Russian Federation Solid Wood Products Policy and Production Update 2009

Prepared by:

Mary Ellen Smith and MarinaMuran

Table of Contents

ExecutiveSummary

ForestSituation/Outlook

PolicyUpdate

Tradeand Production Update

ExecutiveSummary

Given Russia's resources, its role inworld trade of forest products is far behind its potential.  Russia's global market share forall wood products is still low and consists mostly of unprocessed products.  The Russian government is trying to pursuelong-term policies to improve the sector's efficiency by: 1) increasing theshare of processed and higher-value wood and wood products; 2) curbing illegalexport and trade of logs; 3) applying tariffs and other government measures topromote the export of processed products versus logs; and 4) attracting foreigninvestment.

Recently the Russian government adopted a long-term developmentprogram called "Strategy of the Forestry Complex Development until 2020" aimedat improving the efficiency of the sector and increasing its share in the Russia's economy.

Forest Situation/Outlook

Russia is endowed withabundant forest resources; comprising 20 percent of the world's forested areaand one quarter of the world's timber stock. Russian forests also provide thelargest supply of carbon in the world and one of the most biodiversityecosystems.

Total forested area in Russia is estimated at 850 millionhectares.  Boreal forests are predominantin Russiaand most forest resources are located in remote areas, of which 40 percent isconsidered inaccessible.  Nearly 70percent of Russia's totalforested area is in Siberia (43 percent) and the Far East(27 percent), whereas 70 percent of the population and more than half of wooddemand is in the western part of the country. Russian forests hold all three main species: coniferous (pine, cedar,spruce, silver fir, and larch), which account for about 70 percent of totalarea; softwoods (birch, asp, poplar, willow, and alder) - 17 percent of totalarea; and hardwoods (oak, beech, ash, maple, elm, and locust). More detailedinformation about the forests in specific Russian regions, such as forestedarea and stocks available for commercial use, can be found at:http://www.rosleshoz.gov.ru/english/regions/woods

The timber stock is estimated at nearly 73 billion m³.  Coniferous trees accountfor 58 billion m³ (80 percent), softwood speciesfor 13 billion m³ (18 percent), and hardwoodspecies for two billion m³ (two percent) of thetotal timber volume.  Planted forest isestimated at 20 million hectares.  The total volume of logging is estimated at 190 million m^3.  This amount is still well below the totalallowable cut estimated at 559 million m³.

Policy Update

Deputy Prime Minister Viktor Zubkov approvedthe Strategy of the Russian Forestry Complex Development until 2020. Thedocument was developed by the Ministry of Industry and Trade and alreadyapproved by the government of the Russian Federation. According toDPM Zubkov "the country is in need of transparent, complex concrete plan ofaction, long-term planning of overall forestry sector."  According to analysts the current documenttakes into account provisions of other industry strategies, including regional,transport, and energy. It is considered to be the most balanced program for theforestry sector development.

The priorities of the strategy are:improve forestry legislature and state management of the forests, including thecreation of the forestry planning system and increasing efficiency for forestusage, as well as conservation and forest restoration.

DPM Zubkov also believes that the currentstrategy defines more precisely priority directions for the forestry sectorthat include: sustainable use of forests; conservation, stimulating productionof value added products, and increasing domestic production of high quality andcompetitive products.

The Ministry of Trade and Industry providedthe following 2007 data regarding the role of the forestry sector in thefollowing indicators:

• Gross domestic production - 1.3 percent;
• Total shipping volume of production - 4.7 percent;
• Currency gains from export - 3.2 percent;
• Number of employees occupied in the sector - 3.2 percent;
• Investments in the charter capital - 1.5 percent;
• Volume of world trade in forestry products -2.9 percent.

In the context of the strategy approved,the following constraints were listed affecting a sustainable development ofthe sector in Russia:

• Lack of facilities for further wood processing;
• Low level of innovative activity and investment attraction;
• Usage of obsolete technologies that involve high share of manual labor and low efficiency;
• High capital consumption;
• Deficient structure of production and export;
• Relatively slow development of forestry complex;
• Poor forest infrastructure;
• Lack of qualified specialists and low labor compensation.

The Strategy approved also foreseesincreased investment during 2008-2020 reaching 2.3 billion rubles. Thisstrategy includes 1.6 billion rubles of investment capital, 304 billion rublesfrom the Investment Fund and Bank of Reconstruction and, and 379 billion rublesfrom the regional and municipal budgets. However, direct federal subsidies areestimated at 12 billion rubles and will be aimed at new technologies andinnovation only.

Table 1: Current Production of mainforestry products and perspective till 2020 (accordingto the Strategy)

Source: Ministry of Industry and Trade ofthe RF

Table 2: Growth of main indicators asthe result of forestry industry development until 2020

Source: Ministry of Industry and Trade ofthe RF

Table 3: Forecast of the domesticmarket capacity for main types of forestry products

More detailed information about othercomponents of the new Strategy can be found at: http://jn.vscc.ac.ru/images/jn/200803/03pdf/03_02.pdf

Trade and Production Update

According to Russian Customs, exports ofunprocessed wood and lumber decreased in 2008 in comparison with 2007 whereasexports of wood pulp and paper products increased. The decline is attributed tothe government plan to gradually increase export duties for low value woodproducts with the objective of stimulating domestic processing of wood and to curbexport of unprocessed wood.  The outlookfor 2010 calls for continued drop in exports of logs due to introduction of thefinal stage of the government tariff policy that will make exports of logsunprofitable.

Table 4: Russia: Exports of Wood and WoodProducts in 2007 and 2008.

Source: Federal Customs Committee

According to the Institute of EconomicAnalysis the Russian forestry sector has beenexperiencing a production recession during the last 14 months. Most analystsbelieve that world economic downturn is not the primary cause for decline inthe production, and believe cumulative reasons, such as non-transparentregulation, failure of forest administration reform and critical depletion offorestry resources and some other factors, contributed to the sector's decline.According to the source average decline in production is estimated at 19.4percent. The production in the near term is forecast to stabilize as the resultof government efforts to attract investments and providing subsidies to supportthe use of new technologies.

Table 5: Russia:  Production of Wood and Wood Processing

Source:Russian Statistical Service (Rosstat)