EXPORT OF TIMBER TO CHINA IS ON THE RISE AGAIN They are pushing local players out of the competition

According to the data from the Indirect Taxation Authority of Bosnia and Herzegovina (ITA BiH), the value of timber exported to China in the first five months of this year was BAM 18,070,070.11. In the same period last year, the export value was half that amount at BAM 9,070,371.86. Timber worth BAM 22,640,348.43 was exported from Bosnia and Herzegovina to China during 2023, which is less compared to the previous year when the figure was BAM 28,467,110.87.

The BiH Indirect Taxation Authority reported that there were 30 timber exporters from Bosnia and Herzegovina to China in 2023, while in the first six months of this year, the number increased to 43.

Nina Kreševljaković from the Aarhaus Center of Bosnia and Herzegovina says that investors from China pay significantly more for logs in Bosnia and Herzegovina compared to local prices. She states that most of these exports consist of unprocessed wood, with oak logs being in particular demand.

 “Receivers, often called dealers – people who work for the Chinese, play a key role in this business. They get a power of attorney from the owners of private forests in BiH and buy logs at prices significantly higher than local prices, using subsidies offered by the Chinese government. This practice leads to increased illegal timber harvesting, as numerous individuals try to take advantage of the high demand, often with insufficient oversight by the state”, said Kreševljaković for InfoRadar.

She believes that the current situation indicates significant challenges for the domestic wood industry in BiH, which is facing a loss of raw materials due to high exports and the competitive advantages of Chinese investors.

“The prices that the Chinese pay for oak vary from BAM 600 to 900 per cubic meter in private forests, which is far above the average prices charged by local forestry services, around BAM 230 per cubic meter. Local wood processors have expressed concern because Chinese buyers, due to the subsidies they receive from their government, can offer significantly higher down payments, thereby pushing local players out of the competition. This situation leaves domestic companies without the necessary raw materials for their operations”, said Kreševljaković.

According to data from the Aarhaus Center of BiH, in the last couple of years, Chinese companies have bought at least three sawmills in the areas of Brčko and Pelagićevo.

“These sawmills are actively involved in the processing and export of lumber, particularly logs, directly to China. Chinese have decided to process wood locally to circumvent issues related to importing low-quality timber. Two of these sawmills are situated near Brčko and Pelagićevo. Notably, at the entrance to Pelagićevo stands a sawmill formerly owned by the Yursik company, which is now owned by Chinese investors. This sawmill is specifically identified as a Chinese company that purchases and processes wood for export to China”, explained Kreševljaković.

However, the location of the former Yursik company, bought by Chinese investors, has been vacant for a year and a half. Mayor of Pelagićevo, Slavko Tešić, confirmed this to InfoRadar.

Several residents of Pelagićevo with whom we talked said the same.

“We are a small community, everything is known. Chinese have bought that company, but there is no one there…”, said the residents.

The competent authorities do not know much about Chinese investments and their purchase of sawmills on the territory of Brčko District.

“There were no sales of sawlogs to legal entities from forests owned by the district. We do not have information about changes in the ownership of companies registered for wood processing, said Ljiljana Zenunović”, head of the sub-department for forestry and water management of the Government of Brčko District of BiH.

In response to our inquiries, this institution indicated that there has been no increase in illegal forest logging recently. They also stated they lack data on market prices for sawlog. They emphasize that it’s a matter of direct negotiations between sellers (individuals) and buyers.

Situation is not too much different in the Chamber of Commerce of the Republika Srpska.

“Everything I know is based on rumors and some unofficial conversations”, said Igor Andrić, secretary of the Forestry and Wood Processing Association of the Chamber of Commerce of the Republika Srpska.

Darko Partalo, president of the Association of Wood Processors of Republika Srpska and owner of Drvoprodex company, has been warning about the unfavorable position of wood producers in BiH for many years now. He alerted of the increasing presence of Chinese buyers who arrive with bags of cash and purchase logs at unrealistic prices.

He stresses that situation is the same today.

“They have great incentives from their state and are seriously undermining our competitiveness. The fact that they are buying our sawmills is, from a legal point of view, entirely permissible, as anyone has the right to buy a company. The real issue for us is that they drive up prices, and we don’t know how to legally combat this. We really don’t see a solution”, said Partalo for InfoRadar, warning that the wood industry is facing serious challenges.

According to data from the RS Institute of Statistics, the production of forest assortments in the Republika Srpska in the first quarter of this year increased by 36.5 percent compared to the same period last year.

“In the first quarter of this year a total of 392.605 cubic meters of various forest assortments were sold, which is 32.2 percent more than in the same period last year. Logs were the most represented”, read the report.

The Atelier Foundation for Social Change – ACT recently warned that the absence of a Law on Forests has resulted in the forestry sector being one of the most unregulated and corrupt areas.

“The lack of Law on Forests in FBiH for 15 years has led to great disorder and corruption in the forestry sector and has resulted in a situation where the forestry sector is one of the most disordered and corrupt. We appeal to the Government of FBiH to adopt the comments of the experts and to remove Article 63, which would allow the devastation of forests for the sake of private interests”, said this Foundation recently.

Aarhaus Center of BiH also called for an urgent adoption of the Law on Forests.

“We have to be cautious about the conditions under which we are doing it. The objective should not be to sell off forests for private interests. Sustainable forest management is essential, ensuring that everything taken from the forests is replenished, emphasized the Aarhaus Center. They highlighted that the issue of illegal timber harvesting in BiH has worsened in recent years. According to them, weak judicial processing and low fines exacerbate the situation, further encouraging illegal activities in forestry.”

According to Vildan Hajić, president of the Forestry and Wood Industry Group at the FBiH Chamber of Commerce, the demand for wood assortments in FBiH during the first six months of this year is very low.

“This year is unusually quiet, marking the most uncertain period in forestry and industry over the last decade. The demand during the first six months has been very poor compared to previous years. It is important to note that wood product prices have sharply increased, making this year a period of adjustment. I hope that next year will be much better”, said Hajić for InfoRadar.

Regarding the presence of the Chinese in the wood industry in FBiH, he states that it is negligible. He emphasizes that the placement of products from FBiH is primarily related to the European market and neighboring countries.

“As for the presence of the Chinese, I can say that there are no significant investments in FBiH”, said Hajić.

According to the analysis by the Foreign Trade Chamber of BiH (FTC BiH), the export value of the wood sector of BiH to the world in 2023 totaled BAM 1.6 billion, marking a 12.3 percent decrease compared to 2022. Logs are predominantly exported through the Port of Brčko.

“Logs are brought in by trucks and then transferred to containers for shipment to China. We have limited visibility into how many of these trucks specifically went to China versus other destinations. At the Port of Brčko, we charge for transshipment services. However, we do not track the contents of containers or their final destinations, so we cannot provide specific data on the revenue from exports to China this year compared to last year”, said Perica Josić, director of the Port of Brčko. He explained that clients provide the number of containers, and port workers charge for handling, such as loading and unloading from trucks to wagons or vice versa.

We tried to obtain answers from the management of “Šume Srpske” regarding whether the Chinese are still purchasing logs from private individuals in the territory of Republika Srpska and at what prices, and whether illegal timber harvesting has increased. However, we did not receive any responses!