Wood Value Chain Nicaragua

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The Wood ProducT V alue c hain in c enTral a merica : h onduras and n icaragua

Trade and Poverty inLatin America

Case studyDecember 2009

OverviewThis analysis highlightsthe failure of two Central

American countries withvery different enablingenvironments (Hon-duras and Nicaragua)to develop their infantwooden furniture in-dustries (or, in fact, anysigni cant value addi -tion to lumber), despitehaving abundant natu-ral resources availableand having experiencedsigni cant liberalisationof trade since the early1990s. The link betweentrade liberalisation and

trade growth is ques-tioned, as are state-ledapproaches to naturalresource managementof forestry reserves.

The trade liberalisation policy pro-moted by Central American coun-

tries has not resulted in improvedinsertion of the wood furniture sector ininternational markets. The soil in Central

American countries is predominantly for-ested (see Table 1); nevertheless, forestproduct exports do not constitute a sig-ni cant portion of the regions interna -tional trade. The loss of forest cover isa common problem, one which has notbeen adequately addressed by publicpolicy in some countries. Deforestationhas mainly been a result of the demandfor an increase in extensive agricultureand animal husbandry, which rarely makeuse of the felled timber. Export productsfrom the forest have been concentratedin lumber, with little or no industrial trans-formation; the majority of industries thattransform lumber have not progressed

beyond small artisanal businesses orient-ed towards the domestic market. The lev-els of deforestation and the type of forestregulation adopted in some cases exacer-bate the obstacles for small and medium-

sized enterprises (SMEs) dedicated to thetransformation of lumber.

The forest areas that are still protectedin Nicaragua and Honduras are located inhigh and extreme poverty zones and, inthe case of Nicaragua, in zones where theindigenous population and ethnic groupsreside. Wood transformation workshops,which constitute the vast majority of thisindustry by far, are in a precarious situa-tion: proprietors and workers form part of the working poor. The research summa-rised here seeks to explore the relation-ships between the regulatory environ-ment in Honduras and Nicaragua, growthin traded wood products by micro, smalland medium-sized workshops (MSMEs)and resultant impact on poor labourers.

Key differences in enablingenvironment

Honduras and Nicaragua both exhibitsimilar characteristics regarding resourceendowment: the naturally occurring forestis found in zones with a high incidence of poverty, and generally in zones far from

Table 1: Forest cover and use

Country Territory Forestuse

Forestcover(area)

Forestcover (%of total)

Protectedareas

Nicaragua 12,141.7km 2 78.6% 5,312.4km 2 43.8% 18.2%Honduras 11,249.2km 2 87.7% 5,989.6km 2 53.2% 26.2%


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urban centres, with little or no infrastructure (althoughin Honduras part of the pine forest under managementis near the main motorways). In Nicaragua, the for-ests that remain are located on lands that belong toindigenous communities, which hold formal autonomyin terms of political administration. This was also thecase in Honduras prior to the introduction of recentlegislation the Forest Law of 1992 which stipulates

that proprietors of forestry land should be those whoinhabit the land. The law supports the inhabitants of forestry land by allowing them to make use of forestryproducts through forest management plans; it alsoprovides for government support in elaborating theseplans and obtaining permits. The application of the lawin Honduras has advanced more rapidly in pine forests;moreover, the law stipulates that trees can be felledonly once resin has been extracted, which promotes agreater use of resources and value addition activitiesfor the poor rural population.

In Nicaragua, the proprietor of the forest as a natu-ral resource is the state, by constitutional resolution.

A conservationist scheme has been developed, whichhas manifested itself as highly bureaucratic and ex-pensive procedures to obtain permits, such as thoseneeded by small proprietors or indigenous communi-ties to access forest resources. Since 2005, the coun-try has pursued an anti-deforestation scheme covering

ve high-demand species. However, this is far from re -solving the problem of deforestation, which originatedin the growth of agricultural areas. Despite efforts toconserve forestry resources in Nicaragua, improvedforestry management techniques, such as those pro-

moted in Honduras, seem to be more effective in re-ducing deforestation: the forest area under plannedmanagement represents 11.7% of the forest coverage;in Nicaragua this proportion is 2.3%.

The most conservative estimates place deforesta-tion in Honduras and Nicaragua at between 70,000 and100,000 hectares annually. In both cases, the legal andregulatory framework for the forest has been oriented

towards impeding the authorisation of exploitation per-mits. But there are clear differences in the perform-ance of each country to date in the achievement of thisobjective, related to the institutional context.

Recent export performance of the furnitureproduction industry

MSMEs dominate in the furniture and wood product in-dustry. The effect of trade liberalisation on the forestrysector and the wood furniture sector in both countriespresents substantial differences (see Figures 1 and 2).Wooden furniture exports from Honduras have expand-ed more rapidly than wood and wood products (whichhave been declining). In Nicaragua, although woodenfurniture exports have increased their export value re-cently, wood and wood products have declined at afar more rapid rate; this indicates quite a striking totalreduction in wood product exports from 1994 to 2008for Nicaragua.

In Honduras, the destination market for wood prod-ucts is mostly international. The country case studyauthors note that the industry had already exported tointernational markets prior to liberalisation in the early

Table 2: Comparison of regulatory environment in Honduras and Nicaragua

Honduras NicaraguaOwnership The forest becomes the property of

the landowner, who has possessionand domain, and who constitutesthe dealer of state lands.

The state is proprietor of the trees, in landsthat belong to indigenous peoples and ethnicgroups. These have the right to exploit thenatural resources.

Use of resources Communities are included in theconservation and exploitation of theforest.Functions related to the forestsector are concentrated in the forestconservation institute.

Only indigenous communities and ethnicgroups possess the ability to administer andexploit the forest.Increased dispersion in the authorisation of permits for exploitation and weak capacity forcontrol.

Allocation of permits The state creates concessions of national lands with forest so thatcommunities may exploit them.

The anti-deforestation law (ley de veda) wasestablished for ve species of wood. The police

and army were included in the task of control.


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1990s. The US accounts for just over 40% of total woodproducts (processed and unprocessed) from Honduras.In comparison, regional markets are clearly much moreimportant for Nicaragua: almost 30% of wood productexports (processed and unprocessed) are destined forEl Salvador; 20% are destined for Costa Rica.

Who exports?

The case study makes it clear that in both countriessmaller workshops do not export. In the Nicaraguancase, exports are in the hands of a small group of largeenterprises, which are dedicated to extraction and ex-port, and/or vertically integrated extraction, primary

Figure 1: Exports of wood and wood products from Honduras, 1994-2008

Source: Sistema de Estadsticas de Comercio de Centroamrica (2009). Data for 2008 are preliminary.

Figure 2: Exports of wood and wood products from Nicaragua, 1994-2008

Source: Sistema de Estadsticas de Comercio de Centroamrica (2009). Data for 2008 are preliminary.

transformation (mainly plywood) and export. In thecase of the furniture industry, only four of the largestenterprises export, and on an intermittent basis.

In Honduras, the majority of exports originate inbusinesses grouped in two organisations: the National

Association of Timber Companies (ANETRAMA) and theHonduran Timber Association (AMADHO). The authors

note that the opportunities created by trade liberalisa-tion have been seized by those agents who have accessto the most resources, knowledge and infrastructure.

The organisation of producer/business associationorganisations in Honduras may help explain some of theperformance differentials between the two countries.


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However, these aspects are not exploredfurther by the country authors.

Conclusions and policyimplications

Nicaragua could increase its woodproduct and furniture exports to the same

level as those of Honduras, which has sur-passed them in this regard and appearsto be stabilising forests that have beenexploited. In Nicaragua, while exportsare minimal, and concentrated in unproc-essed wood, the primary contentious is-sue is the continued deterioration of theforests, despite legislation to protect it.This is in stark contrast with Honduras,where more recent legislation has madeit easier for inhabitants to use the forestand at the same time manage this use.

In Nicaragua, this has resulted in ahigh level of unemployment and under-employment, which could be alleviatedby means of suitable development policyoriented towards the management of ex-ports. Poverty dynamics related to woodproduct exports are not explored in detailin the case study, or compared for eachcountry, which limits the strength of thisargument.

References

istema de Estadsti-cas de Comercio deCentroamrica (2009) http://estadisticas.sieca.org.gt/siecadb/E s t a d i s t i c a s / I n f o .asp?banner=OP1

UN Comtrade (2009)United Nations Com-modity Trade Statis-tics Database. http://comtrade.un.org/db/

bout COPLA

Comercio y Pobreza enatino Amrica (COPLA,r Trade and Poverty inatin America) is a two-

nd-a-half year projecthat explores the linkag-s between trade, pov-rty and social exclusionn Latin America.

ind out more on:ttp://www.cop-la.net

hoto creditChloe Byrne, COPLA

This case study summary was preparedby Jodie Keane with Alberto Lemma and

Jane Kennan and is based on longerstudies originally undertaken by WelbinRomero at Nitlapan in Nicaragua. The fullstudy is available in Spanish on the COPLAwebsite: http://www.cop-la.net .

Table 3: Honduras export markets

for wood products (processed and

unprocessed)

Market Average

2000-

2007

($000)

Share

(%)

All markets 78,857 100US 32,926 41.8Jamaica 11,126 14.1El Salvador 7,518 9.5Trinidad andTobago

4,786 6.1

Barbados 3,483 4.4St. Lucia 1,785 2.3

Unspeci ed 1,599 2.0Nicaragua 1,383 1.8Spain 1,269 1.6Netherlands

Antilles1,264 1.6

Dominican Republic 1,009 1.3Germany 933 1.2Costa Rica 873 1.1Panama 820 1.0St. Vincent and theGrenadines

808 1.0

Source: UN Comtrade (2009). Data re-ported by Honduras.

Table 4: Nicaragua export markets

for wood products (processed and

unprocessed)

Market Average

2000-2007($000)

Share

All markets 15,275 100.0El Salvador 4,169 27.3Costa Rica 2,765 18.1US 2,586 16.9Honduras 2,353 15.4DominicanRepublic

1,302 8.5

Cuba 760 5.0Guatemala 630 4.1Spain 308 2.0

Source: UN Comtrade (2009). Data re-ported by Nicaragua

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Wood Value Chain Nicaragua