Summary
• In the past 10 years, the forest industry’s proportion of GNP has fallen from 6% to 3%.
• The government has introduced tax relief in order to boost timber sales.
• The FFIF says the industry desperately needs new operating models and technologies.
• Metsäliitto, UPM and Stora Enso have all closed mills.
• A study by WWF and Stora Enso shows that many forest owners are interested in implementing a conservation plan.

The Finnish forest industry is experiencing a rapid increase in production costs, together with a shortage of wood caused by insufficient domestic supply and increased Russian export duties on timber, plus a dramatic drop in demand for sawn timber.

National Statistics Office of Finland data shows that the forest industry’s percentage of the country’s gross domestic product has dropped from 6% to 3% in 10 years. And although the forest industry still provides a substantial percentage of Finland’s export income, it is contributing a smaller share of the country’s economic growth.

In August, in order to boost domestic sales of timber, the Finnish government announced that timber sales will be 50% tax free from April 2008 to the end of 2009, while in 2010 the tax relief will fall to 25%. It has also declared an end to the tax on first thinning in a forest.

The Finnish Forest Industries Federation (FFIF) points out that rapid introduction of profitability-enhancing operating models and technologies is needed so that the forest industry can operate as profitably in Finland as in other countries in which it is active.

Research strategy

In line with this, the FFIF has introduced a research strategy to help companies in the industry, together with research organisations, universities, other institutions of higher education and public research funders, to steer and strengthen both joint research efforts and expertise in the industry in Finland. The FFIF points out that the business environment of the Finnish wood cluster is changing rapidly and in order to be able to grow and meet the demands of sustainable development and toughening competition, the industry needs to increase its investments in research and development.

Although Finnish forest industry companies have been implementing cost-cutting and productivity increasing measures for some time, changes in the business climate have continued and intensified. In particular, the industry is facing export difficulties due to the strong euro and a weak dollar, plus the downward economic trend and the effect this is having on construction, in addition to the high cost of energy.

In order to cope with the present situation, companies are introducing major changes, including cost-cutting exercises, which involve cutting back production capacity. Metsäliitto, UPM and Stora Enso have all announced reductions in capacity.

Metsäliitto has announced plans to close its Soinlahti sawmill, which has made heavy losses for several years, despite steps taken to develop its operations, while UPM has announced plans to close its Leivonmäki sawmill, again because it has been generating losses for some time. In addition to which, Stora Enso plans to shut its sawmill at Paikuse in Estonia due to profitability problems caused by overcapacity and escalating saw log prices.

Conservation efforts

Despite the current economic and trading difficulties, Finland’s forestry industry continues to emphasise conservation and sustainability. For example, the Finnish Forestry Development Centre in Tapio has developed a practicality-oriented nature conservation certificate for forest machine drivers and forestry workers. The intention behind it is to maintain a high standard of nature conservation as harvesting levels in the forests increase.

“The importance placed on nature conservation has increased substantially,” said Timo Lehesvirta, manager, environment forest affairs, at UPM. “The certificate will be required by all who undertake forestry work. This will ensure that the running and maintaining of the forests are done in the right way from the point of view of nature.”

A study undertaken jointly by WWF and Stora Enso has shown that many forest owners want to carry out forestry work with a greater emphasis on nature conservation. The study showed that a third of forest owners are interested in a conservation plan where at least half of the forest area would be left outside of normal forestry methods.