Due to the growing needs of Peru’s hot economy, general manager of Reforesta Peru, Enrique Toledo, estimated purchases of wood within a decade to reach US $2 billion per year, which very well could be reduced if there were greater domestic supply. “We currently buy three times what we export, even though we have the ninth largest forest in the world and fourth in tropical forests,” Toledo says. “That’s a great paradox. Peru is rich in forests but poor in wood,” he says.
Cash in on Peru’s forest?
Making a calculation of Peru’s export potential, Toledo notes that Peru has yet to take advantage of 13 million hectares of forest, which represents US $3 billion, a potential being ignored in areas where the population is impoverished and mired in the spiral of narco-violence. And that’s without taking into account the option to reforest another 8.5 million hectares.
It would be logical to question how it is that businessmen do not realize this, having a large market, but it is not so easy. The forestry sector has problems in all colors.
First is the issue of costs. One is transporting wood from the jungle to Lima, which is more expensive than to carry the same merchandise from the port of Callao to another in China, says Isabel Franchini.
In addition, the lumber sector faces little technical training for its staff and scarce investment in technology, because 90% of enterprises are very small, says Jessica Moscoso, Director of Cite Madera.
The biggest bottleneck in the sector, says the manufacturing coordinator of diverse manufactures of Prom-Peru, Gustavo Trujillo, is the lack of investment in drying ovens. “Drying the wood allows for a lower percentage of moisture and ensures that there is no swelling. This is vital to provide a quality product” he says.
For his part, Eric Fischer, chairman of the wood committee of Peru’s exporters association, indicates that today, out of the seven million hectares in concession, only 30% is in production, due to lack of adequate investment. It should be noted that some regional governments have been asked to run concessions in this sector, because they are paralyzed.
However, the biggest problem is the lack of a state policy for a sector whose investments mature in two decades. Moreover, the FTA with the United States leads to reconsider the new rules and today the business sector is in the limbo.
Fischer fears that failure to comply with the agreement’s forest addendum restricts the purchase of Peruvian products. It is worth remembering that in the past year, due to the crisis and the comings and goings in the legal sector, exports to U.S. fell by almost half.
Scarcity for wood in the future
If the most immediate problems are solved, the representative of ADEX believes that in five years exports could reach US $500 million. In this regard, Ignacio Lombardi, chairman of the National Forestry Chamber, says that in ten years Peru would surpass Chile, who with a meager land, without tropical forests, exports US $3 billion of wood.
Enrique Toledo of Reforesta Peru says that in 50 years wood will be scarce and expensive. Therefore, he says that investment in the future will be focused on replanting deforested land rather than in forest concessions and he suggests following that path.
In turn, Ignacio Lombardi believes that Peru’s goal should be to have two million hectares for timber.
China will increasingly demand wood products, although with a lower added value. The largest forestry company in Peru, Maderera Bozovich, now has an office in Shanghai. Meanwhile, the U.S. economic recovery will allow Peru to start selling more processed products to that country.
Fischer said that in recent years the local industry has taken some important steps to avoid exporting simple green timber. The non-traditional star product is outdoor flooring, called “decking tile.” Regarding this product, Gustavo Trujillo reports that in 2009, demand has not dropped dramatically as it did with the lumber. “The challenge of exporters is to work on a final product,” he says.
In addition, construction has boosted the local timber market. During the first half of the year, all records of growth were surpassed with a rate of 24%.
Lombardi thinks an incentive program for the sector is necessary, as it was done with mining in the nineties. “Now we see the results of those incentives,” he adds.
He points out that in Brazil, they were allowed to deduct up to 50% of income tax in reforestation work. In turn, the Chilean state gave a bonus of 75% of net costs of reforestation for 20 years.
Enrique Toledo prefers to bet on a clear and promoting framework of investment for the business sector to benefit from the forest industry. He expresses his hope that that is accomplished in the coming months under the urgency of the FTA.
Then there are the other uses of the forest that are not wood-related. That is the case of the carbon credits market; Enrique Toledo says that a company has the option of receiving US$60 thousand annually for every thousand reforested hectares. A flow of such magnitude can improve their profitability.
Clearly, the internal and external potential is widely recognized by all. A future “boom” in the Peruvian forest industry is a dream we all have.
Yet there is a need for those who are linked to the sector to be filled with enthusiasm and to take a winning bet.