Vice President Nguyen Thi Doan urged the Government to boost sustainable development of the domestic wood products industry, with the aim of making it an important economic sector.

Doan spoke at the opening ceremony of the first national wood products festival in the central city of Quy Nhon on March 26.

The three-day trade fair, with with the participation of 110 domestic and foreign enterprises participating, is helping promote domestic wood products, boost investment and cooperation, and raise public awareness about the value of preserving forest resources.

With over 2,500 wood processing enterprises nationwide, including about 400 foreign-invested enterprises, the wood processing industry has become a major employer, creating an estimated 170,000 jobs.

Vietnamese wood products were now present in 120 countries and territories around the world, with the EU, US and Japan leading markets. Last year, the industry's export value grew 30 percent to 3.4 billion USD, and it is expected to increase another 17 percent this year to about 4 billion USD.

Wood products have consistently been among the nation's top ten exports.

The rapid growth in the industry has boosted reforestation, and the nation's admission to the World Trade Organisation has opened even more markets for the industry, said Deputy Minister of Agriculture and Rural Development Hua Duc Nhi, at a forestry forum on March 27.

Nhi also pointed out significant challenges facing the industry. The nation's plantation forests yield millions of cubic metres per year, but most is exported as raw materials with low-added value. Meanwhile, millions of dollars are spent on imported materials to meet domestic demand.

Since the industry imported around 80 percent of needed materials, its average margin was only 5-7 percent. As a result, the industry faced the risk of becoming a mere processing line for foreign firms.

Difficulties also included a lack of processing facilities and skilled workers, low export product competitiveness, limited product designs, market instability and the hikes in input costs due to world price fluctuations.

"Despite encouraging results in production and processing in recent years, many shortcomings remain for the forestry industry," said Tran Bac Ha, chairman of the Bank for Investment and Development of Vietnam (BIDV), which provides major financing for the industry.

Despite relatively high export value, Vietnam has nailed down only 0.78 percent of global market share, Ha said.

"Sources of raw materials for production remain unstable, without clear master plans or long-term strategies, and insufficient attention has been paid to forest development projects," he said.

According to Ha, the country has only about 20 enterprises engaged in forestry. He suggested the Government provide more detailed guidance under the Land Law to give enterprises easier access to lands for reforestation, as well as to give export credits and other incentives to forestry investments.

The industry also needed to develop sources of wood that meet the high standards of international partners.

Vietnam Wood and Forest Products Association chairman Tran Duc Sinh said the industry's margin has fallen to under 5 percent due to the rising cost of raw materials, fuel, electricity, and labour.

The Deputy Director of the Hung Thinh Wood Products Joint Stock Co in the Central Highlands province of Dak Nong , Trinh Huu Hoa, said exports to Japan have dropped to two containers a month recently from six to eight earlier because of increased timber prices and insufficient supply.

In the last three months, the prices of wood imported from the US and Europe have risen by 100 USD per cubic metre compared with the same period last year, he said. The cost of locally-grown wood, meanwhile, has risen 35 percent in the past two years.

La Thai Thuy Van, director of HCM City-based Danh Moc Wood Processing Co, said profits dropped from a margin of 7-10 percent in past years to less than 5 percent last year. To pay its workers, the company sometimes accepted contracts that represented no profit at all, she lamented.

Doan urged the Ministry of Agriculture and Rural Development, the Vietnam Timber and Forest Products Association and relevant agencies and sectors to study and propose more suitable policies to encourage the domestic forestry sector.

She suggested suitable funding be reseved for research and development to facilitate small- and medium-sized enterprises and encourage growers and forest managers.

"All of these are needed to promote the potential of the Vietnamese forestry industry in our economic development strategy, as well as environmental protection," she said.

In the national forestry development strategy for 2006-20, the country targeted to develop 825,000ha of plantation forests and reach 7 billion USD in wood products exports by 2020. /.