The Myanmar Coup's Impact on Teak

The turmoil began on February 1st when the military overthrew the democratically elected state counselor of Myanmar, Aung San Suu Kyi.Suu Kyi's NLD party won a landslide victory in the earlier general elections, much to the military's ire, which still wields significant power in the fledgling democracy.In case you didn’t know, Myanmar, previously known as Burma, is home to over 50 million people and is a significant nation in Southeast Asia. A member of the Association of Southeast Asian Nations (ASEAN), the country touts a checkered past of military juntas, coups, and civil unrest.Unfortunately, the country is now experiencing its most significant hurdle since its return to civilian rule in 2011, with over 20 protesters killed in clashes around the country.

The local populace is dissatisfied with the military's reaction to the elections, and the military is unhappy with its waning power in the face of democratization.For the time being, the military commander-in-chief Min Aun Hlaing has de facto control over Myanmar.Widely condemned for his use of force against ethnic minorities, the situation on the ground in the country remains opaque as internet connections severed across the country early on in the coup.

Source: https://www.statista.com/chart/24182/progress-myanmar/

As a largely undeveloped economy, the sudden and drastic shift in geopolitical status has significant implications for many local industries in Myanmar. The nation is one of the largest exporters of teak hardwood globally. The international market for teak will likely experience intense shifts in market dynamics in the wake of the recent coup.Dense and water-resistant, the hardwood has uses in outdoor furniture and luxury boat decks due to its hearty makeup.Teak demand also rises in tandem with global demand for teak investments, currently buffed by rising inflation concerns and a potential new Commodity Supercycle.Myanmar is home to some of the oldest and pure forms of teak, with the most prized trees being over fifty years old.Burmese teak is the most highly sought-after form of teak in the world. It grows naturally in the country and is bountiful in many regions.However, this changed drastically over the 20th and 21st centuries as overexploitation has significantly diminished the availability of old-growth Burmese teak.

A Global Supply-Demand Shift

Naturally, waiting half a century for a harvest in favor of ecological sustainability wasn't in vogue in the early 20th century.As a former British colony, the Crown was the first to exploit Myanmar's illustrious natural resources, followed by the Burmese military that took control of the country in 1962. Teak exports proved an effective financing mechanism for the regime, and overlogging, unfortunately, persisted throughout the 20th century.It wasn't until 2014 that the fledgling democratic government moved to ban lumber exports from the nation entirely.A drastic step, this move was a balm on the ailing Myanmar teak groves. Timber accounted for over $1 billion in revenue in 2013.Conversely, forest cover shrank from 58% of the country to only 47% in twenty years. The ban was not an easy decision to make.Teak prices more than doubled from $750 per m3 to over $2000 per m3 in Chinese markets over three months. The ban hit the Indian and Chinese markets particularly hard.The outright ban lasted for five years before the government allowed exporting plantation teak to global markets in 2019, a move that did little to impact the newly elevated prices.

Today, Myanmar is home to over half of the world's wild-grown teak. Despite the government never lifting the ban on wild harvesting, a robust black market for wild-grown Burmese teak exists.A police operation in the Netherlands seized boatloads of illegal Burmese teak at six locations, demonstrating the resilient networks for importing the banned material.What does the coup mean for international hardwood products like teak?

Three Major Reasons Teak Demand Will Remain High

In the wake of the recent Myanmar coup, global teak markets are likely to experience far-reaching impacts. Firstly, the illicit Burmese teak market will likely continue to thrive.Despite the government and international community's best efforts, the demand for high-quality teak is just too great. Additionally, the vast informal labor sector in Myanmar makes instituting efficient export controls next to impossible. Circumventing these restrictions is comparatively easy.[ Timber Mafias: A Plague on the Forestry Sector ]Secondly, the new military government will need new sources of income in the face of international condemnation of their actions.While China moved to block a formal UN condemnation of the coup, global capital markets are wary of doing business with military dictatorships. Even without UN condemnation, sanctions and tariffs from the international community's unsupportive members are highly likely.

Finally, the demand for teak isn't going away, but it is changing shape. Investors are increasingly conscious of their investment impact as ESG investing continues to skyrocket.With these confluences in mind, plantation teak is the way of the future. Equatorial nations like Colombia and Indonesia are well-positioned to take advantage of this pending teak market turmoil.[ All Eyes on Colombian Agriculture ]Plantation teak in the context of agroforestry may be the best way for existing producers to pivot towards the 21st century with a more sustainable business model.Research suggests that companies that go beyond regulatory minimums perform better. That’s likely because companies with effective regulatory management also tend to have excellent business management. It pays to have an ounce of altruism and honesty.By embracing ESG practices, nations and enterprises that stand to benefit can also blunt some of the ecological determinants that are unfortunately likely to befall natural Burmese teak groves.[ Plantation Timber: A Sustainable Solution ]

Source: AGFORWARD

Myanmar’s Teak Industry Under Threat

The current situation in Myanmar is unfortunate. A young democracy is facing the threat of extinction before it has a chance to get off the ground.The implications on the teak market are as complex as the situation itself. While illicit harvesting is poised to increase, other teak producers will benefit significantly from the hardwood's consistently rising demand.It also highlights the importance of plantation teak and sustainably managed nonrenewable resources.Along with the nuanced dynamics of the global teak market, a peaceful way forward for the people of Myanmar is as valuable as the ancient hardwood forests that, thankfully, still make up the landscape of the country.