Pricing Agribusiness Risk

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African Forestry Sector Review

The African tropical forestry sector, largely operated under concessions by European, Asian and Middle Eastern logging and milling companies, is characterised by significant logistical challenges, a strong focus on sustainability and certification in the European and North American markets (but less so in Asia), strong international demand (driven significantly by Asian countries), and high growth consumption patterns across the African Mediterranean and North African countries. European concession operators are subject to very considerable scrutiny for compliance with global best practice, but many Asian concession owners appear to operate more opaquely. The challenge for African countries is to manage their forest reserves sustainably, to protect their national heritage of biodiversity and natural landscapes, while providing for their expanding populations. For the companies operating in this complex sector, demand growth looks to be a given, but price formation may have been restricted by the ‘illegal’ supply of forest products, and by the dominant influence of Asian purchasing. The increasing focus of European and North American consumers, and government agencies, on certified supplies, implies that with continued growth in demand, there may be strengthening in prices for certified production. Ulrich Grauert, CEO of the Swiss domiciled Interholco, which operates 100% FSC certified concessions in the Republic of Congo, has observed to us that “our experience is… prices have been strongly increasing since 2000… and the markets driving prices are… Asia, North Africa, Middle East and the USA. We… foresee steady price increases in almost all major species in the years to come.”

While Chinese demand for wood has been the leading influence on the global wood economy in the past 20 years, and continues so to be, African demand will increasingly be in contention with China and other Asian economies. It is not improbable that the population of Africa will become the world’s largest consumer market around the middle of this century. The Forest Stewardship Council has projected that African demand for industrial roundwood could reach between 100 million and 400 million m3 as soon as 2030, under variable scenarios for demographic and economic development. Some describe this vision of African demand as an impending ‘supply crisis’. Not surprisingly, at least one large concession operator, Likoula Timber (Republic of Congo), has stated that its primary focus is now on supplying demand from within Africa itself. Yet the patterns of production and consumption are very different across the African continent. It is also the case that many tropical African countries lack the facilities for secondary and tertiary processing of significant volumes of timber, and the logistics infrastructure across Central and Western Africa will need significant upgrading to support the development of an efficient and profitable internal timber market.

Please click to download: African Forestry Sector Review – March 2018