Forest certification in Sri Lanka.

Introduction

Sri Lanka is endowed with a rich diversity of natural and plantation forest resources. According to the Central Bank of Sri Lanka (CBSL 2004), the agricultural sector accounted for 17.8 percent of the gross domestic product in 2003, while the forestry sector contributed 1.7

percent. Even so, the true economic contribution of forestry is undetermined due to incomplete data on harvesting, market prices, and time spent on collection and consumption of fuel wood and non-wood forest products. The forest sector accounted for less than 1 percent of Sri Lankan exports in 2004.

Sri Lanka is self-sufficient in meeting its domestic requirements for most forest products with the exception of plywood, paper, and paperboard. The diverse forest system ranges from dry, sparse forests to tropical. wet forests. Figure 1 shows the relative geographic areas of these forest types throughout the country. Figure 2 identifies the number of hectares per major forest type. The growing demand for wood and industrial wood products for Sri Lanka s increasing population are often met by exploitation of the country's forest resources. As a result, closed canopy forest cover has declined to 22.4 percent of the total land area with an annual deforestation rate of 1.14 percent (Ministry of Environment and Natural Resources Sri Lanka 2002).

[FIGURE 1 OMITTED]

According to the Forest Sector Master Plan (2005), demand for sawn wood is increasing at ah average annual rate of 2 percent and is projected to total 885,000 [m.sup.3] by 2020. This increase in demand will likely drive expansion of wood-based manufacturing industries. Existing natural forests are being increasingly subjected to pressure to become classified as conservation forests, and, as a result, forest plantations of eucalypts, pines, teak, and mahogany have been established as an alternative to meet future demand for sawn timber.

The government is also making such provisions as long-term land leases under concessionary rates for forestry projects to increase private sector participation in forestry (Ministry of Environment and Natural Resources Sri Lanka 2002). As a result, in 2004, several plantation management companies converted their unproductive lands into forest plantations. According to the Ministry of Plantation Industries Sri Lanka, in 2003, the land area used for plantations was 14.079 hectares, a 48-percent increase over the previous year. Investment in commercial forest plantations is continuing (CBSL 2004). Opportunities also exist for foreign investors to invest in forestry projects in the country with government-approved tax benefits provided by the Sri Lanka Board of Investment, including a tax waiver for the first 5 years and a 35-percent decrease in income tax from the fifth year onward for duty-free imports (Weerawardane 2003).

The wood-based manufacturing sector in Sri Lanka consists of a variety of industries including saw milling, furniture, construction, parquet flooring, and wood-based panel products. The sector depends almost entirely on the local wood supply for raw materials. It is estimated that there are over 9,000 furniture and other woodworking industrial plants in Sri Lanka with an estimated employment over 28,000 (EDB 2006). Most of the furniture and woodworking mills are concentrated in Moratuwa, a densely populated town in the Colombo District which is traditionally known for woodworking.

Many producers have the potential to meet international quality standards, but most do not participate in export markets because of limited production capacity. As a result, low volume niche marketing is being explored by local manufacturers.

Although there is growing demand for Forest Stewardship Council (FSC) certified timber in international market niches. FSC certification is a concept new to Sri Lanka. The industry realizes that Sri Lanka's export wood products industry can benefit from growing markets for FSC-certified wood products and, as such, is taking steps to disseminate information about certification and increase involvement.

Certification

Forest certification found its roots in the concern over rapid tropical deforestation in the 1980s and the 1990s (Kiekens 2003). It is a process which results in a written certification being issued by an independent third party, attesting to the location and management status of a forest which is producing timber (Baharuddin and Simula 1994). It involves assessing the quality of forest management in relation to a set of predetermined principles and criteria. Forest certification also provides consumers with a credible guarantee that the product comes from environmentally responsible, socially beneficial, and economically viable sustainably managed forests.

As the concept of certification has gained momentum, many certification programs have evolved. These can be broadly categorized into two groups: performance-based and process-based. Performance-based standards define specific performance levels for various aspects of forest management. Process-based schemes provide a systematic approach to developing, implementing, monitoring, and evaluating environmental policies: however, they do not stipulate performance standards. Currently, the FSC, Program for the Endorsement of Forest Certification, ISO 14000, and Sustainable Forest Initiative are among the most widely adopted certification programs in the world. and there is an increasing trend to develop national and regional certification programs (Perera and Vlosky 2006).

FSC Certification

Of the certification programs mentioned above, Sri Lanka has adopted only FSC certification. Established in 1992, the Forest Stewardship Council is an independent, non-profit organization formed in an effort to establish a global system for certifying that products come from well-managed forests. Although originally intended to control deforestation in the tropics, the program has now grown to become one of the world's leading certification systems, and has been adopted by numerous countries. FSC is a means of linking environmentally and/or socially conscious consumers with like-minded producers, retailers, and distributors.

FSC certification is a two-pronged process including a forestry performance audit and a chain of custody audit. The FSC itself does not certify forests, but instead accredits qualified, independent organizations known as certification bodies to carry out on-the-ground inspection and certification. Timber that comes from sources meeting the FSC standards are eligible to carry the FSC logo, denoting that the product comes from a well-managed forest. The FSC scheme has also developed a method of monitoring the flow of certified timber from the forests to the consumer. The chain of custody procedure monitors the wood products through every stage of their transport, conversion, and further processing (Boetekees 2003).

The number of FSC-certified hectares of forests around the world has grown from 10 million in 1998 to more than 78 million today (FSC 2006). While most forest certification activities occur in Europe and North America, a range of national certification programs that comply with FSC standards have been or are currently being developed in Australia, Chile, Brazil, Malaysia, and Africa (Kiekens 2003).

The demand for FSC-certified timber comes mainly from companies which are often members of buyers' groups. Forest and Trade Networks in European Union countries, such as France, Germany, Italy, The Netherlands, Sweden, and the United Kingdom, are committed to producing and purchasing forest products from well-managed forests and supporting independent certification (CBI 2005).

Certification in Sri Lanka

The availability of timber in Sri Lanka extends beyond what is needed for domestic consumption. At present, wood products, such as brush blocks, parquet flooring, wood toys, household furniture, office furniture, and furniture in knockdown form, are exported mainly to the United Kingdom, United States, India, France, Germany, Saudi Arabia, and the Maldives (EDB 2006). In the past few years. customers, particularly in the European Union and the United States, have shown an increased interest in having Sri Lanka provide FSC-certified timber and wood products. This change in buying behavior has pressured manufacturers and exporters to participate in FSC certification. In terms of area of plantations under FSC certification in tropical timber producing countries, Sri Lanka is far down on the list, primarily due to the country's small size (Fig. 3). Currently, all certified plantations are rubberwood (Hevea brasiliensis). Rubberwood is durable and is used in home furnishings such as furniture and flooring. As a member of the maple family, rubberwood has a dense grain character and experiences very little shrinkage, making it one of the more stable species for furniture manufacturing.

Overall, eco-labeling and certification are fairly new concepts to Sri Lanka, and, at present, there are only a handful of companies that are FSC certified. Most companies are curious of unclear about the benefits and opportunities they can derive through certification. Others believe that certification may evolve into a non-tariff barrier. As a result, the Export Development Board of Sri Lanka, together with Centre for the Promotion of Imports from Developing Countries, has initiated a group certification scheme for Sri Lanka with the International Union for the Conservation of Nature and Natural Resources, the Rubber Research Institute and the Sri Lanka Forestry Department.

In 2005, the authors interviewed current exporter and plantation certification participants to investigate the potential of FSC certification as a marketing tool, the existence of price premiums for FSC certified timber and wood products, and to determine if there were additional advantages that FSC certification might provide. A comprehensive list of FSC certified export wood-based manufacturers and plantation companies was obtained from the EDB. In addition, a representative of the Rubber Producers Small Landowner Association, representing small plantation owners in the country, was also interviewed.

FSC Certification and Plantations

Broadly speaking, there are two sectors of Sri Lankan rubberwood plantations: estate (20 hectares of more) and small holding (less than 20 hectares) (DCS 2002). There are 16 estates in Sri Lanka representing 58 percent of the 114,713 hectares of rubberwood plantations, all of which are under the management of large-scale plantation companies. Of these, four currently hold FSC certification. Forty-two percent of the country's plantations are owned by small holders; therefore, this group plays a key role in the rubber industry as well as in supplying raw materials to wood-based industries (Table 1). None of the small-scale plantations in Sri Lanka are certified.

Although domestic timber buyers who manufacture products for export were the initial driving force in compelling plantation companies to obtain certification, the plantation companies interviewed believe that certification can be used as a tool for promoting sustainable forestry. Domestic manufacturers have actually provided financial support to assist one plantation company in obtaining certification. Funding for this effort originated with export customers in the European Union. Plantation companies are using certification to convey that they are socially responsible organizations to current and potential customers as well as to the public. Certification also has enabled companies to be more systematic and organized in terms of operations and documentation.

Demand for FSC-certified timber is increasing in the Sri Lankan export sector, and plantation companies state that they are unable to meet this demand. Marketing and communication regarding certification has been particularly important in educating wood product exporters and increasing awareness of the benefits from obtaining FSC certification.

Demand from plantation companies for timber to be used for fuel also has increased due to the increase in fossil fuel prices. This is occurring to a point where plantation wood is being bid away at higher prices than export manufacturers can pay, regardless of certification. In a similar case, large wood flooring manufacturers/exporters are heavily dependent on one or two large buyers with significant bargaining power and, as such, do not pay price premiums for certified timber. Because price premiums for certified timber do not exist, companies find it difficult to justify the cost of certification. They are hopeful that market demand for certified wood will increase to the point that they can, at the very least, offset certification costs and ultimately make a profit. Although certification was viewed as being a potential source of competitive advantage in the future, product quality, reliability of supply, and competitive pricing need to assured.

Another development that altered the competitive environment of the timber industry was a new medium density fiberboard (MDF) plant that came on line in 2002 with an export capacity of 80 million kg annually. Rubberwood manufacturers/exporters are losing orders because they cannot compete with this plant for raw materials. In addition, the plant receives preferential pricing for energy and water from the government, which allows the company to pay more for plantation-grown raw materials. Finally, this plant does not require certification from plantation companies because there is no demand from customers for certified MDF.

Some suggest that certification is appealing only in certain niche markets, and that it would play well to species in high demand, such as teak and mahogany. Sri Lankan plantation companies, however, have paid little attention to growing such high-end timber species. As such, they are available in small quantities and the minimal amount that is available does not meet export quality standards. There are strict government restrictions on harvesting and exporting these species as logs, which requires a joint effort with manufacturers to use them in producing high-quality value-added products for export markets.

Certification in the Wood-Based Export Manufacturing Sector

There are seven manufacturers in Sri Lanka that export certified wood products, primarily brushes and brush blocks made of rubberwood to the United Kingdom and Australia. One manufacturer has focused on exporting products made from other species, exporting trellis and lattice material made from hard alstonia (Alstonia macrophylla) and silky oak (Gravillea robusta). They obtain the certified wood for these products from the four existing Sri Lankan certified plantation companies.

Unlike the plantation sector, companies interviewed within the export manufacturing sector have different views and ideas about the role of certification as a marketing tool and the availability of price premiums for certified products. They suggest that any certification price premium will depend on the relationships between supply chain members from Sri Lankan suppliers to retailers and consumers in end-use markets. The main reason that manufacturers entered the certification marketplace was because export buyers requested certified wood products (Fig. 4).

Monitoring the movement of certified timber from the forest to the factory is challenging unless the timber company has its own production facilities. If the timber is processed at private plants, certified and non-certified raw materials and products need to be segregated to ensure chain of custody. FSC certification also has criteria regarding labor safety. But, local workers are not always accustomed to safety precautions and are reluctant to use safety gear even if it is provided. As a result, manufacturers suggested that current FSC standards should be revised in accordance with local conditions and business environments.

Overall, manufacturers are disappointed in the lack of market benefits of certification, blaming a lack of consumer demand for certified products in export markets. According to the information obtained in this study, only 8 percent of companies selling certified wood products currently receive a certification premium, creating a disincentive to continue participation in the program. Despite the fact that most wood manufacturers do not see any financial benefit from certification, they remain optimistic about future benefits. As environmental issues become more prominent in Sri Lanka, they believe that certification will become prevalent.

They also indicated that certification is useful as a quality management tool and has improved their operations management and information systems, It also has helped them to reduce waste and lower production costs.

How to Encourage Certification?

At present, certification is confined mainly to the rubber plantation sectors in Sri Lanka. With the large-scale MDF facility consuming large quantities of rubberwood, the future availability of rubberwood for certified export manufactures is questionable. Therefore, certified plantations should make the transition to high-end species such as teak and mahogany where there is a greater potential to capture premiums in price.

Since a significant share of rubberwood plantations are owned by small holders, introducing a group certification program may be a viable option so that each member can benefit from the savings of scale, while not losing control of their own plantation and its management. For plantation companies and manufacturers alike, the cost of certification should be reduced in order to attract participation. In addition, participation can be increased by revising current FSC standards to accommodate local environmental, social, and economic conditions.

When promoting certification, it should not be viewed only as a marketing tool to find price premiums. Other benefits of certification such as cost savings through improved production and processing, increasing overall efficiency through better management, deflecting a negative image of the industry, and contributing to environmental protection should be effectively communicated. In concert with certification, other improvements such as improving quality, introducing new designs, exploring new markets, and building partnerships should be done to improve positioning opportunities for export manufacturers.

In summary, certification is in the infancy stage in Sri Lanka. The country is blessed with natural forests and the potential to expand plantations. Given the current foundation, certification can be a mechanism for preserving Sri Lanka's forest resources while at the same time providing economic, social, and environmental benefits.

Literature Cited

Baharuddin, H.J. and M. Simula. 1994. Certification Schemes for All Timber and Timber Products. ITTO, Yokohama, Japan.

Boetekees, G. 2003. Certification as a tool for socially and environmentally responsible trade: Strategies for the sound use of wood. Poiana Brasov, Romania.

Central Bank of Sri Lanka (CBSL). 2004. Annual Report.

Centre for the Promotion of Imports from Developing Countries (CBI). 2005. European Union Market Survey 2005 Timber and Timber Products. August 2005.

Department of Census and Statistics, Sri Lanka Census of Agriculture (DCS). 2002.

Export Development Board of Sri Lanka (EDB). 2006. Sri Lanka Business Portal trade information. Accessed April 2006. www.srilankabusiness.com/trade_info.

Forest Resources Assessment Programme (FRA). 2000. Forest Resources of Sri Lanka, Country Report. Working paper #17. Forestry Department Food and Agriculture Organization of the United Nations. Rome.

Forestry Sector Master Plan. 1995. Forest Sector Development Division, Ministry of Agriculture, Land and Forestry.

Forest Stewardship Council (FSC). 2006. Accessed October 2006. www.fsc.org.

Kiekens, J. 2003. Forest Certification in North America: Selected Developments. 12th World Forestry Congress, Canada.

Legg, C. and N. Jewell. 1995. A 1:50,000 Scale Forest Map of Sri Lanka; The Basis for a National Forest GIS. The Sri Lanka Forester. Special Issue: Remote Sensing.

Ministry of Environment and Natural Resources Sri Lanka. 2002. Report of Sri Lanka to the World Summit on Sustainable Development. pp. 35-36.

Perera, P. and R.P. Vlosky. 2006. A History of Forest Certification. Working paper #71. Louisiana Forest Products Development Center, LSU Agricultural Center, Baton Rouge, LA.

Weerawardane, N.D.R. 2003. Challenges and opportunities in forestry for the new millennium environment in Sri Lanka. Accessed April 2006. www.environmentlanka.com/issues.html.

World Resource Institute. 2005. Accessed December 2005. http://earthtrends.wri.org/searchable_db/.

The authors are, respectively, Graduate Research Assistant, Forest Products Marketing Program, School of Renewable Natural Resources, Louisiana State University Agricultural Center; Director and Professor, Louisiana Forest Products Development Center, Louisiana State University Agricultural Center, Baton Rouge, LA (RVlosky@agcenter.lsu.edu); Senior Lecturer and Head of the Department; and Bachelor of Science Undergraduate in the Forestry Program, Department of Forestry & Environmental Science, University of Sri Jayewardenepura, Sri Lanka.

Table 1.--Rubberwood plantations by district in Sri Lanka, 2002
(DCS 2002).

                                         Hectares

Administrative District   Small holding   Estate    Total

Kegalle                          14,503   20,300    34,803
Kalutara                         13,332   16,590    29,922
Ratnapura                         9,532   12,137    21,669
Colombo                           3,235    3,829     7,067
Galle                             1,667    4,851     6,518
Matara                            1,451    2,163     3,614
Gampaha                           2,609      446     3,055
Kurunegala                          557    2,196     2,753
Matale                              170    1,691     1,861
Monaragala                          531    1,300     1,831
Kandy                               964      202     1,166
Monaragala                          531    1,300     1,831
Hambantota                           39        2        41
Monaragala                          531    1,300     1,831
Total                            48,655   66,076   114,731

Figure 2.--Number of hectares per major forest type (Legg and
Jewell 1995).

Dry Monsoon               1,094,289
Sparse                      463,848
Moist Monsoon               243,877
Lowland Wet Evergreen       141,550
Montane                      72,091
Other (Mangrove & Riverine   31,100

Note: Table made from bar graph.

Figure 3.--FSC-certified plantations (in hectares) in 2004 (World
Resources Institute 2005).

South Africa          1,461,970
Brazil                  922,258
United Kingdom          779,984
New Zealand             691,529
Chile                   372,776
Venezuela               139,650
Japan                   107,105
Zimbabwe                 85,711
Uruguay                  75,094
Colombia                 58,444
Argentina                49,661
Costa Rica               40,371
Swaziland                17,018
SRI LANKA                16,251
Germany                  14,370
Malaysia                 12,434
Panama                    9,991
United States             7,001

Note: Table made from bar graph.

Figure 4.--Reasons for manufacturers/exporters to enter certified
export wood products markets (n = 7) (multiple responses possible).

Pressure from export buyers                  85%
Get higher prices for certified produces     71%
Increase sales volume                        57%
Improve company image                        57%
Environmental concerns                        0%

Note: Table made from bar graph.