UNIVERSIDAD DE ESPECIALIDADES ESPIRITU SANTO Andean Markets Project:Exportation of Ecuadorian Teak wood to Argentina Antonella Ayala Gabriela Torres Andrés García Melissa Ycaza Professor Andrés Falquez November 22, 2012
Teak wood – Ecuador The main objective this project pursues is to analyze the processes thatEcuadorean teak wood producers must identify and follow in order to successfully exportthis tropical wood to Argentina. Teak has been widely recognized as the most valuableand accepted wood in the world’s timber trade thanks to its beauty, durability andstrength. Teak wood is frequently used to produce indoor and outdoor furniture as well ashardwood flooring; however, there are a lot of less common uses like kitchen cabinets,closets, picture frames, building roofs, etc. There are only four countries in the world with natural forests of teak: India,Myanmar, Laos and Thailand. In 2010 there were about 29 million hectares of teak inthose countries, almost half of it in Myanmar, which is actually the last country toproduce high quality teak; India, Laos and Thailand have restricted the exploitation andexportation of wood due to its shortage. In India, its easy to find infrastructures madewith teak from almost 1,000 years ago, when those trees were abundant. Unfortunately,the excessive logging deforested the country leading the government to prohibit thecutting and commercialization of the teak. The plantation of teak forests has attracted big amounts of private investments inAfrica (Benin, Ghana, Nigeria, Tanzania), Asia (India, Indonesia, Myanmar, Laos)Central America (Costa Rica, El Salvador, Guatemala, Nicaragua, Panama) and SouthAmerica (Ecuador, Brazil). Latin America represents only a 3% of the world’s production of teak. Ecuadorproduces approximately 40000 hectares of teak per year mainly in the Costa and in someregions of the Oriente. Even though it takes from 20 to 40 years for the teak trees to growas big as needed to become exportable, the plantations grant to the companies a 15%return on investment and they also help local communities to improve their subsistence.The comparative advantages of Ecuador to maximize its plantations of teak are, amongothers, its geographical location, luminosity, availability of lands to reforestation,proximity of ports to the potential reforestation areas, etc. These advantages make itpossible to Ecuador to become the major teak wood exporter in Latin America.
Exports of Ecuadorian teak went from 742 containers on September 2011, to 1108in the same period this year, which means a growth of 49%. Despite of this importantincrease, teak still represent just a small part of the total non-traditional productsexportations, leading some institutions to work in the creation of projects such as TallTeak, Mariza, Río Congo Forestal, El Tecal, La Reserva Forestal, Cerro Verde Forestal,La Campiña Forestal and El Refugio Forestal. These projects started in 2001 thanks tothe collaboration and monetary funding of the ESPOL, having as result high profitability,which has attracted internal investment, support to middle and small producers, jobscreation and improvement of the environmental and social practices. These projects and many other initiatives have risen in the country de number ofteak producers and exporters, most of them exporting big or small pieces of it, otherswith saw dusted and treated teak wood. The main companies that export teak in Ecuadorare Luis Alberto Suastegui, Alfonso Solis S., Arcob, Tecasa, Barcotrading S.A,Capexport, Gustavo Andrade I., and Marisec S.A. These companies represent more thanthe 50% of the total of Ecuadorian teak wood exportations. Most of the teak our country produces goes to India, Asian and Europeancountries, but a very little percentage is imported by other Latin American countries.Thats why through the elaboration of this project we try to identify the main aspects totake in consideration to export this valuable wood to a country in our region and howprofitable it could be.We chose Argentina because its weather conditions make it almost impossible for themto produce teak becoming a potential importer to focus in.Commercial relations Examining the relationship between exports and imports of different type ofproducts from the year 2005 to 2010 of Ecuador and Argentina, approximately 80% ofour exports to Argentina are conformed by bananas, fish, tuna, shrimp and palmettos. In2010, Ecuador exported 181,276.01 tons of bananas for a total value of $49.01 millions,becoming the eight destination for Ecuadorian exports of banana, the fourth target forfish, the tenth for tuna and the third for palmettos. Argentina in terms of imports is ourmain supplier of soy and its derivatives. Almost 73% of Argentinas imports are: soybean
derivatives, steel pipes, corn and transport vehicles. Despite the high concentration ofimports recorded over 1.503 products purchased from Argentina. Ecuador, in 2010,exported products of 129 different subheadings.Trade balance The trade balance with Argentina has reached a negative balance in the last 6years. In 2010 trade between these two countries experienced a respective growth of 15%for exports and 18% for imports. The trade gap deficit to Ecuador has been constant inrecent years, reaching over $ 470 million in 2010. In 2011 has been exported a total of $23.2 million (a 9% increase over the first quarter last year). While imports have beenreduced by 12% compared the same period last year and have totaled $ 89.04 million.Procedure exports The procedure to export from Ecuador to another country, in this case Argentina itwill depend on the product (Teak wood). Is needed a “Declaration of exportation”,accompanied by the following requirements be listed in the Register of Taxpayers(RUC), been active with existing authorizations to issue sales receipts and guides forreference, be in the white list of the Internal Service Revenues (IRS), be register in theForeign Trade Interactive System (SICE) of the Customs Administration Ecuadorian(CAE) and present some documents such as RUC, original commercial invoice, priorauthorizations (when is require), certificate of origin (depending on the case), register asan exporter through the website of the National Customs Service of Ecuador andtransport document. The export of certain products require previous approval for the followingentities, like ministry of Agriculture, Livestock, Aquaculture and Fisheries (MAGAP),Ministry of Industries and Productivity (MIPRO) for export, etc. In some cases they needto obtain some health certificates. Other requirements are mandatory according to thegood. Some products are prohibited to exportation, in the case of wood, the export ofround wood except the one that is designed for scientific and experimental, in limitedquantities and previous permission from the Ministry of Environment.
Shipment phases It have two phases, Pre shipment, is the one that begins with the transmission andpresentation of the shipping order, The exporter transmit electronically the information,that includes exporting data, description of goods, quantity, weight and provisionalinvoice. Once the order is accepted by the system Boarding Interactive Foreign Trade, theexporter is entitled to move the shipment to the enclosure customs where income isrecorded to embark Primary Zone goods to be exported for final destination. The Post-Shipment phase is went the final DAU is presented, which is the customs exportdeclaration that is held after the shipment. After entering the Primary Zone merchandisefor export, the exporter has a term of 15 days to regularize export with the transmissionof export final DAU. Prior to electronic submission of the final DAU export,merchandise transporters should send the information export cargo manifests with theirrespective transport documents. If the validation process is satisfactory, it will send amessage of acceptance to the exporter or customs agent with the endorsement of theDAU.Imports procedure The Tax and Customs Authorities in Argentina have reported a series of measuresto increase revenue collection, prevent under invoicing and establish controls on imports.The measures taken are: increased tariff for pre-shipment inspection, which leads to anover cost on imports, this on cost may exceed 1% of the FOB value of the goods. Theimporters are required a payment of $ 10 for each import operation, in order to keep theMary Customs System. Importers have to make a new detailed declaration in theprovisional customs deposit, once arrived the ship or aircraft to the Argentine territory, itproceed the movement of goods to the customs authorize deposits. Before the 15 days thefinal declaration of release for consumption of goods must be submitted. Importers havethe obligation to register in the Federal Administration of Public Revenue, with the aimof obtaining the Certificate of Validation, which is a census of all importers in Argentinaand those who do not obtain the Data Importers Certificate of Validation; they will besanctioned with an increase of 100% in tax revenue and payment of VAT. The process ofopening and internationalize Argentina has permitted this country to become one of the
most open economies in Latin America, since the reduction and elimination of non-tariffbarriers, documents requirements, licenses and duties on imports.Prices and Market Teak prices can vary from region to region. Since the time it takes to harvest it isextremely long, it is only normal that prices are on the higher end in wood types inexistence. In Ecuador, as of November 2012, 20-year-old Teak is selling for $1,700 perm3. Its production has greatly increased lately because of the commercial value itpossesses. In the coming years, the price of teak is going to keep rising, according to astudy made by Asoteca (Asociación Ecuatoriana de Productores de Teca y MaderasTropicales) the reason for this is the relation of how the cost of the product has beenconstantly going up in this past years. The international crisis in 2009 affected itsproduction but it the teak market has managed to grow out of it and now is in the riseagain.Competitors In 2010, 11 million kilos of teak were exported, 26% more than in 2009. The levelof growth of exportations is 550% approximately; this means an increase of 68% eachand every year. This confirms the great demand that we have for teak in Ecuador. Itsmain competitors are Colombia, Costa Rica, Panama, but the main exporters are in Asiaand Africa. Compared to them we mean nothing. The wood we are exporting now is theone that was planted 15 to 20 years ago, today plantation of the seed is booming so wecould reap the biggest rewards in the upcoming years.Development According to the President of Asoteca, Pablo Noboa, it is the wood with the mostprofitability right now, even though it takes 20 years to grow. This is all subjective, if wetalk about quality wood, others like Caoba and Guayacan have its productive cycles ataround 40 to 50 years. This changes the way we see time in this market. There are fastgrowing woods like “balsa” and “melina” but this are not hard wood that allow forextremely long lasting furniture or doors to be made, this woods have other markets. Its
profitability at the social and economic level is excellent, because it can be grown in thedriest places or that have normally been cleaned for livestock and that are too eroded,where rains have moved away from because of the lack of trees themselves or because ofhow they have been cut down each year. The fact that you can cultivate an entireteakwood forest in a place where the ground is eroded and dry, where you can find thirdand fourth level soil, meaning grounds that are not apt for agriculture, makes teakexcellent for our country. Nestor Medrano, manager in Menproe, stated that teak has adapted well to theconditions in our country, even in comparison to Costa Rica, which is a country that has alot of technique and that has a lot of lead time when talking about teak but in potentialEcuador produces better wood than them and in higher volumes. In Ecuador’s market,raw teak is most of what we have. The part we lack is finished products. There arecompanies that are making special cuts, there are few of them but it’s a new marketstarting. The idea is to gain that added value and start selling floors, panels, doors, etc. tocountries like the one being discussed in this paper, Argentina, and get that utility thatother countries are getting right now.Teak Market in Ecuador Ecuador is exporting smaller diameters, which means that there is a great demandfor the wood, ten years ago the market only wanted bigger teak. The need is so big thatnow even the small ones are being accepted, showing how important teak is now in thewood industry. A well-handled tree is valued at 150 dollars per tree. The government hasgiven a credit to the forest sector through the CFN (Corporacion Financiera Nacional).This shows how the government is aiding the market because it is the first time they aregiving a credit that can be paid through trough the growth of the tree within a 20-yearspan. This is a great help for the producers and the investors since they can takeadvantage of the government’s initiative to reforest the country.Teak Market in Argentina In Argentina, teak furniture runs at a very high price. A single bench made oforiental teak can cost you up to $3900 showing how the teak market in Argentina is still
untapped and prices are still very high since there is no competition to force the sellers tolower their selling prices and this is one of the reasons Ecuador should export this woodto the Argentinian market. The primary wood sector plus the direct derivate from theagricultural industry makes up for 2% of the national gross domestic product inArgentina, there is a lot of room for development in this industry. Today, Argentina has33 million hectares of native forests and 1,1 million hectares of planted forests. Itrepresents approximately 13% of the entire land of the Argentinian territory. Althoughthey have more native forests, most of the wood Argentina uses for different purposescomes from planted forests, reducing the pressure on native forests and helping theenvironment at the same time. Most of the wood industry in Argentina goes to paper,construction and in less quantities to furniture.Argentinian Imports of wood When analyzing the evolution of the imports in furniture, we find continuousgrowth throughout the decade of the nineties, an abrupt fall for the period 2001-2002 anda sustained recuperation in 2003. Brazil is Argentina’s biggest trading partner in woodproducts. The imports from Brazil have grown 382% in the period 2003-2007. In the period 2005-2007 the imports of Argentina of wood products by originbreaks down in the following countries: Brazil 28%, Paraguay 15%, Chile 12%, Francia11%, China 8%, and others 26%.Sales projection For our sales projection in this project we are planning to use 40 feet containers atthe beginning, leaving the 20 feet container behind because we are planning to sell inhigher quantities. The prices of teak vary according to their age and diameters. Teak cutin for years has a diameter of 8 to 10 centimeters and it price is $80 per m3. There arealso two other kinds of teak in existence in our market, the one that is reaped in 10 yearsand the higher quality one and most apt for commercialization, the 20-year kind. The onethat can be harvested in 10 years has a net diameter of 19 to 21 centimeters and a price of
150 dollars per cubic meter. The commercial cut, which has a diameter that ranges from25 to 35 centimeters, has a price of 350 dollars per cubic meter.The first shipments that we plan to make are going to have an average size of 17 cubicmeters per container, and the price is going to be an estimate of 190 per cubic meter. Weare approximating an average of 3,230 dollars per container. The container itself with allthe tariffs included will cost around 4 thousand dollars, plus the cost of the teak the pricewill oscillate at around 8,000 dollars. The cost of the teak in Argentina is around 500dollars per cubic meters, giving a total profit of 8500 dollars.Conclusion After making the research about the exports of teak from Ecuador to Argentina,we couldn’t find a lot of information. We are known as a country that produces a lot ofteak and also exports it to other countries such as India but the taxes that our governmentimposes makes countries like Argentina look for cheap products with good quality incountries like India, Brazil, etc. After all, here as a conclusion I explain how Argentina’strade balance is and why they don’t look at us a good market. Argentina has afundamentally market oriented economy based on an abundance of natural resources, ahighly literate population and an export oriented agricultural sector. Although Argentinais an industrialized country, its exports continue to be dominated by agricultural products.In the last decade, soybeans have become the countrys main commodity export. Exportsof industrial goods have, however, also grown strongly in recent years. After decades of economic stagnation, economic reforms opened the market toforeign competition. Privatization and economic deregulation saw foreign investmentsoar and GDP grow, with large domestic conglomerates and multinationals dominatingthe industrial base and utilities. For a decade, economic policy was based on theConvertibility Law of 1991, which sought to end hyperinflation and attract investment byestablishing a currency board system that maintained parity between the Argentine pesoand the US dollar. However, the law, together with a lack of fiscal discipline, ultimatelyreduced Argentinas flexibility to deal with external shocks and exacerbated problems
such as unemployment. Argentine exports became uncompetitive, exacerbating chronicfiscal deficits and swelling public debt President Fernandez has adhered broadly to the economic policies pursued byher husband, including anti-inflation measures such as domestic price accords, exporttaxes and utility tariff freezes, and strong growth in public expenditure. The recentintroduction of measures aimed at slowing the flow of manufactured imports have metwith criticism inside Argentina as being protectionist, and caused tensions withinMercosur and with major trading partners. The government introduced a sliding scaleexport tax scheme for grains and oilseeds. In response, the leading farmers associationsin Argentina organized nationwide protests and roadblocks against the new measures,halting operations in the grains, beef and dairy sectors, with the objective of having thenew tax scheme removed or substantially adjusted. The governments proposed export taxmeasures for grains and oilseeds were narrowly rejected in the Senate in July 2008.However, this failed to resolve the conflict with farmers, who continue to seek areduction of all export taxes on agricultural products. The impact of the global financial instability, in particular weak demand andlower prices for Argentinas commodity exports, dampened economic growth in 2008(+6.8%) and 2009 (+0.7%). In order to mitigate the effects of the crisis, the governmentannounced a number of stimulatory measures, including increasing spending on publicworks, providing subsidized credit lines and extending a targeted taxation moratorium.Argentinas exports to the United States were US$3.66 billion in 2010, while importsfrom the United States were US$6.13 billion in 2010. Exports to China totaled US$5.8billion in 2010, up significantly from US$3.67 billion in 2009. Imports from China alsoincreased markedly from US$4.82 billion in 2009, up to US$7.65 billion in 2010. That iswhy Argentina doesn’t look us as a market in which they could invest or buy products oftheir needs, in which they could approach the profits that it gives to them. Also Ecuadorisn’t part of the Mercosur and this closes a little more the trade with them, that’s why weshould start making better relations with this country and begin selling this type ofproducts that are not that developed, so we can benefit from setting a price because thereis not that much competition.
References: • Camara de Comercio de Guayaquil. (2012). Relación Comercial ECUADOR - ARGENTINA. Recuperado el Nov 18 de 2012, de http://www.lacamara.org/website/images/boletines/informacion- comercial/relacion%20comercial%20ecuador%20-%20argentina.pdf • Centro de Estudios para la Produccion. (s.f.). Análisis de los sectores productos de madera. Recuperado el 20 de Nov de 2012, de http://www.cep.gov.ar/descargas_new/panorama_sector_industria/estudios_del_s ec_ind/2008/s57_mad_mue.pdf • Comercio Exterior Ecuador. (2012). PROCEDIMIENTOS PARA EXPORTAR DESDE ECUADOR. Recuperado el 19 de Nov de 2012, de http://comercioexterior.com.ec/qs/sites/default/files/Procedimientos%20para %20Exportar%20desde%20Ecuador_0.pdf • El financiero digital. (13 de November de 2012). Herramienta de analisis . Recuperado el 16 de November de 2012, de http://www.elfinanciero.com/negocios/tema_05_2012/negocios_05_2012.pdf • Espol Informa. (s.f.). ESPOL estimula el cultivo rentable de la teca, generando trabajo y buenas prácticas ambientales y sociales. Recuperado el 16 de Nov de 2012, de http://www.espolinforma.espol.edu.ec/informativo/detalle.jsp? id=373&catid=0 • FAO. (26 de March de 2012). Natural teak forests decline, while planted teak forests increase. Recuperado el 12 de Nov de 2012, de http://www.fao.org/news/story/en/item/130596/icode/ • GCS Comercial. (2012). Requisitos para importar en Argetina. Recuperado el 14 de Nov de 2012, de http://www.gcscomercial.com.ar/index.php?uid=124 • Revista El Agro. (29 de Feb de 2012). India demanda el 98% de nuestra teca. Recuperado el 16 de Nov de 2012, de http://www.revistaelagro.com/2012/02/29/india-demanda-el-98-de-nuestra-teca/
• Teak Woods. (s.f.). Investment Model. Recuperado el 20 de Nov de 2012, de http://www.teakecuadorian.com/historia.htmlAppendix 2008 2009 2010 2011 2012Enero 319 121 235 369 482Febrero 294 103 128 239 325Marzo 187 154 189 324 371Abril 349 204 194 326 453Mayo 300 233 341 483 553Junio 246 446 479 536 541Julio 312 400 456 784 587Agosto 534 450 616 862 615Septiembre 401 360 498 742 1108Octubre 432 269 634 772Noviembre 272 351 533 705Diciembre 184 372 482 812TOTAL 3730 3463 4785 6954 5035 Exports of Ecuadorian Teak Wood – Number of ContainersSource: El Financiero Digital Source: El Financiero Digital
Top companies Exporting Ecuadorian Teak wood Company Activity / Product Luis Alberto Suastegui Teak wood Alfonso Solis S Pieces of Teak wood Arcob Treated teak wood Tecasa Teak wood Barcotrading S.A Teak wood Capexport Teak wood Gustavo Andrade I. Pieces and saw dusted teak wood Marisec S.A Teak wood Source: Comadera Projects Characteristics Company Plantation Year Total Surface Cultivated Surface Rio Congo Forestal 2001, 2002, 2003 148 hectares 125 hectares El Tecal Exports 2004 # 150 hectaresImports hectares 135 La Reserva Banano 2005 1 Tortas hectares 154 de soya 130 hectares Conservas de PescadoSource: Espol Informa 2 Tubos de acero Atún 3 Aceite de soya Palmitos 4 Maíz Camarón 5 Vehículos de transporte Aceite de Almendra 6 Medicamentos de uso humano Galletas 7 Aluminio Confites 8 Cebada Rosas 9 Sorgo Manteca de cacao 10 Aceites lubricantes
Main Import-Export Relations between Ecuador and ArgentinaSource: Cámara de Comercio de Guayaquil
Source: Cámara de Comercio de Guayaquil Source: Comercio Exterior Ecuador