VIETNAM WOOD PELLET PRODUCTION
AND EXPORT: ENVIRONMENTAL AND
SOCIAL ASPECTS
FOREST POLICY TRADE AND FINANCE INITIATIVE|BRIEF|NOVEMBER 2 0 21

To Xuan Phuc, senior policy analyst, Forest Trends (pto@forest-trends.org)
Cao Thi Cam, , researcher, Vietnam Timber and Forest Products Association (caocamhp@gmail.com)

1. Introduction
Wood pellets have become one of the most important export commodities ofVietnam’s wood sector. The export volume of pellets has reached around 3
million tons each year, valued at US$350 million in recent years. South Korea
and Japan account for over 90% of Vietnam’s annual export volume of woodpellets.
This Brief provides an overview of Vietnam’s wood pellet production and exports
through August 2021 and concludes with recommendations for the sustainable
development of the industry in the future. The quantitative data was sourced fromthe General Department of Vietnam Customs; qualitative information was derived
from discussions with representatives of Vietnam’s pellets manufacture andexport industry.

2. Vietnam’s exports of wood pellets
2.1. Exports have boomed since 2017
On average over the past three years, Vietnam has exported about 3
million tons of wood pellets on an annual basis, valued at nearly US$350
million (Figure 1). Export volumes are expected to reach record highs in
2021, with 2.4 million tons, equivalent to US$273 million, already reported
in the first 8 months of 2021 alone. In general, export has been on therise.
2.2. Impact of COVID 19 on exports
While a recent surge of COVID-19 cases in Vietnam beginning in April
2021 has had a significant impact on Vietnam’s export of wood products
to major markets like the U.S. and EU, it has had a much lesser impact on
Vietnam’s wood pellets export (Figure 2), primarily because the surge
took place mostly in the country’s southern provinces where furnitureprocessing clusters are located, while wood pellet manufacturing takes
place primarily in northern provinces.

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Figure 1. Vietnam’s export volume and value of pellets, 2013 – August 2021

VietnamCustoms,
compiled byForest Trends
and Vietnam
timberassociations

Figure 2. Vietnam wood pellets export, January – August 2021

VietnamCustoms,compiled byForest Trends
and Vietnam
timberassociations

VIETNAM WOOD PELLET PRODUCTION AND EXPORT:ENVIRONMENTAL AND SOCIAL ASPECTSNOVEMBER 2021

2.3. Export markets
South Korea and Japan are Vietnam’s two largest markets for wood pellet
exports, accounting for over 90% of total export volume each year. South Korea
is by far the main destination for pellets in Asia, although Japan has been rapidly
increasing its demand over the past three years. In both countries, government
programs (subsidies as well as regulatory) have incentivized an increase in theuse of wood pellets for renewable energy.
The South Korean market for wood pellets has historically been nearly twice aslarge as Japan’s; however, the stability ofJapanese imports is higher andgrowing more consistently (Figure 3). The South Korean market contains someuncertainty, particularly price volatility.

Figure 3. Vietnam’s wood pellets exports by volume, 2017 – August 2021

South Korea is by far
the main destinationfor pellets in Asia,
although Japan has
been rapidly

Vietnam Customs, compiled by Forest Trends and Vietnam timber associations

increasing its
demand over thepast three years.

The export value derived from the Japanese market is also smaller than that fromthe South Korean market, but it has demonstrated consistent growth since 2018
(Figure 4). The South Korean market, by contrast, contracted significantly in 2019and has not recovered since.

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Figure 4. Vietnam’s wood pellets exports by value, 2017 – August 2021

Vietnam Customs, compiled by Forest Trends and Vietnam timber associations

Figure 5. Average price of Vietnam's wood pellets exported to Japan and South Korea,
2019 – August 2021

Vietnam Customs, compiled by Forest Trends and Vietnam timber associations

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The average export prices are higher for Japanese markets than South Korea,
about US$20-30 per ton (Figure 5). Vietnamese export enterprises indicatethat South Korean prices are lower due to the preferred use of auctions ratherthan paying set prices, as in Japan. Purchasing agreements between
Vietnamese exporters and Japanese buyers are direct agreements
negotiated between the two parties.
Over 70 enterprises export wood pellets from Vietnam each year. The numberof businesses remained relatively stable in 2019 and 2020.
As indicated by the export volume figures, more companies export to South
Korea (61) than to Japan (41). Ten of these companies export to both countries.
Given the higher price paid by the Japanese buyers, it should be expectedthat exporters will increasingly move from the South Korean market to theJapanese market, or at least try to do business in both markets.
2.4. Export structureOver 70 enterprises
export wood pellets
from Vietnam eachyear. The number ofbusinesses remained
relatively stable in2019 and 2020.

Vietnam’s wood pellet industry is characterized by great differentiation, with asmall number of export enterprises exporting large volumes and a large
number of companies exporting on a much smaller scale (Figure 6).
Specifically, in 2020 there were 47 companies, or almost 62% of the total
number of the companies participating in wood pellet export, moving lessthan 10,000 tons. The total exported volume of this groupaccounts for merely
3.8% of the total export volume (Figure 7). By contrast, six companies (8% ofthe total number of export companies) exported over 100,000 tons. The totalexported volume of these companies accounts for nearly 67% of the country’s
total export (Figure 7).

Figure 6. Proportion of export companies by scaleof export volume, 2020

Figure 7. Proportion of export volume
by company scale, 2020

Vietnam Customs, compiled by Forest Trends andVietnam timber associations

Vietnam Customs, compiled by Forest Trends andVietnam timber associations

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3. Vietnam’s wood pellet manufacturing
According to Vietnam Administration of Forestry, about 80 factories manufactured wood pellets inVietnam in 2019.1 However, industry experts believe the number may be much higher than the official
statistics – up to 300 – with approximately 200 located in Vietnam’s Southeast where wood processing
establishments are concentrated (unsurprising, given the byproducts from the other wood processing
establishments concentrated in this region which are used as input materials for manufacturing pellets).
At present, the production of wood pellets in Vietnam has both strengths and weaknesses.
3.1. Strengths
As a large and growing manufacturing center of the world’s wood products, Vietnam has a large numberof furniture and plywood workshops and mills, totaling over 6,000 according to VNFOREST. This figure
does not include thousands of micro-scaled (i.e., household) operators. These factories and operators
produce copious amounts of wood byproducts that can be used as inputs for wood pellet manufacture.
The input timber sources for wood pellets include sawdust, shavings, twigs, and tops of planted timberwith a diameter of about 2cm or less.2 As Vietnam’s timber plantation has expanded, raw material input
for wood pellets is increasingly available. Furthermore, the wood pellet processors do not require large
and complicated investment in technology or complex supply chains and management – thus presenting
low barriers to new entrants on the manufacturing side. In addition, Vietnam has a geographicaladvantage, with the sources of raw materials for manufacturing pellets located near export seaports,
convenient for transportation.
3.2. Weaknesses
The manufacture and export industry of pellets currently has some limitations. First, quality control of input
materials is not a high priority, nor is verification of the legality of the wood input materials. Some processing
establishments use mixed materials that affect product quality.3 The availability of wood inputs certified assustainable, such as under the Forest Stewardship Council (FSC) most widely in demand from international
markets, is limited. In fact, there are some indications of fraudulent FSC-certified products being marketed,appearing all the more likely when the volume of claims is compared to the actual supply of FSC material.4
Input materials have not been managed by the chain of custody. These problems with quality control andinability to verify legal sourcing have a negative impact on the reputation of the entire industry.
Second, the supply is currently greater than demand, with the numerous processing enterprises
competing against each other resulting in lower prices. Unfair practices, such as price squeezing,
exacerbate the problem. While many enterprises are involved in processing, export is mainly
concentrated in a few large-scale enterprises, as highlighted in Figures 6 and 7. Finally, there is noorganizational collaboration, such as wood pellet associations, and no national support for a vibrant andsustainable industry yet.
This figure is provided by the Bulletin on Manufacture and Export of Pellets in Vietnam: Status and some aspects should be concerned.
Detailed information about the Bulletin on the website: https://goviet.org.vn/bai-viet/san-xuat-va-xuat-khau-vien-nen-tai-viet-nam-9339.
2Larger top branches are used as chips; the smaller ones are veneer and the larger ones are used for lumber.
3This information is provided in the following report: https://www.mightyearth.org/sumitomo.
3This led the FSC to officially investigate the issue: https://blogapac.fsc.org/2021/07/09/updates-on-transaction-verification-in-asian-woodpellet-supply-chains/.
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3.3. Future pathway

Often a legality
approach may
itself lead to
improvements inlaws and regulations,with long-term
improvements inforest and landmanagement.

Vietnam’s wood pellet industry has great potential to market itself as a sustainablesource for renewable energy and sustainable development for numerous smallholders
and medium-sized enterprises. First, demand is expected to continue to rise,
particularly in Japan, which may triple by 2024-2025 in comparison with 2020 as
insights from some large-scale Vietnamese exporters revealed. Such increases inexports would balance out the current supply glut in the next 2-3 years (assuming noincreases in domestic production). Second, the availability of FSC certified woodpellets could be obtained through the cooperation between export processing
enterprises and afforestation households in order to create a source of certified timber.
In fact, some wood pellets companies have been collaborating with smallholders tree
growers in producing FSC timber and seeking to expand the FSC area undercollaboration. Once quality control and legal verification no longer present reputationalrisks, the Vietnamese wood pellet sector would be on the right path to sustainabity.

4. Supporting a sustainable Vietnamese wood pellet industry
Vietnam’s industry and government may wish to consider greater institutional support
to ensure a vibrant yet sustainable wood pellet industry in Vietnam. Tradeassociations, or a branch of existing timber trade organizations, could more efficiently
connect the manufacturing and exporting enterprises, provide global market
information (especially on the requirements for legal and sustainable product), andfacilitate a shared voice and understanding and approach to sustainable
development among businesses. In Vietnam,
trade associations play a unique role in conveying
information and recommendations from acollective business voice to the State authorities,
helping to establish effective policy mechanisms.

Forest Trends works to conserve forests and other ecosystems through the creation andwide adoption of a broad range of environmental finance, markets and other payment andincentive mechanisms. This brief was released by Forest Trends’ Forest Policy, Trade, andFinance program, which seeks to create markets for legal forest products while supporting
parallel transformations away from timber and other commodities sourced illegally andunsustainably from forest areas.

with support from:and the Davidand LucilePackardFoundation