Last year was moderately successful for the Russian timber industry but it is still far from being really competitive in the world market. According to the minister of economic development and trade German Greph, timber production was stable in 2002 – with 19% growth for the past three years.
At the same time, many experts consider that the timber industry – and Russian industry as a whole – has exhausted its post-crisis reserves of growth. The timber industry’s production volume increased by 2.4% in 2002 while the average rate of growth in the Russian industry was 3.7%.
Harvesting problems
The most difficult sector appeared to be harvesting, and this affected performance further down the supply chain. According to the state statistic committee, harvesting production fell by 5.9% in 2002 compared with 2001. The knock-on effect was felt in the wood processing sector where production declined by 2.1%. Sawn timber output fell by 7.8% to 17.6 million m3; the output of door blocks by 6.1% to 4.1 million m2; and the removal of logs was down 6.2% to 90.2 million m3. One piece of good news was in the wood based panels sector where production rose by 7.3% to 2.7 million m3. Output was also up – by 4.6% – in the pulp and paper industry.
Export revenue
Although production fell, timber export revenue rose by 9%, or by US$370m, to US$4.5bn. According to the state customs committee, exports of Russian round timber increased 15.4% to 36.6 million m3, earning US$1.64bn in 2002. Wood products exports increased 18.9% to 5.22 million m3, worth US$865.5m. Exports of plywood were up 11.7% to 1.15 million m3, earning US$281.4m.
However, 2003 has got off to a better start. In the first quarter, output was up 1.6% on the same period of 2002 and the removal of logs increased by 0.3% to 33.5 million m3. Sawn timber production slipped by 3.1% to 4.3 million m3 but wood based panels production has risen 13.1% to 786,000m3. In March the timber industry’s entire production was 5% higher than a year earlier.
However, at the same time, a meeting of the board of the ministry of industry, science and technology heard that the Russian timber industry is badly in need of investment and lack of funding is holding it back. During the 12 years from 1990-2002, investment was cut dramatically. In 2002, investment in the timber and pulp and paper industries totalled US$312m – about 91.5% of the level of 2001. During the past four years, foreign investments have amounted to just US$400m.
The board decided to reduce export duties for production of processed timber to zero value and to increase, step-by-step, export duties for round timber.
The ministry also believes it is necessary to put leasing operations in practice for the renewal of machines and equipment in the industry. Today only 5% of primary technological equipment meets modern demands; more than 50% of the equipment needs modernisation and 45% needs complete replacement.
Investment needed
According to Alexander Belyakov, chairman of the natural resources committee and president of the Russian stock company Bumprom, the timber industry needs at least US$3bn of investments annually for intensive development. His prognosis for the current year isn’t too promising, predicting growth of no more than 2% in the pulp and paper industry. However, he believes that the value of output could increase by up to US$50bn over the next 10-15 years if the restrictions in the industry are removed.
Meanwhile, the government’s forestry development strategy for 2003-2010, introduced in January, has had a rather cool reception. Alexander Belyakov, for instance, thinks that it does not address the interests of the regions.
The new version of the Forest Code being discussed by the government has also had a negative response. Experts say the code, which aims to clearly demarcate rights of property for timberland between the federal centre, regions and municipal structures, is not needed at present.