Woodchip exports: Topping the world but not mastering the market

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Woodchip exports in the first months of this year saw strong growth due to concerns of increasing export tax in the future. Photo: ST

Depending on China

According to the recent Research Report "Vietnam’s export of woodchips: Current situation and changes in policy" carried out by Forest Trends, Vietnam Timber and Forest Product Association, Forest Products Association of Binh Dinh, Handicraft and wood industry association of Ho Chi Minh City and Binh Duong Furniture Association, Vietnam's woodchip processing and export industry has continued to expand since 2001. To date, Vietnam has become the largest exporting country of woodchips in the world.

According to the General Statistics Office (Ministry of Planning and Investment), in 2009, Vietnam had 47 woodchip factories with an export volume of about 2.3 million tons of dried woodchips. By 2014, this number increased to 130 factories with an export volume of 7 million tons of dried woodchips. In 2018, the export volume reached a record of nearly 10.4 million tons of dried woodchips. Export value also increased from US$796 million in 2012 to US$958 million in 2014 and US$1.34 billion in 2018. Notably, Vietnam’s woodchip exports had a sudden increase after the plunge in 2016. In the first four months of this year, Vietnam's export volume has skyrocketed to nearly 4 million tons, equivalent to nearly US$0.56 billion.

Mr. To Xuan Phuc from Forest Trends said Vietnam has become the leading country for woodchip exports in the world. The volume of Vietnam’s woodchips accounts for about 30% of total global supply. The supply of Vietnam’s woodchips is increasing. China is Vietnam's largest consumer market, with an annual import of up to 60-70% of Vietnam's total export volume. Following China are Japan and South Korea, but the volume of Vietnam’s woodchips exported to these two markets is much lower.

Notably, although topping in world in the supply of wood chips, Vietnam’s woodchip industry is still not strong enough to shape the world market for woodchips. The industry depends on the Chinese market. Specifically, in China, Vietnam’s woodchips do not compete with other countries for price. The price of Vietnamese woodchips is low because of a number of reasons. Firstly, the quality of Vietnamese woodchips is inferior to other countries’. Impurities, high humidity, mould and low cellulose content in Vietnamese chips is relatively common. Besides, the woodchip industry grows rapidly and is out of control, leading to unfair competition and dropping export prices. Woodchip production does not require high technology, investment capital and management skills. In the context of available supply of raw material and 0% tax rate (before 2016) or low tax rate (2% at present), many woodchip manufactures and exporters have been established beyond the control of the regulatory authority. Companies are competing unfairly, especially in the procurement of raw materials. This pushes export prices down.

“According to companies, the woodchip industry has a phenomenon of making prices by Chinese companies in Vietnam. Chinese woodchip companies buy Vietnamese woodchip companies and hire Vietnamese managers, who have experience in the industry. They coordinate with each other to push the selling price down. The coordination between Vietnamese companies is not close. Except for Quang Ngai area with a woodchip association, there is no organization representing the country’s woodchip industry. With these restrictions, Vietnam’s woodchip industry, though providing the largest volume to the world, has joined the world market with a passive position, rather than an active position," said Phuc.

Roadmap for tax increase

In addition, the current concern of the woodchip industry is the increase in export tax.

Recently, the Government has issued a number of policies to limit woodchip exports and enhance professional processing. One of the basic measures is to increase the export tax on woodchips from 0% to 2% since 2016. Currently, the Ministry of Finance is consulting with relevant ministries and agencies and submitting to the Government a plan on rising export tax on woodchips from now 2% to 5%. The high rate aims to encourage forest planting, creating inputs for the wood processing industry, thereby bringing higher benefits for both forest planters and the furniture industry.

If the export tax increases to 5%, the state revenue shall reach nearly VND 900 billion every year. A question set out is how will the increase in export tax affect the supply chain of Vietnam’s woodchips? Some woodchip companies show that there are not companies willing to reduce profits to partially or wholly offset the expenses incurred by taxes. In other words, the Government's revenue from export tax on woodchips is derived from the reduction in the purchasing price of raw materials from forest planters by woodchip companies.

Director of Quy Nhon Paper Material Co., Ltd. Nguyen Anh Tuan said that the increase in tax only solved one part of the problem. The government needs to direct ministries and departments to assess the impact of the increase in export tax on woodchips to build an appropriate roadmap and not to negatively affect the afforestation area and forest planters.

"Management agencies need to implement the first decisive factor that forest planters are actually forest owners who are allocated land and forest and have long-term land use rights and enjoy credit preferences.” Tuan said.

Regarding this issue, the representative of the Tax Policy Department (Ministry of Finance) said that currently, the Ministry of Finance is considering revising export tax on woodchips but has not introduced an official plan. After listening to the opinions and recommendations of the companies and associations, the Ministry of Finance will make appropriate revisions to submit to the Government.

Vietnam’s woodchips account for about 30% of the total global supply. In theory, Vietnam has the power to shape the world market. However, until now, Vietnam’s chip industry has not yet established this position. According to Mr. To Xuan Phuc “Major issues of the industry such as lack of cohesion, development in a movement, and running after the market, low-quality products and unfair competition requires that the woodchip industry in the future needs to be reorganized.

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“With the current scale of the woodchip industry, the establishment of Vietnam 's woodchip association is required. The association has a role to connect companies, ensure balance of benefits, reduce rapid development and unfair competition in the industry. The association also needs to develop a strategy to build the brand with quality as a priority, control quality of export woodchips to in order to improve the brand and the image, and determine the position of the industry in the international arena."