18 June 2017

Tanzania: Special Report - Teak Tree Farming Lucrative, but One Should Be Patient

interview

In this interview The Citizen Correspondent Patrick Kisembo speaks with one of the investors, Hans Lemm, the general manager of Kilombero Valley Teak Company, or KVTC in short,on challenges and opportunities of tree farming. Thousands of farmers in Kilombero, Ulanga and Malinyi districts in Morogoro Region earn their living growing trees, the business that has also attracted foreign investors who work close with farmers in fulfilling the demands of the timber industry. In this interview The Citizen Correspondent Patrick Kisembo speaks with one of the investors, Hans Lemm, the general manager of Kilombero Valley Teak Company, or KVTC in short,on challenges and opportunities of tree farming.

 When was the company established?

The company was established in 1992 following a joint feasibility study between the government of Tanzania and the original investors who were the Commonwealth Development Corporation. It was agreed with the government that Commonwealth Development Company, or CDC in short, would develop a hardwood forestry project and would at the same time put a lot of emphasis on protection of the natural forests in the area.

Are you planning to import more raw teak logs/woods from neghhbouring countries for processing and then export ready processed timber as well as to conserve their own forest resources?

Firstly KVTC does not import teak logs from other countries and all logs that the company harvests and processes are sourced from our own plantations. Secondly due to the cost of transport and distances involved it would not be economically viable for KVTC to import teak logs from other countries.

Thirdly in future we would like to buy trees from other tree growers and local farmers in our area and we are putting a lot of effort in promoting and supporting tree planting.

This year we have started a small pilot project to buy trees from external sources and we aim at scaling this significantly in the coming years.

How much have you invested so far since you started this project?

A total of approximately $60 million has been invested in the company since 1992 till date.

How do you cooperate with local timber companies and local farmers in planting teaks and fighting environmental degradation?

KVTC supports around 350 farmers who in total have planted around 1,000 hectares of teak trees and this number is growing each year. Next year we are planning to continue our support to smallholder teak farmers and we plan to increase the planted area by around 250 hectares to a total of 1,250 hectares.

In addition to supporting smallholder farmers KVTC has also been instrumental in bringing new industries to the Ulanga District. In the last few years we have seen a number of new sawmills develop who all buy their raw materials from KVTC's planted forests.

How was your annual economic and income expenditure last financial year? Was it promising?

The calendar year 2016 was a reasonably positive year and the international teak markets have been showing good prospects. In addition we have been selling more products in the local markets especially to the tourism and leisure industry in Northern Tanzania which has shown growing demand for our products- we hope to see more people buy KVTC's products rather than source products from unsustainable sources.

We can see that the government is putting a lot of emphasis on compliance and tax collection and we support this drive and believe that if all businesses are taxed equally and fairly it will be beneficial for all parties involved.

We also encourage the government to simplify the amounts of taxes, levies and permits that are required to operate and as such reduce the cost of doing business. We believe that the private sector is a crucial partner for the government and if we do well the government will benefit through taxes and employment.

How big is the demand of your products inside and outside Tanzania as of now?

Currently around 40 per cent of our income is generated through local sales in Tanzania and roughly 60 per cent is coming from export sales. However we anticipate that we will see the local demand grow. Tanzania like most African countries is an importer of wood products (furniture, plywood, transmission poles and other) and as such we foresee good prospects in the future.

How much have your company contributed to the government of Tanzania in terms of tax and other duties say of last fiscal year?

During 2016 the company paid approximately Sh1.7 billion in taxes.

How are you fairing in your businesses with regards to the markets in Asia and Europe?

Europe is not a priority market for KVTC and most of our export markets are in Asia in particular India and Vietnam are important markets for us.

What are the challenges you are facing regarding your investment economically, politically and social community issues?

Doing business is always challenging and every day we face a lot of different issues ranging from logistics to procuring critical spares. Doing business in a remote part of Tanzania comes with a lot of additional challenges but with hard work we overcome these.

At the moment we have been severely hampered in our operations as a result of the heavy rains and the serious damage this has caused to the roads in the Ulanga District (where most of our plantations are).

We also experience many obstacles in the form of government checkpoints in moving our products to our customers and often it takes several days to get products to our main markets - movement of timber products is heavily.

How many tonnes of various products do you export monthly, annually?

During 2016 we exported around 8,500 tonnes however we also sold a lot of products in the local market.

How is the relationship between the local community and the company like?

The company maintains good relations with the local communities around the plantations and we have a number of initiatives where we support infrastructure development and income generating activities in the surrounding villages.

KVTC will continue to focus and nurture this relationship. In addition to our work with the communities we also work together with the ministry of Natural Resources Private Forestry Programme in supporting smallholder farmers. The Private Forestry Programme is a bi-lateral programme between the government of Finland and the Tanzanian government that falls under the Ministry of Natural Resources and Tourism. KVTC is one of the implementing partners for this programme.

During the past two years KVTC, together with the Private Forestry Programme, has spent Sh840 million to support smallholder farmers and for 2017 approximately Sh600 million is set aside for the Outgrower Support Programme.

Aside of the outgrower activities we spent approximately Sh250 million on village activities, support and infrastructure development during 2016.

Can you tell how you have been dealing with planting, harvesting, managing and protecting teak plantation?

KVTC manages approximately 8,000 hectares of teak plantations that are planted and harvested on a rotation basis which means that after harvesting an area we replant this same area in the next year. Aside of the teak plantations there are natural forest areas on our land and we protect these areas and try and preserve their natural state. We work together with local communities and the district authorities as well as the Tanzania Forest Service to protect the forests and ensure that we create a long term sustainable business that is both environmentally friendly as well as economically viable. We see that the pressure on natural resources is increasing.

We have seen increased levels of unauthorised logging for timber and charcoal, overgrazing and many others and we very much rely on support from the local communities as well as the government to jointly protect these precious resources. KVTC works together with the villages and conducts joint forest patrols. Tanzania's forests are under great pressure and it is important that we all work together to protect our forests and ensure that we create a good environment for our children and their children to live in the future.

Any other economic challenges you have been encountering and what successes can you boast of from the business you are running

We are proud that after many years of investing the company is starting to reach a more mature state and although we still owe a lot of money to our lenders in particular our local bank we feel that the company is a lot stronger today than it was a few years back. We hope that with the support of local authorities and national government forest businesses like ours will continue to grow and bring positive impact to rural communities.

How have you been fairing in terms of processing, producing, marketing and exporting various timber and value added products?

Our value-added products (doors, flooring, decking and panels) are mainly destined for the local as well as regional markets and our export markets buy predominantly sawn timber.

How many tonnes did you export timber last year?

During 2016 the company exported around 10,500m3 - it is not possible to give an exact value of a container as the company produces many different sizes and grades of timber and prices can range substantially depending on grade, age and size of the timber. Note that it is not allowed to export logs from Tanzania and KVTC only exports sawn timber that has been processed in our own sawmilling industry.

And what is your expectation of the amount you will receive after exporting containers of timber and logs between 2014-2016?

Let me put it like this - it takes a long time to grow a teak tree (at least 16-18 years and sometimes even longer) but if you can wait and be patient then growing teak trees can be a good investment.

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