balsa: biology, production and economics in papua new...

aciar technical reports

Balsa: biology, production and economics in papua new Guinea

73

ACIAR TR73 (2).fm Page 1 Sunday, June 27, 2010 1:17 PM

Balsa: biology, production and economics in Papua New Guinea

Stephen MidgleyMichael Blyth

Neville HowcroftDao MidgleyAlan Brown

Canberra

2010


The Australian Centre for International Agricultural Research (ACIAR) was establishedin June 1982 by an Act of the Australian Parliament. Its mandate is to help identifyagricultural problems in developing countries and to commission collaborative researchbetween Australian and developing country researchers in fields where Australia has aspecial research competence.

Where trade names are used this constitutes neither endorsement of nor discriminationagainst any product by the Centre.

ACIAR TECHNICAL REPORTS SERIES

This series of publications contains technical information resultingfrom ACIAR-supported programs, projects and workshops (forwhich proceedings are not published), reports on Centre-supportedfact-finding studies, or reports on other topics resulting from ACIARactivities. Publications in the series are distributed internationally toselected individuals and scientific institutions, and are also availablefrom ACIAR’s website at <www.aciar.gov.au>.

© Commonwealth of Australia 2010This work is copyright. Apart from any use as permitted under the Copyright Act1968, no part may be reproduced by any process without prior written permissionfrom the Commonwealth. Requests and inquiries concerning reproduction andrights should be addressed to the Commonwealth Copyright Administration,Attorney General’s Department, Robert Garran Offices, National Circuit, BartonACT 2600 or posted at <http://www.ag.gov.au/cca>.

Published by the Australian Centre for International Agricultural Research (ACIAR)GPO Box 1571, Canberra ACT 2601, AustraliaTelephone: 61 2 6217 0500<[email protected]>

Midgley S., Blyth M., Howcroft N., Midgley D. and Brown A. 2010. Balsa: biology,production and economics in Papua New Guinea. ACIAR Technical Reports No. 73.Australian Centre for International Agricultural Research: Canberra, 98 pp.

ISBN 978 1 921615 97 9 (print)ISBN 978 1 921615 98 6 (online)

Technical editing by Mary Webb, CanberraDesign by Clarus Design Pty LtdPrinting by Elect Printing, Canberra

Cover: A plantation of balsa, six months old, Vudal, East New Britain (Photo: Stephen Midgley)

Foreword

The Australian Centre for International Agricultural Research (ACIAR) seeks to promotepoverty alleviation and livelihood enhancement through more productive and sustainableagriculture emerging from international research partnerships. Papua New Guinea (PNG)is one of our most important partner countries. Communities living on islands in thePacific face significant difficulties in developing successful economies. Transaction costsare of paramount significance—transport adds to the cost of all imports, including fuel,and detracts from the returns for goods produced, while the small size of individualcommunities increases dependence on external trade.

Crops that have high value and afford opportunities for local processing are especiallyimportant. They must of course be well adapted to the relevant environmental conditions,be amenable to production by smallholders as well as larger operators, mature within anacceptable time and, to the extent possible, have a stable market. Balsa is a crop thatpotentially meets these criteria for some areas in PNG. It is locally significant in East NewBritain province (ENB), where high rainfall and fertile soils derived from volcanic parentmaterial are conducive to rapid growth of high-quality wood on sites close to a port.

Most of the balsa traded globally is grown in Ecuador and exported to the UnitedStates of America, although markets in Europe, India and China have grown in recentyears. Balsa wood is used in the marine, wind-energy and transport sectors, principallyas core material in panels and other composites. Polymer foams compete with balsa inthis application. As well as the level of global economic activity, issues of quality andelasticity of supply are very relevant to the competitive position and continued prosperityof the balsa industry.

Balsa cultivation is an attractive land-use option for smallholders and largerlandowners in PNG, including cocoa growers affected by cocoa pod borer. ACIARsupported this scoping study with a view to identifying researchable issues across thePNG balsa value chain—issues whose resolution, by the industry itself, by partnershipsinvolving ACIAR, or by other agencies, will underpin the continued viability andpotential expansion of PNG’s balsa wood industry.

Using a careful blend of literature review, interviews with key industry stakeholders andeconomic analysis, this study provides background biological information, a summary ofthe historical and current status of the balsa industry, and explores the relative merits of thethree main balsa production systems in PNG. The study concludes with a series ofrecommendations for research and development that would assist the PNG balsa industryto sustain productivity and competitiveness in the global market.

Nick AustinChief Executive Officer, ACIAR

3

Contents

Foreword 3

Abbreviations 7

Currency (August 2009) 7

Acknowledgments 8

Notes on the authors 9

Summary 10

Papua New Guinea: its geography, forestry sector and population trends 12The context of Papua New Guinea forests 12Land ownership 13Employment trends in Papua New Guinea 13East New Britain province 15Employment trends in East New Britain 17Development of plantations in Papua New Guinea 18

Biology, forestry and uses of balsa 23Natural balsa forests 23Balsa plantations 25Uses of balsa wood 28

The balsa growers 32Balsa in Ecuador 32Balsa in Papua New Guinea, including East New Britain 33

Trade and balsa markets 45Tariff codes 45Exports from Papua New Guinea 46Exports from Ecuador 46The global market for balsa 48Market prospects: can balsa remain competitive? 50Marketing balsa from Papua New Guinea 53Quoted prices for balsa products 54

The socioeconomy of balsa smallholdings in East New Britain 56Legislation 56Government agencies 56

5

Company support for growers 57The dynamics of balsa purchase 57Regulations relating to balsa harvesting, processing and export 58Employment in the East New Britain balsa industry 58Issues arising from grower and processor interviews 60

Profitability of balsa growing 63Production data and information sources 63Profitability of smallholder balsa growing 64Profitability of balsa grower groups in share-farming arrangements with processors 68Profitability of balsa growing for large-scale growers, including integrated

grower–processors 72Impact of higher wages on harvesting and transport 76

Conclusions 79General 79Marketing 80Opportunities for research and development 81

References 85

Appendixes 891 Papua New Guinea balsa log grading rules 912 United States of America balsa imports 933 Balsa purchasing agreement form 974 Balsa log tally sheet 98

6

Abbreviations

A$ Australian dollarACIAR Australian Centre for International

Agricultural ResearchAEV annual equivalent valueCST candidate seed treeENB East New Britain provinceFEU 40-foot containerFMA Forest Management AgreementFOB free on boardIRR internal rate of returnITTO International Tropical Timber

Organization LAES Lowland Agricultural Extension

Station NANDINA Andean Trade Community

Standard Product Code System

7

NARI National Agricultural Research Institute

NPV net present valuePFMC Provincial Forest Management

CommitteesPGK Papua New Guinea kinaPNG Papua New GuineaPNGFA PNG Forest AuthorityPNGFRI PNG Forest Research InstituteR&D research and developmentUNRE University of Natural Resources

and EnvironmentUSA United States of AmericaUS$ United States dollar

PNG kina = PGKA$1.00 = PGK2.11US$1.00 = PGK2.63

Currency (August 2009)

Acknowledgments

The global balsa markets are not well documented,and reliable information was challenging to locate.Many generous people helped in assembling thisreport and deserve special mention.

In Papua New Guinea (PNG), the fieldwork wouldnot have been accomplished without competentsupport from our local coordinator, Mr Tommy Kosi,and the cooperation of the balsa growers on theGazelle Peninsula who gave their time during a busyperiod in the agricultural calendar.

Mr Kanawi Pouru, Managing Director, NationalForest Service (NFS), and NFS staff in PortMoresby and East New Britain (ENB) offered fullsupport and access to marketing data and recentlypublished policies and national strategies.

Mr Titi Darius, Chairman, and Mr Paul Arnold,Executive Officer, of the PNG Growers’ Associa-tion (ENB Branch) organised a public meeting ofgrowers and facilitated discussions on balsa and itsglobal markets. Professor Phillip Siaguru, MBE,Vice-Chancellor, University of Natural Resourcesand Environment, and Dr John Moxon of theLowland Agricultural Extension Station of theNational Agricultural Research Institute, at Keravat,provided access to information and facilities. MrHarry Sawicki, General Manager, ENB PortServices Ltd, offered background on the challengesof shipping from Rabaul.

The processing companies were generous withtheir time and information: Guy and Catherine

8

Cameron at PNG Balsa and their team; Mr GraemeStowell and Mr Paul Aisawa at the GSMC/AuszacBalsa Alliance; Mr Gunter Isensee of Gunter BalsaLtd; Mr Peter Hooper (the former GeneralManager), Mr Mike Jackson, Mr Bob Wilson andMr Anthony Rainbird at Coconut Products Limited.

In Australia, many people shared information andadvice: Mr Warren Meyers of Auszac Pty Ltd;Ms Maree Connelly of ArtMil Australia Pty Ltd;Dr Mike Bourke of the Research School of Pacificand Asian Studies, at the Australian NationalUniversity; Dr John Doran, Honorary Fellow,Commonwealth Scientific and Industrial ResearchOrganisation (CSIRO).

Internationally, the contributions of many peoplewho offered advice and valuable information areacknowledged: Mr Bob Flynn of RISI and AlfonsoBouroncle, Austrade, Australian Consulate, Lima,for advice on the balsa trade in South America;Mr James Midgley for advice on internationalshipping; Mr Martin Heiskell and the team at DIABin the USA, Australia and Ecuador, and Mr JavierBonet, President, Balseurop Ecuato Espanola SL,Spain, for advice on the international trade in balsa;and Dr Lisa Hoch of the Waldbau Institute at theUniversity of Freiburg for sharing experience ofsmallholder balsa growers in Ecuador. Mr EricGauthier and the team at Alcan Baltek kindlyoffered access to photographs.

Notes on the authors

Stephen Midgley. Stephen Midgley is a foresterand development specialist who runs his ownbusiness, Salwood Asia Pacific Pty Ltd, which seeksto link Australian businesses with forest industriesin the Asia–Pacific region. He has worked continu-ously in Asia for over 35 years through long-termprojects in Laos, Nepal, Sri Lanka and China and viamany short-term projects throughout the region,during his career with Australia’s national researchbody, the Commonwealth Scientific and IndustrialResearch Organisation (CSIRO).

Email: <[email protected]>

Michael Blyth. Dr Michael Blyth is an agriculturaleconomist and development specialist. He workedas a research economist for the Australian Bureau ofAgricultural and Resource Economics and instrategic planning at CSIRO before establishing hisown company, Four Scenes Pty Ltd. He has workedwith many research and development organisationsthroughout Australia, Asia and the Pacific in theareas of planning, priority setting, evaluation andmanagement improvement.


Neville Howcroft. Neville Howcroft has spent over40 years working in the Papua New Guinea forestrysector, including seven years as Project Manager ofthe International Tropical Timber Organization(ITTO) Balsa Strengthening Project in East NewBritain where he authored several reports on balsaand The balsa manual. He is currently Head of theForestry Department at the University of NaturalResources and Environment, Vudal, East NewBritain.


9

Dao Midgley. Dao Midgley has had a long associa-tion with forestry development projects in manyAsian countries. Fluent in several languages inaddition to her native Lao, Dao has a strong interestin anthropology, possesses skills in cross-culturalcommunication and has been part of studies in theAsia–Pacific.


Alan Brown AM. Alan Brown, a former Chief ofthe CSIRO Division of Forestry, Australian Centrefor International Agricultural Research (ACIAR)project leader and member of the Center for Interna-tional Forestry Research (CIFOR) Board, iscurrently Production Editor of Australian Forestry.


Summary

Balsa (Ochroma pyramidale, syn. O. lagopus) is afast-growing, pioneer subtropical and tropical treethat produces very low density wood widely used fora range of commercial purposes. It is a medium-sized tree that grows to 25 m in height and 1 m indiameter, deciduous or evergreen and occurring inboth pure and mixed stands in association with otherpioneer species. Balsa is widely distributed acrossits natural range from 22°N to 15°S in broadleafevergreen and secondary forests in Central andSouth America. It has been introduced to manytropical countries, including Papua New Guinea(PNG) where it thrives on sites with high uniformrainfall and good-quality, well-drained soils. It isgrown in plantations on 5–7-year rotations and nowforms the foundation of a small and expandingindustry in East New Britain province (ENB) wherethere an estimated 3,500 ha has been planted.

Due to its low density, strength and versatility,balsa is suitable for a wide range of end uses. It isused extensively for hobbies, model-making andsurfboards and other sporting equipment. Its mainindustrial use, and the use that forms the largest partof the global balsa market, is as end-grain panels.These are widely used as components of structuralsandwich panels consisting of low-density corematerial sandwiched between two high-modulusface skins to produce an exceptionally stiff and lightcomposite panel. The features of balsa that areattractive to manufacturers of sandwich panels areits relatively low price compared with competingcore materials, and its:• green and renewable credentials—balsa is the

only core material derived from a natural andrenewable resource

• wide operating temperature range (–212 °C to+163 °C; –414 °F to +325 °F)

• excellent fatigue resistance• good sound and thermal insulation• high impact strength.

Innovation has become the hallmark of successfulcompanies that use balsa wood, and balsa has found

1

applications in many market sectors, as outlinedbelow.Marine: As a lightweight and strong composite,end-grain balsa has been used in hulls, decks,bulkheads, superstructures, interiors, tooling andmoulds. Many power boats, recreation craft andcommercial vessels have components made frombalsa composites. Balsa has been used for themassive, static-free insulation in cryogenic transportships (used for shipping liquefied natural gas).Road and rail: Key engineering considerations inroad and rail engineering include low weightcombined with rigidity and strength, and acousticand thermal insulation as well as fire safety. Balsa isfound in many modern railway carriages in light-weight composite panels in ceilings and compart-ment walls. The cabin flooring, roof panels, bodypanels, interiors, front-ends and side skirts ofpopular makes of trucks and buses are balsacomposites. Wind energy: Balsa is used in lightweight coredsandwich panels that improve the performance andefficiency of wind-turbine rotor blades. Windenergy represents one of the most promising appli-cations for environmentally friendly balsa.Aerospace: Balsa panels are used in flooring, galleycarts, interior partitions, cargo pallets and containers,and in parts for sports aircraft.Defence: The defence industries have long had aninterest in balsa and balsa products. Balsa is used asa standard core material in present-generation navalship structures where sandwich composites withbalsa cores feature in applications such as surfaceship deck structures, radar masts and boat hulls. Thepanels forming emergency and tactical shelters(including field hospitals) commonly use balsacores, and the standard cargo pallet for defence airtransport is made with a balsa core. Industrial: Balsa-cored composites are widely usedin ductwork insulation for industrial pipes, as insula-tion for cool stores, in tooling, tanks, impactlimiters, concrete forms, fascia panels, skis,

0

snowboards, wakeboards and lightweight packagingmaterial for fragile goods.

It is estimated that in 2008 the global trade insawn kiln-dried balsa wood and semi-finished woodproducts was 155,000 m3, worth an estimatedUS$71 million. Ecuador supplies almost 90% of thistrade and PNG 8%, with producers in Colombia,Brazil, Venezuela, Costa Rica and Indonesiamaking small contributions. The United States (US)market is the world’s largest for balsa products,accounting for some 80% in 2001 but falling to 51%in both volume and value in 2008. In 2008, Ecuadorsupplied 94% of US imports of balsa. While the USmarket has been relatively uniform in terms ofvolume imported for the past 10 years, imports toChina, India and Europe have expanded substan-tially. The marine, wind-energy and transportsectors have been major drivers of the expansion ofglobal markets. Investments in expansion of balsaplantations and processing facilities indicate confi-dence in the outlook for global balsa markets, withsome industry participants forecasting annualmarket growth of around 7%.

In 2009, the Australian Centre for InternationalAgricultural Research (ACIAR) commissioned ascoping study that sought to protect the interests ofsmallholder growers and processors of balsa in PNGby identifying researchable issues associated withcurrent opportunities for and threats to the industry(ACIAR Project No. FST/2009/012: ‘Identificationof researchable issues underpinning a vibrant balsawood industry in Papua New Guinea’). This reportdetails the results of the study.

Balsa cultivation is an attractive and competitiveland-use option for landowners, including small-holders in ENB. There are few barriers for newentrants to balsa production, although an inadequatelabour supply appears to be a limitation, especiallyfor smallholders. Three growing systems arecommon in ENB: independent smallholders, largelandholders and grower groups. Balsa production inENB is moving steadily away from smallholder-based systems towards larger-scale productionsystems, including landowner grower groupsmanaged under share-farming arrangements withprocessing companies. Larger-scale production

1

systems, including share-farming arrangements,provide a more reliable and continuous supply ofquality balsa resources to processors. While eachproduction system is profitable, the large-scaleplantations and integrated grower–processorsgenerate the highest returns, associated with use ofimproved silviculture and labour managementpractices that generate higher yields, wood qualityand prices. Share-farming production systems offersubstantial benefits to growers while the production,marketing and sovereign risk is carried by theprocessor.

The balsa industry in ENB currently providesdirect employment for about 3,000 people and thiswill increase once the expanded plantation resourcematures. The capacity of the PNG industry toexpand and thrive is finite and constrained by inter-national market demand and the industry’s capacityto remain competitively engaged with thesemarkets.

Globally, the balsa industry faces seriouschallenges from the greater use of polymer foams insandwich composites. Innovation and research anddevelopment (R&D) are vital to an assured futurefor balsa products. For PNG to maintain its globalcompetitiveness and increase market share, it muststrengthen its reputation for quality, reliability andresponsiveness and ensure that plantation produc-tion and processing are strongly aligned with profit-able global markets.

In response to these challenges, PNG’s balsaindustry could be assisted through a focusedprogram of R&D support aiming to:• improve productivity and wood quality through

wider application of improved silviculturalpractices

• support changes to issues relating to governance,ensuring that government regulations add valueto, and do not impede, efficient functioning of thesupply chain

• add transparency to the supply chain and ensurethat social issues relating to production areunderstood

• assist in developing and maintaining markets forbalsa from PNG.

1

Papua New Guinea: its geography, forestry sector and population trends

The context of Papua New Guinea forests

Papua New Guinea (PNG) includes the eastern halfof New Guinea, the islands of New Britain, NewIreland and Bougainville, and hundreds of smallerislands (Figure 1). The total population in 2009 wasestimated at 6.7 million (SPC 2008) and the landarea is about 463,000 km2, of which only 27% ispeopled. The country is usually divided into theislands, the lowlands (0–1,200 m) and the highlands(1,200–2,800 m), although more specific regionalclassifications are also used. People live throughoutthis entire altitudinal range, with about 40% of therural population living in the highlands region.Almost 50% of the total land area is mountainous

1

142o 146o

Lae

Port Moresby

N

0 100 200

km

and 20% is seasonally or permanently flooded. Highrainfall, long dry seasons and excessive cloud coverare other common constraints to agricultural devel-opment (Hanson et al. 2001).

PNG is endowed with a very large area offorests—forest cover is estimated at 29 million ha,or nearly two-thirds of the total land area andincludes some of the richest flora and fauna in theworld and contains several highly valued commer-cial timber species. The forests are classified as:80% rain forests, 4% moist forests, 5% woodlandand 11% montane forests. The coasts host some ofthe most extensive mangroves in the region. Thecountry has about 10.5 million ha of forest thatmight be considered permanent; these include 8.7million ha of forest over which timber rights have

2o

4o

6o

8o

10o

150o 154o

Rabaul

ew Britain

New Ireland

Solomon Islands

East New Britain

Figure 1. Papua New Guinea

2

been acquired (‘permanent forest estate’), 1.7million ha allocated for protection and an estimated60,000 ha of timber plantations.

Estimates of the rate of deforestation in PNG varybut loss of forest cover was reported at 0.4%annually between 1990 and 2000; some non-govern-ment organisations (NGOs) report higher rates.Much of the deforestation is due to conversion toland uses such as agriculture, increasingly for oilpalm plantations (ITTO 2007b).

While the principle of sustainable forest manage-ment is enshrined in the PNG Constitution of 1975,the sector has been plagued with serious challengesto uphold it. Most legislation and regulations havebeen enacted as a result of forest degradation andproblems associated with logging operations andtrade, as well as dissatisfaction of landowners,donors and NGOs. Although legislation includessubstantive social and environmental aspects, theemphasis has always been on logging operations andespecially economic returns.

The 1991 Forestry Act introduced new allocationprocedures and a new administration system. Itestablished the PNG Forest Authority (PNGFA) andmandated it to manage the nation’s forest resourcesthrough implementing the overall objectives of theNational Forest Policy. It operates through theNational Forest Board, the National Forest Serviceand the Provincial Forest Management Committees,among other bodies. The Forestry Act empowersPNGFA to negotiate Forest Management Agree-ments (FMAs) with resource owners, to selectdevelopers (concessionaires) and to negotiate condi-tions under which Timber Permits, Timber Author-ities and Licences may be granted. Supported by theNational Forestry Development Guidelines, theNational Forest Policy was devised as the opera-tional arm of the Forestry Act, mostly for adminis-tration and control of the forest sector.

The National Forest Board oversees the activitiesof PNGFA. Its composition, as outlined in theForestry Act, includes representatives of all actors inthe forestry sector.

The National Forest Service is the agency respon-sible for administering the Forestry Act. It is incharge of practically all aspects of forestry at thenational level in PNG. Often the responsibilitiesoverlap both within the service and with the Depart-ment of Environment and Conservation, which ismandated to oversee all aspects of forestry opera-

1

tions that impact on the environment—includingapproval of FMAs.

The responsibilities of the Provincial ForestManagement Committees (PFMCs) include, amongother things, ensuring proper consultations withcustomary landowners. The PFMCs, however, areconstrained to some extent by shortages of humanand financial resources.

Land ownershipMost rural people live on their own land, which theyacquire under customary title and clan systems.Customary land accounts for about 97% of the totalland area of PNG, but governments do not formallyadminister this land, and title documents are notissued. Some formal settlement schemes have beendeveloped, particularly in association with cashcrops such as oil palm. Here, people do haveformally registered title on their land which makesthem eligible for bank loans to fund housing andcash-crop development.

The system of land tenure plays a critical role insustainable forest management in PNG becausemost forests are owned by customary landowners.There is, however, a common reluctance bycustomary owners to register their title to the land,compounded by vaguely defined boundaries ofownership. While the state has no ownership rightsover land or its forest resources, the government(through PNGFA) acquires private (customary)property rights in the public interest for forest devel-opment. Landowner participation in the negotiationand granting of FMAs is among the points of conten-tion in the system of granting forest logginglicences. On the other hand, it is difficult for anyforestry administration to manage privately ownedland even if mandated to do so.

Employment trends in Papua New Guinea

According to the PNG Statistics Office, the nationalworkforce in 2000 was around 2.4 million workersout of a total population of 5.2 million. More recentdata are not available as the national census isconducted every 10 years. With an annual popula-tion growth rate of 2.7% (AusAID 2007), theestimated population in 2009 for PNG would havebeen about 6.6 million. According to the UnitedNations Economic and Social Commission for Asia

3

and the Pacific (UNESCAP 2008), the labour forceis growing at a slightly lower rate of 2.4% a year. Atthis rate, it is estimated that there would have beenalmost 3.0 million persons in the workforce in 2009.

Most of the workforce in PNG are involved inwhat is described as non-monetary employmentwhere there is no payment for labour. This reflectsthe high rural population in PNG and the numbers ofpeople involved in subsistence and semi-subsistencefarming activities. Some of these people are activein the informal economy, selling their surplusproduction in local markets. In 2000, over 76% ofthe workforce was involved in non-monetaryemployment (Gumoi 2005).

A shortage of skilled labour is a concernthroughout PNG, especially in rural areas. Wagestend to be lower in rural areas, encouraging skilledworkers to relocate to the larger urban centres wherethey can earn higher incomes. Within rural areas,underemployment is considerable and opportunitiesfor formal employment are few compared to urbanareas. Some centres attract migration from otherparts of PNG. Migrants relocate to seek better accessto services, more productive environments andopportunities for paid employment provided by thetowns and plantations. East New Britain province(ENB) has been attractive to people from other PNGprovinces because of the presence of these condi-tions (Hanson et al. 2001).

Cultural characteristics of workers

For many workers in PNG, their experience in thepaid workforce is relatively short and their attitudeand behaviour towards work is strongly influencedby their traditional culture. Imbun (2006) describedthree workforce involvement strategies in themining industry in PNG. He noted that most minershave no previous paid employment experience.These conditions may be relevant to labour in theforest industries, although this is yet to be verified.The three strategies described by Imbun (2006) are:• The tribal strategy—generally unskilled and

semiskilled workers with low commitment towork; involvement in paid employment issecondary to tribal commitments; typically,employment is aimed at accumulating enoughmoney for specific tribal activities such as payingbride prices, for tribal ceremonies or for settlingdifferences; they value the skills that they acquirethat may be applied to future business ventures.

1

• The entrepreneur strategy—characterised byworkers involved in paid employment whilesimultaneously operating small businesses; theseworkers are semi-committed to industrial workwhile maintaining a strong commitment to theirland, tribe or village; they may be a high-riskgroup for employers.

• The worker strategy—generally better-educatedworkers with a strong commitment to their jobs;employment is their sole source of income andthey tend to be committed for the long term,although they have not cut ties with their villages.Kavanamur (2001, p. 9) found that cultural charac-

teristics in PNG require business managers to tailorhuman resources management policies, managerialpractices and interpersonal communications accord-ingly. Distinguishing cultural characteristics1 identi-fied by Kavanamur include:• low individualism / high collectivism—individuals

perform tasks primarily to build relationships withsuperiors, friends, family and clan networks,referred to as wantokism in PNG

• high uncertainty avoidance—individuals avoiduncertainty or ambiguity and are unwilling toshow initiative on the job as it is not encouragedor rewarded; they depend on authority structuresand develop an external orientation—that is, theyprefer to follow clear instructions within anauthoritarian or paternalistic environment

• low abstract thinking / high associative thinking—explanations of events or decisions are derivedfrom unrelated events rather than from cause–effect relationships—in cultures where associativethinking dominates, there is often no logical basisto the association among events

• past–present time perspective—short-termoriented with little long-term thinking, which maybe linked to the unpredictable and difficultenvironment; for example, Varmola (2002)identified PNG landholders’ preference forexpediency, seeking short-term solutions to long-term investment issues

• passive/reactive task orientation rather thanproactive and forward looking (which is relevantto development, investment and savings).These characteristics of PNG workers may

present unique challenges for employers.

1 While these characteristics define features of theculture in PNG they are not unique to PNG; they arecommon in many developing countries.

4

Kavanamur (2001, p.10) proposed that ‘managersneed to understand society’s attitude towards humannature and towards work, time and space’. The highlabour intensity in balsa growing and processing inENB places considerable importance on labourmanagement and employer–employee relations toensure commitment, stability and productivity in theindustry.

East New Britain province2

ENB comprises about 15,100 km2 of the island ofNew Britain, in the north-east of PNG (Figure 2).The Gazelle Peninsula is in the north of the provinceand encompasses the Baining Mountains, thevalleys of the Keravat and Warangoi rivers,numerous smaller rivers and narrow coastal plains.In the north-east of the Gazelle Peninsula are fertilehills and plains that surround the Rabaul volcanoes.The area is densely settled and well developed.

2 Information extracted primarily from Hanson et al.(2001)

1

WatomIsland

Kera

vat R

iver

KeravatTown

BainingMountains

Ataliklikun Bay

Vudal

Gazelle District

Past volcanic eruptions have covered the area infertile volcanic ash but, in 1994, eruptions causedwidespread damage to infrastructure, cash crops andwater supplies. The province also includes the Dukeof York Islands which are 20 km north-east ofKokopo (the current capital of ENB), and WatomIsland which is 10 km north of Rabaul (the provin-cial capital until it was largely destroyed by the 1994volcanic eruptions). There are four administrativedistricts in ENB; Gazelle, Kokopo, Pomio andRabaul (Hanson et al. 2001).

Average annual rainfall varies from 2,000 mmnear Kokopo to over 5,000 mm on the south coast.There are moderate dry seasons in the north-east ofthe Gazelle Peninsula. Table 1 gives climate detailsfor Rabaul.

The estimated population of ENB in 2000 was247,000, which is 6% of the national population.The estimated population in 2009 was around314,000 based on the national annual growth rate of2.7%. This may be a conservative estimate, as theprovincial rural population growth rate is veryhigh—4.2% per annum. The highest population

Warangoi River

Rabaul Town

Kokopo Town

WarangoiTown

Pomio District

Rabaul District

Kokopo District

0 7.5 15N

= VillageKilometres

Duke of YorkIslands

Figure 2. East New Britain province, including location within Papua New Guinea (inset)

5

densities are on the volcanic hills and plains of theGazelle Peninsula, in the Duke of York Islands andon Watom Island, with an average of 220 persons/km2. There is significant in-migration in the north-east of the Gazelle Peninsula, with people frommany parts of PNG seeking better access to services,more productive environments and paid employ-ment opportunities provided by the towns andplantations.

Gazelle district

The main area for growing balsa is the Gazelledistrict in the north-west of the Gazelle Peninsulaand the adjacent volcanic plains and hills. Altitudevaries from sea level to over 1,000 m in the BainingMountains.

The estimated population in the Gazelle district in2000 was 93,000 and possibly reached around118,000 in 2009. The highest population density of220 persons/km2 was on the volcanic plains andhills. The Baining Mountains, the northern coastalplains and valleys, and the western coastal plainssupport densities of 23 persons/km2, while the lowerKeravat and Warangoi valleys have lower densitiesof 10 persons/km2. The western half of the district ismostly unoccupied. The volcanic plains and hillshave significant in-migration. The population of theToma and Central census divisions increased by anaverage of 8% per annum between 1980 and 1990.

There is a network of sealed roads on the volcanicplains and hills. Gravel-surfaced roads connectcentres on the northern coast to the western BainingMountains.

1

Incomes are high to very high on the volcanicplains and hills, on the coast of Ataliklikun Bay andin the lower Keravat and Warangoi valleys, and arederived from the sale of cocoa, betel nut, fresh foodand copra. People in the Baining Mountains earnlow incomes from the sale of fresh food, while thoseon the northern and western coasts earn very lowincomes from minor sales of cocoa, copra and freshfood. Other sources of income in the district aresmall-scale enterprises such as cocoa fermenting,trade stores and construction, and also paid employ-ment by businesses and plantations. Small numbersof people in the Baining Mountains receive wagesand royalties from forestry operations.

Agriculture on the volcanic plains and hills isdominated by intensive banana cultivation. Triploidbananas can produce for 20 years if they aremanaged properly. People make two consecutiveplantings before a fallow period of 5–10 years.Coconut is also an important food. Agriculture in thearea to the south-west is similar but less intensive.People in the Baining Mountains and on the northernand western coasts cultivate low-intensity mixed-staple gardens. In the 1982–1983 National NutritionSurvey, malnutrition in children under 5 years oldwas assessed as relatively low.

The land potential is high to very high on thevolcanic plains and hills, on the coast and inlandvalleys of Ataliklikun Bay, and in the Keravat andWarangoi valleys. The very high potential land isamong the most productive in PNG. Rainfall, soils,slope, light and temperature are ideal for the produc-tion of many crops, but gullying and soil erosion areproblems in some places. The Baining Mountains

Table 1. Rabaul monthly rainfall, temperature and humidity (Source: McAlpine et al. 1983)

Attribute Month Annuala

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Rainfall (mm)

230 244 256 209 129 114 104 103 94 118 173 228 2003

Mean max temp (ºC)

30.9 30.9 27.0 30.8 31.2 30.9 30.4 30.7 31.4 31.6 31.3 30.9 30.7

Mean min temp (ºC)

23.2 23.2 23.3 23.3 23.6 23.3 23.2 23.2 23.4 23.3 23.3 23.2 23.3

Mean (ºC) 27.1 27.1 27.0 27.1 27.4 27.1 26.8 27.0 27.4 27.5 27.3 27.1 27.1

Humidity indexb

85 86 86 86 84 84 83 81 79 81 82 86 84

a Total/averages may differ from sum/average of rows due to rounding.b The ratio of average 0900 vapour pressure to the saturation vapour pressure at the average mean temperature. This is regarded as a

good approximation to the daily mean (24-hour) relative humidity.

6

have very low to moderate potential due to steepslopes, poor soils and frequent cloud cover, whilethe northern and western coasts have low potentialconstrained by poorly drained, shallow soils andfrequent flooding.

There is no agricultural pressure in the district.The potential for further development on thevolcanic plains and hills is limited by existing devel-opment and very high population densities. Atpresent, people are squatting or leasing land forsubsistence agriculture and there are concerns withsoil erosion on the steeper slopes. There is potentialfor agricultural development where land potential ismoderate to very high and access to markets is good.Cocoa, betel nut and fresh food are establishedsmallholder cash-earning activities in these areas.

Overall, people in the Gazelle district are notdisadvantaged relative to people in other districts ofPNG. There is some agricultural pressure, landpotential is very high, access to services is very goodand cash incomes are comparatively high.

Employment trends in East New Britain

Workforce statistics for ENB are not readily avail-able, but based on the national ratio of numbers inthe workforce to total population, the workforcecould have been around 145,000 in 2009, includingaround 54,000 in the Gazelle district. If 70% of theseare involved in subsistence agriculture, then thenumber in paid employment could be around15,000. However, depending on employment strat-egies practised by workers in the district, the numbercould be more than twice this. The statistics indicatethat labour availability is high.

Within PNG, most people are employed in theinformal economy, especially in rural areas. Mostpeople are engaged in subsistence and small-scalecash-cropping activities. Men tend to be responsiblefor cash cropping while women concentrate on foodproduction. According to Newlin (2000), the moresuccessful male cash croppers are those who canmobilise the labour of their wives. The opportunityfor paid employment is often limited by the lack ofadequate infrastructure to allow access to places ofemployment. In the Gazelle district, there is a goodnetwork of sealed roads that allows people reason-able access from their villages to commercialcentres and places of employment.

1

The Tolai people are the traditional inhabitants onthe Gazelle Peninsula. They are regarded as beingamong the best educated and most prosperous ofPapua New Guineans, a status that is linked to theirearly association with Europeans and the establish-ment of the German administrative centre in Rabaulin the late 19th century (Newlin 2000). According toNewlin, the Tolai are inclined towards capitalismand commercial practices as a consequence of theirlong experience using a universal, divisible currencyand their involvement in the labour trade withQueensland, Australia, in the 19th century.

Household labour management strategies

Household labour and livelihood strategies ofsmallholder cocoa growers in ENB were studied byCurry et al. (2007). Their research (and previousstudies) found that most smallholder householdsrely on unpaid family labour for cocoa production.They also found that, despite the large size offamilies in ENB, labour shortages are a majorconstraint to increasing production. Labourshortages may be associated with one or more of thefollowing factors:• lack of cooperation among household members in

cocoa production• illness or death of family members disrupting

work schedules during mourning periods• reduced access to labour from the extended family• increased size of cocoa holdings with insufficient

family labour relative to area of cocoa planted• rising cost of hired labour (there is limited and

sporadic use of hired labour, usually for specifictasks including harvesting, establishment andrehabilitation of cocoa)

• high mobility (out-migration) of family members,especially males.In the case of cocoa production, Curry et al.

(2007) argue that understanding household incomeand labour strategies is important for explainingproductivity because of the high dependence onfamily labour and reluctance to use hired labour.The same is likely to be true for smallholder balsaproduction. Some relevant findings from thisresearch for balsa are:• Social and kinship responsibilities attract

smallholders’ time and labour away from cash-generating activities such as cocoa or copraproduction (14–20% of time on a weekly basis).Paid employment is exclusively the domain of

7

men, albeit a small share of total labour time (lessthan 2% per week).

• Around 35–40% of time is allocated to cropproduction and marketing activities, while 6% isfor subsistence gardening, 14% for rest andaround 20% for domestic duties, including childcare.Curry et al. (2007, p. 53) concluded that the

various non-production demands on labour timeresult in labour shortages for cocoa production.Gender division of labour for particular activitiesmay also constrain labour supply. The consequenceof this is that crop management inputs are limitedand productivity is low relative to potential yields.An adequate supply of labour is critical to highlevels of production.

Key characteristics of households with anadequate supply of labour for cocoa production wereidentified by Curry et al. (2007, p. 62). These arepresented in Table 2.

In the case of cocoa, families that are unable tomobilise adequate levels of labour from within thefamily, through reciprocal exchanges or by hiringare more likely to adopt a wet-bean productionstrategy than a dry-bean production strategy. While

1

the wet strategy is less labour intensive than the dry-bean strategy, returns are lower as well.

Parallels may be drawn for balsa production fromthe cocoa household labour management strategies.The effect on productivity and timber quality associ-ated with different labour management strategies isworthy of further research.

Development of plantations in Papua New Guinea

Introduction

Papua New Guinea’s forest plantations are arelatively minor forest resource compared with thenation’s natural forests. Now that most of PNG’saccessible commercial forest areas have beenallocated and are being harvested, however, interestin the potential of plantations is increasing. The firstcommercial plantations were established in PNG inthe 1950s, although since then development hasbeen sporadic, with plantations scattered over awide geographic area. Adams (2007) reported thatthere are plantations at about 20 different sites in 10provinces. Most plantations are located within reach

Table 2. Characteristics of smallholder cocoa-growing households with an adequate supply of labour (Source:adapted from Curry et al. 2007)

Characteristic Comment

Access to labour of unmarried and/or married sons Good working relationships within the family facilitate labour mobilisation and commitment of individuals

Reside in multi-generational and extended family units (houses clustered together) and with multi-household production units (for subsistence and cash cropping)

Household works cooperatively and harmoniously as a family group

Household is willing to utilise indigenous mechanisms of labour mobilisation when necessary to maintain cocoa production during high crop periods

This may involve adoption of children or recruiting relatives to live with the family; it may also involve reciprocal labour-exchange agreements among households for intensive tasks such as planting, grass slashing, harvesting and processing.These strategies are independent of paid labour, although cash and food gifts may be exchanged.The success of reciprocal labour exchanges depends on the skill of the household heads.

Few intra-household disputes over labour remuneration Family members satisfied that distribution of cocoa income is fair and frugal

Household head allocates cocoa harvests or cocoa beans to adult household members and other relatives

Head builds goodwill (social capital) by allocating harvest proceeds to family members, allowing him to draw on their unpaid labour support when needed

8

of established infrastructure including good roadsand port and/or processing facilities. Plantationshave been established without government incen-tives or other direct forms of industry support.

The PNG Government has had little success withpolicies and other measures to attract investment inplantation development (Adams 2007, p. 32). TheNational Forest Policy that was implemented in1991 proposed that ‘programmes for plantationdevelopment will be guided by economic criteriaand feasibility studies to assess the commercialpotential of processing plantation material for avariety of end uses’ (The Independent State of PapuaNew Guinea 1991, p. 7). The policy also proposedthat woodlot establishment, agroforestry and treeplanting ‘will be promoted and supported by activeforestry extension’. Draft policies for reforestation,eco-forestry and downstream processing have beendeveloped and once endorsed by the governmentpromise increased focus on plantation development,domestic timber processing and opportunities forsmall-scale forest production and processing.

Area of forest plantations

According to PNGFA data, there were about62,000 ha of plantation forests in 2005 (PNGFA2005), up from 58,000 ha in the mid-1990s (PNGFA2002). The most recent assessment of the status offorest resources in PNG was conducted in 1997 aspart of the Forest Inventory Mapping System. Theseinventory data have been adjusted in later years,although ‘there has been no systematic attempt toupdate or ground-truth inventory data’ (ODI 2007,p. 10). A review of the potential, achievements andchallenges to the PNG forestry sector by the Interna-tional Tropical Timber Organization (ITTO 2007b)found that national- and provincial-level plans werebased on ‘guesstimates’ of forest area and other keystatistics. The review recommended that a nationalforest inventory be conducted and maintained on aregular basis. At the request of the PNG Govern-ment and with the support of the ITTO, Malleux andLanly (2008) assessed implications of inventorydesign to meet the needs of policymakers and otherstakeholders and prepared an action plan for thedevelopment of a multipurpose national forestinventory. PNGFA has been allocated funding tocarry out the inventory in 2009–2010.

An ITTO (2005a) report on the status of tropicalforest management estimated that there were

1

80,000 ha of plantation forest in PNG in 2005. Thisestimate assumed an annual planting rate of4,000 ha, based on data provided to ITTO byPNGFA. Anecdotal evidence suggests that this islikely to be an overestimate. More realistic estimateswould be around 50,000 ha. Until the schedulednational forestry inventory is completed, however,figures for the area of forest plantations remainunreliable. At best, the official PNGFA data providean indication of the area of land that has beenallocated for forest plantations. In addition, there are16,670 ha of rubber plantations in PNG (includingindustrial plantations); areas planted by villagersand plantations established as part of settlementschemes (Bourke and Harwood 2009).

Anecdotal evidence from selected sites in PNGindicates that a range of plantation managementstrategies is being practised. For example, in theGogol Valley near Madang, replanting of Acaciamangium by smallholders has not kept pace withharvesting due to lower than expected returns andchanges in harvesting arrangements. Estimates ofthe current area of acacia plantations are less thanhalf of the original 12,000 ha. At Open Bay in ENB,Eucalyptus deglupta plantations have expanded bymore than 50%, reaching almost 20,000 ha in 2008(SmartWood 2007). In Morobe province, the rate ofreplanting of the araucaria plantations after harvestat Bulolo has been limited in recent years by termiteinfestations and limited fire control. PNG’s teakplantations have been heavily harvested in responseto strong export demand. Several of the remainingstands of teak are of poor form (Adams 2007, p. 32).There has been little reported establishment of newplantations in PNG since the mid-1980s.

Species

The main plantation genera grown in PNG areEucalyptus, Acacia, Araucaria and Pinus.Eucalypts, which comprise around 45% of the totalarea planted, are dominated by Eucalyptus degluptathat is exported as roundwood and sawn timber. Themain acacia species is Acacia mangium, whichcomprises 20% of PNG’s total forest plantationarea. Acacia is processed into woodchips andexported through the Madang port. Together,Araucaria and Pinus comprise 28% of the total areaand include species such as Araucaria cunninghamii(hoop pine), Araucaria hunsteinii (klinki pine),Pinus caribaea and P. patula. Timber resources

9

from these forests are processed into variousproducts including plywood, treated poles, sawntimber and prefabricated buildings for the domesticand export markets. Other important species includeTectona grandis (teak), balsa and Terminalia sp.The importance of balsa has increased in recentyears, as the area of plantations in ENB increasedfrom an estimated 700 ha in 2003 to 3,500 ha in2009. This trend is not reflected in the officialplantations data.

Investment patterns

Investment in plantation development has beendominated by the private sector—more than 60% ofplantations are in private hands. This figure reflectsinvestment in industrial-scale plantations by largenational and international companies. It does notinclude the plantings of scattered trees and smallwoodlots of individual farmers and villages. Thereis potential to link smallholder growers to industrial-scale plantations and timber processing andmarketing operations though various arrangementsincluding the nucleus estate system that is commonfor oil palm in PNG.

Trees have been integrated into customary land-use systems in PNG for a range of purposesincluding meeting household food and fuelwoodneeds, protecting cash crops such as coffee andcocoa, supplying building materials and to provide adirect source of income. Trees are grown as part ofthe home garden, in woodlots or in agroforestrysystems (e.g. taungya—the practice of raising aforest crop in conjunction with a short-term agricul-tural crop). Trees grown in home gardens offer asupply of food, fuelwood and building materialsover the short to medium term, depending on thelength of the garden’s fallow period. Trees grown inwoodlots are for the supply of fuelwood and timberresources for the construction of houses and otherbuildings over the medium to long term. Treesgrown in agroforestry systems provide a range ofgoods and services, including timber resources forvarious end uses and non-timber products such asfruit, nuts and oil. For example, in coffee and cocoaproduction systems, tree genera such as Albizzia,Leucaena and Gliricidia are used as nurse crops.Once they have served their primary purpose, theyare harvested for home consumption as fuelwood(Hunt 2006). The diversity and dynamism of thesesystems reflect high levels of innovation and adapta-

2

tion in agriculture by PNG landholders (Kanowskiet al. 2008).

Subsistence food production and shifting cultiva-tion characterise agricultural production systems inPNG, with locally grown food supplying 80% ofcalories consumed by rural people. According toHanson et al. (2001, p. 11) ‘most gardens are low-intensity shifting cultivation systems, which operateon cycles of 1 or 2 years of cropping, followed by 5to 15 years of fallowing’. During the fallow period,the land reverts to bush that must be cleared by handto recommence the cycle. The fallow period in theshifting cultivation cycle offers promising opportu-nities for agroforestry systems.

Constraints to development

Kanowski et al. (2008) identified a number ofconstraints to development and expansion ofcommercial tree growing in PNG, including:• infrastructure development—poor physical and

market infrastructure including roads, timber-processing capacity, port services and marketinformation systems

• financial competitiveness—long lead timesbefore a positive cash flow is achieved, lack ofreliable information on financial aspects of treegrowing and lack of access to suitable creditservices

• access to technology—limited availability ofsuitable planting material and relevant technicalknowledge, including extension services

• threat of loss—risk of fire in grassland or adjacentenvironments or loss through theft.Varmola (2002, section 3.2.3) concluded from a

study of hardwood plantation establishment inPacific island countries that a key to ‘the success ofcommercially driven plantation development andmanagement is the management attitude’. Twoforest management types were identified for PNG—plantation foresters and indigenous foresters.Plantation foresters treat a plantation as a series ofrenewable tree crops, while indigenous forestersperceive any forest, planted or natural, as a resourcerather than a crop. The consequence of this is thatindigenous foresters tend not to apply any silvicul-tural management to a planted forest. Furthermore,as they do not manage a plantation as a series ofcrops, they may withdraw after the first rotation,having achieved a household income goal or beingdisillusioned by lower-than-expected returns. This

0

attitude and behaviour of indigenous foresters isexacerbated by a number of factors including:• expediency—PNG culture is generally expedient

(Varmola 2002); while this may be attractive toinvestor partners, the culture assumes that dealsare negotiable; therefore, landowners may seekshort-term returns or solutions to long-terminvestments after a deal has been agreed

• inexperience—participation by smallholders inplantation developments is often encouraged byexpectations of attractive returns promoted bydevelopers and advisors; but smallholders’unfamiliarity with the vagaries of the marketeconomy and the value of silviculturalmanagement may result in lower-than-expectedreturns and consequently their withdrawal fromsubsequent forest plantation activities.The level of taxes and duties and trade restrictions

imposed on forest resources may also restrainplantation investment, especially for some species.The government’s log export tax was imposed in anattempt to recover a share of the logging revenuesthat company taxation failed to capture. The exporttax does not apply to plantation logs or processedtimber products, which effectively acts as an induce-ment to plantation and timber-processing invest-ment. However, exports of selected species (includ-ing balsa, teak and all conifers) as roundwood arebanned, even though they are grown in plantations.The definition of roundwood includes woodstripped of sapwood or roughly squared (i.e. notdownstream processed, such as sawn timber). Theexport ban requires that these species are processedbefore export.

Growth potential

As resource supplies from natural forests declineand pressures increase to protect remaining naturalforests, investment in plantations is expected toincrease in PNG. ITTO (2007b) proposed thatplantations are needed for a number of reasons,including:• creating employment opportunities for rural

people• developing competitive export production• encouraging economically viable downstream

processing of forest products• ensuring opportunities for the entire community

to participate in the development process.

2

While acknowledging the potential for plantationexpansion, Hunt (2006) noted that governmentfunds and suitably qualified personnel to supportexpanded programs are limited. AusAID (2006)concluded that ‘while there is obvious potential inthe land-abundant Pacific countries for large planta-tions, land tenure constraints mean that the greatestpotential for plantations may be at the community orhousehold level’.

Despite the existence of incentives and otherforms of government support, evidence from PNGand other Pacific island countries indicates thatinvestment in plantations does not occur unless it isprofitable over the long term and critical risks can besatisfactorily mitigated. The main risk is resourcesecurity. Varmola (2002) and Hunt (2006) proposethat private investment is easier to attract once aplantation resource is established and is at or nearmaturity. They argue that the role of governmentshould be to establish and manage forests oncustomary land leased from owners. As the plantedresource approaches maturity, the lease is trans-ferred from government to the highest-biddingprivate operator. Under this management scenario,the government’s agency focuses on maximising thequality of the plantation resource while the privatecompany focuses on investment in processing facil-ities and restocking the harvested lands.

PNGFA (2009, p. 41) reported that the govern-ment’s intention is to increase the area of plantationsin PNG in line with the current draft reforestationpolicy, which the government is yet to endorse. Keydrivers of the policy are future domestic and exportmarket timber demand and the government’scommitment to the clean development mechanismof the Kyoto Protocol (PNGFA 2005).

PNGFA (2009, pp. 37–38) identified many weak-nesses that have to be overcome to ensure thatforestry in the future will be based on sustainableforest management. These included the need for:more education and awareness-building for tribalcommunities to allow them to make better-informeddecisions; increased financial and human resourcesfor government institutions responsible for forestry;and good overall political governance. This is afuture where the role of the government is anenabling one rather than engaging directly in forestmanagement. PNGFA saw the role of government inensuring a better future for the industry as providingbasic community needs such as education and healthservices, improving transport and communication

1

infrastructure and facilitating rural development.Furthermore, PNGFA (2009, p. 38) expects thatwhen the policies on reforestation, eco-forestry,downstream processing and climate change are

2

endorsed by government ‘the country may see a shiftfrom large-scale commercial forest exploitation tosmaller projects that will be more beneficial topeople and the environment’.

2

Biology, forestry and uses of balsa

Natural balsa forests

Balsa (Ochroma pyramidale, syn. O. lagopus) is afast-growing pioneer tree species that produces verylow density wood that is used for a wide range ofcommercial purposes. It is a medium-size tree,deciduous or evergreen, occurring in both pure andmixed stands in association with other pioneerspecies. The boles of mature trees are generallycylindrical and straight, with buttresses on oldertrees. Balsa is widely distributed across its naturalrange from 22°N to 15°S in broadleaf evergreen andsecondary forests in Central and tropical SouthAmerica (Figure 3). The name ‘balsa’ is derivedfrom the Spanish word for ‘raft’.

Natural distribution

The climate in balsa’s wide natural range is humidtropical with annual rainfall of 1,500–3,000 mmwith a short (<4 month) dry season. The meantemperature of the coldest month varies from 20 °C

2

to 25 °C and the mean temperature of the hottestmonth varies from 24 °C to 30 °C (Francis 1991).Balsa is not frost tolerant and it grows from near sealevel to 1,800 m above sea level in Colombia.

Balsa grows best in well-drained, alluvial soilsalong watercourses and this is where it is mostcommonly found, although it can colonise clayey,loamy and silty soils and even fresh road fill. Naturalstands of balsa can be found both on flat areas andsteep slopes.

Growth of balsa is very fast in its natural habitat,with mean annual diameter increment up to 10 cmand, after 10–12 years, when growth stabilises, treescan be 25 m tall and 1 m in diameter. After 12–15years of growth, the trees begin to deterioraterapidly (Wiselius 1998).

Taxonomy

Ochroma is a monotypic tropical American genusin the family Bombacaceae. CABI (2005) suggeststhe current nomenclature is O. pyramidale although

Figure 3. Natural distribution of balsa (shown in black) (after Francis1991)

3

the species has often been referred to as O. lagopus inthe literature; a name in universal use before 1920.The balsa of Ecuador was named O. grandiflora byRowlee in 1919. Herbarium material from Ecuador,however, is not specifically different from WestIndian material. The balsa of the West Indies has twoscientific names, both dating from 1788; O. lagopusSwartz and O. pyramidale (Cav.) Urban. Otherscientific names for this species include Bombaxpyramidale Cav. ex Lam., Ochroma bicolor Rowleeand O. concolor Rowlee, reflecting a considerablemorphological diversity across its natural range.Fletcher (1951) acknowledged that as many as 11species were recognised in early literature.

Genetic variation and conservation status

Given experience with other widely occurringtree species, it is inevitable that species such asO. pyramidale, which occurs across a broad naturalrange in Central and tropical South America, willpossess considerable genetic variation. This study3

has been unable to locate any detailed assessmentsof genetic variation or data recording broad-scaleprovenance assessment.

As an abundant pioneering species demonstratingexcellent regeneration throughout its range ofnatural occurrence, balsa is not biologically threat-ened. The international trade in balsa wood is legal,but larger companies (such as Plantabal SA, AlcanBaltek’s Ecuador plantation company) are seekingcertification for their plantations to ensure access toglobal markets. In a study for the United NationsEnvironment Programme (UNEP) World Conserva-tion Monitoring Centre, Gillett and Ferriss (2005)reported no concerns as to the conservation status ofthe species in Mesoamerica.

Floral biology and seed production

In its natural range, balsa begins to flower at 3–4years of age; under plantation conditions trees canbegin to flower and set seed after 3 years (CABI2000) and in PNG flowering can occur after

3 Throughout this report, ‘this study’ refers to the scopingstudy ‘Identification of researchable issuesunderpinning a vibrant balsa wood industry in PapuaNew Guinea’ (ACIAR Project No. FST/2009/012),commissioned by the Australian Centre forInternational Agricultural Research. Its output is thisreport.

2

9 months, although producing few viable seeds. Thetrees flower annually and flowering time varies overthe natural range—in August in Ecuador (Fletcher1951) and more generally between December andFebruary in Central America where the fruits (pods)mature rapidly over 2 months from mid-January toearly April (Anon. 2009a). Under uniform condi-tions of high humidity, flowering can occurthroughout the year. Balsa is bisexual and night-flowering and the flowers are pollinated by bats; atleast five species of South American bats are knownto pollinate the flowers (Alley-Crosby 2009). Thelarge white flowers (Figure 4) are held upright on thetree and the large (25 cm long and 3 cm in diameter)mature cylindrical pods are green. The small seedsare embedded in a matrix of silky fibres that aidwind and water dispersal. There are 150,000–170,000 cleaned seeds/kg.

Balsa as a weed

Balsa’s abundant seeding habit and ease of propa-gation confer a strong capacity to quickly colonisedisturbed habitats. Balsa is considered to be invasivein the Pacific islands (Meyer and Malet 2000) and insome situations it has become naturalised andformed dense, closed-canopy, nearly monospecificstands that shade out other species, and/or competefor water and sunlight, suppressing growth andregeneration of understorey plants.

Management of natural forests for wood production

Balsa from native forests was the primary sourceof balsa in 1951 (Fletcher 1951). Today, some 15%of Ecuador’s production is derived from nativeforests. In natural stands, balsa regeneration can beprofuse following burning or other site disturbance,and requires heavy thinning if trees are to offercommercial crops. At 3–4 months, seedlings arethinned to 2,000 per ha, followed by thinning at 1.5,2.5 and 3.5 years (Francis 1991). In Ecuador, tradi-tionally, trees were cut at age 6–8 years in naturalforests, debarked by hand and dragged to theriverside using bullocks. Logs were then transportedto the mills by water (Fletcher 1949). Fletcher(1951) noted that the logging operations in nativeforest harvests were very wasteful.

4

Balsa plantations

The broad commercial markets for balsa wood andthe ease with which the tree can be propagated andmanaged have resulted in plantations being estab-lished in many parts of the tropical world. Planta-tions have been recorded in 10 countries outside itsnatural range (including Indonesia, Sri Lanka, WestAfrica, Solomon Islands and Papua New Guinea(CABI 2000)) and Costa Rica, Mexico, Bolivia,Brazil, Colombia, Venezuela and Ecuador within itsnatural range. As a general guideline, preferredplantation sites have lowland, humid tropical condi-tions, uniform annual rainfall of about 2,500 mmand deep, well-drained soils. Ecuador has theworld’s largest plantation estate with an estimated18,000 ha and PNG, which provides 8% of globalsupply, has some 3,500 ha. Smaller plantation

2

estates meet industry needs in Indonesia, Colombia,Costa Rica and Peru.

Silviculture and management

Detailed silviculture guidelines are offered in Thebalsa manual: techniques for establishment and themanagement of balsa (Ochroma lagopus) planta-tions in Papua New Guinea (Howcroft 2002) and inOchroma lagopus: silvicultural characters andplantation methods (Anon. 1961).

Nursery guidelines for balsa propagation areprovided in Anon. (1961), Wiselius (1998) andHowcroft (2002). Balsa is normally propagated byseed, with little commercial success in vegetativepropagation being recorded. Some growers dibbleseed into prepared plantation sites but the mostcommon method of plantation establishment is vianursery-grown seedlings. The roots of young trees

Figure 4. Key botanical features of balsa (not all at same scale): (1)leaf, lower surface; (2) open flower with unfolded calyxand corolla, traces of bracts; (3) cross-section of a fruitbefore maturity; (4) mature fruit; (5) seeds; (6) seedling,approximately 1 month old (Source: Anon. 1961)

5

are very susceptible to damage, so bare-rooted plantscannot be used (CABI 2000). Therefore, whereseedling transport is difficult, direct sowing of seed isoften the preferred method of establishment.

In PNG, seed may be collected throughout theyear with a peak during April–November (Howcroft2009) or June–August (Wiselius 1998), and inEcuador seed is collected from October toNovember. The seeds are orthodox and retainviability for as long as 6 years in sealed containers atroom temperature, although cold storage at 4 ºC isrecommended. Francis (1991) reported that germi-nation can be improved in many ways: a hot watersoak for 20 minutes, a boiling water soak for 2–3minutes; a soak in coconut water for 12 hours; orscarification and exposure to dry heat (96 °C) for5 minutes. Seeds are sown in boxes or in plasticpots, in a 1:1 mixture of sandy loam garden soil andpure fine sand—a soil media combination which cangive a high germination percentage. Light shade isgiven to prevent excessive moisture loss.

When seedlings are about 20 cm tall (at about 3–4months of age) they are transplanted into holes of30 cm × 30 cm × 30 cm, at a spacing of about 4–5 m2

(CABI 2000). Initial spacing varies and is influencedby the need to maximise the growth rate of each treewhich, in turn, influences wood density (Wiselius1998).

Careful tending is necessary during the first year, asthe seedlings are quite fragile and can be easilydamaged by wounding and browsing. Seedlingscannot survive weed competition in the first year.Nurse crops are useful to guard against excessive barkscorch. Epicormic buds should be removed. Protec-tion against fire is also necessary (CABI 2000).

In some plantation situations, the trees are inter-planted with agricultural crops at the time of estab-lishment. A taungya system at 2 m × 3 m spacing canbe used (Wiselius 1998). In PNG, a closer initialspacing (2.5 m × 2.5 m; 1,600 trees/ha) is recom-mended where unimproved genetic material is used(Howcroft 2002), with thinning to 1,260 stems/ha1.5 years after planting, and a commercial thinningto 630 stems/ha at age 3.5 years. When geneticallyimproved planting material is used, an initialspacing of 4 m × 4 m is used. At year 5–6, the planta-tion is clear felled and replanted. In reality, growersin PNG plant balsa at various stocking rates, varyingfrom 2.5 m × 2.5 m to 3 m × 4 m depending on thesite, resources and labour for weeding, interest inthinning and availability of seedlings.

2

Early growth in balsa plantations is extremelyrapid, with annual height increments for the first2 years exceeding 3 m. Well-formed trees in PNGplantations can reach a diameter at breast height(dbh) of 30 cm some 30 months after planting.

Rotation lengths vary with site conditions andmanagement intensity. It is rare for rotation lengthsto extend beyond 8 years as growth slows appreci-ably between 7 and 12 years. At this stage,heartwood development starts and, with a muchhigher density and a darker colour, it is less suitablefor commercial purposes (Wiselius 1998). In PNG, arotation length of 5 years is common and the risk ofthe occurrence of ‘red heart’ (a wood colouration)increases with rotations beyond 6 years (Howcroft2009). In Indonesia, a rotation length of 8 years isused (Wiselius 1998), in Costa Rica 4–6 years(Revel 1993) and in Ecuador 6–7 years is commonlyadopted (DIAB, Ecuador, pers. comm.).

Ochroma pyramidale is a very strong lightdemander, but tolerates some lateral shade in thefirst year in sites where the summer sunlight isstrong. It has the ability to self-prune. Whereplantings from some seed sources are highlybranched, pruning of green branches is recom-mended before 12 months of age (Howcroft 2002).

Tree improvement and deployment of high-quality germplasm

This study has been unable to locate any reports ofwidespread and comprehensive collections of balsafrom its range of natural occurrence and subsequentassessment in provenance trials. Given thetaxonomic complexity and morphological variationwithin O. pyramidale, it is highly likely that consid-erable genetic variation exists in key characters suchas growth, form, wood density, internode length andpest and disease resistance. Such variation offersconsiderable opportunities for selection and deploy-ment of improved germplasm. To date, there hasbeen no commercial success in developing vegeta-tive propagation techniques for the species and thislimits options for capturing genetic gain. Anotherchallenge facing tree improvement is the floralbiology of the species—with bats pollinating thenight-blooming flowers, control of pollinatingvectors is challenging.

A modest program of tree improvement hasfunctioned sporadically in PNG since 1980 (Figure 5,and see below) and the company Alcan Baltek report-

6

edly uses improved sources of seed for its plantationsin Ecuador. Indonesia reportedly has a balsa improve-ment program. Commercial success of any tree croprequires use of the most appropriate high-qualitygermplasm. It costs just as much to establish a treefrom poor seed as it does from seed of the highestquality, yet the differences in growth and quality andfinancial returns can be dramatic. Although details ofother tree improvement programs for balsa were notfound during this study, it is likely that they have beenestablished and opportunities exist for collaboration.

Figure 5. A select (‘plus’) tree of balsa in PapuaNew Guinea (Photo: Stephen Midgley)

2

Wood quality

Balsa is a very low density wood and is thelightest and softest of all commercial timbers(Eddowes 2005). The heartwood (not often used ascommercial timber) is pale brown or reddish and thesapwood (forming most commercial timber) isnearly white or oatmeal-coloured, often with ayellowish or pinkish hue (USDA, undated). Treesare harvested before full biological maturity to avoidthe development of coloured heartwood.

Commercial balsa wood usually ranges in densityfrom 100 kg/m3 to 170 kg/m3 but can vary from50 kg/m3 to 410 kg/m3 (Francis 1991). Wood densityand other properties can vary greatly depending uponorigin and growth conditions (CIRAD 2003), withfast-grown trees reportedly producing a greaterproportion of low-density timber (PNG Balsa,Kokopo, ENB, PNG, pers. comm.). Because treesgrow more slowly as they age, density increaseslinearly with distance from the pith and height abovethe ground (Whitmore 1968).

Balsa wood of varying densities has a modulus ofrupture of 148–372 kg/cm2, a modulus of elasticityof 300,000–62,000 kg/cm2 and a maximumcrushing strength of 63–64 kg/cm2 (Francis 1991).

When harvested at 4–6 years, there is little or noheartwood in the log and no growth rings. Logs havea pith of about 2 cm in diameter that can ‘wander’through the centre of the log and which must beremoved during sawing. Balsa’s fast growth canlead to growth stresses, resulting in splitting duringconversion. This can be minimised through use oftwin saws at primary conversion. Balsa driesquickly with very little degrade, and kiln-drying,particularly of thicker stock, yields a much betterproduct than air-drying. Kiln-drying normally takesthe moisture content down to 10–14% over 2–3days; detailed schedules are offered by USDA(undated), CIRAD (2003) and Eddowes (2005).

The wood is not durable and is vulnerable to dry-wood termite attack, and logs and green lumber arereadily attacked by pin-hole borers. The sapwood ispermeable (CIRAD 2003).

Blue-stain fungus is a significant source ofcommercial degradation and can develop in the woodif there are delays between harvesting, sawing anddrying. In PNG, balsa is harvested, sawn and driedwithin 3 days to prevent blue-stain degradation.

Almost all balsa-processing operations segregatebalsa wood into three density classes. While these

7

classes vary in nomenclature and value betweenprocessors, they are generally described as: light(80–120 kg/m3), medium (120–180 kg/m3) andheavy (180–220 kg/m3). This study was unable tolocate markets for balsa wood with densitiesexceeding 220 kg/m3.

Like most hardwoods, balsa is short-fibred, but isnot used commercially for pulp and paper-making.

Uses of balsa wood

Due to its low density, strength and versatility, balsais suitable for a wide range of end uses. It is usedextensively for hobbies and model-making,including models of boats and ships, aeroplanes,gliders and buildings. Due to its buoyancy, it is usedfor surfboards and has been used for life rafts andlifebelts. The technical standards for model balsa arevery high, with clients demanding uniform light-coloured wood, free of knots and other defects andcut to precise dimensions.

Its main industrial use, and the use that forms thelargest part of the global balsa market, is as end-grain panels. End-grain panels are widely used insandwich panels (Figure 6), which are normally alow-density core material sandwiched between twohigh-modulus face skins to produce a lightweightpanel with exceptional stiffness. The face skins actlike the flanges of an ‘I’ beam, carrying tensile andcompressive loads. The core plays the role of theweb, separating the face skins and carrying the shearloads (Alcan Baltek 2009). The core materialsprovide panel thickness, with associated stiffness, atminimal weight. Stiffer panels require less supportstructure, simplifying structural design.

To prepare end-grain panels, harvested balsa isair-dried and then kiln-dried to 10–14% moisturecontent, with industry norms at 12%. The driedlumber is planed, cut to length and preciselymeasured and weighed to determine density. Aftersegregation into density classes, the lumber is gluedtogether, pressed into large blocks and cut intosheets with the wood fibres oriented perpendicularto the face of the core sheet. This end-grain orienta-tion offers very high compression and shear proper-ties, fundamental for good sandwich construction(Black 2003) and extremely high strength andstiffness-to-weight ratios.

In preparing end-grain balsa panels, manufac-turers place considerable importance on the densityand uniformity of the panel. Most buyers have very

2

strict specifications and, for example, will allowonly a certain number of defects in an end-grainpanel. Colour is important for some applications,with a pale straw to white colour preferred.

The moisture content of panels is important, ashigh moisture contents (>14%) can interfere withthe curing of adhesives used when applying theouter skins to the sandwich composites. Delamina-tion between the outer skin and the core can be amajor cause of product failure.

The features of balsa that are attractive tomanufacturers of sandwich panels are its relativelylow price compared with competing core materials,and it: • is an ecological product—balsa is the only core

material coming from a natural and renewableresource

• has a wide operating temperature range (–212 °Cto +163 °C; –414 °F to +325 °F)

Load

LoadSkin in tension

Skin in compression

Core in shear

Figure 6. An end-grain panel used in a sandwichcomposite (Photo: Stephen Midgley)

8

• has excellent fatigue resistance• offers good sound and thermal insulation• has high impact strength (Alcan Baltek 2009).

Balsa wood performs very well in fire-criticalapplications. It does not offer much fuel, and it burnswith a nontoxic white smoke. If the wood does comeinto contact with flame, a uniform char layer formsthat protects unconsumed core material from theheat source. In contrast, some competing corematerials made from synthetic foams may producefumes that contain toxic by-products (Black 2003).For these reasons, balsa is approved in most transitapplications and as insulation for engine rooms.

Balsa achieves an excellent bond with most typesof resins and adhesives and is compatible with avariety of manufacturing processes. While balsa isused as rigid panels, many fabricators prefer flexiblesheet material in which the panel is cut into smallsquares held together with a fabric (mostly fibre-glass) scrim backing that allows the core to conformto a curved, moulded surface.

As a core material, balsa has found a wide rangeof applications in many industrial sectors as outlinedbelow. Examples of such applications are illustratedin Figure 7.

Marine

As a lightweight and strong composite, end-grainbalsa has been used in hulls, decks, bulkheads,superstructures, interiors, tooling and moulds. TheAustralian racing yacht Scandia had a hull madefrom a balsa composite. Many power boats, recrea-tion craft and commercial vessels also have compo-nents made from balsa composites. Balsa has beenused for the massive, static-free insulation forcryogenic transport ships (used for shippingliquefied natural gas (LNG)). The use of balsa in themarine field is not new—native South Americanswere using it for rafts before European occupation.The raft used in the famous Kon-Tiki expedition of1947 was made from balsa logs.

Road and rail

Important criteria in rail vehicle engineeringinclude weight saving while maintaining rigidity andstrength, and acoustic and thermal insulation as wellas fire protection. Because of their lower cost andbetter durability, infused, balsa-cored, fibreglass-skinned panels have replaced phenolic honeycomb-cored laminates in the floors of Bay Area Rapid

2

Transit (BART) trains that operate in the greater SanFrancisco metropolitan area (Black 2003), and manymodern railway carriages use lightweight balsapanels in ceilings and compartment panels. Theflooring of the cabins of popular makes of trucks andbuses are balsa composites, as are roof panels, bodypanels, interiors, front-ends and side skirts (AlcanBaltek 2009). Many modern trailer homes includesandwich composites that incorporate end-grainbalsa, and some motion-picture production trailers,where weight is an issue, use balsa panels.

Wind energy

Improving technologies have increased theperformance and efficiency of wind turbines, andbalsa is used as lightweight, cored sandwich panelsin increasingly larger blades. In areas of rotor bladeswhere high shear and compression strengths arerequired, end-grain balsa cores provide some of thecheapest and most reliable solutions. Wind energyrepresents one of the most promising applications forenvironmentally friendly balsa, with most turbineblades being constructed to provide a 25-year life.

Aerospace

Among the best-known aerospace applicationsfor balsa was its use in the Mosquito bomber inWorld War II, a cleverly designed aircraft builtlargely from wood. Some of the most famousaircraft manufacturers such as Boeing andMcDonnell Douglas have used (and are using) balsapanels as floor panels, galley carts, interior parti-tions, cargo pallets, containers and general aviation(sports aircraft) parts.

Defence

The defence industries have long had an interestin balsa and balsa products. During World War I,balsa was used in life vests and the British used thewood in 80,000 floats that supported their minebarrage in the North Sea. Balsa wood is used as astandard core material in present-generation navalship structures, and sandwich composites and balsacores feature in a number of applications, such assurface ship deck structures, radar masts and boathulls (Mantena et al. 2008). The sandwichcomposite used generally consists of brominatedvinyl ester resin with glass or carbon reinforcementand a balsa core (Sorathia and Perez 2005).

9

The panels forming emergency and tacticalshelters (including field hospitals) commonly usebalsa cores. The standard cargo pallet for defence airtransport (274 cm × 224 cm; 108 inches × 88 inches)

3

is made with a balsa core. The Royal Australian AirForce imports about 300 balsa-based cargo palletsannually worth about A$1,700 each.

Figure 7(a–e). Examples of products that embody balsa: many vehicles include panels with balsa cores, suchas the floor panels of the Cadillac XLR (a), structural bodywork of the Toyota IMTS bus (b),the cab floor of the Kenworth T2000 truck (c), the hull and deck of the Dehler 47 yacht (d) andvarious sections of the Viking 74 sports fishing boat (e).

a

b

0

e

d

c

Industrial

Balsa-cored composites are widely used inductwork insulation for industrial pipes, as insula-tion for cool stores, in tooling, tanks, impactlimiters, concrete forms, fascia panels, skis,

3

snowboards, wakeboards and lightweight packagingmaterial for fragile goods.

Innovation has become the hallmark of successfulcompanies which use balsa wood.

1

g
f
h

Figure 7(f–h). Examples of products that embody balsa: the hull and deck of the Douglas Marine Spiderman (f);end-grain balsa cores are used in rotor blades for wind turbines (g) where high shear andcompression strengths are required; historically, the de Havilland Mosquito bomber of WorldWar II incorporated balsa into its famous wooden construction (h). (Photos: a–f, Alcan Baltek;g, ENERCON; h, The Australian War Memorial)

The balsa growers

Balsa has been cultivated, harvested and processedin all countries where it occurs naturally. In addition,it has been grown and processed in West Africa,Indonesia, Sri Lanka, PNG and Solomon Islands.From available trade data, it appears that thedominant global producer is Ecuador. PNG rankssecond and there is reported but unquantifiedproduction from Costa Rica, Venezuela, Colombia,Peru and Indonesia. Unsubstantiated reports suggestthat 4,000 ha of commercial plantations have beenestablished in Mata Grosso, Brazil. While balsa willgrow well in many parts of the world, the key toeconomic success appears to be proximity toprocessing facilities and links with internationalmarkets.

Balsa in EcuadorEcuador is the world’s dominant supplier of balsa andhas been so for over 60 years; Fletcher (1949) notedthat Ecuador controlled 95% of global production in1943 and the United Nations Conference on Tradeand Development (UNCTAD 2001) reported thatEcuador satisfied 80% of the world demand for balsain 2001. This study indicates that, in 2008, Ecuadoraccounted for 89% of the global supply of balsa.

Ecuador lies on the north-western coast of SouthAmerica and has an area of 276,841 km2 and apopulation of 14 million. For a large part of the past30 years, life in Ecuador has been marred bypolitical instability. Protests in Quito have contrib-uted to the mid-term ouster of Ecuador’s last threedemocratically elected presidents. In September2008, voters approved a new constitution; Ecuador’s20th since gaining independence. In 1999–2000,Ecuador suffered a severe economic crisis and theUnited States (US) dollar was adopted as legaltender. Despite a recovering economy, the govern-ment defaulted on several commercial bond obliga-tions in 2008. The economic uncertainty generatedby these actions has caused private investment todrop and economic growth to slow. Its 2008 exportsof petroleum, bananas, cut flowers, shrimp, cacao,

3

coffee, hemp, fish and wood (including balsa)totalled an estimated US$19.4 billion (CIA 2009).

Balsa occurs naturally in Ecuador and is grownprimarily on the moist tropical coastal plains andhills (Figure 8) where the annual rainfall is about2,500 mm. It has been utilised for a long time andwas commonly used for rafts by the Incas over 500years ago (Fletcher 1951). A significant part ofcommercial production comes from managedsecondary balsa regrowth on cleared land or onabandoned banana or cocoa plantations—regenera-tion so profuse on some occasions that it is known as‘the weed tree’ (Fletcher 1949). Balsa plantationsbegan to be established in 1937 after the EcuadorianGovernment passed a law requiring planting of twobalsa seedlings for every tree cut for commercialuse, and by 1940 three commercial plantations hadbeen established (Fletcher 1951).

The plantation estate of balsa has steadilyincreased in recent years. Pastor (2004) reported thatEcuador had 8,000 ha of commercial plantations in2004, and FAO (2006) reported 12,000 ha of balsaplantations in Ecuador in 2006. However, ITTO(2005b) reported that, in 2005, balsa, a major exporttimber from natural forests, was planted ‘on alimited scale’. Vásquez (2005) reported that, in2003, balsa production from plantations represented85% of the total balsa log harvest of about200,000 m3, indicating a productive plantation baseof about 5,000 ha at that time.

Since 2006, there has been a continuingexpansion of the balsa plantation resource andexport figures for 2008 indicated that the productiveplantation base had reached 18,000 ha in that year.4

The reasons underpinning this expansion include:• recognition by growers that balsa cultivation is

technically straightforward and can be aprofitable enterprise

4 Based upon an estimated export of 137,956 m3 of balsaproduct and assumptions of an average conversion rateof 23% from green logs, a 6-year rotation and harvestyield of 200 m3/ha.

2

• extension services from government, publicinstitutions and foundations offering technicalsupport and providing seeds free of charge

• new government legislation and regulationsrequiring the private sector to play a larger role inplantation investment—for example, companiesare obliged to plant one tree for every one theycut. This is a continuation of ongoing governmentpolicies and incentives to establish plantations(Anon. 2001)

• legislation requiring landholders to cultivate theirlands or face fines or resumption by thegovernment

• bank credit to stakeholders across the balsa valuechain—to farmers (to plant balsa trees), tobusinesses involved in harvesting and haulage,and to small processing factories.

The expanded plantation program is reportedlyassisted by a revitalised level of technical supportfrom research institutions, companies and others tohelp improve productivity and quality in plantationsand processing.

Although industry sources suggest that a signifi-cant part of this expanded resource is in areas withlimited access or far from processing facilities, itindicates that Ecuador will remain the leader inglobal balsa supplies. It is common practice toestablish more plantations than needed to ensurecontinuity of supply to processors in case of cutroads or infrastructure failure.

Figure 8. The main balsa production areas ofEcuador (Source: after Bonet et al. 2009)

3

Smallholders and small plantations form the basisof the Ecuadorian supply of balsa and have foundbalsa cultivation to be very profitable. Smallholdershave been encouraged to plant balsa in 1–3 ha blocksin association with cassava, bananas, orito (a type ofsmall banana) or maize to revegetate areas ofabandoned cropland (Sandu 2009). Small planta-tions are typically 20–30 ha with 625–830 plants/ha,managed on rotations of 4–5 years and often grownin association with an agricultural crop. Growers areencouraged to grow their balsa close to roads toreduce extraction costs (Anon. 2009b). Smallcommercial plantation operations can produce theirown seedlings and regular weeding, thinning andcontrol of unspecified insects and fungus constitutea large part of the costs of growing balsa.

The largest commercial grower in Ecuador is theAlcan Baltek company which, through its subsidi-aries Plantabal and others, has an estate of 7,000 haof well-managed plantations (see Box 1). Othermajor companies involved in the international balsamarket, such as DIAB and Balseurope, also havetheir own plantations associated with their balsa-processing facilities in Ecuador.

Industry sources report that, typically, processorswill purchase green, rough-sawn flitches (about2.2 m × 150 mm × 100 mm) at the mill door forabout US$144/m3. There are very strict specifica-tions regarding size, density, knots or presence of‘blue stain’. Based upon log harvest and exportfigures, log recoveries appear to be 25–30%(Vásquez 2005). Most of Ecuador’s processing andexport-oriented activities are based around the portcity of Guayaquil.

Balsa in Papua New Guinea, including East New Britain

Balsa has been cultivated successfully on a range ofsites in PNG that offer good soils, high rainfall andan uninterrupted growing season. The primary areafor commercial plantations in PNG is the GazellePeninsula in ENB. Although it has grown very wellon sites in other provinces in PNG, much of thisbalsa cannot be marketed because there are nomilling facilities in these areas, and export facilitiesand market access are limited. Furthermore, as balsamatures (for industrial uses) within 4–5 years ofplanting, it must be harvested or lose its market-ability, and many of the trees in areas other thanENB are already too old for commercial harvest

3

Box 1Alcan Baltek and the balsa industry

34

Alcan Baltek, part of the Alcan Composites Groupwithin the larger Rio Tinto Alcan conglomerate, isthe largest single corporate operator in the globalbalsa market; industry observers suggest that it con-trols 60–70% of the global market. Both directly andthrough a number of subsidiaries, such as BalmantaSA, Ecuatoriana de Balsa SA, Maseca and PlantabalSA, Alcan Baltek owns and manages balsa planta-tions in Ecuador and manufactures a wide range ofbalsa core products.

Baltek was founded in 1940 and the company hasestablished its global dominance by offering innov-ative engineering solutions to the application of end-grain balsa sandwich composites. It joined the AlcanCorporation to become the Alcan Baltek Corpor-ation in 2003. When Rio Tinto’s Canadian subsid-iary, Rio Tinto Canada Holding Inc., completed afriendly acquisition of Canadian company AlcanInc. on 15 November 2007, Alcan Baltek becamepart of Rio Tinto Alcan Inc.

Alcan Baltek began large-scale plantation oper-ations in the 1970s on land previously cleared foragriculture and now has 7,000 ha of balsa plant-ations spread over 28 sites in Ecuador. The planta-tion sites have high-quality soils and receive anannual average rainfall of 2,300 mm. The companyhas a tree improvement program and manages itsown seed orchards.

The plantations are managed on 6–7 year rot-ations. At harvest, trees can be 27 m high and 46 cmin diameter. Trees are harvested and logs brokendown in the field by a team using portable sawmills.Flitches are then taken to one of five largerprocessing mills where they are cut to size, knots andfaults removed, dipped in fungicide to prevent bluestain and kiln-dried.

After kiln-drying, the balsa lumber is carefullygraded into density classes and then glued into largeend-grain blocks. These blocks are shipped to AlcanBaltek’s plant in Northvale, New Jersey, UnitedStates of America (USA) where they are convertedto end-grain sheet.

Baltek has been at the forefront of innovation inbalsa utilisation since the 1930s when it developedbalsa applications for structural cores and the hobby/model industry. During World War II, the balsa pro-duced by the company successfully met the specifi-cations of the aircraft industry. In the 1950s and1960s, the company worked closely with the ship-

ping industry to improve the use of balsa as insula-tion for sea-going liquefied natural gas (LNG)tankers. At this time, the company jointly developedthe 463-L cargo system of the US Air Force, stillwidely used today: an aluminium-faced pallet, 274cm × 224 cm (88 inches × 108 inches), with 5 cm (2inch)-thick end-grain balsa as the core. Some 300 ofthese pallets, manufactured by the Army Air Force(AAF) Corporation, are imported annually for useby the Royal Australian Air Force.

Baltek developed the first scrim-backed flexiblecore. The emerging use of end-grain balsa in sandwichcomposites in marine hulls for yachts and otherpleasure boats expanded the use of balsa core toinclude fishing vessels, commercial boats and militarycraft. Since the 1960s, the company has been at theforefront of expanding applications of end-grain balsacores in sandwich technologies to include:• pipes and processing tanks for the chemical

industry • food-processing tanks, industrial ducts and

scrubbers• water purification and desalination troughs and

weirs• blades for wind turbines• commercial aircraft, rail cars, trucks and buses • shipping containers• bathtubs and shower stalls.

New products continue to be developed, includinglaminated products, specialist core-bonding adhe-sives and laminate bulker mats to serve improvedsandwich technologies. More recently, hybrid coresusing both balsa and polymer foams have beendesigned to enhance resin infusion.

Baltek Alcan has maintained its place as a leaderin the world balsa sector and its continued innova-tion has contributed significantly to its corporatesuccess over the past 70 years. More recently, itssubsidiary, Plantabal SA, has recognised the need todemonstrate the sustainable management of its plan-tations and has begun the process of certification.

The Baltek range of products is marketed in Aus-tralia via ATL Composites, based on the Gold Coast,Queensland.

For reasons of corporate confidentiality, AlcanBaltek was unable to participate in this study.

Sources: Funding Universe 2000; Alcan Baltek2009; this study

(Bourke and Harwood 2009). The main reasons forbalsa’s success in the Gazelle Peninsula appear to bea local interest in a broad suite of cash crops andproximity to processing facilities and a containerport for quick and efficient export to world markets.

Balsa has become an accepted part of a group ofcash crops that form the basis of the rural economyof the Gazelle Peninsula, where the production ofcash crops and food crops has been skilfullyintegrated. The most important cash crops are oilpalm (Elaeis guineensis), fresh vegetables, cocoa(Theobroma cacao), betel nut (Areca catechu orA. macrocalyx), copra (Cocos nucifera) and someArabica coffee (Coffea arabica). The production ofthese export tree crops is dominated by smallholdersand the crops provide incomes to about 80% of thepopulation (Bourke and Harwood 2009). Balsa isregarded by all growers in ENB—smallholders andowners of larger plantation blocks—as a cash crop(interviews, this study).

Cocoa pod borer

The cocoa pod borer (CPB), Conopomorphacramerella, is a serious insect pest and has caused asevere reduction in cocoa production in ENB. Itappeared in the Keravat area in early 2006 and sincethen has spread to other locations on the GazellePeninsula (Bourke and Harwood 2009). The produc-tion losses in infested areas are significant (20–50%)for smallholders who rely on the year-round cashincome provided by cocoa, and the strict phytosani-tary practices needed to address this problem havemeant that large areas will become unproductive.There are some 55,000 ha of cocoa in ENB and it isestimated that some 30,000 ha will be withdrawnfrom production as a result of CPB (John Moxon,Lowland Agricultural Extension Station (LAES),Keravat, pers. comm.). The social consequences ofthis substantial community loss of income will beserious, having an impact on education, health, andlaw and order. There are community expectationsthat some of the former cocoa lands will be convertedto balsa and that balsa cultivation might helpminimise the effects of reduced cocoa revenues.

Balsa’s history in East New Britain

On the Gazelle Peninsula in 2001 there were morethan 200 ha of smallholder balsa plantings and over80 ha of private, company-owned balsa plantations.By 2003, the resource had grown to 700 ha and there

3

are now about 3,500 ha planted, and this area isexpected to reach 6,200 ha by 2012.

Balsa was introduced into ENB by the GermanAdministration before 1914 and established at theRabaul Botanic Gardens. Seed was made availableto the general public from these introductions after1938. The current location of progeny from theseearly introductions is unknown. Between 1947 and1974, 10 further introductions were made, 9 ofwhich were successfully established in trialplantings (Howcroft 2002). Early distinctions weremade between Ochroma lagopus and O. pyrami-dale, but both are now considered to be the onespecies, O. pyramidale (CABI 2000). In 1961, aseed source imported as O. lagopus was introducedand established at Keravat. These introductionsincluded batches from sites within the natural rangeof the species such as Colombia and Honduras(particularly the Lancetilla Botanic Gardens) andexotic sources such as Australia, India, Indonesiaand Sri Lanka. The Indian and Sri Lankan sourceswere inferior, probably as a result of a narrowgenetic base, and efforts were made to eradicatethem. The Honduran source from the LancetillaBotanic Gardens proved exceptional and trees ofthis provenance provided the base for tree improve-ment activities that began in 1980. The Indonesiansources are thought also to be contributing to thepresent gene pool, as are trees originating from theColombian introduction (Doran 2009; Howcroft2009).

In 1995, in response to a shortage of locallyavailable seed, three batches of seed were collectedand supplied by the National Tree Seed Centre froma seed stand at Oomsis, near Lae, Morobe province.These sources proved to be of very poor quality,producing trees with short boles and many branches,and are gradually being eradicated from the planta-tion estate.

In 1998–99, the PNG Forest Research Institute(PNGFRI) Lae imported seed from Honduras—10 seedlots from each of three provenances(Lancetilla Botanic Gardens, El Progreso and Lagode Yojoa), and these were planted in 2008 near theUniversity of Natural Resources and Environment(UNRE) at Vudal and at LAES, National Agricul-tural Research Institute (NARI), at Keravat.Responsibility for the management and monitoringof these important plantings is unclear.

Balsa wood production and allied industry on theGazelle Peninsula were severely disrupted by the

5

volcanic eruption in 1994 which devastated thenearby port of Rabaul (Figure 9). Acidic volcanicash defoliated many of the trees.

The International Tropical Timber Organization Project

From 1996 to 2003, ITTO provided support overtwo stages to PNGFA to manage the ITTO East NewBritain Balsa Industry Strengthening Project (‘ITTOProject’). The project had several aims:• increasing revenues to landowners by increasing

the commercial volume production of a balsa cropover its rotation

• increasing volume production by breeding treeswith desirable commercial characteristics such asstraight stems

• increasing the plantation area by supplyingseedlings of superior genetic stock

• providing a silvicultural manual and code ofpractice to ensure sustainable forest management.The project offered high-quality extension

services to growers, including supply of seedlings ata reasonable price and advice on site preparation,spacing, thinning and pruning. It provided importantlinks across the supply chain, offering a forum forPNGFA, the growers and the industry to discussissues and share information.

The project had a positive effect and the numberof smallholder growers increased rapidly, estab-lishing balsa on plots of 0.5–2.0 ha on their ownlands. In addition, larger plantation owners(including some church groups) and processingcompanies began to establish their own plantations(Howcroft 2000, 2001, 2003; Howcroft and Ohana2001).

The project recognised the need to offer high-quality germplasm to all growers and commenced atree improvement program based upon selection of

3

superior trees (candidate seed trees—CSTs; seeFigure 5) and establishment of seed productionareas, seedling seed orchards and conservationstands.

The main stakeholders in the industry workedwith the project to produce an important draft ‘codeof conduct and practice’ (Anon. 2000) for theindustry. The balsa manual (Howcroft 2002) wasproduced to provide information on growing balsa,and contained a valuable set of log volume tablesthat remains in use.

Importantly, the ITTO Project provided an oppor-tunity to monitor progress with the balsa industry,identify key stakeholders and offer targetedresponses. Unfortunately, since 2003, many of theservices put in place by the project have declined,although PNGFA still provides balsa seedlings tosmallholders at competitive rates and maintains alevel of contact with the industry through dispersalof stumpage cheques to growers. It is able to offer aservice to industry through providing statistics onexports via the records derived through the exportpermit system.

Despite the success of this early and timelyproject, most balsa growers and processors in ENBnow receive little extension support from govern-ment or other sources.

Balsa silviculture in East New Britain

Various aspects of balsa silviculture in ENB areshown in Figure 10. The balsa manual (Howcroft2002) and the former extension services of the ITTOProject provided some excellent foundations forsilviculture and plantation management of balsa.Most growers now adopt their own variations ofsilviculture, many of which are influenced by theavailability of funds and labour. Baynes (2002)summarised balsa silviculture in ENB.

Figure 9. Rabaul Harbour, from which balsa produced in East New Britain is shipped, as it appeared in 2009(Photo: Stephen Midgley)

6

Figure 10. (a) A harvested and replanted area of balsa,Keravat, Papua New Guinea; (b) a maturestand showing typical poor stem form witha replanted area in the foreground;(c) seedlings growing in tubes in a nursery;(d) a typical pruned stand at 36 months;(e) a recently pruned stand at 30 months;(f) balsa logs arriving at a mill (Photos: Stephen Midgley)

a

37

b

c
d
e
f

Site preparation and seedling establishmentAs a pioneer species, balsa grows well in full

sunlight and therefore the site must be cleared ofbushes etc. before planting. Planting out of theseedlings is usually done in most months after rain,and survival is generally high, with few growersreporting a need to refill after planting. Mortalitythrough drought is low as ENB receives high anduniform rainfall, the soils are fertile and well-drained, and light and temperature conditions favourplant growth.

Application of mineral fertiliser is uncommon,although fertilisers are recommended on sites whererepeated cropping has led to a decline in fertility, orsites that are dominated by aggressive grasses suchas guinea grass (Panicum maximum) or blady grass(Imperata cylindrica), where nitrogen deficiencymay be present. Limited boron may detract from treeperformance (N. Howcroft, pers. obs.). None of thegrowers interviewed for this study applied fertiliser.One grower interviewed mentioned lack of vigour ina third-rotation crop that may respond to fertiliser.Howcroft (2002) cites examples where balsa hasbeen grown in several rotations over 15 years on thesame site without evidence of yield decline insuccessive generations. However, he suggested thatgiven balsa’s fast growth and production of strongand active surface roots, ‘it is expected that at somepoint in time the soil fertility will reduce and thatfallowing and fertilisers must be used’ (Howcroft2002).

Almost all weeding is done by hand slashing; fewgrowers use herbicides to control weeds, for reasonsof cost and fear of damaging the balsa seedlings. Ascrown closure takes place after the first severalmonths, the only crops that can be grown in associ-ation with balsa are quick-growing ones such aspeanuts.

SpacingThere are many prevailing views about initial tree

spacing for balsa and there is no accepted norm inENB. Growers consider a number of factors:• the need to complete crown closure as early as

possible to minimise weeding expenses• the need to improve tree form and produce a long

log length before the first node by planting atclose spacings, such as 2.1 m

• processor preference for logs with diameters of35–45 cm at 5 years of age

3

• a demonstrated unwillingness by many growers tothin the weaker stems (if planted at closespacings) at an early age, i.e. 16 months.Many growers have adopted a spacing of 3.0 m ×

3.0 m, providing an initial stocking of 1,100 trees/ha,rather than 2,200 trees/ha with spacing at 2.1 m aspractised earlier. A compromise spacing is 2.5 m.Landowners tend to plant in a triangular patternrather than a square or rectangular pattern and thisalters the initial stocking slightly.

PruningTrees are not usually pruned, but any trees

showing the characteristics of the Oomsis strain—that is, persistent low branching—are either thinnedout or pruned. In PNG, growers observe three typesof tree: those with small, weak branches that self-prune readily; those with persistent branches thatsag or bend with age and die; and those withbranches that persist. The last type of tree is prunedat age 9–12 months. If growers seek a longer logfrom the second internode, it is common to removeall but one of the branches at the top of the firstinternode—a process known as ‘jorqueting’; a termborrowed from the cocoa sector.

ThinningFor trees planted at a spacing of 3.0 m (1,100

trees/ha), a first thinning is recommended at age3 years to a stocking of 450–550 trees/ha. This isfollowed by clear felling at age 5 years.Thinning isrecommended—although not always completed—and thinning schedules depend on initial treestocking. For trees planted 2.5 m apart, giving astocking of 1,600 trees/ha, thinning to waste to astocking of 1,260 trees/ha is recommended at18 months. This is followed by a commercialthinning to a stocking of 630 trees/ha at age 3.5years, with clear felling at age 5–6 years.

The main issue is that growers seeking to obtainearly returns from early thinning of their balsa cropremove the larger trees for sale—that is, they thin‘from above’. This has serious consequences for theplantation. Thinning should be ‘from below’,removing weaker trees according to the criteria ofvigour, form and spacing, and allowing better-formed trees to develop to provide superior logs(and ultimately higher returns). Some growers arenow considering a thinning schedule entailing thesystematic removal of every third row, but thisapproach still removes 30% of the best trees.

8

RotationsAfter felling, some blocks have been allowed to

re-establish as natural regeneration, but the resultingstands can be very dense—up to 25,000 trees/ha.Growers are encouraged to thin these stands to aspacing of 3.0 m × 3.0 m before the age of15 months.

The rotation for balsa in ENB varies from 4 to 6years depending on site quality, tree size and thegrower’s need for a financial return. The normappears to be 5 years and the maximum recom-mended rotation is 6 years. While the trees are stillgrowing quickly at this age, experience has shownthat after this time they begin to form heartwood andsuffer from internal degradation. Wood affected withred heart is unacceptable to the processors. Proces-sors prefer logs that are >35 cm in diameter as theseoffer greater recovery of sawn material, and growersare encouraged to harvest their trees at age 5 years.

Pest managementSeveral insect and fungal pests have been

recorded on balsa in ENB, although none hasoffered a threat to the industry so far. There havebeen suggestions that the incidence of disease andproblems with insect pests may increase if balsaexpands onto land previously used for cocoa.Howcroft (2002) observed that the incidence ofinsect problems was higher on sites close to oldcocoa blocks or land previously planted with cocoa.Furthermore, balsa is susceptible to some of the rootdiseases that are found in cocoa. Good harvestingpractices are recommended to reduce the incidenceof disease, including leaving very short stumps tominimise inoculum for root-rotting fungi andbreeding grounds for wood-boring insects such aslongicorn beetles.

Tree improvement and supply of high-quality seed

The ITTO Project made an excellent start to balsatree improvement, but since the conclusion of theproject there has been no clear responsibility formaintenance of the assets of candidate seed trees(CSTs) and seed orchards and many of thesevaluable resources have been lost. Doran (2009)estimated some 70–80 CSTs are currently availableand under the control of the PNGFA Forestry Officeat Keravat. The capacity of PNGFA to supply high-

3

quality seed is limited and growers typically findtheir own sources of seed.

In response to this unfortunate state of affairs, theSecretariat of the Pacific Community (SPC) Facili-tating Agricultural Commodity Trade (FACT)Project is now working with PNG Balsa to developa balsa improvement and germplasm supply breed-ing strategy. One of the early recommendationsfrom this work is that a cooperative breedingprogram be established to include all major growersand appropriate government agencies (Doran 2009).

Balsa growers in East New Britain

Balsa is not grown on government lands and isnormally grown on lands with private title. Thebalsa growers of ENB represent a broad cross-section of the community. They include largeplantation owners, groups of owners who haveplantation assets, various churches, influentialleaders in the community, smallholders and proces-sors. In 2003, when it was estimated that the totalbalsa planted resource was 700 ha, there were anestimated 400 smallholders with plots of <5 hagrowing some 80% of the resource. The remaining20% was controlled by groups of landownerspooling plantation assets, by processors and bysome leaders in the community. By 2012, when thebalsa plantations are expected to grow to 6,200 ha,the balsa-growing community will be dominated byplantation blocks larger than 20 ha, with only 300 ha(5%) controlled by smallholders with plots of <5 ha.With the exception of about 1,400 ha of plantationscontrolled by large freehold owners, most largerplantations are leased from, or managed by, groupsof landowners who have pooled their plantationresources. This change in resource management hasbeen brought about by the need for processors tobecome more proactive in interacting with growersto ensure regular and reliable supply to their mills.Unlike other tree species, which can be left growingat the end of a nominal rotation if markets are poor,balsa must be harvested by the age of 6 years or thewood deteriorates. It has proven difficult for small-holders to accommodate the fluctuating demand forbalsa logs, and this has discouraged several growersfrom replanting and remaining part of the industry.Among the benefits from consolidated plantings arethe options to apply improved and timely silvicul-ture and to reduce harvesting costs.

9

Balsa yields and inventory

Conservative yields from regular plantations arereported to be 200 m3/ha at year 5, while yields frompoorly managed plantations can be as low as180 m3/ha. Yields from plantations on good sitesand managed by skilled growers have regularlyexceeded 400 m3/ha at year 5. Some yields fromexperimental plantings have exceeded 500 m3/ha(Howcroft 2002).

Little attention has been paid to detailed inventoryof balsa plantings in ENB—nearly all figures forareas and volumes are estimates only. There are nopermanent sample plots as would be expected incommercial plantations of other timber species. Thissituation is changing as the resource becomesdominated by larger blocks of trees and as proces-sors recognise the need to better manage theresource base if they are to meet expectations ofreliable supply to global markets. Influencing thischange is the current resource scarcity; the balsasupply in ENB is tight at present and will remain sountil 2012. This has encouraged processors to locategrowers and delineate and record blocks of balsausing global positioning system (GPS) andgeographic information system (GIS) devices.

Harvesting and hauling balsa

Almost all balsa is harvested and delivered to themill door by processors using their own equipmentand logging teams. Chainsaws are used to fell trees;standards in directional falling appear to be low andconsiderable damage to the logs has been reportedwhen logs are felled across already-fallen timber.Most balsa growers sell their resource at the stump toa local processor who arranges for harvesting andtransport the mill. The processors purchase balsa logsat a negotiated stumpage rate (per cubic metre) andgrowers are keen to ensure that the maximum volumeof merchantable logs is recovered. Stumpages areinfluenced by distance from the mill, quality of theresource, quantity available, maturity of resource(size) and accessibility (terrain and distance from theroad). These factors are discussed later in this report(‘The dynamics of balsa purchase’).

Logs are cut into billets of varying length—someprocessors prefer 2.2 m and others 1.8 m. Most willtake billets down to a minimum length of 1.1 m. Whileprocessors prefer logs of 35 cm in diameter, theyaccept logs to a minimum end diameter of 17 cm.Trucks of varying capacity (3 and 15 t trucks were

4

noted) are loaded by hand. Very little mechanisedequipment (such as the specialised logging gear usedin the broader forestry sector) is used for balsaharvesting with the exception of some small farmtractors. The deteriorating quality of roads on theGazelle Peninsula was obvious during this study andcontributes to rising vehicle maintenance and haulagecosts.

A major concern expressed by growers was aperception of excessive waste during harvesting.Reports are common of marketable logs being leftinexplicably in the field. Some growers engagedtheir own labourers to ensure that all merchantablelogs were removed from the site. Among the reasonsprovided by processors were that discarded logs didnot meet specifications (see, for example, Appendix1, ‘Papua New Guinea balsa log grading rules’),particularly those relating to branches, red heart,branch stubs, minimum diameter and length.Harvesting teams lacked appropriate equipment toefficiently recover any logs felled into steep gullies.

Transport costs

The variation in prices received by growers relativeto distance from the mill is illustrated in Figure 11.The data on which this relationship is based werecollected from a sample of growers in ENB in July2009. Growers and processors advised that whiledistance is a key factor in establishing price, quality,access, scale and maturity are also important. Proces-sors who provide harvesting and transport services togrowers indicated that the maximum distance thatthey would haul logs was around 40–50 km. Figure11 indicates that resources grown within 10–15 km ofa processing mill attract almost twice the stumpagerate of resources grown 50 km from a mill.

The more distant growers would have to supplylarge volumes of consistently high-quality balsa tooffset some of the price differential associated withtheir location. Alternatively, balsa plantationgrowers located more than 45 km from a mill mayfind it profitable to process their logs into flitches atthe point of production and then transport the sawnwood to processors for drying and furtherprocessing. Growers may also benefit from dryingthe flitches before shipping them for downstreamprocessing, although this is technically challengingfor individual growers. The feasibility of thesesupply options—including implications for qualityof the sawn wood from portable sawmills andchainsaw mills—should be explored further.

0

Processing balsa

Various aspects of processing balsa are shown inFigure 12. Three mills were operating on the GazellePeninsula in 2001, and these processed balsapurchased from both smallholder and commercialplantation producers. By 2007, there were 4 mills inENB, and this number increased to 11 in 2009. Someprocess balsa wood and export a variety of balsa

Distance from mill (km)

Pric

e(

)

0 10 20 30 40 50 60

6050

40

3020

200

Figure 11. (a) Variation in prices received by growerswith distance from the mill (Source:Survey data, July 2009); (b) relativelysmall trucks are used to haul balsa inPapua New Guinea, carrying 6–24 m3 perload (Photo: Stephen Midgley)

a

b

4

products to international markets, while others sawlogs and prepare rough-sawn, air-dried flitches(commonly 1.8 m × 100 mm × 100 mm) for sale tothe exporting processors. Processing facilities varyin volume and sophistication and are designed tomeet various market segments. Some mills aresimply a single circular breakdown saw, whileothers follow the process through to advanced balsaproducts. Larger mills aiming to improve efficien-cies and recoveries use twin-bladed breakdownsaws that help to prevent splitting and warping dueto growth stresses.

Logs are sawn within a day of reaching thesawmill; delays in sawing are not encouraged due tothe risks of blue stain and splitting—some logsbegin to split as soon as growth stresses are released.Growth stresses are an issue for sawing, as is sawingaround the pith, which is not always centrallylocated in the log.

All export-oriented processors kiln-dry green-sawn flitches before sizing, finishing and sanding,and preparing glued blocks or panels. Moisturecontent is taken down to 10% with a preferredmoisture content of 12% as product leaves thefactory. Kilns are mostly wood-fired with residues,and vary in capacity and efficiency.

Sawmilling recovery is dependent on billetquality and size. Primary recovery after initialsawing to green, rough-sawn flitches is less than50%. Depending on the final size and quality of theproduct, recovery after sawing, kiln-drying, planingand sanding can vary: from 17% to 25% for gluedblocks; from 12% to 18% for end-grain sheets; to18% for blocks; and to as low as 7% for 1 mm balsasheets.

Most export-oriented processors serve particularniches within the global markets and have their ownparticular standards. For example, first-grade balsa,suitable for hobby use, must be absolutely clear ofknots and defects and is a uniform white colour. Theindustrial balsa wood market allows some colourand defects in the wood but insists on uniformity andmay specify particular density classes. Not allprocessors have access to all market niches.

The ENB mills could conceivably cater for balsaproduced in other parts of PNG. However, in orderto be economic, the balsa would have to beprocessed into flitches before being shipped to ENBfor final processing, which means that flitch-processing plants would have to be established in theother balsa-growing areas. The realities of quality

1

control and controlling mill-door delivered costs,and the unreliable nature of shipping and a deterio-rating road system, suggest that the feasibility ofshipping flitches to Rabaul for further processingwill need careful analysis.

4

Balsa processors in East New Britain

The 11 processors of balsa currently operating inENB (Nicholas Mitar, PNGFA, pers. comm.) varyin capacity and sophistication. Some focus on export

Figure 12. (a) A small balsa sawmill; (b) sawn kiln-dried flitches; (c) large drying kilns; (d) planing driedblocks; (e) large glued blocks ready for dispatch; (f) loading a ship in Rabaul Harbour (Photos: Stephen Midgley)

a

2

b

c
d
e
f

markets and others focus on supply of green, rough-sawn flitches to the export processors. The largerprocessors are moving towards integrated supplyand processing systems where the processor canexert a larger influence over costs and supply. Thisis a consequence of the current undersupply of rawmaterial. The processors include the companiesoutlined below.

4

The PNG Balsa Company The PNG Balsa Company plants, harvests and

processes balsa at primary and secondary levels andproduces downstream products for export. A profes-sional plantation team manages its field facilities ofnurseries and plantation infrastructure and its facili-ties include mechanical and saw-doctor workshops,a primary processing mill, drying kilns, secondary

Table 3. Factors contributing to successful development of balsa plantations in East New Britain

Factor Strengths Challenges

Infrastructure development

Extensive network of sealed roads linking growers, processors and portDeep-water port with direct shipments to export marketsBalsa-processing operations located close to plantations

Port capacity and efficiency as balsa production increasesAvailability of suitable labour for balsa processingInstitutional arrangements governing balsa exports

Financial competitiveness

Short-rotation tree crop generating positive cash flows after 5 yearsLong production historySeedlings provided by Papua New Guinea (PNG) Forest Authority at cost

Managing plantation as a renewable tree crop and not as a resourceContinuity and consistency of supply from smallholders over multiple rotationsRelative returns to labour

Access to technology International Tropical Timber Organization (ITTO) East New Britain Balsa Industry Strengthening Project 1996–2003 provided high-quality extension services, seedlings and professional advice on silvicultural practicesThe balsa manual (Howcroft 2002)

Since completion of ITTO Project, technical support has declined significantlyPNG Forest Authority extension services

Threat of loss Relatively stable provincial economy and society with good cash incomes, high land potential and very good access to services (Hanson et al. 2001)Established infrastructureCompetitive industry structure

Volcanic eruptionsDisruption to the local economy due to cocoa pod borer and associated loss of livelihood for many smallholdersHigh population density

Expediency Tolai people of East New Britain are well educated and have a long history of trade and commerce (Newlin 2000)Perennial tree species have been grown as part of land-use systems for generations

Awareness and understanding of market vagaries and benefits of good silvicultural practicesUnderstanding operations and costs along the balsa supply chainNeed for short-term income

Inexperience Long history of growing perennial tree crops including coconut palms for copra, cocoa, coffeeITTO ProjectShort-rotation tree crop

Possible new supply arrangements for smallholders

Security of tenure Established land groupsOpportunity for smallholders to grow trees and sell resources to processorsPrivate ownership of larger estates

Competition for land withdrawn from cocoa production

3

manufacturing infrastructure and warehouses. PNGBalsa is the largest balsa processor in PNG with anannual processing capacity of 90,000 m3 of logs andthe company has made a substantial commitment tointernational marketing and maintaining thecompetitiveness of balsa products from ENB. Thecompany purchases balsa from many growers andhas established over 2,000 ha of its own plantationsunder joint-venture and share-farming agreementswith landowners; this plantation estate will increaseto 4,000 ha by 2012 and the company has thecapacity to process all plantation production toexport standards for blocks, sheets, glued blocks andfibreglass-backed, end-grain sheets. PNG Balsarecognises the benefits to be gained through use ofbest-quality germplasm and has begun a treeimprovement program in collaboration with theSPC’s FACT Project.

GSMC/Auszac Balsa AllianceThe GSMC/Auszac Balsa Alliance is based on

GSMC, the longest-standing balsa processor inPNG. Its long-term focus has been the demandinginternational model markets; this has beenbroadened to include kiln-dried, glued blocks forChinese markets. Traditionally, the company haspurchased logs directly from growers and is nowworking to complement this supply with productfrom its own plantations of 135 ha. The mill’sinstalled capacity of 5,000 m3 logs annually is beingincreased by 50%.

Gunter Balsa LimitedGunter Balsa Ltd is the most recent processor to

begin production and is linked directly to balsadistributors and manufacturers in Germany via itsparent company. The company has no dedicated

4

plantation base and has a supply strategy based onsmall growers. Although it has just started produc-tion, the modern sawmill, kilns and finishing facilityhave a potential annual processing capacity of14,000 m3 logs. The company has developed astrong relationship with the University of NaturalResources and Environment where it offers infor-mation support and experience to students.

Coconut Products LimitedCoconut Products Limited (CPL) is the largest

private landholder in ENB, with major interests incoconut, cocoa, cattle and aquaculture, and thecompany plans to build its balsa plantation estate to1,200 ha. It currently operates a small, primary-breakdown mill and produces green, rough-sawnflitches for other processors who dry and convert theblocks to kiln-dried, glued blocks. The company hasplans to establish its own processing facilities whichwill produce export-standard products. Like PNGBalsa, CPL has recognised the need for high-qualitygermplasm and has maintained a basic selection andgenetic improvement capacity.

Other processors include Takubar CentreLimited, Avenell Engineering, Tavilo TimbersLimited, North Baining Timbers and NiuginiModels (PNG) Limited.

The success of balsa in East New Britain

The successful development of the balsa industryin ENB has been underpinned by several strengths,as illustrated in Table 3. While these strengthssupport a vibrant industry, the industry must face anumber of challenges in order to sustain its successin the future.

4

Trade and balsa markets

Tariff codes

International trade data on balsa and balsa productsare challenging to locate. Balsa is classified in acategory combined with other woods (virola,mahogany, imbuia and balsa) rather than having aspecific code at the international HarmonizedSystem Codes of the World Customs Organization(HS) 6-digit level. Some countries have moredetailed information at the national tariff line level,including the USA, and this has been used to createAppendix 2, a summary of US balsa imports.

An added complication is that the main HS codethat includes balsa (‘HS 440724 Wood of virola,mahogany, imbuia and balsa, sawn or chipped,sliced or peeled, exceeding 6 mm in thickness’) waschanged to a new category excluding mahoganyfrom 2007: ‘HS 440722 Wood of virola, imbuia andbalsa, sawn or chipped, sliced or peeled, exceeding 6mm in thickness’. Since 2007, Ecuadorean officialstatistics for exports are described under the ProductNumber 4407220000 (that includes balsa, virola andimbuia woods) of the Andean Trade CommunityStandard Product Code System known asNANDINA. The potential for a mix of species inthis product number must cloud any statistics ofbalsa from Ecuador based on it, although this studywas informed that ‘balsa is the driver in the productnumber’ (Austrade 2009).

Balsa enjoys an import status in the USA sufficientto warrant its own codes. In a review of the USmarket for tropical timber products, Goetzl andEkström (2007) provided tables containing all codesthat make up the standard commodity groupings asdefined by the United States Department of Agricul-ture (USDA) Foreign Agricultural Service (FAS)and which appear in the standard 2- and 5-yearreports. The commodity codes were derived from theHarmonized Tariff Schedule (HTS—this schedulehas been devised for imports; the HS schedule forexports) to the 6-digit level for generalised catego-ries. The USA defines products using 10-digit HTScodes. Exports codes (which the USA calls

4

Schedule B) are administered by the US CensusBureau. Import codes are administered by the USInternational Trade Commission (USITC). Therelevant codes identified by Goetzl and Ekström(2007) for balsa were: • 4407220006 HW [hardwood] lumber balsa. Balsa

wood, sawn or chipped lengthwise, sliced orpeeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm

• 4407230005 HW lumber balsa. Balsa wood sawnlengthwise over 6 mm, rough

• 4407230010 HW lumber balsa. Balsa wood sawnlengthwise, over 6 mm, NESOI5

• 4407240005 HW lumber balsa. Balsa, rough,tropical, wood sawn or chipped lengthwise, slicedor peeled

• 4407240006 HW lumber balsa. Balsa wood,sawn/chipped lengthwise, GT 6 mm thick

• 4407240010 HW lumber balsa. Balsa, not rough,tropical wood sawn or chipped lengthwise, slicedor peeled.An independent search of the USDA FAS website

reveals that the USA appears to have had three HTScodes for balsa products until 2007: • 440724005 Balsa wood sawn or chipped

lengthwise, sliced or peeled, whether or notplaned, sanded or finger-jointed, of a thicknessover 6 mm, rough

• 440724006 Balsa wood, sawn/chippedlengthwise, greater than 6 mm thick

• 440724010 Balsa wood sawn or chippedlengthwise, sliced or peeled, whether or notplaned, sanded or finger-jointed, of a thicknessexceeding 6 mm, NESOI.These appear to have been combined into a single

category in 2007:• 4407220006 HW lumber balsa. No. cubic metres

balsa wood, sawn or chipped lengthwise, sliced orpeeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm.

5 NESOI = not elsewhere specified or included

5

While the HTS codes can offer some clarity forthe US market, balsa appears to remain combinedwith other tropical woods in other reporting regimes(including Europe, China and Australia under‘HS 440722 Wood of virola, imbuia and balsa’).

Exports from Papua New Guinea

Fortunately, PNGFA, through its export permitsystem, maintains credible records of all balsaexports, and reliable export histories are available.Balsa exports from PNG generated an average ofPNG kina (PGK) 6 million per annum from 2004 to2006, which was about 1% of the value of forestproduct exports in this period. The value increasedto PGK11.2 million (US$4.2 million) in 2008 astotal volume exported grew to 12,700 m3 (Figure13). This represents some 8% by volume and 6% byvalue of the global market.

Until 2003, balsa was exported to Australia,China, Germany, Italy and the United Kingdom, butsince then a greater proportion has gone to Chinaand India. In 2008, the main export destinationswere China (43%), India (32%), USA (11%) andAustralia (6%) (Figure 14). This changing globalmarket indicates the need for proactive and efficientmarketing programs.

It is expected that balsa exports from Rabaul willcontinue to expand. The processing community isconfident and believes they have secured reliablefuture markets. By 2012, when the balsa estate isexpected to reach 6,200 ha, the industry will be

4

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1996 1997 1998 1999 2000 2

Volu

me

(m3 )

Volume

Value

harvesting 1,240 ha annually which, at a conserva-tive 200 m3 log harvest per hectare and a 23%average product recovery, suggests that exports willgrow to 57,000 m3. Assuming a conservativeaverage price of US$403/m3, the export balsa tradewill grow to US$23 million annually.

Exports from Ecuador

Fletcher (1949) noted that Ecuador provided 95% ofglobal production in 1943, and UNCTAD (2001)reported that Ecuador satisfied 80% of the worlddemand for balsa in 2001. Ecuador remains the

China43%

India32%

United Statesof America

43%

Australia6%

UnitedKingdom

2%

Italy2%

Vietnam1% Others

3%

Figure 14. Destination of balsa exports from PapuaNew Guinea by volume, 2008 (Source:PNG Forest Authority)

001 2002 2003 2004 2005 2006 2007 20080

2

4

6

8

10

12

Value (PG

K m

illion

)

Year

Figure 13. Historical volumes and values of Papua New Guinea’s balsa exports1996–2008 (Sources: 1996–2002, International Tropical TimberOrganization (ITTO) East New Britain Balsa Industry StrengtheningProject Phase 2; 2003–2008, PNG Forest Authority)

6

world’s dominant supplier of balsa. Reliable statis-tics for Ecuador’s balsa industry are notoriouslydifficult to find as the industry appears to maintain aculture of considerable secrecy.

Using statistics obtained from four different officialsources including the Ecuador Central Bank, theEcuadorean Exports Promotion Agency (CORPEI)and the Latin American Integration Association(ALADI), this study estimates that in 2008 Ecuadorexported around 137,956 m3 of balsa (20,000 t at anassumed average density of 130 kg/m3) valued atUS$61.3–70.3 million free on board (FOB) (Austrade2009). In 2008, industry sources reported that anaverage of 200 40-foot containers (FEUs) wereexported from Ecuador each month. Assuming that anFEU can hold 45–54 m3 of balsa product (volumesvary depending on packaging and whether or not thematerial is stacked on pallets), this figure suggests that108,000–130,000 m3 of balsa were shipped fromEcuador in 2008. Using a notional average figure forFOB prices of US$403/m3 (see Table 4), Ecuador’sexports of balsa were worth about US$43.5–52.4 in2008, differing somewhat from the export total citedby the Ecuador Central Bank of US$65 million(Table 5).

Pastor (2004) and Vásquez (2005) offer figuresfor exports from 1999 to 2003 that indicate that thetotal volume exported from Ecuador was stable overthat period (Table 6).

Table 4. Free-on-board (FOB) prices, dimensionallumber, Ecuador: balsa exports to the USA(Source: International Tropical TimberOrganization (ITTO) Market InformationService (MIS) Reports 2005–2007)

Date Price (US$/m3)

Oct 2005Nov 2005Dec 2005Jan 2006Feb 2006Mar 2006Apr 2006May 2006Jun 2006Sep 2006Oct 2006Feb 2007

403461421387393413429405386403403403a

a From February to September 2007, the price remained constant at US$403/m3

4

The dominant market for balsa from Ecuador isthe USA which formerly absorbed over 90% ofexports. Vásquez (2005) reported that, between1999 and 2003, the USA imported some 98% ofEcuador’s balsa exports. While remaining the singlelargest export destination, the USA is not asdominant now, and NANDINA statistics for ProductNumber 4407220000 (where balsa is the maindriver) suggest it now absorbs 40–45% of all balsaexports; the NANDINA data demonstrate that Chinaand European markets in Spain, Denmark, Germanyand France are now importing more balsa (Figure15). Assumptions in Table 5 include that 90% ofEcuador’s exports under NANDINA ProductNumber 4407220000 are balsa and that the averagedensity of all balsa exported is 130 kg/m3.

These figures, especially those for the USA,which indicate 2008 imports of 61,338 m3 valued atUS$26.57 million, are at odds with the import dataoffered by the official US Trade Statistics(Appendix 2), which indicate imports of balsa of73,611 m3 in 2008, valued at US$34.96 million.

Table 5. Ecuador’s balsa exports 2008 (Source:Ecuador Central Bank)

Country Volume (m3)Value (FOBa US$ ’000)

United States of America

Denmark

Spain

China

Germany

France

Brazil

United Kingdom

Australia

United Arab Emirates

Others

Total

61,33826,57415,092

8,19914,850

7,94012,067

5,0408,5784,9596,4733,8736,7643,8182,465

9302,631

7331,613

8296,0852,033

137,95664,928

a FOB = free on board

7


Through combining modified figures from Pastor(2004) and Vásquez (2005) and the US Trade Statis-tics (Appendix 2), Figure 16 indicates that thevolumes of US imports of balsa have been fairly

Denmark11%

Spain11%

China9%

Germany6%

France5%

Brazil5%

United Kingdom2%

United Statesof America

44%

Australia2%

United ArabEmirates

1%

Others4%

Figure 15. Destinations of balsa exports fromEcuador by volume, 2008 (Source:Ecuador Central Bank)

4

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1999

2000

2001

2002

2003

Vol

ume

(m3 )

VolumeValue

Volu

me

(m3 )

stable from 1999 to 2008. However, the annualvalue of these imports has increased from US$20million to US$35 million over the same period. Thismay be the result of more sophisticated processingand greater value-adding in Ecuador. For example,more Ecuadorian processors now export end-grainbalsa sheets rather than glued blocks. A concernexpressed by the balsa processors interviewedduring this study was that the expansion in plant-ations in response to market shortages in 2006–2007has greatly exceeded the expansion in markets andthat a lot of work would be required to market balsathat would be available after 2013.

ITTO has offered regular updates on FOB prices fordimensional lumber of balsa (Table 4). It is not clear ifthese are derived as a function of total declaredvolumes and values or if they represent actual FOBvalues for dimensioned balsa blocks. Based on marketprices obtained during this study, it is likely that theseprices represent kiln-dried balsa blocks.

The global economic crisis has had an impactupon Ecuador’s exports of balsa, with some industryobservers suggesting that 2009 sales to Europe alonehad decreased by 35–45% over the same period in2008.

2004

2005

2006

2007

2008

0

5

10

15

20

25

30

35

40

Value (U

S$ m

illion)

Year

Figure 16. Volume (m3) and value (US$) of balsa exports from Ecuador to theUnited States of America, 1999–2008

Volume and value of Ecuador balsa exports to USA, 1999–2008

Table 6. Ecuador’s total exports of balsa 1999–2003

Source and attribute 1999 2000 2001 2002 2003

Vásquez (2005) (US$ ’000)Pastor (2004) (m3)Pastor (2004) (US$ ’000)Pastor average price (US$/m3)

18,59877,15519,636

256

14,97776,28415,148

198

16,47075,68617,100

225

18,03670,83718,499

261

20,61468,80219,491

283

8

The global market for balsa

There are challenges in locating accurate figures fortrade in balsa, including the lack of a balsa-relatedtariff code (see above). In 2008, however, the totalglobal market for basic balsa products was estimatedto be 155,000 m3. This includes the figures for bothPNG (12,700 m3) and Ecuador (138,000 m3) and anominal estimate of 5,000 m3 for combined 2008exports from Colombia, Brazil, Venezuela, CostaRica and Indonesia. Using the assumptionsdiscussed above, and allowing for ITTO’s averageFOB value of US$403/m3 for exports from theminor producers, the global market for balsa wasworth about US$71 million in 2008.

Ecuador is obviously the world’s dominantsupplier of balsa and with its large, well-establishedplantation resource of more than 18,000 ha willremain at the forefront of global supply. There hasbeen a substantial but unquantified recent expansionof the Ecuador plantation resource. Unconfirmedreports suggest plantation expansion in Brazil andseveral other countries has the potential to increasethe supply of balsa. Ecuador’s recent history ofpolitical and economic instability might encouragemanufacturers to seek alternative, reliable and stablesources of balsa. In promoting the use of syntheticfoams for wind-energy applications, it was recentlyobserved that ‘political instability has concernedsome major users of balsa’ (PolymerOhio 2009).

The USA remains the world’s dominant client andUS imports of balsa have remained generallyconstant at about 70,000 m3 annually for the past10 years, However, as a proportion of global trade,these imports have fallen from over 80% of the valueof global trade in 2001 (UNCTAD 2001) to anestimated 51% in 2008. This change is probably dueto industries in Europe, China and India expandingimports to provide balsa cores for sandwichcomposite applications for wind energy and air, railand road transport. Data for balsa imports to Europe,China and India are confused by the lack of specific

4

tariff codes, but industries that use balsa such asthose in the wind energy and the defence manufac-turing sectors are expanding in all three regions.

The mix of balsa products being exported fromEcuador and PNG is also changing. As the skills andsophistication of processors in these countries grow,more balsa is being sold as end-grain panels.Markets such as India and China, however, have apreference for glued blocks as these enable them tocomplete value-adding in those countries at lowerprocessing costs.

The investment in expanding balsa plantationsand developing processing facilities indicates amarket confidence in the global balsa markets andsome industry players suggest that the market couldgrow at about 7% annually (Xavier Bonet, Balsa-europe, pers comm.).

The USA as an influence on global markets

The USA has traditionally been the major influenceon global balsa markets due to its innovations inapplications for end-grain balsa wood cores. In 1944,it accounted for 90% of global trade and importedsome 80,000 m3 valued, at that time, at US$2.7million (Fletcher 1951) and in 2008 it imported78,545 m3 globally, valued at US$36.4 million (USTrade Statistics, Appendix 2). Figures from this studysuggest that in 2008 the US market provided some51% by both volume and value of global markets. In2008, Ecuador supplied 94% of the US imports ofbalsa, consisting of 73,611 m3, valued at aroundUS$35.0 million (Table 7 and Appendix 2).

ITTO (2007a) recorded that balsa lumber was themost voluminous tropical wood imported by theUSA in 2006 (35,760 m3 or 20.2% of all US tropicallumber imports). From 2002 to 2006, balsa importsgrew 310%, but in 2006 alone declined 46%; thereasons for this reduced volume are unclearalthough industry sources suggest that it may havebeen due to some manufacturers having built upinventories to accommodate anticipated projects.

Table 7. Volume and value of Ecuador balsa exports to the USA: 1999–2008. (Sources: US Trade Statistics;Pastor 2004, Vasquez 2005)

US imports from Ecuador 1999–2008

Year

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Volume (’000 m3)Value (US$ million)

7320

7215

7217

6718

6519

7826

6524

6928

7131

7435

9

In that period, balsa’s ranking as an importedtropical wood to the USA changed from fifth in 2002to first place in 2006. Most balsa supply (95%) origi-nated in Ecuador. The ITTO records balsa shipmentsfrom South Africa but other records of these couldnot be located.

The ITTO figures offered in the 2007 reportreflect the difficulty in locating reliable data forglobal balsa trade; it gave balsa imports as35,760 m3 valued at $13.9 million in 2006. USTrade Statistics (USDA FAS) suggest that importswere 70,956 m3 valued at US$27.9 million in 2006(see Appendix 2). The ITTO recorded an averageprice of US$388/m3 for 2006 (ITTO 2007a) yetmonthly reports suggest that these were consistentlyabove US$400 for that year. The changing tariffcodes at this time could partly explain these discrep-ancies.

Low demand, the credit crisis and higher costshad a serious impact on the US imports of balsa in2009; US import statistics for January to May 2009showed a 30% decline in the volume of balsaimports compared with the same period in 2008 andimport values shrank from US$15 million to US$11million. Among all the major imported tropicaltimbers, the reduction in balsa was much lower thanfor other species (ITTO 2009). This reduction hasbeen confirmed by processors and exporters in PNGwho have experienced slowing demand.

Market prospects: can balsa remain competitive?

Most industry observers interviewed in the course ofthis study felt that the hobby and craft demands forbalsa would remain static in the future and that anyexpansion in the global demand for balsa will belinked with the innovative industrial use of end-grain balsa panels in a range of applications. Theprime competitors with balsa in these applicationsare synthetic foams; a summary of the competingfoams and honeycombs used in cored sandwichcomposites is provided by Black (2003). Structuralfoam cores are manufactured from a number ofthermosetting and thermoplastic polymers includingpolyvinyl chloride (PVC), polyurethane (PU),polystyrene (PS), styrene acrylonitrile (SAN),polyetherimide (PEI) and polymethacrylimide(PMI); these can be tailored for better compressivestrength and greater temperature resistance thanbalsa. Flammability is an important consideration

5

with foams, and where fire performance is an issuein transport applications such as high-speed marinevessels and trains, foams need to offer high-temper-ature performance, low-smoke density and halogen-free chemistry. These foam sheets, of varyingstrength and density ranging from 30 kg/m3 up to300 kg/m3, offer considerable uniformity.

Foam sheets can be manufactured quickly inresponse to market demand. During the course ofthis study, a manufacturer of wind blades reportedthat the company would phase out use of balsa infavour of foams because of the capacity to developmanufacturing capacity quickly—if foams arerequired for a large new project, the response time isshort, whereas there can be no guarantee that suffi-cient balsa will be available. Foams are, however,more expensive than end-grain balsa cores, whichare seen as the low-cost entry point for manufac-turers seeking to enter the cored-compositesmarkets.

End-grain balsa cores combine high compressiveand shear strength with excellent fatigue perform-ance. Proponents of balsa wood point out that balsais, in effect, a natural composite—bundles of cellu-losic fibres are held together by lignin and, seenunder a microscope, resemble a honeycomb.

Rather than compete with foams in high-technology, high-value applications, there is a bodyof opinion in the industry that sees balsa’s logicalplace as a supplement to the particleboard and fibre-board industries and being used in furniture andconstruction applications. The alternative strategysuggested is to sell substantially greater volumes atlower prices.

The expanding wind-energy sector

Industrial applications of balsa as a core compositeappear to be expanding. Global wind-energy marketsare expected to grow at an average rate of 13.8% perannum in terms of new capacity installation over thenext 5 years (Lucintel 2009). Global investments inwind energy are substantial. In 2008, the USAinvested some US$16 billion in the sector, toovertake Germany as the world’s largest wind-powergenerator (The Economist 2009). The globaleconomic crisis has caused some reflection uponcontinued investment, and some new wind-energyprojects have been postponed. The American WindEnergy Association reported that, in 2008, gener-ating capacity grew by 50% whereas in 2009 itforecast growth of only 20%—a figure that still

0

offers substantial opportunities for core materialssuch as balsa. Investment in wind energy isexpanding in China, which is now the fourth-largestproducer of wind power after the USA, Germany andSpain (China Daily 2009) and new governmentpolicies relating to feed-in remuneration rates forwind power have been introduced and nationalrenewable energy targets of 10% by 2010 and 15%by 2020 instituted. These policies have meant thatmany wind projects that in the past could often not beeconomically realised are now commerciallyfeasible (Nordex 2009). China plans to build sevennew wind-power facilities with a combined capacityof 120 gW, the construction of which will require aninvestment of about US$146 billion. This robustglobal growth is expected to drive production of newturbines and consequently increase the demand forcomposites at an annual rate of 18% (Lucintel 2009).

A wind turbine’s major components include rotorblades, a gearbox and generator. The wind turbineblades are made primarily of fibreglass and balsawood or other core materials and occasionally arestrengthened with carbon fibre. There is little doubtthat the fabrication of wind blades and other wind-turbine components offers enormous opportunityfor the balsa industry.

As larger turbines are built and installed in moredifficult environments, there is an overriding require-ment to reduce blade weight, putting more emphasison the need for stronger and lighter materials,improved blade design, and more efficientprocessing. Consequently, there will be a need forimproved properties and or performance from currentand or alternative materials used (Lucintel 2009).

The balsa industry must respond to thesechallenges and produce end-grain balsa panels ofhigh quality to meet the demanding specifications ofthe wind-energy industry. This need is reflected inobservations by industry (Box 2). Industry sourceshave noted a trend towards replacing balsa withpolymers in the wind energy sector, but because thetotal wind market is growing so rapidly, an overallincrease is expected in the demand for balsa over thenext 10 years. New entrants in the wind-energymarkets, such as China and India, are developinghybrid blades using both balsa and polymers,allowing them to enter the market quickly usingexisting, proven designs. Over time, as newcompanies mature in technology, know-how andengineering design capabilities, it is expected thatsome of this balsa will be replaced with polymer.

5

Material suppliers to the wind-energy sector areconfident that the polymer solution will provide asteadier and more reliable supply chain, yieldinghigher quality products with less delamination andvariation and a longer operational life than balsa(DIAB, Sydney, pers. comm.).

With a rapidly expanding wind-energy industrydriving the development of larger and larger turbines,the question is now arising of how to deal with windturbines at the end of their life cycle—and particularlywith those wind-turbine blades made from hard-to-recycle synthetic composites. Although balsa coresoffer an obvious advantage over their competitors forrecycling, many of the new polymers used for foamsare recyclable (DIAB, Texas, pers. comm.).

Ongoing use in other sectors

Material suppliers have noted a shift from balsatowards polymers in the marine sector in recentyears; a shift encouraged by improved quality ofpolymers and technical problems with balsa. Europenow uses very little balsa in boats. The credit crisishas seen a marked recent downturn in the recrea-tional marine markets (yachts, pleasure boats)—acontraction that has consequently reduced demandfor balsa cores. The price-effectiveness of balsa andrecent innovations to address issues relating to its usein boat hulls are expected to see the marine marketsrecover once the economic crisis has passed.

In other sectors, the future demand for balsaappears strong; the requirement for defence applica-tions such as air cargo pallets and shelters remainsrobust. A call for expressions of interest to offerlong-term supply of over 2,000 m3/month of balsa toa single large global manufacturer of defence appli-cations was circulated among PNG suppliers in late2008—this would require a threefold increase incurrent supply. In the land transport sector, light-weight balsa panels remain popular for trucks,motor car and rail applications.

Despite competition from foams, balsa hasmaintained a strong market presence in the corecomposites sector over recent years. The green,renewable and environmentally friendly credentialsof balsa over rival core materials are widelypromoted by the global balsa industry and offer acredible rationale for its continued use. Translatingthis rationale into market success will requireongoing innovation and adaptation, as demonstratedby the market’s largest player, Alcan Baltek (seeBox 1).

1

Box 2

DIAB

52

DIAB Group AB Sweden is a wholly owned sub-sidiary of the Swedish private equity companyRatos AB, employs 1,280 people and had annualsales of US$203 million in 2008.

DIAB’s business involves composite materialsand sandwich technology. It is among the world’sleading suppliers of materials for sandwich com-posites that make products stronger, lighter andmore competitive. The company deals in a widerange of core materials including polyvinyl chlo-ride (PVC), polyethylene terephthalate (PET) andbalsa wood. DIAB’s target markets are windenergy, marine, transportation, aerospace andindustry where its products are used in variousapplications in boats, wind turbines, aircraft,buses, trains and trucks.

It is a global company with sales and customersupport in 17 countries and 9 strategically locatedmanufacturing units in Italy, Sweden, the UnitedStates of America (USA), Ecuador, Australia,China, India, Lithuania and Thailand producingadvanced core materials under the name Diviny-cell® and Klegecell®, as well as high-quality Pro-Balsa® balsa wood products.

DIAB recognises balsa as an important part ofthe suite of products it offers its clients andaccounts for about 25% of the global trade in rawbalsa products. After importing balsa blocks fromEcuador into the USA for many years, thecompany opened its own processing facility inEcuador in 2005 to build blocks and convert themto finished end-grain sheets. The facility, based inGuayaquil, now has the capacity to export up to 25containers per month, or over 12,000 m3 annually.DIAB provides technical support to a network ofblock suppliers who manufacture blocks toDIAB’s demanding standards.

The need for a stable and reliable supply of rawmaterial encouraged DIAB to establish over100 ha of balsa plantations in Ecuador and thecompany has plans to expand this to 800 ha whichwill meet 25% of their green wood needs. Theplantations are professionally managed and aresupported by a research and development (R&D)program designed to maximise yields and shortenrotations. The remaining requirement for raw

materials is sourced from a network of growerswho maintain wood collection points at strategicgeographic locations. Growers are offered trainingin plantation management and provided seedlingsof high genetic quality. The company maintains anumber of portable sawmills to cut logs intoflitches at the plantation site.

DIAB has recently established a facility inChina, similar to its one in Sydney, to process balsablocks into plain and fibreglass-backed end-grainsheets.

DIAB has noted market shifts in the preferencesof clients in the engineered core products sectors,particularly marine and wind energy. Marinedemand for balsa has declined due to a marketpreference for polymer cores. The total windmarket is expanding rapidly and a steady andincreased demand for balsa is expected over thenext 10 years, but demand for polymer will growfaster than that for balsa. In the most recent annualreport (April 2009), the chief executive officernoted:

There is a strong trend towards increased use of polymeric core material instead of balsa wood that is still used by certain blade manufacturers. To use polymer materials implies lower risk because they entail a more stable and efficient production process, better delivery reliability, lower production costs, and do not degenerate with moisture. These are significant advantages that affect the entire life cycle costs very positively. DIAB anticipates a similar development within the wind-energy industry as within the marine segment, where balsa wood in boats has almost disappeared.

DIAB expects that balsa will remain a part of itsengineered core materials business for at least 10years.

DIAB’s background contributions to this study,the supply of product samples and visits to itsprocessing factories are acknowledged. For furtherdetails on DIAB, visit its website (DIAB 2010).

Marketing balsa from Papua New Guinea

The domestic markets for balsa in PNG are limitedby the capacity and sophistication of PNGcompanies to manufacture a range of products. Thelimited availability of technical skills and infrastruc-ture such as spare parts, workshops, electricians andother basic services suggests a need to seek indus-trial partners that would take the semi-processedproducts from PNG and complete final processingand product manufacture.

The processors in PNG have worked well to winan 8% share of the global balsa market againstsustained international competition. This has beenachieved by offering a broad product mix andresponding to new and expanding markets in Chinaand India. Market intelligence suggests that demandfor balsa from PNG over the short-to-medium termis expected to be strong for most grades, theexception being the lightest grades used in themarine and pleasure-craft markets.

In the longer term, both growers and processorsmust accommodate market volatility. Increaseddemand and/or product shortages can lead to priceincreases that prompt expanded plantings; in turn,these can lead to oversupply and consequent falls inprices. This volatility is challenging for the balsasector, where there is a 5–7 year lead time betweenchanges in demand for balsa and a supply responsefrom plantation managers and where there is limitedopportunity to hold maturing stands beyond theirnormal felling age.

The most vulnerable part of the balsa supply chainin ENB relates to international marketing. There islittle doubt that balsa grows well and that there issufficient land and facilities to support a balsaindustry. However, the capacity of the ENB industryto maintain and expand its position in internationalmarkets will be influenced by the effectiveness of itsmarketing in expanding its current 8% market share.On the assumption that global markets for balsaproducts grow at 5% annually, world markets mayreach 188,000 m3 in 2012 and be worth an estimatedUS$86 million. By this time, PNG’s potentialannual exports are expected to reach 57,000 m3,worth an estimated US$26 million6. This represents

6 Assuming a total estate of 6,200 ha managed on a 5-yearcycle with 200 m3/ha log yield at harvest and averagerecoveries of 23% and end product worth US$458/m3.

5

an increase in global market share from 8% toalmost 30% in volume terms and from 6% to 30% invalue terms. The challenge for the PNG industrywill be to expand and then sustain market share.

Achieving this goal will require more effectiveand focused marketing and broader use of balsapanels in the emerging economies of India andChina, where market demand is growing. Marketchanges of the magnitude suggested will require achange from the relatively passive marketing stylecurrently practised by individual processors to amore united, focused and innovative stylepromoting the credentials of balsa from PNG.

The targets for a marketing program wouldlogically include industries that will respond to theenvironmental credentials of balsa, such as thewind-power sector. It is logical that the financierswho support large, environmentally sensitive wind-power projects would be keen to see environmen-tally friendly, recyclable products used in theseprojects. The engineers who design and managesuch projects will need to be sure that balsa meetsdesign specifications. The environmental creden-tials of balsa would be enhanced through certifica-tion of the balsa plantations. Certification offersmanufacturers and proponents of large projectsreassurance that their materials are sustainablyproduced.

The consequences of failing to effectivelyrespond to these market opportunities will be adownturn in PNG’s balsa industry with concomitantimpacts on the already stressed economy of ENBand possible social dissatisfaction. The benefits of apositive and sustained response to market opportu-nities will be a significant boost for balsa producersand processors and for the socio-economy of ENB.

Shipping

Shipping costs can greatly influence the capacity ofbalsa from PNG to remain competitive against rivalproducts from Ecuador and synthetic foams. Balsa isshipped in 20- or 40-foot containers (‘20-foot equiv-alent units’, TEUs, or ‘40-foot equivalent units’,FEUs) in international trade. Typically a TEU willhold 22–28 m3 of product and an FEU 45–57 m3 ofproduct, depending on the nature of the cargo andwhether it is packed in cardboard cartons and stackedon pallets. The Chinese market is said to prefer FEUshipment as the port unit costs for containers of bothsizes are similar. For this reason, there is also a prefer-ence for the taller, higher-volume ‘high cube’ (HC)

3

containers if they are available. (High cubecontainers provide an extra 30 cm in height and 12%in volume compared to the standard general-purposecontainers, and suit light or bulky cargo.)

Rabaul Port handles some 300,000 t of shippingannually and has two berths, a maximum depth of10.2 m and can accommodate vessels with a lengthof 170 m. The largest vessels are 25,000 t. For theexport of 12,700 m3 in 2008, Rabaul dispatchedsome 388 containers of balsa or about 32 permonth7. Using the same assumptions, when industryproduction reaches the anticipated 57,000 m3

annually from 2012 onwards, container dispatcheswill increase to 1,758 annually or 146 per month.Demands on infrastructure will increase substan-tially, as will the need for port services and associ-ated export documentation.

Industry interviews suggest that, in July 2009, thetypical cost of ocean freight of an FEU fromEcuador to the east coast of the USA was US$3,000and to Shanghai, US$2,800.

The global economic crisis has had significantimpacts on international shipping—shipping ratesbecame more competitive in 2009. This has offeredRabaul a new range of shipping options and inAugust 2009 it enjoyed some five overseas shippingcompanies providing a total of 5–7 vessel port callsper month. Typical ocean freight prices for an FEU

7 Assuming one half of shipments used TEUs and onehalf FEUs, an average 50 m3/FEU and 24 m3/TEU

5

from Rabaul were US$1,300 to Sydney andUS$2,200 to Shanghai. To these figures, the bunkeradjustment factor (BAF)8 and other costs add someUS$2,441 and US$2,093, respectively. Table 8offers some estimates of shipping costs from Rabaulto both Sydney and Shanghai.

If PNG accepts the growing markets of China andIndia as clear targets for future export growth inbalsa products, it is logical that all delivery costsshould remain competitive and be kept to aminimum if the industry is to compete with Ecuador.The most consistent client feedback received byPNG exporters relates to late shipments, commonlycaused by changed shipping schedules and delayedapprovals and permits.

Quoted prices for balsa products

Negotiated prices for plain and scrim-backed end-grain balsa panels are generally commerciallysensitive within the balsa industry. Factory doorprices for less valuable materials such as balsablocks and glued blocks are more readily shared.The following price quotations (US$/m3, factorydoor and FOB) for kiln-dried (10–12% moisturecontent) and packed material were obtained from theinternet in May 2009 (Alibaba Group 2009). Thesequotations are the asking prices of suppliers. Prices

8 An additional charge levied on the shippers tocompensate for fluctuations in the price of the ship’sfuel; also called bunker surcharge

Table 8. Estimates of costs (US$) related to 40-foot container (FEU)a shipment from Rabaul to Shanghai andSydney (including quarantine and excluding customs) (August 2009)

Item Destination (from Rabaul to —)

Sydney Shanghai

Ocean freightBunker adjustment factor (BAF)Documentation feePort service charge (PSC)International Ship and Port Facility Security Code (ISPS)Quarantine feeDepot chargesUnpacks (palletised)Hand unpackLift inFumigation (per full container load; FCL)Estimated total (per FEU) Cost (US$/m3) for shipping (assume average 50 m3/FEU)

1,300896

75118

5.30287

0300470

20270

3,74174.82

2,200840

75118

000

300470

20270

4,29385.86

a‘High cube’ containers cost $500 extra and provide about 12% greater volume

4

actually paid by buyers (sale prices) are agreedfollowing subsequent negotiations between theseller and buyer and reflect matters such as volumes,timing of delivery and timber specifications. Thesefactors contribute to the variability in the pricesquoted for similar material, especially fromEcuador, where there are many suppliers andtraders.

Rough-sawn flitches in Papua New Guinea and Ecuador

In both countries, some processors purchaserough-sawn flitches from growers or intermediateprocessors. Very strict specifications for size,colour, density and cleanliness are applied in bothcountries to prevent inferior material entering theprocessing plants. Mill-door delivered prices quotedfor these flitches in both countries in 2009 were:Ecuador: US$144/m3 (US$0.34/board foot), up from 2008 prices of US$118/m3 (US$0.28/board foot).PNG: PGK450/m3 (US$170/m3), up from PGK420/m3 (US$159/m3) in 2008.

Finished products

Ecuador

Company 1 (factory door). Balsa wood blocks (1 m (40 inches), various dimensions), US$480–800

Company 2 (FOB). End-grain balsa wood panels (0.6 m × 1.2 m (2 feet × 4 feet), various thick-nesses), US$840

5

Company 3 (FOB). Balsa wood blocks (1 m, various dimensions >240 kg/m3), US$510 Lightweight balsa blocks:

Grade A (64–100 kg/m3), US$657Grade B (101–160 kg/m3), US$572 Grade C (160–240 kg/m3), US$530

End-grain balsa wood panels—all density grades (0.6 m × 1.2 m × 5 cm (2 feet × 4 feet × 2 inches)), US$800Balsa sheets:

Grade A (64–160 kg/m3), US$1,696Grade B (161–256 kg/m3), US$1,484Grade C (>256 kg/m3), US$1,272

Balsa glued blocks (0.6 m × 1.2 m (2 feet × 4 feet), thickness 23–122 cm (9–48 inches)): All density categories, US$690

Company 4. Balsa wood blocks (1 m (40 inches), various dimensions), US$382

Indonesia

Company 1. Balsa wood blocks (1 m (40 inches), various dimensions), US$440–500

Company 2. Balsa wood blocks (1 m, various dimensions), US$450

Company 3. Balsa wood blocks (1 m, various dimensions), US$460–520

Brazil

Company 1. Balsa wood blocks (1 m, various dimensions):Very light density (80–100 kg/m3), US$700Light density (101–150 kg/m3), US$550Medium density (>150 kg/m3), US$450

5

The socioeconomy of balsa smallholdings in East New Britain

Legislation

Balsa management, harvesting, haulage andprocessing in PNG are governed by various Acts andtheir principal provisions. These Acts and associatedlaws are binding on all stakeholders engaged withthe balsa industry and include (Anon. 2000):

• Forestry Act 1991 (as amended) and its Regulations 1998.

• Investment Promotion Act 1992• Environmental Planning Act, Chapter 370 • Water Resources Act, Chapter 205 • Environmental Contaminants Act, Chapter 368• Conservation Areas Act 1978• Public Health Act, Chapter 226 and Regulations

on Drinking Water 1984 • PNG labour laws pertaining to Industrial Safety,

Health and Welfare Act, Chapter 175, including Orders and Regulations

• Land Transport Board Act as amended No. 11 of 1991

• Civil Aviation Act, Chapter 239• Public Works Committee Act, Chapter 28 • Land Groups Incorporation Act, Chapter 147.

Under the current legislation, balsa is considereda forest tree and is bound by the Forestry Act and itsRegulations.

Government agencies

The Papua New Guinea Forest Authority (PNGFA)

PNGFA was established in 1993 under theForestry Act 1991, replacing the former Departmentof Forests and unifying all Provincial ForestDivisions and the Forest Industries Council. Thesechanges were a direct result of the 1989 BarnettCommission of Inquiry into the PNG forestryindustry. The balsa industry in ENB falls within the

5

New Guinea Islands (NGI) region of PNGFA that ismanaged from offices at Keravat. In addition, thereare Provincial Forest Management Committees thatinclude major stakeholders and whose role is toprovide a forum for consultation and coordinationon forest management between national and provin-cial governments and to make recommendations onmatters related to forestry.

The Reforestation Supervisor, based in the NGIRegional Office at Keravat, provides the PNGFAfocus for balsa and runs a small extension service,mainly offering balsa seedlings for a nominalPGK0.30 each. Growers will typically purchaseconsignments of 500 seedlings at a time. The super-visor also acts as a conduit for stumpage paymentsbetween the processor and the grower, with proces-sors delivering stumpage cheques to the PNGFAoffice and the growers collecting their cheques fromPNGFA. The supervisor may also withhold paymentif there is a dispute over resource ownership thatrequires resolution.

The Papua New Guinea Forest Research Institute (PNGFRI)

PNGFRI is the research arm of PNGFA and isbased at Lae, Morobe province. It is mandated toconduct forest research in line with the NationalForest Policy (1990). Its mission is to provide ascientific basis for the management of PNG’s forestresources and to do this it has four program areas—natural forest management, planted forest, forestbiology and forest products.

PNGFRI has a clear mandate to accommodate theresearch needs of the plantation balsa industrythrough its stated goals, which are to: • improve germplasm of tree species for increased

productivity and profitability• aim for sustainable management of new and

existing plantations for supply of certified qualitytimber for domestic and international markets

6

• promote utilisation of plantation and lesser-usedspecies

• ensure efficiency of small- to medium-scalewood-processing mills.Unfortunately, PNGFRI has limited resources and

funding, limited expertise with the operations ofbalsa plantations and its location is remote from thebalsa-growing areas of ENB. The balsa growers ofENB were largely unaware of the mandate and workof PNGFRI and questioned the relevance of a distantorganisation to their industry.

National Agricultural Research Institute (NARI)

The Lowlands Agricultural Extension Station(LAES), part of NARI, is located at Keravat, and iscentral to the balsa-growing areas of the GazellePeninsula. This station is among the oldest and mostrespected of the agricultural research stations in thePacific. While it has no specific mandate to conductresearch on balsa (as a forest tree), it has a commit-ment to tropical tree crops and it maintains somevaluable genetic assets of balsa candidate seed trees(CSTs) on its lands and is well experienced withcocoa, galip (Canarium), rubber, oil palm and manyother tropical tree crops. NARI also faces challengesof resources and funding and there can be noguarantee that it will be able to offer support to thebalsa industry or maintain support for balsa geneticresource plantings indefinitely.

Company support for growers

In addition to basic tree improvement, the ITTOProject left a legacy of basic skills in the manage-ment of balsa plantations. A small part of the formerextension activities of the project are maintained bythe PNGFA New Guinea Islands Regional Office,but much of the responsibility for technicalstandards now falls upon operators in the privatesector who also manage their own nurseries. Severalprocessors have also become growers as they seek tosecure resource supply: almost all of the expansionin the ENB plantation resource has been funded byprivate investors and processors. Two of the largestgrowers have appointed their own professionalforestry staff to establish and manage their planta-tions and to coordinate harvesting operations andmaintain some modest R&D. A common commentfrom the companies was that they felt ‘on their own’,

5

with no sources of genuine expertise to supportthem. One company (PNG Balsa) has initiated acollaborative plan with the SPC’s FACT Project todevelop a tree improvement plan for balsa, to meetthe company’s needs for high-quality germplasm.

A number of other companies directly service thebalsa industry: freight forwarding agents, portservices suppliers and quarantine service providers.Interviews conducted as part of this study showed aconfidence in the capacity of these companies tomaintain a high standard of service as exportvolumes grow.

The dynamics of balsa purchase

There are no standard stumpage rates for balsa inENB and these have varied from PGK15/m3 toPGK70/m3 since 2002. Growers and processorsnegotiate stumpages, considering several factorsincluding the following.Distance from the mill: Unless there are exceptionalcircumstances, the maximum haulage distance is40 km. Some of the roads are in a very poor state ofrepair and this detracts from stumpages offered. Quantity available: The cost of mobilisingharvesting and haulage crews and associatedequipment is such that most processors are reluctantto harvest blocks of fewer than 25 trees. Maturity of resource (size): Wood density changeswith age, with younger trees producing a greaterproportion of ‘light’ wood. Given the exportmarkets available to PNG processors, there is apreference for trees that are aged 5 years. Largertrees are preferred as they offer better log-to-boardrecoveries in the mill.Accessibility (terrain and distance from the road):No specialised logging equipment is used in thebalsa sector apart from some chainsaws (and farmtractors). Logs are mostly manhandled to theroadside and loaded onto trucks by hand. Harvestersare reluctant to operate more than 40 m from a roador in steep gullies. Very few plantation blockswarrant the construction of expensive, speciallogging roads.

The stumpages recorded in this study varied fromPGK30/m3 to PGK50/m3. Reports suggest thatcurrent supply is very tight and will remain so until2011 when some of the new plantations will becomeproductive. This pressure on supply has resulted inincreasing stumpages. PNGFA is keen to establish aminimum stumpage of PGK20/m3, but the status of

7

this minimum price and the capacity of PNGFA toenforce a minimum price are unclear.

For reasons associated with quality control,processors are generally unwilling to purchase balsalogs at the mill door. Experience has shown that logsbrought to this point by producers can be undersizeand contain blue stain or red heart. Processors do,however, accept air-dried, rough-sawn flitches tostrict specifications and pay PGK420–450/m3 at themill door.

Once negotiations are complete, the grower andthe processor enter into an official balsa purchasingagreement (Appendix 3) signed by the grower (orgrower’s agent) and the purchaser (or purchaser’sagent) and which records the negotiated stumpage,the location of the plantation and the grower’s name.A copy of this document accompanies payment tothe grower via the PNGFA office.

Balsa log tally sheets (Appendix 4) are used whenrecording the actual volume of logs removed from aplantation. Establishing a clear and transparentprocess through which logs can be accurately andefficiently measured and recorded remains a priorityfor most growers and processors. All stakeholdersinterviewed were keen to see a simple, uniformsystem developed, based upon transparency andtrust. Some in the industry are keen for the log tallyto be completed by qualified log scalers before thelogs leave the site, while others argue that such anapproach is impractical. PNGFA argues for themeasuring system used for large native forest logs—that all logs should be measured five times (diametertwice at each end of the log plus length). In any onemonth, logs may be harvested at many sites and it ischallenging to find sufficient qualified log scalerswilling to spend long periods in the field. Processorscomplain that pressure can be applied by growers(via the wantok system, see earlier section ‘Employ-ment trends in Papua New Guinea’) to upgrade logsor create false names. From 2012, some 6,000 balsalogs per day will be milled by processors on theGazelle Peninsula—clearly, measuring andrecording five measurements for each log will beimpractical. Effective log scaling requires an openarea where logs can be measured accurately withouttally sheets becoming wet. There is a convincingargument for the log tally to be completed at theprocessing plant and there exists a strong challengefor all stakeholders to develop a simple, transparentsystem that everyone can trust.

5

Regulations relating to balsa harvesting, processing and export

Under current legislation and regulations, balsa isconsidered a forest tree, but it is clearly different tonative hardwoods or large-scale commercial planta-tions grown on government land. It has beensuggested sometimes that a ‘Timber Authority’(TA-01 or TA-05)9 should be granted by PNGFAbefore harvesting rights can be provided. The largerprocessors can harvest from 20–50 growers indifferent locations each month—the efficientmanagement and supervision of such a large numberof Timber Authorities would be challenging.

Under the current Forestry Act and its Regula-tions, export permits are required for any shipmentsof balsa, regardless of size or value (ranging fromcommercial samples to container loads). Thesepermits are issued by PNGFA and all require Minis-terial signature and inspection by PNGFA officersand preparation of documentation in Port Moresby.The process typically takes 4 weeks. It is unclearwhat value this process adds to the balsa industryand how it assists the PNG industry to remaincompetitive in a global market.

Employment in the East New Britain balsa industry

Data on employment within the balsa industry inENB are not available, but indicative estimates canbe made. The largest employer in the balsa industryis the PNG Balsa Company with around 1,500employees—about 800 in the factory and 700 in thefield. This company is the second-largest employerin ENB after the provincial government. GS ModelConstruction Ltd employs 100 in its mill at Keravat.Total employment in the processing, harvesting andtransport sector is estimated to be around 1,800–2,000. This level represents a significant proportion,around 12–13%, of total employment in ENB.

The number of balsa growers in ENB is currentlyestimated to be 500. For example, the PNGFA NewGuinea Islands Office has around 500 registered balsagrowers on its books and to whom it supplies

9 A Timber Authority (TA) can be issued to landownersby PNGFA for small-scale operations on areas that areoutside existing Forest Management Agreements.A TA-01 will facilitate harvesting of less than 5,000 m3

annually of timber for domestic processing and TA-05enables harvesting of timber in a plantation area.

8

seedlings. A similar estimate was suggested by PNGBalsa. Assuming that each of these grower householdscould conservatively have three workers, there wouldbe total of around 1,500 balsa workers. Therefore,there could be between 3,000 and 4,000 personsemployed in the balsa industry in ENB, making it asignificant industry in the province. The multipliereffect of the balsa industry on other businesses,including transport and maintenance services, fuel andchemical suppliers, government services, portservices and general retail services, adds further to itsimportance to the local economy and community. Thebalsa industry makes a significant contribution to thelivelihoods of many families and individuals in theprovince. Its importance is expected to increase incoming years as smallholders grow balsa on land thatwas previously used for cocoa and as larger growersand processors implement expansion plans.

Expansion in the growing and processingsegments of the industry over the next 5 years couldsee total employment increase beyond 4,500.However, employment growth in the balsa industrymay be constrained by a number of the same factorsas have been identified for the cocoa industry inENB (Curry et al. 2007). In addition to these factors,the planned increase in the minimum wage rate forunskilled workers, who make up the bulk of theindustry’s employees, is likely to have a significantimpact on the size and structure of the industry.

Impact of the 2008–2009 minimum wage rate increase

The Minimum Wages Board (MWB) was estab-lished in 1972 with the mandate to determine thenational minimum wage. The Board, consisting ofrepresentatives from government, private-sectoremployers, employees and the community, meetsevery 3 years. Minimum wages set since 1975differentiated rural and urban wages, with urbanwages 2.9 times higher than the rural minimumwage in 1975, when first set. In 1992, MWB dereg-ulated minimum wages, allowing employers andemployees greater flexibility in determining wagesbased on productivity and capacity to pay.

In December 2008, MWB recommended anincrease in the minimum wage for unskilled workersto be phased in over 12 months from the date that theproposal is endorsed by the National ExecutiveCouncil. MWB proposed a two-stage adjustment,with the first to increase the weekly rate from

5

PGK37.20 to PGK75.68 and the second taking theminimum rate to PGK101.76. The rates werescheduled to take effect 26 weeks and 40 weeks afterthe effective date of the MWB determination. It wasrecommended that all employers, regardless of theirintention to seek exemption from paying the higherrates due to incapacity to pay, must pay PGK50.16per 44-hour working week (Kendeman 2009).Plantation workers and farm labourers wereincluded among those who would benefit most fromthe new rates. It is significant that the minimumwages do not apply to smallholder growers and LandSettlement Scheme farmers (Matbob 2009).

The increase in the minimum wage rate is the firstsince 1992 and was based on changes in the Bank ofPNG inflation rate since 1993. While the increaserepresents a significant change, many employers inPNG are already paying above minimum rates. Mostof the plantation owners and processors that werecontacted for this study indicated that they werepaying the minimum wage rate to unskilled workers.So, for them the increase will be significant. It willaffect the balsa processors, the larger plantationsand harvesting and transport providers. Small-holders largely use family labour and if they usehired labour they are exempted. The challenge forsmallholders may be to stem the out-migration offamily labour seeking relatively high-paid employ-ment in larger centres, although this may be a short-term challenge as demand for labour will contractdue to the higher wages.

The MWB determination in some respects repre-sents a welfare safety net for unskilled employees andwill reduce the level of poverty among some groups inthe community. It will greatly improve workers’capacity to pay for basic food items and meeteducation and health expenses. However, the higherrates may make it difficult for those individualsaspiring to enter the workforce. According to the PNGChamber of Commerce, ‘the higher the wage rates orminimum wage rates go up, the less people can makethat transition from the subsistence lifestyle to the paidemployment world’ (ABC Radio Australia 2009).

The PNG Balsa Company, in its submission toMWB (Guy Cameron, Kokopo, ENB, PNG, pers.comm., 14 September 2009), pointed out thefollowing consequences for growing, harvesting andprocessing of balsa associated with the proposedwage rate increase:• With labour costs representing 80% of planting

costs, unless labour costs can be kept at or near

9

current levels or labour on-costs such as housing,food and transport can be offset against wages,then higher planting costs will seriously affectsurvival of the company; current plantingstrategies would cease and mechanised plantingwould be introduced.

• Mechanisation of harvesting would be necessaryto offset increased labour costs.

• In relation to balsa processing, the effect of thehigher wage rate would be to reduce theinternational competitiveness of balsa from PNG,with balsa products and resources from Ecuadorgaining market share; 60% of the company’sworkforce would be lost.PNG Balsa would have to refocus its business

strategy and ‘mechanise planting, harvesting andmanufacturing where possible’ and ‘move a signifi-cant portion of the downstream processing to Asiawhere the manufacturing environment is supercompetitive, supportive, welcoming and progres-sive’. The social and economic impact of this wouldbe significant for ENB, especially when coupledwith the reduction of cocoa production due to cocoapod borer and reduced demand for exports associatedwith the global financial crisis. Given the social andeconomic importance of the balsa industry in ENB,strategies to offset the impacts of the higher wagerates in the industry are deserving of further research.

Issues arising from grower and processor interviews

Cocoa pod borer

The likely impact of the cocoa pod borer (CPB) inENB has been discussed in an earlier chapter of thisreport (‘The balsa growers’). The anticipatedwithdrawal of 30,000 ha from cocoa productionmight offer some opportunities to expand produc-tion of balsa, but expansion in plantation area mustbe matched by an expansion in export markets.Already the impacts of CPB were evident amongfamilies interviewed; household incomes had beensubstantially reduced and community expectationsunfulfilled. There exists a hope that balsa cultivationwill play a role in injecting much-needed funds intoa local economy suffering the results of CPB.

6

Log measurement

The issue of log measurement and volume calcu-lation discussed above was raised during everydiscussion during the study. The practical limita-tions of cost and convenience in measuring up to3,000 logs daily (in 2009) and 6,000 logs daily (in2012) need to be carefully considered. Shouldmeasurements be conducted in the field or at themill? What checks and balances need to be put inplace? The draft ‘code of conduct and practice’contains some volume tables that are generallyaccepted. It is not clear that the five measurementsof each log suggested by some will add any greaterprecision to estimates of volume or that such asystem would solve the underlying challenges ofpracticality, transparency and trust. Any systemadopted for log measurement needs to have thesupport of all stakeholders.

Wood recovery (field and mill)

The processors have a suite of export markets; notall processors have the same markets and their woodneeds vary in terms of quantity and quality. Forexample, many industrial applications of balsa areindependent of density, yet others are highlysensitive to this property. The hobby and modelmarkets demand uniform, pale straw colour, whilein end-grain balsa some colour variation is accept-able. There are some broadly held perceptions ofwastage during plantation harvest. Fletcher (1949)recorded balsa harvest as appearing very wasteful inEcuador and this still appears to be the case.Growers are keen to maximise the number andvolume of logs removed from their plantations. Thelarge volume of branch material, woody debris andreject logs left after harvesting gives an impressionof waste. In the absence of specialised loggingmachinery, there were instances where logs hadbeen left in steep gullies and acceptable logssometimes left in the field. In 2009, balsa was inshort supply and there was little commercial sense inleaving merchantable material in the field. Oneprocessing company had developed log-gradingrules and specifications for balsa logs and these werebeing circulated among its grower clients to helpexplain why material was left in the field. Anothergrower followed harvest crews to make sure allmerchantable logs were removed—he regularlyadded another 5% of volume. Wood recovery duringbalsa harvest remains a significant issue in the eyes

0

of the growers and enhanced transparency andimproved communication appear to be required.

In the mill, recovery of finished product from logsis low and is governed by the quality of the logs andthe nature of the product required. Recovery of1 mm balsa sheets for the models market can be aslow as 5–7%. For larger balsa blocks, recoveries canbe up to 28%. This study has used an average figureof 23% for finished recoveries. Improvements insawing techniques to accommodate growth stressescould improve recoveries.

Stumpages (prices)

Growers complained that they felt isolated whennegotiating stumpage rates and that a need existed tomake market information more readily available.There is no forum where growers can independentlydiscuss stumpages and share market information.There are no newsletters, brochures or other toolsthat are normally available to people selling othercommodity crops. On the other hand, processors feltthat some growers had unrealistic expectations ofthe value of their balsa crop, based on export pricesreceived for processed balsa products. The problemsappear to be similar to those experienced by farmingsectors in many other countries and will requireimproved communication to overcome them. Somein the industry expressed a view that a ‘readyreckoner’ for balsa stumpages, developed by bothgrowers and processors, would assist the negotiationprocess.

Can balsa growing remain profitable?

Given the small size of the plantation estate andthe changing nature of export markets for balsa,uncertainty was expressed by both growers andprocessors regarding the long-term profitability andprospects for balsa. Land is generally the mostsignificant asset owned by many growers and thedecision to dedicate land for 5 years to a single cropis not taken lightly; reliable information is neces-sary. The costs, benefits and profitability of growingcrops such as copra, cocoa or coffee are generallywell known, as are international price trends.Greater access to data on costs and returns associ-ated with balsa cultivation would be part ofenhanced communication in the sector. The nextchapter (‘Profitability of balsa growing’) offersmore details of the costs and benefits associated withgrowing balsa.

6

Marketing

The most vulnerable part of the balsa supply chainin ENB relates to international marketing (seeearlier chapter, ‘Trade and balsa markets’). There islittle doubt that balsa grows well and that there issufficient land and facilities to support a balsaindustry. However, the capacity of the ENB industryto remain competitive and expand its current 8%share of the global markets to a possible 30% will beinfluenced by the effectiveness of its marketing.Stakeholders were concerned at the magnitude ofthe task and the consequences of failure.

Communication and transparency

During interviews and the public forum hosted bythe PNG Growers’ Association in Kokopo, the needfor added transparency and more effective commu-nication within the sector was raised. There is noforum for discussion of balsa issues—where stake-holders can share information on prices, markets orsilviculture. There is no forum where stakeholderscan air legitimate grievances on stumpages, logmeasurement and perceptions of wastage, forexample. Stakeholders expressed a strong desire fora clearly impartial mediator to assist with the resolu-tion of such matters. Stakeholders felt that thereneeded to be better industry communication vianewsletters, regular meetings and updated manuals.The PNG Growers’ Association offered to explorean expanded role through involvement of bothgrowers and processors with the Association.

Governance

For the balsa sector to thrive and to maintain andexpand PNG’s share of global markets, it requires asupportive bureaucracy. Where international compe-tition is strong, government processes must addvalue.

A major issue raised by most stakeholderssurrounded governance. Logically, where doesbalsa belong? Is it an agricultural crop or a foresttree? Does it belong to the agriculture sector or theforestry sector? Such basic questions have seriousconsequences and, for example, influence whichinstitution has the responsibility to provide R&Dsupport. Which agency has the skills and resourcesto respond if there is a disease outbreak or if newgermplasm is required? Which agency will offerlong-term access to land to host experiments such as

1

progeny trials or seedling seed orchards? NARI islocated geographically at the centre of the industryand has previously provided land for experimentalpurposes; PNGFRI is far away in Lae. Balsa is partof the Provincial Agricultural Crops DiversificationStrategy and all ENB growers regard it as a cashcrop. It is an exotic plantation species repeatedlycropped by many landowners on 4–5-year rotationson private land and processed by private enterprises.Stakeholders question why it should be consideredin the same basket as timbers such as kwila or teak.Industry stakeholders suggested that this issueadded an unnecessary uncertainty to the industryand requested serious discussion and clarification.

Both grower and industry expectations wereunfulfilled regarding extension, technical supportand R&D from government sources. For example,copies of The balsa manual (Howcroft 2002) werenot available to growers and no investment had beenmade in maintaining the suite of CSTs identifiedduring the ITTO Project.

The second issue involving governance, alsoraised by most stakeholders, was the role of govern-ment. Stakeholders favoured a role for a supportive

6

bureaucracy, but felt that this role should be focusedand that existing processes were lengthy and lackedfocus. An example of this is the need to obtainexport permits through PNGFA for every exportconsignment. These permits require Ministerialsignature and the process can take 4 weeks to inspectthe consignment, arrange and prepare the documen-tation and send materials to Port Moresby forsigning by the Minister. There are no exceptions tothis requirement and it applies to every consign-ment—whether it is a container or a small carton ofcommercial samples. Another example is theongoing threat to impose a requirement for industryparticipants (both growers and processors) to applyfor Timber Authorities; growers question the appro-priateness of this administrative procedure for balsagrown on the Gazelle Peninsula.

PNGFA has reportedly convened a BalsaWorking Group to examine and report on mattersrelating to the balsa industry. Attempts by the studyteam to meet members of the group were unsuc-cessful, and its role, terms of reference and authoritywere unclear to both the team and the industry.

2

Profitability of balsa growing

In ENB, balsa is grown under a range of manage-ment systems including large plantations on privateland, smallholdings of individual households oncustomary land and landowner groups of individualswho pool their plantation assets to achieveeconomies of scale in production and marketing.Many of the balsa processors have integrated opera-tions, drawing a portion of their resources from theirown plantations.

The financial analyses presented here are for threeproduction systems: smallholders, share-farmingwith landowner groups and a balsa processor, andlarge-scale plantations including integrated proces-sors. Major differences between smallholders andlarge plantation owners and managers are in theareas of silvicultural practices and labour manage-ment. Shortages of knowledge and labour arecommon constraints among smallholders, contrib-uting to lower yields and variable resource quality.The larger plantations owners and managers practiseadvanced silvicultural management and ensure thatadequate supplies of labour and other key inputs areavailable. Consequently, productivity on larger

6

plantations is substantially higher than on smallerholdings. The profitability of the three productionsystems is explored in this chapter.

Production data and information sources

Data and information for the financial assessmentswere obtained from primary and secondary sources.Data were collected from a sample of growers andprocessors on the Gazelle Peninsula during July2009 via semi-structured interviews. Data and infor-mation were collected through less formal inter-views with other key industry participants includingPNGFA New Guinea Islands and the ENB Branchof the PNG Growers’ Association. Table 9 presentsdetails of the information and data collection.Secondary data sources used include The balsamanual developed under an ITTO project(Howcroft 2002) and a study by Metlak Develop-ment Corporation (2004) on the viability of estab-lishing a balsa enterprise in New Ireland province.

Table 9. Information and data collection

Industry participants Number interviewed

Comment

Smallholder growers 2 Growers with <5 ha balsa; data supplemented by information provided by industry participants

Grower groups 2 Growers who are members of a registered landowner group; similar data to those for individual households but economies of size achieved; group overhead costs; higher yields and prices; many have a supply agreement with a processor

Large plantation owners 1 Growers with >10 ha balsa demonstrating the potential benefits offered by a well-managed balsa plantation (good silvicultural practices)

Integrated grower–processors 3 Similar production conditions to large plantation owners; some operate a nucleus estate with larger plantation owners and grower groups

Balsa processors 1 Small- to medium-scale processors with set-up for sawing, drying and balsa finishing

3

Measures of profitability

Discounted cash-flow analysis was applied toassess the profitability of each balsa productionsystem. Several measures were used to indicateprofitability. These include net present value,internal rate of return, annual equivalent value,break-even price and return to labour. Profitabilitywas assessed for a 10-year period, effectivelycovering two balsa rotations. Net present value(NPV) is the sum of the flow of annual net returns,each of which is expressed as a present value.A present value is the equivalent value today of afuture cost or revenue. Discount rates are used tocalculate present values.

The discount rate allows all costs and returnsincurred in future periods to be expressed in equiv-alent present-value terms. A discount rate of 10%was used for determining the NPV of the balsaproduction systems analysed. Sensitivity of theresults can be explored for alternative discount rates.If the NPV is >0, then the activity or investment isprofitable.

The internal rate of return (IRR) is the discountrate that equates the present value of the revenueswith the present value of the costs of a project. It isthe rate at which the NPV of an investment is zero.If the IRR exceeds the discount rate, then the projector investment is profitable.

The annual equivalent value (AEV) is the annualequivalent of the NPV. AEV is an effective measurefor comparing net returns from a land-use activitythat spans several years, such as forestry, with anannual land-use activity such as cereal or vegetablecropping.

The break-even price is the farm-gate price paid togrowers for balsa at which the NPV equals zero,where the activity just covers costs. Comparing thebreak-even price with the actual farm-gate priceindicates the scope for absorbing cost increases orprice falls. Break-even analysis can be conductedfor key activity parameters such as timber yield andestablishment, maintenance and labour costs.

The return to labour is the wage rate that sets theNPV equal to zero, or the break-even wage rate. It isthe highest rate that can be paid for a labour inputbefore the NPV becomes negative. Where the returnto labour exceeds the minimum daily wage rate,individual land owners would be better off finan-cially by applying their labour to growing balsarather than paid employment. Return to labour is a

6

useful primary indicator of profitability for small-holders.

The time period from plantation establishment topositive cash flow is another useful indicator forforestry investors. Revenue does not usually flowuntil several years after the establishment of aplantation and the biggest expenditure outlays occurin the early years of a plantation investment, so thesooner the cash flow turns positive the better for theinvestor.

Profitability of smallholder balsa growing

Smallholder balsa growers are classed as those withplots of less than 5 ha. The number of smallholderbalsa growers in ENB is not known precisely,although it has been estimated to be fewer than 400.Uncertainty about numbers of small householdsgrowing balsa has increased as a consequence ofcocoa pod borer (CPB) and the managementresponses by cocoa growers. Balsa offers an attrac-tive alternative land use for former cocoa growers.A survey of cocoa growers’ land-use intentions inresponse to CPB would provide an indication of thenumber of smallholders (and larger land users)planning to move from cocoa into balsa productionor to expand existing areas of balsa. Current ACIARprojects on cocoa and other crops in ENB may beable to provide this information (e.g. ACIAR ProjectNo. PC/2006/114—‘Managing cocoa pod borer inPapua New Guinea through improved risk incursionmanagement capabilities, IPM strategies and stake-holder participatory training’; and Project No. FST/2004/055—‘Domestication and commercialisationof Canarium indicum in Papua New Guinea’). Dataon cocoa growers’ future land-use intentions mayhave to be collected as part of a larger-scale researchproject on balsa production opportunities in ENB.The attractiveness of converting cocoa-growingland to balsa plantations will be governed by thecapacity of the PNG balsa industry to remain inter-nationally competitive and the ability of the proces-sors to export balsa products.

Key information and data collected from small-holders are summarised in Table 10. The contents ofthis table are based on data and informationprovided during interviews with individual small-holders and growers who are members of a group, asexplained in Table 9.

4

Table 10. Smallholder balsa growers: key indicators

Indicator Status Comment

Labour supply Family only for individual smallholdersUnder contracts between grower groups and processors, all labour inputs are supplied by the processor

Adequate labour supply is a strength of the group system and a potential limitation for individual smallholders

Source of planting material

Individuals source seedlings from existing trees and the PNG Forest Authority (PNGFA) while group members source from the processor

Productivity advantages achieved by groups from improved seedlings

Planting rate 1,110 seedlings/ha Standard planting practice on a 3 m × 3 m pattern

Survival rate 95–99% If survival high, no replanting

Thinning No (most growers) One smallholder thinnedSome group members thin

Pruning No (most growers) One smallholder prunedSome group members prune

Fertilising No (all growers) None

Weeding Yes (all growers) Essential in first year

Pest and disease management

No (all growers) Some monitoring

Seedling cost per unit PGK0.3 to PGK0.4 Standard price

Source of technical information

Other growers; processing company One used PNGFA

Harvest age 5 years Standard practice

Method of selling Standing tree Standard practice

Buyer Primary processor Standard practice

Price per m3 By negotiationRanges from PGK35 to PGK60Purchase agreement or supply contract

Group members received higher prices; higher prices are associated with being nearer to processor and quality

Distance to processor Ranged from 28 km to 45 km Higher farm-gate prices for resources located closer to processing mills

Source of market information

Ranged from none, by group members, to other growers

Exposure to market information is limited

Knowledge of quality requirements

Ranged from poor to good Most growers advised that they had poor knowledge of quality attributes

Replanting intentions Majority intend to replant balsa after current crop

One exception was because prices were considered to be low

Research and development needs

Yes Needs included:• access to improved germplasm• improved relations between growers

and processors

Motivation Low costs of establishmentGood returns in a short period

Especially attractive for landowner groups who have contracts with processors

Constraints Grower cooperationPrices receivedResource wastageLack of transparencyInformation flow to growers

Internal communication of industry information is a key constraint

65

Using the information reported in Table 10 andfrom other sources as noted in the previous section,a discounted cash-flow analysis was conducted for atypical smallholder balsa grower to establish indica-tors of profitability. The profile of a typical small-holder grower is presented in Table 11.

Table 12 and Figure 17 present the results of thediscounted cash-flow analysis for a smallholderbalsa grower in ENB. The results in Table 12 revealthat, despite a very low timber yield (estimated to be180 m3/ha at year 5) associated with a low standardof stand management, balsa is a very profitable land-use option for smallholders. At a higher yield of200 m3/ha with the same level of labour inputs, theIRR increases to 42% in line with higher NPVs andAEVs for each discount rate (data not shown). This

6

alternative assumes that labour inputs are appliedmore effectively, without any additional costs.

Figure 17 indicates that the cumulativediscounted net cash flow, after falling to minusPGK2,043 in year 4, turns positive in year 5 whenthe first crop is harvested. Smallholder growers haveto compare this outcome with other land-useoptions, especially other perennial crops. Forexample, balsa generates a positive cash flow soonerthan galip nut, an alternative land-use option (JohnMoxon, LAES, NARI, Keravat, ENB, pers. comm.,July 2009). While galip is an attractive investmentproposition for smallholders in NPV and IRR terms,discounted cumulative net cash flow does not turnpositive until 12 years after establishment comparedto 5 years for balsa.

Table 11. Profile of a smallholder of balsa grower, East New Britain

Key parameter Level Comment

Land preparation 24 person-days (pd)/ha in year 110 pd/ha for second rotation

Assumes that land was previously fallow (garden)

Planting 25 pd/ha Includes lining, holing and planting

Stocking rate 1,110 stems per ha 3 m × 3 m

Seedling survival 99% Based on grower feedback

Replanting None

Seedling costs (including transport from source)

PGK0.3 per seedlingPGK0.05 per seedling transport

Transport costs based on 60 km round trip to collect sufficient seedlings for 1 ha

Weeding 24 pd/ha in year 118 pd/ha in year 2

First rotation

18 pd/ha in year 112 pd/ha in year 2

Second rotation

Thinning and pruning None

Fertilising None

Harvesting 2 pd/ha Harvesting and transport are arranged by the processor; the grower’s labour input is equivalent to monitoring

Stumpage pricea PGK35/m3 Price is net of the costs of harvesting and transport to the mill

Yield at end of rotation 180 m3/ha Conservatively low

Cost of labour PGK15.14/day New minimum wage, first level increase

Source of labour Family Adequate labour available

Establishment costs PGK1,528.40/ha Labour represents 74% of total establishment costs (assumes that land was previously fallow)

Maintenance costs per ha: Year 2Year 3–4Year 5

PGK302.80PGK30.28PGK60.56

Weeding and tending Tending only (minimal labour input)Tending and harvest support

a Stumpage is nominally the price paid to a grower by the harvesting contractor for trees standing in a plantation, but in the case of balsa the price paid is based on the volume of balsa logs removed, as not all trees are of acceptable quality.

6

The impact of labour supply on smallholder balsa profitability

Balsa establishment costs in the first year arePGK1,528/ha. The cost of labour is included atPGK15.14 a day but, in reality, smallholders usefamily labour for which they do not pay wages. Thehead of the household, however, does compensatefamily labour with a share of the income from thebalsa harvest once it is received. The financialcommitment of the smallholder in the first yeartherefore is largely the cost of seedlings, which isalmost PGK393/ha or 26% of total establishmentcosts. This is unlikely to be a burden. Feedback fromsmallholder growers interviewed for this studyindicated that they do not borrow money, preferringto use their own funds. Furthermore, they considerthe establishment costs for balsa to be relatively low,which is part of their attraction to the crop.

Smallholders depend heavily on access to areliable and adequate supply of labour from their

6

–3,000

–2,000

–1,000

0

1,000

2,000

3,000

4,000

5,000

1 2 3 4

PGK

/ h

a

family. It is assumed for this assessment that laboursupply is unconstrained, although this may notalways be the case. If the balsa enterprise has tocompete for labour with other demands such as otheragricultural activities (e.g. cocoa, coconut or galipnut), subsistence gardening or personal andcommunity commitments, this competition willinfluence the area of balsa that can be establishedand tended. Balsa establishment and maintenance isvery labour-intensive in the first year; successfulestablishment depends on availability of labour. It isestimated that, on average in the first 12 months, theequivalent of 95 person-days of labour is requiredfor 1 ha of balsa. This should be achievable by asmallholder with two or three family membersavailable for farm work. Labour supply and labourmanagement are key issues for smallholders,especially as the area of balsa increases. Labour islikely to be the most limiting resource for small-holder balsa production. Labour availability willaffect balsa productivity, as it does for other crops

Table 12. Indicators of profitability for smallholder balsa growing in East New Britain

Measure Baseline Discount rate

10% 15% 20%

Net present value (PGK/ha) ≥ 0 4,048 2,667 1,689

Internal rate of return (%) > Discount rate 36 36 36

Annual equivalent value (PGK/ha)

> Annual returns from other land uses

659 532 403

Break-even balsa stumpage price (PGK/m3)

35 14.69 17.69 21.12

Return to labour (PGK/day) ≥ 15.14 to ≥ 20.15 50.47 40.67 32.60

5 6 7 8 9 10

Year

Figure 17. Cumulative discounted net cash flow for smallholder balsaproduction at a 10% discount rate

7

(e.g. for cocoa production in ENB, see Curry et al.2007). On balance, while smallholder balsa produc-tion is profitable and returns are generated in arelatively short time, certainty of labour supply andlong-term commitment to sustained productionindicate that smallholders may be an unreliablesource of balsa supply.

Profitability of balsa grower groups in share-farming arrangements with

processors

A number of households growing balsa in ENB aremembers of a landowner group. A group is able toachieve economies of size in a number of areas,resulting in higher returns per hectare for individualgrowers. The advantages of growing balsa within alandowner group compared with an independentsmallholder operation include: • a supply contract with a local processor, based on

volume and wood quality attributes• higher timber yields associated with more

silvicultural inputs than used by independentsmallholders; 200–240 m3/ha at year 5 (220 m3/hawas used in the assessment of profitability in thisstudy)

• under the terms of the supply contract, allpreparation, establishment and maintenanceoperations are conducted by the processor at nocost to the grower

• higher farm-gate prices per cubic metre for balsalogs—PGK40–60/m3 (PGK40/m3 was used inthe assessment of profitability in this study).Balsa establishment and maintenance operations

are similar to those practised by independent small-holders. For example, the planting rate is 1,110seedlings/ha, seedling survival is 99%, the rotationlength is 5 years and the selling method is standingtrees. Where groups differ from independent small-holders is that they are more committed to long-termproduction of balsa and they are supported by supplycontracts with processors. Processors specifyacceptable quality standards for balsa resources andthey provide good-quality seedlings and technicalservices to growers. Thinning and pruning are morelikely to occur under a supply contract, althoughmany landowners are reluctant to allow these silvi-cultural practices. Establishment and maintenancecosts covered by the processor include site prepara-tion, seedling supply, planting, weeding, thinning,

6

pruning and maintenance. The returns from balsasales are split 50:50 between the grower and theprocessor. Therefore, for an agreed stumpage priceof PGK40/m3, the grower receives PGK20/m3 forresources transported to the mill. It is a type of share-farming agreement between a balsa processor and agrower group. In the case of one processor, it isstipulated that the landowner must have a registeredtitle of tenure. This provides greater security ofsupply for the processor as there is unlikely to be anydispute over ownership of the land.

The main benefits for processors from share-farming agreements with groups compared todealing with several independent growers include:• more reliable and predictable supply of good-

quality balsa resources• greater control over the supply chain from seed to

product• certainty of throughput.

In this study, the profitability of grower groupshas been estimated separately for an individualgrower-group member and for a processor, as wellas for the system as a whole.

Profitability for growers

Table 13 indicates the profitability of a share-farming production system for a member of agrower group. It is a highly attractive option forgrowers. The only input they provide is their land.The indicators of profitability in Table 13 reflect thelow-cost production system—there is no allowanceincluded for the cost of the land10. Compared to theestimated profitability for an independent small-holder (Table 12), the grower group member isbetter off by around 10% in terms of NPV and AEV.The figures for IRR and return to labour reflect thecost structure of the production system.

The break-even price is unrealistic as the price hasto be acceptable to both the processor and thegrower. However, it also is indicative of the low-cost structure for members of grower groups. Figure18 reveals the cumulative cash-flow situation for agrower-group member. The small negative amountsare for occasional labour inputs by the landowner totend and monitor the balsa crop. This is the

10 One option for an analysis such as this is to include theequivalent of a land rental price but, as renting is notcommon in PNG, the opportunity costs of the landcould be substituted—i.e. the annual return per hectarefrom the next-best alternative use.

8

landowner’s contribution to the security of thetimber resources.

Profitability for processors

The profitability measures for the processorpartner in a balsa share-farming agreement with agrower group are presented in Table 14. The resultsreveal that the while this supply option is profitablefor processors at the 10% discount rate, growersreceive a better outcome from the arrangement. Infact, at the 20% discount rate, the grower-groupoption is not profitable for the processor, and even at15% it is a doubtful proposition. Processors carry ahigher share of the risk of loss associated withstorms, disease, landowner disputes, political insta-bility, fluctuations in market demand and exchange-rate movements.

The 15% discount rate is a more appropriate rateto use for an assessment of the share-farmingproduction system from the perspective of theprocessor. Based on the results of the analysispresented in Table 14, it is concluded that grower

6

–1,000

0

1,000

2,000

3,000

4,000

5,000

1 2 3 4

PGK

/ h

a

groups are a profitable but risky option for proces-sors at 10% and 15% discount rates, but are notprofitable at the 20% discount rate. When comparedwith less reliable and inconsistent balsa suppliesfrom independent growers, however, the grower-group share-farming option is more attractive andless risky for processors. Further research into therisk factors is warranted to identify critical risks tothe success of this balsa production system.

The return-to-labour measure of profitability ismarginal at the 15% discount level. The baselinedaily rate of PGK23.15 includes the first-levelincrease in the minimum wage (see previouschapter) plus labour on-costs of PGK8.00 thatcompanies incur to cover the costs of employment.

The discounted cumulative net cash flow for theprocessor in a share-farming agreement with agrower group indicates that strong positive returnsdo not occur until after the second balsa crop(Figure 19). The balsa processor must have thefinancial capacity to withstand several years ofnegative returns. The landowner’s short-term cash-

Table 13. Indicators of profitability for an individual member of balsa grower group in East New Britain


10% 15% 20%




> Annual returns for other land uses

759 716 604

Break-even balsa stumpage price (PGK/m3)

40 0.84 0.93 1.03

Return to labour (PGK/day) ≥ 20.15 360.35 326.30 295.60

5 6 7 8 9 10

Year

Figure 18. Cumulative discounted net cash flow for balsa grower groupmember at a 10% discount rate

9

flow situation is substantially better than that for theprocessor.

It is in the interest of processors to increase boththe productivity of land under a share-farmingagreement and the average quality of resourcesproduced from that land. This will offset the risksand increase the supply of balsa with desired proper-ties. In turn, this will increase the average resourceprice as a consequence of a higher proportion of theresources being of acceptable quality, especiallywith respect to disease and wood density. Thechallenge for processors is to convince landownersof the benefits of thinning and pruning that improvewood properties and yield. Many landowners seeremoval of trees as an absolute reduction in thevolume of production. It will be necessary forprocessors to demonstrate the physical and financialbenefits of thinning and pruning using appropriateparticipatory methods such as demonstration trialsin landowners’ fields and dissemination of suitable

7

–3,000

–2,500

–2,000

–1,500

–1,000

–500

0

500

1,000

1,500

1 2 3 4

PG

K/

ha

extension material. The effort to address this issuecould be supported by specific project funding toencourage involvement of growers, processors andextension services in research on the benefits ofimproved silvicultural practices.

Overall profitability of share-farming agreements between grower groups and processors

The profitability of the overall balsa share-farming systems is presented in Table 15. Theseresults reveal that a share-farming system is highlyprofitable, with better returns for all measuresexcept IRR (which is the same at 36%) than forindependent small-scale balsa production. As theanalyses for the individual partners revealed,however, the sustainability of the system depends onthe profitability of the arrangement for thelandowners and the processor independently.

Table 14. Indicators of profitability for a processor in a share-farming arrangement with a grower group in EastNew Britain


10% 15% 20%

Net present value (PGK/ha) ≥ 0 884 75 –489




144 15 –120

Break-even farm-gate balsa price (PGK/m3)

40 16.37 19.60 23.29


5 6 7 8 9 10

Year

Figure 19. Cumulative discounted net cash flow for a balsa processor in a share-farmingarrangement with a grower group at a 10% discount rate

0

Figure 20 shows a cumulative discounted net cashflow pattern similar to that for the independentsmallholders but with higher returns associated withhigher yields and prices.

The potential of grower groups to supply balsaresources in ENB is strong. One processor indicatedthat, in the future, in addition to their own resources,they will seek resources from only large-scaleproducers in order to meet quality standards forexport contracts. These producers include largeindividual growers and grower groups. As indicatedearlier, the contribution of independent smallholdergrowers to total balsa supply is expected to fallsignificantly over the next 5 years, while groups andlarger growers will increase their share of totalsupply. The success of the system will depend on thecapacity of the processor to bear the production,financing, marketing and other risks that are notinsignificant. Individual landowners receive a gooddeal under these arrangements. Efforts to increaseyields and the quality of resources will reward both

7

–4,000

–3,000

–2,000

–1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

1 2 3 4

PG

K/

ha

landowners and processors, although the incentivefor interventions is stronger for the processors,given the relative cost structures and risk profiles ofthe partners.

Balsa grower groups are based on registeredlandowner groups. There may be scope forimproving the efficiency and effectiveness ofgrower groups in areas such as technology transfer,dissemination of market information, supplycontract and service-provision negotiations, andmaintenance of standards in growing, harvestingand transport of balsa. For example, grower groupsmay be an effective medium for introducing togrowers silvicultural practices that will lead tohigher yields and incomes and increase total balsaproduction. Landowner groups, however, normallydo not operate with a management or governancestructure. If a landowner group were to becomemore active in management then it would be able tocarry some of the risk of production and negotiatealternative revenue-sharing arrangements with

Table 15. Indicators of the overall profitability of a balsa share-farming system in East New Britain


10% 15% 20%





903 731 556


40 17.21 20.53 24.31


5 6 7 8 9 10Year

Figure 20. Cumulative discounted net cash flow for balsa share-farming system at a 10%discount rate

1

processors. The potential role and contribution oflandowner groups should be included in furtherresearch into opportunities for balsa production,processing and marketing in ENB.

Profitability of balsa growing for large-scale growers, including integrated grower–processors

Large-scale balsa growers include those with planta-tion areas of 10 ha or more. The level of investmentrequired for such an area is generally beyond thefinancial and labour capacity of a smallholder.Integrated grower–processors include balsa proces-sors that obtain some balsa resources from their ownplantations. Key indicators for large-scale growersand integrated grower–processors are presented inTable 16.

The data and information listed for large-scalegrowers in Table 16 can be compared to those forsmall-scale balsa growers listed in Table 10. Acomparison reveals that large balsa growers differfrom small growers in the following areas: • using good-quality seedlings at slightly higher

cost• infilling or replacing seedlings lost after planting• applying silvicultural practices (thinning and

pruning)• using hired labour• having a high level of awareness of market needs

and prospects• having a long-term commitment to balsa

production• having a broad awareness of constraints and

challenges and of the potential for R&D to findsuitable solutions.Based on the information in Table 16 and from

other sources, an indicative large-scale balsa growerprofile was constructed. This is presented in Table 17.

Profitability estimates for a large-scale balsagrower are presented in Table 18 and Figure 21. Theresults indicate significantly higher NPV, IRR, AEVand return to labour compared to small-scaleproduction and landowner group share-farmingsystems. For large-scale growers, balsa prices canfall to almost PGK18/m3 while remaining profitableat the 20% discount rate. A key to profitability in thisproduction system is the high balsa yield at the endof the rotation. If the year 5 yield fell to 250 m3/haand the year 3 thinning was non-commercial, then

7

the NPV would fall by over 50% to just overPGK7,000/ha, the IRR would fall to 33% and AEVwould more than halve to PGK1,137/ha/year (datanot shown). Even at these yields, however, theprofitability of large-scale production is superior tothat of alternative production systems. These resultsindicate the sensitivity of balsa profitability to yieldand the benefits of yield-enhancing inputs.

The pattern of cumulative discounted net cashflow for large growers, as shown in Figure 21,differs from that for smallholders and landownergrower-group production systems. This is because itis assumed that there is a commercial thinning inyear 3, albeit small. The volume and quality of thelogs removed determine whether it is commercial. Itis assumed that thinning yields 50 m3/ha and returnsPGK30/m3.

These results indicate the superior performance oflarge-scale and integrated balsa-growing systems.The better returns, however, are the result of signifi-cant additional inputs of technology and labourmanagement. Larger operators have better control ofinputs and quality of output than do small-scaleoperators. It is possible that even higher levels ofperformance can be achieved. For example, onelarge grower interviewed for this study advised thatbalsa yields of 400 m3/ha had been achieved on hisland. According to Howcroft (2002), potential yieldsfrom sites that are thinned at 36 months andharvested in year 5 or 6 are 450–600 m3/ha. Therealised yield, however, depends on several factorsincluding site quality, general growing conditions,seed source, initial plant spacing, stocking at the timeof thinning, growth rate, management and mainte-nance inputs and maturity (Howcroft 2002, p. 43).

Table 19 permits a comparison of some of thekey results for the three production systems. By allmeasures at the 10% discount rate, all balsaproduction systems are profitable. Profitability,however, is not the only measure of success orsustainability. There are risks to sustainability withindependent smallholders associated with laboursupply. Under the share-farming system, theprocessor carries most of the risk and all of thecosts. The incentive to increase yields and qualityis high, but implementation requires the commit-ment of landowners. The large-scale productionsystem, using high levels of technical inputs andgenerating high yields and quality, is most profit-able. The share-farming and large-scale balsaproduction systems rely on hired labour.

2

Tab

le 1

6.

Lar

ge-s

cale

bal

sa g

row

ers:

key

indi

cato

rs

Indi

cato

rSt

atus

Com

men

t

Lab

our

supp

lyH

ouse

hold

and

hir

ed la

bour

for

larg

e gr

ower

sL

arge

ly h

ired

labo

ur f

or in

tegr

ated

gro

wer

–pro

cess

ors

Ade

quat

e la

bour

sup

ply

is e

ssen

tial f

or la

rger

are

as;

proc

esso

rs w

ho h

ave

cont

ract

s w

ith in

divi

dual

gro

wer

s gr

owin

g >

10 h

a co

ver

esta

blis

hmen

t cos

ts

Sour

ce o

f pl

antin

g m

ater

ial

Lar

ge a

nd in

tegr

ated

gro

wer

s ob

tain

see

d fr

om th

eir o

wn

tree

s or

the

univ

ersi

ty a

nd p

ropa

gate

see

dlin

gs in

thei

r ow

n nu

rser

ies

Prod

uctiv

ity im

prov

emen

ts a

ssoc

iate

d w

ith im

prov

ed

seed

lings

(fr

om I

TT

Oa ,

Ker

avat

sou

rce)

Plan

ting

rate

1,11

0 se

edlin

gs/h

aSt

anda

rd p

lant

ing

prac

tice

on a

3 m

× 3

m p

atte

rn

Surv

ival

rat

e75

–95%

Ave

rage

85%

; rep

lant

ing

is p

ract

ised

Thi

nnin

gY

es (

all g

row

ers)

To

800–

900

stem

s pe

r he

ctar

e in

yea

r 2

or 3

Prun

ing

Yes

(al

l gro

wer

s)Pr

une

in f

irst

18

mon

ths

to 4

–5 m

Fert

ilisi

ngN

o (a

ll gr

ower

s)So

me

conc

erne

d ab

out l

oss

of v

igou

r in

thir

d-ro

tatio

n cr

op

Wee

ding

Yes

(al

l gro

wer

s)V

ario

us s

trat

egie

s us

ed; i

nten

sive

in f

irst

yea

r; p

eanu

ts c

an

be g

row

n in

fir

st y

ear;

han

d w

eedi

ng a

nd s

lash

ing

occu

r

Pest

and

dis

ease

man

agem

ent

No

(all

grow

ers)

The

re is

inte

rest

in c

ontr

ol o

f re

d he

art

Seed

ling

cost

per

uni

tPG

K0.

4Su

pplie

d fr

om o

wn

nurs

erie

s; n

o tr

ansp

ort c

osts

invo

lved

Sour

ce o

f te

chni

cal i

nfor

mat

ion

Mos

t rel

ied

on o

wn

reso

urce

s an

d fr

om th

e un

iver

sity

(in

Vud

al)

Oth

er g

row

ers

are

not a

n im

port

ant s

ourc

e

Har

vest

age

5 ye

ars

Stan

dard

pra

ctic

e

Met

hod

of s

ellin

gSt

andi

ng tr

eeSt

anda

rd p

ract

ice

Buy

erPr

imar

y pr

oces

sor

Stan

dard

pra

ctic

e

Pric

e pe

r m

3B

y ne

gotia

tion

Ran

ges

from

PG

K25

to P

GK

50Pu

rcha

se a

gree

men

t or

supp

ly c

ontr

act

Pric

e va

ries

with

dis

tanc

e fr

om m

ill, q

ualit

y, a

cces

sibi

lity,

sc

ale

and

mat

urity

of

stan

d

Dis

tanc

e to

pro

cess

orR

ange

d fr

om 5

km

to 5

0 km

Pref

eren

ce f

or r

esou

rces

clo

ser

to p

roce

ssin

g fa

cilit

ies;

av

aila

bilit

y of

sui

tabl

e la

nd is

a c

onst

rain

t

Sour

ce o

f m

arke

t inf

orm

atio

nT

he in

tegr

ated

pro

cess

ors

get t

heir

inte

llige

nce

from

thei

r cu

stom

ers,

col

leag

ues

and

the

inte

rnet

; lar

ge g

row

ers

are

not a

s w

ell

conn

ecte

d

Hig

h ex

posu

re to

cur

rent

and

fut

ure

mar

ket c

ondi

tions

; la

rge

grow

ers

rely

on

buye

rs b

eing

mar

ket a

war

e

Kno

wle

dge

of q

ualit

y re

quir

emen

tsV

ery

high

aw

aren

ess,

esp

ecia

lly o

f bu

yers

’ de

nsity

req

uire

men

ts;

but i

nfor

mat

ion

gene

rally

not

sha

red

with

gro

wer

sT

here

is o

ppor

tuni

ty to

str

engt

hen

grow

ers’

aw

aren

ess

of

mar

ket n

eeds

and

man

age

thei

r res

ourc

e ac

cord

ingl

y, w

here

fe

asib

le

73

Rep

lant

ing

inte

ntio

nsA

ll in

tend

ed to

rep

lant

bal

sa a

nd e

xpan

d th

eir

area

s ov

er th

e ne

xt

2–3

year

sA

ttrac

ted

by g

ood

retu

rns

and

rela

tivel

y lo

w e

stab

lishm

ent

cost

s

Res

earc

h an

d de

velo

pmen

t (R

&D

) ne

eds

Yes

; nee

ds in

clud

e:•

acce

ss to

impr

oved

ger

mpl

asm

• im

prov

ed k

iln-d

ryin

g ef

fici

ency

• ca

uses

and

con

trol

of

red

hear

t•

gove

rnan

ce•

silv

icul

ture

• in

ter-

rota

tiona

l nut

ritio

n•

bals

a m

arke

ts•

dire

ctio

nal f

ellin

g an

d ch

ains

aw te

chni

que

Lar

ge a

nd in

tegr

ated

gro

wer

s ar

e m

ore

awar

e of

tech

nica

l pr

oble

ms

and

solu

tions

that

inve

stm

ent i

n R

&D

can

pro

vide

Mot

ivat

ion

Stro

ng c

omm

itmen

t to

long

-ter

m p

rodu

ctio

nD

iver

sifi

catio

n; g

ood

retu

rns;

sup

ply-

chai

n co

ntro

l to

ensu

re q

ualit

y an

d re

liabi

lity

of r

esou

rce

supp

ly

Con

stra

ints

Acc

ess

to g

ood-

qual

ity s

eed

Supp

ly o

f ex

peri

ence

d an

d qu

alif

ied

empl

oyee

sFi

nite

, com

petit

ive

mar

ket

Hig

h co

sts

of la

bour

and

pow

erSc

arci

ty o

f su

itabl

e la

nd—

tenu

re; l

ocat

ion;

con

ditio

nG

over

nanc

eIn

fras

truc

ture

mai

nten

ance

—ro

ads

Inad

equa

te in

cent

ives

Lar

ge a

nd in

tegr

ated

gro

wer

s ar

e be

tter c

onne

cted

alo

ng th

e su

pply

cha

in a

nd a

rea

able

to id

entif

y in

dust

ry-w

ide

cons

trai

nts

aIT

TO

= I

nter

natio

nal T

ropi

cal T

imbe

r O

rgan

izat

ion

Tab

le 1

7.

Prof

ile o

f a

larg

e-sc

ale

bals

a gr

ower

, Eas

t New

Bri

tain

Key

par

amet

erL

evel

Com

men

t

Lan

d pr

epar

atio

n24

per

son-

days

(pd

)/ha

in y

ear

110

pd/

ha f

or s

econ

d ro

tatio

nA

ssum

es th

at la

nd w

as p

revi

ousl

y fa

llow

(ga

rden

)Sl

ashi

ng u

sing

trac

tor

Plan

ting

25 p

d/ha

Incl

udes

lini

ng, h

olin

g an

d pl

antin

g

Stoc

king

rat

e1,

110

stem

s/ha

3 m

× 3

m

Seed

ling

surv

ival

85%

Bas

ed o

n gr

ower

fee

dbac

k

Tab

le 1

6.

(Con

t’d)

Lar

ge-s

cale

bal

sa g

row

ers:

key

indi

cato

rs

Indi

cato

rSt

atus

Com

men

t

74

Rep

lant

ing

Equ

ival

ent o

f 38

8 se

edlin

gs; 2

.25

pd/h

aSe

edlin

g re

plac

emen

t als

o ac

coun

ts f

or n

urse

ry lo

sses

of

20%

Seed

ling

cost

s PG

K0.

4 pe

r se

edlin

gN

o se

edlin

g tr

ansp

ort c

osts

as

grow

ers

obta

in p

lant

s fr

om

thei

r ow

n nu

rser

y

Wee

ding

44.4

pd/

ha in

yea

r 1

Non

e in

yea

r 2

Slas

hing

24

pd/h

a ye

ar 1

fol

low

ed b

y 4

pd/h

a in

yea

rs 2

–5

Firs

t and

sec

ond

rota

tions

Thi

nnin

g8

pd/h

a in

yea

r 2

8 pd

/ha

in y

ear

3N

on-c

omm

erci

al th

inni

ng in

fir

st 1

8 m

onth

sPo

tent

ial c

omm

erci

al th

inni

ng in

yea

r 3

Prun

ing

4 pd

/ha

in y

ear

12

pd/h

a in

yea

r 2

Firs

t and

sec

ond

rota

tions

Fert

ilisi

ngN

one

Har

vest

ing

2 pd

/ha

Con

trac

t har

vest

ing

cost

s ar

e ac

coun

ted

for

in f

arm

-gat

e pr

ice

Farm

-gat

e pr

ice

By

nego

tiatio

nPG

K50

/m3

Yie

ld a

t end

of

rota

tion

350

m3 /

haT

owar

ds h

igh

end

Cos

t of

labo

urPG

K23

.14/

day

New

min

imum

wag

e—fi

rst-

leve

l inc

reas

e pl

us P

GK

8 la

bour

on-

cost

s

Sour

ce o

f la

bour

Hir

edA

dequ

ate

labo

ur a

vaila

ble

Est

ablis

hmen

t cos

tsPG

K33

14/h

aL

abou

r re

pres

ents

88%

of

tota

l est

ablis

hmen

t cos

ts

(ass

umes

that

land

pre

viou

sly

fallo

w)

Mai

nten

ance

cos

ts:

Yea

r 2

Yea

r 3

Yea

r 4

Yea

r 5

PGK

510.

24PG

K32

3.96

PGK

138.

84PG

K18

5.12

Slas

hing

, pru

ning

, thi

nnin

g, te

ndin

g Sl

ashi

ng, t

endi

ng, t

hinn

ing

Slas

hing

, ten

ding

Slas

hing

, ten

ding

, har

vest

Tab

le 1

7.

(Con

t’d)

Pro

file

of

a la

rge-

scal

e ba

lsa

grow

er, E

ast N

ew B

rita

in

Key

par

amet

erL

evel

Com

men

t

75

It is assumed that labour supply is adequate forthese systems. There are, however, some risks tolabour supply and labour management. Access toskilled employees such as electricians is also aproblem for businesses in PNG. While plannedincreases in minimum wage rates will add to costsof production, all three models are able to continueprofitably under the higher wages regime, as thereturn-to-labour results indicate. For some specificoperations, however, the higher wage rates maylead to significant changes in the way those opera-tions are performed. Of particular interest is theimpact on balsa harvesting and transport. This isexplored in the next section.

Impact of higher wages on harvesting and transport

The biggest single component of balsa harvestingand transport costs in ENB is labour. Balsaharvesting is a labour-intensive operation. For

7

–5,000

0

5,000

10,000

15,000

20,000

1 2 3 4

PG

K/

ha

example, one balsa processor in ENB operates aharvesting crew of around 15 persons, including 3truck drivers. The team cuts and delivers 20 m3 ofbalsa logs per day to the mill; a quantity that is in linewith the mill’s processing capacity. Currentharvesting and transport costs with such a crew wereestimated to be around PGK98/m3, assuming thatoperations are year-round on a 5-days-a-week basis.This compares with actual costs of PGK90/m3 citedby one processor. This cost estimate is based on thecurrent daily minimum wage rate for unskilledworkers of PGK7.44. Under the proposed newminimum wage legislation, the minimum dailywage will increase to PKG15.14 initially and then toPGK20.15. Without making any changes to theharvesting set-up, the harvesting and transport costswill increase to PGK184/m3 and PGK241/m3,respectively. The 171% increase in the minimumwage rate will see labour’s share of harvesting andtransport costs increase from around 86% currentlyto 94%, assuming that current levels of labour use

Table 18. Indicators of profitability of balsa growing for a large-scale balsa grower in East New Britain


10% 15% 20%





2,365 2,083 1,800


50 12.49 15.10 18.1


5 6 7 8 9 10

Year

Figure 21. Cumulative discounted net cash flow for large-scale balsa growers ata 10% discount rate

6

are continued. At the higher daily wage rates and atcurrent balsa log prices, however, present harvestingoperations are unlikely to be sustained and alterna-tive lower-cost options will be explored. The effectof the higher wage rates on harvesting and transportcosts is illustrated in Figure 22.

Alternative harvesting and transport operationswould be less labour-intensive and operate on alarger scale. There may be an opportunity forspecialist harvesting contractors to enter theindustry, although that would depend on the totalarea of balsa resource established and the scale ofindividual plantations. An option for individualgrowers is to harvest their resources and hire atransport contractor to deliver logs to the mill. Thisoption may be more attractive for groups of growersclose enough to each other and with a sufficientvolume of logs to make it worthwhile. Individuals orgroups of growers would have to invest inharvesting equipment and specialised training intree felling to ensure efficient operations. There are,

7

0

50

100

150

200

250

300

0 5 10

W

Tota

l har

vest

ing

an

d t

ran

spo

rt c

ost

s (P

GK

/m3 )

7.44 Current

however, some potential difficulties with thisoption. While individual growers are likely tomaximise the number of logs shipped from theforest, processors or buyers may not accept alldelivered logs because of poor form or the presenceof red heart or blue stain. Therefore, it would beessential that growers understand and comply withthe quality requirements of the processors. This maybe assured through contractual arrangementsbetween the processor and growers as happensunder the landowners’ share-farming arrangement.Labour management and group coordination maychallenge the success of this option. It is likely to bea more successful option for larger growers andgrower groups.

As harvesting and transport costs increase due tohigher wage rates and fuel costs, the option ofprocessing logs into flitches close to the source ofproduction using a portable sawmill or a chainsawmill is likely to gain interest among growers andgrower groups who do not have supply contracts to

15 20 25

age rate (PGK/day)

20.152 Final rate

15.136 First level increase

10.032 New minimum rate

rate

Figure 22. Estimated impact of increases in the minimum wage rate on harvestingand transport costs

Table 19. Profitability of balsa production systems in East New Britain at the 10% discount rate (PGK)

Measure of profitability Units Independent smallholder

grower

Landowner group and processor share-farming

Large-scale and integrated

processor grower

Net present value Internal rate of return Annual equivalent price Break-even price Return to labour

PGK/ha%PGK/haPGK/m3

PGK/day

4,24039

69013.7

45.74

5,55136

90317.2160.41

14,53353

2,36512.4986.47

7

processors. The relative costs and benefits of thisoption should be explored in detail in associationwith interested growers and processors. As notedpreviously, implications for resource quality andrecovery should also be assessed. Smorfit et al.(2004, p. 50) concluded that chainsaw mills arewasteful of timber, require considerable manualhandling of logs, have low throughput and producerough-sawn surfaces. They suggested that mills ofthis type are generally suited to low-value low-volume milling or as a means of breaking down logsfor further sawing. The potential use of portablesawmills in the context of rising harvesting costs andexpansion of the area of balsa is worthy of furtherresearch.

7

As the industry shifts towards larger suppliers,including landowner groups and integrated proces-sors, reduction of harvesting costs will be theresponsibility of processors, as they controlharvesting and transport. Processors will have toevaluate the financial returns of labour-savingtechnologies and the potential of primary sawing inthe field using small-scale portable sawmills. Otheroptions include reducing the catchment area forresource supply and concentrating on supplieswithin 10–15 km of the processing facilities. Identi-fication and assessment of alternative harvestingand transport options could be included in furtherresearch into the sustained competitiveness of balsaproduction and processing in PNG.

8

Conclusions

General

The global balsa wood industry, estimated to trade155,000 m3 annually, was worth an estimatedUS$71 million in 2008. The Papua New Guineaindustry (at 12,700 m3, worth US$4.5 million in2008) has made excellent progress to provide almost8% of volume and 6% of the value of the globalmarket.

While as a part of the overall global wood marketsbalsa trade may be small, the wood is used success-fully as a core product in a number of advanced andinnovative applications in the marine, road and railsectors of the transport industry, and in the wind-energy industry, the aerospace industry and thedefence industries. The ongoing success enjoyed bybalsa is directly related to the industry’s capacity todevelop innovative applications.

The balsa industry in PNG is concentrated in theGazelle Peninsula of ENB, where high-quality soilsand excellent growing conditions offer a provenenvironment for successful growth—high-qualitytimber is being produced on 5-year rotations. Thecurrent plantation resource of 3,500 ha is expectedto increase to 6,200 ha in 2012 and is located close toroads, processing facilities and the container port ofRabaul. Balsa produced in PNG enjoys a reputationin international markets for good quality anduniform colour and density.

Balsa cultivation is an attractive and competitiveland-use option for landowners, including small-holders in ENB, providing a profitable return.Labour availability may limit the number of newgrowers entering the industry. Three generalgrowing systems have emerged: individual small-holders, grower groups supplying processors undercontractual, share-farming arrangements, and largelandholders, including grower–processors. Theindustry currently provides direct employment forabout 3,000 people and this will increase once theexpanded plantation resource becomes productive.The capacity of the PNG industry to expand andthrive is constrained by international market

7

demand and the industry’s capacity to competitivelysupply these markets

While a range of technical improvements andefficiencies could increase the profitability of thebalsa industry in ENB, the largest challenges arethose related to maintaining competitiveness, andexpanding and then maintaining the industry’s nichein the international market. As PNG’s current globalmarket share by volume of 8% expands to a possible30% in 2012, an urgent re-examination of theindustry’s competitive situation is needed. Withreduced cocoa production and rural revenues due tococoa pod borer, the social consequences of failurein marketing ENB balsa are potentially serious.

This study has found that the global demand forbalsa appears strong and is driven by applicationsentailing high technology. The secondary manufac-ture of products containing balsa is conductedmostly in the USA, Europe, China and India, andthese countries control the value chain. Globaldemand fluctuates with emerging projects andeconomic stability. For example, an increase in thenumber of approved wind farms can greatly increasethe demand for wind turbines and balsa panels. Theglobal economic crisis has precipitated a dramaticdownturn in the recreational marine markets forpleasure craft and yachts, decreasing demand forbalsa—a market reality partially responsible for thedepressed demand for balsa in the USA during thefirst half of 2009.

Among the challenges facing balsa are:Competition from alternative products. Balsa repre-sents an entry point for those wishing to applysandwich composite technologies. Unlike othercommodities such as coffee or cocoa for which thereare few substitutes, a range of balsa substitutes isavailable. Although end-grain balsa sheets arerelatively inexpensive compared with their moreexpensive foam rivals, foam sheets are uniform andimproving in quality. Competition from other growers. Balsa is techni-cally straightforward to grow and process. Manycountries in the world have the capacity to expand

9

their balsa production. In particular, the global balsaleader, Ecuador, has long-established networks andsupply chains plus plans for a substantiallyexpanded plantation resource. PNG has achieved agreat deal in capturing 8% of the global market butit cannot be complacent and should recognise thatthis market share could be lost to others.

In meeting these competitive challenges, the balsaindustry in ENB must address three issues that willunderpin effective marketing of balsa from PNG:those of reliability, product quality and uniformity,and responsiveness. These were all raised as criticalissues by industry participants.

Reliability

Most manufacturers who use balsa have adopted‘just-in-time’ supply systems for their manufac-turing processes. These systems demand timelydelivery to ports and locations in other countries. Ifdelivery is not timely or reliable, clients may switchto other balsa suppliers or foam substitutes.

Reliability is dependent on an effective andefficient system of logistics from the factory gate,through road transport, ports and shipping to theclient’s factory. Many of the roads on the GazellePeninsula have deteriorated severely and this isalready beginning to increase transport costs. Fortu-nately, the capacity of the port can reportedlyaccommodate increased shipments of balsa, andincreased trade will improve overseas shippingschedules and lead to greater efficiency in deliveringbalsa from PNG to foreign ports.

A key requirement in improving and maintainingreliability is a supportive bureaucracy and thecapacity of this bureaucracy to add value to theindustry. A number of regulatory impediments wereidentified during this study, the primary one beingthe need for export permits issued by PNGFA.These permits are required for all wood exportsunder the existing legislation relating to forestry inPNG. There are no exemptions, regardless of thesize of the shipment. Reportedly, it is common forthese permits to take up to 4 weeks to receive Minis-terial signature; the consequence of which is thatorders can be cancelled or lost. Given that balsa iswidely regarded by industry stakeholders as anexotic crop grown on private lands and processed byprivate industry with little or no governmentsupport, there appears to be a strong case for seekingan exemption for balsa from these regulations.While customs, quarantine and other export proce-

8

dures were not raised as frequently as the issue ofexport permits, it is uncertain if governmentagencies possess the capacity to service an expandedflow of exports, such as 146 containers per month.

Product quality and uniformity

Balsa is being used in increasingly high-technology applications where performance tospecifications is critical. Manufacturers need high-quality and uniform materials to produce productswithin design specifications. The quality issuesraised through this study included uniformity ofdensity within end-grain sheets, colour and moisturecontent. Technical improvements to growing andprocessing balsa will add considerably to productuniformity and include genetics, silviculture,sawing, drying and gluing of end-grain blocks.Establishment of clear industry standards for balsawill assist in creating a market brand for balsa fromENB.

Responsiveness

The global markets for balsa are volatile andrespond to emerging projects that use balsa in areassuch as wind energy, railway rolling stock anddefence applications. In addition, changing interna-tional financial conditions affect demand for balsa.To maintain its small but significant share of theglobal market, the balsa industry in PNG should aimto develop a reputation for responsiveness. Thecapacity to respond positively and promptly torequests will be enhanced through coordinating andsynchronising balsa supply with balsa-processingneeds and with the changing demands in interna-tional markets.

Marketing

There is little doubt that balsa can be successfullygrown and processed in ENB. As productionincreases, effective marketing will be essential toexpand and maintain its niche in the internationalmarket in the face of competition from the marketleaders in Ecuador. Supported by a strong PNGmarket reputation for reliability, product quality andresponsiveness, exports can be expanded in theemerging markets of China and India that arerelatively close to PNG. In environmentallysensitive industries such as the wind-energy sector,there is some attraction in certifying sources of balsa

0

plantation wood and ensuring that effective chainsof custody are maintained. The renewable andrecyclable nature of balsa offers it strong environ-mental credentials in competitive markets.

Apart from its proximity to emerging markets inAsia, PNG has many attractions as a global supplierof high-quality balsa. The ENB industry now hasinternational experience and market contacts. Forcompanies with dual-source supply policies, itoffers a reliable alternative to supplier companiesbased in Ecuador. The political and fiscal instabilitythat has plagued Ecuador in recent years is regardedas a risk to business and several manufacturers,particularly those in China, seek to foster alternativesources of supply.

ENB is fortunate in having the services of NARILAES, one of the longest-standing agriculturalresearch stations in the Pacific. In addition, the skillsavailable to the balsa industry at the PNG Universityof Natural Resources and Environment (UNRE, inVudal) offer an opportunity for ongoing technicalsupport.

Opportunities for research and development

An expanding and competitive, profitable, export-oriented balsa industry in ENB offers many opportu-nities along all parts of the value chain for R&D input.

Growing balsa

Growing high-quality balsa sustainably andproductively in managed plantations presents aseries of R&D issues, among which are:Breeding. The consequences of poor-qualitygermplasm are evident in the existing plantationbase. There is an opportunity to apply geneticselection and breeding to increase growth rates,improve stem form and reduce branchiness, selectfor wood density and disease resistance and buildupon the foundations left by the ITTO Project. Inparticular, such work should follow up the SPCFACT Project that seeks to establish a balsa treeimprovement program with one of its membercompanies in ENB.Silviculture. Basic studies of silviculture, such asinitial spacing, thinning and pruning, managementacross multiple rotations (natural regeneration,debris management) and nutrient management offeran opportunity for involvement of UNRE at Vudal.

8

Inventory. There are few accurate data on the extentof the balsa resource in ENB; most area figures areeducated estimates only. Successful management ofan internationally competitive industry requiresaccurate estimates of the extent, age classes andgrowth rates of the resource base. There is an oppor-tunity to review the volume tables currently beingused and to use satellite imagery to manage small-holder resources. Pests and diseases. The potential of pests anddiseases to threaten the balsa industry is a risk.While several stakeholders in the industry recog-nised the risks, none of the growers interviewed forthis study had a deliberate disease and pest manage-ment strategy. Knowledge of extant and potentialpests and diseases of balsa is scant. An under-standing of the causal agents or the physiologicalreasons for the premature formation of red heart—high-density heartwood—would assist in manage-ment and volume recovery from plantations. Managing site fertility under repeated cropping.Growers have expressed concerns at possible sitenutrient depletion after several rotations. Some sitesin ENB are now supporting their fourth rotation. Thelong-term impacts of tree cropping on the soils ofENB are not well understood. Certification of plantations. Most modern planta-tions seek certification through one of the existingcertification schemes. Such certification offers acompetitive advantage where products are used inenvironmentally sensitive industries. Either individ-ually or as a group, the plantations of the GazellePeninsula have the potential to be certified, whichwould unify management standards and improvemarket prospects in environmentally sensitivesectors such as the wind industry. To complementplantation certification, chain-of-custody proce-dures could be established for the processing of thebalsa wood.

The balsa manual, published in 2002 (Howcroft2002), has provided an excellent foundation forbalsa growers in ENB. Since its publication, theindustry has grown substantially and a great deal ofnew knowledge has become available. A newedition of the manual could be written and madeavailable electronically.

Harvesting and haulage

Those responsible for harvesting and haulage haveobligations to the grower to maximise merchantablevolume removed (and enhance stumpages) and to

1

maintain the quality of logs delivered to the mill (toimprove recoveries). These operations are subject toclose scrutiny by growers and joint-venture partnersas the merchantable logs provide the financial returnfor 5 years of plantation management.

Log measurement and recordingOnce the ENB resource reaches production levels

based upon a 6,200 ha estate, it is likely that over6,000 logs will be harvested and processed daily.Accurate measurement and recording of logsremoved from a site is a vital part of the businesschain. Practical considerations suggest that this islogically conducted in the controlled conditions ofthe mill, but this requires consensus and establishedtrust with the grower. For the benefit of all growersand processors, there is a need to adopt an agreeduniform approach to avoid confusion. The assess-ment of a range of options, with the view that theindustry could accept a process that enjoys aconsensus of support, is required.

Directional felling.Reports indicate that directional falling is an

issue, with breakage (and loss of merchantablevolume) being common. PNG possesses someexcellent training facilities for the logging industries(including directional felling), and better trainingwould offer much to the industry.

Improving recoveriesIndustry might consider adopting uniform log-

grading rules that best accommodate the need forhigh-quality logs for the mills and the need tomaximise recoveries of merchantable wood fromthe plantation.

Primary processing

In-field processingExperience in Ecuador suggests that in-field

processing of balsa logs using portable sawmills canbe economically attractive. In-field production ofrough-sawn flitches can reduce transport costs andavoid problems of disposal of off-cuts at the mainprocessing plant. Portable sawmills, however, arenotoriously inefficient in terms of sawn-woodrecovery, more so if equipment is not correctlymaintained or the operators are not well trained. Thelogistics of managing staff and equipment for aportable sawmill offer some challenges that requireassessment.

8

Log segregationOne of the major considerations in balsa

processing is wood density; most major processorssegregate their product into three density classes.Early log segregation on the basis of density wouldoffer efficiencies and cost savings in processing;measuring and managing stiffness can increaseprofits and log recoveries. We suggest that some ofthe sonic technologies such as Hitman could beassessed (for example, see Dickson et al. 2005).These technologies could also be adapted tosegregate boards into density classes at later stagesof processing.

SawingGrowth stresses in balsa and the presence of an

irregular, wandering pith challenge accurate andefficient sawing. Sawn-wood recovery might beimproved through the adoption of alternative sawingpatterns designed to reduce losses from growth stress.

DryingKiln-drying is an essential and expensive part of

balsa processing as most markets require wood witha moisture content of 12%. Higher moisturecontents can compromise the curing of resins andadhesives used in later manufacturing processes.Although there are several drying schedulesavailable for balsa, it would be useful to assess theapplicability and cost-effectiveness of emergingsolar-based kiln-drying systems. The ambienthumidity in ENB is constantly high and newapproaches that slow moisture re-absorptionfollowing kiln-drying would offer efficiency andcost savings.

Secondary manufacture and product development

Any expanded use of balsa in sandwich compos-ites could include a broader range of skin materials,giving rise to the challenge of delamination—theloss of adhesion between the composite skin and thebalsa. This is a significant problem (for example)where design specifications for a wind-turbine bladecould require a service life of 25 years. A clearerunderstanding of the parameters or variables thatunderlie delamination of balsa products, particularlythose wood parameters that might affect resin curingand durability, would help to increase the range ofapplications for balsa.

2

Integrating balsa growing and processing with the community and extension services

Issues surrounding transparency, communicationand trust were the concerns most commonly raisedduring interviews with growers and processors. Asthe nature of ownership of the plantation resourcehas changed since 2002 from predominantly small-holders to groups of small landowners poolingresources to develop plantations, the needs forcommunication have changed. In the absence of animpartial forum for discussion among growers andbetween growers and processors, much balsa-related technical information and market intelli-gence is based upon gossip and subject to misinter-pretation. There is a need for a forum where good-quality information on markets, silviculture andprices can be shared and grievances regardingstumpages, measurement and wastage aired.

There is a role for an active and impartial refereewho could sympathetically mediate in disagreementsbetween landholders, growers and processors.

Options for the most appropriate avenue to offersuch support to a balsa group, perhaps under theauspices of the PNG Growers’ Association, need tobe explored. Such a group could offer newsletters,brochures and manuals, coordinate regular meetingsand ensure extension services and technical supportare available. Among the extension servicesrequired are deployment of improved germplasmand provision of technical information on growingbalsa and on markets.

Social and environmental issues

Although time and resources limited this study, anumber of cross-cutting issues were identified thatrequire further examination. Included among theseare issues of gender and decision-making in thebalsa business, and women in the context of a matri-lineal society and use of land to grow balsa.

The assessment of the profitability of balsa-growing identified some important areas that wouldbenefit from further research and lead to improve-ments in productivity and performance of the balsaindustry in ENB. These include:• the potential for expansion of balsa production in

ENB in the context of cocoa pod borer and thewithdrawal of land from cocoa production—whatgrowers’ land-use intentions are; what the

8

limiting factors to balsa expansion are—adequatelabour supply, access to suitable land withworkable tenure and within economic reach ofprocessors, the pattern of international marketdemand for balsa and PNG’s internationalcompetitiveness11

• household labour-management strategies forsmallholder balsa production

• harnessing the potential role of grower groups inthe supply of balsa resources and strengtheninggrower-group capacity through improvements ingovernance, technology transfer, informationdissemination, financial services, maintenance ofquality standards and other market requirements,and contract negotiation

• assessment of management options for differentbalsa production systems in the context of risinglabour costs and higher prices for other keyinputs, including electricity—for example, theprospect of a more capital-intensive balsaindustry in ENB.The option to grow balsa profitably has offered

prospects to those with interests in small plantationsand who have been burdened with mortgage debtfrom plantation purchase schemes. The magnitudeof this as a motivating factor in establishing balsaplantations was substantial but unclear and deservesstudy.

Further research might begin with a majorbaseline survey of the balsa industry in ENBcovering all grower and processing systems andrelations between growers and processors. Themethod of analysis used in this current assessment ofprofitability was unable to simultaneously evaluatethe potential of competing and complementary landuses. Further research would benefit from the use offarm models incorporating alternative land-useoptions and subject to resource constraints that aretypical for the different land-use systems. This typeof analysis would provide a strong base for estab-lishing growth prospects of the balsa industry inENB.

No clear impacts on the environment were noted.

I1 1n the course of this study, financial data were obtainedfor balsa production in Ecuador and Peru that could beused in further analysis of the internationalcompetitiveness of PNG balsa.

3

Governance and standards relating to balsa

The nature of the balsa industry has changed overrecent years. The appropriateness of existingforestry legislation and regulations for a relativelysmall and distinct industry (US$4.5 millioncompared to PNG’s larger log export sector ofUS$170 million) based upon an exotic plantationtree repeatedly cropped on 5-year cycles needs to betransparently examined. The capacity of PNGFA tooffer a full suite of extension services is limited andappropriate technical skills within the organisationappear to have been eroded. An analysis of govern-ance issues surrounding the balsa industry wouldinclude:• changes to, or exemptions from, the forestry

legislation that might be appropriate to facilitateimproved market flexibility for the balsa industry,maintain competiveness and reduce costs ofregulation

• the role for government in the balsa industry andan impartial examination of where and how it canadd value

8

• the logical role for the agriculture sector in thebalsa industry and the most appropriate avenuefor R&D support in ENB

• a review of the balsa industry’s draft ‘Code ofpractice’ before considering certification.

Marketing

If PNG is to maintain and expand its niche in globalbalsa markets, it will need a system of marketingsupport that will help identify new markets andemerging applications for balsa and capitalise onPNG’s reputation for reliability, product quality andresponsiveness. A system of market support wouldclarify issues surrounding world demand and helpdefine the potential size of the PNG global share. Suchinformation could usefully lead to the identification ofthe capacity of ENB to provide balsa and of limitationsto expansion, and help address the challenge ofsynchronising production of balsa wood withprocessing capacity and market demands. A system ofmarket support would be linked with studies leading tocertification of the ENB balsa resource.

4

References

ABC Radio Australia 2009. PNG Chamber of Commercesays wage rise could cost thousands of jobs. 10 February.At <http://www.radioaustralia.net.au/pacbeat/stories/200902/s2487626.htm>, accessed 3 September 2009.

Adams M.J. 2007. Improving utilisation efficiency andattracting investment in the wood industries in thePacific region. Strategy and policy options for PapuaNew Guinea. ITTO Pre-project PPD 58/02 Rev.2 (1)International Tropical Timber Organization: Yokohamaand Secretariat of the Pacific Community: Noumea.

Alcan Baltek 2009. Alcan Baltek [website]. At <http://www.baltek.com/alcan/acsites.nsf/pages_accm2_en/index.htm!Open&p=prod_balsa&m=4&type=.htm>, accessed 2 April 2010.

Alibaba Group 2009. Balsa wood product details. At <http://www.alibaba.com/showroom/Balsa_Wood. html>, accessed 1 May 2009.

Alley-Crosby M.L. 2009. Bats, balsa and people. At <http://www.batplants.co.uk/balsa.htm>, accessed 2 April 2010.

Anon. 1961. Ochroma lagopus Swartz: silviculturalcharacters and plantation methods. Bois et Forets desTropiques 80, 27–32.

Anon. 2000. Draft balsa industry code of conduct andpractice, 1st edition. Papua New Guinea Forest Service,National Forest Service: Hohola.

Anon. 2001. La forestacion en el Ecuador. At <http://www.biblioteca.org.ar/libros/88774.pdf>, accessed13 April 2010.

Anon. 2009a. Ochroma pyramidale Swartz. At <http://www.cds.ed.cr/teachers/harmon/page21.html>,accessed 2 April 2010.

Anon. 2009b. Teak farms in Ecuador. At <http://www.freewebs.com/teakfarms/balsatrees.htm>,accessed 2 April 2010.

AusAID (Australian Agency for International Aid) 2006.Pacific 2020: challenges and opportunities for growth.AusAID: Canberra. At <http://www.ausaid.gov.au/hottopics/topic.cfm?ID=4696_2977_1016_710_2650>,accessed 2 April 2010.

AusAID 2007. Papua New Guinea: At <http://www.ausaid.gov.au/country/papua.cfm>, accessed9 September 2009.

Austrade 2009. Ecuadorean balsa wood assessment.Confidential market research report. AustralianConsulate: Lima, Peru. 14 pp.

8

Baynes J. 2002. The silviculture of balsa wood productionin Papua New Guinea. Extension Article 2: PLNT3013Tropical Forest Silviculture. Gympie Training Centre:Gympie, Queensland. 28 pp.

Black S. 2003. Getting to the core of composite laminates.Composites Technology, October 2003. At <http://www.compositesworld.com/articles/getting-to-the-core-of-composite-laminates.aspx>, accessed 2 April 2010.

Bonet X., Coello J. and Andrade H. 2009. Balsa: earth, sunand water. General aspects about balsa wood as corematerial for sandwich construction. Balsaeurop EcuatoEspanola SL, Polígono Industrial de Melianta:Fontcoberta, Spain, 123 pp. (In English and Spanish) At<http://www.balseurop.com/balsa.pdf>, accessed 2 April2010.

Bourke R.M. and Harwood T. (eds) 2009. Food andagriculture in Papua New Guinea. ANU E Press, TheAustralian National University: Canberra. At <http://epress.anu.edu.au/food_agriculture_citation.html>,accessed 2 April 2010.

CABI 2000 and 2005. Forestry compendium (globalmodule). CD-ROM. CAB International: Wallingford,United Kingdom.

CIA (Central Intelligence Agency) 2009. The worldfactbook. Ecuador. At <https://www.cia.gov/library/publications/the-world-factbook/geos/EC.html>,accessed 2 April 2010.

CIRAD 2003. Balsa. In: Tropix 5.0. CIRAD: Paris. At<http://www.cirad.fr/en/index.php>, accessed 1 May2009.

Curry G.N., Koczberski G., Omuru E. and Nailina R.S.2007. Farming or foraging: household labour andlivelihood strategies amongst smallholder cocoagrowers in Papua New Guinea. Black Swan Press,Curtin University of Technology: Perth.

DIAB 2010. DIAB global web portal. At <http://www.diabgroup.com>, accessed 2 April 2010.

Dickson R., Bill J., Johnstone D., Austin S. and Ribton-Turner, F. 2006. Pre-processing prediction of woodquality in peeler logs grown in northern New SouthWales. Australian Forestry 68, 186–191.

Doran J.C. 2009. Development of a balsa improvement andgermplasm supply plan for PNG balsa. Consultant’sreport to the Facilitating Agricultural Commodity Trade(FACT) Project. Secretariat of the Pacific Community(SPC): Noumea. 39 pp.

5

Eddowes P.J. 2005. Balsawood. In: Solomon IslandsTimber. Solomon Islands Forestry Management Project:Honiara, Solomon Islands. At <http://www.solomon-timbers.com.sb/altHome/brochures/Balsawood.pdf>,accessed 2 April 2010.

FAO (Food and Agriculture Organization of the UnitedNations) 2006. Andean countries: a strategy for forestry.Case studies: Vol. III of V: Ecuador. 06/028 CP-LAC2006. FAO/World Bank Cooperative Programme, LatinAmerica and the Caribbean Service, Investment CentreDivision: Rome, 49 pp.

Fletcher M.I. 1949. Balsa industry in Ecuador. EconomicGeography 25, 47–54.

Fletcher M.I. 1951. Balsa—production and utilization.Economic Botany 5, 107–125.

Francis J.K. 1991. Ochroma pyramidale Cav. Balsa.Species Monograph SO-ITF-SM-41. Institute ofTropical Forestry. United States Department ofAgriculture (USDA) Forest Service: Washington DC.6 pp.

Funding Universe 2000. Baltek Corporation. At <http://www.fundinguniverse.com/company-histories/Baltek-Corporation-Company-History.html>, accessed 2 April2010.

Gillett H. and Ferriss S. (eds) 2005. Strategies for thesustainable use and management of timber tree speciessubject to international trade: Mesoamerica. Ochromalagopus. United Nations Environment Programme(UNEP) World Conservation Monitoring Centre:Cambridge. 33 pp.

Goetzl A. and Ekström H.C. 2007. Report on the review of theUS market for tropical timber products. InternationalTropical Timber Organization. Fortieth session, 7–12 May2007: Port Moresby, Papua New Guinea.

Gumoi Modowa 2005. Papua New Guinea’s labour marketand labour force. ACIAR Project No. ASEM/2004/011.Project Paper No. 1. Australian Centre for InternationalAgricultural Research: Canberra.

Hanson L.W., Allen B.J., Bourke R.M. and McCarthy T.J.2001. Papua New Guinea rural development handbook.The Australian National University: Canberra.

Howcroft N.H.S. 2000. Brief on the ENB balsa industry.ITTO Balsa Industry Strengthening Project Phase 2.International Tropical Timber Organization: Rabaul.

Howcroft N.H.S. c. 2001. The balsa industry in Papua NewGuinea: its present development and future prospects inthe New Guinea islands. Unpublished paper. Inter-national Tropical Timber Organization: Rabaul.

Howcroft N.H.S. 2002. The balsa manual: techniques forestablishment and the management of balsa (Ochromalagopus) plantations in Papua New Guinea. ITTO EastNew Britain Balsa Industry Strengthening Project PD 7/99Rev.2(F) International Tropical Timber Organization / PNG National Forest Service: Keravat, Papua NewGuinea.

8

Howcroft N.H.S. 2003. ITTO—East New Britain BalsaIndustry Strengthening Project—Phase II. ProgressReport 7. ITTO Project PD 7/99 Rev. 2 (F). InternationalTropical Timber Organization: Rabaul.

Howcroft N.H.S. 2009. A brief updated history of balsa treeimprovement to February 2008 in Papua New Guinea.Unpublished report. Secretariat of the PacificCommunity (SPC) Facilitating Agricultural CommodityTrade (FACT) Project: Suva.

Howcroft N.H.S. and Ohana J. 2001. The balsa industry: itsdevelopment and progress in the New Guinea islandsand future prospects for further development in PapuaNew Guinea. Unpublished paper. International TropicalTimber Organization: Rabaul.

Hunt C. 2006. Forest futures for PNG. An economicassessment of present and alternative arrangements forthe management of PNG forests. A report for theEcoforestry Forum of Papua New Guinea: Boroko.

Imbun B.Y. 2006. Local labourers in Papua New Guineamining: attracted or compelled to work. TheContemporary Pacific 18(2), 315–333.

ITTO (International Tropical Timber Organization) 2005a.Status of tropical forest management 2005—Papua NewGuinea. At <http://www.itto.int/en/sfm/> (then selectPNG), accessed 1 August 2009.

ITTO 2005b. Status of tropical forest management 2005—Ecuador. At <http://www.itto.int/en/sfm > (then selectEcuador), accessed 1 August 2009.

ITTO 2007a. Tropical Timber Market Report 12(9), May2007. ITTO Market Information Service: Yokohama.

ITTO 2007b. Achieving the ITTO Objective 2000 andsustainable forest management in Papua New Guinea.Report submitted to the International Tropical TimberCouncil by the Diagnostic Mission. ITTO: Yokohama.

ITTO 2009. Tropical Timber Market Report 14(15),August 2009. ITTO Market Information Service:Yokohama.

Kanowski P., Holzknecht H. and McGregor A. 2008.Value-adding to Papua New Guinea agroforestrysystems through incorporation of high-value treespecies. ACIAR Project No. FST/2005/050 Scopingstudy report. Australian Centre for InternationalAgricultural Research: Canberra.

Kavanamur D. 2001. The interplay between politics andbusiness in Papua New Guinea. State, Society andGovernance in Melanesia Project, Working Paper 01/06.University of Western Sydney, School of Managementand Marketing: Blacktown.

Kendeman S. 2009. Proposed wage rate doubled. TheNational, online version, 2 February 2009 (no longeravailable online).

Lucintel 2009. Future material needs for the global windenergy market 2008–2013. Research and Markets:Dublin. At <http://www.researchandmarkets.com/reports/696339/>, accessed 2 April 2010.

6

McAlpine J.R., Keig G. and Falls R. 1983. Climate ofPapua New Guinea. CSIRO and Australian NationalUniversity (ANU) Press: Canberra. 200 pp.

Malleux J. and Lanly J-P. 2008. Multipurpose forestinventory as a tool for sustainable forest management(Decision 3 (XLII)). Executive summary. Prepared forthe International Tropical Timber Organization (ITTO),42nd session, 3–8 November 2008. ITTO: Yokohama.

Mantena P.R., Cheng A.H.D. and Al-Ostaz A. 2008. Blastand impact resistant composite structures for navy ships.Composite Structures and Nano-Engineering,University of Mississippi: Oxford. At <http://www.serri.org/publications/Documents/> (then searchfor title), accessed 2 April 2010.

Matbob P. 2009. Business: mixed reactions to wageincreases. Relief to unskilled workers, but employers?Islands Business. Islands Business International: Suva,Fiji. At <http://www.islandsbusiness.com/islands_business/index_dynamic/containerNameToReplace=MiddleMiddle/focusModuleID=18595/overide-SkinName=issueArticle-full.tpl>, accessed 3 September2009.

Metlak Development Corporation 2004. Metlak balsaproduction and processing. Rapid rural appraisal report.Nucleus-Agro-Enterprise Project. Metlak DevelopmentCorporation: New Ireland. At <http://www.agro.org.pg/Metlak%20Balsa%20RRA%20Report%20(FO-01).pdf>, accessed 29 March 2009.

Meyer J.-Y. and Malet J.-P. 2000. Forestry andagroforestry alien trees as invasive plants in the Pacificislands. FAO workshop—data collection for the Pacificregion. Forest Resources Assessment Working Paper051. Food and Agriculture Organization of the UnitedNations: Rome. At <http://www.fao.org/docrep/006/ad672e/ad672e03.htm>.

Newlin A. 2000. The effects of economic growth on genderroles in Papua New Guinea and the Tolai people. At<http://www.calibercreations.com/pisin/PNGstudy.htm>, accessed 14 August 2009.

Nordex 2009. CEO Nordex China: ‘The feed-in rate is animpetus for growth and a key driver for meeting nationaltargets’. Press release, 6 August 2009. Nordex SE:Norderstedt, Germany. At <http://www.nordex-online.com/index.php?id=53&L=2&tx_ttnews[tt_news]=2024&tx_ttnews[backPid]=45&cHash=a8e0d71bda>, accessed 2 April 2010.

ODI (Overseas Development Institute) 2007. Issues andopportunities for the forest sector in Papua New Guinea.Papua New Guinea Forest Studies 3. ODI: London.

Pastor P.R. 2004. Le Balsa. World Bank SICA Project.Ministry of Agriculture and Livestock, Ecuador. At<http://www.sica.gov.ec/agronegocios/BibliotecaIng%20Rizzo/forestacion/la_balsa.htm>, accessed 2 April2010.

8

PNGFA (Papua New Guinea Forest Authority) 2002.National forest policy review. Country report presented atthe 19th Session of the Asia–Pacic Forestry Commission,Ulaanbaatar, Mongolia, 28–30 August 2002.

PNGFA 2005. Plantations. At <http://www.forestry.gov.pg/site/page.php?id=13>, accessed 1 August 2009.

PNGFA 2009. Papua New Guinea forestry outlook study.Asia–Pacific Forestry Sector Outlook Study II. WorkingPaper No. AFPSOS II/2009/19. FAO Regional Officefor Asia and the Pacific: Bangkok. At <http://www.fao.org/world/regional/rap/APFSOS/2009-19PNG.pdf>, accessed 17 August 2009.

PolymerOhio 2009. Wind energy in Ohio. PolymerOhioInc.: Westerville. At <http://www.polymerohio.org/index.php?option=com_content&view=article&id=50:wind-energy-in-ohio&catid=1:latest-news&Itemid=61>,accessed 2 April 2010.

Revel G. 1993. Do you really know balsa? A visit to thesource of this remarkable wood. Model Airplane News,ISSN 0026-7295.

Sandu S. 2009. Establishment of small-scale balsa(Ochroma sp.) plantations. ForLive: Freiburg. At <http://www.waldbau.uni-freiburg.de/forlive/04_Cases/Ecuador/Ecuador_Balsa.html>, accessed 2 April 2010.

SmartWood 2007. Forest management controlled woodassessment report for Open Bay Timber Ltd in Rabaul,East New Britain, Papua New Guinea. At <http://www.rainforest-alliance.org/forestry/documents/openbaytimberpubsum07.pdf>, accessed 12 August2009.

Smorfitt D., Harrison S. and Herbohn J. 2004. Portablesawmills: the current and potential future role in thetimber supply chain. Pp. 49–64 in ‘Marketing of farm-grown timber in tropical north Queensland’, ed. by J.Suh, D. Smorfitt S.R. Harrison and J.L. Herbohn.Conference Proceedings, 18 June 2003, University ofQueensland, Brisbane. Cooperative Research Centre forTropical Rainforest Ecology: Cairns. At < http://www.jcu.edu.au/rainforest/publications/marketing_timber.pdf>, accessed 2 April 2010.

Sorathia U. and Perez I. 2005. Navy R&D programs forimproving the fire safety of composite materials.Pp. 185–198 in ‘Fire and polymers IV. Materials andconcepts for hazard prevention’, ed. by C.A. Wilkie andG.L. Nelson. American Chemical Society: WashingtonDC.

SPC (Secretariat of the Pacific Community) 2008. The2008 pocket statistical summary. Statistics andDemography Programme, SPC: Noumea. At: <http://www.spc.int/sdp> (then select Downloads, then PacificData), accessed 2 April 2010.

Sun Xiaohua 2009. Getting wind of the future’s energyneeds. China Daily, 4 May 2009. At <http://www.china-daily.com.cn/bizchina/2009-05/04/content_7740745.htm>, accessed 2 April 2010.

7

The Economist 2009. Becalmed: wind power in America.The Economist (New York), 1 August 2009.

The Independent State of Papua New Guinea 1991.National forest policy. Ministry of Forestry: Hohola.

UNCTAD (United Nations Conference on Trade andDevelopment) 2001. Investment policy review:Ecuador. United Nations: Geneva.

UNESCAP (United Nations Economic and SocialCommission for Asia and the Pacific) 2008. Economicand social survey of Asia and the Pacific 2008.Sustaining growth and sharing prosperity. UNESCAP:Bangkok. At <http://www.unescap.org/survey2008/>,accessed 9 September 2009.

USDA (United States Department of Agriculture) undated.Ochroma pyramidale syn. O. lagopus. Wood TechnicalFact Sheet. Forest Products Laboratory: MadisonWisconsin. 2 pp.

8

Varmola M. (ed.) 2002. Hardwood programmes in Fiji,Solomon Islands and Papua New Guinea. ForestPlantations Working Paper FP/21. Food and AgricultureOrganization of the United Nations: Rome. At <http://www.fao.org/docrep/005/y7207e/y7207e00.htm#Contents>, accessed 17 August 2009.

Vázquez E. 2005. La industria forestal del Ecuador. TheAssociation of Forest Engineers of Pichincha CIFOP:Quito, Ecuador. At <http://www.cifopecuador.org/?id_seccion=128&id_modulo=19>, accessed 2 April2010.

Whitmore J.L. 1968. Density variation in the wood of CostaRican balsa. MSc thesis, University of Michigan: AnnArbor. 79 pp.

Wiselius S.I. 1998. Ochroma Sw. Pp. 414–416 in ‘Plantresources of South East Asia No. 5(3). Timber trees:lesser-known timbers’, ed. by M.S.M. Sosef, L.T. Hongand S. Prawirohatmodjo. Backhuys Publishers: Leiden,Netherlands.

8

Appendixes

8
9

The PNG Balsa Company

Balsa log preparation and grading

PreparationTrees will be felled in a workmanlike manner to avoid felling damageTrees must be cut within 30 cm of the groundCrosscutting will be at right angles to the stem both horizontally and verticallyLogs must be fresh cut and debarked with no blue stain or insect attack

1. Standard length

The standard length of billets is 1.8 m, however a few pieces can be accepted in 10 cm decrementsdown to a minimum of 1.3 m. Measurement is recorded to the closest lower 10 cm multiples.

2. Diameter

The minimum diameter is 17 cm under bark and there is no maximum diameter. Measurement is tothe closest lower centimetre.

3. Bends and sweep

Small logs up to 30 cm diameter—maximum deviation from central axis 20 mm Logs 30–40 cm diameter—maximum deviation from the central axis 40 mm Logs above 40 cm diameter—maximum of 60 mm deviation acceptable

4. Red heart and heart rot

Logs from 17 to 30 cm allow maximum of 40 mm diameter of red heart Logs from 31 to 40 cm allow maximum of 100 mm diameter of red heart Logs greater than 40 cm must have 150 mm of usable white wood

5. Branches and knots

Logs 20–30 cm diam.Two branches or sound knots allowed up to 30 mm diameterLogs 31–40 cm diam.Allow two branches or sound knots up to 50 mm diameterLogs 41cm and greater diam.Allow two branches or sound knots up to 100 mm diameterBranches must be cut off cleanly, level with the surface of the log Knots and branches with internal defect are not allowed

6. Blue stain

No blue stain to be allowed

7. Dead and dry wood

Wood in dead trees allowable if recently dead with no blue stain or insect attack

8. Heavy wood

Heavy wood not allowed

Appendix 1: Papua New Guinea balsa log grading rules

91

Appendix 2: United States of America balsa imports

Global and ex-Ecuador, 1999–2008 (Source: US Trade Statistics, United States Department of Agriculture (USDA) Foreign Agricultural Service (FAS))

93

Sour

ceH

TS

No.

Des

crip

tion

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Glo

bal

4407

2400

5 (m

3 )

Bal

sa w

ood

saw

n or

chi

pped

le

ngth

wis

e, s

liced

or

peel

ed, w

heth

er

or n

ot p

lane

d, s

ande

d or

fing

er-j

oint

ed,

of a

thic

knes

s ov

er 6

mm

, rou

gh

227

468

167

417

392

311

512

240

0

Glo

bal

4407

2400

6 (m

3 )

Bal

sa w

ood,

saw

n/ch

ippe

d le

ngth

wis

e,

grea

ter

6 m

m th

ick

00

00

00

035

,196

00

Glo

bal

4407

2401

0 (m

3 )

Bal

sa w

ood

saw

n or

chi

pped

le

ngth

wis

e, s

liced

or

peel

ed, w

heth

er

or n

ot p

lane

d, s

ande

d or

fing

er-j

oint

ed,

of a

thic

knes

s ex

ceed

ing

6 m

m,

NE

SOIa

13,4

9511

,080

8,88

18,

306

13,8

7277

,870

65,3

8535

,736

00

Glo

bal

4407

2200

06

(m3 )

H

W lu

mbe

r ba

lsa

No.

cub

ic m

etre

s ba

lsa

woo

d, s

awn

or c

hipp

ed

leng

thw

ise,

slic

ed o

r pe

eled

, whe

ther

or

not

pla

ned,

san

ded

or e

nd-j

oint

ed,

of a

thic

knes

s ex

ceed

ing

6 m

m

00

00

00

00

71,7

9878

,545

Glo

bal

Tot

al B

alsa

(m

3 )

13,7

2211

,548

9,04

88,

723

14,2

6478

,181

65,8

9770

,956

71,7

9878

,545

Glo

bal

4407

2400

5 (U

S$ ’

000)

B

alsa

woo

d sa

wn

or c

hipp

ed

leng

thw

ise,

slic

ed o

r pe

eled

, whe

ther

or

not

pla

ned,

san

ded

or fi

nger

-joi

nted

, of

a th

ickn

ess

over

6 m

m, r

ough

139

9437

298

191

140

211

160

0

Glo

bal

4407

2400

6 (U

S$ ’

000)

B

alsa

woo

d, s

awn/

chip

ped

leng

thw

ise,

gr

eate

r th

an 6

mm

thic

k0

00

00

00

13,9

860

0

Glo

bal

4407

2401

0 (U

S$ ’

000)

B

alsa

woo

d sa

wn

or c

hipp

ed

leng

thw

ise,

slic

ed o

r pe

eled

, whe

ther

or

not

pla

ned,

san

ded

or fi

nger

-joi

nted

, of

a th

ickn

ess

exce

edin

g 6

mm

, N

ESO

I a

3,92

43,

049

2,39

92,

095

4,34

425

,638

23,5

8313

,942

00

Glo

bal

4407

2200

06

(US$

’00

0)

HW

lum

ber

bals

a N

o. c

ubic

met

res

bals

a w

ood,

saw

n or

chi

pped

le

ngth

wis

e, s

liced

or

peel

ed, w

heth

er

or n

ot p

lane

d, s

ande

d or

end

-joi

nted

, of

a th

ickn

ess

exce

edin

g 6

mm

00

00

00

00

30,9

9036

,358

Glo

bal

Tot

al b

alsa

(U

S$ ’

000)

4,06

33,

143

2,43

62,

393

4,53

525

,778

23,7

9427

,944

30,9

9036

,358

Ave

rage

glo

bal p

rice

(U

S$/m

3 )29

627

226

927

431

833

036

139

443

246

3

94

Ecu

ador

4407

2400

5 (m

3 )

Bal

sa w

ood

saw

n or

chi

pped

le

ngth

wis

e, s

liced

or

peel

ed, w

heth

er

or n

ot p

lane

d, s

ande

d or

fing

er-j

oint

ed,

of a

thic

knes

s ov

er 6

mm

, rou

gh

112

5714

712

818

429

324

924

00

Ecu

ador

4407

2400

6 (m

3 )

Bal

sa w

ood,

saw

n/ch

ippe

d le

ngth

wis

e,

grea

ter

than

6 m

m th

ick

00

00

00

035

,007

00

Ecu

ador

4407

2401

0 (m

3 )

Bal

sa w

ood

saw

n or

chi

pped

le

ngth

wis

e, s

liced

or

peel

ed, w

heth

er

or n

ot p

lane

d, s

ande

d or

fing

er-j

oint

ed,

of a

thic

knes

s ex

ceed

ing

6 m

m,

NE

SOI a

13,1

339,

870

7,87

27,

797

13,2

9777

,350

64,9

6333

,799

00

Ecu

ador

4407

2200

06

(m3 )

H

W lu

mbe

r ba

lsa

No.

cub

ic m

etre

s ba

lsa

woo

d, s

awn

or c

hipp

ed

leng

thw

ise,

slic

ed o

r pe

eled

, whe

ther

or

not

pla

ned,

san

ded

or e

nd-j

oint

ed,

of a

thic

knes

s ex

ceed

ing

6 m

m

00

00

00

00

71,0

3873

,611

Ecu

ador

Tot

al b

alsa

(m

3 )

13,2

459,

927

8,01

97,

925

13,4

8177

,643

65,2

1268

,830

71,0

3873

,611

Ecu

ador

4407

2400

5 (U

S$ ’

000)

B

alsa

woo

d sa

wn

or c

hipp

ed

leng

thw

ise,

slic

ed o

r pe

eled

, whe

ther

or

not

pla

ned,

san

ded

or fi

nger

-joi

nted

, of

a th

ickn

ess

over

6 m

m, r

ough

3748

2352

5613

393

160

0

Ecu

ador

4407

2400

6 (U

S$ ’

000)

B

alsa

woo

d, s

awn/

chip

ped

leng

thw

ise,

gr

eate

r th

an 6

mm

thic

k0

00

00

00

13,8

940

0

Ecu

ador

4407

2401

0 (U

S$ ’

000)

B

alsa

woo

d sa

wn

or c

hipp

ed le

ngth

wis

e,

slic

ed o

r pee

led,

whe

ther

or n

ot p

lane

d,

sand

ed o

r fin

ger-

join

ted,

of a

thic

knes

s ex

ceed

ing

6 m

m, N

ESO

I a

3,78

82,

785

2,15

41,

871

4,03

825

,380

23,5

0513

,607

00

Ecu

ador

4407

2200

06

(US$

’00

0)

HW

lum

ber

bals

a N

o. c

ubic

met

res

bals

a w

ood,

saw

n or

chi

pped

le

ngth

wis

e, s

liced

or

peel

ed, w

heth

er

or n

ot p

lane

d, s

ande

d or

end

-joi

nted

, of

a th

ickn

ess

exce

edin

g 6

mm

00

00

00

00

30,5

3434

,964

Ecu

ador

Tot

al b

alsa

(U

S$ ’

000)

3,82

52,

833

2,17

71,

923

4,09

425

,513

23,5

9827

,517

30,5

3434

,964

Ave

rage

Ecu

ador

pri

ce (

US$

/m3 )

289

285

271

243

304

329

362

400

430

475

Sour

ceH

TS

No.

Des

crip

tion

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

95

CIF

b ex

E

cuad

or44

0724

005

(US$

’00

0)

Bal

sa w

ood

saw

n or

chi

pped

le

ngth

wis

e, s

liced

or

peel

ed, w

heth

er

or n

ot p

lane

d, s

ande

d or

fing

er-j

oint

ed,

of a

thic

knes

s ov

er 6

mm

, rou

gh

3748

2352

5613

393

160

0

CIF

b ex

E

cuad

or44

0724

006

(US$

’00

0)

Bal

sa w

ood,

saw

n/ch

ippe

d le

ngth

wis

e,

grea

ter

than

6 m

m th

ick

00

00

00

013

,894

00

CIF

b ex

E

cuad

or44

0724

010

(US$

’00

0)

Bal

sa w

ood

saw

n or

chi

pped

le

ngth

wis

e, s

liced

or

peel

ed, w

heth

er

or n

ot p

lane

d, s

ande

d or

fing

er-j

oint

ed,

of a

thic

knes

s ex

ceed

ing

6 m

m,

NE

SOI a

4,20

43,

132

2,41

92,

091

4,35

728

,012

25,8

7514

,647

00

CIF

b ex

E

cuad

or44

0722

0006

(U

S$ ’

000)

H

W lu

mbe

r ba

lsa

No.

cub

ic m

etre

s ba

lsa

woo

d, s

awn

or c

hipp

ed

leng

thw

ise,

slic

ed o

r pe

eled

, whe

ther

or

not

pla

ned,

san

ded

or e

nd-j

oint

ed,

of a

thic

knes

s ex

ceed

ing

6 m

m

00

00

00

00

31,8

8137

,412

CIF

b ex

E

cuad

orT

otal

bal

sa (

US$

’00

0)4,

241

3,18

02,

442

2,14

34,

413

28,1

4525

,968

28,5

5731

,881

37,4

12

Impl

ied

insu

ranc

e an

d fr

eigh

t cos

ts

(CIF

min

us im

port

val

ue)

416

347

265

220

319

2,63

22,

370

1,04

01,

347

2,44

8

No.

of

cont

aine

rs (

assu

min

g 28

m3

= 1

cont

aine

r)47

335

528

628

348

12,

773

2,32

92,

458

2,53

72,

629

Impl

ied

cost

per

con

tain

er s

hipm

ent

Ecu

ador

– U

SA

879

979

925

777

663

949

1,01

842

353

193

1

aN

ESO

I =

Not

els

ewhe

re s

peci

fied

or

incl

uded

bC

IF =

cos

t ins

uran

ce f

reig

htH

W =

har

dwoo

dH

TS

= ‘H

arm

oniz

ed S

yste

m C

odes

’ of

the

Wor

ld C

usto

ms

Org

aniz

atio

n fo

r im

port

s

Sour

ceH

TS

No.

Des

crip

tion

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

96

Appendix 3: Balsa purchasing agreement form

97

Appendix 4: Balsa log tally sheet

98