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Final Report: Analysis of the Russian-Asian Timber Market

Analysis of the Russian-Asian Timber Market The rise of the Asian timber markets is fundamentally reshaping the timber industry in Eastern Siberia and the Russian Far East. There are other factors of course: an uncompetitive wood processing industry, weak regulation, pervasive illegal logging and export, and high energy and transport costs. However, rapid increase in demand, particularly in China, is the primary driver of change and given rapidly rising demand will continue to do so. This has widespread implications not only for the industry and the people who depend on it, but also for the health of the great boreal and temperate forests of Russia.

This chapter is divided into four sections. The first section outlines the structure of the region's timber industry, and reflects on what the structure of the industry means for the health of these forests. The second section focusses on how privatization and liberalization have led to a sharp rise in the number of loggers, exporters, and export points. The third section provides an overview of the Northeast Asian timber market, while the last summarizes why raw log export dependence poses such a threat, briefly assesses the prospects for wood-processing, and finally, what can be done to address illegal logging and trade. Links to field reports undertaken as part of the project are noted where relevant [4].

Russian Timber Production and Export to North East Asia, 2002

Basic Structure of the Industry

Although the timber industry has traditionally accounting for between 5 and 10 per cent of total industrial production in the Russian Far East and Eastern Siberia, its importance to the economic and social fabric of village life in some regions is far greater. In the timber-rich regions of Primorsky, Khabarovsk, and Irkutsk, log exports contribute a large portion of hard-currency revenue. For many towns and villages, the closure of wood-processing enterprises, a trend that began after perestroika, has been devastating, causing a loss of jobs, tax revenue, and basic services such as a stable energy supply (the boilers used in timber mills often provide centralized heating for communities).

When compared with the structure of the present-day industry, the Soviet era timber industry was more balanced. In 1989, in the Russian Far East, almost half of all timber production was used regionally, while 25 per cent was sent to other regions of the former Soviet Union, and 30 per cent was exported abroad. Processed timber (sawn wood, plywood, etc) accounted for 20 per cent of the region's total timber production [5]. Today, processed timber is just 7% of total production and the region now exports more than 70% of its total harvest.

There is little evidence, despite the ambitious plans of a number of regional officials, of a significant rebound in the processing industry. Figures 1 and 2 show that after bottoming out in 1998, roundwood production is again increasing in both Southeastern Siberia and the Russian Far East, albeit not nearly at levels seen in 1985. Yet in Eastern Siberia, since peaking at 10.17 million cubic meters in 1990, sawnwood production has steadily decreased, falling to an all-time low of 1.7 million in 2001. In the Russian Far East, production has rebounded only slightly - from a low of 484,000 cu. m in 1998 to 788,000 cu. m in 2001.

Figure 1. Timber Production in South Eastern Siberia, 1960-2001
Source: Economic Research Institute, Far Eastern Branch of Russian Academy of Sciences
Figure 2. Timber Production in the Russian Far East, 1960-2001
Source: Economic Research Institute, Far Eastern Branch of Russian Academy of Sciences

Are The Forests Better Off Now Than In Soviet Times?

Timber industry representatives point to overall decline in timber harvest as evidence that the region's forests have had some respite from the decades of overlogging during the Soviet era that led to a significant degradation in the quality of the region's forests - essentially the replacement of mature conifer forests with second-growth deciduous forests and shrubs. A 2001 assessment by the International Institute of Applied Systems Analysis found the stock of "mature and overmature" forests (essentially conifers) in the RFE decreased from 7.1 billion cu. m in 1961 to just 5.5 in 2000 (see figure 3).

Figure 3. Growing stock of mature and overmature forests in the RFE, 1961-2000

However, wasteful and destructive timber harvest practices may have become even more prevalent than during the Soviet era. First, to supply the Asian markets, there has been an increase in high-grade logging, whereby only large-diameter, commercially valuable trees are felled. High-grading degrades the quality of the forest, as only the best trees are selected. Also due to the collapse of processing, woodchips, branches, and smaller logs - used to make sawnwood, plywood, and pulp and paper - are left at the logging sites, increasing the already enormously wasteful operations and providing fuel for potential fires. Second, illegal logging and poorly regulated timber harvest have led to logging along protected river basins and in nature reserves (for specific examples of illegal logging in existing and planned protected areas, see BROC-7, BROC-8, BROC-9, BROC-10, FSF-7, FSF-8). The continued high demand for harvest-restricted Korean pine has led to overharvest of that species, significantly reducing an important food source (pine nuts) for many animal species (See BROC-2, BROC-5, and BROC-7).

Also, when factoring in illegal logging, overall timber levels are likely much higher. According to the World Wide Fund for Nature (WWF), as much as 50 per cent of total timber harvest in the Primorsky Region may be illegal and therefore not reflected in official statistics [6]. Finally, timber harvest is increasingly becoming localized, steadily shifting from the north to the south due to high energy and transport costs and because of the new focus on the Asian markets. Both Khabarovsk and Primorsky Krais have becoming the dominant timber centers, accounting for 79% of the RFE's production in 2002, up from 48% in 1991 (see fig. 4). Kamchatka once produced 9% of the total, but this figure had shrunk to 1% by 2002 [7]. This geographic shift means that logging pressures continue to increase in the RFE's most biologically diverse forests, including the Ussuri Taiga. These forests are the site of some of the most controversial logging projects, including Rimbunan Hijau's Sukpai logging concession and Terneiles' Samarga concession (For detail on Rimbunan, see BROC-13; for Terneiles, see BROC-11). Exact statistics are not available for Eastern Siberia, but logging pressures are clearly centered around the forests west and east of Lake Baikal, a World Heritage site and one of Russia's ecological crown jewels (For information about illegal logging along the shore of Lake Baikal, see FSF-5).

Figure 4. Russian Far East Timber Production, % by region

Source: Lankin, Status and Trends in Forest Product Exports from the Russian Far East and Siberia to China. 2004, Pacific Institute of Geography: Vladivostok. Reprinted with Permission.