GTF Trade Dialgues: Information-sharing and longer-term supply agreements are key to SME success
For part two of its Trade Dialogues series GTF spoke to Danzer UK managing director Ken Walsh about EU market opportunities for producer-country SMEs, how due diligence is carried out in practice and the relevance of FLEGT VPAs. Danzer UK has been one of the pioneers of responsible sourcing in Europe: it started gathering evidence of responsible sourcing as early as 20 years ago and today Danzer UK is certified by NEPCon LegalSource Standard. The company generates roughly 30% of sales with products from high-risk areas.
GTF: Which countries do you import from and what are the main wood species and products you source?
Ken Walsh (KW): Danzer UK primarily imports sawn timber, solid timber, kitchen worktops, flooring, stair components, and doors. We are buying 27 different species in Africa, Asia, Europe and North America. 30% (GBP 9 million sales) of our turnover is generated with products from high-risk supply areas.
GTF: Which countries do you sell to?
KW: UK and Ireland only.
GTF: Does it make a difference for you whether you buy from a small company or a bigger player and if yes, what are the main differences?
KW: In principle not at all but in reality in high risk supply areas we tend to buy from companies with their own forest concessions – which tend to be large scale operations with more transparency of supply and stronger resources. FLEGT will obviously help smaller companies gain access to markets.
GTF: From your perspective, what are the main challenges facing small and medium sized African producer companies that want to sell to the European market?
KW: The bulk of timber that arrives directly into the UK from Africa carries with it some form of Verified Legal Compliance certification status. This has therefore become the default position for this market.
I can imagine that it is very difficult cost wise and resource wise for the smaller producers to meet this requirement. FLEGT will obviously help fill this gap.
GTF: Where do you see the main reasons that African producers still supply mainly primary and secondary wood products to the European market – are there specific challenges when it comes to producing tertiary goods?
KW: There has been an increase in the supply of certain products such as 3-ply laminated scantlings ex Africa over the past few years – although it must be said that the UK has been slow to take this up – but you are right about the general lack of further processing in Africa.
I think that one major challenge is the lack of confidence in investing in this type of expensive equipment due to political instability.
GTF: What could producer SMEs do to make it more attractive for European importers to buy from them?
KW: As stated above VLC status has become the default position for the UK market. The need for transparency in the supply chain is there irrespective of the size of the supplier.
A previous drive for Fair Trade timber is a good example of the problem – excellent for ensuring local communities are well represented but a disaster when it comes to transparency of origin.
FLEGT will help their cause.
GTF: Is there anything the European trade can do to support smaller producer companies – and are there any initiatives to this effect that you are aware of?
KW: We can obviously share our knowledge and expertise and enter into longer-term supply agreements, which will provide some confidence to the SME going forward.
There is EU funding available for the improvement of sustainable timber supply globally, but I am not aware of how that can be accessed.
GTF: Let us speak more specifically about EUTR due diligence: what challenges are you facing in procuring documentation that can prove “negligible risk of the timber being illegal”?
KW: Because we have been obtaining these types of documents since year 2000 we had very few problems with any form of transition to EUTR requirements. Initially, in the early 2000s we used the UK TTF’s Responsible Purchasing Policy as our template for due diligence.
Subsequently we have been working closely with NEPCon and since 2014 we have been NEPCon LegalSource Standard certified which demonstrates that our due diligence system conforms to EUTR requirements. As you can imagine, in the early days obtaining answers and evidence was quite challenging as we were one of only a very few people asking for such information. As things developed and particularly following EUTR suppliers are now more aware of the need and willing to provide the necessary information.
GTF: What types of documents do you typically collect for your due diligence and how do you verify their authenticity?
KW: We really heavily on VLC schemes such as RA VLC and OLB. We also have our NEPCon LegalSource certification to help with this.
Types of documents required are:
- Confirmation of forest concession area with map.
- Confirmation of approved forest management plan.
- Annual felling permit.
- Confirmation of up to date tax and royalty payments etc.
- Transport documents.
- Export documents.
Authenticity of the various documents is probably the major challenge due to the risk of corruption in certain high risk supply areas. Firstly, we gather as much information as we can about the supply country and specific supplier to see what information exists.
In some instances we have colleagues in situ at source in others we carry out our own regular visits to suppliers to see the situation first hand. We even do this with high risk origins where goods are certified.
Results of certification audits are normally available publically.
Species testing is another useful tool to help in assessing whether the information you have been given is accurate.
GTF: Another European importer recently told GTF that due diligence requirements were becoming tighter as Competent Authorities were carrying out more frequent and detailed checks on operators. As a consequence, FLEGT-licensed timber was becoming an even more interesting option. Do you feel that same way?
KW: I agree – it is obvious that as the UK Competent Authority have developed a much better understanding of the dynamics within the various supply chains over the past four years and have seen evidence of best due diligence practice they have increased their expectations. I expect this situation to continue. It is obvious that levels of enforcement in different countries are inconsistent and it is possible that those Competent Authorities that are less diligent may catch up in due course. This will obviously make FLEGT licensed timber more attractive for many. For Danzer UK we intend to continue our current level of due diligence even if FLEGT timber exists. It is important to remember that whilst FLEGT is a major step forward and is to be encouraged, by it’s very definition it exists in some of the most high risk origins in the world and has not yet stood the test of time.
GTF: The first FLEGT-licensed timber has become available in Indonesia at the end of last year. Do you think this has an impact on European demand for Indonesian wood products?
KW: We buy very little in Indonesia and still insist on FSC certification and detailed supply chain information despite the existence of FLEGT. That said I am sure that FLEGT will enhance the attraction of dealing with Indonesia but this will take time and the usual commercial factors (quality, service, price etc) will dictate.
GTF: Do you have more confidence buying from VPA partner countries even when they have no FLEGT licences yet?
KW: As already mentioned we will continue to rely on our own internal DDS system to ensure we continue to obtain the right type of products for our business.
GTF: Do you think companies in VPA partner countries would benefit from the completion of their countries’ VPAs?
KW: Yes it will be seen by many as advantageous against origins that do not have any FLEGT licensed timber but remember the usual commercial factors will still apply.
GTF: Where do you see FLEGT timber fitting in the price structure for example for a species like Sapele – compared to FSC, verified legal and unlicensed products?
KW: Our experience is that there is very little opportunity for any “green” premium. We have certainly not seen any price increase for the limited volumes of product we buy in Indonesia. I certainly see no opportunity for FLEGT licensed timber to achieve any premium over say RA VLC.
As an industry we need to understand that timber is competing with other building materials and whilst it is increasingly being seen as the building material of choice from a sustainability perspective tropical timber has extra hoops to jump through.
It is not just the case of FLEGT waving it’s magic wand – there is much ill informed prejudice against tropical timber which can result in unintended negative consequences and it is essential that we embrace the need to bring a totally sustainable product to the table that brings tangible benefits to both forests and local communities in developing countries where they are most needed.
We have a good story to tell – we need to get the message out there!
The full video interview with Ken Walsh will shortly be published on the GTF website.