Presentation to the Portfolio Presentation to the Portfolio Committee on Trade and Industry Committee on Trade and Industry

ColloquiumColloquium

2 September 20142 September 2014

Messrs Michael Peter and Norman Messrs Michael Peter and Norman DlaminiDlamini

Land Use in South AfricaLand Use in South Africa

68.6%

13.8%

9.6%

1.0%

6.9%

Grazing Arable Nature Conservation Other Plantations

Total RSA land area – 122.3 million haTotal RSA land area – 122.3 million ha

1 273 357 ha

Commercial PlantationsCommercial Plantations

43.9%

9.3%

46.9%

Pine Eucalyptus Wattle

Value of Roundwood ProductionValue of Roundwood Production

67.3%2.1%

4.0%

26.6%

Pulpwood Mining Timber Other Sawlogs

Total – R6.7 billionTotal – R6.7 billion

Value of Sales from Primary Processing PlantsValue of Sales from Primary Processing Plants

52.3%

9.9%

20.8%

3.2%

4.5%

9.3%

Pulp Chips Lumber Panels Mng. Timber Other

Total – R20.4 billionTotal – R20.4 billion

Value of Sales from Paper and Paper Packaging Value of Sales from Paper and Paper Packaging

R 17.4 billionR 17.4 billion

(STATSSA 2012 PAMSA 2013)(STATSSA 2012 PAMSA 2013)

Total Contribution to GDPTotal Contribution to GDP

R41.9 billion R41.9 billion Manufacturing GDP 7.7%(excludes roundwood sales)

Contribution to Agricultural GDP 25.5% 65.1% (incl. pulp and paper)

Employment in Agriculture 22.5% (146 000 jobs out of 650 000 in total)

 

((DAFF 2009, FSA 2011, STATSSA, 2012)DAFF 2009, FSA 2011, STATSSA, 2012)

Beneficiation potentialBeneficiation potentialLimited beneficiation in the primary sub-sector but provides Limited beneficiation in the primary sub-sector but provides the raw material for beneficiation in other subsectors which the raw material for beneficiation in other subsectors which are largely vertically integratedare largely vertically integrated

1 : 5.25 multiplier ratio1 : 5.25 multiplier ratio– Pulp and PaperPulp and Paper– SawmillingSawmilling– Particle boardParticle board– Mining timberMining timber– PolesPoles

Myth surrounding roundwood exports Myth surrounding roundwood exports

Unresolved challenges for timber growers directly impact the Unresolved challenges for timber growers directly impact the potential for further beneficiationpotential for further beneficiation

What are these challenges?What are these challenges?Shrinkage in plantationsShrinkage in plantations– Voluntary withdrawal 80 000ha – water and Voluntary withdrawal 80 000ha – water and

environmentenvironment– Government exit from WC and Mpumalanga – Cabinet Government exit from WC and Mpumalanga – Cabinet

Memo not implemented – job losses and mill closuresMemo not implemented – job losses and mill closures– Unproductive government plantations - failure to Unproductive government plantations - failure to

transfer these to communities as per Chartertransfer these to communities as per Charter– Failure to meet even 2 000ha of the 100 000ha new Failure to meet even 2 000ha of the 100 000ha new

afforestation target in IPAP I and II and Forest Sector afforestation target in IPAP I and II and Forest Sector BBBEE Charter – National industrial policy being BBBEE Charter – National industrial policy being sabotaged by junior bureaucratssabotaged by junior bureaucrats

– Increased regulatory burden when changing to more Increased regulatory burden when changing to more economical tree genera – directly threatens multi-billion economical tree genera – directly threatens multi-billion Rand beneficiation investmentsRand beneficiation investments

What are these challenges?What are these challenges?

No support for SMMEsNo support for SMMEs– Private sector introduced over 30 000 new growersPrivate sector introduced over 30 000 new growers– Forest Sector BBBEE Charter committed DAFF to a Forest Sector BBBEE Charter committed DAFF to a

dedicated Forestry Grant to overcome the investment dedicated Forestry Grant to overcome the investment hurdle and increase new entrantshurdle and increase new entrants

– Minister finally announced the grant in September Minister finally announced the grant in September 2012 but no fiscal commitment yet2012 but no fiscal commitment yet

What are these challenges?What are these challenges?

Forest protectionForest protection– Rising impact of pests, diseases and firesRising impact of pests, diseases and fires– Government (DAFF) have been excellent recently in Government (DAFF) have been excellent recently in

supporting the development and release of bio-logical supporting the development and release of bio-logical control agentscontrol agents

– DAFF have an approved forest protection strategy but DAFF have an approved forest protection strategy but again they have not been given fiscal support for again they have not been given fiscal support for implementationimplementation

International competitivenessInternational competitiveness

SA was in bottom 25 percentile of global costsSA was in bottom 25 percentile of global costs

Now in middle 50 percentile and risingNow in middle 50 percentile and rising

Competitors have been providing direct and Competitors have been providing direct and indirect subsidies for three decades – Brazil, Chile, indirect subsidies for three decades – Brazil, Chile, NZ, AustraliaNZ, Australia

Tariffs and non-tariff barriers internationallyTariffs and non-tariff barriers internationally

SA competitiveness has been based onSA competitiveness has been based on– World leading clonal breedingWorld leading clonal breeding– Excellent understanding of site productivityExcellent understanding of site productivity– Global leaders in pests and diseasesGlobal leaders in pests and diseases

Plantation Area ComparisonsPlantation Area Comparisons20112011

1.273

2.284

4.425

4.920

4.982

9.871

10.682

16.238

17.340

32.578

46.670

0.0 10.0 20.0 30.0 40.0 50.0 60.0

RSA

Iran

Ukraine

Thailand

Brazil

Indonesia

Japan

USA

Russia

India

China

Million Hectares

Illustrative CostsIllustrative CostsCosts per ha over 10 yearsPlanting R7 000

Annual weeding + fire protection R1 200

Finance charges for above over period R13 496

Harvesting and loading R38 600

Long haul to market R26 248

TOTAL cost to raise a timber crop and deliver to market R86 544

Price paid per hectare R108 000

Net profit per hectare per year R2 145

Adapted and modified from Wood and Timber Times August 2014

Small-scale grower challengesSmall-scale grower challengesMuch the same as large scale growers but more acutely felt Much the same as large scale growers but more acutely felt and greater riskand greater risk– Cost of capital – DAFF grant never materialisedCost of capital – DAFF grant never materialised– Fire, pests and diseases = total crop/cash flow lossFire, pests and diseases = total crop/cash flow loss– Insurance – premium not subsidised by DAFFInsurance – premium not subsidised by DAFF– Limited potential for economies of scale as widely dispersed in Limited potential for economies of scale as widely dispersed in

landscapeslandscapes– Limited access to rail and PBS vehicle alternativesLimited access to rail and PBS vehicle alternatives– Insecure tenure over cropInsecure tenure over crop– Vexatious water regulators pursuing unlicensed plantations - Vexatious water regulators pursuing unlicensed plantations -

mining and agric carry on with impunitymining and agric carry on with impunity

In spite of these over 30 000 SSG in KZN and MpumalangaIn spite of these over 30 000 SSG in KZN and Mpumalanga

Soaring administered pricing increasesSoaring administered pricing increases– Labour – with limited opportunity for Labour – with limited opportunity for

mechanisation due to dispersed nature of SSG mechanisation due to dispersed nature of SSG plantationsplantations

– Fuel = transport costsFuel = transport costs

Need for more business management skillsNeed for more business management skills

Small-scale grower challenges

Private SectorPrivate SectorProvide capital and jobsProvide capital and jobs

30 000 self employed SSGs through JVs in 30 000 self employed SSGs through JVs in last 30 yearslast 30 years

Promotion and educationPromotion and education

Research and forest protectionResearch and forest protection

Transformation (a leading sector in Land Transformation (a leading sector in Land Reform and BBBEE)Reform and BBBEE)

GovernmentGovernmentMeet previous commitmentsMeet previous commitments– New afforestationNew afforestation– Forestry Grant for SMMEsForestry Grant for SMMEs– Transfer of state plantations back into productivityTransfer of state plantations back into productivity– Recapitalisation of exit areasRecapitalisation of exit areas

State procurement to have mandatory levels of State procurement to have mandatory levels of SA forest productsSA forest products– Paper and paper packagingPaper and paper packaging– Timber and particle board in the built environment Timber and particle board in the built environment

and furniture industriesand furniture industries

Thank youThank you