3 export ban in 1987. As reported by the Ministry of Forestry 2005, for most
tropical wood products, Indonesia has been known as a country with a relatively high share of export to production for sawn wood 22.2 percent, plywood 62.8
percent, wood pulp 37.4 percent, new print 64.77 percent, and paper 36.8 percent. However, in the last decade, Indonesian timber industry has experienced
a declining trend in production as well as its share in the world market as shown in the figure 2. During 1995-2011, the export of plywood statistics has shown a
substantial decline. In 2003 the country experienced an extreme reverse production slope with a decline of more than fifty percent in compare to the
previous year. It is quite contrast to the fact that, before 2002, Indonesia was the largest exporter of plywood, before it was replaced by China afterwards. While
for the sawn wood, the trend is quite contradictory. During 1995-2004 the export of sawn wood was increased before it started to decline afterwards.
Figure 2 Annual Export of Wood Primary Wood Products of Indonesia During 1995-2011
Source: FAO, 2012
1.2 Research Problem
Generally, the problems faced by the Indonesian timber industry come from supply and demand disparity as we can see in figure 3. From the supply side,
Indonesia has to deal with the resource constraints in supplying sufficient timber to fulfill the need from wood processing industry. On the other hand, the
government promotion to stimulate more wood processing industry has brought
1000000 2000000
3000000 4000000
5000000 6000000
7000000 8000000
9000000
19 95
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20 00
20 01
20 02
20 03
20 04
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plywood sawnwood
4 high capacity of forest industry. Therefore, given this situation, all of I
ndonesia‟s major processing sectors are operating under capacity nowadays. As mentioned
bef ore, throughout the late 1990‟s, Indonesia had supplied more than 50 percent
of the world‟s tropical plywood exports, but then the production dropped substantially over the past decade as large diameter logs became increasingly
scarce. It was reported that, with 110 operating plywood mills and annual production capacity of 11.3 million m
3
, in 2003 the production could only reach 6.5 million m
3
Ministry of Forestry, 2007. While from the demand side, the increase of world population and economic growth have led to an increase in
global demand of wood-based products. Consequently, this situation has contributed to over harvesting of timber through illegal logging and resulted in
natural forest damage. The government argued that in 2006 the supply shortage of about 40 million m
3
was met with illegally harvested logs.
Figure 3 Production and Consumption of Logwood of Indonesia 1996-2010 Source: ITTO, 2010
With the assumption that prices can reflect the market condition, given this situation, it is needed to understand how much is the potential deforestation when
the price of wood products changes. High prices may lead to uncompetitiveness of Indonesian wood products in the world market, but on the other hand, as an
incentive for people to engage in this wood business, it can lead illegal logging as well, particularly with the scarce of raw material. Moreover, the low prices might
5000 10000
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production consumption
5 threaten the profitability of wood industry and therefore, it also can impact on
illegal logging and deforestation. Given this situation, basically, it is needed to investigate the implication of wood price changes on deforestation in Indonesia In
addition to that, with regard to the position of Indonesia as one of the largest producer as well as exporter of several tropical wood products in the world, it is
also interesting to see whether the Indonesian wood market is integrated with the world market in order to give better understanding on how wood market works
and its implication on deforestation. Based on the explanation above, the research questions of this study are:
1 Is the Indonesian wood market integrated with the world market ?
2 How is the wood prices in the world market are transmitted to the domestic
market of Indonesia? 3
How is the implication of wood price changes on deforestation in Indonesia ? 4
If the Indonesian wood market is integrated with the world market, then what is its implication to deforesation in Indonesia?
1.3 Research Objectives
