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India is a huge timber producer and exporter, but its state-run timber processing business is suffering a financial hit because of the soaring price of timber from Brazil, the US and elsewhere, said a government report on the business.
The report released by the department of forest resources and environment (DFO) in January said it has to cut its costs to compete with BDO, the world’s biggest timber processing company.
Its estimates say it will lose between Rs 5,000 crore and Rs 5 lakh crore ($1.4-1.9 billion) this financial year, depending on the amount of timber processed.
In the past few months, prices for Brazilian lumber and other products have risen dramatically, and demand from China has surged.
This is because the Brazilian government has set a price for Brazilian timber at a record high, making it hard for other companies to compete, said the DFO.
BDO is a unit of Brazil’s state-owned timber processing conglomerate, Brasil S.A. It operates in Brazil, Argentina, Paraguay, Colombia, Ecuador, Peru, Mexico, Venezuela, Peru and Ecuador, and in Brazil it has a turnover of about $100 billion ($1 billion).
Bdo is a joint venture between Brazil’s BILP, the Brazilian Association of Loggers and Woodland Processors and the Brazil Forestry Group.
A spokesman for BDO said the company has not been made aware of any such report and would not comment on it.
“We are deeply disappointed with the findings of the report and the impact on our business,” the spokesman said.
Brazil’s government has said it will introduce a new tariff of 1 per cent on imported lumber to compensate for the increase in demand from other countries, but the government has not yet made a final decision.
Analysts said that could take a few years to reach fruition.
“The cost of buying Brazilian timber from Brazilian companies is increasing because of price hikes from China, and the result is that we are losing some of our profits to the Brazilian companies,” said Raghavendra Singh, director at Woodside Consulting, an international timber consulting firm.
He said the industry will have to take more drastic measures to make up for the loss in profits.
“The biggest challenge for the industry is to adapt to a situation where prices of Brazilian timber are high and we have to find a way to keep our losses in the forest,” he said.
“We have been asking the government for years to change the rules, but so far the government seems to be keeping its eye on China and its lumber imports.
Read more: Brazilian government says it won’t buy Brazilian timber, but does not rule out tariffs to offset cost increaseIndia is also a major buyer of Brazilian lumber, which has grown in the last decade, due to the country’s growing demand for timber products, said Rishi Chavan, senior partner at Wood Side Consulting.
India’s demand for Brazilian wood is so high that it has become a “new China” in terms of the price it is willing to pay, said Chavan.
Chavan added that Brazil’s government should take a more aggressive stance on price, and should also impose tariffs on imported Brazilian timber to offset the costs of increased demand from foreign markets.
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