Understanding the wood market: Between provisioning and multi-functionality
What are the principal factors that determine the functioning and performance of the wood market? What are the importance and the value of the various non-commercial services provided by the forests? Which instruments are best suited to accommodating the different functions of the forest?
Project description (completed research project)
The production of raw wood is the most important activity of the Swiss forestry sector. But for over twenty years, forestry firms have been recording losses. Production costs are increasing while the price of wood is sinking. The deficits cannot be covered by improved technical efficiency. At the same time, society increasingly demands non-market services, such as protection, biodiversity and leisure activities. This influences decisions regarding the production of wood and renders forest management more complex. The forestry sector therefore faces the double challenge of securing the future availability of wood while ensuring the multi-functionality of the forest.
The production of raw wood has been unprofitable for many years. Production costs are increasing while the price of wood is sinking. At the same time, there is an increased demand for non-market forestry services such as leisure. The production of raw wood has to be brought into line with the other functions of forests.
The aim of the project was to analyse the production of wood in view of the multi-functionality of forest. On the demand side, the growing demands of society with regard to the forest have been considered and included in the economic analysis. On the supply side, potential ways of increasing the efficiency of wood production have been identified along with options for integrating the other functions of forests into forestry management. New approaches have been developed in order to improve the competitiveness and performance of the Swiss raw wood market.
Surveys show that the Swiss population values forests primarily for their protection and biodiversity functions. It attaches less importance to the production of raw wood. In this context, a significant part of the population is prepared to finance new forest reserves. Quantitative analysis suggests that smaller forestry firms could save costs by exploiting economies of scale. However, many firms are not maximising profits because their decisions are influenced by non-market services of forests and other public-service objectives. In view of the many positive externalities of forestry, one can make a case that support of the sector should be modelled on the support offered to agriculture.
Understanding the market of raw wood: Supply and demand aspects