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Market Report: Forestry & Wood Products – Baltic States

July 2019

Sector Overview

The forest industry is one of the most important sectors in the economies of the Baltic states, with 2.31 million hectares of forest in Estonia, 3.35 in Latvia, and 2.17 in Lithuania and approximately 27 million m3 of timber harvested across the Baltic region in 2016. Timber of softwood species is a leading natural resource which creates a base for wood processing, mostly for furniture and paper industries in all three countries.

Estonia is a regional powerhouse in the forestry and wood products sector. Forests cover 48% of the mainland territory or a total area of 2.2 million hectares. The country has a developed wood construction and furniture industries backed by modern technologies and international capital. Estonia also has strong lumber importing traditions for its processing sector, importing 600,000 m3 of lumber worth $424 million in 2015.  Sawn wood deliveries from Canada accounted for 14,000 m3 of timber worth $601,000 in 2015. Latvian and Lithuania lumber import volumes are miniscule compared to Estonia.

Latvia currently has one the largest forest areas, in the EU countries, with about 53% of the territory, or 3 million hectares, covered in forests. Latvian forest management policies have been overwhelmingly sustainable, and annual felling volumes were stable during the last 10 years at a level between 11 million and 12 million m3 of wood solid volume. This provides the resources necessary to produce a wide range of wood products: lumber, solid and densified energy wood products (also known as “wood first-processing products”), and wood panels.

Unlike Estonia and Latvia, Lithuania has a much more limited supply of forests, with a land-share of only 28% covering 1.8 million hectares of the country. For the last 70 years, Lithuania has focused more on agricultural activities than on forestry and very limited capacity to expand its small-scale operations in the forestry sector.

Furniture and paper industries are the fastest developing segments across the Baltic forestry sector. The biggest players in the furniture market are Scandinavian companies, especially from Denmark, Norway, and Sweden, with IKEA being one of the main players in the furniture market.

Best prospects for Canadian exports in the Baltic regional markets include saw mill equipment, woodworking and furniture-making machinery, and plant technologies.

Market Opportunities by Sub-sector

Wood Processing – Timber processing is the largest industrial sector in Latvia and timber is one of the country’s top exports.  The local saw mill industry has strong potential, but would benefit from technology and machinery upgrades and modern managerial and marketing techniques.  Both raw materials and labor are available at relatively low cost. The sector accounts for roughly 20% of Latvia’s exports with 80% of the production designed specifically for exports.

Wood Construction – Estonia has more than 8,000 operation wood construction companies, with 90% being microenterprises with less than 10 employees. Estonia's construction industry has largely been oriented to the internal market and its development is closely linked to overall economic development. In 2014 Estonian construction companies builds totaled €3.22 billion, while in 2015 a total of €164 million of profit was generated by the sector. The products range from manufactured round and milled square log houses, hand-made log-houses, pre-fabricated wooden frame houses to module houses. Scandinavian countries have been the main markets where log houses have become architectural fashion and are seen as fitting with an ecological life style.

Wood Pellets – Latvian wood pellets production has expanded considerably over the past five years given the high availability of unused residues and a strong demand for pellets in Nordic countries. This led to the creation of a strong, cost-effective, and large-scale pellet production mills cluster within Latvia. The country is the second largest pellet producer in the EU, with an annual volume of 1.389 million tonnes, with Germany leading pellet production with 2.1 million tonnes and Sweden as the third largest producer with 1.172 million tonnes.

Furniture – Estonian furniture industry has over 500 companies that successfully compete on foreign markets, mostly in Western Europe. About two thirds of the output is exported, but in the last few years the proportion of export has slowly reduced as the domestic market has been significantly stronger in comparison with the main foreign markets. The main export countries of destination in 2014 were Scandinavian nations and Germany, while the main exported product groups were made up of seats, furniture parts, dining and living room furniture, wooden kitchen furniture, wooden bedroom furniture and other furniture products.

Market and Sector Challenges

CETA Opportunities for Forestry & Wood Products Companies

Tariffs – The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) expands Canada’s trade with the second-largest market and offers new opportunities for Canadian exporters by eliminating or reducing barriers. This allows Canadian products and services to be on equal footing with their EU competitors and to receive better treatment than most of their non-EU competitors. CETA will positively affect Canadian export of value added wood products, eliminating tariffs on plywood imports of 7 to 10%, 6-10% for veneered panels, 7% for particleboard, and 2.7% for prefabricated buildings. CETA’s impact is expected to bring significant new opportunities for the growth of Canadian-Baltic trade, with bilateral trade slated to grow by 23%. We encourage businesses to take advantage of the new Canada Tariff Finder at www.tariffinder.ca, which will allow exporters to look up and compare tariffs across markets where Canada has a free trade agreement, including CETA.

Certification – Baltic states’ import policies conform to EU policies for imported products and import taxes. Non-EU exporters are required to meet CE standards with EU destined goods, which are subject to EU product legislation. Imported forestry products must have conformity certificates to guarantee quality and naturalness before entering the EU. Tight controls are also imposed for the labeling of forestry products. Labels must be in the local language, legible, not misleading and non-erasable.

Temporary Entry – CETA simplifies requirements for short-term business visitors, intra-company transferees, investors, contract service suppliers, and independent professionals to conduct business in the EU. While variations exist across EU member states, CETA allows temporary entry commitments related to activities such as technical testing and analysis services, as well as scientific and technical consulting services.

Representation – Canadian firms will discover that an experienced local partner will greatly enhance the chance for success in the Baltic states. Depending on the nature of the product, a single agent, distributor or representative may suffice for all countries. However, firms should plan for separate representation in each distribution channel to better address unique market, cultural and legal issues. Prior to exporting to the EU, Canadian companies should be familiar with the relevant EU and national certification standards, as well as local requirements, for their products. The limited knowledge of Canadian forestry products and technologies and the necessity to obtain large volumes and the vast distance between countries remain major challenges.

Investment – Canadian products are viewed positively by the Baltic states and are considered to be of high quality. CETA will have a positive effect on Canada-EU bilateral investment by providing investments greater certainty, stability, and protection for their investments. CETA encourages investment by prohibiting Canada and the EU from applying undue restrictions on investors and will ensure Canadian and EU investors receive fair and non-discriminatory treatment in each other’s markets.

Useful Resources

The TCS and its Services

Take your business to the world. The Canadian Trade Commissioner Service (TCS) is located in over 160 cities worldwide. We provide key business insight and access to an unbeatable network of international contacts. Each year, we help thousands of Canadian SMEs tackle concrete problems and uncover export opportunities. Fact: Companies using TCS services export 20.5 percent more than those that don’t, and access 20.9 percent more markets.

Contacts

Embassy of Canada in Riga
Baznicas 20/22, Riga LV1010, Latvia
Tel: (371) 67813946
Fax: (371) 67813960
Contact: Irena Cirule, Commercial Officer
E-mail: irena.cirule@international.gc.ca
Website: www.balticstates.gc.ca

Office of Embassy Canada in Tallinn
Toom-Kooli 13, 10130 Tallinn, Estonia
Tel: (372) 6273316
Fax: (372) 6273312
Contact: Kairi-Liis Ustav, Programs Officer
E-mail: Kairi- Liis.Ustav@international.gc.ca

Office of Embassy of Canada in Vilnius
Business Centre 2000, Jogailos 4, 01116
Vilnius, Lithuania
Tel: (370) 52490951
Fax: (370) 2497865
Contact: Egle Jurkeviciene, Programs Officer
E-mail: egle.jurkeviciene@international.gc.ca

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