Latvia has one of the richest forest resources in Europe, with 585 million m3 of growing stock, covering 48% of the national territory. The forestry industry accounts for 20.4% of value-added by manufacturing industries. Until recently, this made it Latvia’s most important export industry, accounting for one-third of total exports. Not only that, but the major markets for the industry have traditionally been EU member states (the UK as the largest single export market, for example, took 22.5% of Latvia’s timber products in 2006).
But times are changing. Recent diversification in product range and the desire to improve profit margins have seen Latvian producers increasingly focus on more remote markets like the US and Japan.
Another big change has been the development of a Latvian market for construction timber. Construction volumes are growing at around 25% a year, and have been for the last three years. This has meant a large rise in sales of total timber production to the domestic market.
In 2004, for example, local usage accounted for less than 5% of total production; now as much as 20% is being produced for the domestic market in the Baltics. “Latvian mills are supplying Estonian and Lithuanian timber processing companies: exports to Lithuania during the first two months of 2007 were up ten-fold,” said Igors Krasavcevs, head of Forest Information Centre for the Latvian Forest Industry Federation. “We are becoming the biggest local supplier of sawn timber.”
Export volumes
It’s little surprise, then, that total export volumes are falling. “It’s not because of falling production but because of higher local sales,” said Mr Krasavcevs.
Harvesting volumes from the country’s extensive forests are currently pretty static at around 11-12 million m3 a year, although imports of logs were 25% higher last year at 1.2 million m3. This is because companies have been trying to buy in unprocessed material, a fact emphasised by the fall in sawn timber imports in 2006, down by 22% compared with the previous year.
Despite the Russians’ phased increase of export duties on roundwood to its Baltic neighbours, the Latvian timber industry is confident it can absorb the price hikes – at least for the time being. “This year, we don’t expect any decrease in imports of Russian roundwood logs into Latvia,” said Mr Krasavcevs. “But, by 2009 when the tax has risen to €50/m3, we will see the figure falling.”
Making up the deficit will be no easy matter. Following the Finnish lead, Latvian producers are starting to build production facilities across the border. At least three large mills are setting up shop with a view to processing sawn timber in Russia.
But it’s only the big producers with enough financial muscle that are expected to ride out the difficulties in raw material supply. Currently, 10 big companies account for around 65% of all timber production in Latvia, leaving a number of smaller players to make up the remainder. “We think these smaller companies will have to diversify into further processing in order to survive,” said Mr Krasavcevs. “They will buy sawn timber from the big mills and, rather than exporting themselves, produce further value-added products like fencing and furniture. Effectively, they will be getting more money for their products.”
And it’s not just raw material availability that is proving a problem. Since its accession to the EU in 2004, Latvia has seen a mass migration of its workforce overseas, predominantly to the UK and Ireland.
“It’s a big problem for many of the smaller producers,” admitted Mr Krasavcevs. “These mills are in the regions, and it is the workers from these areas that are leaving.”
Investment
However, many producers are countering the effects with automation and last year investment in new equipment alone increased by 80%.
What does all this mean for the UK? “Three years ago, around 75% of Latvian sawn timber went to the UK: now, that figure is only 50%,” said Mr Krasavcevs. “But it looks like the decrease has now plateaued and that, in 2007, we will sell about the same amount as last year. Sales of planed timber, however, are going up.”
In the long term, he thinks this figure will increase. “We can’t compete on volumes like the Swedes,” said Mr Krasavcevs. “We can only compete on quality and added value. There is big potential for processed timber from Latvia – in fact, we could double the present figure.”
