As their counterparts in Brazil and Chile invest millions of dollars in ever bigger and more sophisticated panel lines to match soaring market demand, Mexico - population 108 million - is yet to install its first world-scale MDF line. The nation's fibreboard (MDF/HDF) consumption is rising at a rate of around 10% per year, with all but 5% of the 300,000m³/year it used in 2006 being fed by imports - mainly from the US and Chile. A similar trend is forecast for this and next year, according to data presented to Mexican panel makers by Bernard Fuller of consulting firm RISI last October. While the country's dwindling wood reserves are barely sufficient to support its particleboard producers, decades of deforestation, an ever drier climate and a lack of serious capital investment to regenerate the woodland stock have further restricted panel industry development. However, a glimmer of hope is emerging in Mexico's tropical south with the prospect of a new sustainable wood resource growing up, with the spread of fast-growing eucalypt and gmelina plantations. For decades, most of Mexico's forest land has been, and remains today, in the grip of the archaic and inflexible 'ejido' communal land tenure system. In spite of a change of government in 2000, after 71 years of one-party rule, there was little reform or change in regulations. The president of the Mexican wood panel manufacturers' association ANAFATA, Emilio Ayub Touché, continues to press the federal government for urgent action to aid fresh forest development. A new president, Felipe Calderon, from Fox's National Action Party, was elected for a six-year term last year. ANAFATA concedes that the government operates a tree planting incentive scheme, started in 1995. This offers forest plantation investors an annual sum of around US$400 per hectare for the first five years of growth, according to the organisation's director general Armando Santiago. "Forest plantation in Mexico is going to grow because these incentives are really very good," he told WBPI during a meeting at ANAFATA's Mexico City offices. In addition, Mr Santiago reported, the Mexican government has set aside a sum of six billion Mexican pesos (US$555,000) for a scheme intended to support reforesting by the 'ejido' forest owners. This will involve the planting of 250 million tree seedlings in the community-run forests during 2007. Even so, the panel makers are disappointed that the authorities have failed to get more involved in resolving what is a serious national problem. "The situation really has not changed [shortage of quality wood]. If anything, it has got worse in Mexico," admitted the ANAFATA president, who is also president of particleboard and softwood plywood manufacturer Duraplay de Parral SA de CV, located in the huge northern Mexican state of Chihuahua (see p30). The squeeze on the flow of wood supplies is tightening as government tree cutting permits granted to the community 'ejido' forest owners are being restricted a little further each year. "This has affected the numbers of logs going to sawmills or plywood mills, but not so much the particleboard operations. Distribution of the wood has changed - bigger diameter logs to smaller ones. "Most of what people tend to cut are big and more valuable trees. So you have a forest left with smaller ones which should go either to particleboard or pulping," explained Mr Ayub, adding that the smaller trees were often left unharvested. The panel industry in Mexico has shrunk in recent years as smaller players drop out, and consolidation has taken place among the bigger producers. Today the sector is dominated by one larger particleboard company, Mexico City-based Rexcel SA de CV, part of the quoted industrial conglomerate Desc SA de CV (see p33). Rexcel's managing director Carlos de la Hoz, whose company now has particleboard capacity of around 380,000m³/year at two plants in north and central Mexico, acknowledges the problems faced by his industry as a whole. "The current [fibre] supply for the Mexican particleboard industry is tight, but has not been a factor for the industry to shut down. It is difficult, and the cost has been high, but there has been a reasonable amount of wood - not always of the best quality - available," he admitted. Mr de la Hoz agreed that for the plywood industry it is "a different story" with a "much more difficult supply situation for them". The wood supply is inadequate now for the launch of even one world-scale MDF plant in the country, he confirmed. The executive admitted Rexcel would have launched a sizeable MDF project already if the raw material conditions were better. He suggested that the situation is similar with other panel producers in Mexico, pointing out that the region's top panel maker, Masisa SA of Chile, which runs a particleboard mill in Mexico, would probably have gone into MDF too if better quality fibre was available. The Rexcel boss admitted that at the root of the wood crisis is a strong environmental "protectionist" streak over Mexico's natural resources. With its wood products industry based originally on its natural forests, they are seen more to be preserved than as a resource for a "solid industry", unlike in South America. "We're trying to persuade the government to change the mentality of how best to handle the forests," he added. He acknowledged the other major issue concerns the 'ejido' ownership but he is not alone in treading carefully in this most delicate of constitutional matters in Mexico. Rexcel is among the leaders in moves to establish a fresh wood resource in the south eastern states of Mexico. A Rexcel subsidiary already has eucalypt trees of four and seven years growing on a 10,000ha plantation in the southern state of Tabasco. This species would normally be ready for harvesting for panels after seven years. Mr de la Hoz is quick to sing the praises of the south eastern plantations, although he stresses that there will be insufficient fibre supply to support major industry growth from there within the next 10 years. "[Plantation] has a lot of attributes. It has environmental protection, creates new industry, new businesses for the poor communities and creates new jobs. But, its a long-term project for the country and for the people of Mexico," he said. According to ANAFATA, a major feasibility study on the prospects of developing a new forest products centre in south east Mexico, based on 500,000ha of tree plantations, was completed by consulting group Jaakko Pöyry for four southern Mexican states: Veracruz, Oaxaca, Tabasco and Chiapas to attract new investment. It showed that the region could in the long-term sustain two plywood, one particleboard and one MDF plant and a pulp mill. Duraplay's Emilio Ayub acknowledges the obvious benefits to the sector of the plantations option and agreed tree growth rates for the southeast are impressive at around 40m3/year. Attempts to start plantations in the arid north have met with failure and few are willing to invest in the forest without the security of ownership. In the south, where a smaller growing area is needed for high yield, there are more opportunities for private investors to acquire deforested land for plantations. But the major drawback to the industry remains the fact that most panel mills are located in central and northern Mexico, closer to the giant US market, and over a thousand miles away from a future southern fibre source. No doubt the panel makers are facing a new dilemma but most agree there is but one way to turn. "There's huge potential for plantations in the south and that's where I think the wood basket will be in the long term," said Mr Ayub. If the plantations and government and industry projects are successful, Mr de la Hoz predicts Mexico could finally have two world-scale MDF plants of its own.