The Wood Industries in Indonesia Explained

by | Aug 25, 2021 | Study Insight | 0 comments

The growth of Indonesia’s wood timber export worldwide.

Source: Pexel – Cleyder Duque

Indonesia is one of the 10 countries with the largest forest area. The forest area in Indonesia consists of 92 hectares of forest area or 2% of the total global forest area which is almost half of the country’s land. In 2021, Indonesia’s forestry export growth has already reached 6.3% with the amount of the value up to USD 980 million (Foresthints, 2021). Referring to data from the General Director of Indonesian Forestry Planning and Environmental Management (PKTL), the total forest area in Indonesia reaches 94.1 million hectares.

Most of the Indonesian forest has a state-owned status which covers up to 86.9% and the remainder belongs to the land that is registered by private organizations or individuals called title forest. There are also two different types of forest management in Indonesia which are the plantation industry, which was dominated by teak plantations, and selective forestry. Most of the wood timber production including the paper and plywood industry is made from the plantation forestry industry, with acacia and eucalyptus trees, which grow swiftly in Indonesia’s tropical climate, dominate pulpwood plantations (Timber Trade Portal, 2020). 

Based on the previous explanation, Indonesia has great opportunities in the wood timber export industry.  Learn more about the wood industries in Indonesia and how the wood timber industry became an export products opportunity from Indonesia to worldwide through this article.

Overview of Wood Industries in Indonesia

Indonesia’s abundant forests provide primary raw materials for its wood processing industry. In the country, about 68 million hectares have been allocated for production forest, including industrial forests and non-industrial forests. In 2019, the wood industry in Indonesia is valued at over USD 12 billion. There are several kinds of wood that are commonly harvested for the timber industry, such as meranti, keruing, kapur, mersawa, and teak. The country also produces other kinds of timber products, ranging from plywood, pulp, and paper to furniture and handicrafts.

After experiencing a decrease in 2020, Indonesia’s wood industry has shown positive performance in the first quarter of 2021 with the growth at the level of 8.04%. Agus Gumiwang Kartasasmita, Indonesia’s Minister of Industry said that the productivity of the domestic wood processing industry continued to increase, indicating increasing demand in the sector. Indonesian Forest Entrepreneurs Association (APHI) and the Indonesian Wood Panel Association (Apkindo) state that the potential of the wood-based industry is still quite promising. The domestic market, especially those related to development in the property sector, of course still requires wood panels.

Wood Timber Industries Export in Indonesia

Indonesia is among the world’s leading wood products exporters, including the wood timber industry. The country has become one of the world’s largest exporters of tropical timber products, recorded to have a total export worth of USD 2,042 million in 2018 (Timber Trade Portal, 2020). The high production of wood products from Indonesia is caused by several reasons, which are  the large domestic consumption of logs that is attributable to their utilization by domestic enterprises and the tertiary industries products such as furniture, pulp, and paper productions.

Top 10 country markets for wood timber exports from Indonesia
Source: ITC (2020)

According to ITC (2020), the top 5 country markets for wood timber exports from Indonesia are Japan (21.7%), China (15.2%), the United States of America (12.2%), South Korea (9.7%), and Australia (4.8%). For example, Japanese companies who imported wood products from Indonesia are Omni-Tsuda Inc., Yuasa Trading Co. Ltd., Aminaka Lumber Co., and many more. From China, there are Chongqing Lingfeng Wood Industry Co. Ltd, Sumec International Technology Co Ltd, and many more. From American companies there are Mountain Top Floors Inc, Challinor Wood Products, and more. Lastly from South Korea and Australia, there are Guitarcore and Wombat Timbers Pty Ltd and the other companies who run wood timber imports from Indonesia (FORDAQ, 2021).

However, according to FLEGT Independent Market Monitor (2020), the top 3 countries that mostly import wood timber products from Indonesia within the European Union (EU) countries are the United Kingdom (UK), Germany, and The Netherlands. This potential market in wood timber industries began after Indonesia started to issue FLEGT licenses in 2016, which aimed to analyze the trade flow and market research to independently assess trade and market impacts of FLEGT Voluntary Partnership Agreements (VPAs) in the EU and partner countries, including Indonesia.

Due to the issuing process of the FLEGT licenses, the companies should obtain a  Timber Legality Assurance System (SVLK), which is a mandated system applicable to every timber-related firm in Indonesia, and it became the backbone of the FLEGT-VPA process. Through the issued licenses then, Indonesia’s timber and timber products export worldwide has an exponential growth in 2017 and 2018 in the two years following FLEGT licensing. In 2017, the total export value grew by 13% to USD 11.4 billion, and in 2018, it increased again by 13% to USD12.9 billion (BVRIO, 2020).

According to the Environmental Investigation Agency, before the VPA procedure, it was thought that 80% of Indonesian timber came from an illicit source, but on the other hand, timber and timber-related product exports have grown exponentially since the adoption of the SVLK. Nevertheless, Indonesia’s Trade Ministry issued a regulation in February 2018 that revokes the V-legal licenses that verify the timber legality for wood exports. With the FLEGT license in place, Indonesia will continue to be a leader in ensuring the legality of tropical wood (BVRIO, 2020). Here are some opportunities for the Indonesian wood industries that exported their wood and timber products worldwide.

Opportunity for Wood Timber Industries in Indonesia

Indonesia’s timber industry is considered well-established and the country has significant wood resources for most wood types, such as hard and softwoods, as well as local pinewood. For pricing, pinewood is widely acknowledged for its affordable price compared to other wood. According to the International Tropical Timber Organization (ITTO), Indonesia’s forest resource base is still vast, significant progress has been made in the establishment of certification systems, and on the other hand, information on the management of concessions is becoming increasingly available.

Known for its extensive rainforest areas, Indonesia’s wood timber industry can gain benefits by supplying or producing the wood that the market needs. For example, there are seven most used Indonesian kinds of wood for furniture: teak, mahogany, mango, rosewood, suar, rubberwood, and acacia. 

Also, with the implementation of the Timber Legality Verification System (SVLK) certificate, timber companies must guarantee the legality of the wood they produce. The SVLK is an Indonesian system designed to verify the legality of its timber products. The mandatory SVLK certificate shows the country’s commitment to monitor legality in the wood industry and it has raised Indonesia’s competitiveness in the international timber trade as well. Other ASEAN member countries like  Vietnam, Myanmar, and Malaysia do not have an SVLK system, as the countries send their representatives to Indonesia to study the SVLK system. The fact that Indonesia already has an SVLK system could increase the opportunity of the wood industry, as well the country could be more competitive on the international market.

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*This article is written by Galih Akmal Latif and Debora Septenia

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