Slow decline of indigenous timber industry

December 14, 2013

Southern Cape indigenous timber industry – are we witnessing the end of an era?
by Theo Stehle / Email: stehletheo@gmail.com

old mill
Steam powered sawmill in Knysna in the late 1800s. Knysna was the centre of the timber industry in the 19th century.
timber depot
Natural horse power ... Percheron draught horses being used to prepare an auction site in the 1980s. The auction depot was prepared in a pine compartment adjacent to the Harkerville indigenous forest. Left in front is Dr. Armin Seydack, specialist scientist (who now works as scientist in SANParks' local office), and behind him Danie Muller, former regional director of Forestry in Knysna (now retired). Photo: T. Stehle

The sale of timber from the Southern Cape-Tsitsikamma indigenous State forests reached an all-time low at a recent auction.

Probably for the first time in the history of the indigenous timber auctions, no auctioneering of the roughly 380m3 of fairly good quality timber offered for sale at The Crags in June 2013 took place. The seller, Kwakhanyisa Co-operative Ltd., who won the concession from SANParks to harvest and market the timber, had hoped that, apart from the local furniture manufacturers and merchants, the sale would attract buyers from Gauteng. Of the three local buyers who turned up, only one bought about 15m3 of logs out of hand at or below the inset price.

After a somewhat disappointing auction of 216m3 of indigenous timber and Australian blackwood in March, which was reported on in the April 2013 issue of SA Forestry magazine, the past auction came as a shock to the concessionaire and local indigenous timber circles. This industry has in recent years been staggering under a series of setbacks, not least of which was the abrupt termination by SANParks of the main supply of its traditional life blood in May 2010 – the raw material that it depends on, and which has been in continuous supply annually for at least 70 years.

Before probing deeper into the causes for the decline of this once thriving industry, it would be apt to trace it back to its early roots.

Roots of the indigenous timber industry
The Southern Cape indigenous timber furniture industry developed out of the timber industry that, in the days before exotic timber plantations, had as its main resource the roughly 60 000ha of indigenous forests (two thirds of which are State-owned) concentrated in the coastal area between Mossel Bay and Humansdorp.

During the course of the 19th century, Knysna became the nucleus of this industry and had to provide the developing country with building, furniture and wagon timber, and later mining timber and sleepers for the expanding railways in the interior. It is therefore not surprising that this small, remote village boasting a seaport, became the cradle of the South African sawmilling industry, with the first steam-powered sawmills in operation from 1875 onwards. The southern Cape furniture industry has its roots in the furniture trade training school which was established in the Knysna area in 1911, and that has over many years produced highly skilled cabinet makers who made famous the solid wood ‘Old Cape’ furniture on which the industry was developed.

Between the two world wars, the larger Knysna sawmilling firms Thesens, Geo. Parkes, Templemans and P.J. van Reenen manufactured this traditional furniture, but since the 1940s, the Jonkers and Fechters joined the industry as new entrants, later to be followed by other products from the furniture training school. As stinkwood and yellowwood became scarce, furniture increased in value and exotic blackwood increasingly substituted stink- wood. The furniture manufacturers since 1940 acquired the bulk of their timber on auctions held annually by the Forestry Department. This sales system, which was continued up to May 2010, was widely regarded as the most suitable way of selling and buying indigenous timber. 
Over the years, the industry had developed into several reputable and well established firms that contributed strongly toward the local and national economy and employment. As the country grew in prosperity during the 1960s and 1970s, solid wood, traditional furniture increased in cultural value and came to be regarded as status symbols, which was reflected in an expansion of the industry.

Political connections
The economic upswing in 1980 attracted speculants who chased up timber prices at the auctions. The local timber manufacturers perceived this as a threat to the stability of their industry, and, enjoying political protection, used this to their advantage to try and eliminate competition from ‘outsiders’. The politicians of the day yielded to their pressure. From 1985 to 1995, about 18 of the more significant local furniture manufacturers and timber merchants who had organised themselves into a guild, enjoyed exclusive access to more than 50% of the best indigenous timber and blackwood on closed auctions. The non-guild buyers had to compete with the guild members for the balance of the timber on open auctions. At that point in time, the industry as a whole, which included some new entrants from outside the area, employed about 700 to 800 people.

This system led to much discontent and malpractices and the State lost revenue through the reduced competition.

In 1995, the auctions were once again thrown open. Fears that the open auctions would deprive the traditional furniture firms, informally organised into the Southern Cape Timber Buyers Association (TBA), from obtaining enough timber at reasonable prices, proved to be unjustified. On the contrary, the industry benefited from a more diverse group of buyers, catering for a wide range of needs, including a developing arts and crafts market based on the lesser known indigenous hardwoods. Limited volumes of furniture were even exported to Europe and the USA. Moreover, the connection between the thriving local tourism and indigenous timber industries that had existed for some time, increased in significance.

Though the Forestry Department hardly broke even with the sales, the State did benefit indirectly from the processing industry through various taxes which in 1999 were estimated to amount to R5.8 million p.a. in comparison with a cost of R1.6 million p.a., which could (at that time) have been regarded as an excellent return on the ‘investment’ (Louis Heyl & Associates project report on the indigenous timber market, 1999).

What then is the cause for the decline in the industry which started from the 1990s onward?

Time stood still
Considering the fact that the firm Geo. Parkes manufactured ox-wagon components like yokes and spokes well into the 1950s, and that its wood turning factory, complete with the system of belts and pulleys dating back a century, was still producing tool handles into the early 1980s, it is evident that time stood still in this neck of the woods. Significant development of the area only really took off in the 1980s.

This partly explains why some of the traditional furniture manufacturers continued with outdated approaches and methods. Operating for years in a socio-economically stable environment, they were not under pressure to change and shed ‘excess fat’. Besides, the furniture firms were run by industrious individuals who had the skills to make furniture, but not necessarily to run a business.

In the 1990s, rising costs, changing market trends, cost-ineffective and wasteful methods of production (including low recovery from local timber with its inherent defects) began to overtake some of the oldest furniture firms which were forced to change to other production lines. This trend continued during the following decade as new labour laws, increasing energy costs and declining demand took their toll.

Firms that adapted to these changes were able to overcome many of these adversities, and continued to buy timber on the auctions as long as reserve prices, subsidised by Forestry, remained low.

Changing Government policy
Changing circumstances, however, did not only affect the industry. Government also underwent a process of restructuring. New government policy dictated decentralisation of operations to lower tiers of government, or other agents. In Government Forestry, this brought about the transfer of the management of State forests to other land managers – in the case of State forestry conservation areas, to the provincial conservation institutions and SANParks.

The 40 000 ha of State indigenous forests of the Garden Route were incorporated into the greater Garden Route National Park in 2006. Whereas timber utilisation from these forests had for about 40 years been subordinate to the primary objective of conservation, the new status would entail an even more pronounced shift towards the core functions of a national park. This would inevitably also affect the new land manager’s approach to the indigenous timber industry.

Besides, even before the official handing over of the State forest administration to SANParks, the government had become increasingly uncomfortable about the auction system. Timber sales that had in the old dispensation been provided for in terms of forest law, now became subject to the Public Finance Management Act, which gave preference to sales by open tender in order to ensure that BEE and PDI would receive preference in the adjudication process. SANParks is equally bound by this.

Moreover, SANParks as a statutory conservation body responsible for being financially as independent from State assistance as possible, could no longer justify subsidising timber prices at a direct loss to its revenue/expenditure account, because what before had been a direct loss to Forestry, was more than made up for by downstream tax revenue from the industry.

The economic recession since 2008, has had profound implications for both SANParks and the industry.

Financial pressure
SANParks has found itself under mounting financial pressure, which forced it to reconsider the current timber harvesting and marketing system. The organisation has had to find ways to increase its sources of income to counteract its losses of revenue and the dwindling State subsidy, and at the same time, cut expenses. By 2010, it locally incurred a loss of R3 million p.a. with the sale of its timber. Not being its core function, this could not continue. Matters came to a head in May 2010 with the sudden announcement that this was to be the last auction of timber in its current form.

The industry in turn was seriously hit by the recession, as its traditional target market, the white Afrikaans middle class, could no longer afford luxury products, while the younger affluent generation developed quite a different taste for furniture. This caused a steep decline in demand for the traditional and even contemporary furniture, which has, together with all the other factors already mentioned, impacted detrimentally on even the most innovative and adaptable firms.

The sudden termination of the auctions, and thus the supply of raw material, without SANParks providing alternatives for a period of three years, was the final nail in the coffin, causing serious destabilisation of the industry already tottering on the brink of collapse. A spokesman for the timber buyers estimated that the economic conditions contributed 60%, and the termination by SANParks of the timber supply with the accompanying uncertainties contributed 40% towards the recent decline in the industry.

The main firms, the members of the TBA, felt that they were not only victims of uncontrollable circumstances, but of indifference and even prejudice by SANParks, when undertakings and promises to resume timber supply did not materialise. Representations from the industry fell on deaf ears and meetings with SANParks were fruitless. Stakeholders in the industry felt they were being victimised because the firms were largely white- owned.

However, time delays were caused by the onerous government financial management processes to draw up tenders for a public private partner- ship (PPP) between SANParks and a prospective concessionaire for the harvesting and marketing of the timber. The local Park regional office had little control over these processes.

Alternative timber auctions
Surprisingly, very little of the indigenous timber offered for sale on auction by the firm Geo. Parkes in 2010 and 2011 was bought by the timber buyers, who had been up in arms about SANParks’ termination of timber supplies. SANParks pointed out that when the opportunity arose to replenish their stocks, the buyers did not make use of it.

Parkes has been selling indigenous timber and blackwood from its 3 000ha sustainably managed private, indigenous forest estate for a number of years. Furniture timber buyers have at times bought considerable volumes from this firm out of hand and on auctions to augment their supplies from the State forests at more or less the same prices as the State auctions. Reserve prices on Parkes’ auctions have, however, always been considerably higher than those of the State.

This appears to be the main reason for buyers not buying Parkes’ timber after May 2010. The buyers deemed that reserve prices were not market-related. They blamed SANParks for creating a vacuum that encouraged monopolistic conditions. Parkes, in turn, denied this and maintained that in spite of lower prices attained at SANParks’ last auctions, it has retained its higher reserve prices in order to safeguard the firm against a similar drop in sales prices.

As a consequence of the unwillingness of some traditional timber buyers to buy Parkes’ timber on auctions, the firm has stopped selling on auctions, and has resorted to sawing up much of its round timber for other markets across the country. Jim Parkes maintains that the firm is still supplying round timber on order out of hand to most local buyers at the same price levels as in the past.

Parkes, like all others, has not escaped the effects of the recession. It has, therefore, recently embarked upon a strong marketing drive for Knysna’s indigenous forests and timber as an integral component of local tourism.

Although the TBA formed a co-operative comprising 14 members in order to put in a bid for the SANParks concession, it decided against doing so in the end. The members felt the financial risk would be too great, considering that it would have to furnish a guarantee of R1 million as well as find a consider- able amount of starting capital, mainly from among its handful of committee members. There was also the matter of finding a skilled sub-contractor with adequate resources to carry out the harvesting of up to 3 000m3 of timber (50% of which is blackwood) annually. This had in the past been carried out by three forest stations spread out over a distance of almost 200km along the Garden Route.

In addition, the TBA was very unhappy about the uneven playing field, with a prospective BEE tenderer qualifying for a government grant for the concession fee, which, in its opinion, gave the latter an unfair advantage.

The only tender was awarded to the BEE compliant Kwakhanyisa Co-operative, which comprises six directors, one of whom is responsible for over- sight of the operations. The concession was to be for a period of 10 years, starting in April 2012. Kwakhanyisa, from the onset, experienced problems in securing the required finances for the concession fee, which was eventually obtained from the Western Cape Provincial Government, but this delayed the start of harvesting operations until the end of 2012.

Under-resourced
Having acquired a competent sub-contractor (arborist Pieter Boshoff of Treepro), who, however, had no experience in the specialised environmentally-friendly logging of timber in the indigenous forest, the operations took off. However, by the time of the June 2013 auction, he had only extracted about 600m3 against a contract target of about 3 000m3 by March 2014. He is seriously under-resourced regarding log slipping, having only one slipping team and two agricultural tractors with winches at his disposal, which is less than one third of the required capacity.

The lack of interest from the timber buyers at both the recent Kwakhanyisa auctions was partly due to the economic situation in the industry, and partly due to inset prices that the buyers found to be unaffordable, as in the case of the Parkes sales. The drastic rise in the reserve prices was directly caused by the fact that they had to be fixed on a cost recovery basis, as the real costs of the harvesting, slipping, transport and sales depot preparation amount to about R2 000/m3, which had in the past to a large extent been subsidised by the State. With a reasonable mark- up allowed, the inset price for blackwood merchantable grade at the last auction was R2 600/m3.

The timber buyers argue that, considering the current market conditions, as well as the relatively poor recovery from logs due to inherent defects and instability even after seasoning, the inset prices are too high and compare unfavourably with superior quality imported hardwoods from African countries and abroad. These are more cost-effective to work with. Buyers also sourced blackwood at more affordable prices from other private sellers in the area.

From the above it is clear that, regarding the economic viability of selling and buying timber, insurmountable tension exists between the PPP and the furniture fraternity, which had not been the case until SANParks terminated its auctions in 2010.

Fingers have been pointed at SANParks for the manner in which they handled the timber supply in 2010. Instead of planning for a transition period in which the old system would continue while the new was phased in, the supply was cut off abruptly (almost mercilessly), and only resumed after three years of uncertainty. Nonetheless, it is central government which indirectly allowed this situation and therefore should accept ultimate responsibility for the demise of this once viable industry, by inadequate strategic planning and lack of appropriate interventions.

The latest about the concession
The harvesting sub-contractor has not been paid for the timber he has so far brought out for sale, and there appears to be a stalemate between him and the concessionaire. Indications are that Kwakhanyisa lacks the finances for this unless it can profitably dispose of the unsold timber. It is currently trying to find buyers. In the meantime, the condition of the timber is deteriorating on the open depot, lots not having been elevated above the ground surface.

The backlog in the contractual obligations is mounting as the sub-contractor will not resume harvesting until he is paid, and even if that materialises, it is uncertain whether he will be willing to continue. Even if he does continue, capacity of the logging teams will have to be built to the required level, which may take several years before the concessionaire will effectively be able to meet the target of the annual harvest take-off.

All these problems in turn have implications for SANParks’ FSC certification. In the recent FSC audit, SANParks received two minor CARs directly relating to Kwakhanyisa’s non-performance. Deadlines between SANParks and the concessionaire have, in terms of the concession contract, also been agreed to for the payment owed to Treepro and for the harvesting to resume. Continued non-performance may lead to the termination of the concession contract.

Job losses
During the past couple of months, the setbacks to the industry have resulted in the drastic reduction of labour forces and production cuts in some of the most important furniture factories. Prominent names are Kluyts, Fechters, Rensilfier, Touw Meubels. Others have disappeared completely. Even a resourceful business like Botha & Barnard is under severe pressure and struggling to survive. Some of these firms, many of which have been passed on from father to son for generations, have formed the backbone of the Association.

Nevertheless, there are indications that the TBA might consider tendering for the concession in future, provided the tender conditions are acceptable.

However, in the longer term, the termination of the supply of indigenous timber from these forests may be inevitable.

Why inevitable?
Because, irrespective of the industry decline, the specialised forestry expertise to manage these forests based on a sustainable scientific yield regulation system is extremely limited, with only a handful of experienced forestry scientists who will naturally phase out without the opportunity to pass this unique expertise on to others. The question is whether SANParks is going to replace them. If not, it will be irresponsible to continue harvesting timber from the forests without input from this forestry expertise.

timber auction
Timber auction at The Crags earlier this year, conducted by Kwakhanyisa.
timber auction
Indigenous timber auction at Diepwalle in early 1990s. In the centre with sports jacket is the late Adam Stander. Also in the photo are some of the leading furniture manufacturers of that time: seated with back to camera is West of Rensilfier in Kareedouw, standing with striped white/blue shirt with bent head appears to be Hertzog Kluyts of Kluyts Co, next to him the late Ludwig Fechter, the leading manufacturer and chair of the Guild, and to his right with white shirt, white hat, Anton Meyer of the firm Meyer and Ferreira in Bellville. Left foreground clad in khaki are three forestry officials, with Theo Stehle standing back to camera in middle. Auctioneering 2nd from right was Wessel Vermeulen from the Knysna scientific planning section. In those days the auctions were usually held over three days.
Jock McConnachie
Jock McConnachie of Timber Village, Knysna, with indigenous timber planks air drying. The timber is used to manufacture fine furniture.
mini excavator
A mini excavator is used to slip a log out of Parkes' natural forest, Knysna, in a typically low-impact operation.

Published in October 2013

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