Global forest products consumption, production, trade and prices: global forest products model projections to 2010

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1 Global forest products consumption, production, trade and prices: global forest products model projections to 2010 Working paper: GFPOS/WP/01 Thousand cubic meters Industrial roundwood consumption Year Africa America Asia Europe EUROPEAN COMMISSION DG VIII DEVELOPMENT Paper prepared for the 1999 Global Forest Products Outlook Study

2 The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying or otherwise, without the prior permission of the copyright owner. Applications for such permission, with a statement of the purpose and extent of the reproduction, should be addressed to the Director, Information Division, Food and Agriculture Organization of the United Nations, Viale delle Terme di Caracalla, Rome, Italy. FAO 1999

3 Global Forest Products Outlook Study Working Paper Series Working Paper No: GFPOS/WP/01 GLOBAL FOREST PRODUCTS CONSUMPTION, PRODUCTION, TRADE AND PRICES: GLOBAL FOREST PRODUCTS MODEL PROJECTIONS TO 2010 Shushuai Zhu, David Tomberlin, Joseph Buongiorno Department of Forest Ecology and Management University of Wisconsin, Madison 1630 Linden Drive Madison, Wisconsin 53706, USA Forestry Policy and Planning Division, Rome December 1998

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5 GFPOS Working Paper No. 1 i FOREWORD The Food and Agriculture Organization of the United Nations (FAO) carries-out periodic reviews of the forestry sector and produces long-term forecasts of wood and wood product supply and demand. The production of reliable and timely forecasts is seen as an important aid to planning and decision making in the forestry sector at a national, regional and global level, which FAO will continue to strongly support in the future. In contrast to previous publications on this subject, the current forest products outlook study attempts to go beyond simply presenting forecasts of future supply and demand, to look at wider issues in the markets for wood and wood products. This is why the forecasts of future supply and demand are being presented here as a working paper. They will form one component of a broader analysis, which will examine how these forecasts might be influenced by future developments in forestry policy and forest management and, conversely, what their implications are for consumers, the industry and forestry policymakers. The broader analysis will be presented as a main report, once all of the working papers in this series have been completed. The forecasts presented here are the result of a considerable amount of work and have benefited substantially from the inputs of numerous reviewers from both within and outside FAO. In particular, FAO would like to express its gratitude to the team from the Department of Forest Ecology and Management at the University of Wisconsin (Madison), under the very capable and dynamic leadership of Professor Joseph Buongiorno, who were responsible for producing the forecasts presented here. A major strength of the Global Forest Products Model (GFPM) is that it produces a set of supply and demand forecasts that are internally consistent. In other words, it ensures that, for each product, total world supply equals total world demand for each year of the forecast. It also ensures that the projections of supply and demand for roundwood and other raw material sources produced by the model are consistent with the projections of product supply and demand. However, it is important to note that this consistency places great demands on the quality of the production and consumption data collated by FAO. In order to produce the projections presented here, the GFPM requires a complete and consistent set of data for each of the 14 product categories in each of the 180 countries and territories included in the study. It is certainly true to say that this requirement has tested the quality of FAO's forest products data to the limit! A large part of the analysis that has gone into this study has been to examine the quality of this data and make corrections to the data where the model has highlighted inconsistencies. The first region that was examined in great detail was the Asia-Pacific region and the data for other significant producer and consumer countries has similarly been scrutinised. However, it has simply not been possible to check, in detail, all of the 2,500 data points for internal consistency. Consequently, it should be noted that the projections presented here are best viewed in their aggregate form. For researchers interested in projections of supply and demand for individual countries, it is strongly recommended that they should contact the national forestry authorities in these countries to see if they have projections of their own, for comparison with those given here.

6 ii Zhu, Tomberlin & Buongiorno FAO will continue to explore with member countries, ways in which the quality of forest product production, consumption and trade data can be improved. It will also continue to produce global, regional and thematic outlook studies which provide forestry policymakers with timely and useful information to assist them with their work. In this respect, we would welcome comments on all aspects of this study from professional analysts and users of this study (contact details can be found on page vii of this working paper). Adrian Whiteman Forestry Officer (Sector Studies) Forestry Policy and Planning Division

7 GFPOS Working Paper No. 1 iii TABLE OF CONTENTS FOREWORD...I INFORMATION NOTE ON THE GLOBAL FOREST PRODUCTS OUTLOOK STUDY...VII ACKNOWLEDGEMENTS... VIII ABSTRACT... VIII 1. THE GLOBAL FOREST PRODUCTS MODEL Introduction Background to the Global Forest Products Model Model structure Countries Products Demand Wood supply assumptions Other assumptions Mathematical formulation of the GFPM Static phase Dynamic phase Regional sub-models REGIONAL FOREST PRODUCTS CONSUMPTION, PRODUCTION, TRADE AND PRICES ( ) Consumption and trade projections Past and future market clearing price levels...34 LITERATURE CITED APPENDIX 1 - CONSUMPTION OUTLOOK ( ) APPENDIX 2 - PRODUCTION OUTLOOK ( ) APPENDIX 3 - IMPORTS OUTLOOK ( ) APPENDIX 4 - EXPORTS OUTLOOK ( )

8 iv Zhu, Tomberlin & Buongiorno TABLE OF FIGURES Figure 1. 1 Structure of the WORLD model....3 Figure 1.2 Wood/non-wood material flows...6 Figure 2.1 Consumption of Industrial Roundwood Figure 2.2 Net Trade of Industrial Roundwood...23 Figure 2.3 Consumption of Sawnwood...24 Figure 2.4 Net Trade of Sawnwood Figure 2.5 Consumption of Veneer/Plywood Figure 2.6 Net Trade of Veneer/Plywood...25 Figure 2.7 Consumption of Particle Board...26 Figure 2.8 Net Trade of Particle Board...26 Figure 2.9 Consumption of Fibreboard...27 Figure 2.10 Net Trade of Fibreboard Figure 2.11 Consumption of Mechanical Wood Pulp...28 Figure 2.12 Net Trade of Mechanical Wood Pulp...28 Figure 2.13 Consumption of Chemical/Semichemical Wood Pulp Figure 2.14 Net Trade of Chemical/Semichemical Wood Pulp Figure 2.15 Consumption of Other Fibre Pulp...30 Figure 2.16 Consumption of Wastepaper...30 Figure 2.17 Consumption of Newsprint...31 Figure 2.18 Net Trade of Newsprint...31 Figure 2.19 Consumption of Printing & Writing Paper Figure 2.20 Net Trade of Printing & Writing Paper...32 Figure 2.21 Consumption of Other Paper & Paperboard...33 Figure 2.22 Net Trade of Other Paper & Paperboard Figure 2.23 Real World Prices of Solid Wood Products Figure 2.24 Real World Prices of Wood-Based Panels...34 Figure 2.25 Real World Prices of Paper and Paperboard...35

9 GFPOS Working Paper No. 1 v TABLE OF TABLES Table 1.1 Countries in the Global Forest Products Model....4 Table 1.2 Products included in the Global Forest Products Model...5 Table 1.3 Country groupings...6 Table 1.4 Price and income elasticities of demand for forest products...8 Table 1.5 Assumed Growth Rate of Real GDP (% per year), Table 1.6 Sawlog and pulpwood supply in 1994 and rate of shift of supply up to Table A1.1 Consumption of Roundwood (thousand CUM)...39 Table A1.2 Consumption of Fuelwood (thousand CUM) Table A1.3 Consumption of Industrial Roundwood (thousand CUM) Table A1.4 Consumption of Other Industrial Roundwood (thousand CUM) Table A1.5 Consumption of Sawnwood (thousand CUM)...55 Table A1.6 Consumption of Wood-Based Panels (thousand CUM)...59 Table A1.7 Consumption of Veneer Sheets and Plywood (thousand CUM)...63 Table A1.8 Consumption of Particle Board (thousand CUM) Table A1.9 Consumption of Fibreboard (thousand CUM)...71 Table A1.10 Consumption of Woodpulp (thousand MT) Table A1.11 Consumption of Mechanical Pulp (thousand MT) Table A1.12 Consumption of Chemical Pulp (thousand MT) Table A1.13 Consumption of Other Fibre Pulp (thousand MT) Table A1.14 Consumption of Waste Paper (thousand MT)...91 Table A1.15 Consumption of Total Paper and Paperboard (thousand MT) Table A1.16 Consumption of Newsprint (thousand MT) Table A1.17 Consumption of Printing and Writing Paper (thousand MT) Table A1.18 Consumption of Other Paper and Board (thousand MT) Table A2.1 Production of Roundwood (thousand CUM) Table A2.2 Production of Fuelwood (thousand CUM) Table A2.3 Production of Industrial Roundwood (thousand CUM) Table A2.4 Production of Other Industrial Roundwood (thousand CUM) Table A2.5 Production of Sawnwood (thousand CUM) Table A2.6 Production of Wood-Based Panels (thousand CUM) Table A2.7 Production of Veneer Sheets and Plywood (thousand CUM) Table A2.8 Production of Particle Board (thousand CUM) Table A2.9 Production of Fibreboard (thousand CUM) Table A2.10 Production of Woodpulp (thousand MT) Table A2.11 Production of Mechanical Pulp (thousand MT) Table A2.12 Production of Chemical Pulp (thousand MT) Table A2.13 Production of Other Fibre Pulp (thousand MT) Table A2.14 Production of Waste Paper (thousand MT) Table A2.15 Production of Total Paper and Paperboard (thousand MT) Table A2.16 Production of Newsprint (thousand MT) Table A2.17 Production of Printing and Writing Paper (thousand MT) Table A2.18 Production of Other Paper and Board (thousand MT) Table A3.1 Import of Roundwood (thousand CUM) Table A3.2 Import of Fuelwood (thousand CUM) Table A3.3 Import of Industrial Roundwood (thousand CUM) Table A3.4 Import of Other Industrial Roundwood (thousand CUM) Table A3.5 Import of Sawnwood (thousand CUM) Table A3.6 Import of Wood-Based Panels (thousand CUM) Table A3.7 Import of Veneer Sheets and Plywood (thousand CUM) Table A3.8 Import of Particle Board (thousand CUM) Table A3.9 Import of Fibreboard (thousand CUM) Table A3.10 Import of Woodpulp (thousand MT)

10 vi Zhu, Tomberlin & Buongiorno Table A3.11 Import of Mechanical Pulp (thousand MT) Table A3.12 Import of Chemical Pulp (thousand MT) Table A3.13 Import of Other Fibre Pulp (thousand MT) Table A3.14 Import of Waste Paper (thousand MT) Table A3.15 Import of Total Paper and Paperboard (thousand MT) Table A3.16 Import of Newsprint (thousand MT) Table A3.17 Import of Printing and Writing Paper (thousand MT) Table A3.18 Import of Other Paper and Board (thousand MT) Table A4.1 Export of Roundwood (thousand CUM) Table A4.2 Export of Fuelwood (thousand CUM) Table A4.3 Export of Industrial Roundwood (thousand CUM) Table A4.4 Export of Other Industrial Roundwood (thousand CUM) Table A4.5 Export of Sawnwood (thousand CUM) Table A4.6 Export of Wood-Based Panels (thousand CUM) Table A4.7 Export of Veneer Sheets and Plywood (thousand CUM) Table A4.8 Export of Particle Board (thousand CUM) Table A4.9 Export of Fibreboard (thousand CUM) Table A4.10 Export of Woodpulp (thousand MT) Table A4.11 Export of Mechanical Pulp (thousand MT) Table A4.12 Export of Chemical Pulp (thousand MT) Table A4.13 Export of Other Fibre Pulp (thousand MT) Table A4.14 Export of Waste Paper (thousand MT) Table A4.15 Export of Total Paper and Paperboard (thousand MT) Table A4.16 Export of Newsprint (thousand MT) Table A4.17 Export of Printing and Writing Paper (thousand MT) Table A4.18 Export of Other Paper and Board (thousand MT)

11 GFPOS Working Paper No. 1 vii INFORMATION NOTE ON THE GLOBAL FOREST PRODUCTS OUTLOOK STUDY In considering the role of FAO in the sustainable management of forests and in the follow-up to the UN Conference on Environment and Development (UNCED), the 107th session of the FAO Council (1994) agreed that there was a need for FAO to improve the quality of its forest sector information and analysis. In response to this and other similar demands, FAO has increased the prominence of outlook studies in the programme of work of the Forestry Department. A provisional global forest products outlook was produced early in 1997 which concentrated on forecasts of future supply and demand, based on econometric modelling of past trends in forest products markets. This study highlighted the need for more detailed research in two areas: the supply and demand for fuelwood; and the potential for wood supply from non-forest sources (including trees outside the forest and secondary sources). In addition to this, subsequent discussion of the provisional outlook, suggested that greater attention should be given more generally to the supply-side of future outlook studies. The present Global Forest Products Outlook Study is the fifth in the series of FAO's global supply and demand studies which have been produced approximately every five years since The study attempts to respond to those needs identified above. However, it also attempts to go beyond the scope of previous outlook studies, by presenting much more interpretation of the future supply and demand forecasts from the point of view of forestry policy development and forest management. Thus, it attempts to go beyond answering the simple question of how much wood will be needed in the future, to cover issues such as where will the wood come from, who will produce it and how will it be produced and utilised. This, inevitably, leads to questions about how forestry policies and institutions should be shaped in the future and the study attempts to answer some of these questions. Working papers have been commissioned on a few topics which have been considered as most important for the future wood product market outlook, including: likely future changes in the nature and type of wood and fibre supplies; trends in processing; and the future outlook for fuelwood supply and demand. Working papers are being produced and issued as they arrive. Some effort at uniformity of presentation is being attempted but the contents are only minimally edited for style or clarity. FAO welcomes from readers any information which they feel would be useful to the study on the subject of any of the working papers or on any other subject that has importance for the forest products outlook. Such material can be mailed to the contacts given below from whom further copies of these working papers, as well as more information on the Global Forest Products Outlook Study can be obtained: Mr. R Michael Martin Chief Planning and Statistics Branch Policy and Planning Division Forestry Department Food and Agriculture Organization of the United Nations Viale delle Terme di Caracalla Rome, 00100, ITALY Tel: (39-06) Fax: (39-06) michael.martin@fao.org Mr Adrian Whiteman Forestry Officer (Sector Studies) Planning and Statistics Branch Policy and Planning Division Forestry Department Food and Agriculture Organization of the United Nations Viale delle Terme di Caracalla Rome, 00100, ITALY Tel: (39-06) Fax: (39-06) adrian.whiteman@fao.org

12 viii Zhu, Tomberlin & Buongiorno ACKNOWLEDGEMENTS The research leading to this report was supported by the Forestry Policy and Planning Division of the Food and Agriculture Organization (FAO) of the United Nations, by the Agriculture Cooperative State Research Service grant , by McIntire-Stennis grant D496, by the USDA Forest Service, Pacific Northwest Research Station, and by the School of Natural Resources, University of Wisconsin, Madison. s for countries which are signatories to the Lomé Convention, were also supported by the EC-FAO Partnership Programme Data Collection and Analysis for Sustainable Forest Management in ACP Countries; Linking National and International Efforts. We thank Michael Martin and David Brooks for their help in defining the problem and study objectives, and Adrian Whiteman, Mafa Chipeta, Chris Brown and Gary Bull for their collaboration in scenario definition, and in data and parameter evaluation. The software development of Chia-Sheng Liu and econometric help of Wen-Shiuan Chao and Bintang Simangunsong are also gratefully acknowledged. The project would have not been possible without the previous contribution of Dali Zhang to the 1997 Provisional Outlook. ABSTRACT The objective of this study was to revise the FAO Provisional Outlook for Global Forest Products Consumption, Production and Trade to 2010 (FAO 1997). This revision is based on new estimates of future economic growth, a re-evaluation of the assumptions regarding timber supply, refinement of input-output parameters and detailed analysis of the Asia-Pacific region (Zhang et al. 1997; FAO 1998). The global forest products model (GFPM) used to produce the projections gives fully consistent projections of quantities produced, consumed and traded, within each country and between a country and the rest of the world. It also provides projections of market-clearing prices. The first part of this report summarizes the structure of the GFPM and the revised assumptions used in these forecasts. The second part presents the main trends in production, consumption and trade from 1995 to 2010, by region. The detailed tables of projections by country and product are presented in report s appendices.

13 GFPOS Working Paper No THE GLOBAL FOREST PRODUCTS MODEL 1.1 Introduction The Food and Agriculture Organization of the United Nations (FAO) has been producing long-term projections of future consumption, production and trade of forest products since The production of good projections has been a major concern to the FAO forestry economics and statistics staff and to all users, since they are likely to influence government planning and private decision making in member countries. Earlier evaluation of the current FAO forest products projection system showed that when the system was applied to project consumption and production, it led to systematic errors for some products, and the projections towards the year 2010 also seemed to be too high. Furthermore, the projections of world consumption and production did not agree which, of course, they must in practice (Zhang and Buongiorno 1994). To address these problems, a study was initiated in 1996 to improve the FAO global forest products outlook projection system. The approach used was a dynamic spatial equilibrium model to simulate the world forest sector. The model was applied to project forest product consumption, production and trade under provisional scenarios of economic growth and timber supply. A key feature of the model is that the projected demand for final products in the world cannot exceed the global wood supply, after allowing for trade in raw materials or finished products between countries. Therefore, the assumptions regarding economic growth and timber supply are critical in the projections. Three preliminary scenarios were considered in the Provisional Outlook (FAO, 1997). This report presents new projections based on revised economic growth rates, new information on timber supply, and revised econometric parameters in the GFPM model. The report is organized as follows. Chapter 1 reviews the methodology of the Global Forest Products Model (GFPM), describes the countries/regions and the products included in the model, and discusses the demand equations and the timber supply assumptions. Chapter 2 presents projections for 1995 to 2010 of consumption, production and trade for the main regions of the world. s of forest products consumption, production and trade by country and product, from 1980 to 2010 are given in four appendices at the end of this report. 1.2 Background to the Global Forest Products Model The GFPM model was developed with the Price Endogenous Linear Programming System (PELPS III) (Zhang et al. 1993). The technique simulates market equilibrium by mathematical programming. There have been several applications of the technique over the last two decades. The theory is that of spatial equilibrium in competitive markets. PELPS III solves the equilibrium by maximizing the value of the products, minus the cost of production, subject to material balance and capacity constraints in each country and each year. Because material flows throughout the system must balance, it insures data consistency, and coherence of projections.

14 2 Zhu, Tomberlin & Buongiorno In each projection year, for each country and commodity, supply (domestic production plus imports) is equal to demand (final consumption, plus input in other processes, plus exports). Final demand is price responsive; demand for wood or intermediate products derives from the demand for final products through input-output coefficients that describe technologies in each country. The supply of raw wood in each country is price responsive. The supply of recycled paper is constrained by the waste paper supply, which itself depends on the paper consumption and the recycling rate. Imports and exports, by country and destination are balanced in each country. Projected prices are such that they clear markets: at those prices demands are equal to supplies in each country. From one year to the next, demand changes in each country due to changes in income. The wood supply shifts according to the chosen scenario. Technology also changes, especially the amount of recycled fibre used in making paper and paperboard. Capacity increases or decreases according to new investments that depend on past production and the profitability of production in different countries, as revealed by the shadow price of capacity. Then, a new equilibrium is computed subject to the new demand and supply conditions, new technology, new capacity, and inertia constraints that limit the change in exports and imports from year to year. The general principle of the PELPS system is, then, those markets optimize the allocation of resources in the short run (within one year). Long run resource allocation is partly governed by market forces, as in capacity expansion and trade, and also by political forces such as: the wood supply shifts determined by forest policy, the waste paper recovery rates by environmental policy, the trade inertia that depend in part on international agreements, and the techniques of production determined by exogenous progress. PELPS has been used by the United States of America and Canadian Forest Services to develop the North American pulp and paper model (NAPAP), the North American solid wood model (NASAW), and by the International Tropical Timber Organization (ITTO) to develop the Asia-Pacific Tropical Timber Trade (Market) model. The Asia-Pacific Forest Products Model (Zhang et al. 1997) was also built with PELPS. 1.3 Model structure The Global Forest Products Model has a hierarchical structure. It consists of one main model called WORLD which is solved first, and of four sub-models: AFRICA, AMERICA, ASIA, and EUROPE, each one solved with trade flows that are consistent with the WORLD model. The WORLD model has four demand and supply regions, Africa, America, Asia, and Europe (including the former USSR). Each of the four regions has: (1) demand (consumption) of fuelwood, other industrial roundwood, sawnwood, veneer & plywood, particle board, fibreboard, newsprint, printing & writing paper and other paper & paperboard; (2) production (supply) of fuelwood, industrial roundwood, other fibre pulp, waste paper, sawnwood, veneer & plywood, particle board, fibreboard, mechanical pulp, chemical pulp, newsprint, printing & writing paper and other paper & paperboard. Also, each region imports from and exports to the world market (see Figure 1.1).

15 GFPOS Working Paper No. 1 3 Figure 1. 1 Structure of the WORLD model. AFRICA Region AMERICA Region WORLD Market ASIA Region EUROPE Region A similar structure applies to the regional sub-models. For example, in the AMERICA submodel, there are 35 countries, each with a demand and supply of the same products as in the WORLD model. Each country has imports from and exports to the world market. However, the total imports and exports of all countries in, say, the AMERICA are constrained to be equal to the total imports and exports of the AMERICA estimated in the WORLD model Countries The countries included in each sub-model are in Table 1.1. The AFRICA sub-model has 50 countries in Africa. The AMERICA sub-model includes 35 countries in North, Central and South America. The ASIA sub-model is composed of 50 countries in Asia and Oceania. The EUROPE sub-model has 45 countries in western and eastern Europe and the former Soviet Union.

16 4 Zhu, Tomberlin & Buongiorno Table 1.1 Countries in the Global Forest Products Model 1. Code In Model Country Code In Model Country Code In Model Country Code In Model Country AFRICA AMERICA ASIA EUROPE 1 Algeria 1 Bahamas 1 Afghanistan 1 Albania 2 Angola 2 Barbados 2 Bahrain 2 Austria 3 Benin 3 Belize 3 Bangladesh 3 Belgium-Luxembourg 4 Botswana 4 Canada 4 Bhutan 4 Bosnia-Herzegovina 5 Burkina Faso 5 Cayman Islands 5 Brunei Darussalam 5 Bulgaria 6 Burundi 6 Costa Rica 6 Cambodia 6 Croatia 7 Cameroon 7 Cuba 7 China, People s Rep. of 7 Czech Republic 8 Cape Verde 8 Dominica 8 Cyprus 8 Denmark 9 Central African Republic 9 Dominican Republic 9 Hong Kong SAR, China 9 Finland 10 Chad 10 El Salvador 10 India 10 France 11 Congo, Rep of 11 Guatemala 11 Indonesia 11 Germany 12 Cote d'ivoire 12 Haiti 12 Iran, Islamic Republic 12 Greece 13 Djibouti 13 Honduras 13 Iraq 13 Hungary 14 Egypt 14 Jamaica 14 Israel 14 Iceland 15 Equatorial Guinea 15 Martinique 15 Japan 15 Ireland 16 Ethiopia 16 Mexico 16 Jordan 16 Italy 17 Gabon 17 Netherlands Antilles 17 Korea, DPR 17 Macedonia, Fmr Yug RP of 18 Gambia 18 Nicaragua 18 Korea, REP 18 Malta 19 Ghana 19 Panama 19 Kuwait 19 Netherlands 20 Guinea 20 Saint Vincent 20 Laos 20 Norway 21 Guinea-Bissau 21 Trinidad and Tobago 21 Lebanon 21 Poland 22 Kenya 22 United States of America 22 Macau 22 Portugal 23 Lesotho 23 Argentina 23 Malaysia 23 Romania 24 Liberia 24 Bolivia 24 Mongolia 24 Slovakia 25 Libyan Arab Jamahiriya 25 Brazil 25 Myanmar 25 Slovenia 26 Madagascar 26 Chile 26 Nepal 26 Spain 27 Malawi 27 Colombia 27 Oman 27 Sweden 28 Mali 28 Ecuador 28 Pakistan 28 Switzerland 29 Mauritania 29 French Guiana 29 Philippines 29 United Kingdom 30 Mauritius 30 Guyana 30 Qatar 30 Yugoslav Fed. Rep. 31 Morocco 31 Paraguay 31 Saudi Arabia 31 Armenia 32 Mozambique 32 Peru 32 Singapore 32 Azerbaijan 33 Niger 33 Suriname 33 Sri Lanka 33 Belarus 34 Nigeria 34 Uruguay 34 Syrian Arab Republic 34 Estonia 35 Reunion 35 Venezuela 35 Thailand 35 Georgia 36 Rwanda 36 Turkey 36 Kazakhstan 37 Sao Tome and Principe 37 United Arab Emirates 37 Kyrgyzstan 38 Senegal 38 Viet Nam 38 Latvia 39 Sierra Leone 39 Yemen 39 Lithuania 40 Somalia 40 Australia 40 Moldova, Rep. 41 South Africa 41 Cook Island 41 Russian Federation 42 Sudan 42 Fiji 42 Tajikistan 43 Swaziland 43 French Polynesia 43 Turkmenistan 44 Tanzania, United Republic 44 New Caledonia 44 Ukraine 45 Togo 45 New Zealand 45 Uzbekistan 46 Tunisia 46 Papua New Guinea 47 Uganda 47 Samoa 48 Congo, Dem Rep. of 48 Solomon Islands 49 Zambia 49 Tonga 50 Zimbabwe 50 Vanuatu 1 Region names are those used in the model.

17 GFPOS Working Paper No Products The products considered in the model are shown in Table 1.2. There are econometric demand equations for: fuelwood & charcoal; other industrial roundwood; sawnwood; veneer sheets & plywood; particle board; fibreboard; newsprint; printing & writing paper; and other paper & paperboard. Figure 1.2 shows the wood and noon-wood material flows assumed in the model. Table 1.2 Products included in the Global Forest Products Model. Code Products Units Demand Supply Fuelwood and Charcoal Sawlogs and Pulpwood Other Industrial Roundwood Sawnwood Veneer/Plywood Particle Board Fibreboard Mechanical Wood Pulp Chemical/Semi-Chemical Wood Pulp Other Fibre Pulp Waste Paper Newsprint Printing and Writing Paper Other Paper and Paperboard 1000 CUM 1000 CUM 1000 CUM 1000 CUM 1000 CUM 1000 CUM 1000 CUM 1000 MT 1000 MT 1000 MT 1000 MT 1000 MT 1000 MT 1000 MT E I E E E E E I I I I E E E E E E I I I I I I E E I I I Note: E indicates the relation is represented with an econometric equation; I indicates the relation is represented with input-output coefficients. 1.4 Demand The demand equations of the Global Forest Products Model assume that national demand for forest products is determined by economic activity (GDP) and real prices. In the short-run, demand may adjust only partially to GDP and prices. Let q it (of price p it ) be the amount of a forest product consumed or imported by a country (or region) i during year t; with i it an index of the price of all other goods and services used in combination with this product to produce an output designated by the variable y it, which in this study was measured by the real gross domestic product. Then, assuming cost minimization under a Cobb-Douglas technology with constant returns to scale, coupled with a partial adjustment of actual consumption (or imports) towards desired imports, leads to the following derived demand (Chou and Buongiorno 1984, Baudin and Lundberg 1987): pit ln( qit ) = α i + β ln( ) + γ ln( y ) + δ ln( q 1) + u i it it it it The long-run elasticities, β and γ ', used to make projections, were calculated from the short ones by the equations: β ' β ' γ =, γ = 1 δ 1 δ

18 6 Zhu, Tomberlin & Buongiorno The demand equation for each product was estimated for three income groups: HIGH (developed market economies), LOW (developing market economies), and WORLD (combination of developed and developing economies). The HIGH elasticities were used for developed countries or regions. The generally larger LOW elasticities were used for Africa, and the developing countries in Asia. Figure 1.2 Wood/non-wood material flows. Roundwood Industrial Roundwood Fuelwood & Charcoal Sawnwood Other Industrial Roundwood Veneer & Plywood Particle Board Fiberboard Mechanical Pulp Waste Paper Chemical Pulp Other Fiber Pulp Newsprint Printing & Writing Paper Other Paper & Paperboard Table 1.3 Country groupings. Group HIGH income LOW income Country Australia, Austria, Belgium, Canada, Denmark, Finland, France, French Greenland, Germany, Iceland, Ireland, Israel, Italy, Japan, Kuwait, Luxembourg, Netherlands, Norway, New Zealand, South Africa, Spain, Sweden, Switzerland, United Kingdom, United States of America The rest of the world Source: FAO (1994, p.ix)

19 GFPOS Working Paper No. 1 7 Commodity prices were weighted averages of unit values of imports and exports, by country. The data on production, imports and exports were obtained from FAOSTAT PC (FAO 1997). GDPs were measured in constant US dollar at 1987 prices, based on GDP in domestic currency, exchange rates, and the US GDP deflator. Alternatively, they were converted in constant US dollars with the domestic deflator, and at the 1987 exchange rate. The two methods gave similar estimates of elasticities for high-income countries, but quite different elasticities for low income countries. The elasticities used here pooled both types of GDP estimates. The data on GDPs, exchange rates, and the US GDP deflator came from the World Tables of the World Bank (1995). The parameters of demand equations were estimated by analysis of covariance (OLS with one dummy variable for each country). The results in Table 1.4 show that the equations explained consumption well across countries and over time. GDP elasticities were all positive, except for fuelwood and other industrial roundwood in high-income countries, as expected. Price elasticities were low, though statistically and economically significant in many cases. In the GFPM model, prices are endogenous (the equilibrium between demand and supply leads to the prices). So, no assumption has to be made regarding future prices. Only national GDPs shift demand and are strictly exogenous. The assumptions about GDP growth in each country, and the implications for the regions are summarized in Table1.5. Real GDP was assumed to grow at about 4% per year from 1994 to 2010 in Africa, at 2.7% per year in America, 4.6% per year in Asia, and 2.4% per year in Europe.

20 8 Zhu, Tomberlin & Buongiorno Table 1.4 Price and income elasticities of demand for forest products. Product Long-term GDP Group Price GDP Lag Price GDP R2 DW DF Fuelwood High * 0.03 * * Low * World * Other Industrial Roundwood High * Low * World * Sawnwood High * 0.03 * 0.03 * 0.07 * 0.06 * Low * 0.03 * 0.02 * 0.09 * 0.08 * World * 0.02 * 0.01 * 0.07 * 0.06 * Veneer and Plywood High * 0.03 * * Low * 0.07 * 0.03 * 0.08 * 0.11 * World * * 0.08 * Particle Board High * 0.12 * 0.04 * 0.12 * 0.12 * Low World * 0.03 * * Fibreboard High * 0.05 * 0.03 * 0.12 * 0.15 * Low * 0.04 * * World * * 0.14 * Newsprint High * 0.03 * * Low * 0.04 * 0.02 * 0.05 * 0.07 * World * 0.03 * 0.02 * 0.04 * 0.05 * Printing and Writing Paper High * * 0.09 * 0.07 * Low * * 0.07 * 0.06 * World * * 0.06 * 0.05 * Other Paper and Paperboard High * 0.03 * 0.03 * 0.06 * 0.05 * Low * 0.03 * 0.02 * 0.05 * 0.05 * World * 0.03 * 0.02 * 0.04 * 0.04 * DW = Durbin - Watson statistic, FD = degrees of freedom, italic=standard error, *=significant at 5% level.

21 GFPOS Working Paper No. 1 9 Table 1.5 Assumed Growth Rate of Real GDP (% per year), Africa Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Congo, Rep. of Congo, Dem. Rep. of Côte d Ivoire Djibouti Egypt Equatorial Guinea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libyan Arab Jamahiriya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Niger Nigeria Reunion Rwanda Sao Tome and Principe Senegal Sierra Leone Somalia South Africa Sudan Swaziland Tanzania, United Republic Togo Tunisia Uganda Zambia Zimbabwe

22 10 Zhu, Tomberlin & Buongiorno Table 1.5 Assumed Growth Rate of Real GDP (% per year), (cont.) America North/Central America Bahamas Barbados Belize Canada Cayman Islands Costa Rica Cuba Dominica Dominican Republic El Salvador Guatemala Haiti Honduras Jamaica Martinique Mexico Netherlands Antilles Nicaragua Panama Saint Vincent Trinidad and Tobago United States of America South America Argentina Bolivia Brazil Chile Colombia Ecuador French Guiana Guyana Paraguay Peru Suriname Uruguay Venezuela

23 GFPOS Working Paper No Table 1.5 Assumed Growth Rate of Real GDP (% per year), (cont.) Asia Pacific Asia Afghanistan Bahrain Bangladesh Bhutan Brunei Darussalam Cambodia China, People s Rep. of Cyprus Hong Kong SAR, China India Indonesia Iran, Islamic Republic Iraq Israel Japan Jordan Korea, DPR Korea, REP Kuwait Laos Lebanon Macau Malaysia Mongolia Myanmar Nepal Oman Pakistan Philippines Qatar Saudi Arabia Singapore Sri Lanka Syrian Arab Republic Thailand Turkey United Arab Emirates Viet Nam Yemen Oceania Australia Cook Island Fiji French Polynesia New Caledonia New Zealand Papua New Guinea Samoa Solomon Islands Tonga Vanuatu

24 12 Zhu, Tomberlin & Buongiorno Table 1.5 Assumed Growth Rate of Real GDP (% per year), (cont.) Europe & Former USSR Europe Albania Austria Belgium Bosnia-Herzegovina Bulgaria Croatia Czech Rep Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Macedonia, Fmr Yug RP of Malta Netherlands Norway Poland Portugal Romania Slovakia Slovenia Spain Sweden Switzerland United Kingdom Yugoslav Federal Republic Former USSR Armenia Azerbaijan Belarus Estonia Georgia Kazakhstan Kyrgyzstan Latvia Lithuania Moldova Rep Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan Wood supply assumptions In the current version of the GFPM, the supply of industrial roundwood in each country is a function of the price of industrial roundwood. The price elasticity of supply used in the model is 0.8, except for Asia, where the elasticity varies by country. This price elasticity indicates the percentage change in supply that would result from a 1% change in price, other things being equal. In addition, the supply equations are assumed to shift over time, to simulate changes in supply independent of prices. The rates of shift show how much timber supply would change,

25 GFPOS Working Paper No without any change in price. These rates of shift vary by country, and are based on various information regarding past production, forest area and stock, growth rates, extent of plantations, and policies of each country. In some countries of Asia, upper bounds were set on the timber supply, regardless of price, to reflect perceived limits on the potential sustainable timber production of the country. Estimate of the rate of shift to use in the GFPM relied mostly on the analysis of the FAO's Global Fibre Supply Model (FAO, 1999), with the rate of shift being equal to the annual percentage change in the commercially available wood supply projected by the GFSM. The resulting aggregate average rates of shift of industrial roundwood supply, by region, were 0.71% in America, 0.63% in Europe, 1.14% in Africa, and 1.43% in Asia. The detailed rates of shift used in this outlook are presented in Table 1.6. Supply curves for fuelwood and charcoal, and for industrial roundwood used in the round (other industrial roundwood) were assumed to be horizontal, so that supply in each country was equal to the projected demand, at current prices and projected income. The statistics presented in FAOSTAT for these two variables are believed to be quite unreliable in many cases. Thus, the forecasts presented here should be treated with some caution. FAO, as part of the Global Forest Products Outlook Study, is conducting an in-depth review of FAO's fuelwood statistics and hopes to produce a more detailed and specific fuelwood forecast based on this review. The supply of other fibre pulp and for waste paper used in paper manufacture was also assumed to be horizontal. However, the supply of waste paper in each country has an upper bound defined by the previous year s consumption and the maximum recycling rate for the country.

26 14 Zhu, Tomberlin & Buongiorno Table 1.6 Sawlog and pulpwood supply in 1994 and rate of shift of supply up to (1000 CUM) Supply Curve Shift Rate (percent per year) Africa Algeria Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Congo, Dem. Rep. of Congo, Rep. of Côte d Ivoire Djibouti Egypt Equatorial Guinea Ethiopia Gabon Gambia Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Libyan Arab Jamahiriya Madagascar Malawi Mali Mauritania Mauritius Morocco Mozambique Niger Nigeria Reunion Rwanda Sao Tome and Principe Senegal Sierra Leone Somalia South Africa Sudan Swaziland Tanzania, United Republic Togo Tunisia Uganda Zambia Zimbabwe

27 GFPOS Working Paper No Table 1.6 Sawlog and pulpwood supply in 1994 and rate of shift of supply up to (cont.) 1994(1000 CUM) Supply Curve Shift Rate (percent per year) America North/Central America Bahamas Barbados Belize Canada Cayman Islands Costa Rica Cuba Dominica Dominican Republic El Salvador Guatemala Haiti Honduras Jamaica Martinique Mexico Netherlands Antilles Nicaragua Panama Saint Vincent Trinidad and Tobago United States of America South America Argentina Bolivia Brazil Chile Colombia Ecuador French Guiana Guyana Paraguay Peru Suriname Uruguay Venezuela

28 16 Zhu, Tomberlin & Buongiorno Table 1.6 Sawlog and pulpwood supply in 1994 and rate of shift of supply up to (cont.) 1994(1000 CUM) Supply Curve Shift Rate (percent per year) Asia Pacific Asia Afghanistan Bahrain Bangladesh Bhutan Brunei Cambodia China, People s Rep. of Cyprus Hong Kong SAR, China India Indonesia Iran Iraq Israel Japan Jordan Korea, DPR Korea, Rep Kuwait Laos Lebanon Macau Malaysia Mongolia Myanmar Nepal Oman Pakistan Philippines Qatar Saudi Arabia Singapore Sri Lanka Syrian Arab Republic Thailand Turkey United Arab Emirates Vietnam Yemen, Rep Oceania Australia Cook Is Fiji French Polynesia New Caledonia New Zealand Papua New Guinea Samoa Solomon Islands Tonga Vanuatu

29 GFPOS Working Paper No Table 1.6 Sawlog and pulpwood supply in 1994 and rate of shift of supply up to (cont.) 1994(1000 CUM) Supply Curve Shift Rate (percent per year) Europe & Former USSR Europe Albania Austria Belgium Bosnia-Herzegovina Bulgaria Croatia Czech Rep Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Macedonia, Fmr Yug RP of Malta Netherlands Norway Poland Portugal Romania Slovakia Slovenia Spain Sweden Switzerland United Kingdom Yugoslav Federal Republic Former USSR Armenia Azerbaijan Belarus Estonia Georgia Kazakhstan Kyrgyzstan Latvia Lithuania Moldova Rep Russian Federation Tajikistan Turkmenistan Ukraine Uzbekistan Note: 1994 data is estimated by this study. 1.6 Other assumptions Other assumptions governing the projections concerned changes in capacity, fibre input mix, and trade inertia constraints. In the GFPM, capacity is governed by past production and by relative profitability. Capacity data were estimated from the most recent production data. Thereafter, for pulp and paper products, and for all years for other products, the simplest

30 18 Zhu, Tomberlin & Buongiorno capacity projection allowed by PELPS was used. This consisted of distributed-lag functions linking capacity changes to changes in past production at the global level, followed by allocating capacity growth to different countries according to the shadow price (the marginal value of one unit of additional capacity) revealed by the equilibrium computations (see: Gilless and Buongiorno 1987; and Zhang et al. 1993). The technology, defined by input-output coefficients was held constant at the 1994 level, except for paper and paperboard. The input-output coefficients were changed substantially relative to those used in the Provisional Outlook, in that fewer constraints were put on the input-output coefficients to satisfy the national statistics. Instead, the coefficients were based on the national statistics, tempered with expert opinion as to what these coefficients could reasonably be expected to look like. This gave coefficients which varied by much less than previously across countries. It also means that the model s projections for roundwood and pulp production in the base-year do not always match national statistics, where the inputoutput coefficients would suggest that these figures might have been under or over-reported. Thus, the forecasts given here are not directly comparable with the statistics given for 1994 in some countries (e.g. industrial roundwood production in India which, it is suspected, is vastly under-reported in national statistics). For paper and paperboard, it was assumed that the fibre input mix for newsprint, printing and writing paper and paper and paperboard would change substantially between 1994 and 2010 with a progressively greater use of recycled fibre. With the implementation of the GATT Uruguay Round underway, many countries are projected to reduce or eliminate trade tariffs and non-trade barriers in the near future. Thus, it was assumed that forest products would be traded more freely world-wide between 1994 and 2010 in response to market forces. However the adjustment of trade flows between countries or regions is bound to take time, thus inertia constraints were introduced to limit trade in a given year to be within a specified fraction of the previous year s trade (Buongiorno and Gilless 1984, Kallio et al. 1987, Nagy and Andersson 1988, Zhang et al. 1997). 1.7 Mathematical formulation of the GFPM The Global Forest Products Model (GFPM) simulates dynamic market equilibrium for the global forest sector. Every year, demand, supply, trade and prices are computed that clear markets for all products and in all regions (static phase). Then, the model parameters are updated to reflect exogenous and endogenous changes from one year to the next (dynamic phase). Exogenous changes include economic growth, technical change, potential timber supply and trade inertia. Endogenous changes include capacity growth and availability of recycled fibres, which are determined by the model. The model then computes the quantityprice equilibrium next year as shaped by the intervening changes. It reiterates the static and dynamic phases for every year until the end of the projection Static phase: The equilibrium for each year of the projection is obtained with an optimization model that simulates world markets. It finds the production, consumption and trade that maximize the total value of consumption minus the total cost of production for all products in all countries, in a given year. All the variables refer to that year.