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The value of furniture compared with unprocessed log exports

Aug 05, 2015 Letters

DEAR EDITOR,
To follow up the statement by Minister of Governance with responsibility for natural resources, Raphael Trotman, concerning value-added timber processing (‘Trotman tells BaiShanLin, Vaitarna … Start value added operations or else…’, KN, 30 July 2015), I offer the following observations –
The Guyana Forestry Commission (GFC) no longer publishes information on which enterprises are exporting logs of which timber in what volumes to which destinations; notwithstanding that the logs were derived from standing trees which were public assets in the patrimony of the citizens of Guyana.
Timber categorized in the Special and Class 1 categories for royalty are suitable for flooring and furniture.
In 2013 and 2014, these two categories comprised 68 and 72 per cent of total declared log production.  The GFC is publishing less and less information about exports, so for the purposes of this letter, I apply the same ratio (70 per cent) to the total declared log exports to estimate conservatively the amounts of potential furniture and flooring timber which are being exported without value-added processing.
The estimate is conservative, because the GFC did note the volume of Class 1 log exports alone in 2013 (page 38 in the Forest Sector Information Report) as 48,000 m3, 62 per cent of the total 77,000 m3.

Data from GFC annual reports and Forest Sector Information Report 2013
Production Export
Volumes in ‘000 m3 2013 2014 2013 2014
All logs 305 406 77 139
Royalty class Special 85 95 53 97
Royalty class 1 121 198
Special + Class 1 as % of total logs 68 72 70 (estimate) 70 (estimate)

The cost of production is more or less the same for each kind of timber, delivered to roadside (US$ 170/m3), mill gate (US$ 235/m3, including truck transport) or ship side (FOB US$ 300, including GRA and GFC export charges).
Readers will note that FOB cost is significantly greater than the FOB values declared by exporters and recorded by the GFC. For example, between January and April 2015, the declared FOB for greenheart logs was between US$130-210. The lower declared FOB results in a correspondingly lesser payment of the log export commission on greenheart which is 20% of the FOB — a clear indication of illegal transfer pricing.
In 2006 I estimated that furniture achieved a factor 14 multiplier compared with mill-gate price.  So we could have produced US$174 million of furniture in 2013 (US$235 x 14 x 53,000 m3), and US$319 million in 2014.  Instead, using the GFC’s average FOB log export prices of U$163/m3 in 2013 and US$177/m3 in 2014, the log FOB export values of these prime timber totalled only US$9 million in 2013 and US$17 million in 2014.
Thus Guyana would have added value of x 19 in 2014 by making flooring and furniture (my conservative estimate), compared with the crude log exports.
This kind of calculation should be factored into the GO-Invest work on foreign direct investments, and on the insistence by Minister Raphael Trotman on in-country processing by Bai Shan Lin and Vaitarna Holdings Private Incorporated, in accordance with approved national and party political policies.
We look forward to firm and sustained government actions.
Janette Bulkan

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