CINTRAFOR Working Papers

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Forest Certification and its Influence on the Forest Products Industry in China
(12/1/2007) Yuan, Yuan; Eastin, Ivan
Forest certification is becoming an important issue within the forest products industry and also a new trend in forest products markets. Although forest certification was initiated to confront the severe deforestation of tropical rain forests, certified forests are unbalanced in geographical locations, with 60% of certified forests being located in North America and 36% in Europe in 2006. The end markets for certified forest products, especially certified wood products, are also concentrated in European countries (particularly the United Kingdom, Germany, Belgium and the Netherlands) and North America, because the price premium for environmentally friendly products is only available in these mature and value-added markets. In manufacturing, countries such as Germany, Italy, the Netherlands, Poland, United States, Brazil, Japan and China are competitive in the area of certified wood products. China is attracting more attention for its increased use of certified timber in wood products manufacturing. In accordance with its leading status in traditional labor intensive manufacturing industries, the Chinese forest products industry has an advantage in low cost labor, convenient infrastructure, and favorable export trading policies. The number of Chain-of-Custody (CoC) certified companies, mostly wood products manufacturers, soared between 2004 and 2006, reaching 200 by the end of 2006. Certification of forest farms in China, however, has been relatively slow and difficult, with only four forests (less than 1% of all the FSC certified forest area in the world) having obtained Forest Management (FM) certification by 2006, representing a total area of 439,630 ha. This study consists of two sections: a case study of a certified state-owned forest farm and its downstream wood products manufacturers located in Northeast China, and an email survey of all FM/CoC and CoC certified companies in China, including manufacturers, forest farms with wood mills, and traders. Unless mentioned specifically, FSC is the default forest certification program in China because of its widespread use within the country (to the virtual exclusion of all other certification programs). Case Study Youhao Forest Bureau is currently the largest certified forest farm in China with two associated certified furniture manufacturers, Hualong and Huali factories, mainly supplying solid wood furniture for IKEA. The certification of Youhao’s forest farms and the Hualong and Huali factories helped to maintain product orders from IKEA, which has committed itself to sourcing its wood materials from certified forests through the four steps of the IKEA Forest Action Plan (FAP). Although the high cost of certification determines that profits from certified wood products are often lower than non-certified wood products, both the forest farms and manufacturers view certification as a new trend in the forest products industry, and hope the niche market for certified wood products will grow in the future, assuring a higher price premium. Governmental administration played an important role in the certification of Youhao through administrative commands and favorable policies. As a country with diverse forest resources, China’s central and local governments actively initiated forest certification, took part in the process of certifying two important state-owned forest farms, organized training projects on forest certification in several more state-owned forest farms after Youhao and Baihe’s certification, and drafted the “Criteria and Principles of Forest Certification for China”. While these actions made certification favorable for state-owned forests, complicated forestry property rights reform and unstable tenure length represent significant obstacles to the certification of privately owned forests. Survey Results A survey of all the FSC (CoC) certified companies in China was conducted to investigate the basic issues related to forest and chain-of-custody certification and their influence on the international trade of forest products in China. Although there are only 200 certified companies, a general pattern on this new trend within the industry was obtained. Out of the population of 200 companies, 41 usable responses formed the sample of certified companies, including 2 forest farms with wood mills, 31 wood products manufacturers, and 8 trading companies. Most of the certified companies in China are located along the eastern and southern coast of China, from Guangdong Province to Jiangsu Province. Nearly half of the companies (46.3%) are domestic private companies, and 29.3% are wholly foreign-owned enterprises. More than half of the companies (53.7%) have over 500 employees, indicating a labor intensive production process. Evaluated by annual sales, more than half of the companies (51.2%) achieved annual sales of more than US$13 million (RMB￥100 million) in 2006, which can be viewed as medium to large sized companies. Product mix of certified wood products The mix of certified wood products made by survey respondents can be divided into ten major categories: indoor furniture and accessories, craft products, stationeries and toys, outdoor furniture and accessories, wood material, garden and BBQ tools, flooring, doors and windows, logs, pulp and paper, and others. Most of the certified wood products are small piece, uni-material, finished products. This is natural as large, mutil-material, semi-finished products would increase the complexity of production, management and the percentage calculation according to CoC requirements. End markets for certified wood products The two biggest export markets for certified wood products were Europe and the United States, accounting for 54.6% and 29.8% of exports respectively. The giant DIY chain stores such as Home Depot and BandQ are important retail markets for certified wood products. Furniture retailers, pulp and paper companies, public procurement by governments, and other users form a niche market for these products. A recent report showed that from 1999 to 2000, annual sales of all certified wood products by retailers in Britain increased from £351 million (1.8% of total forest products annual sales) to £629 million (3.4% of total forest products sales). No similar data was found for the United States. Certified wood raw materials The US is currently the most important source of certified wood raw materials for wood products manufacturers in China, with 24.9% of certified wood originating from the US. Other countries supplying certified wood raw materials are New Zealand (with 18.5%), Brazil (12.4%), and European countries (10.8%). Domestic forest farms in China supply about 14.5% of the raw material mix for domestic manufacturers. The species of certified wood is almost evenly distributed among conifer species, tropical broadleaf species and semitropical/temperate broadleaf species. More than half (56.4%) of the companies in China indicated that they are now facing a shortage of supply for certified wood raw materials. Cost and benefit analysis The costs and benefits of using certified wood products is inevitably the critical problem confronting all certified companies. The issue of profitability can be viewed from several different perspectives: the market share of certified wood products; the market growth rate; the increased cost of certified wood; the small price premium obtained for certified wood products; and the lower profit margin for certified wood products relative to non-certified wood products. The profitability of certified wood products will influence both the short-term and long-term marketing strategies of companies considering selling certified wood products. The market for certified wood products in the world is relatively small, and the total sales of these products by all the certified companies in China were estimated to be around US$697 million. The market for certified wood products is growing, with nearly 39% of the sampled companies reporting that their sales increased about 22.7% between 2005 and 2006, while just 2.4% of companies’ reported that their sales decreased. There are increased costs that contribute to the higher price of certified raw materials, including the cost of certification (both the initial evaluation and a semiannual audit fee) and the cost of production updating and management adjustment for certification. The increased cost of using certified raw materials is the most significant cost factor, with the average price of certified wood being 22.3% higher than non-certified wood. The cost of certification varies dramatically between forest farms gaining forest management certification and wood products manufacturers obtaining CoC certification. The cost of certification for forest farms was reported to be about ten times higher than the cost of certification for manufacturers. The average cost of certification for all certified companies including the two forest farms was about $9,037 per year, while the average cost of certification without the forest farms was around $5,912 per year. However, it is important to note that the annual cost CoC certification is likely to decline over time as the initial adjustments in management and manufacturing practices that are required for certification are implemented and they become part of the routine operating procedures for the companies. Certified companies obtained an average 6.3% price premium for certified wood products in European markets, a 5.1% price premium in the United States and a 1.5% price premium in Canada. About 24.4% of the companies reported that the profit margin for certified wood products was 6.7% higher than for non-certified wood products, while 39.0% of the companies reported a loss of about 5.6%. The profit margin for certified wood products is highly dependent on the price premium companies can achieve. A simple linear regression model was developed to estimate the profit margin based on the price premium. The regression model results suggest that as long as the price premium obtained for certified wood products exceeds 11% (relative to non-certified wood products), the profit margin for certified wood products will exceed that of non-certified wood products. Attitudinal evaluation on certification Certified companies expressed a positive attitude towards most of the survey statements regarding forest certification and its influence on the industry. Statements viewed positively included the belief that certification can help companies enter new markets (especially markets in Europe and North America); certification can help maintain a company’s existing markets if new requirements on environmental issues are implemented; certification is helpful in enhancing the competitiveness and public image of companies; and companies were optimistic about the increased market share and profits that would be generated from selling certified wood products over the next two years. This study focused on FSC certification in China because there were only four companies that had received certification from programs other than FSC (i.e. PEFC). Therefore, FSC is currently the dominant certification program in China for the forest products industry. The survey respondents were asked an open-ended question about their reasons for choosing FSC certification, and their reasons can be summarized into three main categories: specific requirements dictated by their buyers; specific strategies companies took for entry into new markets; and FSC’s highly credible reputation. Current problems Some common problems that certified companies in China face relate to the cost and supply of certified wood raw materials. Lacking domestic accredited certification bodies not only increases the cost of certification, but also hinders the improved communication and training among foresters and manufacturers about certification issues. Due to the supply shortage of certified wood, companies have to communicate with importers more efficiently to obtain reliable information about the origin and supply of certified wood from foreign countries. Although domestic forest farms are in the process of being certified, which may alleviate the dependence on imported raw materials to some extent, the complexity and ambiguity of the forestry property rights reforms being considered and implemented in China will slow the privatization and consolidation of local forests, and further impede the process of certifying private forests.
A Characterization Of The Residential Deck Market In The Us
(1/1/2001) Shook, Steven R.; Eastin, Ivan L.; Fleishman, Samuel J.
Approximately 85 percent of all single family homes in the US include a deck or deck-like structure (e.g., patio, porch, or balcony), which is equivalent to roughly 30 million decks. Sixty percent of all new homes are constructed with a deck, while nearly 2.75 million decks are replaced on an annual basis (the average deck has a life expectancy of about eleven years). Furthermore, slightly over 4 percent of all households add a deck to their home on an annual basis, resulting in another 3 million new decks. Collectively, over 6.5 million new decks have been constructed throughout the US on an annual basis since 1995, which represents approximately $3 billion spent annually in deck materials. During the decade of the 1990s, the deck market grew at an average annual rate of 8.1 percent. Assuming a constant rate of growth of 8.1 percent, the deck market in 2010 could be as large as $6.5 billion. Despite the enormous size and healthy growth of the residential deck market in the US, very little research has been conducted evaluating consumer perceptions of the various deck materials available to them in the market. The objective of this study was to review secondary information regarding the residential deck material market in the US. Additionally, a survey of residential homebuilders in the US was conducted to characterize the industry’s use of various deck materials, as well as to assess the industry’s perceptions of these deck materials.
International Timberland Investments: Linking the Mean-Variance Approach to Country Assessments
(10/1/2001) Turner, William J.
Given the entrance of institutional investors such as pension funds, onto the timberland ownership scene, timberland as an asset is viewed differently now than it was in the past. Traditional asset management practices based on the portfolio selection framework are chiefly responsible for demonstrating the diversification benefits of U.S. timberland investments. This research evaluates international timberland investments by utilizing traditional asset allocation practices and individual country assessments. Asset performance descriptive statistics are documented for the sample (1981-1998) and an analysis of correlation between international timberland investments and assets of portfolios of U.S. pension funds (e.g. stocks, bonds, treasury bills) is conducted in order to gauge basic asset return relationships. The correlation analysis is followed by a portfolio selection process and then the study addresses characteristics specific to international investments, such as foreign currency exchange issues and qualitatively assessing countries risk characteristics as they specifically relate to international timberland investments. When analyzing international timberland investments, a distinction is be made regarding the treatment of currency exchange. Two, separate international timberland asset classes are considered. One includes returns influenced by changing exchange rates and is based on a return in U.S. Dollars. The other international timberland asset class only considers the returns in the foreign currency and attempts to eliminate exchange rate effects through hedging. The underlying research objective is to demonstrate the effects of investors adding international timberland investments to an investment portfolio by including an examination of currency exchange effects and an assessment of country-specific risk characteristics.
Niche Market Opportunities for Alaska Forest Products in Japan (2005 Update)
(12/1/2005) Sasatani, Daisuke; Roos, Joseph A.; Brackley, Allen M.; Eastin, Ivan L.
Alaska exports to Japan decreased dramatically during the 1990’s. This decline was caused by a variety of factors including the Japanese recession, a reduced Alaska timber supply, exchange rates, a market shift from green lumber to kiln dried lumber, and increased global competition. However, in 2005 Japan’s GDP, stock market, real estate, and consumer price index were up from the previous year indicating a strong economic recovery. Furthermore, the U.S. Dollar has weakened against the Japanese yen and many economists predict that the U.S. Dollar will continue to decline against the yen due to historically high U.S. fiscal and trade deficits. This will give Japanese companies more purchasing power for U.S. forest products. In addition to economic changes, Japan’s demographics are changing rapidly. In the first half of 2005, Japan’s net population decreased and the population will continue to decline to the 1960’s level of 100 million by 2050. While Japan’s general population is decreasing, the percentage of population over 65 is growing rapidly as the baby boomers reach retirement age. According to a survey published in the Nikkei Weekly Newspaper, one area baby boomers expect to spend money on when they retire is their house. The total size of Japan’s remodel market was 7.0 trillion yen (US$ 60.3 billion) in 2003. The remodel market increased in 2003 and is predicted to increase as more baby boomers retire. As explained above, the Japanese market has shifted from green lumber to kiln dried lumber. Alaska has more than doubled their kiln dry capacity since the late 1990’s and this opens up Japan’s kiln dried lumber market. Additionally, the Ketchikan Wood Technology Center has established Alaska-specific lumber grade marks to differentiate Alaska timber species’ unique characteristics. The Japanese market has always valued quality and there is now an opportunity to communicate Alaska lumber quality by promoting these new grade marks in Japan. The results of this research suggest that many niche markets exist for Alaska forest products: 1. Tract housing power builders Tract housing developments built by a new category of builder called “power builders” have increased in Japan’s urban areas. This is a growing market segment in Japan and these power builders are large enough to import Alaska forest products in large quantities. 2. Kiln dried lumber Alaska has substantially increased its kiln dried lumber capacity recently. Japan’s ten year warranty building requirement has increased demand for kiln dried lumber. There is ample demand for kiln dried lumber in both the 2x4 and post and beam housing markets. 3. Lamstock market There has been an increase in demand for engineered wood and the number of Japanese glulam manufacturers. The results of the Ketchikan Wood Technology Center Alaska species testing program have shown Alaska lumber has superior strength properties compared with many other species making it suitable for lamstock. 4. Pre-cut lumber market Almost 75 percent of Japanese post and beam starts used pre-cut lumber. Japan’s pre-cut lumber mills are a strong market to target with lumber sizes that could be used with their pre-cut lumber machines. The lumber sizes vary based on the application. 5. Alaska yellow-cedar for sill plate (dodai) Due to its natural decay resistant properties, Alaska yellow-cedar is very popular for sill plates and other structural lumber used in ground contact applications in Japan. 6. Alaska yellow-cedar for garden accessories and tubs Alaska yellow-cedar’s decay resistant properties make it an excellent species for outdoor garden accessories such as decking and decking accessories, benches, gazebos, and lattice. As explained earlier, there are a lot of retirees in Japan and this number will be increasing. Many retirees spend more time in their gardens and the demand for garden accessories is expected to increase. Also, Alaska yellow-cedar is considered a substitute for hinoki, (Japanese falsecypress). Japanese people traditionally take a bath daily. Soaking tubs are especially popular in Japan and most detached houses have one. An Alaska yellow-cedar tub could be developed and positioned as an upscale alternative to a hinoki tub. 7. Home improvement market for retirees Japan’s baby boomers are approaching retirement age. Many Japanese retiring workers receive a large lump sum payment, which they often use to improve their house. The senior home improvement market is expected to grow substantially as baby boomers start to retire. 8. Remodel market The remodeling market is expanding. There is an opportunity for lumber producers to collaborate with builders specializing in remodels, architects, and designers to develop higher quality products to sell to Japan. 9. Wood Chips It has been estimated that over 2.3 million acres of timber have been affected in the Kenai Peninsula by the spruce bark beetle. One potential application for beetled killed spruce is wood chips. Japan has one of the largest pulp and paper markets in the world. 10. Gift Market Japan’s gift market has strong potential for smaller wood products and craft items. This market offers tremendous opportunity for smaller wood products that can be packaged and shipped easily. It would also make the gift more attractive if wood items are bundled with other “made in Alaska” items, such as smoked salmon. 11. Brand Strategy As described above, the Ketchikan Wood Technology Center has registered proprietary grade marks for Alaska species. These grade marks are “Alaska Hem”, “Alaska Yellow Cedar”, and “Alaska Spruce”. These three grade marks should be developed into a brand that communicates the quality of Alaska forest products to forest products manufacturers, pre-cutters, and homebuilders.
Trends in the Japanese Market for Forest Products: Implications for Alaska
(8/1/2008) Roos, Joseph A.; Sasatani, Daisuke; Barber, Valerie; Eastin, Ivan
With the U.S. housing market at a seventeen year low, it is becoming increasingly important to find global markets for U.S. forest products. One market that values Alaska forest products and offers tremendous opportunity is Japan. However, due to a previously strong U.S. Dollar, increased competition from Europe, and other factors, Alaska forest products have lost significant market share in Japan. The purpose of this research project was to examine recent trends that affect Japan’s forest products market and present potential opportunities for Alaska forest products. Data was collected from government and industry organizations and industry experts were interviewed. The research identified five major trends affecting Japan’s forest products market: • Changing Building Regulations – The Building Standards Law was revised in 2007 requiring certification of the structural integrity of new residential buildings by qualified architects or structural engineers. This revision was in response to a recent building scandal where some architects falsified structural strength documents required by the Japanese government. As a result, a number of buildings in the Tokyo area were declared unable to withstand a moderate earthquake and condemned. • Changing Timber Supply – Overall, Japan’s lumber and log imports from North America have decreased. In contrast, lumber and log supplies from Europe, Russia, China, and within Japan have increased. However, several recent occurrences are constricting Japan’s timber supply including a Russian log export tariff and increased demand from other regions. Many of the industry experts interviewed pointed out that mills are looking for new suppliers to hedge against disruptions in their traditional timber supply. • Increasing Green Building and Green Procurement Policies – Japan has developed a green building certification program called the Comprehensive Assessment System for Building Environmental Efficiency (CASBEE). This system consists of various green building criteria. Additionally, the Japanese government has announced a public procurement program that requires all forest products purchased by the government to come from legally harvested timber. • Changing Exchange Rates – The U.S. Dollar has depreciated approximately 6 percent against the Japanese Yen in the past two years. This makes Alaska and other U.S. forest products more price competitive in the Japanese market. • Changing Demographics – Two of the most important demographic segments in Japan are the Baby Boomers and the children of the baby boomers or Eco Baby Boomers. The Baby Boomers are retiring and many are looking to improve their houses. Eco Baby Boomers are having families of their own and many are choosing to purchase value priced houses rather than condominiums or renting apartments. Based on the analysis of Japan’s forest products market, the researchers offered the following recommendations: • Identify Alaska forest products companies interested in exporting to Japan. The first step to promote Alaska forest products in Japan is to identify companies interested in and qualified to export to Japan. These companies need to have the production capacity to do container load volumes and the commitment of management to pursue the Japanese market. Once these companies are identified, a directory should be created in Japanese to distribute to Japanese forest products buyers. These companies should also be encouraged to participate in the Japan Home Show and trade mission described below. • Utilize trade organizations to increase awareness of Alaska forest products. Alaska’s presence in the Japanese market has dwindled and needs to be rebuilt. This can be done at a relatively low cost through utilizing resources that are already in place. There are two organizations that the authors recommend Alaska’s forest products industry utilize in Japan. The first is the Softwood Export Council headquartered in Portland, OR and with a Japan office in Tokyo. The University of Alaska is active with the Softwood Export Council and can assist with making connections. The second is the State of Alaska’s Japan Office located in Tokyo. Both of these organizations participate in forest products events held in Japan. The Alaska forest products industry should work closely with both these organizations. The contact information for these organizations is provided in Appendix A. • Promote WWPA Alaska forest products’ labels in Japan. A coordinated marketing effort should be organized to promote the three WWPA registered labels in Japan: Alaska Hem, Alaska Yellow Cedar, and Alaska Spruce. Each of these should be promoted as a brand with unique attributes. The goal should be to build brand recognition for Alaska species in Japan by promoting these species and their unique attributes. Literature should be developed in Japanese explaining each species, their unique attributes, and the end usage for which they are suitable. It would also be beneficial to include contact information for Alaska forest products companies that can supply each of these species. • Promote the structural values of Alaska lumber in Japan. The revised Building Standards Law requires builders to certify the structural integrity of their buildings by approved architects. In order to do this, architects will need access to the structural values of members used for structural support. Therefore, the results of the in grade testing program conducted by the Ketchikan Wood Technology Center should be translated into Japanese. Japanese architects responsible for certifying building plans will need access to modulus of elasticity and bending strength calculations for Alaska yellow cedar, hemlock, and Sitka spruce. • Target the glulam beam industry. One expected outcome of the revision to the Building Standards Law is an increase in market share for glulam beams. Mr. Miyazawa (Miyazawa 2007), of the Japan Housing Newspaper, emphasized the revision to the Building Standards Law will favor glulam beams over solid sawn lumber because the exact structural values are written on each glulam beam. The opportunity for Alaska forest products manufacturers is to target the glulam beam industry with lamstock. Japan’s glulam beam industry has shown strong growth and there are opportunities for Alaska yellow cedar, hemlock, and Sitka spruce (CINTRAFOR 2008). • Develop a certificate of harvest origin program for Alaska forest products. The Japanese government is starting to require all forest products purchased by government agencies to provide proof that the wood originated from legally harvested timber. This procurement program is still in the initial stages but what is clear is that some documentation will be required. As of now, the Japanese government is being very flexible with the documentation. At the GOHO Wood (Legal Wood) Conference in Japan, the Japanese official explained that companies can develop their own certificate and attach supporting documents such as timber sale receipts. Exporters should work closely with their Japanese customers and make sure that proper documentation is provided. • Create an Alaska forest products display for the Japan Home Show held annually in November. One of the main conclusions to be drawn from this research is that Japan’s forest products manufacturers are becoming very concerned with the stability of their raw materials supply. Their concern centers on what will happen in the future to Russian and European supply and so Japanese buyers are looking for new suppliers. However, in order for this to benefit Alaska forest products companies, Japanese companies need to be informed of what products exist and how to get them. An excellent venue to meet Japanese buyers and educate them about Alaska forest products is the Japan Home Show. The Japan Home Show is held in November in Tokyo. The Softwood Export Council has a booth each year and allows members to display products. An Alaska forest products display should be designed to display product samples, product literature, and copies of the Alaska Forest Products Directory. • Organize a Japan Trade Mission for Alaska forest products companies. As a follow up to the Japan Home show, a Japan trade mission should be organized for Alaska forest products companies interested in the Japanese market. The primary purpose of this trade mission would be to introduce Alaska forest products companies to potential Japanese buyers. The secondary purpose of the mission would be to educate Alaska forest products companies about the Japanese market and the types of forest products used in the market. This trade mission should include Japanese mill visits, a seminar given by an Alaska representative explaining to potential Japanese buyers about Alaska forest products, and a reception to bring Alaska companies together with potential Japanese buyers. The visit should also include a visit to pre-cut lumber mills, laminators, and post and beam construction sites. This trade mission should be organized in cooperation with the Alaska Department of Trade, the University of Alaska, and the Softwood Export Council. • Invite potential Japanese customers to Alaska for an Alaska mill tour. This would be a way to introduce Alaska mill owners to Japanese forest products buyers. Additionally, it would allow the Japanese forest product buyers to educate Alaska mills about what products the Japanese market demands and their product specifications
Emerging Power Builders: Japan’s Transitional Housing Industry After the Lost Decade
(11/1/2010) Sasatani, Daisuke; Eastin, Ivan L.; Roos, Joseph A.
This study presents exploratory research about the transitional Japanese home building industry. The Japanese housing industry changed significantly during and since the “lost decade” of the 1990s because the business environment changed dramatically. The main goal of this study is to classify Japanese builders by their business strategies and business behaviors in order to provide a useful market segmentation strategy for forest products exporters targeting Japanese markets. In order to do so, we first collected extensive secondary information on the background of the Japanese housing industry. Then we surveyed Japanese large builders and analyzed the data. After its bubble economy burst in the early 1990s, Japan experienced a serious economic slump that lasted over a decade. This period is called the “lost decade” in Japan. During the lost decade, Japan experienced deflationary pressure on land prices, securities, and consumer goods. The Bank of Japan set the interest rate essentially to zero in order to stimulate the economy, and the overnight call rate is still very low. In the past, Japan practiced unique business customs including keiretsu and interdependent collusion between politicians and business, which undermined competition. In order to recover from the economic slump, it was necessary to reform inefficient business practices in Japan. Although political uncertainty between reformists and anti-reformists within and outside the Liberal Democratic Party remains, Prime Minister Koizumi was able to reform some business practices and influence the vertical keiretsu structure, which has been weakening. As the market continues to liberalize, there should be fair competition for all participants, including small- to mid-size enterprises and foreigners, in the Japanese market. These socio-economic changes have contributed to the reform of the Japanese building industry and, as a result, some small- to mid-size builders have grown quickly. The Japanese residential housing market underwent substantial change during the lost decade as well. The Kobe Earthquake in 1995 led to major changes in the Building Standards Law (BSL), which accelerated the adoption of pre-cut lumber. Pre-cut lumber allowed mid-size builders to lower the cost of post and beam (PandB) construction through labor efficiencies and reduced waste. Many mid-size builders contracted with komuten (small builders) or independent carpenters to expand their businesses. Demographic changes have also played a huge role in the changing housing market in Japan. For example, Japanese Echo baby boomers started buying their first homes, and some mid-size builders targeted their homes to this large population. Deflationary pressure on land values allowed builders to acquire large parcels of land in suburban Tokyo. Builders then subdivided these parcels and built tract spec PandB houses. Those builders were called “power builders,” and many small- and mid-size builders all over Japan have adopted their business strategy to survive. The survey results show that many mid-size builders call themselves power builders, but we failed to find statistical significance of a common business strategy among power builders. Over the last few years, many small- and mid-size builders have tried to imitate the business strategies of the original power builders and to emulate one another in order to survive. However, it is not always possible to copy an entire business strategy from other firms. The power builder strategy is currently little more than a marketing slogan used by many firms to attract price-sensitive customers. Yet builders who build a lot of tract houses and have grown quickly in terms of the number of houses that they build still tend to refer to themselves as power builders. The most important success factor of builders between 2001 and 2005 in Japan was how many tract houses they built. Interestingly, the prices of the homes were not significantly different from those of fast-growing builders and other builders. Tract house builders service a significantly higher percentage of first-time home buyers and tend to build smaller houses than do custom house builders. Other characteristics of tract house builders are that most prefer to use glulam lumber, and that they do not have a defined land acquisition strategy, tending to acquire any available land in suburban areas. Since the original power builders’ success in the industry has attracted many imitators and undermined the old market traditions of the housing industry in Japan, it is not useful to focus on the traditional builders categories when developing a marketing strategy. The traditional categories were: 1) national home builders, 2) regional builders, and 3) komuten. In order to reflect the changing nature of the industry, we propose four new strategic groups of Japanese builders: 1) premium big builders, 2) economy big builders, 3) mid-size regional builders, and 4) komuten (independent carpenters). Firms in the same strategic groups have similar business models, so their supply channel choices can also be expected to be similar. For example, Komuten or independent builders typically construct only a couple of houses a year, and our survey did not cover them. Mid-size regional builders construct between 25 and 100 houses per year and prefer domestic lumber such as sugi or hinoki. They are focused on a local market and usually build post and beam houses. Economy big builders tend to pursue a low-end pricing strategy and this segment of the market increased at an average annual rate of 10.4% between 2001 and 2005. Economy big builders usually build post and beam houses and tend not to import lumber or building materials directly from foreign countries. Finally, premium big builders tend to build valueadded houses; they are interested in adopting a marketing strategy based on design differentiation and prominent advertising. Generally, premium big builders sell their houses at a premium price, although their growth rate is less than that of the economy big builders. Some of the premium big builders directly import lumber and building materials from foreign suppliers. Currently, economy big builders have a strong market share, and this market has grown very quickly. However, they will face substantial difficulties in the near future. The industry is currently going through a period of consolidation, since many builders have attempted to imitate the power builders’ business models. In addition, many echo baby boomers have already purchased their own houses, so this market segment has begun to shrink. Further, the high volatility of the foreign exchange rate creates uncertainties regarding the supply of raw materials. Builders need to re-create their business strategies and adapt to this changing market environment. Their success in changing their business strategies will depend on their management capabilities. U.S. forest products exporters may be able to inspire them, thus enjoying mutual benefits. Our exploratory research has derived the following strategies for U.S. forest products and building materials exporters: • U.S. exporters should target economy, big builders. • U.S. exporters need to approach pre-cutters as well as builders. • U.S. exporters need to promote the structural performance characteristics of U.S. forest products. • U.S. exporters need to ensure the reliability of supply to their Japanese customers. • U.S. exporters should take advantage of the weak U.S. Dollar versus the Japanese Yen to offset slowing lumber demand in the U.S. • US exporters always need to keep in mind that the business environment is dynamic.
China’s Forest Sector: Essays on Production Efficiency, Foreign Investment, and Trade and Illegal Logging
(10/1/2012) Robbins, Alicia S. T.
This study explores China’s forest sector through the lens of three interconnected issues: production efficiency, foreign direct investment, and trade and illegal logging. China’s forest sector is now inextricably linked to markets all over the world and this research provides an important contribution to understanding China’s participation in the trade and processing of forest-based resources and products. First, efficiency metrics were calculated to understand how efficiently Chinese wood-processing enterprises operate, given a set of inputs. Using data collected through an enterprise survey, a stochastic frontier production function was estimated and used to measure technical efficiency for Chinese enterprises. The coefficients for the material and labor inputs proved to be significant, and a mean efficiency score of .70 indicated significant room for efficiency improvements among almost all enterprises. Second, the location choice of foreign investment in Chinese wood-processing enterprises was examined to understand whether or not the same factors that have been shown to motivate foreign investment in manufacturing as a whole within China also apply to the wood-processing subsector, and to assess the effect of roundwood availability on foreign investment in the wood-processing sector. This was done by employing two estimation methods: tobit and negative binomial. Two variables were found to have an impact on investment: the number of specially-designated economic zones and roundwood production. The last study examined the effects of the removal of illegally logged resources from China’s imports originating in five of China’s primary source countries for logs on China’s domestic production, consumption, and trade flows. This was performed through the use of a spatial equilibrium approach by modifying the CINTRAFOR Global Trade Model (CGTM). This was performed both by applying a graduated tariff and by changing the supply elasticities in China’s primary log source countries. China was evaluated using supply elasticities that simulated the current harvest quota system, and a system that becomes more self-sufficient through increased log production. The results demonstrated large losses in producer surplus resulting from the imposition of a tariff as compared to methods that approach adjusting supply by a change in the cost structure. In an increasingly globalized world, these issues are fundamental to the long-term sustainable management and provision of, as well as trade in natural resources and environmental services. This research provides an important contribution to understanding China’s participation in the trade and processing of forest-based resources and products.
The Japanese Market for Laminated Lumber and Glulam Beams: Implications for Alaskan Forest Products
(7/1/2008) Roos, Joseph A.; Barber, Valerie; Sasatani, Daisuke; Eastin, Ivan
The Japanese glulam beam market has been growing steadily since the early 1990’s. From 1993 to 2007, total glulam beam usage increased from 199,300 cubic meters to 1,814,100 cubic meters. Japanese glulam beam supply comes from both domestic production and imports. In 2007, 65% of Japan’s glulam beam production was from domestic manufacturers. However, even though these glulam beams are manufactured in Japan, much of the lamstock lumber used to produce glulam beams is imported. Two of the major imported lamstock species are European whitewood and Russian red pine. Recently, a number of factors have combined to constrict the imported lamstock supply including a Russian log export tax, the increasing strength of the Euro and Canadian Dollar, and increased demand for wood in Europe and the Middle East. The researchers travelled to Japan and interviewed representatives from Japanese glulam manufacturing facilities. The company representatives were asked what species they are currently using for lamstock, technical specifications, market conditions, and what species they intended to use in the future. The results of these interviews support the conclusion that there is potential for Alaska hemlock, Alaska yellow cedar, and Alaska Sitka spruce to supply Japan with lamstock lumber. However, the Japanese lamstock market requires that lamstock lumber be kiln dried and milled to exact metric dimensions. In order for Alaska forest products manufacturers to gain entry into the Japanese market, the following recommendations should be considered: 1. Organize workshops to teach Alaska sawmills about the technical requirements of the Japanese lamstock and glued laminated beam market. 2. Pre-qualify sawmills in Alaska that have the technical capability to produce kiln dried lamstock for the Japanese market. 3. Organize a trade mission to visit glulam manufacturers in Japan. 4. Display Alaska lamstock samples and literature at the Japan Home Show held annually in Tokyo. 5. Invite potential Japanese customers to visit sawmills in Alaska. 6. Create Alaska lamstock brands based on the established WWPA registered trademarks. For example, Alaska Hem Lam, Alaska Yellow Cedar Lam, and Alaska Sitka Spruce Lam. 7. In addition to lamstock, lamstock blanks could also be considered for export to Japan.
Consumer Willingness to Pay for Renewable Building Materials: An Experimental Choice Analysis and Survey
(1/1/2005) Robbins, Alicia; Perez-Garcia, John
In recent years, growing consumer awareness of the environmental effects of the products they purchase has resulted in a demonstrated change in buying behavior. The tremendous rise of the organic food industry illustrates the desire and willingness by consumers to pay a price premium for food products that meet certain environmental standards. The emergence of forest eco-certification standards demonstrates that greater market share will go to companies that can demonstrate higher levels of environmental sustainability. Other developments, like carbon-trading programs and green energy programs further demonstrate this shift. Over the past decade, greater attention has also been paid to the environmental effects of building products industries. Understanding public attitudes toward building materials and their related environmental performance is important as it can provide consumers with the product attribute information they seek. Product attribute information has important policy implications for programs that may help achieve certain environmental standards. This study uses a choice-based, stated preference approach and relies on basic consumer demand theory. Using a mail survey, respondents were asked to assess a set of goods with different levels of emissions and price attributes; they were then asked to choose their most preferred alternative. Various price and environmental levels were included in the choice sets. Surveys were sent to two different populations. The first sample came from the general population; the second came specifically from real estate agents in the western states. The results of the general population survey demonstrated that respondents were most sensitive to reductions in greenhouse gas emissions and were willing to pay for up to eleven tons of reduction associated with building a new house. Considering a typical house produces twenty tons of such gases during the construction process, this assessment is significant. They were also willing to pay for reductions in air pollution and solid wastes, although less than they were for reductions in greenhouse gas emissions. The water pollution variable was not significant enough in this study to estimate a willingness to pay. The responses from real estate agents appear to be much more willing to pay for reductions in solid waste emissions than for reductions in the other environmental attributes. The survey results suggest that wood-based framing construction (instead of steel- or concrete- based framing) can better achieve certain environmental standards since, particularly in the case of greenhouse gas emissions, wood framing has lower green house gas emissions than either steel- or concrete-framed houses. That is to say that the reduction in the number of tons a respondent was willing to pay for always exceeds the inherent reductions when these two framing systems were compared. For example, in Minneapolis, using wood instead of concrete results in a 9.8-ton reduction in greenhouse gas emissions; in Atlanta, using wood instead of concrete results in a 6.6-ton reduction1.This survey has useful implications for both market and policy applications. For marketing purposes, the results suggest that those building materials producers seeking to increase their market share can point to better environmental performance associated with those materials that produce lower emissions, particularly greenhouse gases. For policy purposes, programs that aim to improve environmental performance standards might want to design a label that indicates the lower emissions standards in building material products. Perhaps a label similar to that of the “green star” by the EPA might be appropriate. Such a label may be used to educate homebuyers on the environmental performances associated with the building materials used in the construction of the house. Research into effective marketing tools should be conducted to provide consumers with the environmental attribute information to enable them to make better-informed decisions about the building products they purchase.
China Sourcebook: An Introduction to the Chinese Residential Construction and Building Materials Market
(4/1/2004) Robbins, Alicia; Boardman, Paul; Perez-Garcia, John; Braden, Rose
China’s rapid economic development over the past two decades has dramatically changed its position in the world economy. China has emerged from virtual isolation to become the seventh largest trading nation and the sixth largest economy in the world. Policies to encourage international trading relationships and stimulate consumer spending have created a booming economy. Today, trade accounts for nearly 50% of China’s Gross Domestic Product (GDP), with imports from the United States making up US$20 billion. In 2001, China’s GDP reached almost US$1.13 trillion. While the economies of the US’s other leading trading partners such as Japan and the European Union have declined or remained flat in recent years, China’s GDP has generally remained greater than 5% for the past decade. Foremost in the list of reforms that have helped stimulate China’s economy is housing reform. The shift from state provided housing to private ownership relieved the government of the financial burden of providing its housing while at the same time creating a leading industry in China’s economy. Beijing alone is calling for the development of the housing industry as a means of increasing its current 6% share of GDP in 2001 to 10% by 2010. Between 1978 and 2000, per capita living space increased from 3.6 square meters to 10.3 square meters and total investment in fixed assets had increased to more than US$387 billion. The Chinese government estimates that approximately 700 million square meters of residential floor space was constructed from 1997 through 2000. The government hopes to increase urban per capita living space to 25 m2, or approximately 72 m2 per household, by 2005. In order to achieve this plan, the government expects to construct 1.5 billion square meters of residential building space from 2001 to 2005. Domestic housing starts, which reportedly reached 22 million last year, are projected to grow to 24 million in 2002 and 26 million in 2003. This could result in approximately four to ten million urban annual housing starts, depending on the rate at which increases in per capita and household living space are achieved. Because of the high population density of most urban areas, approximately 78% of China’s urban residents live in multi-family housing, which ranges from low-end housing to full service apartments. It is estimated that 48% of urban residents live in six-story and under buildings, 28% in high-rise apartment buildings, and 3% live in luxury-style apartments. Less common is low-density housing, which includes high-end luxury villas geared to high income Chinese and the expatriates living in China. These villas, Most of which tend to be western-style architecture, account for only 1% of urban housing. Concrete, steel and brick, have been the dominant building materials in the modern era. Wood frame construction, popular in traditional Chinese architecture, has not seen much penetration since housing reforms began, and will likely only be attractive or affordable to upper class Chinese and the expatriate community for the foreseeable future. The Foreign Agricultural Service has estimated wood frame construction housing starts to be significantly less than one percent of total housing starts for the next several years, while steel, masonry, and others forms will make up the majority of construction methods. Wood frame construction faces several challenges. While wood is now recognized in the Chinese building code, consumers and developers repeatedly express concern about price, durability, wind load resistance, fire, moisture/decay, insects/termites, and seismic strength of wood frame construction. Opportunities exist for US building materials and housing system companies to enter and expand in the Chinese market, but it will require a tremendous amount of work to overcome cultural barriers. Firms should be committed to establishing long-term contacts with whom to develop trading relationships and to make effort to adapt their products to meet Chinese needs. It is estimated that a growth rate of anywhere in the range of 15-30% will be sustained in building materials for several years to come, growing from US$24 billion to $71 billion between 2001 and 2005. The US has managed to increase its exports to China in this market, despite an overall decrease in imports of building materials. One of the greatest opportunities to enter the market is in the 2008 Beijing Olympics. The government estimates that nearly $22 million will be invested in infrastructure for the Olympics. Furthermore, the government is promoting a “Green Olympics,” providing good opportunity for green building and use of wood products in building materials and finishing. Furthermore, the Ministry of Construction has recently approved “green building” guidelines, and is promoting energy saving, recycled or renewable and pollution-free building materials. This initiative could prove to be a useful marketing tool for imports of wood-based building materials. As of June 2000, clay bricks, a traditional building material in China, have been banned in the construction of all new buildings in medium to large cities by the Ministry of Construction, the State Economic and Trade Commission, and the State Administration of the Building Materials Industry. Coal is China’s primary energy source, and in an effort to reduce air pollution the government is targeting brick production, which reportedly consumes a quarter of China’s coal. As of June 2003, clay bricks will be banned entirely. In 2000, the government banned the use of clay brick in home building. Prior to this ban, brick was one of the most preferred building materials and was a major competitor to wood frame housing, composing nearly 70% of Chinese construction materials. The Ministry of Construction is largely promoting the use of lightweight concrete blocks as a substitute to clay bricks and is hoping that the housing boom will carry over to China’s steel industry. However, because there are no codes for steel frame houses and they serve a different market than wood frame housing, and because homebuyers in China (like those in the US) do not want to live in a home constructed entirely of steel, experts do not expect steel and concrete to pose much of a threat to the development of wood frame housing in China. Most of the new housing will likely be built in the form of six-story walkups or high-rise buildings, but there also exists a potential for single, wood-frame homes. Weyerhaeuser’s Kent Wheiler has said that China represents the only opportunity in the world to create a large wood frame housing market where one does not currently exist; this is largely because of China’s aggressive housing reform policies, low amounts of housing currently available, high savings rates, increasing purchasing power, and a strong consumer desire for better housing. To penetrate the market, however, will require a significant amount of effort and marketing, as there is no current infrastructure to introduce potential Chinese homebuyers to wood frame construction. Despite this tremendous long-term potential, the Foreign Agricultural Service (FAS) estimates that for at least the next several years, wood frame construction will occupy less than half a percent of all housing starts. It should be noted that China has nearly four times the population of the United States living on almost half the arable the land. The American suburban model of the single-family home with a large surrounding lot is not likely a feasible model for a high percentage of Chinese real estate development. Not only is it not affordable for the majority of the population, but also there simply is not enough land for such expansion. Wood frame construction and single-family homes, in general, will be limited to a small subset of the population and most construction efforts will be focused on multi-family and multi-story buildings. Other housing reforms that promise to change the current way that building materials are supplied include the newly policy to provide consumers with turnkey housing. Previously, Chinese homebuyers bought only the unfinished shell (maopei) of a home or apartment. Consumer complaints about graft, poor workmanship, and construction delays have prompted the government to require builders to pre-install features. This policy will take effect in Shanghai by 2005 and industry experts expect the policy to expand to other cities. The policy may result in a decline in the number of small interior finish companies as construction companies expand to fill the new niche. Quality issues are a central area of concern in China’s housing industry. The National Bureau of Statistics reports that only 30% of all construction in 2000 was of “high” quality. Many Chinese consumers have expressed concern over issues regarding the safety and durability of their homes, malfunctions, and comfort. As Chinese homebuyers become more selective and acquire more financial resources, quality is certain to become an important factor in consumers’ decision-making process.
Resource Inventory, Market Assessment and Analysis for Forest Products in Clallam and Jefferson Counties
(3/1/2005) Perez-Garcia, John
This project was established to examine current viable opportunities for the expansion of the wood products industry in Clallam and Jefferson counties. The study updated existing and future harvest level projections in Clallam and Jefferson counties, highlighting the potential new supplies. It also examined precommercial thinning volumes on state and federal lands. The harvest level findings are used to complete an analysis including the flow, species and size of the raw material supply required to manufacture value-added products. Three opportunities are explored: Oriented strand board production utilizing harvest and current manufacturing waste material, biomass-based energy production, and second tier value-added products from production of random length alder. We projected harvest levels using timber harvest data by grade and species provided by the Department of Revenue Timber Tax Division and the Department of Natural Resources Marketing Division. These data provided a breakout of average volumes per acre by species and grade observed for timber sales in 2004. We applied the average volumes per acre to a projection of harvest acres constructed by Atterbury Consultants and published in their report for the council dated 2000. The analysis of the sales data indicated an average volume of nearly 40 thousand board feet (mbf) per acre. The majority of this volume is in #2 and #3 sawmill logs; over 15 mbf in each log class. The next highest volume is in the #4 sawmill log with 7.5 mbf. The greatest volume per acre is in western hemlock with over 15 mbf, followed by Douglas fir with 8.8 mbf. An estimated 8,070 acres are harvested annually during the projection period 2000 to 2004. Using the per acre averages calculated above we determined annual harvest levels to reach 322,265 mbf during this period. For the period 2015 to 2020, harvest acres are projected to reach 8,618 with an estimated annual harvest level of 344,148 mbf. The majority of the annual harvest level during the period 2000-2004 is in #2 and #3 sawmill logs, over 300,000 mbf equally distributed. Western hemlock annual harvest levels are 124,236 mbf, followed by Douglas fir with 71,293 mbf. Red alder annual harvests are estimated at 22,849 mbf during the period 2000 to 2004. Timber consumed by local mills amounted to 122,033 mbf for 2002, with an estimated slightly higher consumption for 2004. Total consumption of Clallam and Jefferson county timber by Washington sawmills reached nearly 230,000 mbf in 2002. Over 90,000 mbf of timber is exported to mills located in other Washington counties. The majority of this timber flow, about 77,000 mbf went across the Puget Sound to Whatcom, Skagit, Snohomish, King and Pierce county mills. The annual volume of precommercial thinning is estimated at 125,000 to 180,000 green tons from federal and state lands. The majority of this thinned material is on State lands involving 4,000 to 6,000 acres annually for the next decade. The majority of the thinning volume is not commercial due to restrictions imposed by terrain conditions that lead to prohibitive harvesting and extraction costs. Oriented Strand Board (OSB) represents a product that utilizes low grade materials to produce a substitute for plywood. First generation OSB manufacturing plants were about 50 million square feet 3/8 inch basis in size. Newer generation plants (continuous flow) are much larger in size; the latest plant capable of producing 800 million square feet 3/8 inch basis. The majority of new plants have a capacity of 500 million square feet 3/8 inch basis. Resource availability converting the volume of #4 sawmill and utility grade logs into chip materials was estimated at 492,000 green tons, or about enough material to produce 313 million square feet 3/8 inch basis of OSB. At most the projections reached 335 million square feet by 2020. Since the volume of required materials is much smaller than what a competitive new facility would consume, the potential for a new OSB plant in the region was determined early on during the study to be non-existent. Other limitations were also evident including the lack of sufficient hardwood resources, and the fact that current uses of chip materials and lower-sized saw logs would decrease the availability of raw materials to the new plant. Biomass-based energy can be produced by burning wood waste. To evaluate this option we first determined the fuel value of materials in the region. If a sufficient fuel value was present, we then estimated the competitiveness of the material for use in energy production. To determine the fuel value of the materials in the region we estimated the size of a potential power plant by converting the volume of #4 saw mill and utility logs into green tons. This conversion indicated that the power plant sizes could ranged from 37 to 45 megawatts, representing substantial amounts of energy production. We then calculated the competitiveness aspects of the material if it were used to produce energy. Plants of these sizes in Vermont purchased chips at a price that ranges from $12 to $21 per green ton, a price that is substantially lower than current chip prices paid by local pulp mills, and lower than estimated harvesting and delivery costs (about $35 per dry ton). In addition the low price per kilowatt hour (about $0.03) acts as a disincentive to utilize woody biomass as an energy source. These calculations indicate that wood as an energy source is uncompetitive with current energy pricing. Also, harvesting and delivery costs are still too high for woody biomass to be viable, even if supply is not a constraining factor. The utilization of red alder has increased dramatically, and the projected start of a new alder mill in 2006 suggested analyzing potential value-added products such as cabinetry, furniture and door manufacturing. We conducted interviews with the new mill manager and regional end-users of alder and determined constraints associated with attracting a value-added facility to the region. The constraints identified during these interviews included the inability to diversify products should a new manufacturing plant focus exclusively on alder. Various wood species are used in cabinetry, door and furniture manufacture. Currently alder is well received, but demand is highly responsive to changes in consumer preferences. Diversification of various species is perceived to be an important aspect of a successful end-user. The success of a value-added manufacturer will depend on its ability to utilize various sources of lumber and other materials. Our study findings included the following. The two county region is a net exporter of wood fiber. The recent announcement of plans for a new sawmill in the Everett area suggests that wood fiber from the area will continue to have demand outside of the region. Less than half of the volume harvested is utilized locally by saw mills, even with the projected new mill in Port Angeles. Biomass-based energy has the potential supply, but costs for woody biomass as an energy alternative are too high and energy prices are too low for it to be competitive. Other fiber using industries, such as OSB, would require more fiber than is available. Finally, an alder value-added manufacturing plant would require diversification for it to be successful. We recommend that future work analyze the potential for expanding the existing softwood lumber sawmill capacity in the region. The volume of sawmill logs that are exported from the area is estimated at less than 100,000 mbf and is insufficient for a modern large mill, which can be twice as big. Expanding the sawmilling capacity of the existing mills may provide benefits for the local region and enhance their competitiveness with mills outside of the region that currently successfully bid for local timber. The announced plans for a new mill in the Everett area suggests an evaluation of timber values for the region and its competitiveness. An analysis currently underway to examine these values should be consulted when completed. While woody biomass is currently too costly, options should be explored for promoting “green energy” options. Finally, since the region is an excess supplier of timber, it should promote its position in order to attract potentially new manufacturing that can consume underutilized resources and compliment the existing milling infrastructure in the area.
Washington’s Sawmilling Sector Analysis: Capacity Utilization Rates and Timber Outlook
(9/1/2005) Perez-Garcia, John; Barr, J. Kent; Daniels, Jean
The study produced an assessment of the lumber manufacturing sector. It analyzed the changes in this sector and its relation to timber harvest levels. The study’s objective was to determine whether Washington’s sawmilling sector can expand or not, given a projection of future timber harvest levels. We analyzed the Washington State Department of Natural Resources mill surveys from 1968 to 2002. The analysis first defined five timbersheds in western Washington and two timbersheds in eastern Washington. The study then focused on an analysis of capacity utilization by the sawmilling sector. We produced trends of utilization rates and discussed potential reasons why the rates have changed over time and among timbersheds. Periods of high prices were related with periods of high utilization rates, with exception. During the 1980’s, there occurred a shut down of capacity that improved the average utilization rate for the sector following a collapse of high lumber prices in 1979. Currently, the average utilization rate is at historically high levels as one might expect given the strong U.S. housing sector. Lumber prices have recovered from a short period of lower prices, and they are currently at near-high levels providing impetus to the high capacity utilization in the sawmilling sector. We also found differences in the utilization rates among the timbersheds, and they are presented in the body of the report. We followed the capacity utilization analysis with an assessment of log consumption. Log use by the sawmilling sector within respective timbersheds was compared with the timber harvest level. Except for the South Coast, Southwest and eastern Washington timbersheds, sawmills were now, by far, the main consumer of the harvest level. Substantial amounts of saw logs continue to move from one timbershed to another. In 2002 approximately 600,000 mbf of timber was transported across timbershed boundaries to be used by sawmills in other timbersheds. Timber heading to Oregon continued to be significant, and logs imported from British Columbia were now occurring. We examined the potential supply of timber for western Washington timbersheds. The complexity of projecting uneven-aged stands found in eastern Washington limited the analysis to western timbersheds. While the projection was considered preliminary, it was a useful first step to gauge the wood availability required to maintain or expand the sawmilling capacity in western Washington. Further sensitivity analysis is required but was beyond the scope of this phase of the research. The projections indicated that current harvest levels can be sustained, and in the South Coast timbershed, the harvest level can be increased over the next several decades. There did not appear to be any indication that the harvest level will fall below the current level of 2.8 billion board feet. Timber inventories in all timbersheds revealed a significant growth in volume in older age classes given the projected harvest level suggesting there exists the potential for a higher, future harvest level if these forested lands were made available for timber production. Our projections assumed current harvesting conditions will continue to exist into the future. One conclusion we draw from the analysis is that the biological potential of the timber land itself will not likely be a constraining factor in future timber harvest levels. Rather, regulatory and land-use factors are more likely to impede a harvest level that coincides with the biological potential of the forested lands. There are important policy implications from our findings. Lumber manufacturing in Washington has become the principal consumer of wood fiber in the state, and we projected, given their current high rates of capacity utilization by existing mills and the biological potential for increasing harvest levels, that lumber manufacturing can expand. While Washington’s forest products sector has changed substantially due to the significant decline in timber harvest level over the past decades, the sawmilling sector has maintained its level of use of the harvest during this time. There has been a substantial decline in the number of sawmills, and the volume of log that crossed timbershed boundaries continues to be significant, but still, lumber manufacturing, a sector that consumed a small percentage of the log harvest level 20 years ago, is now the predominant end-user of logs harvested in Washington, and it is in a position to grow. The change in the composition of the forest sector was not driven by a substantial growth in lumber manufacturing but rather the decline in timber harvest levels and its impacts of the other forest sectors in Washington, primarily log exports. The lumber manufacturing sector has not been without its share of change however. There has been a consolidation of milling capacity, and with it, a reduction in the amount of labor employed by sawmills. Lumber mills in Washington have transitioned from a large number of smaller-sized mills capable of utilizing a wide range of log sizes to a consolidated sector that utilizes smaller logs with more capital and less labor. There is also much less mill-type diversity within the sector. We conclude that harvest levels in the future are such that they should allow for lumber manufacturing to expand. We support this conclusion with the facts that capacity utilization rates have been high during the past decade and that timber harvest levels in Washington have adjusted to a lower level than in previous decades. The harvest level simulations suggested that current harvest levels are sustainable into the future over a couple of rotations. The simulations assumed conditions today will continue into the future. For this reason, further work is needed to assess changes in land-use patterns and regulatory constraints that may impact future timber harvest levels from Washington’s forested lands.
The Potential Trade and Competitive Implications of Alternative Approaches for Harvested Wood Products
(12/1/2006) Perez-Garcia, John; Barr, J. Kent; Kubota, Hideaki
Forests play three central roles in the carbon cycle. Forests act as sinks and sources of carbon. Second, harvested wood products (HWP) from forests store carbon over their life cycle. Third, wood products conserve fossil fuels through energy substitution and by their lower fossil-fuel usage during their manufacture. International governmental bodies have recognized these roles in their discussions. The current United Nations Framework Convention on Climate Change (UNFCCC) methodology used to prepare national greenhouse gas (GHG) inventories provides the suggested default assumption that all forest biomass harvested be recorded as an immediate source. Additionally, the convention also recognizes that the wood product sink can be included if it can be documented that existing stocks are increasing. Our study focuses on the second role -- HWP and their function in forest carbon accounting. Past studies estimated carbon additions and emissions under alternate accounting approaches and analyzed their impacts using case studies. We calculated the emissions associated with three alternative approaches for 30 regions comprising the global forest sector and reported results for the globe and regions. We briefly investigated alternative methods to calculate the additions and emissions under alternate approaches by examining the sensitivity of alternative assumptions on landfill pools. We also investigated economic implications associated with the alternative approaches by imposing costs on the global forest products industry for national emissions of the forest carbon account. Three approaches to calculate stock changes and estimated emissions associated with HWP proposed by IPCC are the stock change approach, the production approach and the atmospheric flow approach. The stock change approach estimates the net annual change in carbon stocks in the forest and wood products pool within national boundaries. Briefly stated, stock changes in the forest pool are accounted for in the producing country. Stock changes in HWP pool are accounted for in the consuming country. The production approach also estimates net annual changes in the forest and HWP carbon stocks. Producing nations account for forest stock changes and the changes in carbon from HWP that came from domestic harvests including exported wood products. The atmospheric flow approach estimates carbon flows between the atmosphere and the forest and HWP pools within the national boundary. Producing nations account for forest growth carbon and consuming countries count emissions from wood and wood products. We examined the overall effect of the approaches on national emissions to compare the results to those obtained using the IPCC default. For sake of clarity, we divided the national account into the forest account and the HWP account. All that we were interested in the forest account was that portion of emissions calculated by measuring stock changes affected by the HWP accounting approaches. Within each accounting approach there may be more than one estimation method that can be applied with different levels of complexity, depending on data availability. Two examples are alternative assumptions on the fraction of wood product leaving the in-use pool every year and degrading half lives. We examined the sensitivity of IPCC good practice guidelines default assumptions changing the default parameters associated with half-lives of discarded products. Other sensitivities are possible given the data base created but not pursued for this study. We used an economic model of global forest sector to extend the calculations of carbon emissions under the different approaches to 2016. Economic equilibria to production, consumption, traded volumes and prices were calculated for coniferous and non-coniferous sawn wood and plywood. We maintained industrial roundwood material balances in the production of these products using estimated input/output coefficients such that equilibrium amounts produced, consumed and traded for saw logs were also calculated for the years 2004 to 2016. Projections of other panels and paper and paperboard products and their use of industrial roundwood were required as input by the economic model so as to maintain material balances at the roundwood level. Paper and paperboard projections were made using estimated income elasticities and gross domestic product (GDP) projections differentiated regionally. Scenario assessment was employed to examine the trade and competitiveness implications associated with alternative approaches. We imposed a cost in the country in the form of an emission tax. The tax level was determined by using the calculated forest sector removals/emissions for the default and three alternative approaches. The impact of the emission tax for each approach was then compared with the IPCC default approach. We chose to limit the analysis of economic impacts to the softwood lumber sector since other wood product sectors accounted for in the model do not use equilibrium methods to determine stock inflows in response to a cost increase. We investigated a carbon price of $10 and $35 per tonne of CO2. We summarize our conclusions as follows. • Using available forestry data and IPCC accounting methods that consider carbon in HWP, it is demonstrated that HWP pools are increasing globally. By 2002, global carbon stocks in products in use had accumulated to approximately 4,508 Tg C, and were increasing at a rate of 1.2% per year. Global carbon stocks in landfills were estimated to be 3,447 Tg C and were increasing at 2.4% per year. • Different accounting approaches (i.e. the current IPCC default, stock change, production, and atmospheric flow) led to different national accounts of emissions. Compared to alternative approaches, the IPCC default approach resulted in higher national emissions for all nations, with the possible exception of a few regions where much of the harvest is used for fuel wood. The stock change approach produced lower emissions for large net importers of HWP. The production and atmospheric flow approaches led to lower emissions for large net exporters of HWP. • If the forest products industry became financially responsible for HWP carbon emissions, the selection of an accounting approach could significantly affect the industry. In particular, the current IPCC default approach could result in lower global industry output and higher lumber prices than the three alternatives (i.e. stock change, production, and atmospheric flow). The differences between the three alternative approaches, do not appear to be significant at the global level (differences in wood costs of $0.25 per m3 or less). In some countries, however, the differences between the three alternatives can be more than $10 per m3 of wood. • The stock change approach can give rise to the elimination of accounted HWP emissions when import levels lead to increasing HWP pools that are greater than domestic harvest emissions. • Calculating the land-filled pool using alternative values of half-lives led to relatively small changes in emission accounts. These changes were relatively constant across accounting approaches. • The economic impact of emission changes depended on the level of these charges • High carbon prices led to persistent change in coniferous sawlog harvest levels and higher prices in softwood lumber markets. We expect similar responses in other forest product markets including pulp and paper. Their raw material costs would increase since the emission tax increases harvesting costs, and lower output by the softwood lumber sector reduces residual supply to pulp mills. • Low carbon prices led to higher price in these markets as consumption levels recovered. • Higher prices under both low and high carbon values could signal product substitution.
Assessing Implications of International Trade and Global Investments in Timberlands and Manufacturing with Respect to Southern Timber Supplies
(4/1/2002) Perez-Garcia, John; Marshall, Scott
The study examines where excess wood exists, how much can be imported to the US, and what opportunities exists for US investments overseas. The study begins with an examination of global demand. Data on global consumption of industrial roundwood reveals a structural break in consumption patterns during the early 1990’s. Part of this break is the result of the collapse of the former Soviet Union. The shut down of not only its consumption but also its production sectors has had a visible impact on global consumption. Also efforts to produce timber in a sustainable fashion in tropical forests and environmental restrictions on softwood timber harvests significantly constrained timber supply in the 1990’s, leading to reduced global consumption of forest products. Two projections of future consumption are made. Using a growth rate of consumption observed prior to the 1990’s results in projected consumption of nearly 3 billion cubic meters by 2050. Using a growth rate of consumption estimated during the 1990’s results in a projection of 2 billion cubic meters by 2050. Near-term consumption is projected to increase from 300 million to 800 million cubic meters over the next 20 years. The study also examines global timber supply projections using the ATLAS timber projection model, and their implication for excess supplies of wood fiber. Excess supplies are defined as the volume over rotation age assuming no growth in current demand. The model produces the biological potential for timber production for plantations established in New Zealand, Australia, Indonesia, Brazil, China, Argentina, Uruguay and Chile. The projections are based on specific assumptions about growth rates, rotation ages and areas planted in 1995. The projections indicate that in the short to medium term (from now to 20 years from now), there may be up to 400 million cubic meters (MMm3) of available wood in the Asian wood basket. These wood resources are close to China and represent 3.5 times the timber consumed in China in 1997. The Asian plantation wood is likely to compete with non-plantation wood particularly from Russia, and to some extent Scandinavia. Over the longer term, it is likely to compete with Chinese plantations as well. Several countries in Latin America have the potential to develop inventories above rotation age totaling over 500 MMm3. Much of the additional short-term fiber from these plantations may fill European and North American markets, but are likely to come under competition from large non-plantation wood fiber sources in the northern hemisphere, such as Canada and Scandinavia, as well as the US fiber resource in the South. The study also estimates economic supply for softwood logs using the CGTM. We develop cost curves by ranking the quantity of sawlog supply available at a given price. The cost curves assume no growth in demand over the projection period from 1993 to 2040. An additional 200 MMm3 of sawlogs would be produced with an increase of $188/mbf (2000US$ or $40/m3 in 1980US$). Finland produces the lowest cost sawlogs followed by New Zealand and then the US South. The three regions provide the bulk of the first 100 MMm3 of addition sawlogs. The interior region of western Canada, sourcing wood fiber from native forests, provides additional wood in the mid- to longerterm. Regions such as the US West provide little or no additional wood supply because they are meeting current demand. Supplying the least cost manufacturing capacity is modeled in a similar fashion as supplying least cost sawlogs. The European region of Finland, Sweden and the western continental countries provide the majority of the lower cost manufacturing capacity. The study concludes that while plantation wood may have a biological potential to produce nearly 1 billion cubic meters of wood fiber in the near-term term, there will be competition from wood fiber from non-plantation sources including Scandinavia, Canada and the US. The sourcing of non-plantation wood fibers from these regions appears to remain more competitive with plantation fiber according to simulations with the CGTM. The 1 billion cubic meters of potential wood fiber is greater than the upper bound of 750 million cubic meters projected for the near-term demand for industrial roundwood. However, the projection of biological supply is sensitive to plantation growth rates and rotation ages used in the study. Timber inventory projections decline significantly with changes in these assumptions. Future work will require better information on area planted, their growth and management intensities defining rotation ages.
The Importance of Oregon’s Forests in US and International Markets: Meeting the Needs of Future Consumers of Forest Products and Environmental Services
(9/1/2003) Perez-Garcia, John
The consequences of decisions regarding the management of forest resources in Oregon are local, national and international. This is to say that unilateral policies implemented to achieve an objective associated with Oregonian forest management programs will have unintended consequences elsewhere. This study examines the unintended consequences that arise from a simulated policy to maintain Oregon’s harvest levels constant over the next 4 decades. Forest economies other than Oregon and their associated environments are affected by our local choices. With a projected increase in the demand for wood products, what does it mean for Oregon to constrain its participation by restraining timber harvest? This study projects a future scenario for the global forest sector with and without Oregon’s increased participation to describe the impact the Oregon forest sector has on national and international markets. It also discusses several potential impacts on the environment associated with the changes in wood flows. This study addresses the following questions: What does a reduction in Oregon’s timber output mean for forest products markets locally, across the US and internationally? Which regions pick up the market share vacated by Oregon? What tradeoffs exist between timber production and the environment? What is Oregon’s role in providing forest products, environmental protection, social and economic benefits into the future for its citizens and the global community? To estimate the effect of Oregon’s annual harvest level on US and foreign markets, we first analyze the future demand for wood products to 2040, and identify the producers of wood products that meet this demand. We next constrain the annual harvest level in Oregon to be constant throughout the projection period (2000 to 2040), and note the changes in harvest volumes in markets outside of Oregon. Once recorded, environmental measures for the areas that increase harvest activities are examined. We also note the potential social and economic benefits associated with changes in market shares. An estimate of future global demand for wood fiber is based on annual projections of gross domestic product (GDP) of 3.5% and two historical trends in consumption of wood fiber. Consumption is estimated to reach between 2.0 and 2.8 billion cubic meters (Bm3) over the next 5 decades, adding from 0.5 to 1.3 Bm3 by the end of the 50-year period. Many regions participate in meeting this growing demand for wood products, including Oregon, in this business-as-usual scenario. Focusing on softwood saw logs, the South contributes over 100 million cubic meters (MMm3) or 17.7 billion board feet (BBF) followed by Canada (40 MMm3 or 7.1 BBF) and the US West (including Oregon) (10 MMm3 or 1.8 BBF). This study estimates that the southern states will meet more than half of the projected demand growth. When Oregon’s annual harvest levels are maintained constant—i.e. harvest levels are not allowed to expand to meet the projected demand growth—two effects occur in the market. The first effect is an increase in timber prices. This is followed by responses from other regions and alternative material producers to increase production. The South captures 43% of the decline in Oregon’s annual harvest levels. Alternative material producers—i.e. lost wood demand—capture 32% of the lost market. They are followed by Asia and Canada, which capture 15% and 10% respectively of the projected demand growth without an increase in Oregon’s annual harvest levels. These results suggest there are several competing regions with the capacity to increase harvest volumes that an Oregonian forest manager must contend with including southern states, Canada and countries outside of the US with established plantations. Recent data on import trends confirm increased market activity from several countries with expanding forest resources. Latin America, as a region, has increased its exports of softwood lumber and plywood to western ports from less than $10 million in 1990 to over $100 million in 2002 for softwood lumber and from nearly no activity in 1997 to over $8 million in softwood plywood (mostly from Chile). While Brazil’s share appears to have peaked in 1999 at less than $25 million (mostly lumber), other countries have increased exports to western ports including Chile (both lumber and plywood), Uruguay (lumber) and Argentina (plywood). Softwood lumber entering western ports from Australia and New Zealand has increased from negligible numbers in 1990 to nearly $150 million in 2002. Imports of softwood plywood from New Zealand topped $1 million in 2002. These trade flows are small but significant since they signal new market suppliers to the US through western ports that directly compete with Oregonian products. Within the southern states, annual harvest levels are projected to increase over the next twenty years in those states outlying the traditional timber-producing central states of Georgia and Alabama. Fringe regions in eastern Texas and the Carolinas are expected to increase annual harvest volumes by 15% or more in some areas more than offsetting declines in Georgia, Alabama and Mississippi. We examine several environmental measures for those regions expected to increase market share due to constant annual harvest levels in Oregon. In general, since regions that compensate for Oregon’s lower harvest volume have shorter rotations and lower volumes per acre at harvest time, there will be more acres disturbed by harvest activities than would have been if the harvest activity were to occur in Oregon. Conservation concerns in the South are growing as they continue to augment their share of the US market. They include a decline in ecosystem communities that are endangered and not under public management. Also, with much wood growing in emerging plantation regions around the world, and their rankings in biodiversity and other indices low, there is concern that the shift to Asian and Latin American producers may lead to lower conservation efforts abroad. Carbon dioxide and other green house gas emissions also increase with greater use of alternative materials like steel and concrete. Estimates place the additional emissions as high as 1.4 million metric tons annually by 2040. A loss in future market share also has implications for investment strategies in Oregon, with its social and economic consequences. One conclusion of the analysis suggests that the South, with continued growing demand for wood fiber, will increase its management intensity of forests augmenting productivity. Without the larger market for Oregon producers such management investments become more questionable in Oregon with a concomitant effect on its own forest productivity. While prices for timber may go up, the revenues that landowners receive maybe reduced since they are not able to harvest the same volumes as before. In addition, the lower harvest level removes any incentive for new capacity expansion in Oregon, amounting to 7 to 8 average-sized mills. There are also extensive areas of plantations internationally. These areas are likely to come into play in the near future representing low-cost sources of wood and attracting investments to produce wood products for a globalized market. These results suggest that planners need to evaluate the tradeoffs associated with an unexpected change in harvest levels for Oregon. Since there is a need to meet growing demand and Oregon can increase its annual harvest level to meet a part of the growth in demand, any program that limits its potential to supply wood products will allow other regions and countries to expand their harvest levels, with an associated environmental tradeoff and shift in social and economic benefits. The question becomes whether the tradeoffs are favorable for Oregon and the global community or not. These tradeoffs need to be considered in order to reach environmental, social and economic goals, which may extend outside of Oregon’s boundaries. This study, combined with others that detail Oregon’s environmental management, should prove useful in answering that question.
The Importance of Oregon’s Forests in US and International Markets: Meeting the Needs of Future Consumers of Forest Products and Environmental Services
(9/1/2003) Perez-Garcia, John
The consequences of decisions regarding the management of forest resources in Oregon are local, national and international. This is to say that unilateral policies implemented to achieve an objective associated with Oregonian forest management programs will have unintended consequences elsewhere. This study examines the unintended consequences that arise from a simulated policy to maintain Oregon’s harvest levels constant over the next 4 decades. Forest economies other than Oregon and their associated environments are affected by our local choices. With a projected increase in the demand for wood products, what does it mean for Oregon to constrain its participation by restraining timber harvest? This study projects a future scenario for the global forest sector with and without Oregon’s increased participation to describe the impact the Oregon forest sector has on national and international markets. It also discusses several potential impacts on the environment associated with the changes in wood flows. This study addresses the following questions: What does a reduction in Oregon’s timber output mean for forest products markets locally, across the US and internationally? Which regions pick up the market share vacated by Oregon? What tradeoffs exist between timber production and the environment? What is Oregon’s role in providing forest products, environmental protection, social and economic benefits into the future for its citizens and the global community? To estimate the effect of Oregon’s annual harvest level on US and foreign markets, we first analyze the future demand for wood products to 2040, and identify the producers of wood products that meet this demand. We next constrain the annual harvest level in Oregon to be constant throughout the projection period (2000 to 2040), and note the changes in harvest volumes in markets outside of Oregon. Once recorded, environmental measures for the areas that increase harvest activities are examined. We also note the potential social and economic benefits associated with changes in market shares. An estimate of future global demand for wood fiber is based on annual projections of gross domestic product (GDP) of 3.5% and two historical trends in consumption of wood fiber. Consumption is estimated to reach between 2.0 and 2.8 billion cubic meters (Bm3) over the next 5 decades, adding from 0.5 to 1.3 Bm3 by the end of the 50-year period. Many regions participate in meeting this growing demand for wood products, including Oregon, in this business-as-usual scenario. Focusing on softwood saw logs, the South contributes over 100 million cubic meters (MMm3) or 17.7 billion board feet (BBF) followed by Canada (40 MMm3 or 7.1 BBF) and the US West (including Oregon) (10 MMm3 or 1.8 BBF). This study estimates that the southern states will meet more than half of the projected demand growth. When Oregon’s annual harvest levels are maintained constant—i.e. harvest levels are not allowed to expand to meet the projected demand growth—two effects occur in the market. The first effect is an increase in timber prices. This is followed by responses from other regions and alternative material producers to increase production. The South captures 43% of the decline in Oregon’s annual harvest levels. Alternative material producers—i.e. lost wood demand—capture 32% of the lost market. They are followed by Asia and Canada, which capture 15% and 10% respectively of the projected demand growth without an increase in Oregon’s annual harvest levels. These results suggest there are several competing regions with the capacity to increase harvest volumes that an Oregonian forest manager must contend with including southern states, Canada and countries outside of the US with established plantations. Recent data on import trends confirm increased market activity from several countries with expanding forest resources. Latin America, as a region, has increased its exports of softwood lumber and plywood to western ports from less than $10 million in 1990 to over $100 million in 2002 for softwood lumber and from nearly no activity in 1997 to over $8 million in softwood plywood (mostly from Chile). While Brazil’s share appears to have peaked in 1999 at less than $25 million (mostly lumber), other countries have increased exports to western ports including Chile (both lumber and plywood), Uruguay (lumber) and Argentina (plywood). Softwood lumber entering western ports from Australia and New Zealand has increased from negligible numbers in 1990 to nearly $150 million in 2002. Imports of softwood plywood from New Zealand topped $1 million in 2002. These trade flows are small but significant since they signal new market suppliers to the US through western ports that directly compete with Oregonian products. Within the southern states, annual harvest levels are projected to increase over the next twenty years in those states outlying the traditional timber-producing central states of Georgia and Alabama. Fringe regions in eastern Texas and the Carolinas are expected to increase annual harvest volumes by 15% or more in some areas more than offsetting declines in Georgia, Alabama and Mississippi. We examine several environmental measures for those regions expected to increase market share due to constant annual harvest levels in Oregon. In general, since regions that compensate for Oregon’s lower harvest volume have shorter rotations and lower volumes per acre at harvest time, there will be more acres disturbed by harvest activities than would have been if the harvest activity were to occur in Oregon. Conservation concerns in the South are growing as they continue to augment their share of the US market. They include a decline in ecosystem communities that are endangered and not under public management. Also, with much wood growing in emerging plantation regions around the world, and their rankings in biodiversity and other indices low, there is concern that the shift to Asian and Latin American producers may lead to lower conservation efforts abroad. Carbon dioxide and other green house gas emissions also increase with greater use of alternative materials like steel and concrete. Estimates place the additional emissions as high as 1.4 million metric tons annually by 2040. A loss in future market share also has implications for investment strategies in Oregon, with its social and economic consequences. One conclusion of the analysis suggests that the South, with continued growing demand for wood fiber, will increase its management intensity of forests augmenting productivity. Without the larger market for Oregon producers such management investments become more questionable in Oregon with a concomitant effect on its own forest productivity. While prices for timber may go up, the revenues that landowners receive maybe reduced since they are not able to harvest the same volumes as before. In addition, the lower harvest level removes any incentive for new capacity expansion in Oregon, amounting to 7 to 8 average-sized mills. There are also extensive areas of plantations internationally. These areas are likely to come into play in the near future representing low-cost sources of wood and attracting investments to produce wood products for a globalized market. These results suggest that planners need to evaluate the tradeoffs associated with an unexpected change in harvest levels for Oregon. Since there is a need to meet growing demand and Oregon can increase its annual harvest level to meet a part of the growth in demand, any program that limits its potential to supply wood products will allow other regions and countries to expand their harvest levels, with an associated environmental tradeoff and shift in social and economic benefits. The question becomes whether the tradeoffs are favorable for Oregon and the global community or not. These tradeoffs need to be considered in order to reach environmental, social and economic goals, which may extend outside of Oregon’s boundaries. This study, combined with others that detail Oregon’s environmental management, should prove useful in answering that question.
The Effect of a Tariff Elimination Policy on the Forest Sector: A Global Perspective
(6/1/2001) Perez-Garcia, John
Current tariffs on wood products act as a barrier to trade. They restrict market access to more efficient producers. When a multilateral tariff elimination policy is simulated with a global trade model the results project greater trade activity in softwood lumber and plywood, and a greater market share for the US, Canada and European producers. Smaller but similar effects are found in the hardwood sector. The scenario analysis also suggests the possibility that, in the short term, tariff elimination may not lead to increase global consumption. A tariff elimination policy may result in a strong demand effect in the North American market, and, as a result, may lead to higher prices. Supply tightness may come from either stronger than expected demand growth and restrictions on supply availability in North America. Demand rigidity in Asian economies for lumber and plywood lead to positive, but small consumption gains with tariff liberalization. Initial changes in softwood lumber trade flows reach 20% from baseline dropping to 13% by 2010. The result suggests that tariffs in softwood lumber have restricted markets mostly for North American and European producers. Because the North American, particularly the US market, and Europe are also the major consumers of softwood lumber, a tariff elimination scenario results in greater international demand for their products raising domestic prices and lowering domestic consumption. This reduction in North American and European domestic consumption outweighs consumption gains in Japan, Australia and Mexico, regions where tariff elimination occurs. The current economic outlook for Asia is likely having a strong influence on the above result. Baseline results suggest a strong demand in the US while Asian consumption has fallen. The current global market condition has raised product prices in the US and lowered prices in Asia, an effect expected from lowering tariffs, but due to different forces. With an expanding US domestic markets and little consumption growth in Asian, the tariff elimination policy places further upward price pressure on US consumers as US and other producers shift some production from domestic to international markets. A further strengthening of foreign demand through a tariff elimination scenario reinforces upward price pressures affecting consumers in the US. Hence, the simulation suggests a global consumption decline in the short term with a price rise in the North American and European markets. This result suggests low cost producers are constrained from meeting expanded demand from tariff liberalization in the short run. A dominant North American market characterizes the global softwood plywood sector. The simulation results suggest that tariff elimination in the softwood plywood sector increases trade activity as well as global consumption and production. The US, a major consumer and producer of softwood plywood, acts as an exporter reducing its consumption and increasing output. As such the US dominates the response from a tariff elimination scenario in the model. Since many of the producing sectors outside the US have exogenous behavior for this sector, production changes in the model are limited. The limited production capacity outside North America for softwood plywood is likely to lessen the importance from these exogenous production constraints. Tariff effects on plywood trade are substantial percentage-wise; they reach 8% immediately and attain 14% by 2010. Softwood plywood is viewed as a mature product in decline being replaced by alternative engineered materials. Production capacity expansion in these engineered materials outside the U.S. are more likely to lessen the expanded production and consumption associated with the simulated tariff elimination policy in softwood plywood. Currently, fiberboard and reconstituted products are projected exogenously in CGTM. Tariff elimination in the softwood lumber and plywood sectors has a direct impact on the sawlog and pulpwood sectors. There is little evidence of any substantial effect from a tariff elimination policy in the softwood sawlog sector and no recorded changes in the pulpwood sector due to tariff elimination. This is because tariffs currently exist in countries with limited market behavior, such as China, or with small trade flows such as Mexico. Hence, changes observed in the log sector are driven primarily by the softwood lumber tariff elimination. Softwood log trade is lower under the tariff elimination policy. Changes in trade activity in the softwood log sector reach 8% from baseline due to lumber and plywood tariff elimination.Hardwood sector results are smaller than the softwood sector impacts. Assumptions regarding China’s consumptive behavior have a strong influence on the results. Sensitivity analysis with higher Chinese consumption projects greater imports originating from nearby Asian countries. Otherwise, much of the increase in production would come from the US. The above results suggests the major part of increased softwood harvests would involve Canadian forests which are mostly natural followed by secondary forests in the US and Europe. Depending on Chinese consumption changes, the major increase in hardwood harvests would originate from Southeast Asian producers under high Chinese consumption growth. Otherwise, the increase in hardwood consumption would flow from US forests.
Time Series Methods for Commodity Price Forecasting: An Application to Market Pulp
(1/1/1999) Malcolm, Gerard Alexander
The goal of this research is to assess the usefulness of cointegration analysis and related time series techniques for forecasting commodity prices. The analysis focuses on market pulp, a typical commodity. Important short-term factors in determining pulp prices include capacity utilization, the shipments rate, and inventories. Important longterm factors include investment behavior and costs of production. Autoregressive, moving average (ARMA), vector autoregressive (VAR) and error correction models of price and these variables are developed. Market scope is defined to include ail North American and Scandinavian (Norscan) chemical paper grade pulp, and the sample period is 1976-1991. Out of sample forecasting performance of the error correction models is no better than that of the VAR model, according to the RMSE criterion. However, the forecasts generated by the error correction models have the property that sensible long-term relationships between variables are maintained. In addition the error correction models a.re more amenable to incorporating expert knowledge into the model-based forecasts. It is thus concluded that error correction models are useful for forecasting commodity prices.
China’s Housing Market: A Policy Assessment and Outlook for Wood Consumption
(12/1/2001) Luo, Juan; Perez-Garcia, John
Prior to the 1980’s, the government provided its citizens with public housing. As a consequence, there was a lack of investment in this sector. State-Owned Enterprises (SOEs) were responsible for providing its workers with an apartment or other housing unit. SOEs allocated apartments under a series of rigid administrative regulations that resulted in a rental market with artificially low rents, no home ownership and average living space per capita that was less then 4 m2. These conditions led the Chinese government to consider housing reforms by the end of the decade. During the 1980's, along with other aspects of their economic system, China started to reform its urban housing sector. The housing reforms increased investment in the private (also know as commercial) and public (also known as non-commercial) housing sectors. As a result of these reforms, there are roughly 1 million annual housing starts today. The average living space is 8-10 m2, with a goal of 12m2 by the year 2010. So far, the housing reforms are focused mainly in the cities of Beijing, Tianjin, Shanghai and those in Guangdong Province. The introduction of reforms has produced a dual-housing system in China. One segment of this dual system is the SOEs, which continue to provide the majority of housing to its employees. The other segment is the private housing sector, which operates in a more conventional, open housing market. Eventually China hopes to eliminate this dual-housing system. To do so additional market mechanisms must be undertaken to further develop an open, competitive housing market. These mechanisms involve reforms to price setting mechanisms that set current home sale prices and government-set rents. An important consideration will be a households’ income in establishing market price setting mechanisms. The recent reforms have led to two problems. One is that the price on the ‘open housing market’ is too high to be affordable by average urban residents. As a result there is currently an overstock of newly built housing that was constructed for affluent households. The other problem is that government-set rents can’t be raised to market levels without a significant wage adjustment. Thus wage reform will be just as important for housing reform to be successful. Housing reforms will need to be monitored along with other economic reforms in China. SOEs still control much of the urban housing stock—i.e. the majority of housing is in the public, non-commercial housing sector. The reliance of employees on their work units for their housing needs has not fundamentally changed under the reforms undertaken to date. Successful housing reforms will depend on the reform of SOEs. Wage and housing reforms, and controlling unemployment are a part of much larger and more complicated SOEs reforms. In large part, SOEs reforms will be key for housing reforms to be successful. It is estimated that housing reforms generated $80 billion in new household-related spending in 1998 (9% of GDP) and $150 billion in 1999. However, housing reforms are major undertakings, which will gradually, rather than immediately, bring opportunities for foreign firms. Continued success in generating economic activity will promote further reforms. China’s prediction of 10% annual growth in domestic demand over the next ten years may be overoptimistic, but disposable income has increased by an average of 6% in urban areas over the last five years, and 5.4% in rural areas. A continued growth in income is likely to have a substantial effect on the domestic demand for wood products, hence the outlook for a growing market in China for wood products is optimistic. Rising incomes among China’s emerging middle class, many of whom still live in accommodations provided by their employer, has also raised spending levels on furniture and interior wood products. Demand will initially depend on affluent families that can afford a home purchase and separation from SOEs housing subsidies. As more middle class families become affluent, they also will likely renovate existing units or move into new apartments. Those dependent on heavily subsidized state housing are not likely to contribute much to any potential increase in wood products demand, however. Hence the transition to a western-style housing market is likely to be slow and intimately coupled with wage reforms and the transformation of SOEs to competitive industries. As this happens, over the next several years, demand will grow for higher quality products such as flooring, molding, windows, doors, cabinets, paneling, wall units and furniture. It is expected that consumption of these products will develop into a significant market following these transitions. Over the last decade and more, China’s furniture industry has attained unprecedented development; its output during the period 1986-1997 had developed from 120 million pieces to 476 million pieces, with an average annual increase of 39.8%. Total output value of the industry as of 1998 reached 78 billion RMB and then in 1999 with growth rate to an estimation of 12%. Timber is an important raw material for the furniture industry. A large furniture sector will depend more heavily on imports of timber.
A Meta Analysis of Willingness to Pay Studies
(11/1/2007) Lewis, Adam; Layton, David; Perez-Garcia, John
This study is a meta-analysis of contingent valuation studies of rare and endangered species. The study seeks to measure non-market benefits in order to inform the limits and allowances of environmental policies. It follows a similar analysis performed by Loomis and White (1996) and employs methods developed in Layton and Lee (2006) and Buckland et al. (1997). We estimated 38 different reasonably likely models using linear and loglinear specifications. The models were then weighted according to their relative statistical fits using two criteria: the small sample size corrected Akaike’s Information Criterion (AICc) developed by Hurvich and Tsai (1989, 1995), and the Bayes Information Criterion (BIC). The models reflect how well they explain the variation in willingness to pay both WTP and model economy. Use of the model-averaging approach reflects the considerable uncertainty regarding which specific model to choose. The model-averaging approach effectively broadens and makes explicit the implicit model testing process that researchers commonly pursue when determining their final models for reporting. Monte Carlo simulations were used to simulate the confidence interval for the model-averaged expected willingness to pay (EWTP). Overall, the two criteria using the linear specification allocate weight quite similarly. Both criteria place the majority of the weight on one model. All models selected by either criterion include a variable indicating whether the survey was administered in person, by mail or by phone. With the loglinear models, the AICc and BIC criteria again allocate model weight similarly, and both allocate the most weight to a single, but different model than under the linear specification. As was the case in the linear WTP models, the loglinear models selected by the AICc are essentially a subset of the models selected by the BIC. The R-squared results for the loglinear models are higher than those of their linear counterparts. Both specifications suggest a change in the values for WTP over time. Both specifications exhibit a positive and large coefficient for phone surveys. Both specifications resulted in a significant indicator of using taxes as a payment vehicle rather than a donation or membership. The overall results of the models revealed a consistently significant positive effect on WTP for the linear model that conducted the survey by phone, used taxes as a payment vehicle, and included protection of multiple species. Conducting the survey by phone, focusing on charismatic megafauna, maintaining current land protections, using taxes as a payment vehicle, asking for a one time payment and protecting multiple species generally had a significant positive effect on WTP for the loglinear models. The most prominent difference between model classes is that the loglinear models consistently returned the fish species indicator as negatively significant and the megafauna indicator as positively significant, whereas none of the linear models found these variables to be significant. Three scenarios were created in order to simulate a distribution of observations from which we can obtain an estimate and confidence interval for WTP. The 3 scenarios analyzed were: an increasing the population of Chinook salmon, preventing the extinction of Orca whales and preserving old-growth forest for the Northern Spotted owl. There was considerable variability in the estimates of WTP both within scenarios and between them for the linear models. The loglinear models also displayed considerable variability in the estimates of WTP both within and between scenarios. The AICc weighted confidence interval was tighter than that of the BIC in five of the six scenarios across the two model classes. A comparison of WTP estimates with original study estimates revealed that the salmon estimate of the loglinear AICc was higher, the marine mammal estimate was very similar, and the spotted owl estimate was considerably lower than the results of their corresponding valuation studies. Overall the metaanalysis model results confirmed earlier findings that endangered species CV studies can provide estimates that are sensitive to frequency of payments and insensitive to WTP question format, and that respondents’ value protection of multiple species more than that of a single species.

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