Regional Environmental Technical Assistance 5771
Poverty Reduction & Environmental Management in Remote Greater Mekong Subregion (GMS) Watersheds Project (Phase I)

TIMBER TRADE AND WOOD FLOW–STUDY

Viet Nam

By

Tuukka Castrén

CONTENTS

List of Tables

List of Figures

List of Boxes

1. Introduction

1.1 Background

The current study on wood demand and supply, and forest industries in Viet Nam is a part of the Poverty Reduction and Environmental Management in Remote Greater Mekong Sub-region Watersheds-project and its Timber Trade and Wood Flow-study. This study is one of the six country studies – one for each project country – that are produced during the project. A separate regional report studies the cross-border issues and opportunities in the whole of the subregion.

This report – like all the national reports – deals with three interrelated topics:

1. general pattern of wood use and demand–supply in the country
2. timber trade to/from the country
3. forest industries and the role of forest industries in the national industrial strategies

The study was prepared by Mr. Tuukka Castrén (Indufor Oy) and a project team in Viet Nam led by Mr. Gregory Booth (IUCN) in September and December in 1998. Some additional data was collected and the report produced in early 1999.

The work of the Consultants was supervised and assisted by Mr. Stephen Devenish, the team leader of the project.

1.2 Data

Data for this report was collected from three sources: interviews with stakeholders in forestry and industry, statistical sources and secondary data, such as consultant reports and Government Development Plans. International sources were also utilised as feasible. The interviews were mainly carried out by the international consultant during his visit to Hanoi in October 1998. The list of people met is presented in Annex 2. All the interviewees provided interesting and valuable information on forestry and related sectors. The conclusions and recommendations presented in the report are, however, entirely those of the consultant.

Two Vietnamese research institutions were contracted to prepare studies providing statistical and analytical information on wood flows and timber trade in the country. The institutions involved and the studies prepared were:

• Department of Environmental Policy Studies, National Institute for Scientific and Technological Policy and Strategy Studies (Nistpass): Forestry Data on Wood Flow and Timber Trade Study (Hanoi, November 1998), and
• Ministry of Agriculture and Rural Development (Mard), Forest Science Institute of Viet Nam: Some Information on Forest Industry Economic in Viet Nam (Hanoi, November 1998).

These reports were based on a large volume of official Vietnamese and other statistics which are not referenced separately.

The volume of information available on the Vietnamese forest sector is large and gives a wide view over the issues related to the sector. There are, however, some deficiencies in the data that hinder independent analysis of the sector. Any statistical information related to production or data on international trade is classified and no national Forest Statistics Yearbook is being published in the country. Three institutional factors hinder effective dissemination of information:

• market players and authorities are (over)sensitive in protecting information they believe forms part of business/state secrets
• forestry statistics are not collected and/or access to them is inadequate
• the value of concise forest statistics not deemed high by the stakeholders

The Vietnamese forest sector has been decentralised to provincial authorities, and recently in an increasing manner to the private sector and joint ventures (JV). In such a context of scattered information generation, concise analysis of the sector and wood flows has become utterly complicated. Information is a powerful tool in increasing transparency and efficiency both in public and private sector decision making. Therefore it is recommended that information system development is initiated.

2. Forest Resources

2.1 Natural Forests

Viet Nam is one of the most densely populated areas in South-East Asia. This, among other factors, has led to declined forest area in the country. In the 1940’s slightly below half of the country was forested while the figure currently is 25-30%. Current (1995) land use allocation is presented in Figure 2.1.

Figure 2.1: Land Use Structure (1995)

Source: Nguyen Tuong Van (1997)

2.1.1 Area

The total forestland in Viet Nam is estimated at 19.2 mill. ha. Roughly 6% (1.1 mill. ha) of the area consists of man-made plantations. Both forested areas and some barren lands are classified as forestland. The forestland distribution is presented Table 2.1. In addition to the classified forestland there are an estimated 1-2 billion scattered trees on non-forestland in home gardens, by rivers and canal banks, etc. It is estimated that this is equivalent to 1-2 mill. hectares of plantations. This resource has a supply role in subsistence use of fuelwood and construction timber.

Table 2.1: Forestland Classification (1995, mill. ha, %)

Includes 1.1 mill. ha of plantations and 0.9 mill. ha bamboo and other non-wood forests. Source: Nguyen Tuong Van (1997)

The categories are defined as follows:

Special use forests: mainly national parks, protected landscapes and other protected areas.

Protection forests: watersheds, mangroves, etc. forests with special protective functions

Production forests: forests where logging is allowed, includes industrial plantations. Gradually this category will be phased out to natural forests (c.f. Chapter 3.3).

2.1.2 Growing Stock and Yield

No thorough forest inventory has been carried out in Viet Nam recently. Consequently, information on the stocking and yield of the Vietnamese forests is not accurate or consistent.

The growing stock in the forests is estimated at 560-590 mill. m³, the average stocking thus being 62 m³/ha (forested lands) or 30 m³/ha (all forestland). The figure includes stem volume only and the estimate was done in late 1980’s. No more recent or accurate data on the volume in Vietnamese forests is available.

As for the mean annual increment (MAI) estimations, they are more variable. Estimations for the average yield range from 1 to 3 m³/ha/yr. In plantation areas the growth is estimated to be notably higher, 5-10 m³/ha/yr. Based on international experience, the estimated plantation yield may be considered optimistic but realistic.

The consultant estimate on the total production potential in Viet Nam is presented in Table 2.2 below. The assumptions of the estimation are:

• natural forest (special and protection) growth 1.0 m³/ha
• natural forest (production) growth 1.5 m³/ha
• plantations, growth 6.0 m³/ha
• plantations (production) 0.6 mill. ha
• trees on non-forestland 1.5 mill. ha plantation equivalent
• trees on non-forestland, yield 6.6 m³/ha
• areas from Table 2.1

The high estimated yield of trees on non-forestland (6.6 m³/ha, 10% above plantation yield) is justified by a) intensive management of the woodlots and individual trees, and b) more efficient utilisation of the wood material, i.e. efficient utilisation of branches and small diameter wood as fuelwood. It needs to be noted that such scattered trees may be considered as part of wood fuel production potential though hardly part of industrial raw material base.

Table 2.2: Growth Potential by Forest Class

Of the total growth potential only 19 mill. m³ (74%) originates from areas open to utilisation; special use and protection forests fall outside logging areas. In the medium to long-term, the category of natural production forests will cease to exist. Additionally, trees on non-forestland are outside industrial wood production potential. Consequently, the sustainable raw material potential for the industry is only 3.9 m³ of plantation wood and some 300 000 m³ in the medium-term, from natural forests. The total available sustainable annual domestic raw material base for the industry is currently appr. 4.2 mill. m³, forming only 16% of the total growth capacity of the country (Figure 2.2).

No consideration is given to species structure and it needs to be noted that growth, even in production forests, is not the same as allowable cut. National figures also should not be used in analysing local conditions. Issues of the sustainability of forest utilisation need to be analysed at forest management unit level before any decisions are made.

Figure 2.2: Wood Production Structure

Production forests (nat.) 1: current production forests to be "closed"
Production forests (nat.) 2: 300 000 m³ of cutting to be allowed in the medium to long-term

2.2 Plantations

The GoV has initiated two forest planting programmes to overcome the environmental problems related to deforestation: Programme 327 and Five Million Hectare Programme. The former, Programme 327, was launched for watershed protection. The Five Million Hectare Programme has wider scope aiming at establishing forests in all categories.

2.2.1 Five Million Hectare Programme

The Five Million Hectare Programme covers years 1998-2010. After it has been completed, most natural forests will be "closed", i.e. logging will be disallowed. As the programme is still in its starting phase, no success rate of the plantations may be established. The programme includes both reforestation and "active protection" of existing forests. The objective is that by the end of the programme, year 2010, forests would cover 14.3 mill. ha.

Most of the plantations – 60% – are to be established for production purposes, one third for watershed protection, and the remaining for the protection of coastal sands, flood control, etc. (Figure 2.3). The production plantations are classified by the end-use of the wood; most of the production plantations will be fast growing exotic species for pulp production including some bamboo plantations. The furniture wood plantation category includes also 120 000 ha rubber plantations, often classified as agricultural product. The figures are preliminary as the plan is flexible and states that:

In reality these figures should be adjusted based on the market of forest products and investment possibility.

Figure 2.3: Five Million Hectare Programme

In addition to the plantations, some 350-400 million trees are planned to be planted on non-forest land. They are aimed at producing 5 mill. m³ of fuelwood and 2 mill. m³ construction wood.

As mentioned earlier, the programme was launched in 1998 and it is intended to run until the year 2010. The planting schedule will gradually increase, reaching almost half a million hectares during the last five years of the programme (Figure 2.4). During the first years of the schedule more emphasis will be put on the protection of forests while the production forests will be planted towards the end of the period.

Figure 2.4: Planned Implementation of the Five Million Hectare Programme
(hectares, 1998-2010)

2.2.2 Plantation Management

The production plantations – like all production forests – are managed by:

• state enterprises (State Forest Enterprise – SFE, agricultural units and companies)
• social organs
• military units
• rural communities and local people for long-term use, management and protection

Land allocation is done by the local authorities. Currently most forest production is carried out by the SFEs, though recently this policy has been subject to a lot of criticism as many of the enterprises have not, for various reasons, been able to fulfil their mission. To provide a partial solution to the problem, the Five Million Hectare Programme plan states that:

The programme clearly aims to increase the role of the private sector in forestry production in Viet Nam. There are, however, no clear mechanisms for land utilisation right transfers presented. Also, many silvicultural activities may be purely based on the desire to keep the land under SFE management rather than optimum land use planning. (The role of SFEs is discussed in more detail in Chapter 3.2)

The parties to be entitled for land allocation for production plantations – for watershed areas and special-use forests application is under different rules – are:

• state-run forest enterprises and state-run public forest enterprises
• collectives
• social holdings
• private businesses and households, and
• joint ventures with foreign funds

The Viet Nam Forestry Corporation (vinafor) will be responsible for managing the SFE-plantations, though the plan does not indicate what degree of autonomy the SFEs would have in respect to vinafor.

As for the sale of revenues the plan states that:

Constraints

The Programme clearly has two main objectives:

1. to increase forest cover both in protection/special use forests, as well as production forests, and
2. to increase the raw material base of wood processing industries and household wood consumption

The initial plan does not have strong mechanisms to ensure the sustainability of the plantations. Even the proposed subsidies have a follow-up period of only three years, a period far too short to ensure the long-term establishment of the plantations. The plantations may be disturbed and/or land use pattern may be changed once land allocation to an individual or a private company is thought to be permanent. The SFEs may be inclined to keep areas under forest cover only to ensure ownership of the land; even if alternative land management would give higher returns.

Plantation programmes require complex analysis of optimal land use, social context in the area, etc. The plan does not have strong emphasis on these aspects. Plantation establishment appears to be considered more of a technical rather than socio-environmental issue.

The production forest establishment is not required to go through typical investment analyses of financial and economic feasibility. It is intended that the GoV would subsidy plantation establishment with a conditional grant of 1.5 million Vietnamese Dong (USD 110).

The production forests should be considered commercial enterprises while the forests that have notable environmental benefits are in Vietnamese classification protection forests. This is not to say that production forests would not have environmental externalities. Basically, business activities – like industrial tree plantations – should be left to finance themselves. Otherwise indiscriminately levied subsidies form to a large extent a transfer payment to SFEs and rural middle-class from the urban populace and rural poor. A more developed system needs to be introduced to compensate for the external benefits accruing from the production plantations.

The Five Million Hectare Programme is viewed as a continuation of an earlier national plantation programme – Programme 327 (see Box 1). Some, but by far not all, problems identified in 327 have been corrected in the new design. However, the most notable ones of a) top-down approach and the lack of community participation and b) inadequate social and biological knowledge have not been tackled. The most apparent modification in project approach is the switch from protection to production forests. The households will also be entitled to a higher share of logging revenues (upto 100%).

The impact of the programme on wood supply is discussed in more detail in Chapter 7.

3. Utilisation of Forest Resources

3.1 Forest Ownership

All forestland is owned by the State. The land is allocated for management to

• state forest enterprises (SFE)
• communes
• private enterprises
• small areas also to private individuals and households

The State ownership is implemented through the Provincial People’s Committees (PPC). The bulk of the forests are in the hands of the SFEs. They have the role to a) protect and manage the resources and b) utilise those forests not allocated to non-State entities. This applies to production and protection forests. For the special use forests there are separate institutional arrangements.

3.2 State Forest Enterprises

The State Forest Enterprises (SFEs) were established in the 1970’s and 1980’ to manage and utilise the country’s natural forest resources and 412 SFEs have so far been established. The logging volumes by enterprise were in the first years of operation high, some 20 000-30 000 m³/yr. These volumes led to serious over-logging and a review of the logging activities – i.e. decreased logging volumes – and consequently the operational role of the enterprises was changed a great deal.

Currently only 241 (58%) officially have a logging role, though only 107 (26%) have any forests to log and even then, the annual quotas are very small, only 1000-2000 m³/yr. The rest have depleted their forests through over-logging and are supposed to be active in management of the forest estate.

The most active SFEs are the some 90 (22%) enterprises that are involved in plantation forestry. Their average annual logging is 3000-8000 m³ and they have even been able to invest in new plantations with their own resources.

Out of the remaining enterprises 120 (29%) entirely depend on Program 327 funding to stay operational. These funds are for the establishment of non-production forests and thus will not give the enterprises any future income. Once the programme ends the enterprises will face dire difficulties or will continue to depend on Five Million Hectares programme. Even if some of these SFEs are not active, some 50 (12%) are in an even worse situation and have no designated activity and depend entirely on capital to pay salaries and other recurrent expenditure.

The GoV has noticed the unsatisfactory situation among the SFEs and has initiated a reform project with ADB assistance as a part of a larger ADB forestry sector project. The enterprises would separate their administrative and business functions. The enterprises are to be divided into different categories that would be based on their main activity: natural forest logging, plantation establishment and administrative duties related to forests. The renovation project is still on-going but it will include also dissolving some of the SFEs that do not have a feasible future.

In the Master Plan for Forestry Development 1996-2000 separation of all forest support activities from production activities was stressed. This would have a major impact on SFEs if the forest management decisions were made independent of forest utilisation decisions.

3.3 Legal Framework

Logging in natural forests requires a permit from the Department of Agriculture and Rural Development (DARD) in the Province. This permit, which is valid for one year, is issued to the enterprise or other entity that carries out the harvesting rather than the forest owner. One prerequisite is that the area, once logged, has to be later "closed" from encroachment, etc. and other disturbances.

All the harvesting units (state or non-state) have to follow the approved harvesting designs. When bidding the stand (selling stumpage), the approved harvesting design shall be used as the basis for negotiations. After the bidding process, all designs will be transferred to the harvesting enterprise with the approval of the relevant authorities. However, during the harvesting the forest owner is responsible for monitoring adherence to the design. The owner is additionally responsible for the procedures of "closing" the forest after logging.

The authorities have a right to on-site checking of the logging activities; this right applies both to DARD and MARD, the latter executes indirect control through monitoring DARD activities.

A harvesting design needs to be prepared also for plantation forests. There are three basic rules applied in the design of logging in plantations:

1. only mature stands may be harvested
2. no clearcutting on steeper slopes than 15°
3. cutting in "bands" if steeper slopes than 15° or if prone to harsh conditions, e.g. wind

Two exceptions are applied:

• in family established plantations the household that has invested in the plantation is allowed to follow their own logging plans, and
• in long-term supply contracts the terms of the contract supersede the general provisions.

3.4 Harvesting

3.4.1 Recorded Logging

For the past decade officially recorded logging volumes in Viet Nam have fluctuated round three million m³. Despite expanding forest industries logging volumes have had a declining trend.

The Vietnamese authorities, affected by the over logging and declining natural forest cover, have initiated a "closed forest" policy. This means a gradual introduction of logging bans in natural forests. The logging ban will not be absolute as some logging in well-forested areas will be allowed. The planned volumes will, however, be less than a third of the recent peak levels in 1992 when official commercial logging from natural forests was 1.2 mill. m³.

Figure 3.1: Recorded Logging Volumes

However, the recorded wood exploitation statistics are of dubious value. The wide annual variations of fuelwood utilisation, a 56% decline 1994/95 in the use of a stable commodity like fuelwood clearly is not reliable.

The government has set up a policy to gradually reduce logging from natural forests. In the policy the limit for 1997 was set at 520 000 m³. However, recorded logging was much higher (Table 3.1. Thus recorded logging was 153% of the medium-term plan. Additionally, it is highly unbelievable that the unplanned local utilisation from natural forest would have declined by 88% in only two years.

Table 3.1: Recorded Natural Forest Logging

The long-term logging level from natural forests is estimated to settle at 300 000 m³. This volume will be obtained from areas with a high volume of standing stock. Despite being acceptable from a forest management viewpoint, partial legalising of logging in natural forests may have negative side effects.

Any legal logs from natural forests form a category of legally cut Vietnamese natural forest logs thus creating a possibility of any logs to be declared as belonging to such a group. This may take place through, e.g. forged documents, use of same batch identification for several shipments or declaring smaller volumes than those actually being logged. To overcome these problems excessively strict control mechanisms are needed. Generally, partial logging bans are difficult to enforce.

Anyhow, the whole concept of a logging ban may be questioned. Even if in some areas logging has not been sustainable not all logging needs to be banned in the whole country. Improved forest management methods and forest laws, and naturally their enforcement, could be more beneficial and cause less economic loss. Total bans additionally direct domestic raw material supply to illegal and non-controlled sources. Logging bans, to be effective, need to be coupled with abated demand. This is clearly not the case in Viet Nam.

3.4.2 Unrecorded/Illegal Logging

Illegal utilisation of natural forests is rampant in Viet Nam. No thorough research has been done on the topic. In the Western Plateau and Southern region – a region consisting of 22 out of 61 Vietnamese provinces – it has been estimated in mid-90’s^* that the total volume of illegal logging in the natural forests would be 0.23 mill. m³. Out of this 0.13 mill. m³ would have been used for household purposes while the remaining 0.1 mill m³ would have entered the wood market.

This may be compared to the legally obtained natural forest wood and to the total natural forest logging in the country:

1. legally obtained natural forest wood in the Western Plateau and Southern region was in the same study estimated at 0.17 mill. m³ . Illegal logging would thus be 135% of the legal cut and the marketed illegal logs 58% of legal domestic supply.
2. the region imported 0.65 mill. m³ from outside making the total supply in wood markets 0.92 mill. m³. The illegal logs provided 11% of the total supply.
3. in 1996 the recorded log imports to Viet Nam were 0.092 mill. m³ and the reported use of imported wood 0.6 mill. m³. All reported imports were from Cambodia. Even if all officially imported wood was used in the study region, 0.51 mill. m³ was imported illegally. Thus the total share if illegal supplies in the region was 66%.

The use of plantation wood in the study was 1.6 mill. m³ of which local use was 0.6 mill m³ and 1.0 mill. m³ market wood. Other wood sources in the study area were: rubberwood 0.2 mill. m³ (0.15 mill. m³ market wood) and scattered trees 2.2 mill. m³ (1.0 mill. m³). (Figure 3.2)

Figure 3.2: Woodflow in Southern Provinces (mill. m³)

Source: Based on Forest Science Institute of Viet Nam. Sub-Forest Science Institute in the Southern of Viet Nam (1998)

The study area – Western Plateau and Southern region – has one of the biggest concentrations of wood and wood processing industries in the country in Ho Chi Minh City region. Therefore demand for wood is high. This applies in particular to imported wood. The Cambodian sources are easily accessible and Vietnamese companies are reported to be logging in the country. Therefore most of the imported wood is likely to have been utilised in the region. (For import and export of wood, see Chapter 7.1)

Assuming a constant volume of illegal logs in the whole country the total commercial logging volume may be estimated to have been 1.11 mill. m³ in 1995 (Table 3.2). Using the same pattern, in 1997 the total logging volume would have been 1.0 mill. m³. The share of illegal domestic supply would have increased from 37% to 41% in the same period.

Table 3.2: Viet Nam – Commercial Logging Volume (natural forests) 1995 and 1997

Source: Consultant’s estimates based on Forest Science Institute of Viet Nam, Southern Sub-Institute (1998)
and Department of … NISTPASS (1998)

There is no information available on previous illegal logging. The estimated total logging volumes are, however, at the same level as the peak official logging volumes in early 1990’s. In 1992 recorded logging was 1.2 mill. m³. Either the share of illegal logging has remained constant or the logging curtailing policy (closing the forests) has not been successful. Logging volumes have not lowered but previously legal logging has continued but now without authorisation.

4. Forest Industries

4.1 Industry Structure

Viet Nam has a wide variety of wood processing industries. The product range covers such products as sawnwood, wood based panels, and pulp and paper. In total the number of registered wood processing enterprises is 290 divided administratively as follows;

There is no information available on the distribution of production capacity among the various owner categories. In addition there are "thousands of pit-saws being established" in the densely populated areas where local demand is high. These pitsaws produce sawnwood and further processed wood products (mainly furniture) to rural markets. Based on the anecdotal evidence available, it could be safely concluded that these pitsaws are also the first link in the raw material chain to some formal furniture makers.

These figures may be underestimates. In late 1998 it was reported that in Ho Chi Minh City alone there were 800 registered wood processing units.

Generally, the available information on the forest industries is limited. Moreover, the available information often has statistical anomalies; different sources provide highly variable production figures and supply and consumption do not match by a wide margin. A large number of stakeholders have an interest in keeping the actual level of their activities veiled. There are a large number of regulatory bodies and decrees, and in order to be able to operate it is necessary occasionally to overlook some administrative procedures. This leads to a situation where there are numerous regulatory and research agencies, and state and private enterprises that have isolated, vested interests in keeping their activities private and limiting information sharing. In a transition economy like Viet Nam the administrative and business roles of state entities are not yet clearly separated. This leads to minimised information flow, as all information is classified business information.

4.2 Production Volumes

As discussed above, information of production volumes in Viet Nam is scarce. The only production statistics publicly available are those published in FAO reports. According to these statistics there has been no change in wood industry production since 1993 which is highly unlikely. (Figure 4.1)

Figure 4.1: Viet Nam – Wood Industry Production 1990-97 (FAO)

FAO (1998): FAOStat Database. www.fao.org 07.01.1999

4.3 Production Efficiency and Waste Management

Like in the neighbouring countries, sawmilling capacity in the country is often outdated and the level of technology is ignoble and the environmental technology applied has not been of the highest quality.

At many mills recovery rates are low but, on the other hand, residues are utilised effectively by:

• making use of odds and ends for fuelwood, grafting wood, and production of small goods such as rulers, furniture parts, etc.
• using sawdust in kilns and heat insulation

As for the harmful emissions, they are treated on the site. There is a process of relocating all emitting industries away from residential areas where they would be less harmful. The process would likely lead also to the closing of the most harmful plants. There is, however, no information on the scale and time schedule of the process.

4.4 Pulp and Paper Industry

Paper production in Viet Nam has been on the increase over recent years. Currently paper production is 325 000 tons while pulp production lacks behinds at 216 000 tons; as a consequence the Vietnamese paper industry is dependent on imported market pulp. On the other hand, it also demonstrates that there has been a policy to develop more value added production in the country by importing raw materials and semi-processed materials and processing them locally. The same approach has been used also in wood industry as may be seen in the recent expansion of the wood furniture industry based on imported Cambodian and Lao logs and sawnwood. Generally the level of production technology is low and machinery out-dated; the largest Vietnamese paper maker claims to have one modern paper mill, the only in the country, in Bai Bang and even that one started operations in 1982.

Imports play only a marginal role in the paper market and the per capita demand has been limited by the domestic production capacity. The annual paper consumption is only 4 kg/cap. This may be compared to the Southeast Asian average of 13 kg and the world average of 50 kg/cap.

The fibre balance of the pulp and paper industry is presented in Figure 4.2. The balance is based on the following unit consumptions:

• 6.7 m³ wood à 5 tons wood à 1 ton pulp
• 1.5 tons pulp à 1.0 ton paper

Figure 4.2: Pulp and Paper Industry Fibre Balance

5. Role of Forest Sector in the National Economy

5.1 Sector in National Economy

The Vietnamese economy is evenly distributed between the three main sectors: primary production (agriculture and forestry), processing (industry and construction) and services. Their shares of the GDP are (1996):

Despite the almost even distribution of GDP among the sectors it is obvious that the level of production technology and labour productivity varies greatly among the sectors. The employment pattern is dominated by agriculture, which employs currently 69% of the total labour force, though it has lost some of its weight in recent years, though only marginally, in 1992 the share was 72%. The role of services as an employer has increased from 14% in 1992 to 18% in 1996.

For statistical reasons the role of forestry and forest industries in Viet Nam need to be analysed through secondary indicators; employment and share of gross industrial production. Both wood, and pulp and paper industries have grown dramatically in the 1990’s which is presented by the two-digit annual growth figures in both industries. (Table 5.1)

Table 5.1: Forest Industry Production
(constant price value index, 1992=100) and Annual Change

Source: IMF (1998)

The growth in the production value has been impressive but has not been reflected as a respective increase in the share of forest industries in the total industrial structure of Viet Nam; also other industrial sectors have had impressive growth rates throughout the decade. The forestry industry production value is dominated by the wood industry that contributes some 2/3 of the gross production value of the sector. However, even if combined the role of wood processing industries is small. Only 6% of the industrial production originate from this sector. (Table 5.2)

Table 5.2: Forest Industry Production – share in industrial production

Source: IMF (1998)

As for employment, the share of forestry (not including processing) is only marginal, even if compared to the other primary production sectors. As presented in Table 5.3, in total less than 1% of the formal labour force is employed by forestry production. The table refers to formal full time or regular part time employment while the actual number of people having at least part of their income from forestry and related activities should be higher. The difference may be contributed to illegal logging and trade, household woodlots and owners’ work on private plantations.

Table 5.3: Forestry Employment

Source: IMF (1998)

5.2 Development and Government Policies

5.2.1 Investments

The Government of Viet Nam approved in 1996 the Public Investment Programme (PIP) for 1996-2000 to represent GoV policies both in qualitative description and monetary terms based on the government’s commitment to utilise public finances for national development. The plan has very little on forestry or forest industries.

Only one paragraph of nineteen in the agriculture chapter of the plan deals with forestry and tree crop development. The plan states that:

The investments in forestry in PIP amount to VND 13 000 million (USD 0.9 mill.), 14% of the agriculture sector investments and 3% of the total PPI. This total figure includes all investments, including private, under PIP. State investments for forestry are planned at VND 4 000 million (USD 0.3 mill.), 18% of total state investments in agricultural sector and 4% of total state investments, clearly more than the share of forestry in the economy. It needs to be noted, however, that the investments are not entirely towards production forestry as the investments schemes include also reforestation in protection forests.

As for forest industry, both wood and, pulp and paper industries, they are not even mentioned in the plan. The main reference that may be an indication, especially for pulp and paper industry, is;

It is not directly stated but the pulp and paper industry may easily be classified as larger scale basic industry. For light industry a mix of domestic private enterprise, co-operative and handicraft producers could form JVs and state enterprises to operate on market principles. This could be considered to apply to wood industries. This strategy is also apparent in the current production structure of the industries where the share of private industries is small in paper and paper products as compared to wood industries which have a remarkably high share of non-state production. The share of non-state producers was in 1997

(Source: Socialist Republic of Viet Nam-General Statistical Office (1998))

5.2.2 Certification

Vietnamese forestry stakeholders have realised the increasing concern over the sustainability of forest management and the importance of environmentalism existing in their export markets in Europe and North America. There have been some initiatives on forest management certification as the European importers have been concerned on their image in the market. The line of development will be based on the Forest Stewardship Council approach in sustainable forest management. It has not yet been decided by the GoV if the aim is only to increase sustainability of management or if full scale, official certification should be sought.

Two initiatives have progressed to some extent. A European wood furniture importer sponsored a study on the origin of the wood it receives and to develop chain-of-custody verification. In another recent initiative the World Bank together with the World Wide Fund for Nature will implement a pilot certification scheme in a SFE in Kantum province.

6. International Wood Trade

6.1 Exports

Viet Nam introduced an export ban on roundwood and sawnwood in 1994. Officially there should be no exports. However, there exists wide scale evidence that at least Cambodian and Lao logs are being re-exported through Viet Nam. The Cambodian logs exported are illegal, as there is a log export ban in Cambodia. Nevertheless, Vietnamese officials have allowed such re-exports despite public policy statements otherwise. However, there is no accurate information on volumes of roundwood and sawnwood exported in such a way. The volumes are, however, adequate to justify BPK Phudoi – a Laotian logging and mining company – to have a merchant fleet stationed in Vietnamese ports.

There have been unconfirmed allegations that wood is being exported to Yunnan and Guangxi provinces in China from various parts of Northern Viet Nam. Like in the case of re-export of logs from neighbouring countries, the volumes involved are unknown.

Like the industrial production statistics, also the foreign trade statistics are state secrets and trade analysis based on local data is not possible. This obstacle may be overcome by analysing import data from some trading partners. An analysis on these import statistics was carried out on two non-GMS, important trading partners: the European Union – a group of 15 western European countries – and Japan. Import statistics for EU covered years 1995-97 and for Japan 1995-96. For other countries comparable information was not readily available. As mentioned above, due to lack of information it is not possible to estimate what share of the Vietnamese exports are covered by the analysis. Additionally, wood and wood products are often bought by international traders who then re-export the products making the foreign trade statistics obscure. The reported volumes should be seen as the lowest estimates of the actual volumes.

There has been an immense growth in wood product, and particularly wood furniture, imports from Viet Nam to the sixteen countries studied in the late 1990's; wood furniture imports increased threefold and wood imports almost doubled (Table 6.1). The increase in furniture exports may mainly be contributed to the "flood" of moderately priced garden furniture from Viet Nam. It has been successful in replacing plastic furniture and more expensive wood furniture. The other wood products imported are mainly processed products like flooring, and kitchen and tableware. There are also notable woodchip imports to Japan, in 1996 151 000 tons were imported. No such imports were reported by the EU countries.

Table 6.1: Imports from Viet Nam to EU and Japan 1995-97

Source: EuroStat and Japanese Foreign Trade Statistics
Japanese imports in 1997 estimated at 1996 levels. GMS excludes Yunnan

The imports to EU from the GMS (excl. Yunnan) are dominated by Thailand (59% in 1997) but with the increased imports, Viet Nam has become the second most important supplier in the region, replacing Myanmar. Thailand is also the most important supplier from the sub-region to the Japanese market followed by Viet Nam. Previously Lao PDR supplied more but in 1996 the 120% increase in imports from Viet Nam reversed the order.

The increased wood demand in exports have replaced other wood flow destinations. In the same period reported supply (domestic logging and imports) to wood industries had declined by 30% (Table 6.2). In 1997 8% of all supply (excl. pulp and fuelwood) went to supply these two export markets. The increase in the exports to Japan and the EU must have replaced domestic demand or other export markets. There is no information available on species structure of either supply or export. However, it may safely be assumed that the export demand is dominated by medium to high value species and the switch in the demand pattern has been more dramatic in this segment.

Table 6.2: Wood Supply and Export Demand

Source: Table 6.1, Chapter 3.4

The origin of the wood from which export products are made may also be questioned. In a Global Witness (1999) study on Vietnamese garden furniture exports to Europe many importers interviewed suspected that the wood came from Cambodia and that the documentation of the origin of the wood and sustainability of forest management were not fully reliable.

6.2 Imports

Vietnamese statistics are very limited on wood imports. The official imports have been constantly in the region on 0.l mill. m³. (Figure 6.1) The vast majority of wood has been coming from Cambodia while some wood has been coming from Lao PDR.

Figure 6.1: Viet Nam – Official Imports 1986-1996, m³

Source: Ministry of Agriculture and Rural Development. Forest Science Institute of Viet Nam (national consultant, 1998)

The official figures are far below the ones reported in other sources. In a study on the forest products market in the Western Plateau and southern region it was estimated that industry in that region alone used some 0.6 mill. m³ of imported wood. This alone would be some six times the official imports to the whole country.

Among Vietnamese officials there is a high degree of confusion over imports. The head of the Environmental Economic Unit in the National University stated that there are no imports from Lao PDR or Cambodia. FIPI officials interviewed, on the other hand, stated Cambodia as a major supplier of wood to the industries in Ho Chi Minh City.

Viet Nam has become the most important destination for illegally exported Cambodian logs. It has replaced Thailand that has, due to international pressure cut illegal imports from Cambodia. The Vietnamese buyers have also carried out the logging themselves with Vietnamese personnel and machinery in Cambodia. As the same companies that carry out harvesting in Viet Nam also have logging operations in Cambodia it may be impossible to differentiate between local and Cambodian wood.

All log exports from Cambodia have been illegal since December 1996. Therefore all logs entering Viet Nam from Cambodia are smuggled and there are, for obvious reasons, no statistics available. Global Witness estimates the volumes to be very high:

A fourth estimate may be based on the World Bank Financed Log Monitoring and Logging Control Project in Cambodia. A summary of the various estimations on the imports from Cambodia is presented in Table 6.3.

Table 6.3: Log Imports from Cambodia Viet Nam

Source: MARD (1998), Global Witness (1998a), DAI (1998),
Forest Science Institute of Viet Nam. Sub-Forest Science Institute in the Southern of Viet Nam (1998)

Despite Cambodia being by far the most important source of supply, other countries have a role in the Vietnamese wood supply strategy. Information on these imports is even more coarse than that on the Cambodian wood. Based on scattered information from exporting countries it may safely be assumed that Lao PDR is clearly the second most important source of supply. Much of the wood imported from Laos to Viet Nam has been logged by Vietnamese companies that have been subcontracted by Lao counterpart state enterprises who have been issued with concessions, often from dam and other infrastructure construction sites. Some wood is also being received in barter trade for implementation of construction projects in Laos. In total the imports may be estimated to be in the range of 100 000 m³ annually.

Other countries from where Viet Nam imports are the Myanmar, Malaysia and Indonesia. There is little information on the shares of individual countries though the total may be estimated at 100-150 000 m³.

7. Demand – Supply Balance

7.1 Industrial Roundwood

Viet Nam is aiming at switching almost totally to plantation wood in its industrial roundwood supply. This will happen mainly through large-scale industrial plantations. Based on the preliminary plan of the Five Million Hectare Programme and experience on other plantation programmes in the region two wood supply scenarios were prepared: a) the planned scenario based on official figures and b) an alternative analysis based on experience in other projects. The basic data and assumptions are presented in more detail in Annex 4.

7.1.1 Demand

The commercial roundwood demand is dependent of the production volumes. The current production figures are not available but the GoV development plans include a projection of wood demand until year 2010. The validity of the projections cannot be evaluated; they, however, offer insights on the direction in which the authorities officially wish the development to lead. The projection is based on a continuous increase in most segments of wood industry and in the economy as a whole. For pulp and paper industry an immense increase is estimated, in the 14 year period 1996-2010 the annual increase would be 22% making the total demand increase sixteen fold. This is very unlikely, especially when taking into consideration the vast capital investments needed for the annual 22% increase in the pulp industry capacity.