THE STRUCTURAL CHANGE OF GLOBAL FOREST INDUSTRY docx

Metsäntutkimuslaitos Skogsforskningsinstitutet Finnish Forest Research Institute www.metla.fi
The Structural Change of
Global Forest Industry
Lauri Hetemäki
Senior Researcher, Ph.D.(Econ)
Finnish Forest Research Institute
Lecture, Forest policy analysis course (FECP230),
March 31, 2011, University of Helsinki, Viikki
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Outline
1. Motivation and background
2. Factors affecting forest products industry
3. The future outlook
4. Pulp and paper industry
5. Wood products industry (short overview)
6. New products
7. Conclusions
Purpose: To provide a synthesis of the global forest
industry markets and future outlook
1. Motivation and background
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Motivation
 In terms of economic significance, forest industry products
are clearly the most important forest products
 They consume annually about 45 % of the world total
roundwood production (wood fuel 55 %)
 For many countries and regions forest products industry is
important for economy, income and employment
(Finland, Sweden, Canada, USA southern states, Brazil etc.)
 Currently, the world forest products markets are in a state
of structural change:

I. Increasing seperation to two different types of markets
(OECD vs. non-OECD countries)
II. New forest products are emerging (”biorefinery”)
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Motivation
1. What does structural change imply for global
forest sector?
2. What is the role of new forerst industry products?
3. What is the outlook for forest products industry in
various regions of the world?
 In order to answer these questions, let us look at the
background and current state of global forest
products industry
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Background
 Forest industry is usually defined to include: pulp and
paper industry and wood-products industry
 However, in practice it also includes side products,
such as energy and chemicals production.
 Side products are becoming ever more important for
forest industry companies
 Next, some basic statistics of the world forest industry
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Export Value of the World Forest Products
(billion US$, in 2008)
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Forest
Products
236.8
Industrial

Roundwood
12.7
Wood Fuel
0.3
Paper &
Paperboard
Wood-products
Wood Pulp
209.2 (88 %)
Printing Papers
62.9
Other Paper &
Paperboard
50.0
Wood Pulp
31.7
Wood-Products
64.6
Rest (Recovered Paper,
MDF, etc.)
14.6
Data Source: FAOSTAT
Share 69 %
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Region’s Share of World Pulp & Paper
Production in 2007
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32%
30%
30%

6%
1%
1 %
North America
Europe
Asia
Latin America
Africa
Oceania
- Three regions dominate with almost equal share
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World’s Biggest Pulp & Paper Poducers
9
Country
million tons in 2007
USA
136
China
84
Canada
40
Japan
40
Finland
27
Germany
26
Sweden
24
Brazil

18
Russia
15
Indonesia
12
France
12
South Korea
11
Canada, USA,
Germany, Finland and
Sweden are
biggest exporters
Region’s share of world sawnwood and
panels production in 2007
10
35%
27%
25%
9%
2%
2%
Europe
North America
Asia
Latin America
Oceania
Africa
- Three important regions, but Europe dominates
World’s Biggest Sawnwood and Panels Poducers

Country
million cub. m. in 2007
USA
125
China
100
Canada
67
Germany
43
Brazil
33
Russia
33
Sweden
20
India
17
Japan
17
France
17
Austria
15
Finland
14
11
USA and China
dominate production,
but Canada and

Germany the exports
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The Economic Importance of Forest Industry:
Top Twelve Countries (2006)
Country
Forest Industry
gross value added
(US$ billion)
Forest Sector
gross value added
(US$ billion)
Forest Sector
% of total
labour force
Forest Sector
% contribution
to GDP
USA
90
108
0.7
0.8
Japan
32
33
0.6
0.7
China
28
41

0.4
1.3
Canada
25
32
1.6
2.7
Germany
22
24
0.8
0.9
Italy
12
13
1.1
0.8
Brazil
10
28
1.2
2.8
France
10
15
0.7
0.7
Sweden
10
13

2.0
3.8
UK
9
10
0.6
0.4
Spain
8
9
1.0
0.8
Finland
7
10
3.6
5.7
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Data Source: FAO State of the World Forests 2011
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What Do the Figuers Tell?
 OECD-countries dominate the global forest industry, only
two non-OECD countries in top 12 (China and Brazil)
 For three biggest producers (USA+Japan+China), the
relative importance of the forest sector for the whole
economy is rather small
 Forest sector plays an important role for economies of
Finland, Sweden, Canada and Brazil
 Note that countries like Germany and Italy are also major
forest industry countries!

 It is surprising that Russia is not on the list. It has the world’s largest
forest land area, the world’s 6
th
highest roundwood production, and is a
major sawnwood and pulp and paper producer  low value added,
statistics,exchange rate?
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2. Factors affecting forest products
industry: Demand and Supply
What detrmines forest products
demand?
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Factors Effecting Long-Run
Forest Products Demand
Factor
Printing Paper
Packing + carton
paper
Wood-products
Common
Growth in:
Economy
Population
Households
Price
Growth in:
Economy
Population
Households
Price

Growth in:
Economy
Population
Households
Price
More Specific
Advertising,
Literacy,
Democracy
Industrial activity,
Environmental
regulations
Construction
activity, Interest
rates
Substitutes (depends
e.g. on technological
development, consumer
preferences, and prices)
ICT
(digital media)
Plastics, Glass,
Metal
Concrete,
Steel,
Aluminium,
Laminate
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How have these factors already effected
the forest products demand?

 Common factors tend to result in a very gradual and often
rather moderate changes in demand, except for emerging
economies. Ex. packing paper demand in OECD-countries vs. Asian
emerging economies
 Specific and subsitute factors can result to radical and
rather speedy changes in demand. Ex. Newsprint demand in USA
 All the three factors can also work simultaneoulsy. This
seems to be the case. Ex. Printing paper demand in OECD-countries
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Over time forest products can vanish
and new emerge
 History shows that in the long-run there has been a
phenomenon of creative destruction also in forest products
markets (concept launched by economist Joseph Schumpeter in 1942)
 It is a basic feature of economic development that some
products die and new products emerge
 Exmaples of vanished products = tar, sulphite pulp, computer cards
 Exmaples of new products = MDF-panels, lables, CD-box
 Generally, technological development and new needs have
been a major driver for these changes
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19
The history of using forests
for livelihood in Finland
Hunting
Burn-
beating
Tar
Sawmill
industry

(steam mill)
Pulp &
Paper
Industry
1600-1890-1800 1859 - 1865 – 2030?
The use of forests has changed due to the needs and technology
Energy
Chemicals
Wood-prod.
Services
2010 -
20
What detrmines forest products
supply?
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Factors Effecting Long-Run
Forest Products Supply (production)
Factor
Forest Product Supply (production)
Common to All Regions
• Demand for the end product
• Price of the end product
• (exchange rate, in the short- and medium-
run)
Country Specific
Comparative Advantages
• Raw-material resources, forest growth,
institutional factors related to wood
markets
• Productivity (technology, synergies, R&D)

• Policies (taxes, subsidies, regulations)
• Labour costs
• Transportation costs (distance to markets)
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The annual growing period is long and productivity high in Brazilian
eucalyptus plantation compared to the planted birch forest in Finland
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Country
Hardwood
(short fiber)
Conifer
(long fiber)
Growth
m
3
/ha/yr
Pulp yeild
tn./ha
Growth
m
3
/ha/yr
Pulp yeild
tn./ha
Finland
5
1
5
1
Uruguay

40
10
35
7
Brazil
45
12
40
8
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Forest Growth in Finland and South-America
A ton of pulp produced in Stora Enso’s Veracel mill costs in Rotterdam
harbour the same amount than the roundwood needed for producing one
ton of pulp in Finland
Figures are approximative
Deman and Supply Impacts So Far
 In the 20
th
century, a rapid increase in forest products
consumption and production in traditional OECD-
countries
 Significant change to this pattern in the turn of the
century – the last decade has been a period of
stagnation in many OECD-countries
 Exactly reverse development has taken place in many
non-OECD countries: slow growth in 20
th
century and
a rapid growth in the last decade
 We look at this structural change in more detail as we

now turn to analyse long-run outlook for markets
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3. The future outlook