POLICY Network VNGO - FLEGT QUARTER III - IV/2015 FOREST LAW ENFORCEMENT - GOVERNANCE - TRADE (FLEGT) THE ALARMING USE OF ILLEGAL TIMBER BY HOUSEHOLD PRODUCERS Hoang Quoc Chinh, Nguyen Quang Tan KEY MESSAGE WITH A LONG TRADITION OF SMALL PRODUCERS, VIET NAM HAS A GREAT MULTITUDE OF TIMBER PROCESSING HOUSEHOLDS WHO USE VARIOUS TIMBER MATERIALS FOR THEIR PRODUCTION MUCH OF THIS IS NATURAL TIMBER OF UNCLEAR ORIGIN (WITHOUT VERIFICATION DOCUMENT), COMMONLY USED DUE TO FAVORABLE FACTORS SUCH AS DISCOUNTED PRICE, FLEXIBLE SUPPLY, AND EASE OF ACCESS FOR HOUSEHOLD PRODUCERS THIS IS BECOMING A CHALLENGE FOR VIET NAM’S TIMBER PRODUCTION SECTOR, IN LIGHT OF THE ONGOING TRADE AGREEMENT WITH THE EUROPEAN UNION WHOSE REGULATORY SYSTEM IS QUITE STRICT ON TIMBER LEGALITY IN ORDER TO IMPROVE INCLUDING THE LEGALITY COMPLIANCE OF HOUSEHOLD PRODUCERS IN THE CONTEXT OF INTERNATIONAL TRADE, POLICY SHOULD AIM TO PROMOTE COOPERATIVE BUSINESS AND FACILITATE THE ACCESSIBILITY TO LEGAL TIMBER, ALONG WITH A COLLABORATIVE MECHANISM TO SUPERVISE LOCAL PRODUCERS INTRODUCTION Viet Nam is a major producer of timber products With its own forest resource and access to external sources of timber material, Viet Nam is currently the The alarming use of illegal timber by household producers Unclear Legal Framworks In Plantation Timber, from Illegality To Legality In The Vietnam Context Joining Vpa/Flegt 14 Occupational Safety And Environmental Protection - Two Factors Needed For Legal Timber 20 Creating Strong Linkages Among Woodcraft Villages To Win On Home Turf VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/2015 largest timber processing hub in South East Asia and the 6th largest in the world (VNForest 2015) Timber input such as logs, lumber, and planks from various sources enter numerous processing units run by households in the country, to be made into products for household and office, woodcraft items, construction materials, etc for domestic consumption and export With such complex operation and diverse material sources, it is rather difficult to achieve good compliance with regulations on timber legality The paper focuses on timber legality compliance by processing households Based on a survey by VNGO-FLEGT in Hoa Binh, Nghe An, Binh Dinh, Kon Tum in 2015, the paper describes the reality of illegal timber present in processing units in violation of the law It then proposes some solutions to improve and supervise the legal compliance of these producers CURRENT POLICY VS ACTUALITY In terms of policy, the Government has passed regulations on timber legality for processing operations Specifically, legality verification documents are packing lists (provided by forest planters), value-addedtax receipts (applied to timber purchased from organizations), and Confirmation of forest ranger’s hammer mark (see Box 1) Box 1: Legality requirement for timber material for processing Timber material used as input for processing must have the following proof of legal origin: Packing list (Circular 01/2012/BNNPTNT Article 12,14,16,20; Circular 42/2012/ BNNPTNT Article 1) VAT receipt (for purchase from company) (Circular 01/2012/BNNPTNT Art 20) Confirmation of forest ranger’s hammer mark (applicable to any log with larger end’s diameter >= 25cm and length>= 1m and either from natural forest or of rare and endangered species from plantation, imported log without hammer mark of original country, and resale of seized logs) (Circular 01/2012/BNNPTNT Art 9) Source: Ministry of Justice VNGO - FLEGT QUARTER III- IV/2015 However, the level of compliance in actuality is low There are currently tens of thousands of small household producers with a diverse timber supply Among these producers, timber without legality verification (illegal timber), usually from natural forest is commonly used Illegal timber is bought at a comparatively low price and in varied quantity; very suitable to household production.There is no official data on timber material used by Sustainable Rural Development households due to the lack of formal records by households, and the “sensitivity” of natural timber A survey of 112 household producers in provinces of Nghe An, Binh Dinh, Kon Tum reveals that about 65% of households not have VAT receipt for their purchase, 75% not have a packing list for acquired timber input, and 41% not have confirmation of hammer mark for applicable timber material (see Chart for data for each province) Chart 1: Percentage of household producers without timber legality verification 100% 80% 60% 40% 20% 0% VAT receipt Packing list Nghe An Binh Dinh Confirmation of hammer mark Kon Tum VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/2015 AWARE OF REGULATIONS, STILL NOT COMPLY Producers usually have good access to information and akeen awareness of requirements on timber legality Some of them have a close relationship with local authority, especially key players such as People’s Committee, Forest Ranger, Office of Natural Resources, etc The survey in Nghe An, Binh Dinh, Kon Tum shows that 49% of households are aware of timber legality verification such as packing list, VAT receipt, confirmation of hammer mark (though may not know the precise name of the regulation) The ringing question is why these households deliberately violate the law, even though they are quite aware of the consequence First, it is necessary to analyze the diverse timber supply in Viet Nam, which can be broken down into the following sources: i natural timber imported from other countries (Laos, Myanmar, Africa, South America, etc.) ii natural timber illegally harvested incountry or smuggled from outside (this is illegal timber) iii natural timber seized by forest rangers and resold(most comes from (ii) and thus becomes “legalized” by the government’s resale operation) iv plantation timber and dispersed trees purchased from local areas Most small producers can only access timber source (ii) and (iv), of which source (ii) is illegal, without proper verification documents In fact, most of them acquire timber in small volumes from middlemen or local planters Some producers attempt to purchase timber with VAT receipts (as proof of legality, so that they can sell and transport the timber products outside the local area) but large timber companies refuse to sell their timber in small volumes to small producers Most household producers have limited production capacity, limited capital, small Group discussion with household producers in Kon Tum Source: Provided by author VNGO - FLEGT QUARTER III- IV/2015 storage areas, and small-sale markets, so they purchase a very modest volume of timber (few m3/year) Whereas, timber from source (i) and (iii) is only available for large-quantity order, thus accessible to big companies only Box 2: Timber supply for household producers in Kon Tum city The research team interviewed a small producer named L.H.S.,in a woodcraft village inKon Tum.He used about m3of natural timber in 2014, mostly Sao xanhandGioi gung purchased without any legality document from a sawmillin Ngoc Hoidistrict;the rest of the material is supplied by his own customers for individual orders Another producer named P.T used about 10 m3of natural timber, mostly planks and boards supplied by middlemen from Sa Thay district These cases of illegal timber are common in Kon Tum, without legality documents as specified in Box Most of these households are unable to participate in the government’s auction of seized timber because an auction usually involves a large volume of hundreds of m3 oftimber, requiring a large investment capital and spacious storage area Source: SRD 2015 LAW ENFORCEMENT CAPACITY IS INSUFFICIENT IN LIGHT OF INTERNATIONAL TIMBER TRADE AGREEMENT As indicated above, the Government has passed regulations on timber legality but in reality violations of the law occur more frequently than expected Beside the deliberate violations by household producers Sustainable Rural Development due to inaccessibility to legal timber, as indicated in the above passage, another cause of the prevalence of illegal timber is the insufficient local law enforcement At district level, the district Forest Ranger is in charge of managing timber activities from harvesting, transportation, and processing The number of rangers, especially office-holder positions, is insufficient to meet the workload The current law specifies that every 1000 of forest has 01 forest ranger (Decree 119/2006/ND-CP), and every 500 of special-used forest has 01 office-holding ranger (Decree 117/2010/NDCP) With 13.9 million of forest (VNForest 2014) it would need 16,000 rangers, whereas the whole country has about 12,000 rangers In each commune that has timber processing activities, only 01 local ranger is responsible for supervision of all timber processing activities With limited Government budget, insufficient manpower and machinery, inadequate renumeration and allowance, it puts much constraint on the law enforcement at the local level In the context of international timber trade agreements, facing strict legality requirements from major export markets like the USA and EU, the current state of illegal timber in Viet Nam will negatively impact its export The EU market is regarded as stable, with high margin of added value because the EU mostly imports finished timber products instead of lumber ( see Box ) Since March 2013, The EU has implemented the Timber Regulation (EUTR), tightening the control of legal timber and timber products entering EU markets In addition, the Vietnamese Government promises to expedite the timber trade negotiation with the EU in 2016, showing its commitment to VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/2015 strict requirementson timber legality over the whole supply chain, from harvesting to transportation, processing, consumption and export Nonetheless, the actual state of noncompliance with timber legality verification, on the part of household producers in Viet Nam, could result in the violation of the timber trade agreement with the EU Box 3: Viet Nam’s timber export to the EU in the period 2012 – 2015 In 2014, exports of timber products tothe EU reached 703 million USD, an increase of 100 million USD, compared to 608 million USD in 2013 Exports in the first months of 2015 is 442 million USD The EU is currently the 4th largest timber import market from Viet Nam The average growth of timber export to EU from 2012 – 2014 is 2.2% per year Source: Forest Trends 2015 CONCLUSION AND RECOMMENDATIONS: Non-compliance, or violation of various regulations on timber legality is common in household producers Besides the deliberate violation on the part of households for profit or livelihood purposes,there are also some external reasons, such as households’ inaccessibility to legal timber, which in turn shapes the business operation and compliance capacity of these households In order to support household producers to adapt and thrive in the new setting of international trade, the paper would like to propose some simultaneous solutions to improve legality compliance: - First, it is imperative to prevent illegal timber from being used as input in households’ processing units As mentioned above, illegal timber is usually harvested from natural forest in the country or smuggled from outside Local governments need to devise effective monitoring and impose just penalties on all cases of illegal timber activities - Simultaneously, it is crucial to improve households’ accessibility to legal timber by promoting cooperative business and even management board modelsfor woodcraft villages.The management board in each woodcraft village is elected by household producers in that village and is responsible for timber supply contracts, logistics and storage management, marketing, and provision of support service for legality verification When operating in a cooperative format, household producers collectively have more chance of getting legal timber VNGO - FLEGT QUARTER III- IV/2015 Sustainable Rural Development - Third, when issuing business license to any household producer, conditionality must be imposed upon, such as household’s responsibility for timber legality verification There needs to be a monitoring mechanism between the local authority and community, in light of limited resourcesof local authorities - Fourth, in the long run, there needs to be a suitable strategy to strengthen law enforcement capacity at the local level In the context of the Government’s strategy on forest protection and development, as well as its ambition on timber trade, it is a prerequisite to have a strong forest ranger force in quantity and quality, sufficient equipment, and adequate renumeration mechanisms,in order to enhance forest development and legality of the timber supply chain This will lead tothe development of Viet Nam’s timber industry in the context of international trade development REFERENCES Voluntary Partnership Agreement, Annex Legality Definition (version 8) VNForest, 2015 Circular 01/2012/TT-BNNPTNT on timber legality documentation and verification MARD, 2012 Circular 42/2012/TT-BNNPTNT on revising some articles of Circular 01/2012/ TT-BNNPTNT MARD, 2012 Circular 35/2011/TT-BNNPTNT on harvesting timber and non-timber products MARD, 2011 Decree 119/2006/NĐ-CP on organization and operation of Forest Ranger 2006 Decree 117/2010/NĐ-CP on establishment and management of special-used forest 2010 Decision 3322/QĐ-BNN-TCLN on the state of national forest in 2013 VNForest, 2014 European Union’s Timber Regulation EU, 2013 Report of Trade on timber and timber products between Viet Nam – EU Forest Trends, 2015 VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/2015 UNCLEAR LEGAL FRAMWORKS IN PLANTATION TIMBER, FROM ILLEGALITY TO LEGALITY IN THE VIETNAM CONTEXT JOINING VPA/FLEGT Hoang Xuan Duc ( RESED ) KEY MESSAGE RECENTLY, MANY PLANTATION-FOREST HOUSEHOLDS LIVING NEXT TO EACH OTHER HAVE BEGUN SELLING TIMBER TO THE SAME NEGOTIATORS, OR COOPERATE TOGETHER TO HARVEST TIMBER THIS TREND IS OCCURRING IN SOME LOCAL AREAS HOWEVER, LEGAL FRAMEWORKS HAVE NOT BEEN YET REGULATED TO SPECIFY A REPORT EVALUATION OF ENVIRONMENTAL IMPACT (REI) FOR THE ABOVE TWO CASES WHEN TOTAL FOREST AREAS REACH TO BE MORE THAN 200 HECTARES IN A CONTEXT THAT VPA/FLEGT IS GOING TO BE SIGNED, PLANTATION-FOREST TIMBERS ARE HARVESTED WITH DECENTRALIZED AREA OF MORE THAN 200 HECTARES, IF THEY ARE NOT REGULATED IN DECISION APPROVED REI, THEY WILL BECOME ILLEGAL THEREFORE, IT IS VITAL TO HAVE REGULATIONS AND CONCRETE GUIDELINES ABOUT REI IN THESE CASES TO MEET REQUIREMENTS OF LEGAL TIMBER VNGO - FLEGT INTRODUCTION With applicable policy and socialized direction of forestry, plantation-forest area has increased rapidly during recent decades, from million hectares in 1990 to approximate 3.7 million hectares in 2014 Plantation forest is a livelihood output partly contributing to the income of 1.4 million households in Vietnam With plantation-forest areas of rapid growth, it does induce some inevitable negative impacts on the environment during plantation establishment and timber harvesting Vietnam legislation regulates if harvesting timber in a plantation forest with a decentralized area of more than 200 hectares, an REI is required to be conducted QUARTER III- IV/2015 According to investigation results in Hoa Binh, Nghe An, Binh Dinh and Kon Tum provinces (August 2015), this policy brief points out that in many cases, many plantationforest households sell to timber-harvesting negotiators Alternatively, households with plots next to each other equating to more than 200 hectares, tend to cooperate together This phenomenon has been occurring recently However, REI in the above two cases has not been implemented Because regulations in the legal frameworks are not clear about these above cases, addressing this will become more necessary within the context of Vietnam joining the Voluntary Partnership Agreement addressing Forest law enforcement, Governance and Trade (VPA/FLEGT) Picture Research areas Sustainable Rural Development LACK OF SPECIFIC LEGAL FOUNDATIONS AND ENFORCEMENT AGENTS Legal frameworks not specify in detail that plantation-forest harvesting by households having adjacent areas, with a total area more than 200 hectares, must produce an REI (see box 1) Environmental protection law in 2014, Decree 18/2015/NĐ-CP, regulates producing an REI when harvesting plantation-forest projects of more than 200 hectares, which are production forest, apply clear- cutting methods, and have parts with a decentralized harvesting design Nevertheless, these documents not clearly address cases in which (i) individuals or organizations harvest plantation-forest of multiple forest owners with large and adjacent areas, (ii) many households with neighboring plots cooperate together to harvest an area equating to more than 200 hectares Moreover, the plantation-forest timber harvesting documents of households are regulated in Circular 35/2011/TT-BNNPTNT, and also not include REI for harvesting case with more than 200 hectares Box 1: Regulations about Environmental Regulation and plantation-forest harvesting documents: Factors necessitating REI: - Projects have a risk impact on the environment (Article 18, Environment Law in 2014) - Forest harvesting projects of more than 200 hectares of plantation forest, which are production forest with an applied clear-cutting method, and has harvesting in decentralized areas (Article 12, decree 18/2015/NĐ-CP) Harvesting document: includes harvesting registration and expected harvesting production (Article 19, circular 35/2011/TT-BNNPTNT) VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/2015 The responsibilities of approving plantation-forest harvesting documents of households, who have their own investment or Government support, belong to the Communal People’s Committee But the responsible officers within the Communal People’s Committee not acquire regulations about REI for forest-plantation harvesting with large areas, therefore, it does not meet the requirements for harvesting owners to carry out this mission In regards to investigation results of the potential impact evaluation of VPA on livelihood vulnerability in Nghe An and Ha Tinh, 100% of forestry officers interviewed did not know the correct regulations related to REI when harvesting forest- plantation of more than 200 hectares FOREST-PLANTATION HARVESTING OF MORE THAN 200 HECTARES WAS INCREASINGLY PREVALENT WHEN LOCAL PEOPLE SOLD STAND PLANTATION TIMBER TO NEGOTIATORS According to investigations in provinces, only approximately 10% is plantation-forest harvesting Because the remaining plantationforest households not have enough human resources or equipment to harvest and not have transportation to deliver to distribution agents, they must sell to negotiators (see in box 2) These negotiators are individuals or organizations who have strong capacity, knowledge and experience in plantationforest harvesting and have the ability to access and provide stable outputs On the other hand, when forests become harvestable, households want to sell to get the best price; buyers will purchase timber in neighboring plots for convenience and cost-efficiency In order to facilitate the purchase of large areas of timber, decentralization, fast capital cycles, and cost/ VNGO - FLEGT 10 time efficiency are required Negotiators purchase the timber, then extract the desired amount of timber to be transported to the point of use immediately The number of negotiators in each location is not much In regards to Hoa Binh provinces, total forest area in districts is 17.899 hectares; however, only approximately 100 negotiators buy the timber in this area - each negotiator will purchase approximately 179 hectares for each harvesting cycle In Nghe An plantation-forest harvesting covers 15.673 hectares, with only 70 negotiators - each negotiator purchases about 224 hectares Nevertheless, negotiators have a good economic understanding, meet equipment requirements and have access to transportation This often means the purchased amount will often be larger than the average Therefore, cases of negotiators collecting plantation forest from multiple households, equating to more than 200 hectares, are occurring in some locations Box 2: Plantation forest people have to sell forest to negotiators Because capital cycle is quite fast, they purchase an average of 400 to 500 hectares They only purchase the households borrow the forest of forest state-owner company and Youth Volunteer Team, focus on some communes with large forest areas In 2014, we purchase a compartment with more than 220 hectares In communes with small forest plantation areas, mainly, we purchase forest areas from different individuals (Mr N.D.B in Quy Hop district, Nghe An province said) Sustainable Rural Development QUARTER III- IV/2015 Second, not being ready to comply with regulations on environmental protection and occupational safety will increase the vulnerability of timber processing households once Vietnam signs the VPA Although household processing establishments not directly participate in the supply chains for export to Europe, they have to comply with LD and TLAS under the VPA once the agreements come into force As mentioned above, requirements on environmental protection and occupational safety are two of the requirements mentioned in the LD It means that only if these establishments comply with their committment on environmental protection and occupational safety will their timber be considered legal others are not fully aware of the importance of regulations on environmental protection and occupational safety so they not comply with them (Box 2) WHY DO TIMBER PROCESSING HOUSEHOLDS NOT COMPLY WITH REGULATIONS ON THE ENVIRONMENTAL PROTECTION AND OCCUPATIONAL SAFETY MANAGEMENT RESPONSIBILITIES Lack of capital and inadequate awareness of the need to implement measures to protect the environment and ensure occupational safety are the two reasons for processing households not to comply with such regulations Surveys show that processing households not comply with regulations on environmental protection and occupational safety because they not have enough money to buy waste treatment and protection equipment for workers They attributed the lack of money to slow sales or low prices Other households, most of which not have a business license, not comply with the regulations on environmental protection and occupational safety because they have no information about such regulations A few VNGO - FLEGT 18 Box Timber processing households’ subjectivity about occupational safety Timber processing households think that first-aid kits are not necessary “We not need first-aid kits, if something happens to any worker, we can take him/her to the clinic,” said a sawing factory owner in Hoai An District, Binh Dinh province AGENCIES’ In addition to people’s non-compliance, another external contributing factor, leading to the non-compliance with regulations on environmental protection and occupational safety, is that administration agencies have yet to take drastic measures to enforce the regulations Local staff’s acquiescence makes people feel free not to comply with such regulations because they know they will not be fined Additionally, the lack of local staff, especially qualified staff, leads to inadequate supervision of operation of timber processing households (Box 3) QUARTER III- IV/2015 Sustainable Rural Development Box 3: the supervision of compliance on environmental protection and occupational safety remains formalistic In most surveyed localities, one of the big problems is the lack of staff, especially qualified staff Therefore, the supervision of the implementation of measures to protect the environment and ensure occupational safety remains formalistic When the local ranger in An Tuong Tay Commune, Hoai An District, Binh Dinh province, took the survey team to a processing establishment, it was no longer there Neighbours said the establishment was moved to another location a year before, but the local ranger had no information about that SUMMARY AND POLICY RECOMMENDATION: Lack of investment capital, inadequate awareness, and poor enforcement of administrative agencies are the main factors leading to processing households’ noncompliance with regulations on environmental protection and occupational safety Therefore, we propose some measures to strengthen the enforcement of such regulations and contribute to fulfill the FLEGT initiative in Vietnam, as follows: - There should be a preference for policies offering loans or capital contributions by the state and people on a 50/50 basis, to invest in waste treatment equipment and labor protection instruments for small wood processing establishments - Before signing the VPA/ FLEGT, it is necessary to inform wood processing establishment owners and organise outreach campaigns to change people’s behaviour towards environmental protection and occupational safety, to raise awareness and change the unsustainable practice of wood household processing establishments - Organising training courses to forest management officers, to improve the capacity to supervise the implementation of regulations on environmental protection and occupational safety, at the grassroots level - There should be detailed regulations on supervision mechanisms at processing establishments, for the implementation of regulations on environmental protection and occupational safety, which stipulate the human resources, time, and frequency of the supervision, as well as punishments for officers’ negligence, or people’s non-compliance with the regulations 19 VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/2015 CREATING STRONG LINKAGES AMONG WOODCRAFT VILLAGES TO WIN ON HOME TURF Nguyen Van Hoang, Tran Nam Thang from Consultative and Research Centre on Natural Resources Management (CORENARM) KEY MESSAGE AT PRESENT, VIETNAM HAS MORE THAN 300 VIETNAM IS NOW PART OF MANY FREE TRADE WOODCRAFT VILLAGES OPERATING AS TIMBER AGREEMENTS (FTAS), INCLUDING THE TRANS- PROCESSING THE PACIFIC PARTNERSHIP (TTP) AGREEMENT AND THE LINK AMONG THEM IS STILL POOR, BOTH IN FOREST LAW ENFORCEMENT, GOVERNANCE AND PRODUCTION AND TRADING THE SCALE OF THESE TRADE VOLUNTARY PARTNERSHIP AGREEMENTS VILLAGES IS GRADUALLY NARROWED DUE TO (VPA - FLEGT), IT IS ESSENTIAL TO BUILD UP STRONG LOW PRODUCTIVITY AND WEAK CONSUMPTION LINKAGES ON THE MARKET IN THE CURRENT CONTEXT AND CALL FOR MORE SUPPORT FROM THE STATE OF GLOBAL INTEGRATION, ESPECIALLY WHEN AND RELEVANT AGENCIES, IN ORDER TO RAISE VNGO - FLEGT HOUSEHOLDS 20 HOWEVER, AMONG WOODCRAFT VILLAGES QUARTER III- IV/2015 Sustainable Rural Development VPA – FLEGT These agreements are expected to open up many opportunities and bring about remarkable benefits However, they are believed to pose tremendous challenges, thus reducing the competitiveness of locally-made products CAPACITY AND SHARPEN COMPETITIVENESS ON BOTH DOMESTIC AND INTERNATIONAL MARKETS TO CREATE EFFECTIVE LINKAGES AMONG WOODCRAFT VILLAGES, IT IS IMPORTANT TO HAVE THE STATE’S SUBSIDY POLICIES AND PROACTIVE PARTICIPATION OF CONCERNED PARTIES, AS WELL AS THE SUCCESSFUL PERFORMANCE AND CLOSE COOPERATION OF THE VILLAGES THEMSELVES INTRODUCTION Vietnam’s timber processing industry is enjoying huge opportunities but facing numerous challenges from the global integration and FTAs that Vietnam has recently signed, including TPP and At the same time, the timber processing industry, particularly craft villages, is suffering from many difficulties due to the shortage of input materials In addition, it is rather difficult for local timber processors to access bank loans, while their key export markets are narrowed This leads to overstock, decreasing output price, and fewer orders that are more and more demanding To raise competitiveness, increase product quality and improve workers’ professional skills, it is necessary to change methods of production and trading In other words, this is a good chance for the local timber processing industry to build up a closer link and rearrange itself so as to increase competitiveness and renew production technology chains, as well as improving labour management and personal training activities In this bulletin, we discuss how to work out measures to promote the building of stronger linkage among woodcraft villages toward the forming of trade relations and the exchange of information and production technology We also aim to improve professional skills for workers to make high-quality products that can meet increasing demand from overseas markets, and lift the role of Vietnam’s timber processing industry to a new height on the international arena 21 VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/2015 THE SMALLER PRODUCTION SCALE OF WOODCRAFT VILLAGES Vietnam now has more than 300 woodcraft villages, offering jobs to around 300,000 workers Among them, few villages can develop products with high added value Most villages use out-of-date production methods so they fail to meet the increasing demand of consumers on the market Many timber processing establishments in Vietnam, including woodcraft villages, are losing their market share In the domestic market, Vietnamese timber products account for about 40% of the total trade value, while the remaining are mostly contributed by high-end products imported from China and a number of Southeast Asian nations, such as Malaysia, Thailand and Singapore In the first five months of 2014, Vietnam imported timber and timber products worth USD84.3 million in total from China alone; up 13.93% compared to the same period last year, according to Goviet.org vn, 2015 Chairman of the Association of Dong Ky woodcraft village - Vu Quoc Vuong – admitted that although Dong Ky timber products are now available in almost all localities throughout the country, only 20% of the total revenue of the whole village (800 – 1,000 billion VND each year) comes from the local market share Moreover, narrowing production scale is happening at the same time with market share decreasing Currently, there are more than 80% of craft villages which VNGO - FLEGT 22 only sell their products on the home market A research conducted on over 200 households in four provinces, namely Hoa Binh, Nghe An, Binh Dinh and Kon Tum, showed that about 97% of timber processing households sell their products on the domestic market (VNGO-FLEGT, 2015) Some traditional woodcraft villages sell their products on both domestic and foreign markets, but they sometimes have to suspend production due to weak consumption These villages include Van Diem – Thuong Tin, Hanoi, Dong Ky, Phu Khe, Huong Mac, Tan Bao - Bac Ninh, Quang Phong According to statistics by the Vietnam Craft Villages Association, around 50% of woodcraft villages have to stop or temporarily suspend their production (BOX 1) Box 1: Woodcraft villages in the central province of Nghe An are reducing production The woodcraft villages in Nghe An are facing many difficulties in market access When it was set up in 2002, Quang Phong woodcraft village in Thai Hoa district, Nghe An had 186 households In 2014 the figure was down to 67, with 143 workers Similarly, Tan – Quyet – Thang woodcraft village had 150 households when it was established in 2003 In 2014, the number reduced to 43, with 150 workers (Source: Hoa Hieu Ward People’s Committee, 2014) QUARTER III- IV/2015 Sustainable Rural Development Woodcraft workshop with small-scale production in Tan Quyet Thang village- Nghia Dan- Nghe An Source: Provided by Author LACK OF LINKAGE AND SMALL– SCALE PRODUCTION quality and seek for stable markets to sell their better goods Most woodcraft villages in Vietnam today still lack close linkages and operate on a small scale They make products based on their experiences and not pay due attention to market research They lack market information and not study consumer tastes (BOX 2) In these villages, it is hard to identify professional skills of workers and classify timber processing households following the criteria of distribution – production - trading Most timber processing households are quite small, with only – 15 workers who are usually family members They often make a complete product from raw material to final touch There’s no real link timber processing households them As a result, they produce in mass without a specific plan and then find it hard to sell on the market Some households launched unhealthy competition programs such as lowering the price, dumping prices to seize more market share In these cases they only rush for profit, not to increase product Many households in woodcraft villages not have updated information on market trends and consumer tastes They hardly exchange information because they want to keep the secret technique of their traditional craft This is the main factor leading to unplanned production and ineffective business operation Box 2: Producing fine art timber in Binh Dinh province Most woodcraft villages in Binh Dinh are on a small production scale, with – 15 workers, and about 74% of them have more than full-time workers Approximately 83% of these households are making final products and sell them on the markets More than 64% of the households earn an annual revenue of about 100 million VND, while 34% have a revenue of less than 50 million VND/year Only 10% of them sell their products at overseas markets 23 VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/2015 LACK OF SUPPORT FROM STATE AGENCIES AND SOME PROBLEMS INSIDE THE CRAFT VILLAGES Woodcraft villages in Vietnam failed to raise their competitiveness and improve the effectiveness of production due to the lack of policy support at national level Current policies mostly focus on drafting the guidelines, not providing detailed assistant tools or measures for the craft villages This is the main reason leading to ineffective operation of the villages, and fails to sharpen competitiveness to stand firmly on the home market, while keeping a close watch on overseas markets It is also difficult for villagers to improve their skills and get access to bank loans, so they find it hard to increase productivity and production capacity Local survey showed that there is room for further training on legal issues, product quality and professional skills (BOX 3) In addition, capacity and production skills of workers in the local timber processing industry are still at a low level, while the productivity in other Southeast Asian countries is rather high Another disadvantage is that local workers not have enough good knowledge of technology, business administration and marketing Furthermore, the design and pattern of locally-made timber products are still at a lower level in comparison with other countries in the region Apart from lacking support from the State and relevant agencies, some craft villages themselves not take an active role in developing input material sources and promoting information exchange VNGO - FLEGT 24 Business group discussion in Tan Quyet Thang woodcraft village- Nghia Dan- Nghe An Source: Provided by Author Box 3: Capacity to comply with regulations on legal timber of craft villages The archive of documents on the origin of timber products does not receive due attention Only 16.7% of timber processing households save documents on the origin of products; 29.2% of them save documents on the trading and transporting of the products Many households in the villages not have proper understanding about the importance of saving such documents Most of them are not provided with guidelines on the implementation of regulations on exploiting, transporting, and trading timber within 12 months Few of them have a chance to join training courses on this issue The villages should invest more in renovating technology and equipment, while building up a closer link among themselves, especially in the production and distribution network Hence, it is really difficult to increase production efficiency and promote the production and distribution of made-in-Vietnam fine art timber products QUARTER III- IV/2015 STRONG LINKAGES NEEDED FOR SURVIVAL AND DEVELOPMENT Obviously, with current obstacles to woodcraft villages, it is essential to have State subsidies and attention from relevant agencies In particular, households not have any links (via professional associations or cooperatives), so there is no network formed among these villages, thus causing unfair competition and dumping prices They not follow regulations on pricefixing and healthy competition in the integrated market which Vietnam is part of If local timber processors not respect the law and strictly follow regulations, there will be huge obstacles for Vietnamese timber products to penetrate into the world market Sustainable Rural Development Box 4: Models of linkages in the timber processing industry - Creating a closed chain from seed variety – afforestation – exploiting – collecting – processing – trading: this model is not available in Vietnam yet; Linkages: from seed variety – afforestation – material collecting: this model has been operated in Vietnam (For excample, VIJACHIP company in Danang in a joint venture with VINAFOR, Vietnam forestry companies; Nam Dinh Forestry JSC., Wood Land Company link with an afforestation company or a household); - Linkages: Afforestation – processing (For example, Dai Thanh company; Truong Thanh company, link with afforestation companies); - Linkages: Input material purchase – processing – export (For excample, PISICO Binh Dinh Corporation, Forestry Corporation, link with afforestation household – timber processing company) (Souce: Trang and Associates, 2013) 25 VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/2015 The building of linkages among woodcraft villages will promote creativeness and increase productivity, as well as sharpening competitive edges for Vietnamese timber products on the market The relationship between buying and selling at a larger scale will create VNGO - FLEGT 26 more favourable conditions for market information exchange, production technology innovation, labour training, and the development of strategic markets In the globalization process, the above models of linkages are very important to develop woodcraft villages in Vietnam QUARTER III- IV/2015 Sustainable Rural Development The growth of the village linkages will increase access to investments, markets and modern technology chains Closer link among woodcraft villages is seen as a positive, effective solution in the integration process to participate in global value chains Therefore, the link would help the villages ease difficulties and overcome challenges, as well as grasping opportunities and taking advantage of the integration process, in order to maintain and develop the villages in a sustainable manner BOX 5: Effectiveness of linkage in production and help locally-made timber products meet the increasing demand of overseas markets It is impossible to penetrate into the world market if local timber processors work alone Duc Phong Co Ltd., which specializes in collecting handicraft products made of rattan and bamboo in Quynh Luu, Yen Thanh, Nghi Loc, Thanh Chuong districts of Nghe An province, annually buys 2,000 tonnes of input materials for craft villages worth more than million USD For a decade, the company has developed a close relationship with workers in craft villages and contributed significantly to the sustainable development of the villages The company’s director Thai Dai Phong said his firm established a close link with the villages and provide them with what they need for production, from providing input materials to signing consumption contracts Businesses should have regular contact with craft villages and aim to quickly remove obstacles that may arise during cooperation 27 VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/2015 CONCLUSION AND RECOMMENDATIONS Integrating into the global market, through participating actively in free trade agreements, both creates opportunities and poses challenges for Vietnam’s timber industry Involvement in FTAs helps Vietnam open up doors for local processors to access overseas market However, these agreements also provide strict regulations and create a tougher competitive environment Local timber processing villages are enjoying huge opportunities and facing enormous challenges to overcome difficulties and take advantages for further growth There should be a link between such villages to be able to survive and expand, sharpen competitiveness, and make high-quality products that meet the requirements of international market integration To help the villages go in line with market trends, apart from drawing up plans and following guidelines of the State, timber processing villages should reduce their dependence on imported input material and development material sources in Vietnam It is also necessary to promote the exchange of information, technology, equipment and capital, as well as creating a close link in production and marketing of products in order to increase production efficiency and speed up the international integration process To support the linkages between villages, researchers outline recommendations as follows: specific First, issuing a subsidy policy to draw up zoning plans of craft villages, create links and establish a centralized buying – selling relation, as well as building up a distribution channel of goods and services, sharing technology, labour force, market information, and strategic products Second, promoting technology transfer within the craft villages which are divided into smaller groups based on their production capacity Establishing an occupational association to manage and operate the craft village network with a common database on the market information Third, promoting the application of science and technology in the villages to increase product quality and diversify product design and pattern Organizing training courses for skilled workers to meet increasing demand of the modern production chains Fourth, organizing trade fairs for regular exchange among the villages, as well as with partners inside and outside the country, in order to study the market trends and consumer taste Fifth, creating the best possible conditions for the villages and households to access capital sources and help them advertise their products, both domestically and internationally Sixth, promoting the dissemination of information and capacity building for households in woodcraft villages so that they can meet international standards Last but not least, it is essential to intensify examination and inspection on law enforcement and implementation in the villages VNGO - FLEGT 28 QUARTER III- IV/2015 Sustainable Rural Development REFERENCE VNGO-FLEGT, 2015 Reports and research on the capacity of implementing forestry law of households who get involved in afforestation, forestry exploitation, and timber transport and processing VNFOREST, 2013 Document No 1334/TCLN-KH&HTQT dated on August 30, 2013 by The Vietnam Administration of Forestry regarding the contribution to Draft Document 6.3, defining legal timber and Draft Document Appendix TLAS System Nguyen Ton Quyen and Associates, 2012 Timber processing villages in the context of FLEGT and REDD+ implementation in Vietnam Goviet.org.vn, 2015 Vietnam – China timber trading 2012 – 2014 SINCERE THANKS The group of researchers is grateful for financial and technical support from SRD, VNGOFLEGT network The research could not be done without active participation and support from Consultative and Research Centre on Natural Resources Management (CORENARM), and lecturers from Forestry Faculty, Hue University of Agriculture and Forestry (HUAF)./ 29 VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/2015 VNGO - FLEGT 30 QUARTER III- IV/2015 31 Sustainable Rural Development VNGO - FLEGT The publication is supported by the European Union (EU) through the organization FERN SRD is responsible for the content of publications and publication in any case does not represent the views of the EU and FERN TH ANN I VERS AR 2006 -2016 H TI NG AND S E C AR CO NN Sustainable Rural Development ING Y * * With support from the Center for People and Forests Centre for Sustainable Rural Development Address: # 56, lane 19/9, Kim Dong Street, Giap Bat Ward, Hoang Mai District, Hanoi, Vietnam Tel: 04.3943 66 76 / Fax: 04.3943 64 49 Email: info@srd.org.vn / Website: www.srd.org.vn VNGO - FLEGT 32 Print 500 the book , Suffering : 19 x 26.5 cm Number of registered plan published: 4104 - 2015/CXBIPH/30 - 106/HĐ published by decision of: 331/QĐ - NXBHĐ Print 2015 finished deposited / Code ISBN: 978-604-86-8138-8 Design & Printing Co., LTD Commercial & Advertising Orient Address : No.8 , Lane 281 Tran Khat Chan , Thanh Nhan Ward , Hai Ba Trung District , Hanoi ... University of Agriculture and Forestry (HUAF)./ 29 VNGO - FLEGT Sustainable Rural Development QUARTER III- IV/ 2015 VNGO - FLEGT 30 QUARTER III- IV/ 2015 31 Sustainable Rural Development VNGO - FLEGT. .. service for legality verification When operating in a cooperative format, household producers collectively have more chance of getting legal timber VNGO - FLEGT QUARTER III- IV/ 2015 Sustainable Rural... law enforcement and implementation in the villages VNGO - FLEGT 28 QUARTER III- IV/ 2015 Sustainable Rural Development REFERENCE VNGO- FLEGT, 2015 Reports and research on the capacity of implementing