Pulp & Paper Industry in Indonesia 2011

INDONESIAN COMMERCIAL NEWSLETTER

January 2011

INDONESIA'S FURNITURE INDUSTRY

Current Issues

The Indonesian Association of Furniture and Craft Industries (ASMINDO) said the country's target set at US$3 billion for the furniture and handicraft export earning in 2011 , up from US$200 million , will be hampered by the rising value of rupiah which now averages 8,600 per US dollar. Producers or exporters of furniture and handicraft products may raise their selling prices to offset the loss as a result of the rising value of rupiah, but they will likely have their buyers turning away to other suppliers with cheaper prices.

ASMINDO also complained about the lending rate remaining high at more than 13% per year. Most furniture exporters may suffer losses as they signed their sales contract when the rupiah was at the level of 8,900-9,000 per dollar. Asmindo said ideally the rupiah was 9,000 per dollar to allow them it make profit.

Data from the East Java branch of Asmindo showed that Japan is the third largest country of destination for the exports of furniture from East Java after the United States and Europe. In 2010, exports of furniture to Japan reached US$200 million, up 10% from US$180 million in 2009.

Earlier Chilman Suaidi, the secretary of Asmindo, said Japan will need more furniture after the reconstruction of houses and office buildings in demolished by the recent tsunami. Now, however. Indonesian producers are concentrating more on boosting exports to America and Europe where the market value is expected to grow 15% from US$300 million in 2010.

Meanwhile, furniture and handicraft products from China are flooding the Indonesian market. Asmindo chairman Ambar Tjahyono said imports of furniture and handicraft from China had increased by 50%.

Ambar said Asmindo members could retaliate by flooding the Chinese market with Indonesian furniture but with full support from the government.

In addition to problem caused by the rising value of rupiah and large imports from China. Indonesian producers are facing difficulties with the new requirement to have timber legality certificate as demanded by buyers abroad. Tighter control is now slapped on traded timber products such as in the United States, Japan and European Union to reduce illegal logging.

Production capacity Stagnant

From 2005 to 2009, there was hardly change or an increase in the country's production capacity for furniture.

In 2005, the production capacity was 340,350 cubic meters per year, and after several years the capacity rose only slightly to 341,554 cubic meters per year

There are many hurdles to be removed to allow the industry to grow healthier. Among them are growing difficulties in securing the timber basic material amid decline in the world demand for furniture as a result of the global crisis, and large imports from China causing marketing problem and discouraging new investment in the country.

This year, however, promised to be better with the recovery of the global economy and the timber legality certificate requirement will strengthen the competitiveness of legal products especially in major market like the United States, Japan and European Union which are strict in observing the legality of timber products.

Growing demand from industrialized nations including from Japan that needs more supply of furniture after the tsunami will encourage producers to expand their production capacity.

Production of Furniture Growing Sluggishly

The country's production of furniture has tended to decline. The production fell from 2,330,389 tons in 2005 to 1,990,319 tons in 2009. In 2008, the production dropped sharply to 1,226,742 tons.

The decline in the production of furniture followed weak demand from Europe and America as a result of the financial and housing crisis in the United States.

Exports of Furniture Growing in 2009

Indonesia's exports of furniture in the period of 2005-2008 declined before rising in 2009 to 8,262,581 tons from 1,117,882 tons in 2008.

Components of furniture dominate exports of furniture, notably in 2009 when exports surged to 7,663,709 tons from 385,833 tons in 2008. United States and Japan were still the main countries of destination for the exports of furniture, in addition to Middle East to which exports also increased with growing demand from new hotels, apartments and office buildings in that region.

Imports of Furniture Growing

Indonesia's imports of furniture have been relatively stable over the past several years Indonesia despite a 11.40% decline in 2008 to 38,145 tons, before rising again to a normal level of 60,100 tons in 2009.

In 2010, however, imports began to come in floods from China causing concern among the local producers.

Imports of components of furniture rose sharply in 2009 from only 3,756 tons in 2008 to 23,527 tons. Wooden furniture still dominated imports with volume reaching 36,458 tons in 2009. ASMINDO said imports in 2010 shot up 60% to follow the improved condition of the country's economy.

Producers of Furniture

PT Cahaya Sakti Furintraco is a furniture producer established in Bogor in 1983. The company produces various types of knockdown furniture products including Bed Room Sets, Living Room Sets, Children Sets, Kitchen Sets, and Office Sets, in knockdown furniture with the brand of Olympic Furniture.

In 1968, it established a subsidiary, PT Cahaya Sakti Multi Intraco, to handle the marketing and distribution of its products.

Currently the company is one of the largest producers of furniture with more than 70 branches all over Indonesia selling Olympic furniture to more than 3,600 shops both Traditional Retails Outlet and Modern Retails Outlets. It also has exported its products to more than 100 countries in the world.

CV President Furniture, a producer of furniture from teakwood, has also exported products to various countries. The company was established in Jepara, Central Java in 1996. Each week its exports 4 to 5 containers of wooden furniture to Europe and the United States.

President Furniture uses teakwood supplied by state forestry company Perhutani which owns teakwood forests in Java.

Legality Timber Certificate

The forestry ministry has encouraged producers of wood-based products to improve the quality of their products to be competitive in the market and use timber from legal sources. The United States, Japan and the European Union have been stricter in controlling imports of timber products.

The forestry ministry has adopted the Timber Legality Verification System (AVLK) in a bid to prevent entry of products of illegal logging to the European market. With the system, Indonesian timber products will be guaranteed entry to international market, forestry minister Zulkifli Hasan said. The system has been recognized by the European Union as a verification system for the legality of timber products from Indonesia, Zulkifli said. Timber exporters, therefore, are required to have the legal verification certificate, he said after the conclusion of a negotiation on Forest Law Enforcement Governance and Trade-Voluntary Partnership Agreement here. He said Indonesia is the first country wrapping up voluntary partnership agreement (VPA) with the European Union. Indonesia will be the largest supplier of timber under the VPA, he added.

Currently Japan, the United States and the EU are the countries of destination for at least 70% of the country exports of furniture. It is important, therefore, for the producers and exporters to observe the AVLK.

Ambar Tjahyono, chairman of the association of furniture and handicraft industry (ASMINDO) said the prospects of the country's furniture industry are still promising despite difficulties caused by large imports from China. Supports from the government, however, are needed.

Secretary general of the forestry ministry Boen Purnama said the certificate of sustainable forest management and AVLK are vital for the country's producers of wooden furniture to enter international market. The ministry, therefore, has cooperated with the National Accreditation Committee (KAN) to provide the producers with the necessary certificates and verification.

KAN chief Bambang Setiadi said KAN has accredited 15 appraisers and a verification agency to take over he jobs of providing the certificate and verification.

The appraisers and verification agency will appraise and verify holders of license of business to utilize forest timber (IUPHHK), natural forests or forest concessionaires (HPH) and plantation forests.

Legal verification is needed if the timber is to be exported. Verification is given for timber produced with

" license of business to utilize forest timber from natural forests (IUPHHK-HA)

" license of business to utilize forest timber from plantation forests (IUPHHK-HT)

" license of business to utilize forest timber from people's plantation forests (IUPHHK-HTR)

" license of business to utilize forest timber of ecosystem restoration (IUPHHK-RE)

" license of business to utilize forest timber from community's forests (IUPHHK-HKm)

" license of business in primary industry in forest timber (IUIPHHK)

" license of business in timber processing industry (IUI Lanjutan)

" License to utilize timber (IPK)

The timber legality certificate will be valid for 3 years. Surveillance is made to ensure that the certificate is properly used and the result of the surveillance is also used to consider extension of the certificate.

The benefits of holding the legality certificate are:

1. The business players will have premium price for their products;

2. The market is open the wider for their products;

3. Access is secured to market in countries that has a regulation on the procurement of timber from legal sources.

4. The producers will have better reputation in international market. .

5. The producers could make self endorsement when they have the certificate.

Conclusion

The competitiveness of country's products of wooden furniture could still be improved with the availability of basic materials in abundance. The quality and design still attract buyers. Certification of the legality of timber has become a must to be able to enter the world's markets.

The floods of imports from China after the implementation of the Asean-China free trade could be offset by boosting exports including to China, where demand has continued to grow.

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