3 THE OUTLOOK FOR FOREST RESOURCES AND FOREST PRODUCT MARKETS

The size and composition of forest product markets and forest resources are important factors that influence the ability of countries to implement sustainable forest management. Increasing income and population will continue to result in greater demands being placed on forest resources for the production of industrial roundwood and fuelwood. However, at the same time, these same pressures will also increase the demands placed on forests for the production of non-wood goods and services and for the conversion of forests to other land-uses.

Despite these many and often conflicting pressures on forests however, changes in forest management techniques and forest products processing technologies will continue to present a range of options to resolve this dilemma. These will, in turn, present a range of opportunities and challenges for the improvement of forest management and these are briefly described below.

It is important to realise that the relationship between forest resources and forest products markets is a two-way relationship. For example, changes in resource availability affect delivered wood costs and products prices in the market. On the other hand, changes in markets can lead to new afforestation or harvesting of species that were once considered non-commercial. The following analysis presents the outlook for forest resources first then the outlook for forest products markets, but it should be remembered that each affects the other.

3.1 Current and future status of forest resources

Table 1: Forest area in 1995 by geographical region

The latest estimate of the global forest area is 3,454 million hectares (see Table 1). Developing countries contain 2,810 million hectares or 81 percent of this area, of which 1,805 million hectares (52 percent of the global total) is in tropical developing countries. Current forest loss is estimated to be around 11 million hectares per year, nearly all of which occurs in the tropics. In contrast, forest areas in developed countries and non-tropical developing countries are generally increasing. If forest loss continues at the same rate, the global forest area would decline to 3,285 million hectares in 2010. As nearly all of this loss would occur in the tropics, the area of tropical forest could be expected to decline by 155 million hectares to a new level of 1,650 million hectares (or 91 percent of its current area).

The factors leading to deforestation are complex, variable and defy generalisation. For example, a recent analysis of the demand for agricultural land indicates that agricultural needs might only account for less than half of the projected decline (about 65 million hectares). Other factors contributing to forest loss include: overgrazing; over-harvesting of industrial roundwood and wood fuel; forest fires, pests and other natural losses; and urban and industrial development. Different factors are relatively more or less important in different areas and there is tremendous variation in they way in which these challenges can be met.

As noted above, the outlook for forest products markets will affect the scope for implementing improved forest management and will, in turn, be affected by and have an impact on the current and future status of forest resources. In particular, the following four variables will probably have the most influence on future wood supplies:

· the overall area and type of forest resources in the future;

· the proportion of forest resources that will be available for wood production;

· the way in which these areas will be managed for wood production; and

· technological improvements in forest management, afforestation, harvesting and processing.

In addition to these variables, new research, technology, and ever changing political and social forces will continue to redefine the goals of forest management and the methods of meeting these goals. The main challenge for the forestry policymaker will be to adapt to these changes without losing the momentum to improve forest management.

The depletion of the forest resource base suggested above will not be significant enough to have a major impact on the supply of forest products or prices at the global level, although it may have significant local impact in some areas, particularly on the supply of large high quality logs and fuelwood. However, another variable that must be considered is the amount of the forest resource that can be used for wood production in the future.

The amount of the forest resource that can be used for wood production is affected by two broad sets of forces moving in opposite dirctions across the forest landscape. Developments in forest product markets and advances in harvesting and processing technology constantly expand the boundary of the forest area that is economically viable. More remote areas become economically operable or nearby forest species formally considered unuseful suddenly become marketable. On the other hand, government forestry and environmental policies tend to operate in the opposite direction, by placing greater areas of forest into legally protected areas and implementing other regulations that restrict the areas of forest that can be used for wood production.

Currently, slightly more than half of the global forest area is considered as unavailable for wood supply (1,653 million hectares) due to either: legal restrictions on harvesting; low stocking of commercial species; or economic inaccessibility. Legally protected forest areas cover about 300 million hectares (or around 8 percent of the total forest area) and the total area of legally protected areas (of all types) is increasing at a rate of slightly over four percent per year. However, in spite of that and given the magnitude of the forest area that is not currently used for wood production, it seems likely that there is scope to meet demands for industrial roundwood production and for the reservation of forest areas for other non-extractive uses within the foreseeable future.

Although the broad availability of forest resources in the future might not affect future supply and demand by very much, the way in which those resource are managed may have a more pronounced impact on future supply and demand. This is particularly the case in the temperate and boreal forest zones, where the area of forests is stable or increasing but there is currently controversy in some of the world's largest wood producing nations about how these resources should be managed. Two clearly discernible trends are currently identified (which could broadly be called intensification and extensification) and these will each tend to influence roundwood production in different directions.

The main example of the trend towards more intensive forest management is the increasing importance of forest plantations as a source of industrial roundwood supply. The most recent estimate of the global forest plantation area is just under 120 million hectares, or 3.5 percent of the total forest area. Almost half of this area is located in Asia and at least 70 million hectares of this area will be used for industrial roundwood production. Industrial roundwood production from forest plantations currently is estimated to be roughly 370 million cubic metres or about 25 percent of total production. Many of the current forest plantations are quite young and without any expansion in area, it is reasonable to anticipate an increase in output to 560 million cubic metres by 2010 (or roughly 30 percent of projected industrial roundwood production in this year).

Over the longer term, the importance of forest plantations as a component of industrial roundwood supply will depend upon the growth of industrial roundwood production and consumption and the rate at which the forest plantation area expands. It seems likely however, that the share of global industrial roundwood production that will come from forest plantations will remain at least 30 percent and it would not be unrealistic for industrial roundwood production from forest plantations to grow to 50 percent of world production or even more.

Measures likely to be encouraged as sustainable forest management in both natural and planted forests

1. More planting of native species and mixtures in forest plantations;

2. longer rotation ages or cutting cycles;

3. smaller overall cutting blocks;

4. reductions in the use of artificial inputs such as fertiliser and pesticides; and

5. requirements to leave larger areas untouched around watercourses and other sensitive sites.

Acting in the opposite direction, there is increasing pressure to modify harvesting practices and silvicultural regimes within both natural and planted forests that are used for wood production. Indeed this has been a focus of much of the debate about sustainable forest management. Many of the measures that are likely to be promoted as more sustainable are likely to reduce the volume of wood that can be taken from any particular forest site.

Studies of the impact that such measures might have on total wood production are few, so it is difficult to generalise from their results. However, the few studies that have been completed to date all seem to suggest that harvested volume per hectare with more sustainable forest practices might be reduced by at least 10 percent and some studies suggest reductions of up to 50 percent in the short-term.

While this may appear substantial at first glance, a significant reduction in harvesting volumes per hectare would occur in only a very small proportion of the global forest area. It is important to recall that in any given year or even any decade, only a tiny fraction of the world's forest is entered for purposes of commecial harvest. Even the widespread introduction of less intensive harvesting in tropical natural forests would affect only 20% of global wood supplies. In this case, reduced harvest in the natural forest is likely to be more than offset by the more intensive production expected from tropical forest plantations. Consequently is expected that, on balance, measures to reduce the intensity of forest management and harvesting will not be significant enough to counteract the effect of intensification in other areas. Adoption of measures to improve forest management are not predicted to have a major impact on global forest products markets.

The other main factors that will influence future wood production and consumption and the interaction between forest products markets and the utilisation of the forest resource, are future changes in technology. It is difficult to forecast how efficiency improvements and the introduction of new and better technology might occur in the future. Therefore, the analysis presented below only takes into account two likely developments: the greater use of plantations to supply industrial roundwood; and the greater use of recovered paper as a substitute for wood inputs. There are likely to be, however, a much larger number of technological changes both within the forest harvesting and processing sectors and outside the forestry sector, that will reduce the demand for wood, make wood products more price competitive or cheaper to produce and more environmentally friendly than they already are. Four broad developments are likely to have the most positive impacts on forest management.

Firstly, forest processing technologies are constantly improving to utilise smaller sized trees, currently non-commercial species and recycled material. This presents opportunities to recover more utilisable material each time a forest is harvested and to utilise forest areas that may otherwise be considered as unavailable for wood production due to species composition. It also allows processors to diversify their inputs to include more material from non-forest sources.

Secondly, technology is constantly improving to recover a greater proportion of utilisable product per cubic metre of wood input. Furthermore, improvements in areas such as pulp and paper processing technologies are continuing to increase the efficiency with which other inputs are used in the manufacturing process. These developments continue to reduce waste at source and improve the environmental performance of the forest processing sector as a whole.

The third improvement is in the development of new products to meet a given end-use. The gradual substitution of reconstituted panels (e.g. chipboard) and engineered wood products for traditional sawnwood and plywood is also likely to increase the efficiency of wood use, because the former tend to use less wood input per cubic metre of output.

The final example of technological change is changes outside of the forestry sector that will reduce the overall demand for wood products. Improvements to products such as PVC windows and doors and the expansion of these materials into new product markets will continue to exert downward pressure on the demand for wood. While this may not be a sustainable development in a general sense (wood, after all, is a natural and renewable resource whereas plastic is not), it may reduce wood demand and make the goal of sustainable management much easier to obtain.

3.2 Current status of forest products markets

Table 2: The top ten industrial roundwood producers in 1996

Industrial roundwood production in 1996 was 1,490 million cubic metres. This is equal to about 0.26 cubic metres per capita or 0.43 cubic metres per hectare of forest. Developing countries⁴ produced about 565 million cubic metres of industrial roundwood, or 38 percent of this total. Of this, 300 million cubic metres (20 percent of the global total) was produced in tropical developing countries and the remainder was produced in temperate developing countries.⁵ Furthermore, industrial roundwood and forest product production is concentrated in a small number of countries. For example, the ten largest industrial roundwood producers supply 72 percent of the global market (see Table 2).

Figure 1: Forest product consumption (in wood raw material equivalent or WRME) by developed and developing region and geographical subregion

Wood product consumption in developing countries in 1996 was equal to about 490 million cubic metres of industrial roundwood inputs, or about one-third of total global consumption (see Figure 1). The remaining 75 million cubic metres of industrial roundwood produced in developing countries was exported to developed countries in the form of industrial roundwood and wood products.

In terms of the markets for processed products (i.e. sawnwood, wood-based panels, pulp and paper) the share of global consumption held by developing countries is even lower than the figures quoted above, ranging from 31 percent for sawnwood down to only 25 percent for pulp.⁶

Table 3: Top ten exporters of forest products in 1996

International trade is an important component of forest products markets (see, for example, Table 3). However, again, the largest global trade flows of forest products are mostly between developed countries. Major regional trade flows⁷ in 1996 were from North America to Europe, North America to Asia and Europe to Asia. The only notable trade flows from developing regions to OECD countries were from Eastern Europe and the Russian Federation to Western Europe and from Southeast Asia to Japan.

Table 4: Production by type of forest product in 1996

In terms of the main processed forest products, just under half of world industrial roundwood production was used for the production of sawnwood, a further 35 percent was used for the production of pulp and the remainder was used for the production of wood based panels (see Table 4).

The production of paper is a major and rapidly expanding component of forest product markets. For example, global production and consumption of paper and paperboard in 1996 amounted to 284 million metric tonnes, making this the second largest market segment (after sawnwood) by weight and value. However, producers of paper are now using less wood for every tonne of paper they produce. For example, wood pulp accounted for 80 percent (by weight) of the raw material inputs to the papermaking process in 1970 and the remaining inputs then were mostly non-fibre inputs such as fillers, clay and coatings. In contrast, by 1996, the amount of wood pulp used in paper production had fallen to only 55 percent and recovered paper is now a major component of the total fibre input.

The other major use of roundwood is as a source of fuel. Statistics about wood fuel production and consumption are only partial and are unreliable in many cases. However, current consumption of wood fuel is believed to be around 1,800 million cubic metres or somewhat more than the total consumption of industrial roundwood. Developing countries in Asia account for just over half of this consumption, followed by African countries, which account for a further 24%. In contrast, developed countries account for less than eight percent of total estimated global wood fuel consumption.

3.3 The outlook to 2010 for forest products markets

By 2010, total global production and consumption of industrial roundwood is expected to reach around 1,870 million cubic metres, a figure that is roughly 25 percent higher than in 1996 (see Figure 2). The dominance of developed countries in global forest products markets is not expected to change by very much, although the share of production and consumption held by developing countries is expected to increase by, at most, 5 percentage points in most of the main forest products markets. The only exception to this is paper and paperboard, where the developing country share of global production and consumption is expected to remain about the same.

Figure 2: Historical and projected industrial roundwood production, consumption and net trade by developing and developed region

The net flow of industrial roundwood and wood products from developing to developed countries is expected to increase very slightly to around 100 million cubic metres per year. However, patterns of international trade are also expected to continue to change. For example, trade is expected to continue to shift away from trade in commodity grade products, such as pulp and rough sawnwood, into further processed products, such as paper, mouldings and furniture, as countries continue to try to increase domestic processing of their forest resources. Another change that is expected, is that some of the currently large forest product exporters in developing countries (e.g. in Southeast Asia) will start to export less as their domestic markets expand due to continuing economic growth. This will create new opportunities for other developing countries (e.g. in South America) to expand their export markets.

In terms of individual product markets, the highest rate of growth in production and consumption over the period is expected in the market for paper and paperboard, with a projected total increase of 40 percent. Consumption of wood-based panels is expected to increase by about 20 percent, sawnwood by 17 percent and pulp by only 10 percent. The divergence between growth in the paper and paperboard markets and the markets for pulp reflect the expectation that recovered paper will continue to increase in importance as an input for papermaking. For example, by 2010, it is anticipated that the use of recovered paper will increase to around 50 percent (by weight) of the total raw material inputs to the papermaking process. Total wood fuel production and consumption over the period is expected to grow by 23 percent to 2,210 million cubic metres.

All of these developments are expected to take place against a background of continuing strong competition from non-wood products in the main forest product markets. Consequently, it is unlikely that prices of processed forest products will increase in the near future. This does not mean that prices of individual types or grades of product will not increase, but rather that users will continue to switch to cheaper alternatives within each product aggregate as producers use technology to develop new products that meet a given end-use. Producers of forest products will also continue to diversify their sources of raw material inputs to include cheaper sources of wood and fibre, including: recycled paper; lower quality and smaller sizes of wood; and non-wood fibres. Consequently, there will be little scope for industrial roundwood price increases at a broad level although, again, prices for some grades of industrial roundwood (particularly the higher grades) and in some regions may increase.

3.4 Implications of the outlook for sustainable forest management

Given the availability of forest resources and the range of possible options for managing these resources, future roundwood production will be well within the capacity of the world's forests to supply these needs without significant increases in overall prices in the foreseeable future. Scarcity will increase for some products and in some regions, but markets will adapt, trade (in the absence of new restrictions) will continue to resolve problems of regional imbalance and consumers will continue to switch between products to meet their given needs. New technology will also continue to present opportunities for manufacturers to cope with local supply scarcity. These changes will be gradual and difficult in some cases, but they will inevitably occur. The main conclusion from the broad assessment of future markets therefore, is that the future for sustainable forest management is not so much a question of will there be enough wood supply, but rather a question of where it should come from, how will it be produced and who should produce it?

The rapid development expected in the reconstituted panels, pulp and paper sectors and the opportunities that new technology provide will allow the forest industry to diversify inputs towards a much wider range of materials including: smaller and lower quality wood inputs; non-wood fibres, waste wood and recovered paper. Therefore, reliance on the natural forest as a source of wood supply can be reduced as trees outside of forests, forest plantations and non-forest resources become relatively more important sources of raw materials. Most of these developments will have environmental benefits and could have social benefits as well. These developments could have at least as much impact on forests as changes in the way that forests are managed and, from the broader perspective of sustainable development, should be encouraged.

The outlook for forest resources suggests that there is still scope to increase the area of forests in protected areas or subject to other types of restrictions on harvesting. For the areas that will continue to be used for industrial roundwood production, it should also be possible to accommodate modest reductions in harvesting volumes per hectare. It would be difficult to implement significant reductions in harvesting volumes per hectare, not so much because of concerns about total wood supply, but rather due to the impact that this would have on production costs. In areas where sustainable forest management would require such reductions, it may be more appropriate to take these areas out of production altogether, with perhaps some intensification (e.g. forest plantations) in other areas to compensate for this.

Prices are a powerful indicator of scarcity and it is likely that prices of some products, particularly high quality roundwood and products, may increase in the future. However, due to competition from wood substitutes, the outlook for prices of most grades of roundwood and forest products suggest that significant price increases are unlikely. Consequently, in the majority of cases, it will not be possible to pass on any increased costs from the implementation of sustainable forest management practices to consumers of forest products. There may however, be situations where these costs could be accommodated within operating profits (see below).

4 The split into developed and developing countries used here is based on membership of the OECD, on the assumption that this is the easiest way to separately identify the countries that are most likely to be potential clients of the World Bank.

5 The countries of Eastern Europe, the Russian Federation, China and temperate countries in Africa and Latin America (e.g. South Africa and Argentina).

6 The developing country share of product consumption is less than their share in terms of industrial roundwood inputs because of their generally lower processing efficiency rates.

7 Trade flows of over US$ 5 billion per year.