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Development of the Peruvian economy through wood product exports Mucha, Elias Hermogenes 1980

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c. I DEVELOPMENT OF THE PERUVIAN ECONOMY THROUGH WOOD PRODUCT EXPORTS by ' ' EL I AS HERMOGENES MUCH A B.Sc. Forestry, Universidad Nacional Agraria "La Molina", 1970 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER OF FORESTRY i n THE FACULTY OF FORESTRY We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA July 1980 • (g), E l i a s Hermogenes Mucha In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f the r e q u i r e m e n t s f o r an a d v a n c e d d e g r e e at the U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y . I f u r t h e r a g r e e t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s . It i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . E.H. Mucha D e p a r t m e n t o f Forestry The U n i v e r s i t y o f B r i t i s h C o l u m b i a 2075 Wesbrook Place Vancouver, Canada V6T 1W5 D a t e August 14, 1980 ABSTRACT Expanding Peruvian wood product exports would enhance the forestry and forest industries contribution to national development and welfare. Such prospects are examined from an economic standpoint. The subject i s divided into three major areas as: Potential of the forest resources and forest i ndustries; Current and projected export markets; and Opportunities for forest i n d u s t r i a l development. In the f i r s t area, underlying problems and potential are examined. Forests as percentage of t o t a l land, composition by species, product mix, forest industries, harvesting and marketing problems are described. Most s i g n i f i c a n t l y , the heterogeneous nature of the Peruvian t r o p i c a l forests, the select i v e harvesting practices, forest industries i d l e capacity and high ocean fr e i g h t rates are i d e n t i f i e d as negative forces to further development of the forestry sector. In the second area, the location and potential size of export markets, cost of deli v e r i n g wood to these markets, opportunities and constraints imposed by export p o l i c i e s on increased wood product exports, and balancing of exports with projected domestic wood products requirements are examined.. Given the species composition and product mix of the Peruvian forest i n d u s t r i es i t i s found that there are enormous inte r n a t i o n a l markets available for sawnwood and wood-based panels. The cost of delivering wood product to export markets i s i d e n t i f i e d as providing a comparative advantage..Balancing of i i i exports with projected domestic wood products requirements shows that there i s a considerable surplus of i n d u s t r i a l roundwood. F i n a l l y , i n the t h i r d area, implications of increased wood export a c t i v i t y and impact of an expanded wood product export programme on the forest resources sector and on the Peruvian economy are evaluated. Impacts would be closer u t i l i z a t i o n of o currently unutilized or underutilized forest resources, expansion of the number of species i n domestic and export markets, organization of a strong logging industry, modernization and/or relocation of old plants and consolidation of new plants, u t i l i z a t i o n of the current forest industry surplus capacity, growth of income and at t r a c t i o n of foreign exchange, creation of employment opportunities , development of r u r a l areas, generation of public revenue and other economic and s o c i a l benefits. I t i s concluded that, i n spite of negative fa c t o r s , Peruvian forest resources and forest industries have the potential to make a great contribution to the nation's economy through expanded wood products production and export. There are excellent opportunities f o r expanding wood product exports from Peru. There i s a p o s s i b i l i t y f o r improving the comparative advantage by reducing f r e i g h t rates. Peruvian for e s t s can support an expanded wood product export programme, and this programme should have a vigorous impact on the forest and forestry sectors and on the Peruvian economy. i v TABLE OF CONTENTS ABSTRACT i i TABLE OF CONTENTS i v LIST OF TABLES v i LIST OF FIGURES v i i LIST OF APPENDICES v i i i ACKNOWLEDGEMENT ix INTRODUCTION 1 CHAPTER ONE GEOGRAPHICAL AND SOCIO-ECONOMIC FEATURES OF PERU ... 4 1.1 Geography and Climate 5 1.2 Population 8 1.3 Gross Domestic Product 11 1.4 The Current Two Year Development Plan 13 1.5 Balance of Payments 14 1.6 Balance and Terms of Trade 16 1.7 Trade P o l i c i e s i n Peru 19 1.7.1 Import Controls 20 1.7.2 T a r i f f s and Import Taxes 21 1.7.3 Non-tariff Barriers 22 1.7.4 Free Ports_, Zones *. 22 1.7.5 Export Regulations 23 1.7.6 Export Incentives 23 1.7.7 Export Insurance 24 1.7.8 Export Credit 24 CHAPTER TWO FOREST INDICATORS AND RESOURCE DESCRIPTION 26 2.1 Forest Resources of Peru 26 2.1.1 Forest as Percentage of T o t a l Land Use 26 2.1.2 Area and Growing Stock 31 2.1.3 Composition by Species 34 2.2 Product Mix 36 2.3 Harvesting Problems 41 2.4 Wood Products Marketing Problems 45 CHAPTER THREE EXPORT POTENTIAL 52 3.1 Location and P o t e n t i a l Size of Export Markets 52 3.1.1 The Export Outlook: Demand 52 V 3.1.2 The Export Outlook: Supply 55 3.2 Costs of Delivering Wood to Export Markets 63 3.3 Foreign Exchange Earnings 68 3.4 Opportunities and Constraints Imposed by Export P o l i c i e s on Increased Wood Products Exports 70 3.5 Balancing Exports with Projected Domestic Wood Products Requirements 73 3.5.1 P o t e n t i a l Wood>Supply 73 3.5.2 Future Consumption of Forest Products 78 3.5.3 Balance Between Roundwood Consumption and Production . 83 CHAPTER FOUR OPPORTUNITIES FOR FOREST INDUSTRIAL DEVELOPMENT 86 4.1 Expanded Wood Products Export Programme 86 4.2 Capacity of Peruvian Forest Industries 88 4.2.1 Current and P o t e n t i a l I n d u s t r i a l Capacity 90 4.2.2 Required Capacity for an Expanded Export Programme ... 97 4.3 Possible Impact of an Expanded Wood Products Export Programme on the Forest Resources Sector and the Peruvian Economy 101 4.3.1 Possible Impact On The Forest Resource Sector 101 4.3.2 Possible Impact On The Peruvian Economy 104 CHAPTER FIVE CONCLUSIONS AND RECOMMENDATIONS 108 LITERATURE CITED 117 v i LIST OF TABLES Table 1 Peruvian Gross Domestic Product by Economic A c t i v i t y at 1973 Constant Prices 12 2 Peruvian Balance of Payments (1970-1978) 15 3 Peruvian Balance of Trade (1950-1977) 18 4 Major Land Categories i n Peru (1977) 29 5 Parks and Related Reserved Areas i n Peru (1977) 30 6 Major Types of Peruvian Forest Cover by Regions (1977) 32 7 Peruvian Forest Products Mix by End Use (1961-1976) 37 8 Peruvian Wood Producs. :Production by Species (Selected Years).. 39 9 Peruvian Wood Product,-. Exports by Species (1978) 40 10 Markets for Peruvian T r o p i c a l Hardwood Product Exports (Selected Years) 60 11 Export P r i c e Comparison for V i r o l a spp. (1978) 65 12 Export P r i c e Comparison for Swietenia macrophylla (1978) 66 13 Contribution of Wood Products to Peruvian Foreign Exchange Earnings (1955-1977) 69 14 P o t e n t i a l Wood Supply i n Peru (1976-1990) 77 15 Projected Consumption of Sawnwood and Wood-based Panels (1978-1990) 80 16 Estimated Consumption of Roundwood Equivalent (1978-1990) .... 82 17 Balance Between Projected Consumption and Sustainable Supply of I n d u s t r i a l Roundwood Equivalent (1978-1990) 84 18 Peruvian Wood Product. Exports (1965-1978) 87 19 Suggested Wood Products Exports From Peru by 1985 and 1990 ... 89 20 Capacity of Peruvian Wood Products Industries (1976) 91 21 Estimated Production at Various Levels of Output (1976) 98 v i i LIST OF FIGURES Figure 1 Peru i n South America 6 2 R e l i e f and Vegetation i n Peru 9 3 National and Forestry Terms of Trade i n Peru (1950-1977) .... 17 4 Forest Types i n Peru 27 - l ^ o . c oopsj v i i i LIST OF APPENDICES APPENDIX I FAO model for wood products consumption 123 II Employment Opportunities 124 II I Revenue . 126 i x ACKNOWLEDGMENT I would l i k e to acknowledge the continous guidance, encouragement and valuable c r i t i c i s m from my academic supervisor, Dr. D. Haley, throughout my studies at the Faculty of Forestry, The University of B r i t i s h Columbia. A l l of which has contributed greatly towards completion of the study. Thanks are due also to Dr. J.W. Wilson and Proffessor L. Valg, members of my advisory commitee, who have each made p a r t i c u l a r l y important contributions to t h i s thesis and to my entire graduate program. The assistance of my collegues A. Casasempere, T. . Cooney, R..Allen, K. Smith and I.e. .Wang i s acknowledged. F i n a n c i a l support from the Canadian International Development Agency, The Direccion General Forestal y de Fauna (Lima) and the Faculty of Forestry are also g r a t e f u l l y acknowledged,. F i n a l l y , I would l i k e to express my sincere gratitude to my wifa, Rosa Elva, for her patience and understanding throughout my entire study. . 1 INTRODUCTION Forests constitute a basic natural resource that can be mobilized for accelerated economic development i n a developing country. Rural communities and forested regions are often closely related and the forest sector, i n many communities, becomes a fo c a l point for potential development* I t has been recognized generally that through backward and forward linkages and the f a i r l y simple l e v e l of technology i n forest industries, wood processing can contribute substantially to rural and overall national development..Forests can earn and/or save foreign exchange, which i s often extremely c r u c i a l for developing countries; create employment opportunities i n and s t a b i l i z e r u r a l communities; and act as a "propulsive" influence on the course of general economic development (Westoby, (196 9) . Forests are a most important asset of a country's wealth that can be converted into other forms. They provide.a renewable raw material f o r a whole range of industries which have acquired great importance i n many i n d u s t r i a l l y advanced countries. This asset i s very often neglected i n les s developed economies, or exploited only as a raw material for exports (Westoby, 1962)..It i s i n t h i s respect that r a t i o n a l u t i l i z a t i o n and sound forest p o l i c i e s are needed to maximize benefits the forestry sector can provide society. In many t r o p i c a l developing countries, especially of west Africa and south east Asia, forestry i s making i t s most s i g n i f i c a n t contribution to economic development through export of wood products (FAO, 1964; Rola, 1974; Takeuchi, 1974). In 2 Peru, however, with over 60% of i t s t o t a l land area under forest cover, the contribution of forestry to economic development i s ne g l i g i b l e . The country experiences serious balance of payment stresses, unemployment problems, and lack of d i v e r s i f i e d and s o c i a l l y desirable i n d u s t r i a l i z a t i o n programmes. Policymakers and development planners seem to overlook the potential role forestry can play in ameliorating some of the country's problems..For example, i n the National Development Plan 1980/8 1 (Peru, 1980) the forestry sector was given negligible attention—0.25% of the t o t a l public sector c a p i t a l expenditure—compared to other sectors, k large share of the meagre resource allocated to the Peruvian Forest Department i s devoted for a c t i v i t i e s related to conservation of fauna and f l o r a . Very l i t t l e i s allocated to development oriented projects. Expansion of the timber base through reforestation projects i s minimal, with 5,400 ha planted annually. This compares to 300,000 and 100,000 ha i n B r a s i l and Chile, respectively. There are no clear guidelines for integrating forestry with other natural sectors to ensure a balanced r u r a l developm ent. For the forestry sector to play i t s r i g h t f u l role in the national economy, a new, r a t i o n a l and development-oriented forest p o l i c y i s required. The objective of t h i s study i s to identi f y and analyze p o l i c i e s towards expanded wood product exports which could enhance the contribution of forestry and the forest industries sector to national development and welfare. The study applies some general, t h e o r e t i c a l p r i n c i p l e s of e f f i c i e n t resource use 3 to an a n a l y s i s of wood product exports from Peru. The method of study i s both d e s c r i p t i v e and a n a l y t i c a l . The t h e s i s i s d i v i d e d i n t o f i v e c hapters. Chapter One provides background i n f o r m a t i o n on Peruvian g e o g r a p h i c a l and socio-economic f e a t u r e s . In Chapter Two the c h a r a c t e r i s t i c s of Peruvian f o r e s t s , f o r e s t products, h a r v e s t i n g and wood products marketing are examined, with s p e c i a l r e f e r e n c e t o problems r e l a t e d to these f a c t o r s . Chapter Three examines the Peruvian wood products export p o t e n t i a l , i d e n t i f y i n g l o c a t i o n and p o t e n t i a l s i z e of export markets, the comparative advantage of Peruvian wood product exports, o p p o r t u n i t i e s and c o n s t r a i n t s imposed by export p o l i c i e s on i n c r e a s e d wood product e x p o r t s , and p r o j e c t e d domestic wood products requirements..The f o u r t h chapter a n a l y s i s the o p p o r t u n i t i e s f o r f o r e s t i n d u s t r i a l development and the p o s s i b l e impact of an expanded wood products export programme on the f o r e s t resources s e c t o r and the Peruvian economy. Chapter F i v e c o n t a i n s the summary and c o n c l u s i o n s of the.study, as w e l l as some s p e c i f i c recommendations. 4 CHAPTER ONE GEOGRAPHICAL AND SOCIO-ECONOMIC FEATURES OF PERU Peru i s endowed with many of the c o n d i t i o n s g e n e r a l l y considered d e s i r a b l e f o r promoting economic growth. The country has an abundant supply of labour with a p o p u l a t i o n of about 17 m i l l i o n ; a wealth of n a t u r a l r e s o u r c e s i n c l u d i n g the abundant f o r e s t r e s o u r c e s , r i c h mineral r e s o u r c e s such as copper, i r o n ore and petroleum, and f i s h r e s o u rces, a l s o . Some of these r e s o u r c e s are important f a c t o r s i n the Peruvian economy but the r e s t of them, such as f o r e s t r e s o u r c e s , are u n f o r t u n a t e l y underdeveloped. Nevertheless, f o r e s t r y can make an important c o n t r i b u t i o n to the n a t i o n a l economy. The socio-economic and p o l i t i c a l c o n d i t i o n s of Peru are analysed i n order to determine the socio-economic and p o l i t i c a l f a c t o r s which f o r e s t r y ' s r o l e i n the economy of the country are dependent upon, and i n order to i d e n t i f y how these f a c t o r s a f f e c t the p o t e n t i a l c o n t r i b u t i o n of Peru's f u t u r e wood product exports to n a t i o n a l development. S p e c i a l r e f e r e n c e i s made to Peru's t r a d e p o l i c i e s , since wood product exports i n any country are a f f e c t e d by these r e g u l a t i o n s . 5 1.1 Geography and Climate Located on the western side of South America between the Equator and 18° S, Peru extends some 2,100 kilometres (1,300 miles) southward from borders with Ecuador and Colombia along the P a c i f i c coast to Chile, and borders Colombia, B r a s i l and Bo l i v i a to the east. .The t o t a l area of the country i s 128.5 million hectares which exceeds that of the province of B r i t i s h Columbia (94.8 mil l i o n hectares). The t o t a l area of Peru represents 7.3 % of the South America's area (Fig.. 1).. The country l i e s wholly within the southern t r o p i c s and may be divided into four well defined geographical and economic regions running north to south, roughly p a r a l l e l to the coast. . These are the: Coast; Mountains; Uplands; and Amazon lowlands. Such a d i v i s i o n i s convenient but oversimplified. I t w i l l be used as a basis for the geographical description of Peru i n t h i s section, but with reservations. F i r s t l y , on the physical side there are considerable t r a n s i t i o n zones between the coastal region, the mountain environment of the Andes and the forest covered lowlands of the i n t e r i o r . Secondly, c u l t u r a l and economic conditions vary greatly within each of the four regions. The coastal region, lar g e l y made up by a narrow s t r i p of desert, forms 11 % of Peru's t o t a l land area. This region i s one of the d r i e s t regions i n the world with average of only about four cm of rain a year (Peru, 1975). C u l t i v a t i o n i s possible only with the help of water from the many riv e r s flowing from the Andes into the P a c i f i c and with i r r i g a t i o n . I t s ba s i c a l l y f e r t i l e s o i l produces excellent crops of cotton, sugar, r i c e and PREVIOUSLY COPYRIGHTED MATERIAL LEAF 6 NOT FILMED. MAY BE OBTAINED FROM: Mr Jorge Malleux Universidad Nacional Agraria "la Molina" Programa Academico de Ciencias Forestales Apartado 456 Lima - Peru. 6 F i g . 1. P e r u i n S o u t h A m e r i c a S o u r c e : M a l J e u x , J . 1975, Mapa f o r e s t a l d e l P e r u , Lima 7 f r u i t . The coastal zone i s the economic heart of Peru, containing 49% of the country's population and two of the three largest Peruvian c i t i e s , Lima, c a p i t a l c i t y of Peru, over f i v e m i l l i o n and T r u j i l l o over 0.5 m i l l i o n people. The Mountains, comprised of poor lands of high level plateaux, deep ravines and the towering peaks and ranges of the Andes mountains, represent 26% of the t o t a l land surface. R a i n f a l l i n the Andes i s highest in the north and on the i n t e r i o r side and low i n the south where desert conditons extend to a high a l t i t u d e on the P a c i f i c side. P r e c i p i t a t i o n ranges between 75 and 200 cm annually (Peru, 1975). It is seasonal, but where r e l i e f , s o i l and temperature conditions are suitable, usually adeguate for agriculture and grazing. About 48% of the t o t a l population l i v e s in t h i s region, the majority are Indian peasants l i v i n g at barely above subsistence l e v e l and outside the money economy. A predominantly Indian labour force of over 100,000 is engaged i n mining, and mineral exports from th i s region represent about half the t o t a l exports (Schydlowsky and Wicht, 1 979). The Uplands region i s a f e r t i l e sub-tropical area l y i n g on the eastern slopes between the Andes and the Amazon lowland regions. R a i n f a l l i s very heavy on the flanks of the mountains in t h i s region. P r e c i p i t a t i o n ranges between 100 and 250 cm annually (Peru, 1975). It i s heavily forested, largely undeveloped and sparsely populated, but the construction of the Carretera Marginal highway, sections of which are already in service, along the margin between the Uplands and the Amazon lowlands w i l l a s s i s t i n i t s development. 8 The Amazon lowlands, the largest of the four regions, covering 62% of the t o t a l land area, i s partly unexplored, t r o p i c a l jungle and together with the Uplands region, contains about eight per cent of the population. The fast developing c i t y of Iguitos i s the l e g i s l a t i v e and f i n a n c i a l c a p i t a l of Peru's jungle region and serves as an important r i v e r port on the Amazon, accessible to ocean-going vessels from the B r a s i l i a n coast some 1,600 kilometers away. Owing to a lack of communications, the region i s la r g e l y undeveloped but i t i s po t e n t i a l l y of great economic importance to Peru, containing vast unexploited forests and considerable o i l reserves. P r e c i p i t a t i o n i n t h i s region ranges between 200 and 500 cm annually (Peru, 1975). The high al t i t u d e of the Andes mountains i s an important factor a f f e c t i n g the climate of Peru. Because of t h i s , r e l a t i v e l y few Peruvians l i v e i n r e a l l y hot t r o p i c a l climates. In the highlands 3,000 metres above sea l e v e l , temperature generally average below 10°C (Peru, 1 975). For the purpose of the present study, Fig..2 gives an o v e r a l l approximation of the r e l i e f and vegetation i n Peru. 1.2 Population The population of Peru i n 1977 was about 16.3 million or 7.2% of the South America t o t a l (CELADE, 1979) ... Almost 48% of this population l i v e s i n the mountain region, 49% i n the coastal region and the remainder l i v e i n the upland and Amazon lowland regions (Peru, 1978). The t o t a l population i s growing at an annual rate of 2.98%. . 9 F i g . 2. R e l i e f and V e g e t a t i o n i n P e r u . B O T H MAPS S o u r c e : C o l e , J . P . 1975, L a t i n A m e r i c a : e c o n o m i c and s o c i a l g e o g r a p h y . B u t t e r w o r t h s , London. An 10 This i s a rapid increase compared to the world average of 1.7% and i s egual to south west Asia, but lower than f i v e other Latin American countries where the population i s increasing at an annual rate over three per cent (CELADE, 1979). There i s no evidence of the growth rate diminishing and the t o t a l population w i l l probably reach 31.5 m i l l i o n i n 2,000..The prospect that the population of Peru may double i n the next 20 years has a s i g n i f i c a n t influence on analyses and plans for economic development of the nation. What volume of wood products w i l l such expanded population require? What steps must be taken in forest management today to meet such future demends?. Less than half of the population i s now c l a s s i f i e d as r u r a l . The.rest l i v e i n to.wns of 2, 000 or more inhabitants. . The urban proportion increased from 35% in 1940 to 60% i n 1976 (Peru, 1 978). The economically active population in Peru i n 1972 was about 4.5 m i l l i o n , l e s s than one t h i r d of the t o t a l population in that year (Peru, 1978). About 46% of t h i s was employed i n ag r i c u l t u r e , the remaining 54% of the economically active population worked in other sectors of the economy;. Nearly half the:population exist i n subsistence farming which i s v i r t u a l l y outside the cash economy. . S k i l l e d help i s scarce, but unskilled labour i s p l e n t i f u l . , As in any other developing country there i s a considerable unemployment and underemployment in a l l sectors of the economy. The development of new wood-using industries and the expansion of existing industries may offer a p a r t i a l solution to the employment problem. 11 1.3 Gross Domestic Product In 1968 the gross domestic product i n Peru was U. S.S 8.3 b i l l i o n (approximately 322 b i l l i o n soles, Peruvian currency) at 1973 constant prices. Its r e a l value has more than doubled since .1950 but i n 1977 a disappointing economic performance resulted in a decline of -0.04% in real gross domestic product (ONE, 1979)..This compared with a growth rate of 2.02% i n the previous year and 7.48% in 1974. U n t i l 1971 Peru was the largest fishmeal producer i n the world, exporting 40% of the world t o t a l , but cl i m a t i c changes and over f i s h i n g have reduced t h i s t o t a l d r a s t i c a l l y . Copper production remains Peru's major mineral industry i n terms of both output and export value. Nevertheless, manufacturing and agriculture are the predominant a c t i v i t i e s , accounting for about 26% and 11% respectively of the t o t a l gross domestic product in 1977 (ONE, 1979). Table 1 shows the s e c t o r i a l composition of Peru's gross domestic product from 1968 to 1978. In 1968, forestry's contribution, 0.81%, to the GDP was only greater than that of the u t i l i t y sector but since.1977 i t s contribution has surpassed those of the u t i l i t y and fi s h i n g sectors* With the exception of agriculture, f i s h i n g , and housing a l l other sectors of the economy either grew substantially or maintained a constant share of the GDP. The share cf forestry in the GDP between 1968 and 1978, increased by 60%. The d e f i c i e n c i e s of Peru's national accounting system are c l e a r l y brought out by estimates of forestry output. For example, fuelwood accounts for about 88% of domestic wood Table 1. Peruvian GroSe Domestic Product by Economic A c t i v i t y at 1973 Constant P r i c e s . Sector 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 ( Percentagea ) Ag r i c u l t u r e 13.16 13.61 13.52 13.11 12.57 12.01 11.41 10.91 10.75 10.79 10.83 Construction 2.68 2.75 2.97 3.08 3.36 3.53 3.95 3.86 3.78 3.40 2.94 E l e c t r i c i t y , Gas and Water 0.63 0.64 0.63 0.67 0.72 0.77 0.78 0.80 0.90 0.92 0.97 Fishing 2.00 1.73 2.18 1.80 0.94 0.65 0.85 0.72 0.83 0.71 0.86 Forestry 0.81 0.73 1.14 1.14 1.10 1.16 1.29 1.24 1.33 1.31 1.31* Government 9.91 9.74 9.63 9.60 10.14 10.18 9.90 10.18 10.66 11.08 11.11 Houslng 6.31 6.26 5.95 5.88 6.02 6.04 5.90 5.82 5.82 5.90 6.00 Manufacturing 24.66 24.01 24.74 25.17 24.93 25.35 26.16 26.06 26.57 25.56 25.12 Mining and Quarrying 7.27 6.96 7.07 6.70 7.09 6.86 6.62 5.72 5.95 7.23 8.07 Others 29.59 30.47 29.25 29.86 30.73 31.06 31.49 32.56 32.02 32.03 31.64 G.D.P. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Sources: ONE, Cuentas naclonales del Peru 1950-1978, Lima, 1970. MA-DGFF, Vademecum f o r e s t a l , Lima, 1977 * l c Is assumed the same as of that of 1977 13 consumption (FAO, 1978). The bulk of fuelwood consumption takes place in r u r a l areas, but only urban fuelwood consumption i s included i n the national accounts. The above factors indicate that the contribution of forestry to the Peruvian economy has been n e g l i g i b l e . S t a t i s t i c s on f o r e s t resources suggest, however, that the contribution of forestry to the Peruvian economy w i l l be greater i n the future than i t was i n the past. 1.4 The Current Two Year Development Plan Because the policymakers do not understand the nature of forests and th e i r i n t e r r e l a t i o n s h i p s with other s o c i e t a l elements, they have not been able to make any clear statements about p o l i c i e s and t h e i r objectives. .. No forest development plan has been formulated for Peru, but numerous preliminary development plans have been prepared. For instance, the 1975- 1978 preliminary forest development plan (MA-DGFF, 1974) attempted to est a b l i s h production targets at the national l e v e l over the period 1975-1978. I t indicated a near doubling of output of the various types of wood products over the four year period. Per capita consumption of wood i n Peru was expected to increase about 60% more than that of 1974, while the largest production increases were expected in respect of veneer, up to four times, and flo o r i n g , also up to four times. To achieve the targets, the plan also considered research into problems of forest management and s i l v i c u l t u r a l aspects, and experiments into the u t i l i z a t i o n of new species for d i f f e r e n t uses to establish a basis for wood products industry. The main constraint which prevented the achievement of these 1 4 targets was, as always, the negligible amount of budget allocated to the forestry sector. The.allocation of budget to forestry under the current two year Natioanl Development Plan 1980-1981 (Peru, 1980) amounts to U.S.$ 3.6 m i l l i o n (928. 6 m i l l i o n soles) or 0.25% of the t o t a l public sector c a p i t a l expenditure. This sum i s negligible compared with that to Agriculture which i s 16.3% of the t o t a l . The current National Development Plan mentions neither actions to be taken on forest i n d u s t r i e s , nor the need to strengthen the position of Peru wood products i n both domestic and export markets. . For the forestry sector to play a more meaningful role i n the national economy, emphasis must be placed on the need to promote p o l i c i e s which take f u l l e r account of the dynamic character and the physical and socio-economic features of the environment which now surrounds the forestry sector. Also, the government must allocate a more meaningful budget to the forestry sector. Measures to promote forest e f f i c i e n c y should be adopted in order to obtain more varied and better quality products. A more dynamic and forward-looking policy i s required i f the forestry sector i f i t i s to meet the challenges of a rapidly changing economy.. 1.5 Balance of Payments Table 2 shows that after f i v e years of unprecedented deterioration, the current account balance of Peru experienced some improvement during the period 1976-1978. Onder the strongly negative influences of the international recession, the r i s e in Table 2. Peruvian Balance of Payments (1970-1978). ( m i l l i o n U.S.$ -minus sign indicates debit) 1970 1971 1972 1973 1974 1975 1976 1977 1978 Goods and Services: Trade balance 334.7 Exports f.o.b. 1034.3 Imports f.o.b. -69S.6 Service balance -231.4 Freight -38.6 Insurance -14.3 Investment Income -148.5 Government transactions -15.0 Transport -2.1 Travel -9.7 Other services -3.2 Transfer payments 81.6 Current Account balance 184.9 159.4 889.4 -730.0 -232.7 -37.3 -15.6 -125.4 -14.0 -31.9 8.4 -16.9 39.4 -33.9 133.0 945.0 -812.0 -203.9 -37.6 -17.6 -120.9 -13.4 -42.2 15.8 12.0 39.2 -31.7 78.8 1111.8 -1033.0 -312.6 -35.1 -12.6 -180.9 -14.2 -56.2 15.0 -28.6 42.1 -191.7 -405.6 1503.3 -1908.9 -446.7 -59.2 -1.2 -218.5 -14.2 -112.2 18.5 -59.9 45.1 -807.2 -1099.3 1290.9 -2390.2 -488.5 -102.5 -240.3 -16.5 -94.3 8.0 -42.9 49.4 -1538.4 -740.5 1359.5 -2100.0 -509.4 -60.8 -366.4 -12.3 -93.4 44.8 -21.3 57.9 -1192.0 -438.4 1725.6 -2164.0 -544.6 -56.4 -426.3 -23.5 -88.4 75.6 -25.6 56.8 -926.2 348.2 1940.7 -1600.5 -588.0 -6.7 -577.7 -22.0 -76.0 107.9 -13.5 55.0 -191.8 C a p i t a l : Long-term c a p i t a l 23.7 Short-term c a p i t a l 21.4 A l l o c a t i o n of SDRs 14.3 Net errors and omissions 13.1 To t a l 257.4 -28.2 -80.1 14.2 51.8 -76.2 115.0 23.7 16.1 -72.7 50.4 383.0 -124.7 -53.4 13.2 894.9 243.5 -49.3 281.9 1135.1 -150.0 -23.4 -576.7 675.5 -387.7 36.7 -867.5 673.8 -114.3 17.5 -349.2 421.3 -75.5 -72.0 82.0 Source: ONE, Cuentas nacionales d e l Peru 1950-1978, Lima, 1979. 16 energy prices, and continuing i n f l a t i o n , the current account d e f i c i t rose from about 0. S. $ 34 m i l l i o n i n 1971 to 0. S. $ 1,538 m i l l i o n in 1975. This was the highest d e f i c i t ever registered i n the Peruvian economy (Schydlowsky and Wicht, 1979). I t declined to U.S$ 192 m i l l i o n in 1978. In 1975, the external dependence of Peru was higher than ever (Table 2). The low l e v e l of investment and slow economic growth slowed down imports u n t i l 1972. With the exception of 1975 and 1976, export prices rose ex t r a o r d i n a r i l y during the period 1971-1978 (Schydlowsky and Wicht, 1979).. 1.6 Balance and Terms of Trade Figure 3 shows the terms of trade for the nation of Peru and i t s forestry sector during the period 1950-1977. At both the national and the forestry sector l e v e l s , Peru has faced large short-term fluctuations i n i t s commodity terms of trade. At the national l e v e l the terms of trade of Peru has s l i g h t l y deteriorated over the l a s t 27 years, but i n the forestry sector i t can be said to have improved s l i g h t l y over the l a s t 14 years. These terms of trade fluctuations, render i t d i f f i c u l t to argue that the nation has received a lower price for i t s primary products exports i n re l a t i o n to the price of the manufactured products that i t had to import..Insted, the fluctuations suggest that from 1950 to 1977, the Peruvian terms of trade did not deteriorate. Peru's balance of trade between 1950 and 1977 shows that i t had a dominant external dependence. This external dependence reached i t s peak i n 1975 (Table 3). Peru i s a net importer of 17 Fig. 3. National and Forestry Terms of Trade in Peru (1950-1977) 400 I -1950 National Terms of Trade Forestry Terms of Trade (1950=100) V _L 1955 1960 1965 Year 1970 1975 1979 Source: UN, Yearbook of international trade statistics 1977, New York, 1978. FAO, Yearbook of forest products statistics 1950-1977, Rome, 1978. Table 3. Peruvian Balance of Trade (1950-1977). year National Total Forestry Total Exports Imports Balance Exports Imports Balance Thousand U.S. dollars 1950 189,243 175,625 13,618 305 4,075 -3,770 1951 248,040 261,914 -13,874 384 4,889 -4,505 1952 234,237 287,480 -53,243 — ----1953 218,559 292,784 -74,225 — 10,347 -10,347 1954 245,123 249,684 -4,561 5,812 -5,812 1955 268,203 299,523 -31,320 166 11,904 -11,738 1956 308,149 384,025 -75,876 666 12,751 -12,085 1957 319,990 448,111 -128,121 352 12,612 -12,260 1958 281,427 380,251 -98,824 262 8, 924 -8,662 1959 311,860 316,641 -4,781 196 9,318 -9.122 1960 430,894 372,897 57,997 295 13,047 -12,752 1961 494,150 468,078 26,072 194 16,930 -16,736 1962 538,053 533,651 4,402 381 17,250 ' -16,869 1963 540,179 553,271 -13,092 304 17,529 -17,225 1964 666,103 570,877 95,226 491 20,310 -19,819 1965 666,402 718,771 -52,369 491 20,310 -19,819 1966 763,195 817,168 -53,973 1, 155 21,665 -20,510 1967 778,546 818,944 -40,398 795 20,914 -20,119 1968 864,633 629,798 234,835 924 19,011 -18,087 1969 863,859 600,806 263,053 2,363 19,278 -16,915 1970 1,043,626 618,842 424,784 2,758 19,201 -16,443 1971 891,273 752,642 138,631 3,154 25,844 -22,690 1972 943,364 796,596 146,768 4,186 26,831 -22,645 1973 1,047,554 1,018,561 28,993 3,916 26,247 -22,331 1974 1,533,759 1,513,836 19,923 4,069 39,437 -35,368 1975 1, 349,572 3, 106,175 -1, 756,603 1,825 57,493 -55,668 1976 1,364,541 2, 182,477 -817,936 3,283 30,054 -26,771 1977 1,432,563 1,613,837 -181,274 3,283 30,054 -26,771 Source: UN, Yearbook of international trade statistics 1977, New York, 1978. FAO, Yearbook of forest products statistics 1950-1977, Rome, 1978. 19 forest products. Within the t o t a l trade value of forest products, the annual surplus of imports over exports during the period 1 950-1977 fluctuated between 98.8% and 8 6,. 5%. Taking into account the vast forest resources and the current industry capacity i n Peru, the country should have replaced wood products imports, with the exception of wood pulp products, and become a net wood products exporter. 1.7 Trade P o l i c i e s i n Peru Peru i s a member of the Latin American Free Trade Association (LAFTA) and the Andean Common Market (Ancom). Peru also adheres to the General Agreement on T a r i f f s and Trade (GATT). A p r i n c i p a l aim of LAFTA i s the removal of most t a r i f f trade b a r r i e r s between the members by 1980. A common outer t a r i f f i s i n e f f e c t for items on the LAFTA common l i s t , as well as for those included in the j o i n t development programs, such as metalworking and petrochemicals. As for imports from other Ancom countries, products on the LAFTA common l i s t enter Peru free of a l l charges and r e s t r i c t i o n s . A l l goods categorized by common agreement as not produced i n Ancom, at•the time of the agreement, may enter Peru free of t a r i f f s (an incentive to companies to manufacture and s e l l region wide). For other products coming from Ancom sources, Peru has reduced t a r i f f s by ten per cent a year in accordance with the Ancom agreement. Because of Peru's tight foreign exchange s i t u a t i o n , controls are sometimes applied to imports from Ancom, even when such goods are t h e o r e t i c a l l y free of import controls. 20 On 18th October 1975 the treaty establishing the Latin American Economic System (SELA), was signed by 23 Latin American and Caribbean countries including Peru. This organisation i s intended to complement existing agreements and to promote regional economic co-operation. SELA aims to use Latin America's growing economic bargaining power to obtain better terms fo r i t s trade and investment relationship with the developed countries. These.regional economic integrations constitute important instruments for economic development, since t h e i r aim i s to ensure an equitable d i s t r i b u t i o n of the benefits of integration and to not promote elements of discrimination against other areas i n process of development. 1.7.1 Import Controls Stringent controls, recently revised, apply to imports.. Under Decree 21493, e f f e c t i v e June 30, 1976, companies may import goods, other than imports from Andean countries, only from the L i s t of Permitted Imports, comprising about 4,300 products (mainly raw materials and e s s e n t i a l consumer and c a p i t a l goods) out of the 6,000 l i s t e d i n the customs nomenclature. Since January 1, 1977, a p r i o r license i s required for a l l imports, except those from other Andean countries, by both the public and private sectors. To import goods, private firms must f i r s t have an exchange guota and a prior license covering the import. Other stringent rules also apply to imports. For instance, they must be externally financed* The government has modified a number of l o c a l industry 2 1 protection schemes. Now the Ministry of Industry and Tourism alone i s responsible for deciding whether l o c a l goods can indeed take the place of imports* And, f i n a l l y , some imports are reserved for state agencies or i n s t i t u t i o n s . 1.7.2 T a r i f f s and Import Taxes The present import t a r i f f schedule, in force since 31st December 1973, was issued as an i n i t i a l step in the implementation by Peru of the Andean Group's joint customs nomenclature, NABANDINA. Current rates of duty are both s p e c i f i c and ad valorem. .Ad valorem duties generally range from 22% to 92% of the c . i . f . v a l u e , calculated a r b i t r a r i l y by adding 20% to the f.o.b. value, but may be as high as 150% on cer t a i n luxury items. As in most of Latin America, t a r i f f s are generally high to protect l o c a l industry. The ratio of t o t a l duty paid to t o t a l imports averages about 40% for manufactured goods, 30% for raw materials and f i v e per cent for food. P a r t i a l exemption from import duties i s granted for approved imports under the Peruvian General Law of Industry. The degree of reduction varies according to the influence exerted by the imports in question on the growth of the Peruvian economy. The maximum concession of 92% off the normal import duty i s granted f o r c a p i t a l goods imports by basic industries. The government has also authorized duty-free import f o r a l i s t of goods to be used i n a g r i c u l t u r a l development. Austerity measures adopted in May 1976 r e s t r i c t e d imports from a l l countries outside the Andean Group to those on an 2 2 o f f i c i a l l i s t , consisting primarily of raw materials machinery, and equipment and es s e n t i a l consumer goods. This l i s t i s to be revised annually. 1 . 7 . 3 Non-tariff Barriers Dumped goods may be subject to neutralizing import duties, be returned to port of origin, or be subjected to almost any other commonly used device to n u l l i f y the advantage. The a n t i -dumping laws have rarely been applied. No pr i o r import deposits are required, but s t r i c t import l i c e n s i n g requirements exist. There are additional import controls i n the form of r e s t r i c t i o n s on allowable financing arrangements for most imports. Peru increasingly uses sanitary regulations to l i m i t imports of food. C e r t i f i c a t e s of o r i g i n are reguired for Ancom or LAFTA goods to qualify for reduced-duty treatments. Since May 1 9 7 3 , importers are required to insure merchandise with insurance companies that are located i n Peru. 1 . 7 . 4 Free Ports, Zones There.is no system of free ports or zones i n Peru, althouqh certain provisions of the i n d u s t r i a l promotion law give a portion of the Amazon Basin region a status analogous to that of a free zone, pexmiting duty-free imports f o r l o c a l consumption and re-export af t e r some value has heen added in the region. The Peru-Colombia treaty allows free import of certain goods for use i n the jungle Departments of Loreto and San Martin. This system has been extended to a l l jungle areas, 23 defined as the eastern part of the country up to 2,000 meters above sea l e v e l . The c i t y of Iquitos, on the Amazon River, enjoys free-port status for goods required in the jungle region. In general, these import regulations mean a constraint for i n d u s t r i a l development in Peru which i s re f l e c t e d by the i d l e or non-used capacity of most of the Peruvian industries. . This i s mainly due to lack of seme raw material, spare parts, and equipment that have to be imported.. 1 . 7 . 5 Export Regulations There are no r e s t r i c t i o n s on exports except f o r logs; foodstuffs, which require a prior license; and raw materials, for which f i r s t option must be given to l o c a l users. 1 . 7 . 6 Export Incentives There are available export incentives for non-traditional exports,i.e., manufactured products exports. A l l manufactured exports, such as exports of processed wood products, receive benefits of 15 to 30% of f.o*b. value granted as a c e r t i f i c a t e (Certex) which may be used to pay sales taxes or import duties and which i s considered equal to a tax drawback..The percentage benefit available i s l i s t e d product by product and may be increased i f the product has not previously been exported or i f i t i s made by firms outside Lima. If the exporter can prove that export taxes, duties on imported components or import surcharges exceeded the 15% normally allowed, a d d i t i o n a l Certexes may be granted. For items not yet l i s t e d , approval for Certexes i s on a 24 case by case basis from the Minister of Finance, i n conjunction with the relevant ministry. The p r i n c i p a l aims of the export incentives are to: Strengthen the balance of trade; U t i l i z e a l l the production capacity i n s t a l l e d ; and Promote more opportunities for investment and employment. This export concession, to a great extent, stimulates exports of processed wood products. 1 . 7 . 7 Export Insurance*. An export cre d i t insurance system went into e f f e c t i n March 1 9 7 3 . Commercial and p c l i t i c a l r i s k s for non-traditional exports are covered, but so f a r firms have not made much use of t h i s f a c i l i t y . 1 . 7 . 8 Export Credit. This i s available through l o c a l banks for short-term transactions. Banco Ind u s t r i a l offers "pre-embarkation" or production credits for up to 80% of the f.o.b. value of manufactures and "post-embarkation" or sales c r e d i t s f o r up to 90% of t h i s value, at 6% annual i n t e r e s t including commission. This i n t e r e s t rate i s for 1 9 7 7 . Banco Ind u s t r i a l also has an export cre d i t fund for non-t r a d i t i o n a l products. The export regulations encourage the development of industries which produce goods c l a s s i f i e d as non-traditional for export purposes..Since wood products are within t h i s category, the fo r e s t r y sector has a good opportunity for development and 2 5 also to become one of the most important factors i n the development of the Peruvian economy. 26 CHAPTER TWO FOREST INDICATORS AND RESOURCE DESCRIPTION 2. .1 Forest Resources of Peru The Peruvian forests cover over half of the country, th e i r major areas of concentration being the eastern slopes and f o o t h i l l s of the Andes Mountains and the Amazon River lowlands. Total natural forest area i s estimated at 71.6 m i l l i o n ha. Ninety-five per cent of these forests are i n the Amazon region, four percent on the Northern coastal region and one percent i n the Andes Mountains region. Productive forest areas constitute about 80% of the t o t a l forest land, while the remainder i s protected (Malleux, 1975). Forests in Peru range from closed stands of high t r o p i c a l lowland forests, such as those found i n the region of Iguitos, Pucallpa, and Madre de Dios, to dry deciduous forests and savannah i n the northwestern part of Peru as i s shown i n Fig. 4. 2.1.1 Forests as Percentage of Total Land Use Peru i s estimated to contain the second largest forest land area of any country in South America, 74 million ha, which i s Source: Malleux, J. 1975, Mapa f o r e s t a l del Peru, Lima. 28 50% larger than that of the province of B r i t i s h Columbia's forest area (52.08 mil l i o n ha).,Of the 128.5 m i l l i o n ha within national boundaries, 28.7 mi l l i o n are swamp, brush, desert, barren and rock, or otherwise non-productive. .Of the remaining, "productive" land, 84.7%, i s forest land, including areas of reforestation. The composition of the lands is indicated in more de t a i l i n Table 4. Some forest lands have been designated for special purposes other than timber production. These include: Parks; Wilderness and Ecological reserves; H i s t o r i c a l reserves; and Hunting Areas. The numbers and estimated areas of each of these categories are indicated i n Table 5..Timber extraction and other forms of i n d u s t r i a l resource extraction are permanently excluded from these parks and related reserved areas. Sites which are of special aesthetic, recreational and s c i e n t i f i c value continue to be i d e n t i f i e d and protected. Expansion of these reserves inevitably reduces the:resource base available for timber production. The conversion of productive forest land to a g r i c u l t u r a l use i s another factor which influences the reduction of the productive potential and protective e f f e c t of Peruvian forests.. More than 4.5 m i l l i o n ha of forest have been destroyed by shi f t i n g c u l t i v a t i o n i n the l a s t 50 years (Malleux, 1975)..It i s estimated that s h i f t i n g agriculture destroys more than 150,000 ha of forests annually. There s t i l l remanins a large area of forest land for forest industry development. Table 4. Major Land Categories i n Peru (1977). Thousands of hectares Per cent Forest land: native t r o p i c a l forests parks and reserves man-made forests areas for r e f o r e s t a t i o n Other productive land: a g r i c u l t u r a l and cleared meadow Non-productive land: swamp brush, desert, barren and rock 70,905.39 3,094.61 106.14 10,393.86 84,500.00 7,884.10 7,428.72 15,312.82 3,502.21 25,206.53 55.17 2.41 0.08 8.09 65.75 6.13 5.78 11.91 2.73 19.61 28,708.74 22.34 Total 128,521.56 100.00 Source: Malleux, J . Mapa f o r e s t a l del Peru, Lima, 1975. KA-DGFF, Vademecum f o r e s t a l , Lima, 1977. Table 5. Parks and Related Reserved Areas l n Peru (1977). Number Total area Forest land Thousands of hectares National Parks National Reserves (wilderness and eco l o g i c a l ) H i s t o r i c a l and other reserved areas Hunting area 1,984.61 1,787.10 9.32 65.00 1,642.11 1,387.50 65.00 Total 13 3,846.03 3,094.61 Source: MA-DGFF, Vademecum f o r e s t a l , Lima, 1977. 3 1 2.1.2 Area and Growing Stock S t a t i s t i c a l information about the growing stock volume of the forest resource has been developed to only a li m i t e d extent. It i s important that the li m i t a t i o n s of the data should be recognised before drawing conclusions on the basis of the estimates presented. In 1975, the f i r s t of an o v e r a l l national picture of inventory s t a t i s t i c s based on a e r i a l surveys and more than one hundred forest inventories was published by J. Malleux in the Mapa Forestal del Peru. This shows some consistency and comparability and i t i s used i n this study as a base for the estimates presented. From the pcint of view of timber supply, the for e s t land area i s less important than the standing timber volume, the forest cover type, and the forest growth rate..The major forms of forest cover and the estimated volume of timber are summarized for each region i n Table 6. Of the t o t a l area of forest cover about 25% i s regarded as non-commercial, either .because i t i s not suitable f o r commercial u t i l i s a t i o n or because commercial u t i l i s a t i o n has been l e g a l l y excluded. Sixteen per cent has already been used as a source of timber supply, and the remaining 59% i s regarded as currently and p o t e n t i a l l y operable. Average volume per hectare i n the closed forest varies considerably from region to region: 136 ra3/ha i n Latin America; 228 m3/ha i n Africa; and only 89 m3/ha in the Asia P a c i f i c region (FAO, 1963). The average volume per hectare in the native t r o p i c a l f orest of Peru i s estimated at 100 m3/ha and the mean Table 6. Major Types of Peruvian Forest Cover by Regions (1976). Commercial Non-commercial Residual 2 Total Mature Regions Mature Immature Lands Protected Others Forest Cover Volume (thousands of hectares) ( m i l l i o n cubic meter) Coast native t r o p i c a l forest man-made forest 525.56 2.40 4.28 1,114.20 2,012.89 3,652.65 6.68 21.02 0.48 • Tot a l Coast: 527.96 4.28 1,114.20 2*012.89 3,659.33 21.50 Mountain native t r o p i c a l forest man-made forest 42.45 55.22 6.00 6.00 97.67 8.49 Total Mountain: 42.45 55.22 6.00 103.67 8.49 Uplands and Amazon Lowlands native t r o p i c a l forest man-made forest 43,302.50 0.12 1.67 12,127.06 13,858.55 1,053.24 70,341.35 1.79 5,534.87 0.02 To t a l Amazon Lowlands: 43,302.62 1.67 12,127.06 13,858.55 1,053.24 70,343.14 5,534.89 Total A l l Regions: 43,873.03 61.17 12,127.06 14,972.75 3,072.13 74,106.14 5,564.88 Source: Malleux, J . Mapa f o r e s t a l d e l Peru, Lima, 1975. MA -DCFF , Vademecum f o r e s t a l , Lima, 1977. _^ Areas within which 10 to 30 percent of the stand has been disturbed or removed by logging and other causes. 2 Includes areas not s a t i s f a c t o r i l y restocked, parks and reserves. 3 Includes l i v e stems over 25 cm (10 inches) d.b.h. 33 annual increment i s considered to be i n the range of four to six m3/ha/annum (Malleux, 1975). On the other hand the average volume per hectare in the man-made forest i s estimated to be 249 m3/ha and the mean annual increment 15 m3/ha/annum (Hopkins, 1976) . The:total volume of the growing stock of timber i n the mature commercial forests i s estimated to be about 5,564.9 mill i o n m3. In the immature and residual commercial forests there may be a further 975 to 1 ,200 m i l l i o n m3. . About 99% of the growing stock of the mature commercial forests i s native t r o p i c a l forest and the remainder i s man-made fo r e s t (mainly Eucalyptus - spp*),. Most of this man-made forest i s i n the mountains region and almost a l l the native t r o p i c a l forest i s i n the Amazon lowlands region.. The growing stock volumes look quite d i f f e r e n t when consideration i s given to current l e v e l s of forest area a c c e s s i b i l i t y and to merchantability of species and sizes. .It i s estimated that of the.total volume i n the Latin American closed forests only 31% i s "currently merchantable species" and only 60% when t h i s i s combined with other " p o t e n t i a l l y ccmmercial species" (F AO, 1979a). Only 19% of the t o t a l volume: i s estimated to be of presently commercial species i n "operable" forests. Of the t o t a l volume estimated in the Peruvian mature commercial forests, 6 0% i s considered physically accessible. These r e l a t i v e l y low proportions of "operable", "accessible" and "commercial" growing stock are reflected i n the actual harvesting of the t r o p i c a l forests which removes a selected, usually small, portion of the t o t a l volume. Many 34 species, grades, and sizes are l e f t unharvested. The volume removed ranges, on the average, between three to f i v e m3/ha (MA-DGFF, 1977) 2.1.3 Composition by Species The vegetation of the tropics, the belt between the Tropic of Cancer and the Tropic of Capricorn (23.5° N and 23.5° S) i s extremely varied, and frequently complex. I t ranges from sparse desert vegetation to the r i c h evergreen rain forests (Pringle, 1978). The variety r e f l e c t s differences in climate, especially temperature and moisture and t h e i r seasonal variations. These, in turn, are greately influenced by l a t i t u d e , a l t i t u d e and continental position (Sommer, 1976). The recent UNESCO c l a s s i f i c a t i o n recognizes within the tropics, at least 3 1 sub-categories of closed f o r e s t s , 11 of lowlands, six of scrub, and 12 of treed savannahs.. The Peruvian native f o r e s t s have been c l a s s i f i e d , using the Holdridge's System of Ecological C l a s s i f i c a t i o n , as Tropical and Sub-tropical Dry Deciduous Forest, Tropical and Sub-tropical Humid Forest, Tropical and Sub-tropical Very Humid Forest, and Tropical and Sub-tropical Rain Forest (Tosi, 1960). According to the UNESCD c l a s s i f i c a t i o n , the Peruvian native forest f a l l s largely into the three major groups of the "Closed Forest" whici are: Tropical Rain Forest; Humid Deciduous Forest, and Dry Deciduous Forest; and Savannah. . As any Tropical Forests, the most s i g n i f i c a n t feature of the Peruvian Tropical Forest i s the heterogeneity of i t s botanical composition* There are said'to be roughly 2,500 35 species of trees growing i n Peru (Lao, 1969) of which about 1,200 have already been botanically i d e n t i f i e d and more than 145 have been c l a s s i f i e d according to t h e i r wood physical and " mechanical properties (Arostegui et a l , 1973, 1975 and 1978) and are suitable for s p e c i f i c forms of production.. The botanical composition per hectare of the t r o p i c a l forest i n Peru varies from type to type and within the type of t r o p i c a l f o r e s t . In the Tropical Rain Forest and Humid Deciduous Forest which are the most important for i n d u s t r i a l purposes, the number of species per hectare (of stems with 25 cm dbh or over) ranges from 35 to 50 and the number of trees per species per hactare varies from one to 17 (Malleux, 1975).. These:variations, especially the f i r s t one, imply d i v e r s i f i c a t i o n s i n wocd properties which have a p a r t i c u l a r l y unfavourable impact on u t i l i z a t i o n (Erfurth and Eusche, 1976). The number cf trees growing per hectare of forest varies also with the type of forests and within the type of forests. In the case of the Dry Deciduous Forest and Savannah the average number of trees per hectare i s 70 stems with 15 cm dbh or over and for Tropical Rain Forest and Humid Deciduous Forest i t i s 100 stems with 25 cm dbh or over (Malleux, 1975). The number of trees per hectare in the Peruvian Tropical Forest can be considered high, but about 75% of the standing volume i s formed by 35 to 50 species, out of which few species may be considered currently marketable. In South America, about 470 wood species are more or les s known to the trade, of which about 210 are regularly used i n appreciable guantities and about 260 species are less used 3 6 (Erfurth and Rusche, 1976). On the other hand i n Peru, about 80 woods are used domestically but only 20 are exported (MICTI-DGCE, 1979). The number of Peruvian merchantable wood species could be increased substantially, especially i n expert markets, simply by using species not currently harvested which occur i n Peru's Amazon t r o p i c a l forests and which are currently used commercially i n B o l i v i a , B r a s i l , Colombia, Ecuador, Guyana, Surinam and Venezuela (Erfurth and Rusche, 1976). I t i s suggested that there are ahout 50 such species and that most of them could be exported to Colombia and Venezuela. The heterogeneity and complexity of the botanical composition of the Peruvian t r o p i c a l forests are the main constraints for the development of these natural resources.. 2.2 Product Mix Forest products produced in Peru comprise fuelwood, charcoal, pitprcps, posts, poles, sleepers, f l o o r i n g , sawnwood, plywood, veneer, particleboard and wcod pulp and paper. Of the t o t a l wood products production, 56% i s fuelwood and charcoal, 30% sawnwood, four per cent wood-based panels (plywood, veneer and particleboard), and ten per cent other wood products..The. composition of Peruvian wood products production i s shown i n Table 7 for the period 1961-1976. The data cle a r l y indicate that the period has been characterised by the rapid growth of i n d u s t r i a l roundwood production and a substantial decline i n non-industrial roundwood production.,In t h i s period there has been a fourfold expansion of i n d u s t r i a l wood production, twofold of wood-based panel products, threefold of wood pulp and more Table 7. Peruvian Forest Products Mix by End Use(1961-1976). Fuelwood & Post, Poles Woodbased Total Year Charcoal & Others Sleepers Flooring Sawnwood Panels Pulp Roundwood 1000 m3 % 1000 m3 % 1000 m3 % 1000 m3 % 1000 m3 % 1000 m3 % 1000 m3 % 1000 m3 % 1961 4,040.0 89.1 217.0 4.8 18.9 0.4 31.1 0.7 150.4 3.3 74.6 1.7 4,532.0 100.0 1962 4,120.0 88.4 219.0 4.7 15.1 0.3 36.2 0.8 189.1 4.1 80.9 1.7 - - 4,660.0 100.0 1963 4,120.0 87.0 278.0 5.9 17.6 0.4 33.4 0.7 200.1 4.2 85.9 1.8 - - 4,735.0 100.0 1964 4,240.0 87.6 158.0 3.3 15.1 0.3 8.9 0.2 309.1 6.4 108.9 2.3 - - 4,841.0 100.0 1965 4,370.0 87.7 117.0 2.6 11.3 0.2 3.7 0.1 351.9 7.1 128.1 2.6 - - 4,982.0 100.0 1966 4,500.0 86.8 62.0 1.2 7.6 0.2 0.4 0.0 458.2 8.8 155.8 3.0 - - 5,184.0 100.0 1967 4,650.0 86.8 70.0 1.3 15.1 0.3 45.9 0.9 405.7 7.6 171.3 3.2 - - 5,358.0 100.0 1968 2,109.9 71.3 268.7 9.1 2.8 0.1 20.1 0.7 490.2 16.6 68.8 2.3 - - 2,960.5 100.0 1969 2,218.9 71.9 279.9 9.1 3.9 0.1 17.1 0.6 484.7 15.7 70.1 2.3 10.4 0.3 3,085.1 100.0 1970 2,277.6 69.6 297.3 9.i 1.7 0.1 21.6 0.7 567.6 17.3 , 88.8 2.7 19.7 0.6 3,274.3 100.0 1971 2,330.9 66.2 319.6 9.1 2.2 0.1 36.3 1.0 691.2 19.6 99.9 2.8 40.3 1.2 3,520.4 100.0 1972 2,400.3 66.1 329.7 9.1 3.6 0.1 30.9 0.9 690.9 19.0 122.3 3.4 54.3 1.5 3,632.1 100.0 1973 2,460.3 66.1 337.7 9.1 2.5 0.1 41.3 1.1 706.9 19.0 131.6 3.5 39.6 1.1 3,720.0 100.0 1974 2,532.6 64.4 356.8 9.1 1.8 0.1 38.3 1.0 846.2 21.5 122.7 3.1 31.8 0.8 3,930.4 100.0 1975 2,599.4 63.8 370.0 9.1 1.5 0.0 20.0 0.5 •934.8 23.0 125.3 3.1 22.5 0.6 4,073.7 100.0 1976 2,673.9 56.0 433.9 9.1 2.6 0.1 25.3 0.5 1,424.3 29.8 183.1 3.8 35.1 0.7 4,778.1 100.0 Source: FAO, Yearbook of forest products statistics, Rome, 1978. MA-DGFF, Vademecum Forestal, Lima, 1977. 38 than ninefold of sawnwood production. Non-industrial roundwood (fuelwood and charcoal) production has declined from 4.04 mil l i o n cubic meters i n 1961 to 2.7 m i l l i o n cubic meters i n 1976..It i s considered that about half the volume of fuelwood and charcoal comes from forest land outside the commercial forests. Most of the sawnwood production in Peru draws on only six species, which accounted, on average, for over 74% of the annual volume of sawnwood production for the period 1973- 1977 (Table 8). Sixty percent of fl o o r i n g production i s comprised of only three species, about 100% of corestock for plywood by one species, 90% of plywood by one species, and 100% of wood pulp production by one species. The data c l e a r l y indicates the high concentration of Peruvian wood products i n few species. A s i m i l a r l y high degree of export concentration i s in a few species with respect to sawnwood, plywood and veneer. Three species ( Swietenia macrophylla, Cedrela spp., and Virola spp.) have accounted for 79% cf the 1978 sawnwood exports volume and in respect of plywood and veneer one species ( Chorisia spp.) has accounted f o r 79.5% of the 1978 export volume (Table 9). This high degree of concentration i s not unique to Peru, for 90% of log exports from Nigeria consists of only six species (Enabor, 1 976). It i s even more obvious in the r i c h forests of south east Asia. For example, about 3,900 species have been described i n the Philippines but les s than 100 reach lo c a l markets, and export trade i s dominated by only seven species (FAO, 1976a). Within the South American region, Peru produces about six Table 8. Peruvian Wood Products Production by Species (Selected Years). Species 1000 m' 1973 3 1000 m 1974 3 1000 m 1975 3 1000 m 1976 3 1000 m' 1977 3 Average 1000 m3 Cedro Eucalipto Roble Corriente T o r n i l l o Caoba Moena Roble Amarillo A l f a r o Ulcunano Copaiba Other species T o t a l : SAWNWOOD (Cedrela spp.) (Eucalyptus spp.) (Oootea epp.) (Cedrelinqa catenaeformie) (Swietenia macrophiilla) (Heatandra spp.) (Terminalia taropotensis! (Calovhullum b r a s i l i e n e e ) (Podocarpus utiHOT) (Sclerolobium spp.) 84.4 21.7 55.3 11.9 88.5 17.2 85.4 17.2 70.8 14.9 76. .9 16.6 78.7 20.3 142.0 30.5 85.0 16.6 82.5 16.6 86.3 18.2 94. ,9 20.4 45.8 11.8 70.8 15.2 108.6• 21.1 104.8 21.1 51.9 10.9 76. .4 16.0 37.3 9.6 50.3 10.8 59.3 11.5 57.1 11.5 68.5 14.5 54. ,5 11.6 22.2 5.7 16.8 3.6 26.1 5.1 24.8 -5.0 27.2 5.7 23. .4 5.0 14.2 3.7 17.7 3.8 20.8 4.1 19.9 4.0 37.5 7.9 22. .0 4.7 6.7 1.7 8.5 1.8 7.5 1.5 7.5 1.5 2.3 0.5 6. .5 1.4 6.3 1.6 10.2 2.2 7.9 1.5 7.5 1.5 5.9 1.2 7. ,6 1.6 5.6 1.4 6.5 1.4 4.4 0.9 4.5 0.9 1.0 0.2 4. .4 1.0 5.1 1.3 7.6 1.6 17.9 3.5 17.4 3.5 13.5 2.9 12. .3 2.6 82.2 21.2 79.2 17.0 87.7 17.1 85.4 17.2 109.3 23.1 88. .8 19.1 388.4 100.0 464.9 100.0 513.7 100.0 496.8 100.0 474.2 100.0 467. ,7 100.0 VENEER AND PLYWOOD Lupuna ( C h o r i s i a spp.) 45.8 89.1 40.9 86.3 48.2 98.4 70.7 93.6 N.A. N.A. 51.4 91.9 Copaiba (Sclerolobium spp.) 1.8 3.5 0.3 0.6 0.4 0.8 1.5 2.0 N.A. N.A. 1.0 1.7 Other species 3.8 7.4 6.2 13.1 0.4 0.8 3.4 4.4 N.A. N.A. 3.5 6.4 To t a l : 51.4 100.0 47.4 100.0 49.0 100.0 75.6 100.0 _ _ 55.9 100.0 Hualtaco (Loxopteriqium huasanqo) 4.9 42.2 2.9 27.1 1.3 22.8 1.1 15.3 0.5 7.0 2.1 22.9 Oreja de Leon (Tabebuia epp. ) 3.9 33.6 3.6 33.6 1.5 26.3 1.3 18.1 0.2 2.8 2.1 22.9 Guayacan (Teaoma qrandiceps) 1.1 9.5 1.5 14.0 1.5 26.3 1.3 18.1 0.5 7.0 1.2 15.0 Balsamo (Myroxylon balsamum) 0.1 0.9 0.2 1.9 0.2 3.5 0.2 2.8 0.0 0.0 0.1 1.8 Chonta ( I r i a r t e a spp.) 0.1 0.9 0.4 3.7 0.4 7.0 1.2 16.7 0.0 0.0 0.4 5.7 Other species 1.5 12.9 2.1 19.6 0.8 14.0 2.1 29.2 5.9 83.1 2.5 31.8 T o t a l : 11.6 100.0 10.7 100.0 5.7 100.0 7.2 100.0 7.1 00.0 8.4 100.0 PULP Cetico (Cecvopia epp.) 39.6 100.0 31.8 100.0 22.5 100.0 35.1 100.0 26.4 100.0 31.1 100.0 T o t a l : 39.6 100.0 31.8 100.0 22.5 100.0 35.1 100.0 26.4 100.0 31.1 100.0 Source: MA-DGFF, Vademecum Forestal, Lima, 1977. N.A. - Not a v a i l a b l e . Table 9. Peruvian Wood Product Exports by Species (1978). 3 Species . . . . Volume (m ) Percentage SAWNWOOD Caoba (Swietenia macrophylla) 5,239 38.7 Cedro tCedrella epp.) 2,934 21.7 Cumala (Virola epp.) 2,474 18.3 T o r n i l l o (Cedrelir.qa catenaeformie) 692 5.1 Copaiba (Sclerolobium spp.) 748 5.5 Nogal (Jua lands meotrooica) 430 3.2 Lupuna (Chorisia spp. ) 612 4.5 Ishpingo (Amburana caereneie) 74 0.6 Balsa (Ochvcma spp.) 70 0.5 Marupa (Simarouba amara) 66 0.5 Catahua (Hura crepitans) 27 0.2 Lagarto Caspi (Calophullum brasiliense) 21 0.2 Moena (Nectandra epp. ) 7 0.1 Other species 137 1.0 To t a l : 13,531 100.0 VENEER AND PLYWOOD Lupuna Copal Copaiba Cumala Marupa Caoba Capinuri Ishpingo Diablo fuerte Yacushapana Other species (Chorisia spp.) (Trattinickia peruviana) (Sclerolobium spp.) (Virola spp.) (Simarouba amara) (Swietenia macrophulla) (Clarisia nitida) (Amburana caerensis) (Podocarpu8 epp.) (Terminalia epp.) 17,172 79.5 1,145 5.3 929 4.3 454 2.1 216 1.0 216 1.0 324 1.5 194 0.9 259 1.2. 216 1.0 475 2.2 71.600 100.0 To t a l : Source: MICTI-DGCE, Autorizacines para exporter 1969-1978, Lima, 1979. O 4 1 per cent of the South America's production of i n d u s t r i a l roundwood, three per cent of sawnwood, two per cent of wood-based panels, 0.4% of wood pulp, f i v e per cent of paper (pulpwood and sugar cane baggase as raw material) and 1. 5% of other wood products (FAO, 1978). 2.3 Harvesting Problems U t i l i z a t i o n of the natural forests i n the t r o p i c a l region of the world t y p i c a l l y involves harvesting only a few selected species and leaving a substantial volume of the stand unused. The desire.to harvest and u t i l i z e greater proportions of the available forest i s often frustrated by t h e . m u l t i p l i c i t y of species, usually with widely varying densities and s i l i c a contents (Haygreen and Gregersen, 1979). Limited manufacturing and processing alternatives, t y p i c a l l y r e s t r i c t e d to only lumber or plywood, are important factors i n reducing the amount of available wood volume that can be u t i l i z e d . Forests of the Ama.zon are extremely heterogene ous. . The cost of applying modern logging techniques i s proh i b i t i v e , since only a handful of species are acceptable to the market..Logging operations are r e s t r i c t e d to a rather narrow band of land along rivers and creeks. Yield i s low, f i v e to ten m3/ha, but such operations are the mainstay of the forest industries of the region (Sanft and Delia Lucia, 1 979). In Peru, forest u t i l i z a t i o n contracts for areas up to 1,000 ha are being allocated to individuals or small contractors on the basis of requirements and a b i l i t y to pay the stipulated fees and r o y a l t i e s . The sawmills, plywood mills and pulp and paper 4 2 m i l l do not- log t h e i r own raw material, except i n a few cases. They obtain t h e i r supplies from independent loggers. Such successful contractors usually supply the logs to the processing firms f o r a commission..Wood costs to the timber processing firms tend to be higher than they would otherwise have been, with adverse affects on the competitive a b i l i t y of wood products exporters. ,The timber supply contractors are often financed by the milling companies f c r up to 50% of the estimated cost of each consignment and are responsible for a l l operations up to delivery of logs at the loading out area. The.royalties currently charged to in d i v i d u a l contractors in Peru vary between U . S. $ 1.35/MBF (soles 350/MBF) for Peruvian mahogany to U, S. $ 0. 38/MBF (soles 100/MBF) for r e l a t i v e l y unknown species..The royalty on many of the lesser known species i s t o t a l l y u n r e a l i s t i c in view of the market potential of the species. Operators paying t h i s royalty have no r e s p o n s i b i l i t y for the e f f i c i e n t u t i l i z a t i o n of the resource or f o r regeneration. I t i s esse n t i a l to establish equitable prices for timber to encourage the contractors to use the resource responsibly and to encourage the development of the lesser known species. The benefits of development of the lesser known species and the economic development of the region as a whole w i l l bring considerably greater long-term benefits than an inequitable royalty. Transport of logs to the processing plants i s almost entirel y by river..Logging i n the Peruvian t r o p i c a l forests has been confined to u t i l i z i n g species which w i l l f l o a t i n the many rivers of the region. L i t t l e mechanized logging i s done. Axes 4 3 are s t i l l widely used f o r f e l l i n g and l o g s on high ground are manhandled to the nearest stream along which i t i s a n t i c i p a t e d they can be f l o a t e d out to the main r i v e r s during p e r i o d s o f annual high water. On reaching the main r i v e r the l o g s are bound i n t o r a f t s and f l o a t e d to the m i l l s . The r i v e r system of t r a n s p o r t a t i o n , however, i s u n r e l i a b l e . When the usual l e v e l s o f high water do not occur, t h i s r e s u l t s i n l a r g e q u a n t i t i e s of l o g s being stranded i n the f o r e s t s . . T h i s problem together with the g e n e r a l shortage of wood, r e s u l t s i n i n c r e a s e d l o g p r i c e s i n the region*. . There i s some mechanized s k i d d i n g to e x i s t i n g roads but l i t t l e . l o g g i n g road c o n s t r u c t i o n has been done, except at I p a r i a which i s a government programme. Some c o n t r a c t o r s have begun to use rubber t i r e d s k i d d e r s but these machines are used mainly to t r a n s p o r t l o g s which do not f l o a t . Since the r i v e r s are the t r a d i t i o n a l t r a n s p o r t a t i o n medium, lo g g i n g extends back from them u n t i l i t i s too d i f f i c u l t or c o s t l y t o b r i n g i n l o g s and then a new c u t t i n g area must be. found. Large areas are worked over every year and the average recovery, by present methods, i s estimated at three m3/ha. Because of the dependency on high water to f l o a t l o g s , some logs remain i n the f o r e s t s or i n the r i v e r f o r long p e r i o d s , perhaps up to 16 months. The i n c i d e n c e of f u n g a l and i n s e c t damage to such l o g s , and subsequent waste are hi g h . Save f o r the widespread s e l e c t i v e e x p l o t a t i o n of the already depleted f o r e s t s , organized l o g g i n g has to be i n t r o d u c e d i n the r e s t of Amazonian f o r e s t s . Two b a s i c l i n e s o f approach may be taken. One i s t o improve l o g g i n g methods to achieve 4 4 f u l l e r u t i l i z a t i o n of the resource i n the areas under logging contracts and to extend the region's base through reduced waste and higher productivity. The other important l i n e of approach i s to i n i t i a t e the planning and i n s t a l l a t i o n of i n s t i t u t i o n s and infr a s t r u c t u r e so as to extract wood with increasing i n t e n s i t y from permanent production forests i n the region.. Various combinations of logging techniques may be adapted and introduced to suit l o c a l conditions. Mechanization seems necessary and suited to tap the Amazonian forest potential..This w i l l have to come about i n bold steps, which, however, require cautious charting to prevent recurrence of faulty investment. Three courses of action could be employed to modernize Amazonian dry-land logging. One i s through market promotion backed by technological development regarding timber u t i l i z a t i o n . Another i s to improve l i n e s of export so that the less preferred species can bear long distance transportation costs. A t h i r d l i n e of action i s to delineate r e l a t i v e l y homogeneous m i c r o - l o c a l i t i e s for concentrated working with concomitant reduction i n unit costs of logging and management. Lo g i s t i c planning in the Amazon region involves using waterways for long-distance transportation* In addition to coordinating logging operations and the location of in d u s t r i e s , which also takes account of present and planned road networks i t i s necessary to modernize logging methods, including the use of freighters, large capacity barges and sli n g boats. Another aspect of the production-processing chain i s to locate terminals at strategic s i t e s for optimizing logging, handling and transportation costs from the forest to the 45 consumer. I n t e g r a t i o n between h a r v e s t i n g and pro c e s s i n g i s c a l l e d f o r to achieve these ends, and p o l i c y measures are re q u i r e d so t h a t i n d u s t r i e s undertake and f i n a n c e l a r g e - s c a l e l o g g i n g . Investments i n i n f r a s t r u c t u r e , roads, and other permanent i n s t a l l a t i o n s w i l l serve not only i n t h e : h a r v e s t i n g of the v i r g i n crops but a l s o i n f u t u r e cropping. The c o s t of these items per u n i t of wood can be decreased d r a s t i c a l l y then. T h i s a l s o would be the beginning of a switch from " e x p l o i t a t i o n " f o r e s t r y t o "sus t a i n e d y i e l d " p r a c t i c e s . 2.4 Wood Products Marketing Problems Des p i t e the immense f o r e s t resources found i n Peru, the country s u p p l i e s only a very s m a l l part of world f o r e s t product imports (FAO, 1978). Even i n i t s s i n g l e major e x p o r t market, the United S t a t e s , Peru's p a r t i c i p a t i o n has not been s i g n i f i c a n t (Mucha, 1979) . C o n s i d e r i n g Peru's p r o x i m i t y to the United S t a t e s and i t s supposed lower cost wood and labo u r , t h i s p a r t i c i p a t i o n could be g r e a t e r , but there are many f a c t o r s , some of them common to most of the L a t i n American c o u n t r i e s , which have hampered the development of Peruvian f o r e s t product exports. Among these f a c t o r s are the het e r o g e n e i t y of the f o r e s t s , problems of market acceptance, a c c e s s , consumer p r e f e r e n c e s , competition from other t r o p i c a l hardwood products' s u p p l i e r s , c o s t problems a s s o c i a t e d with t r a n s p o r t a t i o n , l a c k of adequate i n f r a s t r u c t u r e , l a c k of markets f o r lower q u a l i t y by-products, and a ge n e r a l l a c k o f o r g a n i z a t i o n . The h e t e r o g e n e i t y of any f o r e s t i s c l o s e l y r e l a t e d to the 4 6 quality and quantity of species available for the domestic and export markets, which i n the case of t r o p i c a l forests represents a problem. . The problem of quality and unacceptable wood ch a r a c t e r i s t i c s i s a major one._Surprisingly few Latin American hardwood species are accepted i n the Unites States market. For example, out of the thousands of species i n the Amazon forests only about 90 or 100 are commercially known and only about 15 are widely sold. This i s because adequate information on properties and uses of the various species i s lacking..But i t i s also due to a great extent to the fact that a majority of Latin American species do not have the physical c h a r a c t e r i s t i c s demanded by the United States market (Gregersen, 1971). The second problem relates to requirements of the United States importer f o r f a i r l y large quantities of a p a r t i c u l a r species i n a shipment and assurance that such supplies w i l l be forthcominq on a f a i r l y regular schedule. . Since the Peruvian t r o p i c a l forests are extremely heterogeneous i n terms of species composition, with the exception of limited areas such as Podocarpus association, i t becomes extremely d i f f i c u l t for the average Peruvian producer to supply large enough quantities of a given species at a low cost. Species groupings, such as the Lauan group from Asia and Okume from A f r i c a , have been widely accepted on the in t e r n a t i o n a l market (Gregersen, 1971). These groupings help provide f l e x i b i l i t y in logging the t r o p i c a l forest and permit Asia and A f r i c a to meet the quantity requirements of the United States and European markets. Such species groupings should be developed for Peru and Latin America as a whole* 4 7 Market acceptance extends beyond the technical aspects of s a t i s f a c t o r y performance to the economics of steady supplies in s u f f i c i e n t volume and at the right prices. The introduction of new species i s not an easy task,. Apart from useful technical q u a l i t i e s , a timber must be able to compete i n price with an established timber of the same c l a s s , while supplies must be available regularly i n quantity and offered i n sound condition (Imperial I n s t i t u t e , 1928).,For various reasons i t i s often d i f f i c u l t to comply with a l l these requirements..In the Peruvian case, the introduction of new species i s hindered by the lack of knowledge of physical and technoloqical properties by the exporters and importers, inadequate a v a i l a b i l i t y i n quantity and lack of promotional programmes. The prevailing l e v e l and structure of t a r i f f s presents a barrier to the expansion and broadening of the trade flow i n forest products from developing to developed countries (Bandrowski and Staton, 1S80).,In most of the i n d u s t r i a l i z e d countries there are no import t a r i f f s on unprocessed wood and on most types of unplaned sawnwood but there i s duty on veneer, plywood and other processed woods which varies from free to 15% (Bandrowski and Staton, 1980)., The influence of trade barriers on the Peruvian wood products exports can be considered as s l i g h t . The logs and sawnwood exports to Western Europe and North America are exempted from duties because Peru i s one of the "most favoured" nations according to in t e r n a t i o n a l trade agreements. Veneer and plywood exports to North America are not exempt from duties but with the implementation of the Kennedy Round t a r i f f concessions, 48 d u t i e s o n v e n e e r a n d p l y w o o d w e r e t o b e e l i m i n a t e d e v e n t u a l l y . R e m o v a l o f s u c h d u t y b a r r i e r s c o u l d i n c r e a s e t h e e x p o r t s t o t h e U n i t e d S t a t e s . C o m p e t i t i o n f r o m o t h e r t r o p i c a l f o r e s t p r o d u c t s s u p p l i e r s a n d c o n s u m e r p r e f e r e n c e s h a v e b e e n i m p o r t a n t f a c t o r s i n f l u e n c i n g t h e P e r u v i a n w o o d e x p o r t t r a d e . . M a r k e t p e n e t r a t i o n b y P e r u v i a n h a r d w o o d s w i l l n o t b e e a s y g i v e n t h e e s t a b l i s h e d p o s i t i o n o f o t h e r p r o d u c e r s , s t r o n g a n d g r o w i n g c o m p e t i t i o n f r o m s o u t h e a s t A s i a a n d t h e d i f f i c u l t y o f i n t r o d u c i n g n e w u n k n o w n s p e c i e s . .. C o n s u m e r p r e f e r e n c e s h a v e b e e n d e t e r m i n e d , n o t s o m u c h b y p r i c e r e l a t i o n s h i p s o f w o o d a n d n o n - w o o d p r o d u c t s , b u t b y c h a n g e s i n f a s h i o n a n d t a s t e s . T h e s e p r e f e r e n c e s a r e r e f l e c t e d i n c o n s u m e r c h o i c e s b e t w e e n h a r d w o o d s a n d s o f t w o o d s , b e t w e e n d i f f e r e n t h a r d w o o d s , a s w e l l a s b e t w e e n w o o d a n d n o n - w o o d p r o d u c t s . U N C T A D - G A T T (1973) h a v e o b s e r v e d t h a t f o r s a w n w o o d , b e t t e r o r g a n i z a t i o n , h i g h e r q u a l i t y a n d a b i l i t y t o p r o d u c e t o s p e c i f i c a t i o n s , a s w e l l a s f a s t e r d e l i v e r y , h a v e e n a b l e d A s i a n w o o d e x p o r t e r s t o c a p t u r e a n i n c r e a s i n g s h a r e o f t h e W e s t e r n E u r o p e a n m a r k e t a t t h e e x p e n s e o f A f r i c a n a n d L a t i n A m e r i c a n p r o d u c e r s . . T h e c o s t o f t r a n s p o r t f r o m P e r u t o t h e U n i t e d S t a t e s i s a c r i t i c a l v a r i a b l e i n t h e f i n a l c o s t d e t e r m i n a t i o n * T h e d i s t a n c e s f r o m P e r u v i a n p o r t s t o U . S . p o r t s a r e s h o r t e r t h a n f r o m A s i a o r A f r i c a . Y e t , p h y s i c a l d i s t a n c e i s n o t t h e r e l e v a n t c o n s i d e r a t i o n . F r e i g h t r a t e s o n P e r u v i a n w o o d e x p o r t s c o u l d b e c o n s i d e r e d a m o n g t h e h i g h e s t i n t h e w o r l d . . T h e o c e a n f r e i g h t r a t e s f o r P e r u v i a n s a w n w o o d t o P a c i f i c p o r t s i n t h e U n i t e d 49 States varied between U.S.$ 65 to U.S.$ 70/ra3 * in 1978. These rates f o r t h i s distance are in some cases twice the rates paid from south east Asia and the Philippines to the United States west coast ports. S i m i l a r l y , the ocean fr e i g h t rates for Peruvian wood products to European countries are high and they also vary between the Peruvian ports of export. For example, the freight charge from Callao, Peru to Europe in 1977 was U.S. .$ 42 to 59/m3, as compared'to U.S. $ il10/m3 from Iguitos, Peru to Europe (MICTI-DGCE, 1977). rThe lower costs are a re s u l t of d i f f e r e n t shipping rates which .depend on the volume being shipped, the extent of return freight capacity being u t i l i z e d , and the type of shipping being used. If these factors could be overcome by Peruvian wood product exports they might reduce these freight rates to about two thirds of t h e i r current cost. Freight charges from Callao, Peru to Vancouver could be about U.S.$ 20/m3 i f minimum volume of shipment per year were 100,000 m3 of wood products with guarantee back haul and about U.S.$ 15/m3 i f minimum volume of shipment per year were 220,000 m3 2 . In most cases, unless specialized shipping i s used, the costs for lumber shipments are high from Peruvian ports and the r e l i a b i l i t y of shipments i s low. This l a t t e r item i s extremely important since U.S. importers have to be able to count on shipments being delivered within a given period of time. Interminable delays and high handling and insurance costs (usually borne by importers) 1 Information gathered from U.S. shipping companies.. 2 Information provided by a Vancouver shipping company, January, 1980. 50 discourage wood products exports from Peru* Many of the Peruvian wood products marketing problems r e f l e c t the d e f i c i e n c i e s of the wood-based industry (David et a l , 1977). Many firms have only small quantities of exportable products and i n d i v i d u a l l y do not have the f i n a n c i a l resources to develop export markets. There are also problems in orqanizing r e l i a b l e shipping.. The industry has developed e s s e n t i a l l y without any planning and l i t t l e government control. Consequently, there.has been a p r o l i f e r a t i o n of small, uneconomic plants which are poorly located and use out-dated equipment. Many mills have been set-up without adequate thought to raw material supplies and employ inexperienced managers. The producer has to set certain quality and size standards for his production based on export market requirements and adhere to these standards through a system of quality controls. Often the experience and technical expertise to operate such a system i s unavailable or expensive to i n s t i t u t e i n Peru. For example, most sawyers are untrained in the techniques of obtaining top quality lumber from the logs. As a r e s u l t , log conversion r a t i o s tend to be very low, often between 30 to 50% from logs to lumber (FAO, 1979a) , and t h i s adds to cost. The.producer also has to meet certa i n preservative treatment and seasoning standards. Drying and treating f a c i l i t i e s are scarce in Peru and techniques s p e c i f i c to t r o p i c a l species are not well known. A high proportion of the wood products exported comes from a few m i l l s employing modern techniques and equipment. Given the 51 optimal conditions, and government cooperation, these firms should be able to produce to int e r n a t i o n a l product s p e c i f i c a t i o n s and compete e f f e c t i v e l y i n export markets. Another problem of wood products marketing i s the lack of markets for the lower-quality material which i s a necessary by-product of the export production. M i l l s often have.to dispose of 2 or 3 MBF of nonexportable material for every MBF of high quality material. I f these lower-quality materials are not sold p r o f i t a b l y , or at least at cost, the p r o f i t a b i l i t y of the export operation can be severely affected (Greqersen, 1971). The lack of applied grades also increases the.uncertainty in trading, makes price negotiation d i f f i c u l t and hinders the establishment of new markets. 5 2 CHAPTER THREE EXPORT POTENTIAL 3 . 1 Location and Potential Size of Export Markets 3 . 1 . 1 The Export Outlook: Demand Several studies on the trends of demand for wood products in the i n d u s t r i a l i z e d countries of Europe and North America have been carried out i n recent years (FAO, 1 9 7 1 ; Hair, 1969; Stone and Saeman, 1977; Stone and Dickerhoof, 1 9 7 7 ; USDA, 1 9 7 3 ; UNCIAD-GATT, 1 9 7 3 ) . A l l these studies have concluded that excellent opportunities exist for expansion of t r o p i c a l hardwood exports. JAPAN Japan, the largest consuming region of t r o p i c a l hardwood products, foresees consumption of i n d u s t r i a l wood increasing from the 1 9 6 9 - 1 9 7 1 l e v e l of tl00 m i l l i o n m3 to 153 m i l l i o n m3 i n 2021 (Japanese Ministry of Agriculture and Forestry, 1 9 7 3 ) . Estimates are that domestic supplies w i l l more than double i n the same period to 94 m i l l i o n m3. This w i l l r e s u l t in imports 53 continuing to r i s e u n t i l about 1986, but subsequently f a l l i n g . The import requirements are indicated as 85 million m3 i n 198 1, 98 m i l l i o n m3 i n 1991 but only 59 m i l l i o n m3 in 2021. There i s no clear i n d i c a t i o n as to the type of product or species assortments that w i l l be needed as imports in the future. .It might be expected that large logs, or products from them, w i l l be the.major requirements. The demand estimates are considerably more modest than those appearing in a 1971 market study prepared by FAO. EUROPE Europe, the second largest consuming region of t r o p i c a l hardwood products, w i l l have d i f f i c u l t y i n meeting demand as projected to 2000 by increased domestic production, including use of residues and recycling, and imports combined (Pringle, 1976). Preliminary estimates of annual imports from the e x i s t i n g t r o p i c a l f orest were set, f o r 2000, at 25 to 35 m i l l i o n m3 of roundwood equivalent (FAO-ECE, 1976), compared to the 17 m i l l i o n m3 imported in 1973. NORTH AMERICA THE UNITED STATES The United States Forest Service has estimated that the United States consumption of hardwood products could reach 28.8 m i l l i o n m3 by 1990, 32.5 million by 2000, 3 6.9 m i l l i o n by 2010, 41.7 m i l l i o n by 2020 and 45.7 m i l l i o n by the year 2030 (Darr and L i n d e l l , 1980), according to the price assumptions made and 54 under the assumed rates of economic and population growth.. A study on t r o p i c a l hardwood trade undertaken by the World Bank also projects demand for t h i s category of wood and has estimated that the United States imports of t r o p i c a l hardwood could rise from 6.4 mi l l i o n m3 (round wood equivalent) in 1968 to 10.9 m i l l i o n m3 i n 1975, to 14.3 m i l l i o n m3 by 1 980, and to 16.0 m i l l i o n m3 by 1985. In t o t a l , the United States could be importing by 1985, more than 1 1/2 times the l e v e l of 1975 volume of t r o p i c a l hardwood products imported. Tropical plywood imports are projected to reach 3.1 m i l l i o n m3 by 1990, 3.3 million by 2000, 3.5 m i l l i o n by 2010 and 2020 and 3.4 m i l l i o n by the year 2030. Trop i c a l hardwood lumber imports are expected to increase f i v e f o l d between 1975 and 2030 from 0.5 million m3 to 2.4 mi l l i o n m3, respectively, but demand for round logs w i l l remain the same over the period. CANADA Future hardwood imports by Canada may be generally moderate (Enabor and Haley, 1975) because of the r e l a t i v e abundance of domestic wood supplies..Tropical hardwood products could increase considerably according to indications that wood consumption i n Canada w i l l continue tc r i s e rapidly with increases i n population and economic growth (Manning and G r i n n e l l , 1971). Although r e l i a b l e estimates and projections of t r o p i c a l hardwood consumption i n Canada are not available, the past trends c l e a r l y suggest a continuing growth in the future with veneer and plywood imports accounting for the.greater part 55 of the increase..Tropical sawnwood imports are also l i k e l y to show a modest increase, while log imports are expected to s t a b i l i z e at current l e v e l s . The prospects for t r o p i c a l .hardwood products i n North America appear to be bright especially in the United States where there i s a fast deminishing domestic supply of hardwoods of preferred species and sizes (Enabor and Haley, 1975). OTHEB MARKETS Pringle (1976), i n h i s study on t r o p i c a l moist forests i n world demand, supply and trade, gives tentative prospective world demand estimates by decades to the end of the century but no attempt was made to distinguish consumption by type of product or to break down imports by degree of processing. . These estimates show that the other market 3 demand for products of t r o p i c a l hardwood logs could be 23 m i l l i o n m3 (roundwood equivalent) by 2000, compared to 9 m i l l i o n m3 in 1973, which i s an increase of about 156%.. 3. 1. 2 The Export Outlook; Supply The production and export of t r o p i c a l hardwood logs and the i r products have.come from three regions, A s i a - P a c i f i c , Latin America and A f r i c a . Exports of t r o p i c a l hardwoods have been heavily concentrated i n a very few countries (FAO, 1978). Fourteen t r o p i c a l producing countries accounted for the bulk of production; B r a s i l , Burma, Colombia, Costa Rica, Gabon, 3 Other markets exclude Japan, Europe, North America, Asia-P a c i f i c , Latin America and Africa. 56 Ghana, India, Indonesia, Ivory Coast, Madagascar, Malaysia, Nigeria, Philippines and Thailand. Together with approximately 12 others, accounted f o r most of the world's t r o p i c a l moist forest area and volume (Pringle, 1976). A few of the l a t t e r group, including B o l i v i a , Cameroon, Papua New Guinea, Peru and Zaire, have considerable forest areas (FAO, 1963), which have not made corresponding contributions to world production and exports. The. potential for future production of t r o p i c a l hardwood products to supply existing and prospective markets i s very hard to evaluate. Information available for thi s purpose exists only for a few countries or the information available i s not adeguate for analysis. Despite the information problem, Pringle (1976) managed to make a broad perspective summary of potential future production. Dividing the t r o p i c a l countries into four groups, he suggested that countries of the f i r s t group (Ghana, India, Nigeria, the Philippines and Thailand) have limited forest resources for expansion and their attention i s currently on processing for domestic needs and higher value exports. These countries with long h i s t o r i e s of t r o p i c a l forest explotation are t r a d i t i o n a l export suppliers with considerable processing f a c i l i t i e s for both domestic and export markets.. The second group (Gabon, Ivory Coast and Sabah-Malaysia) has a f a i r l y limited period of future exploitation at the current rate, mainly because they have seen extensive exploitation f o r export logs over the past one to two decades and the remaining unexploited areas are less accessible. The t h i r d group ( B r a s i l , Burma, Cambodia, Colombia, 57 Ecuador, Indonesia, Madagascar, Peninsular Malaysia, People's Republic of the Congo, Peru, Sarawak-Malaysia, Venezuela and Zaire) has experienced heavy exploitation in accessible areas but considerable unexplcited or l i t t l e exploited areas remain. And the l a s t group, (Bolivia, Cameroon, Central A f r i c a Republic and Papua New Guinea) has been l i t t l e exploited as yet but are characterized by d i f f i c u l t y of access. Because of their remaining unexploited areas B r a s i l , Indonesia, Papua New Guinea, Peru, and Zaire are of p a r t i c u l a r i n t e r e s t i n assessing the long-term potentials for production. Some recent appraisals, although of a p a r t i a l and tentative nature, have made some attempt to consider the forest potential of these areas and the p o s s i b i l i t y of meeting medium and long-term demands. ASIA-PACIFIC For the t r o p i c a l portion of the region i t i s suggested that a surplus balance of t r o p i c a l hardwood products w i l l exist i n the year 2000. A study carried out by FAO (1976b) summarized the findings, for 199 1, as follows: 1. .South Asia, balance in i n d u s t r i a l roundwood and d e f i c i e n t i n fuelwood ; 2..Continental south east Asia, surplus i n i n d u s t r i a l roundwood and d e f i c i e n t i n fuelwood; and 3. Insular south east Asia, surplus in i n d u s t r i a l roundwood but d e f i c i e n t i n fuelwood. The study also concluded that developing east Asia w i l l be def i c i e n t i n i n d u s t r i a l roundwood, par t i c a u l a r l y f o r the re-58 export i n d u s t r y . These three t r o p i c a l sub-regions show a c o n s i d e r a b l e combined s u r p l u s , 243 m i l l i o n m3 (roundwood eq u i v a l e n t ) f o r i n d u s t r i a l roundwood but a combined d e f i c i t , 393 m i l l i o n m3 f o r fuelwood. LATIN AMERICA C u r r e n t l y there i s no study t h a t estimates the p o t e n t i a l supply of t r o p i c a l products from t h i s r e g i o n because of l a c k of data..FAO (1976b) i n the study mentioned above made p r e l i m i n a r y broad estimates of the l e v e l of p o t e n t i a l supply, consumption and balance f o r roundwood e q u i v a l e n t of wood products f o r L a t i n America and other r e q i o n s . . T h i s study suggested t h a t L a t i n America could supply 900 m i l l i o n m3 (roundwood equivalent) by 1991, of which 570 m i l l i o n m3 w i l l be consumed i n the r e g i o n , 58% as fuelwood, and 330 m i l l i o n m3 w i l l remain as a s u r p l u s . . AFRICA Many t e n t a t i v e a p p r a i s a l s have been made on f u t u r e production p o t e n t i a l of A f r i c a n f o r e s t s i n r e l a t i o n to present and p r o s p e c t i v e demands upon them, but a l l these a p p r a i s a l s were l i m i t e d by the l a c k of data. P r i n g l e (1976) s a i d t h a t these t e n t a t i v e a p p r a i s a l s l e a d to c o n c l u s i o n s that the A f r i c a n f o r e s t s , except p o s s i b l y those of Z a i r e , w i l l be hard pressed to supply even domestic requirements by the end of the century. T h i s c o n c l u s i o n i s r e i n f o r c e d by FAO (1976b) i n i t s p r e l i m i n a r y broad estimates of l e v e l of p o t e n t i a l supply and consumption f o r t h i s r e g i o n , which suggests that A f r i c a could f a c e a d e f i c i t of 70 m i l l i o n m3 (roundwood equ i v a l e n t ) by 1991. A f r i c a ' s p r o j e c t e d 59 consumption of i n d u s t r i a l roundwood i s 35 m i l l i o n m3 and 435 m i l l i o n m3 fuelwood by that year, whereas i t s estimated supply i s 400 m i l l i o n m3 i n 1991. On the basis of the above discussion and the Peruvian Ministry of Commerce and Trade s t a t i s t i c s (Table 10) four markets exi s t for Peruvian t r o p i c a l hardwood products: North America, Europe, Asia P a c i f i c region and Latin America. North America i s the most important market, and accounted for over 94% of the t o t a l volume of sawnwood and wood-based panel exports, respectively, i n 1969, and for over 32% and 51% of the t o t a l volume of sawnwood and wood-based panel exports, respectively, i n 1978. The United States t r o p i c a l hardwood market, which almost e n t i r e l y dominates t h i s region, i s characterized by i t s very large size and i t s imports of products in processed form. Hardwood sawnwood and wood-based panels are expected to increase t h e i r position marginally over softwoods. Imported t r o p i c a l hardwood plywood markets are expected to continue to be dominated by Asian producers but competition could grow because the prospective supply from Latin America i s expected to increase considerably during the next decades..This suggests an excellent opportunity to expand Peruvian t r o p i c a l hardwood product exports to t h i s market. Canada, the other North American market for Peruvian t r o p i c a l hardwood products, i s a small market, which i n 1977 accounted for 15% of the t o t a l volume of Peruvian wood-based panel exports, but d r a s t i c a l l y declined in 1978 to only one per cent of the t o t a l volume of wood-based panel exports. Canada could be considered a market of considerable size f o r Peruvian Table 10. Market, (or Peruvian Tropical Hardwood Product Exports (Selected Years). 1969 I Value Volume (Volum 1970 I Value Volune X Value Volun • Percentage of Volume; Value - USS) 1978 X Value Softh America! 7.708 94.40 480.121 6.568 59.30 329.176 4.090 42.60 617.195 j^Hi 32.70 }?7 .OOP U.S.A. Canada 7,708 94.40 480,121 6,577 59.20 128,614 11 0,10 962 4,090 42 .60 617,195 4,326 95 32.00 0.70 576,000 21 ,000 Europe! 15 0.50 2.808 1.568 16.40 257.833 England Went Germany Spain Neth.rlanda Belglum Italy Switzerland Prance Svrdrn Finland Aala Pacific Region; 33 0.30 1,68* 11 0.10 561 11 0.10 288 389 343 23 10 132 238 130 15 3.00 4.10 3.60 0.20 0.10 1.40 2.50 1.40 0.10 57,309 67,012 60,776 2,756 1,746 16,150 18.361 30,480 3,243 916 6.90 2U.000 441 5.40 27.813 720 7.50 110.947 Japan Oceania Latin Anerlca: 441 5.40 27,813 11 0.10 185 535 1.90 5.60 35,816 75,131 16 0.20 1.018 4.456 40.10 222.954 3.2.15 33.50 566.349 Venezuela Colombia Ecuador Dominican Republic Chile Mexico 16 0.20 1,018 367 3.30 18,525 11 0.10 561 4,078 36.70 203,868 2,843 29.60 489,579 86 0.90 22.770 286 3.00 54,000 209 451 95 14 86 59 1.50 3.30 0.70 0.10 0.60 0.40 68.000 83,000 24,000 3.000 19.000 11,000 8.174 5,752 60.40 1W.OO0 2,387 11 42.50 0.20 17.60 0.10 953,000 4.000 535,000 2,000 8,165 100.0 508,952 11.110 100.0 555,500 9.593 100.0 1,552,324 13.531 100.0 2,302.000 WtWP-BASED PASEL3 Horth America: U.S.A. Canada Europe: West Germany Be lgluts England Spain Latin America! Venetuela Colombia Chile Ecuador Panama Argentina Others 6 078 94 70 802.434 8.389 98.90 852.961 12.658 80.00 1J69.513 13.097 51.00 2,120,000 6,078 94.20 802,434 8,389 98.90 852,961 10,247 2,411 64,80 1^ 43,152 15.20 326.361 12.923 174 50.30 2,093,000 0.70 28.000 349 5.40 45.954 94 1.10 9.477 326 5.00 42,547 23 0.40 3,407 26 0.40 3.408 94 1.10 9,477 131 25 0.50 0.10 21.000 4,000 10 0.15 1,704 16 0.25 1.704 3.173 1,438 9.07 1,699 10.70 a 0.20 32 0.03 75 31 0.30 0.10 12,000 5,000 20.00 881 .933 12.41,6 48.50 2 "97.000 269,137 2.708 10.60 529,000 592,382 9,012 )S. 10 1451,000 4,050 248 1*60 40,000 16,364 422 1.00 68,000 56 0.20 9,000 C3N O 6.453 100.0 851,796 8.483 100.0 862,438 15.831 100.0 2.851.446 25,674 100.0 4,238.000 Source: MICTl-DGCE. Autorliacion para exporter 1969-1978, Lima, 1979. 6 1 t r o p i c a l hardwood products, especially wood-based panel. Europe i s another large market for t r o p i c a l hardwood products. Tropical hardwoods, mostly from A f r i c a , make up varying proportions of t o t a l log and sawnwood imports depending on country..France, I t a l y , Spain and West Germany import more than 50% of t r o p i c a l hardwoods as logs, while other European countries are more open to processed products (FAO, 1978). Asia i s the major source of t r o p i c a l sawnwood to Europe, providing 75%. Because Africa i s declining as a source of sawnwood to t h i s market there i s good potential for Peru and Latin America, as a whole, to increase i t s share.of t h i s market. Among the major European consumers the best prospects for Peru are England, I t a l y , Spain and West Germany. England i s p a r t i c u l a r l y important because t h i s market r e l i e s almost e n t i r e l y on imports f o r i t s wood requirements. Ten European countries are importing t r o p i c a l hardwood products from Peru (Table 10) .. Although these imports are i n small quantity, i t suggests that Peruvian t r o p i c a l hardwood product exports to these countries could be expanded considerably i n the next decades. The A s i a - P a c i f i c region f o r t h i s discussion i s defined as Japan and Oceania* Japan, the largest market for t r o p i c a l hardwoods, especially logs, could be considered one of the largest potential markets for Peruvian t r o p i c a l hardwood products. Some uncertainty regarding future log supply to Japan from present producers could enhance t h i s p o s s i b i l i t y . Oceania could be the other possible market for Peruvian hardwood products. These countries imported almost six per cent 62 of the t o t a l volume of sawnwood exports from Peru i n 1977.. Latin America, as a whole, i s and has been predominantly a regional self-consumer cf i t s log products, with most of the exports being i n t r a - r e g i o n a l . This p a r t i c u l a r feature makes Latin America another potential market for Peruvian t r o p i c a l hardwood products which i s reinforced by the Peruvian Ministry of Commerce and Trade s t a t i s t i c s (Table 10). The region accounted for less than one percent of t o t a l sawnwood and wood-based panel export volumes in 1969. By 1978, the amounts had risen to over 60 and 48%, respectively.. Currently, Peru exports t r o p i c a l hardwood products to more than six countries i n Latin America: Argentina, Chile, Colombia, Dominican Republic, Ecuador, Mexico, Panama and Venezuela.. Venezuela and Colombia are the most important markets, together with the Dominican Republic, f o r Peruvian t r o p i c a l hardwood products. Together, Venezuela and Colombia accounted f o r over 30% of the t o t a l volume of sawnwood, and for over 19% of the t o t a l volume of wood-based panel exports in 1977. These amounts increased to 42% of the t o t a l volume of sawnwood exports and 45% of the wood-based panel exports in 1978. The Dominican Republic's imports of Peruvian t r o p i c a l hardwood sawnwood accounted for over 17% of the t o t a l volume of sawnwood exports in 1978. Among the Latin American consumers the best prospects for Peruvian t r o p i c a l hardwood exports are Venezuela, Colombia and Argentina..They require increasing imports of both softwoods and hardwoods to meet t h e i r growing needs. For instance, Venezuela imported U.S.$ 28.8 mil l i o n of wood products i n 1977 (FAO, 63 1979a), 0. S.$ 23.1 m i l l i o n being spent on softwood imports and U. S. $ 5.7 mi l l i o n on hardwood imports. 3.2 Costs of Delivering Wood to Export Markets Comparative advantage i s the economic advantage one nation or region.holds compared to others i n the production of a demanded commodity, and t h i s i s a dr i v i n g force in world trade. Comparative advantage can arise where economies of scale e x i s t and cost advantages occur i n the production of some commodity (Manning, 1977). Large scale production with declining costs per unit usually requires large-scale c a p i t a l investment, the presence of s k i l l e d labour and modern technology, the a v a i l a b i l i t y of raw material and the energy to turn the wheels of industry (Holland, 1977).. But comparative advantage can and does occur i n the absence of some of these requirements. ,It can ari s e where a source of a particular demanded a q r i c u l t u r a l product exists or where a raw material and i t s products, such as the merchantable timbers and wood products of t r o p i c a l countries are needed. Trade is closely related to comparative advantaqe among the nations of the world, conditioned or limited by such i n s t i t u t i o n a l factors as t a r i f f s , quotas, or other g e o p o l i t i c a l considerations, and especially by the l e v e l of transportation costs r e l a t i v e to the values of the products traded (Manning, 1977). Present patterns of wood trade, including trade i n wood products, r e s u l t from a complex inte r a c t i o n of country and regional comparative cost advantages, t a r i f f s , quotas and transportation costs.. 64 Of primary concern i n examining the guestion of cost of delivering wood to export markets i s the difference in t r o p i c a l hardwood product prices between Peru and i t s competitors. As explained i n t h i s section, t h i s difference (Peru/competitor price d i f f e r e n t i a l s ) indicates a key factor in allowing t r o p i c a l hardwood product exporters to successfully compete in export markets. _ Analysis of the price d i f f e r e n t i a l for a l l t r o p i c a l hardwood products i s complicated by the d i v e r s i t y of species and the absence of generally applied grades. For t h i s reason t r o p i c a l hardwood products price comparisons are made for only two species currently exported from Peru and B r a s i l into the U.S. This analysis was conducted using unpublished Peruvian information along with s t a t i s t i c s purchased from i n t e r n a t i o n a l trade consultants and data pertaining to ocean f r e i g h t rates. B r a s i l was chosen for t r o p i c a l hardwood product price comparisons because t h i s country not only i s the largest Latin American wood products exporter but also enjoys the lowest ocean freight rates among Latin American wood product exporters. B r a s i l also i s one of the closest competitors of Peru because both countries share the Amazon basin forests and some of the species they export are the same. Peruvian t r o p i c a l hardwood products should compete well in North American markets. Tables 11 and 1 2 show monthly prices for 1 9 7 8 in the U.S. market for the important products of V i r o l a spp. No 1 common grade and Sweitenia macrpphylla FAS grade both coming from Peru and B r a s i l . These tables show substantial difference i n s e l l i n g prices Table 11. Export Price Comparison for Virola spp.* (1978). Peru 3 U.S.A. Bra s i l b U.S.A. Month f.o.b. Callao c . i . f . San Francisco f.o.b. Belem c . i . f . New Orleans c . i . f . San Francisco (U.S.$/m3) January 88.00 158.09 106.78 153.14 160.14 February 86.00 156.09 113.56 159.92 166.92 March 86.00 156.09 116.53 162.89 169.89 April 89.00 159.09 116.53 162.89 169.89 May 92.00 162.09 121.19 167.55 174.55 June 93.00 163.09 121.19 167.55 174.55 July 94.00 164.09 125.00 171.36 178.36 August 95.00 165.09 105.51 151.87 158.87 September 94.00 164.09 125.85 172.21 179.21 October 94.00 164.09 129.24 175.60 182.60 November 110.00 180.09 129.24 175.60 182.60 December 107.00 177.09 91.10 137.46 144.46 Total: 1,128.00 1,969.08 1,401.72 1,958.04 2,042.04 Average: 94.00 164.09 116.81 163.17 170.17 Source: MICTI-DGCE, Autorizaciones para exportar Enero-Diciembre 1978, Lima, 1979. International Trade Consultants, Fobrometer, Monthly Report, California, 1979. * Grade No. 1 common 2 x 4"and 2 x 6", 8' and longer. Table 12. Export Price Comparison for Swietenia macrbphylla* (1978). Peru" U.S.A. „ ' ,b Brazil U.S.A. Month f.o.b. Callao c. i . f . San Francisco f.o.b. Belem c . i . f . New Orleans c . i . f . San Francisco (U.S.$/m3) January 189.00 259.09 252.54 298.90 305.90 February 198.00 268.09 264.83 311.19 318.19 March 199.00 269.09 277.54 323.90 330.90 April 213.00 283.09 277.54 323.90 330.90 May 220.00 290.09 280.51 326.87 333.87 June 224:00 294.09 280.51 326.87 333.87 July 220.00 290.09 287.71 334.07 341.07 August 224.00 294.09 256.36 302.72 309.72 September 226.00 296.09 288.98 335.34 342.34 October 264.00 334.09 296.61 342.97 349.97 November 228.00 298.09 271.19 317.55 324.55 December 235.00 305.09 247.03 293.39 300.39 Total: 2,640.00 3,481.08 3,281.35 3,837.67 3,921.67 Average: 220.00 290.09 273.45 319.81 326.81 Source: MICTI-DGCE Autorizaciones para exportar Enero--Diciembre 1978, Lima, 1979. International Trade Consultants, Fobrometer, Monthly Report, California, 1979. * Crade F.A.S. 2 x 4 " and 2 x 6", 8' and longer 67 obtained (f.o.b. basis) for both V i r o l a spp. and Sweitenia macrophy11a. A comparison of V i r o l a spp. prices (Table 11) indicates that the B r a s i l i a n price i s 24% higher than that from Peru while the B r a s i l i a n Sweitenia price i s also 24% higher than that from Peru (Table 12). This substantial difference i n s e l l i n g prices may suggest that production costs i n Peru are lower than in B r a s i l , and i t would be so i f we take into account the domestic transport costs which account for about 20% of wood delivered cost i n Peru.. On the average, c . i . f . price comparisons also show price d i f f e r e n t i a l s f or Peruvian and B r a s i l i a n Virola- and Sweitenia.. Tables 11 and 12 indicate that i n San Francisco, B r a s i l i a n V i r o l a and Sweitenia prices are four percent and 13% higher than those frcm Peru respectively, and also that the price of Br a s i l i a n Sweitenia in New Orleans i s 10% higher than that of Peruvian Sweitenia 's price in San Francisco, and that Peruvian and B r a s i l i a n V i r o l a prices are almost the same in San Francisco and New Orleans. These.price d i f f e r e n t i a l s , again, favour Peruvian wood products i n O.S. markets. The price d i f f e r e n t i a l s , on c . i . f . basis, are smaller than in the case of f.o.b. prices which indicates that B r a s i l i a n exporters enjoy lower ocean freight rates compared to Peruvian exporters. The cost of transportation from Latin America to the United States i s a c r i t i c a l variable i n the f i n a l cost determination., The export process plus transportation often accounts for 30% or more of delivered cost (Gregersen, 1971). For some products and 6 8 some areas, the unit cost of shipment from Japan or the Philippines i s lower to the United States than from much closer Latin American ports (Gregersen, 197 1).. Ocean freight costs are 32% and 53% higher to San Francisco and New Orleans, respectively, from Peru than from B r a s i l . The lower f r e i g h t costs enjoyed by B r a s i l i a n exporters, who are better organized than Peruvian exporters, may be a result of large volumes being shipped, charter rates and some subsidy that the B r a s i l i a n government may be providing. From the c . i . f . price comparisons one may conclude that Peruvian t r o p i c a l hardwood exporters have a competitive price for these commodities i n North American markets in spite of higher frieght costs. It i s certain that positive steps w i l l have to be taken to reduce fr e i g h t rates i f Peruvian t r o p i c a l hardwood products are to compete.effectively with those from other t r o p i c a l countries. This can be done by co-ordinating i n d i v i d u a l exporters or companies to increase load s i z e , chartering and the use of containers. Improvements achieved by Peruvian exporters on freight rates would c e r t a i n l y enhance t h e i r competitive position in major overseas markets. . 3.3 Foreign Exchange Earnings The export of wood products i s a small source of foreign exchange earnings for Peru. Table 13 shows the contribution of wood products to the country's foreign exchange earnings since 1955. Wood product export values over the 1955-1977 period fluctuated, but have increased rapidly i n the l a s t five years. A 69 Table 13. Contribution of Wood Products to Peruvian Foreign Exchange Earnings (1955-1977). Total Export Wood Products Wood Products Year Earnings Earnings Share (Thousand U.S. Dollars) (%) 1955 268,202.5 166.0 0.06 1956 308,148.7 328.0 0.11 1957 319,990.4 294.0 0.09 1958 281,426.6 124.0 0.04 1959 311,859.7 91.0 0.03 1960 430,893.8 248.3 0.06 1961 494,150.4 142.9 0.03 1962 538,052.5 265.5 0.05 1963 540,178.6 247.0 0.05 1964 666,103.4 412.3 0.06 1965 666,401.8 427.3 0.06 1966 763,195.3 349.0 0.05 1967 f 778,545.7 171.0 0.02 1968 864,633.4 172.0 0.02 1969 863,858.5 252.0 0.03 1970 1,043,625.9 272.0 0.03 1971 891,273.3 94.0 0.01 1972 943,363.8 263.0 0.03 1973 1,047,553.6 493.0 0.05 1974 1,533,759.0 1,971.0 0.13 1975 1,349,571.5 1,018.0 0.08 1976 1,364,541.3 1,352.0 0.10 1977 1,432,562.7 3,789.0 0.26 Source: UN, Yearbook of International Trade S t a t i s t i c s 1977. Vol. I Trade by Country, New York, 1978. FAO, Yearbook of Forest Products S t a t i s t i c s , Rome, 1978. MICTI-DGCE, Autorizaciones para exportar, Lima, 1979. 70 peak value of U.S. $ 3.8 million was reached in 1 977. The f o r e s t product share i n t o t a l export earnings over the 22 year period averaged only 0.06%, but rose to 0.26% i n 1977. Over the same five years, exports of wood products increased fourteen times i n value. . Indeed, wood product exports have brought some benefits to the Peruvian economy at an important time when i t suffered from serious foreign exchange shortages. The rapid growth of foreign exchange earnings by wood product exports in the l a s t few years i s due primarily to such factors as the incentives given by the Peruvian government to export non-traditional products. As in the case of some other t r o p i c a l countries, such as Indonesia, Malaysia, Nigeria, Philippines and others, where forest product exports have gained prominence for the i r c a p a b i l i t y to earn foreign exchange (Enabor, 1976 and Roberts, 1976), the Peruvian t r o p i c a l forest product exports have also t h i s capacity. Wood product exports could become an important source of foreign exchange earnings f o r Peru i f there was a change i n the past pattern of wood exports, u t i l i z a t i o n of the forest resources towards higher-valued processed products, and introduction of lesser-known species to the market.. 3.4 Opportunities and Constraints Imposed by Export P o l i c i e s on Increased Wood Product Exports Increasing wood product exports would generate many opportunities for development of the Peruvian fo r e s t r y sector.. The country would u t i l i z e i t s forest resources e f f e c t i v e l y to increase export earnings and accelerate the process of 7 1 i n d u s t r i a l i z a t i o n and s o c i a l development. But t h i s opportunity would be retarded by the lack of adeguate information i n d i c a t i n g the extent and nature of the country's resources and the economic factors upon which forest development planning must be hased. Peruvian forest resources are remote from urban concentrations, from potential markets and from ports. Heavy investments in road, r a i l , water communications, port and harbor f a c i l i t i e s w i l l be necessary. Much of t h i s investment w i l l be inevitably multipurpose because the forestry sector can not be expected to bear the whole cost. The positive side i s that the creation of new forest industry 1 complexes away from present urban concentrations w i l l provide new poles of development so much needed in Peru. An improved wood product exports policy w i l l require close l i n k s between the departments responsible for the fo r e s t and forestry sectors and those i n charge of ov e r a l l planning. Even more obvious i s the need for maximum co-ordination between the i n s t i t u t i o n s responsible for the management of the forest resources and those in charge with the development of forest i n d u s t r i e s . There are other opportunities and constraints resulting from increased wood product exports related to the domestic processing capacity and timber supply. Increased wood product exports would force the Peruvian forest products industries to become e f f i c i e n t i n their operations. Programs t c increase productivity would probably have a s i g n i f i c a n t e f f e c t on Peruvian trading patterns. The 72 opportunities for increasing the e f f i c i e n c y of domestic processing capacity are currently constrained, because the Peruvian f o r e s t industries suffer a chronic lack of raw material supplies during c e r t a i n periods of the year. I f the e f f i c i e n c y of the processing capacity i s increased, there i s a great potential not only to increase wood product exports but also to reduce wood product imports with the exception of woodpulp product. As a re s u l t of increased wood products exports, the e f f i c i e n c y of the processing sector and the a b i l i t y of the industry to compete pr o f i t a b l y i n world markets in the long-run would improve but i t s t i l l would be constrained by the inadequate raw material supply., Potential responses of Peruvian timber supplies might be improved i f account i s taken of the large area of economically accessible forests that exist i n Peru. This country could become a net exporter, es p e c i a l l y i n the next few decades. Increased demand for wood products, domestic and export markets, would allow r a i s i n g the product's price to the international l e v e l because of increased t o t a l demand on these products..With regard to domestic timber supply, this would lead to closer u t i l i z a t i o n of forest resources by increasing the value of stands presently not economically feas i b l e . The l a t t e r would encourage the industry to harvest high cost stands, and provide incentive for more s i l v i c u l t u r a l management. These opportunities would be constrained by the heterogeneity of tree species, the r e l a t i v e small number of current commercial species and the lack of infr a s t r u c t u r e for logging operations. Expanded wood product exports would also generate new job 73 opportunities and income, additional revenue (royalty) and economic development. Of a l l the benefits to be achieved through the domestic processing industry, employment i s the most i d e n t i f i a b l e and considered the most importan t. . In t h i s regard, the greater labour input i n reforestation and manufacturing i s considered to be a p r i o r i proof of the employment opportunities to be achieved from increased wood product exports. But the whole development could be constrained by the lack of s k i l l e d labour. With regard to additional revenue, there i s potential to generate a substantial amount. The present l e v e l i s constrained by i n s i g n i f i c a n t nominal r o y a l t i e s which are below an equitable l e v e l related to lower f.o.b. prices. 3 . 5 Balancing Exports with Projected Domestic Wood Products Requirements 3 . 5 . 1 Potential Wocd Supply Basic to any sound appraisal of the potential for supplying forest products from t r c p i c a l forests are national forest inventories.,These provide volumes of standing timber by species, grade and s i z e , together with an i n d i c a t i o n of harvesting a c c e s s i b i l i t y and volumes that are being harvested. Volumes that may be removed under exi s t i n g and potential market and administrative conditions are also e s s e n t i a l f o r appraising potential forest products supply. So are the evaluation of forest areas and volumes being l o s t to planned or uncontrolled expansion for agriculture.and other compiting land uses. The 74 assessment of growth potentials by species, grade and size takes into account the r e l a t i o n to actual and probable harvesting systems.. The p o t e n t i a l wood supply i s d i f f i c u l t to work out, especially i n a country l i k e Peru, where there i s a lack of adeguate inventory data and a f a i r l y established demand pattern. . The data presented i n t h i s chapter refers to the present physical supply only.. Data available on Peruvian forest resources was presented in Chapter Two. In t h i s Chapter the data on the Peruvian forest resources i s reviewed and their current and future capacity to provide . timber i s assessed. Before turning to the estimates i n d e t a i l , i t i s desirable that the limited quality of the data on which i t i s based i s f u l l y recognised. For the purposes of t h i s study a broad estimate of the change i n area of commercial forest has been suggested. Sig n i f i c a n t destruction of forest by s h i f t i n g agriculture i s considered together with s e l e c t i v e commercial logging i n Peru.. The rate of conversion of forest to agriculture in Peru has been put at about 150,000 ha per annum over the l a s t ten years (Malleux, 1975). Such clearances currently involve the destruction of a large proportion of standing volume, although valuable timber species are usually harvested i n the clearing operations..This type of clearing and destructive cutting of fuelwood i s also damaging the productive potential of open forest and scrubland (non-commercial fo r e t s ) , . The:rate of s e l e c t i v e commercial logging i s about 1.15 m i l l i o n ha per annum (MA-DGFF, 1977). Although t h i s type of 7 5 logging by i t s e l f i s not usually detrimental to t r o p i c a l forest regrowth, i n some cases i t may reduce regeneration of commercially valuable species. Reductions of forest areas by sh i f t i n g a g r i c u l t u r e , destructive logging and logging of man-made forest (1,050 ha/year) have reduced the commercial forest from 56 mil l i o n ha i n 1.956 to 44 mi l l i o n ha in 1 976 (MA-DGFF, 1977). I t i s estimated that these reductions of the commercial forest area w i l l continue at the same rate as i n recent years. On the positive side, there i s the reforestation program that the Peruvian government i s currently carrying out. Although the rate of reforestation i s very small, 5,000 ha per annum, plantations do contribute to t o t a l i n d u s t r i a l roundwood production. In 1976, t h i s contribution was more than 16% (MA-DGFF, 1977). This reforestation program easily exceeds the current annual rate of man-made forest harvesting i n Peru. The area of commercial forest i s expanded by about 4,000 ha per annum as a conseguence. Considering these three f a c t o r s , the commercial forest area can be estimated at about .32.3 mi l l i o n ha by 1985 and 25.9 mil l i o n ha by 1990. These areas do not represent operable or accessible commercial forests, and i n the case of Peru these accessible forests are estimated to be 60% of the t o t a l commercial natural forests (FAO, 1979a). The accessible commercial forests could be about 19.4 million ha by 1985 and 15.5 m i l l i o n ha by 1990. Although the reduction in accessible commercial forest area must have a depressive effect on the productive capacity of the Peruvian f o r e s t s , i t i s considered that the potential y i e l d of 76 the remaining natural forest i s tremendous. .The . average volume per hactare of growing stock i s estimated 100 m3/ha i n natural forest and i t s mean annual increment i s five m3/ha/annum (Malleux, 1975). For the man-made f o r e s t , the growing stock i s estimated at 249 m3/ha and i t s mean annual increment i s 15 m3/ha/annum (Hopkins, 1976). These volumes consider a l l species and trees with 25 cm dbh or larger.. The t o t a l estimated volume of standing timber for accessible commercial forest was more than 2,629.6 million m3 i n 1976 and the t o t a l volume harvested about 3.9 m i l l i o n m3. Only 0.15% of the t o t a l standing timber was harvested.. The p o t e n t i a l physical wood suply can be estimated f o r 1978-1990 period on the basis of the following assumptions: that the i n d u s t r i a l roundwood equivalent represents 50% of the volume of growing stock, that the rate of changing commercial forest area w i l l continue at the same l e v e l of previous years, that there i s not addit i o n a l production by thining i n man-made forest, and that the rotation length i n the natural forest i s 50 years and i n man-made forest 25 years. Peru's t o t a l i n d u s t r i a l roundwood equivalent sustainable y i e l d from accessible commercial forests i s projected to be around 51.13 mil l i o n m3. by 1985 and 39.61 m i l l i o n m3 by 1990 (Taole . 14) . .The volume of wood for fuelwood and other r u r a l wood requirements i s estimated to be 0.2% of the t o t a l volume of growing stock or 8.0 m i l l i o n m3 by 1985 and 7.62 m i l l i o n m3 by 1990. This projected potential physical supply of i n d u s t r i a l roundwood from Peruvian forests i s for a l l species. Even i f only Table 14. Potential Wood Supply ln Peru (1976-1990). Natural Forest Stand Volume Equivalent Industrial Rounwood Equivalent Plantation i Total Accessible Plantation Nat. Forest Total Thousand ha Million m3 1976 96.6 43,828 26,296 1.45 131.48 132.93 66.47 1978 106.6 41,228 24,737 1.60 123.69 125.29 62.65 1979 110.6 39,928 23,957 1.66 119.79 121.45 60.73 1980 114.6 38,628 23,177 1.72 115.89 117.61 58.81 1981. 118.6 37,328 22,397 1.78 111.99 113.77 56.89 1982 122.6 36,028 21.617 1.84 108.09 109.93 54.97 1933 126.6 34,728 20,837 1.90 104.19 106.09 53.05 1984 130.6 33,428 20,057 1.96 100.29 102.25 51.13 1985 134.6 32,128 19.277 2.02 96.39 98.41 49.21 1986 138.6 . 30,828 18,497 2.08 92.49 94.57 47.29 1987 142.6 ; 29,528 17,717 2.14 88,59 90.73 45.37 1988 146.6 28,228 16,937 2.20 84.69 86.89 43.45 1989 150.6 26,928 16,157 2.26 80.79 83.05 41.53 1990 154.6 ... 25,628 15,377 2.32 76.89 79.21 39.61 Source: Calculated from Table 6. 7 8 currently commercial species are considered, which i s estimated at around 15% of the t o t a l annual increment, the potential i n d u s t r i a l wood supply could be about 7.38 million m3 by 1985 and 5.94 m i l l i o n m3 by 1990. It may be concluded that Peruvian forests have a tremendous potential for supplying timber to the forest i n d u s t r ies and they could support a great expansion of wood products manufacturing industries. 3.5.2 Future Consumption of Forest Products Projections on forest products consumption for Peru were prepared using the model developed by FAO for studying trends and propects i n various world regions (FAO, 1976b). These projections take into account population and economic growth. Relationships which prevailed i n the past 27 years have been determined by carrying out a through s t a t i s t i c a l analysis of the data on GDP per capita and forest products consumption per capita*. Projections of forest products consumption were only carried out f o r sawnwood and wood-based panels due to the lack of data on past consumption of other forest products. In d u s t r i a l roundwood consumption has been projected also i n order to include t h i s i n the estimate. It i s assumed that the development of supply w i l l be i n the same re l a t i o n s h i p to the development of consumption i n the future as i t was during past periods and that substitution, changes in price and preferences w i l l be of the same kind and re l a t i v e magnitude. * Calculation procedures are i n Appendix I. 79 The.projection of the population was made using the rate of annual growth, 2.98 %, estimated by the Insti t u t o Nacional de Pl a n i f i c a c i o n on the basis of a recent census. For GDP projections, three d i f f e r e n t rates of annual growth were used, two of them were chosen from the l a t e s t years which were the lowest and the highest rates. The t h i r d was calculated using data of GDP for the l a s t 27 years at constant 1973 prices (ONE, 1979). This l a t t e r i s used in the discussion of future consumption of forest products because i t r e f l e c t s a more r e a l i s t i c projections of GDP. The population of Peru in 1977 was 16.3 m i l l i o n and i t i s expected to be 20.7 and 23.9 m i l l i o n by 1985 and 1990, respectively. The rate of growth i n the Peruvian economy i s expected to be 4.6% per annum. This GDP i s projected to reach U.S.$ 801 per capita by 1985 in 1973 prices and U.S.$879 per capita by 1990. Table 15 shows the projection of forest products consumption up to 1990. Peru's consumption of sawnwood increased from 136,400 m3 i n 1951 to nearly 475,000 m3 i n 1977, which i s more.than a threefold increase i n 27 years. The projected consumption i n 1985 and 1990 have been placed at 823,833 m3 and 1,127,786 m3, respectively. These represent a projected growth rate of six per cent per annum for t o t a l sawnwood consumption. Consumption of wood-based panel products was only 297 m3 i n 1951, but i t increased rapidly to 67,000 m3 in 1977, which i s more than a two hundred twenty five f o l d increase i n 27 years. Increases i n wood-based panel consumption to 161,606 m3 by 1985 and around 360,304 m3 by 1990 are projected. Growth of wood-Table 15. Projected Consumption of Sawnwood and Wood-based Panels (1978-1990). Sawnwood Wood-based Panel Year Total per 1000 capita Total per 1000 capita (m3) 1978 515,417.4 30.6 63,464.1 3.8 1979 555,562.8 32.0 67,389.9 3.9 1980 595,934.9 33.4 75,464.8 4.2 1981 ; 637,357.9 34.6 86,650.8 4.7 1982 680,439.4 35.9 100,676.5 5.3 1983 725,642.3 37.2 117,625.0 6.0 1984 773,336.1 38.5 137,787.6 6.9 1985 823,833.4 39.8 161,606.0 7.8 1986 877,413.6 41.2 189.652.2 8.9 1987 934,339.9 42.6 222,626.7 10.1 1988 . 994,869.7 44.0 261,368.2 11.6 1989 1,059,262,8 ; f f - 45,5.. •'• 306,870,3 13.2 1990 1,127,786.3 47.1 360,304.3 15.0 Source: Projected using the model developed by FAO. 8 1 based panel consumption i s projected to continue at a rapid rate, of about 14% per annum. I t must be kept in mind that growth i n consumption of wood-based panel since the 1950's has been due i n considerable measure to substitution* The one-inch lumber board market in Peru has been taken over in large part by wood-based panels during the l a s t 20 years (David, 1971) and the process can not be repeated in the next ten years. There have been few published or unpublished projections of Peruvian wood products consumption..The Estudio de Mercado de Productos de Transformacion Mecanica de l a Madera 1970-1976 (David, 1978) projected high and low points for 1985 sawnwood and wood-based panel consumption. For sawnwood the:high i s below the projected figure i n t h i s thesis for 1985 and a l i t t l e b i t i higher than that projected for 1980. For wood-based panels both projections forecast around 162,000 m3 consumption by 1985._ In the matter of fuelwood and charcoal consumption, which i s the greatest part of wood consumed i n Peru, a projection of constant per capita consumption has been made. Past trends of fuelwood and charcoal consumption indicate a close positive correlation with population. This rel a t i o n s h i p i s assumed to continue i n the future. Fuelwood consumption i n 1977 i s projected in proportion to population growth and i t i s estimated that i n 1985 and 1990 fuelwood consumption w i l l be about 3.5 m i l l i o n m3 and 4.1 m i l l i o n m3, respectively (Table: 16). Estimates of I n d u s t r i a l Roundwood Consumption A broad estimate of the i n d u s t r i a l roundwood equivalent of the consumption of forest products has been prepared using an Table 16. Estimated Consumption of Roundwood Equivalent (1978-1990).. Year Industrial Roundwood Fuelwood and Charcoal Total (Thousand m^ ) 1978 1,938.5 2,835.6 4,774.1 1979 2,051.6 2,920.1 4,971.7 1980 2,174.9 3,007.1 5,182.0 1981 2,307.9 3,096.7 5,404.6 1982 2,451.4 3,189.0 5,640.4 1983 2,606.1 3,284.1 5,890.8 1984 2,775.1 3,381.9 6,157.0 1985 2,958.6 3,482.7 6,441.3 1986 3,158.9 3,586.5 6,745.4 1987 3,378.4 3,693.4 7,071.8 1988 3,619.3 3,803.4 7,422.1 1989 3,884.6 3,916.8 7,801.4 1990 4,177.6 4,033.5 8,211.1 00 Source: Calculated from Tables 7 and 15. 83 average relationship between the consumption of sawnwood, wood-based panel and other forest products, and i n d u s t r i a l roundwood used in their manufacture. Using these relationships on 1968-1976 data, the estimated i n d u s t r i a l roundwood requirement for consumption i n Peru i s 2.9 m i l l i o n m3 in 1985 and 4.2 mil l i o n m3 in 1990. . Total roundwood equivalent consumption (Table 16) i s obtained by adding estimated i n d u s t r i a l roundwood equivalent to estimated fuelwood consumption.. 3.5.3 Balance Between Roundwood Consumption and Production It i s projected that Peru's consumption of wood and wood products could increase from a volume equivalent of about 4.5 mil l i o n m3 of roundwood in 1977 to 6.4 and 8.2 m i l l i o n m3 in 1985 and 1990, respectively. Fuelwood constitutes 54% of projected consumption i n 1985 and 49% i n 1990. On the assumption that i n d u s t r i a l roundwood supply would come only from accessible commercial natural forest and man-made' forests, the estimated i n d u s t r i a l roundwood equivalent supply from the commercial forests i s seventeen times and ten times greater than the projected volume of consumption i n 1985 and 1990, respectively (Table 17). This i s an enormous surplus of i n d u s t r i a l roundwood. Currently, about 96% of i n d u s t r i a l roundwood consumed i n Peru i s in the form of sawlogs and veneer logs. With more rapid growth of wood-based panel consumption than of sawnwood, the proportion of sawlogs i n the t o t a l i n d u s t r i a l roundwood requirements w i l l decline.. Table 17. Balance Between Projected Consumption and Sustainable Supply of Industrial Roundwood Equivalent (1978-1990) • Year Level of Consumption Sustainable Supply Balance ( M i l l i o n nr) 1978 1.94 66.47 64.53 1979 2.05 62.65 60.60 1980 2.17 60.73 58.56 1981 2.31 58.81 56.50 1982 2.45 56.89 54.44 1983 2.61 54.97 52.36 1984 2.77 51.13 48.36 1985 2.96 49.21 46.25 1986 3.16 47.29 44.13 1987 3.38, 45.37 41.99 1988 3.62 43.45 39.83 1989 3.88 41.53 37.65 1990 4.18 39.61 35.43 Source: Calculated from Tables 14 and 16. 8 5 In drawing up t h i s simple balance between supply and roundwood requirement to meet projected consumption, the assumption i s made that most of the production of ccmmercial, accessible, natural forests w i l l be suitable to meet requirements of at least some i n d u s t r i a l products.,Even i f the assumption i s made that only current commercial tree species w i l l be suitable to meet projected requirement, there i s s t i l l a considerable surplus of i n d u s t r i a l roundwood,. It i s concluded that Peruvian forests can support an expanded wood products export programme. 86 CHAPTER FOUR OPPORTUNITIES FOR FOREST INDUSTRIAL DEVELOPMENT 4. .1 Expanded Wood Products Export Programme Wood product exports have never played a very important role in the Peruvian economy, mainly because they have been negligible in quantity and value (FAO, 1 978). For a country l i k e Peru with abundant forest resources, the performance of i t s wood product exports would be considered very low compared to other sectors of the economy. Although wood-based panel and sawnwood exports have grown rapidly i n the l a s t decade, they accounted for only 14,000 m3 of sawnwood and 22,000 m3 of wood-based panels i n 1978 as shown in Table 18 (MICTI-DGCE, 1979). This i s t h i r t y times lower than that of B r a s i l and seven times lower than that of Ecuador i n the case of sawnwood exports, and wood-based panels are f i f t e e n f o l d lower than that of B r a s i l and a half greater than that of Ecuador (FAO, 1979b). I f Peruvian wood product exports are going to make a s i g n i f i c a n t impact on the domestic economy, they must be expanded i n quantity and value and the product quality must be improved, also. In order to analyse t h i s expansion, two Table 18. Year Peruvian Wood Product Exports (1965-1978). Sawnwood Wood-based Panel Total (Thousand m ) 1965 3 5 8 1966 7 7 14 1967 4 5 9 1968 1 6 7 1969 3 6 9 1970 10 9 19 1971 1 8 9 1972 3 13 16 1973 12 12 24 1974 10 8 18 1975 2 3 5 1976 9 6 15 *1977 9 16 25 *1978 14 22 36 Source; FAO, Summary: Production, Consumption and Trade of Sawnwood and Wood-based Panels in South America 1965-1977, San Diego,1979. * MICTI-DGCE, Autorizaciones para exportar 1969-1978, Lima, 1979. Sawnwood annual growth rate: 12.5% Wood-based Panels annual growth rate: 12% 88 alternatives have been considered (Table 19). In alternative A i t i s assumed that wood products w i l l maintain the current growth rates, which are 12.5% annual growth for sawnwood and 12% annual growth f o r wood-based panels. Sawnwood exports w i l l be 32 and 58 thounsand m3 in 1985 and 1990, respectively, which represent only 3.7% and 4,. 9% of the t o t a l sawnwood production in 1985 and 1990. Wood-based panel exports w i l l be 49,000 m3 i n 1985 and 86,000 m3 i n 1990, representing 23% and 19% of the t o t a l wood-based panel production i n those years.. In alternative B i t i s assumed that wood product exports w i l l be 20 times greater i n 1985 than i n 1978 and 30 times greater in 1990 than in 1978. As a re s u l t of these expansions, sawnwood exports w i l l be 25.4% of the t o t a l production in 1985 or 280,000 m3 and 27.1% of the t o t a l production in 1990 or 420,000 m3. Wood-based panel exports would be 440,000 m3 i n 1985 or 73.2% of the t o t a l production in that year and 660,000 m3 i n 1990 or 64.7% of the t o t a l production i n that year. Because the prospects for expanding t r o p i c a l wood product exports seem promising in the short-term and even more so i n the long-term, and because exports could only make a s i g n i f i c a n t impact on the domestic economy i f they were in a considerable quantity, alternative B represents the desirable expanded wood products export programme f o r Peru. This alternative w i l l be used further i n analysing the implications and impact of the expanded programme on the forestry sector and on the Peruvian economy. Table 19. Suggested Wood Product Exports From Peru by 1985 and 1990. Sawnwood Wood-based Panel Total Year A B A B A B 3 (Thousand m ) 1985 32 280 49 440 81 720 1990 58 420 86 660 144 1,080 Source: Calculated from Table 19. A = Maintain current growth trends B = Accelerate exports (20 times of 1978's growth trend i n 1985 and A = Maintain current growth trends B = Accelerate exports (20 times of 1978's gr 30 times of 1978's growth trend i n 1990). 90 4.2 Capacity of Peruvian Forest Industries In order to support any expansion and d i v e r s i f i c a t i o n programme for wood product exports and i n order to ensure a continuous and steady supply of these commodities given the export markets and raw material supply potentials, i t i s imperative to evaluate the current and potential capacity of the forest industry. 4.2.1 Current and Potential Industrial Capacity Peru produces domestically most of the wood products i t uses. Ninety-eight per cent of production was used domestically in 1976 and four per cent of consumption was imported. The capacity of the forest products industry i s , therefore, at least as large as the present l e v e l of consumption. The fac t that some plants are i d l e and others are not operating to f u l l capacity (Abusada-Salah, 19 75), even at one 8-hour s h i f t per day, indicates that the t o t a l rated capacity of the ex i s t i n g industry actually exceeds present consumption. But the capacity of an industry can not be measured completely in terms of cubic meters or tons of output. The quality of the products and price they receive on the market are also important c h a r a c t e r i s t i c s . . Capacity must be expressed i n terms of a product of specified quality at an acceptable price. I t i s i n t h i s respect that the present capacity of the Peruvian wood products industry i s defici e n t . . SA WMILLING INDUSTRY In 1976 there were 341 sawmills in Peru with a t o t a l rated Table 20. Capacity of Peruvian Wood Products Industries (1976). Industry Units Intalled Capacity Production Used Capacity Sawmill 341 (m /shift) 2,916 1,985 of Inst.capacity) 68 Wood-based panel mills Parket mills 13 34 491 78 328 28 67 36 Pulp mills* 13 265 140 53 Source: MA-DGFF, Vademecum Forestal, Lima, 1977. * Tons/shift, only one mill uses wood as raw material. 9 2 capacity of 7 2 9 , 0 0 0 m3 per year of 2 5 0 working days at one 8 -hour s h i f t per day as shown in Table 2 0 (MA-DGFF, 1 9 7 7 ) . . Actual production was only 6 8 % of rated capacity at one s h i f t . Total productive capacity at one 8-hour s h i f t per day would appear to be well in excess of the projected demand for the next six years. At three 7 . 5-hour s h i f t s per day t h i s productive capacity i s two times in excess of the 1 9 9 0 projected consumption. Many of the ex i s t i n g m i l l s are small, i n e f f i c i e n t and suffer from a shortage of logs. A high proportion of sawnwood exports come from few mil l s employing modern techniques and equipment. The.main problems which currently face the.industry include inadequate raw material supplies, poor equipment and u t i l i z a t i o n standards, poor product qu a l i t y , inadequate c a p i t a l and lack of trained manpower. The f i r s t problem has been discussed in Chapter Two, however, i t can be pointed out that inadequate timber supplies have great e f f e c t on the sawmilling industry, as well as on the other forest industries. This problem i s also c l o s e l y related to the low recovery from the fores t . About 5 0 % of the tree, consisting of stumps and branches, i s l e f t to r o t i n the forest because of the prohibitive cost of transport from widely dispersed logging areas to the m i l l s i t e . Poor equipment and u t i l i z a t i o n standards are i n t e r - r e l a t e d . The majority of the mills i n s t a l l e d use equipment o r i g i n a l l y designed for use in North America and Europe to handle temperate zone softwoods. This causes much residue due to log size and improperly designed conversion eguipment, and there are additi o n a l residues due to bad sawing and poor maintenance of 93 equipment..There i s low recovery in the m i l l s . Average y i e l d from logs in sawmills i s about 47%, in plywood m i l l s 43%, i n veneer m i l l s 53% and i n a particleboard m i l l 77% (MA-DGFF, 1977). This compared to low recovery may be attributed also to the lower quality of the logs being processed and to the lower standards of s k i l l e d labour. The bulk of the wood residuals from processing mills i s burned as means of disposal..Some i s used for b o i l e r fuel..In many countries factory wood residues find a market as wood chips for pulp m i l l s . In Peru most wood processing plants have to generate t h e i r own e l e c t r i c power because none i s available in the remote areas where the m i l l s are located. In view of current o i l shortages and high prices, the use of factory wood residues for energy seems to be indicated even in a country exporting petroleum.. Kiln-drying i s another problem in Peruvian sawmills, only some of the largest sawmills possess these f a c i l i t i e s . In the rest of the mills lumber i s a i r - d r i e d . There i s no grading of output, no proper stacking and no storage f a c i l i t i e s . Lumber produced i s frequently l e f t scattered about in the m i l l yard where i t i s susceptible to stai n and other sources of deterioration. C a p i t a l i s qenerally in short supply and t h i s affects the sawmilling industry and other forest industries..Access to sources of c a p i t a l i s r e s t r i c t e d mainly by very high i n t e r e s t rates. C a p i t a l sources are only short-term and medium-term credits.. With respect to trained manpower, there i s the problem of 94 lack of s k i l l e d labour, both at the managerial and operator l e v e l s . Recently the Peruvian government i s taking some steps to meet t h i s need. Almost a l l these problems relate to the wood-based panel and pulp and paper industries too. WOOD BASED PANEL INDUSTRIES In 1976, there were 13 wood-based panel processing plants (Table 2 0). These included seven plywood plants, f i v e veneer plants and one particleboard plant, with a t o t a l rated annual capacity, 250 days/year at one 8-hour s h i f t per day, of 122,750 m3. Actual production was only 67% of t h i s t o t a l rated capacity. Particleboard i s reported to be of low and variable q u a l i t y . The. low quality i s apparently attributable to obsolete equipment and a raw material base of nearly 60 d i f f e r e n t species. A l l the raw material i s supplied i n the form of high cost round logs and conseguently the price of the product i s higher than plywood of equivalent thickness. . The main problems which currently face the wood-based panel industry, apart from those mentioned before as reqards the sawmill industry, include high costs of imported machinery, supplies, spare parts, materials and f u e l . Since the energy c r i s i s in 1973 the cost of production has increased greatly. By mid-1977 o i l prices had increased eight-f o l d , p r e c i p i t a t i n g worldwide i n f l a t i o n . Prices of a l l manufactured goods also rose sharply. Except for labour and the wood raw material, a l l factors involved i n manufacture of wood-based panels, such as adhesives. 95 machinery and spare parts, have to be imported at i n f l a t e d prices. This has a negative impact on the cost of production. Plywood and veneer m i l l s are modern and employ modern techniques and equipment. Given the optimal conditions and government cooperation, these firms should be able to produce to i n t e r n a t i o n a l product s p e c i f i c a t i o n s and compete e f f e c t i v e l y i n export markets. Total rated capacity, at one 8-hour s h i f t per day, appears to exceed the projected consumption f o r the next six years and i s almost i n balance with 1989 projected consumption i f the rated capacity were used at three 7.5-hour s h i f t s per day. PULP AND PAPER INDUSTRY There were 13 paper mi l l s operating in Peru i n 1976 and the t o t a l rated capacity of these m i l l s was 223,594 tons per annum at three 7.5-hour s h i f t s per day, but only 53% of the rated capacity was used. The t o t a l production of paper was 118,505 tons i n that year, working 300 days at three 7.5-hour s h i f t per day. One reason for unused capacity is lack of pulp, most of which i s imported. Currently, there i s one pulp and paper m i l l i n Pucalpa, Amazon region, which i s u t i l i z i n g hardwoods, mainly Cecropia spp., from the natural t r o p i c a l forest for pulping. This m i l l i s old and obsolete which influences the quality of the product. There are other problems such as supply of s k i l l e d personnel, shortage of chemicals, c a p i t a l and maintenance*.The pulp and paper industry i s considered strategic and p o l i t i c a l considerations seem to have outweighed the economic aspect, with 96 consequent delay of action to develop t h i s industry. The Peruvian paper industry supplies less than 35% of t o t a l domestic consumption (Lopez et a l , 1974). There are qood prospects for establishing new domestic pulp and paper m i l l s in Peru, but these must be planned to a t t a i n the highest l e v e l of capacity consistent with resource a v a i l a b i l i t y and market conditions* The sawmilling, wood-based panel and pulp and paper industries have been reviewed i n t h i s section. They are characterised by a fragmented, small-scale nature with regard to both production and marketing*.With respect to the sawmilling and plywood and veneer industries, which are the main i n t e r e s t of t h i s thesis, i t i s suggested that excess capacity exists. This surplus capacity, to a cert a i n extent, might support an expanded export programme. However, i t w i l l be necessary to add additional capacity, especially in the plywood and veneer industries. . For e f f e c t i v e p a r t i c i p a t i o n of the current forest industry i n an expanded export program, i t i s e s s e n t i a l to improve product quality i n order to f i n d acceptance and compete e f f e c t i v e l y . It would be useful for the qovernment to a s s i s t i n providing kiln-drying f a c i l i t i e s to small mills at minimal cost. Sawmillers could i n s t a l l necessary f a c i l i t i e s independently by forming cooperatives, also. The government should provide assistance also to deserving mills i n the form of long-term loans at low i n t e r e s t rates. Duty concessions on imports of machinery, spare parts, supplies, materials and other provisions would be helpful. 97 Other measures which could improve the.industry capacity would be the amalgamation of small m i l l s into larger units with assured supply of wood raw material. 4.2.2 Required Capacity f o r an Expanded Export Programme Projected consumption plus estimated exports w i l l be 1,103,833 m3 in 1985 and 1,547,786 m3 in 1990 for sawnwood and 601,606 m3 in 1985 and 1,020,304 m3 in 1990 for plywood and veneer, assuming that there w i l l be no imports of both sawnwood and plywood and veneer. The t o t a l required capacity must be equal or over that combined projected consumption and estimated exports of sawnwood and plywood and veneer, respectively. Considering the current pattern of sawnwood production and wood-based panel, industries in Peru, which i s 250-days operation per year at one 8-hour s h i f t (MA-DGFF, 1977) and using only 67 to 68% of the 1976 rated capacity, i t w i l l be necessary to increase production to balance future consumption and exports of these commodities. These:production increases can occur through the f u l l u t i l i z a t i o n of current i n s t a l l e d capacity, through the expansion of existing firms, through the introduction of new firms or through a combination of these alternatives. F u l l U t i l i z a t i o n of Current I n s t a l l e d Capacity Sawmill capacity, as established on a 1976 base and on the assumption that these mills w i l l operate on three s h o r t - s h i f t s per day consisting of 7.5-hours each, the t o t a l annual capacity would be 2,050,313 ra3 (Table 21). This i s well i n excess of the Table 21. Estimated Production at Various Levels of Output (1976). One 8-hours Shifts Per Day Two 8-hours Three 7.5-hours 3 (Total annual output in m ) Sawmill: Rated Capacity 729,000 1,458,000 2,050,313 (869,000) (1,738,000) (2,444,063) Present Operating Level 495,750 991,500 1,394,297 (590,920) (1,181,840) (1,661,963) Veneer and Plywood M i l l : Rated Capacity 112,750 225,500 317,109 (132,750) (265,500) (373,359) Present Operating Level 77,100 154,200 216,844 (88,943) (177,885) (250,151) Source: Calculated from Table 21. ( ) = includes 1976-1979 additional capacity. 99 required future production. The s h o r t - s h i f t basis allows 1.5 hours per day "down time" f o r necessary daily maintenance (Mead, 1 966) . The new m i l l s i n s t a l l e d between 1976 and 1979 have increased t o t a l annual capacity to 2,444,063 m3 (Chile F o r e s t a l , 1980) on a three s h o r t - s h i f t basis. On t h i s same basis, but assuming that the sawmills w i l l continue operating at the present l e v e l (68% of rated capacity) the t o t a l sawnwood production would be 36 and 12% higher than the required production in 1985 and 1990, respectively. Even operating at two 8-hour s h i f t s per day there i s excess capacity i n t h i s industry. These f a c t s indicate that there i s no need for new firms to support an expanded export programme, but i t i s necessary to take some measures to achieve increased production. M i l l s currently producing at a " c u r t a i l e d output", 68% of rated capacity i n the case of Peru, are facing higher production costs than those producing at rated or higher capacity (Mead, 1966). It would be adviseable that Peruvian sawmills should operate two 8-hour s h i f t s , which would promote the most e f f i c i e n t use of both resource and production capacity. . For plywood and veneer mill s , capacity i s assumed by FAO convention to be 100% for a 270 day/year operation (Lyons, 1978). On the basis of t h i s assumption, but for a 250 day/year operation at three 7.5-hour s h i f t s per day, the 1976 rated capacity plus the additional 1976-1979 rated capacity i s only 61% and 36% of t o t a l required production for 1985 and 1990, respectively. I t i s necessary that a d d i t i o n a l new capacity come on stream to balance the required production by 1985 and 1990. 1 0 0 Considering two 8-hour s h i f t s per day and 250 operating days per year, the new capacities required would be 340,830 ra3 by 1985 and 766,810 m3 by 1990..The future size.of the plywood mil l s adopted would be small at 20,000 m3/year for tro p i c a l conditions (FAO, 1976c), which i s also the averaqe size of current m i l l capacities i n Peru. Because the forest industry i s c a p i t a l intensive, increased production of plywood w i l l require larqe c a p i t a l investment. Based on data gathered from Vancouver plywood m i l l builders, May 1980, approximate plant investment costs have been estimated for 20 new m i l l s required at U.S.$ 234 m i l l i o n . These estimates are for plant c a p i t a l only and do not include allowance for start-up expenses, infrastructure and other costs. These plant c a p i t a l estimates compared with those estimated by FAO i n 1975 for the same size mills are 60% hiqher than that FAO figures (FAO, 1976c), which might be due to the i n f l a t i o n factor 1975-1980. Who Should Set-Up These Industries ? In Peru, wood-based firms have always been set-up by the private sector with exception of one sawmill complex which was set-up by the Peruvian government, but unfortunately without success..Setting up new plywood m i l l s i n Peru i s probably a f i e l d best l e f t to the i n i t i a t i v e and innovation of private enterprise under the ov e r a l l guidance of government. The government should promote production expansion and create incentives for investments. The government may contribute a percentage of the t o t a l 10 1 investment cost as a grant in order to provide an incentive for investors. The government may pay for general development costs, such as wood lands and infrastructure or provide low interest loans or tax incentives. Any one or some of the above governmental incentives may be offered in order to improve the return on equity. Development c a p i t a l i s exceedinqly short i n the developinq countries (Dow, 1972) and this i s not an exception for Peru. This country should encourage foreign involvement i n the development of i t s forest resources and to finance wood processing industries..The main benefits that foreign investment can bring are increased a v a i l a b i l i t y of c a p i t a l , foreign exchange, managerial and technical s k i l l s and access to new markets (Sregersen and Contreras, 1975). A l l these contributions are to a great extent good potential in any given case. Many of them are accompanied by negative aspects for the host country. The negative aspects may be counteracted, however, by measures designated to f a c i l i t a t e achievement of foreign investors and the host country»s goals with the re s u l t that both could benefit from t h i s type of investment.. 4.3 Possible Impact of an Expanded Wood Products Export Programme on the Forest Resources Sector and the Peruvian Economy 4.3.1 Possible Impact On The Forest Resource Sector Changes in industry and market requirements due to an expanded wood products export programme obviously have a 102 p a r t i c u l a r l y vigorous impact on the supply pattern of t r o p i c a l wood, on the forest industries, on other related i n d u s t r i e s , and on the country's economy. In Chapter Two, logging problems i n Peru were analysed. Lack of a sustained wood supply and lack of planned forest management were shown. An expanded wood products export programme could make a positive impact on these.,It could make possible the r a t i o n a l use of complementary resources available in the region, also. The.main impacts on the .forest and forestry sector are closer u t i l i z a t i o n of currently unutilized or underutilized forest resources, or stands presently non-economical; expansion of the number of species currently marketed in domestic and export markets; organization of a strong logging industry; modernization and/or relocation of old plants and the consolidation of new plants; u t i l i z a t i o n of the current surplus capacity f o r sawnwood and plywood and veneer; and increased demand for professional and technical s k i l l s in the forest and forestry sector. In order to closer u t i l i z e forest resources i t w i l l be necessary to inventory existing forest areas and improve management practices and control. I t w i l l be necessary also to review current export species from Latin American countries, such as B r a s i l , Colombia, Ecuador, and others..Some of these are species that exist in Peruvian t r o p i c a l forests, but are not currently exported. I d e n t i f i c a t i o n of these species i s very impsrtant and i t could help to increase the number of Peruvian exported species from 20 to about 50 species (Erfurth and 103 Rusche, 1976). This would lead to increasing the value of f o r e s t stands and incouraging the industry to harvest high cost stands. The lack of d i r e c t i n d u s t r i a l involvement i n harvesting operations results i n a wastage of timber in the forest, much unnecessary degrade of logs, and most important, shortage of log supply to the mills. This i s because small contractors are not aware of the precise requirements of the industry or the end use of any p a r t i c u l a r log and they do not have enouqh c a p i t a l to supply the required amount of logs. An expanded demand for logs can he met only through logging as an i n d u s t r i a l a c t i v i t y . This logging industry might ensure a greater degree of s t a b i l i t y to log supply and more e f f e c t i v e output of logs from the fore s t . Expansion of forest products i f properly directed would ensure the establishment of e f f i c i e n t units, replace obsolete ones and u t i l i z e the f u l l capacity of existing m i l l s to take f u l l advantage of wider markets. Because of t h i s expanded wood products export programme, the forest industry w i l l require heavy investments on i t s dif f e r e n t operations and most firms w i l l not be able to provide the required c a p i t a l . The most f e a s i b l e , though not necessarily most desirable, might be integration of the forest industries. The integration of wood-based panel industries with sawrailling would permit f u l l e r u t i l i z a t i o n of forest resources and improve the p r o f i t a b i l i t y on wood-based panels s i g n i f i c a n t l y (FAO, 1976c) . V e r t i c a l integration i n t o further processed products increases the processing in the country and the sales value and the added value for export products. Within the horizontal integration, forward integration secures market share 104 and controls inventory and backward integration secures supply of logs, protects investment i n the c a p i t a l plant and, also, protects from unstable raw material prices.. The extent to which integration of production i s desirable has not yet been determined for the Peruvian wood product ind u s t r i e s . I t i s suggested that t h i s be studied. Integrated wood raw material procurement, transportation and woodhandling and sorting at m i l l s i t e offer a great potential for cost saving i n developing countries (Jaoko Poyry and Co., ;1 975)... Integration benefits i n manufacturing consist mainly of c a p i t a l , energy, raw material, administration and service costs. 4.3.2 Possible Impact On The Peruvian Economy The expansion of wood products exports i s s t r i c t l y connected with the expansion of the forest industry sector, as well as with general i n d u s t r i a l expansion and with the growth of income.both through technological inter-industry and through income/demand r e l a t i o n s (Westoby, 1962). This i s the linkage effect of forestry with the rest of the economy.. It is also well kncwn that foreign trade has the capacity to increase the welfare of domestic consumers. In the case of developing countries, foreign trade i s paramount i n earning an investable surplus of foreign exchange e s s e n t i a l f o r growth, especially i f the commodities are in processed form which captures the added value. Forestry has the advantage of creating employment p o s s i b i l i t i e s f or both the s k i l l e d and the unskilled, not only 105 in industries but also in the supply of raw material to these industries, and i n the management of the forests. Forestry can also contribute greatly to community development i n rural areas, and generate public re venue, and other s o c i a l benefits. An increase in forest product exports w i l l have an impact on a l l of these aspects. The impact on employment in the Peruvian logging and transport of wood to the m i l l s and in the handling, transport and export of the end product could provide new direct employment opportunities for 56,492 people 5 which i s about f i v e times higher than 1976 employment in the Peruvian forest and forestry sector (MA-DGFF, 1979). Information from studies conducted in other developing countries (Zobe and Albert, 1978) has shown that a major forest i n d u s t r i a l complex can support a population approximately 15 times the number of people d i r e c t l y employed. Employment multiplier e f f e c t arises from the need for goods and services to the f a c i l i t y and i t s employees. . Unemployment i s a most serious problem i n Peru. It has been manifested i n recent years especially in urban areas. This high unemployment situ a t i o n has been atributed to such factors as the substantial income d i f f e r e n t i a l between urban and r u r a l areas, fast population growth and the increasing c a p i t a l intensity of investment in urban areas (Schydlowsky and Wicht, 1979). Expansion of wood product exports, which i s s t r i c t l y connected with expansion of the i n d u s t r i a l sector, i s one way of 5 Calculation procedures are in Appendix I I . 106 increasing employment opportunities. This unemployment problem could be attacked more d i r e c t l y through r u r a l job creation. Very often i t means investment in labour intensive projects located in r u r a l areas. Forestry meets admirably these c r i t e r i a for selecting investment projects in the labour-surplus, underdeveloped economy (Lewis, 1966). Public Revenue From The Peruvian Forest and Forestry Sector Some of the most important sources of public revenue generated by forest-based a c t i v i t i e s are i n the form of stumpage, royalty, taxes and other charges levied upon forest land, timber and primary products. In addition, there are other forms of public revenue, such as the corporation income tax, the personal income tax and others.. The impact of an expanded wood product exports programme w i l l be considerable on Peruvian public revenue, even i f stumpage charges are not present as revenue. Stumpage has been and i s the largest source of many country, state or p r o v i n c i a l forest revenues. In the province of B r i t i s h Columbia, Canada, for example, stumpage amounted to 72.3% of dir e c t forest revenue to that province in 1975 (Pearse, 1976). Public revenue frcm forest industry a c t i v i t y , just i n the form of royalty in Peru, t o t a l l e d U.S.$935,397 i n 1978 (MA-DGFF, 1979). Estimated public revenue from expanded wood product exports would reach U.S.$ 3,137,497* at 1978 d o l l a r prices by 1990. An expanded wood product exports programme would have 6 Calculation procedures are in appendix I I I . 107 considerable impact on public revenue. This could be greater than from a l l other public revenue sources and even more i f stumpage i s introduced as revenue. The impact on earnings of value added would be considerable in Peru, also, since t h i s country does not export logs. The current l e v e l of value added i s estimated to be in the order of $30 to $50/m3 of logs for sawnwood and veneer, and $40 to $80/m3 for plywood (Pringle, 1976). It might be argued that the 1,080,000 m3 exports processed by 1990 might bring another $ 125,280,000 or more to thi s country in product value added, as well as infrastructure and c a p i t a l . Expanded wood products export programme can contribute substantially to ru r a l and o v e r a l l development through backward and forward linkages with the rest of the economy.. Foreign exchange earnings through expanded wood product exports would increase s u b s t a n t i a l l y , about 30 times that of 1976 by 1990, which would be one great advantage of expanded exports since foreign exchange i s often extremely c r u c i a l for Peru as with other developing countries. S p e c i f i c contributions an expanded wood products export programme can make towards development of the forest and forestry sector and towards development of the Peruvian economy w i l l depend on attention given by the Peruvian government. It depends also on the intern a l socio-economic and p o l i t i c a l environment, as well as external world business cycles, that pertain during the 1980-1990 development period. 108 CHAPTER FIVE CONCLUSIONS AND RECOMMENDATIONS This study suggests that an expanded wood products export programme i n the short to medium-term i s a v a l i d , and indeed s o c i a l l y and economically r a t i o n a l , policy for Peru.. It has long been appreciated that the external sector of a l l nations holds potential for increasing in t e r n a l welfare* For the developing countries, however, recent experiences t e s t i f y that exports have, i n addition, an important and more dynamic role to play. In fact, in order to achieve t h i s , Peru now practices active trade promotion through the export incentives. In the context of the t o t a l Peruvian economy, and in spite of the fact that the forest-based commodities—particularly those based on hardwoods—have one of the most rapid growth potentials i n world trade, the performance of wood product exports has not been encouraging. A s e r i e s of analyses were undertaken i n t h i s study to ide n t i f y p o l i c i e s , which could enhance contribution of forest and forestry sectors to national development through expanded wood product exports from Peru. 109 Features of the Peruvian economy indicated that, i n spite of i t s r i c h natural resources, this country i s s t i l l economically underdeveloped. This i s c l e a r l y underlined by the high proportion of unemployment and/or underemployment, high rate of population growth, disappointing economic performance i n r e a l gross domestic product and hugh balance of payments d e f i c i t . The need f o r overcoming t h i s d e f i c i t i s expressed by the export incentives on non-traditionally exported goods, which i s enormously advantageous for the exports of wood products. The contribution of forest and forestry sectors to the Peruvian economy was negligible and i t s f u l l impact has not been realized mainly due to p o l i t i c a l and i n s t i t u t i o n a l obstacles. Almost two thirds of the country's area i s covered with t r o p i c a l forest, wich makes Peru the second most forested country in Latin America. These resources are extensive and varied. Some problems associated with t h i s resource stem from the heterogeneous nature of these forests, as species of current commercial value constitute only a small f r a c t i o n of the standing timber. This small fraction e a s i l y can support expanded wood products production and export programmes. There are considerable add i t i o n a l merchantable woods in Peru, which are being commercialized by Peru's neighbour countries. In addition, there are Peruvian species whose physical and mechanical c h a r a c t e r i s t i c s are known only by researchers but not by wood producers and consumers. The potential productive capacity of the f o r e s t resources of Peru is much higher than the projected future.domestic requirements and the expanded wood product exports..The areas 110 now in use have never been managed technically for wood production. In addition, there are extensive forest areas that have not been exploited at a l l . More important i n the long-run, however, i s the fact that i n many parts of the country the s o i l and climate favour very rapid tree growth. Peruvian plantations of Eucalyptus spp. and pine produce annual yields per hectare that are f a n t a s t i c when compared with y i e l d s i n the northern temperate zone. Selective harvesting i s practiced in Peru for individual forest products, which means low volume recovery from the forests. Plantation forestry does not have th i s problem.. The shortage of wood supplies to the forest industries i s due to factors such as the intrinsec c h a r a c t e r i s t i c s of the t r o p i c a l forests. The main factor, however, i s the i n e f f i c i e n t logging practices of the ind i v i d u a l or small logging contractors who do not have the f i n a n c i a l and economic capacity to meet the increased demand for wood raw material. The.increased a v a i l a b i l i t y and demand for wood from the Peruvian forests w i l l require a rapid expansion of the logging contractors capacity. By 1985 and 1990 the volume of wood to be harvested and transported w i l l have increased as much as 34% and 89%, respectively, compared to 1976.. The i n d i v i d u a l and small logging contractors w i l l find i t d i f f i c u l t to cope with these increased volumes. Expanding the logging capacity depends on some restructuring to permit the introduction of the c a p i t a l and expertise reguired..It i s necessary to develop the logging a c t i v i t y to ensure a greater degree.of s t a b i l i t y to log supply and a more e f f e c t i v e output of 111 logs from the forests. The wood based industries are not making t h e i r expected contribution to the s o c i a l and economic l i f e of the nation, however, there i s enormous potential for them to increase t h e i r contribution. These industries have been developed e s s e n t i a l l y without any planning and l i t t l e government control. They operate at a low e f f i c i e n c y where log conversion r a t i o s tend to be very low. Some of their major problems are, shortage of wood raw material, lack of spare parts, supplies, materials, f u e l , lack of trained manpower and c a p i t a l . In the case of the sawmill industry there i s also lack of f a c i l i t i e s for seasoning and wood treatment. The capacity of the forest industries i s greater than the present domestic consumption, especially i n the sawmill, plywood and veneer industries. This surplus capacity can support the projected domestic wood products requirements and an expanded export programme i n the case of the sawmill industry. In the case of plywood and veneer industries, i t w i l l be necessary to add addi t i o n a l capacity to support an expanded export programme. To meet the projected domestic requirements for plywood and veneer i t w i l l not be necessary to add additional capacity. . The establishement of integrated centres, where f u l l e r u t i l i z a t i o n of t o t a l resources would occur, i s of v i t a l importance. The grouping of conversion a c t i v i t i e s could r e s u l t in lower harvesting and transportation costs due to economies of scale. If the plywood and vener industries are going to meet 112 f expanded wood product exports requirements over the next decade an investment w i l l be necessary. I t i s d e s i r a b l e t h a t the government should o f f e r q r e a t e r f i n a n c i a l a s s i s t a n c e and proper p r o t e c t i o n of the l o c a l i n d u s t r i e s ' investment by r e p l a c i n g and/or up-dating a wide range of p o l i c i e s t h a t are i n e q u i t a b l e and burdensome. In f o r e s t products t r a d e , Peru s u p p l i e s only a very s m a l l p a r t of the world product imports* There are many f a c t o r s t h a t have hindered the f u l l development of Peruvian wood products exports, such as f r e i g h t c o s t s , market acceptance, trade r e g u l a t i o n s , l a c k of knowledge on t e c h n o l o g i c a l p r o p e r t i e s of s p e c i e s by exporters and importers and l a c k of promotinal programmes. These problems are compounded by the l a r g e number o f sma l l p r o d u c e r - e x p o r t e r s and agents, most of whom are unaware o f or had i n s u f f i c i e n t throughput to be able to adopt modern marketing t e c h n i q u e s . Species grouping, b e t t e r D r g a n i z a t i o n , more c o n s i s t e n t q u a l i t y and a b i l i t y to produce to s p e c i f i c a t i o n s , as well as f a s t e r d e l i v e r y i s needed to capture an i n c r e a s e d share of export markets. D e s p i t e these problems Peruvian wood product e x p o r t s show c o n t i n u i n g growth of both annual volume, and values f o r 1969-1978. Cost of ocean f r e i g h t from Peru to export markets i s a c r i t i c a l v a r i a b l e i n the f i n a l c o s t determination..There i s a great p o t e n t i a l to a d j u s t f r e i g h t r a t e s c o n s i d e r a b l y , thereby changing the c o m p e t i t i o n f a c t o r . Even more i n the s h o r t and medium-term by an expanded wood products export programme. 1 1 3 Given the species composition and product mix of Peruvian forest industries there are enormous international markets available for sawnwood and wood-based panels. The United States t r o p i c a l hardwood market i s characterized by i t s very large size and i t s imports of wood products in processed form. Colombia, Dominican Republic, England, I t a l y , Spain, Venezuela and West Germany are among other major importers of Peruvian forest products and also they are the best future prospects for Peru. There i s excellent opportunity f o r expanding wood product exports from Peru. . The analysis on cost of d e l i v e r i n g wood to export markets has demonstrated that Peru has a comparative advantage at lower return to m i l l . Present trade pattern, including trade in wood products, are the r e s u l t of a complex in t e r a c t i o n of country and regional comparative cost advantages, t a r i f f s , quotas and transport costs. Peru, in spite of i t s high ocean f r e i g h t rates, i s a t r o p i c a l hardwood products exporter that successfully competes in North American markets.. There i s a great p o s s i b i l i t y to improve t h i s comparative advantage by reducing f r e i g h t rates. An expanded wood products export programme has a vigorous impact on the forest and forestry sectors and on the Peruvian economy. These impacts are closer u t i l i z a t i o n of currently unutilized or underutilized forest resources, expansion of the number of species in domestic and export markets, organization of a strong logging industry, modernization and/or realocation of old plants and the consolidation of new plants, u t i l i z a t i o n of the current surplus capacity of f o r e s t i n d u s t r i e s , growth of 1 1 4 income, achievement of investable foreign exchange surplus, creation of employment opportunities, development of rural areas, and generation of public revenue and other economic and s o c i a l benefits. In view of i t s natural and economic advantages, Peru should not only think merely i n terms of s e l f s u f ficiency but also i n supplying part of future world demand. To reach t h i s objective Peru must improve and get an e f f i c i e n t i n d u s t r i a l capacity to make the kind of products that the world w i l l want..Transport and communications w i l l have to be improved immensely to reduce costs and keep them at a minimum. The forests themselves w i l l have to be improved to emphasize rapid production of the q u a l i t y need. The Peruvian government w i l l have to invest i n raising the productivity of i t s forest resources..But such investment w i l l be f r u i t f u l i n the long-run by making Peru a major supply source for forest products. . Eecommen dations: Of the many recommendations made in t h i s t h e s i s , some of those considered most important are summarized as follows.. In order to enhance the contribution of wood product exports to the development of the forest and forestry sectors and to the Peruvian economy i t i s recommended that: 1..Expansion of processed wood product exports should be i n i t i a t e d immediately; 2. The markets for Peruvian wood product exports should be assured and also d i v e r s i f i e d through more intensive marketing 115 and export promotion e f f o r t s ; 3..Export incentives should continue at l e a s t at the present l e v e l and that r e l i e f should be granted for costs of representatives t r a v e l l i n g overseas; 4. The Bureau of Transport Economics and the Forestry and Timber Bureau j o i n t l y undertake a study of the economics of transporting f o r e s t products with the objective of recommending ways of reducing transport costs, p a r t i c u l a r l y those controlable by the industries themselves and by the Peruvian government; 5. The government should provide assistance to the forest industry i n securing shipping space and negotiating f r e i g h t rates with the conference l i n e s and other c a r r i e r s ; 6..The government should promote expansion of wood product exports by providing grading standards, wood products inspection service, and finance f o r wood seasoning and treatment f a c i l i t i e s ; 7. _There should be closer cooperation between government and the wood-based industry in research and product development; 8. A National Forest Products Research Laboratory should be.set-up as an autonomous body with governing board, including government, industry, and user representatives; 9. Forest development objectives must be consistent with national development objectives, i f maximum economic welfare i s the national objective and i s defined so as to include growth and d i s t r i b u t i o n of income where the forestry sector should be highly ranked i n national development programmes; 10. A planned approach to forestry and forest industries as one integrated sector i s imperative, without planning, forestry and 116 forest industries development i n Peru w i l l continue to stay at an i n s i g n i f i c a n t l e v e l ; 1 i l . The Peruvian government, i n conjunction with industry, take such steps as are necessary to ensure that forest resources are provided to meet the estimated requirements by the expanded wood products production and export programmes to the year 1 9 9 0 ; 12. The Peruvian government should encourage the technological development of the forest industry i n order to achieve the most ef f e c t i v e use of the forest resources; 1 3 . .In view of the emphasis placed by Peruvian authorities on establishing and maintaining alternative growth centres to the c a p i t a l c i t i e s , a campaign of regional development be supported highlighting the forest industries as one element e f f e c t i v e in as s i s t i n g regional development; 14. A study be made by an appropriate j o i n t committee of the benefits to be derived from various stages of industry integration, recognising that f u l l integration w i l l not be possible i n many areas of Peru; and 1 5 . .. Research be undertaken by research organizations to develop plans for small e f f i c i e n t units f o r seasoning and the processing of sawn timber from small i s o l a t e d m i l l s where sawmill integration i s impossible. , 117 LITERATURE CITED Abusada-Salah, R..1975. U t i l i z a c i o n del c a p i t a l iastalado en e l sector i n d u s t r i a l Peruano. Centro de Estudios del Desarrollo Latinoamericano de l a universidad de Boston, Boston. 172 pp. Arostsgui, A., W. Valenzuela y R. Parraga. 1973..Aptitud de 10 maderas nacionales en l a industria de la construccion. .  Universidad Nacional Agraria-S ministerio de Industria y Comercio, Lima. 150 pp. Arostegui, A., R. Gonzales, A. ..Sato y W. Valenzuela. 1978. Estudio i n t e g r a l de l a madera para construccion. Ministerio de Agricultura-Universidad Nacional Agraria, Lima. 184 pp. Arostegui, A., R. Gonzales, A. Sato, W. Valenzuela y R. Lao. 1 975. Estudio tecnologico de maderas del Peru (zona Pucallpa)-Caracteristicas tecnologicas y usos de l a madera de 40 especies del bosque nacional Alexander Von Humboldt. Ministerio de Aqricultura-Universidad Nacional Agraria, Lima. 171 pp. Bandrowski, S.S. and C. R. Staton. 1980. GATT talks could mean boost f o r f o r e s t products exports. Canadian Forest Industries 100 (1): 19-21. CELADE. 1979. La poblacion de Latino America. Centro Latinoamericano de Demografia, Santiago* .75 pp. Chile F o r e s t a l . 1980. Ccmision Forestal Latinoamericana: Positivo balance de ultimos 4 anos. Chile Forestal, Ano 5 No 54: 6-7. Cole, J.P..1975. Latin America: An Economic and S o c i a l Geography. Butterworths, London. 470 pp. . Darr, D. R. and G. R. L i n d e l l . 1980. Prospects for U. S. trade in timber products: Imports. Forest Products. 30 (4): 16-20. David, E. 197 1. Estudio de mercado y comercializacion de productos forestales del Peru. Ministerio de Agricultura-Universidad Nacional Agraria, Lima. 348 pp. David, E,. .1978. Estudio de mercado de productos de transformacion mecanica de l a madera 1970-1976. Universidad Nacional Agraria, Lima. 214 pp.. David, E., R. Campos y M. Bravo. 1977. Aspectos economicos de los productos de.la madera en e l Peru 1962-1973. Revista Forestal del Peru, 7 (1-2) : 13-26. . Dow, E. 1972. Role of foreign c a p i t a l in forest industries 118 development i n developing countries from a developing country's point of view. Proceedins, Seventh World Forestry Congress, Buenos Aires, Argentina, pp. 205 (E). Enabor, E.E. 1976. P o l i c i e s towards wood products exports i n Nigeria. Unpublished Ph.D. Thesis, Faculty of Forestry, University of B r i t i s h Columbia, Vancouver. 380 pp. Enabor, E.E. and D. Haley. 1975. The outlook for t r o p i c a l hardwood products i n North America. .  Faculty of Forestry, University of B r i t i s h Columbia, Vancouver. 38 pp. Erfurth, T. and H. .Rusche. . 1976. The marketing of t r o p i c a l wood: Wood species from South American t r o p i c a l moist forests. Food and Agriculture Organization of the United Nations, Rome. 67 pp. FAO. 1 963. World forest inventory. Food and Agriculture Organization of the United Nations, Rome..113 pp.. FAO. 1964. Expansion of exports of forest products from developing countries. Unasylva 18(1) :3—11 • FAO._ 197 1. .Agriculture commodity projections, 1970- 1980. Vol. 1. Food and Agriculture Organization of the United Nations, Rome. 329 pp. FAO. 1976a. Forest resources in the Asia and Far East Region. Food and Agriculture Organization of the United Nations, Rome. 100 pp. FAO..1976b..Development and forest resources in Asia and the Far East: Trends and Perspectives 1961-1991. Food and Agriculture Organization of the United Nations, Rome. 89 pp.. FAO. 1976c. Economics of investment and production i n the wood-based panel industries. . Proceedings of the World Consultation on Wood-based Panels. New Delhi, India. M i l l e r Freeman Publications, Brussels, pp. 311-382. FAO.^ 1978. Yearbook of forest products s t a t i s t i c s , 1950-1977. Food and Agriculture Organization of the United Nations, Rome. FAO..1 979a. .Peru: l a in d u s t r i a del aserrio, perspectivas y recomendaciones para su desarrollo y aumento de la exportacion de madera aserrada..Organizacion de las Naciones Unidas para l a Agricultura y la Alimentacion-Grupo de P l a n i f i c a c i o n y Desarrollo de Industrias Forestales en America Latina, Santiago. .85 pp. FAO. 1979b. Summary: Production, consumption and trade of sawnwood and wood-based panels in South America 1965-1977. Food and Agriculture Organization of the United Nations-Forest Industries Planning and Development Group 119 for Latin America, Santiago..55 pp. FAO-ECE. . 1976. European timber trends and prospects 1950-2000. Supplement 3 to Volume XXIX of the timber b u l l e t i n for Europe. Food and Agriculture Organization and Economic Commision for Europe of the United Nations, Geneva. .308 pp. Frisk, I..1977. The effects of log exports on employment. Report of the FAO-Norway Seminar on Storage, Transport and Shipping of wood. Food and Agriculture Organization of the United Nations and Norway Cooperative Programme, Singapore, pp. 169-176. Gregersen, H.M. 197 1. The Latin American contribution to United States forest products imports: Problems and Potentials for the exporter. Forest Products. 21 (3) : 16-20. . Gregersen, H.M. and A. Contreras. 1975. U. S. Investment i n the forest-based sector i n Latin America: Problems and potentials. Resources f o r the Future, Inc. Johns Hopkins University Press, Baltimore..113 pp. Hair, D. 1969. Current and prospective trends i n imports of hardwood timber into the United States.,Proceedings, Conference on Tropical Hardwoods, College of Environmental Science and Forestry, Syracuse University, Syracuse, pp. 14-32. Haygreen, J . and H. Gregersen. 1979. Integrated u t i l i z a t i o n of mixed t r o p i c a l hardwood: Example from the Philippines. Forest Products. 29 (9): 1 5-20. Holland, I.I. 1977. Comparative advantage and potentials for world trade i n wood products. Forest Products. 27 (10): 55-58.. Hopkins, F.S. 1976. .Aspectos economicos relacionados con l a reforestacion: una vision preliminar sobre e l futuro de l a produccion y consumo de madera en e l Peru. Ministerio de Agricultura-Mision de las Universidades de Iowa, Lima. 19 pp. Imperial I n s t i t u t e . 1928. Descriptive l i s t of some timbers recommended by the Imperial I n s t i t u t e Advisory Committee on timbers. Imperial In s t i t u t e , London. 77 pp. International Trade Consultants. 1979. Fobrometer, monthly report. Santa Monica, C a l i f o r n i a . Jaakko Poyry and Co., Oy. 1975. , Economics of investment and manufacture of wood-based panels. Background Paper of World Consultation on Wood-based panels, Finland..95 pp.. Japanese Ministry of Agriculture and Forestry.* 1973. "Basic plan regarding forest resource" and "long range prospect 120 regarding demand and supply of important forest products." Approved at the Cabinet Council, 16th February 1 973, tokyo. Lao, R..1969. Especies forestales del Peru. Revista Forestal del Peru. 3 ( 2 ) : 1-64. Lewis, G.D. 1966. The role of forest industries in i n d u s t r i a l development i n t r o p i c a l Latin America. Proceedings, Sixth World Forestry Congress, Madrid , Spain. Vol. 1: 623-629. Lopez, R., M. Gonzales, J..Vergara y E.H. Mucha..1974..Proyecto de plantaciones forestales con fines i n d u s t r i a l e s -Cajamarca (Estudio de p r e - f a c t i b i l i d a d ) . Universidad Nacional Agraria-Ministerio de Agricultura, Lima. . 340 pp. Lyons, M.J. 1978. For world's panel industries: over-capacity to end in '78 ?. .World Wood 19 (2)s14-17. MAA-DGFF. 1979. . Diagnostico del sub-sector f o r e s t a l y de fauna.. Documento de trabajo. Ministerio de Agricultura y Alimentacion-Direccion General Forestal y de Fauna, Lima. 1 12 pp. MA-DGFC. 1974. Plan nacional de desarrollo 1975-1978: plan del sub-sector f o r e s t a l y de caza. Documento preliminar, Ministerio de Agricultura-Direccion General Forestal y de Caza, Lima. 97 pp. . MA-DGFF. 1977. Vademecum f o r e s t a l . . M i n i s t e r i o de Agricultura-Direccion General Forestal y de Fauna, Lima. 133 pp.. Malleux, J . 1975. Mapa f o r e s t a l del Peru (Memoria e x p l i c a t i v a ) . Universidad Nacional Agraria, lima. 161 pp.. Manning, G.H. 1977. Export markets for B r i t i s h Columbia softwood lumber producers.: Economic theory vs. empirical evidence. Forest Products. 27 .(10) : 7 9 - 8 3 . Manning, G.H. and H. R. G r i n n e l l . 1971. Forest resources and u t i l i z a t i o n i n Canada to the year 2000. Department of the Environment, Canadian Forestry Service, Ottawa. 80 pp. Mead, W.J..1966. Competition and oligopsony i n the Douglas F i r lumber industry. University of C a l i f o r n i a Press, Los Angeles,. 276 pp. MICTI-DGCE..1977. Proyecto sobre comercializacion de maderas y sus manufacturas en l a Comunidad Economica Europea. . Minis t e r i o de Industria, Comercio, Turismo e Integracion, Lima..10 pp. MICTI-DGCE. 1979. Diagnostico de las exportaciones del sub-sector maderas ccrrespondiente a 1978: madera aserrada, laminada y contrachapada. Ministerio de Industria, Comercio, Turismo e Integracion, Lima. 26 pp. 121 MICTI-DGCE...1979. Autorizaciones para exportar 1969-1978. Ministerio de Industria, Comercio, Turisrao e Integracion, Lima. 438 pp. Mucha, E.H. .1979. The Peruvian position i n world wood-based products trade. Unpublished FRST 580 report. Faculty of Forestry, University of B r i t i s h Columbia, Vancouver. 49 pp.. ONE. 1979. Cuentas nacionales del Peru 1950-1978. Instituto Nacional de P l a n i f i c a c i o n - O f i c i n a Nacional de E s t a d i s t i c a , Lima. .158 pp. Pearse, P.H. 1976. Timber rights and forest policy in B r i t i s h Columbia. Vol. 1. Report of the Royal Commission on Forest Resources, V i c t o r i a . 395 pp. PERU. 1975. Informacion climatica del Peru. Servicio Nacional de Meteorolcgia e Hidrologia del Peru, Lima. 25 pp. PERU..1978. La poblacion del Peru. Division de impresiones, Of i c i n a Nacional de E s t a d i s t i c a y Censos, Lima. .328 pp... PERU. 1980. Plan nacional de desarrollo 1980-1981. Plan global y anexo. I n s t i t u t o Nacional de P l a n i f i c a c i o n , Lima. 277 pp. Pringle, S.L. 1976. Tropical moist forests in world demand, supply and trade. Unasylva 28 (112-113) : (I 06-118. Pringle, S.L. 1978. Quantity and quality of the t r o p i c a l forests..Proceedings of Conference on Improved U t i l i z a t i o n of Tropical Forests. United States Department of Agriculture, Forest Service, Wisconsin, pp. 51-68. Roberts, D.H. 1976. Tropical hardwood exports and economic development.,Unpublished Ph.D. Thesis, Faculty of Forestry, University of B r i t i s h Columbia, Vancouver..166 PP. .  Rola, B. 1974. The Philip p i n e veneer and plywood industry: structure and performance. Unpublished Ph.D. Thesis, College of Environmental Science and Forestry, Syracuse, New York. .282 pp. Schydlowsky, D.M. Y J.J. Wicht. 1979. Anatomia de un fracaso economico: peru 1968-1978. Centro de Investigacion de l a Universidad del P a c i f i c o . I n d u s t r i a l Grafica S.A., Lima.. 129 pp. Senft, J. and R.M. Delia Lucia. 1979. Increased u t i l i z a t i o n of t r o p i c a l hardwoods through species-independent s t r u c t u r a l grading. Forest Prodcuts. 29 (6): 22-28. Sommer, A..1976..Attempt at an assessment of the world's t r o p i c a l moist forests. .Unasylva 28(112—113):5—25. 122 Stone, E.N. and H. E. . Dickerhoof. 1977. Outlook for forest products trade and imports. Forest Products. 27 (10): 44-4 8... Stone, R.N. and J.F. Saeman. 1977. World demand and supply of timber products to the year 2000. Forest Products. 27( 10) :49-54. Takeuchi, K. 1974. Tropical hardwood trade i n the A s i a - P a c i f i c region. Occasional Staff Paper No 17, World Bank. John Hopkins University Press, Baltimore. . 90 pp.. Tosi, J. 1960. Zonas de vida natural del Peru. Inst i t u t o Interamericano de Ciencias Agricolas-Organizacion de los Estados Americanos, La Molina, Lima..347 pp. UN. 1978. Yearbook of international trade s t a t i s t i c s 1977. Vol. I, trade by country. .United Nations, New York. 1019 pp. UNCTAD-GATT. 1973. Major markets for t r o p i c a l sawnwood. International Trade Centre, Geneva. 226 pp. USDA. 1973. The outlook f o r timber i n the United States. United States Department of Agriculture, Forest Service, Washington, D.C. 367 pp. Westoby, J.C. 1962. Forest industries in the attack on economic underdevelopment. Unasylva 16 (4) : 168-20 1. . Westoby, J.C. 1969. Forest and forest industries: Lever for development?. . The Australian Timber. 35 (1 1) : 93- 103. . Zobe, R.N» and R.J. Albert. 1978. U t i l i z a t i o n of t r o p i c a l hardwoods for manufacture of pulp, generation of steam and e l e c t r i c a l energy- A preliminary i n d u s t r i a l survey.. Proceedings of Conference on Improved U t i l i z a t i o n of Tropical Forests. United States Department of Agriculture, Forest Service, Wisconsin. . pp. , 543-569. . 123 APPENDIX I FAO model for wood products consumption log Ct = a+blogYt+clogCt-n+dlogYt-n. Where; Ct = apparent per capita consumption at time t.. Yt = GDP per capita at time t. , Yt-n = GDP per capita at time t-n (the previous period). Ct-n = apparent per capita consumption at time t-n.. a,b,c and d are constants. Consumption function for Peru: Sawnwood consumption/1000 capita logCt = -0.677230+0.2738461ogYt+0.6076171ogCt-n-0.1945841ogYt-n Multiple c o r r e l a t i o n c o e f f i c i e n t = 0.89356 Wood-based panel consumption/10 00 capita logCt = -0.424244+0.2262371ogYt+0.471291logCt-n+0.1949141ogYt-n Multiple c o r r e l a t i o n c o e f f i c i e n t = 0.986 18. The projected t o t a l consumption was obtained by multiplying projected per capita consumption by the forecasted population. 124 APPENDIX II Employment Opportunities Logging and Transport. An average figure of roundwood that can be logged and transported by each person employed(including road construction and supervision) would be 350 m 3/person/year (MAA-DGFF, 1979). Based on t h i s f i g u r e : Actual employment, 1976, i n logging and transport would be: Total = 1,670,353 m3:350 m 3/person/year = 4,773 people employed. Sawnwood,plywood and veneer = 1,601,019 m3:350 m 3/person/year = 4,575 people employed,. Projected employment i n logging and transport by 1985 and 1990: Using the Peruvian average conversion factors, 2.13 and 2.26, for sawnwood into sawlogs and plywood and veneer into veneer logs, respectively, i t would be logged and transported 3,710,795 m3 i n 1985 and 5,602,673 m3 in 1990..So the number of people that can be employed by the sawnwood and plywood and veneer industries would be: in logging and transport a c t i v i t i e s would be: In 1985: 3,710,795 m3:350 m 3/person/year = 10,603 people.. In 1990: 5,602,673 m3:350 m 3/person/year = 16,008 people.. Sawmill Industry. In 1976 the sawmill industry i n Peru produced 782,572 m3 of sawnwood and the number of people employed was 4,47 1..These figures represent 175 m3/man/year. Based on t h i s proportion: 1985 new jobs: 1,103,834 m3:175 m3/man/year = 6,308 new jobs.. 1990 new jobs: 1, 547, 787 m3:175 m3/man/year = 8,845 new jobs. Wood-based Industry. This industry produced 77,104 m3 in 1976 and employed 2,357 people..These figures represent 33 m3/man/year. 1985 new jobs: 601,606 m3:33 m3/man/year = 18,231 new jobs. 1990 new jobs: 1,020,304 m3:33 m3/man/year = 30,919 new jobs.. Export Operations. It i s suggested that these operations would be about 1,500 m3/man/year (Frisk, 1977). This figure would include transport to port, port operations, ship loading, ship handling, shipping agent services and export services., 1985 new jobs: 720, 000 m3 : 1500 m3/man/year = 480 new jobs. 1990 new jobs: 1,080,000 m3:1500 m3/man/year =720 new jobs. Total Employment Opportunities: 125 l a 1985, i t would be 35,622 new jobs and in 1990 about 56,492 new jobs. 126 APPENDIX III Revenue Royalty Earnings: Total: In 1985: 3, 710,795 m3xU.S.$ 0.56 = (J.S.$ 2,078,045. In 1990: 5,602,673 m3xU.S.$ 0.56 = U. S. $ 3, 137,497.. Exports: i n roundwood equivalent. In 1985: 1 , 590,800 m3xU.S.$ 0.65 = U.S.$ 1,034,020. In 1990: 2,386,200 m3xU.S.$ 0.65 = U.S.$ 1,551,030.. Exchange rate: The U.S. Prices have been converted using the exchange rate for 1978 of 1:0.00636 (Banco Central del Peru, 1979). . Average royalty for 10 species which are well known i n export markets is U.S.$ 0.65/m3. 

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