BVRio Institute, April 2016
The Brazilian timber sector is responsible for the extraction of more than 13 million m3 of hardwood logs from Amazonian rainforests. These logs, in turn, feed a wood processing industry that around R$ 8 billion in annual revenue. However, the importance of the timber sector has decreased, with decreasing timber volumes and revenue generated.
The decline of the Amazonian timber industry is due to a number of factors, from its low sophistication to the challenges created by informality, illegality and unsustainability. According to several studies (e.g., Brazilian Ministry of the Environment, Interpol, Chatham House, Imazon, ITTO, Traffic, Nepcon, among others), it is estimated that over 70% of timber products from the Amazon may come from illegal operations, which may include theft of wood from conservation areas and indigenous reserves, use of slave labour, and other types of illegal practices.
International rankings place Brazil as one the highest risk country in relation to illegality in the timber sector. This risk perception is reinforced by the constant reports made by the press and NGOs1 and the recent operations made by the Federal Police in Pará and Mato Grosso states that resulted in the imprisonment of state government officials and timber traders.
In addition to illegality, the sector is also falling short in terms of sustainability standards. FSC-certified forest management operations are reducing, and their aggregate production accounts for less than 3% of the total log production in the Brazilian Amazon.
The combination of these factors has resulted in a reduction in demand for Amazon timber. In the domestic market, there is an increasing trend of wood substitution in the construction industry. In international markets, the requirements of legislation focused on legality (i.e., US Lacey Act and the EU Timber Regulation)2 or of sustainability standards (FSC) create barriers for the imports of timber products from the Amazon. Gradually, American and European companies are refraining from buying Amazon timber, a trend accelerated since the recent Federal Police operations of November 2015.
On the supply side, a reduction in timber production of around 40% was observed over the past 10 years. A significant barrier for the production of sustainable and/or certified timber, is the unfair competition posed by illegal operations. The lower cost structure of illegal operators (with lower production costs and no tax), enable them to displace the legal sources in the market, resulting in financial difficulties for the companies involved in legal and/or certified sustainable production. The result is very negative for the sector and for tropical forests: in the absence of mechanisms that value standing forests, these become more vulnerable to deforestation pressure for conversion to other land uses.
Need for change
For the Amazonian timber industry to recover and resume growth, it needs to undergo a process of renewal and transformation, through the adoption of new trends, market practices and sustainability standards. This process could be complemented by a set of actions to promote the use of legal timber among associations, producers and distributors of timber products3; development of monitoring mechanisms; encouraging the use of legal timber and, gradually, certified timber products, among purchasing departments of public and private sector; as well as the promotion of this industry in international markets.
A pre-requisite for the development of this process is to bring the industry to legality. This, in turn, would require the development and adoption of monitoring, control and traceability systems for the production, processing and transportation of Brazilian tropical wood products. In this context, it is worth mentioning the diagnostic study currently conducted by McKinsey for the Brazilian Ministry of Environment that will highlight the main weaknesses of their control systems, the main types of fraud, and their recommendations for the improvement of the system.
As part of this process, BVRio Institute has been developing a Responsible Timber Exchange, with a view to promote legal wood in the domestic and international markets. At the end of 2015, iBVRio launched the first module of this initiative – its Risk Assessment and Due Diligence tools, designed to assist timber traders and environmental enforcement agencies in detecting sources of risk and illegality so to meet the requirements of the EU Timber Regulation and the US Lacey Act. Since its release to the public, the Due Diligence tools have been used extensively by traders and government officials from both the US and Europe.
Any initiative designed to increase the sector’s legality depends on the transparency of information related to the sector. Systems like Simlam and Sisflora, adopted in Pará and Mato Grosso states, already make available some data collected in their monitoring systems. Improvements are still needed, and the Sisflora 2 system of the Pará state is a step in the right direction. On the other hand, the states that use the DOF system (Document of Forest of Origin) of the Federal Government provide little transparency that, in turn, create favourable conditions for fraud. It is essential that the Federal and state governments provide more transparency to enable better monitoring, greater control, and a reduction of illegality in the timber sector.
The combination of the measures mentioned above would help revitalising the Brazilian timber industry.
- See, for instance:
- The US Lacey Act requires timber buyers to take due care in the selection of suppliers of timber products to be imported into the Us, and similarly, the new EU Timber Regulation requires that operators (timber importers) conduct risk assessments and due diligence of their timber sources.
- Examples in Brazil include the CAD-Madeira programme (an initiative created by São Paulo state government to promote the public purchase of timber from legal sources) and the Legal Timber Protocol Initiative (Protocolo Madeira É Legal, a partnership promoted by 23 public and private sector stakeholders in São Paulo, including WWF and FSC Brasil)