In Finland, timber purchase contracts are reducing the timber buyer's liability for failure to perform the contract, notes Laura Harjunpää, a lawyer at the Central Union of Agricultural Producers and Forest Owners of Finland (MTK), who stresses: “It is easy for forest owners to start selling timber, but it is hard to make successful timber deals over the longer term.”
The downside of the timber trade came to light in mid-September, when it emerged that the forest sector company Stora Enso had withdrawn its timber purchase offers, taking the decision even though the deadline for accepting the timber offers had not yet expired and even though, under the law, a purchase offer is binding once the recipient has had time to consider it.
What position do timber sellers hold in the timber market? Is the timber market, after all, entirely in the hands of timber buyers? “To a large extent, yes!” stress L. Harjunpää and MTK department head Pauli Rintala.
“The so-called starting point of the timber trade is highly contradictory and peculiar. If you want to buy a flat, a car or a milk churn, the seller always has a set price for the goods. In the timber market, the price is mainly set by the buyers,” says P. Rintala.
L. Harjunpää agrees: “Prices are largely set by the buyer. Buyers draw up the contracts themselves and offer forest owners what are, in effect, standard terms. In most cases the forest owner has fairly limited scope, or none at all, to change anything in the terms of the timber sale in their own favour.”
How can forest owners protect themselves when trading in timber?
L. Harjunpää urges forest owners to read the general terms and conditions of timber trading contracts carefully.
“The small print at the end of the contract is irritating. The contract itself sets out agreement only on the main points. From a lawyer's point of view, the substance of the matter is often found in the general terms and conditions.”
The basic rule of timber sales contracts is this: the text written in the actual contract document prevails, even if the general terms and conditions say otherwise. The general terms and conditions must be observed where the matters they cover are not set out differently in the actual contract document.
L. Harjunpää points out that timber buyers update their general terms and conditions regularly. The main aim of these updates is to reduce the timber buyer's liability for any losses that may arise.
“The practice in the forest sector has long been as follows: if the trees are not felled, in whole or in part, within the term of the contract and there is no force majeure, for example, the timber buyer pays the price for the trees in accordance with the contract. There have been attempts to reduce the amount of compensation or even to remove it altogether,” says L. Harjunpää.
According to her, some timber buyers have also added a clause to the contract terms stating that trees not felled on the area in question are the property of the timber buyer.
“The result is that trees belonging to the buyer are growing in the seller's forest, while the buyer no longer has the right to take them under the contract. It is absurd. All in all, it is doubtful whether the timber buyer would change its position in such a situation and, for example, compensate the seller for the timber left standing in the forest that belongs to the seller.”
L. Harjunpää believes that reading timber trading contracts is made harder by the fact that the rights and obligations of the parties to the deal are often scattered throughout the contract. Usually it is not a single clause that complicates matters, but a combination of several clauses.
Various risks
For example, the contract does not always state that the timber buyer is obliged to pay the timber seller compensation if the trees are not felled. Yet the contract may state that the timber seller is obliged to repay any advance payment made by the timber buyer, with interest, if the trees are not felled. That is not a fair approach.
“In such a situation the timber buyer shifts the market risk onto the timber seller, and it may happen that the timber buyer makes money at the expense of the seller's obligations. Contract terms of this kind do nothing to support the timber seller's legitimate expectations regarding performance of the contract,” stresses Laura Harjunpää.
It is worth keeping a close eye on the obligations placed on the timber seller in the contract. It is important to examine carefully, for example, the grounds for extending the term of the contract, and who will make good any damage caused during harvesting, and to what extent. L. Harjunpää notes that if anything about this worries the forest owner, it is worth contacting the timber buyer straight away.
Both Laura Harjunpää and Pauli Rintala point out that there are currently many different operators in the timber market, some of them problematic, so forest owners are advised to make sure that the timber buyer's finances are in order.
“There have been reports of company restructurings and bankruptcy petitions. If you conclude a timber sales contract with such a company, the worst that can happen is this: the trees are felled but the money is never transferred. If money later becomes available to a company in liquidation, it may be used to conclude the bankruptcy proceedings and paid to another preferential creditor rather than to the forest owner,” explains L. Harjunpää.
Pauli Rintala noted that new operators have appeared in the timber market in recent years, particularly in the management of younger forests, in tending and thinning fellings, and in the harvesting of energy wood.
“These can be quite small companies. It is precisely about them that the forest owner should be informed regarding payments and their ability to pay. The log and pulpwood markets have long had certain stable operators. For example, I have not heard of any late payments there, but they are particularly associated with the energy wood market,” says P. Rintala.
On the whole, the Finnish timber market works well, stress both MTK specialists – L. Harjunpää and P. Rintala. Even so, in Pauli Rintala's view, forest owners should remember that they are under no obligation to sell their timber.
“Many forest owners think that as soon as they have requested an offer from a company, they are obliged to conclude a timber sales deal. That is certainly not the case. If there is no acceptable and favourable offer the first time round, the forest owner can request a new price offer.”
About the Central Union of Agricultural Producers and Forest Owners of Finland (MTK)
MTK is a non-governmental organisation representing farmers, forest owners and rural entrepreneurs in Finland. In 2017 MTK celebrated its 100th anniversary, coinciding with the centenary of Finland's independence.
MTK has more than 316,000 members, organised in local agricultural producers' organisations and regional forest management associations. All the members' activities and their businesses are based on using renewable natural resources in a sustainable and economically responsible way.
Regional activities and interest lobbying are carried out by MTK unions in 14 Finnish provinces and by 59 forest management associations. According to a recent study by the University of Helsinki, MTK is regarded as one of the three most influential interest representation organisations in Finland.
A very important partner organisation for MTK is SLC (Svenska lantbruksproducenternas centralförbund). It is an interest group association representing Swedish-speaking farmers, foresters and agricultural entrepreneurs in Finland. SLC brings together some 10,000 farmers, 18,500 forest owners and hundreds of other agricultural sector entrepreneurs in the Swedish-speaking regions of Finland.
What does MTK do?
MTK carries out extensive interest monitoring on behalf of its members. In addition to agricultural and forestry policy, the organisation aims to promote rural entrepreneurship. On environmental and land policy matters, MTK works in line with the principles of sustainable development. Promoting consumers' interests has become a significant area of MTK's work – in 2007 MTK created the post of Food Culture Ombudsman, tasked with publicising and promoting the traditions of Finnish cuisine.
MTK's most important tool is expertise, through which it influences decisions at international and national level. The central union's main tasks are political and social interest monitoring – representing members' interests in agricultural and forestry matters, resolving problems faced by member-owned businesses on tax, financing and legal questions, shaping environmental and land policy, and social policy too.
Finland is the European Union's northernmost agricultural country
MTK aims to ensure that European agricultural policy promotes farming based on family farms, guaranteeing farmers a decent standard of living in the future as well. Finnish agriculture, which respects human rights, animal welfare and the environment, is also necessary and important for the European Union.
An organisation of forest owners
Finland is a land of family-owned forests. Two thirds of Finland's forests are owned and managed by private individuals. MTK aims to promote the economic viability of family forestry by influencing forest and economic policy. Forest owners' organisations defend regional interests. Forest management associations help forest owners with practical forestry matters and defend forest owners' interests at local level.
Business is built on the sustainable use of land
More and more MTK members are rural entrepreneurs. Alongside traditional farming, one holding in three also runs another business that provides substantial income. Rural entrepreneurship within MTK's activities also covers other kinds of business carried out in connection with turning the tangible and intangible resources of farms and forest holdings into marketable services and products. Rural entrepreneurs work in a variety of business fields, such as tourism, transport services, bioenergy production and horse husbandry.
Environmental protection and land use
MTK aims to take part in environmental and land policy matters. In terms of land use, safeguarding landowners' rights is one of the organisation's main areas of work. In addition to defending entrepreneurs' interests, environmental policy today emphasises active involvement in nature conservation. Sustainable agriculture is economical, preserves natural values and promotes people's social and cultural well-being. Land and forest owners who earn their living from natural resources have long been aware of the importance of the environment. One of their principles is to respect nature and to enhance its productivity by making rational use of the resources obtained from it.