COMMITTEE ON FORESTRY
Item 6 of the Provisional Agenda
Rome, Italy, 1-5 March 1999
GLOBAL FOREST SECTOR OUTLOOK: THE IMPLICATIONS OF FUTURE WOOD PRODUCT MARKET DEVELOPMENTS FOR SUSTAINABLE FOREST MANAGEMENT
2. Instead of dwelling too much on market forecasts, which are vulnerable to macro-economic shifts (such as those recently experienced in Asia), these new studies focus more on the likely policy implications of forest product market developments. This paper briefly describes the main market developments expected in the future and discusses the implications of these developments for sustainable forest management.
|Region||Industrial roundwood production (million m3)||Product production (million m3 EQ)||Product consumption (million m3 EQ)|
|1996||2010||Annual growth||1996||2010||Annual growth||1996||2010||Annual growth|
Notes: Product production and consumption have been converted to their roundwood equivalents (m3 EQ) to be compatible with roundwood production and potential figures. Growth rates shown are growth over the period 1996 - 2010.
4. Under this fourteen year projection (1996-2010), growth in forest products output varies among regions, with Asia and Oceania showing the highest rates of expansion. Obviously, the actual developments that transpire in Asia will supersede any attempts to model the outlook for forest product markets - see Box 1. Slow growth in both consumption and production is expected for North America and moderate increases in consumption are expected for Africa and South America. North America remains the largest producing and exporting region. Collectively, Europe, Asia, and North America account for about 85 percent of production and over 90 percent of consumption in 2010 (roughly the same share as in 1996). In this outlook, Asia gains some market share (about 5 percent) over the period at the expense of North America.
5. In terms of net trade, Asia and, to a lesser extent, Europe would continue to produce more products than roundwood and thus continue to be net roundwood importers. Asia would also continue to be the world's only net product importing region. Overall, major shifts in trade patterns are not expected but the shape and form of trade will continue to change. Since the 1950's, trade in forest products has steadily increased as a proportion of total production. The outlook is for more trade both in gross volumes and as a proportion of production
6. Firstly, many countries are expected to continue giving priority to developing manufacturing and processing capability rather than export roundwood and pulp. This will prompt continued declines in exports of semi-processed products as producers seek to add value to the raw material. For example, a greater proportion of commodities such as sawnwood and panels will be processed further into furniture and joinery products. Secondly, as developing countries grow and mature one can expect see expansion in their domestic markets. Maturation of these markets will give rise to economies of scale in processing, product design, assembly, manufacture, and distribution. This increasing specialization, market segmentation and competition promote higher levels of trade both within regions and internationally.
Box 1: The impact of the recent Asian crisis on supply and demand projections
Using the same modelling steps that shape the supply and demand forecasts reported here, an attempt was made to estimate the potential impact of the recent Asian crisis on global markets. The estimate seeks to understand the types of long-term consequences that the forestry sector might experience between now and 2010. No attempt was made to forecast near-term market fluctuations.
In April 1998, analysts were projecting a resumption of economic growth in Asia after a period of retrenchment. At question was the length and severity of the downturn. Under a projection of more measured economic growth in the Republic of Korea, Indonesia, Thailand and Malaysia, plus knock-on effects in some other regional countries, overall consumption in the region across all wood product categories is estimated to be roughly 4-5 percent lower than the baseline projection for the year 2010.
In part, slower economic growth in these countries compounded by the effects of competitive devaluation would tend to suppress imports as a share of overall consumption - recalling that the region is such a large importer. Countries in the region less affected economically by the crisis would tend to increase forest product imports if off-shore prices fall - although this could come at the expense of domestic production. These counterbalancing effects illustrate the difficulties of modelling structural adjustment.
In general, the outlook remains murky because of the difficulty of forseeing the types of currency adjustments that may emerge and their competitive effects on trade. Compounding the confusion in this type of assessment is our inability to understand or project the impacts of the financial crisis on the availability of capital to the region. Any outlook for growth is founded upon the assumption of ample supplies of development capital at market clearing prices. The trademark of this financial crisis is a dramatic shift and reassessment of the role of global capital markets and the respective roles, responsibilities and liabilities of governments, financial institutions, entrepreneurs and investors. Until these roles are clarified, the supplies of financial capital to the region may remain constrained. Under a scenario of scarce capital, forest products output in the region is likely to show little growth and consumption only very slight increases.
Table 2: Outlook for production and consumption by product category (1996 & 2010)
|Product category||Production/consumption||Total growth||Annual growth|
|in 1996||in 2010||1996 - 2010||1996 - 2010|
|Industrial roundwood||1 490||1 872||26%||1.6%|
|Paper and paperboard||284||394||39%||2.4%|
Note: Volume figures for roundwood, sawnwood and wood-based panels are in million m3, figures for pulp and paper are in million metric tonnes.
9. Box 2, for example, illustrates this point. It compares the forecast roundwood production levels for 2010 in the Asia-Pacific region with production (or estimated biological) potential. In general, the Asia-Pacific Outlook Study showed that future wood production requirements can be met within the region although supplies are going to become increasingly scarce in certain countries and for certain types of wood (e.g. sawlogs).
10. FAO does not yet have sufficient data to make an accurate assessment of global production potential. For example, the GFSM covers a large part of the world, but leaves out the important contribution of trees outside forests. However, the GFSM can be used to compare projected levels of production with supply potential from forests and recovered and non-wood fibre sources across some regions (see Table 3).
11. As Table 3 shows, forecast production levels are well within the forecast limit of production potential in South America and Oceania, but approaching the limit in Asia and exceeding it in Africa. Other outlook studies (e.g., UN, 1996) suggest that Europe should also have sufficient wood supplies to meet production requirements in the near future. However, two points are worth noting. Firstly, the GFSM presents results which should be considered an absolute maximum amount of supply. The cost of accessing increasingly marginal areas included in the GFSM analysis may prevent the total potential supply presented above from being utilised in the near future. Secondly, despite plentiful supplies at a broad regional or country level, local scarcity may persist, putting forestry policy makers under pressure to release natural forest areas for timber harvesting.
12. Forest supplies, particularly supplies of large logs, are coming under pressure in regions such as Africa and Asia. Therefore, consumers of wood and fibre will look increasingly to alternative supply sources to meet demand (as they already do in Asia) in order to avoid forest over-exploition. It is more probable that markets for forest products will continue to move towards replacing sawnwood and plywood with other wood-based panels and engineered wood products, which can be manufactured from small-sized wood or non-wood substitutes.
Box 2: The range of potential wood and fibre supplies in the Asia-Pacific region
|An analysis of the supply potential from a range of wood
and fibre sources was carried out as part of the Asia-Pacific Forestry
Sector Outlook Study (FAO, 1998). This analysis incorporated data from
several studies to include information about supply potential from trees
outside the forest, an analysis of unrecovered volume of harvesting residues
and wood processing residues, recycled fibres and non-wood fibre. The graph
below illustrates some of the fibre potential that exists in the region
among these various sources (columns) in contrast with the projected raw
material requirements for industrial output (horizontal lines).
The bars in the graph show the potential production of sawlogs and other fibre (small roundwood, residues, recovered paper and non-wood fibre) in 2010. Each pair of bars represents one of the following sources: natural forest (NF); plantations (PL); other wooded land (OWL); trees outside forests (TOF); harvesting residues (HRE); recovered and non-wood fibre (RNW); and wood processing residues (WPR). The forecasts were made on the basis of existing technology (except for a trend towards more recovery of wastepaper in the future) and policies (e.g. with respect to the area of forest in legally protected areas). However, historical trends in forest conversion to other land-uses were also incorporated in the forecast. The horizontal lines also show projected production of recycled and non-wood fibre, pulpwood, sawlogs and fuelwood in the region in 2010.
As the graph shows, the region has a large potential to produce sawlogs and other fibre from outside the areas that would be typically considered in forestry supply and demand analysis (i.e. natural forest and plantations). In terms of other fibre production potential, non-forest sources far exceed the potential of the forest to meet production needs. For example, trees outside the forest have twice the potential to produce small roundwood as forest plantations, due to the large area of agricultural land (particularly agricultural tree crops) in the area. (However, few reliable statistics on trees outside forests are available, so the exact magnitude of this resource is somewhat uncertain.) Recovered paper and wood processing residues could also meet the region's entire need for pulpwood. In terms of sawlog production, the forest industry typically has to look to forests to get the required high quality logs; about half of the potential sawlog production in the region is from the natural forest and a further quarter from forest plantations. However, even in this category, trees outside forests account for the remaining one-quarter of production potential and could go a long way towards meeting sawlog production requirements.
Several countries with limited forest resources (e.g. many countries in South Asia) already use a wide variety of sources for sawlog and fibre supply. Countries that currently rely on natural forests to supply much of their needs also generally have the option to do this should they wish to.
Source: FAO (1998)
Table 3: A comparison between forecast production potential from forests, recovered and non-wood fibre sources and forecast production of wood and fibre in 2010
Note: All volume figures are in million m3 EQ per year (i.e. the figures for recovered and non-wood fibre have been converted to their wood product equivalents).
14. In a broad sense, the prices of consumer wood products such as paper or lumber are not expected to rise significantly over the projection period. Many regions have ample or excess wood products manufacturing capacity. The current economic slowdown being felt worldwide will further mitigate pressures on consumer prices. In selected cases, there may be upward pressure on the prices of certain types of roundwood (typically the premium grades), but the availability of cheaper wood and non-wood substitutes will limit the scope for price increases. Trading patterns are not expected to change significantly except for the continuing trend towards more in-country processing of wood raw materials. This should lead to less trade in semi-processed and commodity grade wood products and more trade in higher value products.
15. In the future, there are likely to be different sources of wood and other fibres for production. In most countries, there will probably be a general move away from the use of forest resources for wood and fibre production towards other land-based sources and non-land-based sources of supply. The greatest change will be the increased use of wood processing residues and recycled fibres in the product input mix. Such secondary sources will probably be increasingly used in the more developed parts of North America, Europe and Asia, while the decline in forest resources may mean trees outside forests will play a more important role in some of the world's less developed regions.
16. Future supply patterns are also likely to change within forests. The next 10 years or so will see large areas of commercial short-rotation plantations (for pulpwood) come on stream in the Southern Hemisphere. Greater areas of older plantations established for sawlog production will also start to come on stream in countries such as the United States of America, the United Kingdom, South Africa, Chile, Australia, and New Zealand. These plantations will provide the largest share of expected future growth in forest production potential. In contrast, it is expected that very few countries will be able to expand production from natural forests sustainably without considerable investment in silviculture.
17. Larger areas of natural forest will probably be placed into legally protected areas. However, this should have a marginal effect on production potential, as many of the areas likely to be chosen for preservation are not currently harvested. Future harvesting intensity in exploitable natural forests might fall for two reasons: firstly, environmental concerns may mean tropical countries modify existing harvesting regulations to reduce the volume of timber that may be felled in a given area; secondly, stocking levels may fall anyway as forest operations start to move out of virgin forest and into secondary forest. The combination of these factors could have a dramatic effect on future timber availability and will reinforce the expected move away from natural forest into plantations and non-forest supply sources outlined above.
19. Other technological changes may also occur in the future. Firstly, improvements in harvesting practices could increase log recovery and reduce logging residues in many of the world's forests. Many developing countries have substantial scope to increase their log recovery rates; even a modest increase in countries with high annual felling levels could increase production and go a significant way towards meeting the projected growth in industrial roundwood demand.
20. Similarly, better mill recovery rates could significantly reduce the amount of roundwood required in manufacturing. Associated with this, residues could be used more effectively to meet the demands of other wood processors. Outside of a few large developed countries, not much is currently known about the utilisation of mill residues. However, in many cases, it is expected that large volumes of residues are wasted or left unused. As the Asia-Pacific Outlook Study has shown, all of these sources could make a significant contribution to wood supply.
21. A third technological change is a possible move towards the greater use of reconstituted panels as a result of increasing scarcity of large diameter logs and technological development in construction and other wood-using industries. Two factors support this: upward price pressure due to greater log scarcity; and technological development, which will allow such products to be used where currently only plywood or sawnwood are used. This will also have the effect of further extending the use of resources (recovery rates for reconstituted panels are typically higher than for sawnwood and plywood), as well as providing a ready market for residues from other industries.
23. Prices are a powerful indicator of scarcity; when wrong, they can lead to serious misallocation of investment and resources. About 40 percent of the world's timber supply come from private forests and probably about the same proportion of supply is sold on competitive markets (or in a way which approximates to competitive markets). However, governments control the pricing of wood extracted from the remaining (mostly natural) forests, which is often kept low to stimulate industrial development.
24. Setting low stumpage rates may satisfy certain development objectives but often leads to undesirable effects; underpricing discourages efficiency in harvesting and processing, reduces the incentive to invest in plantations, and places alternative suppliers (such as smallholders and recyclers) at a disadvantage. Thus, better designed pricing policies will be essential to stimulating a wider variety of supply sources and encouraging the types of efficiency improvements required in the future.
25. One of the largest challenges facing forestry policy makers and forest managers will be to generate sufficient revenue to finance sustainable forest management. Competitive market-based pricing of resources will be an important first step in this process. Forestry policy makers should consider how they can create competitive markets for the roundwood extracted from the natural forest so that the levies they set reflect the market value of the resource and remove the distortion in favour of harvesting wood from the natural forest.
Human resource development
26. Forestry is labour intensive. In order to introduce technological improvements and meet growing demand for better management and harvesting standards, the level of forestry skills will have to be greatly increased.
27. This is a large task given the number of people employed in the sector. For example, Poschen (1997) estimated that industrial forestry accounts for approximately 1 million full-time equivalent (FTE) jobs in developed countries and 2.7 million FTE jobs in developing countries. Moreover, upgraded skills are not only needed in the production sector; staff skills will need to be upgraded considerably in many of the world's forestry ministries and agencies in order to respond to a wider range of supply sources and desirable improvements in management such as community involvement.
28. The final pressing requirement for future forestry sectors will be enhanced capacity to cope with the expected structural changes. Many governments already possess a wide range of measures aimed at stimulating the development of certain types of domestic wood processing industries (e.g. preferential tax breaks, conditions attached to concession contracts, export bans). These should be reviewed to take into consideration the expected changes in wood supply patterns, i.e. fewer large logs from natural forests, more plantation grown wood and more recycled paper. In addition, they should take into account the levels of investment required to finance these types of structural changes.
29. Similarly, forestry agencies will be expected to deal with a broader range of forestry issues in the future. In order to improve the social and environmental performance of the forestry sector, sub-sections of forestry agencies that deal with conservation, community relations, water issues, and extension, will probably require considerably more resources. The traditionally powerful harvesting and utilisation sections will probably also have to change. Officials concerned with wood supply are going to have to move away from a situation of exercising quite strong authority over a small number of concessionaires, towards having much less control over a larger number of smaller suppliers. To cope with these expected changes, they should consider devolving some aspects of authority to regional, local and even community-based authorities.
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