1 Development Outlook of the Latvian Forestry Sector Director of the “Latvian Forest Industry Federation” Kristaps Klauss Director of “Forest and wood product R&D institute” Andrejs Domkins

2 Table of contents 1. Latvian Forest Industry Federation and its involvement in cooperation networks 2. History and present situation in the Latvian woodworking sector 3. Challanges and tasks we are addressing now 4. Future outlook

3 3 Latvian Forest Industry Federation Latvian Union of Timber Harversting Companies Latvian Association of Independent Timber Harvesting Companies Association "Latvijas Koks" Association "Latvijas Mēbeles" Latvian Timber Producers’ & Traders’ Association Latvian Association of Wood Processing Companies and Exporters Association "Zaļās mājas" Forest and Wood Product Research and Development Institute; Latvian Confederation of Forest Owners and Managers Forest Owners' Association A/s "Latvijas Valsts meži" - manager of state-owned forests Latvian private forest owners and unions Forest Sector Information Centre Management of Measurement and Inventory of Latvian Timber Products Competence Centre Latvia University of Agriculture Institute of Wood Chemistry; Forestry Research Institute "Silava" Cooperation (I) Technological platform of Latvian forest sector Architects; Builders; Project developers; Financial sector; Environment al organisations

4 Cooperation (II)

5 Participation in international organisations C.E.I. – Bois – European Confederation of Woodworking Industries U.E.A – European Furniture Manufacturers Federation FEIC – European Federation of the Playwood Industry EPF – European Panel Federation EOS – European Organisation of the Sawmill Industry CEF- Confederation of European Forest Owners ELO – European Landowners' Organisation EUSTAFOR – European State Forest Association Forest Advisory Committee of the European Comission

6 Present potential of the sector (I) Totalannual growth is 27 million m³ Annual fellings ~11 million m³ Annual fellings per capita 4.73 m³ Annual wood consumption per capita 0.9 m³ Forecasted annual wood consumption per capita 1.5 m³

7 B-1-1 * According to statistical forest inventory data Forest coverage

8 Forest ownership in Latvia

9 State Private Dynamics of logging volume (by forest ownership), mill. m 3

10 LVM: Business Model Consultation services LVM forest, staff, finance, IS LVM Mežs (Forest) Forestry Recreation services Hunting services LVM Sēklas un stādi (Seeds and Plants) Production of forest tree seeds Production of forest tree plants Production of decorative nursery material Production and sale of round timber products LVM Apaļkoksnes piegādes (Roundwood Deliveries) NB! Accounting of internal settlements between the branches according to the market prices LVM Hunting and Recreation

11 Sales of Standing Timber Forest owner Plywood manufacturer Sawmill Logging company - intermediary Sawmill Pulp manufacturer

12 Sales of roundwood assortments Forest owner Plywood manufacturer Sawmill Logging company provides services Sawmill Pulp manufacturer

13 LVM Timber Sales, mill. m 3 Sources: * LVM Budget 2007 ** LVM Corporate strategy

14 Price dinamic (I)

15 Price dinamic (II)

16 Present potential of the sector (II) (0,7 LVL=1 Euro) Number of enterprises ~ 4 000; 8%* Employed ~ ; 5%* Turnover of the sector ~ 1.3 billion LVL Export of the sector ~ 0,85 billion LVL; ~25.7 %* Share of GDP/ Added value ~ 4.7%* * % against total in Latvia

Export and import balance ( ) ? ?

18 Primary processing Sawnwood, thousand m3 11 out of 544 companies produce 50% of the volume

19 Primary processing Sawnwood A high level of mechanisation and computerisation in the "large" sawmills, "small" finding their niches Partly self-subsistence economy remains as a problem: due to undeveloped outsourcing due to inefficient, unspecialised manufacturing of byproducts. It reduces efficiency and output per employee.

20 m3 processed by largest Latvian sawmills by years efficiency strategy Niche/service strategy m3

21 Primary processing Board manufacturing Significant investments have been made in the production of particle-fibre boards, plywood and OSB, namely - new production units have been established Oriented strand board (OSB) capacity thousand M3 in 2007 and second phase of construction is continuing (to reach the capacity of 500 thousand m3)

22 Primary processing Wood particle board, thousand m3 * - planned

23 Primary processing Fiberboard, million m2 * - planned

24 Primary processing Plywood, thousand m3 * - planned

25 Primary processing In our opinion primary processing in Latvia is modernised and corresponds to international requirements regarding productivity and quality, and forms a stable basis for export and further development of value added products

26 Further processing With significantly growing local consumption in the construction sector, it fosters also the development of: Building joinery products: windows, doors, stairs etc. Manufacturing of wooden frames and log houses; Production of furniture, including sectional, customised.

27 Current topical issues Increasing efficiency of forestry and its resource base Increasing proportion of value added products Investment in increase of energy independence Increase of investment in regional development

28 Currently, according to these assessments and taking into account the development of the sector we have achieved the following level and given the following contribution to the national economy of Latvia

29 Growth of the Latvian forestry sector: export and local market, Bn LVL (0,7 LVL= 1 Euro) * without contribution to the energy industry

30 Thank you for your attention!