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Report from
Europe
Certified sustainable business model in Africa
challenged by structural change
A major structural change is underway in the African
timber industry as operations are reoriented away from the
European market towards Asian markets.
This change is driven by factors both on the supply-side,
particularly declining availability of timber species of
interest to the European market; and on the demand-side
as consumption is weakening in Europe at a time when
demand in Asia is rising rapidly.
Although this shift has been going on now for over a
decade, the full implications were laid bare in March this
year with the announcement that the Rougier holding
company was to be placed under court-ordered
receivership proceedings in France with a view to rolling
out extensive restructuring actions.
This event is encouraging a reassessment of the future role
of European forest operations in the African region, and of
the continuing validity of a business model heavily
dependent on the profits anticipated from the sale of third
party certified tropical wood products and other ecosystem
services in ※environmentally-aware§ markets of
richer industrialised nations.
These issues are explored in two recent trade articles, one
by Alain Karsenty1, the Research Director of CIRAD, the
other by Emmanuel Groutel2, an independent expert on the
African timber industry currently affiliated to Caen
University in France. These articles refer respectively to
the ※crises§ and ※brutal weakening§ of European-owned
forest and timber operations in Africa in recent years.
1http://www.willagri.com/2018/06/28/la-crise-de-la-filiere-europeennedu-
bois-tropical-en-afrique-centrale/
2https://www.researchgate.net/publication/323665892_Quid_du_futur_de
s_concessions_forestieres_africaines_dans_le_Bassin_du_Congo
These events raise, in the words of M. Groutel, profound
questions about ※theories of change of all policies and
projects currently underway that rely on the link between
responsible companies and the European and American
market§.
According to M. Karsenty, the bankruptcy filing of
Rougier has come as a particular shock to Europe-based
tropical forestry professionals because the company,
which was founded in Niort in 1923, is ※one of the oldest
and largest timber companies in Africa§ which is present
in Cameroon, Congo and, since 2015, in the Central
African Republic (CAR) and which owned over 2.3
million hectares and employed 3,000 people, mainly in
Africa.
During the on-going restructuring process, Rougier has
disengaged from all African operations, except those in
Gabon. In a transaction concluded on July 16, 2018,
ownership of four Rougier subsidiaries - Soci谷t谷 Foresti豕re
et Industrielle de la Doum谷 (SFID), Cambois and Sud
Participation in Cameroon and Rougier Sangha-Mba谷r谷
(RSM) in the Central African Republic 每 was transferred
to Sodinaf (Soci谷t谷 de distribution nouvelle d'Afrique), a
Cameroonian company.
Financial difficulties of Rougier part of a wider problem
M. Karsenty highlights that the financial difficulties of
Rougier form part of a wider pattern of failure by
European operators in the African tropical wood sector.
The Dutch-owned Wijma Cameroon Group sold four of its
five forest concessions in Cameroon to a competing
company (Vicwood SA, headquartered in Hong Kong) in
2017. The Italian company Cora Wood SA, a well-known
plywood manufacturer operating in Gabon, had to sell one
of its concessions to a Chinese company to pay off its
debts.
M. Karsenty notes that ※rumours are rife about possible
future disposals of other European companies in Gabon or
Congo§.
As M. Karsenty observes, the reasons given by the
Rougier management when filing for bankruptcy this year
refer to problems that are common to the entire tropical
timber export chain in Africa. These include on-going
serious problems and delays with shipping out of Douala
port in Cameroon and delayed payment of VAT refunds
by African governments, partly linked to low oil prices,
which created additional financial challenges for operators
in the region.
While these problems impact on all operators in the
region, they have fallen particularly heavily on Europeanowned
companies because of weak and declining
consumption of tropical timber in the European market;
the declining availability of African wood species that
satisfy the narrow preferences of European buyers; and the
particularly low profitability of certified sustainable timber
operations which receive little or no market premium for
higher operating costs.
Reasons for declining European tropical wood
consumption
The reasons for declining consumption of tropical timbers
in Europe are now well understood, having been widely
reported by ITTO and others. They are also well
articulated by participants at recent trade consultations in
the UK and France hosted by the FLEGT Independent
Market Monitor (IMM), an on-going ITTO project funded
by the EC.
The logistical problems of supplying consistent
commercial timber volumes from Africa into the European
market are compounded by strong EU trends to favour
engineered timber products which in turn require just-intime
delivery of wood in standardised grades and
dimensions which tropical suppliers are not well placed to
provide.
New thermally and chemically modified softwood and
temperate hardwoods, together with wood plastic
composites, are replacing tropical woods in many exterior
applications. African species used in interior applications
每 like wawa, ayous, and movingui 每 are being replaced by
beech, rubberwood, American tulipwood, MDF and a
whole host of non-wood materials.
Meanwhile demand for tropical wood continues to suffer
from the long-term effects of negative media campaigns
linked to deforestation which the certification movement
has not been able entirely to address.
As demand for African timber has weakened in Europe, it
has continued to strengthen in Asia. Trade data analysed
by IMM shows that the share of China in total African
timber exports more than doubled from 25% in 2008 to
57% in 2017. The share of the EU in African exports fell
from 49% to 21% in the same period. (Chart 1).
European African operations transferred to Asian
companies
According to M. Karsenty, ※European dealers, formerly
essential in the African timber industry, are gradually
giving up their assets to Asian investors. Malaysian
operators have been present in Central Africa since the
mid-1990s.
Chinese companies have entered the industry since the
2000s and, more recently, Indian investors, including the
multinational Olam, have made their mark in Gabon and
Congo§.
The process of transferring European-owned industry
assets in Africa to Asian firms has been on-going now for
some time, but there is a feeling that the withdrawal of
Rougier, a company with such long and deep links to
Africa, may mark a turning point.
The share of African timber exports to Europe increased
slightly in 2015 and 2016, due both to a slight uptick in
European consumption and a big fall in exports to China
(mainly due to bursting of the speculative bubble in
rosewood). However, Europe＊s share of African exports
slumped again in 2017 and appears to be falling fast in
2018.
The on-going trade dispute between China and the United
States might strengthen these trends. On 2nd August, the
Trump Administration announced a new round of tariffs
on $200 billion in Chinese goods, due to be implemented
from 1st October.
In retaliation, the Chinese government announced that if
the US goes ahead, it will impose a wide-ranging package
of sanctions on imports of US products, including a 25%
tariff on American hardwood.
Such measures are likely to enhance China＊s demand for
hardwood products from other regions, including Africa.
And as around 50% of all American hardwood exports are
currently destined for China, it＊s also likely to encourage
US hardwood exporters to focus more heavily on the
European market, further increasing competition for
tropical timber.
Declining availability of African timbers of most
interest to European buyers
In addition to these global issues, forestry trends in Africa
are reducing availability of timber species of most interest
to the European market.
M. Karsenty notes that European operators in African have
traditionally focused on a limited range of profitable
species: okoum谷 in Gabon; ayous, sapelli and azob谷 in
Cameroon; sapelli in northern Congo and okoum谷 in
southern Congo; sapelli in CAR; a few precious species
such as wenge and afrormosia in DRC.
Europe＊s traditional focus on this handful of species
means that gradually they have become commercially
depleted - although not necessarily endangered.
According to M. Karsenty, ※the problem is economic: the
volumes remaining at the second rotation (legally, 25 to 30
years between two rotations) are generally insufficient to
support industrial utilisation and to satisfy market
demand§.
M. Karsenty notes that this problem is well illustrated by
Rougier which purchased a concession in CAR just over
the border from its main factory in Cameroon as a direct
consequence of the decline in available volumes of sapelli
and ayous in eastern Cameroon, a region that has been
repeatedly exploited (both by industry and small artisanal
operators) for several decades.
Similarly, observes M. Karsenty, Wijma＊s abandonment of
several concessions in Cameroon is also linked to the
sharp drop in the volume of azob谷 at the end of the first
rotation. Although there are other species that could be
harvested in these forests during the second and
subsequent rotations, they are either insufficiently
abundant to replace traditional species, or their selling
price is too low to cover the costs of harvesting, transport,
and processing.
Risk of Africa＊s over-dependence on commodities
M. Karsenty also highlights the dangers of African
operators remaining too dependent on exports of
commodities such as logs, standard size lumber and rotary
cut veneers rather than further processed products. He
suggests that ※to sell commodities is to be condemned to
remain a ＆price taker＊, dependent on international timber
prices and the changing preferences of international
buyers§.
Overseas buyers of timber will always tend to focus on the
limited range of species and grades that meet their own
production standards and agendas for market development.
They often have little or no long-term stake in any specific
supply country or region and will turn to alternatives 每 and
play different suppliers off one another 每 when it suits
them.
African suppliers of timber commodities face intense
competition from Asian woods, and increasingly from
modified temperate hardwoods and plantation timbers,
even non-wood products, when prices of African woods
are perceived to be too high.
Some African countries have now placed tight restrictions
on log exports, particularly of the most commercially
valuable species, to boost domestic wood processing.
However, analysis by IMM shows that the rise in African
exports to Asia has been accompanied by an overall shift
away from exports of value-added products at a regionwide
level.
According to IMM, the share of logs in total African
timber exports increased from 41% in 2008 to 55% in
2017. During the same period, the share of higher-value
products such as plywood, joinery products and mouldings
每 which has never been high 每 fell from 5.4% to 2.7%
(Chart 2).
Asian operators better placed than European
operators in Africa
M. Karsenty observes that Asian operators in Africa have
been better able to overcome recent market challenges
than their European counter-parts because they have
significant capital and the markets in which they operate
and can profitably utilise qualities different to those
demanded by European buyers plus they have been
successful in marketing a wide range of species.
Asian companies are under much less market pressure to
demonstrate the legal and sustainable origin of their
products in their domestic markets but this is changing,
especially in China, but Asian exporters have to meet
international standards.
According to M. Karsenty, ※apart from the Olam
company, which bought a large concession already
certified in north Congo in 2011 from a Danish company,
no Asian-owned operator has yet sought to obtain the FSC
label for its African concessions§.
The business model pioneered by European operators for
their African concessions seems to be unravelling. This
model was built on the foundation of forest management
plans developed in the 1990s and extended by a period of
rapid uptake of FSC certification in the period 2005 to
2010.
The success of this model depends heavily on the market
rewards to be derived from a clear commitment to
sustainable forestry and social welfare standards. These
rewards should derive for the combination of greater
market access and prices for timber products, the
anticipated development of new markets for eco-system
services, notably carbon capture, and enhanced confidence
of shareholders and other financial backers.
As M. Karsenty notes, ※while certified woods are sold at a
higher price in some sensitive markets, a good proportion
of labelled timber is sold at current prices in the southern
and eastern markets of Europe, the Middle East and Asia.
And in this case, investment in certification is not
profitable§.
Presentations at the FSC Dialogue meeting held in
conjunction with the Gabon Wood Show in June also
highlighted the continuing failure of this business model to
deliver adequate financial returns. It was noted here that
the total area of FSC certified had declined in the last two
years from 5.5 million hectares to 4.85 million hectares.
The representative of one European-owned FSC certified
operation in Africa said that ※we have reached breakeven
point after several years of negative performance - but
sustainable tropical forest management models are still
economically not attractive enough to motivate traditional
investors to finance new developments.§
This company representative said that while efforts are
being made to monetise carbon credits of certified forest
operations, the returns on this and other ecosystem
services are very low and timber sales still account for
90% of revenue. Furthermore, the large majority of this
derives from their investments in plantation timber which
from a financial perspective (although not from an
environmental perspective) performs better than FSC
certified natural forest.
Too early to dismiss ※certified sustainable§ business
model
While this business model based on certification of natural
forest has been losing ground in Africa over the last
decade - and the problems at Rougier have turned a
spotlight on its viability in the current market environment
- the long-term potential for this model should not be
dismissed out of hand.
To some extent the recent failures of European operations
in Africa are due to economic conditions and policy
failures that may yet be reversed. The timing of the rapid
uptake of FSC certification 每 which occurred just as the
global financial crises began to bite and which had a much
larger effect markets in Europe and the US than in Asia 每
was particularly unfortunate for European operators in
Africa.
The financial crises also distracted policy attention from
efforts to develop markets from eco-system services and
contributed to a general failure on the part of industrialised
nations to back up their environmental commitments with
funds.
More recently there have been some signs of recovery in
total wood consumption in the EU market, buoyed by
rising interest amongst architects and designers of wood＊s
environmental credentials.
All imports into the EU are now subject to the EUTR and
while this law does not give FSC and PEFC certified wood
a ※green lane§ through the due diligence requirements, it
does state that certification is an appropriate tool for risk
mitigation.
Both FSC and PEFC have also taken steps to ensure that
their requirements for legal conformance and chain of
custody of standards are fully aligned to EUTR.
Consistent implementation of EUTR, and equivalent laws
in other consuming countries, should eventually give
certified products more of an edge over uncertified
products in these markets.
Progress is slow but prospects for eco-system services are
also improving. Capacity for REDD+ is being gradually
built up, boosted by the strong endorsement of this
approach in the 2015 Paris Agreement.
Global carbon markets are also set to expand, notably
following the announcement by China in December last
year that it is launching the world＊s largest cap-and-trade
carbon market. This market, expected to be operating by
2020, is likely to allow use of forest carbon offsets,
although the rules for this are still unclear.
The signing of the Carbon Offsetting and Reduction
Scheme for International Aviation (CORSIA) in October
2016 also promises a significant expansion of demand for
carbon offsets from the aviation industry.
Bolstering market awareness of benefits of sustainable
tropical forestry
More concerted actions are also now being taken by
African operators and certification advocates to bolster
market awareness of the benefits of these systems. FSC
representatives at the Gabon Dialogue particularly
emphasised the work they are doing to raise consumer
awareness of the role of certification in promoting
progress in line with the UN Sustainable Development
Goals.
The message being sent out is that ※certified tropical
timber products come preloaded with rural development
and environmental conservation values§. FSC were
confident that this message is gaining traction, benefitting
from the links to the FSC brand which has gained
widespread consumer recognition in western markets.
Other agencies are now working to promote this message.
With wide-ranging support from major players in the
tropical wood industry, ATIBT launched a new joint
marketing initiative to develop the Fair & Precious brand
in 2017.
Companies that carry the brand are required to sign up to
10 environmental and social values and to demonstrate
progress through commitment to FSC or PEFC
certification.
With support from the Dutch government, the European
Sustainable Tropical Timber Coalition (STTC) is also
raising awareness of the economic, social and
environmental benefits of certified tropical forest
operations. STTC is working to expand the European
market for certified tropical forest products by developing
pan-industry partnerships, promotion of lesser known
tropical species, and provision of technical advice.
This work is beginning to show results. This was
highlighted in a presentation by a representative of SNCF,
the French national rail network, to the Racewood
conference held alongside the Gabon Wood Show in June.
The French railways need more than 12000 m3 of wood
every year. Until recently tropical timbers were not used
because of preconceived ideas about delayed deliveries
and the risk of illegal and unsustainable harvesting.
However, partly encouraged by mounting concerns about
the environmental and health impacts of creosote-coated
softwood alternatives, SNBG have reconsidered their use
of tropical timber. They have developed an action plan to
expand application of certified tropical hardwoods in
collaboration with a wide range of actors 每 including
ATIBT, the French timber association LCB, FSC, PEFC,
and WWF, together with big distributors such as Alstom,
Bombadier, Nestle, Saint Gobain.
SNBG have been particularly encouraged by whole-life
costing exercise which has indicated that, due to the
exceptional technical properties of azobe, when all costs
associated with supply, installation, maintenance, disposal,
and replacement are taken into account, the tropical timber
performs very well against alternatives such as creosote
treated softwood and concrete.
Lower cost certification options
While these initiatives on the demand side are essential to
the long-term future of the certified sustainable tropical
timber business model, the recent experience of European
operators in Africa also highlights the importance of
ensuring the costs of certification do not create an
insurmountable barrier to profitability.
To a significant extent, the certification challenges faced
by operators in Africa are symptomatic of the reliance on
only one international system 每 the FSC 每 and the slow
evolution of regional capacity for certification.
Speaking to the Racewood conference in June, Jean-Paul
Grandjean of PPEFC II, an initiative of COMIFAC to
encourage development of certification capacity in the
Congo region, explained the many measures been taken to
actively support forest operators to maintain their
certificates, through training, building of certification
institutions and networks, and scientific research.
However, M. Grandjean also observed that a specific
barrier to FSC certification in Africa was raised in 2014
with passage of Motion 45 of the FSC General Assembly
on Intact Forest Landscapes (IFL).
This led to greatly tightened FSC requirements for any
forest identified as an IFL, for example that lowimpact/
small scale forest management and non-timber
forest products must be prioritised in unallocated IFL
areas, first access must be provided to local communities,
and alternative models for forest
management/conservation (for example for ecosystem
services) must be developed within IFLs.
While the FSC requirements for IFL may appear desirable
in principle, their implementation would always be
extremely challenging in the business environment
prevailing in the Congo region 每 with only limited returns
to be gained from eco-system services, declining
availability of the most commercially valuable species,
very patchy and highly inconsistent international demand
for certified wood, and lack of institutional capacity to
certify large numbers of community forests.
In the light of these developments, the emergence of a new
certification framework in Africa that is directly
responsive to regional conditions and prioritises regional
institutional capacity is a positive development.
Earlier this year, the first certificate covering an area of
600,000 hectares was awarded by PAFC Gabon, a
certification system endorsed by the international PEFC in
2014 after 5 years of development. The PAFC Gabon
standards are derived from ITTO principles and adapted
specifically to the national context.
A similar PAFC process is also now underway in Congo,
where it is supported by the Ministry of Forest Economy
with financial assistance from the African Development
Bank. A protocol agreement was signed between PAFC
and the international PEFC in 2014, and the PAFC Congo
was formally constituted as an independent agency in
2017.
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