Sept 2004 - The Logging and Sawmilling Journal
Russia seen as the last forestry frontier
By Irina Litvinovna
Care for an Uralskiy Avtomobilnyi Zavod forwarder? How about a feller buncher from Abakanskiy opytno-mekhanicheskiy zavod? If these logging equipment brand names sound, well, Russian, don’t be surprised—they are. North America is unlikely to see this equipment out in the woods, but these companies are among the major manufacturers in Russia.
But Timberjack, Caterpillar, along with European equipment producers, are starting to make inroads into what is potentially a huge timber and equipment market. And the manufacturers of sawmill equipment have been looking at Russia for some time. Russia could arguably be termed the last frontier for timber. Think Canada has tremendous forest resources? Russia has the greatest share of timber resources in the world.
The total harvestable forest stands at 722 million hectares (this is equal to 75 billion cubic metres of timber). Canada, in comparison, has an estimated 234.5 million hectares of commercial forest. Currently in Russia, about 135 million cubic metres is harvested annually, which is equal to the combined Annual Allowable Cut for Quebec and British Columbia. The long-term impact of Russian timber—and lumber—coming on stream remains to be seen. It could have a huge effect on Canadian timber and lumber producers. In the meantime, it’s useful to take a look at what the industry currently has to work with in terms of equipment in the bush and at the sawmill.
The demand for imported timber harvesting and processing equipment is steadily growing in Russia, but the problem is that cash is not readily accessible to the Russian buyer. This lack of liquidity is the central barrier to any North American or European equipment company achieving a high market share here. On the other side of the equation is the lack of investor confidence, hampering investment. Due to this tight liquidity situation and high demand, logging equipment producers are being advised to consider providing alternative options such as leasing or second-hand sales of equipment to make their wares available to local buyers.
Some companies have forged ahead in Russia. Timberjack’s estimated share of the Russian imported timber equipment market exceeds 40 per cent. The company markets equipment for both cut-to-length and full-tree logging. The equipment for cut-to-length logging is produced in Finland and Sweden. The equipment for full-tree logging comes from the USA and Canada. The main exporting countries of timber harvesting equipment to Russia are Finland, Sweden and Japan. The main exporting countries of timber processing equipment to Russia are Germany, Italy, Finland and China. It should be mentioned that over 80 per cent of the timber harvested in Russia is by the full-tree logging method.
The main region of timber harvesting by cut-to-length logging is in the relatively developed Northern-West region of Russia, strategically close to the markets of Western Europe. Russia continues to tempt multi-national timber companies with a greater potential for growth than any nation on earth. However, the industry is rife with market inefficiencies, bloated with governmental bureaucracy, and a lack of transparency among main players that characterize Russian industry in general. Today, only 25 per cent of Russian timber resources are being exploited to market, mostly in the upstream or raw categories of output.
For example, Russia’s share of world trade in the pulp and paper sector is less than three per cent, while logs are about 22 per cent of world trade figures. The Russian timber industry is comprised of largely unprocessed raw and semi-processed exports. The relatively low level of investments in the sector solidifies Russia as a “cost-basis competitor” for world markets of timber. However, Russia is entering higher value markets. This is the trend to watch in the immediate future. At the time of this writing, the Russian timber harvesting industry included a total of 22,000 processing plants. From this number, 19,000 were small companies of less than 50 people. However, the largest enterprises in the timber industry include thousands of employees.
Depending upon local conditions, high employee numbers may be as much a political decision as an economic one. Many of the largest companies in the timber industry are part of a holding that includes more than 50 affiliates. The four largest holdings in the timber industry control 30 per cent of the total market in terms of output volume. We’ll take a look at the programs the Russian government has in place to promote the Russian forest industry in part two of this column, to be published in the October issue of Logging & Sawmilling Journal.
Irina Litvinovna is business development officer at the Canadian Embassy in Moscow, Russian Federation.
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