for U.S. forest products trade in 1998 & 1999: U.S. solid
wood exports to stabilize at $6.2 billion
by Roseanne Freese, Agricultural Economist
Share of Value-Added Wood to Total U.S. Wood Products Exports Continues to Grow
As the Asian recession shows no sign of easing, U.S. solid wood exports will remain well below historic levels with only $6.2 billion in sales projected for the current year and 1999. Total U.S. solid wood exports from 1990 to 1997 have averaged $7.0 billion per year.
Throughout the decade, Asia has received the lion's share of U.S. solid wood exports, with Japan alone receiving 45 percent or $3.0 billion annually. Sales to Asia, however, are expected to remain well below their historic levels for the remainder of 1998 and into 1999 due to low demand, credit restructuring, a strong U.S. dollar and consumer conservatism. However, if no economic turnaround develops in Asia, U.S. exports would likely fall below current forecast levels. U.S. exports to Japan in 1998 will reach a ten-year low. Hardest hit will be softwood logs and lumber as Japan faces difficult economic problems and housing starts remain at 1.3 million units in 1998 and 1999, well below their historic high of 1.6 million units in 1996. Japanese developers are also choosing to clear out inventories before reaching out to the world market for high-end softwood lumber and panel products.
U.S. export performance is also expected to suffer in Korea and Taiwan. U.S. exports to Korea, a recently flourishing $300 million market, are expected to fall well below $100 million due to credit restructuring, currency devaluation, and consumer austerity. Responding to a 15 percent devaluation of the currency over the past 12 months, consumers and furniture manufacturers in the financially sound market of Taiwan have chosen to reduce imports, especially as demand for re-manufactured wood products by their Asian neighbors has all but disappeared. According to one recent industry report, housing demand throughout most of Asia is expected to remain low through the year 2000 due to excessive housing supplies and poor income growth, although Australia and the Philippines may recover sooner rather than later.
Although U.S. exports to several Asian countries have declined, our market share in the region has not. Total solid wood imports by Japan from all countries for January-June 1998 were $4.7 billion and a stunning 46 percent less than the $8.6 billion imported for the same period in 1997. Imports from the U.S. fell by 46 percent, but Japanese imports from our leading competitors, Canada and Indonesia, fell even more sharply, both by 54 percent. The U.S. remains the overall number one ranking solid wood products supplier to the Japanese market, with a share of 22 percent, which is unchanged from the January-June period of last year. While imports of U.S. softwood lumber fell from $442 million to $149 million, those from Canada declined even more steeply, falling from $1.3 billion in January-June 1997 to $520 million for the same period in 1998. Japanese imports from the European Union, which have grown rapidly in recent years, also fell sharply from $478 million in the first half of 1997 to $213 million for the first half of 1998.
The United States is China's fourth largest supplier and received a nine percent share of China's $943 million in imports in the first half of 1998. While the share is relatively small, virtually 90 percent of Chinese imports from the U.S. consist of value-added solid wood products, whereas value-added imports from the rest of the world average 65 percent. U.S. share of the China market has expanded from 4.6 percent in the first half of 1996 to 7.4 percent in the first half of 1998. U.S. sales, by share and value, are expected to increase in 1999 as the privatization of China's housing market proceeds (See Trade Highlights insert on page 3) and assuming the renminbi (RMB) remains stable. The economy is showing signs of slowing to somewhere between 5-7 percent growth projected for 1998, well below the 8-10 percent per annum growth rates of the past decade. One sign of market slow-down is that Taiwan, China's largest investor and supplier and the most financially sound economy in region, recorded a three-percent drop in total export sales to China in the first half of this year. U.S. direct sales to Hong Kong have slowed somewhat as well as consumers and developers take a conservative position with respect to the region's volatile stock and foreign exchange markets.
Indonesia is the wild card. Despite its role as Asia's leading hardwood producer, Indonesia is crippled by dollar-denominated debt and a drastic currency devaluation during the past 18 months. Indonesian shipments to China and the United States fell off in both value and market share terms in the first half of this year. Assuming some recovery of the Indonesian economy under IMF reforms, including significant reductions in the export tax for logs and lumber, Indonesian exports may shift from plywood to a more diverse mix of raw, primary and secondary processed products, which in turn may put a certain degree of price pressure on Malaysia and other regional suppliers of hardwood logs, lumber and veneer. If Indonesia's wood industry can overcome its capital shortage problems within the next six months, U.S. producers and regional competitors may all find greater competition in the worldwide hardwood market in 1999.
On the upside, U.S. exports of value-added wood products to the North American region and the European Union are expected to remain strong in 1998. U.S. exports to Canada are expected to remain close to the record levels achieved in 1997; the U.S. furnishes no less than 87 percent of Canada's solid wood import needs. In contrast to Japan, total Canadian demand grew three percent from $858 million in the first half of 1997 to $888 million for the same period in 1998. According to Canadian import data, product from the U.S. increased by $5 million to a record $775 million in the first half of 1998.
U.S. exports to Mexico are projected to post strong gains, and exports to the Caribbean may post a record $300 million this year. The Europe Union, a large, stable market consisting of 15 countries, is also feeling the effects of the Asian crisis, although not to the same degree as North American producers. Exports are expected to remain near record levels to this market, though the 20 percent growth achieved in 1997 is not expected for 1998. Total U.S. solid wood exports to the EU are projected to reach $1.3 billion in 1998, just $100 million shy of the record $1.4 billion sold in 1997. U.S. exports to Spain and Portugal are expected to achieve record levels of $200 and $30 million respectively.
In 1998, the United States is also projected to become the world's largest importer of solid wood products, with imports forecast at $13 billion. For the first time in recent history, total U.S. solid wood imports will exceed those of Japan, as the domestic Japanese housing industry remains in recession and the extremely robust U.S. housing market absorbs softwood imports in additional to domestic supplies. One industry forecast, albeit optimistic, foresees U.S. housing starts approaching, if not exceeding 1.6 million units for 1998. Whether or not
1998 will be a record-breaking year for housing starts remains to be seen, but one certain consequence of strong domestic demand is a record high demand for Canadian product. And U.S. demand has in turn transformed Canada into the world's largest solid wood exporter, overtaking the United States. Nearly 90 percent of its exports, however, arrive on U.S. shores. Given the sharp decline in Asian demand and the strong rise in U.S. consumption and the U.S. dollar, the U.S. share of the global solid wood export market will fall slightly in 1998. With the above trends expected to continue, the U.S. share of global solid wood exports is expected to remain under pressure over the next year, especially as supplies from Canada, Scandinavia, New Zealand, and Chile remain large, and, Federal, State, and local regulations limit harvests from public and private land holdings in the U.S. in order to meet environmental management criteria.The EU adopts labor and environment clause in its generalized scheme of tariff preferences (GSP)
By William P. Bomersheim,
Agricultural Marketing Specialist
The European Union added labor and environmental clauses to its generalized scheme of tariff preferences (GSP) incentive regime which entered into force on June 5, 1998. Countries proving compliance with specific International Labor Organization (ILO) and/or International Tropical Timber Organization (ITTO) standards may be eligible to receive special tariff preferences in addition to the normal GSP preferences already available. The extra preferences vary from 15-35 percent (25 percent for graduated products), depending on the sensitivity of the product.
The labor clause introduced into the EU's GSP provides for special tariff reductions to countries that prove and document compliance with the standards laid down in the ILO conventions numbers 87 and 98 on the right to organize and bargain collectively and number 138 regarding child labor. The environment clause only applies to tropical wood products which meet criteria laid down by the ITTO on sustainable forest management.
Countries may also be eligible to obtain double preferences by complying with both the labor and environment clauses. For example, tropical wood originating in Malaysia and respecting both the labor and environment clauses could, in theory, attract a tariff reduction of 50 percent, (25 percent +25 percent) in addition to the GSP preference.
The EU has added these clauses to "encourage the implementation of positive, development-oriented incentives rewarding compliance with international social and environmental standards." However, some of the potential GSP beneficiaries expressed opposition to the EU's right to monitor social legislation in their territories.
competition: focus on Sweden, Finland
By Shari Kosco, Agricultural Marketing Specialist and Justina Torry, Coop Student (tables 1 and 2)
The United States is facing strong competition in key softwood lumber and softwood plywood markets, such as Japan and Europe. Top competitors are Sweden, Finland, Austria, Canada, New Zealand, and Chile. Only Scandinavia and Austria will be highlighted in this article. New Zealand and Chile will be covered in the future. Canada was highlighted in the July circular.
The United States has been losing market share to Sweden, Finland, and Austria, in key markets for the past several years as a result of larger production, expanded export promotion activities and strategic business mergers in these countries coupled with lower U.S. production, a strong U.S. dollar, and a continued robust U.S. economy.
The Scandinavian countries and Austria are among the largest softwood lumber producers worldwide, outside of the United States and Canada (see table 1 and chart 1). From 1990-97, Swedish production increased by 31 percent by volume to 15.4 million m3. Swedish sawmills have exported the excess production and impacted U.S. market share. The outlook for 1998 and 1999 is a slight increase in production from 1997 levels. Production is estimated to rise slightly to 15.5 million m3 in 1998 and is likely remain at the same level in 1999.
From 1990-97, Swedish production of softwood plywood rose by 76 percent to 120,000 m3 (see table 2 and chart 3). The 1998 level is expected to expand slightly to 125,000 m3, and 1999 level is projected to remain the same as in 1998.
From 1990-97, Finnish softwood lumber production expanded 43 percent to 10.6 million m3. Finland has three very large producers which together cover about 70 percent of total lumber production. They are Enzo-Gutzeit, Up-Kymmene, and Metssaliito, and they each have an annual production over 2.0 million m3. Raw material costs in Finland are lower than in Sweden. Most sales are made in Swedish currency, thus the mills closely watch exchange fluctuations. The outlook for 1998 and 1999 is a slight rise in production from the 1997 level. Production is estimated to reach 11.0 million m3 in 1998 and 11.5 m3 in 1999.
From 1990-97, Finnish softwood plywood production rose by 344 percent to 400,000 m3. The 1998 level is expected to increase to 435,000 m3, and 1999 level is projected to reach 440,000 m3. The majority of production is exported. The percentage of production that was exported has zoomed up from about 60 percent in 1990 to over 90 percent in 1997.
From 1990-97, Austrian softwood lumber production grew 15 percent to 9.2 million m3. Given the continued strong demand by the domestic market, 1998 softwood lumber production is expected to remain near the high 1997 level. Austria invests in large, modern mills for exports. Raw material costs are higher than in Sweden, but a higher lumber yield compensates for this.
From 1990 to 1997, Sweden's softwood lumber exports rose by 67 percent to 10.9 million m3 (see table 1 and chart 2). The outlook for 1998 and 1999 is a slight increase in exports from the 1997 level. Exports are estimated to reach 11 million m3 in 1998 and remain at the same level in 1999, as poor economic conditions in Asia constrain export opportunities. The EU, Egypt, and Japan are the most important markets for Sweden's forestry products. Over 75 percent of Sweden's production is exported, with the majority going to Europe. In 1997, almost 7 percent was exported to Egypt and about 4 percent went to Japan.
From 1990-97, Swedish softwood plywood exports grew by 450 percent to 77,000 m3 (see table 2 and chart 4). The overwhelming majority was exported to Europe. The 1998 level is expected to creep up to 80,000 m3, and 1999 level is projected to remain the same as in 1998.
From 1990-97, Finnish softwood lumber exports grew 81 percent to 7.5 million m3. Over three-fourths of Finland's production is exported. The overwhelming majority is exported to Europe. In 1997, the second largest market was Egypt, which absorbed roughly 9 percent of the volume of softwood lumber, followed by Japan's 7 percent. The outlook for 1998 and 1999 is for flat exports.
From 1990-97, Finland's softwood plywood exports increased by over 500 percent to 384,000 m3. The 1998 and 1999 levels are expected to exceed 400,000 m3. The overwhelming majority is exported to its European neighbors. The second most important market, Japan, absorbs only a small portion of Finland's softwood plywood exports. About 3 percent of Finland's exports (11,000 m3) went to Japan in 1997.
From 1990-97, Austrian softwood lumber exports increased 19 percent to nearly 5 million m3. The 1998 level is expected to remain the same as in 1997. The overwhelming majority is exported to Europe. Japan has also become an important market. The President of Holzindustri Schweighofer, a large wood products exporter to Japan, contributes their success to a few key points: They can meet home builders' custom specifications, have high quality products, and competitive prices.
Mergers, exchange rates, custom-tailoring products for key markets, Japanese preferences for light fine-grained softwood products, and strategic trade ties are strengthening the competition. Scandinavian competitors will continue to expand production and increase efficiency through modernization, mergers, and cooperation, which will strengthen their hold in key markets, such as Japan. In June 1997, Stora merged with Enso, Finland's second largest forest company, thus providing the new company, Stora Enso, with a competitive advantage.
Mergers have also been strengthening the Finnish forest industry. Two major Finnish forest companies, Kymmene Corporation and Repola, merged to form the UPM-Kymmene Corporation which began operations in 1996. Also in 1996, a merger between two Finnish companies, Enso-Gutzeit Oy and Veitsiluoto Oy created the new company Enso Oy.
Prior to 1992, North America played the role of price leader as a wood supplier on the Japanese softwood lumber markets because of its predominant share of Japan's total wood distribution volume. As a result, other competing softwood suppliers such as Russia and New Zealand followed the lead in their respective marketing strategies. In 1993, all-time high North American wood export prices induced Japanese importers to find new suppliers from northern Europe. The timing was good for Sweden, who was looking to expand into new markets because of increasing competition in Europe. Exchange rates favoring Swedish exporters in Japan strengthened Sweden's comparative advantage in the Japanese market. From 1995-96, Swedish lumber exports to Japan increased 60 percent, aided by the weak Swedish Krona against the Yen and the Japanese preference for high quality Nordic lumber, uniform product quality, and accurate moisture control (15 percent to 20 percent). Additionally, the Nordic Timber Institute functions as one of the Japanese Foreign Testing Organizations which allows Swedish mills, as well as other Scandinavian mills, to manufacture products that meet Japanese certification requirements.
Sweden's low freight charges to Japan have provided another competitive advantage and have contributed to the United States' shrinking share of the Japanese market. Sweden imports many products from Japan, but instead of sending the ships back empty, the shippers are willing to negotiate freight charges. During 1998 and late 1997, freight charges for a 40 foot container have dropped by half.
Transportation is another area where Sweden has a key advantage in the European market. Swedish trucks are 24 meters long and can haul 60 tons. EU regulations limit truck size to 18 meters, 40 tons. An interim solution allows Sweden to continue to use their larger size trucks. This gives the Scandinavian forest industry a significant competitive advantage in the European market.
The Sodra Timber Corporation (STC), the largest Swedish wood product manufacturing company, has six plants, an annual production of 650,000 m3, and strong export interests in Japan. In May 1998, STC announced a major plant investment plan that is geared toward the Japanese market. STC plans to expand production of Japanese products such as finger-jointed studs, prefabricated housing stock, lamstock for glulam production, and pre-cut dimension lumber ready for on-site construction assembly. Annual output will be 270,000 cubic meters on two shifts. New product shipments will arrive in Japan during the fall of 1999, and Sodra will be able to meet Japanese orders as small as one container load.
Swedish trade ties with the Baltics and Russia are also strengthening. Latvia, Russia, and Estonia, in that order, are the main providers of raw material for the Swedish industry. The raw material imports will remain at a comparatively high level because Sweden's present forests have relatively few species and are unevenly distributed by age. Importing raw materials will help keep production costs low, thus providing Sweden with another key advantage.
Export Promotion Activities
Both the Swedish Wood Exporters' Association and the Nordic Timber Council (NTC) promote exports. The NTC represents Swedish, Finnish, and Norwegian timber producers and has export offices in the United Kingdom, the Netherlands, France, and Spain. The Council is also sponsoring several new projects in Japan as well as new Asian markets. A group of representatives from a Swedish forest owners association recently toured China, which they deemed to be a very promising market. The NTC held its fourth Nordic Lumber Seminar in May 1998 in Tokyo where they discussed Nordic sustainable forestry, European wood architecture, and grading of Nordic lumber for interiors, paneling, and flooring.
The Finnish forest companies are all member of the Finnish Forest Industries Federation. This is an organization which promotes the interests of its members. Additionally, the Finnish Wooden House Club, a joint effort by Finnish and Japanese companies, is promoting new multi-story houses using Finnish softwoods. In January of 1998, they held a ceremony to promote their model house.
The Austrian wood promotion organization "Pro Holz," Austrian economic chamber, and saw millers recently shipped a modern wood house to Japan to be assembled near the 1998 winter Olympics. The program runs under the title "Timber from Austria" and promotes Austrian forest products in Japan. Also during the Olympics, Austrian Federal Economic Chamber spoke about the growing wood trade at a press conference in Tokyo.
Forest Management and Certification
There has been increased pressure worldwide by consumer and environmental groups to implement and provide assurances of sustainable forest management. Sweden is the first country to have a "national" forest management standard endorsed by the Forest Stewardship Council (FSC). Overall, the area of Swedish forest certified by FSC is expected to continue to increase. Almost 40 percent of the total area of FSC certified forest is found in Sweden. Sweden has 2.5 million hectares of FSC certified forest, made up principally of industrial holdings in northern Sweden. This has provided Sweden with a competitive advantage in certain European markets.
Sweden's rapid adoption of FSC standards is not without its detractors. Small forest owners claim that the FSC national system in Sweden is being developed by the large industrial landowners without their participation, and that the FSC scheme will create a barrier to the sale of products by small owners, a group that owns about 50 percent of Sweden's forests and accounts for about 60 percent of production. The Swedish private forest owners are more interested in a system based on the standards of the International Standards Organization (ISO). Sodra, whose members own 1.7 million hectares, has also rejected the FSC system on the basis that it is too restrictive and costly.
Currently, Finland is also developing its own national certification system. It is designed to accommodate the specific needs of the Finnish forest sector. Details include a certification standard, auditing framework, chain of custody verification rules, among others. The intent is not aimed at creating a national labeling system, however, the work that's under way will facilitate such a system in the future.
A Nordic Forestry Certification project was jointly launched in 1996 between Sweden, Norway, and Finland. Their goal is to harmonize certification in all three countries. However, given the disagreement with the small private owners, work remains.
Sweden, Finland, and Austria have made major advances in production and exports. Effective marketing strategies, mergers, and other factors have strengthened their competitiveness. Because of this, it is safe to assume that Scandinavian and European producers are here to stay as formidable softwood competitors to the United States.
Section 108 funds available for market development activities
By Liliana C. Bachelder, Agricultural Economist
On July 8, 1998, the Foreign Agricultural Service (FAS) published in the Federal Register an announcement that the Agency is inviting proposals from interested parties to use funding available under the Section 108 program for market development activities in Tunisia and Morocco.
Section 108 funds become available because of repayments made under Title I of the Agricultural Development and Assistance Act of 1954, (Public Law 480, 83rd Congress). Title I provides for government-to-government sales of agricultural commodities to developing countries under long-term credit arrangements. Repayments made to the United States for commodities sold under Title I may be made either in U.S. dollars or in local currencies. Those program repayments made in local currencies may, under Section 108 (d) and 108(f) of P.L. 480, be made available for use in that country in market development promotional activities for U.S. agricultural commodities, and in agricultural technical assistance programs. Currently, only Tunisian or Moroccan currencies acquired by the U.S. are available for these types of activities, but FAS may, at a later date, announce the availability of funds (local currencies) in other countries.
FAS will review all submitted proposals to identify those projects which expand, maintain and develop markets for U.S. agricultural products. FAS will give priority to proposals submitted by organizations that are industry-wide or nationwide in membership and scope.
For further information on Section 108,
or to submit a proposal, contact:
Mr. Evans Browne,
Program Development Division, Export Credits, FAS, Room 4506,
South Building, Stop 1034,
U.S. Department of Agriculture,
1400 Independence Ave., SW,
Washington, D.C. 20250-1034.
Telephone: (202) 720-4228.
Interested parties must submit a
Standard Form 424 (SF-424) along with their proposal.
This form is available on the Internet at:
More information is available on all FAS market and credit programs on the FAS homepage at: http://www.fas.usda.gov