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Possible economic consequences of air pollution on timber markets in certain European countries Kurtz, Heinz Frieder 1984

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POSSIBLE ECONOMIC CONSEQUENCES OF AIR POLLUTION ON TIMBER MARKETS IN CERTAIN EUROPEAN COUNTRIES by HEINZ FRIEDER KURTZ Diplom-Forstwirt, Albert-Ludwigs-Universitaet, Freiburg, W. Germany, 1983 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE i n THE FACULTY OF GRADUATE STUDIES (Faculty of Forestry) We accept t h i s thesis as conforming /to\ the required standard THE UNIVERSITY OF BRITISH COLUMBIA May 1984 © Heinz Frieder Kurtz, 1984 In presenting t h i s thesis i n p a r t i a l f u l f i l m e n t of the requirements f o r an advanced degree at the University of B r i t i s h Columbia, I agree that the Lib r a r y s h a l l make i t f r e e l y a v a i l a b l e for reference and study. I further agree that permission for extensive copying of t h i s t h e s i s fo r s c h o l a r l y purposes may be granted by the head of my department or by h i s or her representatives. I t i s understood that copying or pub l i c a t i o n of t h i s t h e s i s fo r f i n a n c i a l gain s h a l l not be allowed without my written permission. Department of /&3c&r(£3 //a^Ci^Ce^^t^Cu (C^ 0/ The University of B r i t i s h Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 Date J3. 3- /SW DE-6 (3/81) i i ABSTRACT T r a d i t i o n a l forest devastations i n the Federal Republic of Germany (FRG) have i n the past resulted i n trade r e s t r i c t i o n s and p r i c e declines. The recent dieback problem i n the FRG w i l l r e s u l t i n a high quantity of salvage which w i l l occur not only once but throughout several successive years. The s i t u a t i o n i n neighbouring countries i s s i m i l a r which w i l l increase the problem for the FRG. Forest i n d u s t r i e s i n dieback-affected countries w i l l be able to increase roundwood consumption and exports. An aggravated dieback problem w i l l r e s u l t i n price declines of forest products and/or trade r e s t r i c t i o n s . The planned implementation of trade r e s t r i c t i o n s by the European Economic Community (EEC) and/or the FRG due to dieback w i l l be contrary to the General Agreement on T a r i f f s and Trade (GATT). Price declines and/or trade r e s t r i c t i o n s w i l l a f f e c t Canadian exporters through reduction of exports to Europe. Canadian exports to other world markets may also be reduced due to increased competition by European exporters and former exporters to the European market. i i i TABLE OF CONTENTS Page ABSTRACT i i TABLE OF CONTENTS i i i LIST OF TABLES v i LIST OF FIGURES v i i i ABBREVIATIONS i x ACKNOWLEDGEMENTS x i CHAPTER 1. INTRODUCTION 1 CHAPTER 2. THE DIEBACK 3 2.1 The Dieback Phenomenon 3 2.2 Emissions 4 2.3 Atmospheric F a l l o u t 4 2.4 The Symptoms of Dieback 6 2.5 Possible Reasons f o r Dieback 8 2.5.1 "Acid r a i n " hypothesis 8 2.5.2 The "ozone-hypothesis" 8 2.5.3 The "stress hypothesis" 9 2.6 Countermeasures 9 2.7 Damages Caused by Dieback i n German Forests ... 11 2.7.1 Damage on the Sample Plots 11 2.7.2 Forest Inventories 11 2.8 The Si t u a t i o n i n Europe 16 2.9 Dieback Consequences 19 2.9.1 Timber supply 19 i v Page 2.9.2 Growth 20 2.9.3 Timber Quality 22 2.10 Prognoses for the FRG 24 2.10.1 Prognosis for 1984 24 2.10.2 C r i t i c a l Supply Margins of Salvage Timber According to Lauterwasser and Zerle 28 2.10.3 S t e i n l i n ' s Scenario for Future Harvest Rates i n the Province of Baden-Wuerttemberg 31 2.10.4 The Schroeter and Grossmann Forecasts . 34 CHAPTER 3. SCENARIOS OF THE CONIFEROUS WOOD SUPPLY IN AUSTRIA, CZECHOSLOVAKIA, GDR, FRG, POLAND AND SWITZERLAND .... 35 3.1 The Model 35 3.2 Scenarios for the German and European Market .. 41 3.2.1 Coniferous Log and Coniferous Sawnwood Market of the FRG 41 3.2.2 Coniferous Pulpwood and Pulp Market of the FRG 44 3.2.3 European Coniferous Log and Sawnwood Market 46 3.2.4 European Coniferous Pulpwood and Pulp Market 48 CHAPTER 4. POSSIBLE MARKET ADJUSTMENTS 49 4.1 H i s t o r i c a l Market Behaviour 49 4.2 Storage of Roundwood and Sawnwood 55 4.3 Price Reactions 55 CHAPTER 5. POLICY OPPORTUNITIES AVAILABLE 64 5.1 Background 65 V Page 5.2 Subsidies to Forest Owners 69 5.3 Export Subsidies 71 5.4 Import R e s t r i c t i o n s 73 5.4.1 FRG 73 5.4.2 EEC and Europe 75 CHAPTER 6. OUTLOOK FOR TRADE 76 6.1 Background 76 6.2 Price Decline i n Europe 76 6.3 Trade R e s t r i c t i o n s Implemented by the FRG 77 6.4 Trade R e s t r i c t i o n s of Western European Countries Against the Comecon Countries 80 6.5 Trade R e s t r i c t i o n s of the EEC 83 6.5 Some Interferences for Canada's Future Exports of Forest Products 86 CHAPTER 7. SUMMARY 88 REFERENCES 91 v i LIST OF TABLES Table Page 1. Tolerance margins f o r Norway spruce and s i l v e r f i r .... 6 2. Damaged forest areas of German tree species i n the summer of 1982 14 3. Damaged forest areas of German tree species i n the summer of 1983 14 4. Damaged areas 1982 and 1983 15 5. Damaged forest areas of young and old stands i n Baden-Wuerttemberg i n the summer of 1983 17 6. Dieback i n Europe 18 7. Damaged forest area of coniferous species older than 60 years of Baden-Wuerttemberg i n 1983 25 8. Estimated salvage of dieback wood i n Baden-Wuerttemberg i n 1984 according to Weiger 27 9. Lauterwasser's estimates of the possible consequences of dieback on the coniferous harvest i n the forest d i s t r i c t of Freiburg i n the coming years 29 10. Relevant data for Baden-Wuerttemberg 31 11. S t e i n l i n scenario for Baden-Wuerttemberg 33 12. Scenarios of the coniferous AAC due to dieback i n the FRG 37 13. Volume per hectare i n affected countries 38 14. Scenarios of the coniferous AAC due to dieback i n the affected countries 39 15. Assumptions for c a l c u l a t i n g the production of forest products r e s u l t i n g from dieback timber 42 16. Surplus of coniferous logs (m^) i f European countries which are not affected by dieback maintain t h e i r AAC . 46 17. Coniferous sawnwood production due to dieback and surplus over domestic consumption i n 1981 47 v i i Table Page 18. Selected EEC t a r i f f s for forest products 66 19. Scenarios of the coniferous sawnwood production i n the EFTA and EEC due to dieback 81 20. Production, consumption and imports of forest products i n the EEC 83 v i i i LIST OF FIGURES Figure Page 1. A i r p o l l u t i o n i n the FRG 5 2. Mean annual pH-values of r a i n i n the FRG 7 3. The stress hypothesis 10 4. F i r on the sample plots 12 5. Spruce on the sample plots 13 6. Increment comparison of healthy and diseased trees 21 7. German coniferous saw and veneer log market, 1981 43 8. German coniferous pulpwood market, 1981 45 9. Production, consumption, imports and exports of saw and veneer logs of the FRG 50 10. Production, consumption, imports and exports of pulpwood of the FRG 51 11. Production, consumption, imports and exports of sawnwood of the FRG 52 12. Importing countries of coniferous sawnwood i n Europe ... 53 13. Exports to the FRG: coniferous sawnwood 54 14. Spruce log price indices i n US$, 1970=100 58 15. Log and wholesale price indices of France and the FRG .. 60 16. Spruce sawnwood p r i c e indices i n US$, 1970=100 62 17. Europe and i t s trade areas 65 18. Theory of supply and demand r e s u l t i n g from dieback 70 19. Possible changes of trade patterns r e s u l t i n g from trade r e s t r i c t i o n s implemented by the FRG 79 i x LIST OF ABBREVIATIONS AFZ Allgemeine F o r s t z e i t s c h r i f t , Journal of Forestry. AGDW Arbeitsgemeinschaft deutscher Waldbesitzerverbaende, A s s o c i a t i o n of German fo r e s t owners. AID Auswertungs-und Informationsdienst fuer Einaehrung, Landwirtschaft und Forsten, Information Service f o r N u t r i t i o n , A g r i c u l t u r e and Forestry. ARGE Arbeitsgemeinschaft, A s s o c i a t i o n . BGBL Bundesgesetzblatt, P u b l i c a t i o n of German Laws. BMELUF Bundesministerium fuer Ernaehrung, Landwirtschaft und Forsten, Federal M i n s i t r y of N u t r i t i o n , A g r i c u l t u r e and Forestry. BRD Bundesrepublik Deutschland, Federal Republic of Germany. CSSR Czechoslovakia. DBH Diameter Breast Height. ECE Economic Commission f or Europe. EEC European Economic Community. EFTA European Free Trade A s s o c i a t i o n . Europe In the thesis a l l European countries except the USSR. FAG Forstschaeden-Ausgleichsgesetz, Law on Compensation of Damages. FAO Food and A g r i c u l t u r e Organization. FRG Federal Republic of Germany. GATT General Agreement on T a r i f f s and Trade. GDR German Democratic Republic. HZB Holz - Z e n t r a l b l a t t , Timber Journal. IUFRO International Union of Forestry Research Organizations. MELUF Ministerium fuer Ernaehrung Landwirtschaft und Forsten, M i n i s t r y of N u t r i t i o n , A g r i c u l t u r e and Forestry of the Province of Baden-Wuerttemberg. p.a. Per annum. r.e. Roundwood equivalent. r.o.w. Rest of world. VDI Verband Deutscher Ingeniere, Board of German Engineers. SPECIES OF FOREST TREES REFERRED TO: S i l v e r f i r Abies alba Norway spruce Picea abies Pine Pinus s y l v e s t r i s Douglas-fir Pseudotsuga menziesii Beech Fagus s i l v a t i c a Oak Quercus robur and Quercus petraea x i ACKNOWLEDGEMENTS I would l i k e to s i n c e r e l y thank both of my major supervisors, S. Nilsson, M.F., Ph.D., Professor, Royal College of Forestry, Sweden and V i s i t i n g Professor, University of B r i t i s h Columbia, Vancouver, and P. Pearse, M.A., Ph.D., R.P.F., Professor of Forestry, University of B r i t i s h Columbia, Vancouver, f or t h e i r invaluable guidance and encouragement throughout t h i s p r o ject. Appreciation i s also extended to D. Haley, M.F., Ph.D., R.P.F., Professor of Forestry, University of B r i t i s h Columbia, Vancouver, f or advising me i n the i n i t i a l stages of my studies i n Vancouver and to Dr. S. Buckingham, U. H i l l b o r n , S. K l e i n and M. Luckert who edited the t h e s i s . Thanks also to many representatives of B.C. Forest Industries, of German forest services and German u n i v e r s i t i e s for the support with information and data. I want to thank e s p e c i a l l y Dr. U. Mantau, Albert-Ludwigs-Univer-s i t a e t , Freiburg, FRG, for the access to h i s data bank on i n t e r n a t i o n a l sawnwood trade, Professor Dr. H.J. S t e i n l i n , Albert-Ludwigs-Universitaet, Freiburg, FRG, M i n i s t e r i a l d i r e k t o r R. Eisenkolb, Ministerium fuer Landwirtschaft und Forsten, Baden-Wuerttemberg, FRG and Joerg Wetzel and Helge Frhr. von und zu G i l s a f o r t h e i r constant supply of current information. F i n a n c i a l assistance was provided by a graduate fellowship from the University of B r i t i s h Columbia, Vancouver and by the Forest Economics and Po l i c y Analysis Project, University of B r i t i s h Columbia, Vancouver. D E D I C A T I O N Meinem Bruder Jorg 1 CHAPTER 1. INTRODUCTION In the past few years the e f f e c t s of a i r p o l l u t i o n on Central European f o r e s t r y have been l i m i t e d to e c o l o g i c a l impacts on the forests themselves. However, s i g n i f i c a n t impacts w i l l l i k e l y soon be f e l t on the f o r e s t products markets as w e l l . Alarming losses due to a widespread forest "dieback" were reported i n the summer of 1983, creating much uncertainty about the future European fo r e s t products markets. This uncertainty was the s t a r t i n g point of t h i s t h e s i s . Its objective i s to provide information about probable e f f e c t s on European f o r e s t products markets of the changed harvesting of timber that i s l i k e l y to r e s u l t from dieback. Further objectives are to examine possible market adjustments (e.g., price mechanisms and/or p o l i c y measures) and t h e i r consequences on trade. The cause of the d i s r u p t i o n to f o r e s t products markets examined i n t h i s thesis i s a l i t t l e understood forest disease referred to here as the "dieback". The analysis centres on the FRG for which the best data are a v a i l a b l e , but the conclusions w i l l be extended to other countries as w e l l . German experts i n the forest service and u n i v e r s i t i e s have been making predictions for the future timber supplies of the FRG. Based on t h e i r work three scenarios for the future timber supply of Europe and the possible economic and p o l i c y consequences for forest products markets are developed i n Chapter 3. These scenarios, which are based on information generated by questionnaires mailed to German experts i n the forest service, i n d u s t r i e s and u n i v e r s i t i e s i n January 1984, are used to look at a l t e r n a -t i v e outcomes. Due to lack of appropriate data, other methods of fore-casting cannot be used at the moment. 2 Since there are no supply and demand e l a s t i c i t i e s f o r the European for e s t products markets, impacts on price indices of a 1972 blowdown are used as rough assessment of economic impacts. Further research and tests of the v a l i d i t y of t h i s approach w i l l be necessary. Po l i c y options are examined, and new aspects, as well as problems regarding the General Agreement on T a r i f f s and Trade (GATT), are i d e n t i f i e d . 3 CHAPTER 2. THE DIEBACK 2.1 The Dieback Phenomenon Damage to old s i l v e r f i r has been reported since the early 1970s. The most apparent has been reduced growth i n height and subtop dying of the f o l i a g e i n inner parts of the crown. In appearance, such damage i s s i m i l a r to damage caused by drought, which occurs p e r i o d i c a l l y , and therefore, the s i l v e r f i r damage was commonly ascribed to drought. Since the early 1980s, severe damage to other conifers as well as hardwoods, with p r a c t i c a l l y the same symptoms, along with even heavier damage to s i l v e r f i r has been reported from a l l over Europe. In 1982 an inventory by the German forest service indicated that 7.56 percent of the enti r e f o r e s t area was a f f e c t e d . A second inventory i n 1983 showed a s i g n i f i c a n t expansion, to 34 percent, of the damaged fo r e s t area. In the 1970s, the s i l v e r f i r damage had already been a major topic with e c o l o g i c a l movements such as the "Green Party", who pointed to increased a i r p o l l u t i o n as the major cause. The FRG's forest service tends to be p o l i t i c a l l y conservative and has not wanted to be seen entering a c o a l i t i o n with the "Green Party". Therefore, i t s strategy up to 1982 had been to minimize the problem rather than be perceived as a f f i l i a t i n g with the "green" movement. However, i n 1982 damage became so severe that drought alone no longer could serve as an explanation. The forest service was f i n a l l y forced to change i t s strategy and acknowledge o f f i c i a l l y for the f i r s t time that a i r p o l l u t i o n does indeed damage f o r e s t s . 4 2.2 Emissions Severe but l o c a l i z e d p o l l u t i o n resulted i n l e g i s l a t i o n aimed at the p o l l u t i n g industry. However, the e f f e c t of t h i s l e g i s l a t i o n was that instead of having acute l o c a l i z e d problems, which could e a s i l y be diagnosed by t h e i r t y p i c a l symptoms, more and more widespread impacts of small pollutant concentrations occurred (Wentzel, 1982). These small concentra-tions have had l i t t l e v i s i b l e e f f e c t on fo r e s t s and therefore went la r g e l y unnoticed. There are 3000 i d e n t i f i e d a i r p o l l u t i o n f a c tors i n the FRG. SO2, N0 X, ozone, heavy metals, and hydrogen f l u o r i d e s have been put forward as the main causes of the dieback (Ministry of Forestry of the Province of Baden-Wuerttemberg, MELUF, 1983). In 1969 (Wentzel, 1982) measures were already implemented to reduce i n d u s t r i a l dust emissions and b u i l d higher chimneys f or power and indus-t r i a l plants. While t h i s reduced atmospheric f a l l o u t i n t o the immediate i n d u s t r i a l areas, the higher chimneys simply dispersed emission of sulphur oxides over a much wider area. The increasing use of automobiles has also led to higher emissions of N0 X (Figure 1). 2.3 Atmospheric F a l l o u t Atmospheric f a l l o u t i s measured i n long-term and short-term values. Table I shows values f o r SO2, published by IUFRO (International Union of Forestry Research Organizations) and the VDI (Board of German Engineers). The values represent the maximum mean annual f a l l o u t , i n pg/m^ of a i r , that Norway spruce and s i l v e r f i r can t o l e r a t e . 5 P e r c e n t a g e o f 1966 e m i s s i o n P o l l u t i o n s o u r c e s a n d t h e i r s h a r e o f t o t a l p o l l u t i o n Hydro-carbon 1966 70 74 78166 70 74 78166 70 74 78 Source: Wentzel, 1982. Figure 1. A i r pollution i n the FRG. 6 TABLE 1. Tolerance margins f o r Norway spruce and s i l v e r f i r . (yg/m3 a i r p.a.) Long-term (1 year) Short-term (1 day) IUFRO VDI IUFRO VDI Norway spruce 50 50 150 250 S i l v e r f i r and Norway spruce on lower s i t e s 25 - 75 -Source: Federal M i n i s t r y of Forestry (BMELUF) 1983 Since 1980 the South German forest service has been measuring p o l l u -t i o n concentration values (MELUF, 1983). The average annual long-term values were between 16 and 40 yg/m3 of a i r . Short-term maxima were between 500 and 600 yg/m3 of a i r . At the eastern border of Bavaria as much as 1500 yg/m3 of a i r was reported (Rehfuess, 1983). Therefore, the long-term f a l l o u t was a l l below the l i m i t f o r Norway spruce on normal s i t e s , but mostly above the values for Norway spruce on lower s i t e s and f o r s i l v e r f i r . Very often the short-term maxima were considerably above the c r i t i c a l short-term values. Furthermore, there has been a s i g n i f i c a n t decline of the pH of r a i n i n the FRG over the past 20 years (Figure 2). 2.4 The Symptoms of Dieback. The dieback shows up d i f f e r e n t l y i n d i f f e r e n t tree species. General-l y , one can say that damage occurs i n a l l types of f o r e s t , on d i f f e r e n t IMS U & I* W *> '>/ **> *3 ?V *S" H Source: Waldbauernverband Nordrhein-Westfalen e.V., 1983. Figure 2. Mean annual pH values of r a i n i n the FRG. 8 s i t e s and under d i f f e r e n t c l i m a t i c conditions (MELUF, 1983). It mostly attacks older trees, but also a f f e c t s younger ones. T y p i c a l l y the f o l i a g e i s sparse and the needles are yellow. The f i n e root system of trees i s damaged and the mycorrhizae are changed. At present pests are spreading throughout the FRG. The expansion of t h e i r range i s mainly due to favourable c l i m a t i c conditions. However, the weakened state of the trees i s a contributing f a c t o r . 2.5 Possible Reasons for Dieback One assumes that a l l pollutants act s y n e r g i s t i c a l l y . However, i t i s not yet possible to examine t h e i r exact impact under laboratory conditions. Primary impacts of a i r p o l l u t i o n which reduce the v i t a l i t y of trees must c l e a r l y be separated from secondary impacts l i k e b i o t i c factors (e.g., insects) and a b i o t i c factors (e.g., drought). There are presently three major hypotheses: 2.5.1 "Acid-rain" hypothesis It i s assumed that a c i d p r e c i p i t a t i o n causes processes i n the s o i l that f i n a l l y lead to the d i s s o l u t i o n of A l 3 + and Mn2+M+ ions (Wentzel, 1982). These components are toxic to f i n e roots, and the tree eventually loses a l l r e s i s t a n c e . Furthermore, the accumulation of heavy metals i n trees and i n the humus layer has a big impact. Microorganisms are k i l l e d , the s o i l becomes more acid and i s f i n a l l y poisoned by the heavy metals. 2.5.2 The "ozone-hypothesis" This theory emphasizes the importance of ozone and other photo-oxidants (Schuett, 1982). They develop i n Central Europe i n amounts that 9 are toxic to plants, because of increased N0 X emissions. Therefore needles and leaves are d i r e c t l y damaged and more permeable f o r acid p r e c i -p i t a t i o n . People who emphasize t h i s theory use the argument that nutrients (such as Mg, Zn, Ca, Fe) are leached out of needles. A further argument i s that dieback s t a r t s where smog inversion layers p r e v a i l . 2.5.3 The "stress hypothesis" The stress hypothesis (Schuett, 1982) assumes damages are caused by small concentrations of pollutants i n s y n e r g i s t i c reactions (Figure 3). The f i r s t e f f e c t i s a d e f i c i t i n carbohydrate production over the years. This then r e s u l t s i n reduced v i t a l i t y , reduced growth, disturbed regenera-t i o n of f i n e root systems and of f o l i a g e . Resistance against secondary pests and a b i o t i c impacts, e s p e c i a l l y c l i m a t i c extremes, i s reduced, and f i n a l l y , more and more loss of needles occurs. 2.6 Countermeasures Tests i n v e s t i g a t i n g whether s i l v i c u l t u r a l countermeasures are e f f e c -t i v e have shown that f e r t i l i z a t i o n and s p e c i a l thinning methods only delay the beginning of dieback. Under no circumstances can one expect any r e a l help or even a r e v e r s a l i n already affected f o r e s t s • Even the change to more r e s i s t a n t tree species proved to be f u t i l e i n Eastern Europe (Hatzfeldt, 1983). The only r e a l i s t i c option a v a i l a b l e i s a reduction of emissions. However, t h i s problem has to be solved i n t e r n a t i o n a l l y , and therefore s i g n i f i c a n t emission reductions cannot be expected before the early '90s, because of the lagtime i n implementation ( S t e i n l i n , 1984). Some measures 10 Climate I I D e f i c i t ir. f High and/or 1 Higher, transpira-t i o n I H 2 O supply disturbed Inputs by a i r p o l l u -t i o n S O 2 , NOx, photo-oxidants, heavy metals Loss of needles H 2 0 d e f i c i t / N u t r i e n t d e f i c i t )•.••'.•.-y/.-.-.-Damages of the wax l a y e r , damages of the stomata, therefore higher t r a n s p i r a t i o n ^Disturbances of enzyme & n u t r i e n t households l e s s transport of assi-m i l a t i o n products, less r e s i s t a n c e against acid and drought a c i d r a i n — ^ F i r : wet wood each] u l n u t r syst /Mor ing L / " c r e a a e a r i e n t s Jr a c i d i t y J F = 1 T 'Ions., of ,. metals dis-' solved ^ I /M.n£ iuence on ground-water Source: M i n i s t r y of Forestry, Baden-Wuerttemberg, 1983. Figure 3. The s t r e s s hypothesis. 11 have been implemented i n the FRG, but they are f a r from s u f f i c i e n t (MELUF, 1983). 2.7 Damages Caused by Dieback i n German Forests 2.7.1 Damage on the sample plots In 1980 sample plots were established i n the Province of Baden-Wuerttemberg. The rapid spread of dieback i s shown for s i l v e r f i r and spruce i n Figures 4 and 5. It i s important to note that i n the f a l l of 1980 100 percent of a l l spruce and 65 percent of a l l f i r were s t i l l healthy. In the f a l l of 1983 not one healthy f i r or spruce could be found. The progression to more and more severe damage i s obvious. Experience with f i r has proved that i t takes 5 years f o r the tree to die a f t e r damage becomes v i s i b l e ( S t e i n l i n , 1984). 2.7.2 Forest inventories In the summer of 1982 and 1983 inventories of a l l German forests were made. These inventories supported previous reports that not only were s i l v e r f i r and spruce damaged, but also pine, Douglas-fir and even hard-woods. In 1982 7.56 percent of the forest area i n the FRG was affected (Table 2). By 1983, 34 percent of the forest area i n the FRG was affected (MELUF, 1983) (see Table 3). In only one year, the dieback had spread considerably, p a r t i c u l a r l y i n category II (Table 4), a development that i s mirrored i n the sample p l o t s . The damage was extensive - the dieback affected areas more than quadrupled between 1982 and 1983. Even taking into account the very dry summer of 1983, which favoured the spread of dieback, and accounting f o r a more accurate inventory technique i n 1983, the expansion was dramatic. 12 Figure 4. F i r on the sample plots. Figure 5. Spruce on the sample plots . 14 TABLE 2. Damaged forest areas of German tree species i n the summer of 1982. To t a l area Affe c t e d area Percent of thousand hectares thousand hectares t o t a l Spruce 2,951 260 8.8 Pine 1,464 90 6.2 F i r 176 100 56.8 Beech and oak 1,865 90 4.8 Others 950 20 2.1 T o t a l 7,406 560 7.56 Source: Waldbauernverband Nordrhein-Westfalen e.V., 1983. TABLE 3. Damaged forest areas of the summer of 1983. Ge rman tree species i n Area i n Affect e d area the FRG. Thousand hectares I II III Percent of t o t a l Percent of t o t a l area Hectares Spruce 2,951 30 10 0.9 41 1,209,910 Pine 1,464 32 10 1.0 43 629,520 F i r 176 27 42 7.0 76 133,760 Beech 1,250 22 4 0.3 26 325,000 Oak 615 13 2 0.2 15 92,250 Others 950 9 7 0.4 17_ 161,500 To t a l 7,406 25 8.5 0.9 34 2,518,040 Category I: 10-25% loss of needles Category I I : 26-60% loss of needles Category I I I : above 60% loss of needles. Source: M i n i s t r y of Forestry, Baden-Wuerttemberg, 1983. 15 TABLE 4. Damaged areas 1982 and 1983. Damaged areas percent of percent of M i l l i o n hectares f o r e s t area damaged area 1982 1983 1982 1983 1982 1983 Category I 0.419 1.85 6 25 75 72.5 Category I I 0.108 0.63 1.5 8.5 19 25 Category III 0.035 0.076 0.5 1.0 6 2.5 Total I+II+III 0.562 2.52 8 34 100 100 Source: AID, 1983 Let us look at category I I I , where the affected area increased from 35,000 ha to 76,000 ha. To properly evaluate the numbers, several points have to be kept i n mind (AID, 1983). 1. The data i n Tables 3 and 4 are not e n t i r e l y accurate, because category III damage has been co n t i n u a l l y harvested to prevent losses of timber q u a l i t y through bark beetles. Therefore the area would a c t u a l l y be larger i f category III stands were not continually harvested. In 1982 10 percent of the AAC was due to dieback (Eisenkolb, 1984). Ten percent of the German AAC of around 30 m i l l i o n m3 are 3,000,000 m3. Assuming that the harvested stands had an average standing volume of 300 m3/ha, the a d d i t i o n a l category I I I areas account for 3,000,000: * 300 = 10,000 ha. Therefore, the t o t a l area of category III damage would have been 86,000 ha i n 1983. The expansion of category III was therefore r e a l l y around 245 percent, which was r e l a t i v e l y small compared to category I I , but weighs 16 much heavier when one considers that category I I I are a c t u a l l y dead stands. 2. It i s important to note that, e s p e c i a l l y i n category I I I , damaged areas are aggregated. Therefore, not only closed stands are l i s t e d , but also the sum of a l l areas that are occupied by sin g l e damaged trees. 3. As one can see from the development on the sample plots (Figures 4 and 5), dieback i s s t i l l expanding since there was an increase i n loss of needles from spring to f a l l 1983. 4. In Baden-Wuerttemberg, the inventory data were s p l i t into stands below and above the age of 60. Table 5 shows that older stands are much more affected by the dieback than younger stands. By assuming a continuation of the recent trend of dieback expansion, Schroeter (1983) predicts the death of a l l s i l v e r f i r s and a l l spruces on the sample plots i n Baden-Wuerttemberg before 1992. Grossmann's (1982) computer model predicts a t o t a l breakdown of the FRG's forests before the year 2000. 2.8 The S i t u a t i o n i n Europe The FAO/ECE Commission published the following data i n early 1983 (Table 6), which r e a l l y represent estimates. Furthermore, the data are from 1982, and since then dieback has ra p i d l y expanded not only i n the FRG, but also i n Eastern Europe, East France, A u s t r i a and Switzerland (Lehringer, 1984). However, the FAO/ECE data are s t i l l the most current data f or the whole of Europe. TABLE S. Damaged forest areas of young and old stands ln Baden-Wuerttemberg ln the summer of 1983. I Below 60 years Above 60 years Category Spruce Silver f i r Dougla f i r s - Pine i Other soft -wood Beech Oak Other hard-wood Spruce Silver f i r Douglas-f i r Pine Other soft -wood Beech Oak Other hard-wood 1 P e r c e n t 0 73 48 88 , 36 " 45 79 86 78 13 6 37 19 22 60 58 70 I 20 27 9 3^ : 38 19 12 15 55 28 31 45 32 33 36 24 II 7 25 3 29 \ 15 2 2 7 , 32 60 32 34 41 7 6 6 III 0 0 0 2 2 0 0 > 0 0 6 0 2 5 0 0 0 Average loss of needles 7.9 15.9 4.0 19.5' 16.6 7.3 5.3 7.8 23.8 34.8 21.5 24.7 28.1 11.2 11.2 9.6 Source: Ministry of Forestry, Baden-Wuerttemberg, 1983. 18 TABLE 6. The dieback i n Europe. Percent of affected Region Tree species forests Finland Sweden Norway Denmark Ireland Great B r i t a i n France Netherland FRG German Democratic Republic (GDR) Switzerland A u s t r i a Poland Czechoslovakia (CSSR) Hungary <3 <5 <5 <5 <3 <3 <3 <3 8 12 <3 6 7 10 <3 l o c a l i z e d southwest southeast northwest l o c a l i z e d l o c a l i z e d Lorraine, Rhone Vall e y l o c a l i z e d highlands L e i p z i g , Halle North Wallis T i r o l , Steiermark Oberschlesien Erzgebirge, Beskiden l o c a l i z e d pxne spruce spruce, pine pine pine, spruce, oak spruce, f i r f i r , spruce, pine, oak, beech spruce, pine spruce, f i r , pine, beech f i r , spruce pine, spruce, larch f i r , spruce, pine pine Source: FAO/ECE, 1983. 19 2.9 Dieback Consequences 2.9.1 Timber supply In 1983 i n most regions of the FRG the harvest was at the normal l e v e l (Zerle, 1983). For a proper evaluation of t h i s , one has to consider the inventory data of 1982. The areas l i s t e d as damaged were r e l a t i v e l y small and therefore i t was possible to cut dieback-wood as part of the planned harvest rates. However, t h i s has to be tempered by looking at the s e r i o u s l y affected regions i n the FRG. In the province of Baden-Wuerttemberg, dieback timber accounted for 10 percent of the t o t a l AAC 1 i n 1982, and for 15 percent i n 1983 (Eisenkolb, 1984). In 1983 6 percent of the AAC was salvage timber that had been damaged by bark beetles. Since bark beetle damage re s u l t s p a r t l y from dieback, another one or two percent have to be added to the proportion of the share accounted for by dieback salvage. In Bavaria, a d e t a i l e d study was made i n the spring of 1983. Each forest d i s t r i c t had to report the amount of timber which ought to be cut during the summer due to dieback. The only c r i t e r i o n f o r harvesting was whether or not a tree would survive the summer of 1983. The r e s u l t i n g report showed a t o t a l of 290,000 m^  of timber destined to die i n the early spring of 1983. This represented 10 percent of the t o t a l Bavarian AAC. However for i n d i v i d u a l counties t h i s timber amounted to as much as 22 percent of the AAC. Since the survey l i s t e d a l l tree species i n d i v i d u a l l y , i t became evident that 18 percent of the AAC of spruce i n a l l of Bavaria AAC includes public and private f o r e s t s . 20 would be dieback. For some counties the dead spruce went as high as 44 percent. The summer of 1983 was again very dry and hot and dieback continued to expand. Consequently a l l forecasts for harvestable dieback timber had to be revised upward. By November 1983, depending on the geographic l o c a t i o n , harvests consisted of 30 to 40 percent dieback timber (Waldwirt, 1983). Furthermore, i n 1983 pressure on timber markets was aggravated i n some regions because of a d d i t i o n a l sales of timber by private forest owners who, fearing a glut of supply of salvage timber and lower prices i n the future, began to s e l l timber that had been intended for sale i n l a t e r years ( S t e i n l i n , 1984). 2.9.2 Growth A growth ri n g analysis was c a r r i e d out on the sample plots i n Baden-Wuerttemberg (MELUF, 1983). The r e s u l t s show that i n 1982 the increment of severely diseased trees was roughly 30 percent of less diseased and healthy trees (Figure 6). A t h a r i and Kramer published s i m i l a r r e s u l t s (Allgemeine F o r s t z e i t -s c h r i f t , AFZ, 1983). They examined four spruces, three of them damaged by dieback and one apparently healthy. Their main r e s u l t s were: 1. The damaged trees have had a reduced growth rate since 1947. 2. Since 1973, the damaged trees have produced only 81 percent of the expected annual rings at DBH (on average two annual rings have been missing), whereas before 1973, a l l annual rings were formed. 2 1 3.5 „ mm 3.0 2.5 » 2.0 1.5 2 o 0 1 10 0.5 L Loss of needles: •10-25% ' 1 mm 16-60% 2 61-lOOZj v A V \ s~ • 3 ,3.5 3.0 2.5 2.0 1.5 1.0 0.5 i i 70 72 74 76 78 80 1982 1 9 4 8 50 52 54 56 58 60 62 64 66 68 y e a r Source: M i n i s t r y of Fo r e s t r y , Baden-Wuerttemberg, 1983. Figure 6 . Increment comparisons of healthy and diseased trees 22 3. The healthy tree had formed a l l annual rings. 4. A f t e r the drought of 1976, only the healthy tree regained i t s normal growth rate. 5. Relative to the healthy tree, the average volume increment of the damaged trees was 88 percent from 1946 to 1955, 57 percent from 1956 to 1975 and 21 percent from 1976 to 1981. Frenzel (1983) made s i m i l a r observations i n the course of a growth r i n g analysis of a stand i n the Black Forest. He even proved that today's diseased trees had already ceased to respond to f e r t i l i z a t i o n by the early •60s. Based on the r e s u l t s of A t h a r i and Kramer (1983), the following c a l c u l a t i o n s were c a r r i e d out (AGDW, 1984). They assume that the average loss of needles i s correlated to a reduction of growth. This reduction i n growth amounts to 17.5 percent for category I, 42.5 percent of category I I , and 80 percent for category III of the affected forest area. The t o t a l growth reduction of diseased trees amounts to a loss of 4 or 5 m i l l i o n m3 p.a. i n harvestable timber i n the FRG, given the assumptions outlined by the authors. If such a reduction of growth has indeed prevailed over recent years, the German AAC of around 30 m i l l i o n m3 has a c t u a l l y been roughly 15 percent above the sustained y i e l d l e v e l f o r a number of years. As a r e s u l t , future AACs i n the FRG w i l l have to be lower. 2.9.3. Timber q u a l i t y Frenzel (1983) i n i t i a l l y stated that dieback-affected trees have less l i g n i n i n t h e i r c e l l walls, and that a lower l i g n i n content would a f f e c t 2 3 timber q u a l i t y and eventually also the pulp production process. Since then, others have suggested that l i g n i n content i s not reduced and that the physical properties of the dieback-timber are not affected (Bauch and Fruehwald, 1983). On the other hand, Bauch and Fruehwald (1983) observed that diseased f i r and spruce contain a smaller percentage of water, which makes fas t e r fungi invasions of the harvested timber possible, and that storage may well r e s u l t i n more red s t r i p i n e s s and s i m i l a r d i s c o l o r a t i o n s . Therefore, the diseased trees have to be processed and dried quickly or stored i n a way that maintains the water percentage at a high enough l e v e l to prevent such degradation. When t r y i n g to evaluate these diverging papers, several issues con-cerning the q u a l i t y of trees damaged by dieback are raised. 1. Up to now, most research on timber q u a l i t y was focused on the physical properties of affected trees. Chemical properties of trees k i l l e d by dieback have not been examined s u f f i c i e n t l y . 2. In case of an increased harvest rate due to dieback, i t may well be necessary to store the harvested wood for c e r t a i n periods. Up to now, the properties of dieback-wood that has been stored are unknown. 3. The q u a l i t y of dieback-wood has been looked at only with very few and recently cut trees. There has been no representative sample nor any experience with storage (Questionnaire, 1984). 24 2.10 Prognoses f o r the FRG 2.10.1 Prognosis for 1984 There had been general agreement that the 1984 harvest would not be increased because of dieback (Questionnaire, 1984). However, the recent increase of the bark beetle population has introduced a new element of uncertainty. L o e f f l e r (Questionnaire, 1984) predicted that dieback-timber w i l l account for only 10-20 percent of the coniferous harvest i n 1984, whereas 20-30 percent of the coniferous harvest w i l l be salvage due to bark beetles. Zerle (1983) on the other hand, predicts no increase i n the AAC of coniferous wood only, i f the bark beetle problem remains constant. Neuser (Questionnaire, 1984) points out that even i f there i s no increase i n harvest, there w i l l be a change i n the grade structure of the coniferous harvest. He expects that f a r more of the lower grades w i l l have to be taken. Eisenkolb and Weiger, both representatives of the M i n i s t r y of Forestry of Baden-Wuerttemberg, made the following statements concerning the AAC f o r 1984. Eisenkolb (Questionnaire, 1984) emphasizes that the harvest of category III of a l l affected coniferous stands i n 1984 would r e s u l t i n an amount of salvage far below the regular coniferous AAC. Category III represents 53,519 ha of coniferous stands. A harvest of these areas would mean approximately 50 percent of the coniferous AAC. To properly evaluate Eisenkolb's statement, i t i s important to r e a l i z e that the present strategy i s to harvest category I I I . Furthermore, to have 50 percent salvage i n the AAC i s regarded by experts (Zerle, 1983) as the threshold beyond which h i s t o r i c a l l y serious marketing problems have a r i s e n . 25 In order to plan manpower and machine requirements f o r 1984, Weiger (1983) looked at the damage of coniferous stands older than 60 years (as shown i n Table 7). TABLE 7. Damaged forest area of coniferous species older than 60 years of Baden-Wuerttemberg i n 1983. Category loss of needles Spruce hectare percent S i l v e r f i r hectare percent Pine hectare percent Category 0 (0 - 10%) 32,447 13 4,690 6 13,382 19 Category I (11 - 25%) 137,274 55 21,889 28 31,694 45 Category II (26 - 60%) 79,869 32 46,905 60 23,947 34 Category I II (61 - 100%) 0 0 4,690 6 1,409 2 Source: Weiger, 1983. Weiger made the following assumptions: 1. Marketable timber i n m-fyha of stands older than 60 years: Spruce/fir 400 m3/ha Pine 300 m^/ha 2. In 1984 50 percent of category I II w i l l have to be harvested due to dieback. 26 3. In 1984 2.5 percent of category II w i l l have to be harvested due to dieback. 4. In 1984 0.5 percent of category I w i l l have to be harvested due to dieback. The salvage harvest due to dieback f o r 1984 i s summarized i n Table 8. The average coniferous AAC of Baden-Wuerttemberg i s 5.9 m i l l i o n m3. According to Weiger, dieback salvage i n 1984 w i l l be around 50.2 percent (2.9 m i l l i o n m3) of the normal coniferous AAC. Furthermore, he points out that he was being conservative with t h i s f i g u r e of 2.5 percent of category II harvest. If i n sp i t e of t h i s 2.5 percent assumption, 3.75 percent category II timber has to be harvested, the salvage percentage w i l l increase to 62 percent of the normal AAC. He therefore concludes that i n 1984 f ar more than 50 percent of the normal AAC of coniferous wood w i l l already be salvage. Weiger further states that, i f salvage increases due to pests, i t w i l l not be possible to maintain the coniferous AAC at i t s normal l e v e l . Concerning the a v a i l a b i l i t y of labour and machines, Weiger foresees a serious problem, since at normal cut volumes ca p a c i t i e s are only just s u f f i c i e n t . Given present c a p a c i t i e s , harvest can be increased at addi-t i o n a l cost to only up to 130 percent of the normal AAC (Eisenkolb, 1983). At the same time, other work such as r e f o r e s t a t i o n or hardwood harvests would have to be deferred. In order to cope with the dieback problem, ad d i t i o n a l machine and manpower capacities would be needed for a longer period ( S t e i n l i n , 1983). TABLE 8. Estimated salvage of dieback timber i n Baden-Wuerttemberg i n 1984. Spruce: Category I (137, 274 ha X 400 m3 X 0.5%) = 274, 548 3 m Category II (79, 869 ha X 400 m3 X 2.5%) = 798, 690 m3 S i l v e r f i r : Category I (21, 889 ha X 400 m3 X 0.5%) = 43, 778 ID3 Category II (46, 905 ha X 400 m3 X 2.5%) = 469, 050 m3 Category III (4, 690 ha X 400 m 3 X 50%) = 938, 000 m3 Scotch pine: Category I (31, 694 ha X 300 m3 X 0.5%) = 47, 541 m3 Category II (23, 947 ha X 300 m3 X 2.5%) = 179, 603 m3 Category III (1, 409 ha X 300 m3 X 50%) = 211, 350 m3 T o t a l = 2,962,560 m3 Source: Weiger, 1983. 28 2.10.2 C r i t i c a l supply margins of salvage timber according to  Lauterwasser and Zerle In order to s i m p l i f y h i s c a l c u l a t i o n , Lauterwasser (1983), president of the forest service Department of Freiburg, assumed that only stands older than 60 years w i l l be a f f e c t e d i n ways that make increased harvest rates be necessary. Following t h i s , the usual coniferous log supply of 72 percent of the coniferous AAC was assumed i n Table 9 to increase to 85 percent of the coniferous AAC i n the region of Freiburg. Two scenarios were compared (Table 9): (a) 10 percent of the coniferous standing inventory w i l l have to be harvested i n the next 5 years, or (b) 20 percent of the coniferous standing inventory w i l l have to be harvested i n the next 5 years. Lauterwasser made rough estimates of the salvage cuts of some old stands over the next 5 years ( i n contrast to Weiger, who calculates the salvage cuts more p r e c i s e l y by r e f e r r i n g to the presently damaged areas). Scenario (a): Column 4, Table 9 shows that dieback causes almost as much i n salvage of logs as the planned AAC. In the case described the pulpwood supply w i l l not be s u f f i c i e n t to supply the pulp industry (column 4) and 245,000 m3 of a d d i t i o n a l pulpwood w i l l have to be harvested (column 5). Pulpwood grades, however, occur mainly together with saw-logs. Lauterwasser assumed a 50:50 d i s t r i b u t i o n of the wood grades i n a normal cut operation (column 7). Accordingly the coniferous log harvest w i l l increase to 114 percent and the t o t a l harvest to 110 percent. Scenario (b): Harvest of 20 percent of the standing coniferous inventory i n the next 5 years w i l l r e s u l t i n 2,040,000 m3 coniferous logs TABLE 9. Lauterwasser 1s estimates of the possible consequences of dieback on the coniferous harvest i n the forest d i s t r i c t of Freiburg ( i n thousand cubic metres) f o r the coming years. Necessary a d d i t i o n a l Planned Difference harvest Normal AAC Salvage to normal AAC aspired to necessary T o t a l harvest 3 3 3 3 of normal % m % m m m % (1) (2) (3) (4) (5) (6) (7) (8) (9) a) Logs 72 1,115 85 1,020 -95 95 245 1,265 114 Pulpwood 28 425 15 180 -245 245 245 425 100 Total 100 1,540 100 1,200 — — 490 1,690 110 b) Logs 72 1,115 85 2,040 +925 65 2,105 189 Pulpwood 28 425 15 360 -65 65 65 425 100 T o t a l 100 1,540 100 2,400 - - 130 2,530 164 Source: Lauterwasser, 1983. 30 (column 4) and an a d d i t i o n a l 65,000 mJ r e s u l t i n g from a d d i t i o n a l pulpwood cut operations (column 7). Total coniferous log harvest w i l l increase to 189 percent and t o t a l coniferous AAC w i l l increase to 164 percent of the planned coniferous AAC. Lauterwasser doubts that a l l desired grades can be supplied from these salvage operations. Even i f i t were possible, there i s not enough f l e x i b i l i t y i n cut operations (column 7) to provide for adequate s i l v i -c u l t u r e . Therefore a d d i t i o n a l cuts w i l l have to be made. Lauterwasser concludes that a harvest schedule l i k e (b) (Table 9) throughout the FRG would r e s u l t i n a coniferous log supply that could not be sold at normal p r i c e s . As soon as 15 percent of the coniferous inven-tory has to be cut i n salvage operations, there w i l l be serious impacts on wood p r i c e s . Harvesting of this 15 percent within 5 years w i l l r e s u l t i n salvage being 145 percent of the planned AAC each year. Thus a development between the Lauterwasser scenario margins ( i . e . , a cut of 10 or 20 percent of standing volume within 5 years) w i l l cause great problems for p r i c e s . Zerle (1983) claims that 40 percent salvage each year w i l l make i t nearly impossible to coordinate supply and demand, and 50 percent salvage each year w i l l make i t impossible. These r e l a t i v e l y low salvage margins are necessitated by the fac t that catastrophes usually r e s u l t i n an oversupply of s p e c i f i c grades and that, f o r s i l v i c u l t u r a l reasons, these p a r t i c u l a r grades s t i l l have to be cut i n areas unaffected by the catastrophe. 31 2.10.3 S t e i n l i n ' s scenario for future harvest rates i n the province S t e i n l i n , professor at the Univ e r s i t y of Freiburg, has also specu-lat e d on future developments. He deduces from the experience with s i l v e r f i r that a tree dies within 5 years from the day the f i r s t v i s i b l e symptoms appear. Based on t h i s , he developed the following scenario for the future harvest rates i n the province of Baden-Wuerttemberg. (The relevant data are shown i n Table 10). He emphasized that the figure of 300 m3/ha for the standing volume of affected forests represents a very conservative estimate, because up to the present day predominantly old trees have been affected by dieback. of Baden-Wuerttemberg (1983) TABLE 10. Relevant data for Baden-Wuerttemberg. Forest area Baden-Wuerttemberg 1,302,578 ha (18% of the FRG) AAC (1981) 7,600,000 m- (25% of the FRG) Forest area affected by dieback (1983) 636,961 ha (49% of the forest area i n Baden-Wuerttemberg) Volume of standing timber on areas aff e c t e d by the dieback 300 m3/ha Annual cut per ha (1981) 5.8 n r V h a Source: S t e i n l i n , 1983 32 S t e i n l i n made the following assumptions i n his examples: 1. The forest area that i s presently affected by dieback w i l l die within the next 5 years (Scenario I) or within the next 7 years (Scenario I I ) . In both scenarios only f o r e s t areas that are already affected by dieback are considered, i . e . , 636,961 ha. 2. Of the 300 m3/ha average standing volume, 250 m3/ha have to be cut due to dieback i n affected stands during the 5- or 7-year periods. 3. In the scenarios no other salvage operations (e.g., bark beetle salvage) are considered i n s p i t e of the f a c t that the bark beetle problem i s p a r t l y a r e s u l t of dieback. 4. In unaffected stands, the AAC might be reduced to 2 m3/ha per year. S t e i n l i n emphasizes that from his point of view a further reduction of the AAC i n unaffected stands w i l l be impossible, because of s i l v i c u l t u r a l n e c e s s i t i e s . Working with these four assumptions, S t e i n l i n developed the scenarios shown i n Table 11. S t e i n l i n concludes, that i f there i s a s i m i l a r advance of dieback a l l over the FRG, the future AAC w i l l have to be increased to at le a s t 90 m i l l i o n m3 per annum which represents 300 percent of the present AAC. This conclusion i s reasonable i f one considers the recent advance of dieback as outlined i n Chapter 2.7.2. S t e i n l i n predicts that i n the case of increased harvest rates, the Scandinavian countries w i l l import s i g n i f i c a n t quantities of roundwood from Central Europe. In th i s case, the Scandinavian countries could reduce t h e i r harvest rates and increase t h e i r standing inventory i n the following TABLE 11. S t e i n l i n scenario for Baden-Wuerttemberg. Scenario I Scenario II Harvest i n 5 years Harvest i n 7 years Thousands 1. Affected standing volume: 636,961 ha x 250 m3/ha 2. Harvest rate each year: Affected standing volume divided by years to death (5 or 7 years) 3. Salvage percentage of current AAC 159,000 m3 32,000 m 3/year 419.1% 159,000 m3 23,000 m 3/year 299.3% 4. Additional cut on unaffected area = 665,617 ha x 2 m3/ha per year 1,331 m 3/year 1,331 m 3/year Z cut every year (2) + (3): 33,331 m 3/year 24,331 m 3/year Percentage of normal AAC: 436.6% 316.8% of 7,600,000 m 3/year Source: S t e i n l i n , 1983. 34 years. A f t e r l i q u i d a t i o n of most of the mature timber i n Central Europe, the Scandinavian countries could then again supply Central Europe with increased domestic cuts. This kind of balancing w i l l reduce the e f f e c t s of dieback. However, such a scenario could only come about i f dieback were li m i t e d to Central Europe (Ollmann, 1984). 2.10.4 The Schroeter and Grossmann Forecasts As outlined i n Chapter 2.7.2, Schroeter (1983) and Grossmann (1982) predict future outcomes without quantifying the expected harvest rates. Both assume a continuation of the current expansion of dieback. Schroeter predicts the death of a l l s i l v e r f i r and spruce on the sample plots i n Baden-Wuerttemberg before 1992. Grossmann's computer model predicts a t o t a l breakdown of the FRG's forests by the year 2000. This would mean that up to the year 2000, 12,768 b i l l i o n m3 of timber would come on the market (FAO, 1976: Forest Resources i n the European Region, Forest area i n the FRG: 7.2 m i l l i o n hectares; average standing volume per hectare: 144 m3; 3 3 growth up to 2000 = 16 years x 30 m i l l i o n m = 240 m i l l i o n m ). 2 2 Taking the 1981 AAC as a baseline (FAO Yeabook, 1983: approximtely 30 o m i l l i o n m ), the future t o t a l harvest would consist of salvage only and could amount to 284 percent (85.12 m i l l i o n m3) of the AAC of 1981. 35 CHAPTER 3. SCENARIOS OF THE CONIFEROUS FOREST PRODUCTS SUPPLY IN AUSTRIA, CZECHOSLOVAKIA, GDR, FRG, POLAND AND SWITZERLAND UP TO 1990 3.1 The Model Several scenarios of future wood supply scenarios i n the FRG were discussed i n Chapter 2.10. Based on the methods which were used i n these scenarios, the following model was developed (Table 12). Future harvest rates w i l l be r e f e r r e d to as AACs, despite the fa c t that they w i l l not be harvest rates i n the sense of sustained y i e l d . However, since the harvest rates w i l l s t i l l have to be o f f i c i a l l y set for a l l forests by the forest service, they are referred to as AAC. The model i s based on the following assumptions: 1. Only presently affected forest areas w i l l be harvested. Only dieback salvage but no pest salvage w i l l be considered. 2. The c a l c u l a t i o n i s based on the production figures of 1981. A l l figures are taken from the FAO Yearbook of 1983. 3. On unaffected s i t e s the AAC/ha w i l l be reduced to 2 m 3/ha/year which represents roughly 50 percent of the normal production/ha/year. 4. Since dieback a f f e c t s predominantly mature stands, 190 m3/ha w i l l have to be harvested i n affected areas by dieback within the periods outlined. Based on these assumptions the model was used to inv e s t i g a t e the following three scenarios: I. Dieback stands are harvested i n the next 7 years. This w i l l r e s u l t i n an AAC which w i l l be 273.2 percent of a normal AAC. Salvage alone w i l l account for 248.8 percent. I I . Dieback stands are harvested i n the next 5 years. This w i l l 36 r e s u l t i n an AAC which w i l l be 372.7 percent of a normal AAC. Salvage alone w i l l account for 348.8 percent. I I I . Only dieback stands of categories II and III are harvested i n the next 5 years. This w i l l r e s u l t i n an AAC which w i l l be 137.8 percent of a normal AAC. Salvage alone w i l l account for 100.5 percent. By comparing the harvest rates of each scenario i n Table 12 with the AAC of 1981, the scenario AACs can be expressed as a percentage. These percentages are used to c a l c u l a t e the increase of the AAC In the other countries. Since s u f f i c i e n t data of the state of dieback i n other countries are not a v a i l a b l e i t was necessary to make assumptions 5 to 8 as w e l l : 5. The s i t u a t i o n i n the other countries i s assumed to be s i m i l a r to the s i t u a t i o n i n the FRG, although t h i s may not be e n t i r e l y accurate. 6. The p r e v a i l i n g differences i n the average standing volume per hectare of coniferous forests of the other countries are taken into account by using the figures of the FRG as an average f i g u r e . This assump-t i o n i s reasonable since the average standing volume of the other countries i s s i m i l a r to the average standing volume of the FRG (Table 13). 7. Age cl a s s structures are assumed to be s i m i l a r . 8. In Table 14 production figures of saw and veneer logs and pulpwood only are shown. Since there are other uses for wood (e.g., fuelwood, pitprops, and other i n d u s t r i a l roundwoods), the numbers for saw and veneer log and pulpwood production do not sum up to the t o t a l production. The increase i n the two wood grades shown i s assumed to be as great as the increase i n t o t a l production. TABLE 12. Scenarios of the coniferous AAC due to dieback ln Che FRG. Background data 1. Coniferous forest area - 4,591,000 ha 2 . Coniferous AAC 1981 21,523,000 nrVa 3 . Damaged coniferous forest area 1983 1,973,190 ha 4. Salvage cut/ha on affected coniferous areas 190 nP/ha 5. Salvage cut on affected coniferous areas ln the next years (3) x (4) 374,906,100 m3 6. Unaffected coniferous area 1983 2,618,000 ha 7. Reduced cut/ha.a on unaffected coniferous areas 2 nr^ /ha.a 8. Cut on unaffected areas (6) x (7) 5,236,000 m3/a Scenario I. AAC, If "dieback stands" will be harvested ln the next 7 years 9. Cut on affected areas each year 374,906,000 m3: 7 years 53,558,014 m3/a 10. Percentage of the coniferous AAC of 1981 248.8% 11. Cut on unaffected areas each year (8) 5,236,000 m3/a 12. z cut each year (9) + (11) 58,794,014 m3/a 13. Z percentage of coniferous AAC of 1981 273.2Z Scenario II. AAC, If "dieback stands" will be harvested ln the next 5 years 14. Cut on affected areas each year 374,906,100 m3: 5 years 74,981,220 n^/a 15. Percentage of the coniferous AAC of 1981 348.4* 16. Cut on unaffected areas each year 5,236,000 m3/a 17. I cut each year (14) + (16) 80,217,220 m3/a 18. Z percentage of coniferous AAC of 1981 372.7Z Scenario III. AAC, i f only "dieback stands" of categories II and III will be  harvested ln the next 5 years 19. Damaged coniferous areas ln 1983 of categories II and III 568,939 ha 20. Salvage cut on affected coniferous areas of categories II and III ln the next 5 years (19) x (4) 108,098,410 m3 2 1 . Unaffected coniferous areas and affected conlferoua areas of category 1 (1) - (19) 4,022,061 ha 22. Cut on unaffected coniferous areas and on — affected coniferous areas of category I each year (21) x (7) 8,044,122 m3/a - 2 3 . Cut-on-affected- coniferous-areas-of categories II and III each year: 108,098,410 m3: 5 years 21,619,682 up/a 24. Percentage of coniferous AAC 1981 100.5% 25. Cut each year (23) + (22) 29,663,804 m3/a 26. Percentage of coniferous AAC 1981 137.81 Source: FAO Yearbook of Forest Products, 1983. 38 TABLE 13. Volume per hectare i n affected countries. Operable forest area To t a l m i l l i o n hectares m i l l i o n m" Standing inventory-Coniferous 3 m i l l i o n m Total 3 m per hectare FRG A u s t r i a Switzerland Czechoslovakia GDR Poland 7.1 2.9 1.0 3.7 2.7 8.4 1,022 681 270 801 350 1,049 722 580 186 598 257 857 144 235 270 217 130 125 25.8 4,173 2,478 162 Source: FAO, Forest Resources i n European Region, 1976. 39 TABLE 14. S c e n a r i o s of the c o n i f e r o u s AAC (nH) due t o d i e b a c k i n the a f f e c t e d c o u n t r i e s . 1981 1981 I I I I I I t o t a l c o n i f e r o u s c o n i f e r o u s c o n i f e r o u s c o n i f e r o u s Cut i n 7 y r s Cut i n 5 y r s Cut of C a t . AAC II & I I I i n 5 y e a r s 100% 273.2% 372.7% 137.8% each ye a r each y e a r each y e a r 1. FRG: T o t a l p r o d u c t i o n 31,339,000 21,523,000 58,793,634 80,216,840 29,663,804 Saw & veneer l o g s 16,385,000 12,855,000 35,119,860 47,910,585 17,714,190 Pulpwood & p a r t i c l e s 9,630,000 6,730,000 18,386,360 25,082,710 9,273,940 2. A u s t r i a : T o t a l p r o d u c t i o n 14,256,000 11,819,000 32,289,508 44,049,413 16,286,582 Saw & veneer l o g s 8,815,000 8,284,000 22,631,888 30,874,468 11,415,352 Pulpwood & p a r t i c l e s 3,229,000 2,219,000 6,062,308 8,270,213 3,057,782 3. S w i t z e r l a n d : T o t a l p r o d u c t i o n 4,720,000 3,205,000 8,752,855 11,945,035 4,416,490 Saw & veneer l o g s 2,855,000 2,400,000 6,556,800 8,944,800 3,307,200 Pulpwood & p a r t i c l e s 850,000 590,000 1,611,880 2,198,930 813,020 4. GDR: T o t a l p r o d u c t i o n 10,122,000 8,157,000 22,284, 92"4 30,401,134 11,240,346 Saw & veneer l o g s 3,890,000 3,149,000 8,603,068 11,736,323 4,339,322 Pulpwood & p a r t i c l e s 2,488,000 1,500,000 4,098,000 5,590,500 2,067,000 5. C z e c h o s l o v a k i a : T o t a l p r o d u c t i o n 18,879,000 14,423,000 39,403,636 53,754,520 19,874,894 Saw & veneer l o g s 9,967,000 8,055,000 22,006,260 30,020,985 11,099,790 Pulpwood & p a r t i c l e s 4,705,000 3,846,000 10,507,272 14,334,042 5,299,788 6. Poland: T o t a l p r o d u c t i o n 20,879,000 16,861,000 46,064,252 ,62,840,941 23,234,458 Saw & ve n e e r l o g s 10,532,000 9,170,000 25,052,440 34,176,590 12,636,260 Pulpwood & p a r t i c l e s 4,238,000 3,544,000 9,682,208 13,204,488 4,883,632 7. A l l 6 c o u n t r i e s above: T o t a l p r o d u c t i o n 100,005,000 75,988,000 207,599,210 283,207,270 104,711,460 Saw & veneer l o g s 52,444,000 43,913,000 119,997,000 163,366,000 60,512,114 Pulpwood & p a r t i c l e s 25,151,000 18,429,000 50,348,028 68,684,883 25,395,162 8. A l l Europe: T o t a l p r o d u c t i o n 332,799,000 215,020,000 Saw & veneer l o g s 152,024,000 115,442,000 Pulpwood & p a r t i c l e s 103,868,000 71,334,000 Source: FAO Yearbook of F o r e s t P r o d u c t s , 1983. 40 It was necessary to d e l i b e r a t e l y use conservatively low numbers f o r future coniferous production because: 1. I t i s highly questionable whether the various countries w i l l succeed i n reducing the AAC on unaffected s i t e s to 2 m3/ha f o r a longer period. This w i l l be e s p e c i a l l y d i f f i c u l t i f other natural catas-trophes (pests, snowbreak, and/or blowdown) occur. 2. Production i n 1981, on which the c a l c u l a t i o n s are based, was below average (e.g., European coniferous log production i n 1981 was 10 percent below 1980). 3. The average standing volume/ha i n the affected countries i s 162 m3/ha. Mature coniferous stands have a s i g n i f i c a n t l y higher standing volume/ ha. Therefore a harvest volume of 190 m3/ha on areas affected by dieback i s very low. Weiger for example assumed harvest volumes of 400 m3/ha and 300 m3/ha, while Ollmann (Questionnaire, 1984) and S t e i n l i n assumed 250 m3/ha. 4. Because of future uncertainties i n changes i n grade structure, i t was assumed that the proportion of logs and pulpwood w i l l remain at the present l e v e l . 5. Increased AACs are calculated for the countries l i s t e d only despite the f a c t that there may be increased AACs i n other countries too (Table 6). 6. It was necessary to assume that the other f i v e European countries are equally affected by dieback, although i t has been noted that by 1982, the s i t u a t i o n i n the other f i v e countries was generally worse than i n the FRG as outlined i n Table 6. Basic data f o r the model and features of each scenario are outlined i n Table 12. Table 14 shows the e f f e c t s of these scenarios on coniferous 41 AAC f o r d i f f e r e n t European countries. The next section discusses the i m p l i f i c a t i o n s of these scenarios f o r the German and European f o r e s t products markets. 3.2 Scenarios f o r the German and European Market Some a d d i t i o n a l assumptions must be made i n order to ca l c u l a t e the quan t i t i e s of forest products r e s u l t i n g from an increased timber supply. These are shown i n the Table 15. 3.2.1 Coniferous log and coniferous sawnwood market of the FRG The coniferous log market i s shown i n Figure 7. Assuming that the FRG's log imports of 636,000 m3 can be replaced with dieback timber of the same q u a l i t y , 47 m i l l i o n m3 of coniferous logs w i l l have to be consumed following scenario II i n the FRG (scenario I: 34.5 m i l l i o n m3 of coniferous logs; scenario I I I : 17 m i l l i o n m3 of coniferous l o g s ) . The German sawmilling industry operates on a one s h i f t basis, and the capacity of t h i s s i n g l e s h i f t i s only 60 to 70 percent u t i l i z e d (Question-naire, 1984). With a two s h i f t production process the production of sawn-wood could thus be more than doubled, enabling the industry to handle at le a s t 26 m i l l i o n m3 of logs with e x i s t i n g capacity. Scenario I would then r e s u l t i n a surplus of around 8.5 m i l l i o n m3 of coniferous logs and scenario II of around 21 m i l l i o n m3. A two s h i f t production capacity would be more than adequate for scenario I I I . In 1981 7,630,000 m3 of coniferous sawnwood were produced from 13,002,000 m3 of coniferous logs. This represents a conversion factor of 0.6. Assuming the same conversion factor for the future the FRG could then produce about 15 m i l l i o n m3 with scenarios I and II and 10 m i l l i o n m3 with scenario I I I . Since the t o t a l coniferous sawnwood consumption of the TABLE 15. Assumptions f o r c a l c u l a t i n g the p r o d u c t i o n o f f o r e s t p r o d u c t s r e s u l t i n g from d i e b a c k t i m b e r . FRG Europe Trade r e s t r i c t i o n s Implemented Trade r e s t r i c t i o n s Chapter 3.2.1 Chapter 3.2.3 by Western European c o u n t r i e s implemented by the EEC Chapter 3.2.2 Chapter 3.2.A Chapter 6.4 Chapter 6.5 CONIFEROUS SAWNWOOD PRODUCTION replacement of c o n i f e r o u s l o g Imports i n c r e a s e of sawnwood p r o d u c t i o n c a p a c i t y by 100 p e r c e n t c o n v e r s i o n f a c t o r of l o g s to sawnwood =0.6 u n a f f e c t e d European c o u n t r i e s m a i n t a i n t h e i r AAC d i e b a c k timber w i l l be p r o c e s s e d somewhere i n Europe i n c r e a s e of sawnwood p r o d u c t i o n c a p a c i t y by 70 p e r c e n t Reduced c u t i n u n a f f e c t e d r e g i o n s of Western Europe to 50 p e r c e n t of the 1981 l e v e l import replacement c o n v e r s i o n f a c t o r of l o g s to sawnwood = 0.6 replacement of c o n i f e r o u s l o g imports i n c r e a s e of sawnwood p r o d u c t i o n c a p a c i t y by 100 p e r c e n t c o n v e r s i o n f a c t o r o f r l o g s to sawnwood ™ 0.6 c o n v e r s i o n f a c t o r o f l o g s to sawnwood •» 0.6 PULP PRODUCTION replacement of pulpwood imports replacement of 50 p e r c e n t of hardwood pulpwood i n the p u l p p r o d u c t i o n p r o c e s s i n c r e a s e of pulp p r o d u c t i o n c a p a c i t y by 30 percent 1 m^  roundwood =0.2 tonnes of c h e m i c a l p u l p 1 m3 roundwood = 0.4 tonnes of mechanical pulp u n a f f e c t e d European c o u n t r i e s m a i n t a i n t h e i r AAC d i e b a c k timber v l \ l be processed somewhere i n Europe I n c r e a s e of p u l p p r o d u c t i o n c a p a c i t y by 25 p e r c e n t 1 a? roundwood - 0.2 tonnes of p u l p s u f f i c i e n t pulp p r o d u c t i o n c a p a c i t i e s 1 m3 roundwood tonnes o f p u l p 0.2 i n c r e a s e of p u l p p r o d u c t i o n c a p a c i t y by 25 percent 1 m3 roundwood ™ 0.2 tonnes of pulp 43 Z33ooo >*>3 /3/ 000 A > 7 J h<4 f+/pO'l!: /V? OCO V". o. cJ.. 3 / ooo r. O. AA 6/000 F i g u r e 7. S o u r c e : FAO Y e a r b o o k o f F o r e s t P r o d u c t s , 1983. German c o n i f e r o u s saw and v e n e e r l o g market, 1981. 44 FRG was 10,877,000 mJ i n 1981, scenarios I and II imply that the FRG would have the p o t e n t i a l supply to change from being a net importer of 3,247,000 m3 of coniferous sawnwood to a net exporter. 3.2.2 Coniferous pulpwood and pulp market of the FRG The German coniferous pulpwood market i s shown i n Figure 8. Pulp production has been s i g n i f i c a n t l y c u r t a i l e d i n recent years because of the economic recession and i n t e r n a t i o n a l competition with the r e s u l t that German ca p a c i t i e s are not f u l l y u t i l i z e d . According to L o e f f l e r (Questionnaire, 1984) the industries could increase t h e i r use of pulpwood by 20 to 40 percent i f the p r i c e for pulpwood were su i t a b l y low. Lower coniferous pulpwood prices would also cause domestic coniferous pulpwood to be used instead of the more expensive imports and hon coniferous pulpwood. If 50 percent of the non coniferous pulpwood and imports of coniferous pulpwood were replaced, then domestic industries could consume 11.5 m i l l m3 of coniferous pulpwood. Therefore a l l the pulpwood of scenario I I I could be u t i l i z e d i n the FRG (Table 14: 9,273,940 m3) while scenarios I and II would r e s u l t i n surplus of about 7 m i l l i o n and 13.5 m i l l i o n m3, r e s p e c t i v e l y . One cubic metre of coniferous pulpwood i s required to produce 0.2 tonnes of chemical pulp or 0.4 tonnes mechanical pulp (Mantel, 1973). Presently 1.4 m i l l m3 of pulpwood are used i n the chemical pulp industry. If 30 percent more pulpwood (420,000 mJ) were consumed i t would represent an a d d i t i o n a l production of 84,000 tonnes of chemical pulp. In the mechanical pulp industry around 2 m i l l m3 of pulpwood are used. A 30 percent increase i n pulpwood consumption (600,000 m3) would represent an a d d i t i o n a l production of 240,000 tonnes of mechanical pulp. 45 £23coo*1 511 WVi /3o 000m1 /ZZ OOOh1 33 ood*t r. o. u. j r . IZTSOOO Z35~LTLT<7*? r a. (J-.. mooo S o u r c e : FAO Y e a r b o o k o f F o r e s t P r o d u c t s , 1983. F i g u r e 8. German c o n i f e r o u s pulpwood m a r k e t , 1981. • 46 Therefore, German production could increase by 18 percent. However, th i s increase i s too small to meet the FRG demand for pulp (imports 1981: 2.4 m i l l i o n tonnes) and pulp w i l l s t i l l have to be imported. 3.2.3 European coniferous log and sawnwood market Without a reduction of the European coniferous log harvest the surplus of logs i n Europe w i l l be s i g n i f i c a n t (Table 16). In 1981 the s i x affected countries discussed i n th i s thesis supplied 37.9% of the coniferous sawnwood consumption of Europe. Assuming that a l l coniferous logs r e s u l t i n g from dieback harvests (Table 14) would be processed somewhere i n Europe, these s i x countries could supply the raw material f o r the following quantities of sawnwood (Table 17). TABLE 16: Surplus of coniferous logs (m3) i f European countries which are not affected by dieback maintain t h e i r AAC. 1981 Scenario I Scenario II Scenario III AAC coniferous surplus of surplus of surplus of logs 3"'-0Ss logs ( m i l l i o n m ) EUROPE: To t a l production 215 Saw and veneerlogs 115 6 AFFECTED COUNTRIES: Total production 76 Saw and veneerlogs 44 76 119 16 TABLE 17. Coniferous sawnwood production due to dieback and surplus over domestic consumption i n 1981. II III Production Consumption Net import Production Surplus Production Surplus (m3) (m3) 1000 m3 (m ) m i l l i o n m" Production Surplus Europe EEC 6 affected countries 65,635 16,274 26,675 37.9% of Europe's consumption 70,235 33,867 26,842 4,600 17,593 167 73 104.2% of Europe's consumption 46 100 141.9% of Europe's consumption 73 37 52.5% of Europe's consumption 10 Source: FA0 Yearbook of Forest Products, 1983; Model 1984. i •p-48 3.2.4 European coniferous pulpwood and pulp market Without a reduction of the AAC i n unaffected countries the following surplus of coniferous pulpwood has to be expected i n Europe (figures derived from Table 14): Scenario I Scenario II Scenario III Six affected countries: Pulpwood surplus m i l l i o n m3 32 50 7 It has been estimated that pulp production could be increased by 25 percent i n Scandinavia (Cooper, 1984), by 20 to 40 percent i n the FRG ( L o e f f l e r , 1984) and by more than 25 percent i n A u s t r i a (Wurz, 1984). Thus, European pulp production could probably be increased by 25 percent from i t s 1981 l e v e l , or from 30 m i l l i o n tonnes to 37.5 m i l l i o n tonnes. This increase of 7.5 m i l l i o n tonnes would require 37.5 m i l l i o n m3 of a d d i t i o n a l pulpwood (1 m3 roundwood = 0.2 tonnes of chemical pulp, Mantel, 1973). Therefore, pulpwood surplus of scenarios I and III could be consumed without AAC r e s t r i c t i o n s i n unaffected regions. According to scenario II there would s t i l l be a surplus of around 12.5 m i l l i o n m3 of pulpwood. If the coniferous pulpwood AAC i n unaffected regions i s not reduced, t o t a l European pulp production may increase up to: Scenario I: 6.4 m i l l i o n tonnes produced of 32 m i l l i o n m3 of pulpwood. Scenario I I : 7.5 m i l l i o n tonnes produced of 37.5 m i l l i o n m3 of pulpwood. Scenario I I I : 1.4 m i l l i o n tonnes produced of 7 m i l l i o n m3 of pulpwood. 49 CHAPTER 4. POSSIBLE MARKET ADJUSTMENTS 4.1 H i s t o r i c a l Market Behaviour In 1972 a storm i n Lower Saxony (FRG) caused a blowdown which resu l t e d i n 16,306,000 m3 of coniferous salvage (AFZ, 1973), a volume equal to 80 percent of a normal coniferous AAC. This blowdown s i g n i f i -c antly affected the market, even though the AAC was subsequently reduced i n unaffected regions of the FRG i n the following years. Figures 9 and 10 show how log and pulpwood production and exports increased a f t e r the event. In 1974 log and pulpwood exports were around 800 percent and 500 percent, r e s p e c t i v e l y , above the 1972 l e v e l s . The FRG became a net exporter of coniferous logs and pulpwood. The s i t u a t i o n i n the sawnwood market was s i m i l a r (Figure 11). The sawmilling industry was able to maintain a f a i r l y high production l e v e l throughout the period of economic recession by increasing exports by 430 percent and s u b s t i t u t i n g domestic sawnwood for imports. Figure 12 shows that between 1972 and 1973 German imports had already begun decreasing while the imports of other European countries increased. It was not u n t i l 1978 that the s i t u a t i o n normalized. Austrian exporters were p a r t i c u l a r l y a f f e c t e d by changes i n the amount of sawnwood imports by the FRG, becausen the Germa and Austrian markets have been h i s t o r i c a l l y very much i n t e r -r e l a t e d (Figure 13). Pulp imports and imports of other products to the FRG were not aff e c t e d by the blowdown (FAO Yearbook, 1983; Ketchen, 1983). s t 2> I IS \h * H 73 ^ Year Total imports coniferous imports 'T^„".'"Total exports , f " f coniferous exports H n ii 51 h 7i Source: FAO Yearbook of Forest Products, 1983. Figure 9. Production, consumption, imports and exports of saw and veneer logs of the FRG. 51 T o t a l production T o t a l consumption coniferous production T o t a l exports T o t a l imports Exports to Sweden: 0.334 1.5 0.521 Source: FAO Yearbook of Forest Products, 1983. Figure 10. Production, consumption, imports and exports of pulpwood of the FRG. 52 Figure 11. Production, consumption, imports and exports of coniferous sawnwood of the FRG. 53 France -'Holland ?3 * *f H Year —r— Source: FAO Yearbook of Forest Products, 1983. Figure 12. Importing countries of coniferous sawnwood i n Europe. 54 Figure 13. Exports to the FRG: Coniferous sawnwood. 55 4.2. Storage of Roundwood and Sawnwood From 1972 u n t i l 1979 2 m i l l i o n m3 of logs were stored (Moebius, 1984) to reduce the impact of the blowdown on the market. Storage of pulpwood was not economically f e a s i b l e (Moebius, 1984), because the cost of storage i s too high compared to the p r o f i t margin. Several experts have pointed out (Chapter 2.8.3) that storage of dieback wood may not be p r a c t i c a l because of possible q u a l i t y degradation. According to Eisenkolb (1983) storage only makes sense when inventories w i l l be sold within the next few years. But i f dieback timber i s to be harvested, the o v e r a l l harvest rates w i l l be higher, future supplies w i l l be greater, and i t w i l l be more d i f f i c u l t to s e l l stored wood. Because t h i s s i t u a t i o n w i l l occur year a f t e r year, storage of logs w i l l not help to r e l i e v e the oversupply problem (Eisenkolb, 1983). The problem with s t o r i n g manufactured wood i s s i m i l a r . 4.3 P r i c e Reactions To gain i n s i g h t into the impact on p r i c e of an increase i n the supply of logs i t i s necessary to have some knowledge of the e l a s t i c i t i e s of supply and demand. The e l a s t i c i t y of demand for sawlogs can be best determined by estimating a dual cost function of the sawmilling industry. By postulating a s p e c i f i c f u n c t i o n a l form (e.g., Generalized Leontief) and applying Shepard's Lemma the demand functions f o r each of the inputs can be derived and estimated as a system of equations. A d i r e c t output of t h i s estimation i s the e l a s t i c i t y of demand for each factor input (e.g., logs). The e l a s t i c i t y of supply for sawlogs can be estimated i n a s i m i l a r fashion using a dual p r o f i t function f o r the logging industry. In t h i s case, 56 Hotelling's Lemma i s applied i n order to derive a system of factor demand functions and an output supply function. These functions can be estimated simultaneously and an output supply e l a s t i c i t y f o r logs as well as input demand e l a s t i c i t i e s can be c a l c u l a t e d . The advantage of the above dual approach over t r a d i t i o n a l approaches i s that i t e x p l i c i t l y takes account of the production technologies i n question. Unfortunately, however, i t requires time ser i e s of observations of input prices and q u a n t i t i e s , and output prices which are not r e a d i l y a v a i l a b l e . It also requires a f a i r l y good knowledge of econometrics which the author does not possess. In f a c t , so far no one has been able to accurately estimate supply and demand e l a s t i c i t i e s for the European forest products markets (MELUF, 1984; Loefgren and Johannsen, 1984), primarily because no one has succeeded i n d i r e c t l y r e l a t i n g a s p e c i f i c change i n price to a correspond-ing change i n quantity supplied (or demanded). Zerle (1983) claims that h i s t o r i c a l l y , when the harvest has had a 50 percent salvage content log prices have been s i g n i f i c a n t l y a ffected. However, because of the other factors i n f l u e n c i n g prices he has not been able to quantify this "salvage" e f f e c t . In November 1983, the salvage content of the current harvest i n the FRG was 30 to 40 percent and prices were 5 percent lower than i n 1982, i n spite of the economic recovery. Albrecht (1983) considers t h i s price drop an impact of dieback and r e s u l t i n g volume of salvage wood, but again, he has not been able to quantify t h i s impact. Because of these problems, a rough estimation of the impact of salvage can be derived with the following p r i c e index comparisons. 57 Although the method outlined by the author i s fraught with t h e o r e t i c a l problems i t i s presently the only way of quantifying the impact. In Figure 14 the price indices (1970 = 100) for France, A u s t r i a , Sweden and the FRG are shown. In order to compare the pri c e indices the annual average prices are converted to US d o l l a r s by using the annual average exchange rates. Assuming that economic differences between the FRG and other countries (e.g. d i f f e r e n t i n f l a t i o n rates) are r e f l e c t e d In the exchange rate of each s p e c i f i c currency to the US d o l l a r , one can compare the i n d i c e s . Figure 14 shows that following 1972 coniferous log prices i n the FRG and Au s t r i a did not increase nearly as much as they did i n France and Sweden. The low Austrian index i s att r i b u t e d to the f a c t that A u s t r i a imported cheap German logs and exported l e s s sawnwood to the FRG. In contrast to A u s t r i a , France and Sweden were not s i g n i f i c a n t l y affected, because t h e i r coniferous log imports from the FRG are much lower. In addition, transport costs to these two countries are higher than to Au s t r i a , so the German pri c e decline was too small to influence o v e r a l l p r i c e s s i g n i f i c a n t l y i n these two countries. Though i t i s recognized that such a comparison may not be accurate ( j o i n t f l o a t of European currencies, some pri c e influences of blowdown on French prices) the price indices of France and the FRG are compared. The differences between the German and French indices were roughly: 1972: FRG and France the same 1973: German index 76 lower than the French 1974: German index 37 lower than the French 1975: German index 45 lower than the French 58 S o u r c e : FAO Yearbook of F o r e s t P r o d u c t s , 1983; Mantau, 1980; Revue F o r e s t i e r e , 1983. F i g u r e 14. Spruce l o g p r i c e i n d i c e s i n US$, 1970 = 100. 5 9 1976: German index 60 lower than the French 1977 and following years more or less the same. A l l major exchange rates started f l o a t i n g i n 1973, with the r e s u l t that the for e i g n exchange markets were rather unstable during t h i s year (Snider, 1979). For t h i s reason 1973 should be excluded from t h i s comparison. A f t e r 1973 the market s e t t l e d and also, from 1974 to 1978, currency d i s p a r i t i e s r e s u l t i n g from the j o i n t f l o a t were few (Mantau, 1983). There-fore the prescribed system seems to work reasonably. This can be seen by comparing the log - p r i c e index and the wholesale-price index (Figure 15). By comparing these two indices f o r each country, " r e a l - p r i c e i n d i c e s " can be derived with the following formula: "Real p r i c e index" = coniferous log p r i c e index - wholesale p r i c e index (for coniferous ( i n domestic currency) ( i n domestic currency) logs) For example from 1972 to 1974 the coniferous log prices index i n France increased by 81.5, while the wholesale price index increased by 51.4. So the " r e a l price index" f o r logs was +30.1. At the same time the coniferous log price index i n the FRG increased by 21.2 and the wholesale p r i c e index by 22.4. Therefore the German " r e a l p r i c e index" f o r logs was -1.2. The di f f e r e n c e between the German and French " r e a l p r i c e index" was 31.3 from 1972-1974. In 1975 and 1976 the German " r e a l price i n d i c e s " were 42.6 and 64.4 r e s p e c t i v e l y below the French " r e a l price i n d i c e s " f or coniferous logs. From 1970 to 1972 r e a l price indices i n France and the FRG were the same. Apparently the $-prlce index corresponds very well with the " r e a l p r i c e index" for logs of the two countries. 60 61 Figure 16 represents the development of the $-price indices (1970 = 100) of spruce sawnwood. The Canadian index i s f o r a d i f f e r e n t product and therefore i s not comparable with the other i n d i c e s . Nevertheless, i t follows the same trends. The sawnwood prices i n Europe also follow the same trends and are usually very close together. However, the 1972 blowdown caused a l e v e l l i n g o f f of German prices i n 1973 at a time when world prices were increasing (Mantau, 1983). German prices remained depressed f o r several years; p r i c e indices f o r 1974 and 1975 were lower than French indices by 42 and 32 u n i t s . A comparison with Austrian price indices i s s i m i l a r except for 1975. The Austrian price drop i n 1975 can also be explained by the decreasing Austrian exports to the FRG as a r e s u l t of the 1972 blowdown (Figure 13). The analysis indicates that 16 m i l l i o n m3 of salvage caused the average log price index i n the FRG to f a l l below the French index by 40 u n i t s . The average pr i c e index f o r sawnwood dropped 45 units below the French index two years a f t e r the blowdown. It took u n t i l 1978 for prices to return to normal. The analysis indicates that the e l a s t i c i t y of demand i s low enough to r e s u l t i n a s i g n i f i c a n t p r i c e drop when supply i s increased. The price decline allowed increased exports of logs (Figure 9). Furthermore the lower log prices favoured German sawnwood producers throughout the recession i n the years following 1974. They could maintain a r e l a t i v e l y high production l e v e l by replacing imports and increasing exports. Whether consumption of sawnwood was affected by the r e l a t i v e l y low price can not be determined. General economic theory suggests that a 62 Source: FAO Yearbook of Forest Products, 1983; Mantau, 1980; Revue F o r e s t i e r e , 1983; Seaboard, 1984. Figure 16. Spruce sawnwood p r i c e indices i n US$, 1970 = 100. 6 3 lower price of sawnwood re s u l t s i n higher consumption. In the period examined here the decrease of sawnwood consumption r e s u l t i n g from the recession would have been slowed down by the r e l a t i v e l y low p r i c e . According to Hay Roe (1984) the blowdown did not a f f e c t the prices of pulp and other forest products. General conclusions about the dieback are obvious, but i t i s not yet possible to quantify impacts. What can be said from looking at the three scenarios developed i n t h i s t h e s i s , i s that the impact from dieback salvage w i l l be f a r greater than that of the 1972 blowdown, because i t i s occurring over successive years and simultaneously i n several countries. 64 CHAPTER 5. POLICY OPPORTUNITIES AVAILABLE 5.1 Background In order to discuss p o l i c y options a v a i l a b l e to the FRG i n dealing with the harvest of dieback timber, i t i s f i r s t appropriate to look at the framework of trade and t a r i f f s agreement within which i t s forest sector must operate. After 1950 t a r i f f s and import quotas were gradually abolished among European countries (Mantel, 1973). In 1973 the former EFTA countries Great B r i t a i n , Ireland and Denmark became members of the EEC (Figure 17). In the same year a free trade agreement was signed with the remaining EFTA countries (Dept. of Industry, Trade and Commerce, 1977). Due to t h i s agreement Scandinavian exporters have had duty-free access to the EEC market since the beginning of 1984 ( K a l i s h , 1976; Globe and M a i l , 1984). It i s important to note that i n the EEC-EFTA agreement there i s no formal provision to r e s t r i c t trade ( V o l f a r t , 1984). Only measures i n accordance with the GATT can be implemented. In the GATT of 1948 there are several A r t i c l e s (e.g. XI, XVI, XIX) which are important for trade i n forest products. In 1979 another round of GATT negotiations concluded i n Geneva, r e s u l t i n g i n t a r i f f reductions and n o n - t a r i f f agreements for many sectors of the economy, including the forest sector (Federal Government Report, 1979). The reduction i n EEC t a r i f f s for selected f o r e s t products, which should be c a r r i e d out stepwise u n t i l 1987 i s shown i n Table 18. However, the EEC can change t h i s t a r i f f schedule according to c e r t a i n procedures l a i d out i n A r t i c l e 235 of the EEC-contract 65 Source: Federal Government of Canada, 19 Figure 17. Europe and i t s trade areas, 1981. i 66 TABLE 18. Selected EEC t a r i f f s for forest products. Pre-1979 t a r i f f rate for a l l non EEC countries 1987 New t a r i f f rate for a l l non EEC/ EFTA countries Percent t a r i f f (except for quotas) Wood and Wood Products Dressed lumber 5 4 Veneers 7 6 Softwood plywood (duty-free quota) 400,000 m3 600,000 m3 Softwood plywood 13 10 Shingles 7 4.9 Waferboard 12 10 Pulp - -Paper and Paper Products Newsprint (duty-free quota 1.5 m i l l ) tonnes a f t e r 1984 f o r US and Canada) 7 4.9 P r i n t i n g papers 12 9 Paper, creped and paperboard 13 10 Wrapping paper 8 6 Source: Bandrowski, 1980. 67 (Vertrag zur Gruendung der Europaeischen Wirtschaftsgemeinschaft, 1957) and A r t i c l e XXVIII of the GATT. The high p r o f i l e given to n o n - t a r i f f matters i n the m u l t i l a t e r a l trade negotiations w i l l make i t easier i n the future to deal with p a r t i c u -l a r n o n - t a r i f f problems encountered i n foreign markets (Warren 1979, Federal Government Report, 1979). From the point of view of the forest products sector the agreements on subsidies and countervailing duties are of p a r t i c u l a r i n t e r e s t . Countervailing duties ( A r t i c l e VI) permit a government to n u l l i f y , i n the case of imports and competition i n export markets, the e f f e c t of a subsidy granted by a foreign government a f t e r having followed procedures l a i d out i n the agreement. Besides general economic p o l i c y measures the German government has several means at i t s disposal for c o n t r o l l i n g the forest products markets. F i r s t through s p e c i a l regulations, they can con t r o l dumping of forest products by the Comecon. Furthermore, there e x i s t s a law on compensation for damage caused by a catastrophe (Forstschaeden-Ausgleichsgesetz, FAG, 1968). According to §2 of the FAG imports of roundwood and wood processed to the f i r s t degree (e.g. sawnwood, pulp) can be r e s t r i c t e d . This trade r e s t r i c t i o n i s possible i n case of market disturbances caused by a catas-trophe. The FAG also provides tax reductions on a d d i t i o n a l inventories of forest products (§7, FAG) which r e s u l t from the catastrophe. Import r e s t r i c t i o n s (§2, FAG) can only be applied, when the AAC i s reduced simultaneously i n regions where the catastrophe did not occur. The federal government can l e g a l l y r e s t r i c t the AAC to 80 percent of the planned AAC f o r two years. It i s very important to note that i t i s only 68 possible to r e s t r i c t the AAC temporarily. A longer r e s t r i c t i o n of the AAC of, for example, a private owner, has to be regarded according to German law as a measure s i m i l a r to an expropriation (Eisenkolb, 1983). The FAG r e f e r s presently only to natural damages. However, the province of Bavaria applied for a modification and extension of the FAG i n order to make i t s use possible for the dieback problem. In the summer of 1984, the f e d e r a l government w i l l decide on t h i s matter and i t i s commonly thought that the FAG w i l l be extended to dieback. The following amendment of the FAG i s demanded by German i n t e r e s t groups: 1. The FAG has to include dieback (Eisenkolb, 1983). 2. As dieback w i l l be a problem for several years and as i t w i l l not be l i m i t e d to defined regions, import r e s t r i c t i o n s have to be applicable without AAC r e s t r i c t i o n s (§2) (Eisenkolb, 1983). 3. Presently imports from the GDR are not affected by import r e s t r i c -tions based on the FAG, because the l e g a l system does not treat the GDR as a foreign country. This has to be changed and the FAG has to be applicable to imports from the GDR (Eisenkolb, 1983). 4. According to §7 taxes for a d d i t i o n a l inventories due to a catastrophe can be reduced. The use of §7 s t i p u l a t e s that only 70 percent of the usual tax rate has to be paid for the a d d i t i o n a l inventory (Neuser, 1983). The opinion of industry representatives i s that these tax reductions are far too small to o f f s e t the r i s k and costs involved i n increased inventories. Therefore higher tax reductions for addi-t i o n a l inventories have to be granted (Neuser, 1983). 5. Before import r e s t r i c t i o n s can be imposed i n t e r e s t groups have to apply f o r them. An o f f i c i a l examination would take place a f t e r such 69 an a p p l i c a t i o n . This procedure requires, according to industry representatives, too much time. In order to avoid the possible r e s t r i c t i o n s exporters have tended i n the past to arrange l e g a l l y binding contracts during the bureaucratic delays. Therefore these procedures have to be improved i n a way that r e s t r i c t i o n s can be made e f f e c t i v e f a s t e r (Neuser, 1983). 6. There should be export subsidies to set up marketing organizations i n foreign markets i n order to s e l l dieback wood and forest products (Eisenkolb, 1983). 7. Freight rate reductions have to be included i n the new FAG (Ni e s s l e i n , 1984). It i s very l i k e l y that most of these points w i l l be approved i n the amendment of the FAG. Whether they w i l l be applied or not depends on the further development of the dieback. 5.2 Subsidies to Forest Owners It has been shown that dieback w i l l r e s u l t i n an increased supply of fo r e s t products. As long as the demand curve i s downward sloping the s h i f t of the supply curve r e s u l t s i n a lower average p r i c e for timber and a larger quantity on the market (Figure 18). Whether the income of forest owners w i l l increase or not depends on the e l a s t i c i t y of demand. As the e l a s t i c i t y of demand (section 4.3) i s not known one does not know whether the income of forest owners w i l l increase or decrease. But with a lower average p r i c e f o r timber, l e s s timber (e.g. lower grades, small sized timber) can be p r o f i t a b l y harvested. If the p o l i c y objective i s to have clean, disease-free f o r e s t s one has to pay subsidies i n order to harvest lower grades and to do thinnings. Otherwise t h i s timber would be l e f t i n F i g u r e 18: T h e o r y of s u p p l y and demand r e s u l t i n g from d i e b a c k . 71 the forest which could cause pest i n f e s t a t i o n s or other natural damage (e.g., snow-break). The j u s t i f i c a t i o n for subsidies i s the f a c t that society has somehow to compensate for the damage i t has i n f l i c t e d on forest owners (e.g., FRG: only 30 percent of the forests are p r o v i n c i a l or fed e r a l property). Subsidies to forest owners would be consistent with the GATT because they support the r u r a l structure, and the GATT e x p l i c i t l y recognizes subsidies which promote important objectives of national p o l i c y such as regional development (GATT, 1979. Agreement on Interpretation and Appli c a t i o n of A r t i c l e s VI, XVI, XXIII). 5.3 Export Subsidies In the years following the 1972 blowdown and the 1981/82 snowbreaks the government provided export subsidies and Federal Railway f r e i g h t rate reductions to decrease the impact of salvage on p r i c e s . These subsidies may again be needed i n order to deal with the dieback s i t u a t i o n . It may even be necessary to set up marketing organizations i n foreign countries. These various subsidies would r e s u l t i n an export price of sawnwood comparably lower than the domestic p r i c e . In t h i s case export subsidies would be i n con t r a d i c t i o n to A r t i c l e XVI.4 of the GATT ( C h r i s t i e , 1984). In the case that the subsidies are regarded as dumping measures, A r t i c l e VI can be applied by affected countries a f t e r procedures l a i d out by the GATT (GATT, 1979. Agreement on the Ap p l i c a t i o n of A r t i c l e s VI, XVI, XXIII). The v i t a l aspect i s the proof that the dumping measure r e s u l t s i n material i n j u r y to the domestic industry. 72 Export subsidies could also a f f e c t Canadian exporters by giving German exporters an advantage i n the competition f o r market shares i n other world markets (e.g. Arab countries). In th i s case Canadian exporters could apply for anti-dumping and countervailing duties as outlined i n A r t i c l e VI of the GATT ( C h r i s t i e , 1984). However, i t i s very hard to prove the e f f e c t s of export subsidies on another exporter to a c e r t a i n country. According to C h r i s t i e (1984) only once i n the h i s t o r y of the GATT could i t be proved that an export subsidy injured the i n t e r e s t of another exporter. Whether f r e i g h t rate reductions of the Federal Railway system and whether tax reductions (§7 of the FAG) on a d d i t i o n a l inventories due to dieback are i n l i n e with the GATT cannot be determined, because there i s presently no i n t e r n a t i o n a l agreement on the d e f i n i t i o n of a subsidy (Roessler, 1984). The German point of view (Questionnaire, 1984) i s that tax p o l i c y has to be regarded as national p o l i c y , which cannot be influenced by the GATT. Therefore tax reductions for c e r t a i n sectors of the economy cannot be regarded as a subsidy to t h i s sector. The American point of view ( C h r i s t i e , 1984) i s more complex. A tax reduction has to be regarded as a prohibited subsidy, i f i t can be proved that the tax reduction r e s u l t s i n exports which cause i n j u r y to producers i n the importing country. However, i t i s d i f f i c u l t to l i n k a material i n j u r y to a domestic industry i n the importing country to a subsidy granted to the exporting industry i n the export country. This proof i s the v i t a l aspect of A r t i c l e XVI and without proof of i n j u r y GATT does not pro h i b i t such a subsidy. 73 5.4 Import r e s t r i c t i o n s 5.4.1 FRG In 1973 imports of coniferous sawnwood were r e s t r i c t e d by the FRG to 2 m i l l i o n m3 (Neuser, 1983) as allowed by §2 of the FAG. However, because the implementation of t h i s quota took too long import contracts were quickly signed before i t came into e f f e c t . These contracts were l e g a l l y binding a f t e r the implementation of the 2 m i l l i o n mJ quota (Neuser, 1984). Together with a tolerant i n t e r p r e t a t i o n of the law r e s u l t i n g of the favourable economic climate imports of coniferous sawnwood were far above the o r i g i n a l quota l e v e l i n 1973 (Figure 12). According to some German i n t e r e s t groups import quotas would be necessary i n the case of an aggravated dieback problem (Eisenkolb, 1984). However, Eisenkolb also points out that of the present German import volume of 46 m i l l i o n m3 r.e. only 10 m i l l i o n m3 r.e. can be substituted by domestic production. These 10 m i l l i o n m3 r.e. consist of 6 m i l l i o n m3 of roundwood and sawnwood, and 4 m i l l i o n m3 of products such as panels, pulp and paper. Altogether they represent approximately 1/3 of the German AAC. The remaining 36 m i l l i o n m3 r.e. of German imports represent mainly a d d i t i o n a l pulp and paper which cannot be supplied by the FRG because there are no a d d i t i o n a l production f a c i l i t i e s . Therefore as long as the dieback AAC i s not above 130% to 140% of the usual AAC, import r e s t r i c t i o n s may help reduce the e f f e c t on prices of a timber supply increased by dieback harvest ( S t e i n l i n , 1984). Whether §2 of the FAG i s according to GATT i s not c l e a r . One counsellor to the GATT (Roessler, 1984) assumes that the o r i g i n a l FAG i s i n 74 l i n e with the GATT, because A r t i c l e XXg of the GATT allows measures to impose a quota " i f such measures are made e f f e c t i v e i n conjunction with r e s t r i c t i o n s on domestic production". However, he also f e e l s that the amendment of §2 of the FAG w i l l not be i n l i n e with the GATT, because i t w i l l not simultaneously impose r e s t r i c t i o n s on the domestic AAC. C h r i s t i e , on the other hand, emphasizes that A r t i c l e XXg re f e r s only to exhaustible resources. As timber i s commonly regarded as a renewable resource A r t i c l e XXg i s i r r e l e v a n t to forest products. He therefore concludes that quotas based on the FAG are not compatible with the GATT ( A r t i c l e XI). Quotas used as emergency actions on imports ( A r t i c l e XIX of the GATT) can only be applied i f "products are imported i n such increased quantities and under such conditions as to cause serious i n j u r y to domestic producers". C h r i s t i e concludes that §2 of the FAG i s not such an emergency. He considers f o r example the quota on coniferous sawnwood which was imposed by France i n 1983 as also not compatible with the GATT. Since 1980 Czechoslovakia and the GDR have increased t h e i r exports to the FRG. For example, 1983 exports of sawnwood from the GDR were i n 1983 600% above the l e v e l of 1980 (Eisenkolb, 1984). Eisenkolb (1983) assuming the dieback has been the main reason f o r the increase c r i t i c i z e s : "It i s a scandal that countries which are the biggest pollutants export t h e i r tree corpses for dumping p r i c e s . Contributing to the r u i n of the import country's f o r e s t s , they also destroy the price structure on the forest products market of the import country." Therefore i n 1982 an anti-dumping i n v e s t i g a t i o n was c a r r i e d against Czechoslovakia and the GDR (Neuser, 1984). Up to now imports have not been r e s t r i c t e d i n sp i t e of strong demand by German i n t e r e s t groups. 75 5.4.2 EEC and Europe Import r e s t r i c t i o n s of the EEC and other European countries are connected to the same problems with the GATT l i k e possible German r e s t r i c -t i o n s . Changes of the EEC t a r i f f schedule (GATT, 1979) have to be renegotiated according to A r t i c l e XXVIII of the GATT. For other European countries the same procedure i s required. 76 CHAPTER 6. OUTLOOK FOR TRADE 6.1 Background S i g n i f i c a n t l y increased AACs i n Europe may r e s u l t i n a v a r i e t y of economic consequences which w i l l a f f e c t presently e x i s t i n g trade patterns. In previous chapters the impact of past oversupply on prices was shown, but t h i s h i s t o r i c a l record i s not s u f f i c i e n t to enable precise predictions about the impact of the dieback problem. However, i t i s to be expected that either p o l i c y measures or pri c e mechanisms or both w i l l come into play, depending on the degree of common strategy European countries w i l l pursue. On the following pages the four major p o s s i b i l i t i e s i d e n t i f i e d by the author w i l l be discussed. - Price decline i n Europe. - Trade r e s t r i c t i o n s implemented by the FRG. - Trade r e s t r i c t i o n s implemented by Western European countries. - Trade r e s t r i c t i o n s implemented by the EEC. 6.2 Pr i c e Decline i n Europe In 1981 Europe imported net 4.6 m i l l i o n m3 of coniferous sawnwood and 4.5 m i l l i o n tonnes of pulp. In the event that any unaffected areas can maintain t h e i r normal harvest rate and production of forest products, the impact w i l l be s i g n i f i c a n t (see sections 3.4 and 3.5, scenario I I I : surplus over consumption of coniferous sawnwood: 10 m i l l i o n m3; increase of pulp production: 1.4 m i l l i o n tonnes). Such surplus w i l l cause d e c l i n i n g p r i c e s . The consequences of a pric e decline have been outlined by S t e i n l i n (1984) as follows: 77 1. Substitution of imports. 2. Increased exports to other regions of the world (e.g., Middle East) which are presently supplied by other exporters, such as Canada. 3. Successful competition of f o r e s t products with t r a d i t i o n a l l y lower priced s u b s t i t u t e s . 4. O v e r a l l increased consumption of forest products. 5. Economic incentives for forest owners i n unaffected regions to reduce cut rate. I n i t i a l l y market dynamics are favoured by t h i s development which are also preferred by the forest i n d u s t r i e s (Neuser, 1984). Declining raw material costs and increased export p o s s i b i l i t i e s w i l l enhance p r o f i t s despite lower prices for the f i n a l product. Furthermore, industry repre-sentatives expect r e t a l i a t i o n i n case trade r e s t r i c t i o n s are applied. However, once prices f a l l below a c e r t a i n point, forest owners w i l l need to be subsidized (section 5.2). Furthermore, t h i s strategy requires that there w i l l be no dumping that would influence market dynamics. It i s d i f f i c u l t to say what the future p r i c e w i l l be but i t w i l l l i e between and P 2 (Figure 18), depending on the AAC reduction i n unaffected regions and on the e l a s t i c i t y of demand. 6.3 Trade R e s t r i c t i o n s Implemented by the FRG Generally speaking, forest owners do not favour l e t t i n g market dynamics solve the problem, because they perceive d e c l i n i n g prices c u t t i n g 78 i n t o t h e i r p r o f i t s . They therefore lobby f o r import r e s t r i c t i o n s and export subsidies to maintain p r i c e l e v e l s that w i l l allow for economic production [Arbeitsgemeinschaft (Arge) deutscher Walbesitzerverbaende e.V., 1983]. Furthermore, they are presently f i g h t i n g i n court for compensation for the loss of value of t h e i r f o rests due to dieback ( i . e . , reduced growth). It i s l i k e l y that the judges w i l l support these claims and i t i s commonly expected that compensation w i l l have to be paid by the Federal Government (N i e s s l e i n , 1984). If prices are allowed to f i n d t h e i r own l e v e l , f o r est owners w i l l eventually have to be subsidized. The t h e o r e t i -c a l costs of such subsidies were discussed i n section 5.2. The combined costs to the government of subsidies and compensation for loss of value w i l l be enormous. Loss of value through reduced growth alone i s estimated at several b i l l i o n DM; value loss per annum plus increased production costs per annum i s estimated more than 1 b i l l i o n DM per annum (Arge. Waldbe-sitzerverbaende, 1983). As a r e s u l t , as long as the increased harvest rate i s l i m i t e d to c e r t a i n percentages (<_ 140 percent) of the t o t a l German AAC, trade r e s t r i c -tions are considered as an a l t e r n a t i v e with the following l i k e l y consequences (Figure 19): 1. Trade r e s t r i c t i o n s ( e s p e c i a l l y quotas) against a l l non-EEC countries or s e l e c t i v e l y against some countries. 2. Support of the domestic wood pri c e which w i l l make sub s i d i z a t i o n of f o r e s t r y not necessary so long as the harvest rate does not exceed 140 percent of the normal AAC. 3. Changes i n trade patterns as former exporters to the FRG w i l l look to other markets. 79 80 A. A r i s i n g domestic p r i c e for some forest products, such as pulp, i n a r e s t r i c t e d German market, because when raw material costs are con-stant, production can only be increased under r i s i n g costs (disecono-mies of s c a l e ) . 6 . A Trade R e s t r i c t i o n s of Western European Countries Against the Comecon  Countries The countries of the EEC/EFTA free trade area may pursue a common strategy to try to solve the problem. Such a strategy may be influenced by the f a c t that within t h i s a s s o c i a t i o n only A u s t r i a , the FRG, and Switzerland are s e r i o u s l y affected and that t h e i r dieback timber can be processed and consumed within the e n t i r e free-trade area. In 1 9 8 1 , the EEC-EFTA region, i . e . , Western Europe, produced around 90 m i l l i o n m3 coniferous logs which, when processed, amounted to roughly 50 m i l l i o n m3 of coniferous sawnwood. In the same year, approximately A m i l l i o n m3 of coniferous sawnwood were the net imports to the whole region. Therefore, consumption was 5A m i l l i o n m3. T o t a l imports from North America and the Comecon were 7 . 5 m i l l i o n m3 of coniferous sawnwood. Table 19 shows the possible increase of coniferous sawnwood produc-t i o n from the timber of the three affected countries. Assuming a reduction of the coniferous AAC i n the unaffected regions of Western Europe to 50 percent of i t s normal l e v e l , i t w i l l be possible to consume around 20 m i l l i o n m3 of the coniferous sawnwood surplus. Another 5 m i l l i o n m3 of the surplus may be consumed through import s u b s t i t u t i o n due to lower p r i c e s . For the remainder, export markets w i l l have to be sought. As a r e s u l t , the wood of Scenarios I and III can t h e o r e t i c a l l y be absorbed. TABLE 19. Scenarios of coniferous sawnwood production i n the EFTA and EEC due to dieback. FRG, Austria and Switzerland 1981 coniferous production II III Production Surplus Production Surplus m i l l i o n cubic metres -Production Surplus T o t a l production 36 100 64 136 100 50 14 Saw + veneer logs 23 64 41 88 65 32 Pulpwood 10 26 16 36 26 13 Coniferous sawnwood production ( u t i l i z a t i o n factor 0.6 for the scenarios) 10 26 16 36 26 13 Source: FAO Yearbook of Forest Products, 1983; Model, 1984. Surplus i s defined as the difference between the production r e s u l t i n g from the dieback scenarios and the production i n 1981. 82 Scenario II w i l l r e s u l t i n a surplus of around 13 m i l l i o n m3 of coni-ferous sawnwood, for which export markets w i l l have to be found. For an o v e r a l l Western European s o l u t i o n i t i s important that no a d d i t i o n a l sawnwood be imported, since t h i s would aggravate the surplus problem. Concerning the US and Canada, dec l i n i n g p rices on the European market w i l l make imports of most of t h e i r grades uneconomical. The s i t u a -t i o n i s d i f f e r e n t with Comecon countries. Since they are also affected by dieback, they w i l l t r y to get r i d of t h e i r wood and may even dump i t on the Western European market. Such a s i t u a t i o n w i l l require trade r e s t r i c t i o n s . Since the USSR i s not a GATT signatory, t h i s w i l l present no problems with GATT. However, most of the other Comecon countries are s i g n a t o r i e s , and therefore trade r e s t r i c t i o n s w i l l not be i n l i n e with the agreement. Furthermore the EEC-EFTA strategy outlined above w i l l not be i n l i n e with European p o l i c y of detente. It w i l l also a f f e c t other trade flows since exports of Comecon forest products are an important source of f o r e i g n currencies with which other Western imports are paid. Developments on the pulpwood and pulp market may be s i m i l a r to the development on the log and sawnwood market. If harvest rates i n the unaffected areas are reduced the pulpwood from the affected areas can be u t i l i z e d . If there are not harvest rate reductions i n unaffected areas, more pulpwood could conceivably be consumed by the i n d u s t r i e s . The increase of pulp production (1 mJ roundwood = 0.2 tonnes of chemical pulp; Mantel, 1973) i n Western Europe may be up to 5.2 m i l l i o n tonnes following Scenario II (scenario I: 3.3 m i l l i o n tonnes; scenario I I I : 720,000 tonnes) assuming s u f f i c i e n t c a p a c i t i e s for pulp production i n EFTA and EEC 83 countries. This possible production increase w i l l require p r i c e declines f o r roundwood. 6.5 Trade R e s t r i c t i o n s of the EEC F a l l i n g prices w i l l eventually necessitate subsidies to forest owners. To avoid such substantial costs, the Common Market countries w i l l be strongly i n c l i n e d toward an i n t e r n a l s o l u t i o n which may take the form of l e g a l l y regulating the forest products markets along the l i n e s of the a g r i c u l t u r a l markets. This i s i n contrast to the ent i r e Western European area which has no l e g a l mechanism f o r binding c o n t r o l s . This would mean that wood prices i n the EEC would be kept more or les s on t h e i r normal l e v e l and governments would have to pay fewer subsidies. Regulations may be e f f e c t i v e i f imports are r e s t r i c t e d and i f the dieback-related harvest rate increase i n the FRG does not exceed values outlined i n Table 14. In 1981 the EEC produced and consumed the quantities shown i n Table 20. TABLE 20. Production, consumption and imports of forest products i n the EEC. Production Consumption Net imports (thousands of cubic metres except f o r pulp) Logs 42,986 48,178 5,192 Coniferous logs 27,119 28,228 1,109 Pulpwood 22,146 22,064 -82 Coniferous pulpwood 11,815 Sawnwood 25,490 46,127 20,637 Coniferous sawnwood 16,274 33,867 17,593 Pulp (tonnes) 5,328 13,481 8,153 Source: FA0 Yearbook of Forest Products, 1983. 84 Assuming the p o s s i b i l i t y of increasing the sawmilling capacities for coni-ferous sawnwood by around 100 percent ( i . e . , use of free c a p a c i t i e s , two-s h i f t production process), around 56 m i l l i o n m3 of coniferous logs can be processed to around 32 m i l l i o n m3 of coniferous sawnwood i n the EEC. Assuming coniferous log imports substitutions (1.1 m i l l i o n m 3), the increase i n the German AAC w i l l r e s u l t i n a surplus of coniferous logs. This surplus w i l l be following scenario II 34 m i l l i o n m3 (scenario I: 21 m i l l i o n m3; scenario I I I : 4 m i l l i o n m 3). The a d d i t i o n a l coniferous sawnwood r e s u l t i n g from t h i s surplus w i l l be following scenario II 14 m i l l i o n m3 (scenario I: 12 m i l l i o n m3; scenario I I I : 2 m i l l i o n m 3). Only i n the case of scenario II w i l l a log surplus e x i s t (6 m i l l i o n m3) because of industry capacity constraints. This amount of surplus w i l l require adjustments through AAC reductions i n unaffected regions. Following a l l three scenarios, coniferous log imports to the EEC w i l l cease and depending on the reduction of the AAC i n unaffected areas the following s i t u a t i o n s may develop: - Forest products of scenario I w i l l replace up to 68.5 percent of coniferous sawnwood net imports. - Forest products of scenario II w i l l replace up to 80.5 percent of coniferous sawnwood net imports. Up to 6.0 m i l l i o n m3 of coniferous logs w i l l s t i l l be surplus. - Forest products of scenario I I I w i l l replace up to 12.2 percent of the coniferous sawnwood net imports. Assuming that pulp production can be increased by 25 percent 1.3 m i l l i o n tonnes of a d d i t i o n a l pulp w i l l be produced. 1.3 m i l l i o n tonnes of 85 a d d i t i o n a l pulp w i l l require 6.5 m i l l i o n mJ of a d d i t i o n a l pulpwood (1 m3 of pulpwood = 0.2 tonnes of chemical pulp; Mantel, 1973). Scenario III w i l l r e s u l t i n up to 500,000 tonnes of a d d i t i o n a l pulp. Scenarios I and II w i l l r e s u l t i n up to 1.3 m i l l i o n tonnes of pulp. o Up to 11.0 m i l l i o n mJ of coniferous pulpwood w i l l be surplus according to scenario I, and up to 18.0 m i l l i o n m3 w i l l be surplus according to scenario II (Table 14). The surplus of residues r e s u l t i n g from the increasing sawnwood production w i l l also be considerable. Most of i t w i l l be used for energy (Ollmann, 1984). The surplus of pulpwood w i l l have to be either exported or used i n the particle-board industry. Also, c e r t a i n amounts of non-coniferous pulpwood may be substituted. To summarize i t may be possible for the EEC to process a l l the d i e -back coniferous logs of scenarios I and III i f c e r t a i n adjustments are made. A l l pulpwood of scenario III can also be processed. Net imports of coniferous sawnwood can be replaced up to 80.5 percent depending on the amount of surplus timber. Pulp imports may be replaced up to 16 percent of the 1981 import l e v e l . Economic consequences of trade r e s t r i c t i o n s by the EEC w i l l be s i m i l a r to those outlined i n section 6.3. However, the economic consequences of EEC r e s t r i c t i o n s are much more severe than trade r e s t r i c t i o n s by the FRG and therefore there w i l l be stronger competition i n other markets. Considering GATT ( A r t i c l e s XI, XVI) and EEC-EFTA contracts, a number of problems w i l l a r i s e (see sections 6.3 and 6.4). Furthermore, an EEC strategy requires a r e s t r i c t i o n of the AAC i n the FRG (Table 12). A 86 r e s t r i c t i o n of the AAC of private forest owners for over 2 years w i l l bring j u r i d i c a l problems (Eisenkolb, 1984). Future developments, due to lack of appropriate data, cannot yet be q u a n t i f i e d . 6.6 Some Interferences for Canada's Future Exports of Forest Products In case that Scenario III i s borne out, there w i l l be a surplus of up to 16 m i l l i o n m3 of coniferous logs and a surplus of up to 7 m i l l i o n m3 of coniferous pulpwood (sections 3.2.3 and 3.2.4). Prices w i l l decline because of oversupply and possibly more wood w i l l be processed i n Europe. Up to 10 m i l l i o n m3 of a d d i t i o n a l coniferous sawnwood and up to 1.4 m i l l i o n tonnes of a d d i t i o n a l pulp could come on the European market. This w i l l a f f e c t Canadian exports i n subsequent years, regardless of import r e s t r i c t i o n s since without import r e s t r i c t i o n s prices w i l l f a l l to a l e v e l where Canadian exports become uneconomical i n any case. Other exporters ( i . e . , US, USSR and, depending on EEC r e s t r i c t i o n s , also other European countries) w i l l also be le s s able to s e l l t h e i r products on the European market and w i l l try to s e l l t h e i r surplus on non-European markets such as the Middle East. Exports not only to Europe but also to other overseas markets w i l l be severely influenced by dieback. Thus, competition w i l l increase for Canadian exporters. Once dieback timber i s cut export opportunities for Canada w i l l improve again. Canadian export opportunities to the European market for dimension lumber do not look good. It w i l l be impossible to r e a l i z e the planned target l e v e l s of Increased exports to Europe for 1990 (Shaw, 1983). Exports of high q u a l i t y sawnwood products w i l l also be affected somewhat (Ollmann, 1984) because salvage harvests w i l l occur predominantly i n mature 87 stands which have a higher proportion of high q u a l i t y timber. This may also a f f e c t plywood exports since considerable a d d i t i o n a l capacity i s a v a i l a b l e i n the European plywood industry (Ollmann, 1984). Canadian pulp exports w i l l also be affected because one can expect that low pulpwood prices w i l l increase p r o f i t s f o r Scandinavian producers. They w i l l then have a strong incentive not to follow the present strategy to increase pulp p r i c e s . Instead, they w i l l tend to increase t h e i r output at a lower p r i c e , supported by a strong d o l l a r . Another p o s s i b i l i t y may be that no change of output w i l l occur and that Scandinavia might follow the present p r i c i n g strategy. Together with lower pulpwood p r i c e s , t h i s w i l l increase the p r o f i t s f o r Scandinavian producers. Higher Scandinavian p r o f i t s over a longer period r e l a t i v e to Canadian p r o f i t s w i l l a f f e c t future trade patterns since a c e r t a i n percentage w i l l be reinvested and future a b i l i t y to compete w i l l increase. R e l a t i v e l y low prices w i l l also a f f e c t paper, paperboard, and news-p r i n t production i n Europe, and thereby Canadian exports. 88 CHAPTER 7. SUMMARY The European forest products markets are greatly i n t e r r e l a t e d . Changes i n one market a f f e c t another. Presently, Europe i s reasonably s e l f - s u f f i c i e n t i n most forest products. Scandinavia and A u s t r i a supply those countries which have i n s u f f i c i e n t domestic production. European net imports mainly come from the USSR, Canada, and the US. In the l a s t decade, there have been catastrophes on the European forest products markets. A large blowdown i n the FRG i n 1972 had severe consequences i n the coniferous log and sawnwood market. The German price index i n the following years f e l l to 40 below the French index, German imports decreased and exports increased by 430 percent. The amount of coniferous salvage was 80 percent of the usual coniferous AAC, and i t took 5 years to normalize the s i t u a t i o n i n the forest products markets. Since 1980, severe damages, e s p e c i a l l y of mature coniferous trees, have been reported by the FRG and other European countries. It i s commonly assumed that increased a i r p o l l u t i o n of the past and c l i m a t i c extremes were the cause. In the summer of 1983, one t h i r d of the German forests was damaged and i n part already dead. In other countries, damages are s i m i l a r or even worse. I n i t i a l l y , regional oversupply of coniferous logs due to dieback could be observed on the forest products markets. Also, as a r e s u l t of these damages there have been increased exports by Eastern European countries. Several European experts expect a s i g n i f i c a n t increase of harvest rates i n the dieback affected countries. Severe impacts on prices have 89 occurred h i s t o r i c a l l y whenever salvage wood exceeded 50 percent of the normal AAC, and market s h i f t s may be expected as soon as t h i s percentage i s reached again. These possible consequences on the forest products markets were demonstrated i n three scenarios. The most conservative scenario w i l l r e s u l t i n salvage which substitutes for regular harvests i n the affected countries. Due to s i l v i c u l t u r a l aspects, i t w i l l not be possible' to main-t a i n the normal l e v e l of the coniferous AAC and 137.8 percent of the normal coniferous AAC has to be expected. This amount of timber w i l l be i n sharp contrast to former natural catastrophes for several successive years and w i l l flood the market i n several countries. The increase i n harvest rates w i l l a f f e c t the coniferous log market as well as the coniferous pulpwood market. The European forest products i ndustries are not working at f u l l capacity and production can be increased. Following the conservative scenario, up to 10 m i l l i o n m3 of a d d i t i o n a l coniferous sawnwood and up to 1.4 m i l l i o n tonnes of a d d i t i o n a l pulp have to be expected on the European market. More important w i l l be the drop i n wood prices and the r e s u l t i n g increased competitiveness of the industries v i s - a - v i s exporters to Europe. On the other hand, the price decline of wood w i l l create many struc-t u r a l problems. In p a r t i c u l a r , small forest owners w i l l be severely affected. This may create a strong incentive to r e s t r i c t trade i n order to substitute imports with increased domestic production. By doing t h i s , the wood prices w i l l be supported and s t r u c t u r a l problems w i l l be smaller. Such a strategy w i l l , however, run counter to the GATT and other recently signed contracts between the EEC and EFTA countries. 90 For Canadian exporters, trade r e s t r i c t i o n s or lower prices for forest products w i l l reduce export opportunities to Europe and, i n case of an aggravated problem, exports to other world markets as w e l l . A European oversupply of f o r e s t products and a consequent surplus with other exporters to Europe (e.g., US, USSR) w i l l influence trade with other markets such as North A f r i c a and the Middle East. Europe and the t r a d i t i o n a l exporters to the European market w i l l try to s e l l t h e i r surplus on non-European markets. Consequently, Canadian exporters w i l l be considerably affected by dieback. The e f f e c t s of dieback on timber supply and trade i n the long run i s beyond the scope of t h i s t h e s i s . However, i t i s c l e a r that new problems w i l l r e s u l t from a falldown a f t e r the harvest of dieback stands. These problems w i l l s i g n i f i c a n t l y a f f e c t f o r e s t r y p r a c t i c e s , f . ex. huge re f o r e s -tations w i l l be required and also trade patterns w i l l change again because dieback-affected countries w i l l have a high import demand for forest products once dieback timber i s harvested. Due to lack of appropriate data, i t i s not yet possible to quantify economic consequences. Further research i s suggested. 91 REFERENCES AFZ, [Allgemeine F o r s t z e i t s c h r i f t Z e i t s c h r i f t ] , 1973. Zur Holzmarktlage und zum Schadholzanfall. AFZ 28(1):1 AGDW, [Arbeitsgemeinschaft deutscher Waldbesitzerverbaende], 1984. 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