Aligning several EU policies in a single direction, together with a sensible approach to land use in forestry, would allow Latvia to take an even more significant place in the world market for products made from renewable resources, while at the same time gaining economic benefits, preserving employment and the sector's payments into the state purse, without harming natural diversity and while helping to meet climate neutrality targets.
Such conclusions were voiced in the discussion organised by the magazine “Dienas Bizness” and the Latvian forest and related industries portal zemeunvalsts.lv, “The forest sector five years from now – opportunities, challenges, resource availability, competitiveness”. The forest sector is one of the largest and most important generators of export revenue, a significant employer, particularly in rural regions, and a significant taxpayer into the state budget, while at the same time also a significant purchaser of services from other sectors, which is why its future has a substantial impact not only on individual settlements or districts, but on Latvia as a whole.
A cocktail of challenges
At present the forest sector is having to live through a peculiar mixture of problem situations at several levels – global and domestic. “Internationally, insecurity and uncertainty have grown, created by wars and geopolitics, which affects both sales markets and producer countries and influences confidence in the near-term outlook,” explains Uldis Biķis, Chairman of the Council of AS Latvijas Finieris. He acknowledges that under the influence of these factors investment plans are being changed; there are sectors whose sales markets are shrinking, and so companies are finding things harder.
“At the moment there is plenty to think about, because every company has its own cornerstones to rely on in order to gain security both for investment and for keeping production running,” explains Uldis Biķis, adding that in the present circumstances Latvijas Finieris is in a sense somewhat better protected than other manufacturers may be, but that this is due to a coincidence of external circumstances – major geopolitical shifts and changes in the EU market relating to the availability of products from aggressor states.
“That is precisely why, viewed from the position of the market situation, the company is getting through this period more easily. It gives us the chance both to continue and to launch large investment programmes (which, during the smaller crisis situations – the market, the Covid-19 pandemic, energy – had been postponed), and thus to build our future development potential rapidly,” explains U. Biķis.
For timber processors to be able to produce, wood resources are needed. Pēters Putniņš, Chairman of the Board of Latvia's largest forestry enterprise AS Latvijas valsts meži, acknowledges that foresters are in a sense dependent on processors. “The sale of wood is tied to the volumes of sustainably grown timber that can be harvested, for as long as processing is able to sell the resulting output on foreign markets,” he says of the overall situation, judging that in the future a key question will be how much forest may be grown and how much of the resulting harvest may be gathered.
“Forestry is based on a closed cycle of many decades, beginning with planting the forest, tending it and ending with felling the grown forest, and if excessive land management restrictions force us to narrow our share of production, that will undeniably tell on our clients – the timber industry. If the sector's overall output volume shrinks, it will be a serious blow to the national economy,” P. Putniņš sums up. As a grower and supplier of wood resources, LVM is very dependent on external market conditions, as shown by the amplitude of wood price swings in recent years.
“LVM has always ensured a stable flow of wood regardless of its market price, whereas private forest owners always calculate the economic gain – they fell the forest when prices are high and minimise logging when prices are low,” explains P. Putniņš. He points out that in the case of LVM two aspects must be considered: first, what the sale of wood and its price are, and how much LVM is able to pay in dividends into the state budget; second, LVM “keeps alive” a large share of processing capacity.
“I would like it that, when deciding on the felling volume available for the next period, the draft estimate currently under discussion is approved, which would create stability for everyone,” explains P. Putniņš.
“The question is a very complicated one, because in the long term the most important factor is the availability of resources,” says Jurģis Miezainis, Parliamentary Secretary of the Ministry of Economics, assessing the situation regarding forestry risks, their effect on wood processing and the ensuing cumulative impact on export revenue, jobs in the regions and the amount of tax paid.
Divergent directions torpedo future development
The EU Competitiveness Council considered Mario Draghi's report, which states: “until all policies in the European Union are aimed in a single direction, there will be no predictability, and the consequences of that will be negative.”
“When it comes to natural resources, unfortunately, the EU's various policies are not aligned. That is the shared responsibility not just of one EU commissioner but of the European Commission as a whole – to line up all the regulations and directives in one direction, because otherwise neither the achievement of the stated targets nor economic development is possible,” J. Miezainis explains the problem. He points out that alongside EU policies there is also the so-called Latvian factor: “Latvia is currently drawing up a National Energy and Climate Plan, and the measures included in it require a socio-economic impact assessment, particularly for the land use sector.” J. Miezainis stresses that the capital of the future is forestry and wood processing, especially processing into high value-added products.
“If we want to reach the emissions target, as well as what is set out in the National Energy and Climate Plan, we need to ensure the availability of appropriate resources, and a discussion about that is going on among the government partners,” says J. Miezainis. He expressed the hope that the discussions have moved in a more positive direction than before, because there is already a consensus: we must not lose this sector. “It is our country's advantage, because other countries do not have the opportunities Latvia has, where forest covers more than half of the territory, where there is fertile agricultural land and a stable climate,” says J. Miezainis.
A formula for a sensible approach
At the same time there is a pressing question of what to do if the state budget needs additional funding for security, if there is also a shortage of money for health care and education, yet there are risks that several sectors, including the forest sector, will contract, which in turn will mean less export revenue, fewer jobs and smaller tax payments.
“I see only two possible solutions – cut state budget expenditure or increase the deficit (borrow more money for day-to-day spending), because there are no sectors that could compensate for a narrowing of the forest sector's economic contribution.”
“Perhaps we should look at how our neighbours do things – all nature protection requirements are met, but there is no assumption that nothing may be done in nature protection areas. Quite recently there was a Deutsche Welle programme about Portugal, where in a protected nature area with cork oaks it is permitted to harvest cork bark once every nine years. So economic activity is permitted in a protected area, with a time interval restriction,” says J. Miezainis. He points out that Latvia has forestry and, on very small areas, plantation forests too. “In LVM's case the forest rotation takes 70–100 years, and significant efforts are made so that forests regenerate and habitats are not affected negatively,” explains J. Miezainis.
He recalls that this summer many settlements in Latvia were flooded, and in many places the cause of the problem lies in drainage. “It turns out the river flows through a protected nature area (a reserve) and has met an obstacle there that may not be touched. As a result everyone suffers, including the habitats within the area, because the surroundings become more boggy, with the corresponding consequences both for nature and for the people living nearby,” says J. Miezainis. He stresses that examples like these clearly demonstrate how badly a sensible attitude towards nature is needed.
“If we do not change our approach, forestry will no longer be possible on waterlogged, boggy soils, because the trees simply will not grow or their growth will stop; nor is it possible to get into such places with heavy machinery, and they are most often abandoned,” explains P. Putniņš, adding that natural values are very often found precisely in the forest areas regularly tended by LVM, because many rare plants love the sun, they need a particular hydrological regime, and they do not grow in degraded areas.
“If we follow that logic, more and more of the forests managed by LVM are being withdrawn from economic activity, and what remains are the so-called non-liquid areas, where economic activity is impossible and which, incidentally, are of no interest to friends of nature either,” warns P. Putniņš. In his view, the Latvian state will at some point have to choose, because by narrowing the commercially usable forest areas it will not be able to claim that share of income which comes not only from the company's economic activity but also from the wood processing sector. That means it will not be possible to claim both greater income and a greater number of hectares withdrawn from economic circulation at the same time.
“It will not be possible to go down both roads at once,” P. Putniņš concluded. J. Miezainis is quick to add that in order to preserve natural diversity, areas must be tended rather than left in the care of “mother nature”, with the exception of Natura 2000 areas. “Natural values arise in commercial forests precisely because tending takes place in them,” J. Miezainis stresses.
“Overall LVM invests very large sums in environmental protection, including by creating so-called buffer zones. But that can only be done if the company operates at a profit,” says P. Putniņš.
Almost half could be lost
In August 2024 the EU Nature Restoration Regulation came into force, and meeting its requirements is bound up with yet another “migration” of commercially usable land into the unusable category. “At present there are far too many uncertainties, which is why it is impossible to give a correct answer,” P. Putniņš replies when asked how much commercially usable forest will be taken out of the areas managed by LVM once the requirements of this regulation are introduced in Latvia, noting that the sector has made various calculations based on various scenarios; they are not encouraging, because, counting in the results of the nature census, in the worst case almost half of all commercially usable land could be withdrawn from economic activity.
“Can you imagine what impact that will have on wood processing and employment, for example in Vidzeme, where 30% of those employed in the real economy are connected with forestry?” asks P. Putniņš. In his view, the above estimates and the worst-case scenario demonstrate that the decisions that will have to be taken will mean a very serious choice with a long-term impact on the country's economy.
“You can always tell two extreme scenarios in emotional terms. There are probably people in Greenpeace or similar environmental organisations who can look at Latvian land as environmental territory where people do not live. It is very simple if a country the size of Latvia is one big nature park. That is one ditch. The other ditch would be to look at Latvia as the flower fields of Holland, where every square centimetre is planted – production is maximised, the land is like a colourful quilt,” says U. Biķis. He draws attention to the fact that it is not for nothing that Europe has tried to discuss and arrive at some sort of proportions to put into practice.
“This is not a national but an EU-level question – a split of 10% (under strict protection and no economic activity at all) + 20% (around cities and human-made recreation zones, where there are restrictions but economic activity is not prohibited) and + 70% (economic activity permitted, with productivity as the priority),” explains U. Biķis. He stresses that different kinds of areas are needed, but that we must also know how to preserve nature within those same 10%, and it is not important whether it is Natura 2000 or a river protection belt, or a protected area created in honour of some flower (plant) or bird.
“There has to be a limit; there cannot be more protected areas than that, and within these areas we try to reconcile the most valuable things, species diversity, otherwise we lose fertile land, which is the basis for obtaining renewable resources from it – all the more so if the world is moving towards not using non-renewable resources, so that the use of fertile land is a question of an existential nature for the survival of humankind. If, for example, in Spain or Portugal there is very little such land or none at all. They may well be waiting for the resources grown accordingly in Latvia,” explains U. Biķis. In his view, this calls for a rationally responsible approach.
“On the state's side there has to be a backbone capable of turning emotions into a real framework,” says U. Biķis, pointing out that the timber industry and foresters were able to define that by 2050 the productivity of commercially used forests could be raised by 25%.
“That allows a certain percentage of forests to be set aside for nature protection, and recreation zones around cities as well, but it has to be balanced: if we restrict something, there must also be areas where activity is liberalised, where the orientation can be towards economic gain – a faster rotation. At present productive forestry in Latvia covers only a little more than 1% of the area, because there are only 76,000 ha of land with forest plantation status,” explains U. Biķis.
The labyrinths of the search for compromise
“We will find a compromise,” J. Miezainis is convinced. In his view, one set of requirements is set by the needs of nature protection areas, another by emission volumes; if some of the requirements are placed above others, there is a risk of meeting none of them.
“If every potential habitat has to be protected and on the other side there is an owner who has invested money and time in that property, because investments in forest produce a return only after several decades, thereby demonstrating sustainability, then the return on that investment will be available to the coming generations,” explains J. Miezainis. In his view, in commercial areas we grow trees and obtain a product – raw material to which we add value and from which we gain a corresponding benefit, while other areas that have a special status we protect.
“The Minister of Agriculture's premise – that no one may have restrictions on economic activity imposed on them without fair compensation – stands. If we want to preserve something and not use it, then let the whole of society pay for it,” says J. Miezainis. He acknowledged that there are several options – a property in which natural values have been discovered is bought back, or exchanged for an equivalent one without restrictions on economic activity (reserve status), or the owner receives compensation for doing nothing on the area in question and preserving the natural values found there. “Article 105 of the Constitution states that a private owner may be encumbered in the interests of the needs of society in return for fair compensation,” J. Miezainis recalls.
P. Putniņš points out that at present the legal regulation of restrictions is comparatively weak, which creates confusion. For example, LVM too has areas under its management that on the one hand are not legally encumbered, but as soon as work begins there, accusations immediately follow about damage to something (a habitat, for instance).
“It would be nothing but welcome if, in accordance with national legislation, areas were assigned a specific status with the force of law – a protected area or free of restrictions. Then everyone involved would know whether a particular area is entirely untouchable, or whether work can be done there subject to specific conditions, or whether economic activity can be carried out there in full and the area is free of reserve status and restrictions,” P. Putniņš suggests. In his view, at the moment when the force of law is applied, a socio-economic assessment must be carried out in which the social impact is weighed against the economic possibilities and the consequences created by one position or the other, and at the same time it will be clear what may be done.
“LVM has tens of thousands of hectares of such unclear areas (with productive stands), and their use is frozen,” P. Putniņš replies when asked whether the company manages areas about which there is no real clarity. He recalls the set of factors that has accelerated the rate of forest growth in Latvia. Over the past 50–60 years, as a result of the enormous work done by scientists, considerable advances have been achieved in forest breeding and in knowledge about forest tending, so trees reach the dimensions needed for felling considerably faster than the prescribed felling age assumes. Paradoxically, the rate of tree growth in Latvia is also increased by climate change. For example, a spruce can be felled 50 years after it is planted, or even sooner, and there is no need to wait another 30 or 40 years, during which it would suffer from pest attacks and turn from high-quality timber – the valuable sawlog material needed for manufacturing high value-added products – into raw material for low value-added wood products or merely into energy wood. In P. Putniņš's view, this situation should also be used so that LVM can pay dividends into the state budget on an increased scale.
“We have to free ourselves from the shackles, namely, an archaic regulatory framework has survived from Soviet times which presumes that every forest owner is a criminal who may do nothing, that everything must be approved and regulated. Scandinavia has a different approach – the forest owner is the preserver of their property, who tends and looks after their forest and fells it at the most advantageous moment,” explains P. Putniņš. In his view, Latvia needs to make a corresponding turn, which can produce positive results, including, for example, in connection with voluntarily assumed commitments in the field of nature protection.
A clear understanding
“People often ask me too whether taking a few per cent of Latvia's territory, including forests, out of economic circulation really will create such a great risk for the timber industry and other users,” says U. Biķis. The most important question for the timber industry is the availability of wood resources in the near-term outlook.
“Each year 45,000 ha are involved in final felling, which is roughly 0.6% of Latvia's territory, but if you look at the next 10 years, that is already 6%. If it perhaps seems to someone that taking 3% of forests away from forestry cannot have any significant impact, it has to be understood that this means halving the volume of wood resources available to the sector,” says U. Biķis. In his view, without explaining which areas in geographical space are being talked about and what grows there, and how old the stands concerned are (not young stands), it can be hard for many people to understand what is actually being discussed.
“We must be able to explain which forest stands are being talked about, how that plays out over time and what the consequences of the decision in question may be, the impact essentially on every forest owner; moreover, in discussing such significant decisions, and even more so in taking specific decisions, one must not fail to ask the person whom the possible decision will touch (affect),” stresses U. Biķis.
At EU level the member states have no common vision, because there are fundamental differences (determined by climatic conditions) between the countries of southern and northern Europe. U. Biķis points out that the view of land management (forest growing) in southern Europe will differ from that in central Europe and even more so from that in the northern countries, including the Baltic states, where forestry and wood processing are a very significant sphere.
“We will not manage to reduce fossil oil product consumption if we do not prioritise forestry. It is our duty to grow wood, and from it to obtain fibre to offer to the whole world, especially to those countries that have no such possibilities,” U. Biķis says of the importance of forestry and its potential advantages. J. Miezainis agrees with him, stressing that it is precisely in the new conditions – the replacement of fossil resources with renewable ones – that forestry and agriculture have economic advantages, and that their importance will only grow.
“Most likely, not only will demand for these resources grow, but prices too, which will also mean a greater scale of economic benefit that Latvia can obtain,” says J. Miezainis. U. Biķis recalls that the EU once had the task of calculating the bioeconomy and drawing up a bioresource mobilisation plan, which has now been forgotten.
“We must be able to look at this question from helicopter height, seeing the overall picture and taking the corresponding decisions, all the more so because wood is comparable to oil, since all the same goods that can be made from oil can be produced from wood – it is only a matter of working on the relevant technologies and developing the relevant manufacturing,” Uldis Biķis is convinced.
The video of the discussion can be viewed here: https://www.youtube.com/watch?v=4Fa_VeTx_D4