Working Paper 28:
Trading Forest Products in Cambodia:
Challenges, Threats, and Opportunities for Resin
Prom Tola and Bruce McKenney
Working Paper 28 in English, 58 pp
Working Paper 28 in Khmer, forthcoming

Executive Summary

Forests support rural livelihoods in Cambodia in a number of important ways. Almost all rural Cambodians use forest resources for cooking fuel and construction materials. Many also collect other products for household use and income generation through trade, such as bamboo, rattan, resin, wild fruits and vegetables, and medicinal materials. In addition to products, forests provide habitat for flora and fauna diversity, essential ecological services, and in some areas have important cultural and spiritual significance to surrounding communities.

         Recent estimates indicate that about one-quarter of the Cambodian population lives in or near forest areas, and several hundred thousand rural Cambodians depend, at least in part, on income from the collection of forest products (World Food Programme 2001). These estimates, in combination with numerous case studies conducted on the role of forest resources in rural livelihoods, suggest that forest product collection and trade plays a significant role in Cambodia’s rural economy. But with the bulk of attention in the forestry sector focused on commercial timber operations, this economic activity has often been overlooked.

         To explore the conditions under which forest products are traded in Cambodia, and how such conditions may affect rural livelihoods, this study focuses on one of Cambodia’s most important forest products – resin. Tapped mainly from the evergreen tree species Dipterocarpus alatus, but also from a variety of other species, resin is used domestically for sealing/waterproofing boats and exported for these uses as well as for paint and varnish manufacturing. Tapping occurs across most of Cambodia’s forest areas, in at least ten provinces, with activity most prevalent in the north and northeast regions. Improving trade conditions for resin in a manner that increases returns to producers/tappers would have a positive impact on many forest communities.

         For this study, research was conducted on resin trade from four resin-producing areas – Mondulkiri, Preah Vihear, Kompong Thom, and Oddar Meanchey/Siem Reap – between August and November 2002. Information and data were collected through nearly 60 semi-structure interviews with resin traders, wholesalers, transporters, exporters, retailers/distributors, and government officials, observations on a trip with a shipment of resin, and a brief survey of community representatives from resin-producing areas in nine provinces. Key objectives included describing resin tapping methods and uses, examining the threat of logging to tapping activities, analysing the market structure for resin production and trade, describing the current regulatory framework and actual practices, assessing the key challenges to resin trade, and identifying policy recommendations.

Tapping, Tenure, and Logging Threats

Tapping resin involves cutting a backward sloping hole in large trees, burning the hole briefly to stimulate resin flow, and collecting the resin in plastic containers after a few days. Using this method, trees can reportedly continue to yield resin for several decades. Tapping does not damage the trees, and the risk of forest fires appears negligible due to the brevity and control of the burning. According to custom, the first person to find and mark a resin tree is considered its owner. Nonetheless, because resin trees are by custom considered private property, it is possible to transfer tree ownership through sale, inheritance, or donation, or sell the rights to tap trees for a specified period of time. This tenure system appears unique for resin trees; other trees and non-timber forest products are not “owned”, instead access to these resources is open to all.

         Although resin tree “ownership” lacks a formal legal basis, Cambodian law does ensure the user rights of tappers and also prohibits the logging of resin trees (Article 29, Forestry Law of 2002). But cutting of resin trees reportedly continues despite the illegality of the practice. Loggers harvest resin trees because they are a commercially attractive source of timber. Indeed, logbooks for six forest concessionaires indicate that species tapped for resin comprised a significant proportion of the trees harvested in 2001. Unfortunately, in some forest areas there appears little room for a “win-win” solution – maintenance of resin tapping income and commercial logging. A clear forest management decision is needed about whether commercial logging will be permitted in any manner in areas with resin trees. Without such interventions, the cutting of resin trees will likely continue, conflicts over resin trees could increase, and thousands of rural Cambodians dependent on resin tapping could lose a vital source of income – an outcome that clearly runs counter to national poverty reduction objectives.

Resin Production and Trade

Approximately 20,000 tonnes of resin are collected annually across Cambodia, and this activity provides an important source of income for roughly 100,000 people living in/near forest areas. Resin tappers sell their product to a marketing chain that includes traders, wholesalers, transporters, domestic retailers and exporters. From forests, resin is often transported significant distances to domestic markets around the Tonle Sap, south to the Mekong Delta region, and exported to Vietnam, Thailand, and Laos (which reportedly re-exports resin to Thailand). Domestic demand for resin is mainly driven by the need of more than 250,000 Cambodian households to seal and waterproof their boats each year. Export demand for resin appears to be mainly driven by the needs of paint and varnish manufacturers in Vietnam, but CDRI could not confirm primary export uses. The annual market/export value of resin production in Cambodia is approximately $6 million.

Regulatory Framework and Actual Practice

The current regulatory system requires a number of permits, licenses, and fees to stock, transport, and export resin. But in practice, almost no one active in the resin trade holds the appropriate permits and licenses. Instead, trade operates through an informal process involving a range of fee payments to a variety of institutions, including the Department of Forestry, Provincial Forestry Offices, Ministry of Environment, as well as district officials, police, economic police, military, and military police. One of the most common practices is to charge fees when “checking” the transport permit, since officials know that transporters will either have no transport permit, or a permit with a significant underestimation of the actual shipment amount.

         Compliance with the official regulatory system governing resin marketing is extremely difficult. This is especially true for small businesses, which lack the means to pay official fees or to travel to Phnom Penh to obtain a transport permit and/or export license. Therefore, almost all resin trade and export must be conducted on (technically) an illegal basis. Consequently, the system generates almost no formal government revenue.

Analysis of Costs and Fees for Resin Trade

The main constraints on resin trade are transportation costs and multiple informal fees. Although these costs are imposed on the marketing of resin, rather than resin tapping, the costs can nonetheless have a significant impact on tappers’ incomes. When marketers of resin incur significant costs, they may not be able to absorb them and continue to make a profit. In such cases, they must pass on costs to tappers in the form of lower prices for resin. As one trader put it, “when the authorities raise the fees, I cannot pay all of it and make a profit, so I must reduce the price I pay to villages for resin.”

         Across the four resin trade routes studied, there is significant variation in trade practices, prices and margins, costs, and fees. For example, the average price received for resin by tappers in Mondulkiri is three times the price in Kompong Thom and about twice the prices in Preah Vihear and Oddar Meanchey. Such price differences can be explained by a number of factors, including resin quality, distance from tappers’ villages to a final market, level of fees along the trade route, and end markets (export prices are higher than domestic prices).

         The market price of resin ranges from $172 per tonne (domestic market) up to $325 per tonne (export market). Trading resin from tapping villages to these end markets costs an average of $93 per tonne in trade costs ($56 per tonne) and fees ($37 per tonne).[1] Thus, fees add 65 percent to the total costs of resin marketing and sharply reduce profits. If applied to all 20,000 tonnes of resin produced and traded annually in Cambodia, total fees on resin range from about $500,000 to $1 million per year.

         Fees on resin trade are paid along the road and at different transaction points. All fees are either informal payments or payments made on an official basis but not at the official rate. Detailed examinations of shipments for two trade routes illustrate the variance in fee amounts, number of payments, and collecting institutions. For a 20-tonne shipment of resin from Preah Vihear to the Vietnamese border, fees amount to $1,344 (or $67 per tonne). This trade involves 43 payments in 14 different locations. Forestry officials dominate fee collection for this trade route, accounting for 20 of the payments and about 75 percent of the overall fee amount. Another 17 payments are made to police, economic police, military police, and military. Fees play a lesser role in resin trade from Mondulkiri to the Vietnamese border. For a 1.2-tonne shipment of resin, fees amount to about $30 (or $25 per tonne). This trade only involves 11 payments in three locations.

         In addition to fees actually paid, the threat of fees causes economic losses due to trade inefficiencies. Resin traders will go to great lengths to avoid paying high fees, since their payment would often result in a loss rather than profit. For example, rather than shipping resin efficiently in a large truck (and paying high fees), it is common to avoid fees by shipping smaller quantities in the trunks of taxis. Likewise, traders avoid some border points where fees are known to be high, opting instead to travel longer distances to other border points despite the additional transport and fuel costs. Stepping up enforcement to counter such fee payment evasion is not recommended, however, because it would make much of the trade unprofitable and perhaps cause a collapse in the trade altogether. Prior to any efforts to improve compliance, the fee system itself needs to be reformed.

Recommendations

The government has indicated in its National Poverty Reduction Strategy 2003–2005 the need to review and improve the regulatory system for non-timber forest products in order to support better market conditions. Such improvements would be in line with national objectives to reduce poverty, ensure food security, increase pro-poor trade and rural development, and improve forest management. To support such improvements, a number of policy recommendations are summarised below based on the research findings of this study.  

1)      Improve governance and transparency for resin marketing, including an overhaul and simplification of the current regulatory system.

 ·         Eliminate the transport permit and associated fees.

 ·         Eliminate fees collection by checkpoints/institutions with no legal basis for collecting fees.

 ·          Remove the export tax and simplify procedures for obtaining an export license.

2)      Improve and localise forest management by decentralising authority over revenue-raising mechanisms.

3)      Enforce Article 29 of the Forestry Law prohibiting the harvest of resin trees.

4)       Establish resin/NTFPs as a focal sector for pro-poor trade initiatives and value-added processing improvements.

5)   Review and revise the regulatory framework for all NTFPs.

[1] Trade costs refer to all operating, capital, and working capital costs involved with storing, aggregating, and transporting resin from the tappers’ villages (or forest gate) to end markets, excluding fees.