chapter 4 value chain of rubber wood...

Chapter 4

VALUE CHAIN OF RUBBER WOOD INDUSTRY:VARIOUS ACTORS AND

THEIR RELATIVE SHARE

Contents

4.1 Value Chain of Rubber Wood 4.2 Role of Various Actors

4.2.1 Farmers 4.2.2. Brokers of Rubber Wood Timber 4.2.3 Traders of Rubber Wood Timber 4.2.4 Relative Share of Various actors in Rubber Wood Price

4.3 Manufacturers of Rubber Wood Products

4.3.1 Primary Processing Sector

4.3.1.1 Saw Mill and Packing Case Units 4.3.1.2 Veneer/Peeling Units 4.3.1.3 Plywood manufactures

4.3.2 SPRWP units

4.4 Wholesalers /Retailers

4.5 Exporters/importers and Foreign Retailers

4.6 Consumers

4.7 Value Chain of Rubber Wood Based Products

4.8 Relative Contribution of Various Actors in Plywood and SPRWP

Value Chain of Rubber Wood Industry: Various Actors and Their Relative Share

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VALUE CHAIN OF RUBBER WOOD INDUSTRY:

VARIOUS ACTORS AND THEIR RELATIVE SHARE

Rubber wood has become an alternative to traditional woods for

making furniture, panel boards etc. both for domestic and commercial

purposes. In Kerala, recognizing its wider application, rubber wood is

gaining more importance day by day even though its potential is not

fully explored. The major reason for this is the absence of a well

developed value chain. Having given an overview of rubber wood based

industry in India and in Kerala, it is apt to identify the various players in

the value chain of rubber wood products. Before identifying the value

chain of rubber wood products in the context of state economy, one has

to look into the value chain of rubber wood in general. Section 4.1 deals

with the same.

4.1. Value Chain of Rubber Wood

The value chain of rubber wood is developed and the various players

in the chain are located based on the field survey conducted for the present

study. It is presented in chart 4.1


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Chart 4.1 Value Chain of Rubber Wood

Source: Survey Data

Chart 4.1 shows that the various actors in the rubber wood chain

are farmers, wood traders, brokers and buyers of rubber wood. The buyers

of rubber wood are primary processing units, secondary processing units,

other industries and households which use rubber wood as firewood. The

value chain shown above is not simple and direct as there are various

brokers. At this juncture, it is essential examine the role played by various

actors so as to see their relative contribution and the efficiency of the

value chain system.


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4.2 Role of Various Actors

The role of various actors in the value chain of rubber wood is given

below.

4.2.1. Farmers

The term farmers in the study refer to the owners who have given

their trees for felling. The farmers are divided in to two groups, small

farmers (holdings) with less than 50 acres, and large farmers with estates

above 50 acres. This is in line with the classification made by Rubber

Board.

Since the yield of rubber gets exhausted by 25 to 30 years, the

farmers are compelled to replant the trees periodically. At times, in case the

price of rubber remains very high, the farmers postpone the felling of trees

to one or two years. Towards the fag end of the period it is a practice

among farmers to slaughter tap the trees. The farmers sell the trees either

before slaughter or after slaughter. Slaughter tapping may be undertaken in

three ways.

a. Farmers themselves do slaughter tapping.

b. Farmers sell the trees and allow the buyer to do the slaughter

tapping for two years.

c. Farmers sell the trees to the buyer and then the income from

slaughter tapping is shared equally by the farmer and buyer.


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In the survey it was found that 70 percent of the farmers sold the

trees before slaughter tapping, whereas 30 per cent sold after slaughter. The

average price (before slaughter and after slaughter) received by sample

farmers are shown in diagram 4.1

Diagram 4.1 Average Price Offered to Farmers (Rs. per tree)

Source: Survey Data

It is clear from diagram 4.1 that the before slaughter price is 47.96

per cent higher than the after slaughter price. The average of ‘before

slaughter price’ was found to be Rs. 725 per tree and the average of ‘after

slaughter price’ was Rs. 490. The combined average price for a tree was

Rs. 561.

The survey data pertaining to 2005-06 shows that the price received

by the farmer for a tree varied from Rs 400 to Rs. 1200 per tree depending

upon the size/weight. The average weight of a tree is estimated to be 0.75

725

490

0

100

200

300

400

500

600

700

800

1 2

before slaughter, after slaughter

Rs.

Pe

r tr

ee


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ton. While the average price of rubber wood received by the farmers comes

to Rs. 748 per ton, the average price per cubic foot comes to Rs. 41.25. The

trend in the price of rubber wood received by the farmer during various

periods is shown in table 4.1

Table 4.1 Trends in the Average Price of Rubber Wood Received by Farmers (Rs. per tree)

Year Price range Average current

price

Average constant price

(base=1993-04)

2001-02 280-580 430 241.75

2002-03 290-590 440 245.67

2003-04 300-600 450 250.83

2004-05 300-650 475 264.62

2005-06 400-1200 561 288.28

Source: Survey Data. Table 4.1 makes it clear that there is a 32 per cent increase at the

current price of rubber wood received by farmers in 2005-06 as against the

price in 1999-2000 (Rs. 425 as per the RRII data). At constant prices the

increase in the same period is 31.5 per cent. Hence both at current prices

and constant prices the average price of rubber tree has increased in the

same magnitude.

Apart from the nature of slaughtering, there are various other factors

that influence the price given by the trader to the farmer. They are the size

of the trees, ease with which the tree can be felled, the distance of the tree

from the vehicle for loading, hurdles in felling the tree, price of rubber


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wood in Perumbavoor and Kottayam markets, the price of rubber, climate

etc.

Normally when the price of rubber is high, the farmers are unwilling

to sell the trees, and then the traders have to offer a higher price for the

trees. During rainy seasons the rubber tapping becomes difficult and

farmers tend to sell the trees despite the higher expenses for felling. But

even then since the supply of rubber wood being low, the farmers get a

high price. As against this, during summer season rubber latex is less and

hence farmers sell trees. In summer the supply of rubber trees being high,

the price of rubber wood is low. It is seen that over 90 per cent of the

farmers sold the wood straight to the traders or through brokers who are the

agents of traders, and the remaining 10 per cent sold directly to the

manufacturers of rubber wood products. It is shown in diagram 4.2

10%

90%

Directly to buyers

Through Traders

Diagram 4.2 Nature of Sale of Rubber Wood by Farmers (%)

Source: Survey Data.


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One of the dominant questions that is raised in connection with

rubber wood price is whether the farmers get the ‘right price’ for their

product or whether they are exploited by traders. To estimate this, the role

of actors in the price determination process is to be analyzed first. The

analysis was conducted on the basis of the opinions of farmers regarding

the price determination process. The details of this are given in table 4.2

Table 4.2 Opinion of Farmers Regarding the Price Determination Process

Who determines the price? Percentage

Farmers 26

Traders 26

Mutual bargaining 48

Total 100


Table 4.2 makes it clear that neither of the actors is dominant in the

process of price determination. Majority of farmers have expressed that the

price is determined through mutual bargaining. It is to be noted that the

price given to the farmer essentially depends on the bargaining strength of

the farmers and the strategy adopted by the trader. A typical bargaining

strategy adopted by the traders is as follows. A trader contacts a farmer to

buy trees and he offers the farmer a price that suits him. A few days later

he would send one of his agents to approach the farmer pretending to be a

new trader. The agent would offer a price lower than what has already been

offered by the trader, and the farmer would be led to believe that the price

offered first was better. Finally the farmer would accept the first offer.


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Farmers are likely to get better prices if they manage to sell the trees

to traders from outside the locality. But, more often than not, the sales

would not take place due to the intimidation from the local traders or

threats by their hired goondas. The local workers who have formed a nexus

with the local traders would demand exorbitant wages and would even

delay the loading and transportation. As a result of these unhealthy

practices the local traders, by and large, will be able to buy the trees at

prices that are controlled by them. Eventually a kind of monopoly of local

traders is established.

In case a trader outside the locality wants to enter the fray and buy

the trees he must be equipped with adequate facilities viz. workers at his

command, tools, vehicles for transportation, JCB, political support,

muscle/money power etc.

A typical case study will be able to reinforce this point. In

Manimala (a local area in Kottayam district) the local traders offered Rs

3.5lakh for 800 trees. The farmer was pleasantly surprised when a trader

from Kolancherry offered him Rs 4.25lakh for the trees. The transaction

was smooth as the outside trader was a big player in the market who had

motorized saw, own workers, own lorry etc. It is noted that the control

of local traders disappears if outside traders with huge investment are

allowed to enter or if the large trader with huge investment is able to

develop monopsony power. In this case it is curious to note that the


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entry of large traders from outside areas relieves the farmers from the

clutches of local small traders and help them to fetch better prices. This

is contradictory to the general theory that the concentration of

investment in few hands increases customer exploitation. This

observation is valid in the context of the rural setting, namely Manimala,

and cannot be generalized for Kerala as a whole. Moreover, this may be

a temporary tactics of large outside traders to expand the area of their

operation.

The general observation gathered through the survey is that farmers

are exploited by the traders. This is substantiated by their response as

shown in diagram 4.3

60%

40%

No exploitation Exploited

Diagram 4.3 Opinion of Farmers about Traders (%)

Source: Survey Data


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Diagram 4.3 exposes that the brokers and traders exploit the farmers. While

60 per cent pointed out the exploitation, 40 per cent do not feel so.

To conclude, even when the price of rubber wood received by the

farmers has increased by 32 per cent during 2002 -06, most of the farmers

feel that they do not get the right price, which could perhaps be attributed

to the inability of farmers to play a dominant role in the price

determination process.

4.2.2. Brokers of Rubber Wood Timber

There are two types of brokers in the value chain of rubber wood.

The first type is the intermediaries who stand in between farmers and wood

traders. The traders either directly contact the farmers or send brokers to

the farmers. The brokers are given commission at rates varying according

to the nature and mode of transaction. Usually they are given a commission

of Rs 1000 per order or one to two per cent of the total value of the

purchase. The second type of brokers stand in between wood traders and

manufacturing units and they usually operate in weighbridges. These

brokers normally get a commission of Rs. 250 to 500 per load (commission

per tonne ranging from Rs. 25 to 50 or one to 1.5 per cent of the price per

load).The difference between former and latter type brokers is that the

former may get a higher share as they go in search of the farmers and their

relationship with the farmer is not a lasting one. Whereas, in the case of the

latter type, the brokers maintain a lasting relationship with the


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manufacturer and therefore though their commission is at a lower rate they

have a more regular work.

It is observed that the share of both types of brokers in the price of

rubber wood is less than three percent. This conclusion disproves the

general argument that a major portion of the price of agricultural products

is pocketed by middlemen. At the same time the existence of brokers at

two nodes is a clear indication of poor efficiency of rubber wood

procurement chain.

4.2.3 Traders of Rubber Wood Timber

Traders are those who buy rubber wood from farmers. Traders are of

various capacities, depending upon their investment in felling trees. Their

investment varies from Rs. 50,000 to Rs. 50 lakh on the basis of number of

trees bought. The traders sometimes pay the money full in advance or in

part. In the survey, 90 per cent of the sample farmers got the full price as

advance before felling the trees.

For ‘before slaughter trade’, the mode payment is different.

Generally, one fourth of the amount will be paid in advance and the rest in

three installments before felling the trees. Usually the traders entrust the

job of felling the trees to the local trade unions. There are different trade

unions in one locality, each with a different political affiliation. The traders

distribute the trees for felling to the unions depending on their strength.


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Rubber wood is quite often sold in the trading centres .The important

centres of rubber wood trade are given in table 4.3

Table 4.3 Trading Centres of Rubber Wood

District Trading centre

Ernakulam Perumbavoor

Kottayam Ettumannur, Kanjikuzhy,

Changanachery

Kollam Anchal, Kundara

Thiruvananthapuram Vidura

Trissur Olloor, Amballoor

Kozhikode Kallai

Kannore Thaliparampu,Thalasssery

Source: Survey Data

Though there are different trading centres in Kerala, majority of the

rubber wood trade is taking place at Perumbavoor in Ernakulam district.

The logs are weighed in the weigh bridges and they charge Rs. 60 per load.

While the average daily trade in Perumbavoor Association Weigh Bridge is

around 150 loads per day, it is less than 50 loads per day in other weigh

bridges in Perumbavoor. Among other centres in Kerala, the largest trade is

taking place in Kannore district.

It is the trader who grades the rubber wood into categories such as

Super Selection, Selection 1, Selection 2, Local and Firewood. Super

Selection is the premium variety wood with good shape, girth over 50 inch,

good colour etc. This category is very much in demand in furniture units.


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Selection 1 and Selection 2 are the other two grades used for plywood and

furniture. Local variety has low girth (below 20 inch) and it is used for

making packing cases and also as interior parts of furniture. The rest is sold

as Firewood. In short, the role of traders is very significant as they are able

to increase value addition through grading. The price of various grades of

rubber wood in Perumbavoor weigh bridges is given in table 4.4.

Table 4.4 Average Price of Rubber Wood in Perumbavoor Weigh Bridge (Rs. per tonne)

Variety 2005-06 2006(May) 2006(Sept) 2006(Dec)

Super selection 2800 2800 3500 3000

Selection-1 2400 2500 2900 2600

Selection-2 2100 2200 2600 2500

Local 1800 1900 2100 2000

Fire wood 900 1100 1300 1100

Source: Survey Data. From table 4.4 it is inferred that the price of rubber wood is different

for each grade. The price also varies in different seasons. An average tree

gives five per cent Super Selection, 25 per cent Selection 1 & 2, 40 per cent

Local and 30 per cent Firewood. The average price of rubber wood of all

sizes and grades is worked out to be Rs. 1660 per tonne in 2005-06. The

trend in the average price of rubber wood log is given in table 4.5 and it is

compared with the price of jack wood, anjili and teak.


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Table 4.5 Trends in the Average Market Price of Rubber Wood for Furniture in Comparison with Jack wood, Anjili, Forest Teak wood in Kerala (Rs. per m3).

Source: Survey Data and Forest Information Bureau. (* for rubber wood the

increase is compared with 2005-06)

It is clear from table 4.5 that the increase in the average price of

rubber wood both at current prices and constant prices is above 40 per cent

in 2005-06 as against the price in 1999-2000. Compared to this, the rise in

the price of teak is negative, and the increase in the price of jack wood and

anjili is 4.85 and 11.45 per cent, respectively. It is found that the 40 per

cent rise in the price of rubber wood is made possible by the increased

demand from primary and secondary processing units.

4.2.4. Relative Share of Various Actors

As already mentioned the price of rubber wood is determined by a

number of actors. The relative share of various actors in the chain of rubber

wood can be worked out on the basis of the survey data. It is shown in

table 4.6


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Table 4.6 Share of Various Actors in Rubber Wood Price

Actors Share ( %)

Farmer 45.00

Broker identifying farmers( type 1) 1.75

Broker commission in weigh bridges(type 2) 1.25

trader 52.00

customer 100.00

Source: Survey Data

From table 4.6 it is inferred that the value addition by the trader is

greater than the value added by the farmer. The profit of the trader is

worked out to be 12 per cent. In the case of farmers, however, the rubber

wood price is an additional income and it increases the profit share of the

farmer from rubber plantation.

In the case of the trader, his entire share in rubber wood price is not

his profit. He incurs certain costs which is given in table 4.7

Table 4.7 Cost Details of the Trader

Item Percentage

Price to farmer 45.00

Labour cost for felling 14.50

Transportation charge 10.00

Loading/unloading 2.00

Police/tax 1.50

Labour for bundling fire wood 0.50

Interest, and other expenses of the trader 11.50

Net profit 12.00

Broker commission 3.00

Total 100.00

Source: Survey Data


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It is clear from table 4.7 that though the value addition made by traders is

52 per cent, 17 per cent of it is shared by workers, and 10 per cent by those who

deal in transporting and the net profit of the trader is 12 per cent. It can therefore

be concluded that though the value addition made by trader is greater than that

of the farmer, their profit share is less compared to the farmer.

4.3. Manufacturers of Rubber Wood Products

Rubber wood is an input for many products like plywood, match boxes,

furniture etc. The manufacturers of these products are the buyers of rubber

wood. The rubber wood based manufacturers can be categorized in to three:

a. Primary processing units like saw mills, veneer units, plywood

units, match boxes

b. Secondary processing units like RSKD, S4S, EGP, Furniture and

components

c. Other industries (tile, bricks etc.) which use rubber wood as

firewood.

4.3.1 Primary Processing Sector

Among the primary processing industries saw mill, veneer and

plywood demand more discussion as a major portion of rubber wood is

utilized by these units.

4.3.1.1 Saw mill and Packing Case Units

The saw mill units are sawing rubber wood for making packing

cases and for supplying sawn sizes to other secondary processing units like


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furniture, components and building materials. The packing cases are

demanded by traders of various types of farm products, manufacturers and

traders of industrial goods etc. On an average 60 to 70 percent of the sales

of the saw mills are sawn sizes, 15 to 20 per cent packing cases and the rest

15 to 20 per cent firewood and saw dust. Value chain of packing cases is

shown in chart 4.2

Chart 4.2 Value Chain of Packing Cases

Source: Survey Data


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It is clear from chart 4.2 that the various players in the value chain of

packing cases are farmers, wood traders, brokers, sawmills, agents, and

buyers of packing cases such as vegetable and fruit traders, food processing

units, manufacturing industries etc. There are agents who deal with sawn

sizes and packing cases who are intermediaries between the producers/

traders and saw mills. They get commission from the buyers or they sell it

at a margin. Seventy percent of the secondary processing units purchase

sawn sizes directly from the saw mills. The value chain shown above is not

simple and direct as there are various brokers and agents. The share of

various actors in market price of packing cases is given in table 4.8.

Table 4.8 Share of Actors in Packing Case

Actors Share (%)

Farmer 31.6

Wood trader 36.79

Broker 2.00

Producer 16.61

Agents 1.00

Packing case trader 12.00

Total 100

Source: Survey Data

It is clear from table 4.8 that the major share of the price of packing

case goes to wood traders and farmers. The value addition made by the saw

mills in packing cases comes to 16.61 per cent, whereas the share of sawn

sizes supplied by saw mills for EGP board is 8.32 per cent, and that of


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furniture is 7.64 to 7.47 per cent. Thus it can be inferred that the value

added by packing case units (saw mills) is very low.

4.3.1.2 Veneer/peeling Units

Veneer is an intermediary product used for the production of

plywood and as such a complete value chain can not be drawn. The veneer

units or peeling units are supplying the core veneer needed for plywood

manufacturing in and outside Kerala. These units purchase rubber wood

and peel it within 48 hours. Fifteen per cent of the units make chemical dip

treatment of the veneer as per the requirements of the plywood units. The

share of actors in veneer price is given in table 4.9

Table 4.9 Share of Actors in Veneer Price

Actors Share (%)

Farmer 31.50

Wood trader 36.80

Broker 2.00

Veneer producer 21.70

Agent 1.00

Veneer Trader 7.00

Total 100.00

Source: Survey Data

It is evident from table 4.9 that the major share in veneer price goes

to wood traders and farmers. The position of veneer producers come only

next to these two actors in the veneer price. The veneer units either sell the

veneer to local plywood units or to plywood units outside Kerala. Sixty one


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percent of the veneer is sold directly to plywood units and the rest through

agents/traders.

4.3.1.3 Plywood Manufacturers

Kallai in Kozhikode district and Valapattnam in Kannur district

were once well known for wood and wood based industries. Recently

Perumbavoor in Ernakulam district has emerged as an important market

for wood trade (Thomas, 2003). Rubber wood is mainly used for

plywood in Perumbavoor. The growth of rubber cultivation in Kerala

and the eastern parts of Ernakulam made the availability of rubber wood

easy in Perumbavoor, where most of the saw mills came to be converted

as packing case units. The decline of match factories also compelled the

units here to diversify. The demand for cheap core veneer by plywood

factories outside Kerala was an added reason for manufacturing veneers

from rubber wood. A number of veneer peeling units were set up at

Perumbavoor and near by places as a result of the growing demand.

Though it subsequently led to unhealthy competition, some of the core

veneer suppliers of Perumbavoor shifted to plywood manufacturing

instead of supplying veneer to others. Periyar Plywoods, the first

Plywood unit in Perumbavoor was set up in 1980. During the 80s itself

nearly 20 such units mushroomed in and around the place and their

number has grown to 65 by 2004 and 120 by 2006.


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The value chain for plywood is shown in chart 4.3

Chart 4.3 Value Chain of Plywood

Source: Survey Data

It is made clear in chart 4.3 that the various players in the plywood

value chain are farmers, traders, brokers, peeling units (that supply the core


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veneer for plywood), plywood producers, brokers of plywood, domestic

wholesalers and retailers, export and import agents, foreign retailers, and

customers. Since there are large number of brokers and agents, it can be

inferred that, both the procurement and distribution chains are not efficient.

4.3.2. SPRWP Units

The various activities in SPRWP are chemical treatment and

seasoning of sawn sizes of rubber wood (rough sawn kiln dried or RSKD),

four side surface planing, manufacture of finger jointed and edge glued

solid wood panel boards, manufacture of furniture, components of

furniture, mouldings, manufacture of interior designing and building

materials etc. Some units undertake all these activities but some others

have only limited activities.

In SPRWP sector, RSKD, S4S, Finger Jointed S4S, and EGP are

either sold to other firms/end users or used by the processing units

themselves as intermediary for further production of furniture and furniture

components, building materials (door, window frames, kitchen cabinet,

flooring tiles, paneling, ceiling etc), industrial materials (brush handle,

dunnage pallets, textile bobbins) etc. The SPRWP units are therefore

classified into four categories:

a. manufacturing RSKD and S4S

b. manufacturing RSKD and S4S and other value added products like

furniture,


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c. manufacturing FJS4S and EGP

d. manufacturing FJS4S, EGP and other value added products like

furniture.

Though there are different products in the SPRWP sector, it is found

that the actors/ players are almost common to all products. Hence a

common value chain for SPRWP is developed as shown in chart 4.4

Chart 4.4 Value Chain of SPRWP

Source: Survey Data


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It is evident from chart 4.4 that the various players in the value chain

of SPRWP are farmers, brokers, traders of rubber wood, brokers, sawmills,

secondary processors, domestic wholesalers and retailers, export and

import agents, foreign retailers, and finally the buyers of the products.

Having analyzed the manufacturers in the value chain, the discussion can

now be turned to the next node in the value chain namely, the wholesalers

and retailers.

4.4. Wholesalers/ Retailers

The wholesalers/retailers play a vital role in the plywood value chain

and secondary processing value chain. The table 4.10 gives their share in

the marketing of plywood.

Table 4.10 Share of Wholesalers and Retailers in Marketing of Plywood

Channel Number of units Percentage

Direct to users 3 10.00

Retailers 11 36.67

Wholesalers and retailers 16 53.33

Total 30 100.00

Source: Survey Data:

As evident from the table 4.10, around 90 per cent of the plywood is

sold through wholesalers and retailers and 10 per cent directly to users like

furniture units, building and other industrial units or customers. Thirty

Seven percent of the units sold to retailers directly. Only one unit has its

own retail network in and outside Kerala. One unit has its own marketing


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network in the Middle East. The marketing destination of plywood is

shown in diagram 4.4

inside kerala,

25

outside kerala,

57.5

export, 17.5

0

10

20

30

40

50

60

inside kerala outside kerala export

Diagram 4.4 Marketing of Commercial Plywood (%)

Source: Survey Data

It is clear from diagram 4.4 that on an average 25 per cent of output

is sold within the state, 57.5 per cent outside the state, and 17.5 per cent is

exported.

The nature of sale of SPRWP is given in table 4.11

Table 4.11 Method of Sale of SPRWP

Nature Number of firms Percentage of firms

Direct and indirect 15 48.39

Both wholesalers and retailers 10 32.26

100% to retailers 6 19.35

Total 31 100

Source: Survey Data

Pe

rce

nta

ge


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From table 4.11 it is inferred that all the units make use of either

wholesalers or retailers or both for the sale of the product. Forty eight

per cent of the units sell directly to furniture manufacturers/ building

contractors and also to wholesalers and retailers. Nineteen percent of

the units sell to retailers directly without contacting the wholesalers. It

was also found in the survey that 22 per cent of the producers have

their own showrooms/ franchise shops for selling their products to end

consumers.

4.5. Exporters/Importers and Foreign Retailers

The export and import agents act as the link between domestic

market and overseas markets. The export agents sell the products to

import agents, supermarkets, other industries etc. Manufacturers who

have export license sell directly to import agents of foreign countries

by adding 25 to 30 per cent value to the product to meet the freight and

other expenses of packing and forwarding. The import agent or

supermarket adds value to the products by assembling, branding and

marketing.

Discussions with the exporting firms revealed that the value addition

by the export and import agents come 25 to 30 per cent. The value addition

by foreign retailers comes to 20 to 30 per cent in gulf countries for door

and furniture. The supermarkets (like Wal-Mart and Ikea in the US and

Europe) and other agents purchase furniture components and other


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components (for industrial sector and building sector) from five firms in

Kerala. They assemble, brand, and sell the products by adding value which

comes to two to ten times the buying price of components. However, the

foreign buyers/retailers were reluctant to disclose the details of the source

of their products.

The main destinations of export of plywood are Gulf countries and

Sri Lanka. Competition from Malaysia and China is a threat because they

sell at prices lower than the export price. The agents and the foreign

retailers bring about a value addition by 25 to 40 per cent.

4.6. Consumers

The consumers of rubber wood products are building contractors,

interior designers, other industries and final customers. These groups

purchase EGP boards, plywood, door, floor tiles, furniture and

components, scantlings, and other products from the manufactures .Around

15 percent of the consumers directly purchase from them while 85 per cent

purchase from dealers.

4.7. Value Chain of Rubber Wood Based Products

The discussion on the value chains of rubber wood, primary

processed products (packing cases, veneer, and plywood) and SPRWP

being completed, it is possible to develop the value chain for the rubber

wood based products as a whole. It is presented in chart 4.5


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Chart 4.5 Value Chain of Rubber Wood Based Products

Source: Survey Data

Chart 4.5 shows that the various actors in the rubber wood products

chain are farmers, brokers, rubber wood traders, saw mills, peeling or

veneer units, secondary processing units/ plywood units, wholesalers,


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commission agents, retailers, export and import agents and consumers. The

farmers procure seeds, chemicals and water for the trees. The wood traders

arrange workers for felling the trees, facilitate transportation, tools, and

chemicals for applying at the cut end of the logs. The saw mills, veneer

units, plywood units, and secondary processing units arrange chemicals and

other inputs, and do marketing of the products. The wholesalers and

retailers make arrangements for transport, storage, and marketing of

products. The foreign buyers in addition to the above make arrangements

for export, design, assembling and marketing of the goods.

The role played by the actors in the value chain of plywood and

SPRWP can be fully ascertained only after determining their relative

contribution in the final price of the product. The following section deals

with this aspect.

4.8. Relative Contribution of Various Actors in Plywood and

SPRWP

The relative position of the various actors in a chain varies from

product to product. In the four categories of SPRWP, the value addition by

various actors is to be calculated separately and to be compared with

plywood, the most important product in primary processing. The relative

share of actors in all the SPRWP units together also has to be calculated

and compared with that of plywood. Though there are vast varieties of

products in each category only those products which are largely sold have

been considered for determining the relative share.


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It must be noted that brokers are included along with wood traders

on account of their low contribution (i.e. less than one per cent in the price

of rubber wood products).The relative contribution of actors in the market

price is given in table 4.12

Table 4.12 Relative Share of Various Actors in the Domestic Consumer Price (%)

Actors RSKD EGP EGP

Furniture

RSKD

Furniture

SPRWP

All Plywood

Farmer 20.39 8.36 6.45 7.2 7.79 12.67

Trader 24.46 10.08 8.04 9.93 9.79 15.34

Saw mill/veneer 16.85 8.32 6.4 7.47 7.49 9.46

Producer 31.97 47.91 51.55 50.1 49.55 37.87

Wholesaler 6.33 4.96 6.48 6.01 6.04 4.24

Retailer 0 20.37 21.08 19.29 19.34 20.42

MRP 100.00 100.00 100.00 100.00 100.00 100.00

Source: Survey Data

From table 4.12 it can be inferred that the share of the producers is the

highest in the final price of the products. Next to it comes the retailers, (except

in the case of RSKD as these products have no retailers). The share of farmers

in primary processing such as saw milling and veneering comes to 25 to 31

per cent of the price of sawn sizes and core veneer. For RSKD and S4S the

share of farmers is 20.39 per cent. On the other hand, the share of farmers in

high value added products in secondary processing, like furniture, is less than

seven per cent of the domestic price. The share of farmers in the price in

foreign markets, especially in Gulf countries, is less than four per cent.


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The share of farmers comes to 12.67 per cent of domestic market price

of plywood. But for EGP board their share is merely 8.36 per cent of the EGP

price. The farmers get higher absolute price in the case of EGP because high

quality wood is required for it and farmers will be offered higher price.

In the case of plywood the share of producers is only 37.87 per cent of

the domestic price but for high valued SPRWP the share of producers varies

from 48 to 52 per cent. The average share of rubber wood, both sawn sizes

and round log, in final product value of all SPRWP units comes to 30.7 per

cent. The share of rubber wood (veneer) in plywood price comes to 37.47 per

cent.

The average share of wholesalers in SPRWP is 6.04 per cent and for

retailers the share is 19.34 per cent of the domestic price. In the export price of

doors (to the Middle East) the share of export/import agents is 20 per cent and

that of foreign retailers is 24 per cent. The value added by wholesalers and

retailers varies between 15 to 25 per cent in SPRWP. Certain producers

charge very high price and offer very high rate of commission. It is seen that

some retailers offer five to 15 per cent discount to customers.

The share of wholesalers in plywood is 4.24 per cent and retailers

20.42 per cent of the domestic price. In the export of plywood the share of

export agent is 8.6 per cent and foreign dealer is 20 per cent.

In the foreign market price, the relative share of various actors varies

from product to product. The complete data was obtained only for two


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products - doors and plywood - sold to the Middle East. The share of

various actors in their foreign market price is given in table 4.13

Table 4.13 Share of Various Actors in Foreign Price in Middle East (%)

Actors in the chain Door Plywood

Rubber wood farmer 5.12 12.7

Rubber wood trader 6.12 15.33

Saw mill /veneer 4.79 8.06

Manufacturer 39.97 35.11

Export agent commission, freight 20.00 8.6

Foreign dealer margin, expenses 24.00 20

Total 100.00 100


It is inferred from table 4.13 that the highest contribution in the value of

door in the Middle East is made by export agent and foreign dealer (44%). But

in the case of plywood the contribution of export agent and retailer together is

less than the contribution of the producer. This may be due to the high

competition from the plywood from other countries. The mean share of

various actors in the consumer price of plywood is given in table 4.14.

Table 4.14 The Mean and Standard Deviation of Various Actors in Plywood (Rs.

lakh)

Variable Mean Standard Deviation

Value of output at consumer price 372.7733 217.3235

Farmer 47.1948 27.72405

Wood trader 57.2080 32.64569

Veneer 35.2540 20.45476

Plywood manufacturer 141.170 83.15916

Wholesaler 15.83 15.62277

Retailer 76.1373 43.77258


138


It is clear from table 4.14 that the average output of a plywood unit is Rs.

372.78 Lakh with standard deviation of Rs. 217.32 lakh. The average share of a

producer is Rs. 141.7 lakh with standard deviation of Rs. 83.16 lakh.

The mean and standard deviation of the value of product of various

types of SPRWP units is given in table 4.15.

Table 4.15 Mean and Standard Deviation of the Output of Sub-sectors in SPRWP at Consumer Price ( Rs. lakh)

Type Mean Standard deviation

RSKD 144.68 181.90

EGP 254.92 180.61

EGP, Furniture 1185.82 774.39

RSKD, Furniture 203.78 192.66

SPRWP All 392.25 532.09

Source: Survey Data

It is clear from table 4.15 that the average output of an EGP Furniture

unit is the highest, whereas the lowest output per unit is found in RSKD.

The mean share of various actors in all secondary processing units is

given in table 4.16

Table 4.16 Mean and Standard Deviation of the Share of Actors in all SPRWP Units ( Rs. lakh)

Variable Mean Standard deviation

Output at consumer price 392.25 532.09

Farmer 30.57 35.84

Wood trader 38.37 44.87

Saw mill 29.38 35.54

SPRWP manufacturers 194.36 272.32

Wholesaler 23.71 40.69

Retailer 75.85 117.30


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Source: Survey Data

It is evident from table 4.16 that the highest share belongs to the

manufacturers. The contribution of manufactures in SPRWP is higher

when compared with that of plywood.

In the light of the above discussion it can be concluded that the

various actors identified are farmers, wood traders, brokers, sawmills,

veneer units, plywood, secondary producers, wholesalers, retailers,

export/import agents, foreign retailers, consumers etc.

The share of farmers in rubber wood price is less than 45 per cent; in

packing cases and veneer 31.5 per cent; in plywood 12.67 per cent; and in

high valued products less than seven per cent. This indicates that the

contribution made by farmer comes down as it moves from low valued

products to high valued products. Though the price received by the farmers

show an increasing trend, it is less than the increase seen in the price of

rubber wood.

In rubber wood price 52 per cent of the value goes to wood traders

(as cost of felling transporting, profit etc). In veneer and packing cases the

share of wood traders is around 37 per cent but in plywood it is 15.3 per

cent. In furniture their share is less than 10 per cent. It again indicates that

the contribution made by wood traders comes down as it moves from low

value added products to high value added products.


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The share of brokers in rubber wood price is less than three per cent

whereas in packing cases/veneer it is around two per cent. In high valued

furniture their share is less than one per cent. This shows that on the one

hand the share of brokers is low and on the other it is on a downward slide

as the product moves from low value to high value range. It is

hypothesized that a major portion of the price of the products is pocketed

by intermediaries, but the field survey finding runs contrary to this.

Compared to other actors the share of producers is the highest both

in SPRWP and in plywood. In the case of plywood the share of producers

is only 37.87 per cent of the domestic price but for high valued SPRWP the

producers share varies from 48 to 51 per cent. In packing cases/ veneer the

producers share is less than 22 per cent. This clearly indicates that the share

of producers is high, and their share goes up as a product is processed

further.

The average share of wholesalers in SPRWP is 6.22 per cent and for

retailers it is 19.45 per cent of the domestic price. In plywood, the share of

wholesalers is 4.24 per cent and that of retailers is 20.42 per cent of the

domestic price. This highlights on the point that the role of retailers is

greater than that of wholesalers.


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In the export of door to the Middle East, the share of export agents

is 20 per cent and that of foreign retailer is 24 per cent. In the export of

plywood, the share of export agent is 8.6 per cent and that of foreign

retailer is 20 per cent. This establishes that the role of exporters cannot be

overlooked.

The manufacturers being the major contributors, it is logical to

proceed to the analyses of the performance of each category of producers

in order to understand their profitability and relative competitiveness. The

performance of the plywood units and different SPRWP units are discussed

in detail in the next chapter.

chapter 4 value chain of rubber wood...

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