The changing profile of Indonesia in product supply is closely tied to the changing structure of the resource. This is evident from data published by the Indonesian Ministry of Forestry on the source of log supply which shows that industrial plantations are becoming increasingly important while the share of supply from natural forests is falling.
Production from sustainably managed concessions in natural forest is now stable, but there has been a sharp decline in forest conversion operations.
Last year Indonesia produced 47.5 million m3 of logs of which 69% derived from industrial plantations (HTI), 15% from community forests (HTR), 12% from natural forest concessions (HPH), less than 1% from land clearing, and 4% from a variety of other sources.
This compares to 2009 when log production was 34.8 million m3 of which 55% was from industrial plantations (HTI), 11% from community forests (HTR), 13% from natural forest concessions (HPH), 18% from land clearing operations, and 3% from a variety of other sources.
Another complexity in monitoring market impacts of FLEGT licensing is that the EU only takes a relatively small share of Indonesia’s total timber product exports.
The priority attached to the EU in market development, and the size of flows to the EU, are therefore heavily dependent on events in other parts of the world.
Data from the Environment and Forestry Ministry show that total forest product exports through Indonesia’s legality licensing system were 17.46 million tons with a value of USD9.27 billion in 2016. Of these exports the EU accounted for only 4.7% of tonnage and 9.4% of value.
The large majority of Indonesian forest product exports are destined for other Asian markets (86% of tonnage and 71% of value) while exports to North America are also significant (4.3% of tonnage and 10.7%) of value.
While the EU has a low share of Indonesia’s total forest product exports, the data is influenced by the small proportion of Indonesian pulp and paper destined for the EU.
In the EU, Indonesia faces very stiff competition from Brazil in the market for chemical pulp (which derives from fast-growing plantations of eucalyptus and other hardwood species) and from domestic European producers in supply of finished paper products. The majority of Indonesia’s pulp and paper product exports are destined for China and other Asian markets.
The EU is relatively more important in Indonesian exports of some wood products, most notably furniture. Of Indonesia’s total wood furniture exports of 435,000 tonnes with a value of USD1.34 billion in 2015, 127,000 tonnes (29%) with a value of USD319 million (24%) were destined for the EU.
FLEGT licensing offers an immediate opportunity for Indonesian suppliers to retake share in those sectors – such as decking, plywood and flooring - where Indonesian products are familiar to EU importers and already favoured for their strong technical performance, but where demand has been dampened by concerns over the legality of wood supply.
In isolation, FLEGT licensing is less likely to generate immediate benefits in those high value sectors like furniture and joinery where the specific technical and environmental features of Indonesian wood products have been less significant barriers to competitiveness than wider issues such as labour costs, red tape, logistics, processing efficiency, innovation, and marketing.
In these sectors, increasing share is only likely to be achieved if FLEGT licensing is combined with market development initiatives to improve the international competitiveness of Indonesian wood manufacturers across a wider range of issues.
However, the long-term benefits of investment in these initiatives, alongside FLEGT licensing, would be considerable given the sheer size of markets for consumer products like furniture, the relatively high proportion of Indonesian furniture exports already destined for the EU, and the greater potential to add value to wood fibre.