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Report
from
Europe, the UK
and
Russia
EC establishes bilateral mechanism on FLEG
On Friday 30 January 2009 the Chinese government and
European Commission established an EU-China bilateral
coordination mechanism on Forest Law Enforcement and
Governance (FLEG). The agreement was signed by Mr.
Zhu Lieke, Vice-Minister of the Chinese State Forest
Administration and Commissioner Dimas of the EC in the
presence of EC President Manuel Barroso and Chinese
Prime Minister Wen Jiabao.
The mechanism will provide a framework for policy
dialogue and joint activities on issues such as timber
legality verification, supply chain transparency and public
and private procurement policies for timber and timber
products. It also foresees the possibility of trilateral
cooperation with third countries. It is expected that the
mechanism will encourage the development of shared
approaches to timber legality verification, in which it is
likely that the systems established by countries negotiating
FLEGT Voluntary Partnership Agreements with the EU
will feature prominently.
Changing trends seen in European hardwood market
Until recently, the European flooring market was a key
growth area for hardwood products. As in other sectors,
the global economic crisis is having a significant impact
on reducing short term growth prospects. It is also
encouraging manufacturers to take a good hard look at
their investment, sourcing and marketing strategies. While
the long term outlook for hardwood flooring in Europe
remains positive, there will be great pressure on materials
suppliers ¨C particularly of tropical hardwoods - to adapt
quickly to new emerging demands if they are to remain
competitive.
Market reports indicate that European flooring
manufacturers are currently finding it very hard to
generate new orders for their products and many have now
built up large unsold inventories of finished goods.
Producers of three-ply and multi-ply parquet that have
pushed ahead with capacity development in recent times
have been particularly hard hit.
Nevertheless, the flooring sector appears to be weathering
the downturn better than most other hardwood end-using
sectors, such as furniture and joinery. As a ¡®finishing
trade¡¯, the European flooring sector was slower to respond
than other timber industry sectors to the recent dramatic
downturn in European residential markets. The sector has
also been partially insulated from the downturn as people
who can no longer afford to move home or who are unable
to sell their existing home tend to spend proportionally
more on renovation and restoration.
A UK-based flooring supplier noted in a recent TTJ article
that ¡®there are pockets of new build that have continued [in
the recent downturn], but¡.the split is now 70:30 in favor
of refurbishment, stimulated by the consumers decision to
improve their homes rather than move¡¯. The same TTJ
article notes that while the residential market still
represents the biggest chunk of business for major flooring
players, the commercial sector has proved more immune
to the downturn. It is now seen, in the UK at least, as the
most promising, though not necessarily dramatic growth
area.
Fall in flooring production and sales in 2008
Trade analysts suggest that European parquet floor
production may have declined between 12% and 18%
during 2008. Drawing on a member survey, FEP
(European Parquet Federation), suggest that overall sales
dropped by around 7% compared to 2007. Production in
2008 is estimated at between 82,000 million m² and
88,000 million m², while consumption at around 104
million m². This is the first significant turnaround in an
upward trend in the European flooring market on-going
since at least the mid 1980s. The European flooring sector
is now bracing itself for an even slower year in 2009.
In absolute production figures, Sweden and Poland are the
largest producers of wooden parquet flooring in Europe
(each accounting for around 16%), followed by Germany
(accounting for around 13%). Germany is Europe¡¯s largest
parquet market followed by Spain, Italy and France.
In contrast to the North American market which prefers
solid wood flooring, the European market for wood
flooring is dominated by engineered products. The
popularity of engineered wood flooring is underpinned by
its versatility and stability. Unlike solid wood flooring, it
is less affected by movement in response to changes in
atmospheric moisture. It can be used with under-floor
heating and is also popular in apartments because sound
insulation can be fitted underneath the wood.
Focus on high value
European real wood flooring manufacturers have faced
increasing competition in recent times from manufacturers
of wood look-a-like products in vinyl and laminated
products with a d¨¦cor paper face over a softwood or panel
substrate. The quality, look and feel of these products have
improved to such an extent that it can be difficult for the
non-specialist to tell them apart from real wood products.
Pricing of these products is often extremely low - so low
that some European flooring distributors are withdrawing
from this end of the market altogether in response to
extremely tight margins.
Increasingly the only realistic strategy for long-term
development of the real wood flooring market is to focus
on the high end of the market, emphasizing long term
technical performance, customer service, strong aesthetic
appeal, superior design, and the strongest green
credentials. These elements form key components of the
¡®Real Wood¡¯ campaign led by the European Parquet
Flooring Federation (FEP), which is now supported by 53
leading European flooring manufacturers.
Changing relationship with Asian flooring manufacturers
This increased focus at the high end of the market also
seems to be altering the relationship between European
flooring manufacturers and suppliers in emerging markets,
notably China. A key component of any high end
marketing strategy must be to ensure proximity to the final
customer. Manufacturers need to maintain a very detailed
and up-to-date understanding of species, colors, finishes
and trends and can benefit through linkage of products to
broader interior design services for customers.
Increasing availability of relatively cheap real wood
flooring products imported from China has played an
important role in recent years to help generate demand for
these products in the European market. During the growth
years, European manufacturers sought to benefit from
cheaper labor and production costs in East Asia either
through direct investment in manufacturing capacity or
through sales agreements with East Asian companies.
While such tie-ups may continue into the future, signs of a
change in direction are becoming more apparent as sales
have slowed and competition intensified.
Some European manufacturers now seem to be actively
reducing their links with Far Eastern manufacturers. The
reasons are complicated and multi-faceted reflecting
changing circumstances both in Europe and Asian
manufacturing countries. The economic downturn has
made the trend more obvious as leading European
producers have been encouraged to concentrate on their
own production first. But even before this, rising costs in
China were making it a less attractive proposition for
European manufacturers. At the same time, some Chinese
manufacturers having built up the necessary technical
knowledge and marketing expertise in partnership with
European and other western companies, are now choosing
to go it alone and to market their own brands. The
economic crises in western countries has reinforced this
strategy for Chinese companies that now see that long
term opportunities for market development are just as
likely to emerge in their domestic market as they are in
Europe and North America.
European companies increasingly see that their best
opportunities to counter the threat both from emerging
Chinese brands and from non-wood products lie in a move
up-market and exploiting the advantages to be gained from
proximity to the European customer. Focusing on their
domestic production has the advantage of ensuring tighter
control of product quality and standards and allows more
rapid and sensitive adjustment to customer preferences and
changing fashions.
The green issue
Although less significant than other factors of cost and
quality control, the ability of European flooring companies
to respond to the green concerns of customers and other
interests is another factor driving increased emphasis on
high value domestic production in the European flooring
sector. There is broad recognition in this industry that
there is very limited end-user demand for specific product
labels. Environmental issues are generally low in the list
of factors influencing consumers purchasing decisions ¨C
compared to price, quality, performance and follow-up
service.
On the other hand many consumers want to feel good
about the flooring products they buy and want reassurance
that they are not contributing to excessive environmental
destruction. Manufacturers and distributors have a strong
interest in protecting their brands against negative
publicity of any sort. There is a perception that East Asian
manufacturers drawing on complex wood raw material
from fragmented and complex supply chains may have
more difficulty responding to emerging European
requirements to demonstrate that wood does not derive
from illegal or unsustainable sources. This inability to
provide adequate assurances of legal and sustainable
sourcing might undermine broader efforts to market wood
flooring as the most environmentally benign flooring
material.
Species and fashions
In terms of species, the European flooring sector is
dominated by oak which accounts for around 56% of
European real wood floor manufacturing. Other temperate
hardwood species (notably walnut, ash, and cherry) also
play a leading role. One recent report suggests that jarrah
is becoming more popular for commercial projects due to
its color and environmental credentials. The share of
tropical hardwood in the sector has been hovering in the
range 13% to 16% in recent years showing no clear trend
either up or down. More recent anecdotal reports,
however, suggest that the trend is likely to be downwards.
Late last year, concerns over commercial availability and
sustainability issues led two major European producers -
Weitzer in Austria and Meister in Germany ¨C to announce
that they would no longer source any tropical hardwood.
However there are some trends that should favor tropical
wood species in the sector if other marketing and supply
issues could be resolved. There have been widely reported
fashions towards a preference for darker and more
interesting exotic species in the furniture and flooring
sectors. Design trends have also focused on sharply
contrasting light and dark colors, on mixing textures, and
therefore on widening the pallet of materials used.
But while these trends exist, it is also clear that rather than
increase their use of tropical timbers, many manufacturers
prefer to adapt temperate species by staining and other
treatments. With modern stains and finishes,
manufacturers can now achieve the desired look almost no
matter what the species. They are also promoting heavily
the natural ¡®rustic¡¯ characteristics of temperate hardwoods,
making a virtue of the color variations and knots which are
often a feature of temperate hardwoods.
Technical developments
There is also growing interest in heat treatment of
temperate hardwoods and softwoods to achieve the
hardness necessary for flooring applications. At present
lack of heat-treating capacity, relatively high costs and
remaining technical issues (for example heat treatment can
be associated with increased brittleness) have meant that
use of heat treated products is not widespread in the
flooring sector. But European commentators generally
expect these products to become increasingly important in
the future, taking market share specifically from tropical
hardwoods.
CE Marking
Another issue likely to impact on market access in the
future will be the ability of manufacture products with
appropriate CE Marking. At present CE Marking to the
standard EN 14342 standard ¡®Wood flooring -
Characteristics, evaluation of conformity and marking¡¯ is
not obligatory. The EC had intended to introduce
mandatory CE Marking from the 1 March 2009. However
a recent press release issued by FEP suggests that this
deadline has been postponed for another year. Mandatory
CE Marking is now expected to be required from 1 March
2010 onwards. According to EN 14342, in order to CEmark
wood flooring, a manufacture must have
documented conformity to an internal production control
system and must perform an initial type testing.
EC Illegal logging proposal being considered by European Parliament
The European Commission (EC) proposals for new
legislation designed to remove illegal wood from the
supply chains of products destined for the European
market are now being considered for adoption by the
European Parliament and European Council.
The proposal has been influenced by the US Lacey Act
Amendment passed in the US in May 2008, but differs in
some significant respects. The US Lacey Act makes it an
offence in the US to trade in any wood product sourced in
contravention of the laws of any other country. It therefore
strongly implies, but does not require, that timber trading
companies in the US implement management systems to
minimize the risk of any illegal wood entering their supply
chains.
In contrast, the EU¡¯s proposed legislation would not make
it illegal in the EU to trade in wood products in
contravention of the laws of another country. The EC
believes it impractical for European prosecutors to gather
sufficient evidence to make a conviction. The EC has
therefore proposed that the new legislation places a direct
obligation on European operators to implement a ¡®due
diligence system¡¯, essentially a management system to
minimize the risk of any illegal wood entering their supply
chains (sometimes referred to as a ¡®due diligence system¡¯).
The due diligence obligation would extend only to those
operators that ¡®first place¡¯ a forest product on the
European market. This is currently interpreted as including
forest product importers and primary producers. The
proposed legislation would extend to European importers
and primary producers of all wood and wood based
products (including furniture) as well as pulp and paper
products.
Under the terms of the proposed legislative framework,
while the European Commission would have
responsibility for developing more detailed guidelines, for
example on appropriate procedures for risk assessment of
suppliers, the individual EU Member States would be
responsible for enforcement and imposition of sanctions.
These proposals were the main focus of discussions
involving a wide range of European policy makers at the
Royal Institute of International Affairs in London during
January. These discussions indicated that there is strong
support in the EU for some form of legislation designed to
prevent imports of illegal wood into the EU. But there is
still lack of agreement over whether the EC¡¯s proposal is
the right approach.
Some EU politicians and environmental groups clearly do
not feel the proposals go far enough and pushed for a
Lacey-style offence for trade in illegally sourced wood to
be introduced alongside the requirements for a due
diligence system. There was concern that the concept of
due diligence was too vague and not sufficiently well
defined in the draft legislation. There was also concern
that EU regulatory authorities would have insufficient
expertise and knowledge to ensure effective
implementation. The effectiveness of due diligence
systems might vary widely between EU Member States.
This might encourage less scrupulous suppliers to feed
products into the EU market by way of Member States
with softer regimes.
Nor was there confidence in the ability of timber trading
companies throughout the EU to develop and adopt
appropriate procedures. To date only four EU timber trade
federations are promoting environmental timber
procurement policies for their members that might meet
the requirements for due diligence as set out in the EC
proposal and these have taken years to develop and
implement effectively.
On the other hand, EC representatives emphasized that due
diligence procedures need not be complicated and that
sufficient capacity could be built up with appropriate
support. The existing trade association environmental
policy frameworks provide a model on which to build. EC
officials also noted more comprehensive details of
appropriate due diligence systems would be drawn up
following passage of the framework legislation.
The legislative proposal is unlikely to become law until
after the European Parliamentary elections in July 2009. If
passed, there would be a two year phase-in period during
which more detailed regulations would be developed and
Member States would prepare their enforcement regimes.
Therefore the earliest the due diligence requirements
might be imposed on EU operators is the second half of
2011.
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