Russian Federation Forest Sector Outlook Study to 2030

Russia's forests are the largest in the world and yet relatively little is know about them. What we do know is that they are hugely important to the global climate and the global economy.

A new study, commissioned by the Food and Agriculture Organization of the United Nations and the Russian Federal Forest Agency, presents an outlook of how Russian forestry could look by the year 2030 and what that could mean both economically and environmentally.

The purpose of the report is to present an objective and independent expert evaluation of the current state of the forest sector in the Russian Federation and possible alternatives for its development to the year 2030. The study analyses the main systemic problems of the forest sector in the country and offers potential solutions, based on a comparison of the supply of and demand for forest resources.

The Outlook Study has been designed to aid policy-makers in making and implementing well-informed decisions. It aims to increase the openness, transparency and investment attractiveness of the Russian forest sector for national and international investors.

A sector in decline

Forest Breeding and Seed Center in Leshoz Saba (Sabinsky district, Tatarstan Republic) ©FAO/Vasily Maksimov / FAOThe vast forests provide Russia and the rest of the world with timber and play a major role in the preservation of planetary biodiversity and the stabilization of the global climate.  However, according to Professor Anatoly Petrov who is  Russian coordinator of the independent report, Russia is not making the most of its forest resources, “compared to other countries, Russia’s forestry sector is 5 to 6 times less productive than other developed nations.  I think the reason for this is that, when you have this much forest, you don’t care as much about maximizing output from that forest or the heritage you’re passing on to future generations.”

The Russian forestry sector has been in decline since the end of the Soviet era.  Marina Smetanina is the Forest Programme Coordinator in the World Bank’s Moscow office.  “There is a whole set of issues which are faced by the Russian sector.  They include, of course, some underfinancing during the previous decades, some deterioration of equipment, and issues of illegal logging.  The government also needs to improve forest management and forest governance and to promote more efficient use of forest resources and transparency of information.”

Trade and technology scenarios

Forests cover more than half the country, but Russia’s share of the global trade in forest products is less than 4%.  Shamil Hayrulin is Managing Director at the Arksi Les sawmill in the Russian region of Tatarstan.  Like many sawmills and wood processing factories in Russia, the factory was built during Soviet times and their equipment is pitifully outdated.   He believes both turnover and profit could be doubled with the introduction of new technology.  “At the moment our waste is too high.  We want to add value by introducing new technology to produce wood pellets instead.”

The study outlines three different scenarios.  The worst of these is the ‘inertial’ scenario where no progress is made, while the best is the ‘innovation’ scenario where Russia undergoes major change in forest policy and legislation to improve the investment environment, which in turn would lead to the introduction of new technology and knowledge.  The Russian government does already offer some  incentives for factories to update their technology, such as lower import taxes for new machinery.  However, industry representatives such as Anatoly Chernovol, Vice President of the Russian Pulp and Paper Association which represents 70% of Russia’s entire wood processing industry, argue that it’s not enough.  “What we need now is to achieve the idea that if we bring a whole tree to the mill it should be processed completely without any waste.  That’s what we lack now, mills that could do that complete processing.  The reason for that is that it doesn’t make financial sense to build, for example, a brand new mill in Siberia when you have to build all the infrastructure around it costing 2 billion US dollars and producing perhaps 600,000 tonnes of product annually, while you could build in Brazil for 1 billion US dollars, and production would be higher.  What we need is government help to build infrastructure such as road and rail links in remote areas.”

A handful of modern wood processing facilities are being built though they tend to be in regions of Russia where infrastructure is already in place.   In the Russian region of Tatarstan, lies the Alabuga free economic zone.  Here, construction is underway on a vast particle-board and paper facility.  Bulent Rudvan is site manager for the Turkish investor, Kastamonu Integrated Wood Industry.  “It will be the biggest factory complex in Russia and it will be 30-40% more productive than others of its kind because we are going to use state of art technology from Germany.  Deputy Manager of the Free trade zone, Renat Khalimov, explains why Kastamonu and others have decided to invest here, “we provide ready to use land plots with ready to use infrastructure, gas, electricity, railway, roads and of course custom and tax incentives.“

Regional focus: Tatarstan

Nail Magdeev Minister of Forestry, Republic of Tatarstan ©FAO/Vasily Maksimov / FAOTatarstan is one of the few regions that have recognized the value of its forests. Two hundred years ago, more than half of Tatarstan was forested.  Nowadays, that figure is just 17%. Tatarstan’s goal is to raise their forest cover by 1% over the next 10 years.  While a modest goal, it’s a step in the right direction. Nail Magdeev is the Minister of Forestry for the Republic of Tatarstan, “there is a strong political will among the leadership of Tatarstan to improve the forest sector and we are doing that by raising the amount of forest cover, attracting investment and introducing new technology.”

The government has invested in modern logging machinery and has also built a hi-tech seed centre – the largest of it’s kind in Europe, to grow 12 million high quality seedlings each year, essential to their reforestation efforts.  The development of Tatarstan’s forest sector is good for forest communities, where the forest sector is often the only job provider.  “The introduction of new, updated machinery promotes the attractiveness of the sector to the young generation so we have noted a growth in the number of young specialists,” says Igor Rzay who is Chairman of the Foresters Trade Union in Tatarstan.

If similar technological progress can be made in other parts of Russia, the potential of the Russian forest sector is huge.  Martin Hermansson is CEO of the Swedish forestry firm, Rusforest, “harvesting is falling in Canada and it will continue to fall. In Scandinavia and elsewhere in Europe they’ve reached the very top of harvesting and so, if we see normalized markets, with construction restarting somewhere in the world, there’ll be very high demand for high quality products, so for Russia there is great potential in actually supporting the industry at this stage, supporting the reconstruction of the industry from old Soviet technology from the 70s to implementing modern European, Scandinavian equipment and technologies like is being done now.”

Since Russia recently acceded to the WTO, the country needs to act urgently if it wants to compete successfully in the international market place.  They also need to stimulate domestic demand for forest products like wooden housing and furniture, which could help cushion the blow once markets open up fully by 2016.

Illegal logging

Elena Kulkova, Head of Forestry, WWF Russia ©FAO/Vasily Maksimov / FAOThe Russian government also needs to tackle illegal logging.  According to the head of forest programme at the WWF in Russia, Elena Kulikova, “the scale of illegal logging in Russia accounts for about 20% of logging while the government places the figure at around 1%.”  The new Russian forest sector outlook study, says that figure could be reduced to 4% by 2030.

Legal logging could also be better managed.  Currently, forests are logged with little consideration for their regeneration. The longest forest lease is 49 years, only half the time it takes a tree to reach maturity, which is why there is no stimulus for logging companies to take care to regenerate the forest.  “I think the leasing system as it looks today is actually the worse possible system that could be in place,” asserts Martin Hermansson.  “the reason is that it doesn’t allow the forest industry to develop long term.  It doesn’t give any real stimulus to do the reforestation, to do the thinnings and actually to develop infrastructure.”

The Russian government’s primary focus is on improving the economy.   Developing the Russian forest sector is crucial for the development of the Russian economy as a whole,” according to Nickolay Moiseev, co-author of the Russian Forest Sector Outlook Study, “because the updated forest sector could be contributing massive amounts to our economy the way crude oil and natural gas production are doing but it would be based on a renewable raw material, wood, so improving the economy doesn’t need to be an environmental sacrifice.  If Russia succeeds in increasing forest sector production in an environmentally sustainable way, balancing economic, social and environmental values, it will benefit not only the economy but also biodiversity and the global climate.