The impact of wood characteristics and properties on the market price of plantation grown teak logs (Tectona grandis Linn.F) in Laos

Abstract

Teak is considered one of the highest value hardwood species. The Lao wood processing industry has been using teak wood harvested from different ages, ranging from 10 to 35 years, with broadly different prices. However, the current grading rules used for teak logs are unsuitable for development of a fair and transparent pricing market. To date, there has been no regulation of market requirements for wood characteristics and/or wood properties. The key terms of wood characteristics and wood properties used in this study were defined as: a) wood characteristics refer to the visual appearance or features of logs and square logs; for example, heartwood proportion, wood colour, presence of knots, bend, pipe, buttress, decay, end checks and splits; b) wood physical and mechanical properties describe the quantitative characteristics of wood and its behaviour in response to external influences and externally applied forces; for example, wood density, dimensional stability, stiffness, bending strength, compression strength, shear strength, and hardness.

The overall aim of this study was to identify the key characteristics and properties of wood that affect the selling price of teak logs grown in Laos. More specifically the objectives of the study were to: 1. define the characteristics and properties of plantation grown teak logs that are valued by wood processors and manufacturers; 2. understand the influences of wood characteristics and properties on the current selling price of plantation grown teak logs used in Lao wood processing and manufacturing industry, and; 3. determine the key characteristics and properties that could be used if a log grading system was to be applied in Laos, and that is based on the results identified from the buyers’ requirements.

Both semi-structured interviews of teak buyers and qualitative and quantitative data of wood characteristics and properties of plantation grown teak in Laos that were valued by teak buyers were obtained and analyzed. The results showed that while the harvesting age of plantation teak was reported to be between 10-35-year-old, the dominant harvesting age was between 21-25 years. Three types of teak timber were commonly sold in Laos: 24.7% as standing trees, 39.6% as round logs and 35.7% as square logs. From the marketing supply chain it was found that the end buyers of teak timber were wood sawmillers and wood products manufacturers. The local traders (middlemen) who purchased teak logs from the growers and in turn supply to the end buyers account for 49% of sales. A further 41% was sourced directly from teak growers and the remaining 10% was sourced via local small wood sawmillers and manufacturers. The main wood products produced from plantation teak included joinery products, door and window frames, and furniture (57.9%, 26.3% and 15.8%, respectively). Currently, 83% of teak products produced were consumed on the domestic market. The remaining account for 17% were destined for international markets.

The prices of teak showed to be significantly different based on timber types, log sizes, and distance from plantation site to the road in the case of standing trees. However, the price variation was not based on the factors of wood quality and properties. A round log price of US$250/m3, based on both log diameter size (D26-30 cm) and log quality grade (A grade), was much lower than the US$321/m3 amount paid for an ungraded round log of the same size based on log diameter alone. It can be concluded that there is a need to develop a clear system or standard for teak log grading and pricing in Laos.

The knot was found to be the major characteristic appearing on all teak wood products, square and round logs. White sapwood, end splits, and buttress were the next most predominant characteristics in teak wood products, square and round logs, respectively. Buyers were found to prefer a larger heartwood proportion and diameter of the logs. On the other hand, decay, pipe, insect holes, bend, and knot holes were found to be the wood defects that the buyers were most concerned about when they bought timbers. Log diameter, bend, buttress and insect holes were only the wood characteristics that have significant impact on log price. Buyers were unwilling to buy any logs containing wood decay or rot. Wood property values were not important for the buyers. Lao teak buyers didn’t offer a different price for teak timbers that have different wood property values. This study concluded that wood properties have no impact on log price.

If a grading system is to work, then it must be of use to those who buy logs and square logs, as they would be the main beneficiaries of such a system. Laos already uses a grading scheme; however, the question remains about how well it works. A good grading system can be said to work if the different characteristics; for example, wood characteristics valued by buyers are reflected in the prices for the wood. In a simple test, the following questions could be asked: 1. Is there a significant difference between the prices of graded logs? 2. Do the prices for each grade move independently of one another (thus reflecting the changing nature of how buyers value each characteristic)? and 3. Are the prices of graded logs higher than ungraded logs (at least those that are considered to be of a superior quality).

The answers to these questions, when applied to the current grading system, led to the conclusion that such system did not work. All prices tended to move together, and ungraded log prices were found to be greater than graded logs.

The next question to address was how a better grading system could be determined. Clearly, any system should reflect the wood characteristics that buyers demand. To that end, it was necessary to survey buyers to determine what they considered to be the most valuable characteristics. These identified characteristics need to be collated into a system that is both clear and usable for the buyers. The following characteristics were found to be important: log diameter, heartwood proportion, presence of insect holes, log bend, presence of knots, end splits, wane/buttress, and wood colour. It should be noted that as the buyers' responses are not universal (for example, some buyers prefer one characteristic, whereas other buyers prefer another), a grading system is preferred. The grading system reflects a set of tolerances within which a range of wood characteristics can be valued by the buyer. In this way, they can pay a price for logs according the characteristics they value and not on the basis of log diameter alone (as they do now). Based on the key finding from the results mentioned above, a guideline for a teak timber grading system was developed. This grading system is a new log grading method, which can be used in Laos and similar developing countries.

Implementation of this grading system would benefit both teak buyers and growers. The buyers can minimise timber waste, as buyers can buy only the qualities of timber they want if the timber is graded. Teak growers could also employ practices that result in them growing trees that are more highly valued by buyers because they will have the characteristics buyers pay a premium for. In the long-run, growers would minimise the production of inferior quality logs. The growers will supply only the timber that is required by the industry for specified uses. What should be noted is that in a market where the products are ungraded, average prices for all qualities apply. Thus, it is in the interests of growers to supply the lowest quality product, as this is the one that costs the least to produce and for which they receive the average price as a superior product. On the other hand, a grower who produces a superior product receives the same average price as that of the grower of an inferior product. In a graded product market, the grower receives the price the buyer is willing to pay for the characteristics that are valued by the manufacturers of finished products. Thus, growers are rewarded for improving the quality of the logs that will result in an improved industry.