Seeing the Profit for the Trees


Economic News

22 Jul 2010
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Long one of the pillars of the country's economy, Malaysia is now looking to build on the value of its timber industry, aiming to expand into new markets, while guaranteeing the sector's future through improved management practices, higher investments and a greater emphasis on sustainability.

Malaysia has a wide range of hard woods, raw materials that have been much prized down through the centuries both locally and increasingly abroad. Last year, Malaysia's timber sector earned $6.6bn in exports, second only to palm oil as the country's leading export commodity, while generating a further $2.2bn in the domestic market and providing direct employment to more than 300,000 people.

Though the increased demand for Malaysian wood and timber products has benefitted the economy, it has also come at a price. There are still concerns over deforestation, with Malaysia not being immune from claims that illegally felled timber is making its way into the market and that aggressive logging activity is harming the environment.

The government has acted to quell these concerns through a number of measures. In February, the government unveiled the National Timber Industry Policy (NATIP), the first comprehensive policy plan for the sector, setting out future directions for the industry until 2020.

At its core the NATIP stresses the need for higher-value-added downstream activities, aiming to more than double export earnings to $15.6bn by the end of the next decade, mainly through increased sales of further processed timber products.

To achieve the objectives of the NATIP, the state and its agencies are to work closely with the private sector to strengthen the timber industry's structure, guarantee and expand the supply of raw materials, foster innovation and technology, improve marketing and promotion activities, build on human capital development, provide additional funding and incentives, and bolster Bumiputera participation.

According to Dr Jalaluddin Harun, the director general of the Malaysia Timber Industry Board (MTIB), the state body tasked with promoting and coordinating the sector, the way forward has to be through adding value to existing raw materials and increasing the supply of resources, using the NATIP as a guideline.

"Our role is to focus, with the government, to push the industry towards value-added products," he told OBG. "The supply from natural forests will not be very high, if we rely just on that we won't be able to continue for very long. We need to enhance the forest plantation in terms of supply of natural timber as well as develop the downstream industry."

With the support of state funding, 25,000 ha of land will be added to Malaysia's forest plantation every year up to 2020, expanding existing timber estates by 375,000 ha, Jalaluddin said, with the focus being fast-growing and marketable species.

"So in the future it is not only about generating raw material but revenue," he said.

On October 16, the plantation industries and commodities minister, Tan Sri Bernard Dompok, said that loans worth $68m, out of a total budget allocation of $315m, had been signed off to fund the development of 52,435 ha of forest plantation.

Announcing a loan of $4m with the Sabah Forestry Development Authority to fund the planting of 2500 ha of land through the Forest Plantation Development, the minister said he hoped more companies would apply for the loan facility to help achieve the 375,000-ha target.

Another plank in the platform of improved sustainability and stable revenue is the conclusion of a bilateral Forest Law Enforcement, Governance and Trade voluntary partnership agreement (VPA) with the EU. Talks have been ongoing since 2007, with a final agreement expected to be signed by early next year.

Under the proposed agreement, authorities would provide guarantees that all timber sold to the EU was legally sourced and logged. In return Malaysia wants the bloc to give it a special priority to enter the EU's timber market and pay a premium for Malaysian legal timber.

Malaysia has taken the lead in trying to put in place best practice deals such as the VPA, having been the first tropical timber producer to start talks with the EU. The agreement will be vital to the Malaysian timber industry, which currently exports some $900m worth of wood and products to member states within the bloc.

According to EU officials, the VPA agreement would provide Malaysian exporters with a significant advantage as they would not need to prove the sustainability and legal compliance of their wood.

While seeking to protect and indeed expand its premium markets, such as the EU, Malaysia is also working to increase its profile further afield, says Cheah Kam Huan, the chief executive officer of the Malaysian Timber Council.

"Emerging markets are very important for the industry to diversify our overseas markets. We promote our products more actively there to encourage importers in these countries to buy directly from us, so emerging countries are vital in growing the industry," he said in an interview with OBG.

Through boosting funding to the sector and reinforcing regulations to guarantee products meet the high standards set by overseas clients, Malaysia is ensuring its timber industry will continue to grow and remain a solid contributor to the economy.

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