Evaluating the events of the last three years in Latvia, which have been directly influenced by external circumstances – C19 and the Russian invasion of Ukraine – it is unfortunately necessary to conclude that in a segment of society, the habit of a certain way of thinking or imitating action has massive inertia. While entrepreneurs and those directly involved in business are working actively and trying to change or adapt to the situation, or continue under changing circumstances, a performative activism of words still reigns in the figurative “city centre”, without understanding a thing about the practical side. The sophisticated word “meaningful” has lost its meaning. How should the doers act?
What is the most pressing issue among the members of the associations you represent right now, in the first half of July – the war in Ukraine and the related problems, such as price increases or the Cabinet of Ministers decision of 21 July*?
As I work for and represent two associations – the Latvian Independent Timber Producers Association and the Latvian Timber Manufacturers and Exporters Association – the answers might differ. In the context of Ukraine, for instance, the first and most important factor was naturally the large and sudden rise in fuel prices. Knowing that timber producers and transporters have enough medium-to-long-term contracts, the problem was that the mechanisms used to index prices in line with changes were unable to “keep up” with such a rapid rise. Knowing that in timber production, the cost price of fuel accounts for about 25-30%, whereas for transport it is close to 50%, it is understandable that such a price spike had an extremely large impact, creating very significant losses for service providers. There were situations where an entrepreneur could not cease providing a service because of existing contractual obligations with penalty clauses, but on the other hand, they could not provide the service because they lacked the working capital to cover the rising costs. Forest service providers were in an even worse situation, as their contracts ended after a few months, and they had to work at a loss during the final period, having already exhausted their previous earnings. The leap in fuel prices was a very significant problem, and unfortunately, we did not find a sensible solution for it. One reason for this is that the industry does not always have a 100% unified position, which is often very important. For example, for the state forest manager to withdraw from or amend contractual obligations, there must be a grounded conviction that the problematic situation covers the entire sector; it cannot be the case that one service provider is in an emergency situation while another says – “No, I am not, I can continue working!” In such a situation, one cannot invoke (“trigger”) the force majeure clause included in the contracts.
We carried out many and various channels and rounds of communication, but we did not find a solution either in cooperation with the state forest manager or at the level of the ministries (Economy, Finance, Agriculture), to whom we wrote that it would be useful, for instance, to have a short-term reduction in excise duty or other support mechanisms for fuel purchases. Nothing happened. I cannot say that there are many bankruptcies in the sector, but the impact on development is definitely felt. For example, regarding long-term contracts, a serious question is how many entrepreneurs will want to sign them and how easy it will be to buy such services in the future. Market prices are sufficiently high, the private sector is very active, and in the private sector, it is easier and simpler to reach an agreement.
Continuing on the impact of the war, uncertainties also arose for timber processors. We now know that timber will no longer come from Russia and Belarus, and there will be a shortage of raw materials on the market. Serious discussions were underway – how to buy timber now – whether to sign shorter-term contracts or longer-term ones – and opinions differed here too: some thought it was better to buy over a longer period, even at a higher price, but with the confidence that materials would be available – meaning you can think and plan to offer products to your customers; others believed that competition for timber would be immense and the prices would not be sustainable. I would say both were right, depending on the situation and the assortment.
21 July and the Cabinet of Ministers decision. I cannot say that it was in any way very, very significant for the members of my associations. We calculated that the increase in the total volume of work as a result of this decision could be 5-8%. If we look at service providers, problems are to be expected regarding the availability of equipment and people; we will have to think seriously about how to ensure the increase in timber harvesting volumes. I do not think the total volume of timber harvesting will change significantly specifically because of the change in diameter. There will be greater demand for the preparation of energy wood, the cycle of how long a pile stays in the forest will shorten, but – it must be remembered that together with the Cabinet of Ministers decision, an informative report** was produced regarding the situation in agriculture. It included the idea of revising the five-year plan for state-owned forests, increasing the total harvesting volume within them. The changes in diameter are more related to planning, which can now be done better.
Speaking of additional timber volumes, there is hope that this will normalise prices, though there is no 100% guarantee because we are in a single market – whoever pays more, gets it. But, as I mentioned, there is some hope that additional resources will curb rapidly rising prices. Why is this important? Take firewood, for example – an assortment with which one can give at least some value added to low-value timber by preparing, splitting, drying, packaging, and exporting it as a fairly exclusive product. In this segment, we feel strong pressure from Scandinavia, where the pulp industry is quite active and where the timber price does not account for an overly large share of the production cost, meaning pulp producers can pay more for timber, for example, by doubling the price. It must be added that the Scandinavians control their market quite successfully and their timber price increase is not like ours. To sum up, the situation on the market created a need to act so that, once the crisis is over, we would still have a firewood production sector.
Service providers do not really like market fluctuations because, with an increase in the total volume of work, new service providers appear, as well as new, imported equipment, which is often just old, cobbled-together, repaired, and started-up machinery. When the extra volume of work ends, competition on the market increases sharply, and legally operating companies run into problems fulfilling their obligations. Therefore, the additional volume of work is to be viewed and evaluated in two ways.
The Cabinet of Ministers decision on diameter is completely correct – as I already mentioned – it is more about planning and decisions, for example, in the case of an unproductive stand, it is possible to replace it sooner. In this case, there are two options – if the stand is not high quality from an economic point of view – either do nothing and let it grow, or remove the unpromising one, replacing it with one that is more valuable in terms of quality. But again, it must be said that the changes in diameters are minimal and do not solve a large part of the situations where one should trust the forest owner without unnecessary regulations.
Public relations, much like the East, is a delicate matter. How do you view the relatively frequent howling – “everything will be logged” – which is furthermore practised by the same people who explain in interviews that it is impossible to log everything?
Among our opponents, there are also professionals with their own goals and rules, and the rhetoric they use is such that one is convinced – a segment of society will listen to it and “get on board”. I do not really have anything to reproach the opponents for; if I were operating in their ranks, I admit I would also use loud shouting tactics, because it works.
The only way forward for our sector is numbers, justification, argumentation, and explanation. Yes, we do not always succeed! Yes, for many, it is not interesting, and enough people are unable or even unwilling to delve into this information; unfortunately, that is also a fact – it is better to grab the simplest thesis: “Everything is bad!” This thesis comes in handy, for example, among relatives and friends – one’s own circle – explaining and showing off one’s “knowledge” in politics, forestry, or agriculture. That is only one part of the situation.
We explain and we act, but we have sufficiently large problems in being heard, and what is most unpleasant is that this is the case in public media. If there is anyone to whom I cannot forgive the agreement and sinking into the “everything is bad” rhetoric, it is the public media. A public medium should analyse, look, and inform clearly and dryly. It was specifically Latvijas Radio, Latvijas Televīzija, and the portal lsm.lv that (and are) the ones that most emphasised not the fact that the felling diameter had been reduced, but specifically stated in the headlines that “younger forests will be logged”. That is unforgivable!
This has been talked about a lot. Of course, it depends on the person, but for the majority of colleagues in the industry, when public media is mentioned, it is clear that they will not say anything good, anything accurate, or anything explanatory.
It is a public medium that has its own editorial policy on how and what to present; the editorial policy is shaped and implemented by specific people. Apparently, a certain conviction and ideology reign in these media outlets. Our opportunities to change that are very limited. All that remains is to steer our pragmatic view through industry portals, websites, magazines, to talk to people, and to invest in commercial media. I will add that we do not operate with public money nearly as much as environmental organisations do. If we talk about the Latvian Forest Industry Federation and associations, they subsist on membership fees, not on “injections” or arranged money flows from ministries or funds.
In a recent conversation with the leadership of the Latvian Forest Industry Trade Union, we concluded that politicians – at the state or municipal level – plan spending a lot, but think little about earning, support for entrepreneurs, or jobs.
As with many situations, this can also be viewed in different ways. If we talk about municipalities – what are their interests. Theoretically, it would be in the interests of municipalities to attract as many inhabitants as possible to their region or city, increasing revenue through the personal income tax. That would be one thing, but municipalities are not directly and very seriously interested in developing entrepreneurship in their territory, which, for example, burdens infrastructure, requires planning public transport, maintaining roads, etc.
I think that in Latvia, those Pierīga (Riga metropolitan area) municipalities that are often called Riga’s dormitory suburbs feel the most comfortable – the inhabitants who have settled there have declared their residence in that municipality, but go to work in Riga, use public transport, and the Pierīga municipalities do not have to rack their brains or burden themselves with “extra work and effort” for the sake of entrepreneurs. Of course, before elections, big plans are voiced, but... it must be remembered that the residents themselves are not exactly big supporters of entrepreneurship or understanding of the fact that “money does not come from an ATM”. For example, has anyone counted how many green wind energy initiatives, which are loudly praised in every way, have been stopped during the public consultation process? A great many Latvian inhabitants do not want to see anything productive near their place of residence.
Where, in your opinion, is the root cause of such an attitude?
I doubt I will be able to answer that. I know that entrepreneurs, up to a certain limit, of course, are very interested in having other entrepreneurs working nearby. Modern-thinking people in business form various forms of cooperation, for example, they do one thing, the neighbour – another, someone else – a third, the logistics chain shortens, etc. There is another category of entrepreneurs – for example – if a party comes and asks before municipal elections about what needs to be done, the entrepreneur retorts – the main thing is – do not let any other entrepreneur into the district. Why? Entrepreneurs fight for labour. If the district is not large – labour is a bit scarce.
Where does the idea of the undesirability of entrepreneurship come from? For example, the forest sector is responsible for 40,000 directly and 40,000 indirectly employed people. In total, around 80,000 employees is a significant number for Latvia. But – at the moment when it is acutely necessary to support a specific activity of the sector (signatures, support, etc.), the interest is not that great. A person who works in manufacturing or timber production does not always have a great understanding or patriotic feelings towards the sector. He has a duty to his family, to his children, a duty to do his work and earn, but he will not always take up a flag and say: “Long live timber production! Long live timber processing!”
Industry companies are very different. It would be great, even ideal, if a person were to enter a timber processing plant, clap their hands, and say: “Oh, how I wish for my child to work right here!” There is still much to be done until such a situation is reached, but then there would also be a greater sense of patriotism.
In conversations over the last half-year, the idea often surfaces that political power here thinks little in the long term.
We cannot say that they do not think at all. Political power changes more often, the civil service relatively less so. At the management level, there are not many changes either. For example, how many changes have we experienced in the civil service of the Ministry of Agriculture? In this regard, a certain consistency and continuity are preserved, and I would say that there is long-term thinking. Of course, all new initiatives depend on political leadership, and here there is a four-year cycle (from election to election), which we cannot change in any way. How much is managed to be accomplished in four years and how ready the civil service is to bring or implement what has already been started into the new political situation is unpredictable. Moreover – whether and to what extent the new minister’s office is ready to listen and talk about what the “old, bad crabs” have planned? Long-term thinking is not really present here.
If we talk about budgetary institutions – what can they plan in the long term and for development? Nothing much! How much money is allocated each year, that is what there will be. Any plans come up against money. I see that every day. For example, educational institutions. For example, fund money, which has a project nature – it starts and ends, what then? When the project ends, you have to start thinking about how to maintain and how to employ everything created within the framework of the project. That is a systemic problem – the project ends, the money ends, the system stops.
You were recently in Lithuania. Is the situation in the neighbouring countries truly better, or does it only seem that way from the outside?
The situation in the neighbouring countries is no better; there are exactly the same problems. The Estonians have Finland next door, the Lithuanians have Poland, which might change something. The availability of human resources is just like here – there are no people!
Looking at the situation, Estonians are leaders in the construction of wooden houses, Lithuanians work with IKEA factories. We are good at primary processing, which is why I sometimes wonder if our good work in interest representation and advocacy has backfired, not quite as intended. Good business is being done anyway; it is significantly more profitable and successful than the others. Of course, the situation can be changed by the results of habitat mapping (nature census), which is a big risk for the industry.
Meaning?
I have not been involved in this process myself, I watch and listen to what colleagues say and discuss. As far as I know, the risk of a possible 30-40% reduction in timber harvesting volumes due to habitats has not been mitigated to date. That is a real risk. I do not know how much socio-economic impact it is necessary to calculate and estimate for so long – if resources decrease by 30-40%, the export value and the number of companies will decrease by the same amount. If the sector contributes about 3 billion in exports, one billion will “disappear”. That is simple mathematics.
How do you view the EC initiative, also supported by Latvian activists, to protect not what needs to be protected, but percentages (10-30% of the territory)? Of course, one can think differently, but back in the day, at the Faculty of Forest, they taught that one should protect what needs to be protected.
That is what I think, too. How will such an idea result? We discuss a lot, for example, what will the Netherlands protect? What will Belgium? If this process happens mechanically, there would be serious grounds to be very, very offended. Since many import timber materials from Latvia and other more forested countries for their production needs, I allow that if, for example, the Italians realise that they suddenly cannot receive wood-based panels and solid wood for furniture because there is nowhere to get them and there are no vast forests in southern Europe, they might wake up in time. But the percentage system is stupid.
Lately, seeing that C19 demands resources and affects the state economy, more than one colleague in the industry has become sharper and harsher in their statements. Until now, often in verbal battles with activists, there were calls to be very polite and understanding. What, in your opinion, is this steamroller that they call green?
It looks to me – there is business at the bottom of it, and furthermore, not one created by environmental organisations to talk about something environmentally friendly and truly green, but the financial market is most focused on it. Not for nothing does the Bank of Latvia want to express itself too much and too often, for example, that the issue of protected areas is an unresolved risk for the industry that reduces the value of the industry; if we put that aside (leave 20-30% of the area for protection), the risk will be lower. Then we will be able to trade in emission quotas. The bank is not interested in the industry as such, but it is interested in financial markets. Money, not the idea of a better future, is at the basis of the idea.
In modern issues that are topical today – climate and biological diversity – there are also many contradictions. What would be necessary? The three-chair principle must be remembered. A metal and plastic chair is bad for the environment and nature, but you can sit on them. A very good choice is a wooden chair – good for the climate, the biological diversity can be debated. But – the best choice is to stand on your own two feet. The problem is not the need to protect something, but consumption. Excessive consumption problems cannot be solved, which is why a lot is being overly simplified and forbidden. Neither here nor in the rest of the world has anyone yet been able to or found a way to change the spending habits of the majority of society.
Did C19 not change anything?
Of course, it changed. That was a pandemic, but there is no idea how many pandemics must be experienced for the habits of the wider public to change. Remote work and the efficiency of processes, unfortunately, largely happened at the expense of people’s health (I mean mental health). Changes in this regard were rapid, it was not easy. For example, I quite quickly got used to being at home and working remotely, without wasting time and resources on the road to Riga. Now, the mere thought of spending two hours on the road to work is a thought of time spent uselessly. I see that employers use remote communication possibilities for shorter or longer meetings. Even if we forget the high fuel prices, driving from Ventspils or Cēsis to Riga to participate in a two-hour meeting, saying a few sentences, is not exactly reasonable. While agreeing that C19 has changed certain habits, the changes should have been much wider and more serious.
*Amendments to Cabinet of Ministers Regulation No. 935 of 18 December 2012 “Regulations on tree felling in the forest”
**Informative report “On the current situation in agriculture and possible solutions for resolving the crisis related to Russia’s military invasion of Ukraine”