At first glance, 2004 and first quarter 2005 figures from the Russian timber and forest products sector look promising.
From January to April, sawn wood production totalled 6.8 million m3 – 4.9% higher on the year. Plywood production increased more markedly, by 11% to 830,000m3, and fibreboard production reached 123 million m3, up 5.9% on the same period last year. Log removal stood at 13.9 million m3 or 98.2% of the level for the first quarter of 2004.
Exports of timber and paper increased by 34.6% in 2004 – up to US$7bn – compared with 2003. The timber industry’s turnover reached US$9.6bn, while investments rose by 25% to Rb31.1bn.
But, while the balance sheet for this trading period seems reasonably healthy, industry sources and the authorities maintain that the sector is still hampered by underlying weaknesses and failing to lay the foundations to realise its potential in the global timber market place.
In fact, RF Mineconomrazvitiya, the Ministry of Economic Resources and Trade (RFM), predicts a reduction in the timber industry’s contribution to the country’s gross domestic product, from 4.1% in 2003 and 2004 to 4% through 2007 and 2008. Production growth is also expected to slow. In 2003 the figure was 1.5%, rising to 3% in 2004. It is forecast to rise to 4.9% in 2005, before falling to 3.4% in 2006, 2.6% in 2007 and 2.8% in 2008.
Lack of progres
A continuing weakness of the sector is the lack of progress towards value-added timber production. In 2004, low margin “raw wood” still accounted for 37% of timber industry exports. And in January-February this year the sector went backwards, with non-processed material’s share of overseas sales increasing to 42%.
According to a report from the Novosti news agency, the Russian authorities are particularly concerned about timber trade with Finland, which takes major volumes of unprocessed material. Alexander Yakovenko, of the Russian Federation’s foreign ministry, expressed this opinion in an interview with the Novosti news agency. “We cannot be satisfied with the primarily raw material orientation of Russian exports (over 80%) [to Finland],” he said.
The RFM is now recommending a reduction in export duties for value-added production and woodworking machinery and also announced plans to raise export duties on round timber. But Mr Yakovenko said he would also like to see Finnish timber companies investing more in Russia to help develop the country’s further processing capacity, a point echoed by Valery Roshchupkin, chief of the Federal Forest Husbandry Agency (FFHA), who said that Finland currently meets 20% of its timber requirements from Russian raw timber.
“It is necessary to attract Finnish com-panies to start high-level timber processing in Russia, not just buy Russian raw materials at low prices,” he said.
Forest Code
The industry is also still in turmoil over the imposition of Russia’s new Forest Code. The government seems intent on pushing through the new regulations governing the future practice and structure of the industy. But it still face stiff opposition from timber firms, and regional authorities, with some recommending a popular referendum on the issue. They claim the code won’t encourage value-added investment and could lead to forestry fragmentation and the closure of profitable timber processors.
There is growing acknowledgement in Russia that the industry also faces a serious illegal logging problem – in fact, it will be the subject of a conference in the country in September. According to the FFHA, illegal timber accounts for 5% of the 130 million m3 annual harvest, and some reports state that, in terms of industry turnover, it may make up as much as 20%.
Mr Roshchupkin said that action was needed to tackle the illicit trade, both from Russia and importing countries.
“At the September conference, we will raise the issue of the two sides’ responsibility – of the sellers and buyers,” he said.
