Environmental issue and timber industry
Economic global forecast due to environmental. Global objectives, principles and priorities of timber industry. Regional historical, economic, political and cultural aspects of timber industry. Economic affect of issue on regional industry to date.
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Top 10 Russian timber companies by the level of revenue in 2010 according to the Lesnaya Industriya magazine are: Group Ilim (revenue in 2010 - 53508 million roubles), Investlesprom (23946 million roubles); Mondi (23630 million roubles), International Paper (17957 million roubles), Archangelsk pulp-and-paper mill (15989 million roubles); Kondopoga pulp and paper (12395 million roubles); Sveza woodwork (11292 million roubles); Volga pulp and paper (8895 million roubles); Ilim Timber woodwork (8120 million roubles); Solikamskbumprom (7425 million roubles) .
According to Lesindustry, “The most fast-growing timber company is “United Panel Group” with revenue growth 89,5% (3.04 billion roubles) in 2008 and “United Paper Mill” - 49.6% (1.76 billion roubles)” .
Zelenodolskiy plywood plant had the highest profitability ratio (17%) in 2008. 89.5% up to 3.04 billion roubles.
Ilim Group is the leader on pulp and paper market by output volume. It belongs to American International Paper that own 50 % of all shares.
Its mills are based in Leningrad region, Arkhangels region and Irkytskaya region.
According to the company's estimations, “it accounts for more than 65% of the total pulp production in Russia and over 25% of the Russian board production. The total annual pulp and paper production volume of the company is more than 2.3 million tons” .
Company aims at manufacturing semi-finished products and high-end products (packages and paper).
Malasian Samling group started in 1963 and gradually expanded the forest concession areas which was granted by state government. Then “there appeared new spheres of business - sawmilling, quarrying, property investment and development. Then in 1990 and 1994 there were set up four plywood mills” .
Rimbuhan Hijau is one of Malaysia's largest multi-industry companies. Its areas include timber, palm oil, timber, palm oil, media, finance, timber, sawmill, manufacture of plywood, particleboard and veneer, oil palm plantation and processing, tiger prawn, reforestation, property development, glue manufacturing. It has both domestic business in Malaysia and operations in Australia, British Guyana (timber and sawmill), Cambodia, China (plywood manufacturing, property development, toll road collection, mining and oil) and other countries.
WTK Group is in business since 1940s. The group has grown to be one of the leading players, holding and managing millions of hectares of timber concession around the world. It is also engaged in land development, trading, manufacturing, plantation, oil milling, hotel industry, travel service and food. One of the main activities is palm oil industry with a land bank of 120 000 hectares for oil palms.
KTS Group is a divertisified conglomerate with business interests in logging, timber processing, tree plantation, food processing, insurance, feed mill operations, aquaculture, shipbuilding, property development, information technology, tourism, silica sand mining, trading of heavy equipment and education.
Celulose Irani is the largest Brazilian pulp and paper company founded in 1941.
Revenue - $ 271.5 Million (2010), net income - $ 21.1 Million (2010) .
Nowadays its main activities are: paper production, packaging, furniture, woods and wesins and forest division.
Largest Indian company is Ballarpur Industries. Ballarpur Industries Limited (BILT) is a flagship of the US$ 4 bn Avantha Group and India's largest manufacturer of writing and printing (W&P) paper.
Its revenue in 2010 was $1 billion .
Ballarpur Industries has a dominant share of the high-end coated paper segment in India.
Largest timber companies in Indonesia are Indah Kiat, Tjiwi Kimia, Fajar Surya Wise, and Barito Pacific.
Korea: Hansol Paper.
Taiwan: Yuen Foong Yu Paper, Chung Hwa Pulp.
Thailand: Advance Agro PCL .
All in all, further consolidation of the top players can be expected, as the market matures.
2.2 Global objectives, principles and priorities of timber industry
Without proper management in timber industry there will remain not a tree in the upcoming future: companies want income, local governments need more flows into regional budgets. It leads to uncontrolled forest utilization.
International organizations developed principles that are of great importance to the global timber industry.
First of all, Food and Agriculture Organization of the United Nations (FAO).
Member countries of the FAO adopted Principles of forest policy in 1949. These are :
1) Soil and water conservation
It includes such issues as accelerated erosion, regulation of stream flow and the production of the water supplies necessary today to industry and cities. Each local government should establish universal principles of land use and conservation.
2) The regional approach to forest policy
This principle covers problems of different regions in connection with forest industry.
Main objective of European and North American timber industry is to increase the productivity of the forest and of industry. Their main problems are fragmentation of forest ownership, the dispersal of wood-using industries and intense competition for land.
The main objective of forest industry in Latin America is to put still virgin forest under management, to bring them in conjunction with land settlement and development. Other challenges - expansion of transport; creating local supplies for urban areas; the establishment of new forest industries; the development of domestic and foreign markets for forest products; and rehabilitation of eroded land.
The main objective in Near East timber industry is to improve the areas of forest that were devastated in the past. New plantations should be established in order to provide local wood supplies. Here the close tie between forest policy and general land use policy is perhaps more striking than elsewhere.
Far East timber industry has lots of objectives - mostly, development of silviculture and less utilization and industry.
3) The approach by subject
Each aspect of the problem should be dealt with separately. For example, grazing in the forest or on forest ranges; forest fires; wider development of pulp and paper industries throughout the world. Perhaps decisions and broad policy lines should be arrived at first in regard to each such topic, and the several results then be co-ordinated into one world forest policy, in the same way as forest policies should be brought into conformity with broad principles of soil and water use and conservation. Before they can be applicable to individual countries, such subject matter policies must still be adapted region-wise so, in the final analysis, a combined regional and subject-by-subject approach seems to be the most effective way of proceeding.
4) Importance of international co-operation
World Forestry Congress is created in order to comply with this principle.
5) Function of world congresses
The World Forestry Congress (WFC) is the largest and most significant gathering of the world's timber sector since 1926.
Its main purpose is sharing of knowledge and experience regarding the conservation, management and use of the world's forests.
WFC is held every 6 years and is to create awareness, to review and/or to formulate new approaches to technical, scientific or policy actions within the forestry sector .
Another organization is Forest Stewardship Council .
It is an international not-for-profit, multi-stakeholder organization established in 1993 to promote responsible management of the world's forests by setting standards and independent certification (also by accrediting various certifying agencies across the world), also labeling of timber products. Thanks to its activities anyone can choose only products of socially and environmentally responsible forestry.
Those who support the Forest Stewardship Council hope that all timber labeling schemes will either come under their governance. Many companies already agreed to buy only certified timber products. Alongside the FSC there existed other ecolabelling schemes, such as, for example, a Canadian ecolabelling scheme (by Canadian Standards Association), an Indonesian Ecolabelling Scheme and so on.
In 1994 organization agreed upon Principles and Criteria for Natural Forest Management. These are as follows :
1. Compliance with FSC Principles
This principle says about compliance with all laws of the country in which they occur, also international treaties and agreements to which the country is a signatory. Besides that - with these 10 Principles.
2. Tenure and Land-Use Rights should be established complying with the law and then documented
3. Indigenous Peoples' Rights should be respected and taken into account
4. Community Rights and Relations
This principle deals with social and economic existence of workers and local communities.
5. Optimizing Benefits from the Forest
6. Environmental impact
All timber operations should be done with taking into account its influence on environment.
7. Management Plan
8. Monitoring and Assessment
The conditions of forests, various business operations and social and environmental impacts should be done on a constant basis.
9. Maintenance of High Conservation Value Forests
In compliance with FAO's principle of The regional approach to forest policy there appeared Regional principles and priorities.
On the initiative of the timber industry, The Malaysian Timber Council (MTC) was established in January 1992. It aimed “to promote the development and growth of the Malaysian timber industry. MTC's main objectives include” :
* to promote the Malaysian timber trade and develop the market for timber products globally,
* to promote the development of the timber industry by expanding the industry's manufacturing technology base, increasing value-adding in production and increasing the pool of knowledge workers,
* to augment the supply of raw materials for the timber-processing industries,
* to provide information services to the timber industry and to protect and improve the Malaysian timber industry's global image.
Another local government, the Victorian Government in Australia, released a Timber Industry Strategy in 2009 . It provides a framework and long-term direction for the Victorian timber industry for the next 20 years.
This Strategy is to assist industry to increase the economic value to Victoria from timber production and processing in a socially and environmentally sustainable manner. It will also ensure investment in Victorian timber industry thus providing jobs for people.
The Timber Industry Strategy consists of four priority areas and 13 broad action areas.
* “World-class environmental regulation should meet the highest possible environmental standards
* VicForests which is government's commercial timber business should be publicly accountable in designated areas of State forest
* Secure and competitive investment frameworks
* Australia's strongest forest governance arrangements
* Improved freight infrastructure and logistics will support the timber supply chain
* Building a safe and skilled workforce and attracting people to the timber industry
* Understanding and helping the timber industry adapt to environmental, social and economic change” .
The Timber Industry Strategy identifies 13 key action areas under four priorities:
Priority 1: A productive, competitive and sustainable timber industry
Action 1: Provide greater certainty of access to public native forest timber resources
Action 2: Improve estimation and communication of sustainable harvest levels from public native forests
Action 3: Improve the sales system for native hardwood logs from public native forests
Action 4: Sustainably develop timber plantations
Action 5: Assist the timber industry to adapt to climate change
Priority 2: Develop and support efficient timber markets
Action 6: Improve freight infrastructure and logistics to support the timber supply chain
Action 7: Support the commercial development of new and emerging markets for timber and timber-related products
Action 8: Support market access and improve biosecurity for sustainable timber production
Action 9: Strengthen governance arrangements for forests and timber production
Priority 3: Innovative forestry science, technology, and practice change
Action 10: Encourage industry innovation and research and development
Action 11: Improve industry occupational health and safety
Priority 4: Strong timber industry communities
Action 12: Build a skilled workforce
Action 13: Enhance community understanding of the benefits of Victoria's forests
Although, not many countries really care about forest resources. Russia leads extensive way of development. “Main directions of timber industry development `til 2015” developed by the Russian Ministry of Industry, Science and Technology largely promotes the long-term development of the Russian timber industry and increases the demand for modern timber harvesting and timber processing equipment internally.
Increasing timber production volumes four-fold in 12 years (according to the official forecasts ) will require an intensive modernization effort of almost every major plant in the Russian Federation. Russian producers of timber harvesting and processing equipment are unable to supply the timber industry with necessary equipment due to lack of variety, quality, and sheer volume of domestic equipment demanded, that is why modern processing equipment will be exported from other countries. It will lead to further extensive exploitation of forest resources that does not take into account its possible consequences.
forecast environmental timber industry
2.3 Regional historical, economic, political and cultural aspects of timber industry: PEST in relation to Russia
The development of timber industry is influenced by a set of problems in political institutions, social sphere (social conflicts), illegal practices and complex national regulation.
In the first chapter we have examined political, economic, social and technological development affects of environment that largely influence timber industry.
This chapter will overview overall situation in timber industry worldwide and industry peculiarities in different countries due to historical, economic, political and cultural aspects.
Degree of political stability
It takes long time for trees to grow. That is why high degree of political stability is needed. Before 2000, the majority of Russian forest industry companies were more oriented towards the principle of “live for today, not for tomorrow” : forests were devastated. Long-range plans were not a common practice.
Policy climate (corruption, mismanagement)
The system of political patronage and corruption may lead to destruction of forests. It concerns not only Russia, but Malaysia and Indonesia as well. For example, in Indonesia 60 % of timber production comes from illegal sources because of the country's decentralized system of control. District forestry agencies give licenses to land clearing activities, although they do not possess the appropriate provincial authorization.
Liberalization of the industry is a negative factor in timber industry. For example, “within the previous 20 years Chinese timber merchants arrive in depressed Russian towns seeking to buy timber largely with cash. It resulted in appearance of shadowy businesses, which supplied timber through illegal logging and corruption” . This has fostered a critical situation in Russian regions bordering China because uncontrolled logging, especially of valuable species, led to the devastation of large forest areas.
Laws and regulations in industry. Withdrawal or reduction in cutting rights.
Excessive decline of ancient forests in forest regions increasingly forces governments to adopt logging bans or drastically reduce cutting rights. Examples of such policies include the USA Pacific North West, the Philippines, China, Bolivia, New Zealand and Thailand. These are not yet adopted in Russian Federation.
Escalating demand for imported timber may be stimulated by the Government's decision to restrict domestic logging. Russia can adopt such practice: for example, Natural Forest Protection Program enacted in 1998 in China, led to sharp reductions in domestic timber harvest (some forest lands along Yangtze river and state-owned forests in northeastern China). To compensate the shortfall China started to import timber, mostly from Russia (round wood, sawnwood, pulp and paper). Roundwood exports dominated this trade, rather than more financially lucrative products such as sawnwood, furniture, and so on.
The government may introduce rules to regulate the development of planted forests (reforestation, licensees to the private sector in order to establish forest plantations).
Government may introduce regulations limiting landfill and incineration.
Formal policies (economic development, credits).
Russian president Vladimir Putin has set a target of doubling the country's Gross Domestic Product by the end of 2020. Timber industry is to play an important role. Several government programs aimed at improving the sector are at various stages of implementation. The most comprehensive of these programs is the “Main directions of timber industry development `til 2015” developed by the Russian Ministry of Industry, Science and Technology” .
Level of infrastructure development largely influences the level of industry.
For instance, over the last several years, Russia has been falling behind in global competition for large scale investments in the forest industry. It can be explained by an underdeveloped infrastructure, business environment and rapidly increasing production input costs (electric power, wood and labor).
Ownership of the land.
In Russia about 94% of the forest land area belongs to The Federal Forest Service of Russia, 4% is owned by agricultural organizations, 1% - by the Committee of Environment Protection and 1% is managed by other state bodies . Therefore the licenses are not ownership rights, but rights of usage for a certain period of time. And politicians receive share in license-holding firms (or in timber processing firms). Some politicians may grant concession shares to other important state and local officials and businesspeople. Any establishment engaged in manufacturing timber should obtain a manufacturing license from the government.
Government's policy to reduce export of raw timber may result in increasing export of lumber and expansion of wood processed export.
The legality of timber is becoming a trade issue. European markets are increasingly demanding independently verified legal wood products and timber from suppliers as a condition for their entry into European markets. If suppliers cannot supply credible documents guaranteeing the legality of wood, then these products are illegal.
This practice of not providing info of wood origin is particularly prevalent for those who buy timber with cash (for example Chinese companies buying Russian timber in little depressed towns). If timber is bought with cash it helps companies avoid paying taxes.
Joint efforts by importers and exporters are required to remedy the situation.
In order to protect domestic producers, most of these countries impose tariffs on imports of value-added products (at 30-50% on average).
Economic growth rate (overseas and national)
One of the consequences of world economic crisis is decrease of construction volumes in Japan, China and Western Europe in the second half of 2008 which led to decrease of production in the economy sectors connected consuming wood. That is why in 2008 levels of lumbering plunged by 14.4 % in 2008 , while in pulp and paper industry there was a slight increase.
“Since 1998 the timber industry in Eastern Siberia and Far East has gradually rebounded and forest resource use has intensified after the Asian financial crisis and due to the rise in exports to China and Japan. This rebound has resulted in the rapid depletion of commercial timber stocks and widespread environmental degradation - especially in regions close to China or railways, seaports” .
The Brazilian Government's Plano Real tried to reduce inflation of 40-60% per month through a strategy of high interest rates. By increasing the cost of liquidity, the government has managed to contract the money supply, reduce consumption, and control prices. However, “the policy of high interest rates has hit the timber industry particularly hard. First, by raising the cost of credit, it has decreased investment in housing and construction, reducing domestic demand and depressing prices for sawn wood. Second, it has made wood exports more expensive by strengthening the value of the Brazilian currency with respect to the dollar and other international currencies. Third, it has drastically increased the cost of capital”.
Timber products are mainly used in the form of fuelwood, pulp and paper.
In industrialized countries timber is used as building material, paper and packaging, while in developing (especially poor) countries it is used with the purposes of fuelwood.
Paper is utilized by newsprint industry. There is a tendency to use recycled paper in newsprinting. “It is possible to recycle newsprint five times with little change in fibre quality. Yet the average recycled content of newspapers in Western Europe was 55.8 % in 1997, and in the USA it was only 28 %” .
Softwood is used in construction of buildings and houses (for example, in 1996, about 23.5 million cubic meters of softwood from Canada's ancient forests was used in the USA ).
Some underdeveloped countries utilize great volumes of wood. In some parts of the Far East where steel is scarce, there is serious contemplation of the idea of substituting wood in its place for many uses.
Wood is used as a substitute for many materials in primary and secondary industries.
In Russia there are trade barriers and rising expenses on transportation. Problems with transport and logistic influence the end price that is growing, and it may result in higher price for timber.
Companies sometimes use illegal procedures at the customs in order to pay less customs fees. The practice of labelling high-grade timber as lower quality timber or pulpwood to reduce the official contract price and to minimize taxes and duties on the Russian side is widespread. For example, exports of Korean pine and Siberian pine from Russia are understated because timber companies list the species on customs and port documents as “pine”, which usually refers to Scotch pine or, simply, “coniferous”. Sometimes exporters declare shipments of Korean pine to be `Korean spruce'.
Increase of customs duty for round wood at 20 % in 2007 and in April 2008 at 25 % led to decrease of competitiveness of Russian companies-exporters on global markets.
It resulted in drop of timber harvest volumes in 2007, 2008 and 2009. Besides that the exports of assortments that are not in demand in Russia was not possible (e.g. pulpwood). This uncertainty also caused reductions in forest industry investments, although the goal of the taxes was to boost investments domestically.
Exporting processed wood products rather than roundwood is more profitable for national economies. Increasing processing would raise export revenues and create jobs.
Employment and income statistics
The wood is used according to the economic development of the country. In developing countries consumption for fuel, heating and cooking is 80 % . It is a main reason why Africa looses its tropical forests. The purpose of wood use in industrial countries is “industrial roundwood” - building material, paper and packaging. People who live near the tropical forests sustain their economy and cultures due to the products of the forests, both timber and non-timber (fruits, nuts, rattan, rubber, medical plants and bushmeat). “A study in the rainforests of southern Cameroon found more that 500 plant species and 280 animal species in use and often on sale in local markets” . The African bushmeat industry may exceed a million tons a year. The animals also disperse seeds.
In some countries rich with forest resources timber industry is the main facilitator of the economic development. That is why some warnings to stabilize log production at a lower level are ignored. Throughout Asia there is significant dependence on forest resources by local communities. Conflict occurs between communities and pulp/paper companies as a result of environmental pollution from pulp and paper mills affecting community land, property.
In India 15 % of the population derives subsistence from forestland. Examples include Indah Kiat: indigenous people's land rights have created social conflict with the Sakai people over claims of clear-cutting forest lands in Riau province, Indonesia. “Conflict involved blockading the road between the pulp mill and the plantation supplying wood” .
Improving the low standard of living in many wood-producing areas (for example, in Russia) may reduce levels of illegal logging. Also, trade in roundwood in Russia is the most criminal sector of the forest industry, so decreasing exports of roundwood could reduce illegal logging.
Population growth rate
Housing boom brings profits in the timber industry - it boosts demand for lumber. For example, when home prices in the US fell and there were lower sales of existing homes in the country, lumber production plunged from 40.5 billion board feet in 2005 to 23.4 billion feet in 2009, according to statistics from Western Wood Products Association and Southern Forest Products Association . It led to closing mills and reducing the number of employees. But producers found a new market in China, which has become the major market for hardwood exports from the U.S., totaling $454 million during January to August 2010 . But unlike in the United States, wood is used mainly for nonresidential use in China. Though the Chinese have recently started using hardwood for floors.
General attitude. Environmental campaigns and public opinion
Public pressure will continue to be a major incentive for wood users to stop buying or using ancient forest products. A recent poll conducted by Yankelovich Partners in the USA found that “62.2 % of the American respondents felt that companies today should not use or sell products from old growth wood” . As a result a long list of companies have responded to consumer pressure or concerns about ancient forest destruction (IKEA, for example, in 1998, virtually all paper used by the German government was recycled ).
Producers, retailers and wood users avoiding ancient forest products as an element of a wider environmental management bring about gains in productivity and market share, better business relationships and lower cost capital.
Rate of technological progress and research
Russian timber processing industry uses processing equipment purchased abroad 25-30 years ago. If nothing changes, Russia will import pulp, paper and other timber products from abroad.
Development activities and new materials
Appearance of products-substitutes. With the appearance of plastic packing, consumption of paper decreased.
Also in the new era of electronic mass media consumption of paper started to decrease. “Printing and writing paper (including office paper) and newsprint - which together account for 41 % of world paper consumption - are the most important sector in terms of ancient forest use” .
New technologies those are less reliant on wood fibre, such as rubber wood to be used as an alternative for valuable tropical hardwoods such as ramin, meranti and teak amongst others.
New substitutes for finished wood products such as medium density fibreboard, oriented strand board and particleboard are increasingly being used as a more resource effective substitute for plywood, requiring fewer logs per unit volume of product.
“Timber panels as alternatives such as Medium Density Fireboard, bamboo, non-wood fibres like wheat straw and soybean stalks is already occurring”, according to the Greenpeace estimations. “The Canadian company CanFibre is producing MDF made entirely from 100 % recycled waste wood fire, without urea formaldehyde resins” .
Other findings include: company Advance Agro uses a genetic engineering research program in the development of fast growth trees; company Ballarpur produces `high yielding clones'; use of bamboo in reconstituted panels and board product as a result of new technologies.
Smaller diameter plantation logs can be used for certain products as opposed to larger logs from natural forests. The use of palm oil and palm oil fibre in mechanical and chemical pulping processes. Use of `straw pulp'.
Technical facilities and infrastructure
Introducing a range of paperless billing schemes, Osaka Gas in Japan and the US AT & T - saved 21 million sheets of paper each year.
Level of equipment and technology development influences the stage of timber processing. If the country does not possess modern equipment, then timber will not be processed within the country leading to exports of raw material to other countries.
In this second chapter we examined general provisions of timber industry and found out that history of timber industry started in far 5th century and its development is connected with human needs for heat, fuel, food and construction. Nowadays there operate several largest timber companies. These are (in terms of revenue - top down): International Paper, Stora Enso, UPM, and Oji Paper.
We observed global objectives, principles and priorities of timber industry in the second section. Food and Agriculture Organization of the United Nations as well as Forest Stewardship Council suggest their principles. They can be summarized as follows: conservation of soil, water and forest, international co-operation, respect to indigenous peoples, monitoring and assessment, growing plantations.
Also we covered historical, economic, political and cultural aspects of timber industry in relation to Russia. It should be mentioned that such political factors, like liberalization, corruption, mismanagement in regards to ownership rights, not stable political system before 2000s were negative political factors influencing timber industry in Russia. Withdrawal or reduction in cutting rights should be present in Russia. Escalating demand for imported timber may be stimulated by the Government's decision to restrict domestic logging. As well as the legality of timber and trade restrictions.
Among various economic factors influencing timber industry (economic development, interest rates, consumption) Russian timber industry is affected by trade barriers, rising expenses on transportation and illegal procedures at the customs markets.
We also found social factors influencing timber industry: employment, housing boom, public pressure.
For a long time, Russian timber processing industry has relied on mobilizing reserves of processing equipment purchased abroad 25-30 years ago. But introduction of products-substitutes, genetic engineering programs and high yielding clones will help to reduce deforestation.
CHAPTER III Critical Analysis of the Timber Industry
Timber industry will be critically analysed in this chapter. In order to do it, first, we will observe economic affect of issue on regional industry. Then, we will proceed to challenges the industry faces regionally due to environmental. And after pointing out problems and challenges we will make suggestions for present-time situation and in perspective.
3.1 Economic affect of issue on regional industry to date
Environmental trends alter the economy of timber industry. This section examines changes in the economic profile of timber harvesting and processing and economic affects of environmental issue on timber industry.
Economic influence of ecological issues is of great importance for such countries as Russia, for example, where over 49% of territory (809 mln ha) is covered with forest and by now timber industry is one of the biggest income items in the government budget.
Russia is also one of the greatest exporters in the world with approximately 18 million m3 of sawn softwood of export volume. On Figure 1 one can see supply and demand of sawn softwood in Russia within the previous decade .
Fig.1. Supply and Demand of Sawn Softwood in Russia, 1999 - 2010e
If Russia stops exporting wood on which many countries depend on, there will be great shortage of timber products, which should be either substituted by other materials or exported from other countries. And now with the increase of public concern over forest resources, level of timber export may become less. Or timber production may rise in its value, as more and more timber companies fight with deforestation, illegal logging, clearcutting, and connected with it soil erosion and growth of CO2 in the atmosphere - all this largely influences the end price of timber production. Export markets for timber production are increasing with pricing as a main factor.
Environmental issues have become recognized as an international problem affecting most countries worldwide. Timber companies have become the centre of increasing attention from government officials at the federal and regional levels. They are forced to do several steps to mitigate deforestation, soil erosion and emission of CO2.
Countries may impose import bans on illegal or endangered timber, hence, timber companies sustain losses. For example, in the late 1980s there was a ban on export of 14 endangered timber species from Ghana. In 1988 there was logging ban in Thailand following severe flooding in logged areas.
Ecological issue in connection with forest includes such problems as deforestation that leads to lessening volumes of forests, resulting in more CO2 emissions, soil erosion, disappearance of flora and fauna and indigenous people.
Economic affect of deforestation
Diminishing volume of wood makes governments use programs observing deforestation (especially illegal, i.e. harvested, transported, bought or sold wood with violation of national laws and permit conditions), and companies - to use re-cycling facilities which is quite expensive.
Timber recycling or Wood recycling “is the process of turning waste timber into usable products” . Timber started to be recycled in the beginning of 1990s. People decided to use this source of timber because it is good for environment.
As a result of fight with deforestation, sustainable development, sustained income for local communities, water-shed protection, biodiversity conservation, protection of fisheries, reduction of runoff, siltation, and flooding can be obtained.
Example includes Jiangsu company that spent 350 mln $ on recycling technologies in 2004 .
Recycling automation, which can be put in action at plants, is expensive. Although from ecological point of view, recycling results in less wood consumption.
Companies spend their finances on replanting of forests and growing forest plantations, because they understand that no timber products are available for a long time after clear-cutting and deforestation. In the near future wood supplies from natives forests may decline, hence most of wood supplies will come from such plantation forests.
In 1998 in China there was a ban on wood harvesting. All the remaining natural forest was young and significant for legal logging. Plantation forests do not yet provide sufficient quantities of fibre to satisfy demand. That is why since those times China has become mostly timber importer.
American company Plum Creek that believes in three principles: Replanting, Protecting Water Quality, and Managing Wildlife Habitat replants about 85 million seedlings, besides that it tries to regenerate millions of trees every year. Plum Creek aims to conserve habitat of 2,000,000 acres of land and also conserve grizzly bear.
Another example includes British Columbia, where each year about 200 million seedlings are planted in order to reforest area after logging, wildfire or insect infestations.
British Columbia's Forest and Range Practices Act is another model for forest management regulation.
Canada and the United States manage forests sustainably, ensuring they are there for future generations to be used for the many things that society values; including recreation, wildlife habitat, biodiversity, and forest products. All major forest certification programs in North America are recognized by companies and governments around the world.
Forest companies licensed to harvest public land in British Columba reforest each site with native species suited to meet local and anticipated future ecological conditions. They remain responsible for a harvested area until there is assurance it will grow into a new, healthy forest.
Resource managers maintain diversity, often by planting three to five tree species on a site and combining this with natural regeneration.
One more example: “one of the largest plywood producers in Paragominas has initiated a plantation of a fast growing leguminous tree” . Density is 625 trees/ha. The firm estimated than within eight years each tree would produce 1m3 of wood useable for making plywood.
At that time cost was US$30/m3 for the white and soft woods peeled to make plywood laminates. So, the net value of their plantation was about US$2,800/ha. If the trees yield as expected, the internal rate of return (37%) was estimated to be well above the opportunity cost of capital. Given the abundance of relatively cheap land in the Paragominas region, plantation forestry could become an attractive investment for mill owners as the native forests were cut and cleared.
Economic affect of pollution
Timber industry is also one of main pollutants into the atmosphere. That is why timber companies are forced to reduce the amounts of pollutants.
Researchers at the University of Massachusetts Amherst have identified American company Weyerhaeuser as the “63rd-largest corporate producer of air pollution in the United States” . This company, according to estimations, release 17.5 million pounds of toxic air including formaldehyde, also acetaldehyde and some other substances that are considered to be pollutants (sulfuric acid, manganese compounds, etc).
Countries-members of The Kyoto Protocol and other treaties were to stabilize the emission of greenhouse gas concentrations in the atmosphere. Plants need less polluting technologies, carbon capture and storage (a process that traps CO2 produced by factories and gas or coal power stations and then stores it), increased use of renewable energy, enhanced energy efficiency.
As discussed on page 10, companies spend money on enhancement of sewage and rubbish treatment facilities and prevention of water pollution, pollution control projects, acceleration of green belt and natural forest planting programs, increase of energy conservation initiatives.
In 2001, Plum Creek installed a new biofilter. It uses “naturally occurring bacteria to destroy air pollutants that are generated in the wood fiber drying and pressing processes” . The advantage of this biofilter is that natural gas is not burnt in order to destroy pollutants.
Large industrialized cities require regular supplies of good clean water, both for human consumption and industrial use. Much of this must be supplied by reservoirs, but will rapidly the silting should be controlled. This all points to the need for intelligent management of the upper watersheds that are generally forest range zones. Often these zones are already degraded owing to excessive exploitation of trees or overgrazing and need to be rehabilitated, which in turn means, if not closure and reforestation, at least better utilization of the forest and range resources of the whole basins. “Then cities, as they grow larger, require "green belts" around or even within their boundaries to provide healthy surroundings and recreational facilities; all modern town planning takes this into account”.
As a response to soil environment issue companies adopt skidders, used to extract timber from the forests. As it runs on rubber tires, it causes less damage to the soil than bulldozers. The main motivation for firms, however, is that it can also lower operating costs by enabling loggers to retrieve felled trees from longer distances.
Limiting the negative environmental impacts of extraction and ensuring the future productivity of the Brazil's forest depends largely on how forests are managed. Technically, forest management is feasible. The most efficient means of limiting logging damage and improving the productivity of the stand are:
1. cutting vines one year before the harvest;
2. locating harvestable trees, and planning extraction routes and felling direction; and
3. periodic thinning and vine-cutting to open up growing space for desirable trees.
VBMTU estimate the costs of these treatments at 25, 20, and 135US$/ha, respectively . But there are some problems in connection with this program management plan. First - the short planning horizon that many firms have. The right to clear forest tracts is generally purchased in the same year as they are harvested. Purchasing one year in advance to cut vines or take an inventory implies extra capital costs with no foreseeable return (although it may be in the interest of land owners to allow or request vine thinning on their land). Second, few individuals are trained in low-impact extraction techniques.
3.2 Challenges the industry faces regionally due to environmental
Awareness of environment issues especially connected with timber companies' activity influences further timber industry development.
Deforestation in some areas leads to intensive exploitation of wood resources in other areas. Mostly often such areas and countries are perceived only as raw appendage. Other countries buy timber at low prices and start to process it on their own territory.
Usually wood processing consists of several stages (see Fig.3) .
Fig. 2. Wood Product Flows in the Forest Processing Industry
Primary wood processing includes transformation of logs into primary timber products (sawnwood, veneer and plywood).
Another product of primary wood processing is pulpwood - timber which is used in paper production.
Different types of wood are suitable for different purposes. Most of the coniferous timber is used in the construction industry and for interior decoration. But hardwood timber is used in production of furniture and flooring.
One of the challenges with soft wood processing is that only 25 % of biomass is used in timber process. Branches, bark and bough are not used.
Besides that Russian forests, which are rich in biomass, are under threat. Many species of plants and animals, which are extinct or endangered, inhibit these forests. There still remain intact forests, which serve as ecosystems for research by ecologists.
Secondary processing: manufacture of higher value added products (joinery and furniture).
Third-level timber markets are small-scale retail markets situated all around the country. At local markets, especially in small- and medium-sized cities, they provide semi-processed products. Small quantities of wood are used to manufacture wooden toys, stationery, as well as core material for some kinds of floors.
Eastern Siberia and the southern Russian Far East are the main timber resources in the Russian Federation. The southernmost parts of Eastern Siberia and Russian Far East are the main timber-producing regions for export to the neighboring countries of Northeast Asia, including China, Japan and the Republic of Korea. North European Forests are the main import product for Scandinavian countries.
The timber production process in Russia can be divided into three main phases: 1) harvesting/logging; 2) transportation to wholesalers (traders) or processors; and 3) customs clearance and transportation abroad.
Major operators involved in this production process include commercial harvesters (long-term lease holders), non-commercial loggers (short-term or one-time lease holders), illegal loggers (no lease at all), traders and processors, and export agents and authorized export carriers.
At the Sixth Conference of the Parties to the Convention on Biological Diversity (2002), the term `illegal forest activity' was broadened, now including timber transportation, processing, and associated trade. As discussed at the Conference, illegal (unlawful) logging includes: “logging protected species; falsifying logging permits; damaging trees to obtain legal rights to cut them; contracting companies to log protected areas; logging outside concession's boundaries or on lands where logging is prohibited, such as steep slopes, river banks, watersheds; obtaining concessions through bribes; intentional arson of forest areas; illegal transportation and timber trade; illegal financial operations associated with logging, transportation and trade” .
The challenge of current situation around timber industry in Russia is illegal forest activity. Because it has the following impacts:
1) No royalties, taxes, or other premiums are paid by logging companies for illegally harvested wood. That is why forests are not properly managed (not enough funds). It reaches 1.5 billion roubles every year. The Chamber of the Russian Federation noted in its report in 2000, “Efficiency of Forest Resource Use of the Russian Federation,” that “control of incomes generated from forest use was very ineffective” . As of January 1, 2001, forest users had evaded 1.3 million roubles in fees. In Russia, nearly 20 million out of 80 million ha of exploitable forest are not properly reforested. Because of that structure of the forests degrades, high quality timber stands decrease and low quality stands increase.
2) Degradation of forests and lands.
3) Bad wood remains on place resulting in forest fires.
One more challenge of timber industry is export of roundwood. Lack of processing equipment results in illegal harvesting and trade of roundwood.
Roundwood Harvests in Russia, its export, import and domestic consumption, is seen on Figure 3 (UNECE database 16.03.2010) .
Fig.3. Roundwood Harvests in Russia
According to Russian Federal State Statistics Service Industrial Production is as follows:
Forestry industry production in 2009 represented only 89 % of the previous year. For the wood industry, the share for 2009 was 82 % of 2008. The largest drop was in the wood products industry, since the pulp-and-paper industry fell only 2 % from the previous year .
Russian sawn softwood output continued to decline (-12.8% or 2.5 m3). The year before situation was the same. But in 2007 it was peaking (21.3 million m3). However, exports increased by almost a million cubic meters, all in all in 2009 it was 18.2 million m3 .
On Figure 4 one can see volumes of exports of sawn softwood (i.e. wood from trees that are known as gymnosperms, which is the source of about 80% of the world's production of timber) from Russia to other countries within a past decade .
Fig. 4. Exports of Sawn Softwood from Russia, 1999-2010
During the last ten years, there has been a dramatic change in the structure of Russian exports. The European market used to be the dominant market, but its share has decreased constantly. For example, Russian export of forest products to Sweden decreased because to economy instability in 2001. Roundwood has prevailed in the export for all these years (second item - plywood), with the share increased.
As for Japan (which is considered to be another high end market and accounted for 4 % of exports from Russia in 2009), the volumes of export were rather stable within 10 year period.
Middle East, North Africa and Central Asian countries (MENA region) and China have increased their combined share to approximately two thirds of the total export volume.
Russian government's policy to boost gross domestic product leads to intensification of timber industry. When Chinese government banned cutting of forests in 1998 it started to import wood from Russia, especially from Siberia. It is worth mentioning that boreal forest of Eastern Siberian and (RFE) forests play a vital role as a carbon sink and in the mitigation of global warming. They occupy over 70% of Siberia and include such coniferous species as larch, spruce, fir, and pine and birch.
Often this activity was illegal, because Chinese companies paid cash for Russian timber. Corruption in the sphere of timber management has a bad consequence: the volumes of timber export from Russia increased, thus leading to intensified deforestation.
Both the Khabarovskiy and Primorskiy Krays border China and over half of their exports go to China. According to official statistics and customs data, “in Khabarovskiy Kray the deficit between legal industrial roundwood production and domestic consumption and export was 1,874,000 m2 in 2003. This means that at least 25% of all logs exported from Khabarovskiy Kray are of illegal origin, according to WWF-Russia report” .
The most serious problems are related to logging and export of timber from Korean pine broadleaved forests, some of the most biodiversityу forests in all of Russia and located along the Russia-China border and the coast of the Sea of Japan. These forests are in close proximity to settlements and are of great commercial logging value.
According to Russian logging regulations, the most valuable and rare forests, such as Korean pine forests and forests in riparian areas, are protected as Group I forests. “Thus, they are prohibited for commercial logging, but open to thinning (salvage cutting, anti-fire measures, etc.) or preparatory cutting (road building, etc). Hence, thinning becomes a loophole for legalizing the export of rare Korean pine, although its commercial logging is severely forbidden by federal law”.
Most of these small exporters have no significant production and export infrastructure. They are intermediaries. Usually such exporters want only quick profit, they do not pay attention to environmental issues. This led to decrease of prices for Russian timber since 1999: it was coordinated by importers from China and so-called Russian traders.
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