Forestry production for 2010 will continue to decline, but at a lower pace than in 2009, primarily as a result of government policy aimed at increasing export tariffs on unprocessed wood and the lack of investments in the sector.
THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE
BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S.
Voluntary - Public
GAIN Report Number: RS9065
Forestry Production and Trade Outlook
Solid Wood Products
Mary Ellen Smith
Forestry production for 2010 will continue to decline, but at a lower pace than in 2009, primarily as
a result of government policy aimed at increasing export tariffs on unprocessed wood and the lack
of investments in the sector. Weaker demand for forestry products resulting from the financial crisis
and downturn of the economy are also contributing to the poor outlook in the forestry industry.
According to the Forestry and Hunting department of the Ministry of Agriculture, Russia?s volume
of logging is forecast at 165 million cubic meters in 2009, approximately 20 million cubic meters
lower than in 2008. The downward trend in timber harvesting started after the peak of 202 million
cubic meters in 2007. The growth was artificially stimulated by the introduction of higher export
tariff rates to restrict exports of round wood. The outlook for 2010 calls for production of 130
million cubic meters a 36 percent decline since 2007. According to the Department of Forestry and
Hunting at the Russian Ministry of Agriculture the drop is mostly attributed to the combination of
the global financial crisis, higher export tariffs for unprocessed wood and inefficient legislation for
forest management. As of 2008, when the prices for wood products worldwide declined as a result
of the reduced demand for forestry products, several domestic forestry companies became
unprofitable. According to the Forestry and Hunting department of the Ministry of Agriculture the
forest processing capacity in Russia is estimated at 110 million cubic meters. Local producers failed
to boost processing domestically since they were not able to invest into processing infrastructure
before the economic downturn began to hit the sector in 2008. As a result, federal revenues along
with investment into forest infrastructure declined.
According to ?Ilimp Pulp? the world financial crisis has impacted on investors? activity and the
weak demand for logs worldwide combined with higher export tariffs led to a decline in
export. Domestic demand was not enough to offset for lower exports.
According to some sources at the government, the principle decision about keeping export tariffs
for logs in 2010 at the same level of 2009 was made in September 2009 as a result of the
discussions at the Ministry of Economic Development. The Ministry reasoned that ?there is no
need to set up additional barriers to forestry export when the demand for Russian forest products in
the world market is declining.?
During Russian-Finnish summit that took place in St. Petersburg on the 25th of October, Prime
Minister Vladimir Putin confirmed that Russia will sustain export duties on logs for 2010, and most
likely for 2011, at the 2009 level. According to Prime Minister Putin, who is personally a strong
opponent to delay in export tariff increase, this was a forced measure in the period of economic
downturn when demand of wood is declining worldwide. However, he stated that it is important
that Russia adheres to gradually increase export tariffs for low value wood products with the
objective of stimulating domestic processing of wood and curbing the export of unprocessed wood.
Reportedly by making this decision, Russia has gained approval from Finland for building a gas
pipeline in Finnish territorial waters. According to the Finnish government Russia?s current export
tax policy will have a positive turn in negotiations with the EU regarding access for wood.
Some experts in the forestry sector believe that keeping the same level of export tariffs in 2010 may
have a negative impact for larger forestry processing facilities. These facilities borrowed large
credit in 2007-2008 with perspective of increasing the processing level of forestry products
domestically. Delay in export tariffs will have less impact for the medium sized and smaller
companies, but uncertainty in tariff policy makes it difficult to implement profitable contracts and
long term planning.
According to the report of the Russian government released on October 19, 2009, currently there
are 60,000 large, medium and smaller forestry companies with more the 1 million employees. The
forestry sector?s share in the Russia?s GDP is about 1.3 percent, while its share in the volume of
industrial production is 4.7 percent, and in export income is 3.2 percent.
Production of major forestry products during January-August 2009 verses the same period in 2008
has declined significantly and accounted for: logging ? 80.3 percent; lumber ? 83.5 percent;
fiberboard ? 68.1 percent; particle board ? 72.2 percent; veneer ? 72.2 percent; cellulose ? 81
percent; paper ? 93.5 percent; and carton ? 88.8 percent. Furniture production has also dropped by
25.5 percent for the same period.
Exports of unprocessed wood during January-August 2009 decreased by 43.7 percent, veneer ? by
5.8 percent, cellulose by 26.7 percent, while export of lumber increased by 2.1 percent.
In addition to government policy for gradual increasing of export tariffs, the government
determined on a number of preferences to the investors, such as providing forestry plots without
auction, and applying lower coefficient (0.5) to the minimum fee for forestry resources and forestry
Currently the Russian Ministry of Trade approved 75 investment priority projects in the forestry
sector with total investment of 429.7 billion rubles and with the forestry raw materials involved of
68.1 million cubic meters. As of October 5, 2009, eight projects have been implemented with
investment of 15.3 billion rubles, seven projects are pending approval.
According to the report the government the shorter-term plans also include developing additional
proposals of mechanisms to stimulate implementation of investment priority projects in forestry.
Table 1. Russia: Exports of Wood and Wood Products, January-August 2007-2009, in million
HS Description 2007 2008 2009 09/08
44 Wood 6040,390 5488,26 3547,723 -35,36
4407 Lumber > 6Mm Thick 2245,217 1962,50 1643,169 -16,27
4403 Rough,Not Sapwood 2866,570 2487,10 1230,054 -50,54
4412 Plywood,Veneer,Etc 484,511 549,92 297,265 -45,94
4401 Fuel In Log;Chips,Etc 58,285 84,98 111,848 31,62
4411 Fibrbrd Of Wd/Ot Lign 94,138 100,84 62,035 -38,48
4410 Particle+Simlr Board 67,102 60,71 56,995 -6,12
4418 Blders'Joinry+Carpntr 93,571 89,16 53,653 -39,82
4421 Othr Articles Of Wood 36,840 41,50 24,459 -41,06
4408 Veneer Sheet<6Mm Thck 12,516 19,78 19,500 -1,42
4409 Tongued,Grooved 27,237 31,72 18,402 -41,99
4406 Sleeper(Cross-Ties) 16,268 31,67 16,188 -48,88
4415 Pack,Etc;Pallet,Collr 6,284 6,75 4,058 -39,89
4420 Marqtry Et;Jwl Cse Et 23,758 5,79 3,475 -39,96
4419 Tableware+Kitchenware 2,375 10,68 1,864 -82,54
4404 Hoopwood;Pickets,Etc 0,489 0,53 1,096 105,32
4405 Wood Wool;Wood Flour 1,173 1,55 0,988 -36,16
4402 Wood Charcoal 0,958 0,87 0,975 12,17
4416 Cask,Barr,Vat,Etc+Pts 1,777 1,19 0,914 -22,9
4417 Tool/Tl+Broom Body,Et 0,854 0,62 0,455 -26,54
4413 Densfd Blk/Plt/Str/Pr 0,360 0,32 0,222 -31,12
4414 Frme F Paint,Phot,Etc 0,108 0,08 0,110 32,29
Source: Customs Committee of Russia
Table 2. Russia: Exports of Rough Wood (HTS 4403), January-August 2007-2009, in million
HS Description 2007 2008 2009 09/08
4403 Total Rough,Not Sapwood 2867 2487 1230 -50,54
440320 Coniferous Nt Treat 2251 1694 1081 -36,17
440399 Nonconiferous,Other 529 686 122 -82,18
440391 Oak (Quercus) 83 106 26 -75,7
440310 Treatd Paint,Presrv 3 1 1 -45,69
440392 Beech (Fagus) 0 0 0 -76,37
440349 Ot Tropcl,N Treated 0 0 0 0
Source: Customs Committee of Russia