Member of the Board and Executive Director of the Latvian Timber Producers and Exporters Association, Artūrs Bukonts:
Contrary to publicly expressed concerns about a dramatic increase in logging volumes due to amendments regarding tree cutting diameters on the one hand, and hopes for an increase in the volume of timber available on the market for use in energy production on the other, A/S “Latvijas valsts meži” (LVM) is warning clients of its inability to fulfil planned deliveries for the 3rd quarter, with certain companies reporting that not even half of the volume they purchased at auction will be delivered on time.
Furthermore, as publicly available information shows, A/S “Latvijas valsts meži” has unexpectedly and drastically reduced the volume of roundwood available for purchase by producers for the final quarter of this year too – for example, while 67,000 m3 of birch firewood was offered in the 3rd quarter, only 14,500 m3 has been placed on the market for the 4th quarter.
Undoubtedly, the industry is discussing the potential reasons, and one of the main ones is certainly LVM's inability to attract logging service providers. As early as the beginning of February, before the start of the full-scale war in Ukraine, loggers warned LVM that rising costs were threatening their ability to fulfil signed service contracts. Even then, when diesel fuel prices, the costs of repairing and maintaining machinery, purchasing new equipment, and rising staff wages had increased the cost of logging by 25-30%, the situation became several times worse once the war began – fuel prices nearly doubled, and general inflation is now measured in double digits.
LVM failed to hear these warning signals and stuck to the belief that a service price indexation system designed for “peacetime” would eventually “catch up” with both fuel price increases and inflation in general. This was a mistake, which led logging service providers to focus more on operations in the private sector, which apparently reacted quickly to the situation and offered adequate terms.
This error will now cost dearly not only for LVM itself but for the state as a whole. Given that LVM supplies account for up to 70% of the raw material volume purchased by small and medium-sized woodworking companies, changes to raw material supply plans will prevent woodworking companies from fulfilling the commitments they have already made to their clients – purchasers of wood products – let alone planning production for the coming months. In addition, it is safe to say that the low volume of roundwood that will be available on the market, for which very many companies will compete, will artificially skyrocket the already high prices of roundwood assortments, which (not to mention electricity prices, which in our case are often the highest in Europe) further raises questions about the competitiveness of our producers in export markets and their survival in general, as prices for many wood products are falling in global markets.
It is worth remembering here that the forest industry's small and medium-sized enterprises are a very significant employer in Latvia’s regions, and the income for the people who work in them will be very necessary this winter.
We call on the LVM council, the board, and the industry’s political leadership to seek a belated, yet still viable, way out of this situation.
A/S “Latvijas valsts meži” explanation.
LVM Forestry Director Andris Balodis emphasises:
A/S “Latvijas valsts meži” (LVM) has so far responsibly fulfilled, is fulfilling, and will continue to fulfil all contractual obligations undertaken to ensure the supply of wood products to woodworking and heating companies in Latvia. Taking into account the significant changes in timber markets following the start of the war in Ukraine, the demand for all types of roundwood in Latvia has increased significantly, which in turn has created a deficit in the availability of logging and roundwood transport services.
Latvian service providers cannot meet such a rapid increase in demand for services in such a short time, as there is no additional logging and timber transport equipment available on the market, and even more so – experienced forest machine operators and timber truck drivers. The situation that has arisen affects both private forest owners and LVM as the manager of state forests. Since the spring, LVM has actively offered Latvian logging service providers the opportunity to sign new service contracts, but the supply has not been sufficient. As a result, more time is needed to fulfil certain signed supply contracts; however, LVM has no concerns that the timber volumes contracted within the framework of all agreements will be delivered to clients.
LVM has also recently announced several new procurements for logging and timber transport services, but interest from companies remains low, so we invite logging companies and their interest groups to rapidly invest in both the development of human resources – forest machine operators and timber truck drivers – and the expansion of their machinery fleets.