By ; Indonesia Furniture Industry & Handicraft Association (Asmindo) Impact of the FLEGT Licencing Shipment Test in Kendal : Strengthening SME Furniture Production Made of Timber ASMINDO

INTRODUCTION The Indonesian Furniture industry is normally classified based on its raw material such as wooden furniture, rattan, plastic, metal, bamboo and others. Data from the Indonesian Statistical Bureau (BPS) to April 2013 showed that wooden furniture export value reached 55,24% of the total Indonesian furniture export value. The Indonesia Law No. 20/2008 tentang SMEs, classifies businesses based on investation value (excluding land and building) as follows : Small: 50 – 500 million rupiah Medium:500 million – 10 billion rupiah Besar:more then 10 billion rupiah The Indonesian furniture industry is dominated by the SMEs (small 45%, Medium 37%, Big 18%).

INDONESIA FURNITURE EXPORT 2009 – 2013 (milion USD) Source: Indonesia’s Statistical Bureau, Analyzed by ASMINDO

INDONESIA FURNITURE EXPORT BY RAW MATERIAL Source: Indonesia’s Statistical Bureau, Analyzed by ASMINDO No USD % % Up to April 2012Up to April 2013 AFurniture : 1 Wooden 824,966, ,452, % 327,894, ,953, % 2 Rattan 160,311, ,711, % 93,368,448 82,021, % 3 Bamboo 10,468,342 7,527, % 3,162,271 2,573, % 4 Metal 84,268,271 98,032, % 38,744,726 40,977, % 5 Plastic 51,362,752 30,583, % 26,677,645 23,971, % 6 Others 632,972, ,840, % 162,465, ,198, % Total Furniture 1,764,349,787 1,779,147,9370.8% 652,313, ,697, %

INDONESIA FURNITURE EXPORT BY RAW MATERIAL, APRIL 2013 Source: Indonesia’s Statistical Bureau, Analyzed by ASMINDO

Top 10 Indonesia Furniture Export by Country of Destination, April 2013 Source: Indonesia’s Statistical Bureau, Analyzed by ASMINDO

THE CURRENT CONDITION OF FURNITURE SMEs 80% of the raw material used by the furniture industry is wood from Java Island (Perhutani, community forest, plantation, recycled wood, etc) while the rest are from outside Java Island or imported wood (for big industry). The supply chain system for the furniture SMEs, majority is a sub-contracting or supplier system, where exporters work with small enterprises or home industries. One exporting company can work with a few up to hundreds of suppliers.

COMMON CHALLENGES FOR SMEs IN THE IMPLEMENTATION OF SVLK Internal Factors : Legality Documents as required by SVLK incomplete. Raw material legal documents Not preperly documented (The Standard requires small enterprise to document the raw material purchase documents up to 3 months prior to audit or up to 1 year for medium and big companies.

External Factors : Policies need to be synchronized between central government and districht authorities. There are certain local regulations that become obstacles in the implementation of SVLK, especially due to the difficulties, in terms of complexity and cost, in getting such legal documents. For instance in getting environmental documents such as UKL-UPL. The limited number of registered FAKO administrator (Ganis) at Furniture cluster areas. There are still different perceptions among auditors in interpreting the SVLK standard. There are occurrences of V-Legal documents being commercialized in some areas.

10 OPPORTUNITIES To open and expand access of international furniture market especially to EU Countries, which is one of the most important export destination beside The US and Japan. To build the positive image of Indonesian furniture product as legally verified in the internatioanl market. Internally the implementation of SVLK system improves production efficiency. To reduce the unfair competition among the Indonesian furniture exporters.

HOW THE KENDAL SHIPMENT TEST STRENGTHENING FURNITURE SMEs The shipment test demonstrates that SVLK and the corresponding V-Legal is a robust system to verify wood legality. Increasing the self-confidence among the Indonesian wood sector industry that the international market appreciates and accepts the SVLK verification statement. Branding the wooden furniture product from Indonesia as legally verified products and thus achieving a better market position. Building market trust (credibility). Opening a wider market opportunities to all SVLK verified furniture exporters.

FOR IMPORTERS : WHY SOURCING FROM SVLK VERIFIED COMPANIES Better company image for only sourcing verified legal timber. Better market position as a legal player No complicated due dilligent requirement, saving time and money (once VPA is endorsed by all EU state members) Secured supply chain, because starting January 2014 only SVLK holders are able to export timber product

SUPPORTS NEEDED Commitment from the government to eradicate illegal logging and supports the implementation of legal timber trade. Law enforcement and improvement of forest management Cross departments communication and cooperation in regulating legal timber trade. Development of market access through trade promotion of legal timber from Indonesia

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