Indian furniture exporters, beware!

‘Threat of timber scarcity can turn into opportunity with certified American hardwood species’

US hardwood showcase in the Berlin Library, Germany.

By: Rupert Oliver

Against decreasing access to traditional hardwood supplies and increasing requirements to provide assurances of legality and sustainability in export markets, the Indian wooden furniture and handicrafts sector has, by using American hardwoods, the ability to turn a threat into an opportunity.

India is well placed to exploit comparative advantages in the global market for wooden furniture and handicrafts. Backed by a strong woodworking tradition, high skills, and competitive labour rates, Indian manufacturers are gaining a strong international reputation for their ability to supply high quality and fashionable products at a competitive price.

To maintain this growth, Indian manufacturers must deal with the related challenges of depletion of traditional sources of wood supply, and a strong focus on avoiding any wood products that might come from illegal sources in the main consuming countries of North America and Europe.

An effective strategy to overcome these challenges is to manufacture products from American hardwoods which are not only abundant but backed by an assurance of legal and sustainable production which is already well recognized in the main consumer markets.

 

Indian exports

India’s exports of wood-based products, which mainly comprise wood furniture, more than doubled from US$ 500 million in 2010 to US$ 1.05 billion in 2017. Latest data indicates that exports increased a further 7% to around US$ 1.13 billion in 2018.

Last year, 40% of exports were destined for the US and 31% for the European Union. Much of the product exported to the US and the EU is sold to big corporations, who are now being targeted by regulators and environmentalists in their efforts to reduce illegal logging in wood supply countries.

India’s vast wooden furniture and handicrafts sector still relies heavily on locally-sourced hardwood species, such as mango, acacia and sheesham (Dalbergia). The last of these timbers is now identified by CITES as an endangered species and trade is subject to tight control.

Although the other species are not endangered in the same way, overall supply is restricted and there is growing competition for the wood that is available.

Tougher laws

The wood supply situation is greatly complicated by the highly fragmented structure of forest operations and the wood trade, and by the rising demand for assurances that timber derives from legal sources.

This last trend is driven by the introduction and tightening of laws which make importers of all wood products, including furniture, liable to sanction if any illegal wood is identified in the products they sell.

In 2018, countries implementing these laws, which include the US, the whole of the EU, Australia, Japan and South Korea, accounted for over three quarters of the total value of India’s wood product exports.

The sanctions for failure to comply with these laws can be severe. This is most vividly illustrated by the US$ 13.5-million fine imposed on Lumber Liquidators for US Lacey Act violations in relation to flooring manufactured in China from hardwood sourced from Russia and Myanmar.

To date the largest sanction imposed for non-conformance to the EU Timber Regulation (EUTR) is a fine of 80,000 Euros in Sweden, linked to imports of Myanmar teak. On top of the direct financial effects of these sanctions is the severe reputational damage due to prosecution.

India under watch

Recent feedback from surveys of European furniture importers reveal that India is regarded as one of the most difficult countries from which to obtain reliable assurances of the legal origin of products – more challenging than from suppliers in Vietnam, Brazil, China, Russia and several countries in sub-Saharan Africa!

How can Indian manufacturers respond to this challenge to their competitiveness? One approach is to rely on private sector certification systems like FSC and PEFC to provide the legality assurances required by customers.

Certainly, these systems can help in some countries, but they don’t provide all the answers, and in some ways just create more problems.

Indian manufacturers have very little access to certified hardwood supplies, which are concentrated in Europe, and certification has never been successfully applied on a large scale to small holders outside that region.

It’s also becoming increasingly clear to importers in the US and the EU that procurement of certified wood is no a reliable assurance against prosecution. A UK importer was recently fined for a failure to comply with EUTR in a case involving FSC-certified ayous from Cameroon.

Allegations of widespread illegality have emerged in relation to FSC certified products from China and Ukraine also.

Indian manufacturers need to identify more efficient and politically realistic ways to satisfy the legal obligations of customers. Fortunately, these are not hard to find – all that is really needed is an understanding of the legal obligations of overseas customers.

A way out

While the details of the various laws introduced in the US, EU and Australia differ, they all share one critical feature. They are all risk-based.

The need for far-reaching measures to track wood to individual forest management unit, or to seek FSC or PEFC certification of supply chains, apply only to those countries, or regions, where there is a risk of illegal harvest.

If the risk can be shown to be “negligible” at national level (using the terminology of EUTR), then there is no need to trace timber further than to the port of export from the supply country.

This opens the door to a very simple solution for Indian manufacturers interested in expanding markets for their products in the EU and the US. They should manufacture their products using wood imported from countries where there is a negligible risk of illegal harvest.

There are many wood exporting industries that claim all their wood is legally sourced. However, only one globally significant supplier of hardwoods, the United States, has invested time and resources to ensure this is independently demonstrated and documented to ensure conformance to laws like the Lacey Act and EUTR.

A decade ago, the American Hardwood Export Council (AHEC) commissioned the world’s first independent sector-wide study to quantify the real risk of illegal wood entering the supply chain.

This report, which was recently reviewed and fully updated, confirms that there is a negligible risk of any US hardwood containing wood from illegal sources, specifically that stolen timber represents much less than 1% of total US hardwood production.

Reliable forestry

The assurance offered by this study – often referred to as the “Seneca Creek report” after the company responsible for its preparation – is already well recognised by importers, and by US Lacey Act and EUTR authorities, as providing the kind of documented assurance of legality required to demonstrate conformance.

By using American hardwoods, Indian wood product manufacturers can transform laws like EUTR and Lacey Act from a threat to their competitiveness, into a major opportunity.

In addition to providing the required legality assurances, there is reliable forest inventory data, collected at regular intervals for nearly a century, to confirm that the resource is not only abundant, but are expanding rapidly.

US hardwood forests cover around 111 million hectares, equivalent to about one-third of the entire land area of India.

The volume of hardwoods standing in US forests, which now exceeds 13 billion cubic metres, has more than doubled in the last 50 years and is still expanding (after harvesting) at a rate of around 150 million cubic metres per year.

US hardwood species like oak, ash and tulipwood are already fashionable in the US and European wood furniture sectors. There is a tremendous opportunity to combine Indian woodworking skills and styles with American hardwoods to produce globally competitive furniture products.

– The writer is is the Director of Forest Industries Intelligence Ltd., an independent forest products consultancy specialising in timber trade analysis and related environmental issues, including sustainable forest management, certification, carbon footprint and life cycle assessment. He is also a consultant to AHEC for sustainability issues.

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