The Ministry of Economic Affairs (MoEA) and the Ministry of Finance (MoF) in their reports to help the economy recover from the COVID-19 have recommended for opening up the timber industry and having a bigger wood based industry.
The MoF recommends privatizing logging activities in designated sites by Department of Forest and Park Services (DoFPS) and giving permission in three broad categories of logging and timber extraction, Wood based Industry and Furniture Houses.
MoF call for facilitating and allowing wood based industries to diversify the wood based products, facilitate export of wood based products and high-class furniture and making financing accessible for it under the current Credit Guarantee Scheme.
MoF also calls for a temporary suspension on import of wood based products and furniture.
The MoF says that as part of import substitution the government should allow and facilitate aspiring entrepreneurs or a consortium group to establish factories to produce wood charcoal.
The MoEA which has done more detailed work on this calls for Public-Private Partnership for an Integrated Timber Processing Center. As part of this it asks that the current and wasteful saw milling technology be phased out through incentives.
Falling GDP contribution
The MoEA says that while Bhutan’s 1974 National Forest Policy stated that the forestry sector should contribute 10% of GDP growth rate per annum, this has not been reflected in the recent years.
Since 2016, the forestry and logging sector has experienced negative growth. While Bhutan has a national mandate to maintain a minimum of 60% of forest coverage, an assessment conducted by the DoFPS in 2016 recorded national forest coverage at 71%.
The MoEA says that according to Dr. Phuntsho Namgyel, a forestry expert, Bhutan only harvests 3.7% of net annual increment, which is 0.05% of the total growing stock, leaving a vast potential of annual harvested timber untouched, resulting in overstocked forests that have led to a myriad of ecological problems. These problems could be alleviated if timber were to be harvested within the recommended harvest to the total stock ratio calculated by the DoFPS.
It says Bhutan has a huge demand for wood products, and this can be reflected from wood imports in 2019 which amounted to Nu. 2.175 bn.
Problems of timber industry
MoEA says Bhutan has the potential to produce high quality processed wood it has failed to do so and highlighted some of the problems faced by the forestry sector.
Firstly, the majority of the timber extracted from the forests is wasted by the time that the wood is turned into a final product as the site at which the tree is cut down is not accounted for and so even if the remainder of the tree cut were to rot, it is unknown as it has not been traced to date.
Following this, the timber is sent to sawmills, whereby most sawmills use dated technology leading to approximately 30% of the timber being wasted. It is then passed on to carpenters who then use the wood for either construction or for building furniture, from which the carpenters waste approximately 20–30% of the wood. This leads to an overall wastage of approximately 50– 60% of the total timber.
As the practice of seasoning timber is not done in sawmills, the wood used locally is low-quality, lacks durability and lacks longevity.
Secondly, kidu timber (which allows a Bhutanese citizen to use timber for the construction or repairs of their homes for a fraction of the price relative to the normal market price of timber) creates a parallel market for timber and is exploited by saw-millers as they buy kidu timber from people, for much cheaper thereby bypassing the normal market price for timber.
Lastly, there is an increasing number of illegal activities related to timber harvesting. According to a report from the Ministry of Agriculture, in 2018 there were 924 cases related to illegal timber extraction and 78 cases relating to the misuse of rural timber.
The MoEA calls for the Establishment of an “Integrated Timber Processing Centre” (ITPC), which should be governed at the initial stage by a state-owned enterprise. The ITPC would be responsible for processing the timber into boards, batons and rods, seasoning the wood, after which the processed and seasoned boards can be sold domestically.
The value-added to timber per cubic feet in the sawn form retailed by sawmills to processed boards is 458% according to MoEA. In 2019, the country imported Nu 16 mn worth of particle board from India, proving the existence of domestic demand for processed board.
The MoEA listed the various benefits from the ITPC.
It says there would be a large surge in revenues for the country. If Bhutan were to harvest 1 mn cubic meter or 7.4% of the annual timber increment, the ITPC’s final product, processed wooden boards could lead to Nu 50 bn in revenues.
MoEA says the ITPC would function on maximum efficiency and decrease wood waste in the production process to 5–15%, as opposed to the current situation in which approximately 50–60% of timber is wasted during the production process. The ITPC could further reduce wastage by producing finger-jointed boards, which would allow for the utilization of smaller pieces of wood. Based on current practice, 35,473 cubic meter of the harvested timber is allotted to firewood; but rather than using wood for firewood, the ITPC could process the sawdust (by-product of 5–15% wastage) into briquettes and distribute these briquettes instead of firewood. The remaining waste can be used as compost; this would decrease the remaining wood wastage to approximately 5%.
The ITPC would cater to the domestic demand for high-quality, durable processed and seasoned wood. The processing and seasoning of the wooden boards would allow for longer shelf-life of more than 10 years.
MoEA says the ITPC would also allow for better accountability of the total timber harvest, and also account for the total number of trees to be replanted to replenish the forest, as opposed to the current scenario whereby several loggers receive a permit to harvest timber from the forests, whereby tracing and tracking of the deforested area is more taxing on forest personnel.
There could be several ITPCs located in the eastern, western and the central parts of the country, which would address the issues related to the difficulties faced while transporting the timber from more remote locations.
The ITPC would resolve the parallel market for timber, and with the revenues reaped through the processing of the timber to processes wooden boards the RGoB would be able to provide processed wooden boards to people requiring kidu timber. Additionally, as the boards are processed, a lesser quantity of boards would be required for kidu timber.
It says the establishment of these centers would create jobs.
The MoEA says that saw-millers should move their operations up the value chain, whereby they could purchase wood boards or rods from the ITPC to make wood-related housing components or furniture.
This would lead to higher incomes, as the final product would have a much higher percentage of value-addition. A calculation using the 2018 imports of processed boards by the Wood Craft Centre Limited relative to the gross sales resulted in 390% of value addition of processed boards to a finished product, thereby being profitable and viable for saw-millers to move up the value chain.
If a total of 1 million cubic meter of timber per annum were to be harvested, processed and converted into a finished product, it could reap revenues of approximately Nu 194 bn per annum says the MoEA.
MoEA has asked for monetizing the rural timber subsidy to prevent market distortion through supply of such timber.
It has asked for the use of wood in construction to minimize construction material imports and promoting commercial timber farming including agarwood and bamboo.
The ministry has also asked to allow foreign collaboration with intellectual property safeguards for commercial exploitation of forest resources.
However, off late there has also been push back from conservation experts who question from where all this timber will come given the large protected areas and also how a lot of timber is not economical to harvest. Some in the private sector have said that forest thinning will not be economically viable and instead suggested logging in sections should be allowed along with replanting.
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