rubber wood industry in...
TRANSCRIPT
Chapter 1 INTRODUCTION
Contents
1.1 Wood Industry –World Scenario
1.1.1 Furniture Industry
1.2 Wood Based Industry-Indian Scenario
1.3 Wood Based Industry-Kerala Scenario
1.4. Rubber Wood Industry in Kerala
1.5 Studies on Rubber Wood Industry
1.6 Research Gap
1.7 Selected Studies on Value Chain
1.8 Statement of the Problem
1.9 Objectives of the Study
1.10 Hypotheses
1.11 Theoretical Framework
1.12 Methodology
1.13 Limitations of the Study
1.14 Chapter Scheme
Introduction
2
INTRODUCTION
Spectacular development in the construction sector during the recent
decades has driven the demand for timber upward. The shrinkage and
depletion of forest wealth, serious restrictions on harvest of notified forest,
weak private plantation sector and the growing concern about the
conservation of environment necessitated the development of alternative
but renewable sources of traditional timber. This led to the identification of
rubber wood as an alternative source. Though the scope for value addition
of rubber wood industry is high, it has not yet been adequately utilized.
Barring other factors, the absence of a well developed value chain of
rubber wood is the main reason for this. No doubt, if it is given proper and
necessary thrust, a good portion of the growing demand for wood can be
met with rubber wood.
1.1. Wood Industry -World Scenario
The wood industry plays a dynamic role in the world in terms of
production, demand and export. There has been continuous increase in
the production of wood in the world, particularly for industrial purposes.
The global round wood (fuel wood and industrial wood) production
increased from 1466 million m3 in 1953 to 3400 million m3 in 1996.
Forty five per cent of it is industrial wood (lumber, plywood and veneer,
pulp wood, and others.) Diagram 1.1 shows the trends in industrial
wood production.
Introduction
3
796
1647 1580 1645.68
0
200
400
600
800
1000
1200
1400
1600
1800
1953 1998 2002 2004
Year
Diagram 1.1 World Industrial Round Wood Production (Million m3) Source: FAO, FAOSTAT, various years
Even in the midst of growing production of wood, the demand for it
is greater than that of its supply. Although consumption is leveling in
developed economies, demand for timber is rising fastest in the rapidly
growing economies of Asia and Latin America (Matthews, 2000).The
growing demand for wood in the world market is evident from the increase
in the weighted index of world timber price as against the decline in the
price of other agricultural raw-materials during 1980 – 1999. Timber price
index increased from 79 to 118, whereas the index of other agricultural
raw-materials decreased from 122 to 72.7 during the same period (World
Bank, 2000). Prices of most primary timber products kept rising from
2005 onwards as supply of raw materials tightened (World Resource,
2007). In the early 1990s, production and manufacture of industrial wood
products contributed US $400 billion annually to world economy or about
two per cent of Global GDP (Matthews, 2000).
Mill
ion m
3
Introduction
4
The increase in the demand for industrial wood is not only from
domestic sources but also from foreign countries and hence the export of
wood has correspondingly gone up. In the last 30 years, international trade
in timber has increased three fold in terms of value adjusted for inflation,
and now it accounts for three per cent of total world trade (Matthews,
2000). It takes place in the primary (log, sawn, veneer, plywood) and
secondary processed wood sector (furniture, toys, mouldings etc). While
the primary processed industrial wood export of major exporting countries
was US $ 42.9 billion in 2005, the secondary processed wood export of
major exporting countries was US $ 68.35 billion in the same year. The
most noteworthy feature is that wooden furniture occupied a major share in
the export. Out of the total export of Secondary Processed Wood Products
(SPWP), wooden furniture contributed 61.55 per cent, builder’s wood work
1.63 per cent, mouldings 6.19 per cent and the remaining by all others
together (ITTO, 2006).The export details of SPWP are given in table 1.1
Table 1.1 SPWP Export in 2005
Country Export (US $ billion)
ITTO producer countries 10.30
China 11.40
EU 25.80
Others 20.88
Total 68.38
Source: Annual Review, ITTO 2006
Introduction
5
In International Tropical Timber Organisation (ITTO), producer
countries like Indonesia, Malaysia, Brazil, Thailand and Mexico accounts
for 89 per cent of the exports of SPWP. In Asian countries the share of
SPWP in total wood export was only 30 per cent in 1995, but it increased
to 55 per cent in 2005. In Latin America the share of SPWP increased from
60 to 70 per cent, while in Africa the increase was merely one to five per
cent during the same period.
Since it has already been mentioned that wood furniture occupies a
major share in the export, the ensuing section discusses the details of
furniture industry.
1.1.1 Furniture Industry
Among the various wood-based products, furniture has the highest
business in the world at present. The firms in the developing countries have
abundant opportunities for effective participation in global economy on
account of the resource availability and labour intensity prevailing in the
wood furniture sector. With the advent of flat-pack or ready to assemble
design furniture, mass producing furniture has become a viable
manufacturing strategy. The US, Italy, Germany, Japan, the U.K, Canada
and France are the seven largest furniture producers in the world and these
countries account for 61 per cent of the world’s total furniture production.
In Asia, China is the largest manufacturer, accounting for nine per cent of
world production. Diagram 1.2 depicts the global trade in furniture.
Introduction
6
237.5
243.7246.1
234
245
252.3
265
220
225
230
235
240
245
250
255
260
265
270
1998 1999 2000 2001 2002 2003 2005
Year
Diagram 1.2 Global Furniture Production (US $ billion)
Source: ITTO, 2006
It is clear from diagram 1.2 that the world furniture production
increased from US $ 237.2 billion in 1999 to US $ 265 billion in 2005. The
growth in world trade of furniture is shown in diagram 1.3
1
3032
26.5
0
5
10
15
20
25
30
35
Foot w ear Furniture Apparel World Merchandise
Perc
enta
ge
Diagram 1.3 Growth in World Trade 1995 – 2000 (Percentage)
Source: Kaplinsky, 2003
It is evident from diagram 1.3 that between 1995 and 2000, world trade
in furniture grew by 30 per cent faster than world merchandise trade as a
US
$ b
illio
n
Introduction
7
whole (26.5%). Next to apparel (32%), furniture occupies the largest share in
world trade. By 2000 furniture became the largest low-tech sector with total
global trade worth US $ 57.5 billion (Kaplinsky, 2003) exceeding apparel (US
$ 51 billion) and footwear (US $ 36.5 billion). In the case of furniture export,
the details of top 15 countries are given in table 1.2
Table 1.2 Global Furniture* Trade-Top 15 Net Exporting Countries (US $ billion)
Country Gross
exports2000
Net
exports1995
Net
exports
2000
Net exports
% change
19 95 to 2000
Italy 8.359 7.595 7.395 -3
China 4.582 1.671 4.412 164
Canada 5.719 0.685 2.044 198
Poland 2.191 1.18 1.815 54
Malaysia 1.596 0.826 1.491 80
Indonesia 1.518 0.819 1.498 83
Denmark 1.9 1.687 1.209 -28
Mexico 3.315 0.468 1.173 151
Thailand 0.949 0.712 0.909 28
Spain 1.453 0.523 0.531 2
Slovenia 0.586 0.409 0.461 13
Czech rep 0.78 0.148 0.445 201
Romania 0.445 0.472 0.377 -20
Sweden 1.298 0.51 0.338 -34
Brazil 0.496 0.212 0.333 57
Rest of the countries 22.742 na na na
Total 57.338 na na na
Source :ITC, cited in Kaplinsky, 2003 *includes wood, metal, plastic
Introduction
8
It can be gathered from table 1.2 that out of the 15 major exporters of
furniture in the world six are developing countries (Brazil, China, Indonesia,
Malaysia, Mexico and Thailand), and four are transition economies (Czech
Republic, Poland, Romania, Slovenia). These ten countries tend to be large
volume exporters and low volume importers of furniture (thereby being large
net exporters). Industrialized countries on the whole export and import large
volume of furniture with Italy (US $ 8359 million) by far the largest net
exporter. Canada, Denmark, Spain and Sweden occupy the third, seventh,
tenth and fourteenth positions respectively. The top six leading importers of
furniture are the US, Germany, the UK, France, Japan and Canada. The total
import of furniture by EU was US $ 4.89 billion out of which 62 per cent were
wood furniture products in 2000 (Kaplinsky, 2003).
The export of wooden furniture and plywood from Asia rose by 39
per cent to U.S $ 8.78 billion in 2000.The export earnings of Malaysia rose
to 1.9 billion from the export of all types of furniture in 2005 out of which
80 per cent was rubber wood (Killman and Hong, 2005). China’s furniture
production was US $ 55 billion and exports 12 billion in 2005-06 (Tissari,
2006). Indonesia’s export of furniture was worth US $1.65 billion in 2005
out of which 75 per cent was wooden furniture.
1.2. Wood Based Industry – Indian Scenario
The industrial wood production in the primary processed sector
in India increased from 21.4 million m3 in 2002 to 33.85 million m3 in
Introduction
9
2005 and the industrial wood demand in India is likely to grow from 58
million m3 in 2005 to 153 million m3 in 2020 (ITTO, 2005). Hence, it
is found at the outset that there is mismatch between demand and
supply.
In this context, it is worthwhile to look into the scenario of wood
based industry in the country. The wood based industries1 occupied
22nd rank in terms of net value added by various industries. The trends
in the wood and wood products in the factory sector is given in
table 1.3
Table 1.3 Trends in Wood and wood products in all- India factory sector (values in Rs. lakh )
Particulars 2001-02 2002-03 2003-04 2004-05
No. of factories 3162 2985 3042 3053
Fixed capital 84823 91535 96332 98469
Total employees 52866 50023 50211 50618
Total emoluments 18028 16923 18553 18910
Total input 298472 244315 309595 368879
Gross output 343377 294245 361596 418736
Net value added 35141 38902 41418 39015
Source: ASI , various years
1 The national industrial classification 1998 put wood based industries in two digit
division code 20 and three digit group code 201(saw milling and planing) and
202 (plywood, block board, treated timber, windows, doors, plywood chests etc)
Introduction
10
It is inferred from table 1.3 that during 2001-02 to 2004-05 the
number of wood based units in India in the factory sector decreased by
109 units, while the gross output increased by 21.9 per cent during the
same period at current prices. The increase in gross output calculated at
constant prices (using the wholesale price index for the wood sector)
was 21.19 per cent during the same period. The net value added in the
wood sector increased by 11.02 per cent during the same period at
current prices, where as the employment decreased by 4.25 per cent.
When compared with all- India factory sector, the wood industry
has low employment per unit (16.57 as against 61.99), low fixed
capital per unit (Rs. 35.8 lakh as against Rs. 412.21 lakh) and low
output per employee (Rs 8.27 lakh as against Rs.19.78 lakh). But the
employment per one lakh rupee investment is higher in the wood sector
(0.51) compared to all the industries (0.16). The capital output ratio is
0.26 in the wood sector whereas it is 0.34 for all the industries
(computed from ASI, 2004-05).
It would be worthwhile to see the position of furniture industry
in India in the global context. In value added the share of Indian
furniture was 1.4 percent in 1995 but it declined to 1.1 per cent in 2005
(International Year Book of Industrial Statistics, 2007). The share of
India in world export of furniture is given in diagram 1.4.
Introduction
11
0.17 1.51 1.64.58
8.4
57.34
0
5
10
15
20
25
30
35
40
45
50
55
60
65
India Indonesia Malaysia China Italy World
US
$ b
illio
n
Diagram 1.4 Share of India in World Export of Furniture in 2000
Source: Kasplinsky, 2003
It is evident from diagram 1.4 that the furniture export of India is
less than one per cent.
The trends in output and value added in the furniture factory sector
is given in table 1.4
Table 1.4 Trends in Furniture* Sector in India ( Rs. million)
Particulars 2001-02 2002-03 2003-04 2004-05
No. of factories 2207 1986 2198 2686
Fixed Capital 42044 27866 30339 33417
Total employees 126058 133787 147682 176214
Total emoluments 7724 9235 10682 13377
Gross output 202798 183013 245665 322621
Net Value added 26179 22211 27229 38170
Source: ASI, various years * NIC code 36
It is evident from table 1.4 that the number of units, the gross output and
net value added have increased over the years in the furniture factory sector. In
the all India registered SSI sector, wood based furniture units had second rank
Introduction
12
in the case of number of units (65007 or 4.72%), fourth rank for employment
per one lakh rupee investment (1.48) and fifth rank for total employment
(183322 or 2.97%) in 2001-02.
1.3. Wood Based Industry: Kerala Scenario
The wood based industries in the state can be analysed in terms of
location quotient, gross value added, employment etc. The location quotient
(relative concentration of the industry in the state) was the highest with four per
cent for this sector during 1981–1991, but it declined to 2.3 per cent in the post
reform period. The share of wood and wood products was 2.8 per cent and 0.9
per cent in gross value added in Kerala during the same period. But it has been
accommodating 2.6 per cent of the total employees in the factory sector of
Kerala manufacturing (K.P. Rajesh, 2004). The position of wood based
industries in Kerala in the factory sector is shown in table 1.5.
Table 1.5 Position of Wood Based Industries in Kerala against all- India Wood-based Industries in 2001-02 (Rs. lakh )
Particulars
Wood and wood
products in Kerala
Share of Kerala in
Indian wood based
factory sector ( %)
No of factories 679 21.47
Invested capital 19183 11.45
Total employment 7573 14.32
Total emoluments 2533 14.0
Gross output 19452 6.5
Net value added 3242 9.22
Income 1932 8.14
Profit -601 -
Source: ASI, 2001-02
Introduction
13
It is evident from table 1.5 that while in the case of number of
factories the share of Kerala is high, yet in all other variables the state does
not have a proportionate share. The labour cost in gross output is 13.02 per
cent in Kerala while it is 5.25 per cent in all- India wood sector. The wood
based industries in Kerala in the factory sector in three digit classification
are compared with all India figures in table 1.6
Table 1.6 Wood- based Industries in India and Kerala (2001-02, excluding furniture)
Particulars
Saw milling and
planing
Share of
Kerala
in all-
India
(%)
Plywood, block board,
flush door, treated
timber, windows,
door, etc
Share of
Kerala
in all-
India
(%) India Kerala India Kerala
No. of factories 1373 403 29.35 1784 276 15.4
Factories in operation 1194 312 26.13 1623 230 14.17
Invested capital in Rs. lakh 14824 2477 16.7 152587 16706 10.94
Total output in Rs. lakh 44353 5599 12.6 298984 13853 4.63
Net value added in Rs. lakh 5682 697 12.2 29443 2545 8.64
Income in Rs. lakh 4498 545 12.11 19230 1387 7.21
Profit in Rs. lakh 2195 -53 0 494 -548 0
No.of persons employed 11201 3436 30.6 38199 4137 10.8
Total man days 2747000 754000 27.44 11748000 1061000 9.03
Wages and salaries in Rs. lakh
2304 599 25.99 18737 1934 10.32
Source: ASI, 2001-02
Table 1.6 shows that in Kerala for most variables the saw mill sector is
better placed than plywood compared to all India wood sector. The
classification of industries on the basis of scale does not give the same
Introduction
14
conclusion .The state level report on the all India census of SSI 2001-02
shows that the total number of wood based units in the registered SSI sector in
Kerala comes to12.83 per cent of the total number of SSI units in the state,
and it is 0.32 per cent of SSI units in India. The rank and other details of the
wood based industries in Kerala in the SSI sector are given in table 1.7
Table1.7 Position of Wood-based Industries* in Comparison with all the registered SSI in Kerala up to March 2002
Variables
Rank of
furniture
made of
wood, reed
and cane
Rank of
sawing
and
planing
Rank of
plywood
and veneer
Rank of
structural
goods
including
treated timber
Number of units 2 (7824) 11 (2502) na (474) na(642)
Market value of fixed assets in Rs. crore
1(209 ) 2 (178.23) 17 (80.77) na(22.2)
Original value of plant and machinery in Rs. crore
1 (67 ) 5 (50 ) 14 (28.58) Na
Gross output in Rs. crore
5 (193.76 ) 16 (108.65) 15 (110.49) na(15.97)
Total employment 1 (2448) 11(10902) na(4700) na(2289)
Employment per rupees one lakh in vestment
7 (1.23) (0.61) 17 (.59) Na
Number of units managed by ST 3 (44) Na na Na
Number of units managed by SC 6 (184) Na na Na
Number of units managed by OBC 2 (5284) 10 (1492) na Na
Units using technical know-how from abroad
2 (22) 19 (7) na Na
Source: State Level Report on Third all India Census of SSI’s-2003-04(Kerala)
(Actual values are given in parenthesis), *NIC 5digit code
Introduction
15
Table 1.7 shows that furniture industry occupies a good position in
terms of total employment, value of plant and machinery and number of
units. In the case of sawing and planing, its position is comparatively good
for fixed assets alone. Plywood and structural goods are in a
disadvantageous position for most of the variables. The trend in the wood
based industries in Kerala in the SSI sector is shown in table 1.8.
Table 1.8 Trends in Wood- based Industries in Kerala from 2002 to 2006 in the registered SSI Sector
Particulars
Furniture* Structural wooden
goods
Plywood and
others
Up to
2002
up to
2006
up to
2002
up to
2006
up to
2002
up to
2006
Total no. of units 7824 9894 642 750 608 755
Employment 25448 34292 2289 2687 5891 6369
Market value of fixed assets (Rs. lakh)
20756.6 - 2350.21 - 9167.36 -
Net output (Rs. lakh)
23390.73 - 2220.51 - 8620.78 -
Employment per unit 3.25 3.46 3.56 4.13 9.6 8.43
Source: State Level Report on Third all India Census of SSIs 2003-04(Kerala) and
Industries Department, Tvm, 2007 *NIC code 36101
It is inferred from table 1.8 that the units making wooden furniture in
the registered SSI sector have increased by 21.07 per cent and the
employment in the sector has increased by 34.75 per cent during 2002 -
2006. Structural wooden goods manufacturing units in Kerala have
increased by 16.8 per cent and the employment in that sector has increased
by 11.18 per cent during 2002 to 2006. The total number of plywood, block
Introduction
16
board, flush door, particle board, densified wood, fiber board and veneer
units has increased by 24.17 per cent during 2002 to 2006, and the
employment in these units has increased by 8.11 per cent. The sector has
17th rank in gross value of output in the state. But the Industries
Department does not record the number of units using rubber wood as core
veneer.( The list of activity /industry code in NIC is given in appendix 8).
Altogether around three lakh people survive directly or indirectly
depending on the wood based industry (including wooden furniture) in
Kerala (Ramanathan, 2004).
1.4. Rubber Wood Industry in Kerala
The emergence of the rubber wood as an eco-friendly source of
timber and the scope for high value addition is bringing the wood sector
back into prominence. India is the fourth largest natural rubber (NR)
producing country in the world and the area under NR crop has been
exhibiting a steady increase from 4.75 lakh hectares in 1991 to 5.84 lack
hectares in 2004-05 (IRS 2006). Though production of rubber wood per
unit of area declined, the total production of rubber wood increased from
1.2 million m3 in 1990 to 1.6 million m3 in 2001 (logs 0.96 m3). The world
availability of rubber wood in 1998 – 2003 was estimated to be 41.34
million m3 per year, of which 11million m3 was logs (George and Joseph,
2002). The details about the consumption pattern of rubber wood in India is
given in table 1.9
Introduction
17
Table 1.9 Consumption Pattern of Stem Wood (Percentage)
Consuming sector 1984-85 1993-94 1999-2000
Packing cases 69.0 54.1 56.5
Safety matches 13.3 9.4 3.0
Plywood 13.3. 24.01 26.5
Processed wood 2.2 10.5 12.0
Others 2.2 2.0 2.0
Total 100 10 100
Source: Estimate of RRII (George and Joseph, 2002)
It is evident from table1.9 that though the share of secondary
processing units2 in rubber wood consumption increased from 2.2 per cent
in 1984-85 to 12 per cent in 1999-2000, and that primary processing sector
has a predominant position. The production and export of secondary
processing units exhibits an increasing trend as shown in diagram 1.5.
32.6
150
21.5
32.9
0
20
40
60
80
100
120
140
160
1997 2001
Production
Export
Diagram 1.5 Production and Export of SPRWP Units (Rs. Million) Source: Rubber, February 2004
2. Secondary processing represents processing the sawn timber by chemically
treating and seasoning the sawn planks in to RSKD (rough sawn kiln dried),and
then to four side surface plained sawn planks(S4S).Some firms use the S4S
directly to manufacture value added products like furniture .Some other firms use
S4S to produce edge glued panel boards ( EGP board),and these boards are used
to produce furniture, building materials, components etc.
Rs. M
illio
n
Introduction
18
As per diagram 1.5 the gross value of output of 21 secondary
processing units increased from Rs. 32.6million in 1997 to 150 million in
2001 and exports increased from Rs. 21.45 million to 32.91 million in 2001
(Viswanathan, 2004).
1.5. Studies on Rubber Wood Industry
The studies carried out in this area generally touch upon the profile
and dynamics of rubber wood ranging from the status and exploitation of
rubber wood to problems in processing. Grant (1952) was one of the
earliest scientists who discussed exploitation of timber from rubber trees. A
Manual of Rubber Planting prepared by Edgar (1958) is one of the earliest
publications giving information regarding general timber utilization
practices in Malaysia including grading, seasoning and preservation. The
Forest Research Institute of Kepong, Malaysia (1980), Forestry
Department of Sri Lanka (1971), the Rubber Research Institutes of
Malaysia and Sri Lanka have carried out some studies on sawing,
seasoning, preservative treatment of rubber wood, and also its usefulness
for plywood and particle boards.
Gnanaharan (1984) made an attempt to see the utilization of rubber
wood in India. The use of rubber wood in other countries is discussed by
Hanif (1968). The papers presented in the Second Rubber Wood Seminar,
Kualalampur throws much insight into the different aspects of rubber wood
utilization. Seng (1985) highlighted the processing techniques of
Introduction
19
conversion and seasoning of rubber wood. He also highlighted the
problems arising due to warp, raised grain, insect and fungal infestations.
Singh et al.(1985) have pointed out a great potential for rubber wood
in the manufacture of glue laminated products, various structural and non-
structural housing components and even wood polymer composites (WPC).
In India, rubber wood after appropriate treatment has been successfully
tried for furniture, window and door shutters and frames, cabinet ware,
plywood, splints, match box etc. Compressed rubber wood has also been
used for shuttles, bobbins and such other textile accessories as a substitute
for maple and imported hornbeam (Sharma, et al. 1977).
Ipe et al. (1987) reveal the uses of rubber wood in Kerala for
packing cases, veneers, splints, plywood, tea chests, seats and backs etc.
But the study has not estimated the gross value added, capacity utilization,
employment generation, value of export etc. The secondary processing
sector has also not been included in the purview of the study. The study
conducted by Haridasan (1985-86) by visiting 273 units in Kerala and
Tamil Nadu reveals the district-wise classification of rubber wood
consumption, and analyses rubber wood market for plywood, splints and
veneers. But the study has not estimated the gross value added, the
employment generation, the value addition by each node etc.
Sekhar (1989) covers in detail the different aspects of rubber wood
like mechanical properties, treatment and seasoning methods and different
Introduction
20
products of rubber wood. The average production of rubber wood/hectare
is 150 and 180 m3 in the rubber wood holdings and estates respectively.
The most distinctive feature of rubber wood is that it is a renewable
byproduct of rubber plantations. The supply of rubber wood is
inexhaustible as the plantations are maintained on a sustainable yield
rotation of 25-30 years. Moreover, the development of appropriate
processing technologies capable of improving the inherent properties of
rubber wood made it a sustainable substitute for conventional hardwood
species on a variety of end uses and contributes to the environmental
conservation. The study further reveals that appropriate preservative
treatment before utilization will prevent degradation and will enhance its
service life. Rubber wood even after chemical treatment costs much less
than other timbers and will have a service life ranging from 25 to 100 years
depending on the method of treatment.
It was for the first time in India that scientists and industrialists
met in a common forum at the National Seminar on Rubber Wood held
at Kottayam (1989) to discuss the importance of rubber wood. The
papers dealt with importance, treatment, seasoning, mechanical
properties of rubber wood and its scope for using it as an alternative to
traditional timbers. But none of the papers dealt with issues like
marketing problems, technical and economic viability, the role of
various actors etc.
Introduction
21
Sundararajan (1989) pointed out that 70 lakh cubic feet per year of
worth size rubber wood can contribute Rs 2380 million to GNP per annum
if converted to commercial grade i.e., for door frames, sofas, flush doors
etc. and can generate employment worth 17 million man days per annum.
This is a projective study and the projections are not proved with empirical
analysis.
Zachariah (1992) made a study about the economics of rubber wood
industry in Kerala. It was the first of its kind on the economics of SPRWP
sector by surveying all the 11 treated rubber wood units in Kerala in
1991.The study looked into the economics of packing case, veneer,
plywood, and secondary processing units and found the breakeven point of
the units and also calculated the capacity utilization, treatment methods,
gross value added, employment, profitability and export. The study found
that the secondary processing sector has medium capacity utilization, high
employment and value addition per unit and moderate profits compared to
packing case units. Though value addition was low in packing cases and
veneer, they were more profitable than treated wood units. But the share of
various actors in the chain and the product- wise extent of value addition
were not estimated.
Viswanathan et al. (1998) conducted a field survey in 1995-96
covering Kerala, Karnataka and Tamil Nadu to document the performance
of the processing units in terms of scale of operation, procurement and
Introduction
22
processing, capacity utilization, range of products manufactured, and
market orientation. Accordingly, information on the above aspects was
collected from 42 SPRWP units. The results indicated that only 43 per cent
have downstream manufacturing facilities. Sixty six per cent of the logs
and 82 per cent of the sawn timber were procured indirectly. Seventy six
per cent of the units have saw mills attached to them. The annual installed
capacity was 46844 m3, and the sawn timber processed was 24070 m3 and
the capacity utilization was 51 per cent. The study further showed that 40
percent of the units produced furniture and furniture components; 30 per
cent produced paneling shutters, doors, windows, and door frames; 26 per
cent produced flooring tiles, brush backs, handles, block boards and table
tops, 21 per cent produced surface planed sawn planks (S4S). Only 13 units
reported to have exports. The industry is oriented towards internal market
however; lack of acceptance is a major hurdle. The limitation of the study
is that it has not estimated the gross output, the value addition, profitability,
and the role of various actors in the sector and the extent of export.
George and Joseph (2002) narrate the production and utilization of
rubber wood in India and estimated the current and potential value addition
in Indian rubber wood sector. The study has projected the availability of
rubber wood in India. The projection is that the availability of all types of
rubber wood will increase from 1.6million m3 in 2000-01 to 4.23million in
2009-10. The study has also shown that 88 per cent is utilized in low value
added products. Thus the stem wood consumption in India, particularly in
Introduction
23
Kerala, is highly skewed in the manufacture of low valued products such as
packing cases and inferior quality plywood. It is further showed that the
middlemen pocketed a major portion of the share of rubber wood price
paid by the actual buyers. But the study has not estimated the gross value
of output of the sector, product- wise extent of value addition, the total
value addition in the primary and secondary processing, the value addition
in different stages, and the relative share of various actors.
George and Joseph (2002) have shown that imperfections in the
primary market for rubber wood logs are leading to the inability of the
secondary processing units to control the price and quality of the raw
material. The relatively higher price of rubber wood logs in India results in
an inbuilt disadvantage for the processing industry compared to its
counterparts in other NR producing countries. There are marketing
problems arising from the non-acceptability of finished products both in
the domestic and world markets as there are no statutory authority to
implement and monitor the standards for processing and quality control.
Gnanaharan et al.(2002) covers all aspects of rubber wood
processing like production and utilization, structural features of rubber
wood, drying of rubber wood, preservative treatment, finger jointing,
machining and downstream processing, manufacture of plywood, block
boards, shutters, marketing aspects of processing industry etc. But these
studies do not deal with the technical and economic viability of the sector,
Introduction
24
the income and employment generated, gross value of each output, the
value of export etc.
Viswanathan and George (2004) made a study about 21 SPRWP
units and collected data for 1997-2001 and this is the first estimate by RRII
about the gross value of output of the secondary processing sector. The
gross value of output increased from Rs 32.6 million in 1997 to Rs150
million in 2001. The share of export in value of output declined from 66 to
22 per cent during the same period. The study reveals that 54 per cent of
the output of secondary processing is still not utilized for further value
addition like furniture, door, EGP etc. The extent of value addition in farm
is 100 per cent but a major portion of this goes to middlemen and only 50
per cent of the price of rubber wood in Weigh Bridge goes to farmers. The
extent of value addition from round log to end product is estimated to be
700 per cent but in Malaysia the same value addition is 2000 per cent. This
points to the inadequate use of modern technology. Moreover, less than 50
per cent of the capacity of existing plants is utilized. The study reveals that
44 per cent of the total cost is for rubber wood, 15 per cent for interest
payment, 13 per cent for depreciation and 10 per cent for wages and
salaries. The study also analyses the future prospects and problems of the
sector. The study however, does not show the detailed estimates of costs,
probably due to the non availability of information .The product wise
extent of value addition and the relative share of other actors are also not
Introduction
25
given. The study states that there were 84 registered units in the secondary
processing sector and only 50 per cent of them are operational.
Ramanathan et al. (2004) analysed the existing scenario, problems
and future trends in the wood industry of Kerala. They classify the wood
sector in Kerala into three: i) Treated wood ii) Furniture iii) Panel,
plywood, block board and particle board. SWOT analysis was made for
each of the sectors. The study shows that there are 439 rubber wood based
units in and around Perumbavoor (plywood units 65, veneer 250, and saw
mills 115). Out of the 40 SPRWP units, 9 units were given loan by KSIDC.
The five units with new generation plant and machinery for furniture
production are Rubco (annual installed capacity of 21500 m3), Borax
Morarji (20000 m3), Rubber Wood India (8250 m3), Andamans (4728 m3),
and V.R Treat woods (4500 m3). The study, however, does not give a
detailed picture of the SPRWP sector and plywood sector, especially the
gross value added, profitability, value addition, role of actors etc.
The studies reviewed so far have made clear that no concrete
conclusions can be drawn about all variables like profit, value addition etc.
since most of the studies concentrated on features like the consumption and
utilization of rubber wood and processing technology. However, it can be
deduced from these studies that the industry has moderate profit, medium
capacity utilization, low value addition, apart from the problems like
Introduction
26
inward oriented marketing, high price of raw materials, technological
difficulties, lack of diversification and upgrading etc
The main limitation of all these studies is that none of them have
made use of any theoretical framework for the detailed analysis.
1.6. Research Gap
Though the various studies touched upon several issues of rubber
wood industry, no single study has been carried out with an appropriate
framework. The value chain analysis is identified as a powerful framework
for analyzing the various aspects of rubber wood industry. To put it
differently, none of the studies mentioned above covers the different
aspects of value chain of the rubber wood industry i.e. the dynamics of the
chain, its linkages, governance, spatial aspects and institutional support.
The present study fills this gap.
At this juncture, certain studies on value chain are reviewed and it is
given in section 1.7.
1.7 Selected Studies on Value Chain
There are attempts in different parts of the world to study many
commodities in this framework. Gereffi (1994) examines the impact of
backward and forward linkages in garment manufacturing and reveals that
many apparel makers had little choice but to accede to the demands of their
main domestic suppliers. They also face pressure from merchandisers to
lower their prices and improve their performance. In buyer driven
Introduction
27
consumer good industries, there are high barriers to entry at the level of
brand named companies and retailers that invest considerable sums in
product development, advertising and computerized store networks to
create and sell these products. The main economic agents in the chain are
retailers, traders, overseas buyers and factories. In fashion oriented apparel
goods, the consumer price is three times the overseas factory cost for
imported clothing. The study covers the organizational structure, location
aspects and the role of institutions in the chain. The study also analyses the
implications of triangular manufacturing from a commodity chain
perspective.
Avdasheva et al. (2005) in their study analyses the competitiveness
of Russian enterprises for the first time from the perspective of value chain.
The study shows that any nonselective methods of supporting enterprises
(such as tax reductions) exert extremely limited influence on the status of
players. The study also suggests several policy measures to improve the
ability of producers to reposition themselves along the chain or to modify
the chain itself. Vangstrup (1997) analyses the potential of commercial
subcontracting in Mexico by focusing on a particular segment of textile
industry.
Kaplinsky et al. (2003) in their study highlight the importance of
exporting wood furniture products of developing countries and then map
the wood furniture value chain. A co-operative national net work of
Introduction
28
stakeholders spread through out the chain coordinated by the Industrial
Research Project (IRP) known as Saligne Value Chain group (SVC group)
was set up and the co-operation among the members (timber growers, saw
mills, product manufacturers, government departments, consultancy and
research assistants, members of IRP etc.) led to upgrading in the production
processes. The study suggests a sequential pattern of upgrading, that is, a
transition from Original Equipment Manufacturing (OEM) to Original
Design Manufacturing (ODM) and Original Brand Manufacturing (OBM).
The study concentrates on upgrading but does not analyse the relative share
of actors.
Gibbon (2002) examined South African clothing commodity chain
and the industry’s recent export performance in the light of new trade
arrangements with the USA and the EU. The performance has been
modest, especially in the domestically owned part of the sector. But the
foreign owned firms have performed well. The domestic firms have to
adopt certain elements from these firms to improve their performance.
Rammohan and Sundaresan (2003) expose that most of the available
studies on commodity chains and upgrading pursue a narrow economic
view. They point out the following defects of Global Commodity Chain
(GCC). The concept may be used merely to trace the physical movement of
a commodity, with no acknowledgement of the social relations of
production and exchange and their crucial bearing on the commodity chain.
Introduction
29
Raviraman (2003) explains the intricacies of the social dimension of
the commodity chain analysis of tea plantation in Kerala in connection with
the onslaught of globalization and liberalization, especially on petty
producers and labourers. He shows with analytical rigour the
transformation of a commodity chain into a ‘commodity chain trap’ and the
precarious predicament of small growers and workers who are being
enmeshed in it. Finally he summarises the study with certain suggestions
for the formation of a ‘new web of life’ for the downtrodden.
Sukumarannair (2003) tried to test the hypothesis that the
governance of primary commodities is largely demand driven and GCC is a
powerful tool for economic upgrading of primary commodities in
developing countries. He tested the hypothesis using the coconut oil
industry in Kerala. The two nodes identified in the chain are copra making
and oil extraction. The conclusion of the study is that given the scenario,
the prospects of upgrading in any of the node of coconut oil commodity
chain is bleak, unless the government steps in with a highly protectionist
policy.
Rajasenan (2003) examines the ‘commodity chain trap’ of the
marine fishery in Kerala at both material and value terms and its
ramifications within globalised fishery chain framework. The study points
out the need and requirement for a Fishery Export Processing Zone in
Introduction
30
Kerala to meet the perils of the recent quality assurance standards
stipulated by the importing countries.
The study conducted by Patrick (2003) analyses the dynamics of
grain mill products in Kerala by identifying the various actors in the value
chain and linkage between them in a commodity chain frame work.
Subsequently he also focuses on the process of competition and innovation
within the chain. He concludes the study by giving a well-knitted treatment
of the possible consequences of the business strategies and government
policies on grain mill chain in Kerala. Another merit is that the study has
estimated the relative share of various actors and the extent of value
addition. It made the conclusion that value chain of grain mill products is
producer driven.
The above studies arrive at the conclusion that there are various
players in the different nodes of value chain of a commodity. There exist
strong linkage, a positive role played by institutions in upgrading
technology and product, and the chain is largely buyer driven.
Disaggregated analysis show that while capital intensive commodities
present a producer driven chain, labour intensive products are buyer driven.
1.8. The Statement of the Problem
The demand for timber and timber products has increased
considerably due to the increase in population and industrialization. The
depletion of forest wealth has been causing great concern among the
Introduction
31
planners for a long time. Substitutes to wood have their limits as far as the
practical applications are concerned. In this context the importance of
rubber wood is to be seen as a reasonable alternative raw material for wood
based industries. The ban imposed by the state government in the transport
of 48 varieties of wood logs outside Kerala also led to the wider use of
rubber wood for industrial purposes. The increased use of rubber wood for
industrial purposes has resulted in the rise in the price of rubber wood. But
an important problem located in this context is that a major part of the
increase in price of rubber wood is shared by middlemen. Another major
problem of the industry is the skewness in the consumption of rubber wood
in the manufacture of low value added products. Certain other pertinent
issues emerged are the inward oriented market for finished products with
less exports, absence of diversification, less acceptability of finished
products, absence of a statutory authority to monitor and implement quality
control etc. Developing a value chain will help to overcome these problems
as it provides strong linkage, a positive role to be played by institutions in
upgrading process and products, particularly in the midst of buyer driven
value chain. At this juncture a number of research questions come up.
What is the exact nature of value chain of rubber wood industry?
Who are the active players in the rubber wood value chain? How far such a
value chain benefits the various actors like farmers, manufacturers, traders
etc in the chain? What is the performance level of rubber wood industry
and whether there are any changes in performance across sub-sectors like
Introduction
32
SPRWP, plywood etc.? Will the value chain help solve the issues like
exploitation by middlemen, and low value addition by applying strategies
like diversification, upgrading etc? Is there any linkage? If yes, what is its
extent? Whether value chain is buyer driven or producer driven? and How
does it help to upgrade?
To analyse these issues, an in-depth research is required. The
present study is an attempt to analyse the rubber wood industry in an
intensive way with the help of value chain analysis.
1.9. Objectives of the Study
The broad objective of the study is to see the structure and dynamics of
the value chain of rubber wood industry in Kerala. The sub-objectives of the
study are:
a. To identify the various actors in the value chain of rubber wood
products and examine their relative contribution in the chain.
b. To analyse the performance of the industrial units in the SPRWP
in relation to plywood industry in the value chain.
c. To analyse the linkages, governance, and the role of institutions
in upgrading and promoting linkages.
d. To examine the problems of the industry and to make suggestions
for policy makers.
Introduction
33
1.10. Hypotheses
a. There exists high relative share of retailers in value added as compared
to other actors, leading to a buyer driven value chain.
b. There exist inter and intra industrial linkages, both backward and
forward.
c. Upgrading is closely associated with the role of institutions and buyers
in value chain.
1.11. Theoretical Framework
Value chain analysis has a relatively short history and it has different
research approaches. Michael Porter (1985), Gereffi and Korzeniewsz
(1994), Hopkins and Wallerstein (1986), Philip Raikes (2000), Kaplinsky
(2001) etc have developed value chain frameworks. The study makes use
of the framework developed by Kaplinsky.
The three important aspects of value chain study as cited by
Kaplinsky are:
a. Value chain analysis plays a key role in understanding the need and
scope for systemic competitiveness i.e not just intra plant efficiency
and intra firm efficiency but inter firm efficiency. Firms should
concentrate on those resources which they possessed, which were
relatively unique, provided valuable service to customers and which
were difficult to copy, and that they should outsource the remaining
competencies to other firms in the value chain.
Introduction
34
b. Value chain considers not just the efficiency of the production link
in the chain, but also those factors which determine the participation
of particular groups of producers in the final market i.e. trade
policies, strategic decision regarding the location of their activity in
particular region or country etc.
c. Value chain helps to explain the distribution of benefits, particularly
income to those participating in the global economy.
The main elements based on the work done by Kaplinsky can be
summarized as follows:
a. Deciding the point of entry in the chain for special enquiry
b. Mapping value chains, the share of various actors in the chain.
c. Identification of key buyers
d. Identifying the chain governance and the role of institutions.
e. Upgrading in value chains.
1.12. Methodology
The research is both exploratory and analytical. The study depends
on both primary and secondary data. For secondary source, data available
in Economic Review, Annual Survey of Industries (ASI), Rubber Research
Institute of India (RRII), Indian Rubber Statistics (IRS), ITTO, FAO,
journals, books and publications have been used. The primary data have
Introduction
35
been collected through a sample survey on the Perumbavoor plywood industry
and a census survey of SPRWP units in Kerala.
The list of secondary processing units was collected from the Rubber
Board, which is the authentic source of the same in Kerala. As per the list,
38 units manufacturing SPRWP were reported in Kerala (45 units all-
India). But it was found that there were only 31 units operating in Kerala
during the data collection period (2006) and hence all the units were
surveyed.
Primary data for plywood was collected from Perumbavoor in
Ernakulam district since it has the highest concentration of plywood units
(51%) using rubber wood exclusively (Thomas, 2003). The sampling frame
was obtained from District Industries Centre, Ernakulam which consisted
of 65 plywood units in 2003. Thirty units were selected by systematic
random sampling starting with first unit in the list. Ten packing case units
and 15 peeling units from Kottayam, Ernakulam and Pathanamthitta
districts have also been selected for a comparative analysis with plywood
and SPRWP. The packing and peeling units are those which have linkage
with the manufacturers surveyed. Ten wholesalers and 40 retailers who
bought the products from the sample manufacturers and sold it to the
consumers were selected from Kerala, Tamil Nadu and Karnataka. Data
regarding export have been collected from 16 exporters (11 SPRWP and 5
plywood) belonging to the surveyed units.
Introduction
36
Five trading centres, which sold rubber wood to manufacturers, have
been selected for collecting data regarding rubber wood prices. The
criterion used for selecting the trading centres is the volume of trade
carried out by them with the manufacturers. Using judgment sampling
method, data have also been collected from 100 farmers and 30 traders of
rubber wood who sold rubber wood to the trading centres, which in turn
sold it to the sample manufacturers.
The statistical techniques used for analysing data are arithmetic
mean, standard deviation, coefficient of variation, correlation coefficient
and coefficient of determination. The linkage aspect is analysed in terms of
percentages.
1.13. Limitations of the Study
The major limitation of the present study is that secondary data is
not available regarding the rubber wood primary processing industry in
Kerala or India. Regarding the secondary processing sector, the available
secondary data is weak. Another limitation of the study was the difficulty
to collect data from the retailers of foreign countries to whom domestic
exporters sell the products.
1.14. Chapter Scheme
The first chapter is the introduction which includes the literature
survey, theoretical framework, objectives of the study, hypotheses,
methodology, importance and limitation. The second chapter portrays an
Introduction
37
analysis of value chain in comparison with supply chain, commodity chain
and also explains the concepts used in the study. The third chapter presents
an overview of rubber industry and rubber wood industry in India and
Kerala. The fourth chapter analyses the various actors in the chain and their
relative position. The fifth chapter deals with the performance of the
plywood and secondary processing units in Kerala. The sixth chapter
analyses the linkage and the governance structure, role of institutions in
upgrading and the problems in the industry. The last chapter gives a
summary along with the suggestions.