China as a Final Market: The Gabon Timber and Thai Cassava Value Chains

World Development Vol. 39, No. 7, pp. 1177–1190, 2011� 2010 Elsevier Ltd. All rights reserved

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China as a Final Market: The Gabon Timber and

Thai Cassava Value Chains

RAPHAEL KAPLINSKY, ANNE TERHEGGEN and JULIA TIJAJA *

The Open University, Milton Keynes, UK

Summary. — Rapid economic growth in China has boosted its demand for commodities. In many commodities sectors, this has beenassociated with declining demand from high-income northern economies. This paper examines two hypotheses of the resulting outcomesfor the organization of global value chains in general, and for the role played by low income producers in particular—the importance ofstandards in global value chains, and the space available for low income producers to upgrade into higher value niches in their chains.The detailed case-studies of the Thai cassava industry and the Gabon timber sector both confirm these hypotheses.� 2010 Elsevier Ltd. All rights reserved.

Key words — value chains, China, Thailand, Gabon, cassava, timber

* This paper is drawn from Kaplinsky et al. (2010). We are grateful to

Olivier Cattaneo, Cornelia Staritz, and two anonymous reviewers for

helpful comments on an earlier draft. Final revision accepted: November15, 2010.

1. INTRODUCTION

In a relatively very short period of time, China has emergedinto a position where it is now the second largest economy inthe world, and the world’s largest trading economy. Over thepast three decades its annual growth rate has averaged around10%, compared to a rate of around two and a half percent in theOECD economies over the same period (Kaplinsky & Farooki,2010). Following the 2008 financial crisis it appears likely thatthis relative growth-rate superiority over the OECD economieswill be sustained for some period of time (Kaplinsky & Farooki,2010). There are strong grounds for, therefore, examining theconsequences of China’s rapid GDP- and trade-growth onthe traded-goods sectors in other countries. With a southern-lens focus, the impact of China’s exports on global marketsfor manufactures has been the source of increasing enquiry,addressing both the relative shares of global product marketsand the impact on manufacturers producing for domestic mar-kets (Eichengreen & Tong, 2006; Jenkins, Dussel Peters, &Mesquita Moreira, 2008; Kaplinsky, 2008; Lall & Albaladejo,2004). Insofar as China is seen as an importer of significance,in many commodities sectors China has been the source ofmuch of the growth in global consumption and imports sincethe millennium (Goldstein, Pinaud, Reisen, & Chen, 2006;Radetzki, 2006; see also http://commodities.open.ac.uk/cpd).

Despite the growing focus of enquiry on China’s burgeoningdemand for commodities as inputs for both its rapid growth ofurbanization and infrastructure, and for its manufacturingsector, two major knowledge-gaps are evident. The first is thatattention has predominantly been focused on China’s importsof minerals, metals, and energy, and less on its demand for softcommodities, particularly for soft commodities feeding intoindustrial sectors (as opposed to its imports of food crops). 1

Second, and an even bigger gap, there has to our knowledgehitherto been no analysis on the impact of China’s demandfor imports on the structure of global value chains (GVCs).Is the Chinese market distinctive, and if so, does this affectthe configuration of the GVCs feeding into it and the distribu-tional outcomes of production in these GVCs?

This paper targets these two knowledge-gaps. With regardto the first of these, we analyze the export to China of soft-commodities destined as intermediate products into othersectors, notably cassava exports from Thailand and timberexports from Gabon. Both countries are important exporters

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of these products—in Thailand’s case it is the largest global ex-porter of cassava products, and Gabon accounts for 16% ofglobal trade in tropical timber. 2 With regard to the secondknowledge-gap, in both cases the major export destinationhas shifted from Europe to China over the past decade, andthis enables us to compare the impact of this market-transitionon the structure of the value chains in these two respectiveeconomies. In the context of differential growth rates of globalconsumption, our conclusions are suggestive of a considerableimpact on low income exporting economies of China’s rapideconomic growth.

In examining these impacts we begin by briefly highlightingkey distinctive characteristics of consumer markets in low in-come markets (Section 2). In Section 3 we focus on the evolu-tion of the cassava value chain in Thailand and in Section 4 onthe Gabon timber value chain. The conclusions (Section 5)consider the wider implications of our analysis.

2. THE DISTINCTIVE CHARACTER OF SOUTHERNCONSUMER MARKETS

In considering the distinctive character of southern finalmarkets and their impact on the value chains, which feed intothem, we focus on two characteristics that are highlighted byour case-studies. The first of these is the importance of processand product standards. The ability to meet global standardshas been an important source of capability-upgrading in manylow income economies in recent years. The second is thecapacity which commodity-exporting economies develop todeepen their value added in these chains as a source of diver-sification and industrialization.

(a) The growing importance of standards in northern markets

Around the late 1960s, there was an important transition infinal markets in the northern economies (Piore & Sabel, 1984).Once post World War Two reconstruction had been achieved

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1178 WORLD DEVELOPMENT

and the basic needs of most consumers had been met, consum-ers became increasingly discerning about the products theyconsumed. They demanded higher levels of quality, muchgreater product differentiation, and faster rates of productinnovation. In the context of this change in the pattern of de-mand, the ideal archetype in production organization movedfrom mass-production to mass-customization (Pine, 1993), inwhich producers developed the capabilities to meet differentcritical success factors (CSFs) in proliferating and dynamicmarket segments. Variety and flexibility—with little trade-offin costs—became the name of the game in competitive produc-tion.

A direct consequence of this search for low-cost flexibilitywas a transition in production organization from just-in-casemass-production to just-in-time lean production (Kaplinsky,1994; Womack & Jones, 1996). Coupled with the drive byfirms to concentrate on their core competences this meant thatlead firms were required to take responsibility for the systemicefficiency of their GVCs (Gereffi, 1994). One important com-ponent of the tool-box, which this entailed was the develop-ment of standards in production, often usefully summarizedas QCD. The Q stood for standards over quality (increasinglymeasured in parts per million), the C for cost (often, annualreductions in price paid to suppliers) and D for delivery (morefrequent deliveries in smaller batches).

Most of these standards were firm-specific or driven byorganizations reflecting the interests of the corporate sector,such as the cross-sectoral ISO9000 quality procedures, andsubsequently ISO14000 environmental standards. By the endof the 20th century, these private sector standards had becomean integral component in most GVCs feeding production intoglobal markets, particularly for intermediate and final con-sumption goods characterized by variety, and principally inthe dominant high-income northern markets.

Coterminous with the development of these post-war privatesector standards governing participation in lead-firms’ valuechains, there was the development of state-imposed standardsover health and safety. As per capita incomes grew in northerneconomies, so governments became increasingly aware of theneed to protect consumers against hazardous materials, com-ponents, and products. Another important driver of standardsin some cases has been protectionism, a desire to hamper for-eign producers and in some cases (as in the current wave ofChinese standards in the mobile telecoms sector) to allowdomestic firms to overcome the disadvantages of second-mover status. In many cases the standards were aimed atdomestic producers feeding into domestic markets, but as va-lue chains became increasingly global in nature, these healthand safety standards were extended to intermediate and finalproducts traded over national boundaries.

A third family of standards also reflected this confluence ofthe growth of higher incomes in major consuming markets andthe globalization of value chains. As northern economies grewin wealth, so civil society organizations grew in importance.They began to focus on the ethical and environmental charac-ters of the products which they were consuming. Under whatconditions was labor employed in meeting the products whichthey consumed? What was the impact on the environment ofthe products which they consumed? Were these products safeto consume?

(b) The deepening of value added

It has long been recognized that the commodities sector hasthe potential to be a lead-sector in the early stages of economicgrowth and a spur to industrialization and diversification. The

Staples Theory was elaborated to explain the growth of theCanadian economy as arising from a cluster of factors associ-ated with the exploitation and export of commodities, such asfish and fur (Innis, 1940). This was extended by Hirschman(1981), North (1955), and Watkins (1963) who argued thatthe exploitation of the commodity sectors could be a centralcomponent of development strategy. The commodities sectorin these formulations is seen to be rich in both forward andbackward linkages. The promotion of forward linkages—thedeepening of downstream value added—has been seen as animportant component of industrial policies in resource-richeconomies, described in recent context in South Africa as astrategy of “beneficiation” (for an example for the case of dia-monds, see Baartjes (2007)). It is argued that not only do for-ward linkages represent a deepening of value added, but alsothat they spur a cluster of supplier industries, which feed ben-eficially into other sectors.

The deepening of linkages has also been addressed in theGVC framework. In a world of intense competition (as inthe recent era of globalization), the capacity to deepen valueadded and to move from primary extraction to the processingof primary products—one element of functional upgrading(Humphrey & Schmitz, 2001)—has been seen as a key stepin sustainable income growth. It is widely argued that the bar-riers to entry in the processing of primary products are greaterthan those involved in the extraction/growing of these com-modities (Farfan, 2005; Gibbon, 2000).

(c) Southern drivers of growth

The question which arises from the discussion in Sections2(a) and 2(b) is whether GVCs feeding into low income mar-kets are likely to have different characteristics to those feedinginto high-income markets. In this paper, we examine the im-pact of final markets on the two issues addressed above—stan-dards and upgrading—by focusing on the Thai cassava andGabon timber value chains. We will make two primary claimsin this empirical analysis.

The first is that standards are driven by differentiation ofconsumer tastes so that lead firms have to govern their ex-tended chains to ensure the conformance required to achievedifferentiation at low cost. They are also driven by governmenthealth and safety considerations, and by civil society concernswith equity and the environment. In each of these cases, it isless likely that these demands will be as evident in value chainsfeeding into low income markets. Figure 1 gives some exam-ples of these variant drivers of standards in high- and low-income economies, distinguishing between standards drivenby firms, governments and civil society, and those addressingproducts and processes.

The second issue which we address concerns the way inwhich primary producers participate in the international divi-sion of labor in GVCs. Firms will jockey for position in thischain, seeking to command a space which maximizes the rentswhich are made possible by their capabilities and the economyin which they are located. Insofar as low income economyfirms engage in a chain, including firms from high-incomeeconomies, there are a number of areas in which win–win spe-cialization outcomes can be anticipated. Figure 2 identifiesfour such areas—wages and labor standards, environmentalimpact and technological capabilities. As a general rule, firmsproducing in the south tend to have low labor costs, operate ina context of weak labor standards, have relatively underdevel-oped technological capabilities, and produce in a context ofrelative insensitivity to negative environmental externalities.Conversely, firms operating in northern economies pay high

Figure 1. How important are standards likely to be in value chains feeding into low income countries?

Figure 2. High and low income commodity importing economies—complementarity and competition with low income commodity exporting economies.

CHINA AS A FINAL MARKET 1179

wages, specialize in technologically-intensive activities andwork in countries with demanding regulations covering theenvironment and labor standards. Thus there will be a rangeof activities where southern firms will not compete with north-ern firms in their chains. By contrast, when trading with south-ern partners, there is likely to be much more scope forcompetitive win–lose outcomes.

Although these factors may be pervasive across sectors, theirintensity will of course differ. Some sectors produce muchmore differentiated goods than others (organic fair-tradebananas compared to soy beans). Sectors and countries alsodiffer in their technological intensity and producers are locatedin a variety of different operating conditions. However weposit that as a general phenomenon, there is more likely to


be competition than complementarity between industrialstructures in the two sets of low income economies.

With these two assertions in mind, we now turn to our twocase-studies to assess the extent to which they are verified intwo sectors—cassava in Thailand (Section 3) and timber inGabon (Section 4). Our market reference point is the shift infinal market from the high-income EU market to the lowincome China market. In both cases, we explore how this shiftin final market is reflected in the extent and nature of standardsincorporated in the value chain, and in the capacity of lowincome commodity exporters to upgrade to high value addedand more technological complex links in their value chains.

Our research in Thailand was conducted between November2008 and March 2009, following a 3 weeks’ pilot fieldwork inmid 2008 (Kaplinsky, Terheggen, & Tijaja, 2010). A total of 59cassava processors in Nakhon Ratchasima province, in thenortheast of Thailand, were interviewed. Of these, 31 werechip producers, 10 pellet producers and 18 starch producers,representing 4.4%, 25%, and 23% of the country’s total; and40%, 91%, and nearly all of the northeastern region’s total,respectively. In Gabon, we interviewed producers, processors,and key industry informants located in Libreville duringNovember 2008-February 2009 (Kaplinsky et al., 2010).Producer/processor companies interviewed accounted formore than 55% concession area size and export volume.

3. THE THAI CASSAVA VALUE CHAIN

Cassava is a starchy tuber crop extensively grown in lessdeveloped regions of the world. It thrives on poor quality landand is drought-resistant; often serving as a food-crop-of-last-resort. It is also processed into intermediate products, for ani-mal-feed, bioethanol, and starch industries. Bulky and perish-able, cassava is traded in processed forms. In 2008, globaltrade in cassava products was $1.124bn. Although the largestproducers were Brazil and Nigeria, Thailand has long been thelargest exporter (Figure 3).

Cassava is an important crop in Thailand. In 2007, it wasthe second most important crop after rice in terms of valueand the third in terms of volume. It was also the third biggestagricultural export after rubber and rice (FAOSTAT-Agricul-

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ture accessed November 2009). Unlike other producing econ-omies, there is little direct food consumption of cassava inThailand. Almost all output is processed into intermediateproducts. In 2008, an estimated 66% of all Thai cassava wasexported (TTSA, 2009).

(a) The cassava value chain in Thailand

There are essentially two product families in the Thai cas-sava sector (Figure 4). These are the dried cassava and thestarch value chain. The dried cassava value chain comprisesof two product segments—chips and pellets. The starch valuechain is also comprised of two main product segments—nativeand modified starch (and a small quantity of sago).

Chips, the least processed of all cassava products, are usedas inputs into feed and bioethanol industries. Its simple pro-duction process involves cutting and sun drying of root tubers.Lower-grade normal chips are fed into pellet and bioethanolindustries. The higher-grade clean chips are used directly asdomestic feed, but involve additional peeling and cleaning oftubers, and an extra day of drying. Clean chips have a lowersand, fiber, and moisture level than normal chips. Pellets aremade of “normal chips”, which are ground and steamed, per-haps mixed with starch waste, and molded into pellets. Theycan also be made wholly out of starch waste. Pellet productionembodies scale economies, and requires more skilled labor andcapital than chips. 3

Both native and modified starches are used in numerousindustries, with modified starch feeding into more technologi-cally-intensive ones. Modified starch involves further process-ing after native starch production. While roots constitute70–75% of the total production cost for native starch, theyonly account for 46% for modified starch (fieldwork interviewsand Titapiwatanakun (1994)). Starch waste is also sold to befurther processed into animal feed. The typical starch factoryoperates at around 850 root-tons per day.

(b) Market requirements for cassava-based products

There is one established and one emerging export market forThailand’s dried cassava (chips and pellets)—the EU and China.Each market has particular trajectories and requirements.

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Figure 4. The Thai cassava value chains.


The starch export market is much more diversified, and theshare going to China has also been increasing.

The origin of Thailand’s dried cassava industry can betraced back to the introduction of the EU’s Common Agricul-tural Policy (CAP) in 1962, where the resulting high domesticcereal price triggered the demand from EU feed manufacturersfor cheaper alternative feed ingredients. Dried cassava exportsto the EU expanded rapidly, reaching almost 9 million tons in1989, initially as chips and later on as pellets. The shift to pel-lets was due to a number of reasons. Since dried cassava wasused in feed production, uniform shape and size were impor-tant for mechanized mixing of different feed ingredients.

The transportation of pellets, which are more compact thanchips, is more economical for long-haul shipment to the EU.Moreover, the transportation of chips is dustier than pellets’;the 1978 EU environmental regulation further favored pelletsover chips. Finally, as cassava pellets are used in feed produc-tion, imports are governed by the EU farm-to-fork policy,which requires traceability. Different export markets have dif-ferent standard requirements. Figure 5 summarizes the stan-dards in different dried cassava markets.

The competitiveness of Thai cassava pellets in the EU wasundermined by a series of trade restrictions through the1980s and in early 1990s; particularly the 1992 reform of theCAP. By 2005, pellets export to the EU had collapsed to250,000 tons, compared to 9 million tons in 1989. Althoughexports rebounded to 989,000 tons in 2008, they fell again to20,000 tons in 2009 (FAO, 2009; TTTA, 2009; UN Comtradeaccessed December 2009).

China’s growing demand for chips is the outcome of a com-bination of factors. First, the Chinese government’s policy ongrain self sufficiency discourages the use of domestic grain fornon-food purposes like bioethanol. Secondly, the shift towarda protein rich diet as income grows increases the demand forfeed. Thirdly, China’s growing industrial and consumers’ en-ergy need increases the demand for ethanol. Concerns overagflation and food security led the government to place a mor-atorium on grain-based ethanol plants in 2007, leading to ascramble for non-grain ethanol inputs, including cassava

(Tian, 2007). The direct and indirect implications of all thesestimulated the imports of cassava from Thailand (OAE,2006). Most of China’s cassava imports from Thailand arechips (Table 1). China’s chips imports grew rapidly in the2000s, following a wheat harvest failure in 2001 and the elim-ination of the 6% tariff on dried cassava under the EarlyHarvest Program (EHP) of the China ASEAN Free TradeAgreement (FTA) in 2003.

China’s demand for starch has also increased rapidly in re-cent years. The share of starches in China’s total cassava im-ports from Thailand grew from only 6% in 2002 to 27% in2008 (Table 1). China’s share of Thai cassava starch exportshas grown from just 6% in 1997 to over 19% in 2008 (Tijaja,2010). FAO forecasted that China’s share would increase fur-ther to 26% in 2009 (FAO, 2009). In fact, it rose to 27.8% in2009 (UN Comtrade accessed 26.09.10).

However, while China’s share in the Thai starch market hasbeen growing, the composition of its starch imports is alsochanging. The growing share of low value native starch im-ports at the cost of higher value modified starches is reflectedin the volume-value share of China’s trade with Thailand instarches. In 1997, China accounted for 13% of Thailand’s cas-sava starch export in value but only 6% in volume. In 2008,China accounted for 18% of Thailand’s starch export in valuebut 19% in volume.

(c) Changes in market destinations and product composition

Two major changes can be observed in the trend in Thaidried cassava exports. The first is the change in destination.The Thai dried cassava industry—essentially a creation ofthe EU CAP after 1962—nearly collapsed after the CAP re-forms in the early 1990s. Fortuitously, the Chinese market be-gan to grow rapidly soon after the EU market was falling. Thisresulted in a shift in export destination. The share of the EUmarket fell from almost 95% in 1999, to less than 10% in2005, with a temporary rebound to around 30% in 2008; whileChina has become the largest dried cassava export marketsince 2002 (TTTA, 2004, 2009; UN Comtrade accessed

Figure 5. Standards governing production in the Thai dried cassava value chain.

Table 1. Thai cassava exports to china (US$ million)

2002 2003 2004 2005 2006 2007 2008

Total ($m) 109.02 137.44 236.74 329.87 474.81 417.62 288.30

Of which (%)

Dried cassava 94.10 94.66 90.04 89.44 87.61 83.26 72.57Cassava starch 5.90 5.34 9.96 10.56 12.39 16.74 27.43

Source: UN Comtrade (http://comtrade.un.org/) accessed November 2009.


December 2009). Given different demand patterns, this shift inexport destination was also accompanied by changes in prod-uct forms from pellets to chips (Figure 6).

Alongside the growth of Thai cassava starch exports to China,China is increasingly importing (cheaper and less processed) na-tive starches at the expense of modified starches (Figure 7). In2001, Chinese starch imports from Thailand were split equallybetween modified and native starches. By 2006, only a quarterof total starches imported from Thailand into China were moretechnology intensive modified starches (TTSA, 2008).

(d) Consequences

What have been the consequences of these shifts in marketand product composition of Thai cassava exports over thepast decade? Table 2 summarizes factor utilization and num-ber of establishments if all cassava were to be produced aschips, pellets, or starches. The calculation used 29 milliontones of cassava roots (Thailand’s production in 2008) as thebenchmark input.

The transition from pellets back to chips has led to a reduc-tion in the degree of processing. Chip production is a labor-intensive operation occurring in open-air drying yards—theraw cassava is cut, sun dried, and then aggregated and ex-

ported in bulk. Pellet production builds on chip production,adding value by grounding, steaming, and molding chips intopellets. It is more technologically complex, involving greateroperational and managerial skills. The shift is, therefore, amove down the technological chain. This has implicationsfor factor utilization. Table 2 simulates the employment andcapital costs which would result if all of Thailand’s cassavain 2008 were exported as either chips, or pellets or starches.It shows that pelletization, that is, the transformation of chipsinto pellets, creates an additional 9,357 to the 18,270 jobs inchip production (a 51% increase in employment), but at anadditional capital cost of $6m (a 30% increase). It would alsorequire an additional 168 pellets plants, contributing to thediversification of entrepreneurship.

A further consequence of the transition from the EU pelletmarket to the Chinese chip market is a change in the natureand significance of standard certifications. The quality require-ment of chips exported to China is the starch content. By com-parison, pellet exports to the EU are required to satisfy GoodManufacturing Practice (GMP) and Hazard Analysis andCritical Control Points (HACCP) standard certifications.GMP is a general standard required for processed productsacross sectors, whereas HACCP is the public food safety stan-dard specifically designed to prevent known hazards from

http://comtrade.un.org/

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Figure 6. Thai dried cassava export: the shift in product forms.

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Figure 7. Shares in Thai cassava starch export to China.

Table 2. Factor utilization and number of establishments if all cassava were to be produced as chips, pellets or starches

Chips Pellets (incl. chips) All starches

Employment 18,270 27,627b (of which 9,357 in pelletization) 29,725Capital costa ($m) 19.97 25.96 44.73Number of firms 1,373 168 Pelletization plants 1,373 drying yards 114

a Capital cost calculated from Roonnaphai (2006).b Assuming all pellets made out of chips, in reality many pellet factories also use starch residue as an input.


entering the critical points of food processing and production(Nadvi & Waltring, 2004). HACCP was made mandatory bythe EU in 1993 and the requirement was strengthened by theintroduction of the farm-to-fork policy in 2000. It is widely be-lieved that these standards require improved manufacturingprocesses and higher skills, contributing to the building ofcapabilities in Thailand. However, standard certification canalso be costly for smaller plants, and some have alreadydecided not to renew their certification.

Finally, there are knock-on effects on value chain-governance. Pellets exports to the EU are controlled by fournorthern-based commodity traders (including Cargill andToepfer) who assemble consignments of 6,000–7,000 tonsfrom individual Thai exporters. 4 These exports occur mostlythrough forward contracts, which provide a predictablemarket. By contrast, chip exports to China occur on a spot-price basis, which provides far less predictability. This isbecause of the tendency of Chinese importers to renege on


shipping agreement when the market price falls below contractprice, leaving Thai exporters to bear the cost of storage andquality deterioration.

Similar patterns are to be found with regard to starch ex-ports. The shift from pellets to starch would lead to an in-crease of around 8% in employment (Table 2). This would,however, come at a considerable capital cost, with a more thandoubling of investment over chip production (122%, an addi-tional $24m), and a 72% increase ($18.8m) over pellet produc-tion. The capital cost per job in starch production is $1,505,comparatively low by contemporary industrial productionstandards, but more than double the cost in pelletization.

The transition from the EU pellet to the Chinese starch mar-ket suggests an augmentation of capabilities. However, for theThai starch industry China’s declining relative demand formodified starch suggests a similar downgrading trajectory tothat arising from the shift from pellets to chips in the driedcassava sector. This arises as a consequence of the buildingof China’s own starch modification capacity, rather than a de-cline in demand for starch imports. China’s modified starch(all starches, not just cassava) production increased from just20,000 tons in 1991, to almost 650,000 tons in 2006 (Wang,2002, 2007). If this trend continues, Thailand might be rele-gated to a supplier of native starch. The Thai industry believesthat it will retain leadership in premium grade native starchesand complex modified starches, while losing some marketshare in simple native and modified starches to China (inter-view responses), but this belief remains to be tested.

Figure 8. Domestic timber value chain in Gabon.

4. GABON’S TIMBER VALUE CHAIN

The development of timber and timber-related sectors tendsto be one of the primary stages of industrial growth, partly be-cause timber products (such as furniture and housing) havehigh-income elasticities of demand at low levels of income,partly because the timber-related sectors are labor intensive(and hence encourage production at low wage levels), andpartly because timber-processing is closely related to the agri-cultural sectors, which dominate low income economies.

In southern economies, much of the tropical deforestationof the late 19th and the 20th centuries can be attributed to ex-port-directed logging activities as a result of timber shortagesin Europe (and later in North America), and as wages innorthern economies grew. Overwhelming, logging occurredthrough an expansion at the extensive margin, with little atten-tion given to sustainable cultivation. Forests increasingly cameunder state authority with the primary objective of maximiz-ing timber extraction, and forest land was taken by new set-tlers for agricultural purposes, thereby replacing traditionalcommunal stewardship and common property systems(Humphreys, 2006; White & Martin, 2002).

(a) The tropical timber value chain in Gabon

Situated on the West Coast of Africa, Gabon is a resource-rich economy with relatively high levels of per capita income,currently around four times the sub-Saharan Africa average. Itis a major exporter of oil, with a population of only 1.5m.Gabon possesses more than 200,000 km2 of forests, as wellas extensive deposits of manganese and iron ore, which areonly just being opened up for exploitation. Rents derived fromthe oil-sector are substantial, and the contribution of non-oil-sectors to GDP is small. The forest sector accounts for lessthan 3% of GDP (Melhado, 2007; OECD, 2009). Gabon’sforests cover nearly 85% of its total land mass, making it the

second most heavily forested country in Africa (FAO, 2007).Gabon is the 13th largest tropical log producer globally, andthe third largest log exporter with a share of 16% of totalexports in 2008 (FAOSTAT-Forestry accessed November 2009).

Gabon’s timber value chain is shown in Figure 8. A smallproportion of logged trees is converted into plywood (b.iii),which are consumed domestically. But the overwhelming bulkis exported either directly as logs (a), or as sawnwood (b.i) andveneer (b.ii). A very small proportion of timber is used to man-ufacture railway sleepers both for domestic consumption andexport.

Until very recently, Gabon’s timber sector was unregulatedand out of the political focus. But with the growth of environ-mental concerns and mounting domestic economic problems,the timber industry has become a subject of increasing regula-tion, both within and without Gabon. In the light of decreas-ing oil production and following pressure from externaldonors that Gabon regulates this key resource to use it as aprimary driver of industrial diversification, the state intro-duced a sectoral program for forests, fisheries, and the envi-ronment, involving major reforms of the forestry sector(Soderling, 2006; Wunder, 2003). This included the abolitionof the state-owned export monopoly (SNBG) and the intro-duction of a new legislative framework, the Forestry Code,in 2001. The strategic objective shifted from raw materialextraction to the industrialization of the forestry sectorthrough increasing domestic processing of sustainably man-aged forests. Inter alia, the Forestry Code introduced a re-design of the concessionary allocation system, new types ofconcessions (with the intention of embedding sustainable for-est management practices into industrial log extraction), pro-duction quotas tied to companies’ concessionary status, andthe introduction of local processing requirements to stimulatethe processing of at least 75% of the total log production be-fore exportation by January 2012 (Makak & Mertens, 2009).

The setting of explicit targets to deepen processing built onthe trajectories of a few large European-owned companies,which had established processing plants to manufacture pri-mary processed wood products during the 1990s. Comple-


mented by the requirements of the 2001 Forestry Code toprocess logs domestically, this has led to a rapid increase inGabon’s production of sawnwood, veneer, and plywood.Nevertheless, in 2007 the major share of Gabon’s timber(87%) was exported as raw logs, and on current trends thereis little hope of meeting the Forestry Code objective of 75%domestic raw material processing by 2012.

The external pressures on Gabon’s timber industry explicitlytargeted two related objectives. The first, exerted by externaldonors as a direct pressure on the Gabonese government,was designed to promote greater transparency in the manage-ment of the forestry sector in order to facilitate the sustainablemanagement of this key global resource and to widen the dis-tribution of benefits from the exploitation of the forests. Thesecond set of pressures was indirect in that they were notaimed directly at Gabon. They involved a series of standardswhich global buyers set to ensure the sustainable managementof the forests and the legality of wood products that theysourced. This, as we will see below, led to a combination ofboth private and public standards governing the procurementof wood from Gabon and other sources of tropical hard-woods.

(b) Market requirements for Gabon’s timber products

Gabon’s timber exporting industry is a construction ofFrench industry, which identified cheap sources of raw mate-rial supply in its former colonies. Timber exports from Gabonto France (the major external market) started with colonialsettlements during the 1850s–80s, and increased after indepen-dence in 1960 (Wunder, 2003). Over time, total export volumesto France rose from around 300,000 m3 in 1989 to nearly600,000 m3 in the peak year of 2002. But, as processing capac-ities rose in Gabon, these log exports were complemented byexports of sawnwood, veneer, and plywood, jointly reachinga roundwood equivalent of 230,000 m3, exceeding the exportof logs to France in 2006 (220,000 m3) (FAOSTAT-Forestryaccessed November 2009).

The EU market for timber products saw four importantchanges after the 1980s. First, the EU’s long-term dominanceof global wooden furniture exports was eroded, particularly byexpanding exports from China. In 1992, Chinese furniture ex-ports were only 14% of Italian and 19% of German exports(the two leading global furniture exporters). In 2008, Chinesefurniture exports were 2.3 times those of Italy and 2.6 timesthose of Germany (UN Comtrade accessed December 2009).Second, as wage levels rose in the EU, so the competitivenessof its wood processing industries fell in comparison to low in-come economies, who at the same time had developed theircapabilities significantly in these processing sectors. This ledto a migration of wood processing activities out of high-income economies as the timber furniture value chain extended.Third, governments became increasingly aware of health andsafety, and regulations were instituted in many sectors to ensurehigher levels of safety for consumers. Finally, the growth of percapita incomes led to greater consumer concerns with theenvironment and with ethical standards in value chains. Inthe timber sector, organizations such as the World WildlifeFund and Friends of the Earth increasingly exerted pressureon producers to promote biodiversity and sustainability inforestry (Gulbrandsen & Humphreys, 2006; Stringer, 2006).

The growing prevalence of these standards in the EU markethas resulted in three distinct types of standards governing ac-cess to EU markets. The first are buyers’ critical success fac-tors, the most prominent of which for logs are price,volume, quality, species, and environmental compliance. For

processed wood, the dominant critical success factors areprice, volume, quality, product specifications, and environ-mental considerations. The second are industry-specific stan-dards, specifically those to protect forest ecosystems and thesustainability of forest resources. Adherence to the former ismost commonly expressed through third-party certificationschemes like OLB (Origine et Legalite des Bois) and FSC (For-est Stewardship Council), respectively. They are also increas-ingly applied in government agencies procuring tropicaltimber (GPP) or the EU FLEGT program (Forest LawEnforcement, Governance and Trade), whose primary aim isto eradicate illegal timber trade. The third category is publicstandards affecting health and safety, which are mandatoryand often affect health and safety concerns in the timber valuechain. These technical features are, for example, covered byformaldehyde emissions arising from the adhesives used toproduce plywood, chemicals used in the production of med-ium-density fiberboards, or pollution from paint.

Parallel to the introduction of standards in the North, Chinaemerged as a major importer of tropical logs. But while Chi-na’s demand for timber products has grown, there has been lit-tle evidence of market access being governed by the sorts ofstandards affecting Gabon’s exports of timber to the EU.Competition in the Chinese wood processing value chain is in-tense often leading to an erosion of profit margins. Many pro-cessing mills are thought to survive only due to state subsidiessuch as value-added tax rebates (American Forest and PaperAssociation, 2004; Kozak & Canby, 2007; TFT, 2007). Withthe exception of some large foreign enterprises or joint ven-tures, wood processing companies largely follow a low-cost/low-price competitive strategy with a focus on quantity ratherthan quality. For example, furniture and other wood productsare usually of low-to-medium quality (Castano, 2002; Sun,Chen, Chen, Han, & Bass, 2008).

There are also few signs that Chinese civil society is exertingthe sorts of pressures evident in northern countries whereNGOs actively lobby to ensure high environmental standardsin the timber value chain (Fripp, 2006; Greenpeace, 2005). Asa consequence, there is compelling evidence that a significant(but unknown) share of Chinese log imports are illegallysourced, 5 including from Gabon (EIA, 2005; Stark & Cheung,2006). It is widely argued that China is at the center of illegallog trade and processing (Barney, 2005; White et al., 2006).Despite claims by many exporting economy governments thatthey are making strenuous efforts to control illegal log exportsto China, industry observers conclude that little progress hadbeing made, at least by the end of the first decade of the cen-tury (EIA, 2005; Fripp, 2006; ProForest, 2009).

This contrast between the drivers of consumption and thedeterminants of market access in the EU and China surfacesin the preferences of global buyers operating in Gabon. Buyersfrom China tend to place a premium on low price and largevolumes. They are generally less concerned with specific vari-eties than are the EU buyers, and also show particularly lowpreferences for environmental compliance and the quality ofthe logs which they purchase (Figure 9). Specifically with re-spect to environmental standards, Chinese buyers make veryfew demands from Gabonese suppliers, particularly in com-parison to EU buyers (Figure 10).

(c) Changes in market destination of Gabon’s timber exports

From Gabon’s perspective, the evolution of the EU and theChinese markets has had major consequences for the directionand nature of its timber exports. Beginning with the directionof exports, China has now become the dominant global

012345Price

Variety tree species

QualityVolume

Environmentalcompliance

EUCN

Figure 9. European and Chinese buyers’ requirements—wood logs (1 = not

important; 5 = very important).

012345

Formaldehyde emissions

Phytosanitaryrequirements

Product testingrequirements

Building codes

Legality certificationrequirements

Sustainability certificationrequirements

GPP

ISO standards

EUCN

Figure 10. EU and Chinese buyers’ requirements—International Regula-

tions and Standards (1 = not important; 5 = very important).


importer of tropical hardwoods as EU economies have movedto the imports of processed woods and have become increas-ingly concerned about the sustainability of global hardwoodreserves. During 1990–2007, China’s share of global importsrose from 14% to 68%, while the share of all OECD economiescollapsed from 78% to 11%. With 1990 as the base-year, in2007 China’s imports of tropical hardwood had more than

0

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CN FR CN FR CN FR CN FR CN FR CN FR CN FR CN

1991b1992b1993b 1994b1995b 1996b 1997 1998

Logs

Figure 11. Chinese and French tropical wood product import structure

quadrupled in volume terms; in the same period, EUand wider OECD imports had fallen by more than 90%(FAOSTAT-Forestry accessed November 2009).

This is reflected in the destination of Gabon’s timber ex-ports. China became a significant importer of Gabon’s timberin the mid-1990s (Figure 11). In volume, Chinese imports ofthe roundwood equivalent of sawnwood, veneer, and plywoodis currently more than three times those of French imports,but in value, China and France import roughly the same valueof timber products from Gabon. The difference between valueand volume shares is accounted for by the fact that, as will beshown below, the Chinese market is almost exclusively a mar-ket for unprocessed logs, whereas an increasing (albeit stillsmall) share of the EU market is serviced by processed timberproducts which has a higher unit value. The high relative shareof France in Gabon’s exports reflects its close historical linkswith France and the long presence of French timber compa-nies operating in Gabon.

(d) Consequences

What have been the consequences for Gabon of the shift inthe market for its timber exports, and what are the implica-tions for the trajectory of its timber industry? Two majordevelopments can be noted—the nature and extent of stan-dards imposed on producers, and the accretion of value addedto logged logs.

First, the transition in market destination has led to a col-lapse in the standards required of producers. These standardshave important implications for capability-building. The de-mand for quality and environmental procedures requires en-hanced skills and the capacity to improve over time asstandards are ratcheted up. Environmental standards whichinfluence health and safety in the treatment of forest productsare an important safeguard for the welfare of the workforce.Certification of logs helps to ensure that the sustainability ofthe forests is maintained, and environmental certification suchas FSC accreditation helps to maintain biodiversity and topromote social cohesion. Virtually none of these standards ap-ply to products exported to China; virtually all apply to prod-ucts exported to the EU.

Second, while the bulk of Gabon’s timber is still exported asraw logs, in recent years Gabonese producers have begun to

FR CN FR CN FR CN FR CN FR CN FR CN FR CN FR CN FR

1999 2000 2001 2002 2003 2004 2005 2006

Wood products

s from Gabon—log and wood product volumes (1,000 m3 RWE).


export an increasing volume of sawnwood, veneer, and ply-wood (Figure 12, which underestimates the value of this shiftin export composition, since it reflects export volumes ratherthan export value). A combination of factors, the growth ofits own wood processing industries, low wages, and lax envi-ronmental regulations, mean that China is a direct competitorto Gabon’s processing industry in a way which is not true forthe EU, where high wages make for uncompetitive processingin labor-intensive industries, which are often also polluting.China thus almost exclusively imports raw logs rather thanprocessed wood from Gabon.

Since one of the major consequences of a shift in the finalmarket from the EU to China is that the degree of processingfalls, what are the consequences of this for factor utilization inthe Gabonese economy? Table 3 simulates factor utilization ifthe same quantity of wood is exported in the form of logs,sawnwood, veneer, and plywood. It calculates the resultantearnings of foreign exchange, and the derived utilization of la-bor and capital, taking into account processing-loss in the con-version of logs, as well as the unit-prices in global markets in2006. It is necessarily a crude exercise, but nevertheless, theexercise does throw some light on the developmental conse-quences of alternative uses of forest resources, as reflected indifferent destinations of final markets.

It is evident from this that there is a substantial gain inemployment to be achieved by the downstream processing oflogs into sawnwood, veneer, and plywood. Employmentnearly trebles if the logs are converted into either sawnwoodor veneer, and increases by a factor of six when veneer is incor-

0

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logs sawnw. veneers plyw. logs sawnw.

arFanihC

Figure 12. Log and wood product demand distribution for Chin

Table 3. Gabon log output channeled into a s

Output real (1,000 m3)b

Foreign exchangec

Employment (incl. employment in earlier stages of processing)d

Capital cost ($1,000)e

Producer margins (fob value minus cost) (indexed to ex-forest cost of log)f

a Gabon log production volume rounded average for 2003–07.b Converted using Gabon wood utilization rates in meeting EU buyer requirOkoume sawnwood), 2.77:1 (EU other hardwood sawnwood), 1.96:1 (veneer)c Species weighted average using 2006 prices based on (UNCTAD, tropical logunit price, own calculations).d Based on fieldwork data collected November 2008–March 2009 and employme Based on 2003 capital depreciation costs across chains in Odyssee Developpef Based on fieldwork data collected November 2008–March 2009.

porated in the production of plywood. Foreign exchange earn-ings are also enhanced with further processing, by 11% in thecase of veneer and 13% in the case of plywood. However, thisis not the case with regard to sawnwood. Here, there is a valueand foreign exchange loss in processing since the Gabon saw-mill industry is inefficient and has low conversion rates. Theexport of veneer does increase foreign exchange receipts butproducers export with low or negative margins. The reasonwhy firms export sawnwood and veneer is purely a functionof the Forestry Code in order to meet the 2012 Forestry Codetarget. These loss-making firms manage to stay in production,due to the profits earned through their log exports (Table 3).This augmentation of value, employment, and foreign ex-change earnings through processing come at a very consider-able cost of capital, particularly in the production ofplywood and veneer, and comprises a major obstacle for localfirms in meeting the Forestry Code’s 2012 target. 6

There are wider development concerns raised by the relativeefficiency of Gabonese producers at various points in thechain. It is clear that Gabon possesses a significant resourcerent in tropical hardwoods in general and Okoume in particu-lar. Table 3 shows that the fob price of a log is approximatelydouble that of the cost of extraction. However, at currentprices, and with current levels of processing efficiency the sur-plus generated in plywood manufacture is much smaller, bothas an absolute sum and as a proportion of costs. And at cur-rent prices, all of the resource rents are dissipated—indeedmore than dissipated—if logs are sawn or transformed andexported as veneer. Thus, the retrograde transition from

veneers plyw. logs sawnw. veneers plyw.

72-UEecn

a, France, and the EU-27 countries 1997–2006 (1,000 m3).

ingle chain (input of 3,400,000 m3 logsa)

Logs Sawnwood Veneer Plywood

3,400 1,370 1,750 1,4901,050 750 1,170 1,1909,200 26,300 28,100 58,80040,000 75,000 429,000 730,000

107 �28 �23 23

ements regarding species and product specifications, that is, 2.22:1 (EUand 2.3:1 (plywood).s and plywood), and (FAOSTAT-Forestry, sawnwood and veneer export

ent figures in Nguema (2007).ment (2005) converted into US$ using average 2003 exchange rate.


processed to raw timber reflected in the shift from theEuropean to the Chinese market may arguably be develop-mentally positive, at least in terms of static comparativeadvantage and at current prices.

5. CONCLUSION

We began this paper by observing that the growth agenda inmany low income countries has focused disproportionately onthe development of supply capabilities, rather than on the roleplayed by demand in general, and by the nature of demand inparticular. The focus of our analysis has been on the extent towhich demand from low income economies feeds through intothe organization of GVCs in two particular respects—theimportance of process and product standards, and the extentto which low income exporting economies are constrained intheir capacity to deepen the value added in their chains. Thecontext is one of a global economy where China is likely tobe a major driver of global demand, particularly in soft com-modity sectors (producing foods such as cassava, and interme-diate products such as timber) and in hard commodity sectors,which produce the inputs required for the massive investmentsin infrastructure and housing, as the giant Asian Driver Chi-nese and Indian economies urbanize rapidly (Kaplinsky &Farooki, 2010).

We explored two knowledge-gaps, which are relevant toassessing the likely outcome for low income economies asthe demand driver switches from the north to the south byfocusing on the cassava value chain in Thailand (Section 3)and the timber value chain in Gabon (Section 4). In both ofthese cases, Chinese demand is becoming increasingly domi-nant, reflecting the rapid growth of a very large low incomeeconomy. In the cassava sector, Chinese demand for foodand energy has led to a derived demand for cassava, substitut-ing for a rapidly declining EU market. In Gabon’s case, north-ern demand for tropical logs has collapsed, while Chinesedemand has mushroomed. In the case of timber the associatedshift from differentiated to undifferentiated product demand isparticularly clearly evidenced. Northern importers are focusedon a narrow range of species, and buyers are much moredemanding of log specifications, variety and quality than areChinese buyers (who want large volumes of low-to-mediumquality at a low price).

With regard to the derived implications of this market shiftfor standards, it is clear that in both cases value chains feedinginto a southern market are much less likely to be standards-intensive than those feeding into northern markets. This isvery clearly evidenced in the timber sector, both in relationto government-imposed standards focusing on health andsafety and for civil society induced standards focusing onthe environment. Cassava production is less standards-intensive but here, too, there is clear evidence that the movefrom a northern to a southern market leads to a significantreduction in the standards-intensity of value chains.

With regard to the move from a win–win north–south divi-sion of labor to a win–lose south–south division of labor, weobserved similar trends in both Thailand’s cassava valuechain and Gabon’s timber value chain. The change in finalmarket from the EU to China effectively wiped out a key va-lue added link in the Thai cassava value chain as Chinese de-mand for raw chips substituted for EU demand for processedpellets. On the other hand, China also increased its demandfor starch imports from Thailand, starch having a higher le-vel of value added than either cassava chips or pellets. How-ever, within starch, China’s growing demand for cheaper

native starches in place of higher value added and more tech-nologically demanding niches, has the risk of relegating Thaifirms to the production of simple native starches. A parallelstory can be told for Gabon, where the Chinese market onlydemands unprocessed logs, whereas exports to the EU haveincreasingly comprised logs processed into sawnwood, ve-neer, and plywood. This clearly evidences the competitivenature of industrial trajectories in southern trading econo-mies, which are more likely to have win–lose outcomes inspecialization than in the case of win–win trade with north-ern economies.

So what are the wider implications of these findings? First,with regard to theory, the focus of discussion in much of therapidly-growing value chain literature is on chain-governance.A key element in chain-governance is the role played by stan-dards in global value chains, particularly in buyer-driven valuechains. The transition to chains with low standards-intensity(as we observe in the two case-studies addressed in this paper),therefore, has implications for much of the governance litera-ture in GVC analysis. Second, the growth implications of thedevelopments which we have documented are mixed andsomewhat analogous to those associated with declining barterterms of trade. That is, the unit value added/price of commod-ity exports to China may fall, but augmented demand may in-crease total export incomes. Similarly, the challenge facingcommodity exporters is that they forced down the value addedchain as Chinese demand grows. This is similar to the chal-lenges faced by developing country exporters in general whospecialized in static dynamic comparative advantage. In thiscase, incomes may grow, but at the cost of falling capabilities.Chinese demand appears to force both the Thai cassava andthe Gabon timber sector into low-technology, low-skill nichesin their chains. This is reinforced by the lower requirement forstandards in these value chains. Although standards also havetheir negative side—see below—they are promoting of mana-gerial and skill competences in production. Another positiveconsequence of standards in production is that they most oftenreflect the need to compensate for non-price externalities aris-ing in production (e.g., the loss of biodiversity) rather than justembodying ethical concerns (e.g., in relation to minimumwages or child labor).

On the other hand, the substitution of a southern for anorthern driver of demand has many advantages for low in-come countries and for participants in their value chains. Par-ticularly in the context of sustained economic crisis in thenorth, it provides a dynamic and particularly rapid source ofdemand, allowing exporting economies and firms to reap scaleeconomies and to reduce their costs. And, insofar as their pre-vious trajectory may have been costly (as is arguably the casein Gabon’s timber industry, where industrial ambitions maybe forcing the country to waste its resource rents in inefficientprocessing), being driven back into comparative advantagethrough trade with China and other southern economiesmay provide unintended benefits. Further, it is not axiomaticthat all standards are developmentally beneficial in the contextof low per capita incomes. The trade-offs in terms of lostemployment and value added may be too high, for example,to justify the higher safety standards driving much legislationin the north or indeed to meet the ethical concerns of northerncivil society. Finally, there will be complex and differentiatedimplications for different participants in southern value chains.For example, small firms and farmers who are currently lar-gely excluded from participating in GVCs by the need toencompass high standards in their production for northernmarkets may now find that these barriers to entry are re-moved.


We are confident that our empirical findings confirm the twohypotheses set out in the introduction concerning the impactof this shift in final market destination on value added andquality standards in these two value chains. Extended empiri-cal enquiry is required to determine whether these differences

also extend beyond these two intermediate product agricul-tural sectors to other sectors of final demand, to other interme-diate goods sectors and to the capital goods sectors, and to theservice sectors feeding into global markets as well as to man-ufacturing and commodity sectors.

NOTES

1. See Gale and Huang (2007) and von Braun (2007).

2. Cassava export data extracted from UN Comtrade, timber export andproduction data extracted from FAOSTAT-Forestry, both accessedNovember 2009.

3. Typically, an average pellet plant processes around 575 root-tons aday, compared to an average of 70 root-tons by drying yards.

4. Thai exporters to the EU are actually just assemblers, they only handlethe paperwork on the Thai side and the port handling, including off andon loading from lighters (small boats) to big long haul vessels, which are

normally organized by the four major northern-based agriculturalcommodity traders.

5. Illegal logging occurs when timber is extracted, transported, bought orsold in contravention of national laws (EIA, 2005).

6. In November 2009, the government of Gabon announced a log exportban as of January 1, 2010 to stimulate domestic processing activities andthereby employment creation. An interim period, during which remainingstocks of logs could still be exported, lasted until the end of April 2010. Atthe time of writing, news spread about the introduction of a revised quotasystem instead of an export ban for logs (ITTO, 2009, 2010). While thefundamentals of this analysis and its outcomes have not changed, it is yetunclear how log production and processing will be affected.

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http://www.chinadaily.com.cn/china/2007-2006/2022/content_899837.htm

Documents

China as a Final Market: The Gabon Timber and Thai Cassava Value Chains