Competitiveness and Efficiency of the Forest Product Industry in Indonesia
This paper provides an assessment on policy and structural changes in the Indonesian wood-based industries. The author shows that the tremendous growth of production and exports has been made possible through heavy subsidies, resulting in inefficiencies in harvesting and production. Subsidies created an incentive to delay the use of cost- and wood-saving technology. Constant market share analysis revealed that competitiveness of forest product exports declined during the period 1993-2003, and could only be partially compensated by an increased shift towards pulp and paper exports. Indonesia is losing competitiveness in slow growing industries like wood products, especially plywood. Further restructuring of the forest product industry in favor of pulp and paper industry with proper environmental management is the right policy direction, but there are also concerns that the huge demand for wood by the industry is already exceeding sustainable harvest levels.
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