“A change of one million cubic metres in timber resource harvesting brings the Latvian state, or takes away from it, 126.2 million euros in gross value added, 2,300 jobs and 32.6 million euros,” shows the assessment of the socio-economic impact of forestry and related sectors carried out by the audit firm KPMG.

KPMG recommends improving forestry regulation by implementing the functional stratification of forest areas, faster turnover of forest stands, higher stand productivity, and by promoting the development of further processed products, providing state support for research into wood chemistry and wooden construction products, as well as attracting potential investors for the manufacture of new and innovative products. The industry entrepreneurs surveyed take a positive view of the study carried out by the audit firm, stressing that those who prepare decisions at every level — and even more so those who take them — should not merely read it, but should make it a point of reference when preparing and taking every decision that directly or indirectly affects the forest sector and its related spheres, jobs and taxes paid.

“These are comparatively turbulent times for the sector, caused not only by geopolitical events but also by the ability to meet the requirements of EU directives and regulations, as well as the EU Green Deal, which is an extensive strategy whose management and implementation require, and will continue to require, decisions at national level that will be anything but simple, because it will not be possible to satisfy every need of the whole of Latvian society and reasonable compromises will have to be sought,” explains Andris Balodis, head of strategic development at AS “Latvijas valsts meži” (LVM), setting out why the study was needed. In such circumstances, decision-makers at every level will need data-based, scientifically grounded analysis of what impact (consequences) each possible decision has on employment, tax revenues and GDP as well.

Impact on GDP – 8.9%

“The forest sector is a significant sector of the Latvian economy not because that is what those working in it think, arguing that forests cover 54% of Latvia's territory and that we have more than 100,000 private forest owners, but also because it generates, both directly and indirectly, GDP amounting to 3.6 billion euros or 8.9%, employed 74,360 people in 2024 and paid 1.162 billion euros in taxes,” says A. Balodis, assessing the importance of the KPMG evaluation. He stresses that the audit firm's comprehensive perspective on the forest sector's direct and indirect impact on GDP, employment and taxes paid — something that has not existed until now — gives a completely different view of the sector and its significance to the Latvian economy.

KPMG concludes that forestry and the timber industry together generated 5.4% of Latvia's total GDP in 2024, but adding the related servicing sectors takes the figure to 6.2% of GDP, and adding the contribution of indirect sectors on top of that brings it to 8.9%. A. Balodis notes that tax payments have been assessed using a similar methodology: in 2024 the sector itself paid a total of 552.75 million euros in direct taxes, 504.45 million euros in indirect taxes and 104.91 million euros in related taxes, generating 1.162 billion euros in total.

“For every euro in direct taxes, a further 1.1 euros is added in indirect and related taxes. These are mainly labour taxes,” answers A. Balodis when asked how a sector working mainly for export, together with its related spheres, has managed to pay 1.162 billion euros in taxes. He stresses that in 2024 the forest sector employed 38,890 people, that a further 24,470 people were employed in the sectors providing services to it, and 10,000 in related sectors.

“The forest sector is the largest employer among the country's productive spheres, and moreover the sector's jobs are in the regions, which is very important,” says A. Balodis, stressing that if there are fewer jobs in the forest sector, this also affects the number of people employed in the sectors that provide various services to it.

Four scenarios

“In the young stands we are planting and tending today, timber resources will be harvested several decades from now, which is why the decisions that are taken must be very carefully weighed, comprehensive solutions that balance all the factors affecting not only questions of nature and biological diversity, but even more so employment and therefore also the population of the regions and the amount of tax paid,” explains A. Balodis. Since the availability of timber resources is the most fundamental condition for the forest sector's work, the KPMG study analysed how four different scenarios affect not only the forest sector's contribution, but also the GDP, employment and tax payments of the spheres that service it and are related to it.

The four scenarios take as their base the multi-year average timber harvesting volume of 13.1 million m³, a reduction scenario of 15% — a level observed previously — at 11.1 million m³, a critical reduction scenario of 30% at 9.2 million m³, and a growth scenario (of 20%) at 15.7 million m³. A. Balodis notes that changes of 15% in harvesting volumes have been experienced historically in Latvia and do not cause structural change, even though they affect taxes paid, the number of people employed and GDP; in the case of a critical reduction of 30%, however, structural change is already to be expected, because some timber processors will not survive it (timber resources will not be available), which will certainly be reflected in the country's overall GDP, employment and the amount of tax paid. The KPMG assessment indicates that changes in harvesting volumes across the scenarios significantly affect jobs: in the base scenario there would be 67,580, in the reduction scenario (of 15%) 63,000, in the critical reduction scenario (of 30%) 42,280, and in the growth scenario (of 20%) 73,540; correspondingly, tax revenues are calculated at 1.035 billion euros in the base scenario, almost 950 million euros in the reduction scenario (of 15%), 628.21 million euros in the critical reduction scenario (of 30%), and 1.149 billion euros in the growth scenario (of 20%). It is concluded that in the event of a 30% reduction in harvesting volumes the state would lose 406.9 million euros, 25,600 jobs and 1.22 billion euros of GDP each year compared with the base scenario. Conversely, from a 20% increase in harvesting volumes the state would gain an additional 6,100 jobs each year and an additional 113.55 million euros in taxes compared with the base scenario, and the forest sector's total gross value added in Latvia would be 3,561.4 million euros, which is 8.8% of the country's GDP.

The risks of shrinking harvesting

“The percentage reductions in timber harvesting (volumes of 2 and 4 million m³) are not simply assumptions, but are based on specific factors of potential impact — an ill-considered implementation of the EU Green Deal, including the roll-out of the biodiversity strategy and the drafting of the national nature restoration plan, where the responsible institutions and some politicians have a very simplistic view of how to achieve a rapid reduction in greenhouse gas emissions in Latvia by cutting the country's timber harvesting volumes, thereby maintaining or even increasing demand for fossil-based materials,” explains A. Balodis. He acknowledges that reducing timber harvesting volumes will improve Latvia's greenhouse gas emissions balance, but that this will be short-lived, because the greatest sequestration of these gases is carried out precisely by young, middle-aged and maturing stands, not by old stands, which reduce and even entirely cease carbon sequestration and oxygen production.

“We need to look at it from another angle — how we in Latvia can increase CO₂ sequestration, which means more new forests, including through more intensive forest growing, and produce wood products with a long service life (30, 50 years and more) in which the sequestered carbon is stored,” answers A. Balodis when asked how to address the problem of greenhouse gas emissions in Latvia. He acknowledges that there are heated discussions about the biodiversity strategy, because the EU has decided on the protection of 30% of land and sea areas (10% under strict protection, 20% for multifunctional use), with each country already drawing up a division of land use appropriate to its own situation.

“The target for dividing territory — 30% for protection and 70% for productive, science-based economic use — has been set for the EU as a whole, not for each member state separately, but as Latvia's administrative institutions understand it, this requirement can be met only by expanding Natura 2000 areas, including ever more forest land within protected areas, which means taking that land out of economic circulation; yet in forestry land is the basic means of production, producing output — primarily timber, which is then consumed by the timber industry,” explains A. Balodis. He notes that changing the designated purpose of land use affects forestry, because as the area in which timber resources can be harvested shrinks, the volume harvested is potentially reduced as well, which has an impact on rural employment, taxes paid and GDP. That is why researchers' proposal to transfer the EU's 10-20-70 land use decision to forest territory, enshrining it in the regulatory framework, deserves consideration. Such a solution would remove ambiguity and uncertainty and the needless expenditure of resources, and would create a sustainable basis for the balanced development of Latvia's natural diversity and its economy.

“There are indeed, because the measures planned in the draft national nature restoration plan could potentially cover close to 300,000 ha of forest land that would be subject to various kinds of restrictions on economic activity, which will again affect the availability of timber resources. The plan would have an enormous impact on the economy, and in this case too there are no plans to carry out a socio-economic assessment,” answers A. Balodis when asked about currently unknown risks that could affect timber availability in future.

In state forests, as much as 50%

“At present LVM's timber harvesting volume is 6.8 million m³ a year. If the measures being discussed in various draft strategy proposals are implemented, it could fall to as little as 3.3 million m³, which is a very substantial reduction in output that will not only reduce the availability of timber resources but will also have a negative effect on the operations of timber processors, on employment in the regions and on taxes paid; LVM will also pay the state as owner considerably smaller sums than, for example, for 2025, when 261.9 million euros were paid into the budget, and on top of that it will also have a negative effect on natural diversity and on meeting the climate neutrality targets set by the EU,” answers A. Balodis when asked what this would mean for LVM. He recalls that habitats of EU importance covering 334,000 ha have been identified on the land managed by LVM, including 228,000 ha of forest habitats, of which specially protected nature territories (the Natura 2000 network) make up 80,000 ha.

“In support of the protection of habitats of EU importance, LVM has prepared projects for specially protected nature territories (Natura 2000), designating a further 47,000 ha for voluntary protection. Recognising that the forest ecosystem is changeable, LVM is developing a dynamic nature protection model that provides for the protection of natural values without creating formal nature protection areas, using a closer-to-nature approach to forest management. Fencing off a territory is an outdated approach to nature protection. Today foresters have at their disposal many scientifically grounded approaches and methods for preserving and increasing natural diversity while carrying out economic activity at the same time. It is important to provide appropriate protection for habitats of EU importance, but we also have to be aware that this will reduce the volume of timber available for harvesting, because they concern mature stands, not young ones,” says A. Balodis.

In addition, the question of compensation for private forest owners if restrictions on economic activity are imposed remains open, one of the proposed compensation solutions being the use of state forest land. Such a solution would further reduce the area of forest land available for economic activity. He acknowledges that in the scenario of a critical (30%) reduction in overall timber harvesting, the volume of timber obtained by LVM will fall by 50%, because it is precisely in the state forests that the largest amount of mature forest — and therefore of potentially protected area — is found.

65 million m³ left to rot

The scenario of increased timber harvesting rests on giving forest owners themselves greater rights to decide how they manage their properties in line with actual conditions. A. Balodis notes that over the past 16 years the volume of dead wood in all forests has increased by 7.7 million m³ and, according to the forest resource monitoring results of the Latvian State Forest Research Institute Silava, has reached a total of 64 +/- 1.3 million m³ of timber, or 19.77 +/- 0.37 m³/ha. The requirements of the regulations in force do not allow a forest owner to act in line with the actual situation on the ground. That is, once bark beetle has appeared, the only way to preserve the neighbouring stands is to fell the infested trees — the stands — quickly, yet the existing rules allow this to be done only once dead spruce stands are visible on the ground.

“That is too late, and as a result the amount of dead wood in forests grows; moreover, the eight-toothed spruce bark beetle causes the greatest damage precisely in stands of around 50 years of age, yet these may be felled only from the age of 80, even though foresters have proved that what could once be grown in 80 years can today be grown (to the same dimensions) in 45–50 years, which in turn means more efficient use of land and a larger harvest,” explains A. Balodis. He acknowledges that during the 25–30 years of waiting until a spruce reaches the felling age laid down in law, it is very often damaged and even destroyed not only by pests — eight-toothed bark beetles — but also by wind, drought and excessive moisture. This does not mean that dead wood could be at zero level or close to it, because no one is going to go out after 100% of all wind-snapped or dead trees, nor is that necessary.

“Dead wood is certainly necessary for natural diversity, but it would be reasonable for the volume of dead wood to be higher in protected nature territories and substantially lower in commercial forests. It is in the interests of our whole society that the annual increment of timber is used for manufacturing wood products rather than turning into dead wood,” concludes A. Balodis. He explains that if owners of commercial forests had the opportunity to take the most economically advantageous decisions themselves, there would not be so much dead wood; part of it would have reached wood processing and been made into products that would not only increase some company's income, but would also give the state greater income from export earnings, higher GDP, larger tax payments received and more jobs in the regions. He also acknowledges that our neighbours did this long ago and that it is possible here too — all that is needed is to make changes to several Cabinet of Ministers regulations.

Proof of the sector's weight. Artūrs Bukonts, executive director of the Latvian Forest Industry Federation

The comprehensive assessment by the audit firm KPMG shows that every job in the forest sector creates a further 0.86 jobs in other spheres. That is precisely why particularly close attention must be paid to the modelling carried out for the four timber harvesting volume scenarios, in which the number of jobs — both in the sector itself and in those spheres that provide services to it — changes substantially according to the volume. Every cubic metre of timber brings the state both direct and indirect benefits, not only in the number of jobs and the amount of tax paid but, more importantly still, in the population of the regions, in those directly and indirectly employed, and in tax payments. It should be borne in mind that if jobs in the forest sector shrink, there is a high probability that these people will look for work beyond Latvia's borders. Moreover, lower timber harvesting will mean a redistribution of these resources in favour of the sector's largest players, which in turn will mean lower competition for this roundwood and fewer choices for forest owners. Thus reduced competition among roundwood buyers will also directly affect the financial performance indicators of the state forest manager LVM and the dividends paid into the State Treasury, as well as the overall amount of tax. The recommendations for Latvia to promote wooden construction and the chemical processing of wood are logical and understandable, because without chemical processing there is currently no other use for the pulpwood obtained in Latvia's forests. Unfortunately, all efforts so far to establish wood chemical processing capacity in Latvia have not met with success. It is significant that decision-makers are recommended to make forestry more efficient, more productive and faster in its turnover. I hope that those who prepare decisions and the politicians who take them will study what is set out in this assessment carefully before taking decisions.

Which development model do we choose. Rolands Feldmanis, chairman of the board of the Latvian Agricultural Cooperatives Association

Latvia possesses one of the most significant strategic resources — the forest. But the question is no longer only about how much timber we harvest or how large LVM's economic contribution is. The question is broader — how we use this resource and what development model we choose for the future. The logical direction for Latvia would be to move closer to the Scandinavian model, in which the forest is regarded as an integrated long-term value. It rests on a single principle — make maximum use of the annual timber increment and channel all of it into processing. Only in this way is it possible to obtain substantially higher added value, develop domestic industry and create more jobs. In today's world timber is becoming an ever more strategic resource. There are several reasons for this. Firstly, timber naturally accumulates carbon — it is a material that helps address the challenges of climate change. Secondly, it is renewable: a properly managed forest ensures a continuous cycle. Thirdly, it is a material close to people, and its use is only increasing. And finally — timber is a raw material for an extraordinarily wide range of products, from construction and the chemical industry to the bioeconomy and, as the final stage of the cycle, energy. Scandinavian experience shows a simple truth: success is founded on cooperation. There, private forest owners join together in cooperatives, and these ensure a stable, predictable supply of timber in a defined volume, quality and assortment. Such a system makes it possible to build a strong processing industry based on the local resource. This is precisely the kind of model that would be one of the optimal ones for Latvia too. At the same time, the view taken of LVM's work must be broadened. The company must not be judged solely by its economic return — dividends and tax payments. Both LVM and private forest owners give society far more. The forest provides ecosystem services — it is an environmental resource used by the whole of society. At the same time the owner pays taxes on this land and invests in its management and long-term development. The forest is also a significant part of our cultural space — a place for recreation, traditions and learning. It is precisely here that the role of cooperatives is especially important. Forest owners' cooperatives not only organise economic activity — they also perform an educational function. They help society better understand the importance of the forest, sustainable management and the value of the resource itself. That brings the sector closer to society and promotes balanced development. This approach needs to be encouraged purposefully. It does not happen by itself — especially in circumstances where very different interests are acting on the forest sector at the same time, from the expansion of nature protection to investors' efforts to acquire forest land and timber at the lowest possible price. That is why Latvia must clearly choose its direction of development. If the goal is long-term prosperity, then there is only one path — to make full use of our natural resources, develop processing on site and strengthen owners' positions. The Scandinavian model proves it: such a path not only delivers a greater economic return, but also ensures a balance between the interests of society and the environment. Latvia's forest is not merely a resource.

Not to be turned into a reserve. Māris Liopa, chairman of the board of the Confederation of Latvian Forest Owners and Managers

It is not some forest owner or timber processor but an audit firm that has stated just how significant the forest sector is to the Latvian economy — 8.9% of GDP, 1.162 billion euros of tax revenue and almost 75,000 jobs. For decision-makers, the KPMG assessment should be a primer, because the tomorrow of the Latvian state, of those living here and of the entrepreneurs who create value has depended, does depend and will depend precisely on the work of political decision-makers. The modelling carried out clearly shows what the impact can be as timber harvesting volumes change, particularly in the present situation, where the state budget is struggling to meet society's growing needs. Is increased public debt really the only solution, when the growing problem of servicing it will have to be dealt with by the next political leadership of the country, or the one after that? Ideas are being voiced that land, forests and bogs could become a CO₂ bank for large transnational companies as an element offsetting their emissions, rather than a production asset on which to grow trees, potatoes, grain and so on. That is by no means a utopia or some grim fairy-tale land, but a harsh and frightening prospect for the future. Judged globally, Latvia's 64,000 square kilometres, in which all processes would take place only naturally, would not be any enormously large reserve. If there is no economic activity, the state has no tax revenue, there will be nothing with which to pay for security, healthcare and education services, and there will be no money for pensions or for the salaries of those working in public administration. Moreover, in the name of natural diversity and its preservation, millions of cubic metres of timber — billions of euros in monetary terms — are already simply being left to rot in the forest today. Specifically, forest resource monitoring data show that the total timber stock in Latvia is 671.5 million m³, while the amount of dead wood reaches 64.1 million m³. Over the past 16 years the amount of dead wood has increased by 7.7 million m³, or 13.7%. In future the volume of dead wood will continue to grow, because the proportion of old forests in Latvia will increase. A great many spruce stands were planted after storms back in Soviet times; in future the area of such stands (by dominant stand) in hectares will be almost twice as large as it is now. As is known, spruce stands over 50 years of age are far more vulnerable both to invasion by the eight-toothed bark beetle and to windthrow. That is why in recent years the volume of timber felled because of such damage has grown substantially, but what can be obtained from it is mostly energy wood, which has no great added value. Increasing the amount of firewood (energy wood) will bring no substantial benefit either to society or to the state budget. What is needed is decisiveness and responsibility from decision-makers — replacing old spruce stands with new, more productive stands and creating mixed stands in conditions suited to them, which would make it possible to achieve both economic and ecological objectives.
The article was first published in the 26 May 2026 issue of the magazine “Dienas Bizness”