Compliance, conformance and collateral damage to small-scale producers in a clearconscious world.

Transcription

1 Compliance, conformance and collateral damage to small-scale producers in a clearconscious world. Presented by Braden Jenkin Tropical Forestry: Innovation and Change in the Asia Pacific Region. The Institute of Foresters of Australia, Conference, 14 to 17 August, 2017.

2 Statement of independence Although the information and outcomes of the analysis presented today are from a range of projects spanning a number of years, this presentation is a combined reflection resulting from all projects and does not reflect the views of the project partners nor funding agencies. I have nil pecuniary interests in this topic nor interests in any business that benefits from the topic. Slide 2

3 Outline Introduction; PNG industry; Smallholder growers & processors; Legality; Barriers; Summary. Slide 3

4 Introduction The purpose of this paper is to present barriers to small-scale grower and/or processor participation in export markets: Certification is perceived as another market barrier imposed by importers; it is difficult to meet and may constitute a barrier to trade rather than promotion of export. Without donor funding, forest certification would be unable to sustain itself, as there are many costs involved. Bun & Bewang ( ) Forest certification in Papua New Guinea. ale School of Forestry and Environmental Studies. Slide 4

5 PNG locations Slide 5

6 PNG locations Slide 6

7 PNG industry The status quo is a focus on log exports; 2015 exports = 3.9 million m3; A cessation of log exports by 2020; The next phase is domestic processing and increased plantations Milne Bay Oro Log volume overbark (m3) Manus Central Morobe Madang East Sepik Western New Ireland Gulf West Sepik West New Britain East New Britain Totals Slide 7

8 PNG industry The status quo is a focus on log exports; 2015 exports = 3.9 million m3; A cessation of log exports by 2020; The next phase is domestic processing and increased plantations; Log export fob range from K100 - K690 /m3; Average fob K150 - K200 /m3; Plantation log fob K133 K746 /m3; Log exports 2011 to 2015 included over 141 species; Top 5 species by volume: 1. Taun. 2. Malas. 3. Calophyllum. 4. Kwila. 5. Kamarere (plantation grown). Slide 8

9 Terminology Slide 9

10 Smallholders: Motivations Slide 10

11 Smallholder supply chain #1 Customary land with nil TA TA 1 geographic area Customary land with nil TA Customary land with nil TA Customary land with nil TA Customary land with nil TA Customary land with nil TA Sawmilling operation processing logs from the TA 1 Sawn timber buyer: Sawn timber pool Domestic market Export market Slide 11

12 TA 1 geographic area land within the TA 1 Smallholder supply chain #2 land within the TA 1 land within the TA 1 Sawmilling operation processing logs from the TA 1 Sawn timber buyer: Sawn timber pool Domestic market Export market Slide 12

13 Smallholder supply chain #3 Customary land with nil TA Customary land with nil TA Customary land with nil TA Customary land with nil TA Customary land with nil TA Customary land with nil TA Sawn timber buyer: Sawn timber pool Domestic market Slide 13

14 Timber legality: Defined Registered production Legal production Legalized production Clandestine production Illegal production Based on Wells et al. (2007: p.142). Slide 14

15 Timber legality: Defined The Australian legality framework defines illegally logged as:. in relation to timber, means harvested in contravention of laws in force in the place (whether or not in Australia) where the timber was harvested. The EU-Forest Law Enforcement, Governance and Trade (FLEGT) defines illegal loggings as: Illegal logging is the harvesting, processing, transporting, buying or selling of timber in contravention of national and international laws...the country or territory where the timber or the timber embedded in the timber products was harvested. The Lacey Act defines the country of harvest as: The country of harvest is the country where the original source material was grown, and subsequently cut down, picked, or otherwise removed (i.e., harvested). Slide 15

16 Timber legality: Defined Slide 16

17 Timber legality: Defined Slide 17

18 Timber legality: Defined A chain of obligations exist regardless of the country of first destination: Stump: The starting point is the country in which the stump is located; End port: The final country of destination (and consumption); Supply chain: The supply chain linking all steps and transformations of the forest products to the end port; Triggers: The obligations are triggered by the Harmonised Tariff Schedule codes. Slide 18

19 Timber legality: Defined A supply chain product tracking A Timber Legality Standard Importing party A certificate Verifier and certificate issuer Monitoring & oversight (whole system) PNG export port Importing port Slide 19

20 Timber legality: Defined While timber certification can be a supporting tool to timber legality, the two mechanisms are separate: Scope: Timber Legality considers all aspects and parties in a supply chain, whereas certification has a focus on the individual certified party; Mandatory: Timber legality requirements are mandatory for parties importing timber products into countries with timber legality requirements, whereas certification is voluntary. Slide 20

21 PNG legal framework: FIP status Barrier #1: Small-scale operations can fail to meet the 500 m3/y commercial production threshold. Slide 21

22 PNG legal framework: FIP status The Forestry Act 1991 & amendments & Regulations controls commercial production: Timber Authority: An authority to harvest < 5,000 m3 over a maximum of 12 months; Timber Permit: A long-term authority to harvest an FMA with a set annual cut; Timber License: A 12 month authority to harvest within a region; Forest Clearance Authority: An authority to clear a forest for land-use change. The first step in all PNG Timber Allocation mechanisms (the legal right to harvest) is to be a Registered Forest Industry Participant (FIP). Slide 22

23 Legal framework: FIP status Annual volumes > 500 m3 Commercial activity Harvesting or processing Harvested Buying unprocessed timber for export Processed Arranging or procuring the sale or purchase of timber Bought or sold Part A, B & C: Party details Each individual of an unincorporated group as an individual FIP Details of past experience and commitments (PNG and Overseas) Part E: Proposed activities Part D: Finance Banking details Harvesting Company applicants to provide past 3 years financial statements Processing Export Each individual company as an individual FIP Sales Domestic markets IPA Certificate of Incorporation Export Providing details of ownership and main shareholders Providing details of the Directors, officer barriers and senior management Buying unprocessed forest products Domestic processing Details of past experience and commitments (PNG and Overseas) Preliminary feasibility studies Manufactured products excluded Slide 23

24 PNG legal framework: FIP status forest industry participant means any person engaging in, or intending to engage in, forest industry activities (otherwise than as an employee of a forest participant or in the capacity of a common carrier) where the timber or rattan harvested, processed, bought, sold or arranged or procured to be sold or purchased, by that person in a calendar year exceeds a) 500 m3 in volume; or b) in the case of sandalwood timber or rattan K20, in market value. forest industry activities means any commercial activities within Papua New Guinea.. Slide 24

25 PNG legal framework: Aggregation model Barrier #2: The output of un-allocated small-scale operations cannot be aggregated for export sales. Slide 25

26 PNG legal framework: Aggregation model Smaller scale forest resource allocations under a Domestic Timber Authority: FIP: The party applying for and issued a TA must be a FIP; Bond: A K20,000 bond is required; Volumes: A TA is up to 5,000 m3 over a maximum of 12 months; Species: Selection (>50 cm DBHOB) run of the bush under the PNG code of Logging Practice; Parties: There can be nil sub-contracting. Slide 26

27 Smallholder supply chain #1 Customary land with nil TA TA 1 geographic area Customary land with nil TA Customary land with nil TA Customary land with nil TA Customary land with nil TA Customary land with nil TA Sawmilling operation processing logs from the TA 1 Sawn timber buyer: Sawn timber pool Domestic market Export market Slide 27

28 TA 1 geographic area land within the TA 1 Smallholder supply chain #2 land within the TA 1 land within the TA 1 Sawmilling operation processing logs from the TA 1 Sawn timber buyer: Sawn timber pool Domestic market Export market Slide 28

29 Smallholder supply chain #3 Customary land with nil TA Customary land with nil TA Customary land with nil TA Customary land with nil TA Customary land with nil TA Customary land with nil TA Sawn timber buyer: Sawn timber pool Domestic market Slide 29

30 PNG legal framework: Aggregation model Registered production Legal production Legalized production Clandestine production Illegal production Slide 30

31 Timber legality: OHS Barrier #3: The scope of a Timber Legality Standard should include occupational, health and safety considerations, and many small-scale operations are non-compliant. Slide 31

32 Timber legality: OHS Slide 32

33 Timber legality: OHS Slide 33

34 PNG timber legality: Certification as a tool Barrier #4: Under some forms of certification, larger scale operations cannot include un-certified small-scale producer resources. Slide 34

35 PNG timber legality: Certification as a tool PNG Forest Products Ltd and CoC certification for legality: As the international timber markets become more sensitive to the issue of illegal wood and governments move to ban any imports of timber and timber products that cannot prove their origins are legal, PNG Forest Products has achieved PEFC Chain of Custody accreditation on the basis of 100% controlled wood. In order to provide assurances that wood and wood-based products originate from sustainably managed forests, PEFC promotes a Chain of Custody system that tracks the wood source to the final product, which ensures that the wood contained in the product or product lines originates from sustainably managed forests. Downloaded from on the 06/09/2016. Slide 35

36 PNG timber legality: Certification as a tool A supply chain product tracking A Timber Legality Standard Importing party A certificate Verifier and certificate issuer Monitoring & oversight (whole system) PNG export port Importing port Slide 36

37 Certification: Open Bay Timbers Ltd The following is a snap-shot of the Open Bay Timber Limited operations: Forest resource allocation: Operates under a Timber Permit; Resource: Harvests plantation grown Eucalyptus deglupta (Kamarere); Slide 37

38 PNG timber legality: Certification as a tool Logs are processed and sold as sawn timber into Europe. Open Bay makes use of FSC (FM & CoC) as part of legality requirements driven by the client in Viet Nam. Open Bay plantation grown Kamarere logs to Viet Nam. Slide 38

39 PNG timber legality: Certification as a tool The following is a snap-shot of the Open Bay Timber Limited operations: Forest resource allocation: Operates under a Timber Permit; Resource: Harvests plantation grown Eucalyptus deglupta (Kamarere); Market: Exports log to Viet Nam to be processed into furniture for European markets; Motivation: FSC 100% certification driven by EU timber legality requirements; Smallholders: Excluded due to certification. Slide 39

40 Certification: Financial sustainability Barrier #5: With a general lack of price premium for certified timbers, and the cost of certification, small-scale operations cannot afford certification. Slide 40

41 Certification: Financial sustainability The following is a snap-shot history of certification in PNG: current certification: Open Bay Timber Ltd: Export E. deglupta logs (FSC FM&CoC); Stetton Bay Lumber Ltd: Export E. deglupta logs (FSC FM&CoC); 3A Composites PNG Ltd: Export Balsa products (FSC FM and CoC, plus Controlled Wood 30%); PNG Forest Products Ltd: Local processing of plantation grown hoop and klinki pine (AFS CoC only). Slide 41

42 Certification: Financial sustainability The cost of certification can be a barrier: Costs: The cost of certification is determined on a case by case basis; Large-scale: USD5/m3 outputs (K16.13/m3) = USD1/m3 of balsa logs (K3.10/m3); Small-scale: Driven by economies of scale (e.g. fixed tasks such as audits), at 1/10 of the volume = USD10/m3 of balsa logs (K30.10/m3). Slide 42

43 Certification: Fin sustainability The project must rely on the business being financially viable; Reliance on NGOs has killed many projects Diagram downloaded from on the 28/07/2016. Slide 43

44 Certification: Financial sustainability Basis FM CoC CW Certificate [Organization Name \/] Issue Date Expiry Date Status Group certificate Terminated Bairaman Timber Resources 4/09/2015 Terminated Gogomate Development Corporation (Lau) 4/09/2015 Terminated Kait Business Group 4/09/2015 Terminated Mareka Business Group 4/09/2015 Terminated Mauna Business Group 4/09/2015 Terminated Rapki Investment Corporation Ltd 4/09/2015 Terminated Tavolo Sawmill Business Group 4/09/2015 Terminated Forcert 4/09/2015 Terminated Cloudy Bay Sustainable Forestry Ltd 4/08/2016 Individual certificate Individual certificate Terminated Cloudy Bay Sustainable Forestry Ltd 3/06/2013 Individual certificate Terminated Cloudy Bay Sustainable Forestry Ltd 8/02/2016 Individual certificate Terminated EU-IRECDP 24/10/2008 Terminated FORCERT 4/09/2015 Terminated Foundation for People and Community Development 2/11/2012 Terminated Furniture Exports PNG 31/08/2012 Terminated Stettin Bay Lumber Company Limited 8/12/2014 Suspended Coconut Products Ltd, trading as WRC Balsa Individual certificate Individual certificate Individual certificate Individual certificate Individual certificate 10/09/2015 9/09/2020 Slide 44

45 Certification: Resource allocations Barrier # 6: Small-scale operations are blocked from certification by a lack of a small-holder appropriate timber resource allocation mechanisms under the Forestry Act Slide 45

46 Certification: Resource allocations FORCERT and the Foundation for People and Community Development (FPCD): Initially: Applied the 500m3/y allowance for Customary landowners, until PNGFA regulated that all export sawn timber must come from TA s; TAs: A TA is not suitable for small-scale producers, and is not intended for landowners operating on their own land; Collapse: The FPCD was accused of exporting illegal timber, and FORCERT struggled to get TA's in place for its Group Certificate members due to the bond fees (K20,000). Slide 46

47 Certification: Resource allocations Insights to issues with a TA and FSC : Monitoring: TA has nil independent monitoring of the activities; Obligations: A TA has a maximum 12 month life with nil ongoing land management obligations; Government role: Once a TA is established there is limited involvement by the PNGFA in any supervisory role. The main role of the PNGFA arises in response to a dispute between the parties of a TA. Slide 47

48 Certification: By the market s grace Barrier #7: Small-scale operations access to markets may be at the grace of the market, which can change. Slide 48

49 Certification: By the market s grace The following is a snap-shot of the 3A Composites Limited operations: Forest resource allocation: Operates under a Timber Licence (annual); Slide 49

50 Certification: By the market s grace Slide 50

51 Certification: By the market s grace The company ceased taking small-holder resources due to the requirements of certification. PNG Balsa Ltd: At the time of sale to create 3A Composites PNG Ltd, the company held FSC 100% = nil logs and sawn timbers purchase non-fsc 100% parties; 3A Composites PNG Ltd: The company expansion plans required the purchase of additional small-holder resources and to do so, they changed their certification to FSC MIX (70% FSC 100% plus 30% Controlled Wood). Slide 51

52 A silver lining K3.500,00 Local markets sawn timber price (K/m3) Export markets sawn timber price fob (K/m3) K3.500,00 K3.000,00 K2.500,00 K2.000,00 K1.500,00 K1.000,00 K500,00 K3.000,00 K2.500,00 K2.000,00 K1.500,00 K1.000,00 K500,00 K0,00 0 Mixed Sawn Export volume (m3) Sawn Kwila Sawn Rosewood K0,00 0,0000 Wholesale 0,0050 0,0100 Piece size (m3/ 1m length) Retail 0,0150 Retail store plus DAR Slide 52

53 A silver lining Local markets sawn timber price (K/m3) K3.500,00 K3.000,00 K2.500,00 K2.000,00 K1.500,00 K1.000,00 K500,00 K0,00 0,0000 Wholesale 0,0050 0,0100 Piece size (m3/ 1m length) Retail 0,0150 Retail store plus DAR Slide 53

54 Summary & conclusions The following is a snap-shot of the barriers faced by small-scale producers: Structural barriers: Scale and forest industry participant status. Resource allocations mechanisms (options and costs). Compliance with PNG laws in general. Certification requirements compared to resource allocation options. Financial barriers: The cost to establish and maintain certification. Slide 54