THE WORLD TIMBER
WHY IS THERE TRADE?
WHAT ARE ITS
Quote for the Week
It matters not what you think, but how you think. [George Orwell].
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
• Another source is said to be large-scale logging
interests who cut trees for the world market.
Let’s consider deforestation and
land-use changes in the global
The next slide contains data from
various regions and from this we
can gain some idea of what is
THE STATE OF THE WORLD’S FORESTS
FOREST AREA (1000 ha)
FOREST COVER CHANGE
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
The ―horrors‖ of deforestation, like
population growth, seem a bit overwrought
• Still forests are disappearing except in
• Notice the regional differences in forest
• But the big action is in Southeast Asia and
to a lesser extent parts of Africa.
– This is logging for the export of tropical
We can get a better picture of this
process by thinking about
• 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.
So, consider the commodity chain (product
pathway) for tropical timber
Approximately 75% of exports of tropical hardwood
raw logs come from:
Of these exported logs, Japan purchases
approximately 60 %, followed by China,
There is a smaller African market
• Here, the major exporters are
– The Ivory Coast
– The major importers from Africa are France,
Italy, Spain, and Germany
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,
– 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.)
Now, let’s look at even more value
added (more embodied labor and
capital)—this concerns the export of
• Indonesia & Malaysia (U.S., Singapore, U.K., China)
• Singapore (entire world)
• Korea and China (U.S., Saudi Arabia)
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.‖
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?).
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
Why these differences in
making the very same product?
• Differential labor costs
• Differential energy costs
• Differential land costs
• Differential transportation costs
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
• That is, a region makes (or has) more of
something than can be consumed locally.
First let’s consider the domestic market
that represents the import market for
These imports could be for raw logs, for
sawn timber, or for processed timber
DOMESTIC MARKET IMPORT DEMAND
Notice that we DERIVE the demand
curve for imported timber FROM the
excess demand for the product in the
• 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
Now let’s consider the foreign
market that comprises the
export side of international trade
FOREIGN MARKET EXPORT SUPPLY
Notice that we DERIVE the supply
curve for exported timber FROM the
excess supply of the product in the
• 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
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.
THE INTERNATIONAL TIMBER MARKET
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.
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
THE INTERNATIONAL TIMBER MARKET
QWT QW QUANTITY
• 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.