1. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) OUTLOOK FOR LONG-TERM SUPPLY AND DEMND FOR FOREST PRODUCTS ON THE EUROPEAN FOREST SECTOR OUTLOOK STUDIES Kari Kangas and Anders Baudin

2. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) EFSOS – the European Forest Sector Outlook studies Part of the activities of the Timber Committe A next step taken from the European Timber Trends Studies (ETTS) - a history from 1953 to 1996

3. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) General objectives A tool for policy analysis, forest management and industrial decision making (i)To present the outlook for European demand for forest products (ii)To present the outlook for supply of roundwood from European forests (iii) to present the outlook for the balance between timber supply and demand

4. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Methodologies

5. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Two Approaches to the Analysis of Demand and Supply (a) a multiple equation model of demand (two equations) and supply (one equation), estimated for the countries that are the larger markets and/or major producers of forest products in Europe (Group I) (b) two single-equation models of demand (apparent consumption), estimated for the other countries in west/central Europe (Group II) and two single-equation models estimated for former east bloc countries (Group III). A time series cross section approach

6. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Country Groupings Group I: Demand and supply models estimated Austria, Finland, France, Germany, Italy, Norway, Spain, Sweden, United Kingdom Group II: Demand models estimated Group II a Belgium-Luxembourg, Denmark, Netherlands, Switzerland Group II b Greece, Ireland, Portugal, Turkey Group III: Demand models estimated Group III a Czech Republic, Hungary, Poland, Russia, Ukraine Group III b Albania, Belarus, Bosnia, Bulgaria, Croatia, Estonia, Hungary, Latvia, Lithuania, The FYR of Macedonia, Slovakia, Slovenia, Yugoslavia

7. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Product groups Sawnwood Coniferous Non-coniferous Wood-based panels Plywood ParticleboardFibreboard Pulp and paper Pulp Recycled paper Wood pulp Paper Newsprint Printing & writing paper Other paper & board

8. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Traditional Approach (Buongiorno a o): CONSUMPTION= fn (P d, P m, X); and(1) PRODUCTION= fn (P d, P x, Z)(2) where P d is the price of domestically-produced goods, P m is the price of imports, P x is the price of exports, X is additional factors that determine demand (demand shifters), and Z is additional factors that determine supply (supply shifters)

9. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) The multiple-equation model of demand and supply (a variant of an approach by Goldstein and Kahn) Expanding equations (1) and (2) to reflect the components of consumption and production yields the following: Q D D = f(P d, P m, D D )(3) Q M = f(P d, P m, D M )(4) Q D S = f(P d, P x, S D )(5) Q X = f(P d, P x, S X )(6) where Q D D is demand for domestically-produced products, Q M is import demand, Q M is import demand, Q D S is production (supply) for domestic markets (Q D S = Q D D ), Q X is production for export markets, P d is the price in domestic markets, P m is import price, P x is export price, D D are demand shifters for the domestic market, D M are demand shifters for import demand, S D are supply shifters for the domestic market and S X are supply shifters for the export market

10. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Advantages I.Demand and supply models are given in a consistent framework II.The problems with the traditional supply modeling are avoided III.An important aspect of (potential) substitution behavior can be directly examined. In both equations, the alternative source of supply may be a substitute, a relationship that would be indicated by positive cross-price elasticities IV.The equations are consistent with demand models in the framework of ETTS, and those found in the general literature, with the exception that multiple prices are used instead of a single price

11. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Advantages V.In (3), domestic price ("own price") is expected to have a negative sign, the sign on import price can be either positive (indicating substitution) or negative (complementarity). Similar expectations hold for the signs on prices in equation (4); import price should have a negative sign, and domestic price may have either a positive or a negative sign. VI.Projections of Apparent Consumption are given as the sum of (3) and (4) and Production as the sum of (3) and (6) Similar arguments hold for equations (5) and (6)

12. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Models of Forest Products Demand in Country Groups II and III A traditional time series cross section approach Q T = fn (P m, GDP, Q T -1 )(7) where Q T is apparent consumption, P m is import price (unit value) and GDP is gross domestic product. Import unit values in domestic, deflated currencies are converted to an index basis. Real GDP and consumption for each country also are converted to indexes to adjust for scale differences in currencies, and levels of consumption

13. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Timber Statistical Database and other statistical sources

14. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Some Demand Elasticities

15. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS)

16. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS)

17. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS)

18. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Three scenarios -Baseline scenario (based on forecast input from NOBE) -Alternative scenario I: Increasing conservation, environmental regulation and public awareness -Alternative scenario II: European integration and market liberalisation

19. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) The baseline scenario Projections taking into consideration: -General economic development -Demographic deveolpment -Construction -Paper recovery

20. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Key figures form baseline (base), conservation (I) and integration (II) scenarios EU/EFTA CEEC CIS Base I II Base I II Base I II GDP growth, %/a 2.2 1.7 2.6 4.3 2.8 5.4 4.6 2.7 6.0 Consumption growth, %/a Sawnwood 0.8 0.4 1.2 2.0 1.3 2.7 4.4 2.3 5.7 Panels 1.6 0.9 2.4 3.0 2.0 3.9 5.1 2.9 6.8 Paper and board 2.1 1.4 2.8 4.2 2.7 5.4 5.2 2.8 6.8

21. Seminar on Strategies for the sound use of wood, Poiana Brasov, Romania, March 24-27 2003 European Forest Sector Outlook Studies (EFSOS) Key figures form baseline (base), conservation (I) and integration (II) scenarios – net trade in 2030 ( million cum and million metric tons) EU/EFTA CEEC CIS Base I II Base I II Base I II Sawnwood -7.7 -7.1 -8.8 14.8 13.1 16.8 32.5 17.0 49.2 Panels 0.5 2.5 -2.9 1.6 2.9 0.5 4.3 2.5 6.5 Paper and board 3.6 7.4 -1.6 -4.9 -2.8 -7.6 6.8 3.4 10.2