Forest-based sector challenges in Finland

Forest-based sector challenges in Finland

Finland’s forest-based sector production and its exports have declined over the past decade. At the beginning of the 1980s the total value added in forestry, wood products industries and pulp and paper industries represented 10% of the Finnish gross domestic product (GDP); in 2008 it was less than 5%.

Metla’s analysts predict that the Finnish pulp and paper industry production will decrease by up to a third and the wood processing production by a fifth during the period from 2007 to 2020. This declining trend is seen as coming mainly from the current worldwide economic market depression, the weakening of Finland’s main exports markets for wood-based products due to the decreasing demand for printing and writing papers, the oversupply of pulp and paper products in Europe, and also from the weakening competitiveness of the Finnish production relative to major competing countries e.g. in Europe and Asia.

Decision makers are calling for new products or new strategies to help the forest-based industry to overcome the economic depression. Metla Bulletin asked Metla’s senior researcher Riitta Hänninen about her views on the future prospects for the Finnish forest-based industry.

The profitability of pulp-, paper- and paperboard factories in Finland has dropped dramatically. Currently, pulp and paper production does is below the levels that were observed before the current recession. Although the production of the Finnish pulp and paper industry production grew by 3% during 1998 and 2008, the real value decreased by more than 20% as the real prices of paper and paperboard products have fallen. “It is predicted that due to the decreasing demand for printing and writing papers in Europe and North America and the increasing competition from new efficient paper mills from Asian countries, the present oversupply will very probably continue. The Finnish paper industry has reacted to the decreasing demand and has weakened prices by measures directed to improve the cost competitiveness of the present products and has closed paper capacities in Finland.” says Hänninen, and continues “But cost reductions cannot be made forever, and it will be more and more difficult to produce and export the present products, even high quality products, at the some low price as the competitors offer. Therefore we will see more paper capacity closing in Finland during the next years.” The Finnish wood processing industry did on the other hand not face as large a decrease in demand as in the pulp and paper markets, and construction is predicted to grow in 2010, although slowly.

In 2008, the forest cluster directly and indirectly employed about 200 000 workers (forestry, forest industry, logistics, etc.). Metla’s analysts have estimated that the labour force in Finnish forest industries has decreased from 1998 to 2008 from 65 000 to 50 000 employees, job cuts and outsourcing of labour force that have taken place mainly in the pulp and paper industry.

Hänninen sees that the production cuts and cost saving actions of the Finnish forest-based industry are a very necessary measure in order to regain profitability and increase their competiveness on the world markets. In addition the increasing value of the present wood-based products and the most difficult long term challenges are to develop new kind of services and products to compensate the decreasing demand of the present products.

For the Finnish wood products industry, the main long term challenge is seen to be the cost competition ability. “New low-cost producers from Eastern Europe have entered the export markets and central European producers have increased their production capacity which has caused oversupply. It is likely that Finnish sawnwood production capacity will decrease in the long term” predicts Hänninen. To increase their market share among the construction materials, new services, and new products that separate Finnish products from the competitors’ products have to be developed. Also here, there is a need for direct dialog with the key costumers for timber products (e.g. in construction, glued laminated timber industry, furniture manufacturers, and transport and packaging manufacturers). “The market for new residential construction is growing and the increasing need for repairing and modernization creates new possibilities for woodworking products” says Hänninen.

In the short-term forest-based energy production from side products to produce electricity seem to be one possibility to increase the profitability of Finnish forest industry. The establishment of a joint venture between pulp and paper manufacturers and oil companies to produce biocrude for renewable diesel from forest biomass on a commercial-scale could be a possible solution in the longer term and could become a reality in just a few years. The export of electricity and biofuels to other countries could be one future possibility, when the export quantities of traditional paper products decrease. “The most difficult long-term challenges are to develop new kind of services and products to compensate for the decreasing demand of the present products” says Hänninen. “It is important to concentrate on the development of new products like medicines, and clever products to make life easier such as nanocellulose.” Metla’s experts forecast that the demand for forest-related tourism and recreation services is expected to grow much faster than the demand for forest products in the forest industry’s main markets.

Hänninen concludes that it as necessary for the Finnish forest-based industry to find more ways near to the final customer. “The forest-based industry has to analyze customer demands…what additional value compared to the competitors products can a company produce in the future and how can they offer more solutions to the customers’ problems? What the future customers want is, of course, difficult to forecast, but answers could be found in the trends of the other industry and the society such as climate change and demographic trends (ageing, life style, urbanization, etc.). When society changes in general, also the needs for and use of forest products changes.”