A living room is never complete without some hardwoods. And the world of hardwood furniture is divided between those made of teakwood and those made from everything else. But did you know India is the world’s biggest importer of teakwood, most of which is imported from Myanmar? An exclusive analysis on what makes teak imports tick...
Sisir Pradhan | The Dollar Business
All kinds of hardwood furniture have always been prized by the Indian society. But when it comes to those made of teakwood, the pride, respect and love rises to an altogether different high. Whether it’s giving an upscale look to one’s living room or giving that five-star touch to a luxury hotel’s lobby, teakwood has always been the cynosure of all eyes. But since teakwood is not something that can be produced in a factory, the demand for it in a country like India – just 2.8% of world’s land mass, but home to 17.5% of global population – has always outstripped supply. Add to this the fact that Supreme Court of India has imposed a ban on the felling of any tree in natural forests, and one doesn’t need to look too far to figure out the reason(s) for rising dependence on imports.
Sagging sources
In India, teakwood, more commonly known by its trading name sagwan, is mostly imported from Myanmar, Nigeria, Ivory Coast, Ghana, Benin, Togo, Cameroon and Ecuador. Since the natural and original habitat for teak trees is the tropical forests of South-East Asia, Myanmar was, till recently, the only country producing and exporting natural forest-grown teak. But, in a bid to protect decreasing teak forests, even it has, since April 2014, restricted logging and has imposed a ban on exports. The other three major teak producers – India, Thailand and Laos – had already restricted felling and export of natural forest-grown teak logs.
Ban bypass
What’s puzzling though is the fact that despite Myanmar’s ban, Indian imports from the nation continue unabated. For, according to Ministry of Commerce, India’s teakwood (in rough) imports from Myanmar, in H1FY2015, were almost 50% of what they were in FY2014! However, going by the fact that all four major teakwood producing nations have now imposed bans of exports, Indian teakwood traders, without leaving anything to chance, have started looking out for non-traditional sources – the main one’s being Latin American and African nations. This is the reason why most teak log landings happen on India’s western coast, mostly, Mangalore, Kandla and Mumbai. However, Sanjay Agarwal, MD & CEO, Century Plyboards, thinks there’s more to why the west coast attracts most of the teakwood log landings. “Kandla and Mumbai serve a large hinterland, which includes the industrial regions of North, Central and South-Central India. Moreover, a spurt in housing projects in these regions, have also seen a rise in the demand for teakwood,” he told The Dollar Business.
Moreover, the timber industry’s requirement of large areas for storage and processing has also a played a part in this phenomenon, particularly since Kandla and Mangalore are two of the only major ports which have vast stretches of vacant land near them.
Greed for more
Despite being produced in abundance for generations, excessive demand-led over-exploitation of teak forests means that India has not only become a net importer, but also the biggest importer of teakwood in the world. And trying to undo this damage are several governmental and non-governmental agencies, both Indian and international. Part of one such effort, Kenichi Shono, Forest Resources Officer, Natural Resources & Environment Group, UN’s Food & Agriculture Organisation (FAO) Regional Office for Asia-Pacific, told The Dollar Business, “Recognising the importance of planted teak, as a globally valuable hardwood resource, FAO Regional Office for Asia-Pacific established the International Teak Information Network (TEAKNET) in 1995. TEAKNET Secretariat was originally hosted in Myanmar, but was later shifted to Kerala Forest Research Institute in 2008.”
However, despite all such efforts by government and non-government agencies, illegal teakwood logs continue to find their way to the market. Traders in the know claim that after logging, it’s almost impossible to establish the origin of a teakwood log. They claim since teak producing countries like India, Indonesia and Thailand have banned felling of trees, organised cross-country teak smuggling, from Myanmar to its neighbours, continue unabated. Similarly, Bruce E. Johansen, Professor, University of Nebraska Omaha, who has prepared many reports on the teakwood industry in Myanmar told The Dollar Business, “During my research, I found that by the late 1990s, commercial-scale teak production was restricted almost entirely to Myanmar. This, since at the beginning of the twentieth century, forests covered almost 80% of Myanmar.”
Chindian demand
International Trade Centre data reveals that China and India have been, by far, the top two importers of tropical hardwoods and logs for quite a few years. At the same time, experts feel demand is expected to remain high in the foreseeable future. Elaborating this, Dr. P. K. Thulasidas, TEAKNET Coordinator, Kerala Forest Research Institute, told The Dollar Business, “The global teak market has been and will continue to be governed by trends in the Asian markets. Asia holds more than 90% of the world’s teak resources, with India alone accounting for almost 38% of global planted teak forests. High international demand for general utility teak has broadened the traditional teak supply base from natural forests in Asia to fast-growing, small-diameter plantation logs from Africa and Latin America.”
Born tough
Since teak primarily grows in tropical forests of Asia, it has, over centuries, evolved to adapt to extreme hot, humid and rainy weather conditions of the region. This durability, coupled with its light golden color, and texture, has made it one of the most sought after hardwoods all over the world, both for domestic as well as commercial use. Highlighting this Arun Mookken of Matrix Maritime, an authorised dealer of Mahindra Group-owned Mahindra Odyssea, which makes luxury boats and speed boats, told The Dollar Business, “Though now-a-days fibre-reinforced plastic is being used to build the outer body of boats, those that are built from teakwood continue to command a premium.” It’s not that teakwood is in demand only to make furniture and boats. Some of the other major usages of teakwood include sawn timber for construction, veneer and plywood, moulding, strip and block flooring, solid and flush doors, window frames, laminated boards and panels, carved articles for decoration, household utensils, and even, kitchenware.
For all pockets
The pricing mechanism for teakwood logs is different in different countries and is mainly dependent on the girth and length of logs. For example, in Myanmar, saw log grades are SG I, II, II, IV, V, with each grade commanding a different price. Similarly, veneer grade logs WSG I and II, having larger straight logs, without any visual defects, are suitable for veneering, and are priced higher. It’s also worth noting that in Myanmar, the government has a stranglehold over timber trade and through Myanmar Timber Enterprise (MTE) it monitors the extraction and export of timber.
A tick on teak
Timber production from Indian forests have declined over the years, primarily due to increasing emphasis on conservation of forests and biodiversity. In fact, the situation has become so dire that current average annual domestic production of about 2.4 million cubic meters (CBM) is just about 5% of today’s demand! Though various government and private players are investing in teak plantations, the fact that teak has long rotation periods and demand is far higher than all the additional supply that plantations can generate, means imports will continue to remain high, making imports a round-the-year profitable proposition.
“Any fluctuation in Indian demand affects global teak trade” - Kenichi Shono, Forest Resources Officer, Natural Resources and Environment Group, FAO Regional office for Asia and the Pacific (Bangkok, Thailand)
TDB: What’s your opinion about timber trade, especially global teakwood trade? Also tell us how important Thailand is for global teakwood and timber trade.
Kenichi Shono (KS): Thailand is one of the four countries within the natural range of teak. The other three countries are Myanmar, India and Lao PDR. Myanmar is the only country, where logging of teak in natural forest is still taking place, although the amount of extraction has been declining due to the ban on export of raw logs that came into effect in March 2014. India is the main export destination of teak from Myanmar. In the other three natural teak growing countries, logging of teak in natural forest is entirely banned. Due to deforestation, land use change and unsustainable levels of harvest, natural teak from old-growth forest has become an insignificant part of the global teak market and the industry is, today, mainly relying on planted teak from countries in Asia-Pacific, Africa and Latin America. In Thailand, a complete ban on logging from natural forests, introduced in 1989, has contributed to the recovery of natural teak forests, which are reported to have increased by 2.9 million ha, according to a FAO report.
TDB: What kind of impact deforestation and changing trends in the global environment can have on the industry?
KS: In the future, we can have declining levels of production of teak logs from natural forests due to the continuing deforestation and depletion of natural teak resources. We are also likely to see continuing decline in the volume and quality of natural teak, accompanied by progressive loss of genetic resources. Hence, it is imperative to develop and implement a programme for genetic conservation of native teak resources in the native teak forest countries. Thailand has already taken up steps to address this issue. This was also a key recommendation that came out of the World Teak Conference held in Bangkok in 2013.
TDB: India has very low levels of teakwood production. Does this give exporting countries more pricing power? How important is the Indian market for the growth of global teakwood trade?
KS: India consumes almost 70% to 100% of teak logs exported from Africa and Latin America. The world teak trade is directed towards the Indian market, while its own considerable amount of teak production is utilised within the country. Any fluctuation in the market situation in India will affect the global teak trade. Hence, the market is volatile and other nations consider a stable Indian economy as a key factor in ensuring thriving teak investments and trade. The pricing mechanism of teak logs varies from one country to another as there is no common international log grading standard. Moreover, the use of various measuring units of log dimensions and volume differ from country to country, which further complicates the process of price determination.
“Projections indicate a 4x rise in demand for wooden products by 2020” - Dr. P. K. Thulasidas, TEAKNET Coordinator, Kerala Forest Research Institute
TDB: Give us a brief overview of the global teakwood industry.
Dr. P. K. Thulasidas (PKT): The world’s total teak supply from natural and planted forests adds up to about 2-2.5 million CBM, of which at least 60% is cut in India, Indonesia and Myanmar. The estimated market share of teak logs in the total round wood production is less than 2%. In value terms, the share is much higher, although there is no data to support this. Myanmar is the only country producing quality teak from natural forests and was supplying the same to international markets until March 2014. But due to dwindling teak resource base, it has restricted logging and has imposed an export ban since April 2014. This means it has now joined India, Thailand and Lao People’s Democratic Republic, in imposing such a ban. On the other hand, Indonesia exports sawn wood finished products mainly to Chinese and European markets. As far as Malaysia is concerned, it established teak plantations only in the late 1990s.
TDB: Which main factors have contributed to declining teakwood supplies in recent years?
PKT: Till recently, while only about 0.5 million CBM was harvested in natural forests, about 1.5 to 2 million CBM was harvested in planted forests, if all teak producing countries are taken into account. But following the logging ban in Myanmar, even the 0.5 million CBM of natural forest harvest is history. According to a Food and Agriculture Organisation (FAO) global teak resources and market assessment, conducted in 60 tropical countries, natural teak forests are declining worldwide and the quality of naturally grown teakwood is also deteriorating. According to their survey, globally, between 1992 and 2010, due to anthropogenic disturbances, natural teak forests have declined by 385,000 hectares (ha) or 1.3%. Substantial declines have been particularly notable in Laos (down 68,500 ha), India (down 2.1 million ha) and Myanmar (down 1.1. million ha).
TDB: Give us a sense of India’s domestic teakwood production and the dependence on imports.
PKT: As per FAO, in India, natural teak resources declined from 8.9 million ha in the late 19070s to 6.81 million ha in 2010. In India, teak ranks second only to Sal (Shorea robusta) in terms of growing stock, accounting for 4.59% of the total growing stock of wood in the country. Similarly, the total area under teak plantation is estimated to be about 1.67 million ha – a majority of it in the state of Maharashtra, Madhya Pradesh, erstwhile undivided Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Chhattisgarh, Gujarat, Tripura and Mizoram.
"We should adopt a policy that allows teakwood imports from only sustainable sources"
The total industrial wood demand in India is about 64.4 million CBM. Future projections, regarding the demand for wood and wooden products, indicate a 3x to 4x increase by 2020. What’s scary is that the demand-supply gap is widening even at the present levels of low per capita consumption, with the total shortage of industrial wood estimated at 47 million CBM. Sawn wood shortage, alone, is expected to be as much as 6.5 million CBM.
TDB: Do you expect the import of teakwood to continue rising in the future as well?
PKT: As mentioned, the import of forest-grown natural teak, from Myanmar, ceased from April 2014. The Indian wood industry is now, mostly, relying on small dimensional plantation teakwood imported from Africa and Latin America. Almost all the teak produced in these continents is targeted towards India. Production of quality teakwood is also a big concern because the rotation age of teak has reduced to 20-25 years, particularly since it being a lucrative business, many countries are least concerned about quality teakwood production.
TDB: What kind of policy changes do you think will help the growth of teakwood trade?
PKT: India should adopt an import policy which allows teakwood imports from only sustainable sources. This will ensure teak supply from only legally felled sources. In European countries, sawn wood products originating from illegal sources have been banned. This type of policy approach will discourage illegal felling and trading practices of valuable timber resources, which are fast depleting globally.
“Myanmar has put a ban on export of logs, not intermediate products” - Sanjay Agarwal, Managing Director, Century Plyboards (India) Ltd.
TDB: How important is teakwood for your industry and which countries do you majorly source from?
Sanjay Agarwal (SA): In India, when it comes to wooden furniture, teak is the most preferred wood. Though more than 500 varieties of decorative plywood are available in the market, products made from teakwood are the most sought after. Earlier, India was a major producer of teakwood, and a majority used to come from Madhya Pradesh. But because of a restriction put by Supreme Court of India (in 1997, SC restricted felling of trees in natural forest areas), today, we mostly depend on imports. While the most decorative ones are imported from Myanmar, large quantities are also imported from African and South American countries.
TDB: In April 2014, Myanmar banned the export of teak logs. How has this affected your business?
SA: Since a majority of our raw material comes from Myanmar, in 2012, we decided to set up a unit there to ensure uninterrupted supplies. At that time, there was not even a hint from the local government that it was planning to ban the export of logs. So, we commissioned a peeling unit in Myanmar in June 2013. Despite the challenges, this investment has ensured raw material security for us.
TDB: Myanmar is not the most politically stable country. So, how challenging is it to operate a unit there?
SA:Today, Myanmar’s economy, political system and infrastructure is where India used to be after independence. There are lots of restrictions on everything. But we are very optimistic as Myanmar is opening up its market very fast. If there is a problem, they analyse and take decisions accordingly. So, while the Indian economy took 50-60 years to reach where it is today, Myanmar might achieve that much quicker. There are problems, but things are improving fast.
"we are not facing any problem in sourcing because we have already set up our own unit in Myanmar"
Although they have put restrictions on the export of logs, there is no such ban on the export of intermediate products.
TDB: What affects the price of timber the most?
SA: In Myanmar, prices are controlled by the government. They have a committee, which decides the price. Everywhere else, the price is decided by the market. Since the availability of timber is limited, demand is always higher than supply. As a result, the industry has started looking out at different varieties of timber. We are also working on introducing newer varieties of timber in India. But the Indian consumer is very slow to accept it. In India, the price of teak has more than doubled in the last 5-7 years and due to this, it is being replaced by other varieties of timber.
TDB: What are the main challenges that timber importers face while importing from international markets?
SA: The biggest challenge is to keep prices under control in India, particularly when they go up in the international market. As far as we are concerned, we are not facing any problem in sourcing since we have already set up our unit in Myanmar.
TDB: Would you like to see any change in import duty or policy as far as timber imports are concerned?
SA: I can demand that imports should be duty free (chuckles), but India, currently, has a very reasonable duty on imported timber. I don’t think it is justified to reduce it further. In terms policy, there are products like MDF (Medium-density fiberboard) and particleboard where we don’t have enough capacity within the country but are still imposing high duties on their imports. So, may be the government should look at this aspect.
TDB: Do you think the demand for timber will continue to remain high in the future? Also give us a sense of the profit margin available to a timber importer.
SA: There is lot of competition in the timber import space. The availability of timber is also very limited. Most of the available timber is plantation timber. So, today, timber importers don’t make a lot of profit. Those who are operating in the unorganised sector might be making some decent profit by evading tax, but in the organised sector one can only make about 3%. In the plywood industry EBITDA margins are not more than 13-14%. So, net profit is not even 5%. Volumes are big, that’s why people survive.
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