Pulp & paper and timber plantation sector in Indonesia: current state and future outlook Obidzinski K. and Dermawan A. THINKING beyond the canopy

11 May, 2012, Pekanbaru, Riau

Contents 1. 2. 3. 4.

5. 6. 7.

Indonesian forestry sector: overview Pulp & paper sector: key facts Wood fiber supply: development of timber plantations Issues with pulp & paper and timber plantations in Indonesia Expansion plans in the pulp & paper sector and timber plantations Implications of the expansion plans Key points

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1. Indonesian forestry sector Production capacity of major timber industries in Indonesia

Plywood Sawnwood Veneer Woodchips Integrated mills Pulp Paper

Unit million m3 million m3 million m3 million m3 million m3 million tons million tons

2006 2.35 1.31 0.23 1.31 10.12 6.7 10.29

2007 2.58 1.49 0.65 2.74 10.65 6.7 10.36

2008 2.61 1.75 0.94 4.42 11.12 7.9 12.18

2009 2.84 2.54 1 8.87 15.54 7.9 12.18

Sources: MOF (2011), APKI (2007, 2011); APKI (2007); calculated by B. Simangungsong

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2010 2.65 2.82 1.01 9.03 17.15 7.9 12.18

1. Indonesian forestry sector (cont) Production capacity of major timber industries in Indonesia 80

70

60

50

40

30

20

10

0 2006

2007

Plywood

Sawnwood

2008

Veneer

Woodchips

2009

Integrated mills

2010

Pulp

Sources: MOF (2011), APKI (2007, 2011); APKI (2007); calculated by B. Simangungsong THINKING beyond the canopy

1. Indonesian forestry sector (cont) Production of sawn timber 2000-2010 Sawnwood production over the period 1994-2010

Sawn timber (m3)

Other provinces 10%

3,000,000 Sulawesi Tenggara 3%

Jawa Tengah 4% Sumatera Utara 5% Kalimantan Barat 6% Kalimantan Tengah 7% Kalimantan Selatan 7% Jambi 7%

2,500,000

2,000,000

1,500,000

Jawa Timur 18%

Kalimantan Timur 11%

Riau 8%

Sumatera Selatan 7%

Papua Barat 7%

Source: B. Simangungsong 2012

1,000,000

500,000

0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: CIFOR analysis based MoF data THINKING beyond the canopy

1. Indonesian forestry sector (cont) Plywood production over the period 1994-2010

Production of plywood 2000-2010 Papua 4%

Plywood (m3)

Other provinces 14%

Kalimantan Timur 20%

Sumatera Utara 4%

7,000,000

Jawa Timur 4% Kalimantan Selatan 17%

Maluku 5%

6,000,000

Kalimantan Tengah 5%

5,000,000 Riau 6%

Jambi 7%

Kalimantan Barat 14%

4,000,000

Source: B. Simangungsong 2012

3,000,000

2,000,000

1,000,000

0 2000

2001

Source: CIFOR analysis based MoF data

2002

2003

2004

2005

2006

2007

2008

2009

2010

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1. Indonesian forestry sector (cont) Production of veneer 2000-2010

Veneer production over the period 1994-2010

Veneer (m3) 5,000,000

Kalimantan Timur 3%

4,500,000

Other provinces 8%

Riau 4%

4,000,000

Jawa Tengah 4% Kalimantan Selatan 5%

3,500,000 3,000,000

Kalimantan Barat 46%

2,500,000 2,000,000

Jawa Timur 30%

1,500,000

Source: B. Simangungsong 2012

1,000,000 500,000 0 2000

2001

Source: CIFOR analysis based MoF data

2002

2003

2004

2005

2006

2007

2008

2009

2010

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1. Indonesian forestry sector (cont) Production of wood chips 2000-2010 Woodchips (m3) 1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

Source: CIFOR analysis based MoF data

200,000

0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

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1. Indonesian forestry sector (cont) Pulp (ton)

Production of pulp and paper 2000-2010

8,000,000 7,000,000

Pulp production over the period 1994-2009

6,000,000

Kalimantan Timur Sumatera Utara 3%

5,000,000

Other provinces 1%

5%

4,000,000

Sumatera Selatan 8%

3,000,000 2,000,000

Jambi 21%

Riau 62%

1,000,000 0 2000

2001

2002

Source: CIFOR analysis based MoF data

2003

2004

2005

2006

2007

2008

2009

2010

Source: B. Simangungsong 2012

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1. Indonesian forestry sector (cont) Contribution of the forestry sector to national GDP (Trillion Rupiah) Gross Domestic Product Year

Total

Forest sector contribution

Forest industry contribution

Amount

Amount

%

%

1994

382

16

4.2%

9.1

2.4%

1995

455

18

3.9%

10.5

2.3%

1996

533

21

3.9%

12.6

2.4%

1997

628

25

3.9%

14.7

2.3%

1998

956

31

3.2%

19.1

2.0%

1999

1,100

32

3.0%

18.7

1.7%

2000

1,390

57

4.1%

40.3

2.9%

2001

1,646

68

4.1%

50.8

3.1%

2002

1,822

71

3.9%

53.7

2.9%

2003

2,014

76

3.8%

57.7

2.9%

2004

2,296

83

3.6%

62.3

2.7%

2005

2,774

92

3.3%

69.1

2.5%

2006

3,339

114

3.4%

84.2

2.5%

2007

3,951

136

3.5%

100.3

2.5%

2008

4,949

165

3.3%

125.1

2.5%

2009

5,604

186

3.3%

141.2

2.5%

2010

6,423

Source: B. Simangungsong 2012

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1. Indonesian forestry sector (cont) Contribution of the forestry sector to national GDP (Trillion Rupiah) 6000

200 180 160

140 GDP Total (IDR trillion)

4000 120 3000

100 80

2000 60

40 1000 20 0

0 1994

Source: B. Simangungsong 2012

1995

1996

1997

1998

1999 GDP Total

2000

2001

2002

GDP Forestry

2003

2004

2005

2006

2007

2008

GDP Forest Industry

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2009

Forestry and Forest Industry GDP (IDR trillion)

5000

1. Indonesian forestry sector (cont) Forestry sector employment

Employment in 1000 employees 300

250 200

150 100

50 0 1994

1995

1996

1997

1998

1999

Sawnwood industry

2000

2001

2002

2003

Plywood industry

2004

2005

2006

2007

2008

2009

2010

Pulp and paper industry

Source: B. Simangungsong 2012 THINKING beyond the canopy

1. Indonesian forestry sector (cont) Supply-demand dynamics

60,000,000

Timber demand 50,000,000

40,000,000

Gap

30,000,000

20,000,000

Timber supply

10,000,000

0 1997/1998 1998/1999 1999/2000

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: MoF Statistics THINKING beyond the canopy

2009

2010

2. Pulp & paper sector: key facts 9,000,000 8,000,000

Pulp

7,000,000 6,000,000

tons

5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 1997

1998

1999

2000

2001 Capacity

2002 Production

2003 Export

2004

2005

2006

2007

2008

Consumption

Source: MoF Statistics THINKING beyond the canopy

2009

2010

2. Pulp & paper sector: key facts (cont)

14,000,000

12,000,000

Paper 10,000,000

tons

8,000,000

6,000,000

4,000,000

2,000,000

0 1997

1998

1999

2000

2001 Capacity

2002 Production

2003 Export

2004

2005

2006

2007

2008

Consumption

Source: MoF Statistics THINKING beyond the canopy

2009

2010

2. Pulp & paper sector: key facts (cont)

Sources of wood fiber supplies 35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0 1997

1998

1999

2000

2001

2002

Timber from plantations (m3)

2003

2004

2005

2006

2007

2008

2009

2010

Timber from natural forests (m3)

Source: MoF Statistics THINKING beyond the canopy

2. Pulp & paper sector: key facts (cont) 7000

90

GDP contribution

6000

80

70

GDP (IDR trillion)

60 4000

50

40

3000

30 2000 20

1000 10

0

0 1997

1998

1999

2000

2001

GDP

Source: MoF Statistics and BPS

2002

2003

Processed woods

2004

2005

2006

2007

2008

2009

Paper and paper goods THINKING beyond the canopy

2010

Sectoral GDP (IDR trillion)

5000

2. Pulp & paper sector: key facts (cont) Employment in 1000 employees 300

250 200

150 100

50 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Sawnwood industry Source: B. Simangungsong 2012

Plywood industry

Pulp and paper industry THINKING beyond the canopy

3. Wood fiber supply: development of HTI timber plantations 25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0 1997/98 1998/99 1999/00 2000

2001

2002

Plantation area (ha)

Source: MoF Statistics

2003

2004

2005

2006

2007

2008

2009

2010

Timber production

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4. Issues with pulp & paper and timber plantations in Indonesia Questionable HTI plantation data

Source: MoF Statistics

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4. Issues with pulp & paper and timber plantations in Indonesia (cont) Small holder timber growing (HTR) Target end 2010 (million ha) 5.4

Achievement mid 2011 (million ha) 0.65

Area under permit

5.4

0.13

Area planted

1.97

n.a.

-

1,857

Land designated

Number of permits

•Achievements way below the target •HTR not attractive financially •Tenure insecurity a major obstacle THINKING beyond the canopy

4. Issues with pulp & paper and timber plantations in Indonesia (cont)

Environmental impacts

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4. Issues with pulp & paper and timber plantations in Indonesia (cont) Poor performance of companies which receive subsidies from Reforestation fund (DR) Type of Company

Gross Area (ha)

93 Joint Ventures State Enterprises

Net Plantable Area (ha)

Realized Planted Area (ha)

Realized Area as % of Net Plantable Area

2,957,874

2,070,512

1,296,084

63%

PT Inhutani I

163,670

114,569

57,602

50%

PT Inhutani II

100,420

70,294

66,713

95%

PT Inhutani III

377,980

264,586

88,513

33%

PT Inhutani IV

n.a.

n.a.

n.a.

n.a.

PT Inhutani V

56,547

39,583

38,797

98%

Inhutani -- subtotal

698,617

489,032

251,625

51%

3,656,491

2,559,544

1,547,709

60%

Total Source: MoF Statistics

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4. Issues with pulp & paper and timber plantations in Indonesia Social issues (cont)

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5. Expansion plans in the pulp & paper sector and timber plantations

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5. Expansion plans in the pulp & paper sector and timber (cont) plantations

Bisnis Indonesia “Konglomerat kembangkan investasi HTI di Kalimantan dan Papua”, 24 April 2011

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5. Expansion plans in the pulp & paper sector and timber (cont) Why expansion? Intl demand projections

Source: FAO 2009 THINKING beyond the canopy

5. Expansion plans in the pulp & paper sector and timber (cont) Why expansion? Regional demand projections

Source: FAO 2009 THINKING beyond the canopy

5. Expansion plans in the pulp & paper sector and timber (cont) Why expansion? National Forestry Master Plan 2030 • GDP contribution to increase 300% from 2005 • HTI and HTR plantation area reaches14.5 million ha • Timber production from HTI and HTR reaches 362.5 million m3 annually • Plywood production reaches 37.2 million m3, sawn timber 41.25 million m3, woodworking and furniture 21.8 million m3 and 3.4 million m3 respectively.  Can these targets be achieved? Should they? THINKING beyond the canopy

6. Implications of the expansion plans Group

1

Planned Raw materials capacity required (million tons) (million m3)

2

3

Net planted Concessio area required n size 2011 (Ha) (Ha)

4

5

Net plantable area (Ha)

Additional net plantable area required (Ha)

6

7=4-6

Korindo

1

6.4

266,884

161,866

113,306

153,578

APP

2

12.8

512,400

205,365

143,756

368,645

APP

2

12.8

512,400

772,115

540,481

(28,081)

Djarum

1

6.1

256,209

154,659

108,261

147,948

Djarum

1

6.1

256,209

104,975

73,483

182,727

Medco

2

12.8

512,400

169,400

118,580

393,820

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6. Key points  Indonesian forestry sector is transitioning to capital intensive industries dominated by p&p

 Historically dogged by supply-demand gap  In recent years the gap appears to be narrowing, but data uncertain  Pulp and paper is the corner stone of Indonesia’s forestry sector: now and in the future

 Economic importance, employment  But significant ENV downside due to continued reliance on forest clear-cuts for timber

   

Ambitious expansion plans – potential benefits & high risks Large areas of land needed for plantations to support new mills Where will this land be found? WB/IFC critical mission to support plantation investments on nonforest, degraded land ONLY THINKING beyond the canopy

www.cifor.cgiar.org

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