ITTO - Analysis of macroeconomic trends

The International Tropical Timber Organization also completed another major review analysis in 1995, prepared by Reid, Collins Consultants. This report, "Analysis of Macroeconomic Trends in the Supply and Demand of Sustainably Produced Tropical Timber from the Asia Pacific Region" was completed in two phases. The initial first phase was expanded and revised, adding new country information for Myanmar, Solomon Islands and Indochina to the initial coverage of producer and consumer countries. Additional supply information for Rubberwood, Coconut, and plantations was included with additional detail for several countries. The initial phase of the review developed three different analytical models:

1) Log Supply Model
2) Asia Pacific Tropical Timber Gap Model
3) Asia Pacific Tropical Timber Trade Model

Following extended review and comment, these models were updated and modified. The log supply model was developed to capture the implications of land use changes in the forest base and the consequences of alternative forest management and silvicultural options. The timber 'gap' model was utilized to estimate the likely difference between unconstrained demand and the projected supplies of tropical timber in the Asia Pacific region. Finally, the Tropical Trade Model was utilized to estimate equilibrium conditions considering supply, demand and price for each region and product as well as for the Asia Pacific region as defined for that study. It was intended that the models developed could be utilized by ITTO member countries to evaluate and test their own forest situation within the broader context of the Asia Pacific region. Limited scenarios were developed and evaluated to demonstrate the use of the models.

The base case analysis was designed to illustrate the implications of continued current forest management, means of timber utilization and manufacturing practices. A trade model scenario was developed to illustrate increased wood supplies, while a second scenario illustrated both increased supplies together with substitution of alternative materials in final products. A third scenario assumed no log exports after the year 2000

The updated results of the Tropical Timber Gap Model are reproduced in Figure 42. When timber supply is projected independent of timber demand (implicitly ignoring price effects on both) the regional timber supply falls from an estimated 95.5 million cubic meters in 1989 to 72 million cubic meters for 1990 and an upturn to 75.4 million cubic meters by 2010. At the same time, domestic consumption within the countries of the region (expressed in roundwood equivalents) increases from 67.2 million cubic meters (1989) to 97.3 million cubic meters in 2000. Thereafter, unconstrained domestic consumption increases to 136.2 million cubic meters in 2010. The potential "timber gap" for the region would be approximately 60.8 million cubic meters by 2010. The report stresses that this 'gap' will not in fact materialize due to market forces, but rather represents the order of magnitude of adjustment confronting the Asia Pacific Region. Price adjustments, and the induced responses from consumers and producers (including those outside the region) must be sufficient to result in an equilibrium recognizing the added consequences of external regional net trade.

The Asia Pacific Tropical Timber Trade Model was utilized to estimate supply and demand relationships. Log supply was derived from the Log Supply Model with updated information regarding potential incremental supply from improved utilization practices, use of non-conventional harvesting (including helicopters) and the importation and processing of conifer timbers within the defined Asia Pacific region. Demand was modeled using 1991 price and quantities by country for plywood/veneer and sawnwood, with estimated own-price and end-use elasticities. Annual population growth adjusted by five year increments was related to consumption. Relative manufacturing cost and productivity (recovery rates) by country determined comparative advantage with respect to output of plywood/veneer and sawnwood. Transportation costs for plywood/veneer and logs from source to destination linked the countries of the region for balancing of trade. Import and/or export taxes were considered as incremental costs. Exchange rates were used based on 1991-93 to adjust for currency differences.

Figure 42. Future Timber Requirements and Supply in the Asia-Pacific Region

Source: ITTO. 1995. Analysis of macroeconomic trends in the supply and demand of sustainably produced tropical timber from the Asia-Pacific Region.

The base case analysis was judged to be unrealistic since the conditions imposed on the analysis did not allow for wood substitution, resulting in reduced demand. Constraints on supply resulted in significant increased prices in producer countries, resulting in rapid increases in product prices.

Scenario One included the potential for supplemental timber supply in terms of saw and veneer logs available to the region. Table 55 below shows the estimated sources and volumes of such incremental supplies by 2010, indicating that both improved utilization and harvesting technology become feasible only at higher prices. Log supply estimates, including the substitution of softwoods, under this scenario are shown in Table 56. Through the effects of supplemental supply and softwood substitution, and the dampening effect on prices, demand (consumption) estimates increase over the base case projections as summarized in Table 57. Total plywood consumption would grow from 20.1 million cubic meters in 1991 to 20.8 million cubic meters in 2000 and to 22.2 million cubic metes for 2010. Sawnwood consumption would decline from 1991-2000, to 25.5 million cubic meters, then increase to 35.4 million cubic meters by 2010. Domestic production of plywood and sawnwood within the ITTO producer and consumer countries is summarized in Table 58. For producer countries, plywood production would remain essentially non-conifer based, with production growing only moderately, to 8.9 million cubic meters for 2010, an increase from the estimated production of 8.3 million cubic meters in 1991. Sawnwood production would increase by almost one-half, from 22.9 million cubic meters (1991) to over 33.8 million cubic meters (2010) for the producer countries.

Within the ITTO consumer countries, however, changes in manufacturing would be more significant, with a decline in non-conifer production (due to the declining log supply) with a significant increase in the use of conifer timber. For plywood, tropical non-conifer production is projected to decline, from 11.7 million cubic meters (1991) to just under 6.1 million cubic meters by 2010. At the same time, growth in consumer country conifer plywood production would grow from zero to almost 5.9 million cubic meters, more than off-setting the decline in tropical plywood production.

Sawnwood production in the consumer countries is projected to follow much the same trend under this scenario. Tropical non-conifer sawnwood production would fall from 3.6 million to 1.5 million cubic meters by 2010, with an increase in conifer sawnwood from zero to about 792 thousand cubic meters.

Table 55. Additional Saw and Veneer Log Quality Fibre for Scenario #1 ('000 m³)

	Volume available by 2010
Improved Utilization - Tropical hardwood	19 million m3 at 25% higher cost than standard output
Improved Harvesting Technology - Tropical hardwood	10 million m3 at 50% higher cost than standard output
Softwood	12 million m3

Table 56. Log Supply - Scenario #1 ('000 m³)

	Base Case	Scenario #1
		Tropical Hardwood	Softwood
1991	90 590	90 590	0
2000	71 995	83 757	4796
2010	75 520	100 477	11 989

Source ITTO 1995. Analysis of macroeconomic trends in the supply and demand of sustainably produced tropical timber from the Asia-Pacific Region.

Table 57. Demand Volumes - Scenario #1 ('000 m³)

	Product	1991	2000		2010
		All Cases	Base	Scenario #1	Base	Scenario #1
Major Consuming Countries (1)	plywood	13 013	11 690	13 188	10 082	13 142
	sawnwood	6 298	3 443	4 861	2 669	5 726
Major Producing Countries (2)	plywood	2 088	1 723	2 584	2 152	3 642
	sawnwood	11 429	11 674	14 414	16 205	22 758
Other (3)	plywood	2 947	2 325	3 170	1 701	3 718
	sawnwood	4 712	2 594	3 130	1 834	3 852
Exogenous (4)	plywood	2 021	1 140	1 815	946	1 654
	sawnwood	4 056	2 955	3 068	2 455	3 068
Total	plywood	20 069	16 877	20 756	14 882	22 156
	sawnwood	26 495	20 667	25 473	23 163	35 404

⁽¹⁾ Japan, South Korea, TPOC, Singapore
⁽²⁾ Indonesia, Malaysia
⁽³⁾ Other countries within the Asia region
⁽⁴⁾ Countries outside the region including Australia and New Zealand

NOTE: Definitions used in this breakdown are different to those normally used by ITTO.

Table 58. Outlook for Manufacturing - Scenario #1 ('000 m³)

			1991	2000	2010
Consumer (1)	Plywood	Tropical	11 734	9 314	6 167
		Softwood	0	1 969	5 874
	Sawnwood	Tropical	3 629	2 566	1 523
		Softwood	0	740	792
Producer Countries (2)	Plywood	Tropical	8 335	8 702	8 943
		Softwood	0	0	0
	Sawnwood	Tropical	22 866	22 598	33 855
		Softwood	0	0	0

⁽¹⁾ Japan, South Korea, China, TPOC, Thailand, Singapore, Hong Kong
⁽²⁾ Indonesia, Malaysia, Philippines, PNG, Myanmar, Laos, Vietnam, Cambodia, Solomons

Source: ITTO. 1995. Analysis of macroeconomic trends in the supply and demand of sustainably produced tropical timber from the Asia-Pacific Region.

The second alternative scenario introduced into the ITTO analysis incorporated the additional potential substitution of products to further supplement the additional timber supply and conifer substitution. Further, estimated demand is reduced in response to technology advances and substitute products at the consumer level. The combined effects of this substitution assumed in the scenario are summarized in Table 59. The substitution results in a decline in demand for tropical timbers of 23 million cubic meters, primarily for plywood where the estimated reduction of 16.5 million cubic meters represents over 62.5 percent of the base case 'gap' demand of 26.4 million cubic meters. In contrast, sawnwood demand declines by 6.5 million cubic meters, or almost 13.2 percent.

Primary forms of substitution include OSB, MDF and particleboards. Changes at the consumer technology are expected to have a much bigger impact on sawnwood than plywood, accounting for half of the estimated substitution impact on sawnwood, or the equivalent of 3.3 million cubic meters of demand.

The results of this scenario are summarized in Table 60 (log supply and prices), Table 61 (Products Demanded and Outlook for Manufacturing). The overall pattern for log consumption and the consumption of plywood and sawnwood are shown in Figure 43.¹⁴ As with the first scenario, use of conifer timber is projected to increase to almost 12 million cubic meters by 2010, but with a moderate decline in tropical hardwood log consumption over the 1991-2010 period, to 78.1 million cubic meters. This compares with the projected increase under the first scenario where tropical log consumption would increase to almost 100.5 million cubic meters.

¹⁴ Note that Figure 15 uses a double scale. Log consumption is shown on the right hand side, and is discontinuous from the axis, thereby giving a visual impression of a much greater decline and subsequent increase than is the case.

Projected price increases are much more moderate under the second scenario, where product substitution supplements alternative timber supplies. Prices for Indonesia logs are projected to rise only from US$ 98 to US$ 117/cum, while increases for Malaysia and Papua New Guinea are a bit larger, rising to US$ 144 and US$ 113 respectively.

Product demands decline for scenario 2 for 2010 in spite of the lower prices due to the substitution of other products. This is most evident for plywood, where projected consumption would be only 12.5 million cubic meters in contrast to 22.2 million cubic meters under scenario 1 where only timber supply is increased through alternative supplies and conifer substitution.

Manufacturing activities would shift significantly under scenario 2 with consumer and producer country tropical plywood production declining even further. Conifer plywood production would decline in consumer countries as product is substituted for the import of conifer logs as estimated under scenario 1. Production of sawnwood would, however, increase further for the consumer countries, primarily for conifers which are estimated to climb to a production of over 4.1 million cubic meters. Producer countries would see a further decline in both tropical plywood and tropical sawnwood under the conditions of scenario 2, with the introduction of modest production of conifer sawnwood. Tropical plywood would decline to just under 6 million cubic meters, while tropical sawnwood would decline to just under 27 million cubic meters.

Table 59. Comparison of Demand and Substitution Effects and Substitutes for Plywood and Sawnwood (million m³)

	Gap Model Demand in 2010 (1)	Estimated Reduction due to Substitution
Plywood	26.4	16.5
Sawnwood	49.3	6.5
Total	75.8	23

⁽¹⁾ Including exogenous demand

Substitutes for Plywood

Substitute Product	% of Total Substitution	Volume ('000 m3)
OSB	21	3 450
MDF	21	3 450
Particleboard	44	7 300
Consumer Technology	14	2 300
Total	100	16 500

Substitutes for Sawnwood

Substitute Product	% of total substitution	Volume ('000 m3)
OSB	0	0
MDF	37	2 450
Particleboard	13	825
Consumer Technology	50	3 250
Total	100	6 525

Source: ITTO. 1995. Analysis of macroeconomic trends in the supply and demand of sustainably produced tropical limber from the Asia-Pacific Region.

Table 60. Log Supply Quantities and Prices - Scenario #2

Log Supply Quantities - Scenario #2 ('000 m³)

	Base Case	Scenario #1		Scenario #2
		Tropical Hardwood	Softwood	Tropical Hardwood	Softwood
1991	90 590	90 590	0	90 590	0
2000	71 995	83 757	4 796	78 821	4 796
2010	75 520	100 477	11 989	78 130	11 989

Log Supply Prices - Scenario #2 (US$ per m³)

	1991	2000			2010
		Base	Scenario #1	Scenario #2	Base	Scenario #1	Scenario #2
Indonesia	98	389	227	128	1,102	327	117
Malaysia (1)	97	385	269	167	1,110	335	144
PNG	77	308	215	132	891	267	113

⁽¹⁾ Average of all States

Source: ITTO. 1995. Analysis of macroeconomic trends in the supply and demand of sustainably produced tropical timber from the Asia-Pacific Region.

Table 61. Products Demanded and Outlook for Manufacturing - Scenario #2

Products Demanded - Scenario #2 ('000 m³)

	Product	1991	2000		2010
		All Cases	Scenario #1	Scenario #2	Scenario #1	Scenario #2
Major Consuming Countries (1)	plywood	13 013	13 189	10 690	13 143	6 798
	sawnwood	6 298	4 862	5 480	5 726	6 736
Major Producing Countries (2)	plywood	2 088	2 584	2 196	3 641	2 081
	sawnwood	11 429	14 414	13 906	22 758	18 927
Other (3)	plywood	2 947	3 168	2 792	3 718	2 549
	sawnwood	4 712	3 129	3 479	3 852	4 899
Exogenous (4)	plywood	2 021	1 815	1 706	1 654	1 093
	sawnwood	4 056	3 068	2 991	3 068	2 464
Total	plywood	20 069	20 756	17 384	22 156	12 518
	sawnwood	26 495	25 473	25 856	35 404	33 026

⁽¹⁾ Japan, South Korea, TPOC, Singapore
⁽²⁾ Indonesia, Malaysia
⁽³⁾ Other countries within the Asia region
⁽⁴⁾ Countries outside the region including Australia and New Zealand

Note: Definitions used in this breakdown are different to those normally used by ITTO.

Outlook for Manufacturing - Scenario #2 ('000 m³)

			1991	2000		2010
				Scenario #1	Scenario #2	Scenario #1	Scenario #2
Consumer Countries (1)	Plywood	Tropical	11 734	9 314	8 713	6 167	5 070
		Softwood	0	1 969	0	5 874	1 193
	Sawnwood	Tropical	3 629	2 566	1 785	1 523	1 709
		Softwood	0	740	2 466	792	4 143
Producer Countries (2)	Plywood	Tropical	8 335	8 702	8 345	8 943	5 966
		Softwood	0	0	0	0	0
	Sawnwood	Tropical	22 866	22 598	21 653	33 855	26 978
		Softwood	0	0	163	0	603

⁽¹⁾ Japan, South Korea, China, TPOC, Thailand, Singapore, Hong Kong
⁽²⁾ Indonesia, Malaysia, Philippines, PNG, Myanmar, Laos, Vietnam, Cambodia, Solomons

Source: ITTO. 1995. Analysis of macroeconomic trends in the supply and demand of sustainably produced tropical timber from the Asia-Pacific Region.

Figure 43 shows the results of Scenario #2 in terms of consumption within the Asia Pacific Region. Plywood consumption declines from about 20 million cubic meters in 1991 to about 17 million cubic meters in 2000, with further decline to about 13 million cubic meters in 2010. Sawnwood consumption declines from about 26 million cubic meters in 1991 to under 24 million cubic meters, then increases 33 million cubic metes for 2010.

Log consumption declines, from 91 million cubic meters in 1991 to just over 80 million cubic meters for 1996 before the incremental supplies and conifer substitution become significant. Thereafter, total log consumption increased, reaching 90 million cubic meters by 2010, or approximately the level of 1991. Tropical log consumption would be approximately 78 million cubic meters. The detailed projections for this scenario are given in Appendix 28.

The ITTO analysis also includes a third option, imposing the elimination of all log exports after the year 2000. This alternative would result from political, as contrasted to economic and market, factors. Prior to the assumed introduction of the ban, the outlook would be very close to the results discussed above. After the year 2000, the tropical log supply would decline further, to 71.6 million cubic meters, with prices slightly higher than under the second scenario for Indonesia but slightly less for Malaysia and Papua New Guinea. Product demands drop modestly while manufacturing would decline sharply in consumer countries due to the limitations on tropical logs while conifer production of plywood would increase. Sawnwood production would decline in consumer countries for both conifer and non-conifer tropical outputs. The log export bans would increase both plywood and sawnwood production within producer countries, but by small amounts. Plywood production would increase from just under 6 million cubic meters (scenario 2) to 6.2 million cubic meters. Sawnwood production is estimated at increasing from 26.9 million cubic meters to 27.7 million cubic meters under the log export ban.

Figure 43. Product and Log Consumption for Scenario #2

ITTO, Analysis of Macroeconomic Trends in the Supply and Demand of Sustainably Produced Tropical Timber from the Asia Pacific Region, Phase II, 1995