Addressing Legality in China Wood Supply Chains

Linking Business with Responsible Forest Management

Addressing Legality in China Wood Supply Chains

Presentation to the Chatham House/IUCN Update Meeting on Illegal Logging & Associated Trade

Matthew Brady

TFT China Project Manager

April 26th 2007; Beijing, China


What is the TFT?An International membership based Organization

Offices in the UK, Switzerland, Indonesia, Malaysia, Viet Nam, China & Gabon (USA & Australia in 2007)Registered as a non-profit in UK & US

44 members & growing

56 staff and growing


What do we do?

We help our members

Link their supply chains

From here

To here

Using FSC wood…OR

Wood moving toward FSC

OR, at a minimum, wood that is legal ‘beyond reasonable doubt’


TFT’s work with trade & industry

• Assists those trading in tropical wood products to link supply chains to well managed forests.

• Help forest managers to achieve FSC certification.

• Activities centered in South East Asia, Africa, South America, Vietnam and China


TFT’s work with trade & industry

• Work with factories & buyers to monitor wood sources & supply chains.

• Verify that raw material is legal & from well managed forests.

• This helps to establish environmental credibility for timber product traders.


TFT in China

• Member services

• DEFRA Project (Started in 2006)

• Sponsored by U.K. Department of Food & Rural

Affairs (DEFRA).

• Partner: UKTTF, GEI

• To improve the capacity of China mills to

supply legal and sustainable source produced

timber product to the U.K. market (Plywood and

Flooring)


TFT in China

TTAP Project

• Began March 2005, extended to Latin America and China January 07

• Co-funded by EC (total euro 7 million), with funding from TTF

partners of Belgium, Netherlands and the UK and TFT

• Partner countries: Cameroon, Congo Brazzaville, Gabon, Indonesia,

Malaysia, Brazil, Bolivia, Guyana and China

• Overall objective

To ensure wood products imported to the EC are verified legal

• Working with individual supply chains, linking buyers with their

suppliers

• Policy, communications, tools for buyers and suppliers


China Wood Supply Chain Study

• DEFRA-sponsored analysis of China’s wood industry

supply chains, with particular focus on the plywood and

flooring sectors;

• Drew upon TFT’s own experience with China mills,

industry interviews, and independent research;

• Findings highlight the complex nature of supply chains

and the difficulty of ‘proving’ legality, even for

domestically sourced materials


Chinese Wood Processing Industry

• Highly dependent on international supply – particularly in the

export processing sector; estimates that 46% of China’s fibre

supply (including pulp and paper) is imported; 70% of imported

wood is estimated to be re-exported;

• Emergence of private firms and industry ‘clusters’

• Industry highly competitive with immense cost pressures

• Thousands of processors, many small to medium size

• Little product differentiation, little pricing power – Few brands

• Overproduction and excess capacity across all sectors

• Result – low profitability and a cutthroat market


Wood Distribution in China

• Many links in the chain

• Dominated by traders and middlemen

• Much of local supply dependent upon small farmers

• Small to medium processors cannot go direct due to

lack of capital and access to international markets – and

as such need to utilize traders and middlemen

• Each step, or hand, in the chain increases difficulty of

providing proof of legality – as well as costs


Wood Supply Chains in China

• Supply from illegal or ‘questionable’ sources is widely

acknowledged to be common (Russia, SE Asia, Africa)

• Driven by demand and supply factors – lower costs, no

requirement from international buyers for proof of

legality

• Most local firms lack the capability to implement WCS

• Chinese government now starting to recognize that they

cannot ignore sources and legality of their wood

products imports


‘Typical’ Plywood Veneer Supply Chain

Farmers/Village/Township

harvest trees

Delivery to village log yard

(private)

Logs trucked to central log yard (Pizhou/Linyi)

Veneer peelers purchase logs

Veneer shipped to plywood mill

Mill buyers arrange veneer

sales

Logs peeled into veneers

Logs trucked to veneer peelers


Plywood F/B Supply Chain

Forest concession

(small)

Plywood Mill

PRC Agent -Importer

(logs)

Other PRC plywood

mills

Forest concession

(large)

Exporting Country Agent

Veneer Processor

Veneer Processor

Other veneer mills and/or processors

Other PRC agents

Veneer Processor

Log buyer


Flooring Supply Chain (A)

Company A sawmill (Russia)

Company A sawmill (Brazil)

Local sawmills SE Asia/ South

America

External Customers

Company A Factory

Forest concession

Company A

Local log trader/

producer

Local log trader/

producer

Local log trader/

producer

Raw Materials

sawnwood

Forest concession


Flooring Supply Chain (B)

Dealer

Dealer

DealerOther PRC Agent

Forest Concession

(small)

Other PRC plants

SE Asia Agent

Forest Concession

(large)

Local log trader/

producer

Sawmill(s)

Company B

PRC Agent


TFT Case Study in China

Member needed:A high volume……of tropical hardwood plywood

Of good quality,

delivered on time at the right price point

Sourced in line with the customer’s wood purchasing policy

…which means no illegal wood or controversial sources…

…and preferably FSC wood or wood from forests moving toward it


What to do? (1)

Find the right partner supplier

Which means Forests…

…with a legal right to harvest..

…the right volume of wood…

..of the right species, at the right price..

…with an interest in certification…

…and a willingness to engage in a program to achieve it…

…AND that will enter into a deal to sell to the supplier!!

It’s not easy!


How to do it

SE Asia log supplier (legal

supply)

PRC plywood mill

UK customer

China forest concession

(logs)


Lessons Learned

What we know now – or what we know better – that will impact the ability to determine legality of Chinese wood products:

•Lack of transparency of supply systems in overseas source markets

• China’s domestic wood distribution systems, with individual farmers, small traders and small manufacturers all prominent players

• The number of ‘hands’ through which a single piece of wood may transit, both for domestic and imported raw materials

•Lack of capability within Chinese firms, or an ignorance of the need to monitor or track their wood resource supply chain

• Costs for firms to implement a WCS and to source legal wood from overseas deters them from taking these steps

• No incentives/demand from overseas customers to require documents attesting to the legality or sustainability of raw materials


How to Get to Legality

• Market incentives/disincentives from industry

and consumers;

• Assistance extended to Chinese industry to

provide tools for wood tracking and access to

legal raw material resources;

• Governance issues in supplying countries

addressed and improved;

• Work with Chinese authorities on the

importance of issue, and how to improve

control systems


Summary

• The demand for legality is gaining influence;

• Chinese producers can make progress on legality issues, given the right incentives;

• Current state of many Chinese producers supply chains means that proving legality is a tricky and daunting prospect;

• Legislation, boycotts, and/or aggressive PR campaigns cannot in themselves resolve this ;

• Government, NGO sector, and INDUSTRY – buyer and seller – need to work together to have the greatest impact


Contacts & Further Information

Tropical Forest Trust

Matthew Brady, China Project ManagerTel +86 136 0225 9480

E-mail [email protected]

Lewis Du, China Project Officer, ShanghaiTel +86 136 0101 5640

E-mail [email protected]

Web: www.tropicalforesttrust.com

Addressing Legality in China Wood Supply Chains

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