Alternative Pricing Mechanism Of Teak Forest Plantation Saw-Logs In Tanzania

ABSTRACT

The main objective of the study was to analyze the various pricing mechanisms that

can be used in setting prices for teak saw-logs and the prevailing market

characteristics influencing prices in Tanzania. Primary data on the factors

influencing auctioning and stumpage appraisal and, teak saw-logs production and

trading costs were collected through questionnaires and field observations from

Mtibwa and Longuza teak forest plantations, FBD head offices and winners of the

various auctions conducted between 1998/1999 and 2005/2006 in the country. The

visited stakeholders also provided data on the royalty fee and public auctioning

stumpage values of the teak saw-logs. Secondary data were obtained from various

reports and documents. From the data collected, the appraisal stumpage values of the

teak saw-logs were calculated and, compassions were made between royalty fee,

public auctioning and appraisal stumpage value pricing mechanisms to know which

one among the three generates more revenues to the teak saw-logs producers and,

what market structure favours each pricing mechanism. The results of the study

indicate that the Tanzania government’s effort to generate more revenues through

selling her teak saw-logs by public auctioning instead of royalty fee has significantly

increased revenues. However, conditions that favour pure competitive market

structure, in which public auctioning operates effectively are lacking. The study

further found out that there is a significant difference among the stumpage values of

the logs obtained through royalty fee, public auctioning and appraisal stumpage

value pricing mechanisms. For example, in the last auctioning (2005/2006)

conducted at Mtibwa plantation forest the royalty fee and public auction stumpage

values of the teak saw-logs were TAS 55 759/m3 and TAS 108 000/m3 respectively;

ii

while, the appraisal stumpage value of the same logs was TAS 219,000/m3. This

shows that the royalty fee stumpage value was 51% of the public auctioning

stumpage value and only 25% of the appraisal stumpage value. The auctioning

stumpage value was only 41% of the appraisal stumpage value. However, the

appraisal stumpage value was 73% of the FOB price (TAS 300 000/m3) of the

2005/2006 auctioned teak saw-logs. This information shows that the appraisal

stumpage value of the teak saw-logs has the highest value compared to royalty fee

and public auctioning pricing mechanisms and, it estimates the timber value at

production site closer to its market value. Therefore, in order to generate more

income through timber selling the government of Tanzania could consider charging

her timber by applying the appraisal stumpage value pricing mechanism. It is

recommended to use the appraisal stumpage values as a floor price when auctioning

publicly timber and, a review of the training syllabus for certificate and diploma

courses to incorporate the application of stumpage appraisal timber pricing

mechanism, which many foresters are not conversant with.