Business Finance

Forestry leader says PNG industry facing challenges from China

Image: Foresters at work. Credit: Rocky Roe

Papua New Guinea’s forestry faces fierce competition and pricing challenges, Chief Executive of the Forest Industries Association, Bob Tate, tells Business Advantage PNG. He says developments in China are troubling for the sector.

Tate says the weakness in export markets ‘is mainly a function of both economic downturn in China and the Chinese government embarking on a program of restructuring their industry.

‘They’re closing a lot of their smaller producers, and they’re moving aggressively into forest plantation establishment.’

Tate says China is expanding its range of bamboo products, which is proving to be very successful. It is bad news, however, for those countries that export traditional wood products to China.

Exports

According to Tate, over the past two-to-three years, export revenues have fallen by about 5 per cent, in line with the downturn in prices.

The Forest Industries Association's Bob Tate
The Forest Industries Association’s Bob Tate.

The Bank of PNG reports that in the nine months to September 2016, forestry exports were K231.1 million, compared with K241.8 million in the previous corresponding period.

‘We sell a very mixed bag of species to China, which is the nature of PNG forests,’ says Tate. ‘Outside China, markets seem to be specific-oriented.’

On the plus side, the PNG industry, says Tate, is finding that Vietnam, and to a lesser extent India, have shown interest in local plantation-based products.

Added value

An innovative new project, funded by the Australian Centre for International Agricultural Research (ACIAR), is currently focusing on increasing the scale and profitability of PNG’s processed timber products.

The initiative helps remote communities in PNG regrow valuable timbers and sell the wood into higher value markets.

‘The proposed tax rate would rise from 28 per cent to 50 per cent.’

The research centre’s director, Professor John Herbohn, said the project involved teaching remote Papua New Guineans how to log more sustainably and to repair harvested forests.

Dr Herbohn said another focus of the project involved getting a higher price for the timber logged in PNG by accessing different and higher value markets. The project works in partnership with Ramu Agri-Industries to restore forest diversity in sensitive riverine areas.

Tax

The 2017 national budget flagged the reintroduction of a progressive log export tax, which Tate argues will force a number of companies out of business and cost as many as 15,000 jobs. The proposed tax rate would rise from 28 per cent to 50 per cent.

‘The bottom line is that having suffered a decline in volumes and prices, it is hardly the time to double the tax rate.

‘The Government cancelled all Special Agriculture Business Leases (SABLs) in PNG.’

‘By way of comparison, the forestry sector pays more in tax than the mining and oil sector: that’s been acknowledged by Treasury,’ says Tate. ‘And that was at the old tax rates.’

Treasurer Patrick Pruaitch recently described the sector as highly valuable and noted that it contributed US$90 million (K270 million) in taxes the previous year. Talks between the FIA and Treasury are continuing.

Special Agricultural Business Leases

The Government has placed a hold on the grant of new Special Agriculture Business Leases in PNG, after a 2012 Commission of Inquiry found the majority of the leases were mainly used for forestry and largely fraudulently obtained.

‘The Forest Service has yet to address the requirements of the new law.’

Over 5 million hectares of land, or more than 10% of PNG’s total land mass, is estimated to have been affected by the illegal leases and a significant proportion of forestry activity, 30% of log exports per annum, took place on SABLs.

It is understood that the use of SABLs will be replaced by Incorporated Land Groups (ILG) that hold the land titles and manage sub-leases to developers.

Tate says the FIA supported the cancellation of SABLs.PNG: A forested nation

PNG: A forested nation

Around 36 million hectares, 80 per cent of PNG’s total land area, are covered by forests. About 15 million hectares have high quality tropical hardwoods, which are considered suitable for forestry development.

PNG’s current forestry products are: raw log exports, sawn timber, veneer sheets, domestic log sales, plantation logs, plywood, processed timber exports and woodchips.

 

Copyright © 2017 Business Advantage International.

 

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