Of all PNG’s export-focused sectors, it is arguably forestry that was hit most immediately by the global downturn. Low global prices for logs and reduced international demand for building materials of kinds meant a dramatic drop in exports in the last quarter of 2008.

According to the PNG Forest Industries Association, raw log exports - which go to countries as diverse as Japan, China, Taiwan and Vietnam - fell by about 16% in 2008, from 2.9 million cubic meters in 2007 to 2.4 million. Exports of processed wood also experienced a drop of around 100%.

Adding Value

In spite of the slowdown, it certainly hasn’t been all doom and gloom across the forestry sector. For many of those adding value to timber, and supplying PNG’s construction boom, business has been brisk.

‘We had our best year in 27 years in 2008,’ notes Tony Honey, Managing Director of PNG Forest Products Ltd, a company with 100% focus on value-added plantation timber. PNG Forest Products produces prefabricated houses, dressed timber, plywood and veneers from its own pine plantations. It exports to Australia, but also has large customers in PNG’s mining, agribusiness, construction and government sectors.

Vertical Integration

PNG Forest Products and Lae Builders and Contractors Ltd are both examples of significant shift towards vertical integration in the forestry sector. ‘A lot of companies are increasingly vertically integrated, from plantation to export,’ notes Bob Tate, Executive Officer for the PNG Forest Industries Association (PNGFIA), which represents the bulk of log exporters and timber processors in PNG.

This integration is being actively encouraged by the PNG Government, which is keen to see the positive impact on employment and rural development that downstream processing can deliver. The former Minister for Forests, Honourable Belden Namah signalled to stop raw log exports from new timber concessions from 2010 in a bid to make downstream processing the norm.

Sustainability & Legality

PNG’s forestry industry has attracted significant criticism for unsustainable practices - criticism the PNGFIA feels is large misplaced. Timber for export is now being certified. Saban Enterprises in Milne Bay Province (a subsidiary of Malaysia’s R H Group, a major timber producer in PNG) has already successfully completed an internationally recognized Timber Legality & Traceability Verification (TLTV) program audited by the Swiss-based SGS Group, and Tate says two more producers are about to commence the program. More timber than ever is now coming from plantations, and the PNG’ Government is also encouraging replanting of previously logged areas.

PNG’s Competitive Advantage

Like other commodities, the key to PNG’s continued success in forestry will be in its ability to attract further investment by remaining internationally competitive. One major advantage for PNG’s producers is the low real labour cost in PNG, which is up to 50% lower than that of Russia and the Far East.

PNG’s forestry producers also benefit from the wealth of accumulated data on tree species and land types produced by the Lae-based Forest Research Institute.

More information can be obtained from the following websites:

PNG Liquefied Natural Gas
Mineral Resource Sector
Petroleum and Gas Sector

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