Vietnam's wood industry: key export staple and recommendations for future growth

Despite suffering a revenue dip from $16 billion in 2022 to $14.5 billion in 2023, Vietnam's wood industry still outperformed leading export products like seafood ($9.2 billion), steel ($8.3 billion), and coffee ($4.2 billion), but there remains room for improvement, write RMIT experts.

Based on the export data on wood and wood products in 2022, Vietnam was the fifth largest exporter of wood products in the world and ranked third in Asia after China.

After experiencing forest cover degradation until the 1980s, Vietnam became a global example of successful forest transition. Currently, the country has 14.8 million hectares of forests, of which 10.1 million are natural forests, and 4.7 million are plantations. The most popular plantation species are acacia, rubberwood, pine, eucalyptus, and bamboo. The industry transforms more than 30 million cubic meters of wood into multiple products including wood chips, pellets, boards, and furniture (from kitchen products to chairs).

In 2021, Vietnam was the world’s leading exporter of woodchips (non-coniferous) ($1.73 billion), ranked fourth on exports of sawdust, waste and scrap, briquettes, and pellets ($0.46 billion), and was among the top exporters of wooden furniture. The major wood export markets for Vietnam in 2021 were China ($1.81 billion), the U.S ($1.55 billion), Japan ($1.04 billion), South Korea ($0.75 billion), and Malaysia ($0.22 billion).

In 2023, while these markets including the EU remained significant for Vietnam, other countries in South Asia (such as India for medium-density fibreboard) and the Middle East (United Arab Emirates for construction wood and wooden furniture) were just two of the emerging markets that created further demand.

Current data and projections so far indicate solid prospects for the wood industry. There was significant growth in the gross output volume of wood in Vietnam from 2012 to 2021, rising from 7.72 million cubic meters to 18.38 million cubic meters (an annualized growth rate of 9.06%).

Moreover, the value of wood and wood products exported over 2013-2022 increased from $5.59 billion to $16.01 billion (annualized growth rate of 11.10%).

Revenue from manufacturing wood and wood products increased from $2.7 billion to $6.6 billion (an annual increase of 9.6%) over the period 2012-2021. Moreover, revenue is expected to have exceeded $8 billion in 2023.

The wood industry has shown resilience over the years and continues to contribute to Vietnam's economy thanks to the country’s privileged geographic location, low labour costs, skilled workforce, and supportive business environment.

However, there are calls for change in the value chain to transition from woodchip production to higher value products like furniture. A significant proportion of the more than 2.2 million hectares of planted acacia currently feed woodchip mills around the country. Tree harvesting middlemen cut young trees as soon as possible to be used for woodchips (within four to six years) instead of waiting four more years to let the tree grow sufficiently to be used for high-value furniture. This system forces Vietnam to import wood for furniture production.

Therefore, multiple stakeholders, including the government which has placed restrictions on woodchip production, are calling for the lengthening of rotations (to eight to ten years) which would allow harvesting larger diameter roundwood and therefore contribute to the domestic furniture manufacturing industry.

Another important issue which needs to be tackled is related to wood certification. Only around 280,000 ha are certified by the Forest Stewardship Council (FSC), which underlines a lack of efficiency given that FSC practices were initiated in the early 2000s. One of the main problems is the fact that a large proportion of plantations (around 1.7 million hectares) are managed by smallholders (approximately 1.5 million). While large companies can easily standardise methods in their plantations to obtain FSC certifications, it is much more challenging to align the practices with small forest owners to meet certification guidelines.

Initiatives taken by the Vietnamese government are a hallmark of its commitment to sustainable logging and efforts to secure the future of the wood industry. Among them include partnering with the EU via the Voluntary Partnership Agreement on Forest Law Enforcement, Governance, and Trade (VPA/FLEGT), joining the Glasgow Leaders’ Declaration on Forest and Land Use (at COP 26), enacting anti-deforestation policies (Decree 35/2019/ND-CP), and its commitment towards green transition made at the recent COP 28 meeting.

Two recommendations for wood industry

However, to maintain growth momentum, the industry will have to continue meeting the demands of its major export markets, including complying with international quality and standards, and addressing environmental concerns, especially those related to deforestation. Strengthening Vietnam’s wood industry and export position for the future could be achieved with the following recommendations.

Firstly, to increase productivity and minimise risk and adverse effects due to market fluctuations, the Vietnamese industry could experiment with higher value wood varieties, native and non-natives, such as teak, rosewood, sandalwood, mahogany, bocote and others. While these highly valuable trees could increase revenue substantially, they typically have long harvesting times (teak and rosewood require 20-25 years). Also, the implications of importing non-native wood into the flora and fauna of Vietnam would need to be examined carefully.

Secondly, strengthening sustainability of forests is essential. Forests are the lungs of the planet, transforming CO2 into oxygen. Wood importing countries and customers reject malpractices and demand proper reforestation practices. As such, more efforts to support forest owners in their certification efforts must be envisioned. These could include new mechanisms to financially support smallholders, allowing them to implement more sustainable practices and longer harvest rotations. Sources of funding could include investments from large companies, FDI and the implementation of carbon credit mechanisms (for which efforts are already on their way).

The contribution of the wood industry to Vietnam’s economy remains unprecedented. Not only should the benefits and value of the forestry sector be recognised, but measures and incentives should be put in place to promote greener production, prevent illegal logging and deforestation, and upscale the industry with modern technology, facilitated by FDI from multinational corporations.

More specifically, to sustain growth, a shift towards high-value wood is essential. This aligns with global demands for sustainability, and reduces unnecessary imports of wood while generating higher export revenue. Possibly, it is time to transition from a woodchip, early-tree-cutting industry to seize the great potential of our lush forests in producing high-quality, highly sought-after wood.