Pulp & Paper

Occasional Paper No. 67

[m] Bureau o f Agricultural Ecommics, Canberra

O~casicsnal Paper No. 67

Developments in the Forest - Based Industries of Indonesia. Malaysia and the Philippines Implications for Australia

Project 1615

S.A. Parsons

Australian Government Publishing Serv ice Canberra 1982

Decisions on the allocation of resources for the development Of forest plantations require judgments to be made on whether or not projected economic conditions will be conducive to the development Of internationally competitive forest-based industries in Australia.

The study reported in the paper forms part of a program of research, undertaken at the request of the Australian Forestry Council, to reassess the prospects for export of forest-based products from Australia.

The study was prepared by Mr S.A. Parsons who travelled to Indonesia, Malaysia and the Philippines to have extensive discussions with representatives of government and industry on the likely future impact Of changes in forest resources policies and policies introduced to stimulate the wood-based and pulp and paper industries.

ANDY STOECKEL Director

Bureau of Agricultural Economics Canberra A.C.T.

August 1982

iii

ACKNOWLEDGMENT

The assistance provided by Mr N. Mullen in the preparation of projections of future consumption of paper and paper products in Indonesia, Malaysia and the Philippines is gratefully acknowledged.

Page

Foreword

Acknowledgment

Summary

1. Introduction

2. Indonesia

2.1 Wood-based industries 2.2 Pulp and paper

3. Malaysia


4. The Philippines


5. Implications for Australia


6. Conclusion

References

Tables

Table

1 Exports of logs, sawntimber, plywood, furniture, mouldings and beadings: Indonesia: 1975-80

2 Plywood mills in Indonesia: capacity and production: 1973-80 and projections to 1984

3 Plywood production, domestic sales, exports and imports: Indonesia: 1973-80 and projections to 1984

4 Production, imports and apparent consumption of paper and paperboard: Indonesia: 1975-80

iii

iv

1

4

Page

5

6

7

9

Tables (continued)

Table Page

5 Imports of basic materials for paper and paperboard: Indonesia: 1975-79

6 Planned expansion of pulp and paper production capacity to 1985 by existing firms and by new projects: Indonesia

7 Actual and projected consumption of paper and paperboard: Indonesia

8 Exports of timber products: Peninsular Malaysia: 1975-80

9 Estimated utilisation of logs: Peninsular Malaysia: 1977-80

10 Exports of timber products: Sabah: 1975-80

11 Exports of timber products: Sarawak: 1975-80

12 Production, imports and apparent consumption of paper and paperboard: Malaysia: 1975-80

13 Actual and projected consumption of paper and paperboard: Malaysia

14 Volume and value of principal items of wood exported: the Philippines: 1970-79

15 Roundwood (log) production: the Philippines: 1969-70 to 1981

16 Number of plants, annual log requirements, annual output and proportion of output exported: the Philippines: 1979

17 Estimated area and volume of standing timber in commercial forests: the Philippines: 1979

18 Production, imports, exports and apparent consumption of paper, paperboard and other paper products: the Philippines: 1970-80

19 Production of paper and self-sufficiency ratios: by principal categories: the Philippines: 1970-80

20 Production, imports and apparent consumption of wood pulp and imports of waste paper: the Philippines: 1970-80

21 Annual pulp making and paper making capacities in 1980 and anticipated expansion to 1985: the Philippines

22 Actual and projected consumption of paper and paperboard to 2000: the Philippines

DEVELOPMENTS IN THE FOREST-BASED INDUSTRIES OF INDONESIA, MALAYSIA AN0 THE PHILIPPINES

IMPLICATIONS FOR AUSTRALIA

SUMMARY

. The g r e a t e r p r o p o r t i o n o f t h e demand for fo re s t -based p r o d u c t s ( 1 ) i n A u s t r a l i a h a s been s a t i s f i e d from d o m e s t i c f o r e s t r e s o u r c e s , either n a t i v e f o r e s t s o r p l a n t a t i o n s o f m o s t l y e x o t i c s p e c i e s . Kowever, i m p o r t s have been s i g n i f i c a n t and r e p r e s e n t e d 17.2 p e r cent o f the t o t a l v a l u e o f d o m e s t i c s a l e s b y wood m a n u f a c t u r i n g i n d u s t r i e s i n 1979-80. E x p o r t s , p r i n c i p a l l y o f hardwood woodch ips , h a v e grown r a p i d l y i n recent y e a r s . The level o f s e l f - s u f f i c i e n c y i n the f u t u r e w i l l depend on the a l l o c a t i o n o f r e s o u r c e s f o r the e s t a b l i s h m e n t o f f o r e s t p l a n t a t i o n s . In a l l o c a t i n g r e s o u r c e s f o r the e s t a b l i s h m e n t o f p l a n t a t i o n s , judgments a r e r e q u i r e d on whether or not p r o j e c t e d economic c o n d i t i o n s w i l l b e c o n d u c i v e t o the development o f i n t e r n a t i o n a l l y c o m p e t i t i v e f o r e s t - b a s e d i n d u s t r i e s i n A u s t r a l i a .

. The f o c u s o f this paper i s a r e v i e w o f d e v e l o p m e n t s i n fo re s t -based i n d u s t r i e s i n I n d o n e s i a , Malays ia and the P h i l i p p i n e s . T h e s e deve lopmen t s a r e i m p o r t a n t t o A u s t r a l i a b e c a u s e o f the p r e s e n t impor tance o f these c o u n t r i e s a s e x p o r t e r s o f wood p r o d u c t s b o t h t o major world m a r k e t s and to A u s t r a l i a .

I ndones ia

Wood-based i n d u s t r i e s

. Government p o l i c i e s i n t r o d u c e d i n 1980 and 1981 h a v e p r o g r e s s i v e l y r e s t r i c t e d t h e s u p p l y o f l o g s f o r e x p o r t and h a v e s t i m u l a t e d i n v e s t m e n t i n plywood manu fac tu r ing .

. Numerous d i f f i c u l t i e s f a c e the a m b i t i o u s program f o r the e s t a b l i s h m e n t o f wood-based i n d u s t r i e s i n t h e 1 9 8 0 s and beyond. D e s p i t e these d i f f i c u l t i e s , I n d o n e s i a i s e x p e c t e d t o become a ma jor wor ld s u p p l i e r o f plywood and a s i g n i f i c a n t producer and e x p o r t e r o f f i n i s h e d and s e m i - f i n i s h e d p roces sed wood p r o d u c t s b y the end o f the 1980s .

Pu lp and paper

. I n d o n e s i a i s e x p e c t e d t o become an i n c r e a s i n g l y i m p o r t a n t marke t both f o r so f twood p u l p and f o r f i n i s h e d paper p r o d u c t s . Even the e x p e c t e d q u i t e r a p i d deve lopment o f the l o c a l i n d u s t r y w i l l n o t a l t e r this g e n e r a l o u t l o o k . Kowever, t h e deve lopment o f a s i g n i f i c a n t d o m e s t i c i n d u s t r y may a l t e r the c o m p o s i t i o n o f i m p o r t s toward t h e h i g h e r g rades o f paper and paperboard. T e c h n i c a l c o n s t r a i n t s on the f e a s i b l e level o f u t i l i s a t i o n o f i n d i g e n o u s raw m a t e r i a l s a r e l i k e l y t o l i m i t p r o d u c t i o n o f some grades .

-. -

(1 ) The t e r m ' f o r e s t - b a s e d products ' d e n o t e s t h e a g g r e g a t i o n o f a l l p roduc t s u s i n g wood or wood r e s i d u e s o r pulpwood a s a raw m a t e r i a l .

Malays ia


P e n i n s u l a r Malays ia

. The e s s e n t i a l problem i n P e n i n s u l a r Malays ia i s t h a t the deve lopment o f the wood p r o c e s s i n g sector h a s grown more r a p i d l y t h a n the a v a i l a b i l i t y o f l o g s under p r e s e n t h a r v e s t i n g and p r o c e s s i n g t e c h n o l o g i e s and c u r r e n t marke t p r e f e r e n c e s f o r t i m b e r s p e c i e s .

. P r o c e s s o r s l o c a t e d i n w o o d - d e f i c i t S t a t e s i n West P e n i n s u l a r Malays ia , a r e p a r t i c u l a r l y v u l n e r a b l e t o g e n e r a l r e d u c t i o n s i n the a v a i l a b i l i t y o f l o g s .

. I m p o r t a t i o n o f sawnwood, either o f the major commercial s p e c i e s o r o f other s p e c i e s , f o r u s e a s raw m a t e r i a l s i n f u r t h e r p r o c e s s i n g f o r e x p o r t i s c o n s i d e r e d a more l i k e l y p o s s i b i l i t y t h a n the i m p o r t a t i o n o f t i m b e r s o l e l y f o r the d o m e s t i c m a r k e t . h p h a s i s on f u r t h e r p r o c e s s i n g w i t h i n P e n i n s u l a r Malays ia c o u l d l e a d to o p p o r t u n i t i e s f o r the s u p p l y o f s e m i - f i n i s h e d p r o d u c t s o r f i n i s h e d c a n p o n e n t s f o r the manu fac tu re o f f u r n i t u r e f o r e x p o r t .

sabah and Sarawak

. The o u t l o o k for the wood-based i n d u s t r i e s i n Sabah and Sarawak d i f f e r s from t h a t f o r the i n d u s t r i e s o f P e n i n s u l a r Malays ia . The s u c c e s s f u l deve lopment o f e x p o r t - o r i e n t e d i n d u s t r i e s i s dependen t on c o n s i d e r a b l e i n v e s t m e n t i n i n f r a s t r u c t u r e , the overcoming o f l a b o u r s h o r t a g e s a n d the i m p l e m e n t a t i o n o f grading r u l e s . The r a p i d i t y and s u c c e s s w i t h which the S t a t e s o f Sabah and Sarawak c a n r e p l a c e P e n i n s u l a r M a l a y s i a a s a s u p p l i e r o f hardwood sawnt imber t o world m a r k e t s i s u n c l e a r . The deve lopment o f wood i n d u s t r i e s i n Sabah and Sarawak f a c e s d i r e c t c o m p e t i t i o n from d e v e l o p i n g wood i n d u s t r i e s i n I n d o n e s i a .

P u l p and paper

. W i t h v i r t u a l l y n o 1oca.Z i n d u s t r y , Malays ia h a s become a s i g n i f i c a n t i m p o r t e r o f paper and paper p r o d u c t s . P lans to u t i l i s e so f twood p l a n t a t i o n s e s t a b l i s h e d i n P e n i n s u l a r Malays ia a s a b a s e f o r a pu lp and paper i n d u s t r y have b e e n abandoned b e c a u s e o f a n t i c i p a t e d p r e s s u r e o f c o m p e t i t i o n f o r wood r e s o u r c e s from e x i s t i n g i n d u s t r i e s .

. The p r o j e c t e d i n c r e a s e s i n consumpt ion and s l o w r a t e o f deve lopment o f the i n d u s t r y , the t i m e l a g s r e q u i r e d for the e s t a b l i s h m e n t Of the p u l p i n g i n d u s t r y , and the t e c h n i c a l and economic l i m i t s t o t h e u t i l i s a t i o n o f hardwood pulpwood p r o v i d e s t r o n g i n d i c a t i o n s t h a t Malays ia s h o u l d c o n s t i t u t e a s u b s t a n t i a l and growing marke t f o r a wide range o f paper p r o d u c t s . I t i s p o s s i b l e t h a t s u b s t a n t i a l p u l p i n g c a p a c i t y may be i n s t a l l e d f o r t h e e x p o r t o f p u l p p r o c e s s e d from hardwoods t o m a r k e t s such a s Japan and t h e R e p u b l i c o f Korea. A t the same t i m e , Malays ia may r ema in an i m p o r t e r o f so f twood p u l p , was tepaper and f i n i s h e d paper p r o d u c t s .

T h e P h i l i p p i n e s


. A l t h o u g h government p o l i c y i s f o r l o g e x p o r t s t o c e a s e i n 1 9 8 2 , t h e effective i m p l e m e n t a t i o n o f q u o t a s i s c o n s t r a i n e d h y p r e s s u r e frm wood P r o c e s s o r s f o r e x c e p t i o n s t o the q u o t a l i m i t s and b y i l l e g a l e x p o r t i n g . R e s t r i c t i o n s o n l o g h a r v e s t i n g f o r e x p o r t , i n t r o d u c e d p r o g r e s s i v e l y since 1 9 7 6 , h a v e not l e d t o an u p s u r g e i n t h e h a r v e s t i n g o f l o g s f o r p r o c e s s i n g s o l e l y f o r d o m e s t i c c o n s u m p t i o n a s p r o d u c t i o n f o r t h e d o m e s t i c m a r k e t i s l a r g e l y complementary to p r o d u c t i o n f o r e x p o r t .

. A p r i n c i p a l c o n c e r n o f t h e wood i n d u s t r i e s i s the p o t e n t i a l f o r l a r g e errors i n c u r r e n t e s t i m a t e s o f f o r e s t a r e a . I n d u s t r y e s t i m a t e s r a n g e frm a s l o w a s f i v e y e a r s b e f o r e the c o m m e r c i a l l y f e a s i b l e o l d - g r o w t h s t a n d s a r e l o g g e d over.

. R e s o l u t i o n o f the many d i f f i c u l t i e s f a c i n g the -wood i n d u s t r i e s i n the P h i l i p p i n e s may i n v o l v e c o n s i d e r a b l e r e s t r u c t u r i n g a n d , p o s s i b l y , s c a l i n g down o f the e x i s t i n g s a w m i l l i n g and p lywood and veneer i n d u s t r i e s . N e v e r t h e l e s s , c o n t i n u i n g e f f o r t s t o d e v e l o p e x p o r t m a r k e t s , e s p e c i a l l y for h i g h e r va lue-added wood p r o d u c t s , c a n be e x p e c t e d .

P u l p and paper

. The g e n e r a l p r o s p e c t s a r e f o r the P h i l i p p i n e s to be a growing m a r k e t for both s e l e c t e d f i n i s h e d o a o e r o r o d u c t s and wasteDaDer and f o r s o f t w o o d - - - - - pulpwood and p u l p r e q u i r e d f o r m i x i n g w i t h p u l p produced from i n d i g e n o u s hardwood s ~ e c i e s . T h e P h i l i o o i n e s i s u n l i k e 1 4 t o become s e l f - s u f f i c i e n t - - i n l o n g - f i b r e p u l p a n d / o r a11 g r a d e s of p a p e r .

I m p l i c a t i o n s f o r A u s t r a l i a

. In t h e 1 9 8 0 s , A u s t r a l i a n wood p r o d u c t s a r e l i k e l y t o f a c e c o n t i n u e d c a n p e t i t i o n from wood p r o d u c t s m a n u f a c t u r e d i n I n d o n e s i a , M a l a y s i a and t h e P h i l i p p i n e s . However, beyond the 1 9 8 0 s , the vo lume o f e x p o r t s f rom I n d o n e s i a , M a l a y s i a and t h e P h i l i p p i n e s t o w o r l d m a r k e t s may d e c l i n e a s a r e s u l t o f t h e a d o p t i o n o f p o l i c i e s d e s i g n e d t o r e s t r i c t l o g e x p o r t s and e n c o u r a g e t h e p r o d u c t i o n o f h i g h e r v a l u e - a d d e d p r o d u c t s .

. Major o p p o r t u n i t i e s f o r A u s t r a l i a t o e x p o r t wood p r o d u c t s t o I n d o n e s i a , M a l a y s i a or t h e P h i l i p p i n e s a r e c o n s i d e r e d u n l i k e l y , b u t the r e s t r i c t i o n o n the s u p p l y o f wood-based p r o d u c t s o n w o r l d m a r k e t s r e s u l t i n g from the I n d o n e s i a n , M a l a y s i a n and P h i l i p p i n e p o l i c i e s s h o u l d a s s i s t t h e c o m p e t i t i v e n e s s o f wood-based p r o d u c t s f r o m A u s t r a l i a .

. S i g n i f i c a n t m a r k e t s may emerge f o r s o f t w o o d p u l p for pulpwood) or f i n i s h e d p a p e r p r o d u c t s i n I n d o n e s i a , M a l a y s i a and the P h i l i p p i n e s . However, t h e n a t u r e and s c o p e o f p o s s i b l e o p p o r t u n i t i e s a r e u n c e r t a i n . E s t a b l i s h m e n t o f m a j o r p u l p and p a p e r p r o c e s s i n g p l a n t s i n I n d o n e s i a and t h e P h i l i p p i n e s c o u l d c h a n n e l e x p o r t o p p o r t u n i t i e s t o t h e s e c o u n t r i e s into s o f t w o o d p u l p (or pulpwood) and s p e c i a l t y p a p e r p r o d u c t s .

1. Introduction

Self-sufficiency in forest-based products in Australia has remained high, with the greater proportion of the demand for forest-based products in Australia being satisfied from domestic forest resources, either native forests or plantations of mostly exotic species. However, imports have been significant. In 1979-80, imports represented 17.2 per cent of the total value of domestic sales of wood manufacturing industries. ~xports, principally of hardwood woodchips, have grown rapidly in value in recent years - from $84.lm in 1975-76 to $210.9111 in 1978-79.

Decisions on the desirable level of self-sufficiency, and hence on the future allocation of resources for the establishment of forest plantations, require judgments to be made on whether or not projected economic conditions will be conducive to the development of internationally competitive forest-based industries in Australia. Misallocation of resources can be expected to be lower if decisions on investments take into account the range of likely outcomes of shifts in factors affecting the supply of and demand for forest products in countries of relevance to Australia as potential competitors, suppliers or markets.

Developments in forest resources and forest-based industries in Indonesia, Malaysia and the Philippines are particularly important to Australia. Major changes have occurred and continue to occur in the forest resources and the policies affecting forest resources in each of these countries. In the future, less emphasis is expected to be placed on the export of logs (principally to Japan, Taiwan and the Republic of Korea). Logs are the dominant output of the forest-based industries in Indonesia, Malaysia and the Philippines and, in 1.979, they comprised 75 per cent of total world exports of non-coniferous logs. Each of the three countries has ambitious plans for the establishment of wood-based and pulp and paper industries either to increase the value-added component of the final output exported or to reduce import requirements.

The main aim in this paper is to review recent developments in the forest-based industries in Indonesia, Malaysia and the Philippines. The implications for the development of additional softwood plantation resources in Australia are outlined at the end of the paper.

2. Indonesia

2.1 Wood-Based Industries

The dominant wood-based industry in Indonesia is the harvesting of logs for export. In 1979, the export of logs accounted for 55 per cent Of estimated total log production of 27.5 million m3. Production of sawntimber in 1979 was 4 million m3, of which 1.3 million m3, or 32 per cent, were exported. Production of plywood expanded sharply from 624 000 m3 in 1979, of which 21 per cent was exported to 101 100 m3 in 1980, of which 25 per cent was exported (see Tables 1 and 2).

Government policies introduced in recent years have progressively restricted the supply of logs for export. With tightening quota

Table 1: EXPORTS OF LCGS, SAWNTIMBER, PLYWOOD, FDRNITURE, MOULDINGS AND BEADINGS: INDONESIA: 1975-80

Mouldings Wooden Logs Sawntimber Plywoodfal Furniture and p i c t u r e

Year beadings frames Total value

Volume Value Volume Value Volume Value Value Value Value

(a) Includes blockboard.

Source: National Agency for Export Development (NAFED) (1981) .

Table 2: PLYWOOD MILLS IN INDONESIA: CAPACITY AND PRODUCTION: 1973-80 and projections to 1984

Year Number of Installed annual mills capacityfa) Production

no. 1~~~ m3 '000 m3

(a) On the basis of two shifts a day. (b) As at March 1981, there were 32 factories in operation, with an installed annual capacity of 2.25 million m3, and applications to install an additional annual capacity of 5.3 million m3 are currently in various stages of being processed.

Source: Comnercial Advisory Foundation in Indonesia (1981)

restrictions, log exports have fallen from the peak of just over 19 million m3 in 1978 to 14.2 million m3 in 1980 (Table 1). The regulations in effect from 1 August 198' link the right to export with the supply of logs for domestic processing. Log export rights are now allocated only to firms which have developed, or are developing, integrated timber processing operations that have plywood manufacturing units as their nuclei. Plywood firms currently operating are allowed to export one log for evey four logs processed domestically. Since 1 August 1981, companies beginning construction of plywood mills have been allowed to export two logs for every log that they process locally during the construction period, limited to two years. It is planned to phase out log exports completely by 1985.

The industry development policies of the Indonesia Government have stimulated investment in plywood manufacturing. Annual mill capacity is projected to more than treble from 1.9million m3 in 1980 to 7 million m3 in 1984 (Table 2). It is projected that, by 1984, plywood production could increase over fivefold to 5.5 million m3, exports fifteenfold to 3.9 million m3 and domestic sales more than twofold to 1.6 million m3 (Table 3).

The feasibility of the projected levels of production and exports is open to some doubt. These projections are essentially industry targets, the realisation of which depends on the ability of the industry to

Table 3: PLYWOOD PRODUCTION, DOMESTIC SALES, MPORTS AND IMPORTS: INWNESIA: 1973-80 and projections to 1984

Year Production Domestic sales Exports Imports

'000 m3 '000 m3 '000 m3 '000 m3

Sources: Commercial Advisory Foundation in Indonesia (1981); National Agency for Export Development (NAFED) (1981).

overcome immediate difficulties to allow plywood manufacturers in Indonesia to compete successfully on world markets with the established exporters, Taiwan and the Republic of Korea (South Korea).

Margins available to plywood manufacturers in Indonesia are potentially greater than those available to processors in South Korea an2 Taiwan because of possible savings in overall costs of shipping logs and final products and the imposition of differential pricing policies for logs for domestic processing. However, possible savings in shipping costs will be reduced to the extent that Indonesian plywood mamfacturers incur additional costs in shipping logs from remote areas, are less able to lmer costs by the utilisation of by-product and waste material, achieve lower recovery rates or face additional charges for assembling plywood from scattered plywood plants to shipping terminals. The economic effects of the differential pricing policies for logs for domestic processing are likely to be a reduction in the total rate of harvesting and the further cross-subsidisation of plywood manufacture from profits accruing from the export of logs.

Difficulties experienced in the short run in meeting the quality requirements of markets in developed countries, particularly the USA, are likely to lead to continuing emphasis on the domestic market and on export markets with less strict requirements, such as the Middle East or Singapore, Taiwan and South Korea where the products of Indonesia can be used as inputs for further processing. Althcugh export markets have become more diversified. with sales made to 18 countries in 1980 compared with 14 in 1979 and 5 in 1978, the proportion of total exports cf plywood accounted for by sales to Singapore and Hong Kong, for both final consumption and further processing, increased from 42 per cent in 1979 to 61 per cent in 1980. The rapid expansion in the use of plywood on the

domestic market can be a t t r i b u t e d to t h e recen t a v a i l a b i l i t y of plywood with var ious t ypes of ou t s i de l a y e r s , coupled with t h e slower r a t e of p r i c e i nc r ea se s i n plywood r e l a t i v e t o o the r bu i ld ing ma te r i a l s ( Indonesian Commercial Newsletter 1980b; Cen t r a l Bureau of S t a t i s t i c s , Indonesia 1981).

The immediate d i f f i c u l t i e s faced by Indonesian plywood manufacturers i n q u a l i t y con t ro l and p roduc t i v i t y a r e not expected t o prevent Indonesia from becoming a major world supp l i e r of plywood and a s i gn i f i c an t producer and exporter of f in i shed and semi-finished processed wood products by t h e end of t h e 1980s. That Indonesia w i l l con t inue t o s t r i v e t o o r i e n t t h e output of t h e wood-based i n d u s t r i e s t o t h e export market i s a reasonable p ropos i t ion , given t h e d e s i r a b i l i t y of d ive r s i f y ing t he source of fo re ign exchange earn ings from t h e cu r r en t heavy dependence on o i l expor t s .

The pos s ib l e dec l i ne i n t h e ready a v a i l a b i l i t y of t o p q u a l i t y , l a rge diameter l ogs i n t h e 1980s and beyond may in f luence t h e r a t e and d i r e c t i o n o f i ndus t ry development. However, t h e long-term development of wood-based i n d u s t r i e s w i l l not be cons t ra ined u n t i l t h e c apac i t y of t h e f o r e s t p roduc ts i n d u s t r i e s becomes h igh r e l a t i v e t o t h e su s t a inab l e supply of t imber. The i ndus t ry development programs introduced s o f a r appear cons i s t en t with t h e s t a t e d f o r e s t r y management po l icy which, of nece s s i t y , is framed i n terms of broad p r i n c i p l e s because of t h e lack of a comprehensive assessment of f o r e s t resources i n Indonesia.

The c r e a t i o n of a d d i t i o n a l oppo r tun i t i e s f o r adding value t o products w i th in Indonesia could allow Indonesia t o l w e r t h e r a t e of exp lo i t a t i on of f o r e s t resources . A t cu r r en t world market va lues fo r l ogs , sawntimber and plywood, t h e processing of l ogs would allow Indonesia t o reduce t he r a t e of harves t ing s u b s t a n t i a l l y and s t i l l genera te t h e same aggregate value of f o r e ign exchange from forest-based products .

2.2 Pulp and Paper

Domestic production ro se from 60.91 k t i n 1.976 t o 211.13 k t i n 1979 and t h e o v e r a l l r a t i o of s e l f - su f f i c i ency rose from 0.23 t o 0.51 (Table 4 ) . Over t h e same per iod, imports remained a t about 200 k t and

were mainly fKom Japan, t h e USA, Canada, New Zealand, Sweden and Finland.

Apparent consumption of a l l g rades of paper and paperboard rose sha rp ly from 265 k t i n 1976 t o 413 k t i n 1979 (Table 4 ) . However, es t imated consumption per person of paper and paperboard i n Indonesia in 1978 was Only 2.5 kg, compared wi th 20 kg i n Malaysia, and was s t i l l only 2.9 kg i n 1980. compared w i th 29 kg i n Malaysia.

Pulp and paper m i l l s c u r r e n t l y opera t ing a r e designed t o produce paper and paperboard products f o r t h e domestic market. Domestic raw m a t e r i a l s include r i c e s t raw, bamboo and bagasse, whi le pulp, waste paper and chemicals a r e imported. However, most of t h e paper m i l l s a r e not i n t e g r a t e d wi th pu lp m i l l s and ace highly dependent on imported raw ma te r i a l . Pulp imports , inc lud ing wastepaper, rose r ap id ly from around 32 k t i n 1976 t o over 130 k t i n 1978 bu t f e l l t o j u s t over 118 k t i n 1979 (Table 5 ) . P r i n c i p a l sources have been Canada, t h e USA, Finland and Sweden.

Table 4: PRODUCTION, IMFQRTS AND APPARENT CONSUMPTION OF PAPER AND PAPERBOARD: INDONESIA: 1975-80

Year Printing Wrapping paper, and Newsprint corrugatingmedium Sack kraft Paperboard Total writing and kraft liner

PRODUCTION 50 € 6 5 - na - na na 51 809 - 4 101 - 5 000 60 910 63 158 - 23 500 - 9 600 96 258 87 076 - 41 983 - 19 723 148 782 119 793 - 60 467 - 30 870 211 130

na - 81 630(a) - 37 108(a) na

- ID 1976 44 965 65 000 34 500 l? 860 42 354 203 679

1977 19 734 56 000 37 372 22 939 40 668 176 713 1978 17 466(p) 90 000 36 721 25 770 33 851 20? 808 1979 9 394 90 000 43 677 46 802 23 831 213 704 1980 na na 46 959 36 420(b) 22 713(b) na

APPARENT CONSUMPTION 1975 81 386 47 000 na na na na 1976 96 774 68 000 38 601 13 860 47 354 264 589 1977 82 892 56 000 60 872 22 939 50 268 272 971 1978 104 542(p) 90 000 78 704 25 770 53 574 352 590 1979 117 187(b) (p) 90 000 104 144 46 802 54 701 412 834(b) 1980 na na 128 589 36 420(b) 59 821 na

(a) Estimate by the Indonesian Pulp and Paper Association (IPPA). (b) Takes into account exports of 12 000 t in 1979. (p) Preliminary estimate. na, Not available. Sources: Indonesian Commercial Newsletter (1980~. pp.3,4,7,8, 1981, p.7); FA0 (1979a) for newsprint figures.

Table 5: IMPORTS OF BASIC MATERIALS FOR PAPER AND PAPERBOARD: INWNESIA: 1975-79

Mechanical wood pulp 3' 302 13 534 17 823 30 283 Soda wood pulp 174 449 5 376 12 205 Sulphate wood pulp 650 296 911 316 Bleached wood pulp 1 118 774 2 028 29 701 Bleached soda wood pulp 100 1 499 11 168 26 206 Bleached sulphate wood pulp 3 356 2 212 3 052 3 310 Semi-chemical wood pulp 10 250 500 100 199 Other types 310 635 2 977 8 602 Used paper 120 157 350 6 534)

Used magazines 13 315 12 000 15 216 13 078)

15 830(a) 8 870 (a) 1 684 (a) 48 252(a) 15 639(a) 2 057(a) 300 (a)

13 365(a) 12 467

Total 32 695 32 056 59 001 130 434 118 464

(a) January-November . Source: Indonesian Commercial Newsletter (1980a).

Critical factors inhibiting the grarth of pulp and paper industries in tropical areas have been identified by Xing (1979, p.42) and Paterson (1981, p.456) as:

. cost disadvantages arising from efforts to use a high proportion of raw material from indigenous hardwoods. Improvement in the knowledge of the properties of tropical hardwoods would remove a crucial impediment to the greater use of tropical hardwoods in paper making. However, problems of economical utilisation remain and technical limits exist on the extent to which tropical hardwoods can be substituted for long-fibre pulp in some types of paper products. The FA0 (1979b) planning study identified the availability of long-fibre pulp as the ultimate constraint to expanded production.

. the large-scale capital requirements for each project.

. the volatility of world pulp and paper markets which are dominated by the industries in major developed countries.

. competition for resources from other wood industries and from agriculture.

Feasibility studies for the development of paper industries in Indonesia, including studies of the suitability of different forest resources for making different grades of paper and paperboard, have been undertaken. However, the actual expansion of production capacity in recent years has been more modest than the planned installation of new mills, with a concentration on printing and writing papers, stimulated by the Provision of high nominal tariffs. Nevertheless, the total planned expansion in annual capacity to 1985 of 422.5 kt by existing firms would

represent a 154 per cent increase from the current annual production capacity of 275 kt (see Table 6). The imbalance between the planned expansion of paper and pulp production capacities indicates that impprt requirements for pulp will remain high even if these major new pulping Projects are implemented successfully. (2)

The greater emphasis on paper manufacture in the expansion plans by existing domestic firms than in the proposed new projects is not surprising, given the highly volatile world market for pulp and the Scale Of investment required for a pulp mill to be competitive on world markets. Although non-integrated paper making is a capital-intensive Process, the potential economies of size are not as great as in pulping.

Even though the expansion plans of existing firms are less ambitious than the new project proposals, they still represent major initiatives for these firms, 18 of which have commenced production since 1975.

Projections of future production and consumption of paper and paperboard beyond 1985 are subject to a high degree of uncertainty. The large scale of proposed pulp and paper factories makes the estimates of future production of particular grades extremely sensitive to the success of individual projects. In addition, the feasibility of expanding production capacity is affected by government policies on import tariffs and domestic price controls for paper and paperboard products. (3) Relaxation of price controls in 1980 resulted in rapid escalation of prices of important categories of paper, including newsprint. The duty-free entry of sack kraft, an essential product for the rapidly expanding cement industry, provides an exception to the general policy of high nominal tariffs.

Prospects for increases in total consumption are dependent on government policies on import tariffs and domestic price levels for paper as well as on movements in gross domestic product (GDP). Long-term projections (FA0 1978, 1979b,c), set out in Table 7, which relied on GDP as an explanator of future consumption, appear optimistic because of their omission of any consideration of price effects on consumption and because of the general review of expectations of rates of economic growth since these projections were prepared. The alternative linear projections, BAE(i) and (ii) , based on conservative expected growth rates of income per person, indicate a far lower level of consumption in the mid-1990s. The annual rate of growth in GDP per person of 5 per cent assumed for the BAE(i) projection is roughly equal to the rate achieved over the 1970s. Harever, the intensification of the trend toward an increasing share of rising incomes accruing to the urban middle classes could lead to a disproportionate increase in the demand for paper and paper products.

(2) Studies completed include those by FA0 (1979b) and the broader ASEAN study reported in Svanquist (1980) and FA0 (1979~). Research on the pulping and paper making potential of tropical hardwoods has been undertaken within Australia by Phillips et al. (1979).

(3) Newsprint attracts a tariff of 20 per cent, printing and writing papers, with some exceptions, 60 per cent and kraft liner 60 per cent.

Table 6: PLANNED EXPANSION OF PULP AND PAPER PRODUCTION CAPACITY TO 1985 BY EXISTING FIRMS AND BY NEW PROJECTS: INDONESIA

Item Existing firms(a) New projects(b) Total

t/yr t/rr t/yr

Not specified 60 000 180 000 240 000 Light bleached kraft pulp 100 000 100 000 Neutral sulphate semi-chemical 48 000 48 000 Bleached kraft pulp 200 000 200 000

(147 000) (d)

Total 208 000 380 000(d) 588 000

m ( C )

Printing and writing, duplex multiple board, bleached G.P. Art paper Specialty thin paper Coated paper, paperboard, duplex paper M.G. and ribbed kraft

Multi-wall sack paper Corrugating paper and kraft liner

Newsprint Wrapping Tissue paper Cigarette and security paper Paper (not specified)

Total 422 500 280 000 702 500

(a) Source: Indonesian Pulp and Paper Association (IPPA), personal communication, 1980. (b) Source: Australian Forest Industries Journal (1980) as amended by updated information on paper projects in Indonesian Comercial Newsletter (1980d). Available estimates range from 149 000 t/yr, for which firm plans are in hand, to total planned capacity Of 1.2 Mt/yr (Pulp and Paper International 1981). ( c ) Classifications of products are not unique. (dl The alternative product mix to 200 000 t/yr of bleached kraft pulp (i.e. 147 000 t/yr of pulp plus 62 000 t/yr of printing and writing paper) is not included in the total.

Table 7: ACTUAL AND PROJECTED CONSUMPTION OF PAPER AND PAPERBOARD: INDONESIA

Projected

Actual FA0 (1978)(al FA0 (1979b,c)(bl BAE(i)(cl BAE(ii)(c)

1979 1994 1994 1993 1998 1994 1994 low GDP high GDP

assumption assumption

Newsprint 90 401.1 650.2 330 51 6 211 277

Printing and writing 117 546.3 798.9 505 813 248 332 !- W

Linerboard ) ) 195 359 ) Sack kraft 1 151 1 725 415 ) Corrugating medium ) ) 1 128.8 1 891.0 1.42 262 ) 542 750 Folding boxboard 55 ) 261 639 )

Total 413 2 076.2 3 340.1 1 658 2 804 1 001 1 359

(a) The 'low GDP' assumption 'is broadly in line with historical trends (to the mid-1970s), due account being taken of most recent charges affecting these trends'. The 'high GDP' assumption 'would involve a more rapid return to full capacity in developed countries and the fulfilment of national development plans or targets in the developing countries' (FA0 1978, p.v). (b) Projected on the bases of conformity with average historical world tren?s. (c) Linear projections based on the relationship between consunption and GNP per person over the years 1970-79, extrapolation of trends in growth of population from 1965 to 1980 and assumed annual rate of growth in real GNP of 5 per cent for BAF(i) and 7 per cent for BAE(ii).

The general uncertainty about the likely level of consumption in the future suggests that such consumption forecasts can be taken as only a tentative guide to the extent and composition of opportunities for the export of pulp and paper products to Indonesia.

Joint consideration of the likely constraints on development imposed by technical factors, the requirement for the financing of large-scale projects, and the perceived essentiality of different paper and paperboard products to the achievement of growth targets in other areas of the economy would seem to offer a somewhat more reliable guide. The development of a significant domestic industry is likely to alter the composition of imports toward the higher grades of paper and paperboard. For example, the quality of newsprint that is produced may be of lower technical quality than that available from major exporting countries, particularly if a policy of using a high proportion of indigenously produced short-fibre pulp is followed. Technical. constraints on the feasible level of utilisation of indigenous raw material are also likely to limit production of some grades. The greater financing requirements for integrated pulp and paper making relative to paper making as a separate enterprise can also be expected to lead to continued growth in. imports of pulp, including long-fibre (softwood) pulp. The essentiality of some finished paper products to industry, in particular sack kraft paper, can be expected to lead to a continuation of low levels of tariff and significant opportunities for the export of these grades to Indonesia.

Prospects for the late 1980s and beyond depend on the degree of success in the implementation of the larger new projects not linked with existing firms. However, the viability of these 'greenfields' projects is questionable, given the relative efficiency of paper industries in developed countries. This is demonstrated by the continuing need to provide high levels of tariff assistance and by the size of the Indonesian market relative to established world trade flows.

3. Malaysia


In assessing the implications of recent developments in forest-based industries in Malaysia, a clear distinction needs to be drawn between Peninsular Malaysia and Sabah and Sarawak. The National Forest Policy accepted in April 1978 covers only the States of Peninsular Malaysia. Separate policies are pursued by the Governments of Sabah and Sarawak.

(a) Peninsular Malaysia

Most of the logs harvested in Peninsular Malaysia are processed into sawntimber, plywood and veneer, and mouldings, with further processing into furniture, mainly for domestic consumption. In 1980, only 2.8 per Cent of total log production was exported in the form of sawlogs. The major wood processing industries (sawmilling and plywood manufacture) are highly export oriented, with total export sales of USS684m in 1980 (Table 8 ) . Development of integrated and secondary and tertiary processing is being encouraged, with emphasis on exporting.

T a b l e 8 : EXPORTS OF TIMBER PRODUCTS: PENINSULAR MALAYSIA: 1975-80

1975 1976 1977 1978 1978 1980 Item

Q u a n t i t y Value Q u a n t i t y Value Q u a n t i t y Value Q u a n t i t y Value Q u a n t i t y Value Q u a n t i t y Value

'000 m3 USSm '000 m3 USSm '000 m3 USSm '000 m3 USSm '000 m3 uS$m '000 m3 USSm

Sawlogs 418 20.5 482 14.6 306 0 .3 160 5.3 234 10.6 262 10 .6

Sawntimber 1 490 138.5 2 682 280.6 2 726 287.1 2 760 336.4 2 978 517.8 2 723 472.8

Plywood 223 36.7 398 68 .1 317 59.1 378 78.9 395 110.1 388 119 .8 P VI Veneer 139 6 .7 149 7.6 192 10.2 64 9.0 59 11.0 64 12.0

Mouldings na 16.3 na 23.6 na 31.3 na 41.2 n a 59.2 132 68.9

T o t a l 2 270 218.7 3 711 394.6 3 541 397.0 3 362 470.9 3 666 708.6 3 569 F84.0

n a , Not a v a i l a b l e .

Source : Malays ian Timber I n d u s t r y Board (MTIB).

Table 9: ESTIMATED UTILISATION OF LOGS: PENINSULAR MALAYSIA: 1977-80

Item

Sawmills Plywood and veneer mills Other mills (a) Log exports

Total

1977 1978 1979 1980

million m3 million m3 million m3 million m3

(a) Includes small log mills, match, wood-wool slab, particleboard and pencil factories. (b) Calculated as a balancing item.

Sources: Economics Section, Forestry Department Headquarters, Peninsulas Malaysia; Malaysian Timber Industry Board (MTIB) : Chai (1979).

The wood processing industries of Peninsular Malaysia are now entering a period in which the total availability of logs of currently recognised commercial species will be increasingly restricted. The decline in log utilisation in 1980 to 9.29 million m3 from 10.41 million m3 in 1979 (Table 9) is indicative of a likely continuing downturn in the volume of timber available for the wood industries in Peninsular Malaysia and for export following the progressive implementation of government policies affecting the timber industry. The essential problem in Peninsular Malaysia is that the development of the wood processing sector, while it has been successful and has contributed very significantly to the socio-economic development of the country, has outpaced the availability of logs under present harvesting and processing technoloqies and with current market preferences for timber species.

The national Government has recognised the difficulties facing the industry and has supported the follcming measures in Peninsular Malaysia:

- reducing the rate of harvesting, including the area opened for agriculture, and establishing e Permanent Forest Estate;

- introducing better management practices for existing forests; and

- augmenting resources through higher recovery rates in factories, and reforestation (Forestry Department, Peninsular Malaysia 1981).

The impact of government policies is demonstrated by the projected marked change in the 1980s in the relative proportions of logs harvested as a result of conversion of land to agricultural use and logs harvested from the Permanent Forest Estate. For 1981, the harvest of logs from clearing for agriculture is estimated at 4.36 million m3 or 55 per cent of the estimated total harvest of 7.92 million m3. It is forecast that, from 1988 onward, a stable harvest of 5.30 million m3 could be

derived from the Permanent Forest Estate of 5.2 million ha (Yeom 1980, p.18). However, the inadequacy of present estimates of forest area and yield characteristics of the heterogeneous growing stock and the changing definition of commercially exploitable timber make it very difficult for a policy of sustained yield to be implemented. Nevertheless, it has been argued that the imposition of restrictions on cutting as a policy instrument designed to reduce waste b t h in harvesting and wood processing will make the eventual introduction of sustained yield

1 harvesting more feasible (Salleh Mohd Nor and Ho Kam Seng 1980).

In the 1990s and beyond, options for the supply of additional timber within Peninsular Malaysia include the harvesting of logs from plantation resources. The full financial cost of MS610.5m for a program of 'compensatory' planting of 188 000 ha a year over I5 years from 1981 has been committed by the Federal Government.(4) The direct commitment of funds is a major departure from the previous policy of the Federal Government. This program of reforestation is extremely ambitious, given the very limited experience to date. The total area to which silvicultural treatments had been applied up to March 1979 was only 304 000 ha, with an annual rate achieved of about 10 000 ha (Chai 1979, p.337). experience with forest plantation has been limited mainly to two projects in Pahang and Johore in 1973. Total area of pine plantations - ~

(Pinus carihaea) i n 1980 was 5500 ha (Forestry ~epartient, peninsular Malaysia 1981, p.21).

Processors located in wood-deficit States in West Peninsular Malaysia may be affected severely by general reductions in the availability of logs. The reliance of many processors on the supply of logs from independent logging firms makes them vulnerable to the impact of industry developnent policies by States within Peninsular Malaysia, such as Pahang and Kelantan, which are rich in forest resources.

Options open to the wood processing sector include:

- shifting and subsequently re-establishing processing plants in Sabah and Sarawak:

- utilising sawnwood from lesser known species and, importantly, from rubberwood (Hevea braziliensis);

- introducing better wood-utilisation practices - sawmills designed to handle small diameter logs have been established since 1977; and

- developing secondary and tertiary processing industries based on the importation of sawntimber and veneer.

.! I

The most obvious of these options, that of importing logs from Sabah !) and/or Sarawak for processing, faces difficulties because of the

ii inability of the West Peninsular Malaysian industry to secure supplies of -t logs of preferred types, the differential log pricing system used by

(4) This program will be based on fast growing tropical hardwoods, mainly of the species Gmelina arhorea, Maesopsis eminii, Albizzia falcataria and Acacia mangium (Forestry Department, Peninsular

I Malaysia 1981, p.9).

Sabah t o encourage the development of wood processing indus t r ies and high shipping cos t s . Currently, the u t i l i s a t i o n of i n fe r io r grade logs from peninsular Malaysia is more f eas ib l e than the importation of logs.

A dec l ine in the t o t a l volume of timber processed within Peninsular Malaysia would reduce the supply of timber for the domestic market, p a r t i c u l a r l y of of f -cut mater ia l from export processing - the main type o f timber sold domestically. A reduction in the volume of sawnwood production may a l s o l i m i t the supply of s t r i p and off-cut material used by secondary processors. Domestic users a re l i k e l y t o turn t o wood from l e s s e r known species and small diameter logs, while secondary processors could u t i l i s e wood from rubber t r ee s . Considerable research has been completed which has enabled the grouping of the l e s se r known species according t o 'end-use ' c h a r a c t e r i s t i c s and the documentation of the wood-working c h a r a c t e r i s t i c s and appropriate treatment of wood from rubber t r ee s . I n terms of the supply of timber tor processing, t h i s suggests t h a t the present cons t r a in t s on the supply of timber for processing from domestic sources may ease a s f a m i l i a r i t y with wood from a l t e r n a t i v e species increases.

The importation of sawnwood, e i t h e r of the major commercial spec ies or of other species, for use a s a raw mater ia l in fur ther processing for export is a more l i k e l y p o s s i b i l i t y than the importation of timber so le ly for the domestic market. Emphasis on fur ther processing within Peninsular Malaysia may a l so lead to expanded markets for processed wood products or f in ished components for use in fu rn i tu re manufacture.

(b) Sabah and Sarawak

The outlook for the wood-based indus t r i e s in Sabah and Sarawak d i f f e r s from tha t for these indus t r i e s i n Peninsular Malaysia. Sabah and Sarawak have concentrated on the export of sawlogs. In 1980, sawlog expor ts from Sabah accounted for 94 per cent of t o t a l export s a l e s of f o r e s t products of USS868.5m (Table l o ) , while sawlog exports from Sarawak accounted for 82 per cent of t o t a l export s a l e s of USS455.2m (Table 11).

The Government of Sabah has es tab l i shed a firm policy of reducing the l e v e l of log exports by 50 per cent within f i v e years and is encouraging the development of wood processing indus t r ies .

The development of wood processing indus t r ies is a l s o being encouraged by the Government of Sarawak but, unlike Sabah, Sarawak has not become a member of the South-East Asian Log Producers' Association (SEALPA). LO exports from Sarawak increased by 44 per cent from 4.2 mi l l ion m3 i n 1978 t o 6.1 mi l l ion m3 in 1979 and rose by a fu r the r 11 per cent t o 6.7 mi l l ion m3 i n 1980 (see Table 11).

The successful development of wood processing indus t r ies i n Sabah and Sarawak would allow the r a t e of exp lo i t a t ion of f o r e s t resources t o be reduced. Of pa r t i cu l a r s igni f icance would be the achievement of b e t t e r recovery r a t e s through integrated timber harvesting which would expand t h e time horizon over which logging and processing operat ions could be based on old-growth timber resources. However, development of these i n d u s t r i e s is dependent on considerable investment i n i n f r a s t ruc tu re , the

T a b l e 10 : EXPORTS OF TIMBER PRODUCTS: SABAH: 1975-80

1 9 7 5 1976 1 9 7 7 1 9 7 8 1 9 7 8 1 9 8 0 Item

Q u a n t i t y Value Q u a n t i t y V a h e Q u a n t i t y Value G u a n t i t y Value Q u a n t i t y Value Q u a n t i t y Value I

'000 m3 US$rn '000 m3 USSrn '000 m3 USSm '000 m3 USSrn '000 m3 USSm '000 m3 USSrn I Sawlogs 8 9 9 1 236.3 1 2 0 6 1 469.6 1 2 337 504.4 1 2 364 575.0 9 7 8 1 937.2 8 234 818 .8

Sawntimber 4 0.3 1 6 1 . 7 36 4.8 33 3.5 8 0 12 .3 239 35.9 r ID

Plywood 23 3.5 20 4.2 16 4.4 7 2.7 1 3 5.3 22 9.0

Veneer 27 1.4 1 9 1 .5 1 5 1 . 5 8 0.6 48 4.6 47 4.8

Mould ings - - - - - - - - - - - -

T o t a l 9 045 241.5 1 2 1 1 6 477.0 1 2 404 515 .1 1 2 412 581.7 9 922 959.3 8 542 868.5

Source : M a l a y s i a n Timber I n d u s t r y Board (MTIB).

Table 11: EXPORTS OF TIMBER PRODUCTS: SARAWAK: 1975-80

1975 2976 1977 1978 2978 1980 I t e m

Quantity Value Quantity Va2ue Quantity Value Quantity Value Quantity Value Quantity Value

'000 m3 USSm '000 m3 USSm '000 m3 US$m '000 m3 USSm '000 m3 USSm '000 m3 USSm

Sawlogs 1 256 26.5 2954 95.3 3 470 103.3 4 202 138.6 6 052 368.4 6 695 375.1

Sawntimber 242 26.3 288 46.0 232 36.1 191 33.9 172 48.2 174 47.8

N 0

Plywood 8 0.9 14 2.4 14 3.0 14 2.9 15 3.8 13 3.5

Veneer - 0.1 - - - - - - - - - - Mouldings na 9.2 na 39.3 na 18.3 na 26.3 na 32.9 na 28.8

- -~

Total 1 506 63.0 3 256 183.0 3 116 160.7 4 407 201.7 6 239 453.3 6 882 455.2

na, Not available.

Source: Malaysian Timber Industry Board (NTIB).

Overcoming of labour shortages and the implementation of grading rules. These obstacles are likely to delay any substantial contraction in the quantities of logs exported.

3.2 Pulp and Paper

Malaysia's paper industry is very small and is totally reliant On imported pulp and waste paper. Total production of paper and paperboard in Malaysia in 1980 was only 63 kt (FA0 1981b) (Table 12). approximately equal to annual capacity (FA0 1981a).

With virtually no local industry, Malaysia has become a significant importer of paper and paper products. Imports by Peninsular Malaysia totalled 250 kt in 1978 and were estimate3 at over 400 kt in 1979 and 1980 (Table 12). Exports have been restricted to about 35 kt of paper and paperboard. Total consumption was estimated at 275 kt in 1978 (and consumption per person at 20 kg), rising to an estimated total of 416 kt in 1979 and 1980 (with consumption per person rising to 29 kg). Principal suppliers in recent years have heen Japan, Sweden, the USA, Canada, New Zealand and Australia. Most grades of paper and paperboard are allowed to enter duty-free.

Feasibility studies have established the technical suitability and availability of wood from tropical species for pulp and paper making, and mill sites have been identified. (5) However, the single new project for which plans appear certain is the installation of a plant with an annual capacity of 20 kt for producing paper from ammonia-grade pulp using rice straw and bagasse (Pulp and Paper International 1981).

Plans to utilise softwood plantations established in Peninsular Malaysia as a base for a pulp and paper industry have been abandoned. These plans have been put aside because of anticipated pressure of competition for wood resources from existing industries. Development of a USS550m pulp and paper complex in Sabah, utilising natural hardwoods, is still at the planning stage. (6)

Overall, the industry is not well placed to expand production in response to anticipated growth in demand. Consumption of paper and paper products in Malaysia is projected to increase to a level well above current levels by the mid-1990s. although the FA0 projections prepared in the mid-to-late 1970s based on a 'high GDP' assumption now appear optimistic because of the subsequent downward revision of forecast rates of growth in GDP, at least for the early 1980s (Government of Malaysia 1981, pp.24, 128). The projections of consumption of paper and paper products for 1994 - based on an assumed annual rate of increase in GDP of 7 per cent, approximately equivalent to the annual rate of growth now considered likely for Malaysia - is 880 kt (BAE ii) rather than 1463.2 kt (1994 'high GDP' assumption by the FA0 1978) (see Table 13).

(5) Studies include those by Peel (1960) and Phillips et al. (1979).

(6) The complex, which is being encouraged by the State Government, has a planned capacity of 200 kt of pulp a year, with pulp capacity in excess of the installed paper production capacity.

Table 12: PRODUCTION, IMPORTS AND APPARENT CONSUMPTION OF PAPER AND PAPERBOARD: MALAYSIA: 1975-80

Year Printing and

Newsprint writing Other Total

PRODUCTION

1975 (a)

1976 (a)

1977 (a)

1978

1979 (b)

1980 (b)

1975

1976

1977

1.978

1979 (b)

1980 (b)

IMPORTS

APPARENT CONSUMPTION

28 71 (b) 131

47 Ql 180

42 69 158

62 (b) 148 (b) 275(b)

69 268 416

69 268 416

(a) Forestry Department. Peninsular Malaysia (1980). (b) FAO estimates Or derived from FA0 estimates.

Sources: Forestry Department, Peninsular Malaysia (1980); FA0 (1981b.c).

Table 13: ACTUAL AND PROJECTED CONSUMPTION OF PAPER AND PAPER80ARD: MALAYSIA

Projected

Actual FA0 /1978)(a) FA0 (1979b,c!fb! BAEfi)(cJ BAE(iil(c1

1979 1994 1994 1993 1998 1994 1994 low GDP hiqh GDP

assumption assumption

Newsprint 65.9 96.8 184.5 9 5 120 167 219

N Printing and writing 195.5 193.6 321.6 165 250 155 W

Linerboard ) 170 260 ) Sack kraft 1 205.1 486.9 957.3 30 45 ) 351 451 Corrugating medium 1 80 135 ) Folding boxboard ) 110 170 )

Total 466.5 777.3 1 463.2(d) 650 980 673 880

(a) The 'low GDP' assumption 'is broadly in line with historical trends (to the mid-1970s), due account being taken of most recent changes affecting these trends'. The 'high GDP' assumption 'would involve a more rapid return to full capacity in developed countries and the fulfillment of national development plans or targets in the developing countries' (FA0 1978, p.v). (b) Projected on the basis of conformity with average historical world trends. (c) Linear projections based on the relationship between consumption and GNP per person over the years 1970-79, extrapolation of trends in growth of population from 1965 to 1980 and assumed annual rate of growth in real GNP of 5 per cent for BAE(i) and 7 per cent for BAE(ii). (d) FA0 rounding.

The projected increases in consumption and the slow rate of development of the industry, the time lags required for the establishment of the pulping industry and the technical and economic limits to the utilisation of hardwood pulpwood provide strong indications that Malaysia may constitute a substantial and growing market for a wide range of paper products.

It is possible that substantial pulping capacity may be installed for the export of pulp processed from hardwoods to markets such as Japan and South Korea. At the same time, Malaysia may remain an importer of softwood pulp, wastepaper and finished paper products.

4. The Philippines


The harvesting of logs for export, formerly the dominant wood-based industry, has declined rapidly in recent years. In 1979, only 19 per cent of total log production of 6.6 million m3 was exported (Tables 14 and 15). Production of sawntimber for export is now the major wood-based industry. Of the total production of sawntimber of 1.6 million m3 in 1979, 0.9 million m3 were exported and accounted for 36 per cent of the total value of exports of forest products. Production of plywood in 1979 was 0.5 million m3, of which 60 per cent was exported. However, veneer production, amounting to 0.6 million m3 in 1979, was utilised mainly in plywood production, with exports accounting for only 29 per cent of total production.

Progressively tighter restrictions on exports of logs have been implemented since 1976 when export quotas were first introduced (Government of the Phili pines 1979:. Total roundwood production fell from over 8.6 million m5 in 1976 to 5.2 million m3 in 1983 and an estimated cut of 4.5 million m3 in 1981 (Table 16).

Restrictions on log harvesting for export have not led to an upsurge in harvesting of logs for processing solely for domestic consumption. Production for the domestic market is largely complementary to production for expert and, at current price levels, the usage of timber products is restricted mainly to construction projects. However, present government regulations defining the types of trees that may be cut have caused shortages of the raw materials required specificaily for some domestic industries. (7)

Export quotas for logs were set at 600 000 m3 and 480 000 m3 for 1980 and 1981, respectively (Timber Trade Review 1980). Government policy is for log exports to cease in 1982. However, the effective implementation of quotas is constrained by pressure from wood processors for exceptions to be made to the quota limits and by illegal exporting.

( 7 ) Examples include shortages of rattan poles for the rattan furniture industry, wooden props for banana producers and wood of particular species utilised by the wood craft industry (Ministry of Natural Resources 1981).

Table 14: VOLUME AND VALUE OF PRINCIPAL ITEMS OF WOOD EXPORTED: THE PHILIPPINES: 1970-79

- -

Item Unit 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

M9s '000 m3 9 600 7 602 6 858 7 755 4 690 4 594 2 331 2 047 2 211 1 248 Lumber '000 m3 185 168 231 427 283 254 493 455 573 915 Plywood '000 m3 358 312 435 533 162 157 261 221 362 324 Veneer '000 m3 189 214 349 282 166 99 166 155 154 186 Selected minor forest products t - - - 4 524 3 890 3 836 10 393 2 659 11 773 17 220

VALUE If.0.b.)

N m Logs USSm 244.7 196.0 157.3 303.6 215.6 166.9 135.2 133.8 144.9 144.4

Lumber USSm 11.1 10.6 14.8 35.1 30.1 27.2 68.2 66.7 85.2 198.3 Plywood USSm 25.4 24.1 34.1 58.1 26.1 20.6 43.2 40.6 70.6 85.2 Veneer USSm 8.1 9.1 17.5 18.5 18.6 8.1 17.9 20.1 22.3 34.6 Selected minor forest products (a) USSm na na na 1.4 2.0 1.6 4.0 1.0 4.5 7.2 Forest-based manufactured articles USSm na na na na na na na 42.5 46.6 76.8(b)

Total 289.3 239.8 223.7 416.7 292.4 224.4 268.5 304.7 374.1 546.5

(a) Principally almaciga resin, bamboo, buri braid, buri raffia, gum elemi (Manila), palm nut and kernel, rattan and buri hats. (b) Of which rattan furniture constitutes USS28.5m. na, Not available.

Swrce: Bureau of Forest Development (1979).

Table 15: ROUNDWOOD (LOG) PRODUCTION: THE PHILIPPINES: 1969-70 to 1981

Year Sawlogs/veneer logs Pulpwood

'000 m3 '000 m3

1969-70 11 005 - 1970-71 10 680 - 1971-72 8 416 - 1972-73 10 446 - 1973-74 10 190 - 1974-75 7 332 - 1975-76 8 411 -

1976 8 646 - 1977 7 873 152 1978 7 169 395 1979 6 578 443 1980 5 200 (P) na 1981 4 500 (P) na

(a) Preliminary estimates. na, Not available.

Source: Bureau of Forest Development (1979).

Table 16: NUMBER OF PLANTS, ANNUAL LOG REQUIREMENTS, ANNUAL OUTPUT AND PROPORTION OF OUTPUT EXPORTED: THE PHILIPPINES: 1979

Mills and Number of Annual log Production Proportion of plants plants requirement production

exported

Active sawmills Plywood mills Veneer mills

MILLS

no. '000 m3 '000 m3 8 (roundwood) (product)

OTBER WOOD-BASED PANEL PLANTS

no. t t %

Blockboard 12 na 12 454 na Particleboard 2 na 121 na Fibreboard 1 (a) na 69 1.50 na

(a) Revised numbers in 1981 - 34 plywood mills and 2 fibreboard plants. na, Not available.

Source: Bureau of Forest Development (1979)

Incentives to export logs rather than to process them domestically include the buoyant prices for logs on world markets relative to the prices which domestic manufacturers can afford to pay and compete against processors in Japan, South Korea and Taiwan, and the inability of the domestic industry to utilise the timber banned from export. Given these incentives, the Government will find it difficult to enforce the prohibition on log exports in 1982. (8) An incentive to export logs illegally is also provided by the imposition of a 20 per cent export tax on the f.0.b. value of logs since 11 March 1980.

Considerable restructuring of the wood-based industries has Occurred. Restructuring has been most evident in sawmilling, with a reduction in the number of sawmills from 374 in 1969-70 to 227 in 1979. Even assuming relatively low recovery rates, considerable scope for further contraction is indicated by a comparison of aggregate loa requirements, based on plant capacity, and annual output in 1979 (Table 16).

Rationalisation of the wood industries is being promoted by the Government through the Presidential Committee on Wood Industries Development (Ministry of Natural Resources 1979). Measures adopted include:

- encouraging the phasing out of obsolete and inefficient mills and machinery;

- limiting the establishment of new wood processing mills;

- encouraging the development of integrated processing mills;

- encouraging the utilisation of damaged or low-quality 'waste' logs for production of energy and for use in secondary or tertiary wood manufacturing ; and

- evaluating the end-use potential of lesser known wood species.

In addition to these strategies, the 20 per cent export tax f.0.b. value on logs and a 4 per cent ad valorem export duty on veneer, corestock and rough sawn lumber provide incentives for the development of secondary and tertiary wood processing industries.

The potential for large errors in current estimates of forest area (Table 17) and yield remains a principal concern of the wood industries. Industry estimates range from as low as five years before the commercially feasible old-growth stands are logged over (E.F. Sanvictores, personal communication, June 1981). The low estimate of five years is based on an assessment of the effects of the rate of forest clearing by illegal squatters and shifting cultivators and destructive logging perpetuated by holders of forest concessions. Measures designed to extend the time period over which old-growth forests would be available were implemented because of evidence that timber volume in young-growth forests selectively logged 30 years ago was far less than expected.

(8) More-detailed discussion of the implications of the current structure of the wood industries is given in Galang (1979) and Sebire (1980).

Table 17: ESTIMATED AREA AND VOLUME OF STANDING TIMBER IN COMMERCIAL FORESTS: THE PHILIPPINES: 1979

Item Area Volume of standing

timber

million ha '000 m3

Dipterocarp - young growth (a) - old growth(b)

Pine 0.19 16 905

Mangrove - young growth (a) - old growth(b)

Total 6.67 1 387 958

(a) Young growth - forest predominantly stocked with young trees 15 cm or larger in diameter. Most stands in this class have been cut over, with 'residual' trees remaining. Stands stocked mainly with mature trees, but with 25 per cent or more of the mature stand volume removed by cutting, also qualify as young growth. (b) Old qrowth - forest predominantly stocked with mature trees, with less than 25 per cent of the mature stand volume removed by cutting.

Source: Bureau of Forest Development (1979). Estimated areas were derived using total area and proportional distribution from Figure 1.2-A, p.14 and verified using estimates from Table 1.2, p.15. Volume estimates are from Table 1.4, p.20.

Specific policies for forest management in the areas of reforestation, selective logging and management of illegal squatters and shifting cultivators complement the policies for the restriction of cutting and the reduction of wastage in harvesting and processing. However, in reforestation, increasing difficulties are being met in identifying sufficient areas of open unoccupied grassland on which to establish tree plantations, while the effectiveness of the selective logging system is constrained by the incidence of fires, illegal logging and the still uncontrolled activities of illegal squatters and shifting cultivatois.

Resolution of the many difficulties facing the wood industries in the Philippines will involve considerable restructuring and, possibly, scaling down of the existing sawmilling and plywood and veneer industries. Nevertheless, continuing efforts to develop export markets, especially for higher value-added wood products, can be expected. Efforts are being made to develop markets for plywood in the Middle East in conjunction with participation in construction activities.

4.2 Pulp and Paper

Production of the main categories of paper and paperboard has grown rapidly since 1970. However, increases in production in 1978 and 1979 did not match increases in domestic consumption (Table 18).

Table 18: PRODUCTION, IMPORTS, EXPORTS AND APPARENT CONSUMPTION OF PAPER, PAPEREIOARD AND OTHER PAPER PRODUCTS: THE PHILIPPINES(a): 1970-80

Apparent Year Production(b) Imports Exports consumption

(a) Estimates from national sources for imports and exports differ from those above but do not affect the general trends. (bl Includes production of household and sanitary papers. (c) FA0 (1981b). na, Not available.

Sources: FA0 (1979a, 1981b).

Rates of increase in production and the degree of self-sufficiency achieved vary between the major grades of paper. In 1979, self-sufficiency ratios for newsprint, printing and writing paper, and other paper and paperboard were 81 Per cent, 90 per cent and 92 per cent, respectively (see Table 19).

Associated with the expansion in production of paper and paperboard has been an increase in the production of pulp, from 39 kt in 1970 to a

i peak of 189 kt in 1979 (Table 20). Production in 1980 fell to 152 kt. Imports of wood pulp fluctuated between 44 kt (in 1970) and 85 kt (in 1974) and were 66 kt in 1979, with imports being almost entirely long-fibre chemical wood pulp from New Zealand, Canada, Sweden and, in 1979, Swaziland. In the period 1970-80, imports of wastepaper varied between 9 kt (in 1972) and 47 kt (in 1977 and 1978) (Table 20). The main sources of supply were the USA and Hong Kong. No details are available on the volume of wastepaper utilised from domestic collections. Apart from sales of 3 kt in 1973, exports Of pulp have been negligible.

Table 19: PRODUCTION OF PAPER AND SELF-SUFFICIENCY RATIOS: BY PRINCIPAL CATEGORIES: TRE PHILIPPINES: 1970-80

Other paper and Newsprint P r in t i ng and wri t ing paperboard Household and s an i t a ry

Year Proportion Proportion Proportion Proportion

Production of apparent Production of apparent Production o f apparent Production o f apparent consumption consumption consumption consumption

( a ) FA0 (1981b). na, Not avai lable .

Sources: FA0 (1979a. 1981bl.

Table 20: PRODUCTION, IMPORTS AND APPARBNT CONSUMPTION OF WOOD PULP AND IMWRTS OF WASTE PAPER: THE PRILIPPINES: 1970-80

Item 1970 1971 1972 2973 2974 1975 1976 1977 1978 1979 1980

Mechanical - production 21 20 21 57 41 33 45 50 52 50 29 - imports 4 3 1 - 1 1 1 I 1 1 na - apparent consumption 25 23 22 57 42 34 46 51 53 51 na

Chemical - production 18 31 32 117 105 66 104 131 136 139 108 - imports 40 30 33 55 67 26 45 71 60 65 na - apparent consumption 58 61 65 162(a) 1691b) 92 149 202 196 204 na

W w Other pulp - production - - - - - - - - - - 15 - imports - - - - 17 - 1 2 1 - na

- apparent consumption - - - - 17 - 1 1 1 - na

Total pulp - production 39 51 53 174 146 99 149 181 188 189 152 - imports 44 33 34 55 85 27 47 74 62 66 na - apparent consumption 83 84 87 219(a) 228(b) 126 196 255 250 255 na

Waste paper (c) - imports

(a) Exports of 10 kt. (b) Exports of 3 kt. ( c ) Details of domestic collections not available. na, Not available.

Sources: FA0 (1979a, 1981b): Economist Intelligence Unit (1979).

The Philippines has one of the largest and longest established paper industries in South-East Asia. By late in 1978, there were 24 pulp and paper plants in operation, with an estimated annual capacity of about 240 kt of pulp, 370 kt of paper and 44 kt of paperboard. However, only six of the 24 plants were fully integrated pulp and paper operations with their own pulping facilities ensuring their raw material supplies. Of the remaining 18 non-integrated plants, three produced only pulp and 15 produced only paper, mainly from imported pulp. Installed annual capacity in 1980 was estimated at 278 kt for pulp and at 494 kt for paper and paperboard (Table 21). Anticipated additions to installed capacity to 1985 are estimated to be 329 kt for pulp and 267 kt for paper making. Other surveys of projected installation of industry capacity from 1981 to 1984 indicate additions of 355 kt to pulp capacity and 386 kt to paper making capacity. However, there are firm plans for additions of only 25 kt to pulp capacity and 75 kt to paper making capacity at this stage (Pulp and Paper International 1981).

Table 21: ANNUAL PULP MAKING AND PAPER MAKING CAPACITIES IN 1980 AND ANTICIPATED EXPANSION TO 1985: THE PHILIPPINES

Item Annual capacity Anticipated expansion

in 1980 to 1985

Mechanical pulp 54 Thermo-mechanical pulp 35 Semi-chemical pulp - Chemicel pulp - unbleached sulphate pulp 91 - bleached sulphate and soda pulp 60

Total wood pulp Pulp of other fibre

Total 278 329

Paper and paperboard Newsprint 109 - Other printing and writing paper 89 243 Other paper and paperboard 296 24

Total 494 267

(a) Cellophil Resources Corporation commenced operation in 1981 with planned capacity of 66 kt using pine (Pinus insularis).

Sources: FA0 (1981a, p.62, 1979d).

The planned expansions of pulp and paper making capacities are less amibitious than those proposed in Indonesia. The area with the greatest potential for expansion of capacity is seen as Mindanao. As with Indonesia, however, continuing constraints on the implementation of ambitious new large-scale projects are the availability of capital and the anticipated inability of the industry to compete internationally unless it receives government assistance in the form of tariffs or quantitative restrictions. While the provision of quantitative restrictions is clearly a matter for government policy, general movements for the reduction of import barriers in the Philippines and the volatility of world pulp and paper prices introduce a significant element of uncertainty into planning based on an assumption of continued government assistance.

Immediate prospects are for an expansion of imports in the form of softwood logs or chips for pulping, softwood (long-fibre) pulp, and waste paper. The main factors underpinning this outlook are the technical and economic constraints to the substitution of hardwood (short-fibre) wood pulp in the manufacture of many grades of paper and the unavailability of sufficient long-fibre pulp from domestic sources.(9)

The outlook to 1990 and beyond for imports of pulp and paper depends on:

- the degree of success achieved in establishing the programs for manufacture of pulp and paper and, in particular, the success of short-rotation softwood plantations; and

- the strength of demand for paper products in the Philippine economy.

The ambitious industry expansion plans can be placed in perspective by reference to the achievements of the Paper Industry Corporation of the Philippines (PICOP), the dominant manufacturer. PICOP has taken approximately five years to achieve technical success in manufacturing newsprint exclusively out of mixed tropical hardwoods. It has also recorded pioneering achievements in the establishment of integrated plywood, veneer and blockboard mills which provide wood waste for pulp and paper mills and power plants. In addition, it has introducecl programs in agro-forestry to reduce the effect of shifting cultivation and has implemented a program of establishment of short-rotation

(9) The manufacture by the Cellophil Corporation of unbleached sulphate pulp using the native pine, Pinus insularis, has met with limited success. The strategies which are likely to be adopted by this company are the supplementation of pulp from Pinus icsularis with pulp manufactured from imported softwood pulpwood and from the annual crops kenaf and bamboo and from hardwood pulpwood in the short run, and the development of short-rotation softwood plantations to provide pulpwood in the longer run. Providing technical specifications are met, the Paper Industry Corporation of the Philippines, the major integrated pulp and paper manufacturer, can be expected to purchase this pulp.

plantations for the production of both hardwood and softwood pulpwood. The success of these plantations is critical to the reduction of dependence on imports of softwood fibre in various formS.(lO)

The technical successes of PICOP are indicative of the achievements possible in the paper industry in South-East Asia. However, the dominance of the industry by one company and the fluctuating emphasis on the industry in national policy provide an uncertain planning environment. PICOP has been given special forestry concessions by the Government and the industry has been given assistance by way of tariffs ranging from 30 per cent to 100 per cent according to the product. However, reductions in tariff levels have been in effect since 1981 for a range of paper products, with the notable exception of newsprint.

An offsetting factor to government assistance, by way of special treatment and tariff protection, has been government intervention to control the price of newsprint. These controls, now relaxed, have contributed to past losses of revenue by PICOP. With the relaxation of controls, paper prices now approximate duty-paid import parity.

Adding to the complexity of relationships between the Government and industry have been approvals to export logs to augment cash flow in the short run and the ability of the paper industry to remain one of the 11 government-designated (favoured) industries. Inclusion within the 11 designated industries is related to assessed potential for export success. Continued favoured treatment of the paper industry is dependent on factors such as demonstration of complementarity with export-oriented industries and, possibly, the emphasis placed on the achievements of PICOP by international agencies such as the FAO. Plans for a major pulp and paper factory as the Philippine contribution to industrial complementation projects within ASEAN have, however, been abandoned.

The feasibility of the projected expansion in pulp and paper making capacity hinges on the extent of future increases in consumption of paper and paperboard and on the competitiveness of imports. FA0 projections prepared in the late 1970s (FA0 1978) using a 'high GDP' assumption now appear optimistic (Table 22). The annual rate of growth of GDP of 5 per cent used for the BAE(i) projection is consistent with the downwacd revision in GNP growth targets for the 1980s noted by Hill (personal communication, 1982). However, the development of export-oriented industries in other sectors of the Philippine economy is expected to lead to substantial increases in demand for packaging and wrapping papers. Domestic processors will benefit from the deregulation of newsprint prices, but the phased reduction of tariffs, if pursued, will expose the domestic industry to competition from imports to a greater extent than in the past.

The general prospects are for the Philippines to be a growing market for both selected finished paper products and wastepaper and for softwood

(101 Published articles which review the past development and future prospects for PICOP are Fraser (1980, 1981a,b), De Guzman (1~981) and Nieva (1981). A general discussion of the principal difficulties facing the pulp and paper industry is provided in Danguilan-Vitug (1980).

Table 22: ACTUAL AND PROJECTED CONSUMPTION OF PAPER AND PAPERBOARD TO 2000: THE PHILIPPINES

Projected I Actual FA0 (1978) FA0 (1979b,c) Nieva (1982) BAE(i) BAE(iil

Type fa) fbl (c) (dl (al I 1979 1994 1994 1993 1998 1995 2000 1994 1994

low GDP high GDP assumption assumption

Newsprint 100 150.0 246.1 135 165 - - 179 183 I

Printing and writing 81 289.6 428.3 200 280 - - 195 253

Linerboard 1 140 205 - - ) w Sack kraft 282 540.5 909.0 90 140 - ) 585 727 - VI - Corrugating medium ) 75 100 - )

Folding boxboard ) 75 100 - - 1

Total

(a) The 'low GDP' assumption 'is broadly in line with historical trends (to the mid-1970s). due account being taken of most recent charges affecting these trends'. The 'high GDP' assumption 'would involve a more capid return to full capacity in developed countries and the fulfillment of national development plans or targets in the developing countries' (FA0 1978, p.v). (b) Projected on the bases of conformity with average historical world trends. (c) Assumes a growth rate of 3.65 per cent a year in real GDP per person and 2.41 per cent a year in population. (d) Linear projections based on the relationship between consumption and GNP per person - for newsprint and paper and paperboard other than printing and writing paper 1970-79 - for printing and writing paper 1962-79 - extrapolation of trends in growth of population from 3965 to 1980 and an annual rate of growth in real GNP of 5 per cent for HnE(i) and 7 per cent for BAErii). (e) FA0 rounding.

pulpwood and pulp required for mixing with pulp produced from indigenous hardwood species. The Philippines is unlikely to become self-sufficient in long-fibre pulp and/or all grades of paper. Unlike the pulp and paper industries in Malaysia and Indonesia, the industry in the Philippines has recorded considerable technical achievements. While some of the ambitious plens for expansion may fail, others will succeed.

5 . Implications for Australia

The forestry and forest product sectors of Indonesia, Malaysia and the Philippines are entering a period in which they will face considerab1.e difficulties and challenges. Ambitious plans have been announced and implemented with varying degrees of effectiveness in the areas of forest resource management and the development of wood-based and pulp and paper industries.


In the 1980s, wood manufacturers in Australia are likely to face continued competition from manufacturers of wood products in these three countries. To the extent that the Indonesian industry succeeds in obtaining access to the U.S. and other large markets, the potential competition from Indonesian products on the Australian market may be lessened. The prospective expansion in the wood industries in Indonesia indicates few opportunities for the development of an export trade in wood products from Australia to Indonesia.

Although the developments in Malaysia could lead to a reduction in the volume of exports of hardwood logs and sawntimber, Peninsular Malaysia is likely to emerge as an export-oriented manufacturer of higher value-added wood products and Sabah and Sarawak are likely to emerge as exporters of sawntimber, plywood, and lower value-added wood products. The greater emphasis being placed on secondary processing could provide opportu~lities for Australian manufacturers to supply semi-finished products or finished components for processing for export from Malaysia.

The Philippines is likely to continue to export lumber and veneer to Australia, with the range of manufactured articles of wocd likely to be extended over time. Should the Philippines need to import timber Eor further processing, imports are likely to be of timber from similar species from other ASEAN nations. Limited exceptions may be the import of mftwscd or hardwocd sawntimber for manufacture into furniture tor re-expor t .

Beyond the 1980s. restrictions on the availability of species currently designated as the 'commercial species' in Indonesia, Malaysia and the Philippines can be expected to lead to the implementation of measures designed to achieve higher yields from existing forests, higher recovery rates in wood processing and the utilisation of lesser known species. Resolution of the resource constraints likely to emerge in the 1990s and beyond the turn of the century could be reflected in increased emphasis on the export of high value-added products. The emergence of major opportunities for Australian exports of wood products is considered unlikely.

5.2 Pulp and Paper

The limited role foreseen for imports of wood products 5y Indonesia, Malaysia or the Philippines from outside the South-East Asian region is in contrast to the possible emergence of significant markets for either softwQod pulp for pulpwood or finished paper products. However, considerable uncertainty inevitably attaches to the nature and scope of the markets for individual products. Consumption of paper and paper products is expected to expand rapidly in Indonesia, Malaysia and the Philippines despite the downward revision of expected growth rates for the 1980s. rn addition, the announced plans for the development of pulp and paper industries are extremely ambitious relative to the size and sophistication of the existing industries, and the constraints on the successful completion of projects are considerable. Hence, the emphasis in South-East Asia may well be on the importation of finished paper products.

The successful implementation of some projects could result in market opportunitieS being channelled to specialty paper products and softwood pulpwood or pulp for use in combination with pulp produced from indigenous hardwoods for a combination of technical and economic reasons.

One avenue by which Australian manufacturers may be able to ensure the utilisation of long-fibre pulp from Australia is through participation in joint ventures in paper making in Indonesia and the Philippines. Participation in such joint ventures may also oEfer opportunities for the export of complementary and specialty paper products without incurring tariffs or quantitative restrictions. Australian pulp and paper manufacturers might obtain better access to these markets if easier access to the Australian market were provided for forest prodcts.

6. Conclusion

Overall, there appear to be only limited opportunities for the export of wood-based products from Australia to Indonesia, Malaysia and the Philippines. Prospects for major exports of sawntimber appear doubtful, given the likely role of these countries as exporters of sawntimber to world markets.

The nature of opportunities for exporting softwood pulp or finished paper products is also extremely uncertain, given the still relatively small size of these markets, the uncertainty surrounding the implementation of major projects and the sensitivity of projected levels of consumption to changes in the general rate of economic growth and relative prices.

Against this background, a clear distinction needs to be made between the prospects for an individual company to develop small but financially significant markets for specialised products and the development of new forest resources and processing capacity for the manufacture of products solely or principally for export. The risks attendant on the development of forest-based industries solely or principally for the supply of raw materials or finished products to Indonesia, Malaysia and the Philippines

would appear to be greater than the risks which have attached to the development of forest resources and forest-based industries in Australia to date.

However, the impact, both immediate and beyond the 1980s, of changes in government policies on the management of forest resources could well restrict the total volume of hardwood sawntimber and other wood-based products flowing to world markets from Indonesia, Malaysia and the Philippines. Such restriction would assist the competitiveness on world markets of Australian forest products ranging from unprocessed logs to finished timber products.

REFERENCES

Australian Forest Industries Journal (1980). 'Major plans for pulp and paper industry', Australian Forest Industries Journal 46 (11, 60.

Bureau of Forest Development (1979). Philippine Forestry Statistics Yearbook, Quezon City, pp. 1-88.

Central Bureau of Statistics, Indonesia (1981) , Economic Indicators, Jakarta, January (and previous monthly issues).

Chai, L. (1979). 'Forest resource base, policy and legislation of Peninsular Malaysia', Malaysian Forester 42(4), 339.

Comercial Advisory Foundation in Indonesia (1981). CAP1 Announcement NO. 867, Jakarta, June.

Danguilan-Vitug, M. (1980). 'Pulp, paper mills see hard times ahead', Business Day, Manila, 17 July.

De Guzman, J.M. (1981). 'Operation improvements are a key to profitability', World Wood 22(2), 30-2.

Economist Intelligence Unit (1979). The Paper Industry in the Philippines, Special Report No. 2, Paper and Packaging Bulletin No. 98, London, nugust, pp. 10-22.

FA0 (1978), Projections of Consumption of Industrial Forest Products, FO:Misc/78/13, Rome, pp. 76-93.

- (1979a). Yearbook of Forest Products, 1968-79, Rome, pp. 117-386. - (1979b), Forestry and Forest Products Development Indonesia, Prospects for the Development of Pulp and Paper Industries in Indonesia up to the Year 2000, FO:INS78/054, Working Paper 4, Bogor, pp. 1-46.

- (1979~1, Prospects for the Development of Pulp and Paper Industries ASEAN, FO:DP/INT/74/026, FO:DP/FLAS/75/018, Technical Report 1, Vol. 1, - Rome, pp. 1-163.

- (1979d), Projected Pulp and Paper Mills in the World 1979-89, Rome, pp. 72-89.

- (1981a). pulp and Paper Capacities, Survey 1980-82, Rome, pp. 48-62. - (1981b). Estimated Production of Pulp, Paper and Paperboard in Certain Countries in 1980, FO:PAP/81/3.2, Rome, pp. 16-17.

- (1981c), Yearbook of Forest Products, 1969-80, Rome. Forestry Department, Peninsular Malaysia (1980), Forestry Statistics, Peninsular Malaysia, 1971-78, Kuala Lumpur.

- (1981), Progress Report on Forestry in Peninsular Malaysia, 1976-80, Background report for the Asia-Pacific Forestry Commission, 11th Session, Suva, Fiji, 6-10 April, p. 21.

FraseT, H.R. (198G). 'PICOP: a benchmark for tropical forestry', World Wood 21 (12). 13-17. - - (1981a). 'PICOP: new losses enforce change', Wor ld Wood 22 (1). 20-4.

(1981b), 'Skills reshape plymill to meet market needs', World Wood - 220). 22-3.

Galang, E.T. (1979). 'The Philippines wood industry', Timber Trades Jocrnal, Hardwoods Supplement, 25 August.

Government of Malaysia (19811, Fourth Malaysia Plan 1981-85, National Printing Department, Suala Lumpur.

Government of the Philippines (1979), Amendment of Section 32 of Presidential Decree NO. 705. the Philippines New Forestry Reform Code Presidential Decree No. 865, Malacanang, Manila.

Indonesian Commercial Newsletter (1980a), 'Development in the cardboard industry', Indonesian Commercial Newsletter, No. 142, Jakarta. 28 January, pp. 3-15.

- (1980b), 'Current development of the plywood industry', Indonesian Commercial Newsletter, No. 152, Jakarta, 23 June, pp. 5-18.

- (1980~). 'Development in the printing and writing paper ineustry', Indonesian Commercial Newsletter, No. 154, Jakarta, 21 July, pp. 3-15.

- (1981). 'The packaging paper and cardboard industry', Indonesian Commercial Newsletter, No. 180, Jakarta, 31 August, pp. 4-18.

King, K. (1979). Paper presented to PPI Symposium on New Pulps for Paper, reported in Pulp and Paper International 21(7), 42.

Ministry of Natural Resources (1979). Presidential Committee on Wood Industries Development (PCWID), Annual Report, Quezon City, pp. 7-8.

- (1981). National Progress Report on Philippine Forestry, Background report for the Asia-Pacific Forestry Commission, 11th Session, Suva, 6-10 April.

National Agency for Export Development (NAFED) (1981), Statistical Summary, Jakarta, June.

Nieva, C.L. (1981), A study on the market, production, financial and long-term aspects of the pulp and paper industry in the Philippines. Unpublished Master of Science in Industrial Economics thesis presented to the Center for Research and Communication, Manila, pp. 1-119.

Paterson, L.A. (1981), 'Development of pulp/paper mills in S.E. Asia', nppita 34 (6), 456-61.

Peel, J.D. (1960). 'Pulp and paper manufacture in Malaysia', The Malaysian Forester 23(2), 147-74.

Phillips, F.H., Logan, A.F. and Balodis, V. (1979), Aid projects in South-East Asia: the pulping and papermaking potential of tropical hardwoods. Paper presented at the 19th Forest Products Research Conference, Topic 4B/ll, Highett, Victoria, 12-16 November, pp.1-4.

Pulp and Paper International (1981), 'PPI projects survey 1981-04'. Pulp and Paper International 23 ( 5 ) . 112-14.

Ryan. L.C. (1981). Opportunities in the pulp and paper industry. Paper presented to the 1981 New Zealand Forestry Conference, Wellington, New

I Zealand, March.

Salleh Mohd Nor and no Kam Seng (190O), The myth of complete utilisation of tropical forests. Paper presented to the International Forestry Seminar 1980, Tropical Forests, Kuala Lumpur, 11-15 November.

Sebire, R.A. (1980), 'Forests and forest industries of the Philippines', Australian Forest Industries Journal 46(11), November.

Svanquist, N. (1980). Pulp and Paper in the ASEAN Region, An Analysis of Development Potential up to the Year 2000, College of Forestry, Uppsala, Sweden, p. 95.

Timber Trade Review (1980), 'Bright future forecast for Philippines plywood', Timber Trade Review 9(2), 33.

Yeom, F.B.C. (1900), Forest resource development in Peninsular Malaysia. i Paper presented to the International Forestry Seminar 1980, Tropical

Forests, Kuala Lumpur, 11-15 November.

I38111784 Cat. No. 82 1242 9

Pulp & Paper

Documents

Transcript of Pulp & Paper