3 DRIVING FORCES IN THE FOREST SECTOR

This chapter describes some of the main driving forces that have affected the forest sector in the past and are likely to affect the sector in the future. Many of these driving forces are complex and inter-related. For example, changes in income can lead to changes in demand that are then amplified by changes in government policies. Therefore, the presentation of this information under different headings below is somewhat arbitrary.

The chapter follows the methodological framework described in Section 1.3.1 and is divided into four main sections. The first two sections examine driving forces in exogenous factors and demands of society. This is followed by a section that examines the policy and market frameworks together. Following this, the final section describes the alternative scenarios developed for the outlook analysis.

3.1 Exogenous factors

The main exogenous factors affecting the forest sector are socio-economic developments (e.g. changes in population and income) and changes in environmental factors. Traditionally, most analyses of trends and outlook for the forest sector have tended to focus almost exclusively on economic variables (particularly income and forest product prices) and, to some extent, this approach has been repeated in this study. However, changes in other variables can also have a more subtle effect on the sector, so some of these are also described here below.

3.1.1 Population

Changes in population affect the forest sector in several ways. On the demand-side, population growth results in expanding markets for forest products and services. Changes in the population age structure can also have an important effect on markets, by altering patterns of demand and income levels. On the supply-side, an increasing population results in greater competition for land (for a variety of alternative uses), but it also leads to an increasing workforce for the forest sector.

The population of Europe has increased consistently over the last 50 years, rising from around 568 million in 1950 to 795 million in 2000 (an increase of 40 percent). At the sub-regional level, population has increased in Western Europe from 303 million in 1950 to 389 million in 2000 (an increase of 28 percent) and in Eastern Europe it has increased from 115 million in 1950 to 197 million (an increase of 71 percent). In the CIS sub-region, population has increased from 150 million in 1950 to 210 million in 2000 (also an increase of 40 percent). However, in recent years, the population growth rate has slowed down in Europe and has actually reversed in the CIS sub-region and a number of other countries in Europe.

Figure 85 shows the trends in population density in Europe from 1950 to 2000 and long-term projections to 2050 (derived from the UN medium-fertility scenario for population growth). This figure shows the broad trends in total population in the different European sub-regions and, by converting this to population density (persons per square-kilometre) it shows how the different sub-regions compare in terms of population pressure on the land.

Figure 85 Trends and projections for population density in Europe from 1950 to 2050

Source: derived from UN (2000 and 2002).

The figure shows that, over the period 2000 to 2020, population density in Western Europe will not increase by very much from the current level of 110 persons per square-kilometre. In Eastern Europe, over the next 20 years, population density will increase slightly, from 95 persons per square-kilometre to slightly over 100 persons per square-kilometre in 2020. In the CIS sub-region, population density will decline slightly from the current level of about 12 persons per square-kilometre. Of course, these sub-regional averages mask a lot of differences in population density at the country level (e.g. between Sweden and Belgium), but they clearly show that population pressure on the land is generally quite high in Western Europe and extremely low in the CIS sub- region.

In addition to total population, another factor that influences the demand for land is the location of where people choose to work and live. Figure 86 shows the trends in urbanisation in Europe since 1950 and projections to 2030. This figure shows that urbanisation has increased consistently in Europe and across all three sub-regions since 1950. Furthermore, it is expected to continue to increase in the future, particularly in Eastern Europe.

Combining the information about total population and urbanisation, the net effect of these two projections will be that the rural population in Europe will decrease significantly over the next 20 years. In Western Europe it will fall by 16 percent (14 million), in Eastern Europe it will fall by 13 percent (10 million) and in the CIS sub-region it will fall by 20 percent (12 million).

Figure 86 Trends and projections for urbanisation in Europe from 1950 to 2050

Source: derived from UN (2001b and 2002).

Figure 87 Trends and projections for the population of working-age in Europe from 1950 to 2050

Source: derived from UN (2002).

Another important population variable that affects the forest sector is the age-structure of the population and trends and projections for this are shown in Figure 87. The population age-structure affects the demand for forest products and services, because income levels and consumer preferences change as people get older. However, a more important effect of the changing population age-structure is likely to be the effect that this will have on the workforce.

Figure 93 shows that, over the last 50 years, the proportion of the population that is of working age (defined here as 15 to 59 years old) has stayed roughly constant at about 60 percent. The long-term projection shows that this will fall in all of the three European sub-regions, to levels of between 50 percent and 55 percent in 2050. However, over the next 20 years, there are some marked differences between the three sub-regions.

In Western Europe, many countries have already started to experience a decline in the working-age population and, for the sub-region as a whole, the working-age population is expected to decline over the next 20 years by about five percentage points. The current age-structure of the population in Eastern Europe and the CIS sub-region will result in an increase in the working-age population over the next 10 years, but a gradual decline after this. In total, by the year 2020, the working-age population in Western Europe will fall by four percent (10 million), it will increase by seven percent (8 million) in Eastern Europe and fall by 14 percent (18 million) in the CIS sub-region.

In combination, these projections will affect the forest sector in many different ways. First and foremost, all three of these projections are going to reduce the rural workforce and reinforce the difficulties that are already experienced in some countries in attracting people to work in forestry (Blombäck et al, 2003). This may result in some upward pressure on labour costs, but it is also likely to lead to a further increase in the mechanisation of forest operations. This, in turn, will increase the need for investment in machinery and training.

These pressures will also be felt in the forest processing sector, although probably not as much. Indeed, in the near-term, there may be an increase in the availability of labour in Eastern Europe and the CIS sub-region. This could result in some migration of workers from east to west, particularly in the enlarged EU.

In terms of land-use, increased urbanisation is likely to lead to less demand for agricultural land (and this trend will no doubt be amplified by government policies with a similar aim - see below). This will be replaced by more demand for land for housing and infrastructure, but the net effect will probably be to increase the availability of land for forestry.

Larger urban populations are also likely to demand more access to land near urban areas and to demand environmental improvement in and around urban areas. Afforestation and changes in the management of existing forests are likely to be a preferred option for meeting some of these demands.

A more subtle effect of increased urbanisation, along with an ageing population (particularly in rural areas), is going to be a changing perception of the role of forests in modern life. Numerous studies have shown that there is a wide difference between rural people (who tend to see the countryside as a productive resource), compared with urban people (who tend to place more importance on the non-market benefits that rural areas can provide). Therefore, these trends will tend to increase society’s demands for non-wood forest products and services relative to forest products.

3.1.2 Income

Economic growth is probably the most important factor that influences the outlook for the forest sector. Prolonged and rapid economic growth will lead to increased trade, investment and personal incomes, resulting in stronger growth in demand for all forest products and services. However, it may also have a detrimental effect on forest resources if demands exceed the biological capacity of forests to meet those demands or if rapid economic growth results in other factors that harm forests (e.g. increased air pollution).

The importance of economic growth is reflected in the models used in the EFSOS to produce the forest product market projections for the next 20 years. The level of GDP is one of the main variables used in these models, so forecasts of economic growth are required for the period 2000 to 2020 in order to produce the market projections. Unfortunately, however, most official forecasts of economic growth only cover the next five to ten years.

To overcome the limitations of official forecasts, a special study was implemented to produce forecasts of economic growth to 2020 for all of the countries included in the EFSOS (NOBE, 2002). In particular, this study focused on the prospects for economic growth in the countries in transition (i.e. the countries in Eastern Europe and the CIS sub-region). The study examined historical trends in economic growth and the main factors that have influenced economic growth in the past. On the basis of this analysis, it then produced three scenarios for future economic growth in each country. The following text summarises the main findings of the analysis and describes some of the main features of the three growth scenarios.

Historical analysis. The factors underlying long term economic growth are the subject of considerable theoretical discussion, which it is not appropriate to summarise here (for further details, refer to: NOBE, 2002). However there is a general consensus that the main driving forces for economic growth are: population; investment; and total factor productivity. Furthermore, the latter is influenced by the level of education in a country and the ability of a country to adopt new technology. Currently in Europe, there are considerable differences between Western Europe and the other two sub-regions in terms of these driving forces.

Historically in Western Europe, economic growth has been driven by a combination of the factors listed above. In particular, the availability of factors of production (labour and capital) has consistently increased and this has been a major driving force for economic growth. In the future, however, Western Europe will no longer be able to rely on increased factor availability. For example, as already noted above, the workforce will decline over the next 20 years. Furthermore, labour scarcity will increase capital intensity above current levels that are already very high. This will tend to reduce the productivity of capital (due to falling marginal productivity). Therefore, in the future, a crucial factor for economic growth in Western Europe will be the ability of countries to continue to enhance the quality of capital and human resources. This will most likely be achieved by technological advancement and knowledge-based growth.

In the case of Eastern Europe and the CIS sub-region, there is currently a wide gap (compared with Western Europe) in terms of productivity and income levels. In addition, these two sub-regions are also far behind Western Europe in the levels of technology employed in the economy. Therefore, these sub-regions have two forces that they can use to drive economic growth in the future. The first is that they could attract significant investment (due to their higher marginal productivity of capital). The second is that they could increase factor productivity by importing technology from more developed countries (in Europe and elsewhere). In both cases, the prospects for future growth in Eastern Europe and the CIS sub-region will depend on the extent to which these countries exploit the opportunities for convergence with Western Europe, through increased trade and investment.

Scenario description. The forecasts of economic growth for each country have been based on an analysis of past trends in growth and assumptions about how the driving forces (described above) will develop in the future. Broadly speaking, some of the main features of the economic growth projections are as follows:

• GDP will continue to grow in all countries and subregions;

• in Western Europe, economic growth will be generally be slower than in the past and slower than in the rest of Europe;

• in Eastern Europe and the CIS sub-region, economic growth will not change markedly from current levels, but will gradually slow down as levels of GDP per capita start to converge with those in Western Europe; and

• in general, educational levels and the employment of technology will gradually converge all over Europe.

In addition to the above, it is also worth noting that the analysis suggests that economic growth rates in several other regions (notably Asia and South America) will continue to be higher than in Europe for the foreseeable future. The consequences of this will be that forest products markets in other regions may expand more rapidly than in Europe. However, global competition in the sector will also continue to increase as other countries outside Europe increase their investment and levels of productivity in the sector.

A summary of the economic growth projections produced in the analysis is given in Table 20 and projections for real per capita GDP (under the baseline scenario) are shown in Table 21. Further description of the three scenarios is given in the text below.

Table 20 Projections of average annual economic growth in Europe from 2000 to 2020 under three different growth scenarios

Source: NOBE (2002).

Table 21 Trends and projections in real per capita GDP in Europe from 1990 to 2020 under the baseline scenario (at 2000 prices and exchange rates)

Source: derived from UN (2002), World Bank (2004) and NOBE (2002).

Low growth scenario. The low growth scenario assumes that total population will follow a low fertility projection in the future (UN, 2002), leading to a significant decrease in population levels and a rapid ageing of the population across all of Europe.

In Western Europe, it assumes that policies to accelerate technological progress and enhance human capital will be relatively weak (leading to almost no progress beyond the current situation). Given the very high capital intensity and low marginal productivity of capital, this leads to a very low economic growth rate.

In Eastern Europe and the CIS sub-region, it assumes that there is very slow progress in political, social and economic stabilisation, a lack of policies to enhance domestic saving and investment, low adoption of new technology and little investment in the human capital. This economic and social outlook is very unfavourable for convergence and, combined with the slow economic growth projection for Western Europe, leads to relatively low economic growth rates.

Baseline scenario. The baseline scenario assumes that total population will follow the medium fertility projection in the future (see Section 3.1.1). It assumes that education will improve across the region, along with the adoption of new technology. It also assumes that real per capita GDP will start to converge in Europe.

In Western Europe, it assumes that there will be steady improvement in the implementation of policies aimed at accelerating knowledge-based growth. This leads to an economic growth rate only slightly lower than in the past.

In Eastern Europe and the CIS sub-region, it assumes that there will be steady improvement in the implementation of policies aimed at accelerating convergence. It also assumes that new technology will be widely adopted, leading to efficiency gains and a steady reduction in the technological gap between these sub-regions and Western Europe. This results in a continuation of current economic growth rates.

High growth scenario. The high growth scenario assumes that total population will follow a high fertility projection in the future, leading to much less of a decrease in total population levels.

In Western Europe, it assumes that policies to accelerate technological progress and strengthen human capital are implemented aggressively, with measures such as significantly increased investments in education, research and development. This results in an economic growth rate slightly higher than in recent years.

In Eastern Europe and the CIS sub-region, it assumes that the process of economic, social and political stabilisation will be accelerated, with a rapid expansion of EU enlargement to cover Turkey and the Balkan states. It also assumes that policies will be implemented to enhance domestic saving and investment, rapidly improve human capital and encourage the adoption of new technology. This leads to much more rapid convergence with Western Europe that, combined with the high projected growth rate there, leads to relatively high economic growth.

3.1.3 Accessibility of forests

The accessibility of forests is another factor that has increased in the past and is likely to continue to increase in the future. Section 2.2.2 has already described how people have legal rights of access to much of the forest area in Europe (see Figure 13). In addition to this, socio-economic trends have also increased the ability of people to access forests for a variety of purposes.

This increase has occurred due to a combination of factors, such as:

• increased leisure time (e.g. shorter working hours and longer holidays);

• improved rural infrastructure (e.g. improved road networks, accommodation, etc.);

• an increase in the income available for non-essential purchases (see Section 3.2.1); and

• increased car ownership.

For example, Figure 88 shows trends in vehicle ownership since 1960. This is measured as the number of vehicles per 1,000 people (of which about 80 percent to 90 percent are cars). The figure shows a strong upward trend in all three European sub-regions, with approximately one vehicle for every two people in Western Europe in 2000. The level of vehicle ownership in Eastern Europe is currently about half of this and the level in the CIS sub-region is about one-third of this level. However, if current trends continue, the level of vehicle ownership in Eastern Europe will equal one for every two people by 2020 and the level of vehicle ownership in the CIS sub-region will be only slightly less than this.

Figure 88 Trends in vehicle ownership in Europe from 1960 to 2000

Source: derived from World Bank (2004) and IRF (1990). Note: the above figure excludes Turkey where, on the basis of the little data available, vehicle ownership is about half of the average for other Eastern European countries

The most obvious effect of these trends will be an increase in the use of forests for leisure and recreation in the future. However, these trends may also result in other changes, such as an increase in the numbers of people working in urban areas but choosing to live in the countryside where the environment is better. This will reinforce the gradual shift towards greater demand for non-wood forest products and services relative to forest products. It is also likely to increase public interest in forestry issues.

3.1.4 Environmental factors

Environmental factors encompass a number of climatic, biological and geographical factors that affect forests. The impact and importance of these factors varies between sub-regions and countries. Furthermore, changes in some of these factors are short-term and occur infrequently and erratically. For example, short-term variations in climate can lead to sudden changes in damage to forests from fires, storms and outbreaks of pests and diseases.

In the case of these short-term environmental factors, it is very difficult to analyse trends or to produce projections of how they might affect forests in the future. For example, the analysis of historical trends in forest fires and defoliation (see Section 2.2.1) suggested that these problems may have increased slightly in the past, but may not be increasing very much at the moment. However, the historical trends show a great deal of variation from year to year and the underlying causes of these problems are complex and can not be projected into the future.

What can be said about some of these short-term environmental factors is that they could potentially persist in the future. Thus, the precautionary principle would suggest that individuals in the forest sector should continue to monitor their effects and investigate options for reducing their impact on forest resources in the future.

In addition to the short-term environmental factors discussed above, there are also some environmental factors that have changed more gradually and are likely to have more of a long-term impact on forest resources. Two of the most prominent of these are global climate change and changes in the age-structure and growth rates of forest resources.

Outside of North America (Sedjo and Sohngen, 1998), there has been little research into the effects of climate change on forest products markets. However, there has been some research into the possible effects of climate change on forest resources in Europe (see Box 6). This has suggested that climate change will affect forest growth rates and alter the optimal locations for growing different tree species. In addition, there is some evidence that a warmer climate will also be a more unpredictable and erratic climate, which will possibly lead to an increase in some of the problems already described above.

Box 6 Possible consequences of climate change on European forests

The extent and likely impact of future climate change is still a subject of intense scientific debate. However, the changes that may occur are likely to be very gradual and appear over several decades. Therefore, it does not seem likely that global climate change will have a significant impact on the European forest sector within the next two decades.

A much more potent and visible change in environmental factors, at least in the medium term, has been the historical increase in growing stock and growth rates of forest resources in Europe. For example, Section 2.1 showed that both growing stock and NAI have increased significantly in Europe over the last 50 years.

These changes have occurred due to historical levels of harvesting over the last five decades, which have always been less than the annual increment. They have also probably occurred as a result of increases in forest yield, due to advances in silviculture, increased intensity of forest management, better selection of species for different forest sites and improvements in tree breeding and forest establishment.

The effect of these changes has been that the potential supply of roundwood from European forests has increased gradually over the last 50 years, to a level that is now much higher than the current level of harvesting. In the same way that this abundance of potential roundwood supply has accumulated very gradually in the past, it will probably persist for many years in the future.

This increase in potential roundwood supply could have both positive and negative effects on the forest sector in the future. On the negative side, it will continue to exert downward pressure on standing roundwood prices (particularly if potential supply continues to increase faster than the level of harvesting). For example, it has probably contributed already to some of the historical long-term decline in roundwood prices noted in Section 2.7.3. On the positive side, it also presents an opportunity to use large areas of forest for purposes other than industrial roundwood production and to enhance some of the environmental aspects of production forest management (e.g. by lowering the use of chemicals and other intensive forest management techniques).

It should also be noted that these effects have a different impact on each of the stakeholders in the sector. For example, low roundwood prices harm forest owners, but they benefit the forest processing sector. Each of the stakeholders will also be in a different position to take advantage of the opportunities that are presented. The challenge for the sector will be to take these effects into account as part of the future development of the forest sector.

3.2 Demands of society

At present, the demand for forest products is probably still the most important demand placed on forests in many countries and it is certainly the most important demand in terms of income for the forest owner. Historical changes in this demand have been examined in the statistical analysis of market trends and, based on this analysis, future projections for forest products markets have been produced.

However, this analysis does not examine some of the more subtle changes in demand that may occur in the future, such as changes in the demand for NWFPs and services. Nor will it capture any recent structural changes in the demand for wood products, because they will not have affected the historical statistics.

There are two important changes in demand that may not be fully captured by the statistical analysis of forest products markets presented earlier and these are briefly discussed below.

3.2.1 Changes in human needs

Human needs can be arranged into a hierarchy (Ernst, 1978), starting with basic needs such as food, shelter and security, followed by other activities that are less of a “need” and more of a personal pleasure. The latter include the accumulation of material possessions and personal development, followed by the acquisition of knowledge and self-awareness.

As personal incomes increase, individuals tends to spend a higher proportion of their income on activities that are higher up in this hierarchy and less on satisfying their basic needs. Thus, for example, in most developed countries only a small proportion of personal income is currently spent on food, while in developing countries this can account for a significant proportion (if not the majority) of personal expenditure.

The relationship between personal income and the hierarchy of human needs is shown in Figure 89. From the information on per capita GDP given above, it is clear that most countries in Western Europe are somewhere towards the right-hand side of this figure, leading to patterns of demand that are skewed towards meeting higher-order needs. Most countries in Eastern Europe are probably closer to the middle of the figure, with the CIS sub-region slightly behind. Thus, in these countries, it would be expected that consumer demand will be focused on a broader range of goods and services.

Figure 89 The relationship between human needs and the level of personal income

Source: Rennel (1984).

To some extent, the relationship shown in Figure 89 is reflected in the statistical analysis of forest products markets. For example, the income elasticities of demand¹⁷ for printing and writing paper are generally higher than those for sawnwood. This partly reflects of the fact that printing and writing paper is devoted to fulfilling the need for personal development and knowledge, whereas sawnwood is used mainly to provide shelter and manufacture personal possessions. These differences are also reflected in the differences in elasticities between the sub-regions, with generally lower elasticities for Western Europe where incomes are higher and consumption is less sensitive to changes in income. However, the statistical analysis probably does not capture all of the implications of rising incomes on the demands placed on the forest sector.

Table 22 attempts to go beyond the statistical analysis of forest products markets, to show how increasing incomes may lead to other more subtle changes in the demands placed on the forest sector. As incomes rise, countries will move up the hierarchy towards a pattern of demand that will focus more on higher needs. Thus, for example, there will be more demand for fashionable, well-designed forest products with a greater range of choice and consumers will focus less on price in their purchasing decisions. Wealthier societies will also place greater emphasis on forest services (such as conservation and recreation) relative to the production of forest products and, in product markets, consumers will have a greater interest in the environmental credentials of those products. At the highest levels, there will also be more interest in organised and educational recreational activities and individuals are more likely to take an active interest in forestry affairs.

As already noted, consumption patterns in many of the countries in Western Europe are already focused on the higher needs. However, there are some countries that will still be moving up the hierarchy over the next 20 years. In addition, some of the projected changes (e.g. greater preference for quality over price) will probably occur to some extent in nearly all countries in the future.

In Eastern Europe and the CIS sub-region, most countries are starting in a position lower down in this hierarchy, but they will move up the hierarchy over the next 20 years. It is in these countries that some of the more dramatic changes shown in Table 22 may occur in the future and the extent to which they reach the very highest levels of the hierarchy will depend upon how rapidly their economies grow,

Table 22 The relationship between the hierarchy of human needs and demands placed on the forest sector

3.2.2 Changes in industrial demand for forest products

The second important change that will occur in the future concerns the impact of the ageing workforce on the demand for forest products in end-use industries. As the population age-structure changes and the workforce declines, labour costs will rise and industries will be looking for ways to increase labour productivity. Thus, industrial users of wood products will compare the labour required to utilise those products compared with non-wood alternatives and, to remain competitive, the forest processing sector will have to provide them with products that reduce their total production costs in an environment of rising labour costs.

For the forest processing sector, the most important changes in the future may occur in the construction sector. Construction currently accounts for a significant share of sawnwood consumption (over 50 percent in most countries) and construction has traditionally been a labour intensive industry. The shrinking workforce will have more of an impact on construction than in many other sectors. Furthermore, with the expected social trends towards a better educated workforce and knowledge-based economies, the attraction of working as skilled or unskilled manual labour in the construction sector is likely to decline in the future.

The trends described above will lead to pressures to substitute technology in the forest processing facility for labour at the construction site. Thus, the demand for engineered wood products and products such as pre-cut lumber is likely to increase. An increase in modular or panelised construction is also likely, with the added advantage that these types of building systems reduce construction waste and reduce the costs of handling and recycling waste (Schuler, 2002). This trend favours forest products as a whole which are generally more suited for factory assembly and pre-manufacture than other building techniques (e.g. bricks and mortar).

An example of what might happen is given by recent trends in Japan, where the construction sector has already suffered from the effects of an ageing population for a number of years (see Box 7). Already some European countries are starting to feel these effects and are moving in the same direction (e.g. Germany and the United Kingdom) and it can be expected that more will do so in the future.

Figure 90 Recent trends in the use of pre-cut lumber in Japan

Source: Roos (2000).

Box 7 Technological change in Japan’s residential construction market

Source: Roos (2000). The trends identified by Roos have continued in the recent years, as evidenced by various issues of the UNECE/FAO Forest Products Annual Market Review

3.3 Policy and market frameworks

3.3.1 Background

So far, the discussion in this section has concentrated on the underlying forces that have affected the sector in the past and will do so in the future. In addition to these, developments in the forest sector are also very strongly affected by changes in government policies and market frameworks (and these are often inter-related). These changes can amplify the underlying forces or, in some cases, try to work against them.

The policies that affect the forest sector are not only the policies specifically designed for the sector (i.e. forestry policies), but also policies in other sectors, such as: energy; environment; trade; and agriculture. Often these “external” policies have cross-sectoral impacts (i.e. they lead to unintended or unexpected consequences outside the sectors where they have been implemented) and there is growing recognition that these cross-sectoral impacts are a major driving force in the forest sector (Dubé and Schmithüsen, 2003). This is hardly surprising given the relatively small size of the forest sector in most countries compared with some of the huge policy initiatives in other sectors (e.g. the Kyoto Protocol or the EU Common Agricultural Policy).

The interactions between different policies are often complex and difficult to understand. This is because different policies often have different (and possibly conflicting) objectives. Furthermore, they may cover different geographical locations and they may be implemented with little co-ordination. They may also have unexpected or unintended impacts on markets. These complexities make it difficult to analyse the full range of policies that could have an effect on the forest sector. However, it is important to attempt to understand some of these forces, as they present both challenges and opportunities for the forest sector in the future.

3.3.2 Methodology

The analysis presented here was developed out of the earlier work on this subject by Peck and Descargues (1997). Their work was based on in-depth discussions with a small sample of policy experts from a variety of sectors, which led to a description of some of the main trends in policies (and other areas) that will affect the forest sector in the future.

In this more recent analysis, the results of their work were taken a step further and were used as the basis for discussions with a wider group of policy experts. This discussion progressed through a number of iterations that, at each stage, attempted to focus and clarify the scope, scale and impact of future trends on the sector. In particular, the discussions and surveys of expert opinion examined the following questions:

• Which policies influence the forest sector and in what way?

• What are the most likely future developments in those policies?

• What might be the consequences of those future policy developments for the forest sector?

It is very important to note that some of the issues that were uncovered as part of this investigation are not policy issues, but are other more general trends that the experts considered might be important in the future. These have been included in this section, because they were grouped together with expected future policy directions, to form a number of broad scenarios that could move the forest sector in different directions. Thus, there is something of a mixture of policy trends, other trends and causes and effects presented here.

It also should be noted that the analysis of policies and development of future scenarios is not an exact science, but requires some judgement to assess the expert opinions and other qualitative information that was collected. This was done in an open and transparent way by, for example, frequently communicating with the network of policy experts. In addition, the information collected was assessed objectively, as far as that is possible.

The results presented below are based on the responses of this group of selected policy experts. While these experts are highly respected for their knowledge about the sector, any expert review may be biased somewhat towards a “technical” view of the sector or suffer from common mis-conceptions. It should also be noted that most of this work was implemented in 2001, so some parts may now be out of date. It is highly recommended, therefore, that these results should be disseminated and discussed amongst a wider European audience, both to get a better idea of current policy issues and developments and to promote a deeper understanding about some of these issues within and outside the sector.

A complete description of the analysis is given in Thoroe et al (2004), which also describes the above process in greater detail. The remainder of this section describes the results obtained from the analysis, grouped into five main scenarios. For each scenario, the text presents some background information, a description of the expected future trends (including the probability that they will occur) and a description of the possible impacts on the forest sector (compared against a baseline of a continuation of current trends and policies).

3.3.3 Greater emphasis on biodiversity and nature conservation

The importance of biodiversity and nature conservation in Europe’s forests has already been described in Section 2.10.3. In order to sustain and enhance these values, most governments have implemented a variety of biodiversity and nature conservation policies over the last few decades. In particular, governments have made specific commitments to enhance biodiversity and nature conservation in several international policy processes, such as the Convention on Biological Diversity, the MCPFE and the pan-European Ministerial Process “Environment for Europe”.

While there is probably general agreement about the objectives of these policies, some conflicts have arisen about their implementation. In particular, concerns have been expressed in some parts of the forest sector about the economic consequences of such policies, which tend to reduce roundwood supply and increase costs. There has also been debate about the process used to designate protected areas, the strength of protection given to protected areas, the management regimes that should be used in these areas and the possibility (or not) of compensating forest owners for economic losses due to these policies.

Based on the assessment of current trends in this area, the analysis identified three possible future directions, each of which would probably be supported by a variety of activities and policy measures. The directions are shown below (in bold), followed by a description of the expected changes.

More emphasis on nature conservation and the promotion of biological diversity of forest ecosystems. This trend would include increases in the area of forest protected for nature conservation and a reduction of harvesting in such areas. Ecological networks (e.g. core areas, corridors, buffer areas and restoration areas) would be expanded and forest fire protection would be increased. Diversification of species composition and structure of ecological communities in forests would also occur.

More emphasis on nature-oriented forest management. This trend would include eliminating or reducing clear-cutting, replacing this with more selective harvesting. It would also include planting endemic and indigenous species, increasing mixtures of coniferous and broadleaved species in forests and increasing rotation lengths. Forest operations could also be affected by, for example, the abandonment or reduction of drainage systems and reducing the use of chemicals in forests.

Increasing demand for certification of forest management and wood products. This would include increased certification of forest management, forest products and the wood processing industry.

Table 23 Conclusions of the scenario analysis about the likely probability and impact of greater emphasis on biodiversity and nature conservation in the future

Source: based on Thoroe et al (2004).

Table 23 presents a summary of the expert opinion about the probability of these trends occurring and their effects on the forest sector. This shows that it is considered to be quite likely that these trends will occur in the future, especially in Western Europe. It is also highly likely that they would reduce the FAWS area. In most sub-regions, it is expected that removals, consumption, production and trade would not be affected by these trends. However, it is expected that an increase in nature conservation would reduce removals in Western and Eastern Europe (presumably due to an expansion of protected areas). It is also expected that an increase in certification might increase trade and consumption in Western Europe, due to an improvement in the image of forest products.

3.3.4 Agricultural, rural and regional development policies

Several earlier parts of this report have already described how agriculture and land-use change have been strongly influenced by government policies for many years. In the past, agricultural policies have largely been implemented in isolation, leading to various cross-sectoral impacts. However, these have sometimes had a positive effect on the forest sector (e.g. support to intensify agriculture has reduced the demand for less fertile areas and has been one of the main driving forces behind forest expansion in Europe).

It is now increasingly clear that policy makers wish to consider forestry and agriculture together within the broader context of rural development. The main objective of rural development policy in Europe is to protect the rural population, economy, ecology and landscape from the multiple threats posed by an increasingly urban society that has a minimal understanding of (and sympathy for) rural concerns.

In Europe, there is also now a strong political will to modify agriculture policies, most notably the EU Common Agricultural Policy (CAP). The aim is to move away from measures that have stimulated agricultural production (e.g. market measures), which have sometimes had unintended results in the past. In the future, policy will aim towards broader rural development, which will be more balanced and focused on the general goals of society and, above all, less expensive.

The process of agricultural policy reform will be implemented by “decoupling” rural development from the level of agricultural production. This will be done, for instance, by replacing production support with direct payments for the provision of ecological, landscape protection or recreational services. However, this transformation will not be easy (as the recent protracted negotiations on the CAP have shown) and the final outcome is still far from certain.

Linked to these rural development policies is the move to initiate policies to provide economic incentives for the production of social and environmental benefits from forest sector activities. Such policies may include measures to encourage the protection of forests, the production of recreational services, nature-oriented forest management and the conversion of forests used for wood production to nature conservation forests. However, it has proved difficult in practice to design policies that will provide such incentives in a way that is efficient and focused. In particular, it has been difficult to identify priorities, because these outputs have been provided free of charge in the past, as by-products of wood production.

Under this heading, the analysis identified the following two future policy directions and possible supporting measures.

Incentives for social and environmental benefits from forestry and wood products use. This would include economic incentives for forest protection and the production of forest recreation, incentives for nature oriented management of forests and incentives to convert forests used for wood production to nature conservation forests.

Changes in agricultural, rural and regional development policies. This would include changes in the subsidies for agricultural production and exports, extension of CAP payments to cover forestry activities (e.g. the afforestation of agricultural land), new forestry measures in agriculture (e.g. to support biomass production) and promotion of the forest sector as an integral part of rural development.

Table 24 Conclusions of the scenario analysis about the likely probability and impact of changes in agriculture and rural development policies in the future

Source: based on Thoroe et al (2004).

The conclusions of this part of the analysis are summarised in Table 24. This shows that, in Western and Eastern Europe, it is considered quite likely that economic incentives will be established for the production of social and environmental services from forests. However, it is also believed that these will be unlikely to influence the main market forces. For the CIS countries, these economic incentives are considered slightly less likely to occur, but they would be expected to increase production and consumption of forest products.

Changes in agriculture and rural development policies are considered very likely in Western and Eastern Europe, leading to an expansion of FAWS area. In Western Europe, these policy changes are not expected to change market forces, but they are expected to increase removals, production, trade and consumption of forest products in Eastern Europe. For the CIS countries, changes in agriculture and rural development policies are considered rather unlikely and, if implemented, would not be expected to change market forces.

3.3.5 Consequences of the transition process

The process of transition from centrally-planned to market economies has been the most profound social and economic structural change in Europe in the 1990s. Conditions now vary enormously between these countries, in particular between those closer to Western Europe and the others. For example, eight countries have progressed so rapidly that they joined the EU in 2004, having implemented numerous policy reforms across all sectors over less than a decade. Others have made much less progress and remain in the transition process or even at the beginning of it, with levels of GDP still below the those of the early 1990s.

The economic scenarios described in Section are based on specific assumptions about the progress of these countries through the transition process and how this will influence their long-term economic growth. In addition to this, it is also worthwhile considering the direct influence of the transition process on the forest sector. Important variables that could have a major impact on the forest sector might include: changes in forest ownership through privatisation or restitution; the weakening of forest sector institutions during the transition (e.g. reducing their ability to enforce forest law); the privatisation of forest industries; and changes to state subsidies (e.g. as shown by the significant impact of increased railway freight charges on the Russian forest sector).

Under this heading, the analysis identified two future directions, with the following associated changes.

Strengthened policies to develop the market framework in countries in transition. This would include the recovery of the forest sector in these countries and changes in forest land ownership.

Progress in EU enlargement. This would result in accelerated enlargement of the EU to include all European countries (i.e. current candidate countries and then the others).

Table 25 Conclusions of the scenario analysis about the likely probability and impact of changes to the transition process in the future

Source: based on Thoroe et al (2004).

The results of this analysis are shown in Table 25. These indicate that both the strengthening of the market framework and the enlargement of the EU are considered very likely (except for expansion of the EU to include CIS countries). These two developments are expected to result in higher or much higher production, consumption and trade in both Eastern Europe and CIS countries. In Western Europe, consumption and trade (i.e. imports) of forest products are expected to be higher if these developments were to occur. However, removals and the FAWS area would be unchanged, while production would be lower (i.e. imports from the east would be expected to increase their share of Western European markets).

Some caution is required in interpreting these results in quantitative terms, as there is overlap between the opinions about the transition process set out above and those already included in the economic growth scenarios.

3.3.6 Globalisation, innovation and market structures

Globalisation has been a major driving force in recent years and has been supported by policies that have reduced barriers to the movement of goods, capital and technology across national boundaries. For the forest sector, the main effect of globalisation has been the reduction in transport costs that has led to increased exports of forest products (see Figure 54 and Figure 55) and the creation of a truly global market for forest products.

Globalisation has also resulted in the emergence of 10 to 20 major global forest products companies. These companies can restructure their operations all over the world in the response to changing market conditions. They are also in a stronger position to invest in research and development, innovation and marketing, which makes it easier to develop new products and markets and increase the competitiveness of the sector.

Another major effect of globalisation has been that it has reduced the dependence of the forest processing sector on local supplies of raw materials. For example, companies can now utilise materials from different sources and locate manufacturing facilities in different locations all along the production chain from the forest to the consumer. Thus, the location and development of the forest processing sector is now influenced less by the availability of forest resources and more by the prevailing investment climate and general economic conditions in a country (see Brown (2000) for a discussion of this transition from an environment of “natural advantage” to one of “competitive advantage” in the forest sector).

While globalisation has undoubtedly brought widespread benefits (e.g. to consumers who have benefited from better access to good quality, well priced goods and services), it may have also led to some negative effects. For instance, increased competition may have resulted in pressures to lower environmental and labour standards in some countries. These advantages and disadvantages of globalisation have been hotly debated at all levels of society.

Under this heading, the policy study identified the following two future trends and effects.

Impact of globalisation on the competitiveness of the European forest sector. This would include increased international flows of capital, cross-border mergers and relocation of companies across national boundaries.

Intensified innovations and changes in competitiveness of wood products. This would include innovations in: harvesting techniques and facilities; wood processing technologies; and information technologies. It would also include development of new products (e.g. engineered wood products), new non-wood forest products and new fields of application for existing products. It would also include improvements in transport and logistics.

Table 26 Conclusions of the analysis about the likely probability and impact of trends towards globalisation, innovation and changing market structures in the future

Source: based on Thoroe et al (2004).

The expectations about the future of globalisation, innovation and changing market structures are summarised in Table 26. This shows that an increase in globalisation and innovation (above the current baseline trend) is considered rather likely (with a probability of 50 percent to 75 percent). This is expected to have little effect on the FAWS area, but would result in much higher levels of removals, production, trade and consumption.

It is also interesting to note that globalisation and innovation are perceived as having a stimulating effect not only in Eastern Europe and the CIS sub-region, but also in Western Europe. This is despite the threat to Western Europe of increased competition from these low-cost countries. Possible reasons for this perception could be a belief in the ability of a highly competitive global economic environment to stimulate all countries to increase dynamism and efficiency. It could also reflect confidence in the ability of European multi-national forestry companies to develop their skills and efficiency so that they do not lose (and may even gain) market share in the future (see, for example, Figure 56).

3.3.7 Energy and environment

At present, some of the most difficult policy issues concern the increased demand for energy and environmental improvement and the linkages between these two issues. For example, there is great interest in identifying future sources of energy that are sustainable, economically feasible, safe and renewable. Policymakers are considering how energy prices should be modified to take into account the externalities of production (e.g. environmental damage from air pollution) and the need to care for the interests of future generations. They are also looking at how patterns of energy use can be modified to minimise and eventually reverse anthropogenic climate change without imposing an intolerable burden on today’s energy users. The policies chosen to deal with these problems will affect every inhabitant of the world for many years to come.

Future developments in this area will affect all countries at the broadest level (i.e. leading to changes in economic, social and environmental trends) and will influence the outlook for all sectors. However, there are some aspects these developments that will have a direct impact on the forest sector. For example, wood is a source of renewable energy and may be promoted in future renewable energy strategies. This may then have an effect on the future wood raw material balance. In addition, forest products can substitute for products that require a greater use of energy in manufacturing and they also store carbon (as do forests). Therefore, greater use of forest products may be promoted as part of policies to reduce climate change.

Important issues that will have to be examined include: the relative importance (and cost) of forestry’s contribution to these policies; the reconciliation of these new demands with existing demands for wood materials; and the changes in forest management techniques that might be required to support such policies. Given the potential economic costs of such polices, it also remains in doubt whether governments will have the political will to implement some of these policies.

In addition to the above, there is also a wide range of other environmental issues that may affect the forest sector in the future. These include demands to reduce pollution and waste (e.g. through improved manufacturing processes and increased recycling). Changes in these areas could also alter costs and prices in the forest sector and change the supply and demand relationships between wood raw materials and processed forest products (see Box 8).

Under this heading, the analysis identified the following three future trends.

Promotion of renewable energy sources. This would include a greater emphasis on the use of wood biomass as a source of energy in the future, increased taxes on fossil fuel production and utilisation, the abandonment of nuclear power stations and promotion of energy saving technologies.

Improvement of waste management and emission control. This would include increased recycling of waste paper and waste wood, implementation of best practices in the forest processing industry (e.g. cleaner production and waste minimising technologies), implementation or extension of integrated pollution control, rationalisation in the use of wood products and reductions in harvesting and transport losses in the forest sector.

Climate change. Climate change may affect forest growth in the future (e.g. higher temperatures may lead to higher precipitation and more frequent (and stronger) storms). There may also be greater acceptance to include changes in forests as part of strategies to comply with emission reduction targets and acceptance of to include the carbon stored in harvested wood products.

Box 8 Landfill taxes - a new driving force in the forest sector?

Source: based on Dengg et al (2000), Remade Scotland (2004), EC (2002) and Bromhead (2000).

Table 27 Conclusions of the analysis about the likely probability and impact of trends in energy and environment in the future

Source: based on Thoroe et al (2004).

The summary of this part of the analysis is shown in Table 27. This shows that all of the trends energy and environment described above are considered highly likely to occur. The trends in waste management and emission control are not expected to have a significant impact on FAWS area or markets. The trends in renewable energy and climate change are not expected to influence the FAWS area, except in Western and Eastern Europe. In the case of Western Europe, trends in climate change are expected to increase FAWS area, perhaps with the establishment of new forests as carbon sinks. In Eastern Europe, trends in renewable energy are expected to have this effect. This could reflect an expectation that new forests may be planted to produce woodfuel.

The trends in renewable energy and climate change are expected to raise the level of removals, production and trade in almost all subregions. Trends in renewable energy are also expected to raise consumption in Western and Eastern Europe, but it is not clear whether this expectation refers to consumption of all forest products or only woodfuel. However, higher consumption of forest products might be expected with this trend if forest products were to replace products requiring a higher use of energy during the manufacturing process (e.g. if renewable energy policies resulted in an increase in energy prices).

3.4 Three future scenarios for the forest sector

Scenarios are used to bring together a package of future trends and choices that will tend to move the sector in a certain direction. For example, trends towards a greater emphasis on the environment could be amplified by policy changes in support of environmental objectives. They may also result in changes in the market, such as changes to forest product prices and investment in alternative technologies. It is very important to understand that scenarios include both exogenous factors (e.g. trends in the underlying forces pushing the sector in one direction or another) and policy choices that can work for or against these developments. Therefore, they include a mixture of elements that can be made to happen in the future, plus other elements that would probably occur anyway.

Three alternative scenarios were developed for the forest sector outlook, based on the analysis of driving forces presented in the rest of this chapter. The first is a baseline scenario, which basically assumes that there will be a continuation of historical trends in all of the main variables affecting the sector. This is largely based on the historical analysis of trends in exogenous factors and forest products markets. The other two scenarios assume that driving forces will be altered in the future (particularly in the case of government policies) and will tend to move the sector in a slightly different direction (compared with the baseline). A brief description of these three alternative scenarios is given below.

3.4.1 Baseline scenario

The baseline scenario assumes that the long-term historical relationships in forest products markets (i.e. elasticities of supply and demand with respect to GDP and prices) will remain the same in the future. It assumes that population and economic growth will follow the baseline projections described in Section 3.1 and that the real prices of forest products will not change in the future (see Table 28). It also assumes that the historical trends in the supply and demand of NWFPs and forest services will continue unchanged into the future.

In terms of forest resources, it assumes that future developments in the bio-physical characteristics of Europe’s forests (e.g. growing stock and increment) will be largely determined by the existing status of forest resources. However, it does assume that the historical trends towards a gradually expanding FAWS area will continue into the future.

3.4.2 Conservation scenario

The conservation scenario assumes that there will be an accelerated shift towards environmental enhancement and conservation of forest resources in the future. This will be driven by an increase in public awareness of and demand for environmental benefits and will be supported by policies that will move society in this direction. Specifically, in the forest sector, it assumes that the trends in nature conservation and biodiversity (described in Section 3.3.3 above) and energy and environment (Section 3.3.7) will occur in the future. It also assumes that some of the changes in agriculture described above may occur in the future (e.g. a redirection of support from crop production towards the production of environmental benefits in the countryside, including support for forestry activities).

Unfortunately, the models used to produce the market projections are not sophisticated enough to take into account all of the effects of these trends on forest products markets. These models are largely driven by projections of economic growth and forest product prices. Thus, it has been assumed that, under this scenario, forest products prices may increase slightly (e.g. due to higher costs as a result of a greater emphasis on nature conservation in forest operations). It has also been assumed that economic growth will be slightly slower in the future (see Table 28). This is not to suggest that a greater emphasis on nature conservation will reduce economic growth, but that the impact of economic growth on future markets will be less (e.g. economic growth would lead to less of an increase in roundwood removals (compared to the baseline scenario) with more emphasis on nature conservation).

For NWFPs and forest services, the lack of data and analytical tools prevents a thorough investigation of the impacts of this scenario on the future supply and demand of these outputs. However, it can be expected that production and consumption of some of these outputs will increase. For forest resources, this scenario makes the same assumptions as in the baseline scenario

3.4.3 Integration scenario

This scenario assumes that there will be more rapid economic integration and market liberalisation across all of Europe. This will result in higher economic growth, so the higher economic growth projections (described in Section 3.1) have been used to produce the forest product market projections under this scenario. It also assumes that integration will encompass some of the trends in globalisation, innovation and market structures described in Section 3.3.6. These will tend to exert downward pressure on forest prices, so an assumption of a small decline in forest product prices has used to produce the market projections (see Table 28).

Again, it has not been possible to investigate the impacts of this scenario on the outlook for NWFPs and forest services. However, in the case of forest resources, it has been assumed that there may be a slight increase in the FAWS area (above that assumed in the baseline scenario), due to the increased establishment of forest plantations and increased investment in forest infrastructure (e.g. forest roads) that would open up some new forest areas for harvesting.

Table 28 Assumptions used to produce the forest product market projections under the three alternative scenarios

Note: the economic growth figures presented above are an average for Europe. The figures actually used in the projections differed by country (see: Kangas and Baudin, 2003).

The three alternative scenarios are conceptually quite distinct and reflect different assumptions about both the forces acting on the sector in the future and the deliberate actions (e.g. policies) that may be taken to move in different directions. Some elements are likely to occur under all three scenarios (e.g. changes in agricultural policy), but others may arise as a matter of choice. Together, they present three very different pictures of what the future might look like that can be used as a basis for future discussions on forestry policy in Europe.

¹⁷ The amount by which consumption changes with a given change in income (e.g. an elasticity of 1.4 would indicate that a 1.0 percent increase in income would lead to a 1.4 percent increase in consumption).