During the past decade the Baltics’ forest sector has experienced a dramatic transition, including privatisation and rapid growth in logging and industrial capacities. Growth was fuelled by market economy liberalisation and foreign investments, doubling logging (to 30 million m3), and processing capacities (sawn timber 7 million m3; wood-based panels one million m3).
Demand was driven by exports, which now account for more than two-thirds of production. Value-added soon followed and its share of exports is constantly increasing.
The timber processing industries are privately owned and most of the largest ones – especially in Estonia and Latvia – are financed by foreign capital and have installed modern processing facilities, while Baltic wood-based panel industries and furniture producers tend to be owned locally.
Forest product industries in the Baltics are generally internationally competitive, largely as a result of their low labour costs. Recent studies showed that the level of value-added productivity is low but profitability is high because of raw material and labour costs. However, it is changing, especially in the sawmilling sector where recent investments created over-capacity, leading to a shortage of logs.
High log prices
Currently log prices are at their highest and the only way to increase supply is through imports, especially to Latvia and Estonia. Lithuania can increase its wood supply from local resources thanks to conservative forest use practices and slow forest land restitution processes.
There will be no changes in markets as strong links to the EU already exist: 70-80% of the forest industries’ exports already go to EU countries. In Latvia and Estonia, primary wood processing exports to the EU are even higher at 90%.
Company representatives questioned highlighted an immediate positive aspect of EU membership – the opening of the borders between the EU-10 countries which should save time and money in transporting goods.
Border passing will be easier with less paperwork and exporters should be able to calculate delivery times more accurately. One sawmill director hopes to save about two days in delivery from Estonia to France.
There will also be changes in VAT procedures, which could cause some temporary problems with paperwork. But these changes will ease the intra-trade in roundwood in the Baltic states.
Another positive aspect will be the removal of anti-dumping duties on Baltic hardboard.
Companies have not reported any impact on roundwood imports from outside the EU, for instance from Russia, as roundwood, sawnwood import is not subject to any EU duties.
Import duty
EU membership will mean having to pay the 7% conventional rate of duty on imports of wood-based panels from non-EU countries, which might cause some limitation for furniture industries. However, most of the wood-based panels consumed are produced domestically or imported from EU countries – including new members.
Another advantage will be the labour market for Baltic citizens. For example, loggers in Latvia will not need special permits to work in Lithuania.
Membership creates the possibility to use EU structural funds for the forest products industry, most of which will be allocated for forestry. For example, in Lithuania €33m will be made available between 2004-2006 (with national co-financing of 10-25%), 80% of which will go for aforestation of agricultural land. The remaining €6-7m will be spent on forestry infrastructure, technologies, protection measures and pre-commercial thinning. Latvia expects to gain about €9m from EU structural funds during 2004-2006. Latvians plan to support the establishment of forest owners’ co-operatives. Considerably less structural funding is expected for wood processing industries.
In Lithuania, the forest land market has been liberalised. Companies and foreigners can own forest land, whereas before it was available only for individual citizens of Lithuania. This will foster consolidation of currently fragmented forest holdings and investments into the small-scale private forestry sector.
Finally, it is not likely that there will be drastic changes for the Baltic forest sector from May 1. Businesses will take some time to adapt to the changes in regulations, and to follow the various directives, but in general no major impact is foreseen.
PwC report
A report from PricewaterhouseCoopers (PwC) – “Distinguishing the Wood from the Trees” – looks at the impact the EU enlargement will have on the forest products industry.
Clive Suckling of the UK forest and paper group at PwC said: “The enlargement of the EU will bring substantial forestry and related resources into the common markets.
“One of the key challenges facing producers operating in the acceding countries will be to capitalise on their competitive advantages to add more value to the forest resources that exist, especially in the Baltic states and Poland.”
