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Major trends in the forest products industry

There are three major trends that we expect to influence the forest products industry for the foreseeable future. These are: a) use of smaller diameter wood and lesser known and/or underutilized species, b) the growing and management of international wood fibre, and c) long term environmental concerns.

These trends were first identified at least five years ago but the trends’ magnitude and extent are now far beyond what any observer could have reasonably predicted. We review below the individual trends and focus on what effect these trends may have upon tropical forests.

General background: Earth’s original forest cover is estimated to have been approximately 6 billion hectares–approximately six times the landmass of the United States of America. In the last 150-200 years, world forest cover has dropped approximately 33%.

As primary forest vanished through harvesting and land conversion, secondary forest grew back in those areas, particularly the temperate zones, where regeneration was fairly straightforward. In areas where regeneration was fragile or impossible, irreversible geographical changes occurred. Where man did not intervene, nature often did: Drought, believed to be a result of the El Nino Southern Oscillation, caused the 1983 fires in Kalimantan and Sabah which destroyed approximately 4 million hectares of lowland rainforest. Other, more recent examples, abound.

Thus the world has almost always had a mix of primary and secondary forests. Yet forest use has generally focussed on primary rather than secondary forests for clear economic reasons. Harvesting large, old growth trees as opposed to smaller secondary growth reduces unit costs and increases the recovery factor at sawmills. (See Efficiency in Wood Processing: The Influence of Increased Prices and Smaller Trees in this blog)

Use of smaller diameter wood and lesser known and/or underutilized species: As primary forests disappeared worldwide, the timber processing industry has moved towards smaller diameter wood and using species that were previously classified as marginal or “trash”. For example, 30 years ago alder in the US Pacific Northwest was considered a trash species. It is now used for solidwood purposes.

Growing and management of international wood fibre: Locating timberlands overseas, particularly in the developing nations makes good economic sense. Low land and labor costs and high growth rates as a result of advantageous geographical position all combine to create a beneficial economic case for locating timber and processing offshore.

Here is an example illustrating land costs and growth rates: In the tropics one might pay approximately $150-200/acre for tropical timberlands which grow at approximately 3-4 m3/hectare-year. A similar priced acre of hardwoods in the USA might fetch $500/acre and only grow at 2 m3/hectare-year. So in the tropics one might pay one-sixth the price and gets 50-100% higher growth rates than in the USA.

It’s the same for labor rates.

Long-term environmental concerns pose a problem most in the form of cutting restrictions. While these cutting restrictions are primarily aimed at government lands, the effect on worldwide timber prices and availability has been huge. In the USA during the mid-1980′s, the annual cut on government lands was about 10 billion board feet/year. It has now dropped to about 1/2 billion board feet/year. The shortfall has been replaced by increased, more aggressive cutting on private lands, which in turn fueling wider cutting restrictions, this time perhaps on private lands.

Environmental concerns have historically not been as pronounced in tropical or developing countries. We have estimated that environmental concerns do not get translated into restrictive policy until the per capita GDP approaches US$ 5000/year. Most countries in Latin America and other good growing areas are still a long way away from such a number.

What effect will these trends have on tropical forest resources? Unfortunately, these three trends may have an effect of increasing forest degradation. Forest will be managed more intensively as diameter class restrictions fall and favorable species increase. The flip side of the coin is that forests will be under increasing pressure to “pay their way” but will have a more extensive base with which to generate income.

Because tropical forests are located favorably, well managed tropical forests may have a long term edge over temperate forests where growth rates are not as high. But tropical forests also have certain limitations that require more careful management.

How can that management be best supplied? Through private enterprise. Because wood prices are escalating so quickly and tropical forest resources are disappearing so rapidly, only well-capitalised private holders of tropical forests can afford to think about the next cutting cycle and will have the money to pay for those treatments that improve rather than degrade their forests.

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