Development Objectives

Management of Latvia’s natural resources necessarily commences with an agreement upon objectives for their development.

The public sector organisational restructuring being investigated and developed by the ROL/FAO project, and its consequences for both public and private forest sectors, represents a major departure from past approaches. It implies a scale of activities and scope for changes that clearly eclipse past efforts.

One of the features of this project is to improve both public and private sector participation in this process – to minimise potential stakeholder conflicts and promote high levels of "ownership" in project outputs. The composition of steering committees and working groups is predicated on this goal. Examples of groups between which potential divergence of objectives could occur include, i) timber development & wildlife conservation, ii) public forest management & private land holders, iii) short term licenses & long term tenure holders and, iv) different geographic areas or user groups.

Natural resource development objectives can not be finalised without reference to other natural resource sectors as well – both in public and private sectors. The overall project recognises this and is examining its consequences in both its legislation and macroeconomic components – some of the latter being introduced in this report.

Specific objectives, the implementation of which may directly influence Latvia’s forest sector development paths and eventual economic potential, include:

redistribution of earlier confiscated and collectivised land

timber allocation policy and mechanisms

private forest management regulations

state Forest Service capacity and jurisdiction

non-Forest Service natural resource legislation (agriculture, environment, rural development, etc.)

The following issues, though far less under the control of state forestry authorities, can also significantly influence forest sector development strategies:

legislation regarding foreign investment practices (principal of national treatment, capital and dividend repatriation, stock ownership limitations, joint venture regulations, protection against nationalisation, dispute settlement mechanisms, etc.)

relaxation of border restrictions for individuals, goods and transport

corruption prevention legislation

taxation regulations (definitions, interpretations, training and competency of personnel,

state infrastructure development

currency exchange rate policy

requirements for accession to EU

Improving forest sector performance through project efforts is motivated by increasing the sector’s contribution to Latvia’s national economy and social welfare. Comparisons of social welfare within and amongst countries is usually accomplished by reference to such indicators as employment, GDP, income levels, literacy rates, life expectancy and many others. Social welfare is also correlated to a large number of other indicators more indirectly

Worldwide, there exist dramatic examples of where the potential for forest sector contributions to national economic development has been usurped by a small group of elites or even single individuals. However, forest sector development has featured prominently as a major contributor to development in many countries. This is the case in Latvia where wood and wood products accounted for just over 32% of the country’s foreign exchange earnings for 1997 (MOE, 1998, p31). The relative impact of this sector – at least for the period indicated – is clear.

The completion of at least a first approximation of a forest sectoral analysis for Latvia will make it possible to state more conclusively how priorities and approaches to overall forestland development will contribute to:

maximising the full range of benefits that Latvia’s forest lands can produce

integrating Latvia’s environmental/ biophysical resources and social/ cultural resources into the development process in a manner consistent with society’s objectives for these

distributing the benefits of development in an equitable pattern acceptable to society in the short and long-term.

Decision makers are facing increasing societal demands for, i) integration of social/ cultural and environmental/ biophysical issues into the objectives, plans and implementation of development activities and, ii) a growing insistence on stakeholder participation in the related decision making processes.

At both national and international levels, Latvia is including in its own reordering of development priorities a commitment to socio-environmental principles as articulated by a number of international events and agreements. Latvia is a participant in a number of these and generally subscribes to the goals of others, including:

World Trade Organisation (late 1998)

World Conference on Environment and Development, 1992, (the "earth Summit" or "Rio Conference")

Convention on Biodiversity

Intergovernmental Panel on Climate Change

Intergovernmental Panel on Forests

In the past, Latvia generally has followed forest management practices stemming from the "sustained yield" (SY) tradition of mid-nineteenth century Germany. These represent the earliest formally articulated concepts of "sustainability" in natural resource management. Modern concepts of sustainable development (SD) are much more exhaustive – and, along with commitments to preserving biodiversity, form the bases of much of Latvia’s forest management objectives.

The net annual increment of Latvia’s growing stock has been recently (late 1998) re-calculated to be 14,060,000 m³ per annum. This demands a considerable level of planning to actually accomplish – and has, in fact, never been accomplished. Potential harvest levels directly influence decisions regarding:

timber supply allocation

production technologies and capacity

employment and incomes generation

government revenues (and public expenditures).

The role of the many issues presented above, in supporting efforts to promote economic activity in the forest sector and increase national welfare and stability is apparent. This "big picture" orientation warrants continuous reference in the course of efforts to optimise forest sector structures and roles.

The objectives for Latvia’s wood products manufacturing sector derive most directly from the potential value-added it can yield. The character of the timber supply, and product and market development potential will largely determine value-added levels. These, in turn, have a direct bearing upon, i) the raw materials' physical and economic accessibility, ii) enterprise viability, and iii) the sector’s contribution to the national economy. In the long-term, almost all criteria can be manipulated, including that of the character of the raw material and domestic infrastructure. In the short term, the challenges are less easily surmountable.

Forest management interventions can directly affect the character of the sector’s log supply. If pulpwood is the targeted end product then the objective for forest stands, at the time of harvesting, may be that of maximum sound wood volume. If higher quality veneer or sawnwood is sought, then large clear stems may be the objective. In Latvia, unthinned stands represent a relatively large unused timber resource – potentially available for chip, strand or particle boards, whole log chipping and sales, or a domestic pulpmill – depending upon which, if any, of these options meets private and public sector development criteria.

The management of forestland resources for wood products routinely attracts a higher priority that for non-wood products. This often relates to their usually higher and almost always more quantifiable contribution to social and/or corporate welfare. The benefits that derive from logging and sawmilling can all be measured in economic terms. This is less so the case for non-wood products many, if not most, of which are not traded in a market place and the value of which is generally seldom recorded through national accounting procedures.

However, disregarding non-wood products and services in the course of forest land resource management decisions risks having those decisions challenged by stakeholders with legitimate claims to their benefits.

Contemporary forest land management objectives now must include provision for faunal and floral habitats, soil and water conservation, culturally and spiritually significant areas, as well as a large range of recreation values, and food gathering and hunting activities (berries, mushrooms, honey, game meat, etc.). Though less tangible, increasing attention is also being directed towards specific aesthetic values, options values and existence values.

The consequences of "unpriced" or "non-traded" benefits are that they are not adequately accounted for in social or private production functions and are therefore subject to being inefficiently managed. In Latvia, the latter is the case, particularly since 51% (as calculated up to early 1998) of its land area is publicly owned.

The level of timber revenues from Latvia’s forests will be determined by the configuration of the overall distribution of benefits. Specific revenue targets become part of the determination of development scenarios.

Timber harvesting and wood products manufacturing and their related contributions to national income should receive a high priority – which, nevertheless, should remain consistent with other forest land management objectives. These priorities are not static – and will eventually undergo reordering as general welfare increases and society’s aspirations and insistence on non-timber benefits assumes a higher significance.

It is currently difficult to approximate an exact figure for potential annual revenues from wood harvesting and processing activities in Latvia – though this is later attempted in this report. The major difficulty relates to the absence of adequate data in four areas; timber supply (volumes, species, and grade), production capacities (type and output), production costs, and sales (volumes and selling prices). Some data is available on each of the above, though a complete assessment does require projections in each area. Ongoing project activities, beyond the term of this consultancy, include enhancing the quality and representativeness of these critical data inputs.