The previous section of this report examined, in greater detail, the supply-side of the baseline wood and wood product supply and demand forecasts presented earlier. In particular, it examined possible future changes in forest resources and the effect they might have on the availability of future wood supplies. This section of the report discusses possible future changes which might take place on the other side of timber markets; in other words, changes in the demand for wood products and, through technology changes, the derived demand for industrial roundwood.
With the exception of wood fuel and a few minor uses for round poles, all roundwood is processed to some extent before it reaches the final consumer. Sometimes this processing is fairly simple, such as sawing the wood; other processes such as pulping and the manufacture of reconstituted panels are considerably more complex. There have been considerable changes in the efficiency of all of these processes in the past and it is expected that there will continue to be changes in technology in the future.
On top of technology changes, there are also changes in consumer preferences for final products (e.g. sawnwood and paper) which can have an impact on the derived demand for wood and wood products. In particular, recent debate has focused on environmental concerns about the production of wood and wood products. This has led to a number of initiatives which may affect the marketing of and demand for wood and wood products.
One final issue which will also be examined here is the impact which the increasing globalisation of the world economy might have on the production and trade in wood and wood products. To a certain extent, the forest industry has always been a global industry. A large proportion of wood and wood product production is traded in international markets and foreign capital, skills and technology support production in many of the largest producing countries in developing regions. However, both the potential changes in technology and changes in consumer preferences referred to above are largely driven by developed countries, so increased globalisation may have an influence on how they affect developing country producers.
This section of the report is organised as follows: first, it describes current trends under each of the above topics and the impact they might have on future wood and wood product supply and demand. It then finishes by roughly quantifying the possible impact some of these changes might have on the markets for wood and wood products.
As in any other industry, the forest processing industry is constantly improving technology in response to changes in resource availability and in the pursuit of new markets and higher profitability. There are three main ways in which technology changes affect the industry and, consequently, the balance of forest products supply and demand:
1. in terms of raw material availability, new processes increase the types and quality of wood and fibre which can be processed into useful products and increase the volume and variety raw material resources which can be considered as available for future wood supply;
2. in terms of end-uses, technological changes alter the patterns of demand for wood products, many of which have very different wood raw material requirements; and
3. in terms of the production process, new processes and improvements to existing processes can increase the amount of product which can be manufactured from a given amount of wood and fibre input, effectively utilising another source of supply - forest processing residues.
There are many examples of how such changes have affected wood and wood product supply and demand in the past. The development of a wide variety of different types of reconstituted panels have allowed the forest industry to manufacture products out of wood from vast areas of forest which were previously identified as containing mostly non-commercial species. Examples include the aspen forests of North America and birch woodlands across much of Northern Europe. In Southeast Asia, research into processing and effective marketing have supported the development of a significant rubberwood processing industry.
The development of the reconstituted panel industry has also started to change patterns of solid wood consumption in end-uses such as furniture manufacturing and construction. Not only do reconstituted panels tend to have higher product recovery rates than the sawnwood that they have started to replace in some markets, but they have also increased the recovery of utilisable product from sawmilling itself by increasing the market for sawmilling residues.
The analysis presented below has investigated the likely future developments in each of these areas for three main sectors: the paper and paperboard manufacturing sector; solid wood product production in developed countries and solid wood product production in developing countries23.
In terms of fibre supply and demand, the most noticeable changes in pulp and papermaking technology which have occurred in recent years have been changes in the acceptability of new fibre sources and in the end-uses of different types of paper. In contrast, fibre recovery in the actual pulp and paper production process has not changed by very much. For example, many of the recent advances in waste recovery, such as better screening and recovery of effluents, have had beneficial environmental impacts, but have probably not increased fibre recovery dramatically for any particular pulping process.
The greatest technological change in the sector over the last three decades has been the move towards the increasing use of recycled paper in the fibre furnish for papermaking. This has been encouraged by the increasing costs of disposing of such waste material and environmental legislation.
Statistics showing historical trends in the use of recovered fibre in the overall fibre furnish have been collected by FAO. Therefore, it has been possible to analyse these trends and incorporate an expected change in the future use of recycled fibre into the supply and demand projections presented earlier. Currently, wastepaper recovery rates (the proportion of paper consumption which is collected each year for recycling) vary from 10-15% in countries with abundant forest resources and low population densities to 65-70% in countries with high population densities and limited forest resources. The baseline projections presented earlier have assumed that the proportion of paper consumption collected and turned into recycled paper will increase in line with historical trends, subject to an overall limit that the proportion of recovered fibre used in papermaking will not exceed 70%.
The historical trend in the use of recovered paper in the total fibre furnish can be inferred from Figure 1, which shows the proportion of pulp used in paper manufacturing falling from 80% in 1970 to around 60% in 1996. Recovered paper and a small amount of fillers (e.g. china clay and bonding agents) account for the remaining volume of raw materials used in paper production. It is expected that the trend shown in Figure 1 will continue and that, by 2010, pulp will only account for about 50% of the inputs required to make paper. This trend is incorporated into the baseline projections presented earlier.
Even greater growth in the future use of recovered paper is technically feasible, but would depend upon two major factors: the economics of collection and recovery (i.e. the costs of collection and the value of recovered paper) and policy measures requiring or encouraging papermakers to use such material.
Relatively high recovery rates are currently achieved in some developing countries where population is high and labour is inexpensive (e.g. India and China). However, the value of recovered paper is often low in developing countries where there is an abundance of cheap pulpwood. Thus, in countries such as Russia and Indonesia recovery rates are somewhat lower than could be achieved given their relatively low labour costs and high levels of urbanisation. However, it is unlikely that, without specific government intervention to encourage greater recycling (e.g. recycling laws or changes in pulpwood pricing policies), developing countries will increase their use of recovered paper beyond the levels incorporated into the forecasts presented earlier.
OECD countries (particularly those in Western Europe) have passed most of the major changes in legislation to encourage paper recovery. For example, the European Parliament passed a directive in 1994 requiring that member states must recover a minimum of 50% of all packaging materials within five years of the implementation of the directive into national laws24. Some member states have individual initiatives which go beyond this (e.g. Germany). In the United States of America, the American Forest and Paper Association has established a voluntary target of 50% wastepaper recovery by the year 2000. Other highly urbanised countries such as Australia and Japan are also already major wastepaper recyclers, without the need for much government intervention. Again, these developments have already been incorporated into the forecasts presented earlier and it is doubtful whether the use of recovered paper could be increased beyond these levels within the timescale of this analysis.
The other major raw material change which has occurred in the last few decades is the growing acceptability of hardwood species for pulp production. Traditionally, softwood species have always been preferred for pulp production due to their long fibre length and strength. However, improvements in the pulping process have enabled hardwoods to take a greater share of this market in recent years. For example, Figure 8 shows that the proportion of non-coniferous pulpwood production in total pulpwood production has increased from less than 20% in 1961 to 40% in 1997.
Figure 8: Production of coniferous and non-coniferous pulpwood 1961 - 1997
Source: FAO (1999b)
This development has encouraged the establishment of fast-growing plantations of hardwood species across the world. For example, in the Southern United States of America, large fast-growing poplar plantations have been established for the production of pulpwood and a large proportion of the vast areas of plantations in tropical countries have been planted with eucalypti and acacia for pulp production.
The move towards greater acceptability of hardwoods for pulping has, in part, also been encouraged by changing end-use demands in the paper sector. The fastest growing sector of the paper market is the market for printing and writing paper. Such papers require high density, opacity and porosity. These are characteristics in which hardwood pulps excel compared with their softwood alternatives. The trend towards demand for these types of paper will also reduce fibre requirements because such paper has a higher content of non-fibre raw materials (e.g. bonding agents and fillers such as kaolin).
The above changes have already been built-in to the forecasts presented earlier in that the different product recovery rates (for each of the paper products) have been incorporated into the projections for derived pulpwood demand.
The only other major technological shift which may improve recovery in the near future is if the mixture of mechanical and chemical pulp in the overall fibre furnish changes. Due to the differences in the pulping process, it generally takes less raw fibre (roughly one cubic metre) to produce one metric tonne of mechanical pulp than it does to produce one tonne of chemical pulp. However, chemical pulping is often a cheaper process due to lower energy costs and is the preferred process for species with short fibre lengths such as hardwoods. Therefore, chemical pulp currently accounts for the vast majority of pulp consumption in most countries of the world.
As mechanical pulping processes improve, it is expected that pulp consumption will shift more towards mechanical pulp. The model currently assumes that a gradual shift towards greater use of mechanical pulp will occur on the grounds of increased cost-effectiveness. Thus, for example, the proportion of total wood pulp consumption held by mechanical pulp increases from 22% in 1996 to 27% in 2010 in the baseline projections presented earlier. If technology allows mechanical pulp to substitute for chemical pulp even faster than is currently projected, this would have the impact of reducing future wood and fibre requirements for pulping even further.
Technological innovation has brought several new solid wood products to the market in recent decades. Each time this has happened, these products have tended to help to extend the use of forest resources. Particleboard (chipboard) production started on a commercial scale in the 1950's, followed by oriented strand board production in the late 1970's and medium density fibreboard production in the early 1980's. New products currently beginning to enter the market in a major way include laminated veneer lumber, I-joists and strand lumber.
Figure 9 shows the increasing role that engineered wood products have played in the markets for solid wood products in the United States from 1950 to 1997. As the figure shows, a considerable amount of the growth in production of solid wood products over the last four decades has been met by development of these new products. In contrast, sawnwood production has remained relatively static and plywood production, while growing at first, has declined in recent years.
Figure 9: New product developments in the markets for solidwood products in the United States of America since 1950
Source: Ince et al (1997)
This situation has been mirrored in most developed European economies except that, in many cases, the market share taken by reconstituted wood products25 has been even greater than in the United States of America and Canada. Only in Japan has the market for solid wood products not experienced these sorts of changes to a significant extent.
The technology to produce such products and utilise them in situations where previously sawnwood and plywood would have been used, has had a profound impact on the extent and type of forest resources which can now be used for solid wood processing. The most important impact has been that such products have enabled smaller sized trees and residues from sawmilling and plywood manufacturing to be used to manufacture these products. This has greatly increased the supply of wood and fibre from sources that would have previously been considered as non-commercial.
A similar impact has been that such changes have greatly increased the number of species which can be used to manufacture solid wood products. Wood, because it is a natural product, can be very variable in terms of its strength, durability and workability. Consequently, all over the world, a few species have become the preferred species for manufacturing sawnwood and plywood, because their properties have been researched, are generally predictable and are well documented and well known.
Trying to introduce a new, less well known species to manufacturers of sawnwood and plywood is a slow and difficult task. However, with engineered wood products, it has been possible to take a wide variety of species and, through the manufacturing process, turn them into an acceptable and predictable product. Thus, for example, species such as birch in Europe and Alder in North America were once regarded as non-commercial because they were generally too small to peel or saw and didn't have many of the other properties desired for sawnwood or plywood. Now they can be chipped and turned into reconstituted panels which can be used in a variety of end-uses and are generally cheaper to produce than the sawnwood and plywood they have replaced.
The third impact on raw material demands has been that reconstituted panels generally require less wood input per cubic metre of output. Thus, for example, sawnwood and plywood typically require 1.75 to 2.0 cubic metres of input to produce one cubic metre of output in developed countries (and even more in developing countries because technology levels tend to be lower). However, conversion rates for reconstituted products are generally lower than this and may be in the range of 1.2 to 1.6 cubic metres of input to one cubic metre of output.
In part these technological changes have been driven by increased scarcity of large logs in temperate and boreal forests as harvesting has moved from old-growth to secondary-growth natural forests. Another major factor has been the availability of cheap wood residues, which were previously either used for pulp production or simply discarded if no local pulpwood market existed. It is not uncommon now to find sawmills in Europe and North America with near-100% product recovery rates when the residues from sawmilling are chipped and used in the manufacture of pulp and reconstituted panels.
In terms of end-uses, technological improvements have also reduced the volume of product required to meet end-use needs or demands. Thus, for example, I-joists and laminated veneer lumber can be substituted for sawnwood in many end-uses such as roofing joists and beams. These products require a lower volume of wood than an equivalent piece of sawnwood to meet a certain structural requirement. They can also be produced in longer lengths which reduces the need for overlaps at seams, which further reduces wood requirements.
In contrast to paper and paperboard production, processing technology in the sawmilling and wood-based panels manufacturing industries has also improved dramatically over the last few decades. Spelter (1999), lists a whole range of ways in which sawmills in North America are increasing the amount of product they can recover from each cubic metre of log input, including: better operator training; optimised sawing; curve sawing; and varying feed rates into the sawblade.
These improvements have helped to push product recovery rates (i.e. the volume of sawnwood produced from a given volume of roundwood) up in the North American sawmilling industry over the last 30 years. For example, Figure 10 shows that product recovery rates in the Western United States of America increased from 42% in 1968 to 47% in 1992. This was slightly below projections made in 1973 (H C Mason and Associates, 1973), but these improvements have been made against a background of slowly deteriorating log size and quality in the region. However, it does mean that, for each cubic metre of wood input, mills in this region managed to produce 0.5% more sawnwood output on average each year over this period. This rate of growth in recovery (0.5% per annum) may not seem like much, but it must be remembered that the projected growth to 2010 of sawnwood production in North America shown earlier is also only a small figure (0.7% per annum).
Figure 10: Projected and actual product recovery in sawmills and plywood mills in the Western United States of America 1968 - 1992
Source: Spelter (1999)
The wood-based panel industry in North America has similarly developed some improvements in processing technology which have increased recovery rates. Plywood mills now use scanners to reduce waste at the start of peeling and improve clipping. Modern peeling machinery can also peel down to a smaller core with retractable or telescopic spindles. This has pushed plywood recovery rates up from 45% to 55% over the last 30 years in some regions (see Figure 10 above).
In the manufacture of reconstituted wood panels, a range of technological improvements have increased product recovery. Larger logs can now be fed into the chippers or flakers and modern machinery can make larger panels. Both of these improvements reduce trimming losses. Heat conditioning the logs before they enter the process also reduces the production of fines (small particles - e.g. sawdust - which can not be used in the final product) and better gluing technology has reduced the amount of wood needed to make a board of a given strength. Reconstituted panels already have the best recovery rates of all solidwood products (up to 60% in the most technologically advanced mills), but many mills are somewhat behind in their adoption of new technology. There is therefore, still some scope for improvement in product recovery rates across the industry overall.
Very little information is available about product recovery in developing countries. However, it is generally believed that many developing countries, particularly those with large forest resources, have much lower rates of product recovery than are typically found in developed countries. It is also believed that there have not been any significant trends towards greater efficiency in forest products processing in developing countries over the last 30 years.
To a large extent though, many of the opportunities for technological improvement outlined above are, if anything, even greater in developing countries than they are in developed countries. There are two reasons for this. Firstly, at least in the case of tropical countries, the average size and quality of industrial roundwood harvested from the forest is generally higher than would be found in most developed countries. Secondly, the required quality of products in developing countrys' domestic markets are generally lower than would be found in developed country markets. Therefore, many of the conversion losses associated with producing a high-quality finished product might not apply to many developing countries where a slightly lower quality of product is generally acceptable.
There are however, a few examples where new products have been developed in response to changes in resource availability. One of the most notable developments over the last few years has been the increased use of agricultural tree crops in Southeast Asia. Rubberwood utilisation has been pioneered by Malaysia in response to diminishing industrial roundwood supply in Peninsular Malaysia and the large area of rubber plantations present in the country. A similar development has also occurred in Thailand, where there is now a complete ban on logging in the natural forest and both countries have developed significant rubberwood processing industries.
Rubberwood sawnwood is unlikely to substitute for other types of sawnwood in many applications, but it has been found to work well in applications such as furniture making. There are also now several medium-density fibreboard plants either operating or planned in Southeast Asia which will use rubberwood as their main raw material source. The next likely development will be the use of oil palm husks and trees for the manufacturing of medium-density fibreboard. One such plant was proposed in Malaysia last year, although it is unclear whether, given current financial circumstances, this plant will still be built in the near future.
In terms of end-uses, one of the most notable aspects of forest products markets in developing countries is the size of the share of solidwood products markets in these countries held by sawnwood and, to a lesser extent, plywood. Only a tiny proportion of the world's reconstituted panel production takes place in developing countries and, similarly, such products have only a negligible share of their domestic markets. As noted above, reconstituted panel production offers tremendous opportunities for utilising new sources of fibre from forest industry residues to less-well known forest species and non-forest trees. It is likely that a significant proportion of the high growth in demand for forest product expected in developing countries over the next decade, could be met without significantly greater forest harvesting if reconstituted panel products were to be more frequently utilised.
The trend toward increased globalisation has accelerated during the past decade. Most countries have adopted trade, investment, and even environmental policies, which have reduced national insularity and promoted a greater level of standardisation in market prices, production processes, product quality, and regulatory environments. As noted above, the forestry sector has always, to a certain extent, been a global industry and it has not, therefore, been immune to these developments.
It is likely that three aspects of globalisation have the most potential to significantly affect the future development of forestry and forest products markets. These are:
1. trade liberalisation in forest products markets;
2. the increasing role foreign investment and multinational corporations operating in the forestry sector; and
3. the globalisation of environmental advocacy and concern.
The possible future developments in each of these areas and the potential impacts they might have on markets for wood and wood products are briefly described below.
In 1994 the Uruguay Round of negotiations over trade, tariffs and non-tariff barriers to trade concluded with a series of commitments to lower tariff and non-tariff barriers and overhaul the world's trade policy and dispute negotiation mechanisms. The commitments made during the Uruguay Round provided both promises of tangible reductions in global trade restrictions and a new impetus to trade liberalisation efforts.
In addition to the major negotiations such as the Uruguay Round, which have been taking place over the last 50 years, more recent history has also seen an expansion in the number and scope of regional trade agreements and trading blocs. Associations which have developed or expanded over the last 30 years include: the North-American Free Trade Agreement (NAFTA); the European Union (EU); APEC; ASEAN; the Mercado Comun del Sur (MERCOSUR); and the Caribbean Community (CARICOM). These have offered further potential for reducing trade restrictions at the regional level.
However, trade policies in the forestry sector are already currently relatively liberal in comparison to say, for example, agriculture. The highest rates of import tariffs on wood products in developed countries are for wood-based panels (especially plywood) and furniture, at around 15% (see: Bourke and Leitch, 1998). Tariffs on most other wood products are in the 5-10% range and many wood products have no import tariff at all. Import tariffs on all wood products in developing countries are generally higher than in developed countries and are mostly in the region of 20-40%, with tariffs as high as 50-80% on some finished wood products.
Probably the most significant trade measures that have had an impact on markets for wood products in the past are non-tariff barriers. Non-tariff barriers include a wide range of measures such as: export or import quotas; licensing requirements; phytosanitary, technical and environmental requirements or standards; and overcomplicated import or export procedures. Of these, export restrictions (usually put in place to develop domestic industries) have probably had more of a detrimental effect on forests than import restrictions (usually implemented to protect markets).
An example of a non-tariff barrier commonly encountered in the forestry sector is restrictions placed on the export of unprocessed wood products. A large number of countries have implemented such measures, both as a means of reducing demands on limited forest resources and as a means of promoting domestic processing industries. Some have restricted only log exports while others have gone further and have also placed restrictions on exports of wood chips or sawnwood. This is one of the few areas where the forestry sector has been tending to go in the opposite way to the global trend towards more liberal trade.
As with most trade restrictions, the net effect of export restrictions on global efficiency is likely to be negative. Such measures will encourage the development of a local industry, but they won't necessarily encourage the development of an efficient and internationally competitive industry. For example, export restrictions reduce domestic raw material prices (i.e. industrial roundwood prices), which then tends to reduce the incentive to use such materials efficiently. Also, as a significant industry develops, which is dependent upon the supply of cheap raw materials, it becomes increasingly difficult to remove the trade restriction. In other ways, export restrictions may be detrimental to forest resources since they tend to lower the revenues available to forest owners and hence reduce the incentive to invest in better forest management.26
A concise review of the outlook for future trade measures is given in Bourke and Leitch (1998), which presents a synopsis of the major commitments made during the Uruguay round to reduce import tariffs and non-tariff barriers to trade over the next 10 to 15 years. Generally, import tariffs in developed countries will fall by 43% for solidwood products and 99% for pulp and paper products. In many cases, import tariffs on pulp and paper products will fall to zero and import tariffs on furniture will also fall to zero in some countries. The only sector where import tariffs are expected to remain high is wood-based panels, especially plywood. Developing countries have also agreed to cut import tariffs to a certain extent, but import tariffs in developing countries will remain somewhat higher than those in developed countries. The impact of these tariff reductions on future supply and demand will be to further reinforce the expected trend towards greater trade in higher value-added products expected in the future.
It is not possible to project what might happen to non-tariff barriers to trade and other trade impediments. Some agreements were reached on phytosanitary measures and technical barriers to trade in the Uruguay Round, but the impacts of such measures (and, consequently, reductions in them) are difficult to quantify. Furthermore, discussions tended to focus mainly on barriers to imports rather than export trade barriers (such as log export bans). It would seem therefore, likely that bans or high tariffs on exports of unprocessed wood products are likely to be a feature of the future, unless countries can be persuaded to remove them. The continuance of export restrictions for certain types of wood product and in certain countries was built into the baseline projections presented earlier and there are no grounds to suggest that these measures will change significantly in the future.
However, one new feature of trade which has become more prominent in recent years and has the potential to grow significantly in importance in the future, is the number of informal barriers or impediments to trade which have arisen in developed countries. Informal barriers to trade include: the formation of buyers groups; local and national government policies to only purchase certain types of products or products from certain countries; and voluntary bans and boycotts promoted by environmental non-governmental organisations (NGOs). In part, these impediments are intimately associated with moves to create green labels and certify forests. To the extent that these measures can be pushed forwards outside the mechanisms for control and negotiation of the World Trade Organisation, they have the potential to have a significant impact on exporters of wood and wood products in the future and their impact on future supply and demand patterns will be discussed in a separate section on certification below.
Recent strong moves toward the development of a Multilateral Agreement on Investment (MAI) are similarly indicative of the move towards globalisation in the investment and capital markets. Within the forestry sector there is significant and often longstanding foreign direct investment in forest and forest processing operations and some of the world's largest forestry companies have operations in many countries. Cross-border investments in the forestry sector have been controversial in some cases, particularly in the harvesting sector, but there are few signs that such investments are likely to decline in the long-term future.
Historically, there has been significant resistance to foreign ownership of forests in a number of countries. Forests have often been regarded as strategic national assets and foreign ownership has been regulated against in some countries and popularly opposed in most others. Nonetheless, there is evidence of a trend towards a more liberal future, with several countries advancing significantly down the path of forest privatisation, including selling forests to overseas interests.
Foreign ownership of processing facilities is much more common than foreign ownership of forests and tends to be less controversial. Such investments are often seen as a means of developing national economies through the generation of income and employment, provision of training and transfers of technology, marketing and management skills. To the extent that such investments do supply such benefits to host countries, they are a desirable component of national development which should be encouraged.
The main problems which have arisen with foreign investment in the past have been in cases where such investments have not supplied many of the above benefits. Perhaps the best examples of this have been where multinational companies have obtained licences to harvest outside their home countries, particularly (but not exclusively), in tropical forests. For example, several Asian companies have recently obtained harvesting licences in Africa and South America. In cases where they have imported capital and labour to manage these areas, they have provided few benefits to the countries where they are working. These arrangements have provoked some controversy in the companies home countries, the countries they are working with and within the international community.
In terms of the outlook for globalisation and forestry investment and the impact such moves might have on future timber markets, the future is uncertain and difficult to quantify. However, a few points are probably worth noting.
Firstly, the privatisation of forest resources is likely to continue, although probably at a slower rate and more so in developed countries than developing countries. A possible exception to this may be Eastern Europe, where efforts to return formerly centrally-controlled forest assets into private-hands can be seen as a form of privatisation. This continuing trend in privatisation will offer more scope for cross-border investment in forest management and harvesting in the future.
Secondly, in terms of processing facilities, most developing countries will continue to need strong inflows of foreign capital and expertise if they are to fully develop the economic potential of their forest resource base. However, from the point of view of national development, it will be important to ensure that such inflows involve more than just capital, but also involve flows of technological, marketing and management expertise.
The last point to note is that these developments, if carefully planned and monitored, are not to be feared. Many of the controversies surrounding forest harvesting by multinationals are not the fault of the multinationals themselves, but rather due to the weakness of forestry institutions in some countries. Often, the multinationals are merely following the same low standards set for domestic forest operators in host countries but, due to the sheer size of their operations, are having a much more noticeable impact. On the positive side, foreign investment in the forestry sector in developing countries, has the potential to bring in improved technology and management practices. This, in turn, could help to balance future supply and demand without requiring more harvesting in new areas of forest, in the same way as was suggested above under efficiency gains. The key to achieving this will be to ensure that there is the right policy and institutional framework in place in countries to encourage such moves.
The 1990 Rio Summit highlighted awareness of the need for a global approach to environmental issues including forestry. The development of the new vision for forestry - "Sustainable Forest Management" - has effectively paralleled a broader drive toward global sustainable development, which has gathered momentum throughout the 1990s. To a large extent this has been a result of heightened awareness that environmental issues, such as those facing the forestry sector, will generally have cross-border implications. Evidence of such awareness is provided by recent international initiatives such as: the development of criteria and indicators for sustainable forest management; moves towards forest certification; agreements on carbon emissions (including sinks such as forests); and agreements to jointly monitor and manage international watersheds.
This heightened international awareness of forests and the environment is, perhaps, the last major example of where increased globalisation has had an impact on forestry. Where formerly, powerful commercial forestry interests could manipulate developing country governments and poorly educated landholders, far greater balance has been achieved through the interventions of environmental NGOs, development agencies and the development of more stringent environmental regulations within developing countries themselves.
The trend toward increased globalisation in environmental advocacy and concern has also resulted in a recognition that, in the future, national forest policies are likely to receive greater international scrutiny and that forestry development and the ability to produce and trade in forest products may be contingent on meeting specific international standards. For example, market opportunities or access to foreign capital may be denied to companies that cannot prove that they have a good environmental record or provide a credible promise that they will do so in the future.
The outlook for this aspect of globalisation is that, with continually increased access to new communication media, the trend towards the internationalisation of environmental concern will continue. Furthermore, there is evidence to suggest that this globalisation will also result in stronger grass-roots NGO capacity in developing countries. The impact of this on future timber markets is most likely to be in the areas of trade and investment already discussed above.
One market development that has increased in importance since the early 1990's has been the issue of forest certification or ecolabelling. In many respects, forest certification represents a serious attempt by consumer countries to try to influence forest management through demand-side responses to environmental concerns as opposed to the more traditional route of pressure to change supply-side practices through international agreements, political pressure and lobbying and more gentle persuasion through the development assistance programmes of developed countries.
It is still uncertain as to what impact forest certification will have in the long-run and whether the interest in certification (both political and in terms of market preferences) will be sustained. However, this section will attempt to describe some of the basic issues that have developed to date and present some views on the future.
A range of forest certification schemes have been developed or are currently being developed around the world at the moment. Certification schemes can be divided into two basic types: systems-based schemes and performance-based schemes, which can be implemented by one of three different types of agents: first; second; and third-party certifiers (see Box 6 for a description of the different types of certification scheme).
Box 6: The difference between different types of forest certification scheme
Distinctions between different arrangements for certifying forests are usually made in two areas. Firstly, various schemes are differentiated according to who is doing the certification and secondly, there is a difference between schemes which actually measure performance as opposed to those which report on systems for identifying and measuring environmental performance. These differences are explained below.
First, second and third party assessment
The difference between first, second and third party assessment is the independence of the organisation carrying-out the assessment for the purpose of certifying the forest or forest product. A first-party assessment occurs when a company assesses, measures and reports its own performance against a set of environmental standards. Second-party assessment occurs where this is done by a slightly more independent body such as a customer or a trade association. Third-party assessment involves an assessment by a neutral third-party, based on a standardised and commonly accepted set of standards applying across the whole of the sector.
Performance and systems-based certification schemes
To pass a systems-based certification scheme, a company must demonstrate that it has a management system in place to identify, measure and monitor the company's impact on the environment and encourage improved environmental performance. It does not, however, have to pass any particular standard in any of the areas in which it is monitoring performance. Rather, the collection of the monitoring information itself is seen as a desirable first-step to improving performance.
A performance-based scheme goes a stage further than a systems-based scheme and requires that the company must meet certain standards or at least report achievement in a quantitative way in each of the environmental areas which it is monitoring. Typically, this information is then passed on to the consumer in the form of a "green label" or "ecolabel" on the final product.
Source: Adapted from Hansen (1998)
A range of national and international certification schemes have developed over the last decade in response to varying market and forest conditions around the world. Probably the two largest national certification schemes at the moment are: the American Forest and Paper Association's Sustainable Forestry Initiative (which is a second-party, performance based scheme); and the Canadian Standards Association's Sustainable Forest Management System Standards (a third-party, system based scheme). Some other countries are also developing national certification schemes. Those countries which are furthest down the route of developing their own schemes include: Finland; Sweden; Norway; Indonesia and the United Kingdom.
Two major international certification schemes have been developed. The first is the International Organisation for Standardisation's ISO Standards 14001 and 14061. These standards are both systems-based certification schemes, with optional third-party auditing. The second major international certification scheme is the set of standards developed under the auspices of the Forest Stewardship Council (FSC). The FSC certification scheme is a third-party performance-based scheme, monitored by independent certifiers accredited by the FSC. The standards which have to be met to obtain an FSC certificate vary in accordance with the local conditions facing the forestry sector in each country, but this is only reasonable considering the wide range of forest types which the FSC have attempted to cover in their certification scheme.
Figure 11: Area of forest certified by FSC-accredited certification bodies
Source: Forest Stewardship Council (1999)
Of all the forest certification schemes, the FSC certification scheme is probably the most well-known. The area now (January 1999) certified by the six independent companies working to FSC guidelines has just reached 13 million ha (see Figure 11). This is still, however, only a tiny fraction of the total area of forest used globally for wood production each year (several hundreds of millions of hectares). The World Wildlife Fund (WWF) and World Bank have, as part of their strategic alliance announced in 1998, agreed to pursue a goal that 200 million ha of forest will be certified by the year 2005. This will present a major challenge, particularly if they want to include a significant proportion of certified tropical forests in this total (see, for example, Box 7, which presents a much less optimistic view of the future for certification).
In parallel (and often in association) with the development of certification schemes, has been the development of demand for such products. The organisations promoting certification have tended to stimulate demand for certified products in two ways. Firstly, they have lobbied local authorities (and sometimes parts of national government) to use only certain types of timber. Secondly, they have encouraged local retailers (sometimes with the threat of environmental protest) to stock certified products. They have had some success in both of these sectors, but it should be remembered that the vast majority of wood products are used in industrial applications, where forest certification has yet to make any significant impact.
Box 7: Seven nails in the coffin of certification?
Forest certification represents a serious attempt by environmental NGOs to try to influence forestry policy and management by altering market signals. In as much as market signals have a powerful effect on the way that companies and individuals act, this is to be commended. However, there remain a number of questions about the viability of forest certification in the long-run and, perhaps more importantly, whether it is likely to have any real impact on the forests that are most under threat from unsustainable practices. _ Forest certification will be most attractive (i.e. present the least additional costs) to forest owners and mangers that already manage their forests reasonably well either due to strong national regulatory frameworks or because the owners already place high importance on environmental or multi-purpose management objectives. This is partly reflected by the fact that most of the area that has currently been certified by the FSC is in the western developed countries. _ By concentrating on how forests are managed for the production of marketed forest products, forest certification will do little to stop deforestation and have little impact on forests that are unsustainably managed to meet local needs. _ Increasing globalisation in forest products markets means that end products often mix wood and fibre inputs from a number of sources that are increasingly difficult to verify. Wood is also only a small part of the end product in some of its most important applications (e.g. in construction and furniture manufacturing) and the distance between the forest and end-user is becoming increasingly long. _ The benefits from purchasing certified wood to the end-user are mostly non-use benefits as opposed to use benefits (in comparison to some other environmentally friendly products such as energy efficient appliances and organic food). _ The benefits are poorly understood and difficult to market (in comparison to, say, dolphin friendly tuna). _ Studies have shown that the markets for certified forest products in developed countries are relatively limited and the prospects for price premia are poor. _ The majority (80 percent) of marketed wood and wood products produced in developing countries is also consumed in developing countries, where willingness to pay for environmentally friendly forest products will be constrained by ability to pay. Taking these points into consideration, it is difficult to assess exactly how useful forest certification will be in the long-run as a measure to promote and encourage sustainable forest management. It is also very unclear as to whether it represents a cost-effective policy tool. The major benefit of forest certification may be that it has raised awareness of some important forestry issues amongst both consumers and producers and may lead to greater support for more effective policy changes in the future. |
Actions by local authorities (and parts of national government) to ban the use of certain types of timber in their offices and public projects have been especially prevalent to date in Germany, Netherlands, United Kingdom and United States of America. These actions have mostly tried to ban the use of timber from sources which do not meet some definition of sustainability (which has often been defined as having an FSC-backed certificate). However, they have also either implicitly or explicitly tended to focus on banning the use of tropical timber. It is generally accepted that such bans are of limited value or, at worst, counterproductive (Bourke and Leitch, 1998) and some authorities are starting to back-down from such actions. It is also questionable whether such actions would stand-up to scrutiny under international trade law if tropical countries were to push for their removal in bodies such as the WTO.
Moves to encourage local retailers to take certified products (or even better still, to only take certified products), started in 1991 with the foundation of the 1995 Group of timber retailers in the UK. This line of action has been pushed forward in particular by the WWF and buyers groups (groups of retailers committed to only selling certified products in the future) can now be found in eight countries (see Table 28).
Table 28: Timber buyers groups operating in 1998
Country |
Group name |
Founded |
Number of members |
Total annual sales (US$ millions) |
United Kingdom |
1995+ Group |
1991 |
87 |
69,000 |
Netherlands |
Hart Voor Hout |
1995 |
11 |
n.a. |
Netherlands |
Organisations committed to FSC |
1992 |
473 |
n.a. |
Belgium |
Club 1997 |
1994 |
79 |
270 |
Austria |
Gruppe 1998 |
1996 |
26 |
960 |
Germany |
Gruppe 1998 |
1997 |
31 |
12,000 |
Switzerland |
WWF Wood Group |
1997 |
10 |
170 |
USA and Canada |
Certified Forest Products Council |
1997 |
640 |
n.a. |
Source: Hansen (1998). Note: total annual sales is much greater than total annual sales of wood products for most of these companies. Taking this into account, these companies represent only a small share of forest products markets.
The establishment of buyers groups is a crucial component to the success of the forest certification movement in that they strengthen the demand for certified products without requiring a prolonged, widespread and, consequently, expensive promotional campaign, which environmental non-governmental organisations (NGOs) would be hard-pressed to keep-up. However, it is also worth noting that, as with the total area of forests certified to date, the actual market share held by companies which are members of buyers groups (and, therefore, committed to certification) is tiny compared with the total size of the market for forest products. Only in Belgium, does the buyers group supporting forest certification hold anything near to a significant proportion of the timber market (around 50% of the timber trade - Source: Rametsteiner et al, 1998).
As with the costs of implementing Sustainable Forest Management (discussed in Section 6.5.3 Changes in wood supply with the implementation of SFM), the cost of meeting FSC certification standards is currently unknown and uncertain. Therefore, all figures presented here should be considered as highly speculative.
Table 27 showed that the cost of implementing SFM could increase roundwood production costs by up to 25% in temperate and boreal countries and 5% in tropical countries.27 Many of the management interventions which would be desirable from the SFM point of view are also likely to be required to meet most certification standards, so it is anticipated that the cost of certification should be roughly the same as the cost of implementing SFM, plus a small allowance for the cost of auditing or monitoring to check that a forest meets the standards required to be certified.
However, there is considerable evidence to suggest that forest owners and consumers of forest products, between them, will not be prepared to pay very much for certified products. For example, in a survey of willingness-to-pay (WTP) by Rametsteiner et al (1998), forest owners in United Kingdom and Finland were mostly only prepared to pay up to 2% of their timber income to obtain certification and almost none were prepared to pay over 5%. Furthermore, consumers in these countries were at most only prepared to pay an additional 5% for certified wood products and only then for certain types of wood product. Similar market research studies in the Netherlands (Stolp, 1997) have shown that consumers there are not prepared to pay any additional price premiums at all for certified products (and the Netherlands is a country where environmental issues tend to be considered as fairly important compared with most other West European countries!).
Clearly, if the average cost of meeting the higher management standards required to obtain an FSC certificate is considerably higher than producers and consumers are willing to pay, then this suggests that certified forest products will never account for more than a small share of the timber market and that the only forests which will become certified will be those where the costs of certification are very low (i.e. those which are already well-managed from an environmental viewpoint). This, to a certain extent, will reduce the impact of forest certification on the average forest management standards achieved in any particular country.
As the above discussion has shown, it is generally accepted that certified products are unlikely to attract price premiums in any but the most limited and specialised markets. This will severely limit the extent to which producers can pass on the costs of certification to customers and it looks increasingly likely that these costs will have to be borne mostly by the producers. The question then for the future of certification is: are there any other benefits to producers of certified wood products which can justify the additional cost of producing them?
At the moment, the answer to the above question seems to be yes and the main reason put forward by most companies which have shown an interest in producing or selling certified products seems to be a perception that certified products give the companies a marketing edge over their rivals. There is little hard evidence to suggest that certified products have allowed companies to increase their market shares, but this is a perception which is strongly felt by many companies selling certified products and has been reported in several studies (e.g. Hansen, 1998; Rametsteiner et al, 1998). How long this can last is unknown, but there will come a time when this perception of "marketing edge" will diminish and this may not be very far away unless NGOs can continue to keep publicising the availability and desirability of certified forest products.
From the experiences with forest certification and the marketing of certified forest products to date, some major challenges for certification appear to be taking shape for the future. These are as follows:
Limited market demand. As noted above, several studies have shown that the demand for certified products currently appears to be quite limited. Some very large consumer countries (e.g. China and Japan) appear to have practically no interest in certified products at all. Even in countries where certified products have been marketed more strongly (e.g. United Kingdom and Netherlands) there still appears to be only a small amount of demand for such products and next to no inclination to pay any more for them.
Lack of supply. Ironically, there have also been several instances recently of companies wanting to sell certified forest products, but being unable to obtain sufficient supplies of certified products. This has occurred in some of the large consumer markets where supply has been unable to keep-up with demand (e.g. the recent experience of Homebase in the United States of America) and in smaller markets where retailers have made strong commitments to sell certified products (e.g. the United Kingdom).
Fragmentation. There are now two separate international forest product certification schemes and a range of national schemes are also being developed. These schemes are all competing with each other for greater recognition and the amount of fragmentation amongst the various schemes is causing some concern and confusion within the industry. The amount of international trade in wood products also confuses the issue further (e.g. if a plywood producer in Canada intends to export a lot of plywood to the United Kingdom, should the producer apply for a certificate based on a national standard drawn-up in Canada or one for the United Kingdom?). Larger suppliers and retailers are overcoming some of this confusion by applying for certification under several different certification schemes. However, many can not afford this option and are choosing not to enter the market for certified products until things have become clearer.
Credibility. The last major challenge which has become more important in recent years is the credibility of some of the agencies offering certification. There have been several well-publicised controversies over forests which have been certified recently and this has done little to help the cause of certification. Rametsteiner et al (1998) shows that both producers and consumers in Europe believe that a government or scientific agency would best fulfil the role of certifying forests in their own countries. This study also showed quite clearly that NGOs and private independent companies are placed low on the list of organisations most people would like to have certifying their forests. The question of what role independent bodies such as the FSC should play in the long-term future therefore, remains unanswered, but it seems as though the role of such organisations might have to change in the future.
Until these challenges are effectively addressed, it seems likely that certification of forest products will continue to attract a lot of attention in forestry policy discussion but, in reality, have very little impact on forest products markets.
Out of all the topics discussed in this section, it seems likely that technology changes are likely to have the most impact and have the potential to have the most impact on forest products markets in the future. In contrast, globalisation and certification are expected to have only minor impacts on the future markets for forest products.
The baseline projections of supply and demand presented earlier were made with only one assumption about future technological change: that the proportion of recycled fibre in the total fibre furnish would increase in the future in line with past trends. The future roundwood supply projections assumed that supply would change in line with changes in the current commercially viable forest area and biological growth, but did not consider the possibility of greater areas of forest becoming commercially viable as production processes adapt to utilise new species. The projection model also used the same conversion factors to estimate derived roundwood demand from product demand for every year of the forecasts (with the exception of the greater use of recycled fibre noted above). Consequently, possible improvements in product recovery rates have not been built into the projection forecasts.
With respect to the first point, it is very difficult to project or forecast in any way, the area of forest resources which has been currently excluded from the model of timber supply, but might become viable as a source of supply in the future. For example, the development of whole industries based on the processing of aspen, birch and rubberwood, could not have been predicted 20 years ago. All that can be said is that the development of newer and better processing technologies will reinforce the trend towards the utilisation of smaller sized pieces of roundwood from a greater diversity of areas including agricultural tree crops, other trees outside of forests, harvesting and mill residues and wood from fast-growing pulpwood plantations. In this way, technological change is expected to support the changes in future supply already discussed in the last section of this report.
In terms of processing efficiency however, some quantitative information is available about the potential impact future improvements in technology might have on the supply and demand balance. Spelter (1999) for example, notes that there is a technical limit to the sawnwood recovery rate which can be achieved in the future, due simply to the geometrical problem of cutting square shaped objects from round shaped ones. His paper suggests that this might be in the range of 45% to 55% depending on log size (larger logs should have better recovery rates). He also suggests that recovery in reconstituted panel mills such as oriented strandboard (OSB) mills might level-off at around 60%.
Given that most sawmills and reconstituted panel mills in developed countries are currently achieving recovery rates somewhat below these figures, this would suggest that the improvements in efficiency experienced in the past could continue into the future for the next decade or so. If past efficiency trends continued, the figures quoted by Spelter would suggest that maybe 70% of future sawnwood production growth could be achieved by sawmill processing efficiency gains, leaving only 30% requiring gains in other areas or additional sources of industrial roundwood. A similar proportion of future expected growth in the production of reconstituted panels could be satisfied by increased efficiency in reconstituted panel mills.
In developing countries, the potential for efficiency gains is even greater. The current level of product recovery in many developing countries is unknown, but believed to be so low that it would not be unreasonable to state that all production growth expected over the next decade or so could be met by improvements in processing efficiency, without any need to increase the harvesting of industrial roundwood.
The extent to which new technologies are introduced to make more efficient use of wood resources, will depend upon the pricing of industrial roundwood and whether it becomes expensive enough to encourage such changes. In part, the currently low levels of technology in many developing countries can be explained by low roundwood prices set by governments for harvesting roundwood from the natural forest. As long as industrial roundwood continues to be made available at low prices, there will be little incentive to invest in capital which utilises the resource more efficiently. Therefore, the extent to which future technological changes help to balance future supply and demand essentially comes down to a question of roundwood pricing.
As the world economy continues to become increasingly global, consumers will continue to look for low-cost suppliers and producers will continue to establish and transfer operations to low-cost locations. If forest products markets are further liberalised, this should reduce the artificial advantages enjoyed by producers in some markets, where either bans on the export of unprocessed forest products or high tariffs on the import of finished products support the domestic production of wood products. In as much as some protected industries may have to reduce output or increase competitiveness, this should stimulate greater efficiency and support some of the expected trends in increased efficiency already referred to above.
With respect to certification, there are two key questions for the future:
_ what proportion of the world's timber trade is likely to be affected by the demand for certified products; and
_ will certification actually lead to significantly improved forest management.
As noted above, less than 0.3% of the world's forest area has been certified to date and the proportion of the world's wood and wood products markets held by certified products is unknown, but may be at a similarly low level. Even if the WWF/World Bank target of 200 million ha of certified forest by 2005 were to be achieved, this would still only account for 6% of the world's forest area (but possibly a greater share of the area used for wood production).
The only anecdotal evidence on the future market penetration of certified products is given in Stolp (1997). This report indicates that some organisations supporting certification in the Netherlands believe that, as an absolute maximum, certified products might at some time in the future account for 25% of the timber market. However, in the light of the WTP survey results reported above, even this figure seems very optimistic. It seems likely therefore, that a somewhat lower figure than this might be achieved over the next decade or so.
Ten percent market penetration would seem like the most that could be expected by the year 2010 and only then in countries, such as those in Western Europe and North America, where certification has been actively supported by some forest product suppliers and retailers. Given that the most interest in forest certification, amongst both producers and consumers, has been shown in developed countries, the prospect of forest certification leading to significantly better forest management in developing countries seems most unlikely.
23 The latter two parts of this investigation were carried-out with the assistance of the US Forest Service Forest Products Laboratory in Madison, Wisconsin and Forest Research Institute of Malaysia.
24 EC Directive 94/62 on Packaging and Packaging Waste (EC, 1996).
25 Reconstituted or engineered wood products are solidwood products or panels other than sawnwood and plywood. They include products such as: chipboard; hardboard; insulating board; oriented strandboard; glue laminated lumber; and medium density fibreboard.
26 The statements presented here are based on the overall results of a number of studies into the impacts of export restrictions in the forestry sector. It must be borne in mind however, that such studies often have to make a number of assumptions and use estimates that are very approximate and that many studies have only analysed part of the situation. Export restrictions are sometimes ineffective, they can lead to other positive benefits that are difficult to measure and analyse and it is often difficult to assess what would have happened in the absence of such restrictions. Therefore, although the weight of theory and evidence suggests that they are certainly not a first-best solution, it is still debatable whether a more effective way could be found to achieve the goals of most export restrictions.
27 Other organisations, for example industry associations and the ITTO, have suggested much higher figures.
