Indonesia

Asia's Largest Remaining Forests

Not for long, however. Most estimates place the proportion of logs which are illegally harvested in Indonesia in excess of 70%, and probably as high as 90%. The country, beset by political instability, poverty and widespread corruption, simply cannot control the volume of illegal logging activity within its boundaries, including within its once magnificant national parks. Most observers have given up all hope of saving any meaningful tracts of primary forests within Sumatra, while the Kalimantan provinces in Borneo are under severe threat. The province of Irian Jaya (West Papua) remains relatively unscathed when compared to the other large Indonesia islands. However the leading logging concerns, seeking fresh forests are making strong inroads into this region. The outlook looks bleak for Asia's most biodiverse nation. China and Japan continue to import Indonesia's illegal produce at an alarming rate, with so far only token efforts at control.

Chart 1 illustrates the recent trend in Indonesia's timber exports - a decline in plywood (the principal component of those exports) and an overall rise in other products. The rise largely offsets the decline in plywood.

Importing almost half of Indonesia's plywood exports, Japan (particularly through its prestigious trading companies) clearly has a dominant influence over Indonesia's export-oriented timber industry and, implicitly, the law which governs it.

This influence was even stronger during the early years of Indonesia's export-oriented timber industry, which were shaped by interests from Japan and the USA. Japan imported roughly half of Indonesia's timber exports (of between 15 and 20 million cubic metres roundwood equivalent volume) at that time.

The Japanese government helped finance and plan the assault on Kalimantan's forests (- implicitly an assault on their bio-diversity, indigenous peoples and other assets).[ref: "Timber from the South Seas - An Analysis of Japan's Tropical Timber Trade and its Environmental Impact" by F Nectoux and Y Kuroda for WWF (1990)].

Chart 2 indicates that Indonesia has for several decades supplied a substantial proportion of Japan's timber imports.

Chart 3 shows that Indonesia has annually supplied Japan with a roundwood equivalent volume of roughly seven million cubic metres of timber - except during the early 1980s (when Indonesia made it increasingly difficult to export logs).

Logs (largely for plywood mills in Japan) accounted for the great majority of Japan's timber imports from Indonesia until the early 1980s. During the early 1980s, a major plywood manufacturing industry was set up in Indonesia - which restored Indonesia's timber exports to Japan to their previous high level. Japanese companies (particularly general trading companies) assisted in this.

Japan also imports Indonesian timber products indirectly from other East Asian countries, primarily China and Malaysia. Such products - which include plywood, joinery and, in the case of China, furniture - are estimated to account for almost 20% of the six million cubic metres roundwood equivalent volume which Japan probably imported from Indonesia during 2006.

Given the scale of smuggling between Indonesia and both Malaysia and China, the proportion of illegal timber in Japan's indirect imports from Indonesia is likely to be even higher than that which it imports directly.

Reflecting incipient exhaustion of the forests which earn (impoverished) Indonesia a substantial proportion of its foreign exchange earnings, the Indonesian government has, in recent years, greatly reduced the permitted quantity of commercial logging in natural forest - but this has been doubled from a low of 5.7 million cubic metres for 2004 to 12 million cubic metres for 2007. This increase is roughly half that proposed in 2005 and appears to reflect neither the sustainability or legality of active concessions nor the likelihood that the social and environmental costs of the increase might exceed any consequent commercial benefit to Indonesia.

(Timber and pulp & paper are amongst Indonesia's top five non-petro-chemical sectors by export value.)

During 1998, 73% of Indonesia's timber production from natural forest was determined as illegal.? The proportion of illegal timber in those exports will have risen given that Indonesia's forest resources have declined and that the quantity exported has changed little since 1998.? However, the marked decline in timber exports during 2005 might reflect efforts to enforce the law - particularly in West Papua.

Further, the great majority of Indonesia's major logging concessions are illegal - at least partly due to poor governance, only 7% have been gazetted.

Thus, in 2005, roughly US$1 billion of Japan's timber imports from Indonesia are likely to have been illegal. This compares with Japan's provision of bilateral "aid" to Indonesia of less than US$1 billion annually which Japan could (but appears to have chosen not to) use as leverage for fundamental improvements in (forest) governance.

In 2002, Japan signed a bilateral agreement with Indonesia concerning illegal logging. Japan's imports of timber direct from Indonesia have reduced only slightly since then - indicating that this agreement has had little impact. In contrast, the bilateral agreement which the UK signed with Indonesia and related measures have had a material impact on Indonesia's timber exports to the UK - despite those exports to the UK being far less than those to Japan.

More recently, the Indonesian government has sought to enact law which imposes the death penalty for illegal logging. Well-connected rotten elements within the police, armed forces, politics and business may use this to protect remaining forest for their own exploitation. Long established local populations, often denied land tenure and usufruct rights (particularly in favour of in-migrants), are likely to be further impoverished and intimidated by this law.

Fatalities and injuries due to flooding and landslides (attributable to unsustainable and often illegal logging) are increasingly common. Wildlife and habitats are seriously threatened. National Parks are seen as prime targets by enterprises keen to profit from timber before anyone else does from the fast diminishing forest resource. Export markets are already aware that the quality of timber Indonesia supplies is deteriorating.

Over-exploitation characterises logging in Indonesia - lowland forest in Sumatra and Kalimantan is likely to be exhausted by 2010 unless there is radical change in forest governance. This incipient exhaustion has already led to a rush to exploit forest elsewhere in the archipelago, particularly in West Papua, with scant regard for the law and sustainable forest management and with the active support of the armed forces and politically-induced violence by in-migrants against the local inhabitants.

Marubeni and others e.g. Djajanti (via Global Timber in China) who have links with Japan) have timber interests in West Papua, a province which is already exporting some 600,000m3 of logs monthly - as much as Kalimantan at the height of its log exports. Most of this is either smuggled out of the country (there is a long established ban on the export of logs from Indonesia - and sawn wood exports have been prohibited since 2004) or subsequently exported from the country having been processed by plywood, flooring or joinery mills outside West Papua.

Chart 4 shows that Indonesia's pulp and paper exports have risen very strongly (and from a low level) since the mid-1990s. Japan imports roughly 10% of those exports, a share sufficient in itself, irrespective of Japan's significance as one of the world's largest paper markets, to have some leverage over those trade flows. Indonesia's paper exports have varied little for some years - reflecting no major changes in installed mill capacity.

Major controversies surround Indonesia's export-oriented pulp and paper industry (illegal and unsustainable wood supplies, Indonesia's biggest bankruptcies, etc). In terms of roundwood equivalent volume, the amount of pulp and paper which Indonesia exports is similar to that of the timber which it exports. Most of the wood raw material for those pulp and paper exports still derives from natural forest, partly because alternative supplies of pulpwood (imported or from company plantations) appear unsatisfactory.

APP (Asia Pulp and Paper) and APRIL (Asia Pacific Resources International Holdings Limited) are Indonesia's largest pulp and paper companies. More than a third of APP's wood raw materials are deemed to be illegal (almost half of the pulpwood for APP's Indah Kiat pulp mill is illegal), and the company plans to abandon consumption of plantation pulpwood from 2004.

APP and APRIL have now established themselves in China, where they, particularly APP, are amongst China's largest paper companies. Their Chinese operations are well placed to export paper made in China from Indonesian pulp to importers elsewhere who do not wish to be associated (NB) directly with pulp and paper imports from Indonesia - and thus preferring to support China's economy over that in impoverished Indonesia. China's paper exports have been on a rising trend since Indonesia became a major pulp and paper exporter, indicating that such triangular trade may already be taking place.