Ajankohtaista

(English) Forecast, autumn 2006: forestry and agriculture

  • PTT’S FORECAST FOR THE FINNISH FOREST SECTOR 2006-2007

    The production of the Finnish forest industry record-breaking – profitability remains poor

    According to Pellervo Economic Research Institute (PTT), the export of paper from Finland will increase significantly this year. Last year’s decline in export and production caused by the labour dispute will be caught up. In 2007 the growth will be approximately two per cents and again the Finnish paper industry will be setting up new production records. The PTT estimates that the price of paper will rise only slowly due to still existing overcapacity in paper industry in Europe. Despite significant increase in sawn timber prices, the Finnish sawn timber industry will exceed last year’s output only slightly. This is because of rising log prices. Due to favourable market situation in the saw milling industry, there is a boom also in the Finnish roundwood market and the prices of roundwood are increasing significantly. The PTT estimates, however, that next year the growth of roundwood prices will be slower than this year.

    Production and export of the Finnish paper is increasing, but advance in price is hard to achieve

    The demand for paper is enhancing slightly in Europe. However, production overcapacity in Europe still retards the price growth even if there is an improvement in demand. The PTT expects, however, that there is a reduction of overcapacity during the next year and the capacity utilization rates will improve. Still, there will not be any significant changes in prices yet. In pulp industry there has been, however, significant increase in demand, stocks have declined, and prices have risen. The price of pulp is, however, assumed to decline by the end of the next year. This is due to introduction of new plants especially in South America.

    According to the PTT, the Finnish production and export of paper will increase this year by 16 per cent and next year by a couple of per cents. Export prices are assumed to advance only moderately. Next year the average export price will be a couple of per cents higher than this year. The PTT assesses that rivalry for market shares is currently – after last year’s labour dispute in Finland - even harder than normally. This is slowing down the rise of the export price of the Finnish paper. Higher capacity utilization rates and a slight increase in paper prices will somewhat improve the profitability of the Finnish paper industry. Profitability will, however, remain still poor, as also production costs are growing.

    Boom in the sawmilling industry

    The demand for sawn timber is high in Europe. Export to the USA and elsewhere outside Europe has also been brisk. Oversupply of the recent years has, thus, temporarily eased off. The export price of the Finnish sawn timber will increase significantly this year and the profitability of the Finnish saw milling industry is improving to some extent. The price increase will not, however, have an effect on the amount of Finnish export and production. Production capacity, which has been reduced during the recent years, and the rising price of saw logs will hinder the growth of production. Price growth starts to decline next year, but the average export price will still remain approximately at this year’s level. Also total output of the Finnish saw milling industry will be this and next year about the same.

    Roundwood trade in Finland brisk and prices rising sharply

    The consumption of wood will be this year in Finland about ten per cent higher than last year. This is mainly due to growth in the use of pulpwood and wood chips. Increasing consumption does not, however, heighten commercial fellings in Finland. Finnish forest industry will cover the additional roundwood need mainly by using already existing roundwood stocks. Due to advanced prices of sawn timber, saw milling industry is able to pay higher logwood prices than last year. The PTT expects this to accelerate roundwood trade significantly. The overall traded amount of roundwood will be this year about 10 to 15 per cent higher than last year.

    In 2007 roundwood consumption will grow approximately by one per cent. This will particularly enhance the demand for pulpwood from private forests. Commercial fellings will grow, which will increase stumpage earnings and improve the profitability of private forestry.

    The import of roundwood will decrease but is still high

    The PTT expects roundwood imports to Finland to decrease this year to some extent compared to imports of last year. The availability of roundwood in the Baltic Sea region is diminishing as Swedes are returning to the markets of the Baltic States and Russia. The total amount of roundwood imported to Finland this year is estimated to be less than 20 million cubic metres. However, this is still high - two million cubic metres more than in 2004. As the Finnish forest industry will use imported wood also from stocks, this year some 30 per cent of the consumed wood is imported. In pulp and paper industry the share is even higher, 40 per cent.

    KEY FORECAST VARIABLES IN THE FINNISH FOREST SECTOR:

    2005

    2006 change (%) in

    2007 change (%) in

    EXPORT MARKETS:

    Volume

    Average price

    Volume

    Price

    Volume Price

    Export of paper and paperboard

    11.1 million t

    €607/t (FOB)

    16

    1-2

    2

    2-3

    Export of pulp

    2.2 million t

    €383/t (FOB)

    17

    7-10

    2

    0-5

    Export of sawn timber

    7.7 m m 3

    €170/m 3 (FOB)

    1-2

    7-8

    -2-0

    0-2

    ROUNDWOOD MARKETS:

    2005

    2006 change (%)

    2007 change (%)

    Volume of roundwood import

    21.2 m m 3

    -10 - -5

    0

    Volume of commercial fellings

    52.6 m m 3

    -3

    5

    Volume of roundwood trade

    36.9 m m 3

    10-15

    0

    Stumpage prices

    +0.8% (nominal)

    5-7

    1-3

    Gross stumpage earnings (private forest owners)

    €1.392bn (nominal)

    -3 - -1

    10-12

    Sources: Finnish Forest Research Institute and PTT’s forecast

    For further information please contact:

    Research director Ritva Toivonen
    Tel. +358 9 34 888 412, e-mail: ritva.toivonen@ptt.fi
    Forest economist Erno Järvinen
    Tel. +358 9 34 888 403, e-mail: erno.jarvinen@ptt.fi

    Drought and input prices depress entrepreneurial income

    Agricultural production decreases due to a substantially small crop yield. However, rising producer prices restrain the decline in agricultural income to some extent. In contrast, the input prices rise by almost five per cent, which is mainly due to the increase in oil prices. Hence, agricultural income noticeably diminishes. Pellervo Economic Research Institute PTT estimates that entrepreneurial income from agriculture will decrease by almost 20 %. The decline will be partially offset by a rise of more than 10 % in entrepreneurial income next year.

    Crop production substantially down while feedstock production remains unchanged

    The drought of last summer had a major influence on the size of the harvest. This year’s crop yield was roughly 3.4 million tons, which is about 17 % less than last year. The drought has influence on livestock and especially cattle production, since the silage harvest was also poor. According to PTT’s estimate, the number of milk producers will decrease even more rapidly this year than in recent years. This change will be boosted by policy changes as a result of the recent CAP reform. Hence, milk production will also diminish at least to some extent.

    Fairly lively meat market

    The Finnish meat market was relatively lively as a result of the avian influenza threat past spring. No avian influenza cases were ultimately detected in Finland and the effects of the disease were therefore quite moderate. However, the demand for poultry meat temporarily fell in the spring, although the market has since returned to a growing track. In contrast, the demand for pig meat increased slightly. Furthermore, conflicting the recent trend, beef production grew to some extent. Nevertheless, there is still a growing demand for imported beef.

    Positive signals from the market

    Recent policy changes towards decoupled support measures have not had such dramatic effects on the dairy sector as was assumed. The strong international demand for milk products has guaranteed relatively high market prices. Therefore, PTT forecasts that if compared to the price level prior to CAP reform the producer prices of milk will decline by less than 10 %, which is significantly less than was expected. In addition, meat prices in general are following an upward trend with the notable exception of poultry meat, which has been influenced by avian influenza. Due to the European drought, grain prices have also increased in Finland. However, Finnish agricultural producer prices are on a lower level than in EU countries in general. Furthermore, the increase in producer prices is expected to slow down next year.

    Agricultural policy still in turbulence

    This is the first year of the new flat rate payment scheme. However, its effects on agricultural production will materialize in the longer term. Next year, Finland will negotiate a renewal in national support programme based on article 141 of the membership agreement with the European Commission. The views of Finland and the Commission on the need for such a programme are substantially divergent. Moreover, according to PTT it would be essential to clarify the future funding of investment support schemes. Otherwise, the possibilities for Finnish agriculture to survive will not be particularly good.

    Bioenergy a new opportunity for agriculture

    Bioenergy is of ever increasing public interest, and increasing its share as a source of energy is one of the central priorities of the EU’s energy policy. The growing demand for feedstock for bioenergy has increased their prices. Bioenergy is not only strengthening the demand for feedstock for bioenergy, but also provides farmers with a new possible production line for their crop production.

    Key forecast variables in the Finnish agricultural sector

    2005

    2005

    20061

    20071

    Total production

    Value, million €

    Change, %

    Change, %

    Change, %

    Crop production

    1 559

    5,5

    -11,0

    11,6

    Livestock production

    1 716

    4,3

    -0,5

    0,0

    Others

    325

    4,8

    7,1

    7,1

    Total

    3 601

    4,9

    -4,4

    5,4

    Intermediate consumption

    2 874

    1,7

    2,2

    1,5

    Other costs

    1 679

    6,9

    1,9

    0,9

    Agricultural subsidies2 0972,41,7-0,2

    Entrepreneurial income

    1 1445,6-19,013,2

    1 PTT’s forecast

    For further information please contact:
    Research director Perttu Pyykkönen
    tel. +358 9 34 888405
    e-mail: perttu.pyykkonen@ptt.fi

    Forecast with charts attached