THE WORLD TIMBER MARKET

Document Sample
THE WORLD TIMBER MARKET Powered By Docstoc
					THE WORLD TIMBER
     MARKET
 WHY IS THERE TRADE?
    WHAT ARE ITS
  CHARACTERISTICS?

                       1
                Quote for the Week


It matters not what you think, but how you think.   [George Orwell].




                                                                   2
I. One dominant theme is the extent to
which forests and biodiversity are being
    destroyed in the poorest nations.

• Some of this destruction is said to arise because
  poor landless people are forced to clear and
  colonize the forest in order to grow necessary
  food.

• Another source is said to be large-scale logging
  interests who cut trees for the world market.
                                                     3
Let’s consider deforestation and
 land-use changes in the global
            context.

The next slide contains data from
various regions and from this we
 can gain some idea of what is
            going on.
                                    4
                  THE STATE OF THE WORLD’S FORESTS

                                           FOREST AREA (1000 ha)


                                                                                 FOREST COVER CHANGE
                                                                                       1990-2000




                  TOTAL
                  LAND          Total                   Area per     Forest
                  AREA         Forest      Percent of    Capita    Plantations   Annual Change     Annual
                (1,000 ha)   (1,000 ha)    Land Area      (ha)     (1,000 ha)      (1,000 ha)     % Change

Africa           2,978,394      649,866        21.8       0.8           8,036            -5,262     -0.8

Asia             3,084,746      547,793        17.8       0.2         115,847             -364      -0.1

Europe           2,259,957     1,039,251       46.0       1.4          32,015              881      0.1

N & C America    2,136,966      549,304        25.7       1.1          17,533             -570      -0.1

Oceania            849,096      197,623        23.3       6.6           2,848             -365      -0.2

South America    1,754,741      885,618        50.5       2.6          10,455            -3,711     -0.4

WORLD           13,063,900     3,869,455       29.6       0.6         186,733            -9,391     -0.2
                                                                                                           5
    The ―horrors‖ of deforestation, like
 population growth, seem a bit overwrought

• Still forests are disappearing except in
  Europe
• Notice the regional differences in forest
  treatment
• But the big action is in Southeast Asia and
  to a lesser extent parts of Africa.
  – This is logging for the export of tropical
    hardwoods
                                                 6
   We can get a better picture of this
      process by thinking about
         ―commodity chains.‖

• By commodity chains we mean following a
  particular commodity from its origin
  through to its final consumption.

• A commodity chain for mahogany would
  start at a tropical forest and end up at a
  fine bookcase sitting in a den in England.
                                               7
 So, consider the commodity chain (product
        pathway) for tropical timber

Approximately 75% of exports of tropical hardwood
  raw logs come from:
  – Malaysia
  – Indonesia
  – Philippines


  Of these exported logs, Japan purchases
   approximately 60 %, followed by China,
   Korea, Singapore

                                                8
 There is a smaller African market
• Here, the major exporters are
  – The Ivory Coast
  – Gabon
  – Cameroon

  – The major importers from Africa are France,
    Italy, Spain, and Germany



                                                  9
Now, let’s look at logs with a minimum
   of processing (value added).

These are called ―sawn logs‖ and the
 dominant exporters are (with destination):
  – Malaysia         (Singapore, Netherlands, Germany, Thailand, Japan,
    U.K., Australia)

  – Indonesia  (Japan, Italy, Singapore, U.K., China)
  – Singapore  (Saudi Arabia, Netherlands, China, Belgium)
  – Philippines  (Japan, U.K., France, U.S.)
  – Brazil  (U.S., U.K.)
                                                                       10
   Now, let’s look at even more value
   added (more embodied labor and
  capital)—this concerns the export of
          hardwood plywood.
• Indonesia & Malaysia  (U.S., Singapore, U.K., China)

• Singapore  (entire world)

• Korea and China  (U.S., Saudi Arabia)

                                                          11
  Notice that as a product entails more
      value added it is ―economical‖ to
transport it further. A better way to put it
    is the converse—you can only ship
 things long distance if they have a high
 value per unit weight (in order to cover
   the necessary transportation costs).

This principle helps us to understand why
Wisconsin is the ―cheese state‖ rather than
               the ―milk state.‖
                                           12
   That is, we have an excess of cows in
    comparison to the population able to
 consume milk. And why are there so many
             cows in Wisconsin?

• Back to ―trade:‖ Wisconsin trades cheese, beer
  (why?), (and veal—why?) with other states and
  we import winter vegetables, beef, chickens,
  watermelons and wine.

• It is more economical to convert our milk to
  cheese and ship the cheese (why?).
                                                   13
So let us now focus on the question—why is
 there international trade, in general, and in
         forest products in particular?

Consider the following:
  – A ton of bleached hardwood pulp for making
    paper has a manufacturing cost of:

     • $78 in Brazil
     • $156 in Eastern Canada
     • $199 in Sweden


                                                 14
  Why these differences in
making the very same product?


•   Differential labor costs
•   Differential energy costs
•   Differential land costs
•   Differential transportation costs

                                        15
     This means that it is more
  economical to make paper in a
  place where there may not be a
 sufficient demand for the product.

• Indeed it is localized abundance that fuels
  trade

• That is, a region makes (or has) more of
  something than can be consumed locally.
                                             16
First let’s consider the domestic market
 that represents the import market for
              tropical timber.



These imports could be for raw logs, for
 sawn timber, or for processed timber
 (plywood).

                                           17
     DOMESTIC MARKET               IMPORT DEMAND
$
                               $
              S


PC



P1


P2                                                 MD
                       D



                           Q                       Q



                                                    18
 Notice that we DERIVE the demand
 curve for imported timber FROM the
 excess demand for the product in the
           domestic market.

• We do this by noticing that for all prices below
  the choke price (PC) there is excess demand.
• This excess demand at each price becomes the
  derived demand curve for imports.
• The derived demand curve for imports is labeled
  MD.
                                                 19
 Now let’s consider the foreign
   market that comprises the
export side of international trade




                                 20
     FOREIGN MARKET               EXPORT SUPPLY
$                             $

                      S


P2                                            XS


P1


PC



                          D

                          Q                       Q



                                                   21
   Notice that we DERIVE the supply
  curve for exported timber FROM the
   excess supply of the product in the
             foreign market.

• We do this by noticing that for all prices above
  the ―choke‖ price (PC) there is excess supply.
• This excess supply at each price becomes the
  derived supply curve for exports.
• The derived supply curve for exports is labeled
  XS.
                                                     22
   We now combine the excess
 demand curve from the importing
  country and the excess supply
 curve from the exporting country.


This will give us the equilibrium price and
 quantity traded in the international market.

                                            23
     THE INTERNATIONAL TIMBER MARKET
 $
                                XS




PW



                                     MD




                   QW            QUANTITY
                                            24
The world price for timber will be less
    than the old choke price in the
domestic market, and greater than the
old choke price in the foreign market.


Hence, trade helps consumers in the
 importing country, and it helps
 producers in the exporting country.

                                       25
 But we have not considered the
  cost of transportation to get the
product from the exporting country
     to the importing country.

This inclusion of transportation costs will alter
  slightly the trade equilibrium

Assume that the exporters pay the transportation
  costs (T)
                                                    26
      THE INTERNATIONAL TIMBER MARKET
 $                                XST


                                   XS


PWT
PW


         T
                                    MD




                QWT   QW          QUANTITY
                                             27
                      Conclusions
• Whether or not landless poor people are savaging
  tropical forests, it is clear that nations with a much
  poverty and many trees have a strong incentive to
  harvest those trees and sell them in world markets.

• And many rich countries interested in importing timber
  may well have abundant forest lands (the U.S. in
  particular), but we may be more interested in protecting
  our forests and buying our timber abroad. The price
  differences often make this an attractive deal

• Despite this, it is not accurate to assert that the world’s
  forest are ―rapidly disappearing.‖

• As a renewable natural resource, there is much RE-
  forestation taking place in the world.
                                                                28

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:15
posted:12/4/2011
language:English
pages:28