Proactively Resolving Difficulties for Wood Processing Industry

In the latest years, the Vietnamese wood processing industry has made impressive growth and branded the leader in the ASEAN region in prestige, product categories and export output. Nonetheless, this growth is seen comprising elements of instability. Typical evidences are the sluggish replacement of backward timber processing technologies and equipment and the shortage of skilled human resources. In addition, Vietnamese woodwork companies also face up with difficulties in the domestic market because they have not established distribution channels and lacked market development policies.

 

To surmount those difficulties and develop sustainably and effectively, they need to focus on following solutions as soon as possible. Firstly, they need to renovate equipment and technologies to economise fuel, enhance productivity and improve product quality. In addition to build internal norms and professional production quality management processes, they essentially find out solutions to cut down costs and reduce product prices.

 

While Vietnamese enterprises are absorbed in conquering international markets, Chinese low-priced wooden furniture have quickly dominated the Vietnamese market and other ones in the region. Chinese products are cheap although they import similar sources as Vietnamese companies because they manufacture in large scale and know to cut production costs, thus enhancing the competitiveness of their products on international markets.

 

In the meantime, in Vietnam, a company has to carry out all stages of production from importing raw materials and transportation to processing. As a result, input costs are very high. To solve this problem, domestic tree growers and timber processors must coordinate together to create a mutually beneficial value chain and to end a paradox that growers sell woodchips at low prices to foreigners while domestic companies purchase foreign logs, even chopped woods, at high prices.

 

While domestic companies have to spend billions of US dollars importing timbers each year, growers sell wood materials to foreigners at extremely low prices. This paradox has existed for decades. In the context that global timber supplies are showing signs of decline, utilising local material sources at more reasonable prices and gaining the advantage of material sources are absolutely essential. However, this problem is very difficult to solve and requires involvements of the Government and efforts of enterprises.

 

To deal with this matter, HAWA - through the Ministry of Agriculture and Rural Development - is proposing the Government to impose export tariffs on woodchips in order to limit massive exportation, especially to China.

 

Besides, the Government necessarily zones out material zones and processing zones to utilise local woodchips and broken logs collected from the sawing process to produce floorings of much higher value than lumbers.

 

The gravest difficulty of the timber industry is now the serious shortage of materials. To resolve this supply problem, Vietnam needs to have new forestation plans. Forest growing needs huge and long-term investment capital. At present, some 1.2 million households are managing over 3 million hectares of forestland. This is a great potential for forestation development and creation of materials for wood processing industry.

 

Like households, many companies want to plant forests because this investment is relatively effective. Nonetheless, accessing long-term capital is a tough difficulty as no banks are ready to supply such a kind of long-term credit. Even when the credit is accessed, interest rates (over 20 percent per annum) are higher than annual tree growth ratio (15-20 percent. In other words, the tree growth is not enough to cover interest payment. To cope with this matter, the Government need to create a suitable mechanism for forest-growing companies. In the near term, it also needs to review centrally specialised material zones, invest in scientific and technologic solutions to study and select productive, high-quality trees to meet domestic and export demands.

 

So far, Vietnamese woodworks have been exported to 163 countries and territories in the world and asserted strong foothold on global markets. Nonetheless, local producers do not have enough supplies and they always live in fears of lumber undersupply. To solve this problem, apart from imported timbers, the State must accelerate the sustainable development of forests to supply legitimate timbers for processing industry. As currently heavy reliance on import materials, net earnings on the export grossing of US$3-4 billion are humble. Hence, the State needs to support investment for the development of auxiliary industries for timber processing industry.

 

Apart from difficulties arising from rising input costs and human resource shortages, most Vietnamese wood companies have small and medium scales and lack production capitals. Hence, they are vulnerable to high inflation and rising interest rates now. The State needs to adopt timely solutions to support them like lowering interest rates to facilitate them to expand production and head for sustainable and effective development.