Timber Production

Russia is about 50% forest-covered and has 20% of the world's timber supply. An average Russian has 5.2 ha of forests and 548 m3 of timber available, as compared to the world's average of 0.9 ha (65 m3) per person. Only Canadians have more forest acreage or timber per capita. Unfortunately, half of Russia's forest consists of larch, a hardy but scraggly species with low-quality wood. Practically speaking, Russia has few areas where timber production is profitable. Besides larch, the second most common tree is Scotch pine, followed by spruce and Siberian cedar pine. Overall, coniferous softwoods account for 82% of all standing timber. There are also large quantities of birch and alder (15%), but few hardwoods, such as oak, maple, ash, or basswood (<3%).

In the European part of the country, forestry is concentrated in Arkhangelsk Oblast and the Karelia and Komi Republics in the north. These areas are convenient sources of wood for domestic and European markets, especially Finland, Sweden, Austria, and Germany, where mills need logs and wood chips. Most timber harvesting in Siberia takes place in the central part, especially in Krasnoyarsky Kray near the Trans-Siberian Railroad and along the Yenisei. Much of this wood is consumed domestically, but increasingly large quantities are exported to China and Japan. In the Far East, production is concentrated in the Ussuri River basin and the Amur River watershed, close to Asian markets.

Until the new Forest Code went into effect in 2006, virtually all Russian forests (96%) were federally managed by the Ministry of Natural Resources. The rest were managed by the Ministries of Agriculture, Defense, and Education, as well as by local municipalities. Since the adoption of the new code, private ownership of forests finally became a reality in Russia. The new law allows limited outright ownership of forest land and encourages long-term leases, with minimal penalties for permanent degradation of the landscape. It is still unclear how much forest will become privatized, but potentially it represents one of the biggest business opportunities as well as environmental threats. So far, the most common scenario has been privatization of forests for suburban construction of recreational facilities, including housing. Technically speaking, forests in this case should not be cut, and no permanent structures should be allowed. In reality, construction results in major clearing of timber in the vicinity of big cities, and large houses placed deep in the woods. This is happening all around Moscow (Boentje & Blinnikov, 2007) and other major cities. Undoubtedly, large timber companies will also privatize some of the forest land now. Currently they are leasing over 80 million ha of forest lands (usually for 49 years), but many will want to get a permanent title now. At the same time, there is a strong public sentiment in Russia against private ownership of forests; this goes against a centuries-old tradition.

In 2004 Russia was in third place worldwide in timber production—behind the United States and Canada, but ahead of Brazil and China— with about 134 million m3 of industrial roundwood (logs) produced. In terms of sawnwood (lumber) production, however, it was only in fourth place—again behind the United States and Canada, but also behind the lumber giant Sweden, and only barely ahead of Germany, Finland, and Japan—with about 21 million m3 produced. Thus Russia processes only about 15% of all timber into lumber as compared to 30% in Canada or 21% in the United States. This discrepancy reflects a history of underinvestment in the more labor-intensive, but also more lucrative, lumber mills. In the Soviet period, forestry was entirely state run, and its efficiency was low. The regional forestry units (leskhozy) in charge of inventorying, planting, and growing forests were supposed to grow healthy trees in sufficient quantities, but took no part in cutting or processing timber. The lespromkhozy, were the local logging units responsible for timber harvesting and processing, but their profits were fixed, regardless of quality or even quantity of lumber produced. Lumber-milling equipment was in short supply and of poor quality. Selling raw logs abroad brought less money than selling sawn lumber, but the Soviet state made do with it because roundwood brought an immediate profit in hard currency with little domestic investment. As the forestry sector went through privatization in the 1990s, there was a drastic reduction in the amount of timber cut, and almost no investments were made in new logging or lumber equipment for about a decade. Today Russia remains primarily an exporter of raw logs, not lumber. Swedish, Finnish, Japanese, and increasingly South Korean and Chinese lumber mills are the eager buyers of these logs and the real beneficiaries of this arrangement.

By 2000 the forestry sector in Russia was mostly privatized, although only 36% of all enterprises were completely free from partial state ownership. There were about 3,000 forestry companies registered in the country, but only a handful of big ones. The actual timber harvesting was done both by the state-run units (18%) and by private logging companies. The production of timber, lumber, and paper in Russia is dominated by a few very large companies; the biggest, Ilim Pulp Enterprise, accounted for 7 million m3 of harvested timber (about 5% of the nation's total) in 2000. The largest timber processors are paper and pulp mills (PPMs) in the taiga zone, including the Arkhangelsk, Syktyvkar, Svetogorsk, Solikamsk, Kondopoga, Segezh, Ust-Ilimsk, Solombala, and Baikal PPMs, as well as others. Most are located in Arkhangelsk Oblast and the Karelia and Komi Republics in the European north, and in areas of central and eastern Siberia. Another important group includes large lumber processors (e.g., the Onega, Ust-Ilimsk, and Lesosibirsk lumber mills). Yet another group consists of former lespromkhozy that survived the reforms and are now organized in regional cooperative units (Karellesprom, Irkutsklesprom, etc.). This is geographically the most widespread group, with various production units of smaller size in most forest-covered regions of Russia (Karpachevsky, 2001).

Forestry in Russia remains dependent on a large pool of less skilled workers. It employs almost 1 million people. About two-thirds of all timber is exported, primarily to the EU, as well as to Japan, South Korea, and China. According to expert estimates, almost one-quarter of the timber exported in 2000 was sold illegally, without payment of export duties. The total loss to the treasury from this was conservatively estimated at $1 billion in U.S. dollars (Karpachevsky, 2001). The Russian forest industry also now has heavy foreign participation: In 2000 a few dozen large lumber mills, cardboard factories, or PPMs were controlled partially or wholly by foreign companies. The majority had mixed ownership; for example, one-fourth of the Syktyvkar lumber mill was owned by JPMorgan Chase Bank (U.S.), Burlington Investment Ltd. (U.S.), and Frantschach AG (Austria). International Paper (U.S.) wholly owned the Svetogorsk PPM in Leningrad Oblast near the Finnish border. Sixty-five percent of the huge Arkhangelsk PPM was owned by German, Dutch, and Austrian companies. Many enterprises were partially owned by the Finnish giants UPM-Kymmene and StoraEnso. Swedish and French companies were also prominent among the stockholders in Russian forestry enterprises.

Paper and pulp account for about 45% of the total revenue of the forestry sector, and 60% of all profits. The demand for paper and paper products domestically continues to soar, in part because of the increase in book publishing and in part because of the appearance of disposable products (tissue, diapers). Global paper consumption is likewise on the rise, and Russia is one of very few countries where production can grow to meet the rising demand.

There are about 2,800 furniture factories in Russia. Most are small local producers surviving from Soviet times, and many are emerging from bankruptcies caused by the economic restructuring. Collectively, they capture about 20% of all revenue in the forestry sector. Although 70% of the domestic furniture consumption is satisfied by them, the rest of the furniture has to be imported—mainly from European furniture manufacturers, both budget and luxury brands. The opening of the first Swedish IKEA store in Khimki, near Moscow, in 2000 greatly raised the competitive stakes for the domestic companies: IKEA alone reportedly sold $100 million worth of home and office furniture in the first year in Russia (about 8% of all sales for that year). More IKEA stores are being built near other big cities.

One critical issue facing the forestry sector is long-term sustainability. Soviet forestry was hardly sustainable, but it lacked the logging equipment required to inflict major damage on a large scale. Large intact areas of frontier forests still remain in the north of Russia, especially in the Komi and Karelia Republics, Murmansk Oblast, much of Siberia, the Altay, and the Sayans. Most of these are found away from the railroads or rivers, in the mountains, or within protected natural areas. Nevertheless, “the Russian forest is no longer a boundless belt of unbroken wilderness” (Aksenov et al., 2002, p.10): Only 33% of Russian forests remain as intact, old-growth areas of sufficient size to permit uninterrupted natural cycles on the millennial scale (called “frontier forests”). Active reforestation is rare. Forest fires, about 80% of which are human-caused in Russia, devastate millions of hectares per year. With the improved economy, better equipment, and growing demand, the Russian companies are expected to increase logging greatly in the future. Areas along the Finnish and Chinese borders are already the most affected by clearcuts. Only a few timber producers in Russia are making efforts to get their wood production certified according to the ISO 14001 standard or to pursue Forest Stewardship Council certification; most of these are actually foreign-owned businesses, afraid of consumer backlash back home. Russian businesses must learn to be environmentally responsible too.

Among other FSU nations, only the Baltic republics and Ukraine have significant forestry industries. The Baltic states cut their own limited wood and reexport Russian wood and lumber to the global markets. They are well positioned geographically, with good seaports and easy railroad links to Russia (with which Estonia and Latvia share a border). Ukraine has a limited wood supply in the Carpathians and the Crimea, but many of those forests are in protected areas or are reserved for tourism. Kazakhstan and Kyrgyzstan have substantial forests in the mountains, but both suffer from lack of investment in processing of timber and from poor transportation linkages with China and other potential markets. The rest of the Central Asian and Caucasian republics have only small portions of forested territory and are wood importers.