Timur Irtuganov, CEO of the Association of Furniture and Woodworking Enterprises of Russia, summed up the results of 2018, talked about the work done and the upcoming work as part of a video interview with the ProDerevo industry portal at the 22nd International UMIDS Exhibition of Furniture, Materials, Components and Equipment for Furniture Production and Woodworking in Krasnodar.
Mr. Irtuganov noted that the past year was not easy but significant for the industry at various points.
First of all, the Strategy for the Development of the Forestry Complex of the Russian Federation up to 2030was signed in September 2018. It is the main document for industry development in the specified period. The strategy was developed for a long time. There were a lot of comments to it, and business representatives still have some today, but there is already a certain roadmap for the industry to move on. This is a tool that can now be used for a more effective dialogue with the state, “accordingly, we have something to rely on, and there are starting points of reference that enable us to see weaknesses better,” emphasized the head of the Association.
Resolution 836 of the Government of the Russian Federation dated July 12 concerning the restriction on the peeler block export should be noted among significant documents adopted in 2018.
“Year before last, the plywood industry segment faced a reduction in production volumes in Russia for the first time,” recalled Mr. Irtuganrov. “Not least, this was due to a shortage of raw materials on the domestic market. Resolution No. 836 partially solves this problem. Today there is an opportunity to provide Russian producers with raw materials if peeler blocks are retained in Russia. Obviously, such things in the timber industry have a synergistic effect: as a chain reaction, this will affect different industries including the construction, furniture, and machine building businesses since more equipment will be purchased.”
Regarding the furniture industry, Timur Irtuganov said that currently the Association is actively working on preparing documents to extend Resolution No. 1072 of the Government of the Russian Federation restricting the purchase of foreign furniture. The document relates to purchases covered by Federal Law No. 44 and applies to state and municipal contracts. This resolution expires on December 1 of this year.
“We want to eliminate any discontinuity in this process,” Mr. Irtuganov assured, “Yes, indeed, we have released a market for Russian producers of about RUB 10-12 billion annually. This figure corresponds to imported furniture purchases for these procurements according to statistics. Now the market is completely secured for the Russians. It will be great if we manage to achieve the ultimate goal: not just prolong the resolution, but apply it to Federal Law No. 223 by bringing it to the resolution framework, i.e. purchases carried out by companies with over 50% public ownership and state corporations. The share of imported furniture purchases is even higher there. In 2018, more than 12.5 thousand purchases of imported furniture took place. Only in currency, this figure was RUB 11 billion. If we talk about purchases of imported furniture in rubles in the territory of the Russian Federation, then this amount is obviously doubled. Thus, this is a very serious addition to the sales market for Russian furniture makers. Again, government procurements and their volumes, as well as furniture categories are completely different, therefore, not only large enterprises, but also small businesses have an opportunity to participate in such purchases. It is equally important that these preferences are aimed primarily at supporting legal manufacturers working in the transparent legal sector. Therefore, we help conscientious, socially responsible enterprises in their competition with informal production businesses.”
In addition, according to Mr. Irtuganov, work has begun and an order has been received from Prime Minister Dmitry Medvedev regarding filling standard housing with built-in furniture. This initiative is supported and controlled by Deputy Prime Minister Aleksey Gordeev overseeing the industry. The Association carried out a lot of preparatory work. A meeting was initiated at the Federation Council on this topic with the participation of the Ministry of Construction of the Russian Federation, Dom.RF, Housing and Utilities Development Fund and representatives of furniture companies. Now the Association is obtaining necessary supporting documents in order to implement this decision. Timur Irtuganov expressed his hope for achieving a significant progress towards a final solution to this issue in 2019, although it is premature to say that the resolution on the mandatory equipment of standard housing with wooden furniture will come into force in 2020.
“Let’s set ourselves such a goal,” said the head of Association. “We are moving towards this. We are not going to define specific dates for now, but it is clear that we do not want to extend this over years. This issue needs to be resolved now.”
Furniture production in Russia in 2018
“When I spoke about a significant year for the industry,” Mr. Irtuganov specified, “I meant not only the signed documents, but also those indicators that the industry demonstrated during 2018. The growth occurred in almost all parameters of mechanical wood processing. This includes wood board, plywood, and furniture manufacturing. The entire forest industry sector also grew. According to some indicators, it is a significant percentage, which is encouraging. For example, the furniture market grew by almost 30%. This is a rather unexpected figure and a big leap. Despite the fact that the data used by the Association are official data provided by ROSSTAT (as we know, they differ and sometimes very significantly from actual values existing on the market), the growth is nonetheless very proportionally noticeable.”
At the same time, unfortunately, there was also a growth in furniture imports to the Russian Federation (by almost USD 350 million). This is due to the growth of the market as a whole and restored purchasing power of the population, the speaker suggested and cited an interesting fact in this regard:
“Many furniture makers including representatives of leading companies called the drop in sales one of the main problems of 2018 and attributed this primarily to the fact that the decline in purchasing power continues,” said Mr. Irtuganov. “But we see that actual figures do not confirm this. They rather indicate market redistribution. Unfortunately, market redistribution often occurs in an incorrect struggle with the shadow sector. Enterprises that do not pay taxes and enterprises that pay hidden wages thus often have an opportunity to undercut prices. Association functions include, among others, protection of bona fide manufacturers.”
Wood board and plywood production
Naturally, summing up the activities for the past year, it is worth noting another sector where the Association represents interests of enterprises, namely wood board and plywood production.
“The dialogues that have been held here can be called important,” Mr. Irtuganov noted. “When it was possible to gather most of leading producers and understand the main problems that these enterprises have and then draw up a road map to be followed to solve these problems. Resolution 836, which I recalled, is one of such results. It is clear that work on it began much earlier, ahead of schedule. However, we hope that many other issues that are indicated in this road map will also be resolved with varying degrees of success. For example, we are talking about increasing the maximum authorised mass of the vehicle. Now, I recall, it is limited to 44 tons according to the Government resolution. Our initiative is an increase to 55 tons. All calculations made by marketing companies allow us to say that in this case the reduction in the transportation cost will be about 15%. This is a significant amount in the production cost. There is some opposition from the Ministry of Transport of the Russian Federation. Now we are trying to solve this issue together with our regulator from the Ministry of Industry and Trade of the Russian Federation.”
Mr. Irtuganov shared that there are also problems of export barriers, primarily from countries purchasing domestic timber industry products. A year ago, it has already been spoken that the Government of the Republic of Turkey had passed a resolution introducing additional duties applicable to some countries, but actually their applied to Russia only: the import customs duty on Russian plywood increased by 20%. This problem has not been resolved now, the Association acknowledges, and this is one of the tasks that must be definitely addressed.
In addition, in terms of exports and export barriers, it is necessary to mention the Indian market, which is very attractive for Russian manufacturers.
“The value of the import duty there is about 30%,” said Timur Irtuganov. “During 2018, a series of negotiations were held with the necessary authorities from the Indian part (from public organizations to the Embassy of India and trade representative of India in Russia). We understand what steps need to be taken. The issue will be submitted to the intergovernmental Russian-Indian commission. We certainly believe that this problem can be really solved, and after the commission we will understand the terms and actions that still need to be taken for this. This market is very large and attractive. Of course, many Russian manufacturers and suppliers are interested in this.”
In conclusion, CEO of the Association of Furniture and Woodworking Enterprises of Russia noted that the efforts of the Association alone are not enough. It is necessary to increasingly involve producers whose interests are served by the organization. After all, only a few take an active part in the dialogue with the state, formulate their problems and make suggestions in which directions to move and what issues should be solved. Communication is very important, and the Association is a tool to be used by the industry to solve its own problems. Only an active position of domestic enterprises can contribute to the healthy development of the industry.
Click here to watch the interview on the Youtube channel of the ProDerevo portal
Let us recall that the interview with Timur Irtuganov, CEO of the Association, took place as part of UMIDS, the largest regional exhibition of furniture and woodworking held in Krasnodar from April 3 to 6 this year. The Association provides official support for the event.