The Baltic Course

Timber Industry vs. the Environment

Olga Pavuk, Taivo Paju (Aripaev)

When discussing forests, there is a struggle between two principles: environmental protection versus economic growth. Exporters following a silent agreement with the government want to cut down more and more pine, spruce, birch and other trees. Environmental protectionists would like to civilize this process. Otherwise the timber industry will continue cutting forest until the valuable kinds of trees are exterminated, and are replaced by less useful varieties for processing and for the environment. Rare birds will have irrevocably flown away.

Ancient export

Timber covers 45% of Estonia and Latvia, and 30% of Lithuanian territory. The most popular type of pine tree blankets 50% of Estonia's woods, at least 45% of Latvia's forests, 37% of Lithuania's woods. The most valuable timber, the so-called Riga pine, has been exported to Europe since the 18th century. Other types of wood such as spruce, birch and ash are also exported. Over the past six years, timber exports have increased four times in Estonia, and 3.5 times in Latvia. Ten years earlier there were no such barbarian attitudes towards national wood resources.

For example, during the Soviet period, Latvia managed to save its timber resources and even increase wooded territory by 0.9 million ha, because timber was imported from other USSR regions for processing. Annually, 4 million m3 of wood was cut down in Latvia. By comparison, in 1999 14 million m3 of wood was cut. The following statistical data highlights the problem. The cubic measure of timber has decreased from 255 m3 per 1 ha in 1991, to 190 m3 in 1999. Official statistics, however, point to the dynamic growth of the timberlands and dismiss the worsening quality of the forests.

Black stork suffers.

If cutting continues at the same speed, in several years the Baltics will not have any ancient woods, and only sapling growth will remain. In the years before Latvia regained independence, the quality of the forests worsened following an alder-tree overgrowth in areas where country houses were abandoned. Alder trees unfortunately have little timber or processing value. Experts say that there is 19 times more alder covering privately owned territory than state owned territory. It is worth listening to the opinion of Uldis Grava, an old forestry specialist and consultant for the forest resource service at the biggest Latvian wood processing joint-stock company Latvijas Finieris, which has been in the forestry business since 1953. In response to the question «What to do?» Uldis Grava says that Latvijas Finieris deals with the problem in the following way: buy land, and then plant birch and coniferous plants. «We do not want to make a dash, but to show an example to others».

Nevertheless, the most active supporters of wood protection are biologists. Professor of ornithology and President of the Latvian Nature Fund, Janis Priednieks believes that the forest situation is a catastrophe. The problem is not only a decrease in the green plantation; the whole ecological system is suffering. For example, the number of birds is declining. The biggest sufferer is the black stork, which is included in the endangered list or the so-called Red Book. According to the Ornithologists Society, there were 1000 pairs of this rare bird at the beginning of the nineties in Latvia; that is 10% of the world population. Presently, there are 750 pairs; we have lost 25% of Latvia's black stork population in 10 years. One reason for this decrease is that the black stork only nests in pine trees that are on average 200 years old. The spotted eagle is also dependent upon ancient forests. Latvia contains 12% of the world's population of spotted eagles, and more than half of the nests are situated in woods that are 90-100 years old. There have been various methods undertaken to protect older trees but they have proven to be unsuccessful. For example, an amendment was passed to the Law which set forth the diameter of a tree allowed to be cut: the larger trees were not to be felled. Janis Priednieks points out, however, that it is easier to calculate a tree's age than its diameter.

Latvia: mushrooms after the rain

Latvia's forests are divided between two types of owners: the State, namely joint-stock company Latvijas Valsts Mezi and numerous divisions of private companies. The Latvian Enterprises Register lists 1600 firms that include timber cutting as an activity. This is five times more than in the beginning of the nineties. In addition, according to expert data there are more than 5000 firms dealing with timber cutting. It is possible to say that every person in Latvia has a relative or a friend working in a sawmill. Approximately 60 000 people work in this field.

Almost 90% of all harvested timber is exported. More than a half of the exported wood is saw-timber; 12% percent is round timber, and the remainder is plywood, paper wood, cardboard and others. From 1992 to 1999 exports have grown 2700%. According to Uldis Grava, last year was the climax for the wood industry and there is no foreseeable impetuous development in the coming years - «export of timber will decrease and as the demand grows further, more timber will be used locally».

Demand for timber locally is insignificant and does not correspond to the levels of most countries. For example, the average consumption of saw-timber in 1990 in Latvia was 0.1-0.15 m3 (0.2m3 in the UK, 0.4 m3 in the NAFTA countries and 0.21 m3 in Japan). The main reason for this fallen demand is a low average income and a deficit of private long-term investments.

The State Forestry watchdog is criticized constantly. It is struggling to liberalize the timber harvesting rules. In addition, the leadership is lobbying the five largest harvest companies (Silca Ltd., Holzewerke Ltd., Ziguru MRS Ltd., JSC Strenchi MRS, Latsin Ltd.) in the timber industry. These enterprises have long-term and cheap contracts for woodcutting. Experts estimate that since 1995 only private companies are increasing the level of woodcutting. The state joint-company, Latvijas Mezi, has maintained the same level of woodcutting.

The Law on Forestry is not satisfactory; it reflects the interests of the state and private forestry specialists. The common law does not cover all the nuances, and there are contradictions with the Civil Law. Such an important industry for the Latvian economy does not even have its own ministry, only a department in the Ministry of Agriculture. In order to legalize increased woodcutting, different tricks are used. For example, officially «sanitary cutting» is cutting down damaged trees. In practice this is the most popular classification for woodcutting. Annually, there are 1.5 million m3 of wood cut due to sanitary reasons; expert data shows that, in reality, it is twice that.

The State is trying its best to develop timber exports. In January 1, 1999 an export duty on round timber was abolished. Thus, we satisfy the requests of the European Union, which is in need of cheap Baltic wood. Why are timber prices lower in the Baltics than in other countries? First, Latvia has cheap labor and low land and property tax. Second, in an attempt to increase sales, wood processors are permanently «dumping» timber.

Another problem with Latvia's timber industry is the use of timber waste. For example, the Scandinavians have a high tax on raw waste, consequently, the level of processing is worked out to the last extent, i.e. waste is used for energy production. A possible solution to Latvia's waste problem is the construction of a Cellulose Plant which would use pulpwood as the main raw material. Who would be able to build such a plant - Latvia, Lithuania or Estonia? Of course, it would be wise to have a paper-mill near the plant in order to export paper instead of cellulose.

Estonian timber moves on

Today the third construction stage of the biggest sawmill in Estonia - Imavere - has been finished with 270 000 cubic metres of production expected this year. This is more than a quarter Estonia's total sawmill production. This means that Imavere is able to process one tenth of all forests cut in Estonia. Most of the production goes to the Netherlands, Germany, Spain and France.

Imavaere sawmill earned more than 45 million EEK profit with a turnover of 480 million Estonian kroons last year.

Sawmills equipped according to the latest in the technical equipment market are the pride and joy of Estonia. In Paikuse, near Parnu where travellers from Tallinn to Riga can see big timber yards with large round timber, a new sawmill started to work with a turnover of 140 000 cubic metres of timber per year. Their technology enables to saw timber of different diameters for the first time in Estonian history. Such contemporary equipment is owned by only one third of all Scandinavian industries. The production in Paikuse goes straight from the mill to ferries -no need for additional timber yards.

AS Toftan in the Voru region in the Southern part of Estonia is the only large modern sawmill in Estonia sawing big pine trees. Earlier pine was exported prior to any processing. All Estonian sawmills put together are able to produce more than 1 million cubic metres per year, about 0.9 of this was produced for export.

Among the owners of the two flagships of Estonian sawmills (Imavere and Paikuse) are two well known Scandinavian forestry companies (UPM-Kymmene; StoraEnso) but the controlling shareholders are Estonians. One of the main owners of Toftan is Swedish company Thomesto Sverige AB.

Capital is also pouring into Estonian timber production. For many years the ready-made-house producing factory Tartu Kodumajatehas has been sending houses to Germany and Scandinavia.

In Otepaa the companies Forestex and Sylvester together with Finnish UPM-Kymmene group will start the production of water resistant birch plywood in a plywood factory based on contemporary technology this November. The owners will invest about 100 million Estonian kroons in the factory. Capital from Germany (Mohring Group) has started a wood imitation factory in Kuusalu (not far from Tallinn) called Baltic Spoon. Irish capital is also launching a sawmill called Balcas Estonia.

Each year the share of unprocessed timber has decreased. Last year Estonia exported timber, timber products and furniture for 8.1 million kroons, unprocessed wood being about 28% of the monetary value. In 1992 unprocessed wood made up about 50% of the timber export. «The decreasing percentage of unprocessed wood shows that big investments into the local sawmill industry, log-cabins, chip-board and furniture production are paying back» comments the chief executive director of the Estonian Forest Industry Association Antti Pae for the business newspaper Aripaev.

There is much talk of the plan of Norwegian company Larvik Cell to set up an old stripped down factory from Denmark in Kehra, near Tallinn which would produce 100 000 tonnes of half cellulose. Latvians made a big step forward establishing a cellulose factory-projecting firm including the Latvian State, Finnish Metsaliitto-Yhtyma and Swedish Forestry concern Sodra. Such a factory is needed. Setting aside the fact that Estonia would win with new jobs and taxes, all forest industries would also win from it. It would also be possible to use leftover timber cuts from the sawmill industry. Two independent groups are trying get a cellulose factory running in Estonia - one being the State Investment Agency and the other well known businessman Ulo Parnits. Parnits is considering companies of the USA and Canada saying that Scandinavian industry is not really interested in building cellulose factories in the Baltics. The establishment of a cellulose factory has also been considered by a group from Singapore - the Tolaram Group, now producing cellulose on a small scale in Kehra.

According to the State Investments Agency, 12 billion EEK towards a large-scale cellulose factory would bring 500 direct and 4000 indirect new jobs.

Estonia is special in Europe thanks to its high percentage of forests. Forests, 2.2 million hectares altogether, cover 45% of the Estonian territory. The State owns 0.83 million hectares which means that the state owns 38% of all forests. This is less than in Latvia or Lithuania (48% and 50% accordingly), much less than in Poland (82%) and about the same amount as in Great Britain (32%).

Estonia will not in the near future have similar problems as the rainforests. Although 6.7 million cubic metres of forests are cut each year, twice as much grows back.

«During the coming years I see that at least some 20-30% of exported timber for making paper will be used in Estonia» said Kosenkranius as to the vision for the next decades - Estonia should use the Finnish model. More and more timber is imported from the east and processed in Estonia.


Uldis Osis Professor, Doctor of Economics and former Latvian Minister of Finance

Exports of timber make such an important impact on the state economy because we have nothing else to sell abroad. Everything needed for export is already there: resources, demand and a cheap labour force.
The industry has met its potential. Local resources do not require big investments; therefore, to start such a business is not comparatively difficult, besides everything is suitable for export - from a log to wood pulp of little value.
There is less wood in Western Europe, while in Latvia there are a lot of forests. It is a very successful coincidence of factors.
Also the forest industry is the only thing left for Latvian farmers who privatised the land they were working. In practical terms, one farmer whose business is woodcutting can support a family of 2-3 members. By comparison, developing other industries, such as manufacturing, requires greater expertise and resources. You have to start from ground zero.
With regard to the forest industry, the level of wood processing will increase, thus value of goods will also grow up.
In general, we are lucky to have such a resource, as wood products mean a stable market. Furniture and building materials are always required.

Mihkel Parnoja Estonian Ministry of Economy

The task of the government is to increase timber processing. When we talk of timber exports, it is mostly unprocessed timber or first stage processed timber. But the state is doing everything possible to bring investments to Estonia that will increase the level of timber processing.
I think that the amount of cut and exported timber will not change much in the coming years. But increases in the level of processing and additional value will occur anyway. One possibility is to establish a cellulose factory in Estonia. There are interested parties from Estonia and Norway who would like to develop smaller factories. There are other parties interested in developing a bigger factory [investments of about 12 billion EEK, annual production 0.6 million tonnes - BC] so, everything is possible.
If our paper industries are interested in development, the Norwegian group has also shown an interest in developing a large-scale project. We do not have very sure partners, but anything may happen soon.
Latvia's success may not be fatal for us because they are still analysing the possibility of founding a cellulose factory in Latvia. At the same time Estonia has slightly better chances because we can give guarantees for timber resources with, for instance, longitudinal treaties. But I cannot foresee any restrictions in forest cutting. In Estonia we cut less than grows each year, and we have not approached the critical threshold so far.