Furniture
* Species found profitable and therefore viable for specialization, should the need be.
RESULTS AND DISCUSSIONS
Wood Species Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5
*Odum/Iroko 33.38 26.94 23.46 17.02 48.86
*M. Redwood 86.94 71.66 63.42 48.14 123.63
*Teak 23.91 18.21 15.14 9.44 37.59
Avodire -18.13 -29.03 -32.29 -41.50 3.96*
Mahogany -44.31 -51.00 -54.60 -61.29 -28.25
Albizia -115.85 -124.63 -129.37 -138.14 -94.77
Akasaa -90.39 -97.84 -101.86 -109.32 -27.51
Emire -113.80 -122.74 -127.56 -136.50 -92.34
Dahoma -90.01 -101.28 -107.35 -118.62 - 62.96
25
Losses of the six wood species is attributable to;
• low recovery rates,
• inadequate value difference between their lumber andgarden furniture.
• But effect of inadequate value differences is morepronounced;
• since conversion process requires about €1,335.958 tocancel all differential processing costs (Table 4),
• and value differences for such species range from highest of €1,269.710 for Avodire, to lowest of €378.640 for Albizia (Table 3).
Hence with even 100% recovery rate, these species may stillnot be profitable.
RESULTS AND DISCUSSIONS
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Generally, recovery rate from kiln-dried lumber to garden furniture is about 59.07%, different wood species have different, 51.60% to 65.95%.
by-products’ income is vital in aiding either profit making or losses reduction.
Producing 1m3 of garden furniture costs about €1,750.805 (Gh¢2,451.127) to €2,007.051 (Gh¢2,809.871) , in total
However, 1m3 of garden furniture yields additional income in percentage range of 12.39% and 62.72% increase in value, of the total volume of lumber used.
Converting kiln dried lumber to garden furniture is generally profitable, but focus should be on Odum (Milicia excelsa), Mixed Redwood, and Teak (Tectona grandis).
CONCLUSIONS
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Conversion of lumber to garden furniture should be encouraged
to generate more income and employment for the growth of the
Ghanaian economy.
Odum, Mixed Redwoods and Teak are more profitable species
and should be giving priority in reforestation and other
plantation efforts.
Efforts should always be made to market and sell all
by-products of the production process to improve on profits or
reduce losses.
Tax reductions and other incentives should be used to attract
investors into further processing lumber to garden furniture
before exports.
RECOMMENDATIONS
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Sincere appreciation is owed to; Management of Kumasi Polytechnic
Management and Staff of the study company
Dr. N. A. Darkwa of the Faculty of Renewable Natural Resources
KNUST-Kumasi
Mr. Albert Zanu- Deputy Chief Accountant of the study company
Messrs, Emmanuel Ben Quansah of Standard Chartered Bank,
Ghana Ltd.-Kumasi; Haruna Alhasan, Ecobank Ghana Ltd.-Kumasi
Messrs Kingsford E. Anane and Albert Offei-Nyarko of Timber
Industry Development Division (TIDD)- Kumasi; and
Messrs Tuffour Walter and James D.D.T. Dogoli of the Internal
Revenue Service in Kumasi.
• May all be blessed accordingly!
ACKNOWLEDGEMENT
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THANK YOU ALL
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