Prof. Dr. Wilfried Puwein

Wood Market in Poland towards Stabilisation“Price Setting Systems in Austria”

Poznan, 4th december 2007

2 Dec. 4th, 2007

In a market economy the ‘Invisible Hand' is setting

the price

Supply

Demand

Price

Quantity

P0

Q0

3 Dec. 4th, 2007

Price setting systems in Austria

The Austrian wood market Supply Demand

Price Settings In general Saw logs Pulpwood Fuelwood

Time series components of prices Trend – cyclical – seasonal - irregular

Towards perfect competition Control of takeovers and mergers Outlaw of anti-competitive agreements Price information systems

4 Dec. 4th, 2007

The Austrian wood marketRoundwood supply

Domestic supply ~ 16 million m³/year

Imports ~ 8.5 million m³/year

54% wood land owners < 200 ha

13% OeBF-AG¹)

33% wood land owners ≥ 200 ha

1) owned by the Federal Republic

Domestic supply, shares

5 Dec. 4th, 2007

Roundwood supply

Woodland owners ≥ 200 ha

1 439 enterprises: private, co-operations, communities, Länder (provinces), R.C. church, monasteries

Ø 683 ha/enterprise

6 Dec. 4th, 2007

Roundwood supply

Woodland owners < 200 ha

148 324 enterprises: 40% traditional “forest farmers”,

28% non farming wood land owners with connection to “rural life”,

32% “urban” wood land owners

Ø 11 ha/enterprise

30% (2.5 million m³) of the wood harvest is managed by “Waldverbände”

7 Dec. 4th, 2007

The Austrian wood marketRoundwood demand

Domestic demand ~ 23.5 million m³/year

Exports ~ 1.0 million m³/year

10% pulp industry

4% wood based panel industry

71% saw milling industry

15% fuelwood

Domestic demand, shares

8 Dec. 4th, 2007

Roundwood demand

Saw milling industry 1 400 firms (but 65% sawnwood production share of 10 biggest mills)

Pulp industry 7 firms

Wood based panel industry 10 firms

Fuelwood about 2 million households with possibilities for wood fire (fire place → automatic pellet

heating)

9 Dec. 4th, 2007

Price setting in general

Wood product price world market

in US $

Export price for wood products

in Austria in €

Supply of export

countries

Demand of import

countries

Exchange rates,

transport costs

Processing industry: structure,

competition

Local supply of

roundwood

Logistic costsprocessing costsminus revenues

from byproducts,profits

Local demand for roundwood

Local roundwood

price, road side

in €

10 Dec. 4th, 2007

Monthly Prices of Soft Roundwood and Export

Sawnwood

– 40,0

– 30,0

– 20,0

– 10,0

+ 0,0

+ 10,0

+ 20,0

+ 30,0

+ 40,0

+ 50,0

+ 60,0

1M19

71

1M19

72

1M19

73

1M19

74

1M19

75

1M19

76

1M19

77

1M19

78

1M19

79

1M19

80

1M19

81

1M19

82

1M19

83

1M19

84

1M19

85

1M19

86

1M19

87

1M19

88

1M19

89

1M19

90

1M19

91

1M19

92

1M19

93

1M19

94

1M19

95

1M19

96

1M19

97

1M19

98

1M19

99

1M20

00

1M20

01

1M20

02

1M20

03

1M20

04

1M20

05

1M20

06

1M20

07

Annua

l pe

rce

nt c

ha

ng

e

Domestic Price Saw logs

Domestic Price Saw logs, estimated f(export price sawnwood t, t-1)

Source: Statistik Austria, WIFO calculations.

PDSL=9.05+0,16*EPSt+0,06*EPS

t-1

R²=0,86

11 Dec. 4th, 2007

Monthly Prices of Soft Pulpwood and Export Pulp

Source: Statistik Austria, WIFO calculations.

PDPW=22,11+0,025*EPP

t

R²=0,20

– 35

– 30

– 25

– 20

– 15

– 10

– 5

+ 0

+ 5

+ 10

+ 15

+ 20

+ 25

+ 30

+ 35

1M19

84

9M19

84

5M19

85

1M19

86

9M19

86

5M19

87

1M19

88

9M19

88

5M19

89

1M19

90

9M19

90

5M19

91

1M19

92

9M19

92

5M19

93

1M19

94

9M19

94

5M19

95

1M19

96

9M19

96

5M19

97

1M19

98

9M19

98

5M19

99

1M20

00

9M20

00

5M20

01

1M20

02

9M20

02

5M20

03

1M20

04

9M20

04

5M20

05

1M20

06

9M20

06

5M20

07

Annua

l pe

rce

nt c

ha

ng

e

Domestic Price Pulpwood

Domestic Price Pulpwood, estimated f(export price pulp t)

12 Dec. 4th, 2007

Annual Average Prices of Soft Roundwood and Export

Sawnwood

Source: Statistik Austria, WIFO calculations.

0

50

100

150

200

250

300

350

40019

70

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

€/to

nne

Export Unit Value Soft Sawnwood (SITC 24820)

Domestic Price Saw logs/0.6

Margin for processing and logistics

13 Dec. 4th, 2007

Annual Average Prices of Soft Pulpwood and Pulp

Source: Statistik Austria, WIFO calculations.

0

100

200

300

400

500

600

700

80019

83

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

€/to

nne

Export Unit Value Pulp (SITC 25151)

Domestic Price Soft Pulpwood/0.5

Margin for processing and logistics

14 Dec. 4th, 2007

Annual Average Prices of Fuelwood, Crude Oil and Pulpwood

Source: Statistik Austria, WIFO calculations.

0,0

50,0

100,0

150,0

200,0

250,0

300,0

350,0

400,0

450,019

72

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

€/to

nne

Import Unit Value Crude Oil (SITC 333)

Domestic price Fuelwood beech/0.35

Domestic price Soft Pulpwood/0.36

15 Dec. 4th, 2007

Price Development, yearly Averages

0

50

100

150

200

250

300

350

400

45019

70

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

1970

=10

0

Consumer Price Index Fuelwood Saw Logs Pulpwood

Source: Statistik Austria, WIFO calculations.

16 Dec. 4th, 2007

Soft Saw Log Price

30

40

50

60

70

80

90

100

Jan 1

970

Jan 1

972

Jan 1

974

Jan 1

976

Jan 1

978

Jan 1

980

Jan 1

982

Jan 1

984

Jan 1

986

Jan 1

988

Jan 1

990

Jan 1

992

Jan 1

994

Jan 1

996

Jan 1

998

Jan 2

000

Jan 2

002

Jan 2

004

Jan 2

006

€/m

3

Cyclical component

Linear trend

17 Dec. 4th, 2007

Soft Pulpwood Price

20

25

30

35

40

45

50Ja

n 1

970

Jan 1

972

Jan 1

974

Jan 1

976

Jan 1

978

Jan 1

980

Jan 1

982

Jan 1

984

Jan 1

986

Jan 1

988

Jan 1

990

Jan 1

992

Jan 1

994

Jan 1

996

Jan 1

998

Jan 2

000

Jan 2

002

Jan 2

004

Jan 2

006

€/m

³

Cyclical component

Linear trend

18 Dec. 4th, 2007

Fuelwood (beech) Price

0

5

10

15

20

25

30

35

40

45

50

Jan 1

970

Jan 1

972

Jan 1

974

Jan 1

976

Jan 1

978

Jan 1

980

Jan 1

982

Jan 1

984

Jan 1

986

Jan 1

988

Jan 1

990

Jan 1

992

Jan 1

994

Jan 1

996

Jan 1

998

Jan 2

000

Jan 2

002

Jan 2

004

Jan 2

006

€/m

³

Cyclical component

Linear trend

19 Dec. 4th, 2007

Cyclical Price Fluctuations and Trend, 1970-2006

Saw logs 13.8 +0.5

Pulpwood 15.5 –0.7

Fuelwood 23.5 +3.0

Coefficient of Variation (moving average deviation

from trend)

Average annual

change in %

20 Dec. 4th, 2007

Seasonality in the Price Index

98,0

98,5

99,0

99,5

100,0

100,5

101,0

101,5

102,0

J an Feb Mar Apr May J un J ul Aug Sep Oct Nov Dec

Index

Saw Logs

Pulpwood

Fuelwood

Source: WIFO calculations.

21 Dec. 4th, 2007

Price setting in practice

Timber Sale Contracts Contract period 0-12 month

Price Fixed price

Price Index

22 Dec. 4th, 2007

Methods of marketing timber

Enterprises

< 200 ha ≥ 200 ha OeBF-AG

In %

Selling stumpage ? 12 8

Selling harvested timber

roadside 81? 76 19

cif mill 19? 12 73

Source: BMLFUW, Österreichischer Waldbericht, Datensammlung; OeBF-AG.

23 Dec. 4th, 2007

Methods of marketing timberOeBF-AG

Source: OeBF-AG.

0%

20%

40%

60%

80%

100%

1998 1999 2000 2001 2002 2003 2004 2005 2006

% s

hare

Selling stumpage

Selling harvested timber roadside

Selling harvested timber cif mill

24 Dec. 4th, 2007

Methods of sale and price setting

Sale Lump-Sum-Sales – in Austria against the forest law

Sale-By-Unit

Price setting Oral bid or negotiations Written Sealed Bids

“Submissions” for veneer logs

25 Dec. 4th, 2007

Tendencies towards oligopolistic demand

Concentration tendencies in wood processing firms

Oligopolistic industries can manipulate the domestic raw wood price (by collusion)

Foreign industries transport costs/cif price relation

26 Dec. 4th, 2007

Measures against oligopolistic demand

Control of takeovers and mergers

Outlaw of anti-competitive agreements

EU-Competition Law Collusion and cartels Dominance and monopoly Mergers and acquisitions

27 Dec. 4th, 2007

Problem of Asymmetric Information

Setting the price

Local price information

World market information

Forecasts: housing starts, business cycle …

?

28 Dec. 4th, 2007

Strengthening the position of wood suppliers

Advancement for “Waldverbände”

Price information system

Benchmark - Tyrolean System

Report System via Internet:

Forest owners Forest Service of the district Forest Service of provincial government: Monthly report on prices and harvest recommendations