PREFACE BY THE SECRETARIAT

Matthews

PREFACE BY THE SECRETARIAT

Background

The first ECE/FAO study of European timber trends and prospects was published in 1953 and hadconsiderable influence on forest sector policy in the 1950s. The fourth study was published in 1986.Planning for the present study, known as ETTS V, started almost immediately after the completion ofETTS IV, when a small team of specialists started to consider data and methodology for outlookstudies.ETTS V, like its predecessors, has been carried out under the joint auspices of the Timber Committeeof the UN Economic Commission for Europe and the FAO European Forestry Commission, whodefined its objectives and will consider its implications for forest sector policy at their joint session inSeptember 1996. The Joint FAO/ECE Working Party on Forest Economics and Statistics oversaw thework and monitored progress, notably by reviewing draft conclusions at its session in 1995.

Acknowledgments

Although the study has been written and coordinated by the ECE and FAO staff in Geneva, manyothers have contributed to it.The ETTS V core team developed methods and new approaches to complex problems and guided andencouraged the secretariat throughout the work. Many individual members of the team madecontributions to specific parts of the study which are acknowledged in the appropriate chapters.Almost all European countries nominated national correspondents to provide data and advise theETTS V authors on national circumstances. In particular, they were asked to comment on the basescenarios presented in chapter 11. The secretariat thanks these correspondents for their valuable inputof time and national experience, without which the study would have been impossible.A number of governments contributed resources, in cash or in kind (i.e. by making available theservices of national experts), to carry out the study. The secretariat wishes to express its deepappreciation for the valuable contributions of the governments of Austria, Finland, France, Norway,Sweden, Switzerland, the United Kingdom and the United States.Both the ECE and the FAO Forestry Department contributed staff and financial resources over a longperiod to prepare the study, which was carried out in close cooperation with staff of the ForestryDepartment, notably the Forestry Planning and Statistics Branch.Despite these major contributions, the responsibility for the content of the study lies with the ECE andFAO staff in Geneva.1

Data and documentationUnless otherwise specified, all data presented in the study were collected especially for it or takenfrom the ECE/FAO data base in Geneva, itself based on regular data collection and verification fromcountries, and published in the regular issues of the Timber Bulletin.This study is based on a considerable amount of data collection and analysis at the country level,which cannot be meaningfully presented in a single study. Therefore, it is accompanied by a series ofETTS V working papers (issued as Geneva Timber and Forest Discussion Papers), which presentmethods and detailed data which could not find a place in the study itself. The ETTS V workingpapers are as follows:

1 Formerly the Timber Section of the Joint FAO/ECE Agriculture and Timber Division, now the Timber Section of the ECE Trade Division and the

forestry staff attached to the FAO Liaison Office at Geneva.

European Timber Trends Study V 2

- The outlook for the European forest resources and roundwood supply, by Heikki Pajuoja(ECE/TIM/DP/4);- Modeling forest products demand, supply and trade, by David Brooks, Anders Baudin and PeterSchwarzbauer (ECE/TIM/DP/5);- Projections of forest products demand, supply and trade in ETTS V, by Anders Baudin and DavidBrooks (ECE/TIM/DP/6);- Forest resources and consumption of forest products in countries in transition, 1990-2020, by JarmoEronen (ECE/TIM/DP/8);- Price trends for forest products, by Björn Vikinge and Myriam Issartel (ECE/TIM/DP/9);- ETTS V scenarios (base and alternative) at a national and country group level, (ECE/TIM/DP/10);- The policy context for the development of the forest and forest industries sector in Europe, by TimPeck and Jacques Descargues (ECE/TIM/DP/11).These documents are available from the secretariat at the address given on the back cover.Finally, the secretariat welcomes comments, corrections and suggestions. These should be addressedto the ETTS V coordinator, Mr. C. Prins, Chief, Timber Section, ECE Trade Division, Palais desNations, CH 1211 Geneva 10 (Fax +41 22 917 0041, E-mail: [email protected]).

Members of ETTS V core team:Anders Baudin (Sweden), Darcie Booth (Canada), David Brooks (USA), Jorge Casquilho (Portugal),Ioan Ciurea (Romania), Louk Dielen (the Netherlands), Yves Granger (France), Jari Kuuluvainen(Finland), George-André Morin (France), Heiner Ollmann (Germany), Marion Macovescu (Romania),Heikki Pajuoja (Finland), Peter Schwarzbauer (Austria), Markku Simula (Finland), Hans Stinshoff(Germany), Johan Stolp (the Netherlands), Wladislaw Strykowski (Poland), Sven Svensson (Sweden),Adrian Whiteman (United Kingdom).

ETTS V national correspondentsAustria: ............Mr. A. Knieling and Mr. P. SchwarzbauerBelgium: .................................................Mr. J. ParmentierBulgaria: ...............................................Mr. V. KaramfilovCroatia: ....................................................... Mr. V. BicanicCzech Republic: .......................................Mr. P. RybnicekDenmark: ..................................................... Mr. F.R. BachEstonia: ....................... Mr. A. Leemet and Mr. K. KarolesFinland:.......................................................Mr. R. SeppäläFrance: ....................................................... Mr. Y. GrangerGermany: .................................................. Mr. H. OllmannGreece:......................................................Mr. S. VogiatsisHungary: ....................Mr. P. Csoka and Mr. M. MöcsenyiIreland:..........................................................Mr. J. LavelleItaly:.................... Mr. A. Froncillo and Mr. C. de FabritiisLithuania:............................................ Mr. A. VasiliauskasThe Netherlands: ............... Mr. L. Dielen and Mr. J. StolpNorway: ......................... Mr. B. Akre and Mr. E. FurusethPoland:...........Mr. W. Strykowski and Mr. B. LonkiewiczPortugal: .................................................. Mr. J. CasquilhoRomania: .................Mr. M. Macovescu and Mr. I. CiureaSpain:........................... Mr. J. Rios Boeta and Mr. R. PuigSweden: ................................................Mr. S.A. SvenssonSwitzerland:.............Mr. A. Semadeni and Mr. M. ZanettiTurkey: ..............................................Mr. M.Y. KamilogluUnited Kingdom: .....Mr. A. Whiteman and Mr. R. Selmes


EXECUTIVE SUMMARY

IntroductionThe fifth study of European timber trends and prospects (ETTS V) was prepared for the TimberCommittee of the UN Economic Commission for Europe and the European Forestry Commission ofthe FAO. The major objective is to review the outlook for the supply and demand of roundwood andforest products, and the balance between the two until 2020, while taking into account recycling,energy and trade issues.The work has been carried out by the ECE/FAO secretariat in Geneva on the basis of data supplied bynational correspondents, and with the help of a core team and a number of consultants made availableby their governments as a contribution to the study.The geographical scope of the study is Europe, including the market economies of western Europe, thetransition economies of central and eastern Europe and the Baltic countries, but not Belarus, Russia orUkraine. It covers the forest and forest products sector, including the forest itself, as well asproduction, trade and consumption of forest products and wood for energy, but not processed productslike furniture. It does not cover the outlook for non-wood goods and services, which will be thesubject of another study.

MethodologyThe study aims to be pragmatic, transparent and relevant, and to use all available information to thefullest extent possible. Thus the methods used vary from sector to sector and country to country:- econometric projections for supply and demand of forest products in market economies, based on theanalysis of long term trends (1964-92);- national forecasts for forest area, growing stock, increment and removals;- national forecasts for transition economies;- secretariat estimates for waste paper recycling.The separate forecasts are brought together in two internally consistent base scenarios, which aresupplemented by several alternative scenarios. Scenarios are country specific, with a projection periodextending to 2020 and projections for the years 2000, 2010 and 2020.

Underlying assumptionsThe scenarios are based on specific assumptions which must be kept in mind when evaluating theresults. For the two base scenarios the most important assumptions are as follows:- west European GDP will grow by about 1.8 per cent per year (Base Low) or 2.8 per cent per year(Base High) until 2005, and about 1.5 per cent per year thereafter (both scenarios);- the transition economies will recover 1990 income levels by 2000, and show steady, but notspectacular, economic growth thereafter;- residential investment is expected to expand only slowly, and probably considerably slower than theeconomy as a whole;- in general, costs and prices in real terms for roundwood and forest products will remain constant overthe long term, as they have in the past;- there will be no fundamental changes for forest policy in Europe, which includes a continuation ofthe trend to increase emphasis on non-wood management objectives;- policies on environmental protection, biodiversity, waste management and sustainable developmentwill be further strengthened;- there will be no major disruption of energy supply or substantial rise in general energy price;- there will be a continuing free trade regime;- there will be further cut backs of public spending, despite the maintenance of social andenvironmental objectives.

Base scenarios


The two base scenarios are differentiated only by the assumptions regarding the rate of economicgrowth.Consumption of sawnwood and panels is expected to grow at rates between 0.8 and 1.8 per cent a yearbetween 1990 and 2020, rather slower than the economy as a whole, while paper consumption isexpected to grow at 2.1 to 2.6 per cent a year.European production is expected to grow slightly slower than consumption for paper, but at the samerate as consumption for sawnwood and panels.Even though no significant energy price rise is expected, the consumption of wood for energy willcontinue to grow slowly. Even now, if all types of wood energy are taken into account, 45 per cent ofthe wood removed in Europe is used for energy (often after another use, or as a by-product of it). Thisshare is expected to increase.The waste paper recovery rate is also expected to rise, from 37 per cent in 1990 to over 48 per cent in2020. The volume recovered would double in the Base Low scenario and triple in the Base Highscenario.Removals, or the harvest from European forests, are expected to rise slowly, from about 390 millionm3 in 1990 to about 480-490 million m3 in 2020, which is still only about 70 per cent of net annualincrement.2 The forest area is expected to show minimal expansion (an increase of 3 per cent, or 5million hectares over 30 years). As a consequence, levels of growing stock per hectare would increase,to unheard-of levels in some central European countries with conservative silvicultural traditions. Therealistic maximum level of removals in 2020, without depleting the forest resource (or investing inraising forest productivity) is estimated at 530 million m3: the increase over the base scenarios wouldbe essentially in the three export-oriented European countries, Austria, Finland and Sweden.Europe's net imports of forest products (excluding wood in the rough) from other regions are expectedto increase, particularly as regards paper. In the Base Low scenario, this increase is about 55 millionm3 EQ (equivalent wood in the rough), and in the Base High about 80 million m3 EQ. In the authors'view, the rest of the world has the potential to supply these volumes, as economic growth indeveloping countries may not generate per capita consumption levels of forest products as high asthose in Europe and North America. Also, new supply sources, notably fast-growing plantations, willreact rather rapidly to increased demand, signalled by increased prices.Net imports of wood in the rough are projected to increase by about 25 million m3, but this isessentially a residual figure, and the volume could come from extra European supply or from non-European sources, depending on delivered wood cost.The share of European removals in European wood and fibre supply is expected to fall from 69 percent in 1990 to 52-56 per cent in 2020, and that of waste paper to rise, from 13 per cent to 21-22 percent. The share of net imports will rise (from 10 per cent to 15-17 per cent) and that of industrialwood residues stay constant at around 9 per cent.In general, prices are not expected to rise significantly over the long term because of competition fromsubstitute materials, the supply driven nature of the waste paper market and the potential to expandEurope's removals without threatening sustainable forest management. These factors would outweighpossible price tensions arising from economic growth in other regions and supply cutbacks fromnatural forests.The adverse effects on forest biomass of changes in the environment (e.g. pollution) have beenlimited: increment and growing stock have developed favourably in all major regions of Europe. Thefavourable trends on forest increment and growing stock are likely to continue for at least 20 years.However, the adverse effects of pollutants on forest biodiversity have been widespread.The European forest accumulates carbon and thus makes a significant positive contribution to theglobal carbon balance. This is expected to continue over the time horizon of ETTS V.

Alternative scenarios

2 An exception to this is some Balkan countries, where removals are already well above increment because of over-grazing, fuelwood demand and

weak institutions.


A number of alternative scenarios, some quantitative, some qualitative, explored the sensitivity of thebase scenarios to different assumptions and the possible consequences of different policy choices. Thequantitative alternative scenarios examined the sensitivity of the base scenarios to changes in theassumptions regarding: prices of forest products, prices of wood raw material, waste paper recoveryrates, levels of construction activity and global supply constraints.Qualitative scenarios explore the consequences of higher energy prices and of environmental policiesand legislation stronger than in the base scenarios (Deep Green Future).This analysis shows that: the developments of costs and prices for roundwood and forest products aremore important for the future of the sector than commonly stated in the policy discussion; the sectorhas a number of self-regulating mechanisms, including price effects on demand and supply, as well aswaste paper recovery, which prevent it from entering a destructive cycle of extreme trends andreactions; and, some parts of the system are more stable than others: in particular, demand forEuropean roundwood is much less volatile than demand for imports from other regions.

ConclusionsThe study shows that given continuing economic growth and competitivity on price and performanceof forest products, European consumption and production of forest products will continue to growsteadily. Waste paper recycling will intensify and net imports grow. Nevertheless, the demand forEuropean roundwood will increase. Europe's forests will, however, be able to meet this challenge byincreasing harvest levels, while remaining within the limits of sustainable wood supply.


Chapter 1 INTRODUCTION

1.1 Objectives of ETTS V

(i) BackgroundThis study of the long-term outlook for thetimber aspects of the forest and forest productssector in Europe is intended for the use ofdecision makers and those who advise them.Anyone who takes a decision must have anexpectation of the likely consequences of hisaction, which in turn implies an implicit view ofthe future, and of the external factors which willaffect the consequences of the decision. In thegreat majority of cases, this view of the future isnot laid out formally, as possible changes aresmall or the consequences of wrong decisionsminor. However, as the importance of the issuesand the size of the risk become greater, it is oftenconsidered necessary to analyse in a formal waythe consequences of any particular action (or of arange of different options).Among the many factors increasing theuncertainty attached to a decision are: amultiplicity of actors and factors, especially ifthey are not controlled by the decision maker(e.g. if there is a significant internationalelement); a long time horizon; and a lack ofknowledge as regards cause-effect relationshipsin the area concerned. All these characteristicsmake it both more necessary and more difficultto examine the consequences of decision options.All three factors above apply to major decisionsin the forest and forest products sector, which isincreasingly international and complex, wherethe economic, social and biological interactionsbetween the different parts of the sector are oftennot well understood, and where the time horizonsare often extremely long.A forest owner drawing up a management plan, agovernment drawing up forest policy, an investorexamining an investment opportunity in theforest products industries, and many others, arevery soon forced to ask themselves what will bethe international situation as regards supply,demand, prices and trade of roundwood and thevarious forest products. In theory each of themcould develop their own opinion of these issues:in practice, this would be very difficult, given themany factors and the remoteness of some of the

major actors. This is especially true because theforest and forest products sector, by its verynature, involves major international elements,like the global markets for sawnwood or pulp,alongside very local aspects, like site conditionsor rural social structures.One solution applied since the early 1950s isinternational cooperative studies of the outlookfor the supply and demand of roundwood andforest products. European timber trends studieshave been prepared and published in theframework of the FAO and the UN EconomicCommission for Europe, by the ECE/FAOsecretariat but with considerable input fromnational experts, at roughly 10-year intervalssince 1952.1 The present study is the fifth fullstudy in this series.(ii) MandateThe two parent bodies of the study, the FAOEuropean Forestry Commission and the UN/ECETimber Committee, have approved the followingterms of reference for the fifth European timbertrends study, which will be referred to as ETTSV:"The major objectives of the study are asfollows:“(a) to present the outlook for European demandfor forest products;“(b) to present the outlook for the supply ofroundwood from European forests;“(c) to present the outlook for the balancebetween supply and demand, taking into accountall parts of the sector, including trade, use ofindustrial residues and waste paper, and theforest products industry.“In addition to achieving these major objectives,the study (or connected documentation) shouldalso aim to achieve to the extent possible thefollowing linked objectives:“(d) to provide a database for the use ofanalysts;“(e) to present long-term past trends, especiallyof a structural nature;


FIGURE 1.3.1 GDP in OECD Europe

“(f) to present the outlook for prices ofroundwood and forest products;“(g) to present the outlook for international tradein roundwood and forest products;“(h) to improve the quality of the database forlong-term outlook studies.”In addition, the parent bodies considered that"the study should take into account the possibleeffects of present and likely future policies forother sectors which could affect forestry, notablyfor agriculture, the environment and regionaldevelopment, as well as forest policy itself.Major issues for policy in the forest and forestproducts sector should also be identified anddiscussed.“The study should cover supply and demand forcork as well as for wood-based forest products.2

“The study should also examine the effect of thedemand for non-wood benefits of the forest onwood supply, as well as other interactionsbetween the supply of wood and non-woodbenefits of the forest.“The study will cover Europe3, with otherregions being considered as influences on theEuropean situation, notably as suppliers of forestproducts to Europe.“The study will be published in the mid-1990s,with a time horizon to around 2040, but withmore detailed examination of the period to 2010.“Wherever possible, past data and projectionswill be supplied on a country-by-country basis.“The Committee noted that among the presentand likely future policies for other sectors whichcould affect the forest and forest products sectorwere policies for increased regional economicintegration. The possible effects of these

FIGURE 1.3.2 Total consumption of sawnwood

policies should be analysed and integrated intoETTS V" (ECE/TIM/49, paragraphs 47-56).The study will not cover the outlook for thesupply and demand of non-wood goods andservices, important though they are: the natureof the problems, the data and the methodologyrequired are so different that it was consideredimpossible to combine the two outlooks in asingle study. However, once ETTS V iscomplete, the Timber Committee and the EFCwill launch a study with ambitions similar toETTS V on the outlook for non-wood goods andservices.

(iii) MethodologyThe methodology and structure of the study havebeen drawn up in consultation with the ETTS Vcore team, and adhere to the following basicprinciples: there is a pragmatic choice, withdifferent basic methods in each sector asappropriate; the reasoning and assumptions usedshould be transparent so that readers are able tocheck and, in some cases, modify, the scenarios;and, to the extent possible, assumptions (forinstance on GDP growth or prices for forestproducts) should be consistent across the wholestudy.The study has been prepared in three phases:preparation of initial scenarios, using a varietyof methods (econometric analysis, nationalforecasts, secretariat estimates); a consistencyanalysis, to adjust the initial (partial) scenarios inorder to achieve base scenarios, which areinternally consistent across countries and sectors.To avoid internal inconsistencies between partsof the study, the partial (initial) scenarios werethen corrected to be in accordance with the basescenarios; examination of alternative scenarios


to the base scenarios (sensitivity analysis), andthe consequences of the former for the differentparts of the sector, as well as of the study's majorconclusions.As ETTS V is intended also to be a tool foranalysts elsewhere, notably those examining theoutlook for the forest and forest products sector

at a national level, data are supplied on acountry-by-country basis in the study or in thesupporting documentation. Those interested infurther information about sources, etc., or inreceiving the data in a computer-readable form,are invited to contact the secretariat.

1.2 Overview of the European forest and forest products sector

Europe is a rich, densely populated continentwith about 35 per cent forest cover. There isabout 0.28 hectares of forest and other woodedland for every European, much less than theworld average of 0.63 hectares per caput.Europe accounts for about 5 per cent of theworld's forests. However, unlike those of manyother regions, where deforestation is proceedingat a rapid pace, Europe's forests ceased tocontract around the beginning of the twentiethcentury and have been expanding steadily sincethen (apart from times of war) in both area andgrowing stock. Over the 1980s, Europe's forestarea expanded by about 1.9 million hectares.Again, unlike those of many other regions,almost all of Europe's forests are managed, andhave been managed for a very long time (there isevidence for forest management - coppicing -from Somerset, in the UK, in the Stone Age).There is very little primary or "virgin" forest inEurope.Because of the generally high level of economicdevelopment, consumption of forest products ishigh (although not as high as in North America).Consumption of sawnwood has been growingrather slowly and is more affected by cycles inits major market, residential construction, than a

strong growth trend. Consumption of wood-based panels has also finished its post-war phaseof rapid market development and penetration,and is growing slowly, although some products(e.g. MDF, OSB) are gaining market share at theexpense of others. Consumption of paper andpaperboard has been growing at roughly thesame speed as GDP for the last 40 years, despitefrequent fears that paper would be renderedunnecessary or uncompetitive by new techniques(electronics, packaging). About 37 per cent ofthe paper and paperboard consumed in Europe isrecovered for re-use.Fellings in Europe are about 420 million m3 o.b.,about 70 per cent of net annual increment.Despite the fact that Europe harvests much lessthan the maximum biological potential of itsforests, and thus has the physical potential toexpand domestic removals considerably, itimports large volumes of forest products fromother continents: its net imports were around 66million m3 EQ in 1992, of which nearly halfwere in the form of pulp. Imports come from allmajor wood-producing regions. Europe (mainlythe EU) and Japan are the dominating importerson world forest products markets.

FIGURE 1.3.3Total consumption of panels

FIGURE 1.3.4Consumption of paper and paperboard

1.3 Comparison of trends in the 1980s with thescenarios of ETTS IV

As ETTS V is the latest in a series, each ofwhich draws heavily on the experience of earlierstudies, it is desirable to examine systematicallythe scenarios of the earlier studies in light ofsubsequent events as an indication of changes intrend or of methodological weaknesses. Theattached graphs show trends recorded in the1980s, alongside the scenarios proposed byETTS IV. For the demand scenarios, it is ofinterest to know whether any discrepancies aredue to problems with the econometric analysis,or with the scenarios for the exogenous variables(essentially GDP, population and residentialinvestment). The latter are, therefore, alsoshown alongside those for forest products.It should be borne in mind that the ETTS IVscenarios, like those of ETTS V, concern long-term development, and were not intended to takeinto account cyclical fluctuations.

(i) GDPDuring the first half of the 1980s the real trend inGDP growth for OECD Europe was rather belowthe 1.7 to 2.1 per cent rate forecast for ETTS IV,and rather above it in the second half of thedecade. Thus the ETTS IV scenarios for GDPgrowth were roughly in line with reality over the1980s as a whole. The contrast between the twohalves of the decade reappears for otherparameters.

(ii) Residential investmentThe trends for residential investment, the mainend-use sector for sawnwood and panels, varywidely between countries. ETTS IV proposedtwo scenarios: the "low" was for no growth, andthe "high" for growth at half the rate of GDP. Ofthe five main western European economies, in

1990, two had residential investment above theforecast range (Germany and the UK), two wereinside it (Italy and Spain), and one was below it(France). This confirms the importance of takingnational factors into account. It is alsonoticeable, as for GDP, that trends in the firsthalf of the decade were considerably lower thanin the second. However, the early 1990s sawvery weak conditions for residential investment,with consequences for consumption ofsawnwood and panels.

(iii) PopulationDuring the 1980s, population grew very much inaccordance with the UN "medium variant". Thepopulation of Turkey grew at 2.3 per cent a yearduring the 1980s, slightly faster than the 2.2 percent a year ETTS IV scenario, and, as forecast,by far the highest rate of population growth inEurope.

(vi) Consumption of forest productsConsumption of sawnwood was below theforecast range over the whole decade, althoughthe divergence was greater in the first half thanin the second, and a sharp drop occurred in theearly 1990s. There was, however, a significantdifference between the two major assortments.Consumption of coniferous sawnwood was nearthe forecast range throughout the decade andwithin it at the end of the decade. However,consumption of non-coniferous sawnwood waswell below the forecast range throughout thedecade. It is only possible to speculate on thecauses for the lower-than-forecast consumptionof non-coniferous sawnwood: generalweaknesses in demand in two major markets(France and Italy), a reluctance by consumers touse sawnwood from tropical sources, and astatistical distortion due to the fact thatincreasingly hardwood manufactures (windows,doors and door frames, joinery) are importedrather than non-coniferous sawnwood itself (thiswould result in a drop in recorded imports ofsawnwood). The choice of base year (three-year,rather than five-year average) may have alsoplayed a role.

FIGURE 1.3.5Recovery rate of waste paper


Consumption of all wood-based panels wasbelow the forecast range during the first half ofthe decade, above it in the second half, within itin 1990, and below it in the early 1990s.Consumption of paper and paperboard wasmostly within the range throughout the decadeand above it at the end of the decade, following asimilar pattern to GDP, the exogenous variablein the projections. This indicates that theelasticities used for paper consumption by ETTSIV were broadly satisfactory.

(v) Recovery of waste paperThe continued strong growth in waste paperrecovery has confirmed the ETTS IV scenarios:indeed the growth in the recovery rate wasunder-estimated by ETTS IV.

(vi) Removals of roundwoodThe ETTS IV removals scenarios were preparedby national experts. During the 1980s, removalswere along the lower edge of the ETTS IVprojected range, which was for rather slowgrowth, and fell below it during the recession ofthe early 1990s. There are, however, bigdifferences between countries and assortments.For the Nordic countries, largely dependent onthe export market and very open to internationalcompetition, in most years real removals werebelow the ETTS IV scenarios, while for the EU,in the first half of the decade they were below

the forecast and for the second half above it.Practically throughout the whole period,removals of logs were below the forecast levels,but those of small wood (pulpwood, but alsofuelwood, pitprops and other industrial wood)were inside the range until 1990.There were major differences at the nationallevel between scenarios and real developments,which more or less cancel each other out at theEuropean level. Removals in practically all thetransition economies were below the forecasts,which is understandable given the specialcircumstances of the time, as well as in Italy,Finland and Turkey. In Belgium, theNetherlands, Norway, Portugal, Spain and theUK they were above the forecast range.

Notes1 The European timber trends studies have been issued at the following dates: ETTS I in 1952, ETTS II in 1964, an "Interim Review" in 1969, ETTS IIIin 1976 and ETTS IV in 1986.2 Unfortunately, it has not been possible to carry out this part of the terms of reference.3 Including the three Baltic States.

FIGURE 1.3.6Total removals

5

Chapter 2 THE POLICY CONTEXT

2.1 Introduction

It is increasingly recognised that public policy isone of the most important factors determining theoutlook for the forest and forest products sector.Indeed, public policy appears to be at least asimportant as macroeconomic or technical trends,or the age structure of the forest resource, andmore difficult than any of them to analysescientifically. This chapter attempts to describeand analyse the policy context for the forest andforest products sector, covering not only policiesfor the sector itself, but, more importantly,policies for other sectors which have a significantimpact on the forest and forest industries sector.The objectives of this chapter are: to identifythose policy areas, inside and outside the forestand forest products sector, which may have asignificant impact on the sector, the main issuesand areas of uncertainty; to develop a "basescenario" for these policies, describingdevelopments considered the most likely to occurby the authors of ETTS V; and, to estimate thedirection and magnitude of the changes in theforest sector which might result from changes inthese policies.

This analysis will make it possible to identifysome of the main areas of uncertainty in the basescenario (presented in chapter 11), and to guidethe creation of alternative policy scenarios.This type of analysis (explicit consideration ofthe policy context, especially for "non-forest"policies) is new in the ETTS studies, and is basedon intensive preparatory work, notably an ad hocmeeting on the question in June 1994, preparedby an informal meeting in January 1993. Thebasic document on the topic, reviewed by themeeting, will be issued as an ETTS V workingpaper, by T.J. Peck and J. Descargues. Thepreparation of this paper was financed by theGovernment of Switzerland, with significantinput from the Forestry Policy and PlanningDivision of the FAO and the Chair of ForestPolicy and Forest Economics of the SwissFederal Institute of Technology in Zurich.Section 2.3 is essentially a summary of theworking paper and the meeting's conclusions: forfurther information and background analysis,readers are referred to this documentation.

2.2 Policy for the forest sector

For 100 years or more, the backbone of nationalforest policies in Europe has been to preserve orexpand the productive potential of the forestresource by protecting it against harmful outsideinfluences (insects, fire, encroachment by otherland uses, etc.) and by preventing excessivecutting levels, so as to ensure a reliable long-termsupply of wood and all the other goods andservices derived from the forest. The tools usedto implement these policies vary widelyaccording to circumstances, but typically includemonitoring and inventory to detect and analysetrends, requirements for a management plan byall owners, subsidies for various silviculturalmeasures, or, in some cases, favourable fiscalregimes, extension services, and, perhaps most

importantly, the management activities of publicforest services. The commitment to theseoverriding objectives has been strong andsustained (except in times of war), and supportedby public opinion everywhere.Some countries have had long-term policies toexpand their forest resource or to improve itsquality; among them are Bulgaria, France,Finland, Hungary, Ireland, Spain and the UnitedKingdom. These programmes, along withnatural extension onto marginal agricultural landhave outweighed losses of forest land to otheruses, notably urban and infrastructure, causingEurope's forest area and growing stock to expandsteadily since the early 1950s.


During the 1980s, there were some majoradditions to the forest policy objectives and someorganisational adjustments. The most importantwas the much-increased awareness of theimportance of functions of the forest other thanwood production, especially the conservation ofbiodiversity and the provision of recreation.These are now given equal weight to sustainablewood supply in the forest policy objectives in allEuropean countries; this development has led toa wide range of measures: differing managementpractices; prevention or severe limitation ofharvesting on some areas; the publication ofguidelines for good practices; extensionprogrammes; etc. Foresters and forest policieshad always been aware of these benefits, but hadoften given them lower priority than woodproduction when choices had to be made, orassumed that they would be a natural side effectof management for wood production.Partly as a result of an increasingly sophisticatedand assertive environmental movement, forestpolicy has moved up the political agenda andbecome the subject of serious political (asopposed to technical) debate in many countries.The passionate debate about tropicaldeforestation, focused (in Europe) essentially onthe protection of natural ecosystems, has

accelerated the reassessment of the goals andmethods of European forestry, a process which isstill ongoing. The drawing up of internationallyagreed lists of criteria and indicators ofsustainable forest management to clarify thinkingand facilitate international comparisons, with theinterlinked movement in favour of certifying thatwood has come from sustainably managedsources, will no doubt lead to further changes inmanagement goals and methods.As these new demands are being made on forestmanagers, public and private, public budgets allover Europe are under severe pressure because ofthe structural deficits in many countries. Thus,the demand for new services and pressure toincur additional costs comes at a time of reducedavailability of public funds. One reaction hasbeen to increase the efficiency and costeffectiveness of forest administration by givingprivate or, more often, giving a less officialstatus to forest services, discouraging waste ofany sort and encouraging cost-consciousmanagement. There have also been calls toincrease income from other sources than woodsales or public funds, notably from user fees forvarious services, but these have encounterednumerous political and practical difficulties.

2.3 Base scenario for the policy context in other sectors

Developments and policy choices in a number ofother sectors will have a major, if notdeterminant, influence on the outlook for theforest and forest products sector. Therefore, thischapter outlines a "base scenario" for thesedevelopments and policy choices, arising fromthe meeting mentioned above.It should be stressed that this scenario onlycovers changes in policies which could have asignificant impact on the forest and forestproducts sector. Policies where no major changesare expected and those where changes would nothave a significant impact on the sector are notdiscussed in this chapter. The policy scenariopresented in this chapter has been reviewed andapproved by the ad hoc meeting, and will becompared in chapter 11 with the scenariosarising from the other parts of the study.

(i) Economic growth

(a) Policy scenario

There will be further measures to reinforceeconomic growth and reduce unemployment inwestern Europe, targeted on construction andregional development.Governments perceive a choice between givingpriority to controlling inflation, notably throughrestrictive monetary and fiscal measures, andgiving priority to attacking unemploymentthrough stimulating economic growth. Indeed allmacroeconomic management policies seek thepath to steady, strong and inflation-free growth:unfortunately, no universally applicable andreliable prescription has yet been found. In theearly 1990s, inflation was brought to historicallylow levels in most western countries at the costof slow and, at times, negative growth and veryhigh unemployment, which in 1993 averaged10.3 per cent in western Europe. This level ofunemployment is widely considered intolerablein the long term because of the social pressures itcreates. For this reason, it is expected that the


second half of the 1990s will be marked bymeasures to reduce unemployment and stimulategrowth, including the further lowering of interestrates, the easing of lending restrictions and theincreased allocation of public funds for certainactivities, including construction (i.e. publicworks, improvement of the housing stock,notably for energy conservation, and conversionfor the use of special groups such as the elderly)and regional development (i.e. infrastructure,tourism, rural industries, especially in poorer andmore remote areas). Nevertheless, there is a highdegree of uncertainty for this hypothesis, asgovernments now have less room to manoeuvrethan before due to international factors(multinational firms; official commitments, as inthe EU monetary and other agreements;pressures of currency markets), as well as insome cases, strong domestic constraintsregarding public budget deficits.

(b) Consequences for the forest sectorThe impact on the forest sector of measures toencourage growth would be chiefly to generatestronger demand for forest products, particularlythose used in the construction industry. Supportfor rural economies could also be reflected inassistance for establishing and modernisingforest industries and forestry in areas targeted forsuch assistance.

(ii) Energy

(a) Policy scenarioContinued ample energy supply will continue toinhibit policy changes in the energy sector.There will be no major disruptions to supply andnew energy taxes will not raise pricessubstantially.Oil prices have not risen in real terms betweenthe early 1970s and the mid 1990s, as thedevelopment of new sources of fossil fuel(natural gas, North Sea and Alaska, etc.), energyconservation in housing and transport, and thecollapse of effective price support mechanismsin OPEC have made the oil market once again abuyer’s market. There have been no significantsupply interruptions (e.g. nuclear accident, war)for some time, and the western economies havebeen able to "absorb" supply limitations whenthey have occurred (e.g. Gulf war).There is strong intellectual pressure from "green"and other sources, for governments to take firm

preemptive action to reduce consumption offossil fuels and nuclear-generated electricity,encourage the use of renewable energies (seen asthe only valid long-term solution), and to reducecarbon output into the atmosphere. The mainpolicy measure proposed is heavy taxes on fossilfuels (a carbon tax). However, given theplentiful availability of fossil fuels in theforeseeable future (discounting the type ofsupply interruption mentioned above), scientificuncertainty about fossil fuel reserves and theclimate change, and the high short-term politicaland economic cost of a carbon tax at a rate whichwould have a significant impact, there is atpresent little evidence that governments will paymore than lip service to these ideas.Again, the uncertainties surrounding thisscenario should be stressed: another Chernobyl,or a political upheaval in a producing area whichcaused more than a temporary disruption ofsupplies could lead governments to radicalpolicy changes in a rather short time.

(b) Consequences for the forest sectorIf energy prices continued broadly unchanged,the large scale use of wood as an energy sourcewould remain uneconomic in almost allcircumstances. This would very probablyprevent the development of a large market forenergy wood, perpetuating the forestmanagement problems associated with weakmarkets for small-sized wood and the difficultyof covering the costs of thinnings. It would alsorender economically unviable the proposals forenergy plantations, widely put forward as asolution to the problem of surplus agriculturalland.The energy price also is one of the main factorsdetermining the viability of various uses forwood processing residues. A stable energy pricewould favour their use as a raw material over usefor energy, and make the disposal of residueswhich cannot be used as raw material moredifficult and expensive.Finally, a low price for energy would discouragethe use of waste paper and other urban waste as asource of energy. Since these must be disposedof in some way, and landfill is increasinglyunacceptable, the pressure to use them as rawmaterial for paper, competing with virgin fibre,would become even greater than at present.

(iii) Environment


(a) Policy scenarioPolicy on environmental protection, biodiversityand sustainable development, and on wastemanagement will be further strengthened.Although quite far-reaching measures to protectthe environment and promote sustainabledevelopment have already been introduced, andfurther measures could be quite costly, it is feltthat the political momentum built up throughUNCED and the campaigning of the manyenvironmental NGOs is such that furthermovement is inevitable. Some of the forms thatsuch a movement might assume are: the drawingup and strict application of national (or evenmultinational) strategies for sustainabledevelopment; further limits on pollution,possibly with the increased use of market-basedmechanisms, such as tradeable permits; thesetting aside of larger areas for the protection ofbiodiversity (natural reserves); implementingmuch stronger regulation of waste disposal andobligating waste "generators" to pay the full costof environmentally acceptable disposal, whichare often significantly higher than the chargeslevied at present; and, limitations on thedevelopment of nuclear power.There are enormous differences betweencountries in the strictness and effectiveness ofenvironmental legislation. To bring all countriesto the level of environmental awareness of, say,Germany or the Netherlands would already havesignificant consequences. However, in thisscenario, it is supposed that the leaders in thisfield will themselves advance and that othercountries will catch up to them, stimulated byinternational institutions, such as the EU, andinternational conventions, such as thosenegotiated in the UN/ECE. In addition, theinterconnectedness of economies andpopulations will make it rapidly inconceivablefor one European country to have a significantlyhigher or lower level of environmentallegislation than its neighbours and tradingpartners.

(b) Consequences for the forest sectorThe consequences for the forest sector would befar reaching and complex, and should beexplored in detail. A partial list is set out below:- larger areas of forest will be managed for theconservation of biodiversity (natural parks),thereby removing an increased amount of areafrom wood production;

- the adoption of more environmentallyconscious management guidelines, which wouldslightly reduce harvest levels, but could increasecosts significantly;- the development and application of systems tocertify that wood and forest products have comefrom sustainably managed forests. This woulddrastically reduce the markets for wood fromnon-sustainably managed sources, and add a costto wood from other sources (due to themanagement of the certification systems), butcould be positive in its effects on theacceptability of wood in an area ofenvironmentally conscious consumers. Theexistence of credible certification systems and,equally important, the public debate whichwould inevitably accompany their inceptionwould probably strengthen wood's position as themajor renewable and environmentally friendlyraw material. It is also likely to favour certainsuppliers at the expense of others, therebyaffecting trade patterns: it is not unreasonable tosuppose that wood from primary or naturalforests would be at a marketing disadvantagecompared to wood from plantations or fromforests managed in a "near natural" way;- the encouragement of recycling would reducethe markets for the products of virgin fibre,thereby putting economic pressure on woodproduction; it might also favour the use of woodand paper products in general, which are in mostcases more suitable for recycling than theircompetitors. In addition, it will impose limits oncertain additives and processes which are widelyaccepted now, notably wood preservatives, butalso resins, paints and lacquers, and varioussynthetic facings, such as aluminium andpaperboard combinations, etc.;- the general imposition of the real costs ofdisposal on waste "generators" will causenumerous detailed changes in technology andindustrial practice, especially in major industriessituated near large markets. It is difficult toforecast the overall direction of change.- concern with disposal costs will probably alsoencourage energy generation from woodprocessing residues and used forest products,assuming that the present reluctance in somecountries to consider energy generation anacceptable form of waste disposal subsides.

(iv) Agriculture


(a) Policy scenarioConsiderable areas of agricultural land will bewithdrawn from food production; alternativeland uses, including forestry, will be activelysought and financially supported.The agricultural policies of the past 30 years ormore have led to the overproduction of food inmost of Europe, the distortion of agriculturaltrade, and high costs for both the public budgetand consumers in the form of prices "supported"at excessive and unsustainable levels. There isnow a general determination at the national andinternational (EU, GATT) levels, to correct thisposition. There are, however, numerousproblems due to the complexity of the systemsand policies and the large number of people,almost all in vulnerable rural areas, directly orindirectly dependent on these subsidyprogrammes.There seems little doubt that considerable areasof agricultural land (tens of millions of hectaresin Europe) will be withdrawn from foodproduction over the next two decades or used ina much more extensive way (lower yields offood per hectare, less inputs). However,governments are also committed to maintainingemployment and the standard of living in ruralareas, indeed, to raising them in the poorestareas. They are therefore expected to seek viablealternatives to food production on much of theland concerned and to provide public financingfor such alternatives, although at considerablylower levels than at present.Forestry would be one of the very few realisticoptions for large scale conversion of agriculturalland; indeed, encouragement to afforestagricultural land are in place, notably in the EU.There has been, however, a rather limitedreaction to these schemes because of thetraditional antipathy in many areas betweenforestry and farming, technical problems, fearsof lowering land values, unwillingness to acceptthe lower income proposed from forestry, etc.There is little doubt that if sufficiently highsubsidies were offered, the conversion wouldtake place quite rapidly.Afforestation of agricultural land could also playa major role in providing renewable energy(through energy plantations, see discussionabove) and acting as a carbon sink to mitigateclimate change.

(b) Consequences for the forest sector

The main consequence of significantafforestation of agricultural land (with efficientwood production as the major objective) wouldbe a higher level of wood supply at some time inthe future. However, the size, speciescomposition and timing of this future supplywould depend critically on the policy decisionsto be taken in the next few years, notably on: thelevel of subsidies; the management objectives(wood production, recreation, creation of suitablehabitat for wildlife or hunting, etc.); the type andlocation of land afforested, although it is likelythat in most cases it would be more fertile thanexisting forest land; and, the species andsilvicultural regime chosen.It should be pointed out that there could be fairlywidespread expansion of forests on agriculturalland, without any significant effect on woodsupply: natural encroachment creating low valuescrub forests; lack of management by ownerswho simply take the subsidies as an end inthemselves without stressing wood production;management for recreation or biodiversity, or forhigh-quality timber with a very long rotation, etc.An important aspect is that if afforestation tookplace as a result of agricultural supportprogrammes, it would of necessity be supplydriven and relatively price inelastic, as the majorpart of the costs would be covered by the subsidyprogramme.

(v) Trade

(a) Policy scenarioAn enforceable and workable internationalagreement on the principles to be incorporatedin national regulations and legislation relatingto trade and environment issues will be achieved.While losing share in world trade, Europe willadapt its industry and trade to benefit from thegrowth of new markets in economically emergingcountries.Trade and environment may well be the centraltopic of the next set of multilateral tradenegotiations, after the completion of the UruguayRound and the setting up of the World TradeOrganisation. Richer countries seek to prevent"environmental dumping", while developingcountries are suspicious that these measurescould be used as non-tariff barriers to preventtheir access to markets and increase their costs.Trade in forest products, especially proposals toban the importation of wood from non-


sustainably managed sources, has already beenthe subject of discussion and conflict at theinternational level, and it seems certain thatforest products will be at the centre of thediscussion on trade and the environment at theWTO. It is believed that, despite the greattechnical and political problems, arrangementswill be made to define, at an international level,acceptable practices in forest management, andto put in place a system for certifying that aparticular piece or consignment of forestproducts has come from acceptable sources. If itis to be at all effective, this system must bepractically universal, which could imply settingstandards at levels lower than would be wishedby some environmental movements.The last decade has seen the emergence of anumber of fast-growing economies mostlyaround the Pacific Rim. The rates of economicgrowth in the world's largest country bypopulation, China, have also been impressive;however, many experts consider the foundationof this growth fragile, and there is uncertaintydue to political and social factors and the strongcontrasts between regions of China as regardseconomic growth. In most cases, this economicgrowth has been founded on a dynamicexpansion of exports. As a consequence,traditional trading areas, including Europe, haveseen their share of world trade diminish. Thistrend is expected to continue and spread to otherregions, such as Latin America. Up to now, thegrowth of many of these countries has not led tocorrespondingly higher living standards, in partbecause much of the profit has been reinvested.This is expected to change, however, andEuropean firms will have the opportunity toexport more of all types of goods and services tothese "emerging economies". Likewise,European industries, which have lost ground insome sectors, have shown that they remaincompetitive in others.

(b) Consequences for the forest sectorThe consequences of the application of commonenvironmental standards in the forest sector willdepend to a large extent on the detailed measuresadopted. Conceivably, present normal practicecould be found acceptable, and there could belittle change in trade patterns and thecompetitiveness of different supply regions.However, it is more likely that the management

of primary forests, whether tropical, temperate orboreal, will be subject to much stricter standardsthan before, and that those countries who obtaina significant part of their wood from primaryforests (e.g. tropical hardwood producers, butalso Canada and Russia), may find it moredifficult to export to Europe. In any case, suchcountries will have to absorb considerably higherproduction costs, brought about by moreintensive management policies.All wood producers would have to bear the costsof the certification system, costs which they mayor may not be able to pass on to consumers.However, the existence of a credible certificationsystem, negotiated with the participation of allgovernments (including their environmentministers) and under the attentive scrutiny of theNGO community, would make a strong assertionthat forest products are renewable, sustainableand environmentally friendly. Some competingmaterials would find it more difficult to undergothe intense scrutiny currently devoted to allforest-related questions, so the final result of thedebate on the certification of forest products maywell be a competitive advantage for the forestand forest products sector as a whole.The main global consequence of the fast growtharound the Pacific Rim will be an increaseddemand for forest products: whether this willalso result in increased prices depends on thecapacity of the system as a whole to respond tothe increased demand by increasing supply (e.g.by developing fast-growing plantations).Another consequence will be exportopportunities for products and for equipment andservices (e.g. consultancy).

(vi) Transition economies1

(a) Policy scenarioThere will be steady progress in establishing thefoundation for renewed economic expansion inthe transition economies, which will attractincreasing foreign investment.Immediately after the momentous politicalchanges which took place in 1989-90 in theformer centrally planned economies of easternEurope, there was an upsurge of optimisticforecasts for the rapid recovery of theseeconomies to near western standards of living ina relatively short time. However, as themagnitude of the necessary social, economic andpersonal changes became clearer, this optimism


was succeeded by severe pessimism andcynicism, encouraged by the deep slumpexperienced in all the countries in the first half ofthe 1990s. At present (autumn 1994), only twoof these economies are expanding, all of themare well below their 1989 levels of output, therehas been a steep drop in living standards, andincreases in unemployment and inflation.However, it is believed that the necessary stepshave been or are now being taken in thetransition economies of eastern Europe to lay thebasis for sound growth in the future and theestablishment of stable, market economyinstitutions. The pre-1989 levels of output willbe recovered as the economies start a process ofconvergence with the more advanced, westernmarket economies.However, there are enormous differencesbetween the transition economies as regards theirbasic endowments of resources and skilledlabour, the policy choices made for the transitionprocess (e.g. shock therapy versus gradualism),and the determination of governments to stick totheir policy choices, even during periods ofunrest and uncertainty; often, such periods areattributed to the transition process itself ratherthan to the chronic economic mismanagementwhose consequences it is intended to correct.Thus, while there is every likelihood ofsatisfactory growth in some transitioneconomies, in others, progress is sure to be slow.There is also very great uncertainty about thespeed of recovery and future growth rates.

(b) Consequences for the forest sectorThe most important consequence for the forestsector will be the growth in demand for forestproducts which would accompany recoveredeconomic growth, especially given the strongpent-up demand for good quality housing. Inaddition, the per capita levels of paperconsumption are very low by western standards,and would be expected to rise fast as real incomeexpanded. At first, this demand might be met inpart by imports, especially as these countries'industrial infrastructure is old, inefficient andpolluting.

(vii) The role of the public sector

(a) Policy scenarioPublic spending will be cut back, but social andenvironmental objectives will be maintained.

Privatisation will continue throughout Europe ata decelerating pace.The size of budget deficits is causing concern inalmost all market economies, and mostgovernments are committed to reducing it,despite the evident political problems of raisingtaxes and/or reducing benefits. Furthermore, therise in health-care costs seems unstoppable, as anincreasing number of both older and youngerpeople, as well as unemployed, are becomingdependent on a smaller number of "productive"people of working age; these two socio-demographic factors combined place severestructural strains on public budgets. There isnow, and will continue to be, strong pressure toreduce less essential expenditure and to ensurethat public money is spent efficiently. In thefuture, proponents of both new and existingexpenditure items must be prepared to justifythemselves politically on a regular basis, and itwill be difficult to persuade finance ministries todirect public funds to anything other than a smallcore group of essential activities.Over the past decade or so, one popular way ofraising state income and reducing calls on thepublic purse has been privatisation of stateowned industries or other enterprises.Increasingly, all branches of government arebeing called on to demonstrate why they shouldcontinue to be owned and managed by the state.This applies even to certain functionstraditionally seen as the exclusive responsibilityof the state, such as managing prisons or certainpolice duties. However, in several countries, the"obvious" candidates for privatisation (mostlythose state owned manufacturing industrieswhich are profitable) have already beenprivatised, and further movements in thisdirection are increasingly controversial.There is an apparent contradiction between thisdetermination to keep public expenditure andpublic deficits under control and the scenarioproposed above which advocates economicstimulus in the fields of construction and ruraldevelopment to keep unemployment atacceptable levels. However, this only illustratesthe difficult policy dilemma facing governments,who must reduce unemployment while keepingbudget deficits within manageable limits. Thescenario proposed is that public funds willindeed be used to stimulate employment and


rural economies, but that corresponding savingswill be sought from other areas.

(b) Consequences for the sectorIt will be increasingly difficult to attract publicsubsidies for forestry activities; these will beexpected to be self financing according to normalcommercial criteria, or to demonstrate clearly(i.e. in quantitative terms) the value to society ofthe unmarketed goods and services of the forest.It will be necessary to find innovative means offinancing the supply of non-wood goods andservices (e.g. by charging users), and to reducethe costs of wood supply. Unjustified operatingdeficits of public forest services will be reduced,as will the levels of subsidy to private forestowners. For this reason, and due to thedevelopments in the GATT negotiations onpublic subsidies, forest industry subsidies will bereduced to create a "level playing field" betweentrading partners.In recent years, the operational functions ofpublic forest services in many countries havebeen administratively separated from the policyand oversight functions. The latter have oftenremained in the responsible ministry, while afairly autonomous agency, run on quasi-commercial lines, has been given theresponsibility of managing public forests. Inmany countries this management has beensuccessful in increasing efficiency and reducingcosts. In a few countries, such as Sweden, theUK, and outside Europe, New Zealand, there hasbeen serious discussion or real action to privatisestate owned forest, transferring ownership toprivate individuals or companies. It is too earlyas yet to evaluate the success of these moves,which are highly controversial.2However, in practice the consequences of thismood are the same, whether privatisation iscarried out or not: a more rigorous, wood-supplyoriented management of public lands, and aneffort to finance non-wood goods and servicesdirectly and explicitly, rather than through ageneral deficit of public agencies or anuntargetted subsidy regime.

11

Notes1 See also chapter 10.2 In the UK the full privatisation option is not under active consideration at present.


Chapter 3 ECONOMIC AND DEMOGRAPHIC BACKGROUND

3.1 Introduction

This chapter presents, in quantitative andqualitative terms, the scenarios for populationdevelopment, economic growth and theconstruction sector, which underlie other parts ofthe study, especially the econometric analysis ofsupply and demand for forest products in chapter6.Wherever possible, the scenarios presented areauthoritative official scenarios prepared byinternational agencies specialised in the topicunder consideration, as the authors of ETTS Vhave no particular expertise in these fields.However, where no such scenarios exist or arenot specific enough for the purposes of ETTS V,

the authors have not hesitated to make their ownestimates. This has often been necessary for thelong-term future, as few other analysts (exceptdemographers) find it possible or useful to makeforecasts 30 years into the future. This chapterwill also draw attention, where appropriate, tomajor areas of uncertainty, which might be thesubject of sensitivity analysis at a later stage inthe study.This chapter draws heavily on the work done byMessrs. Peck and Descargues on the policycontext, discussed in chapter 2 and issued in anETTS V working paper.

3.2 Demographic outlook

World population in the mid 1990s stands atover 5.3 billion people, of which over 75 per centare in developing countries. The rapid growthwhich seemed to have started in the eighteenth ornineteenth century, is expected to continue intothe twenty first: the planet will have about 8.5billion people in 2025. The rate of growth is,however, expected to slow down, from around 2per cent a year in the 1970s, to about 1.3 per centa year in the 2020s; nevertheless, this slower rateof growth still implies an annual increase of 90million people (more than the total 1995population of Europe's largest country,Germany). The reasons for the decline in thefertility rate are expected to be greater materialprosperity, better education, especially ofwomen, and governmental policy, driven byfears of the consequences of overpopulation.In Europe however, the picture is very different,with fertility rates at or below the replacementlevel and very stable populations, increasing onlymarginally (in many cases, through netimmigration, not natural replacement). As aresult, Europe's share of world population isexpected to fall further, from 9.4 per cent in 1990to 6.1 per cent in 2025. There is one exception tothis general picture: Turkey, with a present

population of 56 million is expected to reach 93million people in 2025, thus becoming Europe'smost populous country by far.The main demographic issues of interest to theforest and forest products sector are:- will the enormous expansion of worldpopulation, which is certain to occur in the nextquarter century, place unsustainable pressure onnatural resources, including forests and wood?,and- how will Europe adapt to the changes indemographic structure, notably the aging of thepopulation, reducing the ratio of "productive" to"dependent" people (or people of working age tothe total of the elderly and the young)? Thisquestion is highly relevant to strategic planningfor social security systems, employmentconditions (retirement age), and the housingstock (special housing for retired people).ETTS V assumes that there will be nocatastrophic demographic or social change,unforeseen by the official demographicscenarios. There is not expected to be any majorwar, health disasters or mass migration. If any ofthese occurred at a significant level, scenarios forthe forest and forest products sector wouldbecome meaningless.

13

3.3 Economic growth

The most important influence on thedemand for forest products is the overall growthof the economy. It is extraordinarily difficult toforecast long-term macroeconomic trends withany degree of certainty, given the manyimportant factors which interact in complexways, and the importance of public policy indetermining trends. However, as a base scenariofor economic development is necessary for anyrational strategic planning, a number of officialand unofficial agencies make regular efforts tocreate such scenarios, the results of which arewidely used for national and sectoral policymaking.Work carried out by the ECE secretariat presentsa synopsis of the available medium- and long-term global perspectives (EC.AD/R.69, R.76 andR.83). This shows a high degree of consensus onmedium-term trends between the modelsconsidered, which are the United Nations LINKProject, the projections prepared by the nationalexperts of the World Bank, the InternationalMonetary Fund, and the OECD.

The consensus view of the major models listedabove, as articulated by the ECE secretariat, isthat the base line scenarios foresee that thedepressed climate of recent years (the early1990s) will give way to a gradual and durablerecovery. The growth rate for all industrialisedeconomies should be between 2.4 and 3.0 percent per year until the beginning of the nextcentury. For the European Union a rate between2.5 and 3.2 per cent per year is forecast.In all the base line scenarios, the return to growthis linked to the implementation of strict policiesboth at the national and international level.Budgetary rationalisation in countries withexcessive deficits, strict monetary policy and themaintenance of an open internationalenvironment are all prerequisites for achievingthe targets set by the various scenarios. Onlyafter these conditions have been met can growthin the industrialised countries gradually approachits potential medium-term level.However, while the application of the base-linescenarios makes it possible to lay the foundationsfor more sustained long-term growth, it isinsufficient to meet the challenges facing a largenumber of industrialised countries, such asunemployment. In the scenarios, unemploymentremains close to 10 per cent in western Europe.Similarly, according to most of the scenarios, thebudgetary and current account imbalances wouldonly be corrected gradually, while the risk oftension on the monetary and financial markets,

FIGURE 3.2.1Europe: scenarios for GDP growth

TABLE 3.2.1Scenarios for economic growth of the west European market

economies(Per cent per year)

1990-1995 1996-2005 2006-2020Base Low:

Western Europe 1.2 2.0 1.6France 0.9 2.0 1.5Germany 1.7 2.1 1.5Italy 0.9 2.0 1.5UK 0.8 1.5 1.5

Base High:Western Europe 1.2 2.9 1.8France 0.9 3.0 1.5Germany 1.7 3.1 1.5Italy 0.9 3.1 1.5UK 0.8 2.0 2.1


should the climate of international cooperationdeteriorate, would remain.Several transition economies have only justresumed growth towards the middle of the 1990s,and output is still falling in a few others. Inseveral countries, it will be necessary to waituntil the beginning of the next century for thedecline in production resulting from industrialrestructuring to be offset by the emergence ofnew activities better suited to the requirements ofthe market economy and of internationalcompetition.The next ten years should see a return to moresustained growth in the developing countries as awhole. In the 1980s and 1990s, this grouprecorded GDP growth of about 5 per cent peryear, with forecasts for medium-term (1995-2002) growth of 5.6 per cent per year. In Africa,Latin America, and the Middle East, medium-term growth would be around 4 per cent, while itwould be nearly 7 per cent for East Asia.All of the base-line scenarios considered point toa yearly progression of world trade of about 6-7per cent.These consensus growth rates, of over 2.5 percent per year average over the medium term (e.g.1997-2002) are, however, roughly equivalent tothose of the most expansive post war years, the1960s and early 1970s, and much higher thanthose of more recent years, especially thedepressed period in the early 1990s. These ratesmay well be achieved until the early years of thetwenty-first century, as governments givepriority to employment and growth. However, itmust be considered unlikely that these rates ofgrowth could be maintained for 25 years. One ormore negative factors, such as overheating,economic imbalance, policy errors or resourceshortages, would interrupt or slow down thislong period of sustained and balanced growth. Inthe very long term, furthermore, economicgrowth is constrained essentially by populationgrowth and by productivity gains due to

technological progress. We have seen thatpopulation growth will be small: cantechnological progress alone drive growth ofnearly 3 per cent per year for 25 years? In theabsence of any official forecasts of very long-term economic growth, ETTS V thereforeproposes long-term growth rates, which aresomewhat below the consensus for the mediumterm, as a basis for the econometric projections.This judgement is supported by the weaker-than-expected performance of the market economiesin 1995 (i.e. after the consensus forecasts formedium-term growth were prepared).For the econometric projections in chapter 6,

ETTS V has prepared two scenarios foreconomic growth: Base Low and Base High. Thelatter is based, up to 20051, on the FAOcompendium of macroeconomic indicators, itselfbased on World Bank data, which do not differsignificantly from the consensus scenariosdescribed above. The Base Low scenario israther lower. Both scenarios show slowergrowth rates for the period after 2005, inrecognition of the unlikelihood of sustainedstrong growth over a 25-year period. Thescenarios for economic growth for the Europeanmarket economies as a whole and for the fourlargest economies are shown in table 3.2.1.

3.3 Construction

Construction, and, in particular, gross fixedcapital formation in dwellings, has the mostdirect influence on the level of consumption ofsawnwood and wood-based panels. It is affectedby many factors, including disposable income,interest rates, construction and land costs

(themselves influenced by land-use planningpolicy), the state of the existing housing stock(e.g. the presence of large numbers of post-wardwellings, many rapidly and shoddily built andnow needing replacement or major renovation),and social and demographic changes (proportion

FIGURE 3.2.2ETTS V scenarios for GDP of European market economies


of elderly, number of households, influenced bytrends for marriage, divorce and age of leavinghome for young people), government policy(mortgage subsidies), etc. There are majordifferences in many of these areas betweencountries, even those which appear similar inother respects.Residential investment does not follow the sametrend as GDP. EUROCONSTRUCT, aconsortium of specialised research instituteswhich prepare medium-term (five-year) outlooksby sector for the major market economies,expects moderate growth to 1998, especially inthe crucial sector of repairs and maintenance,

which is already the largest part of constructionin many countries. However, like themacroeconomic scenarios, this time span is notlong enough for the purposes of ETTS V.Therefore, the relationship between residentialinvestment and GDP over the period 1964-92 hasbeen modelled and the elasticities obtainedapplied to the GDP scenarios.2The estimated growth rates for residentialinvestment in the five largest economies areshown in table 3.3.1 (residential investmentscenarios were only prepared for the ninecountries for which detailed modelling wasundertaken).

Notes

1 For the period 1990-95, complete data are not yet available, but data for the years prior to 1994 have been supplemented by official short-termforecasts for 1995, so that the "scenario" for the first half of the 1990s is essentially reliable historical data.

2 The same procedure was followed for the other components of the end-use index, manufacturing production and furniture production. All threeseries are clearly interlinked, especially residential investment and furniture manufacture.

TABLE 3.3.1Scenarios for growth of residential investment

(Per cent per year)

1990-1995 1996-2005 2006-2020France 0.3 0.6 0.5Germany 0.4 0.5 0.4Italy 0.6 1.3 1.0Spain 0.7 1.4 0.9UK 0.9 1.8 1.8


15

Chapter 4 THE EUROPEAN FOREST RESOURCE

4.1 Introduction

The central and most important objective ofETTS V is to analyse the outlook for the balancebetween supply and demand for roundwood andforest products in Europe. Given the long-termnature of forestry, whose cycles are much longerthan those of the forest industries or the forestproducts markets, the most challenging part ofthis task is to examine the supply and demandbalance for roundwood, and in particular for theroundwood provided by European forests. Toachieve this goal, ETTS V must place theexpected long-term developments for theEuropean forest resource in the context of theexpected developments for forest products andthe demand for roundwood. This is done inchapter 11. The present chapter focuses on thewood supply outlook for the European forest inthe light of present national forest policies, anddescribes broad outlines for the future of theEuropean resource until the middle of thetwenty-first century, on the basis of nationalforecasts to the year 2040.This chapter, like the rest of ETTS V, onlycovers the wood-supply function of the European

forest, and does not address the complexquestions of the resource’s potential to supplyEuropean society's demand for other forest goodsand services.The forecasts in this chapter are based onnational forecasts for forest area, growing stock,increment, fellings and removals, provided inresponse to an enquiry circulated in 1992. Theseforecasts have been collated, validated andprocessed by Mr. H. Pajuoja, whose serviceswere made available by the Government ofFinland. The secretariat takes this opportunity tothank Mr. Pajuoja and the Government ofFinland for this valuable contribution to ETTS V.This chapter mostly presents data for countrygroups or for Europe as a whole. Data bycountry are presented in the ETTS V workingpaper by Mr. Pajuoja issued as ECE/TIM/DP/4.1After a brief description of the European forestresource around 1990, this chapter presentsforecasts for the same resource, and discusses thenature of these forecasts and their sensitivity todifferent assumptions, such as policies, prices ordemand for forest products.

4.2 The European forest resource around 1990

The European forest covers about 200million hectares, of which 135 million hectaresare "exploitable forest" and serve as the mainsource of wood, 16 million hectares"unexploitable forest" and 45 million hectares"other wooded land", including sparse forest andMediterranean scrub land. Forests and otherwooded land cover 35 per cent of Europe's landarea, which is quite near the world average forestcover rate of 32 per cent.Although Europe only accounts for about 5 percent of the world's forest area, the Europeanforest is very diverse, not only in its ecologicalconditions and natural site productivity, but in itshistory, ownership and management. There arewide differences between countries and within

countries (although diversity within countriescannot be covered in ETTS V). For instance,forest cover, including "other wooded land", isnegligible in a few countries, such as Iceland andMalta, and around 10 per cent in the Netherlandsand the UK, but is 68 per cent in Sweden and 77per cent in Finland.Ecologically, European forests vary widely, fromboreal forests near the tree line in northernScandinavia to Mediterranean scrub (maquis orgarrigue), from fast-growing eucalyptus to slowgrowing oak, from Alpine forest to riverineforests in central Europe, and so on.Europe's exploitable forests contain about 20thousand million m3 of wood2, of which nearly 5thousand million m3 in the Nordic countries, and


over 6 thousand million m3 in the EU (12).About 63 per cent of this is coniferous. Becauseof management choices (rotation length), as wellas natural conditions, the growing stock perhectare also varies widely: in the Nordiccountries it is on average 80-120 m3 per hectare,but in central Europe and Germany, it reachesnearly 300 m3 per hectare. The Europeanaverage is 141 m3 per hectare. 85 per cent ofEurope's forest area is "high forest", with theremainder coppice or coppice with standards.The net annual increment of wood also variesaround the European average of 4.5 m3 perhectare per year (exploitable forest only), fromnational averages of around 1 m3 per hectare peryear in some Mediterranean countries to 7-8 m3

per hectare per year in countries such asBelgium, Denmark and Ireland. Of course thedifference between the most and the leastproductive stands in any one country is evengreater. In total, the net annual increment ofEurope's forests is about 630 million m3 per year,of which about 190 million m3 in the Nordiccountries and 215 million m3 in the EU (12). 65per cent of Europe's net annual increment is inthe EU (15) (i.e. the EU (12) plus Austria,Finland and Sweden).European fellings are around 435 million m3 o.b.,just under 70 per cent of net annual increment.In most countries the fellings/increment ratiostands at about the European average and below100 per cent in all but a very few, southerncountries: Albania, Cyprus and Greece. Portugaland parts of former Yugoslavia have afellings/increment ratio of over 95 per cent.Thus, there is no doubt that Europe's presentwood supply is well below its physical potential,with the exception of the above-mentionedcountries.It is difficult to obtain reliable data on changeover time, partly because of the problems ofdistinguishing between real change and "change"due to improved measurement methods.However, according to the Forest ResourceAssessment 1990, the European forest areaincreased by 1.9 million hectares between 1980and 1990. Losses of forest land to other uses,notably urbanisation and transport infrastructure,were outweighed by the afforestation of formeragricultural land and natural extension.Just over half of the European forest is privatelyowned, belonging to farmers, small-scale forest

owners, traditional large estates (now sometimesprofessionally managed on behalf of non-residentinvestors), and, especially in the Nordiccountries, the forest industries. Publicly ownedforest may belong to the state, regional entities(like the German Länder), municipalities, orvarious other bodies. In some countries, the non-state owned public forests are managed by thestate forest service, but this is by no meansuniversal.In all European countries with a significant forestresource, there is a forest law aimed at ensuringthat forests are managed on a sustainable basis,although, until recently, sustainability wasmeasured essentially in terms of woodproduction. In general, all forest owners, privateor public, are expected not to cut more than thesite can produce on a permanent basis. Themethods of implementing these forest laws varywidely according to the legal and politicalsystems and the forest circumstances of eachcountry. In general, forest owners are expectedto manage their land according to a managementplan agreed with an official body. Thecomplexity of the requirements usually variesaccording to the size of the holding, as it isclearly unreasonable to expect detailed (andexpensive) management plans from the ownersof only a few hectares.There are large differences between countriesand, especially, owner groups, in the intensity offorest management and in the owners'management objectives, a fact which plays amajor role in determining Europe's effectivewood supply potential. Objectives other thanmaximising income (expressed as either woodproduction or financial return) are important andeven dominant, for millions of private forestowners; many such owners seek recreationopportunities (e.g. hunting), landscape andprotection from visual nuisance, natureconservation or a store of value (e.g. forest landinherited by urban dwellers from their rural-dwelling parents or grandparents). Often,managers of public forests, although they usuallyhave more resources and skills, have an evenharder task: reconciling the interests of allpresent and potential user groups, while notplacing an intolerable burden on the publicpurse.4The motivations and behaviour of private forestowners is not well understood, despite research


in a few countries, notably the Nordic countriesand France. In most countries, due to theabsence of hard data, it is assumed that thevolume of wood produced by medium- andsmall-scale forest owners will remain constant,

despite evidence that the "average" forest owneris changing, becoming more urban, absentee andwealthy, and less agricultural. It is also widelyassumed that their wood supply behaviour(except in the Nordic countries) is not affectedby price (except possibly in the very short term),but is determined by external and individualevents (such as the frequently quoted necessity topay for a daughter's wedding). However, itappears that in some countries the motivationmay be more complex, and may be aimed atmaintaining a constant total income, leading to anegative correlation of wood supply withagricultural prices (i.e. if agricultural prices arehigh, the farm forester needs to sell less wood toobtain the same total income). It should also bepointed out that it is difficult to evaluate the pricesensitivity of wood supply from private forests asthere has not been a significant long-term changein real prices of roundwood in most countries: itis quite simply unknown how private forestowners, large or small, would react if faced withsignificantly higher or lower roundwood prices.

4.3 The outlook for the European forest resource

(i) MethodologyLong-term forecasts for wood supply and theforest resource are a confusing mixture of thehighly predictable and the very uncertain. On theone hand, because of long forest rotations and thegood knowledge in most of Europe of growingstock, growth rates, age classes and siteproductivity, the biological side is well known:indeed practically all the trees which will beharvested in the first quarter of the twenty-firstcentury are already in the ground (some of themwere planted between the wars or earlier).Furthermore, many of the major silviculturaldecisions, notably choice of species, regenerationmethod and spacing (for plantations) will onlyhave measurable consequences at the national, oreven local, level in several decades.On the other hand, the most importantsilvicultural decision of all, when and how muchto cut, depends on a totally different set ofmostly short-term factors, which are ratherdifficult to foresee, even for a few years into thefuture. These include demand for forestproducts, influencing demand for roundwood(with quality and location factors), present and

perceived future prices for roundwood andharvesting costs, as well as the above-mentioneddiversity of management objectives, some ofwhich are exceedingly difficult to measure ineconomic terms.Several approaches are used to project futurewood supply at the national or regional level,such as: detailed modelling of the biologicalprocesses, concentrating on site productivity andage class structure; aggregation of managementplans registered with the forest authority; andeconometric models, incorporating a biologicalelement and making assumptions about theresponse of forest owners to different priceconditions. None of these methods taken alonecan be expected to produce entirely reliableprojections at the national, let alone international,level.ETTS V has relied on the experience andjudgement of national correspondents to make asynthesis of available national information anduse their judgement when necessary. Thenational ETTS V corespondents were asked tomake detailed forecasts for their countries, basedon knowledge of the forest resource at present

TABLE 4.3.1Europe: base scenario for the exploitable forest(Million m3 o.b.; for removals, u.b.; unit = 106)

Change 1990-2020 1990 2020 (volume) (per cent)

Growing stock m3

o.b. 19810 25145 +5336 + 27Net annual increment “ 629 694 + 65 + 10Fellings “ 436 535 + 99 + 23Removals m

3 u.b. 392 480 + 88 + 22

TABLE 4.3.2Base scenario for exploitable forest by country group

(Million m3 o.b.; for removals, u.b.)

Growing stock Net annual increment Removals 1990 2020 1990 2020 1990 2020

Europe 19810 25145 629 694 392 480Nordic countries 4977 6913 194 234 110 136EU (12) 6453 8072 214 235 144 175Central Europe 1332 1624 36 40 22 26Eastern Europe 4273 5483 112 112 64 68South-east Europe 1895 2058 50 50 42 54Baltic countries 879 994 23 23 11 20

Note: "Removals" also include removals from outside "exploitable forest".


and assuming constant real prices forroundwood.5 The forecasts for removals,prepared by the correspondents, which arepresented in detail in the working paper by Mr.Pajuoja, were then compared with the deriveddemand for roundwood, the results of which areshown in the consistency analysis described inchapter 11. In the great majority of cases, therewas no need to modify the correspondent's basescenario. Where there was a discrepancy,adjustments were made in consultation with thenational correspondent to ensure that the forecastlevel of removals was in accordance with theexpected level of demand. When adjustmentswere necessary to the removals scenario, it wasnecessary also to modify national forecasts forgrowing stock to ensure internal consistency. Itshould be noted, therefore, that the data onremovals, growing stock and increment in thischapter and other parts of ETTS V are notidentical to those in the working paper, althoughthey are derived from it and coincide exactly inthe great majority of cases.The forest scenarios in this chapter incorporatethe removals levels of the Base Low scenario.However, there is only a difference of 6 millionm3 in forecast removals for 2020 between theBase Low and Base High scenarios, so itappeared unduly confusing to present two forestscenarios with only marginal differences.

(ii) Assumptions underlying the scenariosNational correspondents were asked to provideinformation on the policy and other assumptionsunderlying their forecasts. Although theirresponses were by no means comprehensive (seeworking paper, pages 4 ff.), some remarks maybe made.In a number of countries, official (and in somecases long-standing), policies of forest expansionand improvement are expected to continue. Thisis the case for Denmark (which intends to doubleits forest area in 70-100 years), France, Hungary,Ireland, Spain and Turkey. The UK foresees thecoming on stream of existing plantations, butdespite the significant further expansion of area(an additional 350,000 hectares between 1990and 2020) fellings are expected to increase fasterthan increment.

Several countries mentioned that environmentalpolicies, in particular the need to give higherpriority in forest management objectives tobiodiversity conservation, would influence thelevel of removals and/or the classification offorest as "exploitable". References (oftenincomplete or not quantified) to this aspect weremade by Bulgaria, Denmark, Finland (no majoreffect on harvest expected), France (moreprotection areas), Italy (fellings and area ofexploitable forest expected to decline, partlybecause of "campaigns by ecologicalassociations against harvesting"), Norway (large-scale restrictions on harvesting not anticipated),Poland (longer rotations, restrictions onclearcutting, but no significant change in harvestlevel), Sweden (reservation of forests andafforestation of agricultural land expected tocancel each other out), and Switzerland (morehardwood removals, slight increase of harvestinglosses). No doubt other countries have madeimplicit assumptions on the incorporation ofenvironmental objectives into forest managementpractice. It is not possible to quantify the globaleffect of environmental legislation, notablybecause there is no "baseline" scenario, i.e. alevel of harvesting which would be achieved ifthere were no environmental restrictions at all: inEuropean forest management conditions, even toestimate such a figure would be difficult andprobably meaningless as the environmental andwood production aspects of forest managementare inextricably interlinked at all levels.

FIGURE 4.3.1Removals by country group


Many countries mentioned the afforestation ofagricultural land, including Austria (someagricultural land may be shifted to forests),Finland (goal of reducing arable land by 200,000hectares by 2000, but no significant effect ontimber production foreseen), France, Norway (ifagricultural activity declines, there may be anegative effect on forestry as farmers are alsoforest owners), Poland (about 10 per cent ofagricultural land will be afforested, but this willbe a slow process), Slovakia (60,000 hectares oflow yield agricultural land will be afforested,compensating for forest land shifted to otheruses), Spain and Sweden (see above). From thislist it appears that although afforestation ofagricultural land is a major policy issue, thenational correspondents do not expect it tochange significantly the forest sector. Amongthe reasons advanced are:- afforestation would only compensate for theloss of exploitable forest land to other uses,including nature conservation;- any change in land-use patterns would take along time to carry out and even longer to have asignificant effect on wood supply. This implies,among other things, that any afforestation whichdoes take place is not expected (by the ETTS Vcorrespondents) to be highly intensivesilviculture concentrating on rapid woodproduction and high yields, as this type ofafforestation, in the conditions of some Europeancountries, could well have significant effectswithin the time span of ETTS V.Damage, e.g. from pollution or forest fires, wasmentioned by several countries: Austria (no signsthat forest damage effects increment), the CzechRepublic (continued negative effect on forestecosystem; decrease in increment attributed to

lower stand density because of air pollution,game damage, more broadleaves and changes inage class structure; positive impact of NOx, CO2and global warming taken into consideration),Finland (visible effects of acid rain, but noconsequences for timber supply), France (noimpact of forest damage on removal levels),Portugal (forest fire problem will not be solved),Slovakia (decrease in increment of coniferousspecies expected due to excessive air pollutionand acid rain), Spain (fires), Sweden (effects ofpollution and global change unknown).The transition economies stated that the changein forest ownership patterns would bring aboutchanges in the sector, but were unable in thepresent circumstances to describe, still lessquantify, these effects.Finally, many correspondents qualified theirscenarios with remarks about uncertainty arisingfrom future demand and prices for roundwood,as the price elasticity of roundwood supply isunknown; and they were not in a position toassess the future demand for roundwood andforest products.With regard to the latter remark, it is of courseone of the main functions of ETTS V to providerelevant information on future demand and pricesof roundwood; it is hoped that this will enablenational policy makers and scenario builders toreview and, if necessary, revise their nationaloutlook with an understanding of the outlook forthe international situation.

(iii) Area, removals, growing stock and increment to 2020No major changes are expected in the area of"exploitable" forest in Europe: it is expected toexpand by 3.3 per cent (4.7 million hectares) inthe thirty years between 1990 and 2020. Manycountries report small increases, but most of theexpansion is accounted for by three countries:Spain (+ 1.7 million hectares, or over 25 percent), France (+ 1 million hectares, or 7.4 per

FIGURE 4.3.2Ratio fellings/increment

TABLE 4.3.3Scenarios for exploitable forest: key ratios

Growing stock per hectare Fellings/Increment (m3 o.b.) (per cent)

1990 2020 1990 2020Europe 141 174 69 77

Nordic countries 103 143 69 71EU (12) 151 174 72 80Central Europe 294 355 72 77Eastern Europe 183 226 63 68South-east Europe 121 131 76 100Baltic countries 153 171 56 103


cent) and Poland (+ 0.4 million hectares, 4.7 percent). The major exporting countries (Nordiccountries and Austria) expect insignificantincreases in forest area (+ 40,000 hectares inAustria). In both Spain and France, theexpansion would be a continuation of long-existing forest expansion and improvementpolicies. In Poland, it might be a result ofreduction of agricultural land area as a part of thetransition process.Removals are expected to rise by about 0.7 percent a year to reach 480 million m3 in 2020,which is 88 million m3 more than in 1990. Thelargest increases in volume terms are for the EU(12) (+ 32 million m3) and the Nordic countries(+ 26 million m3). Thus, two thirds of theincrease in European supply is expected to comefrom the enlarged EU, notably France (+ 13million m3), Finland (+ 12), Sweden (+ 10), UK(+ 6) and Spain (+ 5). Outside of the enlargedEU, significant increases in removals are forecastfor Turkey (+ 11 million m3) as well as Bulgaria(+ 2), Croatia (+ 3), Estonia (+ 4), Latvia (+ 3)and Lithuania (+ 3). In relative terms, thesteepest increases are forecast by Ireland (+180per cent over the next 30 years), Estonia (+129per cent), Croatia (+95 per cent), UK (+ 93 percent), Lithuania (+91 per cent), Latvia (+ 52 percent), Bulgaria (+ 59 per cent) and Turkey (+ 52per cent). Only in Albania are removals forecastto drop, by 1.6 million m3, as unplanned fellingsare brought under control and rural fuelwooddemand weakens.In an historical context, the forecast rise inEuropean removals is a continuation of the post-war steady upward trend.Fellings, which include removals under bark,bark, and harvesting and transport losses, are a

better indicator than removals of the true drain inthe forest growing stock. They may be comparedto net annual increment to obtain a crudemeasure of sustainability of wood supply.6 In1990, fellings were about 70 per cent ofincrement. This ratio is expected to rise to about77 per cent for Europe in 2020. As drain isconsistently well below increment, growingstock will rise by 5,335 million m3 over the 30years (+27 per cent). Given the stable positionfor forest area, growing stock per hectare is alsobound to rise, with the European average goingfrom 141 m3 per hectare to 174 m3 per hectare.This trend will affect nearly all countries,including those where the average growing stockper hectare is already high. For instance growingstock per hectare will rise between 1990 and2020 from 294 to 355 m3 in central Europe, andfrom 271 to 315 m3 per hectare in Germany. Insummary, the European forest will continue toaccumulate wood as the harvest will remain wellbelow the biological potential, even though alarger proportion of the increment will in fact beutilised.Do these data provide indications as to threats tothe physical sustainability of wood supply inEurope? In a small number of Europeancountries, fellings are above increment. This isthe case in Albania, Cyprus and Greece, whichhave similar Mediterranean conditions, such asproblems of fire and overgrazing and marginaleconomic viability of forest operations. In allthree, growing stock is forecast to be less in 2020than in 1990.In Switzerland too, fellings are higher thanincrement and are expected to remain so;however, the Swiss situation differs considerablyfrom those of the Mediterranean countriesmentioned above, as there has been an excessiveaccumulation of growing stock to the extent thatin some parts of the country the stability ofmountain forests is threatened. The intention isto rejuvenate the forest by increasing the level ofharvest. Here, too, there are economic problems,linked to the expense of forest operations inmountain regions.In the Baltic countries in 1990, fellings were 56per cent of increment, but they are forecast torise to 103 per cent of increment in 2020, drivenby both export and domestic demand. There is afeeling in some of the countries, based onpreliminary results of new forest inventories, that

FIGURE 4.3.3Growing stock


the earlier increment data were in factexcessively cautious, and that considerablyhigher levels of removals are possible withoutdamaging the resource, although this should, ofcourse, be carefully monitored.Finally, nothing is known about the presentsituation regarding the forests of the successorstates of the former Yugoslavia, but it must beassumed that they are under threat from thedirect damage inflicted by military operations,high fuelwood demand, lack of effective forestadministration and the need to find sources offoreign exchange.

(iv) Potential for increasing European wood supplyCan anything be said about the potential toincrease European removals beyond the level ofthe base scenario (which is in any case expectedto rise by nearly 190 million m3 over the 30years)? Using annual increment in exploitableforests as a rough proxy for potential fellings, itappears that the maximum biological potentialfor removals in European forests in 2020 may beestimated at about 625 million m3 u.b.7,compared to the forecast level of 480 million m3

u.b. and the present level of 390 million m3 u.b..In 1990, removals were about 175 million m3

below their maximum biological potential. By2020, according to the forecasts, maximumpotential removals would be 145 million m3 u.b.higher than the forecast: of this difference, about75 million m3 would be in the Nordic countriesand 35 million m3 in the EU (12).In fact, most of the difference between theforecast level of removals and the level of netannual increment (corrected for bark) in 2020 is

in only six countries - Austria, Finland,Germany, Romania, Spain and Sweden - whichaccount between themselves for about 95 millionm3 u.b., of which 40 million m3 u.b. would comefrom Finland and 20 million m3 u.b. fromSweden. These figures, of course, cover onlypossible extra cut from the exploitable forest (asforecast on existing assumptions), and take noaccount of any extra supply potential fromimproved silviculture or expanded forest area.8They would also be in addition to the removalsincreases already included in the forecasts.The existence of a physical potential to expandremovals by nearly 150 million m3 per year overthe forecast level must not be taken as anindication that this can or will happen. In orderfor removals to be above the level forecast, anumber of conditions would have to be met, allof which apply both to private and public forestowners, including all of the following:- the existence of effective demand for wood rawmaterial, which is of course influenced by price;- the "extra" raw material from European forestswould have to be competitive on price, qualityand security of supply with other sources offibre, including residues, waste paper andimports from other regions (either raw materialor products);- the European forest owners would have to betechnically able and willing to raise theirharvests. This would imply that wood supplywould have to be a major management objectivefor them, and that they could at least cover theircosts (and preferably make a profit) with theincome from wood sales.It is worth noting, however, that of the sixcountries with the potential for significantlyincreased removals over the forecast level, three(Austria, Finland and Sweden) are the threemajor export-oriented forest countries in Europe;each would have the organisation, skills andcapital reserves to carry out such an expansion,should market conditions call for it.9 Thedifference between forecast removals and theestimated maximum level in 2020 in these threecountries taken together is 70 million m3 u.b.,although it is certainly impossible that everysingle cubic metre of increment could beharvested, regardless of these countries’resources. One may therefore estimate veryroughly that in the right market conditionsEuropean removals could be expanded to 530

FIGURE 4.3.4European removals and increment


million m3 (i.e. the forecast level of 480 millionm3 plus 50 million m3, from Austria, Finland andSweden).This important topic will be addressed inchapters 11 and 12, as it concerns the interaction

between the different parts of the forest andforest products sector, and it can be seriouslymisleading to treat these questions from only onepoint of view.

4.4 Conclusions

The scenarios prepared by nationalcorrespondents show that for the period 1990 to2020, European exploitable forest will expandslowly due to afforestation and natural extension,counterbalanced in part by withdrawals of forestland for other uses, including natureconservation. The level of removals necessary tosatisfy the demand projected in the basescenarios is a steady but slow increase to a levelof 480 million m3 u.b. in 2020. This is still wellbelow the physical potential of the Europeanforest, as estimated by the net annual increment.The fellings forecast for 2020 would be 77 percent of increment, compared to 70 per cent in1990. As a result, growing stock is expected toincrease in absolute terms and per hectare,especially in a few central European countries.There are a few exceptions to the general pictureof sustainable growth. In a few countries,notably in south-east Europe, the forest resourceis under threat from overgrazing, fuelwooddemand and war, and fellings are aboveincrement. During the time span of ETTS V, thefellings in the Baltic countries may also expandto exceed increment, although the latter may wellhave been estimated over prudently.

These scenarios are an aggregation of nationalforecasts, with some secretariat estimates. Theassumptions on which they are based are outlinedin section 4.3.ii above. In general, no majordiscontinuities are expected in forest policy,other policies or other circumstances which mayinfluence the forest sector. They are based on abroad assumption of unchanged roundwoodprices.The scenarios for the resource presented in thischapter are consistent with the scenarios fordemand to be presented in subsequent chapters.The outlook for the supply/demand balance(chapter 11) confirms the plausibility of theinitial hypothesis of unchanged roundwoodprices.If there were a "wood shortage", due, forinstance, to supply restrictions in other parts ofthe world, the scenarios indicate that Europeanremovals could be expanded, perhaps to 530million m3, without depleting the forest resource.This is 140 million m3 more than the 1990 levelof removals and 50 million m3 more than theforecast level for 2020. Such an increase beyondthe national forecasts used in the base scenariowould almost certainly be impossible without asignificant rise in roundwood prices.

Notes

1 For a few countries, the data provided by national authorities and quoted in the working paper do not coincide exactly with those in this chapter,which have been adjusted in accordance with the methods described in chapter 11 to ensure complete internal consistency for ETTS V.

2 The statistics in this section are taken from the base figures for the forecasts to be presented later. Therefore, they do not coincide exactly with theofficial data in the Forest Resource Assessment 1990, but are presented in the interests of consistency within ETTS V. In any case, the differences areminor.

3 Estimates of area change are not available for the main part of the former USSR. Estimates, for the former USSR in regional and world totalsinclude only Belarus and Ukraine.

4 Until quite recently, state forest services in many countries were significant net contributors to the public budget: now this is becoming much rarer, asdemands on the forest intensify and costs rise, while income from wood sales stagnates.

5 Correspondents were also asked to provide an alternative scenario, using the assumption that roundwood prices would rise in real terms, but mostwere unable to do so or stated that the price level did not influence the level of removals. This alternative scenario was therefore abandoned.

6 It is crude in particular because it does not take into account age class structure.7 That is, net annual increment of 690 million m3 o.b., corrected for 10 per cent bark.8 These would, however, only increase wood supply in the longer-term future.9 An indication of the present situation regarding relative costs and the commercial strength of these countries' forest industries is that all three at

present harvest less than the maximum potential of their domestic forest resource and import wood raw material from elsewhere.


23

Chapter 5 EXTERNAL INFLUENCES

5.1 Introduction

A forest is an ecosystem which can offerwood, biomass, energy, game, and other goods.It can also create or protect biodiversity,landscape elements, protect the quality of groundwater and surface water, provide protectionagainst avalanches and generate other services.The different goods and services must be takeninto account in a balanced fashion. Forestry is asustainable, long-term business where the needsof future generations are taken into account.Thus, although the mandate of ETTS V is toreview the outlook for wood it is not sufficient toanalyse the forest resource purely as a producerof wood: it is necessary to review externalphysical and biological factors which influencethe forest, especially given that such factorsmight reduce its capacity for wood production.The external influence which has received the

greatest attention in recent years is globalchange, but other influences, notably fire andgame damage, will also be briefly presented.This chapter, which must unfortunately be tooshort to cover these complex issues in depth, willfirst describe the nature of the external influenceson the forest resource, and then indicate thepossible outlook. This chapter may beconsidered a commentary on the level ofcertainty of the national forecasts for the forestresource presented in chapter 4.The major portion of this chapter, on globalchange, was prepared by Mr. Pekka Kauppi ofFinland, acting as a consultant to the secretariat.The secretariat takes this opportunity to thankMr. Kauppi for his very valuable contribution toETTS V.

5.2 Trends in global change

The definition of global change used in thischapter is a broad one, in accordance with thatapplied within the InternationalGeosphere-Biosphere Program (IGBP). Thedefinition includes three driving forces ofchange: land use, atmospheric chemistry, andclimate. However, since the first of these (landuse) is covered fully elsewhere in ETTS, notablychapter 4, it is not treated here. The objective ofthis section is, first, to describe relevant changesof forest indicators over time, and then to createa professional view on the impacts of globalchange on European forest ecosystems, based onthe observed trends of global change. The effectsof forests on global change are also brieflyassessed.

(i) Atmospheric chemistry

Air quality has changed in Europe over the past30 years and will keep changing into the twenty-first century. Sulphur dioxide emissions havedecreased and will most likely continue todecrease as a result of environmental protectionpolicies, notably those related to theimplementation of the ECE Convention on LongRange Transboundary Air Pollution and itsProtocols. Ambient levels of sulphur dioxideand sulphate are decreasing accordingly.Ammonium emissions and concentrations followa similar pattern, while nitrogen oxide emissionshave not started decreasing in Europe, with theexception of some countries like Germany. Thenitrogen loading of forest ecosystems is unlikelyto decrease essentially by 2005.


Tropospheric ozone concentrations have steadilyincreased in Europe since 1960. The ozonechemistry is complicated, and it is uncertain howthe concentrations will respond to changes of theemissions of ozone precursors. It is likely that theozone concentrations will increase in some areasand decrease in others. The upper atmospheremay have changed over Europe since 1960 andaffected the total amount of solar irradiance andits spectral quality. However, there are littlequantitative estimates of such changes.The best recorded and most obvious change ofatmospheric chemistry is the increase of carbondioxide concentration from about 280 parts permillion (ppm) in 1850 to 317 ppm in 1960, andfurther to 355 ppm in 1990. The change in the

past 30 years was about 12 per cent. Anadditional increase of 10-20 ppm units will beobserved in the atmosphere by 2005, since themain driving force (fossil fuel consumption) is sopowerful that it is unrealistic to anticipatechanges in consumption patterns before 2005. Itis feasible that the carbon dioxide concentrationwill continue increasing beyond 2005.The concentrations of other greenhouse gasessuch as methane, nitrous oxide and the CFCshave also increased in the air in Europe in thesame way as in the other parts of the world.However, unlike the carbon dioxideconcentration, they may start decreasing before2005.

(ii) ClimateThe variability of climate has not changed inEurope since 1960 to the extent that one wouldspeak of a new climatic pattern. There have beena few unusually warm years recently, but noconvincing proofs of a change due to thegreenhouse effect. The eventual greenhousewarming is relevant mainly beyond the year 2005and, in particular, beyond 2020. However, giventhe tradition of forestry as a term business theissue is highly relevant. Most of the forest standsexisting today will have to cope with whateverthe environment is beyond 2005, and evenbeyond 2020.

5.3 Impacts of global change on forest ecosystems

(i) PastThe productivity of ecosystems has increased asa consequence of increases in carbon dioxideconcentration in the atmosphere and nitrogenpollution (Kenk and Fischer 1988; Luxmoore etal. 1993; Johnson et al. 1994). In the Netherlandsand parts of Germany, nitrogen deposition can beas high as 50 to 70 kg N per hectare and year.The recorded changes in atmospheric chemistryhave not been the only reason, and not even themain reason for the recorded 40 per cent increasein forest increment since 1960. Firstly, theincreasing growing stock has provided the basisfor a higher increment (effect of a higher "woodcapital"). Secondly, silviculture has improved.However, these changes, although veryimportant, cannot explain by themselves theobserved increase of productivity in repeated

measurements from given forest ecosystems (e.g.Kenk and Fischer 1988). A part of the observedincrease of biomass productivity has been due tothe increasing availability of carbon dioxide and

FIGURE 5.2.1Sulphur emissions in the ECE region, 1980-93

Source: Convention on Long-Range Transboundary Air Pollution, (EMEP).

FIGURE 5.2.2Nitrogen oxides emissions in the ECE region, 1980-93

Source: Convention on Long-Range Transboundary Air Pollution, (EMEP).


nitrogen, that is, due to the eutrophication effect.The changes of atmospheric chemistry havecontributed to an increase and not to a decreaseof the forest biomass on average in Europe.However, stand decline has occurred in variousparts of the region covered by ETTS V, notablyGermany, Poland, the Czech Republic and othercountries. These impacts have been due to severepollution, mainly by sulphur and heavy metalcompounds, and in some cases also due to excessnitrogen pollution.Biodiversity in forests has also been affected byair pollution. Numerous observations areavailable from the Netherlands, Sweden, Finlandand elsewhere on changes in forest vegetation.Eutrophication has acted in favour ofnitrophilous plant species. The speciescomposition of lichen vegetation has changed inFinland, probably due to a combined effect ofsulphur and nitrogen on the survival and thecompetitive advantage of the different species.Changes have also been observed in the groundcover vegetation.In summary, the main adverse effects, on theEuropean scale, of changes in atmosphericchemistry have been those on forest biodiversity.Biomass production has declined only in smallareas. This effect has been more thancompensated for by a substantial averageincrease of forest increment all over Europe.Adverse effects have also been observed in forestservice functions. Pollution has deteriorated theability of forests to improve the quality of groundwater and surface water. Decreasing visualquality of the ambient air has deteriorated therole of forests as landscape elements. Visibility isaffected by sulphur particles, and the decreasingtrend of sulphur pollution is expected to improvefuture visibility.

(ii) Future scenarios of impactsThe achieved and anticipated improvements inair quality contribute to combatting adverseeffects on forests. For example, the prospects forconserving the pristine environment of protectedforests are improving as the sulphur pollutionload is decreasing. However, nitrogen depositionhas not decreased, and the concentrations ofatmospheric carbon dioxide continue to increase.Strategies for air pollution abatement drawn upunder the auspices of the Convention on Long

Range Transboundary Air Pollution are based onthe concepts of critical loads and levels. A"critical load" is "a quantitative estimate of anexposure to one or more pollutants below whichsignificant harmful effects on specified sensitiveelements of the environment do not occur,according to present knowledge" (EB.AIR/R.30,para. 48). The concept "critical level" means"the concentration of pollutants in theatmosphere above which direct adverse effectson receptors, such as plants, ecosystems ormaterials, may occur, according to presentknowledge" (EB.AIR/R.30, para. 48) It has notbeen easy to determine such critical indicators ofair pollution levels and loads, although muchemphasis has been given to this important task. Itis almost impossible scientifically to determinesuch indicators since it is the combination ofenvironmental factors, and not one factor inisolation, that determines the productivity andbiodiversity of a forest ecosystem. Moreover,different forests respond in different ways. Forexample, it has been observed that plantedconifer forests at high altitudes in mountains areparticularly sensitive to air pollution damage,especially if the trees are genetically of a wrongorigin.It is not certain that there will be ecologicaldamage when critical loads or levels areexceeded. Neither is it certain that if emissionsare reduced, and the critical loads and levels areno longer exceeded, the risk of damagecompletely disappears. The concepts of criticalloads and levels represent a compromise betweenscientific accuracy and precision, and therequirement for simple environmental guidelines.The favourable trends for forest biomass andforest increment in the past 30 years have beenso strong that they can hardly change abruptly inthe next 20 years. In the longer term, the furtherdevelopment of these trends depends onenvironmental policy measures. The greatestlong-term uncertainty is due to a possibleclimatic change, and maybe to changes in theenvironment that have not yet been recognizedadequately, such as pollution from industrialorganic chemicals.The development of climate is a critical anduncertain issue regarding the impacts of globalchange on forests. In a positive scenario, theclimate remains unchanged, or changes verylittle. The current structures of the forest sector


would be able to develop gradually andsmoothly.In a negative scenario, the development ofgreenhouse gases translates into significantclimatic warming and eventual changes inrainfall patterns. The climatic change would be aglobal phenomenon, affecting the forest sectorworldwide. There would be second and thirdorder effects due to changes in agricultural landuse and in global trade patterns. The subsequentimpacts on the European forest sector are verydifficult to predict.The growing stock and forest increment innorthern Europe might not decline, not even inthe negative scenario. The ecosystems in thatregion are less vulnerable to climatic warmingthan to climatic cooling. In fact, a warming of theannual average temperature by 2-5 degreesCelsius in 50-100 years would increase the forestincrement, and probably would not threaten the

survival of the trees. In southern Europe,however, such a substantial warming, associatedwith an increase of severe drought periods,would probably decrease the forest increment.The risk of forest fires would also increase.Biodiversity would be negatively affected in allEuropean regions.It must be emphasized that this scenario isprepared from a narrow perspective. It omits thesecond and third order effects, and does notaddress the full array of objectives for long-termforestry. Improving and stabilizing the air qualitywould contribute to the predictability of forestecosystems, an essential basis for long-termsustainable forestry. Reducing pollutantemissions would be a superior environmentalpolicy from the perspective of sustainablemanagement and conservation of Europeanforests.

5.4 Impacts of forests on global change

Forests and trees do not just submit to theinfluences of external factors: they in turninfluence various external factors. Trees,conifers in particular, filter pollutants such assulphur and nitrogen compounds from theatmosphere into the ecosystem, and improve theair quality down wind. This is to the benefit ofthe down wind ecosystem, although it adds to theburden on the "filtering" ecosystem itself.Afforestation on acid soils can contribute tosurface water acidification. Clearly, not all theimpacts of forests on global change are positive,but many of them are.Increasing forest biomass sequesters carbondioxide from the atmosphere. The concepts"sink" and "source" refer to changes in thecarbon reservoir of forest ecosystems. Anincreasing reservoir is a sink, and a decreasingreservoir is a source. The two main reservoirs arecarbon in the soil, and carbon in forestvegetation. An additional, essentially smaller,reservoir is the carbon in forest products.

(i) PastIn the distant past the area of forested land andforest biomass diminished in Europe. The forestswere a source of carbon dioxide into theatmosphere until the late nineteenth century.Since then, European forests have been a sink for

atmospheric carbon dioxide. The soils have alsobeen a sink, yet the best information is availableon forest vegetation and forest productsreservoirs.Based on growing stock and wood productsstatistics, it has been estimated that Europeanforests were an annual sink of 85-120 milliontons of carbon in 1971-90. The forests controlledthe rise of the carbon dioxide concentration inthe air and contributed to the carbon budget byabsorbing about 5 per cent of the carbon dioxideemitted in Europe in fossil fuel use.About 70-105 million tons of the sink was due tothe increase of growing stock, and an additional15 million tons due to a build up of the stock offorest products (sawnwood and panels). Becausethe gap between forest increment and forestremoval has increased, the sink impact has alsoincreased. The ratio of wood removals to forestincrement has declined to 0.7-0.8 in mostEuropean countries. This is the main cause of thesink effect.

(ii) Future scenarios for the carbon budgetIn the near term, whether European forests are asink or a source will depend mainly on the ratioof forest increment to forest removals: the lowerthe ratio, the larger the sink. As the increasingtrend of the growing stock has been so universal


and consistent in the different Europeancountries, the current sink effect is likely topersist at least 15-20 more years. In the longerterm, the low ratio of removals to forestincrement -- the main reason for the current sinkeffect -- cannot be sustained. Three scenarios ofthe carbon budget can be developed for theperiod beyond 2010-15.Firstly, the demand for current forest productsand eventual new products could increase. As aresult, forest removals would increase andapproach the level of forest increment.Subsequently, the carbon sink would weaken,approach zero, and the current mitigating effectof European forests on the global carbon budgetwould essentially be lost. The full impact offossil fuel emissions in Europe would be realizedas an increasing tendency of carbon dioxide toconcentrate in the atmosphere. However, theincreasing removals would generate anincreasing flux of wood, a renewable material,which eventually would make a contribution tosustainable development in Europe, notably byreplacing non-renewable raw materials.Secondly, the removals could remain at thecurrent level, or be reduced. The growing stockwould continue accumulating at the current rate,or even faster in the first phase. In the secondphase, most forest stands would become mature.The carbon reservoir in vegetation wouldapproach saturation. In this scenario also, thecurrent sink effect would be lost and the forestincrement would decline. The flux of wood, arenewable material, would decrease, which couldcontribute to an increasing consumption ofnon-renewable raw materials.Thirdly, a new forest policy could be developedwhich would adopt a long-term perspective forcarbon mitigation and find an acceptable balancebetween the different forestry objectives. Itwould be based on expanding forest area andincreasing removals. New areas would beestablished in different parts of Europe for natureprotection, and the carbon reservoir of forestswould grow larger. Converting non-forest land to

forest would also contribute to the increase of thecarbon reservoirs in vegetation and soils in thelong term. Wood removals would grow as aresult of afforestation, improved forestmanagement, and efforts to close the current gapbetween removals and increment in exploitableforests. An increased flux of forestry productswould be used to substitute other, lessecologically sustainable products. Forests andforest management would make a positivecontribution to the global carbon budget in boththe short and the long term.These three long-term scenarios are futurevisions rather than predictions: forestryobjectives may well change substantially in thenext 30-60 years as they have changedpreviously. A whole new array of uncertaintiesemerges if one assumes a change in climate. Themechanisms controlling the reservoirs and fluxesof carbon in forest ecosystems are sensitive toclimate, particularly to temperature.How do the above long-term scenarios comparewith the detailed medium-term scenarios (to2020) in chapter 4? The aggregation of thenational correspondents' forecasts points to acontinuing, but reduced, role for Europeanforests as a carbon sink, as fellings are expectedto rise from 69 per cent of annual increment in1990 to 77 per cent in 2020. The annualdifference between fellings and increment isexpected to fall from about 200 million m3 toabout 160 million m3, which is still a substantialvolume. No significant expansion (orcontraction) in forest area is foreseen. Theforecast trend seems closer to the first of thelong-term scenarios above (reduced sink effectthrough fellings closer to increment) than to thesecond (reduced sink effect through lowerremovals) although it could conceivably be seenas the first step on the way to the third (newforest policy). Nevertheless, there is at presentno sign of a significant debate among policymakers as regards the optimum role of theEuropean forests in the global carbon budget.

5.5 Discussion of the outlook for the relationship between European forests and global change

The impacts of global change on forests,and the impacts of forests on global change mustbe assessed from the perspective of long-term,multi-objective forestry. From this perspective,

it is of the utmost importance to stabilize theatmospheric environment as much as possible inorder to improve the predictability of forestecosystems. If the predictability is lost, there will


be no rational basis for long-term forestrypolicies. For example, the current uncertaintyregarding the climate beyond 2010-20 is anobstacle for developing multi-objective forestryin all regions in Europe. Even such a basic matteras applying the forest yield tables is at risk, if theyield tables are no longer reliable because ofchanges in the atmospheric environment. In themeantime, as the atmospheric environment hasnot been stabilized, it is important to record andanalyse the trends of the environment, and try tocope with changes as they occur.While forests have been, and have been viewed,as victims of air pollutants, forestry can alsocontribute to the solutions regarding airpollution. Forests filter pollutants and shorten thelife time of sulphur, heavy metals, nitrogen, andother types of pollutants in the atmosphere.Maintaining and creating forests serves thefiltering purposes. For instance, planting moreshade trees in southern Europe could contributeto home energy efficiency by alleviating the needto develop air conditioning, thus lesseningenergy emissions in the same way as has been

reported from North America. In particular,forests can make a positive contribution to theglobal carbon budget and help alleviate the riskof an enhancement of the greenhouse effect. Newobjectives are thus emerging for contemporaryforestry.In summary, the current situation and the near-term prospects are very good in Europe in termsof biomass productivity and biomass reserves.However, for conservation of biologicaldiversity, and for other ecosystem functions suchas watershed and groundwater protection, therecent history and the near-term prospects are notas good. The pollution levels of sulphur andnitrogen compounds are high in Europe.Although the deposition of sulphur and someheavy metals has started to decrease in largeareas in Europe, the flux of nitrogen deposition isstill not decreasing, and the concentration ofcarbon dioxide in the atmosphere is increasing. Atransient change of biological diversity has beenobserved in favour of nitrogen demanding(nitrophilous) species. This development extendsto nature conservation areas.

5.6 Forest fires

Every year, there are 50,000 or more forestfires in Europe, affecting over 500,000 ha offorest and other wooded land. Almost all of thisdamage takes place in southern Europe.1 In1994, about 0.85 per cent of the area of forestand wooded land in these countries was affectedby fire. In fact, the percentage would be higherif those large areas (for instance non-Mediterranean France and northern Spain) whichare in a southern European country, but are notreally concerned by fire problems were deductedfrom the total. There are considerable year-to-year variations: over the last fifteen years, thenumber of fires has varied between 40 and 75thousand and the area between 450,000 and 1million hectares. Trends are difficult to identify,although the number of fires does seem to berising since the late 1980s. For the area, no realtrend is apparent, which might be interpreted asan improvement in the effectiveness ofsuppression, unaccompanied by progress inprevention.The causes of forest fires, in addition to hot drysummers, are many and complex. In Europe,unlike in North America or Russia, the great

majority of fires have human causes, whetherarson or negligence. The factors underlying firesinclude rural depopulation, reduction of intensityof silviculture (including the build up of fuel,which previously had been collected for localuses), increased tourism, uncontrolled grazing,property speculation and social and politicaltensions, leading to arson of the vulnerableresource. All of these are complex issues andimpossible to resolve in the short term byadministrative measures.In areas where fires are frequent, not only dothey cause damage and sometimes loss of life,but they seriously constrain forest managementoptions, sometimes preventing completely theestablishment of productive high forests. In suchcases, managers are left with few options otherthan low-grade shrub type "forest", which in turnis economically unviable and makes the forestmanager even more dependent on public funding.As the natural forest ecosystem was in mostcases irrevocably altered centuries or millenniaago, this fire damage cannot be considered a partof normal ecological processes, as is the case, forinstance in many parts of North America and


Siberia. The vicious circle of which fire is themost visible element seems to condemn many ofthe forests of southern Europe to a future whichis precarious from the ecological, social andeconomic point of view, and in which woodproduction (other than small quantities offuelwood) plays no role.This is clearly an unsatisfactory situation andgovernments of the affected countries, and theEU, have addressed the issues by providing firesuppression services and by making the publicmore aware of the issues. No doubt, withoutthese measures, the situation would besignificantly worse. Nevertheless, at theEuropean level, it does not appear that thesemajor efforts are leading to a reduction in thenumber or area of fires. The secretariat does not,of course have a ready made solution to thispersistent problem: it does appear, however, thatif the number and area of fires are to be reduced,significantly more resources must be applied, orinnovative solutions developed and applied, or,more probably, a combination of the two. For

the former, the general limitations on publicbudgets will limit the resources available toforest fire prevention and control.With regard to the ETTS V scenarios, it appearsfrom the comments in chapter 4 that the effect offorest fires was taken into consideration bynational correspondents when they prepared theirnational wood supply scenarios2, so there is noneed to modify them.If progress were to be made on preventing forestfires in southern Europe, then clearly bothincrement and ultimately removals couldincrease: however, even if forest fires werereduced in the next few years, the change inincrement and removals would not be apparentwithin the time horizon of ETTS V. There isalso uncertainty about the possible consequencesof global change. If summers in southern Europewere to become hotter and dryer, as some modelsforesee, the fire problem would become evenworse, making it more difficult to achievesustainable forest management in the areasconcerned.

5.7 Other external influences on the forest

Although global change and forest fires arethe most well-known and politically most visiblesources of forest damage, there are others whichpose significant problems to forest managers.Chief among these are damage by game animalsand by insect and fungal pests. On neither ofthese aspects are comparable international datasets available. Nevertheless, they representimportant, if local and specialised, influences andconstraints on forest management all overEurope.There has been no policy level discussion of apossible major change in the circumstances withrespect to damage from insects and fungi,although all administrations have a forestprotection service, and it is clear that the forecastin chapter 4 takes into account the situation withregard to insects and fungi. In Poland, however,and neighbouring countries, there have beenoutbreaks of Lymantria monacha, which causedconsiderable damage before being brought undercontrol.The situation regarding game damage is ratherdifferent for two reasons:- the damage is essentially due to a trade-offbetween two recognised functions of the forest,

wood production and hunting, rather than anexternal influence on the forest, and, for thatreason, lies within the area of forest policy;- game damage has become so severe in someparts of Europe that it is preventing theregeneration of certain species (thus potentiallychanging the long-term species composition ofthe forest in question), or significantly increasingsilvicultural costs by making it necessary toprotect young plantations and regeneration areasby fencing.For example, in Austria3, which has good data onthe subject, 42 per cent of all regeneration areasin productive stands are browsed by game,especially fir and beech. In protection forests,the regeneration of fir has weakened as a resultof browsing by game. According to the AustrianMinistry, the ecological balance is endangered bya spreading game population and theregeneration of those tree species which arerequired for an ecologically adapted silvicultureis possible on only a quarter of the wooded land.The regeneration of over-mature and collapsingstands in protection forests is handicapped, andsometimes prevented, by damage caused bygame. Balanced solutions for combined forestry


and hunting management are being urgentlysought.In Finland4, stand quality is reduced by elk on1.2 per cent of forest land (compared to 0.3 percent by insects and 7.1 per cent by fungi). InSweden5, medium, severe, or very severebrowsing damage by moose occurred on 279,000ha of young pine forest (out of 3.79 millionhectares, a proportion of over 7 per cent).Although the authors of ETTS V do not havequantitative data for other countries, it is knownthat game damage is a major forest managementproblem in many other countries, notably incentral and eastern Europe and the Baltic states.In some areas, it appears that, as in Austria, thecontinuation of the forest in its present form,notably with its species composition, isthreatened.Finding a balance between the game populationand the regeneration of forest stands ischallenging due not only to the technical

problems of assessing and achieving the "right"level of game but also the need to build aconsensus between hunters, foresters and theurban population, which has little understandingof the technical factors, but is increasinglyopposed to any killing of animals.6 In someareas, the income derived from hunting is farlarger than that from wood production, making iteven harder to justify the lowering of gamepopulations on economic grounds.From the wood production point of view, theimportance of the game damage problem as afactor is increasing the costs of forestmanagement and, thus, of roundwood production(through lower production, lower quality, andhigher regeneration costs). In the medium term,however, it appears that the damage from gamehas already been taken into account by thenational correspondents when drawing up theirscenarios.

5.8 Conclusions

It may be concluded from the trendsdescribed for the physical and chemicalenvironment of European forests that the adverseeffects on forest biomass brought about bychanges in this environment have been limited.Forest increment and growing stock havedeveloped favourably in all major regions ofEurope. European forests have made a positivecontribution to the global carbon budget. Thefavourable trends of forest increment andgrowing stock are likely to continue for at least20 more years. However, the adverse effects ofpollutants have been widespread on forestbiodiversity. Not much improvement can beexpected in this respect in the next 20 years.In the long term, toward 2030 and beyond, thefuture interactions between forests and globalchange are uncertain and very difficult to predict.For example, the observed changes in theconcentrations of greenhouse gases can bringabout a climatic warming in 20-40 years, that is,within the life time of most forest stands.Assuming a climatic warming, the long-termprospects for biomass productivity are good innorthern Europe, moderate in central Europe, anduncertain in southern Europe. The prospects forforest biodiversity are essentially less good in allregions.

Forestry can be further developed to cope withchanges in the physical and chemicalenvironment. Sustainable management and forestconservation can make contributions to themitigation of global change.This chapter has identified several externalinfluences on the forest resource which mayaffect its medium- and long-term development.However, if any changes were to take place, theywould not have significant effects until after thetime horizon of ETTS V, so there is no need tomodify the scenarios for forest productivity andwood supply in chapter 4, at least on theEuropean level. Nevertheless, any changes in theunderlying situation with regard to pollutantemissions, fires or level of game damage shouldbe carefully monitored.Probably the most important conclusion to bedrawn from the analysis in this chapter concernsthe opportunity to develop a strategy for the roleof European forests in the global carbon budget.Section 5.4 identified three broad scenarios:- raising fellings until they converge withincrement, thus ending their role as a carbonsink;- continuing to keep fellings well belowincrement, which would lead to an over-mature


forest age structure and thereby reduce the "sink"function;- raising both fellings and increment, in partthrough the increase of forest area, enlargedconservation areas and intensified managementfor wood production on the remaining areasthrough a more dynamic forest policy, thus

maintaining the sink function while increasingthe contribution of wood and forests to theeconomic development of society.A key aspect is that increasing consumption ofwood-based materials helps the global carbonbudget inasmuch as they replace materials fromnon-renewable sources.

5.9 References

IUCN (1994) Parks for Life. Action for Protected Areas in Europe. The World Conservation Union:Gland, Switzerland.

Johnson D.W., J.T. Ball and R.F. Walker (1994) Effects of Elevated CO2 and Nitrogen on NutrientUptake in Ponderosa Pine Seedlings, in Plant and Soil (in press).

Kenk G., and H. Fisher (1988) Evidence from Nitrogen Fertilisation in the Forests of Germany, inEnvironmental Pollution, 54: 199-218.

Luxmoore R.J., S.D. Wullschleger and P.J. Hanson (1993) Forest Responses to CO2 Enrichment andClimate Warming, in Water, Soil, and Air Pollution 70: 309-323.

OECD (1994) Core Set of Environmental Indicators. Publications Service, OECD: Paris.

Notes

1 This section is based on the regularly collected data on forest fires, published in the Timber Bulletin (most recent Volume XLVIII (1995), No. 4).For the forest fire statistics "southern Europe" is defined as Bulgaria, Croatia, Cyprus, France, Greece, Israel, Italy, Portugal, Slovenia, Spain and Turkey(a few southern European countries do not provide data).

2 One correspondent specifically stated his assumption that the forest fire problem would not be resolved.3 Oesterreichischer Waldbericht 1993. Bundesministerium für Land- und Forstwirtschaft, Wien.4 Statistical Yearbook of Forestry 1995. Finnish Forest Research Institute, Helsinki.5 Skogsstatistisk arsbok 1995, Skogsstyrelsen, Jönköping.6 The hunters for their part are usually unwilling to accept the reintroduction of large predators which might "compete" with them.

31

Chapter 6 SUPPLY AND DEMAND OF FOREST PRODUCTS IN MARKETECONOMIES

6.1 Introduction

One of the most important elements in theoutlook for the forest and forest products sector(and one of the specified major objectives ofETTS V) is the outlook for the supply anddemand of forest products. Markets for forestproducts are influenced by complex andinteracting factors, many of which are short termin nature (business cycle, fashion, new productsand technologies), so there must, of necessity, begreat uncertainty about long-term projections inthis area. Nevertheless, it is possible to identifyand quantify a number of long-term structuraltrends. Econometric techniques allow for thescientific measurement of the relations betweenvarious key variables over a long time period (inthe case of ETTS V, the 28 years between 1964and 1992): projections based on thesemeasurements can be presented and discussed inobjective terms, without excessive dependenceon "expert opinion", which can often be seen asindividual preconceptions. Econometric analysisalso has the advantages of ensuring thatconsistent assumptions (e.g about growth in theeconomy as a whole) are made in all countries,and making possible the preparation ofalternative consumption scenarios with differentassumptions for the independent variables, suchas GDP, residential investment, or prices.This chapter briefly presents long-term trends forconsumption and production of forest products,discusses the underlying factors, and presents theeconometric analysis and the two base scenarios.It is based on the analysis carried out by AndersBaudin (Sweden) and David Brooks (USA),supported by Johan Stolp (the Netherlands) andPeter Schwarzbauer (Austria), which is presentedin full detail in two ETTS V working papers(ECE/TIM/DP/5 and DP/6). The services ofMessrs. Baudin and Brooks were made availableby their respective governments andorganisations. The Government of France madeavailable the services of Myriam Issartel to

collect and check the long-term data series,especially those on prices. These appear ingraphic form in ECE/TIM/DP/9. The secretariatwishes to note its deep appreciation of thepioneering and demanding work of all theexperts and to thank the Governments of France,Sweden and the USA for their majorcontribution.All the analysis was carried out at the level ofindividual products (coniferous sawnwood,plywood, newsprint, etc.), and the data at thislevel of detail will be made available in theworking papers. However, to simplifypresentation, this chapter mostly discussesproduct groups: sawnwood, panels and paper andpaperboard (usually abbreviated to "paper").Full detail of historical trends is presented in theregular ECE/FAO publications, notably theTimber Bulletin and the periodic medium-termsurveys. This chapter covers the consumptionand production of sawnwood, panels and paperin the market economies. Fuelwoodconsumption is covered in chapter 9 and theoutlook for the transition economies in chapter10. Simple assumptions have been made aboutthe outlook for consumption of pitprops andother industrial roundwood, which are notpresented here.Econometric methods are only used to projectproduction and consumption in the westernmarket economies (the 17 countries listed infootnotes 8 and 11), which together account forabout 80 per cent of consumption of sawnwoodand panels and over 90 per cent of paperconsumption. Nevertheless, to avoid duplicationand simplify presentation, in most of this chapter,trends and projections are shown for Europe as awhole, including other countries for whichdifferent forecasting methods were used, notablythe transition economies (discussed in chapter10).

32

6.2 Past trends in consumption and production

Sawnwood consumption grew strongly between1964 (in fact from the early 1950s, but these dataare not included in the data base) and 1973, butthereafter developments have been marked moreby fluctuations in the business cycle than bysustained expansion. In only three years didconsumption exceed that of 1973 (1979, 1980and 1990), and there were periods of lowconsumption in the 1980s (1981-85) and the1990s (1991-94). European production hasconsistently accounted for 85-95 per cent ofconsumption, and is supplemented by imports ofconiferous sawnwood from Canada and Russia,and of non-coniferous sawnwood from south-eastAsia and the USA. In 1994, however, imports ofsawnwood from Canada and Russia fell, notablybecause of supply problems and the demand ofthe giant American market. At the same time,European exports by the Nordic countries andAustria to other regions grew. It remains to beseen whether this is a passing phase of themarket or a genuine structural change.Consumption of wood-based panels more thandoubled over the 30 year period, rising from 17

per cent of sawnwood consumption in 1964 to 44per cent in 1994. However, the rate of growthhas slowed down. Over the 30 year period as awhole it appears that panels have moved from anaggressively expanding phase, when theysubstituted for sawnwood in some markets andcreated new markets elsewhere (e.g. fittedkitchens), to a phase of consolidation andmaturity, similar to sawnwood, where change isdue essentially to fluctuations in the businesscycle and competition between panels.Production is only a little below consumption.Imports of plywood from south-east Asia are themajor flow from outside the region, althoughthere is intensifying intra-regional trade inpanels, as manufacturers specialise and buildlarger plants, creating more opportunities for"cross-hauling" between countries.Consumption of paper and paperboard has alsomore than doubled between 1964 and 1994: thegrowth rate has been steadier for paper than forsawnwood and panels and there is no sign of astructural slowdown in growth at the end of theperiod. In most years, European production isslightly greater than consumption, because ofexports to a wide range of other regions. (Thisdoes not mean that Europe is self sufficient in theraw material for paper, as Europe imports a verylarge volume of pulp, mostly from NorthAmerica.)

6.3 End uses, competition and substitution

(i) Sawnwood and panels

FIGURE 6.2.1European consumption of panels(Average annual percent growth)

TABLE 6.2.1Consumption and production of forest products by country groups

(Average 1988-92; million)

Sawnwood Wood-based panels Paper Prod. Cons. Prod. Cons. Prod. Cons.

(m3) (metric tonnes)Europe: 90.1 101.5 38.0 41.8 67.2 64.7

Nordic countries 21.2 9.8 3.0 2.5 18.9 8.9EU (12) 35.8 62.8 24.7 30.7 38.6 52.1Central Europe 8.7 5.8 2.6 1.6 4.2 2.8Eastern Europe 13.2 12.5 4.7 4.4 3.5 3.4South-east Europe 9.1 8.8 2.1 2.0 1.6 1.9Baltic countries 2.2 1.8 1.0 0.6 0.4 0.3

TABLE 6.2.2European market economies: production and consumption of

forest products(Average 1988-92; million)

Consumption ProductionSawnwood: (m3) 83.2 70.5

coniferous 67.2 59.3non-coniferous 16.0 11.2

Wood-based panels: (m3) 33.8 29.9plywood 5.5 2.6particle board 24.8 24.4fibreboard 3.5 3.0

Paper and paperboard: (metric tonnes) 59.6 62.2newsprint 8.1 8.1printing and writing 20.0 22.6other paper and board 31.5 31.4

Note: The information shown reflects data from the 17 western European marketeconomies for which econometric analysis was carried out.


Sawnwood and panels are semi-manufacturesand are used in a large number of differentmarkets, ranging from general high volumemarkets (e.g. house roofs) to the highlyspecialised (e.g. violins). In each of thesemarkets, different factors determine the level ofconsumption. In almost all cases, the relativeprice of sawnwood and panels is important, buttheir technical suitability to the user needs andexpectations (which change over time), and theprice and suitability of competing materials arealso very important.Fashion also plays a role, as well as the image ofwood (and its competitors). Is wood seen as awarm, natural material, and environmentallyfriendly, because of its renewability and originsin the forest? Or is it seen as old fashioned,environmentally harmful and technicallyinadequate? Both views are in fact widely heldand the public relations specialists for wood (andits competitors), aware of the importance of theseissues, are making great efforts to influencepublic perceptions.Ideally therefore the consumption of woodshould be analysed by individual market sector.This has been done in a few cases, notably aseries of studies by Baudin, which have shownthat the factors and trends vary widely betweenmarkets: in some markets, sawnwood and panelsare "winners," and in others "losers".Unfortunately this approach requires a great dealof data and highly detailed analysis and istherefore not possible for ETTS V, which mustdepend on econometric analysis of trends at thenational level, which can be carried out withinthe existing data base. However, it shouldalways be borne in mind that the results

presented below are the aggregation of trends ina number of different markets, each of whichhave their own characteristics and dynamics.There are two very general points which areoften ignored by those analysing trends inconsumption of forest products. The first is thatsawnwood and panels may be substituted inpractically all their markets.1 Thus, within theETTS V projection period, if prices of sawnwoodand panels rise to levels where competingmaterials are significantly cheaper, or if technicaladvances for competing materials are notmatched by those for sawnwood and panels, thena steep decline in markets for sawnwood andpanels cannot be ruled out. It is often implicitlyassumed that "more housing means moreconsumption of sawnwood and panels": this isroughly true in the short term, but in the long-term perspective of ETTS V, this is conditionalon their maintaining or improving theircompetitivity in all their markets, againstincreasingly aggressive competitors, who inmany cases have the advantage of largerenterprise size. For this reason competingmaterials may often be better placed for effortsof promotion and marketing than the sawnwoodand panels sector where the many small- andmedium-size enterprises find it difficult tocooperate in this field and are much slower torespond to changes in the markets.2 To putmatters in perspective with regard to loss ofmarkets by wood, it is sufficient to visit anymuseum of rural life in earlier centuries and tonote how many functions were performed in thepast by wood, which are now performed bytotally different materials.3The second is that, by historical chance, theworld's rich countries at present (north-westEurope, North America, Japan) have a strongtradition of wood use, which has been developedalong with the rest of the economy. Thestructure of wood demand in these countries hasbeen implicitly assumed to apply also to otherparts of the world. Yet it is in fact unlikely thatcountries without a tradition of wood use willacquire one as they become richer, given thatalternatives usually exist. This appears clearlyfrom the per capita consumption of sawnwood inthe sample of prosperous countries in figure6.3.1. Thus, to take the two extremes, while theGDP per head in Saudi Arabia is roughlyequivalent to that of the USA, its per capita

FIGURE 6.3.1Consumption of sawnwood per head


consumption of sawnwood is 10 times less. Thismay be an extreme case, but it must be borne inmind that economic development is possiblewithout high levels of consumption of forestproducts.

(ii) Paper and paperboardAs mentioned above, the consumption of paperand paperboard has grown at a similar rate toGDP over a very long period. Here too, positive

developments in one market sector have beenoffset by negative developments elsewhere.

Newsprint has maintained its position as a majorprovider of information and advertising medium,despite advances in electronic informationtransmission, which have tended to complementexisting means rather than replace them. Theconsumption of other printing and writing hassoared because of technical changes (copiers,PCs and faxes) which have demonstrated asynergy between paper and electronicinformation handling. Now most businesses inmarket economies are equipped with computersand most sales are replacements. Domestic useis not so well developed. In ten years, will mosthouseholds have their own PC? However, somemarkets for paper are growing only slowly, if atall (e.g. household and sanitary, where thepotential for expansion is limited to populationgrowth). Elsewhere, there are unpredictablethreats: concern is widely expressed about thevolume of packaging (legal measures are beingtaken in some countries to limit this), and somewould prefer to see fluff pulp based disposablenappies replaced by reusable nappies. For both ofthese the final outcome will depend on acomplex mixture of technical factors,environmental policy objectives and publicperceptions.

6.4 The European forest industries

The levels of production of forest products inEurope, as elsewhere, are influenced by theavailability of raw material from domestic forestresources and by the size and proximity ofmarkets; however, these factors, importantthough they are, are by no means sufficient toexplain completely the level and trends ofproduction. Production levels are stronglyinfluenced by the competitivity of the Europeanforest industries in increasingly global markets,where it is common for wood raw material orforest products to be transported half way aroundthe world.4 The concept of "competitivity"however, although apparently simple, is difficultto define and even more difficult to measure.This section attempts to present some relevantfactors concerning the competitivity of theEuropean forest industries, with someinformation by country group, by presentinginformation on the structure and capacity of theindustries (size, number of units, location), andby summarizing analysis recently carried out for

the ECE/FAO on trends in the productivity andprofitability of these industries. The section isintended to provide a background to theprojections for forest products production inEurope. The trends for production itself havebeen presented in the previous section.There are very large differences between themajor sectors (sawmilling, panels and pulp andpaper) regarding the size of units, capitalintensity, ownership and technology. Thedifference is especially striking betweensawmilling, which is a much more traditional,small-scale (even artisanal) industry in manycountries, and the other two sectors which havebecome extremely capital intensive, hightechnology and global.The sawmilling industry5 in most of Europe ismarked by a large number of small units, oftenunder-capitalised, and therefore unable to installthe latest improvements in process technology(notably computer control), and often with weakor non-existent marketing services. Around 1990,

FIGURE 6.4.1Capacity of the European panels industry, 1994

(Total: 47.2 million m3)


it is estimated that in Europe there were about30,000 sawmills, producing about 85 million m3

per year in total, an average of under 3,000 m3

per sawmill per year. However, a large part ofthis production is concentrated in a few largemills, while, in some countries, hundreds or eventhousands of sawmills are run on a seasonal oroccasional basis. For instance, there were about1,000 mills producing less than 1,000 m3 peryear in Austria, 6,000 in Finland, 2,000 inFrance, 3,000 in Italy, and 1,500 in Spain andSweden. In most countries, there are somelarger, more productive sawmills, but in only afew countries can one speak of a modern,productive and competitive sawmilling sector.There were about 80 mills in Europe producingover 100,000 m3 per year, of which 59 werelocated in three countries (11 in Austria, 27 inFinland and 21 in Sweden). In these threecountries, the sawmilling sector is exportoriented and competitive on global markets. InGermany, there are large, well-equipped millsnear the centres of consumption (5 mills employover 200 people each).Although the small sawmills may haveregionally important niche markets and animportant role in the rural economy (sometimesthey are the only "industrial" employer in anarea), their inability to innovate, notably in thedevelopment and marketing of products suited toconsumers' changing needs, must be considered abrake on the expansion of forest productsconsumption.In contrast, the wood-based panels sector hasbeen marked by product innovation anddevelopment, moving towards an increasinglyfine management of the technical qualities ofwood, and to the ability to use raw material ofever-wider technical specifications. This hasmade it possible simultaneously to produceproducts with technical advantages oversawnwood and other materials, and to do so in

many cases at lower cost. The average size ofunits has been rising steadily.There are only just over 800 wood-based panelplants in Europe, with a total capacity of nearly50 million m3. Over half the number of plantsare producers of veneers or plywood, which arerelatively small, compared to particle boardplants. Three quarters of Europe's panel capacityis for particle board, almost all of which is in theEU (12). In recent years, there has been a rapidexpansion in capacity of medium densityfibreboard (MDF), as well as oriented strandboard (OSB). More "value added" panels arebeing produced, as are more combinations ofpanels, so it is increasingly difficult to definemeaningful categories of panels for long-termforecasts.The largest units of all are in the pulp sectorwhere economies of scale and internationalcompetition have pushed the size and cost of a"world class" Kraft pulp mill beyond half amillion tons and half a billion dollars. Becauseof the economies of scale, pulp manufacturersneed secure access to a very large, uniformsource of competitively priced raw material. It isincreasingly difficult to satisfy these conditionsfor new ("green field") plants in Europe outsidethe Nordic countries. Environmental limitationson emissions and effluent also restrict the choiceof suitable sites for large pulp mills. Table 6.4.2shows that nearly half the world's pulp capacityis in North America, and a third in Europe.There is about twice as much pulp capacity in theNordic countries than in the EU. The forecastscollected by the FAO in its annual survey of thesector show that most of the expansion in pulpcapacity over the next five years is expected in

FIGURE 6.4.2Average size of plants, 1994

TABLE 6.4.1Structure and capacity of the wood-based panels industries, 1994

Plants Total capacity Average capacity(number) (million m3) (thousand m3)

Veneer sheets 163 1.4 8.4Plywood 325 3.8 11.7Particle board 239 35.6 148.8Fibreboard 87 6.5 74.8Total Panels, of which: 814 47.2 58.0

Nordic countries 51 3.4 66.9EU (12) 539 33.1 61.4


countries outside Europe and North America,principally in Asia.Although North America has more papercapacity than any other region, the dominance isnot so marked as for pulp. In Europe, therelative importance of the EU and the Nordiccounties is reversed, as the EU (12) capacity isroughly twice that of the Nordic countries. Thisis due to the importance of market access andtransport costs, the smaller economies of scaleand the many specialised paper grades whichhave been developed (the "bulk" grades are oftenproduced in North America or the Nordiccountries).A study of profitability, productivity (total, andthat of labour, capital, raw materials and energy)and prices in the forest industries of nine majorcountries of the ECE region6, prepared by a teamled by Mr. M. Simula, examined trends from1974 to 1990. It showed that for the mechanicalwood industry (i.e. sawmilling and panelsmanufacture), profitability has been unstable andsensitive to business cycles. In most countries,gross margin on sales has tended to fall, as therelative price position of the industry deterioratedmore rapidly than productivity increased.Changes in return on capital were much morevolatile than those in gross margin on sales, withdrastic falls in a few years as a consequence ofrecessions in the business cycle.Total productivity in the mechanical woodindustries showed no strong trend until the mid-1980s, but thereafter grew steadily in manycountries, with the fastest increase in Germany.There was little improvement in raw material

productivity, but significant growth in energyproductivity, stimulated by the steep rises inenergy prices during the period. Labourproductivity increased faster than that of anyother production factor, stimulated by a rapidgeneral increase in the unit cost of labour andpossibly also institutional rigidities of the labourmarket in some countries. However, labourproductivity growth has been slower than the rateof increase in labour unit cost, contributing to thedecline in profitability. Capital productivity in1990 was in almost all countries below that of1974 (admittedly an exceptionally good yearfrom this point of view), and much influenced bythe business cycle. Only Germany and Canadashowed increases in productivity of capital.The ratio of output prices to all input pricesshowed a declining trend in almost all countries.In order for the industry to survive in the longterm, the effect of declining price ratios shouldbe counterbalanced by increases in totalproductivity: this has been the case in Austria,Germany and, to some extent, Canada.Elsewhere, further adjustments will be necessaryto avoid long-term deterioration in profitability,leading to increases in product prices and/orreduced demand or market share.For the pulp and paper industry, profitabilitydeveloped differently in different groups ofcountries. In Austria and Germany, there wasmodest profitability and small fluctuations. Theexport oriented group of Canada, Finland andSweden, showed strong volatility, but noparticular upward or downward trend. TheNetherlands, Portugal, Spain and the USA

FIGURE 6.4.3World pulp capacity, 1994

FIGURE 6.4.4World paper and paperboard capacity, 1994


showed strong increases in profitability over theperiod for a number of reasons, including strongdomestic demand (USA), cheap raw material(Portugal and Spain) or closeness to markets andstrong industrial groups (the Netherlands). Thecapital/labour ratio increased in all countries,sometimes very fast (e.g. 8.3 per cent per year inAustria). Total productivity increased in allcountries except Canada. Energy and labourproductivity increased everywhere, but ingeneral, capital productivity declined, comparedto 1974, but was roughly constant compared to1975. An important factor may have been theheavy capital investment in pollution abatement,which is included as a cost, although the benefits(cleaner air and water) are not included as anoutput. If this aspect could have been included,the picture of total and capital productivity wouldhave appeared more positive.The total price ratio in the pulp and paperindustry (i.e. the ratio of output prices to pricesof all inputs) declined from 1974 to the mid-1980s. Thereafter, it fell in the Nordic countries,Austria and Germany, probably because of

unfavourable developments with regard to rawmaterials (chiefly pulpwood, but also, especiallyfor Germany, imported pulp, as well as wastepaper). This analysis did not have access to dataon the indebtedness of the industries, which is amajor element in the profitability equation.This analysis, for both sectors shows how theindustries have been able to a large extent tocompensate for higher prices, notably for labourand energy, by improving productivity, but thatraw material and, especially, capital productivityhave not developed so satisfactorily: the resultbeing that their long-term profitability trendshave not generally been upward. This must beborne in mind when considering the industries'ability to remain competitive in the future,compared to other regions and other products.

6.5 Demand and supply projections7

(i) IntroductionThe outlook for forest products demand andsupply has been developed using: statisticalmodels of production and consumption;independent projections of macroeconomicactivity (GDP); projections for factors directlyaffecting the consumption of sawnwood andpanels (i.e. residential investment, manufacturingproduction and furniture production, combined inan “end use index”), derived from the GDPscenarios; and assumptions (scenarios) regardingtrends in other factors that affect demand and

supply. These other factors include productprices and raw material costs.The projections of demand and supply areconditional forecasts; that is, they dependexplicitly on assumptions made regardingexogenous factors, and implicitly on theassumption that the historical relationships in theEuropean forest sector are stable.

(ii) Demand and supply modelling: general approachNine countries account for a substantial majorityof European production and consumption offorest products. Therefore, as was done in ETTS

FIGURE 6.4.5Forecast changes in capacity, 1994-99

TABLE 6.4.2Past and forecast capacity for pulp and paper manufacture

(Million metric tonnes)

Share, 1994 Change1989 1994 1999 (per cent) 1994-99

Pulp:Nordic countries 22.5 24.3 27.6 13.9 3.3EU (12) 11.6 10.7 11.2 6.1 0.5Other Europe 6.0 5.7 5.9 3.3 0.2EUROPE 40.0 40.8 44.7 23.2 4.0North America 82.6 87.4 88.7 49.8 1.2Other 41.5 47.4 53.8 27.0 6.5WORLD 164.1 175.6 187.2 100.0 11.7

Paper:Nordic countries 20.2 23.5 26.7 8.0 3.2EU (12) 41.3 49.2 54.9 16.8 5.7Other Europe 10.8 12.7 13.4 4.3 0.7EUROPE 72.2 85.4 95.0 29.1 9.6North America 93.2 104.5 110.7 35.7 6.1Other 84.9 103.3 117.6 35.2 14.2WORLD 250.4 293.2 323.2 100.0 30.0

Source: FAO Pulp and paper capacities survey, 1994-1999.Note: in the FAO classification ""Europe"" does not include Turkey.


IV, the quantitative analysis conducted focusedparticular attention on these countries. To aid inthe analysis, a special effort was made to expandand improve the ETTS database; because thiseffort was at least partially successful, it waspossible to intensify the statistical analysis andutilize new approaches. For the remainingcountries of western Europe, a simpler, less data-demanding approach was used.

(iii) Demand and supply models for major producers andconsumers8

For the largest markets and the major forestproducts producing countries in Europe, theETTS database was expanded to support thedevelopment of more detailed models ofconsumption, and the development of models ofproduct supply. In previous timber trendsstudies, as in most other studies of forestproducts demand, total (apparent) consumptionwas modeled as a function of product price and ademand shifter, such as GDP.9 For the presentstudy, the model of demand was expanded in twoways.First, consumption was divided into two parts:consumption of domestically produced products,and consumption of imported products. Separatesets of elasticities were estimated for each ofthese components of consumption. This approachappears justified as, in many countries, importedgoods have different qualities and differentdistribution circuits than domestic products.Second, both domestic price and import price,when available, were included as explanatoryfactors in the two demand equations. Not onlyare the two price series at different levels, butthey each follow rather different courses. As aresult, it was possible to examine an importanttype of substitution behaviour: the substitutionbetween imports and domestic production.In addition, in the present study, all countries areanalyzed separately, while in other studies, mostcountries were included in a time-series cross-section approach. In the individual countryapproach, demand, supply and trade areconsidered simultaneously.Product supply models also were estimated foreach of these countries. The approach to supplymodelling was similar to the approach used fordemand modelling: total supply was divided intosupply to domestic markets and supply to exportmarkets. Here, too - within the limits of the data

- it was possible to examine the dynamics ofproducer behaviour and the allocation ofproduction between domestic markets and exportmarkets. Along with domestic market price andexport price, the factors used to explain supplyinclude raw material costs (e.g. log prices forsawnwood supply, pulp prices for paper supply),an index of exchange rates, and levels ofeconomic activity in export markets.The general considerations for the two demandequations are:Domestic demand: Domestic demand is thequantity consumed that has been produceddomestically. This quantity is obtained asapparent consumption less imports. Thehypothesis is that domestic demand variation isdetermined by variation, both in the unit price ofthe domestically produced quantities and in theunit prices of imported quantities. Also,domestic demand is expected to be determinedby factors that are more or less directlyassociated with the end-use of the product, andmeasure, by proxy, the level of activity in theuser sectors. For solid wood products an end-useindicator is used (see below), while grossdomestic product (GDP) is used for paperproducts.

TABLE 6.5.1Western Europe (17): average growth rates of production and

consumption, 1990-2020(Per cent per year)

Base Low Base High Consumption Production Consumption Production

Coniferous sawnwood 0.7 0.8 0.9 0.9Non-coniferous sawnwood 1.3 1.3 1.7 1.6Sawnwood 0.8 0.9 1.0 1.1Plywood 1.6 0.8 1.9 1.1Particle board 1.7 1.5 2.0 1.9Fibreboard 1.8 1.4 2.1 1.6Wood-based panels 1.6 1.4 2.0 1.8Newsprint 2.2 1.7 2.7 2.1Printing & writing 2.4 1.9 3.0 2.3Other paper and board 2.0 1.6 2.5 2.0Paper and paperboard 2.2 1.8 2.7 2.1

TABLE 6.5.2Europe: scenarios for consumption and production of forest

products(x106)

Consumption Production Unit 1990 2020 + / - 1990 2020 + / -

Base low:Sawnwood m3 101.5 130.9 +29.4 90.1 116.6 +26.5Panels m3 41.8 65.8 +24.0 38.0 56.2 +18.2Paper m.t. 64.7 122.1 +57.4 67.2 111.9 +44.7

Base high:Sawnwood m3 101.5 138.1 +36.6 90.1 124.3 +34.2Panels m3 41.8 72.1 +30.2 38.0 61.1 +23.1Paper m.t. 64.7 141.9 +77.2 67.2 124.4 +57.2


Import demand: The same factors appear in thedomestic demand model are expected to apply inthe import demand model. The expectations ofthe signs of coefficients for prices are, however,opposite to those in the domestic demand model.The end-use index for sawnwood and panels isconstructed from three indicators of activity insectors which use forest products: constructionactivity (defined as "investment in dwellingconstruction", or residential investment, from theOECD national accounts data set), furnitureproduction, and industrial production. The end-use index is a weighted average of the threecomponents, where the weights sum to unity.The weights are the share of sawnwoodconsumption used in construction, furniture andother uses (mainly packaging). This is the sameapproach as was used in ETTS IV.The two supply equations are:Domestic supply: This quantity is by definitionidentical to domestic demand. The variation ofdomestic supply is expected to depend on unitdomestic and export prices as well as rawmaterial cost. Raw material cost is log price inthe case of sawnwood and plywood, residueprice in the case of particle board and fibreboardand pulp price for paper and paperboard.Export supply: The supply for export (onlymodelled for a few country/product

combinations) is expected to depend on the sameprices as in the domestic supply model, but withreversed signs. Also, an index of the exchangevalue of the country's currency compared to thatof major markets is included, as well as aweighted average index of the major markets'GDP in Europe. Because the export price seriesmeasures only the price received by exporters,and not the price paid by importers, the trade-weighted exchange rate index is used as ageneral indicator of the competitiveness ofexports. Prices paid by importers are in localcurrencies; competitiveness in these marketsdepends in part on the exchange value of acountry's currency. The index of European GDPis included as an indicator of trends in externalmarkets.10

For both the demand and the supply equations,all prices are in the country's currency, and aredeflated by the country's consumer or producerprice index. This is a change from manyprevious international studies in which all priceswere expressed in US dollars.A detailed description of model development anda complete display of results from the statisticalanalysis is available in the ETTS V workingpaper (ECE/TIM/DP/5). In general terms, theresults can be summarized as follows.

FIGURE 6.5.1Western Europe (17): consumption of sawnwood, panels and

paper(Average annual growth, 1920-2020)

FIGURE 6.5.2Western Europe (17): consumption of forest products

(Average annual growth, Base Low scenario 1920-2020)


Where it was possible to include both a domesticand an import price, imports and domesticproduction were found to be substitutes in theconsumption equations. In addition, elasticitiesfor import demand equations were generallyhigher (in absolute value) than elasticities fordemand from domestic sources. In other words,for any change in exogenous factors, such as theindex of end-use activity, the change in importdemand will be greater than the change fordomestic demand.Similar results were found in the supplyequations. Where both a domestic and an exportprice were available, the two markets were, moreoften than not, substitutes. It was also the case,as in the demand equations, that elasticities forexport supply were generally greater in absolutevalue than elasticities for domestic supply.

(iv) Demand models for other west European countries11

The model of demand for other west Europeancountries is similar to the GDP elasticities modelestimated in ETTS IV, and is a familiar model inthe forest products literature. Total consumptionis modeled as a function of a single price andGDP; the lagged dependent variable accounts fora time lag in the speed with which consumptionadjusts to changes in price or GDP. The model isa time-series cross section model for thecountries included in this group. Instead ofsplitting demand into two components, only oneis analyzed here: total (apparent) consumption asa function of product price and GDP. Becausethese countries are, for the most part, net

importers, the average value of imports was usedas the price variable. Price and income wereexpressed in each country's own currency, andthen converted to an index; data series for totalconsumption were also converted to an index.This handling of the data allows the use of apooled time-series, cross-section approach whileavoiding the need to convert all values to acommon currency.Elasticities were estimated for two groups ofcountries based on per capita income; a singleprice and income elasticity was estimated foreach group. Detailed results are shown in theETTS V working paper. Due to data limitations,product supply equations were not estimated forthese countries; for forecasts, supply is calculatedon the basis of consumption forecasts with anassumption about future self-sufficiency ratios.

(v) Projection methodsThe models are used for projections where themodel structure is assumed to remain constant inthe projection period. The independent(exogenous) variables of the model system mustthemselves be forecast to obtain projections forthe dependent (endogenous) variables of thesystem. This means that forecasts - or scenarios -must be available for the end-use index (solidwood products), for GDP (paper), prices andcosts (all products).Two base scenarios were constructed: Base Lowand Base High, which differ only in theassumptions for GDP. The followingassumptions were used for the independent

FIGURE 6.5.3Production scenarios for sawnwood, panels and paper


variables:- GDP projections are those in chapter 3, i.e. of2.0 per cent (Base Low) or 2.9 per cent (BaseHigh) until 2005 and of about 1.7 per cent from2005 to 2020 (see table 3.2.1);- the end-use index for solid wood products isprojected, on a country by country basis, usingits relationship to GDP. For residentialinvestment, which is expected to grow rathermore slowly than GDP, see table 3.3.1;- in the base scenarios prices and costs are setconstant for the projection period.- estimated time trends in the models areassumed to continue in the projection period.The model system generates projections fordomestic demand, import demand, domesticsupply and supply for export. From these arecalculated projections for consumption (importdemand plus domestic demand) and production(domestic supply, which is equal to domesticdemand, plus supply for export). The differencebetween production and consumption is nettrade, although it must be stressed that this modelsystem does not analyse trade volumes orpatterns as such, but generates net tradeprojections as the "by-product" of the otherprojections.Projections are given in ETTS V in ten-yearintervals (although the working paper providesthem at 5-year intervals), where quantitiesobtained should be interpreted as average levelsover ten-year periods centred around the mid-year of the period. The projections reflect onlylong-term aspects and do not cover businesscycle variation. The conditional aspects of theforecasts should be stressed again; projections

are obtained from econometric models where theestimated coefficients of the models are assumedto remain constant over the forecasting period.Also, the projections are conditional upon theinput forecasts of the end-use index, GDP, pricesand cost.For the period 1990 to 2020, the models and theGDP assumptions are used directly to giveprojections. There is, however, one majorexception. For paper products, proposed capacityexpansions to year 2000 are available by country(and even by mill) from the FAO. In countrieswhere paper production increase is projected toexceed capacity expansion for this period,production growth is set equal to capacityincrease. This applies to one third of thecountries analysed and the assumption is thatnew capacity will be fully utilized while oldcapacity will, on the average, be used as before.After 2000, the projections are not constrained.

(vi) Summary of resultsOn the assumptions set out above, bothconsumption and production of forest products inwestern Europe (i.e. the 17 market economies forwhich econometric analysis was carried out) areprojected to continue to grow over the long term,but at a modest rate. Consumption of paper andpaperboard is expected to grow rather faster thanthat of panels, and that of sawnwood the slowestof all. For panels and paper, Europeanproduction is expected to grow slower thanconsumption, causing net imports to rise, whilethe opposite is true for sawnwood. The fastestgrowth will be for printing and writing paper,

TABLE 6.5.3Scenarios for growth of consumption and production of forest products by country group

(Average annual growth, in per cent, 1990-2020)

Sawnwood Panels Paper Consumption Production Consumption Production Consumption Production

Base Low:Europe: 0.8 0.9 1.5 1.3 2.1 1.7


Base High:Europe: 1.0 1.1 1.8 1.6 2.6 2.1



which has seen very rapid expansion in recentyears.Although the annual growth rates appearrelatively modest, over the projection period, forEurope as a whole (including the transitioneconomies) they accumulate to quite largevolume increases: 29-37 million m3 forsawnwood consumption, 24-30 million m3 forpanels consumption and 57-77 million m.t. forpaper consumption; increases over the thirty yearperiod of respectively a third, a half, and around100 per cent of the 1990 figure. The question ofwhere the raw material can be found for thisincrease in consumption is discussed in chapter11.

By country group, the highest rates of growth areforecast for south-east Europe and the lowest forthe transition economies and the Nordiccountries, although there is only a rather smallvariation in growth rates between the fastest andthe slowest.This chapter has presented only the basescenarios, which assume constant prices andcosts and a constant relationship betweenresidential investment and GDP. Alternativescenarios, with different assumptions for theseare presented and discussed in chapter 12, in thecontext of the supply/demand balance for thesector as a whole.

Notes

1 As an anecdotal example, the ETTS V coordinator's three-year old daughter was recently given a box of non-wood colour pencils, claimed to bestronger than wood and environmentally friendly. In use and appearance they are practically indistinguishable from wood pencils.

2 There has been progress on this point in recent years, but not enough.3 Examples are mugs and plates, wheels and transport in general, many tools, drainage, weapons, ropes (from bark), machinery for milling, in addition

to the whole housing structure, including the roof (structure and outside covering), walls, floors, etc.4 To take two extreme examples, the flow of logs and chips from the Pacific coast of the US and Canada to Japan, and the flow of pulpwood from

Chile or Argentina to the Nordic countries.5 Source of data: Survey of the Structure of the Sawmilling Industry, Volume XLIV, No.2 of the Timber Bulletin. All data regarding sawmilling

capacity must be considered rough estimates because of the difficulties of measurement and comparability.6 ECE/TIM/72.7 For market economies only, as transition economies are addressed in chapter 10.8 Austria, Finland, France, Germany, Italy, Norway, Spain, Sweden, and the United Kingdom.9 Other examples of this approach include the FAO Outlook studies.10 Including a demand variable (GDP) makes this equation, in effect, the reduced form of a more complex system of equations that would model

demand in external markets.11 Belgium, Luxembourg, Denmark, Greece, Ireland, the Netherlands, Portugal, Switzerland, Turkey.

41

Chapter 7 RESIDUES, RECYCLING AND RE-USE

7.1 Introduction

Since the publication of The Limits toGrowth in 1972, society, including both decisionmakers and the general public, has becomeincreasingly aware of the necessity of using allnatural resources wisely and sparingly, byavoiding or reducing waste of all sorts in everypart of the economy, and by preferring, wheneverpossible, renewable to non-renewable sources ofenergy and raw material. Wood has manyadvantages in this respect, given that forests are arenewable resource; wood processing residuescan be used as raw material for other products;and forest products can often be recycled or re-used.Furthermore, those residues or used productswhich cannot be recycled or re-used can almostalways be burned as a source of energy.1 This,

taken together with the fact that some productshave an extremely long useful life2, means thatforest products may be considered the archetypeof a renewable, low waste (or no waste) rawmaterial.The objective of this chapter is to describebriefly, in quantitative terms the broad trends inthe past for recycling, the recovery and use ofwood residues and secondary fibre (waste paper),and the outlook for the future.Unfortunately, the quality of information on thevolumes and prices of residues and recycledmaterial is in many cases rather weak, although itis improving. For this reason, the figures in thischapter should be considered orders ofmagnitude, rather than precise measurements.

7.2 Wood processing residues3

The largest volume (and the best quality) ofwood residues is generated in sawmilling fromthe edges and offcuts which inevitably ariseduring the sawing process. However, there aremany other types of residues, including sawdust,peeler cores from veneer and plywoodmanufacture, shavings and the waste of re-sawing, moulding, furniture manufacture, etc.,each of which has its own technical andeconomic characteristics. The presence of barkis harmful in many processes, and some residuesare contaminated with glues, paints, etc., whichoften make them unusable as raw material forcertain processes. However, there is a wide

difference between processes as regards qualitystandards for raw materials, and what isunacceptable for one type of manufacturingprocess is acceptable, even desirable, for another.Although at first, nearly a century ago, virginfibre was preferred as raw material, userindustries rapidly became aware of theadvantages of using wood residues as rawmaterial, which are: price, the possibility forcost saving in integrated operations, and the factthat the residues must be disposed of anyway.Progress in the technology of sorting, cleaningand treating residues has considerably widenedthe range of potential uses for such. As a result,

TABLE 7.2.1Domestic supply of wood residues around 1990

As per cent of As per cent ofVolume residues generated European total(106 m3) (per cent)

Europe: 47.0 61.1 100.0Nordic countries 18.1 75.7 38.5EU (12) 20.9 71.1 44.4Central Europe 4.6 83.3 9.7Eastern Europe 2.8 30.1 6.0South-east Europe 0.4 5.1 0.8Baltic countries 0.2 13.1 0.5

TABLE 7.2.2Scenarios for wood residue supply

Domestic supply as share of residues generated Domestic supply (106 m3) (per cent) 1990 2020

1990 2020 Base low Base highEurope: 62 75 47.0 74.1 79.6

Nordic countries 77 88 18.1 27.0 29.9EU (12) 72 82 20.9 31.7 34.9Central Europe 90 96 4.6 5.9 6.1Eastern Europe 32 45 2.8 4.8 4.9South-east Europe 5 36 0.4 3.9 4.0Baltic countries 13 35 0.2 0.8 0.8


the share of clean solid wood residues which hasgone to the pulp or panel industries has steadilyrisen. In the early 1990s, about 47 million m3 ofwood residues were used as raw material forpulp, particle board and fibreboard, rather morethan the 43 million m3 used around 1980. In1990, the volume of wood residues supplied andused was 12 per cent of the volume of removals(but 22 per cent of removals of small wood) andequivalent to nearly 70 per cent of the importsfrom other regions. By any standard, woodresidues are an important part of Europe's woodsupply.There are significant regional differences in thepattern of wood residue supply: over 90 per centof the wood residues in Europe are supplied andused in the enlarged EU. In the Nordic countries,the EU (12) and central Europe, over 70 per centof the residues generated are used as rawmaterial for pulp and panels. This is madepossible by the existence in these countries of anadvanced forest industry (supplier and consumerof residues), efficient market mechanisms tobring together sellers and buyers, as well as agood transport and communication infrastructure.The destination of those residues which are notused as raw material is not known: some are usedfor energy (see chapter 9, which estimates that 24million m3 of primary processing residues areused for energy at present). There are also acertain number of specialised uses for wood andbark residues, notably in the horticultural field.The rest are disposed of by landfill or by othermeans.What is the outlook for wood residue supply anduse for raw material? It is likely that the waste ordumping of wood residues will becomeincreasingly unacceptable and/or expensive in all

countries, and that consuming industries willcontinue to seek this raw material source and toset up ever more efficient circuits to collect it.The potential maximum supply is limited by thelevel of production of sawnwood, plywood andother forest products (projected according to themethods presented in chapter 6). Domesticsupply of residues for raw material has beenestimated on the assumption that the percentageof residues generated which is used for rawmaterial will rise, slowly in those countrieswhere it is high at present, and faster elsewhere.The percentage of residues which is used as rawmaterial is expected to rise from 61 per cent in1990 to about 75 per cent in 2020. The volumeof domestic supply would then rise, from 47million m3 in 1990 to 77 million m3 (Base Lowscenario) or to 81 million m3 (Base High) in2020, an average annual increase of about 1.7 percent over the 30-year period. In the Base Lowscenario, for 2020, domestic supply of residues is16 per cent of removals (30 per cent of removalsof smallwood) and 97 per cent of the woodequivalent of imports. In other words, therelative importance of residues in the rawmaterial supply pattern of the European forestindustries is expected to increase.According to the scenarios, at present about 30million m3 of the residues generated by the forestindustries in Europe are not used as raw materialfor pulp or panels: of these, 25 million m3 areused for energy. In 2020, the sum of thevolumes which are expected to be used as rawmaterial and as energy (from chapter 9) isroughly equivalent to the estimate of residuesgenerated. It may be deduced from this, despitethe approximate nature of the figures, that there

FIGURE 7.2.2Europe: domestic supply of residues

FIGURE 7.2.1Share of residues generated supplied as raw material


is no significant potential to find previouslyuntapped sources of primary processing residuesas they are all used already, either for rawmaterial or for energy. If more residues are to beused for raw material than in the scenarios, thiswill reduce he availability of residues for energy,and vice versa.The above discussion has concentrated onresidues of primary processing, essentiallysawmilling and plywood manufacture. Are therepresent or potential significant sources ofresidues other than these industries?Harvesting residues (tops, branches, evenstumps), were the subject of research in the mid1970s, when there was concern about rawmaterial supplies, especially in the Nordiccountries. They present major problems ofsorting (presence of bark) and cost, not tomention the long-term damage to certain types offorest sites which could result from the excessiveremoval of nutrients (which are concentrated inthese parts of the tree). It is hard to imagine asignificant increase in the use of harvesting

residues when only 70 per cent of Europe's netannual increment is harvested, and there isapparently structural over-supply on pulpwoodmarkets;Secondary processing of forest products,including resawing, moulding, manufacture ofprefabricated elements and houses, furniture,etc., also generates large volumes of residues,although they are often contaminated and/or arisein rather small units, thereby increasingcollection costs. They are also often used tosupply the energy needs of the generatingenterprise. However, when these problems areovercome, secondary processing residues can bean attractive source of raw material.4Nevertheless, the volumes involved are probablynot large enough to make a major difference inthe supply/demand balance at the regional oreven country level.

7.3 Waste paper (secondary fibre)

"Waste" paper, whether pre-consumer orpost-consumer, has been a significant part of theraw material mix of the paper industry for manydecades. It started to expand strongly, inabsolute and relative terms, from about the mid-1970s, stimulated by the growing perception thatthere are indeed limits to growth and that waste,whether of energy or of raw material, must beavoided. This motivation was considerablystrengthened by other circumstances of the time:higher prices for virgin fibre and fears of acoming wood shortage, as well as problems withlandfill. These in turn stimulated technicaldevelopment, notably in de-inking, and changesin consumer requirements and tastes. Both

recovery rates and utilisation rates have risenstrongly since that time.5Around 1990, about 37 per cent of Europeanconsumption of paper and paperboard wasrecovered for reuse (i.e. not counting waste paperused as a source of energy), a large increase fromthe 28 per cent recovery rate of the 1970s, andthe 32 per cent rate around 1980. Over a third ofthe fibre input to paper and paperboardproduction was waste paper. However, there areenormous differences between countries andregions in the pattern of waste paper recoveryand use: recovery is high in the EU (especiallythe northern and western parts of the EU), theNordic counties and central Europe, while to the

FIGURE 7.3.1Europe: recovery rates for waste paper

TABLE 7.3.1Waste paper recovery by country group

Volume recovered (million metric tonnes) Recovery rate1990 2020 (per cent)

Base Low Base High 1990 2020Europe: 23.9 59.4 68.7 36.9 48.6

Nordic countries 1.4 2.8 2.9 34.3 40.9EU (12) 19.3 50.0 58.5 37.1 49.9Central Europe 1.4 2.6 2.7 51.1 57.0Eastern Europe 1.2 2.3 2.3 37.0 42.4South-east Europe 0.4 1.6 1.8 21.9 34.3Baltic countries - 0.1 0.1 10.4 31.4


east and south, recovery rates are much lower. Apart of this difference may be due to statisticalproblems, but most of it is apparently real.To have a strong waste paper sector, severalconditions must be satisfied: a fairly urban,concentrated population, because of wastepaper's low value-to-weight ratio (which makeswaste paper recovery from scattered ruralcommunities prohibitively expensive); a goodinfrastructure of organisation to arrangecollection; a certain minimum "ecological"awareness, as the process ultimately depends onthe good will of unpaid private citizens toseparate and collect their used paper; and, apaper manufacturing sector which is able andwilling to invest in de-inking and other wastepaper processing facilities.Naturally, the utilisation rate is stronglyinfluenced by the structure of the industry,notably the size of the virgin pulp manufacturingsector. Even with very high recovery rates,industries which produce large volumes of virginpulp but have relatively small markets (e.g. theNordic countries) are certain to have lowutilisation rates.Over the last 5-10 years, municipal and nationalauthorities have put in place policies toencourage waste paper recovery, includingeconomic incentives of all types for collectionand use, as well as other measures includingminimum recycled content legislation. Publicperceptions, encouraged by environmentalNGOs, have strongly supported thesedevelopments in many countries. For thesereasons, waste paper recovery has tended to be,in many areas, supply-driven, developing withoutclose coordination with the needs of the market.

As a result, the early 1990s saw a period of verylow, and at times negative, waste paper prices assupply overwhelmed demand. This carriednegative consequences not only for waste papercollectors and merchants, but also for pulp sellersand thereby for forest owners (this phenomenoncoincided with and was partly caused by a periodof cyclical downturn in the pulp markets).Despite the low value-to-weight ratio,international trade in waste paper is quitesignificant. Countries which have high recoveryrates, but not a corresponding industry toconsume the material generated, may develop astructural surplus, which is relieved by exports.This has been the case of the USA, and in recentyears, Germany (although both intend to build uptheir waste paper using industry). On theimporting side, some wood-poor countries havebased an industry or part of an industry onimported waste paper, which in the recent pasthas often been cheap to buy and process, and ofvery good technical quality as it is mostly longfibre material, with good strength qualities.However, as recycling becomes more widespreadand intense, this situation is bound to change, asthe fibres lose strength with each successiverecycling. In addition, some exporting countrieswhich are rich in virgin fibre but poor in wastepaper, may import waste paper to satisfyregulations about minimum content of recycledfibre in their major markets. In some cases, thisis facilitated by the possibility to use returningships or trucks, thus reducing transport costs. Inthe early 1990s, by far the largest waste paperexporter was the USA, mostly to Asia, but alsoto Europe. European waste paper imports around1990 were over 5 million m.t., but the net tradeposition was roughly neutral. The majorimporters in Europe are Italy and Spain, and themajor exporter is Germany. The markets aresubject to particularly violent cyclicalfluctuations influenced by the interaction of pulpmarket cycles and the general supply siderigidities for waste paperWhat is the outlook for waste paper recovery anduse? In the secretariat's view, recovery rates willcontinue to rise steadily, until they reach atechnical maximum, determined by the share ofpaper consumption which is either permanentlystored (e.g. some books) or unrecoverable (e.g.sanitary papers). Growth in recovery rates willbe quite fast in those countries where it is low at

FIGURE 7.3.2Waste paper recovery rates by country group


present, and the "leading" countries will continueto develop their systems, but at a slower rate.The reasons for this conclusion are as follows:- demand for paper and paperboard is expected togrow, as presented in chapter 6, providing both asource of waste paper (which must be disposedof in any case), and an outlet for it;- practical, political and economic pressures willall combine to continue to encourage municipalauthorities to prefer recycling of paper (and othermaterials) to other means of disposal, notablylandfill and incineration. This conviction willspread from the central-northern countries, whereit is now well established, to the rest of Europe,which, in turn, will be able to profit from theexperience of the former region;- because of the supply driven nature of wastepaper markets and the fact that by definition thesources of waste paper are near to markets, wastepaper will retain its price advantage over virginfibre;- manufacturers will actively seek to increase thewaste paper content of their products, not onlyfor cost reasons, but also for environmentalreasons, and to improve their public image;- consumers will prefer products with a wastepaper content, even where the visual aspect isimportant.The main obstacles to increasing the use of wastepaper will be technical, such as use requirements(e.g. strength for very fast printing machines) andability to clean mixed waste.Some important questions are "How far can theprocess go?", or "What is the limit to waste paper

recovery rates?" It is, of course, not possible togive a definitive answer to such complexquestions for a period 25 years into the future.The secretariat has assumed that 60 per cent is apractical maximum at the country level.The combined effect of higher consumption ofpaper and paperboard and of higher recoveryrates results in strong growth in the volumerecovered, which is expected to double (forEurope as a whole) in the Base Low scenario andtriple in the Base High scenario. This givesannual growth rates of over 3 per cent in bothscenarios, by far the fastest growth of anyparameter in the model. The EU (12) remains byfar the largest source of waste paper supply,accounting for about 85 per cent of Europeansupply.

Notes1 See chapter 9.2 Wooden churches (stavkirke), built in the eleventh century are still in service in Norway, although this is an exceptional length of service.3 The traditional term "residues" is used because of its familiarity, although the same material is also referred to as "secondary raw material". In ETTS

V the term "residues generated" refers to an estimate of the volume of wood raw material arising from the processes of sawing and manufacture ofplywood and veneers. "Domestic supply" refers to that volume which is in fact used as raw material for pulp or wood-based panels. Residues which are"generated", but not part of "domestic supply" are burnt, put to other (e.g. horticultural) use, or simply dumped.

4 This is true to such an extent that in Germany, more residues are used as raw material than are generated by the primary processing industries. Thisis because of the large volume supplied by the secondary industries.

5 "Recovery rate" is the volume of waste paper recovered for use as raw material as a percentage of consumption of paper and paperboard. "Utilisationrate" is the volume of waste paper consumed as papermaking furnish as a percentage of total paper and paperboard production.

FIGURE 7.3.3Europe: volume of waste paper recovered

47

Chapter 8 EUROPE'S TRADE WITH OTHER REGIONS

8.1 Introduction

International trade is a vitally important partof the forest and forest products sector. In theearly 1990s, world trade in forest products wasworth about USD 100 billion. International traderepresents about a quarter of world production offorest products. Furthermore, trade in forestproducts, like trade in most other products, hasbeen growing faster than production orconsumption.Europe is a large importer of roundwood andforest products from other regions: around 1990,about 10 per cent of Europe's wood and fibresupply was accounted for by these imports. It istherefore essential that ETTS V review theoutlook for Europe's trade.This chapter will concentrate on Europe's tradewith other regions, and in particular on whatEurope's needs will be and whether they can bemet, taking into account what is known aboutfuture demand outside Europe, and the potentialof major world suppliers of forest products tomeet this demand.After an overview which places Europe in thecontext of world trade in forest products andbriefly presents the world forest resource, thechapter will review the potential to expandsupply from the major exporting regions outside

Europe. The scenarios for net trade emergingfrom the supply/demand projections of chapter 6are then assessed in the light of what is knownabout the potential of other regions, andconclusions are drawn on the futuresupply/demand balance in world forest productsmarkets.Data on international trade come from severaldifferent sources, and are not always consistentwith each other. As full reconciliation of thedata sets is practically impossible, there areinconsistencies between the data in differentparts of this chapter: however, the broad positionis not affected by these inconsistencies.ETTS V is concerned above all with Europe; forthe other regions examined, it draws on externalsources, wherever possible official andinternational in nature. Readers are referred tothese sources for information on methods, dataproblems, etc.This chapter draws on work carried out for ETTSV by two experts whose services were madeavailable by their governments: Messrs. BrunoCinotti of France and Adrian Whiteman of theUK. The secretariat expresses its appreciation ofthe contribution by these experts and theirgovernments to ETTS V.

8.2 Pattern of world forest product trade in the mid-1990s

Over 60 per cent of world trade in forestproducts (by value) is intra-regional, i.e. betweencountries situated in the same continent.However, there are some very large flows offorest products between continents. When onlyinter-regional trade is considered, theoverwhelming importance of one exporting andtwo importing regions is apparent.The world's largest supplier of forest products toother regions is North America, whose exports toother regions account for half of all inter-regionaltrade (USD 17 billion in 1993).

FIGURE 8.2.1Net trade in Europe, 1992


Half of the inter-regional trade is directed to theAsia/Pacific region (chiefly Japan), althoughother Asian countries are rapidly gaining inimportance. By far the largest supplier to theAsia-Pacific region is North America, whichexports pulp, paper, sawnwood, plywood andpulp chips to the region: the flow from NorthAmerica to the Asia-Pacific region accounts for29 per cent of inter-regional trade. However,other regions (Europe, Russia and LatinAmerica) also send significant volumes of forestproducts to the Asia-Pacific region.The second largest destination of inter-regionaltrade is Europe, whose imports from otherregions account for 27 per cent of inter-regionaltrade. The major supplier is again NorthAmerica (pulp, paper, sawnwood, plywood).Europe as a whole is a net importer from other

regions for all types of forest products exceptpaper and paperboard. In terms of m3 EQ, pulpimports account for about half of Europe'simports from other regions, followed bysawnwood and wood raw material (less than athird each). There are small net imports ofpanels and significant net exports of paper andpaperboard, partly counterbalancing the netimports for other product groups. All the aboveare net imports (i.e. imports minus exports) forall of Europe.The volume and direction of trade flows fluctuaterather strongly in accordance with marketconditions (level of demand, supply restrictions,exchange rates, tariff structures, etc.), but there isa certain stability as regards the main suppliers offorest products to Europe from other regions (notin order of size, since market shares may changerelatively rapidly): coniferous sawnwood:Canada, Russia, USA; non-coniferoussawnwood; Indonesia, Malaysia, USA; plywood:Indonesia, USA; pulp: Brazil, Canada, USA;paper and paperboard: Brazil, Canada, USA; andwood raw material: Côte d'Ivoire, Gabon, Russia,Latin America (Argentina, Chile).

TABLE 8.2.3Total net trade in forest products (including wood raw material),

1990

Million m3 EQ As per cent of removalsNordic countries + 76.5 + 69.9EU (12) - 138.7 - 97.2Central Europe + 6.7 + 30.0Eastern Europe + 2.1 + 4.2South-East Europe - 3.0 - 7.3Baltic countries + 1.4 + 12.5Europe - 55.0 - 14.1Note: “+” net exports, “-” net imports.

FIGURE 8.2.2Europe: net trade in wood in the rough, sawnwood & panels

TABLE 8.2.2Europe's imports of forest products from other regions, 1993

Total Roundwood Sawnwood Panels Pulp Paper (billion USD) (million m3) (million m.t.)

North America 4.6 0.8 2.7 1.4 4.5 2.2Ex-USSR 1.0 3.4 5.1 0.5 0.5 0.2Latin America 1.0 0.5 0.5 0.4 1.7 0.3Asia-Pacific 1.2 0.1 1.1 0.8 0.0 0.2Africa 1.2 2.0 0.9 0.2 0.3 0.1NES 0.2 0.0 0.0 0.0 0.3 0.0Total 9.3 6.8 10.4 3.4 7.2 3.1

TABLE 8.2.1World trade in forest products, 1993

(Million USD)

From: To: Europe North America Ex-USSR Latin America Asia-Pacific Africa NES WorldEurope 33719 4557 1047 1046 1201 1241 237 43048North America 1568 15417 24 901 1012 69 13 19004Ex-USSR 0Latin America 500 2214 2 713 58 33 13 3533Asia-Pacific 3780 10190 890 1122 14621 569 15 31187Africa 1103 225 11 97 112 67 12 1627NES 412 1 18 4 421 856World 41082 32604 1992 3883 17425 1979 290 99255


Europe's exports of paper and paperboard (and,in the mid 1990s, MDF) are directed to a widerange of countries all over the world.Is Europe's net trade with other regions roughlystable over time, or are there structural trends? Ifso, what are they, and what are the causes? It isunfortunately not possible in ETTS V to analysethese important questions in detail, but someindications emerge from the charts.Net trade in wood in the rough is marked bystrong cyclical fluctuations. When demand forforest products is high, Europe's net imports ofwood in the rough (logs and pulpwood) risesharply, as extra supplies are brought in fromoutside the region, which are not needed in"normal" times. There is however a structurallevel of roundwood imports of around 15 millionm3, essentially composed of pulpwood fromRussia and of tropical logs. There appears to beno upward or downward trend in the volume ofraw material imports.Throughout the 1960s and 1970s, Europe's netimports of sawnwood remained roughly constantin volume terms, but nearly halved between 1979and 1984, probably because of weak sawnwoodmarkets. However they more than doubledbetween 1984 and 1990, which was a period offairly strong sawnwood demand and marketpenetration by Canadian and south-east Asiansuppliers. This trend was sharply reversedbetween 1990 and 1993, when Europe's net

imports of sawnwood returned to their previousrecord-low levels due to extremely lowsawnwood consumption and reduced availabilityfrom both Canada and Russia.

From the early 1960s to 1989, net imports ofpanels rose very steadily, regardless of marketfluctuations, to nearly 5 million m3. This upwardtrend is attributable to market penetration byIndonesian and Canadian plywood. It was,however, sharply reversed in 1989: in five years,Europe's net imports of panels have halvedbecause of Indonesian and Canadianconcentration on other markets (Japan and USA),European exports of MDF and particle board toother regions, and weakness in European panelsdemand.

FIGURE 8.2.3Europe: net trade in pulp and paper

FIGURE 8.3.1World forest area

(Total: 3.44 billion hectares)

FIGURE 8.3.3Forest cover by region

FIGURE 8.3.2Forest area per person


The trend for net imports of pulp to grow is veryclear and shows no signs of change in direction.Net imports now account for about 15 per cent ofpulp consumption, as compared to about 3 percent in 1965. This change has continued despitethe stagnation in pulp consumption since about1990 in Europe, and may be attributed to thevery competitive position of large pulp millsoutside Europe, notably in North and SouthAmerica.The only sector where Europe shows a net tradesurplus is paper and paperboard. Europe's netexports have risen from marginal quantities inthe mid 1970s to over 5 million m.t. in 1994.This may be attributed to the success of somefirms in creating and expanding specialised("niche") markets in some high value papergrades, where Europe's disadvantages ofrelatively high cost wood (and labour) can beovercome by technical skills and goodmarketing. Increasingly this paper production is

based on pulp imported from other regions, aswell as on waste paper.There are, of course, quite significant variationsbetween countries and country groups in theirdegree of import dependence, as appears clearlyfrom table 8.2.3. In fact, net imports are veryimportant only in the largest country group, theEU (12), where they account for nearly as muchsupply as domestic removals. However, both theNordic countries and central Europe (chieflyAustria), are strongly export oriented, and mostof their exports go to the EU (12). If the EU asof 1995 (i.e. including the three major Europeanforest products exporters) is considered, netimports are just under 60 million m3 EQ (22 percent of removals). Trade with other countrygroups is much less important in relative terms ineastern and south-eastern Europe, and not yetvery significant in the Baltic countries (althoughthis group may well become an export-orientedgroup).

8.3 Overview of the world forest resource1

There were about 3.4 billion hectares offorest (not including "other wooded land") in theworld around 1990. Over a quarter of this was inLatin America and a fifth in Russia, with about15 per cent each in Africa, the Asia-Pacificregion and North America. Europe has 149million hectares, just over 4 per cent of theworld's forest resource. Four individualcountries (Russia, Brazil, Canada and the US)have more forest than Europe as a whole, and

three others (China, Indonesia and Zaire) haveover 100 million hectares of forest.

About 27 per cent of the world's landsurface is covered by forest and another 13 percent by "other wooded land". Within regions andbetween regions there are wide differences inforest cover. Latin America has 48 per centforest cover, and the former USSR 35 per cent.By contrast, "developed Asia/Oceania" (i.e.Japan, Australia and New Zealand) has forest

TABLE 8.3.1World forest resource

Forest area Change 1980-90 Growing stock Removals Population(million hectares) (billion m3 o.b.) (million m3 u.b.) (million)

Europe 149 1.9 19.3 283 565North America 457 - 3.2 53.4 559 276Ex-USSR 755 0.5 84.2 275 350Developed Asia/Oceania 71 0.0 6.6 59 144Africa 545 - 28.3 55.7 59 642Asia/Pacific 497 - 10.0 55.2 230 2921Latin America & Caribbean 967 - 60.5 109.4 124 448World 3441 - 99.6 383.8 1589 5346

Ratios: Forest cover Forest per capita Growing stock per hectare GDP per capita Removals/Growing stock

(per cent) (hectares per capita) (m3 per hectare) (1000 USD per capita) (per cent)Europe 27 0.3 130 12.72 1.47North America 25 1.7 117 21.67 1.05Ex-USSR 35 2.2 112 3.28 0.33Developed Asia/Oceania 9 0.5 93 24.43 0.89Africa 18 0.9 102 0.47 0.11Asia/Pacific 19 0.2 111 0.60 0.42Latin America & Caribbean 48 2.2 113 2.16 0.11World 27 0.6 112 4.06 0.41Source: FAO Forest resources assessment 1990: Global synthesis and forest products Yearbook.Note: Removals is industrial wood only.


cover of only 9 per cent (66 per cent in Japancounterbalanced by 5 per cent in Australia).

The world's forest and other wooded land isshrinking by about 10 million hectares a year,with the greatest losses in Latin America (6million hectares, or 0.5 per cent of the area offorest and other wooded land), Africa (2.8million hectares, or 0.26 per cent) and the Asia-Pacific region (1 million hectares or 0.6 percent). The forest resource is also shrinking, butmuch more slowly, in North America. In Europeit has been expanding, at a rate of 0.19 millionhectares a year (0.13 per cent).

On average, there is 0.6 hectares of forestfor each person in the world. However, there isonly 0.3 hectares for each European, 0.2 hectaresfor each citizen of a developing Asian country,and 0.5 hectares for "developed Asia/Oceania"

(0.2 hectares for each Japanese, despite thatcountry's high forest cover). In contrast, in lesscrowded continents, there is less populationpressure on forests: 1.7 hectares per person inNorth America, and 2.2 hectares in LatinAmerica and former USSR. It is not surprisingthat attitudes to the forest are different in regionswhere there is 2 hectares of forest for eachperson than in those where there is ten times less.

The world's forests contain about 380 billionm3 of wood. As average growing stock perhectare is roughly comparable in differentregions (a range from 93 to 130 m3 per hectarewith most regions around 110 m3 per hectare),the distribution of growing stock by region issimilar to the distribution of forest area: LatinAmerica has over 28 per cent of the world'sgrowing stock and Europe about 5 per cent.

There are major differences in the intensitywith which forests are used to produce wood,which may be roughly measured by the percentof growing stock harvested each year. By far themost intensively used forests are in Europe,where removals are 1.47 per cent of growingstock, more than three times the world average,followed by North America (1.05 per cent). InLatin America and Africa, only 0.11 per cent ofthe growing stock is harvested each year.

8.4 Outlook for supply from other regions

Most of the world's forests do not produceany wood which will influence European woodsupply in any way. This section examines insome detail the forestry situation, and issues andprospects for wood supply in those regionswhich supply wood or forest products to Europe:North America, Russia, the natural tropical forestand intensively managed plantations outsideEurope.

(i) North AmericaIn 1993, North American exports to Europe wereworth about USD 4.6 billion, including 2.7million m3 of sawnwood, 4.5 million m.t. of pulpand 2.2 million m.t. of paper and paperboard. Invalue, European imports from North Americawere about four times larger than imports fromany other continent. It is, therefore, of thegreatest importance to develop a realisticunderstanding of North America's futurepotential to supply Europe with forest products.

Both North American countries have very largeforest resources, but there are major differencesbetween them:- most Canadian forests are publicly owned,while the opposite is true in the US;- Canada has huge expanses of climax forests.These contain enormous volumes of wood, oftenin areas of very low natural productivity;- Canada's forest resource is predominantlyconiferous, while non-coniferous is veryimportant in the US, including for exportmarkets;- for many reasons, including naturalproductivity and closeness to markets, US forestssupply more wood per hectare than Canadianforests: table 8.4.1, which already excludesreserved forests (e.g. for wilderness or nationalparks) and economically inaccessible orphysically unproductive land, shows that USremovals are three times greater than Canada's,

TABLE 8.4.1Forest resources of North America in the early 1990s

Unit (106) Canada USA North AmericaForest area1, (hectares) 217.6 198.1 415.7 of which:

public 195.2 53.2 248.4private 22.3 144.9 167.2

Growing stock, (m3) 24700 22200 46900 of which:

coniferous 19300 12700 32000Removals 1991 (m3) 161.5 461.5 623.01 Stocked, productive and available forest land only.Source: NATTS II.


from a slightly smaller area of stockedproductive and available forest.Over the past decade or more, both countrieshave seen an intense national debate on forestpolicy, in particular on harvesting practices andon how much climax forest should be withdrawnfrom management for timber production. Thesedebates are by no means concluded, although acertain consensus may be emerging, particularlyin the US. There is still major uncertainty aboutthe long-term sustainable level of harvest in bothcountries. It does appear likely however that:- in the US, the centre of gravity of the forestindustry will continue to shift from the PacificNorth West, where the national forests are amajor part of the supply pattern, to the South,where most forest land is privately owned (byforest industry or small owners);- the revision of the annual allowable cuts inCanada will lead to a reduction in harvests,especially in British Columbia.Although both counties are major exporters to"overseas" markets (i.e. outside North America),the volume of these exports is rather smallcompared to that of domestic markets and that oftrade between the two countries (the flow offorest products from Canada to the US is thelargest international trade flow of forest productsin the world).The main factors determining the likelyavailability of forest products for export fromNorth America to other regions are:- future demand on North American markets,determined by speed of economic growth,strength of housing, technical development (forforest products and substitutes), relative pricelevels, etc.;- level of roundwood supply from NorthAmerican forests, itself determined in part byeconomic factors, including accessibility andinvestment in silviculture; roundwood supply isalso determined by policy decisions aboutpriorities in public forest management anddesirable or minimum levels of conservation ofbiodiversity, and, particularly for Canada, thespeed and extent of the conversion of climaxforest to managed forest, approximating a"normal" age structure.It is of course not possible for the authors ofETTS V themselves to carry out this analysis,which if carried out in detail would be the

equivalent of another timber trends study.However, both the Canadian and USgovernments dispose of powerful analyticalsystems for the outlook for the forest productssector and have, in parallel to ETTS V, carriedout a North American timber trends study2 whichsynthesizes the available information and theresults of projections, including those foroffshore exports (trade between Canada and theUS is not covered). The outcome of this study,which is authoritative, is summarised below.Consumption is expected to grow slowly, withsome substitution effects, notably of coniferousplywood by OSB. Offshore exports are alsoexpected to grow, but more slowly, with quitefast increases for non-coniferous sawnwood,coniferous plywood and, above all paper andpaperboard (an increase of 4.6 million m.t. in 20years) counterbalanced by declines forconiferous sawnwood and, above all, logs.Exports of the latter are expected to decrease byabout 8 million m3, as availability of exportquality coniferous logs on the Pacific Coastdeclines. There are no separate forecasts made ofexports of chips or of pulp.The study points out that conditions on NorthAmerican, not offshore, markets will determinethe supply/demand balance in what is by far thelargest and most influential forest productsmarket in the world. The authors foresee a risein the price of roundwood to 2010 due to risingNorth American demand for forest products,combined with supply constraints on the PacificCoast, until the more intensive forestmanagement expected in the good growingconditions of the US South (stimulated by theexpected rise in prices) begins to produce results.However, they point out that other factors mightwell mitigate this rise, including technology (newproducts, more wood-efficient processes) and theuse of the large, previously under-utilisedhardwood resources of North America. Thehigher prices forecast to about 2010 will not onlyreinforce the incentives to the forest industry tomaintain plantation programmes, but willencourage private owners to invest in silvicultureand raise harvest levels; they will also makelarge areas of Canada economically accessible,which have until now been considered tooremote or unproductive to allow commercialharvesting.


In the very long term (i.e. beyond the timehorizon of ETTS V), the potential to increaseNorth American roundwood supply is very large,assuming certain social and economic conditionsare met. In many parts of North America, forestmanagement is, by European standards, veryextensive; this is due to the low populationdensity, the existence of large stocks of natural orquasi-natural forest (supplying wood at arelatively low delivered cost, which makesintensive forest management uneconomic), andbecause of local forestry traditions andtechniques. When the remaining natural forest iseither harvested or permanently reserved, andnew codes of practice impose more stringentenvironmental protection also on "workingforests", thus raising wood costs overall, theincentive to use productive forest land moreintensively by increasing investment in forestmanagement (thinning, genetic improvement,etc.) will become much stronger, provided, ofcourse, that final markets accept the inevitablehigher costs without significant substitution offorest products by other raw materials.(ii) Russia3

Russia possesses the largest stock of coniferouswood in the world. In the former Soviet Union,there were 755 million hectares of forest land,spreading from St. Petersburg to Vladivostok,with 84 billion m3 of growing stock. Untilaround 1990, removals in the USSR were wellover 300 million m3 a year, i.e. less than 0.4 m3

per hectare, or 0.35 per cent of growing stock. Inthe mid 1990s, due to the economic disruption inRussia, removals have fallen by more than half toless than 150 million m3. Clearly then, over thecountry as a whole, there is the physical potentialto expand removals very significantly, even after

taking into account the fact that very large areaswill be reserved or remain permanentlyinaccessible to commercial harvesting because ofremoteness or harsh climatic conditions.How likely is it that this potential will berealised, and that Russia's exports to worldmarkets recover and expand further? Severalfactors must be taken into account.There are, as one would expect, enormousregional differences. In many parts of EuropeanRussia, harvests over the last 50 or so years havebeen over the allowable cut, so that the mostaccessible forests, on the most productive soils,are often young and not very productive, withlittle potential for short-term improvement.There is large unsatisfied demand for forestproducts of all types from the domestic markets,which are still characterised by shortages andrationing. However, looking at the situationfrom an international perspective, demand fromexport markets is likely to take precedence overdomestic demand, chiefly because the priceswhich can be paid on world markets are likely toremain higher than Russian domestic prices forthe foreseeable future.Finally, and most importantly, it is doubtful towhat extent it will be physically andeconomically possible to reach and harvest theenormous volumes of wood in Siberia, whosephysical infrastructure is still very sparse. Atpresent, in addition to the underlying problems ofdistance and real cost, there are those resultingfrom the social and economic confusion broughtabout by the transition process, itself comingafter a long period of fundamental distortion ofcosts. This distortion was typified by thetransport subsidies which caused major parts ofthe processing industries to be located far from

TABLE 8.4.2North America: outlook for consumption and exports

(Million m3)

Consumption change Exports (offshore) Change1990 2010 (per cent per year) 1990 2010 (per cent per year)

Coniferous sawnwood 122.2 143.0 0.8 16.1 15.8 - 0.1Non-coniferous sawnwood 25.1 30.8 1.0 1.4 1.8 1.3Sawnwood 147.3 173.8 0.8 17.5 17.6 0.0Coniferous plywood 18.7 15.2 - 1.0 1.6 1.9 0.9Non-coniferous plywood 2.4 4.1 2.7OSB/waferboard 6.8 19.7 5.5Particle board 11.0 14.1 1.2Wood-based panels 38.9 53.1 1.6 1.6 1.9 0.9Woodpulp paper & board (metric tonnes) 90.4 109.0 0.9 7.2 11.8 2.5Coniferous logs 17.3 9.8 - 2.8Non-coniferous logs 0.7 0.5 - 1.7Logs 18.0 10.3 - 2.8Note: Imports are negligible in most cases, and where this is not the case, no significant changes are expected.


their raw material base, even in some casesleading to the hauling of logs for thousands ofkilometres in one direction, followed by transportof sawnwood along the same tracks in the otherdirection. To resolve these problems necessitatesnot only the general recovery of the Russianeconomy, but also heavy investment in forestinventory, roads and railways, harvestingequipment, trucks, processing plants of all types,etc. At present, this does not appear feasiblewithout significant injections of foreign capital.Furthermore, if the Siberian forest resource is tobe developed significantly beyond the situationof the late 1980s, this must be done in a waywhich is not only sustainable in the long term,but also seen (by external observers) to besustainable. If forest products from Siberia, orRussia as a whole, are perceived as being basedon the unsustainable exploitation of the largestarea of natural boreal forest in the world, anopinion which is increasingly heard from someNGO sources, then it is quite possible thatEuropean consumers would react as they have tosimilar concerns about the tropical forest, byreducing their purchases of forest products fromSiberia.The future export availability of forest productsfrom Russia depends on a complex interaction oftechnical, economic and policy factors. Thedegree of uncertainty is however much higher forRussia than North America, given thefundamental institutional changes, the huge areasof natural forest, and the generally poorer qualityof the data. However, potential for Russiacannot be seen in isolation from demand onworld markets. If the global supply/demandbalance remains similar to that in the mid-1990s(i.e. marked by intense competition anddownward pressure on prices of manyassortments), it will be possible to developRussia's forest resource only on the basis ofbecoming very competitive with other rawmaterial suppliers. If, on the other hand, thereare signs of supply shortfalls and prices risesignificantly, it is reasonably certain that Russia'scapacity to produce and export large volumes ofraw material and products will be developed,using domestic and foreign capital and know-how.In fact, in the mid 1990s, there are signs ofstrong foreign interest and investment in theRussian forest and forest products sector: there

are joint ventures to harvest roundwood andexport it both to the Nordic countries and to Asia(notably Japan), while foreign enterprises (bothspecialised forest products companies and pureinvestment vehicles, which contribute capital butnot specialised skills) have bought shares in thelargest Russian forest products companies,namely those with relatively modern pulp plants.It is possible that other investment decisions arebeing held back by uncertainty over the futurelegal situation regarding access to the resource.It should also be borne in mind that Russia, likeNorth America, is geographically situatedbetween the two major importing areas of theworld, Europe and Japan, and can shift suppliesfrom one to the other. Thus, future demand fromJapan and the rapidly developing Asianeconomies will very directly influence theavailability of forest products for Europe.

(iii) The natural tropical forestTraditionally, a significant part of Europe's forestproducts imports have been logs, sawnwood andplywood from the natural tropical forests of LatinAmerica, Africa and, increasingly, south-eastAsia. In 1993, an estimated 2.6 million m3 oflogs and 2.5 million m3 of sawnwood wereexported to Europe by these regions, andconsiderably more to Japan and other Asiancountries: it may be assumed that at presentalmost all of this comes from natural forest.The natural forest resource in several countrieshas been exhausted, and the desire to put forestmanagement on a sustainable basis has ledseveral major producer countries, notably the twomost important, Malaysia and Indonesia, toreduce their allowable cut significantly.Nevertheless, it should be borne in mind thatthere remain huge physical stocks of wood in thenatural tropical forest, notably in Brazil (65billion m3) and Zaire (23 billion m3). Thesefigures may be compared to world removals ofroundwood of about 3.4 billion m3 in 1993.Producer countries have worked to increase theshare of further processed products in theirexports, by investment in processing industries,and by discouraging or forbidding the export ofunprocessed wood, which has included logs, butnow also refers to sawnwood itself. Especially inAsia, strong "value added" industries, such asbuilding joinery, windows, doors and furniture,


have been founded and are exporting to Europe.Increased exports of value added goods have thestatistical effect of reducing exports ofsawnwood and logs.Consumer concern about tropical deforestationhas weakened demand for tropical timbers inmany north-west European countries.Consumption of non-coniferous sawnwood inEurope dropped by 4 million m3 (about 18 percent) between 1990 and 1993. Most of thisconcerned tropical, rather than temperate,sawnwood, and was in part due to negativeconsumer attitudes to tropical timbers, as well asto overall demand weakness.In general, therefore, for both supply anddemand-based reasons, it is to be expected thatsupply to Europe of forest products derived fromthe natural tropical forest will not increase andmay well decrease in the long term.

(iv) Fast-growing industrial wood plantationsAn increasingly important role in supply toglobal forest products markets is played by fast-growing industrial wood plantations in tropicaland temperate countries. Although climatic,economic and social conditions vary widely,these plantations can produce large volumes ofindustrial wood, of standard and acceptablequality, in sufficient quantity and at a price lowenough to justify the installation of world scaleindustrial capacity (usually pulp mills or exportsawmills, but now also MDF, OSB, etc.) or thelarge-scale export of the wood raw material.Well-established examples include New Zealand,Chile and some parts of Brazil, where there aremillions of hectares producing Pinus radiata,Eucalyptus spp., or other fast-growingcommercial species.Factors which have encouraged these plantationsare the reduction of transport costs for bulk loadsof forest products, the globalisation of forest

products markets, and the availability of thecapital and management skills, which areessential to plan and carry out such large-scale,long-term speculative ventures. Other factorsinclude the potential to increase yields by geneticimprovement (conventional tree breeding andclonal propagation for some species) and themarket/product development progress, which hasmade it possible to produce a much wider rangeof products from a rather straightforward rawmaterial base.It is hard even to measure the present extent ofthis type of plantation, let alone to quantify itssupply potential in the long term, given thedifficulty of separating in a statistical sense thoseplantations which are now, or might become,competitive on a world scale from those whichare not. A plantation might fail to becomecompetitive for a number of reasons, includingphysical failure, due to lack of managementfollow-through, disease, etc., or because it is on asmall scale or has objectives other than large-scale production of industrial wood (such asfuelwood production, erosion control, etc.). Arecent FAO review of tropical plantationsconcluded that planning is generally poor,particularly for vital issues such as matchingspecies and site.The available data4 on plantation areas suggestthat there are 69 million hectares in developingcountries, not including about 14 million hectaresof rubber, coconut and oil palm plantations,which are providing increasingly importantvolumes of wood, in addition to their primaryproducts. About 50 per cent of the reportedplantations were established during the 1980s.The area of plantations is estimated to haveincreased by 3.2 million hectares a year duringthe 1980s, compared to a decrease for naturalforest of 16 million hectares a year. Sixcountries account for 85 per cent of plantationarea in developing countries: China (32 millionhectares), India (13 million) Indonesia (6million), Brazil (5 million) and Vietnam andNorth Korea (1.5 million each). Most of theseplantations are not oriented to world markets, butrather local ones.Although most developing country plantationsare not export oriented, some countries, notablyBrazil, Chile and New Zealand, have alreadybecome major "players" on the world forestproducts markets on the basis of a highly

TABLE 8.4.3Plantations and natural forests in the developing countries

(Million hectares)

1990 Average annual change, 1980-90Natural Plantation Natural Plantation

Africa 541 4.4 - 4.2 + 0.2Asia/Pacific 441 56.3 - 4.4 + 2.7Latin America 960 7.8 - 7.7 + 0.3Total developing: 1941 68.4 - 16.3 + 3.2 tropical 1761 30.8 - 15.4 + 1.8 non-tropical 180 37.6 - 0.9 + 1.4Source: FAO State of the World's Forests, 1995.Note: "Plantation" area is net (of failed plantations); Latin America includes alsoCaribbean countries.


competitive plantation resource and have majorexports, notably of wood raw material and pulp,but also of sawnwood. Others, such as Indonesiaand Argentina have the potential to join thisgroup.In New Zealand,5 new planting of Radiata pine(i.e. on areas not previously occupied by thatspecies) reached 30,000 hectares in the 1930s,then declined to negligible levels, only to showstrong growth in the 1970s and 1980s, exceeding50,000 hectares per year for a short period.There are now 1.26 million hectares of plantationforest in New Zealand, almost exclusivelyRadiata on a 30-year rotation, producing nearly14 million m3 per year, of which over 1 millionm3 commonly come from trees which have beenpruned (thus providing knot-free logs). This isforecast in the New Zealand official basescenario to rise to 23.6 million m3 by 2020 (ofwhich 3.8 million pruned), and up to 35 millionm3 if 100,000 additional hectares are planted peryear. In New Zealand, the remaining nativeforest is now completely protected and not usedfor wood production.In Chile, too, the commercial resource isessentially based on Radiata pine. There are1.57 million hectares of plantations, of which1.31 million hectares radiata and 0.17 millionhectares Eucalyptus. Yields are around 30 m3

per hectare per year. The main product forexport is chemical pulp (1.48 million m.t.exported in 1993, over half of the forest productsexports by value). In 1995, it is expected thatChilean forest products exports will exceed USD2.1 billion, compared to USD 0.9 billion in 1991.Wood supply is expected to increase sharply,perhaps to double, with more intensive forestmanagement.In Brazil, there are a number of contrastingexperiences. A policy of state support for theestablishment of plantations was widely abusedin the 1970s and 1980s, and the plantationsestablished were often abandoned. One verylarge-scale pioneering plantation/pulp millproject, based on US capital, failed financiallybecause of excessive costs and technicalproblems, and was taken over by Brazilianinterests. However, another very large-scaleproject, involving hundreds of thousands ofhectares of intensively managed plantations withgenetically improved stock, mostly on degradedex-forest land, combined with a world-scale pulp

mill (which later doubled in capacity), has beenvery profitable and is generally accepted as oneof the lowest cost pulp producers worldwide.This latter example has been imitated elsewhereand is the major reason for the expansion inBrazilian pulp exports.In Indonesia, the processing industry has up tonow been largely based on products of thenatural forest, especially plywood, but as theallowable cut under sustainable forestmanagement has been reduced, policy has turnedto the establishment of large-scale, intensivelymanaged industrial wood plantations. In 1995,there were separate announcements of largeplantation projects, one of 300,000 hectares andone of 100,000 hectares, each with a pulp millplanned for when the plantations' viability hadbeen proved, for an estimated total of over 1million m.t. of pulp per year. Species would beEucalyptus, Albizzia and Acacia.Why should intensive plantations be expected toplay a significant part in future world woodsupply? The answer lies in their potential toproduce very high yields (and thus profitability,especially if economies of scale are realised) andtheir relatively short lead times.In the right climatic and site conditions,especially if genetically improved stock is used,intensive large-scale plantations can reach yieldswhich are unthinkable for managers ofconventional forests in Europe: 20-30 m3 perhectare per year is achieved over wide areas inthe first three countries mentioned above andcertain plots, e.g. of Eucalyptus have achieved60-70 m3 per hectare per year, compared to theEuropean average increment around 3 m3 perhectare per year. Furthermore, when geneticimprovements have also addressed wood quality,(notably density, which is important forpulpwood), there are supplementary gains.When these yields are combined with large-scaleeconomically optimised methods for silviculture(notably short rotations), the costs of harvesting,processing and marketing the delivered wood arevery low, compensating for other factors, such asdistance from markets.Intensive large-scale plantations are, however,very capital-intensive ventures with a fairly highdegree of risk (e.g. from insects or fungi), so it isimportant that the time between plantationestablishment (which may well be several yearsafter the first exploration, land acquisition,


planning, etc.) and income be short in forestryterms, although quite long in terms ofconventional non-forestry investmentopportunities.Already now, a few of these plantations,especially when combined with a processingplant such as a world class pulp mill, play amajor economic role on global markets as thelowest-cost producers, whose pricing strategydetermines the conditions of economic viabilityfor competitors.This latter point is important for the long-termoutlook: the supply of wood from the intensivelymanaged plantations does not depend on actualor perceived "shortages" of wood raw material,but on commercial opportunities in presentmarket conditions. The investment in this typeof plantation is made because the investorbelieves he can produce wood at a lower costthan existing producers, provided he can bringtogether all the various elements necessary forsuccess, including location, infrastructure,stability of ownership and policy, correct choiceof species and silviculture, etc. Thus, if the

venture proves viable, it is not so much asupplementary source of supply in a situation ofscarcity as it is a downward pressure on worldwood raw material prices. Experience with theRadiata pine plantations of New Zealand andChile and, more spectacularly, with someEucalyptus and Gmelina plantations in Brazil,has demonstrated the viability of this approach incertain circumstances.The potential for wood supply of theseplantations is large: 25-30 million m3 could beproduced from about 1 million hectares of theright quality land. This area is only two and ahalf times the two above-mentioned Indonesianprojects. Even taking into account the likelydisappointments and failures to achieve statedtargets, and the fact that inevitably most of thesupplementary production will be directed toAsia, not Europe, the physical potential toincrease supply considerably seems available,especially as there appears to be sufficient land(mostly former agricultural land or land degradedby bad management), at least with a ten-yeartime lag.

8.5 Scenarios for European net trade

Chapter 6 presented econometric projectionsfor the consumption and production ofsawnwood, panels and paper based on specificassumptions concerning GDP growth, costs andprices. As, by definition, the difference betweenconsumption and production is net trade,inferences can be drawn from the projections ofchapter 6 concerning the possible developmentsin Europe's trade balance in sawnwood, panelsand paper with the rest of the world. Theprojections do not provide any information aboutdirection of trade, but an indication of how muchof each product would need to be imported fromother regions if production and consumptionwere at the projected levels. In addition, likeother scenarios in ETTS V, they take no account

of cyclical fluctuations which cannot beprojected on a long-term basis.In addition, the consistency analysis model(described in more detail in chapter 11 and aworking paper) generates scenarios for net tradein woodpulp, on the basis of the projections forpaper production and the assumptions regardingwaste paper recovery and consumption.The scenarios in the consistency analysis fortrade in wood raw material, presented in chapter11, are in effect residuals of the modellingprocess and should not be discussed separatelyfrom the model structure in general; in particular,they should be compared with the scenarios forEuropean removals, and so are not presented inthis chapter.


The scenarios show rather stable net imports forsawnwood and pulp, a steady increase in netimports of panels, and, for paper, a change fromnet exports of 2 million m.t. to net imports of 10-18 million m.t., essentially because in the EU(12) the projected increase in production is rathersmaller than that for consumption. The overalltrading structure by country group is notexpected to change significantly. The forecastincrease in European requirements from the restof the world between 1990 and 2020 is asfollows: sawnwood: 2-3 million m3; panels: 6-7 million m3; pulp: none; paper: 12-20 millionm.t. This might be very roughly estimated as 50-

80 million m3 EQ, which would have to besupplied to Europe by other regions, in additionto what is imported at present, if the assumptionsand methods of the base scenarios are accepted.It must be pointed out that the scenarios for nettrade, which in this case is the difference,sometimes quite small, between two largenumbers, are highly sensitive to the projectedgrowth rates for consumption and production.For instance, the change from net exports ofpaper to net imports is essentially due to thescenarios for the EU (12): yet if paperconsumption were to grow in the EU (12)between 1990 and 2020 at 1.8 per cent per year,rather than the 2.2 per cent per year projected, orif paper production grew at 2.4 per cent per yearinstead of 1.9 per cent per year, Europe wouldremain a small net exporter of paper. Thesesmall differences in growth rates are well withinthe margin of uncertainty of the methodology, orcould be triggered by changes in prices and costs.The effect of different assumptions for prices andcosts on the scenarios is discussed in chapter 12.

8.6 Outlook for world demand for forest products

The ability of other regions to export toEurope depends not only on the supply capacityof their forest resource, but also on demand forforest products within the supplying region andin other importing regions. Therefore, beforereviewing the outlook for the supply/demandbalance at the world level, this section reviewsprojections for world demand for forest products.

As was apparent from chapter 6, preparing long-term, comprehensive, scientifically basedprojections of demand for forest products inEurope is complex and data intensive and stillleaves major uncertainties. At the world level,the task is even more difficult, as the data base ismuch poorer, the pace of change is faster, thecountries being studied are not at all

TABLE 8.5.1Scenarios for net trade by country group

(Unit x 106)

2020 1990 Base Low Base High

Sawnwood: (m3)Nordic countries +11.4 +15.7 +16.9EU (12) -27.2 -33.6 -34.5Central Europe +2.9 +3.2 +3.0Eastern Europe +0.7 +0.5 +0.9South-east Europe +0.3 +0.3 +0.3Baltic countries +0.4 -0.4 -0.4Europe -11.5 -14.3 -13.7

Panels: (m3)Nordic countries +0.5 +0.8 +0.8EU (12) -6.0 -12.9 -14.6Central Europe +1.0 +1.9 +2.2Eastern Europe +0.3 +0.5 +0.5South-east Europe 0.0 0.0 0.0Baltic countries +0.3 +0.2 +0.2Europe -3.8 -9.6 -10.9

Pulp: (metric tonnes)Nordic countries +4.4 +5.2 +5.7EU (12) -9.1 -8.0 -8.6Central Europe -0.5 -1.5 -1.6Eastern Europe -0.2 -0.4 -0.4South-east Europe -0.4 -0.6 -0.6Baltic countries -0.1 -0.1 -0.1Europe -6.0 -5.3 -5.7

Paper: (metric tonnes)Nordic countries +14.8 +20.5 +21.7EU (12) -13.6 -32.5 -41.7Central Europe +1.5 +3.4 +4.1Eastern Europe +0.1 0.0 0.0South-east Europe -0.3 -1.5 -1.6Baltic countries 0.0 0.0 0.0Europe +2.5 -10.1 -17.6

TABLE 8.6.1FAO projections for world GDP and consumption of forest

products

Change Annual changeUnit 1991 2010 1991-2010 (per cent)

GDP 1012 USD 15.5 29.1 + 13.7 + 3.4Sawnwood 106 m3 456 743 + 287 + 2.6Panels 106 m3 122 310 + 188 + 5.0Paper 106 m.t. 242 441 + 198 + 3.2Source: FAO, Forestry Statistics Today for Tomorrow, Rome, 1993.

TABLE 8.6.2GDP and consumption of forest products: comparison of

projected growth rates, 1990-2010(Per cent per year)

Europe ETTS V North America

FAO Base Low Base High FAO NATTS IIGDP 1.9 1.6 2.0 2.6 2.7Sawnwood 2.0 0.8 1.0 1.5 0.8Panels 4.1 1.5 1.9 5.8 1.6Paper 2.6 2.2 2.8 2.1 0.9


homogeneous, and there are huge uncertaintiesresulting from domestic and internationalconflict, political and administrative instability,social and cultural change, etc. The FAO is theonly organisation to have prepared official globaleconometric projections of demand for forestproducts.Assuming world GDP growth over the next 20years of 3.4 per cent a year (but 5.8 per cent inAsia and 1.9 per cent in Europe), sawnwoodconsumption is projected to grow by 2.6 per centa year, panels by 5.0 per cent a year and paperand paperboard by 3.2 per cent a year. On arough estimate, this represents growth of 3.2 percent a year in terms of m3 EQ. Panelconsumption is expected to grow much fasterthan GDP, paper at about the same speed andsawnwood more slowly. It is widely expectedthat economic growth will be faster indeveloping than in developed countries over thenext decades. Therefore, forest productconsumption is expected to grow much fasterthan average in South America and Asia, and the

slowest in Europe and the other developedregions.The implications of these projections for theworld forest sector are significant: consideringonly the three major forest product groups(thereby ignoring the major use for wood,fuelwood, which is also expected to growrapidly), according to these projections, demandfor forest products would be about 1.4 billion m3

EQ greater in 2010 than in 1991. This is roughlyequivalent to the world total removals ofindustrial wood in 1991. Doubling world woodharvests in 20 years6 would be a major challenge.However, are these projections realistic?The FAO projections are compared in table 8.6.2to independently prepared projections forindividual regions: Europe (ETTS V) and NorthAmerica (the second North American TimberTrends Study, NATTS II, summarised above).This shows that although the GDP assumptionsof all three studies are very similar, the FAOprojections of consumption are in almost allcases very much higher than those of ETTS V

FIGURE 8.5.1Europe: net trade in wood and forest products

Sawnwood Woodpulp

Panels Paper


and NATTS II. What are the causes of thesemajor discrepancies?The methodology for the FAO projections wasdeveloped around 1986-87, and was severelyconstrained by the availability of analyticalresources and, above all, data.7 The time seriescross sectional approach used, although the onlyfeasible alternative at the time (and perhaps evennow), has several major weaknesses:- consumption was considered price inelastic inalmost all cases;- consumption of all forest products was analysedessentially in relation to GDP8, ignoring thediffering trends for construction;- the time series cross sectional approachimplicitly assumes that as countries get richertheir pattern of forest products consumption willapproximate that of those countries which arealready rich. Yet, as discussed in section 6.3,this approach probably distorts reality;- no account was taken of likely marketsaturation for wood-based panels, for which theprojections predict a continuation of the growthrates of the initial market penetration phase;- "emerging economies", notably in Asia, haveshown astonishingly fast growth in recent years,but is it realistic to expect 6 per cent per yeareconomic growth on average for twenty years inthe most populated part of the world?

- the FAO projections are based on equationsdeveloped in the 1980s which are no longer"state of the art" and may result in higherprojections of growth than more recentfunctional forms.The first of these points may be the mostimportant. Given the rigidities and lags (in theshort to medium term) of the global supplysystem for forest products, a trend towardsconsumption levels similar to those in the FAOprojections would inevitably trigger major priceincreases on global markets. These higher priceswould certainly stimulate new sources of supply(with some time lag), but would alsoundoubtedly encourage substitution and depressgrowth in consumption, or even cause forestproducts to lose major market sectorscompletely. The FAO model system, based onnegligible price elasticities, does not take thisinto account.It appears therefore that the FAO projectionsshould be treated as a starting point for analysis,and perhaps as a maximum level, rather than adefinitive result, and reassessed in the light ofmore recent and comprehensive analysis of theworld supply/demand balance for forestproducts. The FAO has started this type ofanalysis, but it is unfortunately not available forETTS V.

8.7 Availability of forest products for exports to Europe

Section 8.5 has shown that the ETTS Vscenarios foresee European net imports ofsawnwood, panels, pulp and paper in 2020 50-80million m3 EQ higher than in 1990, although italso pointed out that these estimates were verysensitive to the projections for growth rates forconsumption and production. Is it realistic toexpect that the rest of the world will be able tosupply this volume? To answer this question, itis necessary to examine both the physical andbiological potential of supplying reasons, likelydemand for imports from other regions (namelyAsia), and the interaction between the two,mediated by the price mechanism. On the basis of the data and reasoning presentedin this chapter the following remarks may bemade:- world consumption of forest products willcontinue to grow, but probably not as fast asprojected by the FAO econometric model; if

prices of forest products rose, levels ofconsumption would be reduced, compared to theinitial projections;- North American exports will expand slightlyover the next 25 years, especially from the USSouth, but much of this will go to the Pacificcountries, not Europe;- supply from the natural tropical forest willdecline in absolute terms and become even lessimportant for Europe than it is now;- supply from Russia, which has the largestgrowing stock volume in the world, couldrecover its pre-1989 levels and exceed them, butonly if demand is strong enough;- supply from established plantation sources suchas New Zealand and Chile will continue toexpand, notably because of their competitivity onglobal markets;- there is the potential to supply much largervolumes from fast-growing plantations mostly in


the tropics, producing low cost wood in largequantities for global markets, although theseplantations may well not come on stream beforethe first decade of the twenty-first century.It is, however, misleading to examine each ofthese aspects in isolation, or in purely physicalterms, as the interaction is dynamic and largelyoccurs through the price mechanism. Forinstance, if consumption of forest products didrise rapidly in Asia, and traditional exporterswere not able to expand their exportssignificantly in the short term, prices would riseworldwide; such an increase would lower growthrates of consumption (in Europe and elsewhere).stimulate production (including in Europe)especially in those countries most active oninternational markets (i.e. Austria, Finland andSweden), and encourage substitution invulnerable market segments. One alternativescenario (to be presented in chapter 12) presentsscenarios assuming a marked price rise in Europe(an increase of 2 per cent per year in real terms),and constant costs: it results, for 2020, in a dropin net imports of sawnwood and pulp (comparedto 1990), roughly constant net imports of panels,and considerably lower net imports of paper thanin the base scenarios. Thus, with the same levelsof GDP growth, construction and recycling as theBase Low scenario, but higher real prices forforest products, Europe's requirements forimports from the rest of the world would stayroughly constant in total, rather than rising by50-80 million m3.In this context, although it is misleading todeduce long-term trends from short-term marketfluctuations, the events of 1993-94 areinstructive. World forest products markets,which were strong at the time, were jolted byfairly sudden announcements of supply cutbacksin major regions (the Pacific North West,because of the spotted owl controversy andsouth-east Asia because of log export bans),creating concern about the possibility of marketsto contain the disruption. In reality, however,

adjustment was much quicker and smoother thanexpected. Not only did rising prices causesubstitution rather soon (e.g. by steel for timberin the vital market for studs in North America)but supply reacted rapidly with higher productionand exports from Chile, New Zealand, easternEurope, the Nordic countries (which started toexport to Japan) and, above all, Canada (notablyBritish Columbia) which steeply increased itsshare of the US market. Within a year,sawnwood prices were falling.The events of 1993-94 demonstrated the abilityof the increasingly global forest products marketsto react quite rapidly to clear market signals,without disruptive shortages, and should warnanalysts against too rapid acceptance of scenariosfor global wood scarcity.There is at present no model system which wouldallow a quantitative exploration of theseinteractions at the global level, and indicate, forinstance, whether the world forest productssector could supply Europe with 50-80 millionm3 EQ more of forest products than in 1990 atconstant price levels. However, it is possible tooutline, in light of the considerations in thischapter and elsewhere in the study, twodescriptive scenarios for the development oftrade and prices of forest products world wide.The first, a constant price scenario, assumes thatgrowth in consumption of forest products ismuch less than the FAO projections, despitestrong economic growth in south-east Asia andelsewhere (as the emerging economies reachhigh levels of material prosperity withoutcorrespondingly high levels of consumption offorest products). It assumes that North America,primarily concerned with domestic markets,raises its overseas exports modestly, but thatentrepreneurs in Russia and large-scale intensiveplantations in developing countries are able toproduce large volumes of wood at prices whichdo not force up the prices of the derivedproducts. Supplies from natural tropical foresttaper off. European consumption and productionlevels are those of the base scenarios andEuropean imports from other regions expandsignificantly.In the second scenario, there are higher prices onglobal forest products markets due to strongdemand for forest products from emergingeconomies. Exports from North America and thenatural tropical forest develop as in the first

TABLE 8.7.1Europe: alternative scenarios for net trade

2020 Unit (106) 1990 Base Low Base High Minimum Imports

Sawnwood (m3) - 11.5 - 14.3 - 13.7 - 5.5Panels (m3) - 3.8 - 9.6 - 10.9 - 3.3Pulp (m.t.) - 6.0 - 5.3 - 5.7 - 2.2Paper (m.t.) + 2.5 - 10.1 - 17.6 - 3.6Note: For background of the alternative scenarios and detailed explanations, seechapter 12.


scenario. However, although Russia and theintensive plantations significantly expandproduction and market share, the increase is notenough to prevent the prices of roundwood andforest products from rising, worldwide. In thesecircumstances, Europe's consumption is lower

than in the base scenarios, and imports fromother regions do not expand significantly beyondthe 1990 level.These, and other, alternative scenarios areexamined and compared in more depth in chapter12.

Notes

1 This section is based on FAO data, in particular, the Forest Resources Assessment 1990: Global Synthesis (FAO Forestry Paper 124), which is themost authoritative recent source of global forest resource data. AS ETTS V is concerned with wood supply, data are for "forest" and do not include "otherwooded land," whose contribution to world industrial wood supply is marginal. Change data, however, apply to both types.

2 North American Timber Trends Study, David Boulter and David Darr, United Nations, New York, 1996. ECE/TIM/SP/9.3 Although many of the available statistics refer to the former Soviet Union, the great majority of the forest resources are in fact on the territory of the

Russian Federation.4 FAO State of the World's Forests, Rome 1995.5 Turland, J., S. Wakelin and P. Lane (1993) National Exotic Forest Description: 1992 National and Regional Wood Supply Forecasts. New Zealand

Ministry of Forestry.6 In fact 15 years, as there has not been a dramatic rise since 1991.7 For most developing countries, the only series available are GDP, production and trade of major forest products, and even these series are often

incomplete and of doubtful reliability. This necessitates a "lowest common denominator" approach.8 Gross fixed capital formation is included, but for the projections at least, it is dependent on GDP.

61

Chapter 9 WOOD AND ENERGY

9.1 Introduction

It is well known that energy is by far themost important use for wood in developingcountries. It is less well known that energy isstill, in volume terms, the single most importantuse for wood in Europe, as over 45 per cent ofthe volume of wood removed annually is usedfor energy. Such wood may be in the form ofconventional fuelwood, residues of the woodprocessing industries (including the "blackliquors" arising in chemical (sulphate) pulping),and used wood. This chapter presents the currentsituation and trends since the 1970s, the mainfactors likely to determine the outlook and twoscenarios for wood energy use based on anenquiry to national correspondents.The quality of statistical information on woodenergy is worse than that in the more"industrialised" parts of the sector because of the

decentralised, scattered nature of wood energyuse and the fact that wood energy is oftenautoconsumed by forest owners or forestindustries, who do not pay for their wood energyand therefore are not obliged to keep records. Inview of the importance of this topic, over thepast 15 years the secretariat has pressed nationalcorrespondents to prepare and submit estimateswhen hard data were lacking. The analysis inthis chapter, as in the corresponding chapter ofETTS IV, would not have been possible withoutthis contribution.This chapter is based extensively on the work ofMr. G.A. Morin (France) acting as consultant tothe secretariat, who has contributed to ECE/FAOwork on wood and energy since the 1970s. Thesecretariat takes this opportunity to thank Mr.Morin for his valuable contribution.

9.2 The context: general energy trends and outlook

As mentioned in section 2.3.ii, the world energyeconomy in the mid-1990s is marked by slowdemand growth in western economies (as energyconsumption is not linked to GDP growth),ample supply of fossil fuels and low prices for alltypes of energy. The steep fall in energy pricesin 1985-86 has brought them down to pre-1973levels in real terms. There is a discussion bygovernments about taking the politically andeconomically difficult steps necessary to raiseenergy prices and thereby encourage thedevelopment and use of renewable energies. Sofar, however, there is little evidence of thepolitical will to take effective decisions. Thereis, however, concern about the possibleconsequences of the expected strong growth inenergy demand in developing countries, whichare often dependent on fossil fuels, which, inturn, are of a polluting nature.

However, in the mid-1990s, despite the lowenergy prices, interest in renewable energysources, including wood and other types ofbiomass, is still strong at the policy level for anumber of reasons:- the realisation that, in the very long term, aneconomy based on fossil fuels is not sustainable;- concern about possible climate change due to abuild up of CO2 and other greenhouse gases inthe atmosphere, of which the largest contributoris the burning of fossil fuels;- problems of waste disposal (discussed inchapter 7) have also stimulated interest inburning residues and waste of all kinds,including wood and paper, rather than puttingthem in landfills (although the recycling solutionis preferred to the energy generation one);


- the changes in agricultural policy which haveled to the setting aside of millions of hectares offormer agricultural land have created anopportunity to increase significantly domesticsupplies of biomass energy by the establishmentof intensive, fast-growing energy plantations onthis land. Considerable research has been carriedout on the modalities of this, but so far, the extracontribution to national energy supplies has beenmarginal.- the transition economies were to a large extentdependent on subsidised imports of energy,(mostly oil and gas) from the former SovietUnion: the economic problems of thesecountries, severely reducing disposable incomeand foreign currency reserves, have causedsevere energy shortages in many of them: one ofthe solutions found has been wood energy use.Although the statistical basis for this assertion isnot very firm, there is little doubt about the

reality of the phenomenon, especially in thepoorer rural areas.The attitude of many governments seems to bethat they wish to be prepared technically tointroduce higher general energy prices and toimplement programmes for the large-scaleintroduction of renewable energy sources, if thiswere to prove necessary.Chapter 2 proposed a base policy scenario for theenergy sector as follows: "Continued ampleenergy supply will continue to inhibit policychanges in the energy sector. There will be nomajor disruptions to supply and new energy taxeswill not raise prices substantially". It alsostressed the uncertainty in this sector: "anotherChernobyl, or a political upheaval in a producingarea which caused a more than temporarydisruption of supplies could lead to radical policychanges in a rather short time".

9.3 Wood energy supply and use around 1990

An enquiry was carried out, requestingnational corespondents to estimate the pattern ofwood energy supply and use around 1990, as abase point for the scenarios to 2020. The sameformat and definitions were used for earlierenquiries carried out at five-year intervals tomonitor medium-term developments in thisrespect.1 For several countries it was necessaryto make estimates, at least for the fuelwood partof the enquiry, which is essential to construct theoverall wood balance.In 1990, according to the national and secretariatestimates, about 208 million m3 of wood were

used as a source of energy, of which 159 millionm3 were in the form of wood and 49 million m3

the wood equivalent of pulping liquors. Thisamounts to about 47 per cent of the volume ofEuropean removals2, making energy generationby far the largest end-use for wood in volumeterms. This impressive figure is due to the factthat unlike the major raw material uses of wood(sawnwood, panels, etc.), energy generation canarise at every stage of processing, and after finaluse.The main sources of wood energy are as follows:

FIGURE 9.3.1Europe: wood for energy

FIGURE 9.3.2Europe: wood for energy by type of wood energy, 1990

FIGURE 9.3.3Europe: wood for energy by country group, 1990


- fuelwood (defined in ETTS V and otherECE/FAO work as wood from the forest used forenergy). This may come from inventoriedsources (stemwood in forest formations), or fromnon-inventoried sources, such as tops andbranches, trees outside the forest, etc. It may beharvested commercially and marketed, enter"informal" circuits or be consumed by the forestowner himself;- industry residues of all sorts including solidwood chips and offcuts, bark, sawdust, etc.,whether clean or contaminated by paint andlacquer. Very often they are used to supply theenergy needs of the producing plant, but are alsosold or given to other consumers, such as thelabour force of the mill. In this context,"primary" processing is sawmilling and panels,while "secondary" industry is joinery, furniture,wooden elements, etc. The wood and barkresidues of the pulp and paper industry areshown separately.- recovered wood is wood which is used forenergy after it has carried out its initial function,which includes short-lived products, especiallypallets and other packaging, as well asdemolition waste;- the so-called "black liquors," which are thelignin naturally occurring in wood, are dissolvedout with the hemi-cellulose during sulphatepulping, and burnt in recovery boilers to provideprocess heat and to recover chemicals.The main users of wood energy are: households(especially rural), mostly for heating; the forestindustries, for their own energy needs; other

industries; "intermediate users", such as districtheating plants, communal buildings, etc.;manufacturers of pellets and briquettes;manufacturers of charcoal. In addition, there aresome users which are of potential, rather thanactual significance in most countries, such aselectricity generation for the public grid, and themanufacture of synthetic liquid and gaseousfuels.The data above show that the "traditional" typeof wood energy source pattern, characterisedessentially by local fuelwood use and ruralautoconsumption is steadily being replaced by apattern centred on the industrial use of woodenergy: in the Nordic countries, fuelwood (in therestricted sense used in ETTS V) accounts forjust over 20 per cent of wood energy and pulpingliquors for 47 per cent, while in southeastEurope, fuelwood accounts for over 80 per centof total wood energy. The importance of thechemical pulp industry in the Nordic countries isexceptional, but in the EU (12), fuelwoodaccounts for less than half of total wood energy,and processing residues (primary, secondary andpulp and paper, but not liquors) for over aquarter. In the EU (12), the generation of energyfrom recovered wood, previously an "invisible"form of wood energy, accounted for 10 per cent,even though only a few EU countries (Denmark,France and Germany) attempted to estimate it.The partial data available for the pattern ofconsumption (for the ten countries listed in thenote to table 9.3.3) indicate that households arestill, by far, the main consumers of wood energy,accounting for about 65 per cent of wood energyconsumption (excluding liquors). The forestindustries are also major consumers, accountingfor about 27 per cent. Recorded household woodenergy consumption is particularly high inFrance, at least in part because of the highawareness at the policy level in that country ofthe multiple ways in which wood energy may beused in rural areas: it may be that other countrieswith a significant forest resource (and woodoutside the forest) and a large rural population,also use rather large volumes of wood, much ofwhich comes from non-inventoried sources, forenergy in rural households. Finland, however,which is also a large, rural country with a majorforest resource and a good statistical base, has avery different pattern of wood energyconsumption: households only account for 39 per

TABLE 9.3.1Europe: energy from wood, 1990

Million m3 Per centFuelwood 92 44Primary processing residues 24 12Secondary processing residues 17 8Pulp and paper residues (wood & bark) 13 6Recovered wood products 13 6Total wood (excl. liquors) 159 76Pulping liquors (wood equivalent) 49 24Total wood for energy 208 100

TABLE 9.3.2Wood energy by country group

Million m3 Per cent of Europe Per cent of removalsEurope 208 100 47

Nordic countries 59 28 52EU (12) 87 42 55Central Europe 16 8 66Eastern Europe 21 10 34South East Europe 23 11 56Baltic countries 3 1 23


cent of wood energy consumption, and the forestindustries for nearly 60 per cent.The third significant consumer of wood energy iswhat is known as the "intermediate" consumers,including especially district heating plants andcommunal buildings: In 1990, this sectoraccounted for 8 per cent of wood energyconsumption in the ten responding countries,although this proportion was 21 per cent inSweden and 34 per cent in Denmark. To run thistype of unit on wood energy implies that severalconditions are met:- either there is an efficient market in wood forenergy or the consumer has direct access to quitelarge wood resources (for instance a communallyowned forest);- the ready availability of the technicalknowledge to install and run large wood burningboilers;- either a tradition of this type of heatinginstallation (which is radically different fromtraditional wood energy use due to thetechnology used and the scale of operations), or aculture which encourages, or at least permitsindividuals to test new solutions to providingenergy at a reasonable cost to clients: in manycountries, it requires much vision and initiativeto favour an "unorthodox" solution like wood-fired district heating when conventional solutionsbased on oil or gas are easily available.

In general, the developments recorded since 1980are in accordance with ETTS IV forecasts ofsteady but unspectacular growth, despite lowenergy prices.

9.4 The outlook for wood energy

The above brief overview has demonstrated boththat wood energy is so important that it cannot beignored and that the situation is complex andlittle understood. How, then, might oneconstruct a quantified outlook for the long-termfuture? As was the case with ETTS IV, the onlyrealistic solution was to carry out an enquiry withnational correspondents, using the sum of theirinformed judgements to build a picture of theoutlook for wood energy. Their detailedestimates will be presented in the secretariatworking paper on scenarios and are summarisedand commented on below.In building an outlook, it is first necessary to listthose factors which will determine the level ofwood energy consumption in the future:- the price and availability of other types ofenergy will, of course determine whether wood

energy becomes more or less attractiveeconomically;- the presence or absence of governmentalsupport for wood energy (or measures to makecompeting fuels less attractive);- the price of pulpwood, and, generally speaking

TABLE 9.3.3Consumption of wood energy by user

Million m3 Per centHouseholds 63 65"Intermediate" users 8 8Forest industries 27 27Total 98 100Note: Ten countries provided data for this part of the enquiry (Austria, Denmark,Finland, France, Germany, Norway, Poland, Sweden, Switzerland, formerYugoslavia). The 98 million m3 of wood energy (excl. liquors) consumed by thesecountries is about half the European total. This table excludes pulping liquors.

FIGURE 9.3.4Europe: wood for energy by user, 1990

FIGURE 9.4.1Europe: growth in wood energy, 1990-2020


the strength of demand from other sectors, whichmight compete with the energy sector for small-sized wood;- policy on the setting aside of agricultural land,and in particular, whether the large-scaleproduction of energy wood is given a majorplace in this policy field;- regulations concerning boiler emissions, e.g. ofvolatile hydrocarbons (VOC) responsible for the"blue haze" sometimes due to wood burning: ifvery low levels of emissions are mademandatory, then many existing wood burninginstallations would have to be closed or replacedwith more modern, larger scale technology;- if the pattern and magnitude of wood energysupply were to remain similar to that of the1990s, no completely new technologies oradvanced research would be necessary: however,if there is to be a significant increase in themanufacture of synthetic fuels or in theestablishment of energy plantations, then theexisting research programmes would need to beexpanded and accelerated.Differing opinions are possible on all of theabove, but the data and methodology available atpresent to ETTS V do not allow the "what if?"scenarios which would be necessary to answerspecific policy questions. The scenarios beloware the aggregated view of correspondents, whohave each made assumptions (implicit or explicit,usually the former) on each of the abovequestions. It should also be borne in mind thatestimation was necessary for some countries,although all the larger forest countries suppliedsome data, and that coverage is much better for

fuelwood than for the other types of woodenergy.

Correspondents expect wood energy supplyand use3 to grow at around 1 per cent a year from1990 to 2020, which is about the same speed assawnwood consumption, but slower than that ofpanels or paper. This represents a volumeincrease over the 30 year period of 60-120million m3, or 50-105 million m3 if only woodand bark are considered. A large part of this willcome from reducing waste at all stages of bothprocessing and the use of products with asignificant wood element: the increase in"fuelwood" consumption (which represents thedirect demand on the forest resource) is expectedto be 18-46 million m3.Above-average growth rates are expected forenergy generation from recovered woodproducts, probably because awareness of theimportance of this source is quite recent andthere is significant potential for expansion. Theuse of energy from pulping liquors was expectedby the correspondents (who did not have accessto the ETTS V forecasts for pulp production) togrow rather slower than other types of woodenergy.By country group, the fastest growth in woodenergy consumption is expected by thecorrespondents from the EU (12), particularly inthe field of processing residues and recoveredwood products. This region is very sensitive toenvironmental issues and opportunities and hasmajor industries and markets which give it thepotential to put large volumes of wood to gooduse as a source of energy. Eastern Europe, onthe other hand, expects practically no growth in

TABLE 9.4.1Europe: scenarios for supply of wood energy by type

Volume 1990 2020 Change 1990-2020

Low High Low High (million m3) (per cent per year)

Fuelwood 92 110 138 0.6 1.4Primary processing residues 24 31 39 0.9 1.6Secondary processing residues 17 23 27 1.1 1.5Pulp and paper residues 13 15 18 0.6 1.2Recovered wood products 13 29 43 2.6 4.0Total wood (excl. liquors) 159 209 265 0.9 1.7Pulping liquors (wood equivalent) 49 56 60 0.4 0.7Total wood for energy 208 265 325 0.8 1.5Note: Low and High refer respectively to Base Low and Base High.

FIGURE 9.4.2Europe: scenarios for wood energy supply


wood energy supply and use, which appearssurprising given the energy shortages in anumber of these counties (due to the reduction inenergy imports from the former Soviet Union),and the size of the forest resource and forestindustry. One reason may be a concern lestenergy wood demand threaten the raw materialsupply of the pulp and panels industries.In 1990, wood's contribution to the total energysupply was estimated at around 3.3 per cent forEurope as a whole: less in heavily populated rich

countries like Germany, and considerably morein those few countries with major forestindustries, including Austria (13 per cent),Sweden (17 per cent) and Finland (19 per cent).Under the low scenario, this share is expected todecline slightly by 2000, while under the highscenario to increase marginally. No officialscenarios by country are available for totalenergy consumption beyond 2020 and theestimates are only partial for that year.

9.5 Discussion of the scenarios

It appears from the scenarios that correspondentsshare the view expressed in chapter 2 that therewill be no upheavals in the energy sector, nomajor energy price rises over the long term, andno heavy government support of renewableenergy sources including wood, because of theeconomic and social costs of raising energyprices.In short, they expect consumption of woodenergy to develop in a similar fashion toconsumption of other types of forest products,that is, in a steady, organic way. These demandscenarios appear perfectly reasonable in light ofthe conditions on energy markets in the mid1990s and the policy assumptions in chapter 2.Furthermore, they appear plausible from thesupply point of view:- the scenarios for consumption of residues forenergy expand at roughly the same speed asthose for the production of products;- the fastest expansion is forecast for a sector(recovered wood products), which has been littleexploited up to now (except in the context ofdisposal of mixed waste), and where there isconsiderable, and so far unused, potential forwood energy supply;- the increase in supply of fuelwood is possibleon a sustainable basis within the overallroundwood supply scenarios described in chapter4, as demonstrated by the consistency analysis tobe presented in chapter 12.

However, in the energy sector, there is thepossibility, as pointed out in chapter 2, of aradically different scenario, marked by higherenergy prices and strong government stimulus torenewable energies, including wood, leading toconsiderably higher consumption of energywood. What might be the consequences of such

an alternative scenario for the use of wood asenergy?It is clear that in a high energy price scenario,practically no wastage of wood would betolerated: larger amounts of residues, primaryand secondary, would be used for energy, andthere would be a very fast expansion in burningof recovered wood products. Wood burningdistrict heating units and other intermediate scaleinstallations would be widely installed.This expansion in energy use of wood would, ofcourse, affect other parts of the sector, inparticular through the competition for woodbetween energy and raw material uses, at thepulpwood/fuelwood quality "borderline". Ineffect, the energy value of wood would put afloor under its price as raw material, probablyraising costs of wood-processing and wood-usingindustries. This development would be in acontext of lower growth of the economy as awhole, due to the higher energy price, and higherprices for more energy intensive materials, whichinclude many competitors for forest products.However, the scope for the type of incrementalchanges described above is also limited, and thecontribution of wood to the general energybalance would certainly remain well below 5 percent at the European level, unless even moreradical changes were introduced. If, for whateverreason (for instance oil supply problems,abandonment of nuclear power, concern aboutglobal climate change), wood were called uponto increase its contribution to European energysupply to 10 per cent or more, there wouldnecessarily be enormous changes in the structureof the sector.In the first place, many millions of hectares ofenergy plantations would be necessary, managed


for maximum biomass yield in the short term,possibly with less priority given to othermanagement objectives, including conservationof biodiversity. In addition, wood would have tobecome an energy source for users other thanrural households and the forest industries, whichitself would have major consequences:- the setting up of large-scale marketing circuitsfor wood energy;- the large-scale conversion of wood into moreuser-friendly and transportable forms of energy,including pellets and briquettes, electricity,methanol and/or ethanol;- the creation of a major wood energy sector,changing the balance of the forest and forestproducts sector as a whole. This would involve

new installations, new companies (or theexpansion of existing ones, especially pulpcompanies) and heavy investment in silviculture,research, plant, transport infrastructure, etc.- the strong market for energy wood wouldcertainly transform the economics of silviculture,encouraging thinnings and short rotations, andbringing back intensive forest management toareas which had been managed extensively, if atall, in the past.The possibilities for conflict, in such a scenario,between the new wood energy sector and otherinterests, including landscape and biodiversityconservation organisations and the traditionalforest industries, are obvious.

Notes

1 Earlier surveys were carried out around 1980 (Supplement 15 to volume XXXIV of the Timber Bulletin for Europe), 1985 (ETTS IV, chapters 18and 19) and 1990 (Survey of medium-term trends for wood raw material, notably pulpwood and wood for energy, Timber Bulletin, volume XLII, No. 2).

2 This percentage is an over-estimate, as unrecorded fuelwood removals are included in the wood energy figure, but not in the figure for removals.Nevertheless, the order of magnitude is not greatly different.

3 International trade in wood energy is assumed to be negligible, now and in the future, notably because of its very unfavourable volume-to-value ratio,compared to other fuels.

67

Chapter 10 THE OUTLOOK FOR THE TRANSITION ECONOMIES

10.1 Introduction

Probably the single most important changein Europe since ETTS IV, from a social, politicaland economic point of view, was the collapse ofthe socio-economic and political systems of theformer centrally planned economies and the startof the transition to a market economy in centraland eastern Europe. Naturally, the forest andforest products sector has not been exempt fromprofound structural change, notably in markets,policies, institutions and legal framework. Thesechanges, inside and outside the sector of interestto ETTS V, are not yet complete and have takenvery different forms in countries where theconformism of the earlier system alwaysconcealed greater divergences than wereapparent to western observers.This chapter briefly presents the maincharacteristics of the forest and forest products

sector in the transition economies, and of thetransition process itself, before presenting themain issues and areas of uncertainty, andquantified (if highly uncertain), scenarios for theoutlook to 2020.The chapter is based on an enquiry carried outwith the national ETTS V correspondents, whoseresults were analysed by Mr. J. Eronen ofFinland acting as consultant to the secretariat.The results of the enquiry are published in anETTS V working paper by Mr. Eronen(ECE/TIM/DP/8). The secretariat takes thisopportunity to express its appreciation of themajor contribution by Mr. Eronen and by thecorrespondents who were asked to makeestimates on difficult topics with very greatuncertainty, and performed this necessaryfunction with great judgement and responsibility.

10.2 The forest and forest products sector in the transition economies

The exploitable forests of the 15 Europeantransition economies cover nearly 38 millionhectares, stretching from the Baltic over theplains and mountains of central Europe and theBalkan peninsula, to the Adriatic and Black seas.In ETTS V, they are divided into three countrygroups: eastern Europe, transition economies ofsouth-east Europe (i.e. excluding Turkey,Cyprus, Israel and Malta) and the Baltic States(which were not included in ETTS IV as at thetime they formed part of the USSR). They are

very diverse, ecologically, socially andeconomically, as appears clearly from table10.2.1.Together, the transition economies account forjust over a quarter (26 per cent) of Europe'sexploitable forest area. Some transitioneconomies, notably Croatia, Estonia, Latvia,Slovakia, and Slovenia may be counted as forestrich, as they have forest cover over 40 per cent,

TABLE 10.2.1Exploitable forest, consumption and net trade in Europe, 1990

Eastern South-EasternEurope Europe (CITs) Baltic States Europe

Exploitable forest:Area (106 ha) 23.3 8.6 5.8 140.2Growing stock (m3/ha) 183 167 153 141Removals (106 m3) 63.6 20.6 10.8 391.8

Consumption:Sawnwood (106 m3) 12.5 3.4 1.8 101.5Panels (106 m3) 4.4 1.0 0.6 41.8Paper (106 m.t.) 3.4 0.9 0.3 64.7

Net trade:a

Total (106 m3 EQ) +2.1 +0.1 +1.4 -55.0a “+” net exports, “-” net imports.

FIGURE 10.2.1Countries in transition as a percentage of European total


well above the European average, and one,Hungary, is well below average (18 per cent).Poland, Romania, Slovakia and Slovenia, andabove all the Czech Republic, have high levels ofgrowing stock per hectare due to the conservativecentral European management style which hasbeen applied in these areas for a very longperiod. Albania, on the other hand has a forestthreatened by fuelwood gathering and over-grazing, and which has very low growing stockper hectare.Although the transition economies account for aquarter of Europe's forest area, they account for17 per cent of its sawnwood consumption, 14 percent of panels consumption and only 7 per centof paper consumption. This discrepancy is dueto the much lower average standard of living inthese countries, whose economies have beenshaped by many decades of supply constraintsand small disposable incomes. Furthermore, thedata in table 10.2.1 apply to 1990, but insubsequent years, the economies of the transitioneconomies have registered dramatic reductions,of 40 per cent or more, severely depressing theconsumption of forest products.Many transition economies are roughly selfsufficient in forest products or used to importforest products or roundwood, mainly from theformer Soviet Union, but a few are present orpotential exporters to European markets. Since1990, Romania and the successor states of theformer Yugoslavia have more or less withdrawn

from the export markets, but others, namelyEstonia and Latvia, have strongly expanded theirexports. Poland, the Czech Republic andSlovakia remain exporters. As a group, thetransition economies are net exporters, of about3.6 million m3 EQ, compared to total Europeannet imports of 55 million m3 EQ.In fact, almost the only common feature of thisgroup of countries is the fact that they were allunder a centrally planned system and are nowmoving towards a more market-oriented system.For the forest and forest products sector, thecentrally planned system usually involvedcomplete public ownership and management offorest land (Poland is a major exception),centralised decision taking on forest policy,under-capitalised and inefficient forest industries,low levels of consumption (even in forest-richcountries, due to the system induced rigiditiesand shortages), and "managed trade" through theCouncil for Mutual Economic Assistance(CMEA) system of international specialisation.The level of forest management in the formercentrally planned economies was generally goodfrom a technical point of view, and characterisedby practices which were modern in the biologicaland environmental fields, but otherwiseconservative, economically inefficient andinflexible. Most of the countries had an explicitpolicy of high quality wood production, eventhough the costs incurred by the silviculturalpractices chosen were sometimes excessive.

10.3 Transition issues

(i) GeneralIt is not for ETTS V to analyse the wider socialand economic issues arising from the transitionprocess which are the subject of numerouspublications.1 However, it is necessary to listbriefly the major developments outside the forestand forest products sector which have influenceddevelopments inside the sector. It isunfortunately also necessary to point out that thesituation is in constant rapid change, and that thestatistical basis is still weak.Probably the most important factor is the sheersize of the fall in output in the transitioneconomies. After a decade of virtual stagnation(the 1980s), output in the transition economies ofeastern Europe fell on average by more than 20per cent between 1989 and 1993. Recovery

began in Poland in 1992, and was followed byother countries, although the first increase inoutput for the group as a whole, of about 4 percent, was in 1994. If the 1994 growth rate ismaintained, it would take until the end of thecentury to recover the activity level of 1989.The process of transforming the economies andsocieties of the transition economies has provedto be extremely complex and frustrating. On theeconomic side, in order to reduce distortions andwaste and achieve the flexibility and dynamismwhich go with a market economy, a number ofmajor changes are under way: restitution andcompensation for nationalisation of property andland in the 1940s and subsequently; re-establishment of individual rights as economicagents; removal (or substantial reduction) of state


ownership and control of enterprises; removal ofdistortions due to administered prices; opening ofeconomies to foreign competition andinvestment; convertibility of currencies; buildingup the institutions of a market economy, such asbanking and insurance systems, commercial law,etc. There are very large differences betweencountries in the speed and manner in which thesereforms are undertaken. The transition processhas also led to higher unemployment andinflation, both of which have economic andsocial unsettling effects.An aggravating factor has been the collapse ofthe international trading system regulated by theCMEA, which depended to a large extent onbarter trade, distorted transfer prices and statedirection of trade. In the forest sector andelsewhere, this system led to widespreadeconomic distortion, even to whole industries inareas where they had no proper economicjustification. Naturally, the dismantlement of theCMEA system was almost always fatal to theseindustries.

(ii) The forest and forest products sectorAll the above affect the forest and forest productssector in the transition economies. Those issueswhich are of especial interest to the sector arebriefly listed below.The general drop in output, combined withsevere unemployment in many countries, has ledto very weak domestic markets for all forestproducts, as well as to reduced import demandfrom other transition economies. In particular,effective demand for housing has been weak,despite the strong latent demand due to thegenerally poor state of the housing stock.Local firms have also been exposed tocompetition from western firms and firms inother transition economies. This low demand

and increased competition have forced manyforest industries and enterprises to close, as theywere unable to compete because of the generallyobsolete and inefficient industrial base. A fewhowever have been able to thrive in the newlycompetitive situation, building on competitivestrengths of location, quality of resource and lowlabour costs. Poland, Estonia and Latvia have alldeveloped their exports of forest products duringthe transition process.In general, lack of capital to replace or upgradeobsolete and frequently polluting equipment is amajor problem in the sector, especially in themore capital intensive branches. Few westerncompanies have been prepared to commitsignificant capital sums to the east Europeanforest products industry.2As regards the forest resource, a major issue isownership: how much forest land should beprivatised or restored to former owners and onwhat terms? Again the approach varies widely:the Czech Republic, Estonia, Hungary, Latviaand Poland have already, or are now in theprocess of restoring or privatising forest land,while in Albania, Lithuania and Romania, mostforest land is likely to remain in public hands.Another question arises in those countries withlarge numbers of new private forest owners: howshould the new owners be helped and regulatedto ensure sustainable forest management?To these questions should be added the problemof forest sector institutions which must beremodelled for the new circumstances and thelegal framework which must also be revised (orhas been already revised in several countries), aswell as the lack of some skills necessary in amarket economy, such as marketing, publicrelations, accounting, collection of statistics fromprivate enterprises, etc.

10.4 The outlook for the forest and forest products sector in the transition economies

(i) MethodologyIt is exceptionally difficult to prepare quantifiedscenarios for the transition economies, for twomajor reasons: the high degree of uncertaintyabout key parameters, most notably the generalspeed of economic recovery; and theimpossibility of basing scenarios for the future,especially regarding forest productsconsumption, production and trade, on observed

past trends and relationships. This is because theunderlying factors and relationships have allbeen changed by the transition process itself, sothat the assumption underlying most forecastingin this field (that the relationship observed in thepast will be maintained in the future) is no longervalid. Furthermore, the differences betweentransition economies are so great as to make it


imprudent to make simplifying generalisationsabout the group of countries as a whole.The solution chosen, which is unsatisfactoryfrom the point of view of forecasting theory, butprobably the only one available in presentcircumstances, was to ask nationalcorrespondents to prepare outline scenarios fortheir countries. These were then checked,discussed with the national correspondents, andput into the "consistency analysis" data base.The scenarios presented below, therefore, rest onthe expertise and experience of the nationalETTS V correspondents. Furthermore, becausethe scenarios are based on expert judgement andnot on a quantified chain of reasoning, it is notpossible to ask "What if?" questions.Nevertheless, the secretariat is convinced that thescenarios proposed in this chapter are bothinternally consistent and reasonable.Furthermore, as they are both transparent andquantified, it is quite possible to replace themwith other scenarios, if opinions differ or eventsin the 1990s develop along different lines thanthose proposed. Indeed, it is desirable to monitorthe developments for the transition economies incomparison with the scenarios, to modify theoutlook if necessary.Finally, it should be pointed out that for somecountries, scenarios are based on work done byother agencies, notably the World Bank(Albania) and that for some of the successorstates of the former Yugoslavia, no forecastswere received and the secretariat made prudent

assumptions in order to achieve full geographicalcoverage.The correspondents were invited to prepare twoscenarios, one for slow recovery and one forfaster recovery. However, almost all preferred topropose only one scenario, essentially for slowrecovery, and did not consider it realistic toprepare a "high" scenario. In this chapter,therefore, only one scenario is presented(although for those countries which did providetwo, the higher one is included in the Base Highscenario for Europe as a whole).

(ii) Scenarios for the forest and forest products sector inthe transition economies

According to the national ETTS Vcorrespondents, the transition economies willrecover from the economic depression of the firsthalf of the 1990s, but rather slowly, so that thepre-transition levels of economic activity will notbe recovered before about 2000. This cautiousattitude underlies all the scenarios, and nocorrespondent proposed a scenario for the rapidrecovery of pre-1989 levels and strong growththereafter.As a consequence, consumption and productionof all forest products is expected to grow over theperiod 1990-2020, but rather slowly, typically atrates just over 1 per cent per year, similar tothose for western Europe. The waste paperrecovery rate is expected to rise from 31 per centto 36 per cent.It may be deduced from the consumptionforecasts that the major end-use sector forsawnwood and panels (dwelling construction), isnot expected to expand significantly, in view ofthe fact that public house-building programmeshave been severely curtailed or cancelled and, inmost cases, insufficient capital is available toindividuals to finance their own constructionactivities.The net trade position of the countries as a groupis not expected to change significantly, althoughthey might move slightly in the direction of netimports. There is one major exception, Poland,the largest economy of the transition economies:Poland's removals are rather close to the level (asmeasured in the 1990s) of annual increment andso are not expected to rise. However, the level ofremovals forecast is considerably below thatrequired to satisfy the country's forecast demandfor roundwood (as estimated on the basis of a 1.5

TABLE 10.4.1Transition economies: scenario to 2020

(Unit x 106)

Change 1990-2020 1990 2020 Volume Per cent p.a.

Consumption:Sawnwood (m3) 17.6 24.3 6.7 1.1Panels (m3) 6.0 8.3 2.3 1.1Paper (m.t.) 4.6 7.6 3.0 1.7Fuelwood (m3) 20.5 23.2 2.7 0.4

Production:Sawnwood (m3) 19.6 25.5 5.9 0.9Panels (m3) 6.7 9.0 2.3 0.9Pulp (m.t.) 3.5 4.5 1.0 0.8Paper (m.t.) 4.8 7.0 2.2 1.3

Net trade:Sawnwood (m3) +1.9 +1.1Panels (m3) +0.8 +0.7Pulp (m.t.) -0.6 -0.7Paper (m.t.) +0.2 -0.6Roundwood (m3) +1.3 -5.0

Waste paper:Recovery rate (per cent) 31.0 36.2Removals (m3) 95.0 110.6 15.6 0.5 as percentage of fellings 63 75


to 2.5 per cent per year rise in production andconsumption). Polish imports of roundwood aretherefore expected to rise very significantly, froma slight surplus to imports of 6 million m3, one ofthe highest in Europe.Removals of the group as a whole are expectedto rise by about 15 million m3 between 1990 and2020. Fellings (i.e. removals, plus bark andharvesting losses) in 2020, at 124 million m3,would still be more than 40 million m3 less thanannual increment. However, the picture differsconsiderably between countries and regions. Inmost countries of eastern Europe, fellings areexpected to rise slightly and approach but notexceed the level of increment. A majorexception is Romania, where removals in thepast are said to have been regularly over theallowable cut: they are therefore not forecast toincrease. The 15 million m3 of "available"increment in Romania (i.e. the differencebetween felling and increment) is therefore notreally available for harvest, because of a policydecision based on previous experience ofunauthorised excessive fellings, or alternativelybecause of the age structure of the forest.In the Czech Republic, Poland and Slovakia, netannual increment is expected to fall slightly,partly because of pollution damage, and partly,for Poland, because of age class structure. As allthese countries expect removals to risesomewhat, the fellings/increment ratio wouldalso rise, without, however, endangering thesustainability of wood supply. In Bulgaria,where there is a policy to develop the forestresource, chiefly by improving the productivityof degraded forests, both fellings and incrementare forecast to grow, by 58 and 18 per centrespectively, thus using a greater part of theexpanded wood production potential (60 per centin 2020, compared to 45 per cent in 1990).In the Baltic countries, removals are expected togrow by more than 80 per cent over the 30-year

period, driven in particular by export demand forsawnwood. Fellings, which were about 50 percent of increment in the early 1990s, areexpected to exceed the estimated increment by2020 in Estonia and Latvia. However, theauthorities of the countries concerned feel thattheir increment has been under-estimated andthat the forecast removals levels do not representunsustainable use of the forest resource.For the transition economies of south-eastEurope, many of the "forecasts" areunfortunately only secretariat estimates, based onfragmentary information, and are therefore opento correction. However, it is not denied that onecountry in the group, Albania, has a seriousproblem of unsustainable use of the forestresource, which is subjected to uncontrolledcutting for fuelwood and industrial wood, and toover-grazing. Albanian removals are about twicethe level which the forests could provide on asustainable basis. A plan has been developed bythe World Bank with the Albanian authorities tobring this situation under control, but it is tooearly as yet to judge its success. On the otherhand, both Croatia and Slovenia expect a strongrise in fellings, by 100 and 25 per centrespectively over the next 30 years, but bothwould stay well below the level of increment.

10.5 Conclusions

The national correspondents' collective viewof the outlook for the transition countries is oneof slow, unspectacular progress and of generallysustainable forest sector management. Thisvision contrasts with many perceptions fromoutside the area, which see a future of expandingexports to western markets, based on low labour

costs and unsustainable forest management. Thissimplistic view does not take into account themore complex realities of the transition process:the strong commitment to prudent forest policiesin the countries of the region and thepredominant influence of domestic, notinternational factors.

FIGURE 10.4.1Fellings as a percentage of net increment

(ETTS V base scenario)


Nevertheless, the uncertainty surrounding theforecasts and the subjective nature of themethodology mean that this part of ETTS V mustbe considered rather tentative, and subject torevision. It is recommended that developmentsover the next few years be systematically

monitored in the light of these forecasts: newforecasts and assessments should be prepared,using improved data and, perhaps, methodology,if the trends measured in reality divergesignificantly from those presented here.

Notes

1 For instance, the annual Economic Survey of Europe, prepared by the secretariat of the UN/ECE.2 One exception is the purchase of Poland's largest pulp mill by an American company.

73

Chapter 11 BASE SCENARIOS FOR THE FOREST AND FORESTPRODUCTS SECTOR TO 2020

11.1 Introduction

Previous chapters addressed the outlook forvarious parts of the sector separately. Thischapter brings together these separate scenariosinto two base scenarios for the sector as a whole,which are internally consistent and cover all themajor aspects of the sector.The major tool used to produce these basescenarios is a material balance model, whichbrings together the scenarios for the differentparts of the sector and checks their internalconsistency by the use of a simple flow chart andinput/output conversion factors. This model

includes country-by-country data, at ten-yearintervals from 1990 to 2020. The country-by-country data are published in an ETTS Vworking paper.After a brief discussion of the methods used, thischapter presents the two base scenarios. Aselection of alternative scenarios, which are ofinterest because they address either areas ofmajor uncertainty or areas where there aresignificant long-term policy choices to be made,is presented in chapter 12.

11.2 Methodology

This section only presents an overview ofthe methodology of the model; the detailedstructure will be presented in the ETTS VWorking paper. Country data for the basescenario have been checked by countrycorrespondents.The base scenarios have been constructed fromthe following elements: removals data based onnational forecasts, presented in chapter 4;consumption and production of forest products,in all countries except the transition economies,are projected using the methods presented inchapter 6. For transition economies, nationalforecasts have been used, as presented in chapter10; and net trade of forest products is, bydefinition, the difference between production andconsumption, as discussed in chapter 8. Nettrade in raw material was estimated inconsultation with national correspondents, in thelight of the initial results of the model: the use ofwood for energy is estimated on the basis ofnational forecasts (chapter 9); and the rates ofrecovery of waste paper and use of woodresidues have been estimated by the secretariat inaccordance with the thinking set out in chapter 7.

The consistency analysis model calculatesdemand for roundwood by country on the basisof scenarios for consumption, trade andproduction of forest products, using input/outputconversion factors supplied to FAO/ECE as partof a regular enquiry. Flows of waste paper andof residues, as well as use of wood for energy arediscussed explicitly. This derived demand forroundwood is compared to national forecasts ofroundwood supply. In the few cases where thegap between the two in the initial run wasunacceptably large, adjustments were made inconsultation with national correspondents, so thatin the base scenarios, the "gap" between derivedand forecast removals is quite small.The only difference in assumptions between thetwo base scenarios (Base Low and Base High) isthat referring to the speed of growth of theoverall economy, as set out in chapter 3.Although the model is expressed in purelyphysical terms, it has a foundation of economictheory. All the parts of the initial scenarioassume constant real prices for roundwood andfor all forest products.

11.3 Base scenarios

74

(i) Underlying assumptionsLike all scenarios, the base scenarios are basedon specific assumptions, which must be kept inmind when evaluating the results. For the twobase scenarios, the most important assumptionsare as follows:

- west European GDP will grow by about1.8 per cent per annum (Base Low) or 2.8 percent per annum (Base High) to 2005, and about1.5 per cent per annum thereafter (bothscenarios);- the transition economies will recover 1990income levels by 2000, and show steady, but notspectacular economic growth thereafter;- residential investment is expected to expandonly slowly, and probably considerably slowerthan the economy as a whole;- costs and prices in real terms in general forroundwood and forest products will remainconstant in the future as they have in the past;

- there will be no fundamental changes for forestpolicy in Europe, which includes a continuationof the trend to increased emphasis on non-woodmanagement objectives;- policies on environmental protection,biodiversity, waste management and sustainabledevelopment will be further strengthened;- there will be no major disruption of energysupply or substantial rise in general energy price;

- there will be a continuing free trade regime;- there will be further cut backs of publicspending, despite the maintenance of social andenvironmental objectives.Underlying the econometric analysis of thesupply and demand of forest products, is theimplicit assumption for all econometricprojections that the functional relationshipsbetween the dependent variables (levels ofconsumption and production of forest products)and the independent variables (economic growth,relative prices), calculated from rigorous analysisof long data series (1964-92), will also remainconstant in the future and will not be disrupted,for instance, by major changes in consumerbehaviour or technological development.Stochastic changes in behaviour or technologyare impossible to encompass in the econometricanalytical framework of ETTS V except bysensitivity analysis, of the type used to generatethe alternative scenarios, which will be presentedin chapter 12.

(ii) Overview of the base scenariosIn this section, the paragraphs in normal typefacepresent the direction and magnitude of trends.Those in italics contain more qualitative

FIGURE 11.3.3Scenarios for European paper consumption

FIGURE 11.3.1Scenarios for European sawnwood consumption

FIGURE 11.3.2Scenarios for European consumption of wood-based panels


comment, describing the circumstances whichmight accompany the scenarios.Consumption of sawnwood and panels isexpected to continue to grow over the wholeperiod 1990-2020, although more slowly than theeconomy as a whole, largely because the mainuser sector, construction, will grow more slowlythan other parts of the economy. Consumptionof paper and paperboard, however, will continueto grow at about the same rate as the economy asa whole.Forest products are exposed to competition intheir various markets, but are able to maintaintheir position through the development of newproducts, by controlling costs and adaptingdistribution and marketing circuits. They mayhave an advantage over other raw materialsbecause they are renewable and recyclable;other products may start to have to bear the truecosts of disposal, non-renewability and energyintensity. The main reason for the fact thatconsumption of forest products grows moreslowly than the economy as a whole is that themain use sectors, notably construction, but alsopaper using sectors, grow more slowly thanservices or "high tech" sectors. The distinctionbetween sawnwood and panels may becomeincreasingly hard to make as new compositeproducts, with mixtures of panels and variousvariations of glulam and fingerjointing,providing economic, engineered materials fromsmall-sized wood, become the norm. The growthrates for paper assume that the long-feared (bythe paper industry) replacement of paper-basedcommunication by other, electronic means doesnot, in fact, take place.European production of sawnwood and panels isexpected to grow at about the same speed asconsumption, but production of paper andpaperboard rather slower than consumption,causing European producers to lose market share.

Pulp production (and consumption) would growslowly as waste paper recovery rises.Europe will remain attractive for establishedindustries, especially where there is a largeand/or uniform forest resource, or in theproximity of major markets, or where there is asophisticated infrastructure of know-how andinstitutions to support a modern industry.However, as costs will be higher than in otherregions with better growing conditions orcheaper labour (the cost of capital, anincreasingly important factor of production in allparts of the sector, will be increasingly uniform,as capital markets become more global),competition will remain strong, leading to loss ofmarket share.Even though no significant energy price shock isexpected, the consumption of wood for energy isexpected to continue to grow steadily as wood'sadvantages as a renewable, decentralised, CO2neutral, energy source (which also solves majorwaste disposal problems for the wood-usingindustries) are more widely recognised and thenecessary investment carried out.This may be considered a reasonable scenario ifthere are no strong measures to raise the price offossil fuels or nuclear power. If there weresignificant rises in general energy prices, thisscenario would certainly be an underestimate.The use of wood residues as an energy source,primarily in the forest industries, will alsocontinue to expand. The main wood energyconsumers will continue to be rural households,the forest industries, and "intermediate" userssuch as communal buildings (schools, barracks,etc.) or district heating plants where theeconomic and social circumstances allow.The European average recovery rate of wastepaper (for re-use as raw material) is expected torise from about 37 per cent in 1990 to over 48per cent in 2020. The volume recovered for re-use in 2020 would be double (Base Low) or triple(Base High) that of 1990. Likewise, an eversmaller share of wood processing residues willbe wasted than at present, with most being usedas raw material for pulp or panels, as an energysource or for other uses (e.g. horticulture). In1990, about 60 per cent of the processingresidues generated were used as raw material(mostly for pulp or particle board): this share isexpected to rise to 72 per cent in 2020.

TABLE 11.3.1Average annual growth rates, 1990-2020

(Per cent per annum)

Base low Base highConsumption:

Sawnwood 0.8 1.0Panels 1.5 1.8Paper and paperboard 2.1 2.6Fuelwood 1.0 1.0

Production:Sawnwood 0.9 1.1Panels 1.3 1.6Pulp 0.7 0.9Paper and paperboard 1.7 2.1


Although the waste paper recovery rate forecastfor 2020 is still well below the theoreticalmaximum (which may be around 60 per cent) itis still high, considering that in many south andeast European countries recovery rates atpresent are below 20 per cent. In 1990, theamount of waste paper recovered in Europe wasabout 66 per cent of European pulp production,but in 2020, it will be over 95 per cent. It ishighly likely that ever-increasing volumes ofresidues from the secondary wood processingindustries, including furniture and joinery, aswell as used wood (such as broken or one-waypallets, packaging, demolition waste) will beused as raw material or as source of energy.Under present forest policies, removals ofroundwood from Europe's forests are expected torise slowly, from about 390 million m3 to about480-490 million m3 in 2020. Most nationalcorrespondents felt that this level of supply waschiefly determined by factors such assilvicultural methods and age-class structuresrather than roundwood prices (i.e. thatroundwood supply in most parts of Europe isprice inelastic). This rate of felling would still,however, be only around 70 per cent of netannual increment, and the growing stock wouldincrease, from an average of 143 m3 per hectarein 1990 to 173 m3 per hectare in 2020, and 197m3 per hectare in 2040. Average growing stockper hectare is expected to reach unheard-of levelsin certain central European countries. Theremovals forecasts do not assume any significantexpansion of the forest area, for instance by thetransfer of agricultural land to forestry.The significance of this "under-use" of theEuropean forest resource varies from region toregion. In some areas, it is something of astatistical fiction as there is no realisticlikelihood of expanding production, for instance,because of small size of holdings or difficulty ofaccess. Elsewhere, it may be the result of anuneven age-class structure of the resource, e.g.with a preponderance of young stands. In a fewcases, notably the major European exporters, itmay be a real reserve of wood supply whichcould be developed if the demand is present.Economically however, one effect is clear: ifthere were a "shortage" of wood, due forinstance to strong demand and/or supplyinterruptions in other parts of the world, thephysical potential exists to expand substantially

Europe's domestic production of roundwood. Ifthe price of standing timber were to risesignificantly over a long period (i.e. discountingtemporary price "spikes"), this potential could berealised relatively fast using existing stocks, andwithout enormous investments and withoutimperilling sustained yield. Chapter 4 estimatedthe realistic maximum level of removals in 2020,without depleting the forest resource, at 530million m3, 140 million m3 more than in 1990and 50 million m3 more than the level forecast bycountries for 2020. The supplementary increase,if there were one, would come essentially fromthe three major exporting countries, Austria,Finland and Sweden.As a result of growth in consumption, combinedwith loss of market share by European producersand a limited increase in Europe's removals,Europe's net imports of forest products(excluding wood in the rough) from other regionsare expected to increase, particularly for paper.In the Base Low scenario, total net imports fromother regions would rise by about 55 million m3

EQ by 2020. In the Base High scenario, thisincrease would be of the order of 80 million m3

EQ.In the authors' view, the rest of the world has thepotential to supply this extra volume, despite theforecast economic growth in Asia and the likelyreduction of wood supply from natural forests,tropical, temperate or boreal. Economic growthin wood-poor regions may well not generate asstrong a demand for forest products as it has inthe relatively wood-rich regions of Europe andabove all, North America. Furthermore, there isconsiderable potential to increase supply atcompetitive prices of products based on thehighly productive areas of fast-growing, export-oriented plantations, especially of pine andeucalyptus (already productive in New Zealand,Chile, Brazil and Argentina and elsewhere, whileIndonesia and other countries are developingtheir potential). The major uncertainty concernsthe level of price at which this volume would beavailable: if higher prices were necessary tostimulate this supply from producing regionsoutside Europe, European prices would bepushed upward. At present, no scientificevidence is available on the globalsupply/demand balance, so the initial assumptionof constant real prices has been accepted for thebase scenarios. However, alternative scenarios,


with different price assumptions are presented inchapter 12.In the base scenarios, net imports of wood in therough are forecast to rise, from 14 million m3 in1990 to 36-42 million m3, an increase of 22-27million m3. However, in the base scenarios, thefigure for net imports of wood in the rough,although endorsed by national correspondents, isessentially a residual figure, being the differencebetween the projected demand for wood rawmaterial (based on the production projections),and the national removals forecasts. As such, itis more an indicator of a potential need forsupplementary raw material than a forecast of atrade flow. According to the internal logic of theconsistency analysis, these requirements could bemet either from raw material imports or fromhigher removals than forecast by nationalcorrespondents. Furthermore, it is entirelyaccounted for by the particular situations of fivecountries: Poland, Sweden, Germany, Finlandand Austria.1

(iii) The policy context of the base scenariosThis section compares chapter 2, whichpresented the expected policy context for ETTSV, with the base scenario in order to ascertainwhether the two are in harmony or not. Asummary of the chapter 2 policy context is inplain type, with a commentary on the relationbetween it and the base scenario in italics.Economic policy would be targeted to reinforcegrowth and reduce unemployment, at least in the1990s and the first years of the twenty-firstcentury.This is fully compatible with the GDP growthrates for the market economies used for theprojections.Continued ample energy supply will continue toinhibit policy changes in the energy sector.There will be no major disruptions to supply andnew energy taxes will not raise pricessubstantially.The forecast rise in consumption of fuelwood andother types of energy wood may be considered anatural extension of present trends. If prices ofnon-renewable energy sources were to risesignificantly, there would be a correspondingincrease in the consumption of energy wood (seealternative scenario in chapter 12).Policy on environmental protection, biodiversityand sustainable development will be further

strengthened, and as a consequence, there wouldbe more areas of forest removed from woodproduction, more environmental guidelines,encouragement of recycling, imposition of realcosts of disposal on waste generators andincreased energy generation from wood residuesand used products.It appears quite feasible, given the level ofremovals well below annual increment, to reachthe levels of removals proposed in the basescenario while at the same time setting asidelarger areas for the conservation of biodiversityand applying more ambitious environmentalguidelines. The increased policy insistence onrecycling and renewable energy is quitecompatible with ETTS V scenarios for thesefields.Considerable areas of agricultural land areexpected to be withdrawn from food production,and that alternative land uses, including forestry,will be actively sought and financially supported.This appears at first sight to be in contradictionwith the expectation of national correspondentsthat the area of exploitable forest will expandonly slightly. However, this contradiction maybe more apparent than real, as withdrawal ofland from agriculture does not necessarily leadto an increase of exploitable closed forest.National reports for the OECD workshop onagriculture forestry and the environment inOctober 1994 indicated that, in many countries,millions of hectares of agricultural land willindeed be taken out of intensive food productionand the incentive systems will be changed, tofavour direct payments at the expense of marketsupport measures. However, not all this land, oreven much of it, will go into forestry regimesoriented toward wood production. Theexpansion of forestry will be small scale, for theenhancement of landscape and biotopes as wellas for recreation, while much of the agriculturalland will continue to be used for foodproduction, but in a less-intensive way (the newincentive systems will not encourage theintensive, high-input/high-yield measures whichare at the root of many present problems), or forother uses, such as recreation. The increase inwood supply which might result from thewithdrawal of millions of hectares of land fromintensive agriculture would therefore be small.


The trade policy scenario foresaw a continuingfree trade regime, increased volume of trade andbinding agreements on trade and environment.This is largely in line with the base scenario,notably the increased net imports to Europe.The implementation of agreements on trade andthe environment could have significantconsequences for the forest sector, through theinstitution of a system of certification of forestproducts.With regard to the transition economies, theincome level of 1989 was expected to berecovered by 2000, and steady growth to occurthereafter.The scenarios for the forest sector are inaccordance with the policy scenario.Policy for the public sector is expected tocontinue to cut back on public spending, whilemaintaining social and environmental objectives.This has no direct link with the ETTS V basescenario itself, except for the implicit assumptionunderlying the removals forecasts, that theeconomics of wood harvesting and silviculture,including the ability of public forest services tofunction at a loss, will not be significantlymodified. However it will have a major influenceon how the questions raised by ETTS V areresolved. For instance, how much public funds

would be available to stimulate moreenvironmentally conscious and possibly non-economic2 forestry practices? How important topublic budgets (national, regional and local) isthe income from wood sales by public forestservices?

(iv) Outlook for the balance between supply and demandin the base scenarios

The first of the major objectives of ETTS V, andthe most challenging, is to explore the outlookfor the balance between supply and demand forroundwood and forest products. Of course,supply and demand will, by definition, be inbalance: however, there is a more dynamicquestion of the nature (direction and strength) ofthe many factors influencing supply and demand,and of their interactions. The most eloquentindicator of the relative strength of the variousforces are trends in price levels, which are also,of course, of immediate practical importance toall policy makers and decision takers. Themethodology chosen for ETTS V specificallyaddresses price in the econometric analysis ofsupply and demand of forest products in westernEurope, but not in the consistency analysis,which only contains quantity data. This sectionattempts to summarise what can be deducedabout the outlook for the supply-demand balanceand for prices from the base scenarios.At this juncture it is useful to get the magnitudeof the different components of the supply offorest products to Europe in proportion.Table 11.3.2 shows clearly that the largest supplyelement is now, and will remain, Europeanremovals, although their relative importance willdecline quite substantially, from two-thirds tojust over one-half of supply. The second mostimportant, and the sector showing the strongestrelative growth, is waste paper, which isexpected to account for over a fifth of Europeansupply of wood and fibre by 2020, as comparedto 13 per cent in 1990. Net imports, whichaccounted for about 10 per cent of fibre supply in

FIGURE 11.3.4European wood and fibre supply

TABLE 11.3.2Relative importance of different components of European wood and fibre supply

2020 1990 Base Low Base High (106 m3 EQ) (per cent) (106 m3 EQ) (per cent) (106 m3 EQ) (per cent)

European removals 392 69 480 56 489 52Waste paper 72 13 178 21 206 22Industrial residues 47 8 74 9 80 9Net imports 55 10 130 15 164 17Total 566 100 862 100 939 100


1990, are expected to rise to 15-17 per cent by2020. The relative share of industrial woodresidues would remain constant at around 10 percent.What are the implications of the base scenarioand the relative weights given above for theoutlook for the balance between supply anddemand at the regional level and for prices? Oneapproach is to examine the supply/demandbalance sector by sector, identifying those factorstending to create "oversupply" and those tendingto create "shortage".Although the market behaviour of Europeanforest owners, in particular, their likely reactionto significantly higher or lower roundwoodprices, is little investigated and poorlyunderstood, it is clear that the largest supplyelement, domestic removals, is characterised by asituation of structural over-supply, due to thecontinued difference between real and potentialsupply (which may be considered very roughlymeasured by removals and net annualincrement). The element which is certain (in all conceivablescenarios) to show the most significant growth isthe recovery of waste paper: as discussed inchapter 7, in many respects the waste papermarkets are supply driven, essentially because ofmunicipalities' need to dispose of all waste in themost economic way possible. Put crudely, thepaper will be recovered and used in ever-largerquantities, whatever the level of prices forpapermaking fibre on regional or global markets.The supply of wood residues is essentiallydetermined by levels of sawnwood productionand by technical constraints on sawmilling andwood use by panel and pulp manufacturers.Thus, at least three quarters of Europe's supply ofwood and forest products (i.e. domesticremovals, waste paper recovery and supply ofresidues) will be affected by tendencies towardsover-supply, or factors mostly driven by supplyside mechanismsHowever at the global level there are undeniableupward pressures on forest product prices, whichcould be transmitted to Europe by net imports.These are essentially: the expected growth indemand for forest products driven by populationpressures and rapid economic growth in somemajor, mostly Asian economies; and the cutbackin supplies of wood from some traditional supplyareas, including the natural forests of Canada and

the US, Siberia and several tropical countries,especially in south-east Asia.These two global market factors have led manyanalysts to assume that the world is now in aphase of structural upward adjustment of forestproducts prices. This belief was reinforced bythe sharp price rises on many markets in 1993-94(which were, however, corrected in manymarkets in 1994-95). However, the long-termoutlook is more complex than is sometimesadmitted. Two aspects in particular mightmitigate or counteract the upward price pressureand the trend to scarcity:- the demand projections may be too high:effective demand may be low in poor countries,even countries with large populations.Furthermore, the rapidly expanding economiesmay experience "wood-free growth" (see section8.6). The possible consequences of scarcityinduced price rises on projected consumptionlevels have also not been sufficiently explored;- the potential of low-cost, fast-growingplantations, e.g. of pine, Gmelina or Eucalyptusto satisfy demand for fibre has beenunderestimated. Experience in a number ofcountries, including Argentina, Brazil, Indonesia,New Zealand and South Africa, has shown thatinvestment in large-scale industrial woodplantations may be technically feasible andeconomically viable (see section 8.4.ii).In circumstances of wood "scarcity" and risingprices, demand for forest products would belower than projected and supply from plantationswould be higher (in the medium term, say five toten years), thus limiting world-wide price rises,especially in relatively self sufficient areas likeEurope.On the demand side, in Europe itself and in otherregions, there is fierce competition for sawnwoodand panels from other construction andpackaging materials, notably on cost grounds,and for paper, on grounds of both cost andconvenience, from electronic means ofcommunication (which include not onlytelephone and e-mail communications, but alsoradio, conventional, satellite and cable television,and electronic newspapers, all of which competewith paper-based media for advertisingexpenditure). Forest products have every chanceto maintain their market share (indeed, this is theconclusion of the econometric analysis) but thiswould be difficult to attain if there were


significant price rises. If prices of forestproducts increase, for instance because of"shortages" on global markets or failure tocontrol costs in other ways, then consumptionlevels will be lower than in the base scenarios.This hypothesis is quantified in the alternativescenarios in chapter 12.In general therefore, there are two major factorsencouraging scarcity: the steadily rising levels ofEuropean consumption, and supply cutbacks andgrowing demand in some other regions; and twotending towards over-supply: the large increaseof waste paper supply and the potential toincrease European removals significantly withoutendangering sustainable wood supply, or indeedsustainable forest management in the broadersense.

Taken together, in the secretariat's judgement,these will ensure that supply and demand, bothfor roundwood and for forest products, remainroughly in balance and that competition willcontinue to be fierce between forest products andwith other materials. There is therefore noreason to reject, on the grounds of the results ofthe consistency analysis, the hypothesis ofconstant real prices for forest products.It is clear from the above argument that there isconsiderable uncertainty about some importantareas, notably the outlook for forest productssupply and demand in other regions. This shouldbe borne in mind during the discussion whichfollows.

Notes

1 In Sweden, Finland and Austria, raw material requirements are higher than forecast removals by 5, 4 and 2 million m3 respectively. In each of thesecountries, if plentiful supplies of cheap wood are not available on world or European markets, removals could be increased by these volumes or more,without threatening sustainability. In Poland, the production levels forecast (without econometric techniques) imply raw material requirements nearly 7million m3 over the forecast removals level, which is already near the maximum allowable level: either raw material must be imported, or production orconsumption must be lower than forecast. Finally, German net exports of wood raw material, which were about 4 million m3 in the exceptional periodaround 1990 (influenced by the windblow), would have to fall to insignificant levels if the projected raw material requirements of German industries areto be met from domestic removals (which are acknowledged to be well below the potential, even, according to some, desirable, level).

2 With the present accounting practice, whereby measures to improve environmental quality are considered costs with no corresponding benefits,improvements in environmental quality are not quantified in monetary terms.

81

Chapter 12 ALTERNATIVE SCENARIOS

12.1 Introduction

The previous chapter presented the basescenarios, which may be considered the mostlikely outlook for the sector, given theassumptions set out in section 11.3.i. However,the base scenarios, like all scenarios, are foundedon a chain of reasoning and defined assumptions,of which some are more uncertain, and somemore important than others (in terms of impacton the sector). ETTS V has therefore produced anumber of alternative scenarios, presenting whatmight occur under assumptions which differfrom those in the base scenarios.The alternative scenarios are of two sorts:quantitative, where the secretariat has feltjustified in presenting figures for the sameparameters as the base scenarios, using the sameeconometric methods and the consistencyanalysis structure; and qualitative, where theanalytical tools available are not sufficient toproduce quantified scenarios.In the qualitative scenarios, the assumptions,interactions and consequences are described innon-quantified terms, although every attempt ismade to indicate what might be the direction andmagnitude of the changes in the key parameters.There is a temptation to generate a large numberof alternative scenarios in order to cover allconceivable eventualities.1 However, this wouldresult in a lack of overall shape and direction ofthe analysis, confusing presentation and a lack ofprioritisation of issues. The criteria for choice ofscenario are: plausibility (only reasonablyplausible scenarios are considered); significance(developments which would only have marginalconsequences for the sector are not explored);and importance for policy making (especialattention is paid to issues on which governmentsare at present considering policy changes).

It is possible and even likely that variouselements of the different scenarios will coexist,but for clarity of understanding and decisionmaking, only one element of the base scenario ischanged at a time: a choice between manycomposite scenarios is not helpful to decisionmakers, as they are never in a position to identifythe possible consequences of any one policydecision. In fact, the alternative scenarios fallquite clearly into two groups:- those addressing problems of uncertainty, sothat decision makers may take the necessaryprotective measures to cover differenteventualities;- those addressing policy choices, so thatdecision makers may take their decisions withsome idea of their likely long-termconsequences.No attempt has been made in the alternativescenarios to adjust the difference betweenderived and forecast demand for roundwood: asthe forecast removals are supplied by nationalcorrespondents, there is no mechanism formodifying them to create alternative scenarios.For that reason, those alternative scenarios whichare based on the consistency analysis concentrateon changes to the derived removals and to theother parts of the scenario deduced ultimatelyfrom the econometric scenarios. The derivedremovals may be seen as demand for Europeanroundwood, given the conditions of the scenariounder discussion. This demand may then becompared with countries' forecasts for removals,as an indication of the measures which may benecessary to meet the demand.For ease of understanding, the quantitativescenarios are usually presented as variationsfrom the Base Low scenario.

12.2 Prices of forest products

(i) Background As mentioned above, prices are exogenousvariables in the econometric analysis. Although


the assumption of constant real prices in the longterm is consistent with the other elements of thebase scenarios, and appears reasonable to thesecretariat, the possibility of upward ordownward changes in price cannot be excluded.2Factors which might drive real prices down in thelong term include competition with othermaterials or forest products from other regions(fast-growing plantations), and technical progressreducing industries' costs.Conversely, developments on world forestproducts markets (rising population, fasteconomic growth and supply shortages, asdiscussed above) could cause European forestproducts prices to rise. Failure to control costs(of processing, of distribution or of harvesting)would also lead to higher prices to end-users.It is unlikely that prices would develop along thesame lines for all products, so in theory theconsequences of differential price rises should beexplored: however, the complexities andarbitrariness of the choice of different rates ofprice change have led the authors of ETTS V notto attempt this, although the model structure is

sufficiently detailed to carry out this analysis.

(ii) Assumptions for the alternative price scenariosThe econometric analysis presented in chapter 6has shown that demand for forest products isindeed price elastic: thus higher prices causelower levels of consumption and vice versa. Themagnitude of the price elasticity naturally variesbetween countries and products. The effects onconsumption growth of a change in prices issummarised in table 12.2.2, which shows thegrowth rate of European3 consumption underfour different hypotheses, which are laid out intable 12.2.1.

(iii) Results and discussionTable 12.2.3 compares the volume ofconsumption according to each of the scenarioswith the levels for Base Low, taken as thereference scenario. Several conclusions may bedrawn from table:- European consumption of forest products isindeed strongly affected by price developments.For instance, consumption of paper andpaperboard in 2020 would be over 20 per cent(23 million m.t.) higher if prices fell 1 per centper year than if they rose 1 per cent per year(with all other assumptions unchanged);

TABLE 12.2.1Assumptions for alternative price scenarios, 1990-2020

GDP growth Price change CostsBase low Lower Constant ConstantBase high Higher Constant ConstantHigh prices Lower + 1 per cent per year ConstantLow prices Lower - 1 per cent per year Constant

TABLE 12.2.2Effects of different price assumptions on scenarios

(Average annual per cent growth, 1990-2020, in consumption ,Europe)

Base low Base high High prices Low pricesSawnwood 0.85 1.03 0.64 1.10Panels 1.52 1.83 1.28 1.91Paper & paperboard 2.14 2.65 1.83 2.48

TABLE 12.2.3Europe: differences between other scenarios and Base Low in the

consumption of forest products(Unit x 106)

High Prices Low Prices Base HighSawnwood (m3) - 7.9 + 10.1 + 7.2Panels (m3) - 4.5 + 8.1 + 6.3Paper (metric tonnes) - 10.5 + 13.0 + 19.9

TABLE 12.2.4Europe: differences from Base Low scenario for domestic

removals and net imports, 2020(Unit x 106)

High Prices Low Prices Base HighEuropean removals (m3) - 4.0 + 15.8 + 18.5Net imports (m3 EQ) - 36.0 + 33.0 + 33.4

FIGURE 12.2.1Europe: consumption of sawnwood and wood-based panels,

2020


- the effect of higher economic growth, asexpressed in the Base High scenario (whichassumes constant prices, but higher GDP growththan in the Base Low scenario), is alsosignificant, especially for the consumption ofpaper.Changes in price would affect not only the sizeof the total market through the price elasticity ofdemand, but also the shares of differentproducers as the profit margin is changed whenprices change, assuming costs do not change (theconsequences of changes in costs are examinedin the next section). In both base scenarios,European producers are expected to lose marketshare, although they raise the absolute levels ofEuropean production. If prices were to rise

however, and costs to remain constant, marginswould improve for European producers and theloss of market share be less marked: in the caseof sawnwood, European producers would gainmarket share. Conversely, if prices fell, the lossin market share (reduction of self-sufficiency)would be more marked than in the basescenarios.These changes in market share of Europeanproducers, according to different scenarios forforest products prices, combined with thedifferences in the size of the markets, would alsoeffect the level of European removals and thevolume of net imports. In both the Low Pricesand the Base High scenario, European removalsare nearly 35 million m3 (7 per cent) higher thanin the Base Low scenario, but if product pricesrise, then removals would be 36 million m3

lower. Net imports too would be 15-20 millionm3 EQ higher in the Low Prices or Base Highscenarios, while net imports would fall slightly ifprices of forest products rose.In summary, higher prices for forest products(with constant costs) would reduce the decline inEurope's self-sufficiency and tend to reduce thelevel of Europe's removals. Lower prices (againwith constant costs) would significantly increaseboth European removals and imports from otherregions.

12.3 Raw material costs

(i) BackgroundThe previous section analysed the sensitivity ofscenarios to different assumptions for prices offorest products. The market share of differentproducers is, however, determined by otherfactors, especially their costs. The ETTS Vmodels developed by Baudin, Brooks andSchwarzbauer make it possible for the first timein the framework of ETTS to analyse the impactof different assumptions about raw material costson the distribution of production betweenEuropean producers and net imports. Behind themodel is the hypothesis that production will tendto be carried out where the profit margin isgreatest. Given that technology in all sectors isincreasingly similar in all modern plants and thatcapital markets are global, one major influenceon profit margins (and the only one for which

sufficient data were available) is the ratiobetween input prices (here the cost of wood rawmaterial or pulp), and output prices (productprices). The analysis of trends for productivity

FIGURE 12.2.2Europe: consumption of paper and paperboard, 2020

FIGURE 12.2.3Europe: average growth of consumption, 1990-2020


and profitability in the forest industries (seesection 6.4) confirms the importance of relativeprices for profitability. Supply of products willtend to grow faster when the margin between rawmaterial costs and product prices widens, andgrow more slowly when it narrows.

(ii) AssumptionsThe assumptions for the scenarios regardingcosts are laid out in table 12.3.1. In the contextof the ETTS V models4, "costs" are the costs ofwood raw material, which is mostly roundwood(although there is some information on woodresidues) for sawnwood and panels, and pulp forpaper. As all of these are intimately linked, it isan acceptable simplification for policy purposesto consider the results of the High Costs scenarioas the consequences of a steady growth ofEuropean roundwood prices, (and vice versa forthe Low Costs scenario).

(iii) Results and discussionAs would be expected the table shows lowergrowth of production with higher raw materialcosts and vice versa. The scenarios for paperproduction are the most sensitive to the cost

assumptions, those for sawnwood less so andthose for panels are not at all sensitive. As forconsumption, the scenarios are also sensitive todifferent assumptions concerning the rate ofGDP growth, as expressed in the Base Highscenario.

TABLE 12.3.1Assumptions for alternative cost scenarios

Price change, Cost change,GDP growth 1990-2020 1990-2020

Base Low Lower Constant ConstantBase High Higher Constant ConstantHigh Costs Lower Constant + 1 per cent per yearLow Costs Lower Constant - 1 per cent per year

TABLE 12.3.2Europe: production growth rates, 1990-2020

(Per cent per year)

Base Low Base High High Costs Low CostsSawnwood 0.86 1.08 0.78 0.99Panels 1.31 1.60 1.30 1.32Paper 1.72 2.07 1.60 1.86


removals and net imports, 2020(Unit 106)

High costs Low costs Base highEuropean removals (m3) - 18.6 + 25.4 + 18.5Net imports (m3 EQ) + 20.9 - 28.9 + 33.4


FIGURE 12.3.1Europe: production and self-sufficiency of sawnwood and panels, 2020

Sawnwood production

Self-sufficiency in sawnwood

Production of panels

Self-sufficiency in panels


FIGURE 12.3.2Europe: selected wood and forest products indicators, 2020

Production of Paper

Self-sufficiency in paper

Removals and net imports

Effect of alternative cost/price scenarios on removals


From the forest policy point of view, it isinteresting to examine the sensitivity of thescenarios for European roundwood removals andfor net imports to differing assumptions on newcosts.Table 12.3.3 confirms that there is a strong linkbetween European raw material costs and thecontinent's self sufficiency in forest products. Ifwood and/or pulp costs in Europe were to rise by1 per cent per year to 2020, with otherparameters (including the total size of markets),unchanged, demand for European removals

would be just under 20 million m3 (4 per cent)lower than in the Base Low scenario, and importsfrom other regions would be correspondinglyhigher. If, on the other hand, European woodcosts fell by 1 per cent per year, demand forEuropean roundwood would be 25 million m3

higher than in the Base Low scenario and netimports 29 million m3 lower. In fact, therewould be a straight substitution between demandfor domestic roundwood and net imports,mediated by changes in the price of Europeanroundwood and residues.

12.4 Construction activity

(i) BackgroundConstruction, especially residential

construction, along with linked activities such asfurniture, is the main-use sector for sawnwoodand panels. In the base scenarios, the growth inresidential investment is projected as a functionof GDP, using elasticities derived from long timeseries (1964-91). However, the 1990s have seena series of depressions in housing markets inmost major European countries. These may beattributed to high real interest rates, reduction ofpublic funding for housing (due, among otherthings, to public budget deficits), and theadequate state of the housing stock in manyregions after several decades of investment(partly fuelled by government stimulus to privatehouse-building, often through encouragement ofmortgage lending). This latter stimulus has alsobeen called into question on the grounds of socialequity (house owners are not usually among thepoorest elements in society) and limitations onpublic budgets. It seems prudent therefore toquantify the possible consequences for the forest

sector if growth in residential investment is lowerthan in the base scenarios.

(ii) AssumptionsAn alternative scenario entitled LowConstruction has therefore been prepared, whichassumes that residential investment will grow byone percentage point a year less than the rateprojected in the Base Low scenario (see table3.3.1 for the Base Low growth rate of residentialinvestment in selected countries). All otherassumptions are the same as the Base Lowscenario.

(iii) Results and discussionTables 12.4.1 and 12.4.2 show clearly theimportance of the construction market for theEuropean forest sector. If construction activitywere to grow slower than projected, so wouldmarkets for sawnwood and panels. BothEuropean removals and imports from otherregions would be about 13 million m3 lower thanin the Base Low scenario.

12.5 Recovery of waste paper

(i) BackgroundThe base scenarios assume quite markedincreases in the recovery rates for waste paper:however,, there is both uncertainty about thetechnical limits for recovery, and a policy choicefor governments as to the level of support theyprovide in order to increase recovery rates.Therefore, two alternative scenarios have beencreated: Higher Waste Paper Recovery andLower Waste Paper Recovery.

(ii) Assumptions regarding recovery ratesIf all governments in Europe were to give highpriority to maximising the recycling of wastepaper and other materials and take the necessarypolicy measures to achieve this end, thosecountries which are at present at low levels couldreach the highest present levels by 2010, and theleading countries of today could probably pushrecovery rates beyond 60 per cent to 65 per cent,even 70 per cent of consumption. In the Higher


Waste Paper Recovery scenario, this would leadto a European average of about 54 per cent by2020 (as opposed to 48 per cent in the basescenarios). This would imply higherconsumption of recovered fibre and lowerconsumption of virgin pulp (for the same levelsof paper production) and thereby lowerproduction and net imports of pulp.Given the supply-driven nature of recoveredfibre supply, which would, by definition, bestrengthened in this scenario, higher levels ofwaste paper recovery would translate intodownward pressure on prices of pulp andpulpwood. The raw material costs of the paperindustries would be lowered (assuming that thetechnology to produce marketable products fromlower quality raw material is developed). Thistrend would also encourage the location of thepapermaking industries nearer the markets(which are by definition the location of recoveredfibre supply) and further from the forests, not tomention industrial restructuring (acquisitions andmergers) as companies which are strong in virginpulp move to acquire a reliable supply source ofrecovered fibre.In the Lower Waste Paper Recovery scenario, therecovery rate is expected to continue to rise, butslower than in the Base Low scenario, asconsumers are perhaps more reluctant to sortpaper from other waste. The economics of waste

collection in remote areas could be unfavourable,and other solutions for waste disposal could bepreferred, such as incineration (which requires aminimum organic content, largely provided bypaper). Countries which now have relatively lowrecovery rates are expected to "catch up" withthe leaders, but environmental and economicpressures are expected to be weaker, leading toslower increases, and the technical and economiclimits to recovery rates may prove to be lower: inthis scenario, the technical limit to the recoveryrate might turn out to be around 55 per cent,rather than 65 per cent in the Higher WastePaper Recovery scenario.

(iii) Results and discussionThere is a direct and significant link betweenwaste paper recycling and demand for Europeanroundwood, as waste paper tends to replacevirgin pulp. At the European level, in the HigherWaste Paper Recovery scenario, demand forEuropean roundwood is 12 million m3 lower thanin the Base Low scenario and net imports 11million m3 EQ lower (all other assumptionsunchanged). In the Lower Waste PaperRecovery scenario, on the other hand, Europeanremovals are nearly 9 million m3 higher than inthe Base Low scenario and net imports nearly 14million m3 EQ higher. The 10 percentage pointsof difference for the recovery rate between theLower Waste Paper Recovery and the HigherWaste Paper Recovery scenarios in 2020translate into a difference of 20 million m3 indemand for European roundwood and 25 millionm3 EQ for imports from other regions.

12.6 Energy prices and policy

(i) Background and assumptionsChapter 2 pointed out that, although the basescenario assumption for energy is for nosignificant change in general energy price orpolicy, the possibility of an energy "shock" dueeither to a policy decision to favour high energyprices (e.g for environmental or climate change

reasons) or to an unexpected supply breakdown(e.g. due to war or accident) cannot be ruled out.What would be the consequences for the sectorof such a development?Thus, the starting point for this scenario is asignificant rise in the price of conventional,

TABLE 12.4.1Europe: average annual growth rates of consumption, 1990-2020

(Per cent per year)

Base Low Base High Low ConstructionSawnwood 0.85 1.03 0.51Panels 1.52 1.83 1.15


removals and net imports, 2020(Unit 106)

Low ConstructionEuropean removals (m3) - 12.6Net imports (m3 EQ) - 13.5

TABLE 12.5.1Europe: scenarios for waste paper, 2020

Base Low Higher Recovery Lower RecoveryRecovery rate (per cent) 48.6 53.6 44.0Volume recovered (106 m.t.) 59.4 65.4 53.7Difference from Base Low:

Removals (106 m3) - -12.3 +8.7Net imports (106 m3 EQ) - - 11.0 +13.6


mostly non-renewable, forms of energy,accompanied by a series of policy measures todevelop and encourage other sources, especiallythose which are renewable, as well as a carbontax to penalise non-renewable energy sources.

(ii) Results and discussionThis scenario is qualitative as no method hasbeen developed in the context of ETTS V toquantify demand for energy wood as a functionof energy price.The first consequence of a rise in the price ofenergy would be a sharp improvement in thecompetitive position of wood as a energy source(assuming that wood itself was not subjected to acarbon tax). If the energy price rose as a matterof deliberate official policy (as opposed to war oraccident), it is also likely that this increase in thecompetitivity of wood energy would beaccompanied by policy measures to stimulate itsuse. This would certainly lead to increasedfuelwood harvests and even greater use of woodresidues (from primary and secondaryprocessing) as energy source, and thereby tocompetition with the pulpwood-using industriesfor material on the technical "margin" betweenenergy and raw material uses. If the price risewas large enough or the political will to stimulaterenewable energy very strong, "energyplantations" might become a serious option,leading to the conversion of large areas of formeragricultural land to intensive wood production.It might even be considered desirable toestablish, first on an experimental and later on anoperational basis, large-scale plants producingliquid or gaseous fuels (methanol, ethanol, etc.)from wood. All of these factors would tend toincrease European harvests.However wood energy does not exist in avacuum, and a significant energy price risewould profoundly modify the economy as awhole:- overall economic growth would be slower, dueto increased energy costs throughout theeconomy, with major consequences for demandfor forest products;

- the cost structure of the sector, and of itscompetitors would be profoundly modified. Forinstance, energy intensive processes, such asmechanical pulping and gluing, would allbecome more expensive (relative to other

operations), while the manufacture of aluminiumand most plastics would also be negativelyaffected. Less energy intensive processes,including sawmilling, the consumption ofrecovered fibre, even perhaps chemical pulp5

would be favoured;- the insulation standards of housing would befurther improved, which can favour wood-basedconstruction methods in those regions wherethese are well developed and marketed;- transport (and therefore imports from distantregions) would become more expensive.Although no quantified scenario is proposed, it isclear that in a high energy price scenario, therelative importance of energy as an end use forwood would increase. It is also possible thattotal consumption of non-energy forest productswould be lower than projected in the Base Lowscenario, and that sawnwood and products ofrecycled paper would be favoured at the expenseof panels and of paper based on virgin pulp, aswould European products at the expense of thoseimported from overseas. For these reasons,European forests might be more intensivelymanaged than at present.This scenario might, however, involve somedifficult trade-offs in the field of environmentalpolicy, notably with regard to the need toreconcile stimulus to renewable energy, e.g. byenergy plantations, with the desire forbiodiversity and landscape quality (neither ofwhich are generally associated with energyplantations). In a high energy price scenario, thereduction in demand for the products ofindustrial wood might to some extentcompensate the rise in demand for energy wood,leading to a small, if any, increase in totalharvest, although the balance of the removals(i.e. between large- and small-size wood) wouldbe radically changed. Such a developmentwould represent a reversal of the trend of the last50-80 years, when the large increase inconsumption of industrial wood has beenpossible only because demand for energy wooddropped. This change in market preferences,from large-size to small size-wood, might wellhave major consequences for the profitability ofsome forest holdings, public or private, whichhave chosen silvicultural systems intended toproduce large-size, high-value material.

90

12.7 Environmental policies, legislation and attitudes (“Deep Green Future”)

(i) Background and assumptionsThe base scenarios assume a furtherstrengthening (compared to the present) ofpolicies on environmental protection,biodiversity, waste management and sustainabledevelopment. However, there is pressure, inNordic, north-western and central Europeancountries for still stronger measures, including,for example:- management of up to 20 per cent of the forestarea exclusively for biodiversity conservation;- afforestation of large areas (formerlyagricultural) not for wood production but torecreate conditions and ecosystems existingbefore the initial disturbance by (modern) man;- severe limitations on the number and size ofclearcuts (and possibly on some mechanisedharvesting systems);- systematic replacement of mono-specificplantations with multi-species systems, and ofexotic species by indigenous ones;- refusal by wood consumers to use any woodfrom natural forests, leading to a disappearanceof imports from many tropical regions, andextensive areas in North America and Russia;- introduction of a carbon tax at high rates;- stimulus to energy saving and renewable energysources (in addition to the economic stimulus toenergy saving resulting from the carbon tax);- phasing out of nuclear power;- reduction of emissions of all sorts;- encouragement of agricultural practices whichuse land, capital and other inputs, notablyfertilisers, in a less-intensive way;- very high levels of recovery and re-use of allraw materials;- widespread introduction of "green accounting"to measure environmental and other non-marketgoods and services;- introduction of markets, or quasi-markets6, inhitherto non-marketed benefits, including thoseprovided by the forest, such as biodiversityconservation, landscape, recreation, etc.;- slower, if any, economic growth, as measuredin the traditional way;- allocation of priority to reducingunemployment and to limiting personal andregional inequalities;

These ideas and policies would, in this scenario,be applied initially in the north and north west ofEurope, and in central Europe (i.e. thosecountries which are at present the most receptiveto "green" ideas), but would spread quite rapidlysouth and eastward, through the influence ofregional bodies, especially the EU, and byneighbouring countries’ examples. By 2010, inthis scenario, most of these ideas would beaccepted in principle (although probably notentirely applied in practice) all over Europe.

(ii) Results and discussionWhat would be the consequences for the forestand forest products sector of this Deep GreenFuture7 scenario? It is not possible to quantifythese fundamental changes, but a few ideas ofpossible consequences are set out below.By the end of the first quarter of the twenty-firstcentury, the European forest resource would beconsiderably larger in area and possibly ingrowing stock than in the 1990s, and managed (ifat all) for higher biodiversity and recreationvalues, but have lower productivity and levels ofremovals. Trees and small forest areas wouldalso take up a much more important part of non-forested rural landscapes. Costs of growing andharvesting wood would be much higher than atpresent. Forest management would become amuch heavier burden on public budgets, unlessmarkets in at present non-marketed benefits werewidely introduced. Private forest owners, inparticular, would find it hard to continue withoutextensive public support, and might be facedwith the choice of selling (or donating?) theirforest land to the state, or abandoning forestmanagement (as it is understood today)completely. Possibly, some of these negativedevelopments would be counteracted bygovernment action to support regional and ruraleconomies and prevent the depopulation andpauperisation of rural areas.In this scenario, demand for energy wood of alltypes (fuelwood, residues of all industries,recovered wood products) would increasestrongly. Energy and transport costs of allsectors would increase rapidly. This would givea comparative advantage to the forest sector,


which has efficient access to the major renewableenergy. Energy, in the form of wood fuel or ofelectricity, even liquid fuels, could become themajor product (and source of revenue) of theforest sector, for external as well as internalconsumption.The outlook for forest products markets isdifficult to estimate. On the one hand, in thisscenario, consumer income, and thereby totaldemand for all materials, would be reduced andprocessing costs would be higher. In addition,economy of materials, as well as energy, wouldbe encouraged. This would considerably lowerdemand for forest products. On the other hand,the forest sector, based on a renewable,recyclable, relatively low-energy, carbon-neutralraw material, would have a comparativeadvantage over many others. The answers tothese questions are not simple and should bebased on detailed life cycle analysis. In thesecretariat's view, however, wood wouldcontinue to play an important role as a source ofraw material in a Deep Green future as well,although probably the volumes concerned wouldbe smaller and prices would be higher (thoughpossibly not high enough to cover increased

processing, transport and forest managementcosts).Concerns about quality of forest management inother regions, expressed through certificationschemes, and the cost of transport wouldcombine to reduce significantly Europe's importsfrom other regions. In fact, Europe might aspireto self sufficiency, although official, compulsorytrade measures would not be introduced becauseof pre-existing commitments to free trade.The shortfall in imports would at least in part becompensated by high levels of recycling and re-use of forest products (at least equivalent to thosein the Higher Waste Paper Recovery scenario),so the idea of a Europe which does not importforest products from other regions is not entirelyunrealistic in this Deep Green scenario.

12.8 Reduced global availability of wood

(i) Background and assumptionsThe possibility was discussed above of reducedglobal availability of wood, due to strongdemand from developing countries and supplycutbacks in traditional supplying areas, tropicaland non-tropical. Although this hypothesis wasrejected for the base scenario because of theexpected impact of substitution, "wood-freeeconomic growth" and the coming on stream ofhigh yielding, intensively managed tropical ortemperate plantations, it certainly cannot be ruledout altogether, and so is the subject of analternative scenario.In this scenario, the principal feature would bestronger demand on global markets for forestproducts. This would result in higher prices,which would be reflected on European markets.This global tension would cause re-equilibratingmechanisms, namely: damping demand andencouraging substitution, and stimulating supply.

(ii) Results and discussion

Probably the single most marked effect of globaltension on forest products markets would beslower growth in consumption and loss of marketshare to non-wood products, both attributable tothe higher prices (see section 12.2 for aquantification of the consequences of higherforest products prices).On the supply side, the main stimulus of interestto ETTS V would concern European sources,since by definition, in this scenario,supplementary non-European supply sources,such as fast-growing plantations, would not besufficient to cover the increased demand (evenwhen slowed by higher prices). In other words,European producers would be stimulated by thehigher world market prices to gain (or regain)market share at the expense of imports. For thisto happen, however, it is essential that Europeanproducts become more competitive in terms ofprice and/or marketing skills. As it appearsdifficult to obtain a significant continent-widemarketing advantage, given the sophistication ofthe major "players" on increasingly globalised

TABLE 12.7.1Assumptions for scenarios for Minimum Imports

Minimum MinimumBase Low Imports I Imports II

European GDP Low Low LowPrices Constant +2 per cent/year +1 per cent/yearCosts Constant Constant ConstantRecovery rate Base Higher HigherRaw material imports Rise Constrained ConstrainedConstruction Normal Normal Normal


world markets, if Europe is to regain marketshare in a situation of global tensions and risingprices, the costs of European industries,especially those of raw materials, must not rise.There are two other factors which wouldprobably come into play in circumstances of aconstrained global supply situation:- waste paper recovery rates would probably beat higher levels, conceivably those in the HigherWaste Paper Recovery scenario;- wood raw material imports from other regionswould be unlikely to rise: for 2020 the Base Lowscenario foresees 36 million m3 of net imports ofwood raw material (double the 1990 figure):however, as pointed out in chapter 11, this figureis a residual of the consistency analysiscalculation and is not an econometric projection.If there were shortages and sharp price rises onglobal forest products markets, it is hard toconceive of structural raw material imports toEurope increasing over the long term. For thisreason, in the scenarios, raw material imports bythe major importers (Finland and Sweden) havenot been allowed to rise as they do in the BaseLow scenario.

In fact, if global supply constraints were verymarked, European exporting countries (actual orpotential) could increase their exports to otherregions.8 In conditions of economic scarcity ofwood worldwide, traditional European exporterswith their long experience and sophisticatedskills would be well placed to compete, at leastin the short and medium term, with producerslocated in regions with better growingconditions. Indeed they, along with NorthAmerican companies, might well be in a positionto control, by injections of know-how andcapital, the emerging forest products suppliers.Two alternative scenarios have been constructedto illustrate how the European forest and forestproducts sector might react to tensions on globalforest products markets and higher prices. Theassumptions of the two alternative scenarios arecompared to those of the Base Low scenario intable 12.8.1. These scenarios (Minimum ImportsI and II) are unlike the other alternative scenarioswhich tried to answer "What if?" questions: theMinimum Imports scenarios attempt to illustratethose conditions which would have to besatisfied if Europe were to reduce its dependenceon imports from other regions.These scenarios suggest that the higher productprices which would accompany globalconstraints on wood supply, if accompanied byhigher waste paper recovery rates and constantprices for European roundwood, would lead tolower consumption levels. Imports from otherregions would remain around the 1990 level (andthus considerably lower than those in Base Low).Demand for European roundwood would,however, be roughly unchanged. This perhapsunexpected result (that global wood supplyconstraints would not necessarily lead to higherEuropean removals) demonstrates the importanceof constructing scenarios for the forest and forestproducts sector as a whole, and not for individualsub-sectors.

12.9 Uncertainty regarding economic growth

Chapter 3 presented a consensus rate ofeconomic growth for western Europe, based on anumber of projections current when ETTS V wasbeing prepared around 1993. This consensus rateis the underlying assumption for the Base Highscenario: the Base Low scenario assumes a ratherlower rate. Projections using a rate above that

for Base High are presented in theBaudin/Brooks working paper but not in ETTSV, as they were considered unrealistically high.For this reason, no scenario for economic growthlower than that in Base Low was prepared.9However, the continuing slow growth of the mid1990s, and the inability of west European

TABLE 12.8.1Scenarios for Minimum Imports

Minimum MinimumBase Low Imports I Imports II

Consumption growth rate, 1990-2020: (per cent per year)Sawnwood 0.85 0.47 0.64Panels 1.52 1.15 1.28Paper 2.14 1.56 1.83

Production growth rate, 1990-2020: (per cent per year)Sawnwood 0.86 0.71 0.75Panels 1.31 1.27 1.24Paper 1.72 1.31 1.49

Net trade, 2020 (“-” implies net imports):Sawnwood (106 m3) - 14.3 - 5.5 -10.3Panels (106 m3) - 9.6 -3.3 - 6.2Pulp (106 m.t.) - 5.3 -2.2 - 2.4Paper (106 m.t.) -10.1 -3.6 - 6.7Wood raw material (106 m3) - 36.2 -17.8 - 17.8

Removals and waste paper, 2020:Removals (106 m3) 472 466 469Recovery rate (per cent) 48.6 53.2 53.2


governments to find the road to steady, inflation-free growth have led to economic forecasts (atend 1995) for 1996 and 1997 which aresignificantly below those used as a basis for theETTS V projections for 1995-2000.It was not possible to generate a new scenario oflower economic growth so shortly before thestudy was to be finalised; nor is it reasonable toalter projections for a 30-year period in the light

of results for two years. Nevertheless, it must beborne in mind that the possibility exists thatlong-term economic growth could be lower eventhan the assumptions of the Base Low scenario.In that case, demand for products would belower, as well as production. It is also likely thatimports from other regions would be lower thanin the Base Low scenario.

12.10 Discussion of the alternative scenarios

Although there are strong interactionsbetween the different parts of the forest andforest products sector, most decision makers,public or private, have to take decisions orformulate policy only for a particular enterpriseor department, and may find broad generalscenarios of limited usefulness. For this reason,the section attempts to interpret in more detailthe implications of the alternative scenarios inpractice. To this end, it attempts to identifywhich of the scenarios concern uncertainty andwhich concern policy choices (inside or outsidethe sector) and which essentially concern thesector's success, or lack of it, in remainingcompetitive.This section then analyses the different parts ofthe forest and forest products sector, giving arough indication as to what elements, ofuncertainty or of choice, are the most significantfor each part of the forest and forest productssector.Of the seven scenario concepts presented above,the following may be considered concernedessentially with uncertainty10 aboutdevelopments which are practically impossible toinfluence at the level of the forest and forestproducts sector in Europe: rate of economicgrowth (Base High); rate of growth ofconstruction activity (Low Construction); globalwood supply constraints (Minimum Imports I andII); technical limits to recycling (High Recoveryand Low Recovery).The following concepts concern policy choiceswhich will be made outside the sector: energypolicy (High Energy Price); environmentalpolicy (Deep Green Future); recycling policy(High Recovery and Low Recovery).The last group, and perhaps the most important,concerns the ability of the "actors" in the sectorto maintain or improve their competitivity in

different market situations. For methodologicalreasons, in ETTS V, this concerns essentiallyprices and costs, but technical development andproduct marketing as well as public relations willall play a role. These scenarios are: High Pricesand Low Prices (i.e. of forest products); HighCosts and Low Costs, (which is equivalent, inETTS V, to high or low prices for roundwood,residues and pulp).11

With respect to the cost and price aspects, whileit is certain that individual actors will try theirutmost to improve their competitivity andmaximise their income, it is uncertain whetherthey will succeed in this objective. The interestof these scenarios is therefore to enable actors toset strategic goals and, perhaps most important,to demonstrate to the actors themselves howimportant it is to control costs and keep pricescompetitive with those of other forest productsand with those of competing materials.How sensitive is each part of the base scenario tochanges in the assumptions? With thequantitative scenarios, it is possible to indicatenot only the direction, but also, in general terms,the magnitude of the changes. For the qualitativescenarios, the direction of change is the best thatcan be hoped for.The levels of consumption of forest products areclearly sensitive both to changes in prices offorest products and the level of activity in theeconomy as a whole, and in construction (thelatter for sawnwood and panels only). The moregeneral qualitative scenarios, notably the HighEnergy Price and the Deep Green Futurescenarios would also influence consumptionlevels, probably reducing them significantly, andencouraging a shift in the emphasis of the sectorfrom traditional consumption patterns towardswood-based energy uses. In the MinimumImports scenarios, consumption would also be


lower than in the base scenarios, through theinfluence of higher prices.The situation with regard to production of forestproducts is more complex, as it is influencedboth by the size of the market and the share ofEuropean producers. Thus, the same level ofproduction, in absolute terms, could be achievedeither as a smaller share of a larger market or as alarger share of a smaller market. The size of themarket is determined by the consumption levelsdiscussed above and the market share by themargin between input costs and products prices.The levels of production are shown in figures12.3.2 and 12.3.3 along with the projected levelsof self-sufficiency. It is noteworthy that theorder of scenarios according to the two criteria(level of production and self-sufficiency) doesnot coincide.Self sufficiency in sawnwood and in paper issensitive to the margin between prices and costs:naturally, the highest levels of self sufficiencyfor these product groups are in the High Prices,Low Costs scenario, which provides the bestlevel of profitability for the European industries,and in other scenarios where the margin developsfavourably for the European industries. Forwood-based panels, however, according to theeconometric analysis, the levels of production are"driven" much more by market demand and arerelatively insensitive to changes in the margin.Thus, for panels, the highest levels of selfsufficiency are when the total consumption islowest (i.e. when prices are high), although theabsolute levels of production are low.The absolute levels of production are, in mostcases, more sensitive to the assumptionsregarding the size of the market. Thus, thehighest production levels for Europe, tend to bein the Low Price scenarios, which lead to fastgrowth in consumption, or in the Base Highscenario, which assumes stronger economicgrowth, and not in those scenarios where higherproduct prices lead to smaller markets, eventhough self sufficiency may improve in the latterscenarios. Thus, in very general terms, lowerprices of forest products would be expected tolead to higher levels of European production.12

The range between the highest and lowestscenarios for demand for European roundwood(i.e. total derived removals, Europe, 2020) isconsiderable: 65 million m3, or 14 per cent. Theextremes of the range result from a combination

of assumptions for costs and for prices, so it isinteresting to explore separately the specificcontributions of each of these factors.It appears from figure 12.3.2 that the level ofEuropean removals is most sensitive to the costlevel for the industries' raw material, notably theprice of European roundwood. Thus, demandfor roundwood from European forests would be44 million higher if industry's costs fell by 1 percent a year than if they rose by 1 per cent a year(assuming no changes in the product priceelement).However, if constant raw material costs areassumed, the range between the highest andlowest scenarios is considerably smaller (31million m3, or nearly 7 per cent of the levelprojected in Base Low). Thus, with constantlevels of raw material costs, demand forroundwood from European forests would behigher than in the Base Low scenario: if GDPgrew faster (Base High), if forest product pricesfell, or if waste paper recovery were less thanexpected. It would be lower than in the BaseLow scenario: if construction activity were low,if waste paper recovery were higher thanexpected, or if forest product prices rose.Even the lowest forecast level of derivedremovals is 50 million m3 higher than in 1990. Itshould be noted that even the highest scenario iswell below net annual increment and would stillbe accompanied by a continuing accumulation ofgrowing stock.Both Minimum Imports scenarios have ratherlittle effect on the demand for Europeanroundwood, as the adjustment necessary toreduce Europe's imports from other regions isconcentrated, through the price mechanism, onmarket size (and higher recycling) rather than onthe substitution of imports by Europeanremovals. Thus, if there were a world "woodshortage", European removals would probablyhave a larger share of a smaller market, leadingto a roughly unchanged level of removals.The consequences for the strength of demand forEuropean roundwood of the Higher Energy Priceand the Deep Green Future scenarios are veryuncertain, as both contain counterbalancingforces whose net effect is impossible to quantifywith the data and analytical tools at presentavailable. In the Higher Energy Price scenario,the expected stronger demand for small-sizedenergy wood might be counterbalanced by


slower economic growth and higher costs. In theDeep Green Future, the environmentaladvantages of wood and the demand forrenewable energy might be counterbalanced byslower economic growth, higher costs, andrestrictions on silviculture, including theclassification of large areas as biodiversityconservation areas.It is a noteworthy, and perhaps surprising,conclusion of ETTS V that the projections ofdemand for European roundwood are relativelyinsensitive to quite significant changes in theassumptions concerning economic growth, pricesof forest products or waste paper recycling. Oneexplanation is that the large changes in demand,upwards or downwards, are covered, accordingto the projections, and, with the assumptionsstated, by imports from other regions rather thanby European roundwood supply.Europe's net imports from other regions are themost sensitive part of the projections to changesin assumptions. The highest level, under theBase High scenario, is three times that in thelowest (Minimum Imports) scenario.13 The sametwo factors as for roundwood demand combineto influence the scenarios for net imports, namely

the size of market (in turn influenced by productprices and activity levels) and the margin forEuropean industries (relation of product prices toraw material costs).Net imports are high when GDP growth is faster,product prices are low, margins for Europeanindustries narrow (e.g. low prices/constant costs,constant prices/high costs) and waste paperrecovery rates are low. Conversely, net importsare low when product prices are high, marginsfor European industries become wider (highprices/low or constant costs, constant prices/lowcosts), waste paper recovery rates are high andconstruction activity is low.The balance between net imports and Europeanderived removals varies strongly betweenscenarios. If consumption is high and/or themargins for European industries are low, netimports could be about equivalent to a third ofEuropean removals, compared to less than 15 percent in 1990. If, on the other hand, consumptionis low, margins are large and/or waste paperrecovery is high, this ratio could fall to about 10per cent. This would occur in the circumstancesspecified, not as a result of any protectionistaction by European governments.

12.11 Conclusions

This chapter has demonstrated thecomplexity of the sector and the difficulty ofmapping out any single line into the future.Nevertheless, it is possible to draw a fewconclusions regarding the sector, derived fromthe scenarios in this chapter.First, the developments of the prices and costsfor forest products and for roundwood are moreimportant for the future of the sector than iscommonly stated in the policy discussions.Second, the European forest and forest productssector, like most natural or social systems, has anumber of self-regulating mechanisms whichprevent it from entering destructively into a cycleof extreme trends and reactions. The mostimportant of these are the price mechanism and

the recovery of waste paper, which prevent anincrease in demand for paper from beingtranslated into an equivalent increase in demandfor wood.Third, some parts of the system are more stablethan others: in particular, demand for Europeanroundwood is much less volatile than demand forimports from other regions.The conclusions to be drawn from thesescenarios regarding future strategy will varyaccording to the position of each reader: publicor private, industry, trade or forest manager,importer or exporter, large or small enterprise,etc. Some policy implications are examined inthe next chapter.

Notes

1 And, incidentally, to protect the reputations of the study's authors!2 It must be repeated that ETTS V is only concerned with structural long-term trends: it is inevitable that prices of roundwood and of forest products

will move both up and down according to market conditions, sometimes sharply. Short-term price movements cannot and should not be taken intoaccount by long-term studies like ETTS V.


3 Strictly speaking, as the econometric analysis only applies to the countries which had market economies before 1989, the variation only affectswestern Europe, as the projections for countries in transition are price inelastic with the methods used in ETTS V. Nevertheless, the European total isshown for comparison with other parts of the chapter.

4 These models concentrate on the wood raw material aspects and do not dispose of long-term data series on other factors of production, such aslabour, energy or capital.

5 The manufacture of Kraft pulp, although a high-energy process, is self-sufficient in energy and uses a renewable source (lignin from the wood rawmaterial).

6 By this is meant systems by which forest owners are in some way paid directly for "producing" non-wood benefits such as biodiversity or landscape,as opposed to receiving a general compensation for higher costs.

7 This scenario is, however, by no means as extreme as the proposals of the most radical green groups, which include refusal of modern technology(including medical technology), new (communal) ownership patterns (notably of land), total vegetarianism (because of an absolutist conception of animalrights) and extreme reluctance to accept any large-scale harvesting of wood, or indeed forest management of any sort.

8 This has happened in recent years as Austria, Finland and Sweden have all profited from prevailing market conditions to create a place forthemselves on Japanese forest products markets.

9 The "projections" for 1990-95 were in fact based on real data for 1990-94 and official forecasts for 1995.10 Some concepts have elements of both uncertainty and policy choice, so they may appear in more than one category.11 The costs and prices scenarios may be combined in a rather large number of variations such as high prices, low costs, or low prices, constant costs

and so on. Furthermore, different hypotheses could be made by product or by country, or with regard to the rate of change. While the econometric modelcould be used to explore all these possibilities, the results of such an exercise would be indigestible and hard to use at the policy level.

12 An exception is the High Price, Low Cost scenario for sawnwood, but this projection may be distorted by an unrealistic elasticity for German sawnsoftwood exports, which tend to grow disproportionately if the margin widens.

13 In this section, the projected net imports in original units (m3, m.t.) have been converted to m3 EQ using standard conversion factors, to simplifypresentation and facilitate comparison with projections for removals. However, the projections themselves were calculated in the original units, so therehas been minimum loss of accuracy due to wrong conversion factors during the generation of the projections.

95

Chapter 13 CONCLUSIONS

13.1 Introduction

The first ten chapters of ETTS V reviewed,sector by sector, structural trends and the long-term outlook. Chapter 11 reviewed these partialscenarios to create two base scenarios for theforest and forest products sector as a whole.Chapter 12 presented and discussed a number of

alternative scenarios. The objectives of thepresent chapter are to present the mainconclusions of the study, and to discuss theconclusions which may be drawn from the aboveabout the sustainability of forest management inEurope.

13.2 Main conclusions of ETTS V

(i) Continued demand for forest products in EuropeETTS V confirms that, for the next quartercentury at least, given GDP growth rates ofaround 1-2 per cent a year, European demand forforest products will continue to grow, not fast butsteadily. This is the case in all the scenariosconsidered, including one where forest productsprices rise by 2 per cent in real terms a year.These scenarios also assume that there is noradical change in the technical competitivity offorest products relative to substitute materials.

(ii) Adequacy of European roundwood supply comparedto expected demand

The higher levels of demand for forest productsclearly imply higher consumption of rawmaterial. Therefore, despite the expectedincrease in the contribution of recovered fibre,and in imports from other regions, the Europeanforest will be required to increase the volume ofwood it supplies. The study also shows that theEuropean forest is well able to meet thischallenge; Europe's harvest (removals) isexpected, by national correspondents, to increasefrom 390 to around 480 million m3 a year in2020. Furthermore, the biological potentialexists to expand European removals further. Theprojected level of removals in 2020, although athird more than that of the early 1990s, is stillonly 70 per cent of the net annual increment.The realistic maximum sustainable level ofremovals in Europe in 2020, without depleting

the resource, but also without special investmentto increase its productivity, is estimated at about530 million m3. The supplementary increaseover the base scenario, if there were one, wouldcome essentially from the three major exportingcountries, Austria, Finland and Sweden.However, in a very few countries, notablyAlbania and Greece, but also probably certainsuccessor states of the former Yugoslavia,removals are now, and will remain, aboveincrement: in those countries, which are affectedby population and grazing pressure, fragileecosystems and weak institutions, there is a realthreat to the long-term sustainability of the forestecosystem and of wood supply which requiresfirm action, led by the national government andsupported by the international community.

(iii) Expansion of Europe's forest industriesEuropean production of forest products isprojected to grow between 1990 and 2020,assuming constant real prices and costs, by 25-35per cent for sawnwood, 20 per cent for wood-based panels, 30 per cent for pulp and around 50per cent for paper. In addition, 35-45 millionm.t. more waste paper would be recovered andprocessed. Most of the increase for panels andpaper, and, to a lesser extent, sawmilling, wouldbe in the EU (12), while practically all theincrease for pulp would be in the Nordiccountries.


Table 13.2.1 gives a rough idea of the additionalprocessing capacity (i.e. not counting theessential replacement and improvement ofexisting capacity) which would be required inEurope over the next 30 years; however, itshould be borne in mind that in some sectors,notably sawmilling, existing capacity is grosslyunder-used. This additional capacity would, atleast in part, come from expansions of existingplants, rather than totally new, "green field",mills. Naturally, these projections for extracapacity are conditional on European industrybeing able to control its raw material costs andmaintain its margins, while not allowing prices torise.

(iv) Reduction of waste and increased recycling in theforest products sector

Already in the 1990s, very little wood or fibre iswasted: increasing volumes of processingresidues are used as raw material or as an energysource while recovery rates for paper are bothgrowing strongly and are higher than for almostall other materials. ETTS V expects both ofthese trends to continue, under strong economicand social pressure. An even larger share ofwood residues than at present will be used as rawmaterial, until there is very limited potential torecover any more; the waste paper recovery rateis expected to rise from 37 per cent to 49 per centin 2020, with a doubling or tripling of thevolume recovered. High levels of recycling andresidue use make wood a very environmentallyfriendly raw material when grown in asustainable fashion.

(v) Outlook for pricesETTS V does not confirm the belief that demandgrowth and supply constraints will lead to amarked long-term rise in prices for roundwoodand forest products, although this possibilitycannot be ruled out completely. Any agency,national or international, or any individual,contemplating investment programmes toincrease European wood supply should take as astarting point for their feasibility study anassumption of no change in forest productsprices, and explore the effect on the economicviability of the project of higher or of lowerprices.

(vi) Europe's imports from other regions and degree ofself-sufficiency in forest products

Both base scenarios show an increase in Europe'snet imports, as Europe's producers are expectedto lose market share to suppliers from outside theregion. Moreover, it is believed that thesupply/demand outlook for the rest of the worldis more balanced than generally thought, asdemand growth will not be so fast as forecast insome studies and flexibility of supply, especiallyfrom fast-growing plantations, would be higher.However, if the supply/demand balance were tobe tighter than expected, or if Europeangovernments wished to increase the self-sufficiency of Europe in forest products, it wouldbe physically possible to supply a greater part ofEurope's needs from domestic resources thanprojected in the base scenarios, thereby reducingthe growth in net imports. (The alternativescenario Minimum Imports showed one way thiscould come about.)However, an increase in Europe's self sufficiencywould not happen unless a number of conditionswere met, including the following:- the wood from Europe's forests is competitive,in terms of price and quality, with the leadingcompetitors on global markets (i.e. thespecialised, intensively managed, production-oriented plantations with good growingconditions). This would probably imply thatlarger areas than at present of Europe's forest aremanaged intensively for wood production, andthat these "production forests" would be in partsof Europe with good growth conditions.- the industries to process this raw material arealso competitive on a world scale, i.e. large units,with an adequate capital base and strict costcontrols.- public opinion accepts, in the interests of ruralemployment, economic growth and possibly inorder to reduce pressure on natural forests inother regions, the environmental trade-offs whichwould of necessity be involved in a programmeto increase Europe's real forest products potential

TABLE 13.2.1Projected increases in production, 1990-2020

Sawnwood Panels Pulp Paper(106 m3) (106 m.t.)

Base Low:Europe: + 26 + 18 + 8 + 45 Nordic countries + 6 + 1 + 7 + 8 EU (12) + 11 + 12 - + 29

Base High:Europe: + 34 + 23 + 10 + 57 Nordic countries + 7 + 1 + 9 + 11 EU (12) + 15 + 16 - + 38


beyond that in the base scenarios.The above reasoning is not dependent on anassumption that governments instituteprotectionist measures to encourage the growthof their own forest industries or set up subsidyregimes to bring down the cost of domestic woodsupplies. Such action would be against the spiritof the practically universal commitment to freetrade manifested by the successful completion ofthe Uruguay Round and the setting up of theWorld Trade Organisation. As some of theleaders on global forest products markets, mostnotably the US and Canada, are major tradingpowers, the widespread use of protectionistmeasures in order to increase the self sufficiencyof the European forest products sector is notreally a plausible option.

(vii) Markets for sawnwood and panelsIt is quite likely that the "sawnwood" and"panels" being manufactured and bought in 2020will be rather different from those availabletoday, chiefly because of technologicalinnovation, aimed both at reducingmanufacturing costs and at improving productquality and developing new uses and markets.There will be new production processes, newcomposite materials, new glues and surfacetreatments, etc. The levels of consumption ofsawnwood and panels projected in the basescenarios are based on the assumption that pricesfor these products remain constant in real termsand that sawnwood and panels remaincompetitive from a technical and marketing pointof view. If either of these conditions are notfulfilled, the size of markets for sawnwoodand/or panels would be smaller than in the basescenarios or they would be substituted by othermaterials. Therefore, the process of innovationmust continue and those responsible for theindustry must take the necessary research andmarketing steps to be prepared for it. This likelytechnical development also implies that theprojections for individual products in ETTS Vshould be seen as indicative only, because oflikely inter-product substitution and combination,and development of new products.

(viii) Transition economiesThe forecasts for transition economies in chapter10 are that demand will recover, but slowly, sothat 1989 levels are recovered by 2000. Already

for some countries, for instance those of theVisegrad group, this looks unduly pessimistic,although for others, notably in the Balkans, thegravity of the problems appears worse thanoriginally realised. Given the rapid pace ofchange, it is especially important that theseforecasts be reviewed regularly in the light ofdevelopments, and if necessary that newforecasts be prepared.The market conditions of the early 1990s havecaused shifts in the trade patterns of thetransition economies, which have increased theexports by some of them of sawnwood to westEuropean markets, helped by low costs and theeffective absence at that time from these marketsof Canada and Russia. The collapse of thedomestic pulp industry in the transitioneconomies has also "liberated" supplies ofpulpwood which are being exported to theNordic counties. Those countries withsignificant export potential (the Baltic countries,the Czech Republic, Slovakia, Poland, Slovenia)may well be able to build on these foundationsand establish a niche for themselves on Europeanmarkets for sawnwood and other products.However, the expansion of exports from thesetransition economies will be limited by thepotential of the resource and by rising domesticdemand, especially for construction materials.As a group, the European transition economiesare forecast to change from net exporters to netimporters, because of paper imports, lowersawnwood exports and Poland's forecastrequirements for significant volumes of woodraw material imports.

(ix) Change in area of European forest and afforestationof former agricultural land

The area of Europe's "exploitable" forest isexpected to grow by just under 5 million hectares(about 3 per cent) between 1990 and 2020, ofwhich 3.5 million hectares would take place inthe EU (12) (an increase of 8 per cent), with noincrease in the Nordic countries. Most of theexpansion is accounted for by three countries:Spain and France, where forestexpansion/improvement policies will continue,and Poland, where the area under agriculture isexpected to shrink markedly due to the transitionprocess. Practically no change is expected inunexploitable forest and other wooded land.This increase, especially that in the EU (12), is


not negligible, but is by no means commensuratewith the expected reduction in agricultural landdue to changes in agricultural policy.Thus, according to the expectations of ETTS Vnational correspondents, the change inagricultural policies will not result in largeincreases in the area of forest land managed forwood production. Indeed, experience over recentyears has shown that forest established on formeragricultural land is often managed for landscape,hunting or biodiversity reasons, not primarily forwood production. Furthermore, even if largeareas were afforested for wood production, theeffect on the production of industrial woodbefore 2020 could only be very limited.

(x) Wood and energyIn the early 1990s, over 200 million m3 of wood(equivalent to 47 per cent of European removals)was used as a source of energy in the form ofconventional fuelwood, energy use of industrialresidues and recovered wood and pulpingliquors. Even assuming that real prices forenergy stay at the low level of the 1990s, theconsumption of wood for energy is expected togrow steadily to 2020, increasing by about 1.5per cent a year. The use for energy of recoveredwood products, such as used pallets ordemolition wood, is expected to grow by 3-4 percent a year. This trend is driven by the necessityto reduce further any waste of wood, by thelikely increased cost of waste disposal, and therealisation by those who have access to a sourceof wood for energy that wood can be aconvenient, economic and decentralised energysource. A significant rise in general energyprices is considered unlikely: if there were suchan increase, wood energy would become muchmore important, large scale and industrialised,with specialised plantations and large-scaleconversion and distribution systems, all of whichare uneconomic at current energy prices.

(xi) Costs of forest managementThe production levels of forest productsprojected for ETTS V and thereby the level ofdemand for European roundwood, are based onthe assumption of constant raw material prices(i.e. roundwood and pulp). Some of thealternative scenarios in chapter 12 have shownthat the consequence of higher raw material

prices for European roundwood would bereduced demand. However:- all forests, including those whose principalobjective is wood production, will continue to beexpected to meet high standards of biodiversity,landscape protection, and other protectivefunctions, even if this increases costs;- forest management costs (i.e. for standestablishment, thinning, final harvesting andgeneral administration) appear to have beenrising, notably because of the higher cost oflabour;- public budgets, at the national and local level,will continue to be limited, preventing anexcessive recourse to public funds to filloperating deficits for forest mangers.One of the greatest technical and economicchallenges facing Europe's forest managers ishow to control costs and thus maintaincompetitivity, while satisfying society'sincreased demands without placing excessiveburdens on the public purse.

(xii) Contribution of the European forest to the globalcarbon balance

The 20 billion m3 of inventoried wood in Europerepresent a major stock of carbon, to whichshould be added the carbon in non-inventoriedparts of the tree, in forest soils and in othervegetation in forest ecosystems. Over 250million m3 of wood are being added to this stockevery year, making the European forest one ofthe most important carbon "sinks" in the globalclimate system. ETTS V shows that thissituation is very likely to continue under allplausible scenarios in the first quarter of thetwenty-first century, and even to intensify (i.e.without specific measures to increase the "carbonsink" function). Thus, Europe's forest willcontinue, in the medium to long term (30-yeartime horizon) to contribute to mitigating thetrend of rising levels of CO2 in the atmosphere.This trend is, of course, independent of anyspecial measures which might be taken tostimulate the carbon sink function of theEuropean forest, for instance by establishing fast-growing plantations.In the very long term, however, there is anopportunity to develop a strategy for the role ofEurope's forests in the global carbon budget.Chapter 5 identified three broad scenarios: raisefellings until they coincide with increment, thus


ending the European forests' role as a carbonsink, while contributing to the global carbonbudget by substituting renewable for non-renewable raw materials; keep fellings wellbelow increment, maintaining the sink functionin the medium term, but threatening it in the longterm through an over-mature forest age structure;and, raise both fellings and increment, forexample, through increased forest area, increasedareas for biodiversity conservation andintensified management for wood on theremaining areas, thus maintaining the sinkfunction while increasing the contribution ofwood and forest to the economic and social well-being of society.

(xiii) Uncertainty and monitoringThere are considerable uncertainties about thelong-term outlook for the sector as a whole,which ETTS V has attempted first to identify andthen to reduce to the extent possible, although, ofcourse, they cannot be removed altogether.Policy makers should bear in mind thisuncertainty, and incorporate it into their planningby testing their policies for sensitivity to differentoutcomes and by monitoring developments,notably in the areas which have been identifiedas critical, as well as by comparing realdevelopments with the projections.

13.3 Sustainability of the forest and forest products sector in Europe

ETTS V is not intended as an authoritativeassessment of the sustainability of Europeanforest management: that is left to other"processes" notably those connected to thefollow up of UNCED and the HelsinkiMinisterial Conference. However, the sector-wide and continent-wide scope of ETTS V, itsanalysis of dynamic and structural rather thanstatic and short-term aspects, and the fact that itis based, wherever possible, on objective andcomparable data, enable it to provide informationrelative to such a judgement, with regard tosome, but by no means all, of the parametersrelevant to sustainability. These are examinedbelow, using the six criteria identified by theHelsinki process to structure the discussion.

(i) Maintenance and appropriate enhancement of forestresources and their contribution to global carboncycles

With regard to the most fundamental parameterof all, the physical survival of the forest(measured by forest area and volume of growingstock), the data and analysis in the study indicatethat, in the great majority of European countries,there is no serious threat to sustainability. Inmost countries, both forest area and growingstock have been stable, or, in most cases,growing, over the last 25 years at least, andusually much longer; this is forecast to continueuntil at least 2020 in all plausible scenariospresented here, for Europe as a whole and for thegreat majority of individual countries.

The major exception to the above trend lies inthe Balkans, where forecast removals are wellabove net annual increment in both Albania andGreece. Population pressure around urban areas,fuelwood demand, grazing, fires, and weakinstitutions are eroding forest area (rapidly in thecase of Albania). The situation is probablysimilar in the southern successor states of theformer Yugoslavia, particularly Bosnia andHerzegovina, where war and social andeconomic chaos must have harmed the forest aswell as everything else, notably throughfuelwood demand, fires and the direct damagedue to military activity.1 Similar, thoughpossibly less acute, problems may well affectother successor states of the former Yugoslavia,other Balkan countries, and other Mediterraneancountries.Given that the existence of the forest itself is notthreatened in most countries, what of thesustainability of timber supply? The concept of"allowable cut" is a complex one and must takeinto account, at a national and local level, notonly the total net annual increment, but itslocation, the age-class structure and the demandsof non-wood management objectives, notablybiodiversity conservation, and many otherfactors. Nevertheless, net annual increment maybe considered a crude approximation for thesustainable long-term level of removals: if thelevel of removals is well below net annualincrement, it is very likely that the forestresource is being managed sustainably from thewood supply point of view, especially if the


forest estate approximates to a normal age-classstructure. Chapter 4 shows that this condition isfulfilled in almost all European countries.Only a very few countries (in addition to theabove mentioned Balkan countries) show futureremovals at or near the level of net annualincrement, and in some of these there isconsiderable uncertainty about both futureroundwood demand and the real productioncapacity of the forest resource. The data forthese countries in ETTS V show, however, thatthe forest authorities must carefully monitor thedynamics of the growth-drain balance, (andensure that the data on which the calculation isfounded are sound) to ensure that removals arenot allowed to reach an unsustainable level.

The above analysis also has implications forthe carbon storage function. The Europeanforests are a major stock of carbon, and asincrement exceeds removals, they are also acarbon "sink". This situation is expected tocontinue into the future, with ever larger volumesof carbon being stored in the European forest.

(ii) Maintenance of forest ecosystem health and vitality

ETTS V has not carried out original analysison this aspect, but uses available information toevaluate the potential threat to wood supply fromthreats to the forests' health and vitality (seechapter 5).

Pollution, fire and game damage are allserious constraints on forest management overrather large parts of Europe. Pollution and firemay even, in certain circumstances, threaten theexistence of certain forests. All three mayprevent regeneration or alter the speciescomposition and/or productivity. For all three,the fundamental solutions must be sought to alarge extent outside the forest sector.

However, despite the undoubted gravity ofeach, and the threat they pose to sustainableforest management in certain areas, at presentnone is showing a strong tendency to expand: thenumber and area of fires fluctuate without atrend, the trend and significance of the timeseries for the annual forest condition surveys ofdefoliation is contested, and the statisticalfoundation for estimating the magnitude of gamedamage is lacking. It appears, therefore,

although there is much uncertainty over thisconclusion, that air pollution, fire and gamedamage do not threaten the overall wood supplycapability of European forests, although they doseverely restrict forest management options overquite large areas.

(iii) Maintenance and encouragement of productivefunctions (wood and non-wood)

It has been shown above that Europe'sforests are expected to maintain their ability tosupply wood on a sustainable basis for theforeseeable future. ETTS V also shows thatthere will continue to be a demand for the woodfrom European forests, and that this demand willcontinue to grow. Thus the productive functionwill remain very important for Europe's forests,and appears to be on a sustainable basis.

The FAO/ECE Forest Resource Assessment1990 also showed that the great majority ofEurope's forests are under some sort ofmanagement plan. ETTS V does not address thequestion of the sustainability of supply of non-wood products

(iv) Maintenance, conservation and appropriateenhancement of biological diversity in forestecosystems

ETTS V does not address the question ofbiological diversity as such. However, it may bededuced from the outlook for wood supply(removals well below increment, weak markets,competitive pressures) that there is no need toexploit every hectare of forest in an intensivemanner for wood production, especially for thosesites with limited productive potential. Thissituation creates an opportunity for managingquite large areas with conservation of biologicaldiversity as a major objective. However, onthose areas which are managed primarily forwood production, especially those exposed tointernational competition, it will be veryimportant to control forest management costs,which could make it difficult to absorb the extracosts due to conservation of biodiversity beyondan accepted minimum standard for all forests.

(v) Maintenance and appropriate enhancement ofprotective functions in forest management (notablysoil and water)


ETTS V does not address the protectivefunctions of forests in their own right. It is,however, clear that correspondents, whenpreparing their national forecasts for chapter 4,considered that the ability of their countries'forests to carry out their protective functionswould not be reduced by the forecast intensity offorest management and harvesting.

(vi) Maintenance of other socio-economic functions andconditions

The forest and forest products sector makesa significant contribution to GDP andemployment (especially rural employment) inmany European countries. In a few, notablyFinland and Sweden, it is a major contributor toGDP and the trade balance.

The conclusions of the base scenarios implythat this contribution would continue to expand,in absolute if not in relative terms, and that, withthe exceptions and uncertainties noted above, theEuropean forest and forest products sector issustainable from the socio-economic point ofview.

There is a question mark, however, over theeconomic sustainability of small private forestholdings, where, because of weak markets andhigh costs, net revenues are often said to be low(or sometimes non-existent). This view isconsistently expressed, although the secretariathas no statistical information to confirm it.

The base scenarios imply that small forestowners will continue to be faced with rising costsand weak markets, not to mention addedresponsibilities in the field of environment,which could exacerbate their problems.

13.4 Implications for the coordination of policy making processes

One fundamental fact brought out by ETTSV is the complexity of interactions betweendifferent parts of the forest and forest productssector, and between that sector and others. Oneexample is the inter-dependence of forest ownersand managers and the forest industries who buyand consume the wood produced by the forest. Ifthe European forest industries are notcompetitive, roundwood markets falter; yet ifhigh European forest management costs lead tohigh roundwood prices, the industries'competitivity is threatened. Both forest productsand roundwood are bought and sold inincreasingly global markets.Likewise, other sectors strongly influence theoutlook for the forest and forest products sector.One example is environmental policies whichencourage the recycling of waste paper anddiscourage disposal by landfill, thus increasingthe volume of waste paper available to industries,with a "knock-on" effect on pulp and roundwooddemand and prices. In fact, the interrelationshipbetween prices for pulp and for waste paperneeds further analysis, as well as price formationmechanisms on waste paper markets.Another example is energy: the general energyprice clearly influences the competitivity ofwood energy. In addition, the acceptability ofwood energy combustion, at the farm unit level,is constrained by the limits on emissions from

combustion equipment. In some countries, olderwood-burning stoves do not satisfy the morestringent emission limits introduced morerecently. Another aspect is the price at which thepublic grid will accept co-generated electricityfrom forest industries. If this price is sufficientlyhigh, electricity can become a profitable "by-product" for the forest industries.A third example is rural development and theinteraction of agricultural policy with forestpolicy. The structure and level of theinstruments of agricultural policy influence theavailability of land for forestry and the level ofincome of rural inhabitants. Forestry can onlymake its full contribution to rural development ifconsidered together with other parts of the ruraleconomy. There is increasing stress on theintimate links between forestry and agriculture ina managed rural landscape. The interactions areeconomic (joint incomes, seasonal workpatterns), ecological (agroforestry systems,shelter belts, mosaic of habitats) and aesthetic(balance of forest and agricultural land in therural landscape).These linkages within the forest and forestproduct sector, and between it and other sectorsare described in chapter 2 and the working paperon which that chapter is based. Yet it is stillunfortunately common for forest policy making,or policy making for other sectors, to be based on


a limited understanding of other parts of theforest and forest products sector, let alone majorrelated sectors. ETTS V confirms theimportance of developing a coordinated outlook

for the future, explicitly considering interactionsbetween sectors, along the lines laid out inchapter 2, and placing decision and policymaking in this context.

13.5 Resilience of the forest, changes in management priorities and an opportunity for forest policy

Over millennia, the European forest hasadapted to the changing needs of human society;at first the main demand was for fuel, agriculturalland and simple wood products, but later, theimportance of the protective function wasexplicitly realised in forest legislation, anddemand grew for more sophisticated productsand for services, such as recreation. Morerecently, the intrinsic value of the forest's ownbiological diversity has been better understoodand given much higher management priority.From the natural or semi-natural2 forest whichcovered most of Europe two or three millenniaago to the present mosaic of forest types,managed to suit the diverse priorities of differentsocieties and social groups, there has beenenormous change. Management, too, which usedto be local or traditional, or did not exist at all atcertain periods, became much more scientific,long term and complex, but since the middle ofthe nineteenth century forest managers havealways been acutely aware of the danger arisingfrom the difference in time scale betweensociety's demands and the slower time scale offorest growth and change. The long period ofreduction in forest area, which started over 2,000years ago, was reversed in the early years of thetwentieth century, as societies, local and national,realised the importance of forests, understoodbetter the threats to their existence and quality,and undertook long-term programmes of forestmanagement, including restoration in some areas.The history of European forests and forestrydemonstrates the resilience of the resource,ecologically and socially, and the ability ofsocieties, when properly informed and madeaware of the possible consequences ofcontemporary trends, to take the necessary long-term policy measures in a spirit of responsibilityto themselves and to future generations, evenwhen forest degradation is quite far advanced. Inmost parts of Europe, there are no acute threatsto the forest's existence at present, but the needsand priorities of society are changing rapidly -more rapidly than forest management theory and

practice. Clashes of interest and simplisticanalogies with the conditions of the tropicalforest have obscured the more complex questionsof how to achieve forest management in Europewhich is sustainable from all points of view.One consequence of the discussion about theobjectives of forest management has been thetacit de-emphasis of the wood-productionobjective in the public debate, if not in the day-to-day priorities, and above all, the operatingbudgets, of forest owners and managers.However, ETTS V has confirmed that there isand will be a demand for wood from Europeanforests, and that wood can be produced on asustainable basis for the foreseeable future inEurope, alongside the non-wood benefits of theforest.There are wide differences in the intensity ofmanagement between different regions andownership groups. Some forests are intenselymanaged for wood production, for recreation orfor biodiversity, or indeed, for a carefullybalanced combination of all three. Yet otherforests are managed, if at all, in an ad hoc orepisodic manner through the lack of interest, skillor resources of the forest owner, and may havethe potential of increasing their supply of woodor non-wood goods and services for their ownersand for society as a whole.The situation described above, of changingpriorities and continuing demand for wood andfor non-wood goods and services, represents achallenge and an opportunity for European forestpolicy. The challenge is to define and then todeliver the best possible combination of goodsand services from the forest; the opportunity isthat there is a potential, proven by ETTS V, toincrease wood production and a likely possibilityto increase supply of the other goods andservices. Thus, intensifying management, in thelight of careful determination of society's wishesfor what the forest should provide, could increasethe contribution of the forest to the sustainabledevelopment of the European continent.


ETTS V has presented a country-by-country,quantified vision of the outlook for the supplyand demand for wood and forest products wellinto the twenty-first century, stressed interactionsbetween different parts of the sector and withother parts of the economy, indicated areas of

uncertainty, and provided alternative scenarios.It is now for those who have the responsibility tomake policy and take decisions to use theanalysis and scenarios of ETTS V, alongsideother types of analysis, in developing their ownlong-term strategies.

Notes

1 Bosnia was one of the most forested parts of the former Yugoslavia and the centre of many wood-processing industries.2 The influence of pre-historic and early societies on the forest has often been under-estimated.

iii

Documents

PREFACE BY THE SECRETARIAT