1. Development tendencies, priorities and challenges of Latvian forestry and wood industry
Raimonds Spūls-Vilcāns, Chairman
Forest Based Sector National Support Group (NSG)
LATVIA
The perspectives for development
of forest based sector of Lithuania
in context of EU
Vilnius, Lithuania
8 October 2007
Ladies and Gentlemen.
It is a pleasure to be here with you.
First of all, I would like to thank organisers for this opportunity to be a speaker.
In my short speech I would like to address some of the aspects that are important for the Latvian wood industry.

2. Our approach Where we are now? Where we would like to be?
How we will get there?
We use a simple three-step approach to define our priorities:
Where we are now?
Where we would like to be?
How we will get there?

3. Unemployment rate – 6,8% (2006)
European forests...
and Latvia
Area – km2
Population ~2,3 mill. (2006)
Language – Latvian
Capital – Riga
GDP growth – 11,9% (2006)
Inflation – 6,8% (2006)
Unemployment rate – 6,8% (2006)
To begin with, let us take a look at the European forest map
We are aware that in forest sector processes of globalisation must be taken into account
If we look at Latvia, it is a small, but densely forested country, with a fast growing economy
GDP growth last year was above 10%, but inflation recently has increased to almost 7% level, and unemployment rate is quite low at about 7%.

4. Main figures of Latvian forests
Annual logging  volume mill cbm, Annual increment 27 mill. cbm
Annual logging volume (per capita) 5,3 cbm
Annual wood consumption (per capita) 0,9 cbm
Estimated annual wood consumption (per capita) 1,5  cbm
The proportion of forest land in Latvia has more than doubled during the last years
This means that Latvia has a strong resource base to supply the local wood industry
According to latest estimates, Latvia is using only about 40% of the annual increment
The local consumption of wood products is still very low compared to production, but is expected to increase in the future
We encourage the Latvian society to use wood more actively following the principles of “Living with wood” and “Building with wood”, thereby moving closer to the level of Scandinavia and countries like Austria, USA, Japan, where wood usage reaches 3 m3 per capita
…………………………………………………………………………………..

5. Forest based sector in Latvia
Sustainably managed forest resources (~150 thsd. forest properties)
Forest based sector employs ~80 thsd people
~1200 companies, majority SME’s (only 30 companies with revenue > 10 million EUR)
Important & stable position in Latvian economy (2nd largest processing industry after food)
Forest industry gives more than 22% of Latvian export income 2
To shortly characterise Latvia’s forest sector:
Forests cover more than half of Latvia, and are sustainably managed. The forest is also one of our biggest natural resources – „ our green gold” as we call it.
With these resources 1200 companies are making their business and developing, and majority of them are small and medium enterprises. They produce mostly primary wood products, like sawn wood and panels (plywood, OSB, MDF).
Total production value is close to 2 billion EUR.
Forest industry is very important in Latvia’s economy – it makes 22 % of total export.
As a result of this, Latvian government is respecting and listening to us.
We have especially good co-operation with the Ministry of agriculture which is responsible for the forest sector.
General public does not understand us so well, but here our forest sector could perform better at public relations activities. More on this later.

6. Market Physical product +
Our product is everything that satisfies client needs
- stability of region, country and company
- on-time deliveries
- mutual product development
The main market of Latvian forest industry is and will be Central Europe, however not competing with huge volume deliveries of standard products from Far East etc.
Physical product +
We have modified the traditional definition of forest industry product – it is not just the physical product, but also everything else that satisfies the needs of our clients – mainly services that are related to the wood product flow (flexible and just-in-time deliveries, product development together with our clients etc.).
The main market for Latvian forest industry has traditionally been Central Europe and we expect it to remain in this position for the coming years (sales to Asia are increasing recently, but it takes time to change the market habits)
However, Latvian products cannot directly compete with standard products from Far East regions, therefore we need to differentiate our products in the eyes of our clients (find value added solutions that the client is ready to pay for)

7. Comparison with Europe
Latvia
Forest area of total
1/3
56%
Employment
3-4 mill.
~80 thsd.
Private forests
16 mill. owners
150 th. estates
Production, bil. EUR ~2
Share of total value added
8% (3rd place)
17%(2nd place)
Productivity
Investment in education, %/GDP
0,9 %
0,6 %
Investment in research, total %/GDP 2%
0,38%
Investment in research, private %/GDP
0,73%
0,08%
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If we compare Europe and Latvia, what we have in common is:
Large proportion of forests in total area
Many people employed in forest sector, and many forest owners
Forest industry is important part of value added
However there are differences as well:
In Latvia industry producitity is much lower (~5 times)
Also investment in education and research are lower, but the government is committed to increase research by 0,15% of GDP every year

8. Our approach Where we are now? Where we would like to be?
How we will get there?
Now we move over to the next step – what are the goals of the Latvian forest industry

9. Latvian Forest Industry Growth Estimates
+ 75%
+ 14%
Sales are expected to grow considerably faster than the resources used for production – this could be reached by development of higher value-added products
In addition, Latvia will use its traditions, competencies and capacities for wood processing, therefore it is expected to import more semi-finished materials that will be used for producing ready-made wood products for the European market
Stable sales increase is expected with more value added wood products
Resource consumption will grow considerably slower, and imports of partially processed wood is expected (e.g. boards), as primary processing of wood (which is resource intensive) will be transferred to places with lower labour costs

10. Latvian Forest Industry Growth - continued
All major groups of products are expected to increase, except pulpwood
If we look at the value-added scale of wood products by country, I would like to point out Austria which is a country without major pulp & paper companies (similar to Latvia)
It demonstrates the huge potential of wood product value that can be achieved by choosing the most beneficial business segments
In the coming years, Latvia is expected to reach a level of 200 EUR/m3
200 EUR/m3

11. Latvian Forest Industry Resource Structure?
vs.
27 mill. m3 annual increment
To reach a 75% growth in turnover in 5 years, local fellings in Latvia need not be increased – estimates show that they can remain at the level of million m3 per annum (~40% of annual increment)
The large difference between local fellings and annual increment in Latvian forests ensures a considerable reserve for even faster development of the Latvian forest industry (but this depends on market conditions and other factors)

12. Reserve of Wood Biomass
We support the European position on maintaining ecological balance and we believe in the “legend” of wood biomass reserve in Europe*
According to latest research the current level of fellings in Europe is just 55% of annual increment
By mobilising the wood resources the percentage can be increased to 80-85% without disturbing ecological balance
For Europe this means a reserve of million m3 roundwood per year
Correspondingly, roundwood fellings in Latvia could be increased by another 10 million m3 per annum
This slide illustrates that our thinking corresponds to the European approach on forest based sector development
In the maximum scenario Latvia could double its local fellings if this will be necessary
I presume that the situation in Lithuania is similar and according to my information our northern neighbour Estonia has already started to mobilise its wood resources and return to a forest felling level of 10 million m3 per year
* UNECE Workshop: Mobilizing Wood Resources
Geneva, January 11-12, 2007

13. Our approach Where we are now? Where we would like to be?
How we will get there?
Our final step is to understand the main actions to reach the goals that were described in previous slides

14. Key elements for succesful growth
Investments in Technology
Research & Development
Public Relation Campaigns
There are 3 groups of “instruments” for implementing the strategy in practice:
Investments in Technology
Research & Development
Public Relation Campaigns

15. Fixed asset ratio to annual turnover in wood industry
79%
75%
35%
20%
14%
<10%
To produce higher value-added products and increase work efficiency to the European level, Latvian forest industry needs about 850 million EUR investments in production technology (companies themselves should be interested to obtain the necessary financing)
If successfully implemented, this should allow paying European level wages to employees and increase company profitability
LATVIA
Technology upgrade costs ~ 850 million EUR
This would considerably increase work efficiency and raise product quality
As a result, companies will be able to pay higher wages to employees

16. Research need assesment
As a result of market globalisation, the difference between large and small companies increases concerning research demand:
Knowledge transfer of to small companies must be organised
(must be flexible both in products and technology to survive; research needs for these companies are more in know-how and technology transfer as well as diversification of product application area)
Large companies will act as customers for research services
(create their own R&D capacity and are interested in cooperation with research centres)
Forest and Wood Product Research and Development Institute
In the field of research it is important not to re-invent the wheel, but to define research areas suitable to Latvian situation
Differences between large and small companies have to be respected – the majority of work lies in transferring the existing R&D results to small companies so that they can work innovatively in their market niches
Wood Competence Centre

17. Research priorities for Latvia
1-5: Building with wood
2-5: New manufact.technologies for wood products
2-6: Heat and power from forest biomass
1-4: Living with wood
4-1: Forests for multiple needs
5-1: Overall performance of forest sector
1-7: Bio-fuels
4-2: Forest ecosystems
3-1: Trees for the fututre (biotechnologies)
2-4: Advanced technol. for primary wood processing
WOOD COMPETENCE CENTRE
Research objectives :
TOTAL FINANCING 18,8 million EUR
(14,1 from EU & state + 4,7 private)
New and higher value added products & services
Radically new production concepts
More & better forest resources
Sustainable & multifunctional forest management
Forest and society – influence, awareness, predictability, politics
Research areas for Latvia were prioritised in accordance with the European guidelines
TOP 5 topics were chosen as research objectives for the new Wood Competence Centre
Total financing exceeds 18 million EUR, of which 75% is financed by the EU and Latvian government – the remaining 25% is private capital

18. Public Relations – main objectives
The main goal of various public relation activities is to eliminate the perception barriers about wood industry or “myths” that exist in society
Myth 1 – Wood is expensive and non-durable material
Myth 2 – Working in wood industry is hard and technology is out-dated
Myth 3 – Wood industry destroys ecological balance
In addition, it is important to think beyond the traditional boundaries of wood application – when combined with other materials, it can be used for the most extraordinary purposes in many innovative ways!
It is not enough to make investments in technology and carry out excellent research projects...
Using them effectively is what counts! Therefore we need to manage the information flow both inside and outside the wood industry
PR campaigns are aimed at eliminating the “myths” about the wood industry that exist in the society
Wood is expensive and non-durable material
Working in wood industry is hard and technology is out-dated
Wood industry destroys ecological balance

19. PR example: Society “Green Houses”
Goal of organisation is to promote development of “green construction” that respects ecological constraints at the same time bringing social and economic benefits
Main activities:
Enhancing new wood product development for construction
Society education & PR campaigns on “building with wood” and “living with wood”
Lobby at various levels (specialist, municipal, national)
In January 2007 a new organisation was established to promote usage of wood materials in construction
One of the main goals is to demonstrate that respecting ecological constraints together with making a profit is not an utophy
Even more – this thinking is in line with modern architectural tendencies and is preferred by clients that would like to differ from the “grey mass” of standard housing solutions

20. PR example: Attraction of Young People
Motivation to make a choice regarding career and profession within FBS
Motivation as future consumers to prefer wood and wood products
Activities:
Regular information in mass media
Cooperation with educational establishments (project weeks, printed and visual media, educational materials)
Participation in exhibitions and career days
Sponsorship of popular events for youngsters
Open door events in FBS companies and organisations
Cooperation with forest and wood technology student organisations
To improve the future position of Latvian wood industry, our main audience are the young people.
There are two main reasons for that:
it is a comparatively easily reached audience and
our future depends on young people of today because they will implement our Vision 2030 goals in real life.
If they are age 15 now, then around 2020 they will be full of energy, knowledge and ideas to achieve those goals.

21. PR example: Tradition of “Forest Days”
“Forest Days” promote green thinking and sustainable use of forest resources – all interested people are given the opportunity to plant trees and have good time together
Latvia – every spring since 1999
Lithuania (Ukmerge) – April 2007
The Latvian wood industry leader Latvijas Finieris has established a tradition of the so-called Forest Days that take place every spring since 1999
People are given the opportunity to demonstrate their “green thinking” in practice - plant trees with their own hands and have good time together in open-air (a short entertainment program and snacks are provided)
In April 2007 the first Forest Days were organised in Ukmerge, Lithuania

22. PR example: Innovation in Luge Sport
We cannot yet be proud of magnificent buildings of wood or many other developments of wood usage, but we are proud of such a relatively low wood containing product as luge.
After three years of cooperation with Latvia’s luge team, “Latvijas Finieris” produced parts for the sled that brought Latvia’s first winter olympics medal.
Another PR example that demonstrates the benefits of wood outside the traditional sectors of application.

23. National Support Group (NSG) in Latvia
Established in April, 2005
Provided representation of the key stakeholders within forest based sector:
Forest owners and managers;
Wood processing enterprises;
Research and education institutions, science and technology development service providers;
Professional associations;
State and local government institutions;
Environmental organizations.
As I have said, we are small country which is both a plus and a minus.
The major advantage is that almost every entity connected with forest resources is also a stakeholder in NSG.
The main task of these structures is to advance our development priorities, and be an example for all others.

24. Thank YOU!