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SOUTHERN STUMPIN’ By David Abbott • Managing Editor • Ph. 334-834-1170 • Fax: 334-834-4525 • E-mail: david@hattonbrown.com
Global Connections N
o man is an island, and neither is any nation or industry—not even the ones that are on islands. It’s an interconnected globe we all live in; events half a world away can and do impact us, whether we realize it, or like it, or not. The export market to China, for instance, is very important to the bottoms lines of lots of loggers and timberland owners down here in the U.S. South. With that in mind, I want to consider the Russia/Ukraine situation, our connections to it, and how it can indirectly affect us—beyond just fuel prices. In condemnation of the unprovoked attack on Ukraine (and no doubt with an eye to PR fallout), hundreds of businesses are leaving Russia, including many in the forest products sector. Tigercat announced via social media post on February 25 that it would be suspending supply of all equipment, components and spare parts to Russia. “Tigercat regrets the negative consequences of this decision on the work of all our dealers and end-users in Russia who are not related to this devastating conflict,” the post acknowledged. Likewise, Swedish agricultural magazine ATL reports that John Deere, Komatsu and Ponsse have also stopped all deliveries of both new and used machinery and parts to Russian and Belarusian markets. These aren’t meaningless gestures of virtue signaling, nor are they painless. Taking a stand for freedom and justice comes at a cost. For instance, sales in Russia and Belarus reportedly accounted for 20% of Ponsse’s net sales in 2021. Other companies, like oil/gas giant BP, also stand to take a sizable hit by walking away from the Russian market. International Paper announced in a press release that it intends to “explore strategic options, including the possible sale, of its 50% ownership interest in Ilim Group.” According to investigative journalist Daniel Connolly, IP has since 2007 been in a 50-50 joint venture with Ilim, a Russian company with close links to Putin and his oligarch allies. They harvest in Russia and export wood pulp, mostly to China. The Board of PEFC International (Programme for the Endorsement of Forest Certification, an international, non-profit, non-governmental organization that promotes sustainable forest management through independent third party certification) classified all timber originating from Russia and Belarus as “conflict timber,” which therefore cannot be used in PEFC-certified products. Likewise, the Forest Stewardship Council (FSC) has suspended trading certificates in Russia and Belarus, announcing, “Wood and forest products from Russia and Belarus cannot be used in FSC products or be sold as FSC-certi6
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fied anywhere in the world as long as the armed violence continues.” Remember that in Russia, there is no private ownership of forestland. Oligarchs close to Putin are behind Russia’s largest logging companies and wood products exporters, according to a report from Earthsight, a British environmental group that has criticized International Paper and other companies with Russian investments. So, again, it’s not just PR or virtue signaling to withdraw; when we do business with Russia, we help fund Putin’s war chest.
From Russia, With Lumber Russia is the largest forested country in the world, with timber on 45% of its area. They grow a lot of pine, spruce, larch, and cedar. However, studies by the U.N.’s Food and Agriculture Organization have determined that the potential
of Russian forests is underutilized. While containing a fifth of Earth’s forests, Russia has less than 4% of the global trade in forest products. Its timber industry generates about $20 billion per year—compared to more like $200 billion in the U.S. But more than half of our timberland is privately owned; that might have something to do with ours being more productive and profitable. Still, Russia is a major exporter of forest products (including logs, lumber, pulp, paper and pellets) to the European Union, China, Japan and the Middle East—$12 billion worth in 2021, according to Wood Resources International (WRI). Europe imported almost 14 million m3 of logs and nine million m3 of softwood lumber from Russia and her partner, Belarus, last year, also according to WRI. The European Federation of Wooden Pallet & Packaging Manufacturers says that Ukraine, Russia, and Belarus collectively supply much of Europe’s softwood for pallets and packaging. Russia also exports a lot of paper to the EU.
Between the war and sanctions from governments and the private sector, observers expect a significant disruption to Europe’s wood supply. Alternative sources in Nordic and Baltic countries will likely not be sufficient to compensate for the shortfall. Russia’s former customers will be forced to import from other sources, opening up potential new export opportunities. Meanwhile, these additional restrictions on an already strained supply chain could cause further price increases. Speaking of price increases: fuel prices were already going up, along with everything else worldwide. That inflation has now been exacerbated. The U.S. only got something like 2% of our supply from Russia, but the EU has reportedly been importing 41% of its natural gas and 27% of its crude oil from Russia. Food prices are also impacted; Ukraine supplies the EU with almost 60% of its corn as well as livestock grain. Russia is the world’s biggest exporter of fertilizer (shipments now suspended) and also a major wheat supplier. Together, Russia and Ukraine are Europe’s breadbasket, but more than Europe will be affected. In terms of exports worldwide, almost 30% of wheat, 20% of corn and over 80% of sunflower oil come from Russia and/or Ukraine. In fact, if estimates from the International Food Policy Research Institute are accurate, 12% of all food calories traded in the world come from those two countries. With the devastation of Russia’s attack, Ukraine’s crop for this year is probably already lost, so food supply worldwide will be impacted for years to come. In a March 5 article for Business Insider, Natasha Dailey wrote that “Lumber prices are continuing to surge amid Russia’s invasion of Ukraine, and traders could soon see even bigger price swings. Futures have been on a wild ride since the onset of the COVID-19 pandemic. After tumbling through the spring and summer, they have been rebounding and got a fresh jolt from Russia’s war.” In a March 10 article for Woodworking Network, Larry Adams reports, “Since Russia invaded Ukraine, lumber prices have jumped 14% to $1,452, putting them just below the all-time peak of $1,711 per thousand board feet recorded last May, according to a report in Market Insider and other publications. Even before the war began, lumber prices were volatile. In January, they fell 15%. Since February 1, they’ve soared 55%.” Dailey notes that in an interview with Fox Business, U.S. Rep. Victoria Spartz, a Ukraineborn Republican lawmaker from Indiana, mentioned lumber as one Russian industry Western governments should target for sanctions. “Such sanctions could rattle lumber prices further,” SLT Dailey opines.
APRIL 2022 l Southern Loggin’ Times
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