AS “Latvijas valsts meži” (LVM) has succeeded in maintaining revenues from the sale of timber products, as well as reducing costs. This provides confidence that the company’s operational targets will be met this year – both in terms of volume, which is important for the forestry sector, and in terms of income, says Jurģis Jansons, Chairman of the LVM Council, in an interview with the LETA agency. Furthermore, if the second wave of the pandemic does not bring significant changes, there is hope that everything in the forestry sector will return to its usual rhythm. At the same time, J. Jansons points out that there are no results yet from the assessment commissioned by the Council regarding the compliance of LVM’s timber sales system with laws, the development guidelines for the forest and related sectors, and LVM’s strategy.
LVM's turnover in the first half of this year was 172.958 million euros, which is 9.8% less than in the same period in 2019, while the company's profit before corporate income tax decreased by 39.8% and stood at 49.229 million euros. How would you assess the first half of the year in general?
The first half of this year in LVM’s operations does not differ from other sectors, as society’s inability to cope with the virus affects all areas of life. Of course, compared to other sectors, where the decline in both volume and profit reaches 50%, or in some cases even 100%, for LVM this situation is not so dramatic. In our opinion, stability is created by historically correct decisions. Therefore, the company has currently managed to generate a profit that is twice as high as planned.
LVM quite often receives suggestions or even criticisms that operational results should be planned more ambitiously. Here, it must be remembered that there are many risks in forestry. For example, we could optimistically and ambitiously clear-fell a forest stand, but then, perhaps, we would have to contend with the consequences caused by the wind.
LVM has succeeded in maintaining revenues from the sale of timber products, as well as reducing costs. Both these indicators interacting together generate profit. We are confident that the company’s operational targets this year will be met - both in terms of volume, which is important for the forestry sector, and in terms of income. If there are no sharp changes in international markets, it is likely that the planned revenues will even be slightly exceeded.
Apart from Covid-19, were there any other factors that affected LVM’s operational results in the first half of the year? For example, what about the fact that there was practically no winter, which affected work in the forest during the winter period?
In the context of climate change, it is considered that stable winter frost, as it once was, is no longer expected in the future. Therefore, we cannot rely on being able to drive through the forest without problems using any machinery all winter. On the other hand, LVM has historically made sustainable decisions regarding investments in forest infrastructure, so this aspect will not affect forestry activities as significantly. In private forests, of course, the situation is different, as not every forest owner has the ability to invest the volume of capital required to build high-quality forest roads.
The crisis in the forestry sector did not start because of Covid-19. It started half a year earlier: due to the European spruce bark beetle infestation in Europe, when large spruce stands died off. The dead trees were felled and used to produce sawn timber. The market was flooded with cheap timber. This posed a certain risk to our timber product exporters, who could not sell their products at the price they might otherwise have achieved.
Of course, this affects LVM as well. But since LVM’s timber pricing mechanism is based on the general market situation with a delay of several months, this factor does not affect the company’s work as significantly.
To what extent has LVM’s work been affected so far by Covid-19 and the resulting crisis?
The impact of Covid-19 is very diverse. There are also relatively positive things; for example, the number of visits to nature trails has increased. People are heading into the forest more and more often. There are also areas in exports where a significant increase in demand for timber products is visible. For example, this applies to wooden furniture components: people are spending much more time at home and want to assemble a shelf or other piece of furniture themselves.
Wood processors hope that the timber product market will soon revive. At present, timber is being bought from LVM, products are being manufactured, and warehouses are being filled in the hope that demand will return. The second scenario we have heard about is the eastern market, such as China. They are willing to buy larger volumes, but different assortments of timber are required than those produced in Latvia so far. Prices are also lower.
Therefore, the impact of Covid-19 is broad. If the second wave of the pandemic does not bring significant changes, there is hope that everything will return to its usual rhythm.
Does this mean that Covid-19 will not significantly affect LVM’s operational results?
We currently do not see a risk that LVM would be among those state-owned enterprises that will go to the government to ask for support. Quite the contrary – the volume of dividends for 2020 that LVM will pay into the state budget has been increased.
Will you manage to implement all of this year’s plans, including those for forest stand regeneration and other things?
Yes, the company will plant the nearly 30 million trees promised this year; this work is already nearing completion. Forest regeneration and maintenance are the absolute priority of the company's management and the supervisory institutions. Even if the impact of the pandemic is significant, these works will not be affected through a reduction in funding or other resources.
In the company’s council, I represent the competence related to silviculture. I must say that the state could be much more flexible regarding what its residents are allowed to do. The law, of course, is the same for everyone. Thus, we arrive at a situation where the same conditions apply in state forests, which are managed by professionals, as in private ones, where each owner acts according to their own knowledge and understanding. The restrictions are essentially intended specifically for private forest owners to limit the desire for felling and to prevent the concealment of mercantile interests under the name of maintenance felling.
Unfortunately, we can come into conflict with the law if we were to act in silviculture as scientists recommend. Much like in human society: to build a strong future society, every individual, including a tree, must be provided with the best conditions from an early age. This means that young stands must be thinned even more intensively than current forest legislation allows. In Latvia, there is a tendency to supervise and regulate everything to the maximum, regarding people as crooks. Why can the state not trust those who manage the land and tend to our country’s forests and fields?
LVM has large territories. Where do you see that management should be done differently?
We see this, first of all, in all young stands. The right to tend young stands according to scientific recommendations is provided by the project "Amendments to the Tree Felling Regulations" agreed upon in the forestry sector, which, for reasons not known to all of us, are not being moved forward for approval. There are many aspects to tending young stands, including climate change. If a tree has grown more resilient from the moment of planting, it has stronger roots and is more capable of resisting the impact of winds, which, according to forecasts, will be increasingly frequent in the future.
In Latvia, including the forestry sector, Soviet-era theories still play a large role in people’s thinking. In silviculture, this is the density of young stands: back then, it was accepted that coniferous young stands should be planted as densely as possible so that after 40 years they could be thinned to obtain the so-called “second cubic metre” of timber. Now, these over-dense stands have grown up, and we see the consequences. The tree trunks are thin, the trees have become spindly, and their needles, at best, are only at the very top of the tree. There are risks that we will soon see sanitary fellings in such stands.
Currently, forest science is trying to orient practice towards creating young stands that are sparse. But against this is what has been taught in school for decades: that one must plant more densely. Scientists explain and prove that young stands should be thinned, but it is difficult. Generations must change.
The regulations you mentioned, which are in the Prime Minister’s drawer, have ended up there, as I understand, because ornithologists objected to them.
With ornithologists who work in the forestry sector and take care of forest bird populations by building nests, planning protection, collecting scientific information, and publishing it, there are no conflicts. The situation is different with a few public organisations.
The Prime Minister’s position was – reach an agreement at the specialist level and then come to the politicians. Are there any negotiations taking place on this issue?
If you recall, at the beginning of this year, a letter initiated by the creative intelligentsia was published, which, in addition to its actual authors, had been signed by a number of popular public figures, including cultural and art workers. When representatives of the forestry sector invited them to come to the “Silava” Forest Research Institute and the LVM Vidusdaugava region, also inviting the head of “Latvijas Finieris” to explain how we build relationships with the forest, one person came. Therefore, I do not know how to implement a successful dialogue if people do not want it. One of the signatories of the letter even publicly called the foresters’ invitation to meet and get to know each other a circus.
I myself have participated in more than a hundred events where we have told teachers, local government representatives, and other people in Latvia whose daily work is not related to forestry what, how, and why things happen in the forest. With them, we always achieve understanding. Will we achieve this with the couple of dozen people who maintain this conflict? We shall see.
What are the main trends included in the new LVM strategy?
The strategy is not new but has been updated. This document outlines the company’s work for a five-year period, and therefore it is regularly updated according to the specific situation. This time, the strategy had to implement the government’s task to increase dividends - in the middle of the summer, 70 million euros were planned, currently - already 90 million euros. Therefore, the strategy must evaluate new opportunities or ways to obtain these funds. We can be optimistic that the pandemic will end, prices will rise to their previous level, and thus this additional amount will simply be earned. Currently, no reduction in basic production is planned within the framework of the strategy, as the company cannot afford it. No additional tree felling is planned either. To a superficial observer, this may seem like a simple solution in LVM’s situation: fell a couple of million cubic metres more, and all problems will be solved. However, that is not the case: tree felling volumes are determined by the government; it is primarily a political decision, and currently, there is no decision to increase the felling volume. Tree felling volumes are also determined by the principle of sustainability. Therefore, other ways must be found.
The first thing looked at in such cases is the company’s development costs, social responsibility, the setup of recreation areas, and donations. Currently, cost optimisation is being implemented within the company, and careful work is being done with cooperation partners so that they too strive to reduce their costs. There are no plans to abandon social responsibility programmes entirely.
Another innovation in the strategy is the planned new tree nursery in Kalsnava. Currently, LVM has three strategic tree nurseries – near Strenči, Lubāna, and Stende, but they are unable to meet the ever-increasing demand for seedling volumes. Therefore, a decision has been made regarding a fourth strategic tree nursery.
Regarding forest infrastructure: after the devastating fire in the Stiklu swamp, we concluded that the construction of forest roads has not only economic aspects – ensuring timber transportation – but also protects the forest from fire.
Will the Council also set any quantitative target – by what volume costs must be reduced within a specified period?
This will be a set goal for the company’s management: to think about what is increased or reduced. Here, it must be understood that basic production costs are currently determined by the market. LVM does not directly influence the price of planting, maintenance work, tree felling, or transportation costs – all of these are determined by the market in the public procurement process.
New forest roads to more successfully fight fires are needed throughout Latvia, or are there specific forests where you currently see that there are not enough roads to extinguish fires if they break out?
Stiklu swamp was a typical example. It was a nature conservation area, which was not under the administration of the Nature Conservation Agency but under LVM’s management and, therefore, responsibility. Cabinet regulations stipulate that forestry is not a priority in such areas. There would, of course, be a certain risk if the company had decided to invest there and built a road, which is quite an expensive undertaking in a swampy forest. It is not as simple as in dry forests. Since we are constantly experiencing various interpretations from external controls, it is likely that in such a case, the interpretation would also be made to the detriment of the company. However, since such fires are possible, investments of this type must also be provided for, as it is a responsibility towards society.
However, increased fire danger is primarily in dry pine forests, which make up about 30% of Latvia’s forests. There, the fire protection system has long been established with mineralised strips along highways and railways, so that a surface fire caused by a discarded cigarette does not cross this ploughed strip.
So the forest problems in Stiklu swamp are not characteristic of many territories?
Similar risks are observed in other large nature conservation areas; currently, the company is actively discussing them with the Nature Conservation Agency. On the other hand, the road network in commercial forests is constantly improving. Proactive measures are part of a forester’s daily life.
Speaking of the devastating fire in the Stiklu swamp, the fire could only be stopped where there was a forest road. Harvesters could drive along this road and quickly fell a strip one tree wide so that the fire would not spread further. Firefighters could also reach the area along the road. Most importantly, such a forest road existed there. If there is no road, then a harvester, which is a sufficiently heavy machine, cannot move on peaty soil, let alone manoeuvre between trees.
However, in general, the situation with fire protection in Latvia is sufficiently good – both the protection system itself, a good road network, and knowledgeable people. Marshy, peaty forests are more dangerous. They are also very dangerous for the firefighters themselves because deep burnouts can form in the peat. Therefore, I personally become very angry when ideas from irresponsible people appear to intentionally set fire to the forest, allegedly for the sake of increasing biological diversity. I would like to send these talkers to help extinguish a fire like the one in Stiklu for at least a couple of days. To change the foresters in these tasks.
The LVM Council has initiated an independent audit with the aim of evaluating the compliance of the roundwood sales process with internal and external regulations, the Latvian forest and related sector development guidelines approved by the government, etc. When will the audit conclude? What changes might follow it?
We hoped that the audit would conclude in the summer, but the auditor has not yet submitted the result. Apparently, the scope of work the auditor undertook has been “unmanageable” during this time. I, however, would not like to call it an audit, but rather an evaluation of LVM’s operations. One of the elements of the evaluation was a survey of timber buyers, which the company itself organised. About one hundred companies responded, submitting nearly 400 proposals. About 80% of the proposals were related to the opinion asking not to change the terms of timber supply. Entrepreneurs want to work in Latvia; they have their own long-term contracts and obligations that must be respected. That, in the view of the LVM Council, is a many times more significant argument, rather than a show on a commercial television channel, which, of course, created a certain tension.
This review intended to evaluate the compliance of LVM’s timber sales system with laws, the development guidelines for the forest and related sectors, and LVM’s strategy. Each of these documents is very comprehensive, so the LVM Council has created expansions to the evaluation. Contracts have been concluded for the evaluation of the company’s operations from the aspect of the Competition Law: LVM is a large company in the sense of the Competition Law, which cannot afford to act however it might want. An evaluation is taking place regarding the economic impact on the product called technological wood. It is easy to calculate that at the moment when the Scandinavians set a high price for pulpwood, the income would be higher than by selling technological wood, where everything is together – pulpwood, fuel wood, wood for mechanical processing. However, the pulpwood market has stopped – no one bought it all summer. If LVM had not created the technological wood product, the income would be zero. But companies buy technological wood. In the evaluation, the task is to evaluate precisely the economic aspect over a longer period. By evaluating only the situation of a specific moment, one can get misleading and erroneous ideas and conclusions.
Do you have information on when the audit might conclude?
Not yet, but, as I mentioned, new additional evaluations have been started regarding competition and economic benefit when using the technological wood sales method.
How is the forest territory managed by LVM and the resources within it changing?
Changes in the areas of state forests are small. The processes that affect them are the transfer of state land to other institutions, mainly to the structures of the Ministry of Defence, as well as for the creation of transport infrastructure, totalling slightly over 10,000 hectares in the last five years. Most likely, LVM will transfer more forest land to the state because “Rail Baltica” will be built. There is also the opposite process, where LVM buys forest land on the market.
In the last five years, the company has bought almost 6,000 hectares. LVM buys land if it sees an opportunity to profitably engage in forestry on it. The volume of land purchased is, however, one of the indicators that is currently not being met. This is related to the price level: often forest lands are bought and sold for speculative purposes, not with the goal of engaging in forestry. Then the price levels differ considerably.
Is the proportion between different tree species in the forests managed by LVM also changing?
In the forests managed by LVM, coniferous trees and birches predominantly grow. There are far fewer aspens and alders. LVM’s strategy also provides for maintaining this proportion of tree species in the forest in the future.
In what areas are the largest investments planned for the future?
We have to keep our fingers crossed for three things. First, that the second wave of the pandemic does not bring a crisis and worsen the company’s operations. We must also keep our fingers crossed that no black PR campaigns appear again, which seriously damage the reputation of the company, the forestry sector, and Latvia on an international scale. And we must hold firm so that the forest areas available for forestry are not significantly reduced by increasing various nature reserves and prohibitions in state forests. For example, in Latvia, hundred-year-old pine forests are usually commercial forests, of which about one-hundredth is felled and regenerated annually. However, in Europe, they are considered significant habitats because they simply do not have such forests. They have a different forestry, it is an intensive, economy-based timber factory. Latvia has a different model. If someone does not say that these pine forests are a great value and that we must protect them extensively, LVM will build more and more nature trails because the company will have money to invest in tourism objects. If these three aforementioned factors affect us individually or in some combination, then nature trails will be the first things the company will abandon. Let us hope for the best, namely, that the company will be allowed to work successfully and effectively in the future as well.
Currently, Europe is developing several new strategies, for example, on the “Green Deal”, which will soon be implemented. How does LVM look at this, and how will the company manage to fit into the “Green Deal”?
The “Green Deal” is a good idea, but the question is how well this idea is implemented and whether it is distorted beyond recognition in the process of its implementation. Similar to the protection of lesser spotted eagles: are the eagles protected and people motivated to live with them and even enjoy them, or is a brutal ban imposed on people to carry out economic activity on their own property of five hectares or more? This makes people angry, and they are ready to litigate over this issue. In this case, the fault is not in the eagles, but in the execution.
If the “Green Deal” comes with blunt prohibitions, then, of course, we will all have some trouble. The “Green Deal” is also about mitigating climate change, primarily reducing CO2 emissions. How to achieve this? There are two ways: one way is to stop the already quite weak production in the country, but the other way is to collect the emissions back into the forest with the help of photosynthesis. LVM’s operations are purposefully aimed at this, increasing forest productivity, or the wood-producing capacity. The state is asked to support the initiatives of the forestry sector so that this situation changes in private forests as well, so that people are interested in planting and tending forests, growing more valuable and productive forest stands, so that they sequester this carbon during the growth process. Of course, we will not collect all of Europe’s emissions in Latvia. But why do we want to put ourselves in a worse position, for example, than Germany? They have factories built, they also have infrastructure, a railway. We also have that, but only partially, I would say – insufficiently. The construction of “Rail Baltica” is to a large extent related to emissions. First of all, the construction process itself, but forest areas will also decrease because they are trying to plan the “Rail Baltica” route through state-owned land, respectively, in forest lands. Something must be put up against all this. For us, the almost only option is forestry.
Sometimes discussions appear about why forests must be felled, why they cannot be allowed to grow, live, and thus sequester carbon. But forests age; in old forests, trees grow less and less, die off, and the rotting process begins. Latvian forest scientists have calculated that a spruce forest untouched by humans has sequestered as much carbon in 140 years as a spruce stand planted by humans in 70 years. By implementing responsible forestry, we can collect twice as much carbon as in so-called natural forests.
The government has supported the Ministry of Agriculture’s proposal to increase the profit portion paid out in LVM dividends by three million euros for the next three years to compensate for the decrease in VAT revenue from fruits, berries, and vegetables. What will this mean for LVM?
We have already reacted to this by updating the company’s strategy, which I spoke about. I would like to say that the government in such a case is compensating the VAT reduction for fruits and vegetables from the state budget by increasing LVM’s payments into it. The company counts on the government’s decision, and funds for dividends are planned in the budget.
LVM received criticism from the State Audit Office regarding the increase in the remuneration of board members in various ways. Do you agree? What will you do?
We have organised a dialogue in the form of correspondence; the last letter explaining the situation was to the responsible Saeima committee, which asked us when the insurance contract, which affects more than a thousand company employees, including board members, would be terminated. In the letter prepared by the LVM Council, it was emphasised that insurance according to the law is not remuneration, and it complies with all the guidelines of the Cross-Sectoral Coordination Centre that were in force at the time. Existing insurance contracts in accordance with the relevant CCC guidelines will remain in force until the end of the contract term, while new contracts will not be concluded. We received an answer from the Saeima committee that our explanations have been sent for evaluation by the State Audit Office. That is our correspondence. In my opinion, it would be necessary to organise the regulatory environment more carefully, rather than discussing historical decisions that were taken in accordance with the situation of that time.
Does LVM face a problem such as illegal tree felling, theft of timber?
Of course, various illegal activities occur in the forests. I have experienced such situations myself, exercising in the forests around Jelgava in the early morning hours. For several years, one old man diligently worked there, who prepared biofuel for his winter from fallen trees in the state forest with a small saw. As I approached, the saw would go silent, then continue working again. In general, such violations by private individuals do not cause significant damage to forestry, yet the company’s security structures, in cooperation with the police, try to resolve and prevent these cases.
The problem with theft will be relevant as long as there is an opportunity to sell stolen sawlogs in Latvia. They steal more from roadside depots – logs that have already been felled – and less from growing forest stands. Video surveillance cameras, including dummy cameras, are very helpful, so recently this trend has decreased. In my opinion, it is much more important that people who covet someone else’s property, including trees from LVM depots, are increasingly aware that modern security technologies may have filmed them and sent the pictures to the responsible institutions. The number of forest theft cases in state forests is constantly decreasing because the supervision processes are very strict. However, it happens and will happen; one cannot put a guard next to every log.
How is the attitude of Latvian society towards the forest and behaviour within it changing? Is the volume of waste left in the forests increasing?
LVM’s budget for waste collection is increasing because there is more waste in the forest; a certain part of society has still not learned not to litter in the forest. I would also invite people not to wait for someone to clean up the forest, but to bend down themselves sometimes, pick up a bottle dropped in the forest, and then throw it away where it belongs. It does not ask for much.
However, unfortunately, that is how it is: we live in the society we live in. If we cannot catch all the log thieves, then the chance of catching those who dump trash in the forest is even smaller. Therefore, the company spends funds to clean up the forests.
The government has decided to allow the placement of wind parks in the forest as well. Is LVM ready to lease its land to potential wind parks?
This decision was made quite recently and has not yet been discussed on the Council’s agenda. It seems effective. What is there to it – to put up one pole so that the wings spin above the treetops. However, the main question is about infrastructure: to service wind parks, cables must be laid, roads must be cut, and small houses must be built for the apparatus. All of this is deforestation. This question must be looked at in context, discussing, calculating, and arguing. The state, of course, can act with its property at its own discretion. There will be a government decision, it will have to be built. In any case, the wind park idea is not bad, because any independence, including energy independence, is welcome. In Scandinavia, wind parks are built a lot in the sea, where there is more wind and land resources are not used. It is possible that the Scandinavians value their land, and especially forests, higher than we do.
First published on 5 November 2020, LETA. The article is republished with the kind permission of Juris Mendziņš, Member of the Board of LETA. Photographs from zemeunvalsts.lv were used