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Report from
Europe
Modest growth forecast for European wood market
Economic growth in Europe has slowed dramatically in
Europe this year and the downturn is likely to persist.
European hardwood production has fallen under pressure
from both declining volume and quality of log supply and
with weak consumption in the European construction and
furniture sectors.
European wood panel production and consumption is also
down compared to the period during and immediately
following the COVID lockdowns. However, in this sector,
performance is still up compared to the pre-COVID
period, having received a boost from green policy
measures in the region.
Longer term, the future direction of supply and demand in
the European region is likely to be strongly influenced by
introduction of the EU Deforestation Regulation (EUDR),
due to be enforced from start of 2025. These are key
messages contained in the advanced draft of the Market
Statement due to be considered at the joint session UN
ECE Committee on Forests and the Forest Industry and the
FAO European Forestry Commission to be held in San
Marino between 20th and 23rd November 2023.
According to the Statement, “economic growth in Europe
decelerated markedly in 2022 as the post-pandemic
recovery ran out of steam” and “the pace of economic
expansion in the ECE region is expected to decelerate
further in 2023”. It is noted that “some factors that
depressed economic performance earlier started to ease in
mid-2023. The fall of headline inflation, driven by
declining energy prices, easing supply bottlenecks and the
reopening of China define a more auspicious outlook”.
However, the Statement goes on to suggest that “the
pickup is likely to be rather modest, with growth rates in
2024 remaining well below average pre-pandemic levels.
Also, that “the impact of monetary policy tightening will
be more strongly felt, dampening the growth of demand”.
In addition to undermining consumer confidence, “higher
financing costs are increasing the burden of servicing
government debt”. This in turn is “adding to the pressures
for fiscal consolidation, after the increase in expenditures
resulting from the COVID-19 pandemic and the support
provided to offset the impact of high energy prices”.
The Statement notes that European sawn hardwood
production and consumption decreased respectively by
8.8% and 8.9% to 13.4 and 12.9 million m3 in 2022. All
large producing countries such as France, Germany,
Romania and Türkiye reported significant declines in
production. Oak processors in Europe were facing stiff
competition for raw material, notably from buyers in
China, resulting in high prices for sawlogs.
Sawmills specialiing in beech sawnwood production faced
competition for raw material with the fuelwood producers
for a short period at the end of 2022. Beech sawlogs in
Europe are further reported to have quality issues that are
likely caused by the droughts in the past five years.
European wood-based panels production is reported to
have decreased by 5.1% to 77.4 million m3 in 2022 due to
the energy crunch in Europe and its consequences on
consumer confidence and the general economic situation.
Ninety per cent of the drop in output took place in the
second half of 2022 and reflected the decline in furniture
output and construction production.
However, European wood panels production in 2022 was
still 5% higher than in 2019, before COVID. The long-
term outlook in this sector also “remains favourable thanks
to political support for programmes in the European
subregion such as the European Green Deal, the European
Renovation Wave and the New European Bauhaus”.
On EUDR, the Statement notes that the regulation “will
require significant resources and cooperation among all
stakeholders at all levels of commodities’ trade inside and
outside the EU. Reactions to this legislation from non-EU
countries included a letter from the Ambassador of Canada
to the EU raising concerns related to the geolocation
coordinates requirements in the regulation, the definitions
used for deforestation-free and degradation, and the
potential risk of negatively impacting bilateral trade on
commodities addressed under the EUDR”.
The UN ECE/FAO draft Market Statement can be
downloaded
at:https://unece.org/sites/default/files/2023-09/ECE_TIM_2023_4-FAO_EFC_2023_4.pdf
EU increases restrictions on exposure to
formaldehyde in wood products
On 14 July the EU introduced a new maximum emission
limit of 0.062 mg/m3 of formaldehyde into indoor air for
the “largest contributors” to formaldehyde emissions,
identified in the new Regulation (2023/1464) as wood-
based articles and furniture, alongside products used for
the interiors of road vehicles. A limit of 0.08 mg/m3 will
apply to all other articles such as textile, leather, plastic,
construction materials or electronic products.
Producers of articles where formaldehyde is used have 36-
months – until July 2026 - to comply with the new rules.
This, according to the European Commission, will provide
“sufficient time for stakeholders to implement the
restriction requirements, develop relevant analytical
methods to test formaldehyde emissions and deploy
formaldehyde-free or low emitting formaldehyde
products”.
The European Panels Federation (EPF) has welcomed the
new regulation, stating that European wood-based panel
manufacturers can easily cope with the lower limit. In fact,
the EPF has actively lobbied for introduction of a “½ EI
class of product” with formaldehyde levels at 50% of the
current ≤0.124 mg/m3 limit and for making E1 compulsory
for all panel products circulating in the EU.
The text of the new EU regulation on formaldehyde is
available at:
https://eur-lex.europa.eu/eli/reg/2023/1464/oj
New EPDs for tropical timber products from the Congo
Basin
ATIBT has produced 3 Environmental and Health
Declaration Sheets (“French EPDs”) for decking, cladding
and tiles made from Congo Basin wood from sustainably
managed forests. The French EPD is a standardised
document that presents the results of a product's Life
Cycle Assessment, together with health-related
information, with a view to calculating the environmental
and health performance of a building's eco-design.
The French EPDs are prepared in line with the EN
15804+A1, the standard for Environmental Product
Declarations (EPDs) for construction products in the EU,
together with its French supplement NF EN 15804/CN.
They take into account the product's entire life cycle, from
extraction of raw materials to end-of-life, also including
transport, implementation and use of the product itself
(cradle to grave).
The French EPDs are designed to provide building
professionals (builders, architects, design offices, etc.)
with reliable, verified environmental information to help
them develop projects that comply with France's 2020
Environmental Regulation (RE 2020). RE2020 is a
national regulation for all new buildings in France which
came into effect on 1st January 2022.
Available free of charge from
https://www.base-inies.fr/iniesV4/dist/consultation.html,
The three EPDs are as follows:
EPD: Congo Basin wood decking, all tropical
species, all configurations (v.1.1)
EPD: Congo Basin wood strip siding, all tropical
species, all configurations
EPD: Glued-laminated timber beams from the
Congo Basin, all tropical species, all
configurations (excluding installation
accessories) (v.1.1)
The 3 EPDs are the result of the DRYADES project (Life
Cycle Analysis of Wood Products from the Congo Basin)
led by ATIBT and supported by COMIFAC's PPECF
program, Fair&Precious and the French trade association
LCB.
The aim of the Dryades project is twofold:
To produce Life Cycle Impact Assessments
(LCIA) up to the port of shipment that can be
reused in all markets requiring EPDs. In this way,
professional organiations, NGOs or any other
person or institution can integrate the LCIA data
produced by the DRYADES project into their
own life-cycle analyses.
To Produce EPDs (FDES - Fiches de Déclaration
Environnementale et Sanitaire) to enable
companies to remain competitive on the carbon
aspect for the French market, and translate them
into English so that they become generic EPDs.
The three EPDs for decking, cladding and joinery squares
were verified by an independent third party as part of the
INIES program, a government-recognied program for
RE2020-compliant calculations. Additional data were
collected from August 2022 to December 2023, with
verification certificates to be received in July 2023.
The results of the EPD’s will be presented at an ATIBT
event on "Lifecycle analyses of certified woods and
updated rules for contracts and uses", to be held on
October 5 from 10am to 12:30pm in Nogent-sur-Marne,
France, and by video conference.
Increasing media coverage of EUDR as policy dialogue
heats up
Following passage of the EU Deforestation Regulation
into law on 31 May and with enforcement now due to start
in no more than 15 months, policy makers both inside and
outside the EU have been taking a hard look at potential
impacts.
The world’s media is also waking up to the wider political
fallout and implications of the law for global forest
products and agricultural supply chains.
Perhaps the most prominent concern about the law
expressed by politicians and trade analysts outside the EU
is the stipulation that producers and traders must provide
precise geographical coordinates for all plots of land
(defined as a “land within a single real-estate property”)
from which products are sourced with every individual
consignment placed on the market.
This is expected to be particularly challenging for
commodities sourced from smallholders and which
account for a large share of supply of the regulated
products. The European Commission, for its’ part, insists
that there are sufficient safeguards in place to avoid
arbitrary or unjustifiable discrimination or trade
restrictions.
An article was published in Euronews on 20 September
under the heading “Why the Global South is against the
EU's anti-deforestation law”.
(https://www.euronews.com/my-europe/2023/09/20/why-the-global-south-is-against-the-eus-anti-deforestation-law).
The article reports on a letter sent to EU Commission and
Parliament officials earlier this month by the Ambassadors
of 17 countries describing EUDR as an "inherently
discriminatory and punitive unilateral benchmarking
system that is potentially inconsistent with WTO
obligations".
The signatories from Argentina, Brazil, Bolivia,
Colombia, Dominican Republic, Ecuador, Ghana,
Guatemala, Honduras, Indonesia, Ivory Coast, Malaysia,
Mexico, Nigeria, Paraguay, Peru, and Thailand — called
for a change to the legislation and "open dialogue" about
possible mitigation measures, in particular to help small
and medium-sized companies.
Euronews quotes Pedro Miguel da Costa e Silva Brazil's
ambassador to the EU as stating that "The legislation is
unilateral, as it was created without an effective dialogue
with producer countries and without being supported by
any agreement negotiated at international level".
Commenting on the letter, Adalbert Jahnz, a spokesperson
for Virginijus Sinkevičius, the European Commissioner
for Environment, Maritime Affairs and Fisheries, rejected
the accusation that the law is discriminatory on grounds
that "it will also be applied to domestic
producers…Therefore, it will be implemented in an even-
handed manner that does not constitute arbitrary or
unjustifiable discrimination for third-country producers, or
a disguised restriction to trade. It was designed to be fully
compatible with World Trade Organiation rules".
In a Financial Times article published on 20 August, the
Head of the International Trade Centre (ITC) is reported as
suggesting that the EUDR may have a “catastrophic”
impact on global trade if the bloc does not help small
producers and developing nations to adapt.
(https://www.ft.com/content/9119d448-ff1c-434d-b07f-27b1bf11c041).
Pamela Coke-Hamilton, Executive Director of the ITC, a
joint agency of the UN and World Trade Organization,
told the Financial Times that a ban on goods linked to
deforestation from entering the EU favoured big
companies that can trace where their produce had been
grown and risked “cutting off” smaller suppliers.
“What the biggest producers may do is, not being able to
do the traceability for these small farmers, simply cut them
off”, Coke Hamilton is reported to have said to the FT.
Depending on how well the EU addressed its outreach to
developing countries the impact of the law on global trade
could be “catastrophic or it could be OK”, she added.
If small producers could not meet the requirements for
exporting goods covered by the law this risked “a vicious
cycle”, Coke-Hamilton said in another comment to the FT.
“Once you have loss of market share, you have loss of
income, then you will have lots of increased poverty, then
increased deforestation because at the root of deforestation
is poverty. We [risk] falling into the trap of reinforcing
something that we’re trying to change”, she added.
Coke-Hamilton also said to the FT that information
requirements and the obligation to use geolocation
technology presented too much of a burden. “Many
[smallholders] are trying to just keep up with post-Covid,
the cost-of-living crisis, climate change. They’re just
caught in this maelstrom of survival”, she is quoted as
saying in the FT.
In response, a spokesperson for the European Commission
told the FT that the EUDR “applies to commodities, not
countries, and is neither punitive nor protectionist, but
creates a level playing field. It will be implemented in an
even-handed manner that does not constitute arbitrary or
unjustifiable discrimination for third-country producers, or
a disguised restriction to trade.”
Similar concerns about the potential impact of EUDR on
smallholders are raised in an article published on 20
September on Mongabay, the environmental website,
drawing on interviews with independent trade analysts.
See:
https://news.mongabay.com/2023/09/eu-deforestation-free-rule-highly-challenging-for-se-asia-smallholders-experts-say/
The Mongabay article suggests that “while the regulation
is a step toward transparency and international
deforestation-free supply chain management, observers
say it places millions of smallholders who depend on
access to the EU market in a vulnerable position. Many
small-scale farmers lack the technical capacity and
financial capital to meet the hefty due diligence
requirements of the new rules”.
Quoting Phuc Xuan To, a policy adviser to the Forest
Trends thinktank, Mongabay notes that smallholders
produce 95% of Vietnam’s coffee, 42% of Indonesia’s
palm oil and 95% of Thailand’s rubber.
In Vietnam alone, more than 2 million smallholders
operating across roughly 6 million plots of land are
engaged in the country’s three major forest-related
commodities that enter EU markets and are directly
affected by the new rule. Vietnam’s timber, rubber and
coffee generate combined revenue from the EU in excess
of $2.5 billion annually.
“There are a lot of concerns and worries about [the
EUDR],” Phuc told Mongabay. “entire sectors, like the
Vietnam coffee industry, are unsettled; many don’t know
where to start and it’s particularly challenging for
smallholders.”
Phuc told Mongabay that the process of verifying land use
rights and plantation registration certification, let alone
gathering geolocation data, is protracted, complex and
slow in many parts of Southeast Asia. Phuc said that the
monitoring systems and databases simply don’t exist and
that EUDR compliance will be “highly challenging if not
impossible” over the short term.
Phuc also highlighted to Mongabay the challenges of
dealing with the complex supply chains that are typical of
South East Asia: “If we look at how Vietnam imports
timber from Laos, rubber from Cambodia, coffee from
Laos … once it enters the country it is mixed with locally
sourced supplies and then exported to Europe. How can
those imports be traced? We’re not talking about small-
scale imports here, there’s more than $1 billion worth of
rubber imported from Cambodia each year, it’s on a
massive scale.”
Similar concerns are expressed by Nathalie Faure, a senior
program officer at RECOFTC, a Thailand-based
community forestry nonprofit, when speaking to
Mongabay. Faure does highlight that benefits may flow
from the EUDR, given sufficient support for reform
processes.
“The purpose of the regulation is really to create the
sustainability of products, so there’s potential for having
better access to information, better rules around
sustainability, greening local economies,” Faure told
Mongabay. “And it might create legal reforms in relation
to certain aspects, such as land tenure, sustainability and
trustability.”
But Faure added in her comments to Mongabay, that
there’s a risk of traders cutting ties with smallholders
deemed “high risk” under the new EU rule and switching
to larger, less scrupulous and less ethical suppliers, but
with larger capital to comply. This, ultimately, would
undermine the EU’s intention, she told Mongabay.
Tran Quynh Chi, a regional director at IDH – the
Sustainable Trade Initiative, a social enterprise
headquartered in the Netherlands, told Mongabay the new
rules serve as an opportunity for forest commodity sectors
to develop more responsible approaches to business.
“This is really an opportunity to make the markets and the
sector transformed toward more transparency and
sustainability,” Tran told Mongabay.
Tran said 10-15% of smallholders engaged in the coffee
sector in Vietnam live in poor rural regions close to forest
edges. If mechanisms aren’t put in place to help such
producer groups maintain access to supply chains, “there’s
a very big risk that they’ll be excluded from the EU
market, and that will drive up poverty levels,” she said.
Furthermore, Tran told Mongabay that smallholders living
close to natural forests who are unable to comply with the
new regulations “might be forced to go further into the
forest to eke out a living” if excluded from EU supply
chains.
Early insights into potential trade impacts of EUDR
The comments of policy makers and trade analysts in
recent media articles imply that there will be winners and
losers from the EUDR when enforcement begins on 1
January 2025.
A revealing insight into where the balance of advantage,
and disadvantage, might lie in trade terms is provided by a
presentation by Matthew Spencer, of the IDH Sustainable
Trade Initiative, delivered to a meeting of the Amsterdam
Declarations Partnership (ADP) held in London in May
this year.
The slides for Spencer’s presentation on “EUDR key
opportunities and risks” can be downloaded at:
https://www.idhsustainabletrade.com/uploaded/2023/05/EU-Deforestation-Regulation-Opportunities-and-Risks.pdf
Spencer’s central message is that there may be “wider
wins from EUDR” including stronger enforcement of
national forest laws, acceleration of land titling
programmes and widespread implementation of “new
accessible and cheap traceability solutions”.
However, these “wins” will only materialise if “production
countries feel respected and supported to be partners in
implementation”. Without adequate dialogue and support,
negative outcomes are possible, particularly resulting from
market exclusion of smallholders, according to Spencer.
Spencer argued that in practice, whether the balance of
EUDR trade impact is negative or positive will vary
between supply countries and sectors and will depend to a
large extent on where producers stand in relation to two
key factors:
The share of volume exported to the EU; and
The share of smallholder farmers compared to
large scale farmers and plantations.
Spencer observed that the “biggest opportunities” for
“wins” from the legislation will occur in those sectors
where small farmers dominate supply and the EU is the
biggest buyer. This situation prevails, for example in the
cocoa and coffee sectors in Africa.
In these circumstances, large intermediary companies
should have a strong incentive to stay engaged even with
the smallest producers and to invest in longer term efforts
to build farm mapping and traceability mechanisms.
In contrast, the “biggest risks” from the legislation occur
where smallholders dominate but the EU is not a large
buyer, a situation typical of most agricultural commodity
supply chains in South-east Asia. Here, segregation of
supply chains becomes more likely, with smallholders
diverting supply away from the EU, while buyers in the
EU focus their attention on supplies that can be derived
from the big state and industrial plantations.
Significant investment to build capacity for traceability in
the smallholder sector will only occur if plantation
supplies prove inadequate and this investment will focus
only on the simplest and lowest risk supply chains.
In sectors and supply chains where larger plantations or
forest operations already predominate, the regulation will
likely have less significant impact, either positive or
negative. While still creating technical challenges and
tending to marginalise those smallholders that have been
supplying the EU market in the past, compliance with the
geolocation and traceability and other requirements is
more straightforward for the bulk of the industry.
Examples include the Brazilian soy and coffee sectors.
Spencer’s presentation focused on agricultural
commodities and makes no mention of forest products.
But it is easy to identify where various forest products lie
in relation to the Spencer’s two key factors and, therefore,
which are most likely to be winners and losers. For
example, tropical logs, lumber, and veneer from Africa,
for which supplies into the EU mainly derive from large
concessions, many of which are already FSC certified, will
face few obstacles in meeting the legislation.
However, wood furniture and other composite products
manufactured in Southeast Asia, where a significant
proportion of wood derives from smallholders or is
imported from other countries, will face more significant
challenges in delivering the geolocation data. Without
significant intervention to develop the necessary tracking
procedures, imports of these products into the EU – which
only accounts for a relatively small proportion of total
exports from Southeast Asia - may decline with more
product diverted to other markets in Asia and in North
America.
In these circumstances, continuing far-reaching support by
the EU and other donors to help develop the land
registration and tracking systems required for EUDR
conformance – either through the existing FLEGT VPAs
or the new “Forest Partnerships” which are mandated
through the EUDR – will be necessary to avoid negative
outcomes, particularly for smallholders.
EUDR encourages development of comprehensive
wood tracking framework inside the EU
One forest products sector characterised by both heavy
reliance on smallholder, and where a very large proportion
of products is destined for the EU market, is Europe’s
domestic wood manufacturing sector. Recent
developments in this sector tend to confirm Spencer’s
analysis (see above) that the combination of these two
factors will encourage greater investment in traceability
and verification capacity.
The SINTETIC research project launched in June this year
aims to deliver a “comprehensive data management
scheme” for the EU forest value chain. The project has
received €9 million funding from Horizon Europe, the
EU’s key funding programme for research and innovation.
The basis of the SINTETIC project is that every European
log is stamped with a digital code during harvesting. When
the project concludes in four years' time, the project aims
to be able to trace along the full length of the forest value
chain – from forest through logs and processing into
products – using several different but integrated tracking
systems:
Radio Frequency Identification to allow standing
trees as well as logs to be tagged;
A punching code impressed directly onto the
wood with a hammer;
CT log scanning at all sawmills; and
A bar/QR code to enable product identification
through the retail process.
The last step is seen as crucial as it will enable operators
and customers to trace the wood element in the finished
product back to a specific forest and an individual tree.
Aside from promoting a widespread uptake of shared
digital technologies, the project researchers hope this will
increase the number of EU forested areas under active
management, which will, in turn, improve the health and
productivity of forest stands.
To cope with the diversity of the European forest sector,
the platform will be designed to accommodate two
'extreme' forest sector scenarios – and consequently
everything in between – namely:
The mature forest sector, as found in the north
and central EU and represents high-value forests
with good data availability, fully mechanied
harvest systems, and a well-structured supply
chain including modern sawmills equipped with
sensors for quality assessment.
The forest sector, as found in the Mediterranean
and eastern EU, represents a high fragmentation
of forest's ownership non-harmonized
inventories, small and micro sawmills, and low
levels of investment and innovation.
Effective and efficient rollout of this system will be
critical to successful implementation of the EUDR for
European manufacturers, particularly as the regulation
requires that geolocation data to the individual “real estate
properties” where harvesting occurred must be provided
with all consignments exported from the EU market in the
same way as imported products.
In the absence of such a system, the challenges to EU
manufacturers of composite products such as wood
furniture, panels, joinery products, and paper, many of
which depend on smallholders, in meeting the new export
requirements will be significant.
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