Kari Kangas and Anders Baudin

Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003

European Forest Sector Outlook Studies (EFSOS)

OUTLOOK FOR LONG-TERM SUPPLY AND DEMND FOR FOREST

PRODUCTS ON THE EUROPEAN

FOREST SECTOR OUTLOOK STUDIES

Kari Kangas and Anders Baudin



EFSOS – the European Forest Sector Outlook studies

Part of the activities of the Timber Committe

A next step taken from the European Timber Trends Studies (ETTS) - a history from 1953

to 1996



General objectives

A tool for policy analysis, forest management and industrial decision making

(i) To present the outlook for European demand for forest products

(ii) To present the outlook for supply of roundwood from European forests

(iii) to present the outlook for the balance between timber supply and demand



Methodologies


European Forest Sector Outlook Studies (EFSOS)Two Approaches to the Analysis of Demand and

Supply (a) a multiple equation model of demand (two equations) and supply (one equation), estimated for the countries that are the larger markets and/or major producers of forest products in Europe (Group I)

(b) two single-equation models of demand (apparent consumption), estimated for the other countries in west/central Europe (Group II) and two single-equation models estimated for former east bloc countries (Group III). A time series cross section approach



Country GroupingsGroup I: Demand and supply models estimatedAustria, Finland, France, Germany, Italy, Norway, Spain, Sweden,

United Kingdom

Group II: Demand models estimatedGroup II aBelgium-Luxembourg, Denmark, Netherlands, SwitzerlandGroup II bGreece, Ireland, Portugal, Turkey

Group III: Demand models estimatedGroup III aCzech Republic, Hungary, Poland, Russia, UkraineGroup III bAlbania, Belarus, Bosnia, Bulgaria, Croatia, Estonia, Hungary, Latvia,

Lithuania, The FYR of Macedonia, Slovakia, Slovenia, Yugoslavia



Product groups

SawnwoodConiferous Non-coniferous

Wood-based panelsPlywood Particleboard Fibreboard

Pulp and paperPulpRecycled paper Wood pulp

PaperNewsprint Printing & writing paper Other paper & board



Traditional Approach (Buongiorno a

o):

CONSUMPTION = fn (Pd, Pm, X); and (1)

PRODUCTION = fn (Pd, Px, Z) (2)

where Pd is the price of domestically-produced goods, Pm is the price of imports, Px is the price of exports, X is additional factors that determine demand (demand shifters), and Z is additional factors that determine supply (supply shifters)


European Forest Sector Outlook Studies (EFSOS) The multiple-equation model of demand and

supply (a variant of an approach by Goldstein

and Kahn) Expanding equations (1) and (2) to reflect the components of consumption and production yields the following:

QDD = f(Pd, Pm, DD) (3)

QM = f(Pd, Pm, DM) (4)

QDS = f(Pd, Px, S

D) (5)

QX = f(Pd, Px, SX) (6)

where QDD is demand for

domestically-produced products, QM is import demand,

QM is import demand,

QDS is production (supply) for

domestic markets (QDS = QD

D), QX is production for export markets,

Pd is the price in domestic markets,

Pm is import price,

Px is export price, DD are demand shifters for the domestic market, DM are demand shifters for import demand, SD are supply shifters for the domestic market and SX are supply shifters for the export market



Advantages

I. Demand and supply models are given in a consistent framework

II. The problems with the traditional supply modeling are avoided

III. An important aspect of (potential) substitution behavior can be directly examined. In both equations, the alternative source of supply may be a substitute, a relationship that would be indicated by positive cross-price elasticities

IV. The equations are consistent with demand models in the framework of ETTS, and those found in the general literature, with the exception that multiple prices are used instead of a single price



Advantages

V. In (3), domestic price ("own price") is expected to have a negative sign, the sign on import price can be either positive (indicating substitution) or negative (complementarity). Similar expectations hold for the signs on prices in equation (4); import price should have a negative sign, and domestic price may have either a positive or a negative sign.

VI. Projections of Apparent Consumption are given as the sum of (3) and (4) and Production as the sum of (3) and (6)

Similar arguments hold for equations (5) and (6)



Models of Forest Products Demand in Country Groups II

and III A traditional time series cross section approach

QT = fn (Pm, GDP, QT-1) (7)

where QT is apparent consumption,

Pm is import price (unit value) and GDP is gross domestic product.

Import unit values in domestic, deflated currencies are converted to an index basis. Real GDP and consumption for each country also are converted to indexes to adjust for scale differences in currencies, and levels of consumption



Timber Statistical Database and other statistical sources



Some Demand Elasticities

NewsprintDomestic price Import price Income Domestic price Import price Income

France -0.306 0.753 0.24 -0.503 1.809

Germany -0.364 1.96 0.11 -0.372 0.925

United Kingdom -1.02 0.255 -0.076 0.664

Domestic demand Import demandNewsprintDomestic price Import price Income Domestic price Import price Income

France -0.306 0.753 0.24 -0.503 1.809

Germany -0.364 1.96 0.11 -0.372 0.925

United Kingdom -1.02 0.255 -0.076 0.664

Domestic demand Import demand

ParticleboardDomestic price Import price Income Domestic price Import price Income

France -0.346 0.393 1.122 0.804 -0.174 0.906

Germany -0.733 1.169 0.548 -0.335 0.729

United Kingdom 0.179 -0.656 0.392

Domestic demand Import demandParticleboardDomestic price Import price Income Domestic price Import price Income

France -0.346 0.393 1.122 0.804 -0.174 0.906

Germany -0.733 1.169 0.548 -0.335 0.729

United Kingdom 0.179 -0.656 0.392

Domestic demand Import demand



Consumption of Sawnwood in Western Europe

0

20000

40000

60000

80000

100000

120000

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

Un

it 1

00

0

Observed

Forecast

Consumption of Sawnwood in Western Europe

0

20000

40000

60000

80000

100000

120000

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

Un

it 1

00

0

Observed

Forecast

Growth rate, %/a2010 1.12020 1.02030 0.8

Growth rate, %/a2010 1.12020 1.02030 0.8



Consumption of Wood-based Panels in Western Europe

0

10000

20000

30000

40000

50000

60000

70000

80000

19

60

19

65

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

20

10

20

15

20

20

20

25

20

30

Un

it 1

00

0

Observed

Forecast

Consumption of Wood-based Panels in Western Europe

0

10000

20000

30000

40000

50000

60000

70000

80000

19

60

19

65

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

20

10

20

15

20

20

20

25

20

30

Un

it 1

00

0

Observed

Forecast

Growth rate, %/a2010 2.22020 1.82030 1.5

Growth rate, %/a2010 2.22020 1.82030 1.5



Consumption of Paper and Board in Western Europe

0

20000

40000

60000

80000

100000

120000

140000

160000

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

Un

it 1

000

Observed

Forecast

Consumption of Paper and Board in Western Europe

0

20000

40000

60000

80000

100000

120000

140000

160000

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

Un

it 1

000

Observed

Forecast

Growth rate, %/a2010 2.72020 2.42030 1.9

Growth rate, %/a2010 2.72020 2.42030 1.9



Three scenarios

- Baseline scenario (based on forecast input from NOBE)

- Alternative scenario I: Increasing conservation, environmental regulation and public awareness

- Alternative scenario II: European integration and market liberalisation



The baseline scenario

Projections taking into consideration:- General economic development

- Demographic deveolpment- Construction

- Paper recovery



Key figures form baseline (base), conservation (I) and integration (II) scenarios

EU/EFTA CEEC CIS

Base I II Base I II Base I II GDP growth, %/a 2.2 1.7 2.6 4.3 2.8 5.4 4.6 2.7 6.0

Consumption growth, %/a Sawnwood 0.8 0.4 1.2 2.0 1.3 2.7 4.4 2.3

5.7 Panels 1.6 0.9 2.4 3.0 2.0 3.9 5.1 2.9

6.8 Paper and board 2.1 1.4 2.8 4.2 2.7 5.4 5.2 2.8

6.8



Key figures form baseline (base), conservation (I) and integration (II) scenarios – net trade in

2030(million cum and million metric tons)

EU/EFTA CEEC CIS

Base I II Base I II Base I II

Sawnwood -7.7 -7.1 -8.8 14.8 13.1 16.8 32.5

17.0 49.2 Panels 0.5 2.5 -2.9 1.6 2.9 0.5 4.3

2.5 6.5 Paper and board 3.6 7.4 -1.6 -4.9 -2.8 -7.6 6.8

3.4 10.2

Kari Kangas and Anders Baudin

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