A multivariate cointegration test of the law of one price for Canadian softwood lumber markets

The law of one price (LOP) has been used extensively to study market integration of forest products. This paper applies the Johansen multivariate cointegration procedure to test the law of one price for five regional markets (Atlantic Canada, Quebec, Ontario, Prairies and British Columbia) of softwood lumber in Canada using quarterly data for the 1981–1997 period. The order of integration of each price series was determined using the augmented Dickey–Fuller test with and without the possibility of structural breaks. The results from both tests showed that all five price series were I(1). The hypothesis that the LOP holds for all five regional softwood lumber markets was not supported by the Johansen multivariate test. Pairwise testing of the LOP under the single cointegration vector identified in the data showed no evidence that the markets for softwood lumber in Canada are integrated. The results suggest that there is no single market for softwood lumber in Canada, but rather, a series of geographically distinct markets.     

Loss function analysis of private forest owners’ timber price change expectations

Loss function analysis was introduced to timber market price analysis. Methods found in Bayesian statistical decision analysis were applied to expectations of market price changes. These were obtained from a forest owner survey conducted in Finland in 2009. Forecast errors of heterogeneous price expectations of the individual private forest owners were derived with observed price changes in six different timber price regions. The forecast errors were complemented with random number simulations to control for unobserved response heterogeneity. The properties and estimation of generalized loss functions – LIN-EX and flexible loss functions – allowing for asymmetry in individual forecast errors were introduced into the analysis. Estimation results for different price regions implied that forest owners’ perceived costs related to positive forecast errors of negative price changes that took place in 2009 were larger than those related to negative errors. This under-prediction vs. over-prediction asymmetry was large in some price regions. The forest owners exhibited an aversion to losses reflected in price expectations errors in the year 2009. The observed loss aversion means that forest owners were cautious in their selling decisions during periods of declining market prices. This has a negative impact on the recovery of slack timber markets.     

日本森林资源增长特点与采伐利用政策

早在20世纪70年代日本就成为世界第1大木材进口国,近50年来其森林蓄积量净增长1.6倍。一个森林资源大国,长期大量地进口木材以满足其国内需求,因此有观点认为日本大量进口木材是为了保护本国的森林资源。文中重点阐述日本森林资源增长特点、木材进口动向、国产材利用政策等问题,以阐明日本为什么长期依靠进口木材而未能有效利用本国的森林资源和近年来日本政府推行的国产材利用政策及其成效。     

The global timber market: implications of changes in economic growth,timber supply,and technological trends

A partial equilibrium model was applied to the global forest sector in order to assess regional and global impacts of changes in economic growth, timber supply potentials, and technical trends. The model uses recursive price-endogenous linear programming and deals with eight geographical regions and 16 products. The base line projections of the model gave an average annual increase in global supply of industrial roundwood of 1.2% until the year 2010. The real price of sawlogs and sawnwood was found to remain approximately constant, whereas the prices of pulpwood and particles increased significantly during the first years, and then declined after the year 2000. The real prices of pulp and paper increased less than those of pulpwood and particles. The assumed variations in GDP growth rates had limited influence on quantities supplied and traded due to restricted timber supply potentials, but affected the real prices, especially of pulpwood and particles. Changes in the assumed timber supply potentials and technical change affected the real prices of pulpwood and particles significantly. Introduction of a price responsive timber supply also dampened the price peaks of pulpwood. Possible improvements of the methodology include empirical estimation of timber supply and of key parameters that determine capacity expansion, trade inertia, and technical changes.     

The long-run determinants of U.S. lumber imported from Canada revisited

This paper examines the effects of the lumber price, the housing starts, and the bilateral exchange rate on U.S. softwood lumber imports from Canada in a cointegration framework. To that end, the Phillips-Hansen fully-modified cointegration (FM-OLS) procedure is applied to monthly data for the period from January 1994 through June 2009. Results show that there exists the long-run equilibrium relationship between the U.S. lumber imports from Canada and the selected macroeconomic and market variables. We also find that the U.S. lumber price and housing starts are more important than the bilateral exchange rate in influencing U.S.-Canada softwood lumber trade.     

Community Forestry Enterprises in Mexico: Sustainability and Competitiveness

Community-based forest management, such as Community Forest Enterprises (CFEs), has the potential to generate positive socioenvironmental and economic outcomes. We performed a detailed survey of financial and production parameters for 30 of the approximately 992 CFEs in Mexico in order to estimate costs, income, profits, and sustainability of harvest levels for forest management, harvest, and sawmilling. Fourteen of the 30 CFEs harvested more timber than they grew in 2011, suggesting issues with sustainability, but only two of these had harvest far above annual growth, and five of those were only a fraction more than annual growth. All of the 30 CFEs except one made profits in forest management and timber growing. For timber harvesting, 22 of 30 CFEs made profits, but the losses were small for the other CFEs. For the 23 CFEs with sawmills, 18 made profits and five had losses; the greatest returns for the CFEs accrued to those with sawmills for lumber production. On average, the CFEs surveyed had high costs of production relative to other countries, but the CFEs were still profitable in national lumber markets. If Mexico were to begin importing large amounts of lumber from lower cost countries, this could pose a threat to CFE profitability.     

China's role in the global forest sector: how will the US recovery and a diminished Chinese demand influence global wood markets?

Over the last decade, while the size of China's economy more than doubled, China has simultaneously become a major producer and exporter of forest products. Although China's domestic supply of wood is significantly constrained both by a limited natural supply and by conservation-oriented policies, the country is increasingly regarded as the world's “wood workshop.” Furthermore, China is the largest driver of demand for the trade in tropical logs and is becoming a significant driver of demand for trade in coniferous logs. In this paper, we describe a spatial equilibrium model adapted to study forest sector markets and policies that affect them. We present the model and the result of two alternative future scenarios. The first scenario analyzes the impact on global forest products markets of a US recovery in wood markets. The second scenario examines the effect on global forest products markets of decelerating growth in Chinese demand for wood products. Through these two scenarios, the modeling output sheds light on the role China's wood products markets have on resource supply and trade around the world. The trade model shows substantial potential changes in global prices, production, and trade activity associated with the recovery in domestic demand in the USA.     

Effects of accelerated tariff liberalization on the forest products sector: a global modeling approach

The objective of this study was to project the effects on the world forest sector of eliminating quickly all import tariffs. The projections were done for two scenarios: (1) progressive tariff reduction according to the current schedule of the General Agreement on Tariffs and Trade; (2) complete elimination of all tariffs within the Asia-Pacific Economic Cooperation (APEC) countries. The projections were obtained with the global forest products model (GFPM), for the years 1998–2010. The model gave market equilibrium projections of quantities produced, consumed, imported and exported for each of 180 countries, and for 14 commodity groups, covering roundwood, sawnwood, wood-based panels, pulp and recycled fibers and paper and paperboard. The model also projected world equilibrium prices. The results showed that, with or without ATL agreement, the world consumption and trade of all forest products would continue to grow along the historical trends, and the world prices of forest products would increase moderately. With the elimination of tariffs in APEC countries, the projected world production and consumption of all products would change little (less than 0.5%). The tariff reduction effects would be larger for trade, and the commodity composition of world trade would shift from raw materials to more processed products. The timber harvest would change in a number of countries, but the net effect at the world scale would be small. While the US consumption and production of forest products would change little, the US would reduce its export of logs and increase exports of most processed products. The US timber harvest was expected to be indistinguishable compared to what it would be in the absence of the Accelerated Tariff Liberalization agreement.     

Market impacts of a multiyear mechanical fuel treatment program in the U.S.

We describe a two-stage model of global log and chip markets that evaluates the spatial and temporal economic effects of government-subsidized fire-related mechanical fuel treatment programs in the U.S. West and South. The first stage is a goal program that allocates subsidies according to fire risk and location priorities, given a budget and a feasible, market-clearing market solution. The second stage is a quadratic welfare maximization spatial equilibrium model of individual State and global product markets, subject to the fuel treatment allocation. Results show that the program enhances timber market welfare in regions where treatments occur and globally but has an overall negative economic impact, once fuel treatment program costs are included. The overall cost of a mechanical fuel treatment program, when considering timber market welfare, transport costs, treatment costs, and timber receipts, exceeds $1000 per acre, implying that the long run fire effects and ecosystem net benefits of a treatment program would need to exceed this figure in order to justify widespread implementation.     

Determinants of illegal logging in Indonesia: An empirical analysis for the period 1996–2010

Illegal logging is a significant problem in Indonesia, which is one of the few countries with a large forest area. In this study, we investigate the factors that affect harvesting and supply of illegal timber from Indonesia to China and Japan. Moreover, we investigate the factors that lead to the demand of Indonesian illegal timber from China and Japan. A simultaneous-equation econometric model of illegally logged timber demand and supply is developed and tested using the annual data over the period 1996–2010. We find that corruption and decentralization in Indonesia have significant and positive impacts on the illegally logged timber supply while excess demand in Japanese construction and furniture industries as well as Japan’s housing starts are the significant factors that affect the illegal logging in Indonesia. The law enforcement or policies aimed at reducing illegal harvesting in Indonesia are found to be more effective than the policies targeting the import of illegally logged timber into Japan and China.     

Impact of inefficient quota allocation under the Canada-U.S. softwood lumber dispute: A calibrated mixed complementarity approach

In this paper, a spatial price equilibrium model developed to shed new light on the economic impact of restrictive trade sanctions adopted in the Canada-U.S. softwood lumber dispute. Mixed complementarity programming is used to solve a 21-region, global trade model that is calibrated to 2011 observed bilateral trade flows using positive mathematical programming. In addition, the model employs a mechanism for analyzing the effects of the tariff rate quota used in the 2006 Softwood Lumber Agreement (SLA). It is estimated that the SLA created an annual deadweight loss of $28 million, paid by U.S. consumers. The quota constrained Alberta lumber producers while BC producers had excess quota. The lack of a proper mechanism for capturing quota rent, such as a tradable quota scheme or quota auction resulted in the survival of high-cost firms, perhaps to the detriment of lower-cost firms in Alberta. In the absence of SLA, it is estimated that Alberta would supply an additional 9% of Canadian softwood lumber to the U.S., eroding the supply share of all other regions while improving aggregate welfare.     

四川用材林建设历史与发展对策探讨

四川是长江上游生态屏障建设的核心区,随着社会经济的发展和生态建设工程的推进,全省木材供需矛盾日益紧张。介绍了四川用材林建设的历史与资源现状,对开展用材林基地建设的必要性进行了分析,同时,提出了对策与建议。     

Beetles, trees, and people: Regional economic impact sensitivity and policy considerations related to the mountain pine beetle infestation in British Columbia, Canada

This article investigates the regional economic impact sensitivity to the current mountain pine beetle infestation in five study areas of British Columbia, Canada, using a computable general equilibrium framework. Baseline general equilibrium economic databases are constructed for each region using a hybrid data collection approach involving primary and secondary sources. A computable general equilibrium model is constructed for each region and used to simulate the sensitivity of a suite of economic indicators to changes in forestry sector exports resulting from the impacts of mountain pine beetle on the available timber supply. The computable general equilibrium models constructed for each region provides an indication of economic vulnerability to the infestation and can assist decision-makers with the identification of policy considerations and priority areas for mitigation planning in response to the anticipated fluctuations in timber supply.     

Family forest owner preferences for biomass harvesting in Massachusetts

U.S. forests, including family-owned forests, are a potential source of biomass for renewable energy. Family forest owners constitute a significant portion of the overall forestland in the U.S., yet little is known about family forest owners' preferences for supplying wood-based biomass. The goal of this study is to understand how Massachusetts family forest owners feel about harvesting residual woody biomass from their property. The study estimates the probability that Massachusetts landowners will harvest biomass as part of a timber harvest using data from a survey of 932 Massachusetts family forest owners. Logistic regression results suggest that the likelihood of harvesting for biomass is quite low, and that the supply of participation in biomass harvesting is inelastic with respect to price. These low probabilities may be due to the method used to account for preference uncertainty, as well as the unique nature of Massachusetts forests, forest markets, and landowner attitudes in comparison to other states (e.g., Minnesota). The study suggests that it would be more effective to target renewable energy policy toward different regions and/or markets rather than develop a uniform national policy.     

Calculation of CFP and verification of effect on CO2 emission reduction for the use of certified wood in Kyoto Prefecture

The representative carbon footprint of product (CFP) value of “certified wood in Kyoto Prefecture” was calculated as 241?kg-CO₂/m³. The CFP value was 158?kg-CO₂/m³ when wood was not kiln dried and final processing was not involved, whereas that of “kiln-dried, finished wood” was 284?kg-CO₂/m³. Comparisons of different types of wood were also conducted to examine CO₂ emission-reducing effects of “certified wood in Kyoto Prefecture”. We compared the CFP of lumber produced (in Japan) from logs supplied from Japan and other countries and that of “certified wood in Kyoto Prefecture”; the lumber products as a target for comparison are shipped to markets throughout the country. The CFP of “certified wood in Kyoto Prefecture” was approximately 50% lower compared to that of North American wood lumbered in Japan and shipped to markets throughout the country, and about 30% lower compared to the mean CFP of lumber produced (in Japan) from logs supplied from Japan and other countries and shipped to markets throughout the country. We then compared the CFP of “products imported from other countries after being cut into lumber” to that of “certified wood in Kyoto Prefecture”. The CFPs of lumber products from North America and Europe were lower than that of “certified wood in Kyoto Prefecture” (kiln-dried, finished wood). However, when only woodchips were used as a heat source in the process of kiln drying, the CFP of “certified wood in Kyoto Prefecture” was lower than any other kiln-dried lumber products. Regarding “certified wood in Kyoto Prefecture”, the use of woodchips as a heat source in the process of kiln drying or a shift to air drying decreases the CFP.     

Identifying the inter-market relationships of forest products in the Pacific Northwest with cointegration and causality tests

We identify various inter-market relationships of forest products using cointegration and causality tests together. Of the six Douglas fir domestic sawlog, export sawlog, and lumber markets in the Pacific Northwest, we find that the two log markets and the two lumber markets are integrated, respectively. However, the two export log markets are not, nor is any cross-grade combination. In conjunction with cointegration restrictions, our causality tests demonstrate that export and lumber prices lead the movement of domestic sawlog prices; and similarly, the movements of domestic lumber prices follow the movements of export log prices. A close examination further reveals that export log prices for Region 1 lead the price formation process in all the lumber markets and log markets. We believe that these results have significant implications for understanding and thus dealing with forest products market behavior and price forecasting.     

Exchange rates and the competitiveness of the United States timber sector in a global economy

This article examines the competitiveness of the US timber industry under different exchange rate policies using a dynamic optimization model of global timber markets. Recent exchange rate adjustments by economies that compete with the United States in the timber sector suggest that it is important to consider how future trends in exchange rates may affect roundwood producers in the US that are already facing competitive pressures from abroad due to differences in capital and labor costs, environmental restrictions, and other factors. We assume that exchange rates affect the cost structure of harvesting and managing forests and simulate the model for baseline conditions and six additional real exchange rate policies. Two policies consider a strengthening United States dollar (US $) scenario, two policies examine weak South American currencies, and two scenarios assume a persistently weak US $. The results indicate that US competitiveness in the forestry sector is sensitive both to strong US $ policies and to the weak currency policies pursued by South American governments, as well as a weak dollar policy that is intended to improve the United States' competitiveness in the global timber market and reduce the large trade gap and account deficit. A 20% increase in value of the US $ compared to all other currencies can reduce harvests by 4–7% in the United States over the next 50 years, while a similar reduction in currency values in South America can reduce U.S. production less than 1%. A 20% devaluation of the US $ can increase annual domestic timber harvests by 2–3% and net present value of producer surplus by 3–10%.     

美国木材衍生品市场发展现状与启示

木材衍生品市场具有价格发现、分散风险等重要功能。我国木材衍生品市场发展滞后,存在法律环境不完善、缺乏投资主体、交易所缺乏自主权、合约内容缺乏科学性以及风险管控措施不足等诸多问题。文中从监管体系及法律制度、市场参与主体、合约设计、结算程序、风险管控措施等方面对美国木材期货和期权市场现状进行梳理,提出对我国发展木材衍生品市场的启示。     

Regional effects of a green steel industry – fuel substitution and feedstock competition

Forestry and forest industry sectors have vital roles for many regional economies. Consequently, it is important to understand how the introduction of the iron and steel industry (ISI) as a new large consumer of woody materials may affect existing feedstock markets. The use of metallurgical coal can partially or fully be substituted by refined biomass. To analyze the potential consequences of a new woody consumer on regional markets, three regions in northern Sweden and Finland are used as a case. A regional partial equilibrium model is developed, the Norrbotten County Forest Sector Model (NCFSM), and applied on three different scenarios. The purpose of the study is to analyze the intra- and inter-regional effects increased competition for woody materials may have on regional markets and on the economic well-being of the regions. The result suggest that the total welfare effect is relatively small, however, some regional welfare distributional effects are observed. Additionally, the price of roundwood will only be moderately affected if the ISI sector switch from fossil fuels to refined woody biomass. However, secondary woody materials, i.e. by-products and harvesting residues, will experience larger price shifts.