CONTENTS 1/2009
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  Russia seeking forest sector development

Russian forest sector in change

International interest in Russia's forests in increasing. Several international forest industry companies have planned investing in Russia, but very large investments have been rare, as companies do not consider the investment climate stable enough.

The potential is huge: about 20% of the world’s forest resources are in Russia, but the Russian share of the global roundwood removals is only about 6%. Less than one-third of the annual allowable cut has been utilized.

The domestic industry is not able to process all available roundwood and about one-fourth has been exported. This has made Russia the biggest exporter of roundwood with 52 million m3 of roundwood (nearly 40% of the total global roundwood exports) in 2006. Roundwood exports provide about one-third of the value of the Russian forest sector export. Russia is now trying to intensify forest use, while decreasing exports of roundwood at the same time. This requires increasing domestic utilization of roundwood and raising the value-added of wood products.

Accordingly, the export duty on roundwood has been raised dramatically, and it was supposed to increase again at the beginning of 2009 to a level that would practically put an end to exports. It would have a great influence on global markets, hitting the biggest importers hardest: in particular, China, Japan and Finland. The roundwood imports of e.g. the Finnish forest industry from Russia in 2007 were about 16 % of the total industrial wood consumption in Finland and about 25% in 2005 and 2006.

The EU has argued that the raise is against the agreement between EU and Russia on Russian WTO membership. Negotiations have not given any direct result, but in November Prime Minister Putin announced that the planned increase will be postponed 12 months.

The Finnish forest industry has prepared for the decrease of imports by increasing domestic wood procurement and imports from other countries. Some production capacity has been closed. As drastic adjustment measures have already been taken, the temporary postponing of the duty raise is not expected to change the plans of the industry very much.

While in itself an understandable line of development from the point of view of Russian national economy, the rapid pace of change bodes difficulties for the Russian forest sector. There is not enough domestic capacity to process wood that has previously been exported to European countries (in 2006 about 29 million m3 into the EU) and Asia (in 2006 about 25 million m3 into China alone). Therefore halting roundwood exports will lead to substantial losses of jobs and revenue. The supply of wood to Russian mills can be disrupted.

“The decision to postpone the planned raise of export duty on roundwood has given some more time to adjust to the situation, but in general the events have not improved the general impression of the deficient stability of forestry policies in Russia”, says professor Timo Karjalainen of Metla.

“Our forest industry cannot count on the availability of Russian wood anymore, which is in fact good for our domestic wood markets, as there is room to increase supply from own forests, thus providing more income and work in Finland.”

“Although we are now experiencing hard times in the forest sector, we also have a chance to fundamental structural changes that will pave the road for recovery and new solutions. In forestry, we have a renewable natural resource that we know how to grow and use sustainably. Products made of wood have many advantages over many other products that they could replace. This is useful to keep in mind when seeking solutions to global challenges such as mitigation of climate change”, continues Karjalainen who has contributed to several IPCC (Intergovernmental Panel on Climate Change) reports.

Benefits to the European Union – Metla’s role

Finland and Russia share a 1200 km border. The growth conditions of trees in Finland and Northwest Russia are rather similar. There is also a long history of cooperation between the countries, including research and forestry. There are, however, sizeable differences in how forests are managed. In Russia, most of the wood comes from clear fellings, while thinnings are an important source of wood in Finland.

Research is a mutually beneficial area for cooperation. Sharing experience, knowledge and technology helps to find solutions to all problems. This can also benefit the cooperation between the EU and Russia.

“In Metla we have real expertise on Russian forest resources, forest management, wood procurement and wood use, bioenergy, forest policy, trade of roundwood and sawn timber, wood quality, peatland forestry, income and employment impacts of roundwood use, forest industry and related value chain investments, as there has been demand for research results on these topics”, says Karjalainen.

The results of our research have been disseminated e.g. through our Russian forestry information service www.idanmetsatieto.info . We established it as part of an Interreg-III-A project several years ago.

The service provides basic data about forestry in Northwest Russia, a news service, electronic registry of forest and woodworking enterprises, photo bank and maps, plus publications and reports.

The service is in Finnish but we serve Russian companies and organisations through a parallel site www.lesinfo.fi which provides information about the Finnish forest sector in Russian. “Both services have been extremely popular and feedback from the users has been positive”, says Karjalainen with satisfaction. “Now we are expanding the information service to also cover forestry in the Central and Eastern European countries”.

“The future challenges of research cooperation between Finland and Russia are not in research itself, but in how research is financed. So far, sources in Finland have financed most of our joint research projects. But there is also a broader interest in Russia globally, and we are prepared to cooperate”, says Karjalainen. Central and Eastern European countries are also growing in importance with regard to research and cooperation. ML

Further information:

Russian forestry information service

Northwest Russian forestry in a nutshell

Income and employment effects of change of roundwood use in Eastern Finland and the Republic of Karelia

Development of forest sector in Northwest Russia and its impact in Finland

15 years of economies in transition: lessons learned and challenges ahead for the forest sector
Assessment of energy wood resources in the Leningrad region

The Finnish Forest Research Institute (Metla) has cooperation agreements with several Russian research organizations:

- Karelian Research Center of the Russian Academy of Sciences (Petrozavodsk)
- Petrozavodsk State University
- St. Petersburg Federal Forestry Research Institute
- St. Petersburg Forest Technical Academy
- Moscow State Forest University
- All-Russian Institute of Continuous Education in Forestry (Moscow)
- All-Russian Research Institute for Silviculture and Mechanisation of Forestry (Moscow)
- State Scientific Center of Timber Industry Complex (Moscow)
- Institute of Plant and Animal Ecology, Ural Branch of the Russian Academy of Sciences
- VN Sukachev Institute of Forest, Siberian Branch of the Russian Academy of Sciences, (Krasnoyarsk)