FRP Chainsaw Logging Marketing Study.

1. FRP Chainsaw Logging Marketing Study. Andrew Mendes BA, MA

2. What is Marketing • Marketing today is an holistic, all inclusive concept covering every aspect of forestry from forest to final market.

3. In-bound logistics Operations Out-bound logistics Marketing & sales Service MARGIN THROUGH VALUE PROCUREMENT HUMAN RESOURCE DEVELOPMENT FIRM INFRASTRUCTURE The Marketing Value Chain. Table 1. The Marketing Value Chain PRIMARY ACTIVITIES TECHNOLOGY DEVELOPMENT SUPPORT ACTIVITIES Source: Porter, M. E.(1985) Competitive Advantage. New York Free Press.

4. The concept of matching resources. • In the context of forestry in Guyana, this means matching what is essentially a niche volume resource, through appropriate technology, value added techniques and appropriately sized enterprises, to a market either existing or created. • The concept of value rather than volume.

5. Porter’s Generic Marketing Model. • Micheal Porter, a well known marketing Guru, stated that you either compete on price, quality or in niche markets. In addition you need to concentrate on your chosen path and not try to compete in differing market segments.

6. Guyana’s Forest Resource Base. • Low volume, high defect and high species diversity forest. • GFC Code of Practice allows a maximum coupe rate of 20 m3/ha over a 60 year cutting cycle. Compared to Brasil which allows 40 m3/ha over a 25 year cycle. • Actual coupe rate for the 18 active large concessions is 5.02 m3/ha.

7. Consequences!! • High log extraction costs and lumber production costs. • Landell-Mills in a 1995 study of 7 large concessions in the Essequibo Region put the cost to extract 1 m3 of log to the sawmill gate at US$85 M3. • Coupled with recovery rates of < 40% this gives lumber production costs of US$250 –450 M3.

8. Consequences cont’d! • Poor or marginal performance of large, capital intensive forest operations, leading to many of them reverting to the expediency of commodity log exports.

9. Chainsaw logging costs of production • Between US$80 – 130 m3 delivered Georgetown.

10. Why so low? • Takes the means of conversion to the stump – no transportation of waste. • Minimal capitalisation – utilises contracted in, dual use equipment. • Minimal bureaucratic and management overheads –appropriately sized enterprises. • Illegal aspect of the operations represents less than 10% of the costs of production.

11. Benefits. • Pays ½ the revenues of the GFC on ¼ the allocated forested lands. • Employs 75% of the people in the forest sector. • Provides 60% of the local lumber. • Poverty alleviation – retains 50 –75% of the net value of the product in the source community.

12. Forest Allocation Figure 2. Forest allocation of State Forests by SMFEs and Large concessions (SMFE = State Forest Permissions and Wood Cutting Leases / LARGE = Timber Sales Agreements) Note that the two main components of revenue earning are the payments of acreage fees and royalties (GFC 2003b)

13. Revenues to GFC from large and small concessions. Figure 1. Revenue earned from large versus small concessions (% of total revenue earned)- GFC 2003b

14. Production vs Marketing orientation. Table 2. Production orientation vs marketing orientation. Production orientation –“the produce to sell cycle.” Production capabilities produce product  sell  customers. Marketing orientation Customer needs  Potential market opportunities  market products  customers

15. Concentration on producing volume and not value. • Driven by the arbitrary grading standards of the local retail lumber sector that promotes volume over value. • Perception that volume equals value due to poor understanding of costs – eg. Preference to produce Mora sleepers rather than flooring or decking. • Because of this attract commodity pricing for their product.

16. Lack of planning. • No inventory is done so concessionaires have no capacity to secure markets before they produce a product. • Makes supplies unreliable and more expensive. • Increases cost of extraction due to increased road density. • Reduced recovery due to “missed timber.” • Cost of doing an inventory is just G$2 per bd.ft.

17. Lack of building code. • Non standard housing, door and window dimensions leading to necessity for custom sizes in lumber and a cut –to order scenario that reduces recovery rates. Also the prevalence of long lengths. • No grading of wood for structural integrity purposes – leads to arbitrary grading standards in the local market that discourages cutting to get the highest grade.

18. Competitiveness and specialisation. • Lower production cost of chainsaw operations leads to a more competitive value added sector. • Lower production cost and higher profitability of chainsaw operations allows specialisation of operators as encouraged by the 2003 ITTO Diagnostic Mission.

19. Lack of synergies and links between suppliers and buyers. • There are no formal links between chainsaw operators and lumberyards – results in lower prices paid for lumber in what is essentially a suppliers market. • Because of this lumber prices only started to increase in 2004 -5 due to the shortage of sawn lumber locally.

20. Rise in Purpleheart and hardwood prices 1999 - 2006

21. Missed opportunities. • Because of the lack of communication, potential buyers cannot find sawn lumber and sellers get lower prices for their product.

22. The chainsaw as a “prime saw.” • Lumberyards insist that chainsaw operators deliver a majority of 1 inch thick material as they have no resaw capability. • Costs more to produce for chainsaw operators – double the number of cuts, labour and fuel compared to cutting two inch material. • Lower recovery rate.

23. Log no. Predominant board size cut Nominal Recovery % GR04 nominal recovery % MYC 16 All 1 inch thick. 36.30 35.03 MYC 17 2 x4, 2x6 scantling. 48.51 41.54 MYC 18 2 X 12 52.12 32.98 MYC 19 2 X 12 48.15 35.15 Lumber recovery rates cutting 1 and 2 inch material. Table 1Summary recovery rates for SITE 3. measuring recovery from heartwood of log MYC 19.

24. Benefits of resawing. • The lumber yard ends up with a much better finished product. • No “hit and missing” in 1 inch material. • Potentially higher volume availability. • Potential recovery rates in the 50 –60 % range with chainsaws.

27. The Consolidation yard concept • Establish a concentration/consolidation yard to be logistical/infrastructural nexus between the producers and better paying export market for lumber. • Provide price incentives to “cut for grade” and for quality. • Provide value added services to maximise value creation in the sector. • Provide training in sawing, tooling maintenance to improve grade lumber recovery.

28. Consolidation yard. • Provide financing to improve equipment and practices in the sector – ie. Portable mills. • Provide training and markets for those operators that want to venture into value added products.

29. Conclusions. • The sector is poorly organised such that it limits the pricing accessible by operators – needs at a minimum basic networking, synergies and communication between suppliers and buyers. • Some form of central database of who is producing what and where and who is looking for what.

30. Conclusions. • Though not what could be considered “best practice” chainsaws recovery rates are at least comparable to traditional stationary mills and can be improved greatly by adoption of a resaw culture. • To improve quality and value creation in the sector needs a concerted, holistic approach to the sectors development – the concentration yard concept perhaps!

31. Conclusions. • The sector developed spontaneously out of a need to support depressed interior communities without support into a significant contributor to rural livelihoods and the Forestry Commission. • The sector therefore begs to be viewed in a positive, developmental light as it deserves. It begs for support to redress the negative aspects of the sector. From our experience, given the support they are willing to improve their practices and their contribution to the nation as a whole.