The Report

Private sector. Improving forest governance: What drives private sector engagement? 

Tuesday 17 March, from 14:30 to 18:00

 

Highlights

  • The tropical timber trade with Europe continues to decline and the selective logging of natural forest is also in crisis. In its place is timber coming from forest conversion and monoculture plantations of fast growing lightwoods for the paper industry, panels and engineered products.
  • There has been a displacement effort; the "good" wood is going to sensitive markets and the "bad" wood going to the less discriminating.
  • Wood for energy (fuelwood) now makes up 50% of global consumption, and soon Africa will be the biggest consumer of wood.
  • Levelling the playing field is the main issue for the private sector, and FLEGT will be adhered to if it succeeds in this.
  • Helping SMEs: Big companies find it easy to get legal, yet VPA processes can help SMEs too by giving them a voice to call on government to cut red tape and in doing so make it easier to formalise their businesses so they can invest and get the raw materials they need.
  • Reduce the cost of capital: Demonstrate to the investment and banking community how FLEGT helps manage their business and reputational risks, so they decrease the cost of capital and banking services for FLEGT-licensed companies.
  • Revive tropical timber: "Removing illegal timber from the trade should push prices up – no premium is needed if the EU Timber Regulation and VPAs work!" A buyer
  • FLEGT can help revive tropical timber by reducing production costs (conflict, corruption, capital) and increasing timber prices: if we don't use forests designated for production we will lose them.
  • The private sector sees positive outcomes from VPAs; they give voice and legitimacy to SMEs, contribute to simplifing complex regulations and revising poor legislation, drive out the cowboys, improve the reputation of timber and help attract good employees. 
 

Summary 

The meeting

Predominately African in focus and participation, speakers included large and small producers, processors, certifiers, trade association, independent monitors, investors, importers and government. About 40% of participants were private sector, 20% NGO, 20% government and 20% consultants/academics. The majority believed the private sector was part of the solution to combatting illegal logging.

The big picture

Analysis of timber trade patterns shows a significant change in the past 15 years especially after the financial crisis in 2008. Africa is about to become the top world consumer of timber especially for fuel wood. The share of plantation timber in global supply will keep increasing. Market leverage from Europe for sustainable forest management is weakening and this raises the question of its funding in the future. The trade in tropical timber into Europe continues its decline, and with it the old style, selective natural forest logging business model. Tropical timber needs to be better marketed and valued on the EU market.

Certification

Voluntary certification is a good tool for larger companies to improve their practices, demonstrate that they are not responsible for poor forest governance, reward their efforts and secure their market access.

The two major certification schemes now recognize FLEGT legality standards as a component of their sustainability standards. Both are considering dual certification/verification audits that offer assurance of legality and sustainability to their clients for due diligence purposes in the market. They recognize that illegal timber continues to undermine markets for certified products and that legality/certification is an effective way of managing risk. Certification schemes acknowledge that the FLEGT approach has been a success for stakeholder engagement, and that there are clear synergies between FLEGT and private certification. The practical experience of certification schemes, for traceability for instance, could also be better used in the FLEGT approach. Certifiers are now looking at landscape approaches but this is challenging as it requires partnerships beyond normal business boundaries.

Private sector comments on VPAs

In VPA countries the private sector wants more stepwise approaches to negotiation and implementation, with intermediate benefits during the long process of negotiation and implementation. They recognize that the VPA is a useful tool to simplify and clarify legal frameworks and expose problems such as illegal taxes being collected at local level. So far VPAs have not engaged sufficiently with local authorities. The main expectation is that the FLEGT approach will help to level the playing field and prevent buyers from using illegal and cheaper timber.

The private sector likes to comply in order to attract good employees but the cost of compliance with VPAs can be high, usually higher than the cost of auditing. Job issues must also be considered, and forcing a company to close rather than helping it becoming compliant will drive its former workers to illegality. 

SMEs

Engagement of private sector and especially SMEs is a key to ensuring sustainable improvement of forest management and governance along the supply chain. Specific funding tools are needed to support these efforts in formalizing and adopting better practices. However small suppliers who find it difficult to meet importers due diligence requirements of the EU Timber Regulation are being cut out of orders. SMEs see the VPA as a good tool to secure and formalize their business by giving them some more assurance about their resource access in the long term and the opportunity to influence the legal framework design. VPAs encourage them to be better structured and organized, and allow them to engage with other private sector operators and promote local timber processing and trade.

External view on private sector from an independent observer

Private sector covers a lot of different entities, with different behaviours and interests. Lots of factors affect whether a company obeys the laws; internal, size, volume, policy, origin or capital, markets, organization structure and the effectiveness of external law enforcers. Structuring and fair representation of the private sector at the national level is always a challenge, and should be better considered by the national administration and by the private sector itself.

Certification is a good way forward for individual companies, but can't tackle national issues as corruption. Control of companies' legality should be done more independently by government officers, and not rely on the companies' financial contribution.

Investors

Most financial institutions have little understanding of the timber industry and forest management related issues. Specific funding instruments are needed to support the efforts of the private sector and especially SMEs in formalizing their activities and improving their practices.

Investors may be eliminating risky timber suppliers but not necessarily seeking out legal timber sources. Money laundering laws can increasingly be used against banks that finance illegal logging. Illegal logging attracts organized crime.

Timber prices

Removing illegal timber from the trade should push prices up since illegal timber is generally a lot cheaper (20-40%). No FLEGT premium is needed if the EU Timber Regulation and VPAs work! 

Publish what you pay for timber

Can VPAs be used to promote transparency in the redistribution of forest taxes to national and local government? This can be powerful driver of change as it demonstrates the local economic benefit of production forests. 

Conclusions

  • Talk to the private sector more and make sure you understand us and our need for profit; responsible businesses will always want a level playing field.
  • Recognize that the private sector is not homogenous and so cannot always speak with a single voice, or even publicly, so make an effort to seek out a range of opinions from across the industry.
  • At its best the forest industry can speak and act like conservationists and development agents, and the companies that do this are finding good sound business rewards – this is the win-win we are looking for, but in the tropics such examples are still only islands of excellence. How can these efforts be drawn together into sustainable landscapes?
  • SME's present a special set of challenges and opportunities in most countries; they are seeking greater legitimacy through smarter regulations, cheaper capital, skills, innovation, a voice and long-term access to raw material and markets. They can deliver rural growth and employment, as well as generate foreign exchange.
  • In some VPAs SMEs have appreciated getting recognition and a seat at the table, just like civil society does and it has helped "professionalise" them.
  • Private sector and in particular SMEs should be at the center of any initiative aiming at improving forest management and governance. Such initiatives should thus target appropriately these operators and their design should take into account their specific needs and diversity of interests, difficult access to capital and lack of capacity.
  • Prices of tropical timber should rise as the EU Timber Regulation and VPAs start to work and this could contribute to a revival in the tropical forest industry.
  • Private sector could consider improving its structuring and representation, for better involvement in VPA processes, and to improve the whole forest sector's reputation.

Slideshow

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Featuring

Moderator Andrew Roby

Speakers

  • Emmanuel Groutel, economist and international consultant
  • René Oukem, FECAPROBOIS
  • Tom Van Loon, Interholco / Danzer
  • Françoise Van de Ven, Secretary General of the FIB
  • Serge Moukouri, Cameroon, FLAG
  • Ulrich Grauert, Interholco
  • Gemma Boetekees, Forest Stewardship Council International
  • Raphael Yeboa, Forestry Commission of Ghana
  • Christophe Du Castel, French Agency for Development
  • Peter Latham, James Latham PLC
  • Art Blundell, Natural Capital Advisors

Reporters Art Blundell, Andrew Roby, Alain Penelon and Xavier Rossi

Keywords Private sector, certification, risk, investment, SMEs