In 2023, in the timber industry, there has been an uninterrupted series of declines compared to the production of 2022, with the production reaching a minimum level in July 2023 at 67.6% compared to July 2022, according to the industrial production indices published by the National Institute of Statistics (INS).

Such a significant drop is unique among industries in Romania.

A 30% decrease in wood-based industries, considering their direct contribution of 1.5% to Romania's GDP, is substantial enough to cause a 0.5% decrease in Romania's GDP by itself.

When considering indirect and induced contributions, this leads to a greater than 1% decrease in Romania's GDP, and proportionally, in state budget revenues. According to a PwC report estimate, wood-based industries contribute, directly and indirectly, €3 billion to the state budget.

How did this situation come about?

The artificial crisis of wood mass resources, which induced the firewood crisis in the fall of last year, is one of the causes. In the fall of 2022, we witnessed an artificial price inversion, with firewood prices much higher than industrial wood prices, leading to generalized price increases across all segments.

This was followed by a alignment of wood prices to the prices of sawn timber and firewood, with average bid prices at auctions organized by the National Forest Administration (RNP - Romsilva) exceeding 400 lei/m3 as the national average, prices that were 250% higher than prices just two years ago.

Moreover, RNP - Romsilva did nothing to ease the timber market by offering additional volumes to the market. The agency was one of the beneficiaries of these developments. It was a very short-term thinking by RNP - Romsilva, despite the signals raised about the impact of these developments in constraining the timber industry's activities with long-term effects.

The high prices in the domestic market overlapped with falling prices and reduced demand on international markets. The impact on the timber industry has been devastating: The first months of 2023 saw production declines of 10-20% in the timber industry. In July 2023, there was a 33% decrease compared to July 2022.

Almost all contracts for standing wood purchased at high prices in the fall of 2022 have been terminated in recent months, with an estimated volume of 1.8 million m3 terminated in 2023, which had a direct impact on reducing logging activities.

However, the primary wood market remained stuck with high prices, both in the firewood segment and in the softwood lumber segment, which is closely tied to the domestic construction wood market, as well as in the hardwood lumber segment, which is linked to the domestic furniture industry.

Log prices have not decreased enough for the export-oriented timber industry to regain its competitiveness. The revival of the firewood market, with the arrival of autumn, keeps prices at a high level.

The production decline in the timber industry continues. The primary timber market in Romania has shrunk, primarily relying on domestic consumption.

Artificial Causes and Proper Solutions

What's more concerning is that the artificial factors that led to the turmoil in the Romanian timber market continue to act:

• The environmental evaluation procedure for forestry plans remains cumbersome, leading to delays of 1-2 years for the implementation of forestry plans. Even the harvesting of windfall trees is often blocked, as it requires environmental evaluation exemptions.
• Marking for individuals is equally cumbersome.
• RNP - Romsilva is caught in a disorganized transition to sawn timber, with 70% of the sawn timber volume sold in small lots at forest road locations, rather than in storage.

There are new potential disruptive factors:

• A new Forestry Code project that lacks clarity, is cumbersome, lacks vision and technical objectives but introduces an excessive system of criminal sanctions.
• The upcoming entry into force in December 2023 of a Government Decision that obliges the review of the environmental evaluation of forestry plans that have not undergone the appropriate environmental assessment procedure. Up to 70% of the plans could undergo this review, leading to a reduction in volumes that can be put on the market during the review period.
• Public policies do not address the real agenda related to economic and social development; they essentially have only one focus: a populist, inefficient, and inadequate fight against illegal logging. The latest development: a direct announcement through the official publication of the Methodology for the Organization and Operation of the Electronic Wood Tracking System (SUMAL), introducing an administrative penalty of withdrawing the SUMAL user status.

In fact, this is an extreme administrative sanction established by ministerial order, which practically limits the right to work for large categories of forest personnel in the logging or timber industry, beyond the forestry contravention regime established by law. Over-regulation reaches unimaginable levels in any other sector of activity.

The Wood Industry Association - Prolemn has long been putting forth a list of proposals that could unlock the situation in the timber market and halt the decline of the timber industry:

• RNP - Romsilva should assume the role of a market regulator, by balancing supply to keep wood resource prices aligned with international price indices.
• The transition to sawn timber should prioritize the sale of wood from storage without disrupting the market with non-competitive offers, as is currently happening, especially in the firewood segment.
• The environmental evaluation procedure for forestry plans should become operational.
• The firewood market cannot be regulated without simplifying the marketing of wood from small properties and non-forest vegetation.
• The SUMAL system should be oriented towards the initial market placement, without interfering with the commercial side of activities, with legal origin defined as originating from geographically legally authorized limits.
• Investments are needed in the energy efficiency of wood resource use and to realize the principle of cascading use of wood resources, prioritizing high-value-added wood products with long periods of use.