POLICY BRIEF
VIETNAMESE LARGE TIMBER FOREST:
THE STATUS AND DEVELOPMENT OF POLICY FOR LARGE TIMBER FOREST IN THE CONTEXT OF IMPLEMENTING EVFTA AGREEMENT AND VPA COMMITMENT
Vietnam Owners Association
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(This report was produced with the financial support of the European Union. Its contents are sole responsibility of VIFORA and do not necessarily reflect the views of the European Union) |
1. Introduction
The results of an overview study of plantation forests and forest timber of Viet Nam Forest Owners Association in June 2011 identified three key issues:
(1) Timber supply from plantation forests has not met the demand for raw materials for processing.
(2) The proportion of large timber is low, and there is a lack of high-quality wood.
(3) Timber from domestic plantation forests has not fully complied with the requirements for controlling legal timber origin (Viet Nam Forest Owners Association, 2021).
As a consequence of the first two issues, Viet Nam remains a net importer of wood. According to statistics of the General Department of Customs, in 202 the value of imports of wood and wood products, such as round-wood, sawn-wood, fiberboard, plywood, veneer, and other wooden furniture to Viet Nam was 2,558 billion USD. This included 2.02 million m3 of logs valued at 563.07 million USD; and 2.54 million m3 of sawn timber with valued at USD 842.06 million (Go Viet, 2020).
Significantly, round-wood and sawn-wood are imported to address the shortfall in domestic supply is typically large-sized, high-quality timber. In recent years, the volume and value of imported wood has decreased. This is in part due to a gradual increase in Vietnam’s supply of large timber.
However, it is anticipated the demand for large-sized, high-quality wood will increase over the next decade as a consequence of two factors::
(1) The export of wood products is expected to rapidly increases due to opportunities generated through the EU-Vietnam Free Trade Agreement (EVFTA. During the first 4 months of 2021, the value of wood and wood prouctes exported to EU market reached 250m4 million USD, a 32,6% increase compared to the same period in 2020 (Go Viet, 2020);
(2) The country's large timber plantation area is small, accounting for a low proportion of the total plantation forest area.
To investigate further, the research team conducted an overview study on establishing large-sized timber forests in Viet Nam. 30 people working at state and non-state agencies, especially members of the VNGO – EVFTA network were surveyed through questionnaires. The research team conducted spot investigation in thhree provinces Tuyen Quang, Quang Tri, and Binh Dinh, interviewed 15 officials from the Department of Agriculture and Rural Development, Forest Protection Department, Forest Protection Department; 12 officers from three forestry companies, and three wood processing companies; interviewed 21 forest households, and surveyed six models of large timber plantations.
2.Major findings:
2.1 Small & large-sized timber plantation area and reasons:
Viet Nam currently has 489,016 ha of plantation forests producing large-sized timber (Forest Development Department, 2020). This is out of a total production forest area of 3,691,240 ha, accounting for 13% of total forest area (MARD, 2021). The country’s wood reservation is 19,948,000m3 out of the total forest timber reservation of the country 259,200,000m3 (8%) (Vietnam Administration of Forestry, 2020). 126,175 ha of small-sized timber forests in the above mentioned area has converted to large-sized timber enterprises (Forest Development Department, 2020).
Tuyen Quang province has a production forest area of 121,277 ha, of which only 18,000 ha (14.8%); Quang Tri province has 72,114 ha total and 14,616 ha (20,2%) large timber; and Binh Dinh province has 137,371 ha total and 12,821 ha (9,3%) large timber. These three provinces are high production afforestion provinces, and have multiple processing factories, yet large timber plantations compress less than 15% of the total plantation area in Tuyen Quang and Binh Dinh provinces, and only marginally more in Quang Tri province. These data reflect the national trend that the proportion of large timber plantations is considerably low.
Figure 1: The reason for small large timber plantation area
Figure 1 synthesises the survey participants’ views of the reasons for the low proportion of large timber plantations.
Figure 1 shows that 93.3% of interviewees believe that the cause for the low planting of large-sized timber production forests derives from the lack of resources for forest owners to prolong the business cycle. 66.7% of interviewees identified an absence of strong policy to create a driving force for planting large timber forests. More than 40% of interviewees considered the reason is that the current forest area was small and fragmented. Other factors included the risks created when prolonging the business cycle and a lack of suitable tree species for large timber plantations.
These survey outcomes are consistent with the conclusions of the report of the Forest Development Department – Vietnam Administration of Forestry, December 2020, and the study result in three provinces Tuyen Quang, Quang Tri and Binh Dinh. Sufficiency of capital to invest in intensive, long business cycle farming is undoubtedly a major barrier. Access to bank finance is limited by high interest rates and complex procedures. Afforestation land is scattered and there is no effective mechanism to associate enterprises for value chain production. The extended business cycle exposes the product to additional risks in the form of loss of timber through tree mortality, forest fires and climate events, and market volatility. Mechanisms to insure or mitigate against these risks are scarce or expensive. Forestry infrastructure, particularly roads and yards, is lacking or inadequate.
2.2. The need for policies to encourage the development of large-sized timber production plantations
The study on current policy on forest development and investment shows that there were few policies specifically designed to encourage investment in establishing large-sized timber production forests. Currently, there has been one policy specified at Point a, Clause 1, Article 5 of Decision 38/2016/QD-TTg dated September 14, 2016, of the Prime Minister. This policy is not strong enough to motivate forest owners to invest in the development of large-sized timber production forests as demonstrated by 66.7% of respondents indicating policy is not strong enough to planting large-sized timber forest – see Figure 1.
2.3. Establish a common legal entity to organizing production along the value chain to encourage the planting of large-sized timber forests
The benefits of synchronizing production along a value chain by vertical integration are well established. In this instance the formation of a legal entity comprised of suppliers of timber (forestry companies) and consumers of these raw materials (wood processors) is expected to encourage the planting of large-sized timber forests.
Woodsland Joint Stock Company in Tuyen Quang provides experience of this model succeeding in practice. Woodsland is is a wood processing company and is also a shareholder in two forestry companies, Tuyen Binh Forestry Limited Company and Chiem Hoa Forestry Limited Company. This relationship establishes a direct linkage between wood consumption (processing) with the supply of raw wood (forestry). The export market feeds back the required characteristic of processed wood products, which Woodsland translated into its requirement for legal large-sized, high-quality wood. It is able to successfully source these raw materials through its direct participation as a shareholder in the aforementioned forestry companies.
Experience gained through the project on developing large-sized timber forests in Quang Tri province, shows the benefit of the cooperative model of households participating in FSC-certificated afforestation with Scansia Pacific Company. Under this model, the company supports the FSC assessment and maintaining cost on an area of 3,147 ha of forest in the provinces. The company commits to purchasing FSC certified acacia wood with a diameter of more than 13cm (which is 15-20% greater than uncertified wood). At the same time, which depends on the quality of the wood and no price pressure when natural disasters, risks, or photos affect FSC acacia forest. A management option for households with FSC-certified acacia forests is to thin the forest at 4-5 years. While this increases the yield of large-sized, high-quality wood, the extension of the business cycle by 2-3 years, particularly the deferral of income, can place households in financial difficulties. To encourage this practice and thus increase the supply of large-sized wood, Scansia Pacific extend bridging finance of up to 4 million VND/ha to households at an interest rate lower than that available from commercial banks at the time of borrowing. The company recovers the loan and interest when the households log and sell the timber to the company.
The Figure 02 shows that 46.7% of interviewees believed creating a mechanism for coordination, joint venture, and association to create raw material areas would be solution to developing large-sized timber production plantations.
Figure 2: Solutions to encourage the planting of large-sized timber forests
2.2. The importance of risk mitigations to encourage the planting of large timber production forests
The long business cycle of large-sized timber production forests increases the likelihood of risk events such as loss of timber, forest fires, and volatile markets occurring within a production cycle. Risk is one of the primary obstacles to establishing large-sized timber plantations. Interviewees in the 3 provinces Tuyen Quang, Quang Tri, and Binh Dinh all responded that it was necessary to have risk mitigation in place or available to mitigate against forest destruction from natural disasters such as storms, landslides, floods, etc., and forest fires.. All interviewees expressed support for risk insurance and disaster support funds. Moreover, some suggested that a risk fund could established under a mutual or cooperative structure and could extract revenue from timber sales. The survey results also agree with this solution, which is shown in Figure 3.
Figure 3: Anti-risk solutions to encourage large-sized timber production afforestation
3. Recommendations
3.1. Formulate and supplement policies on afforestation for large timber production
- Develop policies to encourage forest managers to change the purpose of their forest business from woodchip production (high-density planting, short business cycle) to large timber forest production (low density, long business cycle) through thinning, a combination of tending and fertilizing to create a large timber trading forest. Policies should articulate financial support for forest managers thinning a forest wood to produce large-sized timber and money to buy materials and fertilizers.
- Policy to support farmers to obtain finance to develop large-sized timber trading forests with long business cycles in the form of commercial loans or low-interest loans. The loan cycle and terms should align with the forest business cycle so that people are enabled to to take care of and protect forests, and be prepared to solve production challenges when they occur;
- Continue to promulgate policies to support high-quality seeds suitable for each region in the country.
- Adjusting and supplementing land policies; creating conditions for forest owners to gain access to sufficient land for intensive high-yield large-scale timber plantations, and to facilitate scientific and technical progress, and development of forestry technology.
- Policies to support forest owners who are households and individuals who have a great demand for timber plantations in land consolidation and grant of certificates of land use rights.
- Develop policies governing insurance to prevent force majeure risks caused by natural disasters and weather to planted forests; there is a mechanism to form a risk support fund by the method of socialization.
- Develop policies to encourage people to adopt forest businesses for a longer period through a payment mechanism for forest carbon sequestration and storage services.
- There is a policy on prices for timber with a diameter of more than 13 cm to encourage forest owners to increase the proportion of large-diameter wood when harvesting.
- Policies to leverage tax exemptions and reductions, and in-depth investment support to: encourage processing enterprises to enter joint ventures with forestry companies; encourage household forest owners to develop raw material areas associated with processing; support forestry companies to attract processing companies as shareholder partners in developing concentrated material areas; create connected value chains for production from raw materials, processing and export.
- Policy to ensure technical and financial resourcing to support issuance of sustainable forest certification according to Decision No. 38/2016/QD-TTg dated September 14, 2016, of the Prime Minister.
- Policy on investment in building a system of forestry roads in the production and large timber trading zones, creating conditions for people to consume timber and carry out forest management and protection tasks.
3.2.Proposal to amend several policies to include investment in forest protection and development, processing, and trade of forest products over the 2021-2030 period.
- The level of support prescribed at point a, clause 1, Article 5 of Decision 38/2016/QD-TTg dated September 14, 2016, of the Prime Minister, is currently 8 million VND/ha. It is proposed to be increased to to 10-15 million VND/ha depending on each plant.
- The maximum loan amount specified in Clause 1, Article 8 of Decree No. 75/2015/ND-CP dated September 9, 2015, of the Government, is currently 15 million VND/ha and only for households in areas II and III. It is up to 20 million VND/ha and expand the eligibility of borrower to include households and individuals participating in large timber plantations.
- The level of support for land rent and infrastructure construction in raw material areas is currently specified in Clauses 1 and 2, Article 7 of Decree 57/2018/ND-CP dated April 17, 2018, respectively: 20% for 5 years, 30% for 7 years; 50 million VND/ha, maximum 10 billion VND/project raised to 60 million/ha, maximum 12 billion VND/project.
- It is proposed to supplement several policies governaning the insurance of planted forests, namely:
+ Clause 1, Article 18 of Decree 58/2018/ND-CP dated April 18, 2018, on agricultural insurance. It is proposed to add forest trees to the insured subject to support.
+ Request the Prime Minister to issue a decision to allow the pilot implementation of the insurance support policy for forestry crops similar to the Decision 22/2019/QD-TTg on the implementation of the agricultural insurance support policy.
REFERENCES
Centre for Sustainable Rural Development (SRD)
No.31, Alley 19 Kim Dong Street, Hoang Mai District, Ha Noi
Phone: +84 24 3943 6676/78 | Fax: +84 24 3943 6449
