Changes in forest products production and marketing in Poland

W. Strykowski

Wladyslaw Strykowski is Deputy Director of the Institute of Wood Technology in Poznan, Poland.

Since the end of 1989, Poland has been in transition from a centrally planned to a market economy. In this relatively short time many changes have taken place, influencing the basic nature of the state and of the forestry sector.

Oak stands in Krotoszyn State Forest District

As the title of this article indicates, its aim is to present an analysis of the changes in wood products production and consumption and the challenges concerning marketing of wood products during the transformation period. Some introductory remarks are appropriate.

During the period 1989-1990, Poland witnessed changes in the overall economic and political system of the country. These changes have resulted in a better balance of trade, price structure rationalization, the strengthening of the national currency against foreign currencies, the creation of new institutions characteristic of a market economy and the establishment of a base for the development of private ventures.

TABLE 1. Production, imports, exports and consumption of important wood products in Poland, 1985-1992

Item	Year
	1985	1986	1987	1988	1989	1990	1991	1992
	('000 m3)
CONIFEROUS SANWOOD
Production	5648	5598	5405	4587	3990	3730	3600	3555
Imports	201	162	130	140	118	100	-	20
Exports	452	494	491	725	384	295	300	486
Consumption	5397	5266	5044	4002	3724	3535	3300	3090
BROD-LEAVED SANWOOD
Production	719	780	797	769	752	770	730	526
Imports	22	10	8	4	2	9	-	1
Exports	4	4	5	3	6	5	-	15
Consumption	737	786	800	770	748	774	730	512
PLYWOOD
Production	170	188	162	165	154	126	115	107
Imports	46	54	54	55	50	16	-	8
Exports	28	31	30	23	30	44	36	21
Consumption	188	191	186	197	174	98	79	94
PARTICLE BOARD
Production	1298	1365	1216	1308	1051	718	914	1008
Imports	53	96	101	92	105	22	21	36
Exports	35	51	85	95	69	92	60	84
Consumption	1316	1410	1232	1305	1087	648	902	960
FIBREBOARD
Production	603	647	620	627	603	482	480	472
Imports	83	144	143	138	131	38	5	-
Exports	174	184	204	240	246	293	85	100
Consumption	512	607	559	525	488	227	400	372
	('000 tonnes)
PULP
Production	783	790	815	829	829	729	509	567
Imports	211	181	224	204	187	84	68	77
Exports	35	19	17	14	15	25	32	58
Consumption	959	952	1022	1019	1001	788	545	586
PAPER AND PAPERBOARD
Production	1292	1327	380	1448	1406	1065	1066	1031
Imports	142	147	146	214	254	44	27	194
Exports	75	71	101	129	159	190	258	191
Consumption	1359	1403	1425	1533	1501	919	835	1034

Source: Marketing Centre of Forest Products and Furniture Industry, Poznan, Poland.

This was accompanied by a simultaneous decrease in production, deepened by unfavorable external conditions, especially by the breakup of the Council for Mutual Economic Assistance (CMEA) market. It resulted in a drop in national income and had negative impacts on many economic and social aspects of life.

Polish macroeconomic policy over the past three years has had an anti-inflation tendency, but not an anti-recession tendency. In 1990, despite acute recession, a balanced trade budget was achieved and even some surplus but, in 1991, the budget registered a significant deficit. This was caused by large decreases in production and sales of domestic products, accompanied by a sharp decrease in the average profitability of enterprises. In 1992 the budget deficit continued to deepen; however, there was a marked upturn in production and sales.

The general macroeconomic situation had a direct effect on the forestry and forest industry sectors. There was a decrease in demand for wood from the traditional big consumers of state wood industry (pulp and paper enterprises, wood-based panel industry, sawmill industry). The stagnation of building construction, handicraft production and other small consumers of wood also contributed to the decrease in demand. A significant factor has been the increase in wood prices to a level close to the world market, much higher than in times of the centrally planned economy.

Forest resources

As a consequence of historical development processes, the percentage of forest cover in the country had decreased to 38 percent in 1920 and to 20 percent in 1939. Reversal of this trend began in the period 1946-1970 when, as the result of afforestation on more than 1 million ha, the ratio of forested area to the total area of Poland increased to 27 percent. At present, forests in Poland cover some 8.7 million ha, corresponding to 27.8 percent of total land area - still distinctly lower than the European average of about 32 percent.

The current average volume of standing stock is about 172 m³ per hectare. The annual allowable cut in Poland is about 20 million m³ of large-dimension timber, of which coniferous timber accounts for 16 million m³. At present, wood consumption in Poland oscillates around the maximum volume that can be harvested without compromising sustainability, including production harvesting plus tending and sanitary needs. In 1992 harvesting was approximately 22 million m³ (of which 20.6 million m³ were large-dimension timber).

The ownership structure of forests is as follows:

· State forests: 7.2 million ha or nearly 83 percent, including 6.8 million ha (78 percent) administered by the State Forest Administration; 124000 ha (2 percent) administered by the National Parks Administration; and 283000 ha (3 percent) administered by various organizational units.

· Forests not belonging to the state: 149 million ha (17 percent), including 1.4 million ha (16 percent) owned by private individuals; and 104000 ha (I percent) owned by legal entities.

Forest industry

Forest industry in Poland is dominated by wood processing and pulp and paper production. The wood processing sector includes sawmilling, wood-based panels, furniture, matches, joinery, packaging, other wood products and wicker. The changes that have occurred since 1990 are characterized by an initial decrease in production and therefore of consumption of raw material; changes in forms of ownership of processing industries; and changes in the level and structure of marketing, particularly of exports.

The recession affecting the Polish economy as a whole since 1990 is, of course, also affecting forest industry. Investments in forest industry in the past years have been relatively small and limited to the modernization of some factories. In 1992, for example, investment in forest industry was only 3.7 percent of total investment in industry.

From 1989 to 1992, despite the absolute drop in production, there was a significant increase in the importance of forest industry in the Polish economy. The share of forest industry increased from 4.6 to 5.7 percent between 1988 and 1992. Moreover, the downtrend in the production of wood products was halted in the second half of 1992. In fact, forest industry has shown the largest and fastest recovery. In 1992 forest industry employed some 188000 persons, 148000 in wood processing (84000 in furniture manufacturing; 30000 in sawmilling; 12000 in joinery; 14000 in wood-based panels; and the remainder in pulp and paper production).

Sawmilling

In 1992,43 percent of all industrial wood went to the sawmilling industry, consisting of some 1000 active mills with an annual production capacity of 10 million to 11 million m³ of wood raw material. Nearly 700 of the mills are small enterprises operating only on a seasonal basis. The remaining 300 sawmills, formerly owned by the state and currently in the process of privatization, consume 90 percent of the total raw material. Generally speaking, the technical level of the sawmilling industry is low, and conversion without drying dominates. This sector is expected to have been completely privatized in the next three to four years.

Wood-based panels

The wood-based panel industry consumed 22 percent of industrial wood in 1992 and had a total production capacity of some 2.6 million m³. The share of particle board was 60 percent, fibreboard 30 percent and veneers and plywood 10 percent. Given that the majority of production is absorbed by the furniture industry which, in turn, exports nearly 50 percent of its production, the wood-based panel industry rapidly recovered from an initial production decrease as transition began.

TABLE 2. General information on paper industry in Poland

Specification	Year
	1989	1992
Number of pulp and paper mills:	41*	37
- State-owned	41	26
- Private company		7
- Partnership with foreign capital		3
- Other		1
Production capacity for pulp, semi - chemical pulp and groundwood together in mills ('000 tonnes)	992.0	865.0
- State-owned	992.0	111.0
- Private company		419.0
- Partnership with foreign capital		335.0
Production capacity for paper and board together in mills ('000 tonnes):	1720.0	1480.0
- State-owned	1720.0	278.0
- Private company		742.0
- Partnership with foreign capital		460.0
Production capacity utilization:
- Above 75%		7 mills
- 50-70%		9 mills
Number of working paper mills	119	93

*Operating within 21 enterprises.
Source: Needs and possibilities of paper industry development in the countries changing their economic system. Conf Proc. - Papers, Vol. 1. Progress '93. Kodz, 1993.

Up until 1989, this sector was almost entirely state-owned. Although ownership transformation is envisaged, owing to the capital intensive nature of this sector privatization will be linked to foreign investment. Difficulties in attracting sufficient foreign capital could constrain the process.

Furniture industry

As noted above, the furniture industry employs some 60 percent of those working in forest industry. Its production potential is high and the infrastructure is in a relatively good state. Even in 1989, this sector had a varied ownership structure: only 65 percent of production was in state hands, while cooperatives and private businesses were already important. The privatization process has moved ahead strongly and now only 35 to 40 percent of the enterprises are still state-controlled. A significant role has been played by German investors who have acquired a large number of factories.

Small-scale wood industry

Over the past few years, there has been a rapid increase in the number of small private businesses dealing with wood conversion. These enterprises have often been founded by private forest owners. The majority of new firms produce sawn materials, joinery, flooring materials, etc. These firms do not absorb a large volume of wood but they do influence local wood markets and provide a source of competition. The advantages of such enterprises, often employing from three to ten persons, is their great flexibility in adapting production to local market demand. In addition, the investment required for the start-up of such firms is relatively small and therefore represents an opportunity for local entrepreneurs without access to foreign capital. It is expected that the share of these firms will increase.

Pulp and paper

This industry consumed 27 percent of the production of industrial wood in 1992. As shown in Table 2, the restructuring process in this sector is well advanced. However, a number of factors are creating significant difficulties: customs policy (duty-free or dumped imports of paper to Poland); a restrictive and non-supportive policy in terms of ecologically friendly investments; and limitations on imports of waste paper. Modernization, aimed at improved quality and competitiveness of production, as well as new regulations in the area of environmental protection are key factors for the future success of this sector.

Meeting challenges related to marketing in forestry and wood industry

Since January 1989, the prices of wood raw materials and wood products have been determined on the basis of market principles and conditions and, in January 1990, the controlled turnover system was abandoned in favour of market liberalization. At present, wood sales are carried out by the State Forest units for customers at all levels - local, regional and international. For sales on the local market, the District Forester is directly responsible. On the regional market, large - volume wood sales, for example to integrated wood industry enterprises and the smaller particle board factories, are organized and coordinated by the Directorate of State Forests on behalf of the Forest Districts. Factories buying even greater quantities of wood, e.g. pulp and paper plants and big wood-based panel factories, are serviced by the Regional Directorates and, in special cases, the sales are coordinated personally by the Director of the General Directorate of State Forests. Large-volume wood sales are usually concluded through bargaining (auctions, bids, etc.), especially where local or regional demand exceeds supply. Export sales of sawnwood are generally handled by the director of the Regional Directorate of State Forests; although they could be undertaken independently by the District Forester or managers of organizational units in State Forests, all export sales require the approval of the General Directorate of State Forests. Export sales of roundwood are carried out by the PAGED Foreign Trade Head Office, which acts as a go-between for Regional Directorates of State Forests and foreign customers.

In the sawmilling industry, imports and exports were formerly carried out by Polski Przemysl Drzewny, or Polski Towarzystwo Handlu Zagranicznego Varimex. Now, producers of sawmilling goods are cooperating through central units: PAGED, Varimex, Polish Wood Industry. A new form of marketing is the organization of exports by brokers who take a commission on sales. Sales of sawnwood to the domestic market, to both wholesale and retail customers, is done through a network of factory outlet shops.

In the wood-based panel industry, up to 1990 international trading was handled by a limited liability company, Polplyt. Retail sales were through official outlets. Generally, retail sales of panel products were limited to local offer, and often only very poor quality was available. At present, the producers of wood-based panels sell via their own sales units.

In the furniture industry, distribution was done through centralized channels, with separate arrangements for the domestic and foreign markets. Export sales of furniture were undertaken by, among others, the headquarters of the PAGED Foreign Trade Office through an affiliated company, Meblopol. Since the breakdown of the centralized system, domestic marketing of furniture has been characterized by considerable dispersion, including a large number of small shops, and by street trade. The furniture factories are now carrying out export activities directly through their own specialist services.

High-quality oak logs at the international auction in Krotoszyn State Forest District, famous for its veneer logs

The Wood Technology Institute in Poznan, where the Marketing Centre for Forest Products and Furniture Industry is located

Since 1990, the majority of Polish enterprises in forestry and forest industry have created divisions of marketing, which are working with various degrees of success. For instance, trade and marketing units have been formed in all Regional Directorates of State Forests. Their task, besides the sale of roundwood, is to study prices of wood and wood products on the domestic and foreign markets, manage a data bank on domestic and foreign customers and carry out promotion activities and advertising. In many forest industry enterprises, marketing analyses still have a very limited character and concentrate mainly on the monitoring of sales trends and prices.

Training in forest product marketing

There is clearly a demand for specialists in forestry and forest industry marketing in Poland and various approaches are being taken to fill this gap. Courses are being offered by private organizations, while universities are organizing courses on coping with the new challenges of market economy. In addition, since 1990 some 200 managerial staff in the sector have participated in training courses outside Poland. For example, representatives from each of the Regional Directorates of State Forests and some of the bigger processing enterprises have participated in courses in Sweden. A two-month course was held in the United Kingdom by the foundation Know - How for 16 middle-level forest and wood industry managers in 1993, and plans are currently under way to organize a four-week course in Poland for sawmilling industry employees, entitled Forestry Management in Free Market Economy. The ECE/FAO Timber Committee has organized a special Programme of Assistance to Countries in Transition. Under the auspices of this programme, meetings have been or are being organized concerning trade negotiation, the marketing of wood products and legislative revision, among others.

Institutional changes

The radical change of the economic system in Poland has created a need for new institutional structures. At the beginning of the 1990s, the wood processing enterprises conditioned by their experiences under a centrally planned economy - opposed the creation of producers' associations. But a market economy necessitates proper organizations representing joint interests. Thus, in 1992 the Association of Wood-based Panel Producers was formed and the majority of enterprises in the industry are now members. Also in 1992, the Association of Polish Paper Producers was formed, as well as the Polska Izba Gospodareza Przemyslu Drzewnego (the Polish Economic Chamber of Forest Industries).

In the furniture industry, cooperatives have been formed representing a considerable section of the producers but, under the market economy, the role of research and science units is rapidly changing. For example, at the Wood Technology Institute in Poznan, the research and development unit (the only one in the country of this type) is gradually changing into a research-consulting unit. As part of this process of adaptation, at the end of 1991 the Institute was reorganized as the Marketing Centre for Forest Products and Furniture Industry. An important activity of the Centre is to carry out analyses and investigations of domestic and regional wood markets; the Centre has the most extensive data bank concerning the Polish wood industry. Current evaluations of supply and demand for wood and wood products in Poland and internationally are prepared, as are price bulletins and information concerning domestic and foreign producers of machinery and equipment for wood processing.

Work is under way to transform the Marketing Centre into an international institute, to educate marketing specialists in forest industry from Central and East European countries.

Summary and conclusion

To date, the Polish experience in implementing a market economy in the forestry and forest industries, despite the initial decreases in production and consumption from 1990 to 1992, has been positive since the end of 1992. Most important would seem to be the qualitative changes that are taking place on the forest products market, including the rationalization of consumption, the creation of effective channels of distribution, the increased importance dedicated to marketing and the rationalization of the pricing system. The level of consumption still has not recovered to that of the 1980s but it is to be expected that such positive qualitative changes will allow Poland, with good forest resources at its disposal, to develop an effective industry where production and consumption of forest products will grow quickly.

Bibliography

Anon. 1992. Annual forest products market review 1991 - 1992. Timber Bull., XLV: 3.

Anon. 1993. Forest products markets in 1993 and prospects for 1994. Timber Bull., XLVI: 5.

ECE/FAO. 1993. Forest and forest products country profiles. Poland. ECE/TIM/67. New York-Geneva, UN.

FAO. 1993. FAO Yearbook of Forest Products 1990. Rome.

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