1.1 Scope
1.2 Organization of the Report
1.3 ITTO Trade Model
The Asia-Pacific region is being rapidly transformed due to fast economic development and population growth. Patterns of forest resource utilization and the manufacture and trade of forest products have changed dramatically in recent years, and will continue to evolve in response to these economic and social forces.
This report examines the evolution of the solid-wood industries of the forest sector of the Asia-Pacific region from 1995 to 2010. A scenario is constructed based on the current supply and demand conditions of the region, and the current industry structure and trading relationships. This scenario is analyzed with the International Tropical Timber Organization Asia-Pacific Tropical Timber Trade Model (hereafter called ITTO Trade Model or the model, and described later in this introduction). Two additional scenarios, examining conditions of supply scarcity from the natural forest and stronger end-product demand, are also discussed.
The primary data sources for this study are reports documenting the development of the ITTO Trade Model and its attendant database (ITTO 1993, 1995) and the most recent annual statistical review of the ITTO (ITTO 1996b).
The geographic scope of this study is limited by the state of development of the ITTO Trade Model. The major ITTO producing countries of the region are represented in the model: Indonesia, Malaysia (Peninsular Malaysia, Sabah, Sarawak), Myanmar, Papua New Guinea, and the Philippines. The model also represents the ITTO consuming countries: Japan, Republic of Korea, People's Republic of China, Taiwan Province of China, and Thailand. Cambodia, Laos, Vietnam, and the Solomon Islands are also included on the producer side of the model, while Hong Kong and Singapore are included as consumers. Other countries normally considered to be in the Asia-Pacific region - India, Pakistan, and Bangladesh - are not included in this study.
The scope of the study with respect to forest products is limited to the current capabilities of the trade model. Only logs, sawnwood, and panel products are considered. Plywood and veneer are aggregated in the model and the ensuing analysis. Pulp, paper, and remanufactured products are not included. Secondary manufacturing and reconstituted panels (particle board, medium-density fibreboard [MDF], and oriented-strand board [OSB]) are considered only in the analysis of demand, and are not represented explicitly in the model.
Finally, while some aspects of the model have been updated from recent ITTO statistical surveys, the model is largely based on supply and demand data collected in 1993.
The first part of this report describes the log supply of the region, the demand and substitution assumptions, the current industry structure, and current trade patterns. In the second part, a base case scenario is developed, analyzed, and discussed; alternative scenarios are also analyzed and compared to the base case. The concluding section presents forecasts and discusses implications for the region.
Description
The ITTO Asia-Pacific Tropical Timber Trade Model is a spatial partial equilibrium model with trade flows between producers and consumers explicitly represented. It is a "partial equilibrium" model in that the model finds the equilibrium point where supply equals demand for each product/period, without explicitly considering any interactions between the forest sector and other sectors of the economy. Commodities (logs, sawnwood, plywood/veneer) are produced in "supply regions" according to a supply equation; transformed based on technology defined by an input-output coefficient and a unit manufacturing cost; and finally consumed according to a demand curve in a "demand region." Short-term tropical log supplies are represented as supply curves with an upper bound.
The model calculates the equilibrium solution by maximizing the sum of producer and consumer surplus (essentially the area under the supply and demand curves for each product, representing the aggregate value to producers/consumers of supplying/consuming a product) subject to material balance and capacity constraints in each region. The model solution provides the equilibrium quantities of all products produced, transported, and consumed in the various regions/countries, as well as the market clearing prices for these products in each period.
The model was developed under the ITTO project Analysis of Macroeconomic Trends in the Supply and Demand of Sustainably Produced Tropical Timber From the Asia-Pacific Region, Phases I, II and III (ITTO 1993, 1995, 1996a).
The model is based on the price endogenous linear programming (PELPS) system developed by Zhang et al. (1993). This system, which consists of a data entry module, model generator, solution software, and report writer, was modified substantially in Phase III of the project to enhance user friendliness and now runs using standard Windows software for the input-output modules.
Rationale for using the ITTO Trade Model in this study
As noted already in this section, the ITTO Trade Model is formulated with a high level of aggregation of commodities and a low resolution of economic processes. In its current state it is unlikely to produce insightful, let alone unexpected, forecasts.
However, the model provides a framework for considering the interactions of its various inputs and assumptions, demonstrates their completeness and consistency, and quantifies their effects. In this way, the model is a valuable tool to help the analyst develop and communicate a complex forecast.
