This paper has been prepared by staff from the Forestry Department of the Food and Agriculture Organisation of the United Nations, for the World Bank Forest Policy Implementation Review and Strategy. The paper is in two parts. The first part presents projections of wood and wood product supply and demand to the year 2010. The second part of the paper discusses emerging developments in the availability and management of forest resources and in forest products processing and trade, which have the potential to affect forest products markets in the future. The paper concludes by discussing areas where the World Bank could justify involvement in the forestry sector on the basis of the sector's linkages to its key policy objectives of poverty alleviation, environmentally sustainable development and private sector development.
Global supply and demand for industrial roundwood and wood products
The first point worth noting about global supply and demand is the dominance of developed countries in world timber markets, both in terms of production and consumption. Total global production of industrial roundwood is currently around 1.5 billion m3/year. Around 62% of this industrial roundwood is produced in developed countries1 which, incidentally, contain less than 20% of the world's forest resources. In terms of consumption, developed countries account for an even greater share of world markets, accounting for over 65% of industrial roundwood consumption and between 70% and 75% of wood product consumption.
The difference between industrial roundwood production and wood product consumption is balanced by a net trade flow of industrial roundwood and wood products from developing to developed countries. This flow is equal to about 70 million m3/year of roundwood. Generally, most international trade takes the form of trade in wood products, but 70% of the net trade from developing to developed countries (or 50 million m3/year) is in the form of industrial roundwood.
By 2010, total global production and consumption of industrial roundwood is expected to reach around 1.9 billion m3 or roughly 25% higher than in 1996. The dominance of developed countries in global forest products markets is not expected to change by very much. However, the developed country share of industrial roundwood production is expected to fall slightly to 58%. The total share of global consumption held by developed countries is also expected to fall to 62% of industrial roundwood and 65% to 75% of wood products markets. The only wood product market where the developed country share of total consumption is not expected to fall significantly is the market for paper and paperboard. The net trade flow from developing to developed countries is expected to increase slightly to about 100 million m3/year.
In terms of individual product markets, the highest rate of growth over the period to 2010 is expected to occur in the market for paper and paperboard, which is projected to increase by just under 40%. Consumption of wood-based panels will be the next fastest growing sector, with a total expected increase in consumption of 20% by 2010. In contrast, global consumption of sawnwood and pulp is expected to increase by only 17% and 16% respectively.
The difference between the high rate of growth in paper consumption and relatively low rate of growth in pulp consumption will be filled by the increased use of recycled paper in the total fibre furnish in the future. From 1970 to 1995, the share of the total fibre furnish accounted for by pulp declined from over 80% to around 65%. A large part of this decline can be attributed to the increased use of recycled paper. By 2010, it is expected that pulp will account for just under 50% of the total fibre furnish.
The outlook for future roundwood requirements and availability
In order to meet future demands for wood products, it is expected that total industrial roundwood production will have to increase by around 25%. This is slightly higher than the average expected increase in product demand and reflects the fact that developing countries are expected to gain a greater share of forest product production in the future and their industries generally use wood less efficiently (i.e. they require more wood input per unit of wood product output than in developed countries).
The supply and demand analysis has shown that this increase in global wood production can be achieved without significant upward pressure on prices. In other words, it is believed that global industrial roundwood and fibre supplies will expand to meet the increased demand without too much difficulty. However, there will be some changes in the relative abundance of all the different types of wood and fibre available in the future. It is anticipated that some types of wood, for example large high quality logs from the natural forest, will become more scarce, while other material such as recycled fibre and smaller pieces of roundwood from fast-growing plantations will become more abundant. It is also anticipated that, although at the global level supplies will be adequate, scarcity may become a problem in some regions.
Statistics about wood fuel use are currently highly unreliable and many are best estimates made by organisations such as FAO, based on what little data is available in individual countries. However, it is believed that the use of wood for fuel is currently the largest use of roundwood around the world and that global consumption might be in the order of around 1.8 billion m3/year (or roughly 20% higher than industrial roundwood use). Wood fuel consumption is projected to increase by 25% over the period to 2010 to about 2.2 billion m3/year. Most of this increase in demand is expected to occur in developing countries. In contrast, developed country consumption of wood fuel is expected to decline over the period.
The supply and demand analysis has also made a preliminary attempt to try to examine whether the future world's wood requirements will be broadly within the biological capacity of the world's forest resources to supply them. This analysis has indicated that future industrial roundwood needs are probably within the biological production potential of the world's forests under expected future changes in the areas which will be available for wood supply. It must be stressed however, that these calculations are subject to a great deal of uncertainty and that there are regions, such as Africa and Asia, where future demands may come close to or even exceed the sustainable level of production potential. In terms of wood fuel production, an important point to note is that a vast proportion of the world's wood fuel needs are believed to be met from non-forest sources (e.g. trees outside of forests), deadwood and branches. In as much as this harvesting does not have a significant negative impact on forest resources, it is believed that wood fuel collection is not a major cause of deforestation except in some localised areas.
The regional supply and demand picture
Given the dominance of developed countries in global forest products markets, another aim of this study has been to highlight the main implications of the future for forest products markets, for developing countries. Four developing country regions have been used in this study: non-OECD countries in Europe (including the Russian Federation); Africa; non-OECD countries in South and Central America; and non-OECD countries in Asia and Oceania. The size of forest product markets and future expected market developments in each of these regions are briefly summarised below.
At the global scale, forest products markets in developing countries account for around 40% of the total global market for wood and wood products. The largest developing region is Asia and Oceania, which has a forest products market just slightly smaller than Western Europe's (around 15% to 20% for most products). By 2010, production and consumption in this region are expected to grow by around 50% and 35% respectively, making this market slightly bigger than that of Western Europe.
Non-OECD countries in South and Central America are the next largest developing region market, accounting for about 7% to 10% of the global market for industrial roundwood and sawnwood. A slightly smaller share of the global market for these products is held by non-OECD countries in Europe. The shares of the global market for these products held by these two regions is expected to increase very slightly by 2010. The non-OECD countries in Europe region is also expected to grow to a slightly larger size than the non-OECD countries in South and Central America region. Both of these regions hold very small shares of the global markets for pulp and paper production and consumption and this situation is not expected to change by very much.
Africa is the least significant producer of wood and wood products, accounting for only 4% to 5% of global industrial roundwood production and consumption and 1% to 3% of production and consumption of wood products. Furthermore, within Africa, by far the greatest share of the continent's wood and wood product production and consumption is held by South Africa. However, the forestry sector makes important contributions to gross domestic product and exports in many African countries. For example, exports of forest products account for more than 10% of merchandise exports in nine African countries and account for a much greater share of trade in several of these. If the importance on non-wood forest products is taken into account, then the importance of the forestry sector in Africa is even greater.
Trade and the developing regions
Three of the developing regions are net exporters of forest products. Net exports account for about one-third of production in non-OECD Europe and non-OECD South and Central America. Developing countries in Asia and Oceania are small net exporters on balance. This region has some large exporters of forest products (e.g. Indonesia and Malaysia) but also has some very large importers of forest products (e.g. China and Thailand). Africa is a major exporter of industrial roundwood, but is a net importing region overall, when its imports of wood products are taken into account.
Wood products exported from the developing regions tend to be relatively low-value products such as industrial roundwood, sawnwood and, to a lesser extent, wood-based panels (e.g. plywood from Indonesia). Exports of pulp and paper are also significant in a few countries in South America.
Production and consumption in all four developing regions are expected to grow faster than in the developed regions. Production is expected to grow fastest in non-OECD Europe, followed by non-OECD Asia and Oceania, Africa and non-OECD South and Central America. Consumption is expected to grow at similar rates to production in all of these regions except Africa, where very little consumption growth is foreseen. The net effect of this will be that two of the three net exporting developing regions, Europe and South and Central America, will continue to export roughly the same amounts in 2010 as they do today. Non-OECD Asia and Oceania will become a small net importer and Africa will remain a small net importer.
The three biggest inter-regional trade flows of forest products are as follows: North America to Europe; North America to Asia and Oceania; and Europe to Asia and Oceania. Developed countries within these regions account for most of these trade flows. However, in Asia and Oceania, a large proportion of the imports into the region are accounted for by imports into both China and Japan. In terms of the developing country exporters, South American and Southeast Asian countries are major exporters to Japan. South American countries also export some products to North America. The volume of exports of forest products from African countries is tiny in comparison to this trade (although, as noted above this trade is very important to some of these countries).
Changes in the future availability of forest resources for wood production
Three broad changes in the availability of forest resources affect future wood supplies. Firstly, there are changes in the overall area of the world's forests due to deforestation and the establishment of forest plantations. Secondly, as forest harvesting proceeds, new areas of previously undisturbed natural forest are opened-up for future harvesting and existing undisturbed areas are harvested. The latter generally results in a reduction in the standing stock of commercial timber species and a reduction in the long-run potential supply from such areas in the future. The third change which takes place is that some areas of forest are taken out of production for environmental reasons either through logging bans or the placement of forest into legally protected areas such as national parks.
The projections of supply and demand summarised earlier have already taken most of these factors into account. For example, the industrial roundwood supply projections were made assuming that deforestation will continue in the future at much the same rate as it has in the past. It has also been assumed that the expansion of forest harvesting into new areas of forest will continue to follow past trends and that new plantation establishment will continue at current rates. However, three of the most important components of this changing pattern of forest land-use have been examined in greater detail in this analysis: the future demand for agricultural land; the future placement of forests into legally protected areas; and the potential future supply of wood from plantations and trees outside of forests.
Current estimates of the future demand for agricultural land suggest that about 90 million ha of land might be required for conversion to agriculture by the year 2010. The 1990 Forest Resource Assessment suggests that around 65 million ha of this might come from forests over the period 1995 - 2010, if past forest land-use changes are repeated in the future. This is less than one-half of the deforestation estimate already built into the forecasts of future wood supply presented earlier. Therefore, unless the future demand for conversion of forest land to agriculture is significantly higher than expected, this should have already been taken into account in these projections.
The baseline projections of future wood supply presented earlier have assumed that the area of forest in legally protected areas will not change over the forecast period. Undoubtedly there will be more areas of forest put into legally protected areas so, as a sensitivity analysis, this analysis has examined what would be the impact of increasing the global area of forests in protected areas to 10% of the total forest area. The results of this analysis depend on the types of forest that are put into legally protected areas. If areas that are currently unavailable for wood supply (for technical or economic reasons) are put into legally protected areas, this would have almost no effect on the future supply projection (i.e. there is a sufficient area already excluded from production in the model in most regions, to meet the 10% target). However, if some areas currently used for wood supply were also to be put into legally protected areas, this would reduce the global potential wood supply by around 6%. Potential wood supply would still be sufficient to meet future demand needs at a global level, but such a move would put increasing pressure on future wood supplies in Asia, Africa and South America.
As noted above, the baseline supply forecast has already taken into account the expected potential increase in production from forest plantations in the future. It has not however, taken any account of the potential contribution of trees outside of forests to future wood supplies. Forest plantations currently account for about 13% of global wood supplies (26% of industrial roundwood production and 4% of wood fuel production). In some regions, plantations are a particularly important source of supply. For example, up to 80% of wood supplies in Oceania may come from forest plantations. By 2010, the potential supply of wood from plantations is expected to increase by almost 60% to 630 million m3/year. Globally, this could account for about 27% of future industrial roundwood and fibre requirements.
Trees outside of forests are a resource about which very little is known. However, they are believed to have tremendous potential for future wood supply. They are already very important sources of wood supply in South Asian countries, which have relatively small forest resources. For example, India is the world's third largest producer of roundwood, much of which is believed to come from trees outside of forests. Trees outside of forests are also believed to supply about 60% of Bangladesh's wood needs. The baseline projections of supply and demand have not included any specific forecasts for future supplies from trees outside of forests, but it is believed that this resource will play a greater role in future wood supplies as more restrictions are placed on harvesting in the natural forest.
The impact of sustainable forest management on future wood supply
Of all the possible changes in the way forest resources are managed in the future, changes in forest harvesting practices as a result of the implementation of sustainable forest management (SFM) have the greatest potential to diminish future wood supplies. A literature review of several case studies from around the world suggest that harvesting volumes might be reduced by up to 20% to 60% in tropical regions (generally less in temperate and boreal regions) with the introduction of more sustainable harvesting practices. The same studies also indicate that production costs could rise by 5% to 25%.
It is not known however, whether the results of these studies are generally applicable to the wide range of different types of forest present in the world. Certainly, if they are, they would suggest that there could be scarcity in future wood supply in many regions in the future. Perhaps the most significant implication of these figures is that they cast doubt on whether SFM will be widely implemented in the long-run. Given the potential impacts on costs and harvesting volumes described above, the implementation of SFM will present a significant challenge to many forest policymakers in both developing and developed countries.
Future technological change
One way in which future demand for wood can be more easily reconciled with supply is through greater efficiency in the use of wood. Historically, the wood processing industry in developed countries has continually improved product recovery rates through improvements in processing technology and the development of products which can use residues, recycled materials and non-wood fibres. New processes have also been developed to utilise formerly non-commercial species and take advantage of new sources of supply such as fast-growing plantation species.
Technology has generally advanced by less in most developing countries, where it has been traditionally cheaper to extend harvesting into new areas of natural forest rather than use existing resources more efficiently. The one exception to this is the development of the rubberwood processing sector in Southeast Asia which has developed to take advantage of the abundance of this resource.
The baseline projections of supply and demand presented in this analysis have not assumed any changes in technology in the future except for an increasing use of recycled fibre in the total fibre furnish for papermaking. However, a sensitivity analysis of future potential gains from technological improvements has suggested that maybe up to 70% of future demand growth in the solidwood products sector in developed countries could be met by improvements in processing efficiency. The potential for improvements in developing countries is currently unknown but is believed to be even greater than this.
Globalisation and forest certification
Two final aspects of the future outlook for forest products markets, which have been examined in greater detail in this analysis, are: the potential impacts of greater globalisation on forest products markets; and the potential for forest certification to affect future markets.
Three aspects of globalisation are believed to have the most potential to affect future forest products markets. Firstly, it is believed that trade liberalisation will continue to stimulate forest products trade to the benefit of all countries. Trade liberalisation will help all countries to continue their drive to export higher value-added wood products and may be particularly beneficial to developing countries in this respect. It may also however, reduce some of the protection given to domestic industries in some developing countries, causing them to downsize or increase the efficiency of their industries in some other way.
The second impact of globalisation will be that it should support the continued development of forest management and processing facilities in developing countries through increased foreign investment and transfer of skills and technology. Foreign direct investment has played an important role in the development of the forestry sector in many developing countries, but the benefits of such development have not always been distributed very fairly. There will continue to be a strong demand for foreign investment in the forestry sector in many developing countries and forestry policymakers in these countries should consider how they can achieve an appropriate transfer of skills and technology to help them with their long-term development plans.
The third expected trend in globalisation is the continued globalisation of environmental advocacy and concern. International non-governmental organisations (NGOs) have increased their interest in forestry issues over the last decade and are now a major force in international forestry policy discussions. Their most recent significant contribution to this debate has been the development and promotion of forest certification in the markets for forest products in developed countries. It can be expected that they will continue to attempt to influence forestry policymaking through moves such as this.
However, the outlook for forest certification is currently uncertain. As noted above, the implementation of SFM may prove to be rather expensive and what little evidence is available to date suggests that consumers are not currently willing to pay significantly more for certified forest products. It seems likely therefore, that the market for certified forest products is only ever going to account for a relatively small share of the total wood market.
Implications for future action
The final part of this analysis has examined the implications of the future supply and demand outlook for future involvement in the forestry sector by the World Bank and others. It has concluded that there are five main areas where involvement may be justified on the grounds of the forestry sector's linkages to the World Bank's key objectives of poverty alleviation, sustainable development and private-sector development. These are briefly outlined below.
Information. The supply and demand analysis has shown that there is a continuing need for better information about the forestry sector in many developing countries. Given the desire to implement SFM in many countries, this information need is even greater. The World Bank and others should consider what role they should play in supporting this process as part of their strategies to support sustainable development more generally.
Pricing. Many of the desirable changes discussed in this report, such as the implementation of SFM and greater efficiency in wood use, require that the correct price signals are given to forestry concessionaires and industrial wood users. However, there are many examples of countries where the stumpage price of roundwood has been set artificially low in order to stimulate the development of domestic processing industries. The World Bank and others should continue to encourage countries to improve their forest revenue collection systems on the grounds of greater economic efficiency and in order to improve the sustainability of their forest industry developments. To some extent, countries could also be encouraged to use some of this money to improve the effectiveness of their forestry administrations to monitor and control forest operations.
Human resource development. Many of the issues discussed in this report have tremendous implications for human resource development (HRD). Policies to implement SFM and the general level of industry restructuring towards more technologically complex production processes expected in the future, will all have to be supported by a significant and prolonged programme of HRD in many developing countries. The upgrading of human resources in the forestry sector in many countries will require a substantial amount of funding and technical assistance. The World Bank and others should consider the best way in which these investment needs can be met on a sustainable basis in the long-run.
Industrial restructuring. The supply and demand outlook has suggested that there will be a significant need for industrial restructuring. At a policy level, the World Bank, FAO and others should consider how they can best help countries to re-align their industrial policies to take into account the expected future changes in wood availability and forest products markets. Such changes will have cross-sectoral implications, so the World Bank can also play a useful role by trying to influence the relevant parts of government administrations outside of the forestry sector (e.g. industry, energy and planning ministries) where appropriate.
Institutional development. Many forestry administrations in developing countries have evolved to fulfil fairly limited roles. Mostly they have largely taken on the tasks of planning, encouraging or developing, then monitoring, roundwood production from the natural forest. The changing pattern of future wood supply and developments such as SFM and greater needs for HRD, research and better management of protected areas, will all require forestry administrations to broaden their activities. The World Bank and others should support this at the policy level in their regular dialogues with countries and consider how technical assistance can best be provided to facilitate this process.
1 For the purpose of this analysis, "developed countries" has been defined as countries which are members of the OECD. This includes all the countries of Western Europe and North America, plus: Japan; Australia; New Zealand; Mexico; Republic of Korea; Poland; and Czech Republic.
