The Forestry industry in Argentina: Opportunities and challenges for this neglected sector

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From the forests of the Provinces of Corrientes, Entre Rios and Misiones to a new building being constructed in Santa Fe, a bookstore in Tierra del Fuego or furniture in the shops of Buenos Aires, the forestry industry involves several different activities linked by the cycle of wood from the tasks of afforestation in Argentina Mesopotamia, to the manufacture of pulp and paper, the creating of high-end furniture and even renewable energy projects.

As a whole, this sector is responsible for 100,000 direct jobs and about 7,000 small companies nationwide. In 2017, the gross output value reached $ 14,000 million, equivalent to 7.3% of industrial value-added, according to data gathered by the INDEC. “Argentina consumes enough wood for construction, with nearly 2,400 sawmills to satisfy the domestic market,” said Nicolas Laharrague, director of Foresto-Industrial Development of the Nation.

Exports of forest products are perhaps more humble: USD 551 million in 2017, only up 0.63% from the previous year’s turnover. Although this very slight upward trend ends six years of decline from a peak in 2011 when revenues reached USD 1.12 billion, some concerns about the trade deficit of USD 558 million recorded last year (because the import of paper products still persists in meeting domestic demand).

The latest sectoral measurements, dating back to the first quarter of last year, note that for forest-based exports, paper accounted for 33% of the total, followed by wood pulp (generally used for the manufacture of newsprint and cardboard) at  21%; wood and wood products 20%; graphics 7%; furniture 1%, and others 18%.

“It ‘s a chain that has several links, some stronger than others with comparative advantages, ” said Leandro Mora la Nacion Alfonsin, executive director of the Argentina Federation of Timber and Allied Industries (FAIMA). “It’s not the same thing as the round wood commodity that transforms into furniture, tables and board products”, he added. 

Pulp exports

Paper and pulp account for 54% of forestry exports. Vassallo said that to study this sector, it is necessary to distinguish several different categories, such as newsprint, cardboard, paper and printing-writing, tissue (which “is experiencing a temporary problem due to lack of consumption”) and stuccoed (virtually no production in the country, except for a factory Ledesma in the province of San Luis), among few others.

The manager, who has 14 years of industry experience, said, “Reaching a new market involves working a lot.” “It takes a long time to get them; a place in the paper-cellulosic world is like blowing and making bottles, it requires patience, investment, and travel, and you have to be persistent over time.

Furniture exports

Alfonsín Mora explained that Argentina is not an intensive furniture exporter. “This is basically because the price competitiveness with players like China is tough to overcome,” he said. Xi Jinping’s homeland accounts for 40% of global furniture production, while South America accounts for barely 0.6%, and of that, 60% is in Brazil.

“Argentina is a very young player, he added. We are in a context of low profitability, with increased costs and financing fees by high-interest rates. In this context, Argentine furniture manufacturers exported some USD 94 million last year.

In his view, the greatest opportunities lie in furniture design for the ABC 1 segment, as price matters less than other factors in the buyer’s mind. “In the case of built-in furniture design, it is very intangible, but has gained certain market share in the United States, Ecuador and Uruguay, but remains at very low amounts,” he said.

Tables for China

Another significant leg of this industry is the table and board construction segment. China leads international demand after reaching a saturation point due to cutting down its own forests.

The country has become a very attractive destination for these products, which consumed 600 million m3 of timber in 2017. 31% of that amount went to construction, 29% to cellulose and paper, 19% to export and 10% to furniture.

During that period, they imported 100 million m3, although only 3% originated in Latin America, with Uruguay, Guyana, Brazil and Chile as the major markets, with Argentina out of the top 5 at position 15. “South America has a surplus with China in tables and boards of about USD 5 billion said Alfonsin. This is limited because the region has only 5% of the world’s cultivated forests.

There is also the potential for round wood and sawn wood. China imported just 46 million m3 in 2006, which climbed last year to 180 million m3 (80% softwoods and 20% hard). 

In early May, a trade mission from the China Timber and Wood Products Distribution Association (CTWPDA) will discuss specific opportunities with local industry players.

Claudia Peirano, director of the AFOA, said he still needed to address competitiveness, especially the costs of logistics and transport, but was optimistic. Chinese entrepreneurs see an opportunity to gradually increase timber imports from Argentina, given the domestic market’s high growth potential. In that sense, they offer to sign private partnerships among CTWPDA, AFOA, and FAIMA within a framework that will surely enable increased Argentine timber exports.

Many companies that participated in these talks needed to put together a consortium or nucleate to meet demand. The saw-milling sector still has low volumes to meet foreign exports, so it is necessary to work through the government chambers to see how you can generate these synergies.”

Talks about competitiveness

In September last year, the forest industry formed Mesa, which has among its members industries such as trade unions, foresters and businesses in wood and its derivatives.

It was led by former President Mauricio Macri and aimed to develop an agenda to improve the competitiveness of this sector and enhance its ability to create more jobs.

Production in the centre of Mesopotamia is more than 1000 kilometres from the ports. Therefore, the Government has addressed sector concerns, especially in logistics, by implementing the forest corridor in road transport and reducing port costs, achieving a 55% reduction in the cost per container. 

It is also working with Customs to see how we can position more competitively concerning the ports of neighbouring countries, “revealed Laharrague.

Vassallo said that each of these meetings showed a noticeable sectoral improvement. 

“At least, the fact that the President is there makes you pay attention to the issue,” he said, adding, “It really is a possibility to implement improvements in the sector for sure. Yes, every time the commitments are greater, this has to be a round trip. We can not claim anything else. Everyone has to do their part in this process.”

Timber competitiveness

The Government promotes a series of measures to boost the sector:-

• Bitrén Forestal (road trains).  Presented by the Ministry of Agro-Industry during the last edition of Expoagro in March, which has improved by 78% increased load and reduced by approximately 30% logistics costs almost immediately.

• FORESTAR 2030. The initiative, implemented by the Minister of Environment and Sustainable Development, is headed by Rabbi Sergio Bergman, whose objectives include increasing the country’s afforested area from 1.3 million hectares to 2 million hectares over the next 12 years. It is part of Argentina’s commitments to the Paris Summit.

• Green Insurance. In this regard, the President announced in mid-June an agreement between the Superintendent of Insurance of the Ministry of Finance and insurers to create a fund that seeks to promote afforestation and the enrichment of native forest companies.

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