1. A Case Study of the Forest Products
A Case Study of the Forest Products
Industry in Central America
Scott Lyon
Graduate Research Assistant
Henry Quesada
Assistant Professor
Department of Wood Science and Forest Products
Virginia Tech
June 2011
2. Outline
• To quantify wood products demand for Central American countries
• To quantify Appalachian wood products exports to Central America
• North American Industry Classification System (NAICS)
• NAICS 321: 3311 (lumber, sawmill, millwork), 3312 (veneer,
engineered wood, trusses, plywood) 3219 (pallets, mobile
d d l d) ( ll bl
homes)
• NAICS 337: 3371 (wood kitchen cabinet, wood household, wood
institutional furniture), 3372 office furniture, 3379 related
institutional furniture) 3372 office furniture 3379 related
products
• Examine results to identify market opportunities in Central
American countries for Appalachian wood products
pp p
• To determine main strategies to export Appalachian wood products
to Central America
3. Current CA forest situation
Current CA forest situation
• F
Forest Coverage
tC
6
5
4 Costa Rica
El Salvador
million ha
3 Guatemala
Honduras
2
Nicaragua
Panama
1
0
Forest Coverage
Mairena and Hernandez (2005), Cuellar (2004), Revolorio (2004), ANAM (2006), Guevara (2004) Quesada (2008)
4. Demand Analysis
Demand Analysis
Production of Wood Products in 2009
1,200
1 200
1,000
800
1000 m 3
m
600
400
200
0
* Consumption does not include fuel wood
FAOSTAT(2010)
5. Demand Analysis
Demand Analysis
Central American Imports of NAICS 321 & 337 Globally by Country
160
140
120
Costa Rica
100 Panama
El Salvador
llions
80 Guatemala
$ Mil
Honduras
60
Nicaragua
40
20
0
2005 2006 2007 2008
International Trade Centre (2010)
6. Market Opportunities
Market Opportunities
• Population Explosion
p p
– 11 million (1950) to 40 million (2008)
• Deforestation
• Illegal Logging
• Decrease of Reforestation
• Tourism
• Expansion of the Panama Canal
• Inexpensive Cost of Living
Inexpensive Cost of Living
• CAFTA
Fox (1990), Saxe (1999), World Bank (2010)
7. Market Opportunities
Market Opportunities
• Forest Products Industryy
– Limited source of local supply
– Local industry shrinking
– Lacks governmental support
– Small amount of plantations
– Climate conditions
La Nacion (2006, 2007 and 2008), Costa Rica Central Bank (2008), Salamone (2000), FAO (2008), Siglo XXI (2006, 2007, and 2008),
La Nacion (2006 2007 and 2008) Costa Rica Central Bank (2008) Salamone (2000) FAO (2008) Siglo XXI (2006 2007 and 2008)
Quesada (2008) , La Prensa (2006, 2007, and 2008),
8. Appalachian Forest Products Exports
Appalachian Forest Products Exports
Appalachian Region Exports of NIACS 321 & 337 Globally
2.5
25
xports (Billions US)
2
1.5
321
1 337
Value of Ex
0.5
V
0
2005 2006 2007 2008 2009
US Department of Commerce. Trade Stats Express (2010)
9. Update on Appalachian Wood Products
p pp
Exports*
• Why the decrease?
Why the decrease?
– Unstable financial markets
– Tighter credit
g
– Inflation
– Higher freight rates
g g
– Soft housing markets
– Rising labor…production cost in China
– Future flow of capital spending: inland China,
Vietnam and Indonesia
*Virginia Forest Products Export News letter (Fall 08)
10. Demand Analysis
Demand Analysis
Appalachian Region Exports of NAICS 321 & 337 to
pp g p
Central America
30
US)
rts (billion U
25
20
15 321
ue of expor
337
10
5
Valu
0
2005 2006 2007 2008 2009
US Department of Commerce. Trade Stats Express (2010)
11. Project Justification
Project Justification
• “the United States forest product companies have
overlooked Central America as an opportunity to
expand their markets.” A. Salamone (2000)
• Appalachian region suffered from the economic crisis
• Increase product competiveness
– Expanding export markets
– Improving product promotion
Wang et al. (2010)
12. Objectives
• Identify main competitors of forest product
companies in Central American countries.
• Investigate distribution channels of forest products.
• Investigate local production, demand, and policy of
forest products in Central American countries.
• Determine drivers and barriers of the sale of
Appalachian hardwood lumber and building
materials in Central American countries.
t i l i C t lA i ti
*Smith, Miller and Parhizkar (2008) Quesada (2008)
13. Research Methodology
Research Methodology
• Secondary sources
• Qualitative
– Government agencies
Government agencies
– WP importers
• Quantitative
– WP retailers
– WP manufacturers
14. Qualitative Results
Qualitative Results
• How many people were interviewed?
yp p
– 20 companies ‐ 8 agencies
• Main competition local and SA
– Low effort from USA
• Natural forest/plantations
• Lack gov
Lack gov support
• Poor wood industry
• Pine
– Importing from SA
– Furniture
• Specialized Wood Products
15. Interview Results
Interview Results
• Hardwoods
Guanacaste (Enterolobium cyclocarpum), Black Cherry (Prunus serotina), Black Walnut (Juglans nigra)
16. Qualitative Results
Qualitative Results
Barrier Country(ies) Problem
Price Central America Competition with Chilean
wood products
Lumber Dimensions Costa Rica, Guatemala, El Use “Varas” for lumber
Salvador dimension
Wood Product Knowledge Central America Builders, Architects, and
Designers lack knowledge
wood and wood products
Wood Product Distribution Guatemala, El Salvador Lack of proper distribution
of wood products to the
country and end-users
Language Central America Most buyers only speak
Spanish
17. Qualitative Results
Qualitative Results
• El Salvador
El Salvador
– Highest population density
– Scarce raw material source
Scarce raw material source
– Strict environmental regulations
–AAccessible by neighboring countries
ibl b i hb i ti
18. Interview Results Summary
Interview Results Summary
• Price products competitively
Price products competitively
• Offer products to meet demand
• Partner with wholesalers
ih h l l
• Gain relationships with potential buyers
19. Survey of Retailers & Manufacturers
Survey of Retailers & Manufacturers
• Questions focused on:
Questions focused on:
– Supplier attributes
– Product attributes
Product attributes
– Retailer/manufacturer
promotion strategy
promotion strategy
– Supplier promotion strategy
– Importing barriers
Importing barriers
– Wood products purchased
–P i i
Pricing
20. Survey Results
Survey Results
• 300 firms were surveyed
300 firms were surveyed
and 247 valid
• Primarily small furniture
Primarily small furniture
manufacturers
–L
Less than 25 employees
th 25 l
22. Survey Results
Survey Results
Supplier Type
Supplier Type
Direct from manufacturer 166
Wholesaler 144
Broker 85
Government/State 16
0 50 100 150 200
Frequency
23. Survey Results
Survey Results
Wood/Wood Product Attributes
Product Quality 4.77
Price 4.76
Delivery on time 4.66
Volume Discounts 4.57
Warranty on product 4.53
Color 3.53
3 53
Kiln‐dried 3.51
Environmentally Certified 3.43
Packaging 3.19
3 19
Brand 3.12
1 2 3 4 5
Low Importance High Importance
24. Survey Results
Survey Results
Potential Barriers for Appalachian wood products companies
Price 4.81
4 81
Delivery on time 4.74
Transportation and logistics 4.63
Quality of Appalachian products 4.44
International policies 3.78
U.S. Governmental policies 3.72
Language barrier 3.53
1 2 3 4 5
Low Importance High Importance
25. Strategy for Appalachian Companies
Strategy for Appalachian Companies
Product Promotion Place Pricing
Higher value Future
added Patience and Competitive price!
Commitment distribution
product! channel
Quality Personal Sell Local partners Similar
Assortment Websites On time
Warranty Communicate
Discounts
26. Conclusions
• Annual consumption of wood products is more
ua co su pt o o ood p oducts s o e
than 4 million m3 per year
p g y
• Environmental pressures hurting local industry
• USA, Canada, Chile, and Brazil: high quality
• Potential strategies for Appalachian wood products
companies are:
• To partner with local wholesalers
• Start sales relationships
• Offer higher value added
• Keep p
p prices similar or slighted superior
g p
Quesada (2008)
