Roadmap for revitalization_of_indonesia_s_forest_industry_nov_2007

The Forest Industry RevitalizationIn-house Experts Working Group

MINISTRY OF FORESTRY 2007

A Road Map for the Revitalization of

Indonesia's Forest Industry

Authors:E.G. Togu ManurungCh. Bintang SimangunsongDoddy S. SukadriBambang WidyantoroAgus JustiantoSyaiful RamadhanLisman SumardjaniDede RochadiPipin PermadiBambang Mardi PriyonoBambang Supriyanto

Editors:Ch. Bintang SimangunsongE.G. Togu ManurungDoddy S. Sukadri

Cover design:Hasbi Akhir

Published by:Ministry of Forestry of Indonesia.

Address:Gd. Manggala Wanabhakti Blok VII Lantai 6Jl. Jenderal Gatot Subroto, Senayan, Jakarta (10270)Telp: (021) 5720206, fax: (021) 5738732.

We, the Government of Indonesia, would like to thank the World Bank Offi ce in Jakarta, especially Mr. Josef Leitmann, Environment Coordinator, and Dr. Timothy Brown, Senior Consultant, who have taken care and made this publication possible.

A Road Map for the Revitalization of

Indonesia’s Forest Industry

Prepared by

The Forest Industry Revitalization

In-house Experts Working Group

MINISTRY OF FORESTRY

2007

ii The Forest Industry Revitalisation In-house Experts Working Group A Road Map For The Revitalization Of Indonesia’s Forest Industry

Table of Contents

Table of Contents

List of Tables

List of Figures

Foreword

I. Introduction 2

II. The Current State of Indonesia’s Timber industry 5

III. Current Availability of Timber Supplies from Various Sources 13

IV. Problems Facing the Timber industry 19

V. Expected Conditions 21

VI. Strategy Recommendations 25

VII. Enabling Conditions 51

VIII. Closing 55

References 57

List of Tables

Table 1. Round wood production by production source (m3) 9Table 2. Pulp industry developments in Indonesia in the 2000 – 2005 period 11Table 3. Problems facing Indonesia’s timber industries 20Table 4. Percentages of timber raw materials allocated to wood-based industries 28Table 5. Estimated timber raw material supplies from various sources and their allocation to wood-based industries 28Table 6. Selected strategies for each of the industries 32Table 7. Problems, targets and strategies in the restructuring period (2007-2014) 33Table 8. Problems, targets and strategies in the revitalization period (2015-2025) 34Table 9. Strategies, policies and action plans necessary in the restructuring period (2007-2014) 37Table 10. Strategies, policies and action plans necessary in the revitalization period (2015-2025) 40Table 11. Action plans, success indicators and verifi cation methods for M&E and implementing agencies in the restructuring period (2007-2014) 42Table 12. Action plans, success indicators and verifi cation methods for M&E and implementing agencies in the revitalization period (2015-2025) 48

List of Figures

Figure 1. Indonesian wood products production 1980-2005 6

Figure 2. Timber industry wood consumption 1980-2005 7

Figure 3. Installed capacity utilisation rates 8

Figure 4. Share of timber supplies from various sources 8

Figure 5.Wood consumption vs. supply 10

Figure 6. Road Map to Forestry Industry Revitalization. 22

Annex

Annex 1. Supply Capacity of Raw Material in 2005 and prediction for 2006 59

iiiThe Forest Industry Revitalisation In-house Experts Working Group A Road Map For The Revitalization Of Indonesia’s Forest Industry

Foreword by the Minister of Forestry, Republic of Indonesia

We extend our gratitude to God the Almighty who has bestowed the Indonesian people with abundant

forest resource that we can utilize for our prosperity. God has tasked us to properly manage and maintain the

resources so that the forest benefi t could fl ow sustainably, not only for present generation, but also for our children

and grand children in the future.

Forest Industry Restructuring, particularly timber industry, is one of fi ve key programs I launched in the

Ministry of Forestry for the period of 2004 – 2009. It is certainly a short period of time, but we have to strive for the

best. Human is in loss, if today is the same or not be better than yesterday; and human is even lost when today is

worst than yesterday.

With my short appointment period, it is diffi cult to experience the result of forest industry restructuring

eff orts. But most importantly, we have a genuine, good intention and the sense of togetherness of all stakeholders

on common vision, mission, target and objectives to be achieved in the forest industry restructuring process. This

is a building block to reach effi cient forest industry, supported by sustainable supply of raw material, produce the

most value added products, and can compete in the global market. For this purpose, I asked the Forest Industry

Revitalization Working Group to prepare this document so that it would be of the main reference to achieve the

forest industry goal in the near future.

I invite our colleagues, forestry practitioners, business actors, academics, policy makers at all level of the

governments and communities to review, analyze and implement this document in accordance to their specifi c

condition. With our strong intention and good will, we hope that we can reap the benefi ts in not a very distance

future. As with people with illness, the forest industry needs a remedy to be recovered and keeps healthy. I hope

the recommended strategy and the follow up actions laid out in this document can be of the medicine to cure such

illness.

Finally, I would like to thank the Forest Industry Revitalization Working Group who works very hard

in fi nalizing and completing this document. I sincerely hope that this document can bring improvements for the

betterment of Indonesia’s forest industry in the future.

Minister of Forestry, Republic of Indonesia

H.M.S. KABAN

iv The Forest Industry Revitalisation In-house Experts Working Group A Road Map For The Revitalization Of Indonesia’s Forest Industry

Foreword

We give our thanks and praise to God the Almighty for the completion of this paper. After a year of hard

work involving weekly meetings with key practitioners, fi eld trips, two workshops and involvement in forestry

associations’ road map preparations for the development of four forestry industries (plywood, wood working, pulp

& paper and furniture), the Forestry Industry Revitalization In-house Expert Working Group has fi nally succeeded in

compiling this paper from the outcomes of all these activities.

This paper would not have been possible without the moral and material support of everyone involved.

Therefore, we wish to extend our deepest thanks to the Secretary General of the Ministry of Forestry. We would also

like to express our gratitude and appreciation to the Director General of Forestry Production Development for all his

support. We also extend our thanks to donor organizations, particularly the European Union, The World Bank and

MFP-DfID, for providing facilities for the working group. We would also like to thank the forestry associations APHI,

APKINDO, ISWA, BRIK, ASMINDO and APKI for all their eff orts, from routine discussions to their preparations of road

maps. Finally, we wish to express our utmost appreciation to all members of the working group for their undying

dedication. Hopefully all of our devotion will secure the blessing of almighty God.

As the proverb says, there is no such thing as uncracked ivory. We feel what is presented here remains

insuffi cient, so on behalf of the working group we apologise for all shortcomings, and will gratefully accept any

input, comments, suggestions, responses and constructive criticism for creating competitive and sustainable wood

processing industries in Indonesia in the future.

Finally, we hope this writing will be of benefi t to us all.

Jakarta. August 15, 2007

On behalf of the

Forest Industry Revitalization Working Group,

E. G. Togu Manurung, Ph.D.

Senior advisor for the Forestry Minister

Introduction

I

2 The Forest Industry Revitalisation In-house Experts Working Group A Road Map For The Revitalization Of Indonesia’s Forest Industry

I. Introduction

Rapid developments in the timber industry, with its vital role in securing foreign exchange and economic

development, have led to complex issues for the government and the people of Indonesia. Diminishing supplies

of raw materials from natural forests, the low development realization rate of pulpwood and lumber industrial forest

plantations (HTI), and production ineffi ciencies have all caused a decline in forest product production leaving many

wood processing companies with fi nancial losses and debts. Some of these companies are suspected of consuming

illegal timber from natural forests in their production processes. Consequently, not only are future supplies of round

wood for the timber industry under threat, but environmental destruction from deforestation and forest degradation

is becoming increasingly severe.

This shows Indonesia’s weaknesses in failing to utilise its comparative advantages as a tropical country,

particularly in making the most of forest plantation productivity, which should be far higher than in non tropical

countries. Furthermore, environmental problems and confl icts have increased as a result of scarce forest resources,

and declines in forest environmental services and biodiversity. Meanwhile, illegal loggers and consumers of illegal

timber continue to enjoy alluring profi ts, while the public have to bear the brunt of the extensive negative impacts

resulting from environmental degradation.

The Ministry of Forestry and other stakeholders realise that timber industry raw material requirement

discrepancies and continuous illegal logging are major obstacles to forestry industry revitalization. The future of

Indonesia’s timber industry will depend on the successful development of forest plantations. In some regions

there is ample potential for involving poor communities in forest plantation development, either in state forests or

on private land. However, forest plantation development will undoubtedly face numerous challenges, including

landuse confl icts and issues relating to land utilisation permitting processes to ensure the legality of Indonesian

forest products sold in the international marketplace.

The Ministry of Forestry is aware of these highly serious and complex issues and has established fi ve policy

priorities for the forestry sector1. In connection with the second priority - revitalization of the forestry sector - forestry

industries in particular, and the fourth priority - empowering community economies in and around state forest areas

- the government plans to accelerate the development of industrial forest plantations and has set a target of 5

million hectares by 2009. The Ministry of Forestry has also set an additional target of developing 5.4 million hectares

of community forest plantations between 2007 and 2016.

In 2005, the Ministry of Forestry formed a working group tasked with synthesising the latest studies

on forestry industry restructuring. The group subsequently recommended strategies covering three stages: the

restructuring stage, the re-engineering stage and the revitalization stage. In the fi rst stage – restructuring – attention

is focused on forest plantation intensifi cation and extensifi cation, eradicating illegal logging and illegal trading,

resolving the question of the debt-ridden timber industry, developing alternative sources of timber raw materials,

and temporarily limiting timber industry production to levels that can be supported by sustainable timber supplies.

In the second stage, attention will focus on the adaptation of wood processing technology and investment in

1 The fi ve forestry sector policy priorities: (1) Eradicating forest timber theft and the illegal timber trade, (2) Revitalising the

forestry sector, particularly the forest industry, (3) Rehabilitating and conserving forest resources, (4) Empowering community

economies in and around the state forests, and (5) Consolidation of state forests.

3The Forest Industry Revitalisation In-house Experts Working Group A Road Map For The Revitalization Of Indonesia’s Forest Industry

wood processing machines in order to utilize an increased supply of sustainable timber and meet the demand for

new, high-quality products. The adaptation of processing technology will focus on machines with the capacity to

process small-diameter wood from fast-growing species, while producing more varied and higher value added

products, and not merely wood-based commodities like sawnwood and plywood. In the third stage – revitalization

– attention will be paid to maintaining or improving the timber industry’s competitiveness and effi ciency. During

this period, Indonesia’s forest product industries will very probably develop and create many new jobs due to an

abundance of forest plantations with fast-growing species. This three-stage strategy off ers a vision of Indonesia’s

forestry industry in the future, which can certainly be achieved through policy intervention and management and

should begin right away.

In an eff ort to realise these targets, the Ministry of Forestry established the Forest Industry Revitalization

In-house Experts Working Group in June 2006, tasking it with discussing a policy framework for forestry sector

revitalization and consulting with stakeholders to prepare forestry sector revitalization policies. The In-house Experts

Working Group subsequently carried out a number of activities, including: (1) Holding discussions with stakeholders;

government agencies, timber company businessmen, forestry associations, non-governmental organizations and

academics, (2) Conducting fi eld trips to several HPHTI and IUPHHK forest plantations, some community forest

locations, as well as a number of timber companies, and (3) Presenting two workshops in Jakarta; one entitled

“Timber Raw Material Supplies for Indonesia’s Timber Industry” was organized in the Twin Plaza Hotel on the 12 and

13 October 2006, and the other “Indonesian Timber industry” was held in Hotel Santika on the 19 and 20 December

2006. In addition, the In-house Experts Working Group was actively involved in preparing wood processing industry

road maps with the working groups (WG) for Woodworking, Furniture, Panel Wood, and Pulp and Paper established

by the Directorate General of Forestry Production Development (BPK).

The Road Map for the Revitalization of Indonesia’s Forest Industry was prepared based on the activities of

the In-house Experts Working Group outlined above. This paper presents an illustration of the current state of the

timber industry and availability of timber supplies from various sources, problems confronting the timber industry in

the provision of log supplies now and in the future, objectives, targets, strategies, policies, and necessary action plans

for bringing about a healthy and competitive wood-based industry, which produces high added value products,

creates job opportunities and relies on legal and sustainable supplies of logs from a number of sources.


The Current State of

Indonesia’s Timber

Industry

II


II. The Current State of Indonesia’s Timber industry

The past Government forestry industry policies2 have resulted in rapid growth (Figure 1) and structural

changes (Figure 2) in Indonesia’s timber industry between 1980 and 2005. Sawnwood production rose sharply

from 4.8 million m3 in 1980 to 7.1 million m3 in 1985, peaking at 10.4 million m3 in 1989, and then falling sharply to

4.3 million m3 in 2005 (FAO, 2006). Plywood and veneer production showed a similar sharp rise from 1 million m3 in

1980 to 8.3 million m3 in 1990, peaking at 9.7 million m3 in 1997, and subsequently falling to 4.7 million m3 in 2005

(FAO, 2006). Pulp production increased rapidly from 0.5 million tons in 1989 to 3.1 million tons in 1997, and reached

5.4 million tons in 2005 (APKI, 2005). In addition to these major forest products, total production estimates for other

forest products such as woodworking timber, blockboard, particle board and wood chips ranged from 0.1 million

m3 to 2.3 million m3 in the 1983 to 2005 period (MoF, 2006 and FAO, 2006).

Figure 1. Indonesian wood products production 1980-2005

0.0

5.0

10.0

15.0

20.0

25.0

1980 1985 1990 1995 2000 2005 Year

Million M3

Sawnwood Plywood Veneer Block Board Wood Working Particle Board Chipwood Pulp

The installed capacity utilization rate for the sawnwood industry rose from 86% in 1980 to 97% in 1989,

and then fell sharply to 41% in 2005. The installed capacity utilization rate for the plywood industry increased from

51% in 1980 to 99% in 1997, before falling sharply to 42% in 2005. These trends show a very real increased round

wood defi cit for the sawnwood and plywood and veneer industries as of 1997. This meant assets invested in these

two industries could not be utilized properly. Meanwhile, the installed capacity utilization rate for the pulp industry

continued to rise from 65% in 1989 to 85% in 2005. Installed capacity utilization rates for the timber industry in the

1987 to 2005 period are shown in Figure 3.

2 An incremental ban on round wood exports began in 1980 and was completed by 1985; high export tax on sawnwood was

applied from November 1989; revocation of the round wood export ban and its replacement with a prohibitive export tax

on round wood began in June 1992; and export tax on round wood was reduced to a maximum of 10% before the end of

December 2000 and 0% in 2003 (Manurung, 2002).


During the 1980 to 2005 period, the timber industry contributed signifi cantly to foreign exchange earnings,

gross domestic product, state revenue, and employment. The export value of forest timber products3 fl uctuated

during the 1980 to 2005 period and reached its peak of US$ 6.24 billion (17.8% of export value for industry goods

or 11.7% of the total value of exports) in 1997 when the export value of plywood reached its peak as well, and there

were signifi cant contributions from pulp and paper and wooden furniture. The export value of forest products

subsequently fell as a result of the economic crisis, and by 2005 the value had dropped to US$ 5.41 billion (9.7% of

export value for industry goods or 6.3% of the total value of exports) (Central Statistics Agency, 2006). Simangunsong

(2004) showed that although the export value of forest products continued to rise during the 1980 to 1997 period,

their contribution to the export value of industry goods continued to decline at the same time, thus indicating

slower growth in the timber industry compared to overall industrial growth. Further, by 2002, the export value of

pulp and paper had exceeded that of plywood signifying a considerable change in the composition of Indonesia’s

timber industry exports.

Forestry sector contributions to gross domestic product ranged from 1.7% to 3.1% during the 1993 to 2005

period. These fi gures are higher than the Asian average of 1.1% (FAO, 2005). State revenue in the form of non-tax

earnings such as HPH Concession License Fees (IHPH), Reforestation Funds (DR) or Reforestation Guarantee Funds

(DJR), and Forest Product Royalties (IHH) or the Performance Bond (PSDH) in the 1993 to 2004 period ranged from

Indonesian Rupiahs (IDR) 1.16 trillion to IDR 3.37 trillion (or between 0.76% and 1.73% of total state revenue). The

number of people currently employed directly in the forestry industry sector is estimated at between 500 and 600

thousand. This fi gure would be far higher if all those employed in the woodworking, small-scale sawnwood, particle

board, fi breboard and wooden handicrafts industries were taken into account.

Figure 2. Timber industry wood consumption 1980-2005

0%

20%

40%

60%

80%

100%

1980 1985 1990 1995 2000 2005Year

Sawnwood Plywood+Veneer Woodworking+Block+Particleboard+Chipwood Pulp

RWE

Con

sum

ptio

n (%

)

Note: RWE = Round wood equivalent

3 Sawnwood, plywood, wooden furniture, pulp and paper.


Figure 3 . Installed capacity utilization rates

0%

20%

40%

60%

80%

100%

120%

1987 1990 1993 1996 1999 2002 2005Year

Util

izat

ion

Rate

(%)

Sawnwood Plywood+Veneer Pulp

Figure 4. Share of timber supplies from various sources (Ministry of Forest)

0%

20%

40%

60%

80%

100%

1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000*) 2001 2002 2003 2004 2005

Year

Shar

e (%

)

Natural Production Forest (RKT) Conversion Production Forest (IPK)Other Legal Permits (ISL) Plantation (Perum Perhutani)Industrial Plantation Forest (HTI)

Based on the above timber product realization fi gures, total logs consumption for timber industry rose

sharply from 11.7 million m3 in 1980 to 24.1 million m3 in 1985, and reach the peak at 52.7 million m3 in 2003. This

fi gure was then felt drastically to 44.5 million m3 in 2005. Meanwhile, the timber industry also faced changes in

sources of raw materials which aff ected their quality (Figure 4). At present, round wood produced in Indonesia

originates from a number of sources; natural forests, industrial forest plantation, other legal permits, and conversion

areas. Total timber production for 20054 was 24.22 million m3, 5.72 million m3 of which originated from natural

forests5, 12.82 million m3 from industrial forest plantation, 0.76 million m3 from state-owned forest enterprise Perum

Perhutani, 3.61 million m3 from conversion areas (IPK) and 1.31 million m3 from other legal permits (ISL). Round wood

production fi gures for the last 12 years are presented in Table 1.

4 Ministry of Forestry (2006). Executive, Strategic Forestry Data 2006.

5 Annual Allowable Cuts agreed by the Ministry of Forestry for 2002 to 2007 were as follows: 12 million m3 (2002), 6.3 million

m3 (2003), 5.7 million m3 (2004), 5.1 million m3 (2005), 8.2 million m3 (2006) and 9.1 million m3 (2007).


The total number of log production in 2005 published in Eksekutif Data Strategis Kehutanan 2006 (2006

Executive Strategic Forestry Data) is much lower than the total log production recorded by Directorate General for

Forestry Production in 2007, i.e. 42.36 million cubic meters (the complete data is presented in Annex 1).

Table 1. Round wood production by production source (m³)

Year Natural Forests (RKT)

Conversion Areas (IPK)

Other Legal Permits (ISL)

Plantation Forests (Perum

Perhutani)

Industrial Plantation

Forests (HTI)

Total Production

1994/951995/961996/971997/98 1998/991999/00

200020012002200320042005

17,308,73716,943,93315,268,13415,597,54610,179,40610,373,932

3,450,4301,809,1003,019,8394,104,9143,510,7525,720,515

4,708,6965,398,1968,021,328

10,038,2286,056,1747,271,9074,564,5922,323,614

182,708956,472

1,631,8853,614,347

138,106124,883682,006

1,266,455628,818895,371488,911

--

59,538153,640

1,311,584

1,871,7371,868,3561,623,5451,821,2971,682,3361,890,9011,511,0011,455,4031,559,026

976,806923,632757,993

0514,692474,268425,893480,210187,831

3,783,6045,567,2824,242,5325,325,7727,329,028

12,818,199

24,027,27724,850,06126,069,28229,149,41919,026,94320,619,94213,798,53711,155,399

9,004,10511,423,50213,548,93724,222,638

Total 107,287,240 54,768,147 5,749,312 17,942,033 41,149,310 226,896,042

Source : Ministry of Forest (2006). Executive, Strategic Forest Data (2006) Note : (-) no data available

If we assume the shortfall between offi cial round wood production and processed wood industry round

wood consumption is sourced from illegal round wood, it is quite clear that processed wood industries consume

huge quantities of illegal timber in their production processes (Figure 5). In 2002 the amount of illegal round wood

consumed by the timber industry was estimated at 42.2 million m3, later falling to 20.3 million m3 in 2005. This

means the timber industry plays a large part in severe environmental degradation currently taking place through

deforestation and forest degradation. Further, the timber industry’s declining consumption of illegal round wood

also indicates increasing diffi culties in securing raw materials. In other words, forest resources are critically degraded,

not only in the state production forests, but also in other forest areas as well. The MoF’s unremitting illegal logging

eradication operations are reported to have succeeded in reducing forestry crime in Indonesian forests over the last

two years.


Specifi c conditions in each of the timber industries will be explained below.

Figure 5. Wood consumption vs. supply

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1980 1985 1990 1995 2000 2005Year

Volu

me

(Mill

ion

m³)

RWE wood consumption

Wood supply

Note: RWE = Round wood equivalent

2.1. Sawnwood and Woodworking Industries

Almost 90 % of Indonesian Sawmill and Woodworking Association (ISWA) members constitute small and

medium enterprises (UKM) with no HPH concessions. The current number of export-orientated companies registered

in the Forest Industry Revitalization Board (BRIK) stands at around 1600. However, the number of companies with

active operations has fallen from over the years, and in 2006 was down to 602 (BRIK, 2006). Total exports for 2006

amounted to 2.3 million m3 valued at US$ 1.29 billion. This fi gure is almost identical to 2005 with total exports of 2.4

million m3 worth US$ 1.27 billion. The main destination for woodworking exports is Japan followed by China, while

the best average prices come from exports to European countries, though volumes are small. For now, accurate

information regarding domestic supply and demand remains unavailable.

2.2. Plywood and Other Panel Wood Industries

The Indonesian Panel Wood Producers Association (APKINDO) had a recorded membership of 130

companies on 6 October 2006. Only 68, however, were active with a production capacity of 6.1 million m3 annually,

while only 19 units were producing at normal capacity (1.54 million m3 annually). Total exports for 2006 amounted

to 2.91 million m3 with a value of US$ 1.30 billion. This fi gure is signifi cantly lower than the 3.47 million m3 valued

at US$ 1.25 billion for 2005. The main destinations for plywood exports are Japan, the United States and the United

Kingdom.


2.3. Pulp and Paper IndustriesThe Indonesia’s Pulp and Paper Association (APKI) reports for 2005 showed 10 integrated pulp and paper

mills and 3 non-integrated pulp mills operating in Indonesia with a total installed capacity of 6.45 million Adt (air-

dried tons), 86% of which came from Sumatra. At the same time, 53% of pulp and paper mills constituted foreign

private company investments. Total pulp production in 2005 was 5.47 million Adt with 2.56 million Adt being

exported, while pulp imports for the same year were 0.89 million Adt. In that year, Indonesia was the world’s ninth

largest pulp producer and the twelfth largest producer of paper. The main players in the pulp and paper industry in

Indonesia are Asia Pulp and Paper (APP) from the Sinar Mas Group (SMG), which controls 40% of pulp capacity and

31.8% of paper capacity, and APRIL from the Raja Garuda Mas group controlling 33.3% and 7.8% of pulp and paper

capacity, respectively.

During the 2000 to 2005 period, installed capacity for the pulp industry rose from 5.23 million Adt in

2000 to 6.45 million Adt in 2005, an increase of 23.3% (Table 2). This installed capacity increase accompanied by an

installed capacity utilization rate increase of 6.6% causing a sharp rise of 33.8% in pulp production during this period.

Further, despite pulp consumption rising at a low rate (7.7%), due to a 15.8% rise in imports, exports for 2005 were

almost twice as high as for the year 2000. Based on an FAO international trade data report (2005), in 2003, the main

importers of pulp from Indonesia were China (44%) followed by the Republic of Korea (24%), France (7%), Italy (6%)

and Japan (6%).

During the 1996 to 2003 period, 73% of world pulp industry capacity growth was down to the contributions

of just three countries: Brazil, Indonesia and China. Nevertheless, the combined pulp industry capacity of these three

nations was only 10% of total world capacity. Meanwhile, despite the combined population of the world’s three

major pulp producing countries - the United States, Canada and Japan – being only around 18.6 percent of the

world’s population, they consumed 73% of the world’s pulp and paper produced in 2003. Further, Spek (2006)6

stated that world pulp industry capacity is estimated to grow to 201.3 million tons Adt by 2010.

Table 2. Pulp industry developments in Indonesia in the 2000 – 2005 Period

ItemYear

2000 2001 2002 2003 2004 2005

Installed capacity (Adt)Production (mT)Imports (mT)Exports (mT)Consumption (mT)Pulp capacity utilization rate

5,228,1004,089,550

768,5901,329,4603,528,680

78%

5,587,1004,665,920

564,1301,698,5803,531,470

83.5%

6,087,1004,969,000

825,7002,245,2003,549,500

81.6%

6,287,1005,194,310

735,5602,375,2503,554,620

82.6%

6,287,1005,208,680

899,0502,476,9603,630,770

82.8%

6,447,1005,470,000

890,0002,560,0003,800,000

84.8%

Source: Indonesian Pulp and Paper Association (2005)

2.4. Furniture and Handicrafts IndustriesFurniture and handicrafts enterprises have been around for a long time in Indonesia and been passed down

from generation to generation. Furniture and handicrafts industry centres have developed rapidly, particularly in

Java with wood centres in Semarang, Jepara, Solo, Yogyakarta and Surabaya, and rattan centres in Cirebon, Sukoharjo

and Surabaya. The furniture and handicrafts industries are dominated by small and medium enterprises (UKM) with

6 Machted Spek. 2006. Financing Pulp Mills: An Appraisal of Risk Assessment and Safeguard Procedures. CIFOR.


home industries working together with larger businesses. Of all the industries in the forestry sector, the furniture

and handicrafts industries generate the highest number of employment per US$ 100 investment.

The timber requirement of the furniture and handicrafts industries is approximately 7 to 7.5 million m3

annually; commonly using species such as teak, mahogany, pine, acacia, gmelina, durian, mango, mbacang, kuweni,

bungur, sonokeling, mindi, waru, rubberwood and to a lesser degree woods originating from natural forests, like

meranti, nyatoh, bangkirai and kempas. Recently, Indonesia has begun importing wood from overseas, and the trend

is rising.

ASMINDO reported a total value of approximately US$ 1.79 billion in furniture exports for 2005 with the

main destinations for exported Indonesian furniture being the United States (37%), Japan (12%), the United Kingdom

(8%) the Netherlands (8%), Germany (7%) and France (7%). Some exports were also destined for Italy, Belgium, Spain

and Australia. Meanwhile, the world furniture trade increased in size from US$ 51 billion in 2000 to US$ 80 billion

in 2005.

Current Availability of

Timber Supplies from

Various Sources

III


III. Current Availability of Timber Supplies from Various Sources

At present, round wood produced in Indonesia originates from a number of sources, including natural

forests, industrial forest plantations, other legal permit areas, and conversion areas. Total wood production for 20057

was 24.19 million m3; with 5.69 million m3 originating from natural forests8, 12.82 million m3 from industrial forest

plantations, 0.76 million m3 from state-owned enterprise Perum Perhutani production forests, 3.61 million m3 from

land conversion permits (IPK) and 1.31 million m3 from other legal permits (ISL). Round wood production for the last

12 years is presented in Table 1 above. Some wood processing companies have reported using rubberwood (Hevea

brasiliensis), palm oil wood (Elaeis guineensis) and coconut wood (Cocos nucifera) usually sourced from crop estates

or smallholder estates.

3.1. Natural Production Forests

The Ministry of Forestry (2005)9 reported that based on results of its latest recalculations on Indonesia’s

forest cover status for 2003, forest cover was estimated at 133.6 million ha or around 71% of Indonesia’s total land

area. Out of the 133.6 million hectares, 60.9 million ha has been designated for natural production forests, either

Limited Production Forest or Permanent Production Forest. This recalculation shows too that production forests

comprised 14.8 million ha of primary natural forest (24.3%), 21.6 million ha of secondary natural forest (35.5%), 2.4

million ha of forest plantations (3.9%) and 18.4 million ha of non-forested areas (30.2%), while no data was available

for the remaining 3.7 million ha (6.1%). Further, 88% of total remaining primary forest and 72% of total remaining

secondary forest is located in Papua and Kalimantan. The extensive area of non-forested zones indicates the current

highly degraded state of natural forests. This is apparent from the extremely sharp decline in round wood production

during the 1994 to 2005 period, which fell from 17.3 million m3 in 1994 to 5.7 million m3 in 2005.

By June 2005, there were 281 HPH/IUPHHK concessions in active operations covering an area of 27.11

million ha. These comprised 185 purely private operations on 19.63 million ha, 5 purely state-owned enterprises

on 0.34 million ha, 86 participatory HPHs on 6.50 million ha, and 5 joint ventures over an area of 0.63 million ha.

These HPH/IUPHHKs were located mainly in the provinces of East Kalimantan (68 concessions), Central Kalimantan

(50 concessions), Papua (23 concessions), West Irian Jaya (23 concessions), West Kalimantan (21 concessions), Riau

(15 concessions), Central Sulawesi (14 concessions), North Maluku (12 concessions) and Maluku (10 concessions),

which, when combined, made up 84% of all active HPH/IUPHHK concessions in the country10.

By August 2006, the number of HPH/IUPHHKs had increased slightly to 303 concessions covering an area of

28.1 million ha. However, only 149 of these were active with a combined area of 14.6 million ha. The large number


8 The Annual Allowable Cuts agreed by the Ministry of Forestry for the 2002 to 2007 period are as follows: 12 million m3

(2002), 6.3 million m3 (2003), 5.7 million m3 (2004), 5.1 million m3 (2005), 8.2 million m3 (2006) and 9.1 million m3 (2007).

9 Ministry of Forestry. 2005. Forest Cover Recalculations for Indonesia 2003. Forest Inventorization and Mapping Centre,

Forest Planology Agency; and “Identifi kasi lokasi lahan pada kawasan hutan produksi untuk HTI.” A paper presented by Ir.

Wardoyo, MSc. from the MoF Forest Planology Agency at a regular meeting of the In-house Experts Working Group, 15 June

2006



of HPH/IUPHHKs not in active operation (154 units with an area of 17.38 million ha) was due to a number of factors

that can be categorized into two groups: internal factors covering poor company health, lack of professional human

resources, low levels of commitment to forest management, and permit holders waiting only for a more conducive

situation; and external factors including: inconsistency and lack of integration in central and regional rules, continued

illegal logging, excessive claims by local communities and a lack of business certainty.

When compared to the total area of production forests (60.9 million ha), the total area of HPH/IUPHHKs

is far smaller. This means there are vast regions of ‘open-access’ production forest, the area of which is reportedly

around 16.4 million ha11.

Based on round wood production reports for the 1977 to 2000 period12, the average volume of commercial

round wood produced from production forests was 22.14 m3 per ha with an annual incremental growth of 1.13 m3

per ha. This growth in volume is far lower than that observed by Sumarna, et al. (2002)13 which ranged from 0.53 m3

per ha annually in Aceh to 3.26 m3 per ha annually in East Kalimantan, with an average annual incremental growth

of 1.82 m3 per ha. The fi gure is, however, far higher than growth estimates by Sist, et al. (1998)14 of 0.3 to 0.5 m3 per

ha annually. Some logged-over natural forests can now be exploited as they have reached their rotation age of 35

years.

3.2. Forest plantations

Aside from the 1.78 million ha of forest plantations managed by state-owned enterprise Perum Perhutani,

the government also processed permits for 10.26 million ha15 of industrial forest plantations (HTI) during the 1989

to 2006 period for producing pulpwood and lumber. The cumulative number of HTIs developed by 2006, however,

was very low at 3.03 million ha or only 30%. Of this number, 60% was planted for producing pulpwood while only

32% are for lumber. Currently, of the 45 IUPHHK pulpwood forest plantation companies, 12 own a total share of 73%.

Whereas, of the 166 IUPHHK lumber forest plantation companies, 32 companies, each with forest plantation areas of

more than 9000 ha, own a total share of 61%.

Lumber production from Perum Perhutani forest plantations declined sharply during the 1994 to 2005

period, from 1.87 million m3 in 1994 to 0.76 million m3 in 2005 (Table 1), indicating a depletion in forest resources

managed by Perum Perhutani. This contrasts markedly with wood production from HTIs, all of which was pulpwood,

which continued to rise throughout the same period16. Nevertheless, HTI pulpwood production was still insuffi cient

11 “Penyediaan bahan baku berasal dari produk hutan alam HPH/IUPHHK.” Paper presented by Dr. Hilman Nugroho, Director of

Natural Forest Development – MoF, at the Timber Raw Material Supplies for Indonesia’s Timber Industry workshop. Twin

Plaza Hotel, Jakarta, 12-13 October 2006.

12 Indonesian Forestry Statistics (1980 - 2002) and Forest Conservation Management Plan (RPKH) reports.

13 Sumarna, K., D. Wahjono and H. Krisnawati. 2002. Stand volume prediction of logged-over areas in natural production

forests and annual production quota formulas. Paper presented in a discussion on silviculture for natural production forests

to achieve sustainable forests on February 21, 2002. Forestry Research and Development Agency

14 Sist, P., T. Nolan, J. Bertault and D. Dykstra. 1998. Harvesting intensity versus sustainability in Indonesia. Forest Ecology and

Management (108): 251-260.

15 ‘Kondisi dan tantangan pembangunan HTI di Indonesia saat ini.’ Paper presented by Ir. Deny Kustiawan, Director of Forest

plantation Development, in a reguler In-house Experts Working Group meeting, 8 June 2006.

16 Until now there are no offi cial records of HTI lumber production.


to meet timber industry needs since not enough were planted, and planting times were unsuited to timber industry

development. Average HTI per hectare timber production still remains low.

Observations on the ground in several IUPHHK forest plantations17 showed that pulpwood production

(Acacia spp, Eucalyptus spp) with a rotation period of 6 to 8 years is suffi ciently high, ranging from 125 to 200 m3 per

ha. These wood production fi gures are still far lower than expected because current incremental volume growth for

pulpwood is already between 35 to 60 m3 per ha annually, depending on the species and clone seedlings planted.

3.3. Community Forests

From 2003 to 2005, around 219,000 ha of community forests were developed through the national

movement on forest and land rehabilitation program ( GN-RHL/Gerhan) and a further 2,000 ha through government

and community partnership schemes18. In addition, approximately 7,606 ha of community forests were developed

through partnership schemes involving companies and communities. Nevertheless, the total area of community

forests developed is in fact far smaller than the area of 1.56 million ha reported by the Central Statistics Agency

based on the 2003 Agriculture Census. Further, Santoso (2006)19 pointed out that at least 6 million m3 of round

wood is produced by community forests each year. The discrepancies in these fi gures imply that no accurate data

on community forests is presently available at the national level.

3.4. Estate Crops

In 2005, the total area of estate crops in Indonesia was estimated at around 18.64 million ha, 13.89 million

of which were smallholder estates and 4.74 million ha were large crops estates. Of this fi gure, 70.8% was made up

of only three species of crops: rubber (Hevea brasiliensis) covering 3.28 million ha, coconut (Cocos nucifera) on 4.32

million ha and oil palm (Elaeis guineensis) on 5.59 million ha. Almost all the coconut plantations, around 83% of

rubber and 35% of oil palms are of smallholder estates.

Unlike Malaysia and Thailand20, Indonesia’s timber industry has not yet to use rubberwood (Hevea

17 Observations in HTIs belonging to PT Toba Pulp Lestari in North Sumatra, PT Wira Karya Sakti in Jambi and PT Arara Abadi

and PT RAPP in Riau.

18 ’Ketersediaan pasokan bahan baku kayu saat ini dan upaya peningkatan pasokan dari hutan rakyat di masa depan.’ Paper

presented by Ir. Djoko Winarno, Director of Forest and Land Rehabilitation Management, at the Timber Raw Material Supplies

for Indonesia’s Timber Industry workshop, Twin Plaza Hotel, Jakarta, 12-13 October 2006.

19 ‘Hutan Rakyat: Menuju alternatif sumber bahan baku industri perkayuan di Indonesia.’ Paper presented by Ir. Hery Santoso, MSc.

member of the National Forestry Council and Director of the Java Learning Centre, at the Timber Raw Material Supplies for

Indonesia’s Timber Industry workshop. Twin Plaza Hotel, Jakarta, 12-13 October 2006.

20 80% of Malaysian made furniture products use rubberwood where the export value of furniture made from rubberwood is

around US$ 1.1 billion. Thailand also uses rubberwood as the raw material for its furniture industry with a total export value

of approximately US$ 300 million annually (FAO, 2005).


brasiliensis)21, coconut wood (Cocos nucifera)22 or oil palm wood (Elaeis guineensis)23 as raw materials because of

the abundant supply of round wood from natural forests in the past. Ironically, this still remains the case despite

the drastic decline in round wood supplies from natural forests. This situation must change; the three estate crop

species must be considered as alternative sources of raw materials, particularly as so much information is available

on their physical and mechanical characteristics in connection with their processing.

21 A brightly coloured, medium density, wide-leafed and easily tooled wood. Rubberwood can be a substitute for a number

of timber species, including ramin (Gonystylus spp.), meranti (Shorea spp.), teak (Tectona grandis), oak (Quercus spp.) and pine

(Pinus spp.). The majority of rubberwood is processed into sawnwood and then made into furniture. Rubberwood is now

often used as a raw material for particleboard, cement board and medium density fi breboard. Tests have also been carried

out on the utilization of rubberwood as a raw material for oriented strandboard (FAO, 2005)

22 Through sorting and certain treatments to parts of mature coconut stems, coconut wood can be a substitute for timber

(Killmann and Fink, 1996). Currently, sawing coconut stems remains the domain of small-scale enterprises. Sawnwood

from coconut palms is generally used for rebuilding houses and simple bridges in rural areas, though coconut wood is also

used for things other than construction. New processing technologies have managed to expand the utilisation of coconut

wood to make cabinets and crafts such as jewellery boxes, cups, vases, plates and bowls (Arancon, 1997)

23 Current developments in research and tests on oil palm fi bre in mechanical and chemical pulp production are highly

promising. Similarly, research into the use of oil palm wood as panel wood and in gypsum fi breboard is developing rapidly

(Kollert, Killmann and Sudin, 1994).


Problems Facing

the Timber industry

IV


IV. Problems Facing the Timber industry

The In-house Experts Working Group, through activities explained in the Introduction section, identifi ed

problems facing each of the timber industries. These are presented in Table 3.

Table 3. Problems facing Indonesia’s timber industries

Industry Problems

Sawnwood dan Woodworking

High instance of unoffi cial charges

Inappropriate taxation on round wood

Mediation with banks still lacking

Labour legislation remains unconducive

Prevalence of illegal sawnwood companies

Negative brand image resulting from widespread illegal logging

Low quality of products compared to those from other countries (China, Malaysia, Brazil and other Latin American countries)

Preferences for certifi cated products

High prices of Indonesian products compared to those of competitors such as China

Low industry effi ciency resulting from antiquated machinery

Plywood and Other Panel

Woods

Lack of raw materials or excessive installed capacity

Sharp fall in product competitiveness

High instance of unoffi cial charges

Inconsistent central and regional policies


Low industry effi ciency resulting from antiquated machinery

Pulp and Paper

Lack of raw materials

Pulp and paper industrial waste yet to be managed professionally

In company social confl icts

Companies bad image relating to the utilization of raw materials from natural forests

Unconducive investment climate

Furniture and Handicrafts

Lack of raw materials

Negative brand image resulting from widespread illegal logging

Low quality of products compared to those from other countries (China, Malaysia, Brazil and other Latin American countries)

High prices of Indonesian products compared to those of competitors such as China


Subsequently, the In-house Experts Working Group together with the Woodworking, Furniture, Panel Wood,

Pulp and Paper Working Groups and other stakeholders discussed these problems and agreed that there were 6 (six)

major problems currently facing Indonesia’s timber industry, i.e.:1. Insuffi cient supply of raw materials 2. Over capacity 3. Industry ineffi ciency4. Low product competitiveness5. Diminishing market share6. Low added value of wood products

Road Map of

Indonesia’s Wood

Industry

V


V. Road Map of Indonesia’s Wood Industry

As previously stated in this document, key problems faced by Indonesia’s wood industry are not without

causes nor it is stand-alone. It is almost impossible to discuss the performance and the development of timber

industry without exploring the supply side of raw materials. On the other hand, the supply side of timber industry

raw materials will be less important unless we look at the distribution or where such raw materials are processed to

gain a higher added value. Furthermore, the role of timber industry will be reduced if the resulted products are less

favorable, low quality with non-competitive market price. Raw materials, industry and market are closely related and

have a high inter-dependency. As such, these three factors should become the foundation and a starting point in

developing the strategy. In other words, the strategy should be based on how forest resources as the main supplier

of timber is properly managed so as to fulfi ll timber industries demands sustainably. The subsequent issue will be

how the timber industry can operate in an effi cient manner, creating high quality timber products with high added

value where such products can be traded in a wide market segment and can compete in international market.

With such understanding, this Road Map is meant to be a depiction of a trajectory, a road map for activities

that need to be carried out by Indonesia’s forestry industry to the future. The road map explains the strategic

concepts to achieve expected condition in certain period of time, which are then, elaborated into a more detailed

policy and action plans. Milestones are also placed and presented as indicator of successes. In addition, actors

related to certain activities (who should do what, how, when and where) were identifi ed, taking into consideration

that the development of timber industry need to be in synergy with similar activities in related government agencies

in central or regional, such as Ministry of Industry, Ministry of Trade , Provincial and Local Governments (Figure 6).

To achieve the ultimate goal there are other prerequisite, such that they become an enabling condition.

This includes political will, national stewardship, availability of economic institution, guarantees for access to land

and business, delegation of authority to local decision makers, clear rules and regulation for community and public

institution and human resources capacity, and most importantly, the link between macro and micro economic

development.

Sufficient raw materials�Legal & sustainable

RawMaterials

EXISTING CONDITION

EXPECTED CONDITION

MarketIndustry

M-1

M-2

M-3

Effisient & value addedproduct industry

Competitive �Market

StrategyWHAT ?HOW ?WHO ?

WHEN ?WHERE?

ENABLINGCONDITIONS

Indicator of

Success?

Figure 6. Road Map to Forestry Industry Revitalization.


In relation to the 18 forestry development focuses stated by the Ministry of Forestry, implementing the

road map for forestry industry revitalization is of the heart of forestry development. This is because 11 out of 18

development focuses emphasize the legal and sustainable supply of log as the main raw material for the industry,

one focus is related to marketing and trading and one focuses on the development of forest industry itself.


Expected Conditions

VI


VI. Expected Conditions

In the future, wood processing industries are expected to be sturdy, effi cient, and competitive, and to

develop and use legal and sustainable supply of raw materials. By considering current conditions, problems faced

and timber industry trends, a clear vision and mission, as well as objectives and targets had to be set regarding

plans for the future development of wood processing industries. To bring these into a reality, appropriate strategies,

policies and action plans are deemed necessary.

6.1. Vision

A vision is an expected condition to be occurred for a certain period of time, for instance twenty years into

the future. This vision could become a reality if all stakeholders, including government, business practitioners and

communities, have a strong commitment to undertaking their tasks and responsibilities in revitalizing Indonesia’s

timber industry. The proff ered vision constitutes a shared vision of the government and business practitioners

involved in the plywood and wood panel, wood working, pulp and paper and furniture industries. The following is

of a vision statement for developing timber industry in Indonesia:

“A high quality and competitive Indonesian timber industry supported by sustainable and growing sources of raw

materials”

A quality timber industry is expected to generate high-quality processed wood products able to penetrate

markets that demand high quality such as those in Japan, the United States and Europe. Further, a quality timber

industry must be highly competitive; meaning the processed wood products it generates must be capable of

competing with those of its competitors such as Malaysia, China and Japan.

6.2. Mission

The mission is an operational level elaboration of the vision. In the mission, there is the desire for the vision

to be attained as eff ectively as possible. Nevertheless, elaboration had yet to go as far as how, how many, or who

would be involved in its implementation. It was hoped that in the mission statements, implicit milestones could be

passed before fi nal objectives are realised. The mission statements are as follows:

a. Increase the availability of raw materials for utilization, especially from forest plantations and other legitimate and sustainable sources of timber;

b. Restructure and revitalise timber mills making them effi cient, competitive and supportive to woodworking industries;

c. Develop environmentally friendly high added value products able to compete in the international market place; and

d. Produce certifi cated woodworking industry products.

6.3. Objectives and targets

The four missions were broken down further into objectives and targets which could hopefully be achieved

at every milestone. The objectives are of desired situations, whereas targets are quantitative measurements indicating

the successful achievements of the objectives. Of course, in this respect there are enabling conditions that constitute


preconditions to the achievement of particular objectives and targets. These enabling conditions are not analysed

here, but will be discussed later in the following section. The objectives and targets expected to be attainable within

twenty years are as follows:

a. Legal and sustainable supplies of raw materials achieved from a number of sources, particularly from sustainably managed and certifi ed production forests (allocation and estimated supplies of timber raw materials from various sources for the 2007 - 2025 period are presented in Tables 4 and 5).

b. Processed wood production levels in accord with sustainable supplies of raw materials

c. Industry operates effi ciently, with a high recovery rate and a capacity utilization rate of above 70 percent.

d. Highly competitive processed wood products with at least 20 percent of exported primary and secondary processed wood products being certifi cated.

e. Improved market share with eff ective and effi cient marketing systems and patterns in place for both domestic and export markets.

f. Processed wood production focuses on environmentally friendly high added value commodities by strengthening the woodworking industry.

Estimations for legal and sustainable timber raw material supplies for the 2007 to 2025 period presented in

Table 5 were calculated by considering input from practitioners and were based on the following assumptions:

a. Log supply fi gures for natural forests were based on actual timber production (from annual work plans) and an annual increase of 10% where timber production from natural forests in 2006 was 5.3 million m3.

b. Log supply fi gures or pulp HTIs were based on: an annual cumulative plantation realization rate of 1.8 million ha from 1989 to 2006; plans for new plantations on 250 thousand ha in 2007 and 300 thousand ha annually during the 2008 to 2014 period; a rotation cycle of 7 years; annual incremental volume growth of 25 m3 per ha; and a realization factor of 60%.

c. Log supply fi gures for lumber HTIs were based on: an annual cumulative plantation realization rate of 1.3 million ha from 1989 to 2006; plans for new plantations on 75 thousand ha annually for the 2007 to 2014 period; a rotation cycle of 20 years; annual incremental volume growth of 15 m3 per ha; and a realization factor of 60%.

d. Log supply fi gures for HTR community forest plantations were based on: planned plantation of 200 thousand ha in 2007, 400 thousand ha in 2008, 600 thousand ha in 2009, and 770 thousand ha annually for the 2010 to 2013 period; 570 thousand ha in 2014, 370 thousand ha in 2015, and 180 thousand ha in 2016; a rotation cycle of 8 years; annual incremental volume growth of 25 m3 per ha; and a realization factor of 60%.

e. Steady annual timber supplies from Perhutani, community forests, rubber estates, oil palm estates, coconut plantations24 and imports of 0.9 million m3, 6.0 million m3, 6.0 million m3, 10 million m3, 8 million m3, and 0.2 million m3 respectively throughout the 2007 to 2025 period. Supplies from ISLs and IPKs are expected to fall by 15% annually in the 2007 to 2009 period, and then drop by 60% every year beginning in 2010.

f. Allocations of timber raw materials from various sources for each branch of the timber industry used the assumptions presented in Table 4.

24 Until now, actual utilisation of coconut wood and oil palm wood by domestic wood processing industries remains extremely

low compared to potential annual fi gures for these estate crop woods.


Table 4. Percentages of timber raw materials allocated to wood-based industries

Log supply sourcePercentage of timber raw material allocated (%)

Sawnwood Plywood Particle board PulpNatural ForestsPulp HTI Lumber HTIHTRHTHRPerhutaniCommunity ForestsRubber EstatesOil Palm EstatesCoconut PlantationsISL and IPK 2007-2009 2010-2025Imports

600

40606090604570

100

105090

400

402030103045200

104010

00

2010100

1010100

0100

0100

010000000

8000

Table 5. Estimated timber raw material supplies from various sources and their allocation to wood-based industries

Log supply projections by year (million m³)

2007 2008 2009 2010 2011 2012 2013 2014

Log supply source: Natural Forest Pulp HTI Lumber HTI HTR Perhutani Community Forests Rubber Estates Oil Palm Estates Coconut Plantations ISK and IPK Imports

69.05.8

18.00.00.00.96.06.0

10.08.0

14.00.2

67.86.4

18.30.00.00.96.06.0

10.08.0

11.90.2

78.17.1

26.23.60.00.96.06.0

10.08.0

10.10.2

79.27.8

31.74.50.00.96.06.0

10.08.04.10.2

76.08.5

29.35.40.00.96.06.0

10.08.01.60.2

82.19.4

34.66.30.00.96.06.0

10.08.00.60.2

82.510.333.6

7.20.00.96.06.0

10.08.00.30.2

94.911.444.2

8.10.00.96.06.0

10.08.00.10.2

Industry log supply allocation: Sawnwood Plywood Particle board Pulp

69.027.210.3

2.229.2

67.827.410.4

2.227.8

78.129.011.9

2.934.3

79.230.813.1

3.531.7

76.030.412.8

3.429.3

82.130.813.1

3.534.6

82.531.513.7

3.733.6

94.932.414.4

3.844.2


Table 5. Estimated timber raw material supplies from various sources and their allocation to wood-based industries (Continued)

Log supply projections by year (million m³)2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Log supply source: Natural Forest Pulp HTI Lumber HTI HTR HTHR Perhutani Community Forests Rubber Estates Oil Palm Estates Coconut Plantations ISK and IPK Imports

126.512.549.8

9.024.0

0.00.96.06.0

10.08.00.00.2

160.513.757.7

9.948.0

0.00.96.06.0

10.08.00.00.2

192.315.163.210.872.0

0.00.96.06.0

10.08.00.00.2

213.716.660.812.792.4

0.00.96.06.0

10.08.00.00.2

223.518.366.115.692.4

0.00.96.06.0

10.08.00.00.2

230.220.165.121.492.4

0.00.96.06.0

10.08.00.00.2

245.322.175.723.992.4

0.00.96.06.0

10.08.00.00.2

197.324.449.823.668.4

0.00.96.06.0

10.08.00.00.2

207.326.857.723.368.4

0.00.96.06.0

10.08.00.00.2

217.529.563.224.069.6

0.00.96.06.0

10.08.00.00.2

221.432.460.825.172.0

0.00.96.06.0

10.08.00.00.2

Industry log supply allocation: Sawnwood Plywood Particle board Pulp

126.547.820.06.452.2

160.563.325.79.062.5

192.378.931.411.670.4

213.792.836.814.070.1

223.595.038.614.675.3

230.298.441.715.774.3

245.3100.643.516.285.0

197.387.439.513.856.6

207.388.740.313.764.6

217.591.441.914.070.2

221.495.044.014.468.0


Strategy

Recommendations

VII


VII. Strategy Recommendations

7.1. Road maps for Indonesia’s timber industries

The Ministry of Forestry took an initiative to hold round-table discussions involving all stakeholders,

including forestry associations, academics, the Ministry of Industry and the Ministry of Trade. The round-table

discussions generated road maps for the development of 4 (four) forestry industries: the panel wood, woodworking,

pulp and paper, and furniture industries. The road maps were prepared using the SWOT approach by including the

most infl uential key factors determining S (strengths), W (weaknesses), O (opportunities) and T (threats). Every key

factor was given a weight and ranking, that was subsequently multiplied. The results of multiplications were then

added up for the S, W, O, and T, and put into diagrammatic form where strengths were contrasted with weaknesses

and opportunities with threats. The selected strategy for each road map was the one that generated the highest

multiplication out of S-O, S-T, W-O, and W-T. Table 6 below is the result of the highest multiplication and selected

strategy for each of the four industries.

Table 6. Selected strategies for each of the industries

IndustryHighest multiplication

between SWOT elements Selected strategy

Plywood 4.80 * W-TWoodworking 5.10 * W-TPulp and Paper Provision of raw materials 13.51 ** W-T

Industry expansion 18.04 ** S-O

Industry competitiveness 21.00 ** S-O

Furniture 5.15 * W-O

Note: * Weighted value calculated by multiplying weight and rating, where the rating is on a scale of 1 – 3 ** Weighted value calculated by multiplying weight and rating, where the rating is on a scale of 1 – 5

The selected strategy for each industry was subsequently developed further by looking at results of a

synthesis of three studies on the development of wood-based industries undertaken by the Forestry Research and

Development Agency (Badan Litbang Kehutanan) and ITTO (2004), NRM and the National Development Planning

Agency (Bappenas) (2005), and by CIFOR and the World Bank (2005). Time period adjustments were made for these

strategies by dividing them into two periods: 1) the restructuring period from 2007-2014, and 2) the revitalization

period from 2015-2025.

7.2. Grand Strategy for the Development of Wood Processing Industries

Outcomes of SWOT analyses on all four of the wood processing industries (plywood, woodworking, pulp

and paper and furniture) showed both the weaknesses and threats to the supply of raw materials for timber industry.

Therefore, select strategies ithat could overcome the threats and cut the weaknesses to the minimum extend

possible.


Wood processing industry development strategies aimed at carrying out modifi cations to wood processing

machines, retooling (replacement with new machines) and investments, mainly in the plywood industry. For other

secondary industries, meanwhile, more focus was put on creating high added value and superior products.

For pulp, the recommended growth strategy was industrial capacity expansion in line with growth rate

and crop expansion. Further necessary strategies were diversifi cation of pulp products and fi nding alternative

mechanical pulp processing techniques to reduce environmental impacts. The future strategies for panel products

were improved technology, and utilizing low-value wood for the core of products, and high-value wood for the

facing. For woodworking and furniture, products had to be responsive to market demand. In the case of furniture,

unique products with ethnic designs needed to be developed.

Recommended strategies for market development are maintaining existing markets (traditional markets)

and capturing potential markets. To do this, marketing systems for export and domestic consumption need to be

improved and made more eff ective and effi cient. For pulp, fulfi lment of the domestic market is prioritized with a

ratio of 2:3, i.e. 2 for domestic consumption and 3 for export. Fulfi lling the domestic market is necessary as input for

the domestic paper industry. The expansion of pulp export markets requires an intensive marketing strategy (market

intelligence) covering promotion, penetration and expansion. Problems, objectives and recommended strategies

are presented in detail in Table 7 and Table 8.

Table 7. Problems, Targets and Strategies in the Restructuring Period (2007-2014)

Problem Objective Strategy

Insuffi cient log supply

Achieve a sustainable and legal supply of timber

Intensify forest plantation developmentIncrease forest plantation productivityEradicate forestry crimeDevelop and use alternative supply sourcesOptimise distribution of timber raw materials for industriesIncrease utilization of natural production forests

Over capacity Processed wood production levels not exceeding sustainable raw material supply

Curb timber industry operations

Industry ineffi ciencies

Industries operating effi ciently Invest in improved wood processing technology

Low competitiveness

High competitiveness for processed wood products

Keep production costs downBe proactive in building a positive image in the international marketFacilitate clustering of timber industries

Diminishing market share

Recovery and increased market share

Develop new markets and maintain traditional markets

Low added value wood products

Processed wood products focus on high added value commodities

Investment in woodworking technologiesProduct diversifi cation


Table 8. Problems, Targets and Strategies in the Revitalization Period (2015-2025)

Problem Objective Strategy

Insuffi cient log supply

Low added value wood products Intensify forest plantation development, mainly for supplies of lumberIncrease forest plantation productivityExpand the use of alternative log supply sourcesExpand implementation of intensive silviculture in natural production forests

Industry ineffi ciencies

Industries operating effi ciently Continue to invest in improved wood processing technologyExpand clustering of timber industries

Low competitiveness High competitiveness for processed wood products

Continue to keep production costs downDevelop a positive image

Market share yet to rise signifi cantly

Market share continuing to increase signifi cantly

Expand export markets and maintain old market segmentWork on potential markets

Low added value wood products

Processed wood products focus on high added value commodities

Invest in secondary wood processing technologyContinue with product diversifi cation

7.3. Necessary Policies and Action Plans

In reference to the vision, mission, objectives, targets and grand strategies explained above, at least 36

policies are necessary in a framework of forestry industry restructuring and a further 20 policies for achieving forest

industry revitalization. Some of the latter constitute follow up on policies from the previous period. These policies

cover aspects of raw materials, industries and markets. For every policy, one or more actions plans are recommended.

These are detailed in Table 9 and Table 10.

Forest industry restructuring policies are as follows:

1. Accelerate establishment of forest management units

2. Accelerate infrastructure development

3. Simplify and shorten permitting processes for forest plantationry development

4. Apply forest plantation certifi cation

5. Create mechanisms and facilitate resolution of landuse confl icts (after forming forest management units)

6. Provide alternative capital assistance for community forest plantation development

7. Use high quality seedlings

8. Provide a forest land suitability database

9. Eradicate illegal logging

10. Eradicate illegal timber trading

11. Remove transaction cost opportunities (high-cost economy)

12. Improve law enforcement

13. Utilise wood produced from estate crop regeneration

14. Perfect community wood administration


15. Organize the distribution of raw materials for industries

16. Increase implementation of intensive silviculture in natural production forests

17. Accelerate establishment of Annual Allowable Cut

18. Utilization of timber waste from logging in natural forests

19. Eradicate use of illegal timber

20. Control sawmills without Industrial Raw Material Requirement Plans (RPBBI)

21. Replace old and ineffi cient machines and tools

22. Modify machines to keep up with wood processing technology developments

23. Develop transportation infrastructure

24. Increase productivity

25. Review rules on sample import items and exhibitions

26. Undertake diversifi cation into more effi cient energy

27. Remove transaction costs (unoffi cial charges)

28. Apply log tracking systems

29. Undertake regular product promotion eff orts

30. Build integrated sawmills and woodworking industries

31. Develop domestic markets

32. Intensify promotion to international markets

33. Overcome tariff and non tariff barriers to international trade

34. Make procurement of capital goods easier (equipment and machines)

35. Increase quality of workforce

36. Prompt research and development

While forestry industry revitalization policies are listed below:

1. Prioritise development of lumber forest plantations

2. Continue capital assistance for community forest plantation development

3. Continue with forest plantation certifi cation

4. Continue with infrastructure development

5. Continue to use improved seed resulting from improvement and genetic engineering

6. Continue to use wood produced from estate crop regeneration and alternative raw materials

7. Oblige sawmill permit holders to implement intensive silviculture

8. Modify machines to suit product demand developments

9. Continue to integrate sawmills and woodworking industries

10. Remove transaction costs (unoffi cial charges)

11. Develop transportation infrastructure

12. Increase productivity

13. Continue with log tracking


14. Undertake regular promotion of products

15. Continue with intensive promotion to export markets

16. Overcome tariff and non-tariff barriers

17. Develop products to suit market demand

18. Continue to make capital goods procurement of capital goods easier (equipment and machines)

19. Continue to increase quality of workforce

20. Prompt research and development

Further, for every action plan recommended, aside from proposing which stakeholders should be involved in

their implementation, success indictors were also developed along with methods for their verifi cation in monitoring

and evaluating successes achieved. These are presented in detail in Table 11 and Table 12.


Table 9. Strategies, Policies and Action Plans necessary in the restructuring period (2007-2014)

Strategy Policy Recommended Action Plan

Intensify forest plantation development

Accelerate formation of forest management units

Accelerate the passing of appropriate legislation and coordinate with regionsOptimise regional ‘land teams’

Accelerate development of infrastructure

Integrate HTI development and regional development

Simplify and shorten permitting processes for forest plantationry development

Accelerate IUPHHK application processes for forest plantations Affi rm forest plantation IUPHHK areas throughout the duration of their concessions

Apply forest plantation certifi cation

Promote and facilitate a certifi cation system for forest plantation developed by national initiatives

Create mechanisms and facilitate resolution of landuse confl icts (after forming forest management units)

Optimise regional ‘land teams’

Provide alternative capital assistance for community forest plantation development

Accelerate establishment of Forest Development Funding technical implementation unitsIncrease community access to capital

Increase forest plantation productivity

Use high quality seedlings

Provide tree improvement and forest plantation silviculture technologies by establishing an integrated research centreOptimise capacity of seed centres

Provide a forest land suitability database

Integrate and update land suitability data

Eradicate forestry crime

Eradicate illegal logging Improve integrated eradication of illegal loggersEradicate illegal timber trading Improve integrated eradication of illegal traders

Remove transaction cost opportunities (high cost economy)

Socialise and implement Minister of Forestry Regulation 55 on Timber Legality to law enforcersPut FAKB into eff ect for certain conditions so it can apply for 1.5 times the normal time

Increase law enforcement

Activate PPNS civil servant investigators to look at circulation of forest timber productsHarmonise overlapping regulations, particularly those relating to circulation, fees and charges

Develop and use alternative supply sources

Utilise wood produced from estate crop regeneration

Make letters from estate crop companies suffi cient as certifi cates of origin for estate crop timberSocialise alternative raw materials from crop estates

Perfect community wood administration

Revise Minister of Forestry Decree No. P51/2006

Optimise distribution of timber raw materials for industries

Organise the distribution of raw materials for industries

Build timber raw material terminals in industry centres

Develop a GIS based database/information system on the potential and distribution of timber supplies


Table 9. Strategies, Policies and Action Plans necessary in the restructuring period (2007-2014, continued)


Increase utilization of natural production forests

Increase implementation of intensive silviculture in natural production forests

Accelerate application of intensive silviculture and the possibility of incentive mechanisms

Accelerate establishment of Annual Allowable Cuts

Accelerate permits for Annual Work Plans and disembarkation of heavy machinery

Utilization of timber waste from logging in natural forests

Revise systems of taxes and levies such as PSDH and DR

Curb timber industry operations

Eradicate use of illegal timberMake log auditing by independent third parties more eff ective

Control sawmills without Industrial Raw Material Requirement Plans (RPBBI)

Close down companies that knowingly use illegal timberClose down illegal companiesControl the issuing of new permits for timber industries

Invest in improved wood processing technology

Replace old and ineffi cient machines and tools

Facilitate industry access to the banking systemAccelerate and simplify machine replacement permitting processes

Modify machines to keep up with wood processing technology developments

Provide technical assistance on machine replacement to small and medium enterprisesEncourage development of a domestic woodworking machine industry

Keep production costs down

Develop transportation infrastructure

Build container ports in export product centresDevelop transportation infrastructure between from raw material sources to industry centres and ports

Increase productivityHold training sessions for machine operators, supervisors, management and designers

Review rules on sample import items and exhibitions

Reduce or remove import tax on sample furniture items

Undertake diversifi cation into more effi cient energy

Encourage the use of cheap energy generation (coal, gas, biodiesel)

Remove transaction costs (unoffi cial charges)

Revise government rules on company operation licences to reduce the risk of unoffi cial charges arising

Be proactive in building a positive image in the international market

Apply log tracking systemsEncourage application of product legality certifi cation

Undertake regular product promotion eff orts

Conduct integrated promotion and intensify public relations

Facilitate clustering of timber industries

Build integrated sawmills and woodworking industries

Accelerate the development of wood processing industry clustering at the district and provincial levels Map the distribution of raw material sources in each districtDevelop timber industries in accordance with regional characteristics


Table 9. Strategies, Policies and Action Plans necessary in the restructuring period (2007-2014, continued)


Develop new markets and maintain traditional markets

Develop domestic markets

Standardise wood productsPromote and campaign for use of domestically produced wood productsProvide information on imported processed wood products to protect consumers

Intensify promotion to international markets

Hold roadshows for forestry industry productsLobby international markets, particularly traditional ones like Japan, the United States and the European UnionConduct market research and benchmarking for Indonesian products and competitors’ productsCollaborate with forestry associations and NGOs with regional level and international wood marketing networksStrengthen the role of national forestry associations in regional and international promotion and marketing

Overcome tariff and non tariff barriers to international trade

Carry out international lobbying, particularly with major export destination nationsActively negotiate with APEC on trade tariff s

Invest woodworking technologies

Make procurement of capital goods easier (equipment and machines)

Reduce or remove import tariff s on capital goodsProvide low-interest credit for importing capital goodsFacilitate industry access to the banking system

Increase quality of workforce

Hold training for machine operators and supervisorsDevelop educational institutions that create certifi cated skilled labourers

Product diversifi cationPrompt research and development

Provide incentives in marketing new products for companies that conduct research and developmentDevelop cooperation/collaboration with processed wood product design centresFacilitate registration of new products to secure patents


Table 10. Strategies, Policies and Action Plans necessary in the revitalization period (2015-2025)


Intensify forest plantation development, mainly for supplies of lumber

Prioritise development of lumber forest plantations

Integrate lumber forest plantation development and regional developmentProvide incentives for and simplify investment in lumber forest plantation development Continue to facilitate land confl ict resolution

Continue capital assistance for community forest plantation development

Expand and increase community access to capital

Continue with forest plantation certifi cation

Develop an international forest plantation certifi cation scheme

Continue with infrastructure development

Integrate forest plantation development and regional development

Increase forest plantation productivity

Continue to use improved seed resulting from improvement and genetic engineering

Increase implementation of integrated research

Use alternative log supply sources

Continue to use wood produced from estate crop regeneration and alternative raw materials

Continue socialisation of the utilization of alternative raw materials

Expand implementation of intensive silviculture in natural production forests

Oblige sawmill permit holders to implement intensive silviculture

Make the intensive silviculture a condition for Annual Work Plans of companies operating in natural production forests

Continue to invest in improved wood processing technology

Modify machines to suit product demand developments

Continue with technical assistance in machine replacement

Expand clustering of timber industries

Continue to integrate sawmills and woodworking industries

Continue with plans to integrate industries with regional development


Table 10. Strategies, Policies and Action Plans necessary in the revitalization period (2015-2025;

continued)


Continue to keep production costs down

Remove transaction costs (unoffi cial charges)

Continue to eradicate unoffi cial charges

Develop transportation infrastructure

Build container ports in product export centresDevelop transportation infrastructure from industry centres to ports

Increase productivityContinue to hold training for machine operators, supervisors and management

Be proactive in building a positive image in the international market

Continue with log tracking Continue with product legality certifi cationUndertake regular promotion of products

Continue with integrated promotion and intensifying public relations

Expand export markets and maintain old market segment

Continue with intensive promotion to export markets

Continue with roadshows for superior wood productsContinue international lobbyingContinue market research and benchmarking for Indonesian products and competitors’ products

Overcome tariff and non-tariff barriersContinue with processed wood product certifi cation

Work on potential markets

Develop products to suit market demand

Develop new products to suit market preferences

Invest in secondary wood processing technology

Continue to make capital goods procurement of capital goods easier (equipment and machines)

Reduce or remove import tariff s on capital goodsProvide credit for importing capital goodsFacilitate industry access to the banking system

Continue to increase quality of workforce

Hold training for machine operators and supervisors

Continue with product diversifi cation Prompt research and development

Provide incentives in marketing new products for companies that conduct research and developmentDevelop cooperation/collaboration with processed wood product design centresKeep up with standards for processed wood products to suit target marketsProtect intellectual property rights


Table 11. Action Plans, Success Indicators, M&E Verifi cation Methods and Implementing Agencies in the restructuring period (2007-2014)

Recommended Action Plan

Success Indicator M&E Verifi cation Method

Implementing Agencies

Accelerate the passing of appropriate legislation and coordinate with regions

Government Regulation / Minister of Forestry Decree on Forest Management Units issued by 2008

Dated and numbered Government Regulation / Minister of Forestry Decree

MoF, Min. Home Aff airs, State Secretariat, Dept. Law and Human Rights

One (1) forest management unit established in each province by 2009

Dated and numbered decree establishing forest management unit and map showing area

Forest Planology Agency, Prov. Govt., District Govt.

All production forest management units established by 2014

Dated and numbered decree establishing production forest management unit

Forest Planology Agency, Supreme Audit Agency, Prov. Govt., District Govt.


Reduced instances of landuse confl ict

Number and intensity of confl icts has declined

Forest Planology Agency, Regional Land Team, Companies

Integrate HTI development and regional development

HTI development planning constitutes synchronised planning between central, provincial and district governments

Map exists showing HTI development and is signed by the Minister of Forestry

Forest Planology Agency, Supreme Audit Agency, Provincial and District Development Planning Agencies

Accelerate IUPHHK application processes for forest plantations

All IUHPPK-forest plantation processes from applications to ratifi cation (by decree) take a maximum of 180 days to complete

Time sheets exist showing time from application to issue

Supreme Audit Agency, Forest Planology Agency, Governor, District Head, Prov. & District Forestry Offi ces

Affi rm forest plantation IUPHHK areas throughout the duration of their concessions

Area gazzettement decrees for IUHPPK-forest plantations issued within a maximum of 180 working days following application

Dated and numbered decree reaffi rming IUPHHK forest plantation boundaries

Forest Planology Agency, Supreme Audit Agency, Governor, District Head, Customary Head, Prov. & District Forestry Offi ce Heads

Reduced instances of landuse confl ict in forest plantations


Forest Planology Agency, Regional Land Team

Promote and facilitate a certifi cation system for forest plantation developed by national initiatives

50 certifi ed forest plantation management units by 2014

Dated and numbered certifi cate of HTI management unit certifi cation

Supreme Audit Agency, LEI, APHI, Certifi cation Agency, Companies




Forest Planology Agency, Regional Land Team, Companies

Accelerate establishment of Forest Development Funding technical implementation units

Organizational procedures and terms of reference in place

Dated and numbered decree establishing Development Funding technical implementation units

Forest Development Funding Agency Work Unit, Law Bureau

Increase community access to capital

70% of targeted credit is channelled to communities every year

Development Funding technical implementation Unit reports

Forest Development Funding Agency, Communities, District Forestry Offi ce, District Head

Provide tree improvement and forest plantation silviculture technologies by establishing an integrated research centre

Superior HTI tree crop species created (incremental volume growth of 30m³ per year in the fi eld)

Crop production reports

Companies, Supreme Audit Agency, Research and Development Agency, Land Rehabilitation and Social Forestry Offi ce, District & Provincial Forestry Offi ces, Forestry Companies


Table 11. Action Plans, Success Indicators, M&E Verifi cation Methods and Implementing Agencies in the restructuring period (2007-2014 continued)


Success Indicator M&E Verifi cation Method Implementing Agencies

Optimise capacity of seed centres and producers/distributors of certifi cated seed

Designated seed centres, producers and distributors of certifi cated seeds

Numbered and dated decree of designation

Land Rehabilitation and Social Forestry Offi ce, Horticultural Crop Research Institute, Companies

Certifi cated superior seed requirements met

Audit reports on certifi cated superior seed production

Land Rehabilitation and Social Forestry Offi ce, Horticultural Crop Research Institute, Companies, Auditor

Integrate and update land suitability data

Land suitability data for forest plantations available

Land suitability mapsForest Planology Agency, Provincial & District Development Planning Agencies

Improve integrated eradication of illegal loggers

Illegal logging practices reduced signifi cantly

OHL sustainable forest operations reports

Forest Protection & Nature Conservation Offi ce, Inspectorate General, Police, Civil Service Investigators, Prosecutors, Dept. Law & Human Rights

Improve integrated eradication of illegal traders

Illegal trading practices reduced signifi cantly

Trade statistics between countries (export – import)

Central Statistics Agency, Customs & Excise, Supreme Audit Agency, Dept. Trade, FAO, ITTO

Socialise and implement Minister of Forestry Regulation 55 on Timber Legality to law enforcers

Increased understanding of raw materials legality so timber circulation runs smoothly

Reports on the number of illegal timber circulation cases

Police, Forest Protection & Nature Conservation Offi ce, Supreme Audit Agency, Inspectorate General, Provincial & District Forestry Offi ces

Under certain conditions make FAKB documents apply for 1.5 times the normal length of time

FAKB document validity periods accord with time necessary for transportation

Circular from the Directorate General of the Supreme Audit Agency on FAKB document validity applying for longer transportation times

Supreme Audit Agency, Provincial Forestry Offi ce

Activate PPNS civil servant investigators to look at circulation of forest timber products

Cases resolved by the PPNS

Closed case reports Civil Service Investigators

Harmonise overlapping regulations, particularly those relating to circulation, fees and charges

Uniform legal interpretation (no more contradictory interpretations)

Memoranda of understanding issued

Police, Prosecutors, Courts, Secretariat General

Make letters from estate crop companies suffi cient as certifi cates of origin for estate crop timber

Certifi cates of origin in use for transportation of timber from estate crop regeneration

IPHHs have LMK timber transportation reports

Supreme Audit Agency, Law Bureau, Provincial/District/Municipal Govt., Provincial/District/Municipal Forestry Offi ces, Companies

Socialise alternative raw materials from crop estates

Signifi cant increase in timber from estate crop regeneration used by IPHHs

LMK timber transportation reports

Provincial/District/Municipal Govt., Companies

Revise Minister of Forestry Decree No. P51/2006

Minister of Forestry Decree No. P51/2006 revised

Number and date of revised decree

Supreme Audit Agency, Law Bureau

Build timber raw material depots in industry centres

Timber raw material depots built in Surabaya and Semarang

Number of operating timber raw material depots

MoF, Dept. Industry, Dept. Trade, Provincial Govt., Associations, Perhutani



Recommended Action Plan Success IndicatorM&E Verifi cation

MethodImplementing Agencies

Develop a GIS based database/information system on the potential and distribution of timber supplies

Timber raw materials database available

Database on potential and distribution of timber supplies and maps

Forest Planology Agency, Supreme Audit Agency, Associations

Accelerate application of intensive silviculture and the possibility of incentive mechanisms

Timber raw materials contribution from natural forests managed through intensive silviculture

Intensive Silviculture Annual Work Plans

Supreme Audit Agency, Provincial/ District Govt., Associations, Companies

Accelerate permits for Annual Work Plans and disembarkation of heavy machinery

Annual Work Plan permits completed in a maximum of 30 working days

Annual Work Plan approval time sheets

Supreme Audit Agency, Provincial/ District Govt., Companies

Permit processes for heavy machinery completed in a maximum of 7 working days

Heavy machinery permit approval time sheets

Supreme Audit Agency, Provincial/ District Govt., Companies

Revise systems of taxes and levies such as PSDH and DR

Various aspects of PSDH and DR levies reviewed

Review reportsResearch & Development Institute, Associations

Make log auditing by independent third parties more eff ective

Use of illegal timber prevented in all IPHHs

Audit reportsCompanies, Supreme Audit Agency, Provincial/ District Govt.

Close down companies that knowingly use illegal timber All companies use legal timber

Cross check real recovery rates against raw materials procurement reports

Companies, Supreme Audit Agency, Inspectorate General, Provincial/ District Govt.

Close down illegal companies

All illegal industries closed down

Check raw materials documents against source location on permits

Police, Forest Protection & Nature Conservation Offi ce, Provincial/ District Govt.

Control the issuing of new permits for timber industries

Installed capacity of wood processing companies in accordance with available supply of legal timber raw materials

Number of wood processing factory permits and RPBBI reports

Dept. Industry, Supreme Audit Agency

Facilitate industry access to the banking system

Increased amounts of new credit channelled by banks to the forestry industry sector

Banking reportsBanks, Associations, Investment Coordinating Board

Forestry industries not listed in the Negative Investments List

New presidential decrees do not include timber industries on the Negative Investments List

Investment Coordinating Board, Supreme Audit Agency, State Secretariat, Dept. Industry

Accelerate and simplify retooling permitting processes

Permits for retooling completed in a maximum of three months

Company reportsSupreme Audit Agency, Dept. Industry, Companies

Provide technical assistance on machine replacement to small and medium enterprises

Labourers trained in the use of new technology machines available

Manpower reportsCompanies, Associations, Dept. Manpower, Supreme Audit Agency,

Wood processing technologies are more effi cient

New technology machines in use

Associations, Supreme Audit Agency




Success IndicatorM&E Verifi cation


Encourage development of a domestic woodworking machine industry

Increased use of domestically produced wood processing machines

Dept. Industry wood processing machine use reports

Dept. Industry, Associations

Build container ports in export product centres

Container ports provided in necessary places

Container port numbers and operations

Pelindo, Provincial Govt., District Govt., Associations

Develop transportation infrastructure between from raw material sources to industry centres and ports

Adequate transportation available

Transportation numbers and operations

Dept. Public Works, Dept. Transport, District Govt., Municipal Govt.

Hold training sessions for machine operators, supervisors, management and designers

Increased number of trained and certifi cated workers in forestry industries

Manpower reports

Companies, Associations, Dept. Manpower, Supreme Audit Agency

Reduce or remove import tax on sample furniture items

Removal of import tax on sample and exhibition items

Number and date of Minister of Finance decree on removal of import tax on sample and exhibition items

M o Finance, Associations

Encourage the use of cheap energy generation (coal, gas, biodiesel)

Increased use of cheap energy

Company reports Companies, Associations

Revise government rules on company operation licences to reduce the risk of unoffi cial charges arising

Revised government rules on company operation licences in place

Numbers and dates of revised rules

Law Bureau, Dept. Industry, Dept. Manpower, Provincial Govt., District Govt

Encourage application of product legality certifi cation

Processed wood products have certifi cates of origin

Number of companies securing certifi cates

Certifi cation Agency, Companies, Associations, Environmental Standardisation Centre

Conduct integrated promotion and intensify public relations

Increased volume and export value of Indonesian processed wood products

Trade reports, Central Statistics Agency reports, timber industry associations’ reports

Dept. Industry, MoF, Associations, Dept. Trade, Companies

Accelerate the development of wood processing industry clustering at the district and provincial levels

Wood processing industry clustering in place at the district and provincial levels by 2009

RPBBI reports

Supreme Audit Agency, MoF, Dept. Industry, Provincial Govt., District Govt., Municipal Govt., Associations

Map the distribution of raw material sources in each district

Distribution of raw material sources for each district available by 2009

District forestry offi ce annual reports

Forest Planology Agency, Supreme Audit Agency, Provincial & District Forestry Offi ces






Develop timber industries in accordance with regional characteristics

Primary and secondary timber industries integrated in accordance with regional characteristics

Provincial/District Forestry Offi ce and Industry Offi ce annual reports

Provincial/District/Municipal Govt., Dept. Industry, Supreme Audit Agency, MoF

Standardise wood products

Increased number of standardised wood products

National Standardisation Board reports

National Standardisation Board, MoF Environmental Standardisation Centre, Associations

Promote and campaign for use of domestically produced wood products

Increased domestic consumption of processed wood products

Domestic processed wood products trade reports

Dept. Trade, ASMINDO

Provide information on imported processed wood products to protect consumers

Accurate information available for consumers on imported processed wood products

Interviews with consumers

YLKI, ASMINDO

Hold roadshows for forestry industry products

High-quality processed wood products increasingly well know in the international market

Trade statistics reports

Central Bureau of Statistics, Dept. Trade, Associations, BRIK, FAO, ITTO

Lobby international markets, particularly traditional ones like Japan, the United States and the European Union

Indonesian processed wood products enter destination countries wise ease

International trade reports

Dept. Trade, Associations, BRIK, FAO, ITTO

Conduct market research and benchmarking for Indonesian products and competitors’ products

Types and prices of competitors wood products identifi ed



Collaborate with forestry associations and NGOs with regional level and international wood marketing networks

Regional and international marketing networks established



Strengthen the role of national forestry associations in regional and international promotion and marketing

Increased number of new markets for wood product exports

Timber product trade reports

Dept. Trade, Associations

Carry out international lobbying, particularly with major export destination nations

Reduction in non tariff trade barriers for wood products



Actively negotiate with APEC on trade tariff s

Reduction in tariff s for wood products within APEC







MethodImplementing

Agencies

Reduce or remove import tariff s on capital goods

Import tariff s on capital goods removed

Number and date of capital goods import tax decree

M o Finance, Dept. Industry, Dept. Trade, Associations

Provide low-interest credit for importing capital goods


Bank of Indonesia annual reports

Bank of Indonesia




Bank of Indonesia


Increased numbers of trained and certifi cated labourers in forestry industries

Manpower reports


Develop educational institutions that create certifi cated skilled labourers

More certifi ed educational institutions teaching tradesman skills

Manpower reports, Dept. Manpower

Companies, Dept. Manpower, Work Training Centre

Provide incentives in marketing new products for companies that conduct research and development

Increased number of innovative R&D activities

Increased number of product designs

Associations, Dept. Industry, Companies

Develop cooperation/collaboration with processed wood product design centres

Increased number of processed wood product designers

Manpower reportsCompanies, Associations, Dept. Manpower, Supreme Audit Agency

Facilitate registration of new products to secure patents

Increased number of processed wood product designs registered

Number of patented products registered in the Intellectual Property Rights Offi ce

Dept. Law and Human Rights


Table 12. Action Plans, Success Indicators, M&E Verifi cation Methods and Implementing Agencies in the revitalization period (2015-2025)




Integrate lumber forest plantation development and regional development

HTI development planning constitutes synchronised planning between central, provincial and district governments

Location map exists showing HTI development and is signed by the Minister of Forestry


Provide incentives for and simplify investment in lumber forest plantation development

All IUHPPK-forest plantation processes from applications to ratifi cation (by decree) take a maximum of 180 calendar days to complete

Time sheets exist showing time from application to issue

Supreme Audit Agency, Forest Planology Agency, Governor, District Head, Prov. & District Forestry Offi ces

Area gazzettement decrees for IUHPPK-forest plantations issued within a maximum of 180 working days following application

Dated and numbered decree reaffi rming IUPHHK forest plantation boundaries

Forest Planology Agency, Supreme Audit Agency, Governor, District Head, Customary Heads, Prov. & District Forestry Offi ce Heads

Continue to facilitate land confl ict resolution



Forest Planology Agency, Regional Land Team, companies

Expand and increase community access to capital

70% of targeted credit is channelled to communities every year

Forest Development Funding Agency reports

Forest Development Funding Agency, Communities, District Forestry Offi ce, District Head

Develop an international forest plantation certifi cation scheme

All forest plantation management units certifi ed by 2025

Dated and numbered certifi cate of HTI management unit certifi cation

Supreme Audit Agency, LEI, APHI, Certifi cation Agency, Companies

Integrate forest plantation development and regional development

Forest plantation development planning constitutes synchronised planning between central, provincial and district governments

Location map exists showing HTI development and is signed by the Minister of Forestry


Increase implementation of integrated research

Superior forest plantation tree crop species created

Crop production reports

Companies, Supreme Audit Agency, Research and Development Agency, Land Rehabilitation and Social Forestry Offi ce, District & Provincial Forestry Offi ces, Forestry Companies

Continue socialisation of the utilization of alternative raw materials

Signifi cant increase in timber from estate crop regeneration used by IPHHs

LMK timber transportation reports

Provincial/District/Municipal Govt., companies


Table 12. Action Plans, Success Indicators, M&E Verifi cation Methods and Implementing Agencies in the revitalization period (2015-2025 continued)




Make the intensive silviculture a condition for Annual Work Plans of companies operating in natural production forests

Signifi cant timber raw materials contribution from natural forests managed through intensive silviculture

Intensive Silviculture Annual Work Plans

Supreme Audit Agency, Provincial/ District Govt., Associations, Companies

Continue with technical assistance in machine replacement


Manpower reportsCompanies, Associations, Dept. Manpower, Supreme Audit Agency

Wood processing technologies are more effi cient


Associations, Supreme Audit Agency

Continue with plans to integrate industries with regional development

Primary and secondary timber industries integrated in accordance with regional characteristics

Provincial and District Forestry Offi ce and Trade Offi ce annual reports

Provincial/District/Municipal Govt., Dept. Industry, Supreme Audit Agency, MoF

Continue to eradicate unoffi cial charges

Uniform legal interpretation (no more contradictory interpretations)

Memoranda of Understanding signed

Police, Prosecutors, Courts, Secretariat General

Build container ports in product export centres

Container ports provided in necessary places

Container port numbers and operations

Pelindo, Provincial Govt., District Govt., Associations

Develop transportation infrastructure from industry centres to ports

Adequate transportation available

Transportation numbers and operations

Dept. Public Works, Dept. Transport, Provincial Govt., District Govt., Municipal Govt.

Continue to hold training for machine operators, supervisors and management

Increased number of trained and certifi cated workers in forestry industries

Manpower reports


Continue with product legality certifi cation

Processed wood products have certifi cates of origin

Number of companies securing certifi cation


Continue with integrated promotion and intensifying public relations

Increased volume and export value of Indonesian processed wood products

Trade reports, Central Bureau of Statistics reports, timber industry associations’ reports

Dept. Industry, MoF, Associations, Dept. Trade, Companies

Continue with roadshows for superior wood products

High-quality processed wood products increasingly well know in the international market

Trade statistics reportsCentral Bureau of Statistics, Dept. Trade, Associations, BRIK, FAO, ITTO

Continue international lobbying

Indonesian processed wood products enter destination countries wise ease




Table 12. Action Plans, Success Indicators, M&E Verifi cation Methods and Implementing Agencies in the revitalization period (2015-2025 continued)

Recommended Action Plan Success IndicatorM&E Verifi cation

MethodImplementing

AgenciesContinue market research and benchmarking for Indonesian products and competitors’ products

Types and prices of competitors wood products identifi ed



Continue with processed wood product certifi cation

Increased number of certifi cated wood products

National Standardisation Board reports


Develop new products to suit market preferences

Increased domestic consumption of processed wood products

Domestic processed wood products trade reports

Dept. Trade, ASMINDO

Reduce or remove import tariff s on capital goods

Import tariff s on capital goods removed

Number and date of capital goods import tax decree

M o Finance, Dept. Industry, Dept. Trade, Associations

Provide credit for importing capital goods



Bank of Indonesia




Bank of Indonesia


Increased numbers of trained and certifi cated labourers in forestry industries

Manpower reports


Provide incentives in marketing new products for companies that conduct research and development

Increased number of innovative R&D activities

Increased number of product designs

Associations, Dept. Industry, Companies

Develop cooperation/collaboration with processed wood product design centres

Increased number of processed wood product designers

Manpower reports


Keep up with standards for processed wood products to suit target markets

Increased number of new markets for wood product exports

Processed wood products trade reports


Protect intellectual property rights

Increased number of processed wood product designs registered

Number of patented products registered in the Intellectual Property Rights Offi ce

Dept. Law and Human Rights

Enabling Conditions

VIII


VIII. Enabling Conditions

In timber industry development, after a vision, then a mission, objectives, targets, strategy recommendations, and

follow-up steps all constitute recipes or necessary conditions in order that fi nal aims can be realised. Nevertheless, all

of these on their own remain insuffi cient; enabling conditions or suffi cient conditions are necessary so that strategies

and follow-up steps can be carried out according to the plan. Enabling conditions consist of preconditions and

macro and micro economic relationships.

1.1. Preconditions

Below are seven essential preconditions for bringing about the sturdy forestry industry explained in the vision

and mission sections above. These seven preconditions are as follows:

a. Political will - Clarity, and high levels of commitment from policy makers and all stakeholders involved.

Political will must be consistent and continual, so necessary requirements are stable political support,

adequate funds, and encouragement from all government and non-government stakeholders. Commonly,

not all stakeholders will feel comfortable with policy changes, as some will benefi t and some will lose out,

despite changes being aimed purely at national interests. Therefore, without long-term political support

and commitment from all stakeholders, these strategies will merely be references on paper.

b. National stewardship – The sense of ownership over national assets. Article 33 paragraph 3 of the 1945

Constitution says that the land, the waters and all the riches contained therein shall be controlled by the

state and exploited to the greatest benefi t of the people. The government is therefore responsible for

organizing rights and responsibilities to manage all of the country’s resources, including forest resources.

Without this sense of ownership, many national assets will be discarded, used illegally, or neglected and

exhausted. Illegal logging, groups of people having control over state forests, and poor supervision on the

ground are all examples of a weak sense of national stewardship.

c. Economic institutions – Open, transparent and equitable economic relations between all stakeholders

involved. These economic relationships must be encouraged and strengthened through fair and transparent

transactions among all stakeholders, and must adhere to all applicable laws and regulations. Rules of play

such as these will encourage the government, investors, and all stakeholders involved to implement

policies together and bear any risks that might arise as a result of their implementation. These economic

institutions will be explained in more detail in the sub-section below on Macro and Micro Economics.

d. Land accessibility and business guarantees – Forestry sector activities are long-term investments

requiring business guarantees for investors. However, on the other hand, forestry activities also come into

contact with various interests outside forestry, and also with communities living in and around forests.

Confl icts of interest between stakeholders occur frequently in the fi eld. Therefore, the ability to manage

costs and benefi ts at all times is absolutely essential. Without tenurial certainty and clarity over access to

forest resources, investments in the forestry sector will probably struggle to succeed. The point is how

government, communities and business practitioners are organized within a clear tenurial system with

rules, obligations and bundles of rights for stakeholders to utilise land and forest resources transparently,


sustainably and equitably.

e. Delegation of authority to policy makers on the ground – This is closely connected with the

decentralization process; the delegation of authority in forestry from the central to provincial and

district governments. Decentralization requires fundamental changes in working relationships between

the diff erent levels of the goverment, and between the government and business practitioners and

communities. When authority and responsibility at every level of government is unclear or interpreted

diff erently by stakeholders, then the mismanagement and excessive exploitation of forest resources will be

inevitable.

f. Clear rules for community institutions and public institutions – The provision of access and forest

exploitation permits has frequently been vague, and as such has often led to confusion on the ground.

Policies carried out should have been done so with market-based institutions with DR and PSDH costs

incurred, for instance, becoming a part of forest benefi t accountability between the government and

business practitioners. Meanwhile, things relating to community rights and responsibilities have been paid

little attention. As a result of these weaknesses, many state forests have been left unmanaged and become

‘open access’ with encroachment occurring as if it has always been intended.

g. Human resources capacity – Educational backgrounds, levels of prosperity, experience, beliefs and

cultures of stakeholders are all determining factors in the success or failure of forest management and

timber industry development. Therefore, human resources play a highly signifi cant part in good forest

governance. Nepotistic practices and KKN have a far-reaching impact on forestry sector performance.

To change stakeholders’ habits, perceptions and behaviour, social investment should become a central

component in human resources development.

1.2. Macro and micro economic connections

The timber industry does not stand alone and apart from all social, economic and political frameworks

and development systems, either in national or regional, or in international spheres. As explained above, the timber

industry has provided a vital contribution to the national economy, though its contribution is declining from year

to year. For that reason, in future the timber industry will be aimed towards being able to compete in the global

marketplace. Competitiveness is determined by an increase in productivity, with increased output being generated

from the same input. Productivity itself is determined by the value of products and services, as well as production

effi ciency.

According to Porter (2006), competitiveness is determined by macroeconomic success, social stability,

politics and legislation. These, however, are still insuffi cient. Genuine macroeconomic success must be developed

from micro-economic successes. In the context of the timber industry, microeconomics involves how companies

conduct sophisticated strategies in their operations. It is these strategies that will determine a healthy and conducive

business climate in the national timber industry.

Porter also stressed things needing to become priorities in order to improve Indonesia’s macro economy

were the need for legislative system reform, avoiding policies that constantly change, simplifi cation of government

bureaucracy, development of a social safety net, and eff ective coordination between public and community

institutions.


At the company level (micro economy), to advance business systems, things requiring improvement are the

quality and quantity of existing industry facilities and infrastructure, human resources skills, and the development of

certain economic zones. In this respect, economic development should also be based on the concept of clustering;

timber industries included. In a broader context, economic cooperation could be increased within the ASEAN

region.

In Closing

IX


IX. In Closing

Forest industry restructuring and revitalization in the short and long terms must involve all stakeholders in

order to implement the selected strategies explained in Chapter VI (Strategy Recommendations). The implications

of these strategies are that production levels and the number of people employed in timber industries will decline

for a period of time. Coordination and cooperation from several ministries and agencies is absolutely vital. On the

other side, these strategies will reduce pressure on natural forests and at the same time provide room for effi cient

timber companies to operate.

When the results of the fi rst stage’s forest plantation extensifi cation and intensifi cation (short term) can be

realised, the gap between the demand and supply of pulpwood will narrow. This gap, however, will remain wide for

lumber. Other short-term strategies in terms of demand are modifying machines and equipment so timber industries

become more effi cient, focusing on high added value products, and supporting the growth and development of

small and medium wood processing enterprises, particularly for secondary wood products that can adapt to market

changes and dynamics and create more job opportunities.

Demand and supply of sustainable lumber is expected to stabilize in the long term, and pulpwood supplies

are expected to exceed domestic demand, while timber industries will operate effi ciently and manage to adapt

to market changes and diff erent raw materials. Other long-term strategies are maintaining and increasing the

international competitiveness of timber products and developing a timber industry in Indonesia that produces high

added value products and creates new job opportunities.

The main things requiring attention are enabling conditions to support the realization of a sturdy and

competitive timber industry so Indonesia can regain its position as a major timber industry producer and so it can

play a greater role in contributing to the national economy.


References

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Anon. 2007. Road Map for the Development of Indonesia’s Plywood Industry. Panel Wood Working Group. Jakarta, 18 April 2007.

Anon. 2007. Woodworking Industry Road Map for 2007-2016. Woodworking Industries Working Group. Indonesian Sawmill & Woodworking Association (ISWA). Jakarta. April 2007.

Anon. 2007. Road Map for the Development of Indonesia’s Furniture and Handicrafts Industries. Indonesian Furniture and Handicrafts Industries Association (ASMINDO). Jakarta, 18 April 2007.

APKI. 2005. Indonesian Pulp & Paper Industry. Directory 2005. Indonesian Pulp & Paper Association. Jakarta.

Arancon, R.N. 1997. Asia Pacifi c Forestry Sector Outlook Study: focus on coconut wood. Asia-Pacifi c Forestry Sector Outlook Study Working Paper No. APFSOS/WP/23. Rome, FAO.

Brown, T. H., B. C. H Simangunsong, D. Sukadri, D. W. Brown, S. Sumirta, A. Dermawan and A. Rufi ’ie. 2005. Restructuring and Revitalization of Indonesia’s Wood-Based Industry: Synthesis of Three Major Studies. MoF-NRM-CIFOR-MFP-Forest Trends-ITTO. Jakarta.

BPS. 2006. Economic Indicators. Central Statistics Agency. Jakarta.

BRIK. 2006. Kondisi dan permasalahan industri sawmill dan woodworking serta keadaan pasarnya pada saat ini dan kecenderungannya di masa mendatang. Paper presented at the Indonesian Timber Industry Workshop on 19-20 December 2006 in the Hotel Santika, Jakarta.

Ministry of Forestry. 2005. Executive, Indonesian Strategic Forestry Data 2005. Ministry of Forestry, Jakarta.

Ministry of Forestry. 2006. Executive, Indonesian Strategic Forestry Data 2006. Ministry of Forestry, Jakarta.

Ministry of Forestry. Indonesian Forestry Statistics 1980-2002. Ministry of Forestry, Jakarta.

Ministry of Forestry. 2005. Rekalkulasi Penutupan Lahan Indonesia tahun 2003. Forest Mapping and Inventorization Centre, Forest Planology Agency, Jakarta.

FAO. 2005. State of the World’s Forests 2005. FAO, Rome.

FAO. 2005. FAOSTAT Database home page (http://www.fao.org/). Food and Agriculture Organization of the United Nations, Rome.

FAO. 2006. FAOSTAT Database home page (http://www.fao.org/). Food and Agriculture Organization of the United Nations, Rome.

Killmann, W. & Fink, D. 1996. Coconut palm stem processing. A technical handbook. Eschborn, Germany, Protrade, GTZ.

Kollert, W., Killmann, W. & Sudin, R. 1994. The fi nancial feasibility of producing gypsum bonded particle boards from oil palm trunk fi bres. In Proceedings, 3rd National Seminar on Utilization of Oil palms and Other Palms, Kuala Lumpur, 27–29 September 1994, pp. 117–137.


Kustiawan, D. 2006. Kondisi dan tantangan pembangunan HTI di Indonesia saat ini. Paper presented at a reguler In-house Experts Working Group meeting on 8 June 2006, Manggala Wanabakti Building. Jakarta.

Machted Spek. 2006. Financing Pulp Mills: An Appraisal of Risk Assessment and Safeguard Procedures. CIFOR.

Manurung, E.G.T. 2002. Dampak Kebijakan Larangan Ekspor Kayu Bulat pada Periode 1985-1997 Terhadap Sektor Kehutanan Indonesia: Suatu Analisis Kritis. Paper for the World Bank, Jakarta.

Nugroho, H. 2006. Penyediaan bahan baku berasal dari produk hutan alam HPH/IUPHHK. Paper presented at the workshop on Timber Raw Materials Supplies for Indonesia’s Timber Industry. Twin Plaza Hotel, Jakarta, 12-13 October 2006.

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Simangunsong, B. C. H. 2007. Revitalisasi industri Kehutanan: Analisis Sisi Pasokan. Paper prepared for the Forestry Industry Revitalization In-house Experts Working Group, Ministry of Forestry.

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Sumarna, K., D. Wahjono, and H. Krisnawati. 2002. Stand volume prediction of logged-over area in the natural production forest and the annual production quota formula. Paper presented in discussion of silviculture for natural production forest to achieve sustainable forest on February 21, 2002. Forestry Research and Development Agency

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An

nex

1. R

aw M

ater

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upp

ly C

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in 2

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and

pre

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No.

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2005

(Cub

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s)20

06 (C

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Rem

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2004

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ear

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8 m

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at

year

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3,56

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Sour

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(*) f

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RPB

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is th

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num

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or IP

HH

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Base

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data

, tim

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per

31

Dec

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nat

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a•

Base

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tion

data

, tim

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per

31

Dec

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r pre

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s ye

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the

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Base

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tion

data

, tim

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tock

per

31

Dec

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r pre

viou

s ye

ar in

IPK

is 1

0% o

f the

pro

duct

ion

in p

revi

ous

year

.


MINISTRY OF FORESTRY 2007

Documents

Roadmap for revitalization_of_indonesia_s_forest_industry_nov_2007