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The forest sector of economies in transition in Central and Eastern Europe

K Prins and A. Korotkov

Kit Prins and Alex Korotkov are, respectively, Acting Chief and Economic Affairs Officer of the Timber Section of the Joint ECE/ FAO Agriculture and Timber Division, Geneva.

The momentous events of 1989-1990 when the centrally planned economies of Eastern Europe and the former USSR set in motion fundamental changes to their political and economic systems, indeed to their national identities, have been intensely analysed in many places. The objective of this article is to present briefly some of the characteristics of the transition process as they affect the forest and forest products sector in these countries, and to explore some of the major issues and dilemmas facing the governments and professionals of these countries as well as those who seek to assist them.

Forest areas destroyed by air pollution in Sudeten, southwestern Poland

Forest areas destroyed by air pollution in Sudeten, southwestern Poland

It is necessary to stress at the outset that events in Central and Eastern Europe are still occurring rapidly and the statistical basis is poor. Furthermore there are very wide differences among transitional countries. Thus the generalizations made in this article are not always as firmly founded in objective facts as the authors would have wished. However, as many of the transitional countries have important forest resources, and the changes analyzed are very deep and far-reaching and not well understood by those outside the countries concerned, we have decided to take the risk of generalization in the hope of increasing the understanding of the situation.

Co-author A. Korotkov using a mater to test for radioactivity just outside the barbed wire delimiting the Chernobyl zone in Gomel, Belarus

General situation of transitional countries

A number of newly born, reborn and reconstituted countries have appeared on the map. At present, in Central and Eastern Europe (including the whole area of the former USSR) there are more than 20 countries at different stages of transition to a market economy. The main announced goals of economic transition are similar in most of the countries concerned and they aim at reducing the distortions and waste that were part of the centrally planned system. These goals generally include the removal (or substantial reduction) of state ownership and control of enterprises, the removal of distortions caused by administered prices, the opening of economies to foreign competition and investment, the convertibility of currency, releasing the potential of free enterprise, etc. However, there are large differences in the speed and manner in which these goals are being pursued.

A general feature has been a drop in output, which continues in all but a very few countries, so that present output levels are often 20 to 40 percent below those of the late 1980s. There is also an almost universal social tension; the hope of rapid results from the transition process has receded, leaving disillusionment, apathy end sometimes anger, which must be taken into account by the new and sometimes fragile governments. Several countries have seen a rise in the popularity of political parties descended from the previous communist apparatus, although there appears to be little likelihood of a return to pre-1989 systems.

An aggravating factor has been the collapse of the international trading system regulated by the Council for Mutual Economic Assistance (CMEA), which depended to a large extent on barter trade and distorted transfer prices, or even totally non-economic transactions, and led to the establishment of entire industries without proper economic justification. Furthermore, where the transitional countries' low labour costs and other factors have given them a competitive advantage on world markets, this has threatened domestic industries in market economies and triggered pressure for protectionist measures, which could further reduce the ability of the transitional countries to achieve economic growth.

The forestry sector

Forest and other wooded land of the transitional countries occupy more than 977 million ha. In terms of area, these countries' forest resources are about 25 percent of the estimated global total; of this,, more than 771 million ha, or about 79 percent, is in one country, the Russian Federation. Besides the cultivated and managed forests in Eastern and Central Europe and the European part of the Russian Federation, there are huge areas of natural, unmanaged old-growth forests in Siberia and the Far East which are of global significance. General information on the forest areas of transitional countries is provided in the Table on p. 5.

The level of forest management in the former centrally planned economies (CPEs) was generally good technically and was characterized by applications which were modern in the biological and environmental fields but which were conservative, economically inefficient and inflexible. Most of the countries had an explicit policy of high-quality wood production which was achieved through management practices that were based on very high initial density at planting, followed by intensive silviculture. In view of its very high costs, this management practice cannot be justified easily in a market economy.

Countries in transition: forest resources


Forest land

Growing stock

('000 ha)

Percentage of
total land area

Per caput

('000 ha)

Per hectare





































Czech Republic






















































Republic of Moldova












Russian Federation










































1Including other wooded land.

Concern is being expressed in some former CPEs about a rise in illegal felling, attributable to the general loosening of official control, poverty and fuel shortages in rural areas, as well as to the fact that, in many areas, roundwood is one of very few commodities that can be sold on international markets for hard currency. History shows that periods of economic and social uncertainty are always dangerous for the forest resource as, without confidence in long-term stability of economic and social relationships - notably property rights - the natural tendency is to give priority to the short-term (income from wood harvesting) over more uncertain benefits to be derived from prudent long-term forest management. Naturally, this is a matter of great concern, both inside and outside the transitional countries. However, it should not be forgotten that overcutting also occurred under the centrally planned system, as management plans and allowable cuts were sometimes overruled by central decisions (e.g. in Romania).

The existing capital equipment, especially in the timber, wood processing, pulp and paper industries, is generally outdated and inefficient by world standards (in the past, these industries were protected from international competition). Domestic capital resources are scarce and foreign capital often does not find the investment profitable or (in some cases) safe enough. Furthermore, much of the equipment does not meet the new, higher pollution standards that are progressively being implemented in the region. Distorted prices and decisions based on non-economic factors led to irrational infrastructure development (both in terms of size and location), excessive national specialization (resulting in dependence) and huge transport distances, for both raw materials and finished products.

In all parts of the sector, public and private managers are finding it difficult to cover their costs. Wood prices, especially for pulpwood, are at record low levels all over Europe. Nonetheless, state forest enterprises in the transitional countries are very short of resources because of their very tight budgetary circumstances in general. Under these conditions, in spite of a longstanding and genuine commitment to multiple-use forest management, it is hard for forest enterprises to give priority to activities that are not aimed at wood production (except in special cases such as those that attract hunting revenue).

Transition issues

Policy and legislation

Forest sector policy in the transitional countries, as elsewhere, aims at sustainable management of the forest resources to provide multiple benefits at an optimum level. The strategic directions of policy are affected by: the country's basic position as an importer or exporter; whether it is rich or poor in forest resources; population density; public concern; and the overall level of the economy as well as, in particular, the wood processing industries. These factors vary widely and will not be analyzed here, although almost all transitional countries seem to attach greater explicit priority to non-wood values than they did before when the systems were production oriented. In some countries, the transition process has brought about a complete reassessment of forest policy. The most marked example is Romania, which has completely reversed its policy of increasing removals and building up forest industries and decided to reduce removals strongly in order to restore and build up the resource.

In all transitional countries it is necessary to adapt the basic forest law to the demands of the broader social, legal and economic changes. Extensive changes to legislation are necessary to adapt to the changed judicial and institutional framework. In particular, the role of the state in the forest sector, as controlling authority, forest manager, protector of biodiversity or provider of rural employment, for instance, needs to be redefined. Some countries have completed this process (e.g. Poland) but most are only just starting.

One point is particularly noteworthy: the challenge of maintaining harvesting practices that respect the principle of sustainable forest management during the restructuring process while the new legislation is still being formulated. In this respect, it may be necessary to forbid harvesting on forest lands that have changed or are expected to change ownership (Ed. note: see article by Marghescu, p. 32).


The question of privatization in the forestry, timber and wood processing industries is one of the thorny issues of the changes being undertaken in countries in transition. Among the complex problems related to privatization are questions regarding: the transformation of forms of legal ownership; the valuation of assets; the devising of equitable and efficient means for transferring ownership (e.g. sale or distribution, coupon or voucher systems, nationals only or also foreigners, preference given to employees); the creation of bankruptcy systems (unknown in the centrally planned system); new tracing and price-forming relations between economic partners, which are especially complicated if some suppliers, customers or competitors are state-owned and are thus not competing on a "level playing field"; and the development of specialized services, notably banking, accountancy, stock markets and marketing.

A spruce plantation established in 1989 in the area contaminated by Chernobyl in Gomel, Belarus

It is generally accepted that the majority of state-owned enterprises should be privatized if a market economy is to be achieved. However, many feel there is a case for treating forest land (but not forest industries) differently. The arguments against the privatization of forest lands include:

· the feeling that land in general should not be private property;

· the fear that, if ownership units fall below a certain minimum size (smallholdings tend to be the rule for private ownership in the transitional countries), rational and efficient management is impossible;

· the fear that, in the absence of appropriate legislation, private forest owners will manage irresponsibly, e.g. by overcutting;

· the fear that private forest owners will not provide sufficient wood supplies for industries;

· the feeling that private forest owners will not be able to afford or be willing to invest in the modern equipment required for efficient, sustainable management and resource use.

Nonetheless, some privatization of forest lands has occurred, including their return to the earlier owners (restitution) and the establishment or expansion of cooperatives. Large numbers of small private holdings are emerging or may emerge in certain countries (e.g. Estonia, Latvia, the Czech Republic and Hungary as well as Poland, which has always had many forest owners in the past). However, most forest land in the majority of transitional countries still remains in state hands. In the Russian Federation, Albania, Lithuania and Romania, most of the forest land is expected to be retained by the government.

Taking samples of sawdust to test for nuclear contamination in the Mogilev region of Belarus

However, even if the majority of forest land remains in the public domain, other questions arise:

· Should some or all operations be privatized or contracted out?

· Is a concession system appropriate? It is hoped that transitional countries will not repeat the mistakes made elsewhere in this respect.

· Which is the most effective and efficient wood pricing system (the former low wood prices encouraged waste) that would supply sufficient wood at competitive prices to industry?

The concept of communal forest ownership is being examined but, in most countries, communities are not currently in a position to take on this responsibility and may not have the necessary long-term commitment to resource conservation.

Role of the state

The outcome of the debate about forest privatization or restitution to former owners will differ from country to country. In countries with a significant number of new private forest owners, the forest services will be faced with the new task of regulating and helping them, a task which requires different skills and attitudes from those necessary for managing state forests.

It will be necessary to advise and assist private forest owners and users in management. This role will involve the setting up of new structures and procedures, the acquisition of equipment and, perhaps most difficult, a new attitude of support and consultation, quite different from the former management role.

Forest damage

Radiation contamination. As a result of the Chernobyl nuclear power plant disaster of 26 April 1986, by 1991 contamination by radionuclides had still been detected to varying degrees on more than 13.1 million ha, of which 4.7 million ha were in the Russian Federation, 4.6 million ha in Belarus and 3.7 million ha in Ukraine. Of that territory, more than 4 million ha are forest lands. Radioactive contamination has severely harmed the forest sector in these three countries, mainly in the form of reductions in all types of economic and recreational forest use, increases in forest management costs and the expense of compensating for social damage (wage supplements, resettlement costs, etc.). The accident at Chernobyl led to changes in forest management and monitoring in the affected areas. Reserves were set up to maintain and conduct research activities in these unique disaster sites. The risk of forest fires is especially high in the huge, abandoned radiation contaminated areas, because, in addition to direct economic and ecological damage, such fires can create secondary radioactive contamination, as radionuclides are released into the atmosphere (as smoke, ash, cinder, soot, etc.) and into surface water runoff.

Industrial pollution. Some Central and East European countries have severe pollution damage problems. The most well known is the widespread forest decline in the area between Poland, Germany and the Czech Republic (the "black triangle"), resulting from a heavy reliance on high sulphur - content brown coal in industrial installations with insufficient pollution abatement equipment. Remedying this will take many years and an investment of many millions of dollars to develop other fuels and/or install flue gas cleaning equipment.

Production, trade and marketing

The production of roundwood and many other wood products has fallen not only in the Russian Federation, but also in the other former Soviet republics as well as other East and Central European countries. Similar problems (e.g. rising electricity, fuel and wage costs) have also affected wood processing industries. The past five to six years have seen a reduction of some 30 to 40 percent in the production of mechanical wood products and even more in pulp and paper production.

There are several reasons of this sharp decrease, including:

· a sharp increase in prices of wood products on the domestic market;

· the breakup of the centrally planned distribution systems;

· the breaking off of links between enterprises and institutions inside the transitional countries;

· the collapse of the interrelationship of economies of the former CMEA bloc;

· a lack of investment in the development of wood processing enterprises and new technologies;

· the deteriorating state of facilities, machinery and equipment in the timber, wood processing and pulp and paper industries;

· the insufficient quality of certain products, which prevents them from being competitive on the world market; difficulties in penetrating new markets and facing the protectionist policies of some Western countries.

In almost all transitional countries, national income at present is lower, often much lower, than in 1989. This is a further factor aggravating the situation for forest industries, as effective domestic demand for their products is low (although latent demand, especially for housing, is rather strong). Furthermore, in the previous supply-constrained conditions, marketing skills were unnecessary and against the spirit of the system. Now these skills are urgently needed as regards pricing, the organization of distribution and sensitivity to customers' needs.

As has already been mentioned, the situation differs among countries. Thus, by 1993 it became clear that certain signs of recovery were appearing in the wood products sectors of the Czech Republic, Hungary, Latvia, Poland and Slovenia.

Trade patterns have been totally disrupted by the disappearance of the CMEA and state trading as well as by the general application in international trade of world market prices instead of the distorted managed prices or barter trade arrangements used before. Many Central and East European countries were dependent on imports of raw materials, particularly sawnwood or pulp and paper, from the former USSR. Now these supplies are either much more expensive or totally unavailable. For example, there are two large sawmills in Hungary, which were especially constructed to process imported Russian logs and which are now lying idle. On the other hand, some industrial sectors in the former CPEs were developed to produce exports to the USSR, and many of these markets (e.g. for furniture) have disappeared.

International trade also offers significant opportunities for enterprises that are able to use them: costs for both labour and raw materials are low and, in many cases, major West European markets (notably Germany) are nearby; markets have been found for raw materials (e.g. pulpwood and logs, often at very low prices) and for sawnwood from Poland and the Baltic states, for instance. One obstacle has been a lack of knowledge of standards and trade practices, another the negative reaction by some Western industries threatened by the new suppliers.

Strengths and opportunities

The challenges and constraints outlined above can give the impression of unrelieved gloom. Indeed, there are many negative features and pressing problems; on the other hand, the forest sector in the transitional countries does have several major positive features and opportunities, including:

· in many countries, a strong forestry tradition and forestry education system which aspired to maintain high standards during the years of central planning;

· in general, conservatively managed forests, with a good transport infrastructure (except in the remoter parts of Siberia, the Far East and mountainous regions of Eastern Europe and Central Asia);

· in some countries, longstanding forest plantation policies (Hungary and Bulgaria);

· considerable physical potential to expand feelings (which are well below increment in most of the countries where data are available);

· low labour costs and relative proximity to major markets;

· the emergence in some countries of an entrepreneurial group (often the former managers of state enterprises, now the effective managers and or owners of enterprises that act like private companies even if they have not [yet] actually been privatized), which is building up enterprises and markets;

· a fairly intensive network of research institutes covering all aspects of the sector.

Need for assistance and problems to be solved

The countries in transition will need assistance in a variety of forms. Of course, such assistance should be considered in the context of the legal framework, either established or to be established in each country, as well as in the context of national priorities. Priority areas and special issues for international assistance will include:

· institution-building;

· development of the legal and policy infrastructure for sustainable development of the forestry and forest products sectors (including exchanges of experience with market economies and other transitional countries);

· the development of economically sound enterprises;

· training and or retraining, notably in the areas of commercial management, marketing and computer skills;

· access to international markets for forest and wood processing industries products;

· financial assistance for investment in the infrastructure and capital equipment of sustainable forest industries;

· technical assistance that would facilitate the efforts of countries to produce competitive products;

· assistance (advice and equipment) in setting up reliable and relevant statistical systems;

· international cooperation with the purpose of favoring exchanges of information and opportunities for experts from transitional countries to participate in meetings, seminars, etc.


What is the outlook for the forestry sector in the transitional countries of Central and Eastern Europe? This depends on the outcome of the transition process in general and the establishment of stable political, juridical, social and economic situations as well as the resumption of economic growth. For the forestry sector, specifically, it implies the clarification of ownership questions, the adaptation of forest services, significant investments in forest industries and widespread education and training. Other countries can help, notably as regards investments, education and training, and by not closing their own markets to exports from the transitional countries. However, the main responsibility is with the governments, foresters and industrialists of the countries in transition themselves.

It would be unrealistic to attempt to cover in a single article all the specific features and aspects of the development of the forestry and forest products sectors in the transitional countries. It is the authors' hope that the material presented here will stimulate more profound thought on the subject and further discussion in Unasylva as well as in other publications, aimed both at the forestry sector and at wider audiences.


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