A Preliminary Model of Production, Consumption and International Trade in Forest Products

Working Paper

A HGUKNAW

MODEL OF PRODUCPION. CONSUhETlON AND INTERNATIONAL TRADE IN F'ORESI' PRODUCXS

Dennis Dykstra Markku Kallio

February 1984 WP-84- 14

International Institute for Applied Systems Analysis

A-2361 Laxenburg, Austria

A PKEUKfNARY MODEL OF PRODUCl'ION. CONSUMITION AND INTERNATIONAL

TRADE

IN FOREST PRODUCI'S

Dennis Dykstra Markku Kallio

February 1984 WP-84- 14

Working m e r s are interim reports on work of the lntemational lnstitute for Applied Systems Analysis and have received only limited review. Views or opinions expressed herein do not necessarily represent those of the Institute or of its National Member Organizations.

INTERNATIONAL

INSX'ITUTE

FOR

APPLIED SYSTEMS ANALYSIS 2361 Laxenburg, Austria

The objective of t h e Forest Sector Project a t IIASA is t o s t u d y long- t e r m development alternatives for t h e forest sector on a global basis.

The emphasis in t h e Project is on issues of major relevance t o industrial a n d governmental policy m a k e r s in different regions of t h e world who a r e responsible for forest policy, forest industrial strategy, a n d r e l a t e d trade policies.

The key e l e m e n t s of s t r u c t u r a l change in t h e forest i n d u s t r y a r e related t o a variety of issues concerning demand, supply, a n d i n t e r n a - tional t r a d e i n wood products. Such issues include t h e growth of t h e glo- bal economy a n d population, development of new wood products and of s u b s t i t u t e for wood products, f u t u r e supply of roundwood a n d alternative fiber sources, development of new technologies for forestry a n d industry.

pollution regulations, cost competitiveness, tariffs a n d non-tariff trade barriers, etc. The aim of t h e P r o j e c t is t o analyze t h e consequences of f u t u r e expectations and assumptions concerning s u c h substantive issues.

The r e s e a r c h program of t h e Project includes a n aggregated analysis of long-term development of international t r a d e in wood pro- ducts, and thereby analysis of t h e development of wood r e s o u r c e s , forest industrial production and d e m a n d in different world regions. The other main r e s e a r c h activity i s a detailed analysis of t h e forest s e c t o r in indivi- dual countries. Research on t h e s e mutually supporting topics is carried o u t simultaneously in collaboration between IlASA a n d t h e collaborating institutions of t h e Project.

This paper r e p o r t s on t h e Project's preliminary model for analyzing production, consumption, and international t r a d e in forest products.

Model formulation a n d demonstration s c e n a r i o s a r e discussed with t h e intention of instilling confidence in t h e model's ability t o correctly r e p r e s e n t macroeconomic principles. Data used for t h e scenario r u n s m u s t be considered very tentative however, s o t h a t specific quantitative conclusions about long-term t r e n d s in t h e forest sect.;r cannot be drawn.

The preliminary model deals with six world regions and nine products. A full-scale version of t h e model now u n d e r development will include m o r e detail on both regions a n d products, a s well a s m o r e sophisticated t r e a t - m e n t of t i m b e r supply, processing capacity expansion, a n d projection of f u t u r e d e m a n d for wood products.

Markku Kallio Project Leader

Forest Sector Project

ACKNOWLEDGMENTS

The a u t h o r s a r e grateful t o Matti Kirjasniemi and Esko Uutela, both f r o m Jaakko Poyry International Oy, for discussions concerning the model s t r u c t u r e , data, a n d scenarios p r e s e n t e d in this paper. The r e c e i p t of preliminary d a t a from t h e following persons is also gratefully acknowledged: David Batten, David Brooks, Trevor Eton, Joldes Muniz Fer- r e i r a , Csaba Forgacs, Alfredo lusem, Allister Moon, Christopher Prins, Risto Seppala, Birger Solberg, and Philip Wardle.

The preliminary version of IIASA's model of production, consump- tion, a n d t r a d e in forest p r o d u c t s i s discussed. The model involves six regions (Northern Europe, Western Europe, USA, Canada, Japan, a n d t h e r e s t of t h e World) and n i n e p r o d u c t s ( s a ~ r l o ~ s , pulpwood, sawnwood, panels, pulp, newsprint, o t h e r printing and writing paper, packaging paper a n d board, a n d recycled paper). The p r i m a r y purpose of t h i s ver- sion is t o analyze sensitivity of t h e model with respect t o various param- e t e r s a n d t,o l e a r n t o u n d e r s t a n d t h e model behavior in general.

We first review t h e formulation of t h e spatial equilibrium model. a n d t h e n discuss t h e equilibrium conditions in detail. Subsequent sections describe t h e preliminary d a t a a n d two s e t s of n u m e r i c a l demonstrations.

The first s e t deals with t h e situation in 1980. A base s c e n a r i o for model validation is discussed first. Stability of t h e model with r e s p e c t t o price elasticity p a r a m e t e r s for d e m a n d is shown. The effect of a change in c u r r e n c y exchange r a t e i s demonstrated. The second s e t of r u n s simu- l a t e s t h e situation a r o u n d t h e year 2000. For t h e base scenario, we update wood r e s o u r c e s , production capacity, a n d d e m a n d for e a c h region. This scenario is c o m p a r e d with high- a n d zero-growth demand scenarios. The effect of tariffs a n d changes in t i m b e r supply a r e dernon- s t r a t e d .

Finally, we wish t o s t r e s s t h a t t h i s preliminary model employs very t e n t a t i v e data. Therefore, o n e should draw conclusions from t h e demonstration s c e n a r i o s with special care.

-

^vii -

1. INTRODUCTION 2. MODEL FORMULATION

2.1 Regional Subdivision and Product Classification 2.2. Production

2.3. International Trade and Market Inertia 2.4. Consumption

2.5 Solution Principle

3. ANALYSIS OF EQUILIBRIUM SOLUTIONS 4. DATA USED IN THE PRELIMINARY MODEL

4.1 Consumption

4.2 Roundwood Production 4.3 Industrial Processing 4.4 Transportation Costs

5. OUTLINE OF DEMONSTRATION RUNS 6. SCENARIOS FOR 1980

6.1 Scenario 1: Base Scenario 1980

6.2 Scenarios 2 and 3: Price Elasticity Variations 6.3 Scenario 4: Exchange Rate Variations

7. SCENARIOS FOR 2000

7.1 Scenario 5: Base Scenario 2000

7.2 Scenarios 6 and 7: Demand Level Variations 7.3 Scenario 8: Import Tariffs

7.4 Scenario 9: Increased USA Timber Supply 0. COMPUTATIONAL CONSIDERATIONS

9. CONCLUDING REMARKS REFERENCES

A P R E m A R Y MODEL OF PRODUCTION, CONSUMlTION

AND

INTERNATIONAL TRADE IN

FOREST

PRODUCTS

by

Dennis Dykstra a n d Markku Kallio

1. INTRODUCTION

The purpose of t h i s paper i s t o d o c u m e n t t h e formulation of a prel- iminary version of t h e Global Trade Model ( G m ) u n d e r development by IIASA's Forest Sector P r o j e c t a n d t o provide a numerical demonstration of the model's capabilities. The preliminary model c o m p r i s e s six regions (Northern Europe, t h e r e s t of Western Europe, USA, Canada, Japan a n d the r e s t of t h e world) a n d n i n e products (sawlogs, pulpwood, sawnwood, panels, pulp, newsprint, o t h e r printing and writing paper, packaging paper and board, a n d recycled paper). Data have b e e n e x t r a c t e d largely from publications of t h e United Nations (FA0 1982a, 1982b and 1982c, ECE 1976, 1981 a n d 1982, UNIDO 1983). a n d m u s t be considered very t e n - tative. One should t h e r e f o r e draw conclusions from t h e t e s t r u n s with special care. The p r i m a r y purposes of t h i s first version a r e t o analyze t h e sensitivity of model solutions with r e s p e c t t o various p a r a m e t e r s a n d t o obtain a g e n e r a l u n d e r s t a n d i n g of t h e model's behavior. The prelim- inary model also s e r v e s a s a vehicle t o t e s t alternative solution m e t h o - dologies. The final version of t h e model, which will comprise 1 8 regions and 13 commodities a n d will be based on improved d a t a g a t h e r e d f r o m 57 countries a n d regions worldwide (Dykstra 1983, Kornai 1983), is expected t o be ready by t h e a u t u m n of 1984.

We shall first review t h e model formulation in Section 2. The basic s t r u c t u r e i s t h a t given in Kirjasniemi e t al. (1983). resulting f r o m early developments of t h e P r o j e c t (Salo a n d Kallio 1982, Kallio 1983, and Buon- giorno and Gilless 1983). S o m e m i n o r modifications resulting from experience with e a r l i e r versions h a v e been incorporated. In Section 3 we

discuss the equilibrium conditions in detail. This discussion should help in understanding t h e basic characteristics of t h e model solutions. I t will also help clarify t h e definition of certain data parameters; e-g.. what cost components should be accounted for i n a given cost coefficient. Sections 4-8 deal with two s e t s of numerical demonstrations. The first s e t simu- lates t h e situation of 1980. A version involving trade i n e r t i a constraints r e p r e s e n t s t h e real world situation in t h a t year. The effect of varying some uncertain key parameters, t h e price elasticity p a r a m e t e r s for demand, is illustrated. The effect of a change in exchange r a t e s a s com- p a r e d t o t h e U S dollar is demonstrated a s well. The second s e t of runs simulates t h e situation around t h e year ZOO0 u n d e r various assumptions.

For t h e base r u n we project timber supply, production capacity. a n d demand to provide a n economic environment commensurate with the broad assumptions outlined in FA0 (1982b). The solution is compared with high and low demand scenarios. The effects of trade-flow inertias, tariffs, and changing wood resources a r e also demonstrated.

I t is important t o remember t h a t t h e d a t a upon which this prelim- inary model rests a r e very tentative. No specific quantitative conclu- sions c a n t h u s be drawn from t h e model results; r a t h e r , t h e focus of the exercise is on the determination of whether t h e model itself is appropri- a t e for modeling t h e forest sector of t h e global economy. Specific con- clusions about possible long-term s t r u c t u r a l changes in the forest sector will have t o await t h e development of t h e full-scale

GTM.

2. MODEL ~ R M U L 4 T I O N

We shall consider a s t a t i c (one-year) model for which t h e p a r a m e - t e r s m a y be s e t t o correspond t o a specific point in time. The t i m e sub- s c r i p t

t

is t h e r e f o r e normally omitted in t h i s discussion.

2.1. Regional Subdivision a n d P r o d u c t Classification

The preliminary

GTM

comprises six regions and n i n e product c a t e g o r i e s , a s shown in Table 1. Also shown for comparison a r e t h e regions a n d product categories for t h e full-scale

GTM.

2.2. P r o d u c t i o n

Production h e r e refers not only to t h e conversion of r a w m a t e r i a l s i n t o final products, b u t also to wood raw m a t e r i a l production a n d recy- cling of waste paper. After describing t h e g e n e r a l s t r u c t u r e of t h e pro- duction model, we discuss each type of production activity separately.

Let an index m refer to a production activity a n d l e t yi, be t h e level of a n n u a l production in region i associated with t h a t activity.

Denote by yi

=

(yi,) t h e vector of gross production in region i. A single activity rn may produce o n e or m o r e commodities ( a s a m a i n product, a side p r o d u c t o r a s a residual) a n d i t m a y c o n s u m e o n e or m o r e cornrnodi- t i e s a s inputs. Let

&

be t h e n e t o u t p u t of commodity k p e r u n i t of production for activity m in region i. A positive value for

4,

implies production of commodity k and a negative value implies a n i n p u t of raw m a t e r i a l k into production process rn. Let

4 =

(&,) be t h e m a t r i x of s u c h c o e m c i e n t s a n d

4,

i t s rn-th column v e c t o r (i.e.. t h e coefficients for activity m). There is one row in

4

for e a c h p r o d u c t k (including both raw m a t e r i a l s , s u c h a s logs, and final products, s u c h a s sawnwood), and one c o l u m n for e a c h production activity m . In t h i s notation, t h e vector of n e t production (having one component for e a c h product k ) is given by 4 y i

= C&Y,,.

m

Associated with e a c h production activity rn in region i, is a r e s o u r c e (or available capacity) upper limit

IZ,

s o t h a t

where

K; = (IZ,).

The marginal production cost, denoted by Qim(yi,), is a s s u m e d t o be a non-decreasing function of activity level yi,, for e a c h i a n d m .

For t h e forest industries, activities m r e f e r t o production processes s u c h a s sawmilling a n d panel production as well a s t h e production of pulp a n d different types of paper. For a single c o m m o d i t y k t h e r e a r e two or t h r e e production activities m referring t o a l t e r n a t i v e technologies.

These a r e : (a) t h e c u r r e n t technology existing i n mills, possibly divided i n t o two efficiency cat.egories, a n d (b) s t a t e - o f - t h e - a r t technology t o be employed in new investments. We shall fix t h e u p p e r limit

Y,

f o r new i n v e s t m e n t s t o a given s h a r e of existing c a p a c i t y i n region i for t h e s a m e

Table 1. Regional and product definitions i n t h e preliminary model a n d GTM.

Regions

Further Refinement Preliminary Model

in Full-Scale GTM

Northern Europe Finland

Sweden

Western Europe Western Europe

USA U SA-Eas t

USA-West

Canada Canada-East

Canada-West

Japan Japan

Rest of the World Brazil

Rest of Latin America USSR, European USSR, Asian

Rest of Eastern Europe Africa

China

ASEAN countries Rest of Asia

Australia and New Zealand Product Definitions

Further refinement Preliminary Model

in Full-Scale GTM

Logs Coniferous logs

Non-coniferous logs

Pulpwood Pulpwood

Fuelwood

Sawnwood Coniferous sawnwood

Non-coniferous sawnwood

Panels Panels

Pulp Pulp

Newsprint Newsprint;

Other printing & writing Other printing & writing

papers papers

Household & sanitary papers

Packaging paper & Packaging paper &

boards boards

Recycled paper Recycled paper

--

commodity. The marginal cost Qim is assumed to be constant for all forest industry activities rn. The efficiency differences among alterna- tive technologies appear both in marginal cost coefficients Qim a n d in t h e input-output coefficient vectors

4 m .

Recycled paper and board is used in t h e production of newsprint and of packaging paper and board. The marginal cost of recycling is a s s u m e d constant. The upper limit

4 ,

for each region i is assumed t o be propor- tional to newsprint consumption during preceding years.

A harvesting activity m is assumed t o yield logs and pulpwood in fixed proportions. Forharvesting of small t r e e s t h e share of logs m a y be zero. The marginal cost Qim of harvesting is assumed t o be a strictly increasing function of t h e quantity yi,. A suitable functional form is, for instance,

where

a

^{and f3} a r e positive. No explicit upper limit may be needed on the harvesting volume y . Increasing marginal costs a r e t h u s used a s surro- g a t e s for explicit timber supply constraints. For wood production, two technical activities have been included. One of these provides for t h e conversion of logs into pulpwood a t no extra cost (if necessary to satisfy pulpwood demand), and t h e other permits the stockpiling of pulpwood in case of overproduction during t h e c u r r e n t period (as a byproduct of log production from large trees, for instance). For such pulpwood t h e r e is a compensation proportional t o volume accounting for t h e pulpwood cost, which is included in harvesting costs.

2.3. International Trade and Market Inertia

Let eijk be the quantity of commodity k exported from region i t o region j f o r each i, j , and k . Proportional to t h e quantity eijk is a tran- sportation cost of Dijk per u n i t of commodity k . This may include a tariff (proportional t o quantity) o r i t m a y account for an export subsidy. Let

8 . .

=

( e i j k ) . To represent m a r k e t inertia, w e may set upper a n d lower limits, V Vij and

k j ,

on trade flows:

Such bounds may account for c e r t a i n types of trade policies a s well. In an e x t r e m e case, a trade flow m a y be fixed. If a trade flow e i j k , t - l existed during preceding t i m e period

t

-1, we may s e t the bounds proportionally:

and

U. =

u.. e . .

ajk ajk ajk , f -1

where $ . - and o.. a r e nonnegahive parameters.

t l k tlk

2.4. Consumption

For e a c h i a n d k , t h e relation between price Q a n d level of con- sumption cik is given by a price (or inverse consumption) f u n c t i o n

Consumption ci=(cik) r e f e r s t o d e m a n d in region i outside the f o r e s t sec- tor. Therefore we m a y a s s u m e t h a t s u c h consumption of logs, pulpwood, pulp a n d recycled paper is negligible. For o t h e r commodities, t h e follow- ing type of price function is a s s u m e d (corresponding t o a Cobb-Douglas type of consumption function):

where -1/ y* i s t h e p r i c e elasticity coefficient of d e m a n d a n d A is t h e level p a r a m e t e r for t h e d e m a n d c u r v e .

2.5 Solution Principle

We shall a s s u m e t h a t e a c h p r o d u c e r a n d t r a d e a g e n t ( r e p r e s e n t i n g e a c h production a n d t r a d e activity, respectively) is a profit m a x i m i z e r a n d t h a t e a c h c o n s u m e r p u r c h a s e s f r o m t h e p r o d u c e r (or t r a d e r ) who offers t h e lowest price. Given p r i c e s

nik

for e a c h region i a n d commo- dity k , profit maximization r e s u l t s in a c e r t a i n supply of c o m m o d i t i e s in e a c h region. If, for all i a n d k , s u c h supply equals t h e d e m a n d a s defined by t h e consumption function, t h e n

n*

is a n equilibrium price. As will b e shown in Section 3. s u c h a n equilibrium c a n be obtained a s a solution of t h e following optimization problem (Samuelson, 1952): Find c i , yi a n d eij, for all i a n d j, t o

maximize [ C J ~ i k ( c ) d c -

J

Q ~ ~ ( Y ) ~ Y

-

C D i j k e i j k ]

ik 0 i j k

(8) tm 0

subject t o

for all i

0 I yim I

4,

^{for all i a n d rn ( 1 0)}

kjk

^{I eijk I Vijk} for all i , j a n d k _{(1 1)} The objective function (9) is t h e total c o n s u m e r a n d p r o d u c e r s u r p l u s . The maximization of t h i s t o t a l identifies t h e point a t which t h e d e m a n d a n d supply a r e in b a l a n c e , t h u s providing t h e equilibrium p r i c e a n d con- sumption quantity. The single-producer a n d single-consumer c a s e h a s b e e n illustrated in Figure 1 . (In o u r model, t h e supply function is only implicitly r e p r e s e n t e d , so i t is n o t possible t o directly solve for i t s i n t e r - section with t h e d e m a n d function.) Equations (9) r e p r e s e n t m a t e r i a l balance; i.e., consumption is equal t o n e t production m i n u s n e t export.

Resource c o n s t r a i n t s a r e given by (10) a n d t r a d e i n e r t i a c o n s t r a i n t s by ( 1 1).

Price

Producer

rT

\ LUDDIV

^Function

Quantity

Y" = Equilibrium Quantity TS = Equilibrium Price

F i e 1. Maximization of consumer ar ld producer surplus to determine equili- brium price and consumption i n period t .

3.

ANALYSIS OF

EQUILTBRTUM

SOLUTIONS

We shall employ standard optimization theory to show t h a t an optimal solution for (8)-(11) is an equilibrium solution to our model of production, consumption and international trade. Furthermore, the equilibrium price vectors rri

=

(.rrik) can be obtained as optimal dual solu- tions to constraints (9). Optimality conditions shall be used for f u r t h e r analysis of the equilibrium. Let ci=cie, yi=yf and e . . = e . ' be an optimal

21 21

solution to (8)-(11) and let ni, pi, and dijk be an optimal dual solution corresponding to the constraints (9), and the upper bounds (10) and ( l l ) , respectively. The optimality conditions for (8)-(11) may then be s t a t e d a s shown in Table 2.

To show t h a t an optimal solution is an equilibrium, l e t lrik be t h e price of commodity k in region i, for all i and k . Consider t h r e e types of economic agents in each region: t h e consumers, producers (one corresponding t o each production activity m ) and trading agencies (one for each commodity k ) . The consumers purchase in domestic markets.

for which the prices a r e given by vector .rri Producers buy inputs a n d sell outputs in domestic markets, whereas trading agencies buy in domestic and sell in foreign markets.

Table 2. Equilibrium conditions of the Global Trade Model.

(i)

(ii) (iii) ( i d (v)

(Vi)

(vii) (viii) ( i d

(XI

-

ci ,yi and e; satisfy (9)-(11).

TiAun-Q. zm ( Yzm

.*

)-E.Lzm S 0 (ni

-Bin

(Y& ) - ~ i m ) Y ; ~

=

0 Pim ⁰

pi, ( 4 m 3 i ' m )

=

0

-D..

I T * +Tjk -Bijk 0

21 k

(-Dijk l i d +njk -dijk )(ei;k

-hjk

)

=

O dijk r 0

6.-

( [ I . . -e.* ) = O alk y k ~k

for all i, j for all i,k for all i , m for all i , m for all i , m for all i ,m f o r all i,j,k for all i,j,k for all i,j,k for all i,j,k

According t,o (ii) in Table 2 t h e price

nd

a n d consumption c; a r e clearly in balance. For producer rn in region a , t h e problem of profit maximization is t o find yi, t o

W r n

m a x i m i z e n i 4 , y, -

J

^,Q ( y ) d y (12)

0

One c a n readily c h e c k t h a t (i) a n d (iii)-(vi) a r e t h e optimality conditions for this problem. Thus y,: is a profit maximizing solution for producer r n . For a trading agency of commodity k in region i, t h e profit maximi- zation problem is t o find eijk, for all j , t o

maximize C(njk - ~ l , ~

-Diik

^)eijk (14)

j

s.t. LGk I eijk S Uijk ⁽¹⁵⁾

Again, we m a y c h e c k t h a t (i) a n d (vii)-(x) imply optimality of e&, a n d therefore t h e conditions for a n equilibrium a r e satisfied.

We shall now analyze t h e optirnality conditions i n more detail.7 For t h e production s e c t o r s r n , k, is t h e marginal value of capacity rn. Con- ditions (v) a n d (vi) imply t h a t pi, = 0 if yim

<

y,; in o t h e r words, t h e marginal value is z e r o if capacity is underutilized. Otherwise pim is t h e m a x i m u m a m o u n t which production s e c t o r rn would be willing t o pay for an e x t r a u n i t of similar capacity.

If y&

>

^0, t h e n conditions (iii) a n d (iv) imply

Thus, if production activity rn is employed, t h e n t h e marginal value of capacity is t h e m a r g i n a l profit. Combining t h e above, i f activity m is utilized b u t not fu.lly, t h e n t h e marginal profit of production is zero.

On t h e o t h e r hand, if y&

=o,

t h e n also

A,

= O a n d by (iii)

qirn

(0) -ni A~~ ²

o

⁽¹⁷⁾

is t h e m i n i m u m m a r g i n a l subsidy required t o a c t i v a t e production sector m .

For t h e trading s e c t o r k in region i , dijk is t h e marginal value asso- ciated with t h e relaxation uf t r a d e i n e r t i a u p p e r bound Uijk. Conditions (ix) a n d (x) imply t h a t f o r a non-binding upper bound, dijk =O. Conditions (vii)-(viii) imply t h a t if a flow e& exceeds i t s lower bound

Gjk

t h e n

t

^In order t o simplify t h e hscussion, we assume primal nondegeneracy. In this case t h e dual variables indicate marginrJ values. If the nondegeneracy assumption does not hold, then t h e dual variables only yield upper bounds on marginal values.

i.e., hijk is t h e marginal profit from trade. This may be interpreted as the maximum tolerable tariff or as a maximum marginal cost of profitable investment for expanhng marketing opportunities in region j . Combining the above, if a trade flow falls b e t w e e n its upper and lower bounds, t h e n

T i lk -nik

=

Dijk (1 9 )

i.e., t h e price hfference between regions i and j is t h e transportation cost. If the t r a d e flow eGk is on its lower bound

Ajk,

^{then dijk=O and by}

(vii),

f F j k -nik 5 Dijk ( 2 0 )

i.e., the price difference is at m o s t equal to t h e transportation costs. In this case Dijk*jk+n& may be interpreted as a minimum subsidy required t o activate trade flow i j k

.

4.

DATA

USED

IN

THE PRFLMNARY MODEL 4.1 Consumption

Consumption h e r e refers t o t h e use of forest products outside of the forest s e c t o r ; i.e., sawnwood used for building construction, paper for t h e information sector, household consumption of paper products, etc. Con- sumption of i n t e r m e d i a t e forest products (i.e., roundwood and pulp) out- side t h e f o r e s t s e c t o r is assumed t o be negligible compared t o production of t h e s e commodities. Our reference values for price a n d quantity of consumption a r e given i n Tables 3 and 4.

For all of our scenarios for 1980 t h e consumption functions were defined s o t h a t for t h e reference price, t h e computed c o n s u r n ~ t i o n equals t h e consumption reference value. The basic s e t of price elastici- ties i s given in Table 5. They a r e based o n a n u m b e r of sources, includ- ing Adarns and Haynes (1980), Buongiorno (1978), ECE (1983), Jaakko Poyry International (1983), and McKillop (1983), as well a s on private communications a n d o u r judgment. These elasticities were used in all except two scenarios (in which t h e model sensitivity with r e s p e c t t o t h e s e p a r a m e t e r s was tested).

Let

rr

a n d c denote price a n d consumption, respectively, and no a n d c O t h e reference values i n 1980. If -1/ y i s the price elasticity t h e n

The slope of relative price n/rrO with r e s p e c t t o relative consumption c / c o

at

c

=

c o is equal t o -y. Two examples of these functions corresponding t o price elasticities equal t o -.I a n d -.5 (i.e., 7 equal t o 10 a n d 2) have been plotted in Figure 2.

T a b 3. Reference values for average price srg (8/m 3 , %/ton) i n 1980. Main source: FA0 (1982a and 1982~).

Region Sawn- News- Printing Packaging

Panels

wood p r i n t Paper Paper

Northern

Europe 230 320

western Europe

USA 160 280 4 3 0 625 450

Canada 145 275 400 640 450

Japan 230 375 5 1 0 800 520

Rest of t h e

World 200

Table 4. Reference values for annual consumption c o (mill. m 3 , mill. ton) in 1980, based on FA0 (1982a).

Region Sawn- P a n e l s News- Printing Packaging

wood p r i n t paper paper

Northern

Europe 11.4 3.5 0.7 1.2 2.3

Western

Europe 62.6 24.0 5.0 11.3 14.6

USA 92.4 27.4 10.6 14.2 32.3

Canada 14.1 4.2 0.9 1.0 2.0

Japan 42.6 10.4 2.7 3.9 9.6

Rest of t h e 205.6

World 31.3 6.8 10.4 12.0

Total 428.7 100.8 26.7 42.0 72.6

Table 5. The basic s e t of price elasticity coefficients for consumption.

Region Sawn-

P a n e l s News- Printing Packaging

wood p r i n t paper Paper

Northern

-.

^{20 -.20}

-.

^{20 -.05}

-.

⁰⁵

Europe Western

-.40 -.30 -.30

-.

¹⁰

-.

¹⁰

Europe

USA -.60 -.40

-.

³⁵

-.

¹⁵

-.

¹⁵

Canada -.45 -.40 -.30

-.

¹²

-.

¹²

Japan -.40 -.30

-.

³⁰

-.

15

-.

15

Rest of t h e

World -.30 -.lo

-.

¹⁵

Figure 2. Consumption functions for price elasticities (-1/7) of -.l and -.5

4.2 RoundwoodProduction

The r e f e r e n c e values in 1980 for log and pulpwood production as well as i n d u s t r i a l consumption a r e given in Table 6. The difference between production a n d consumption is a t t r i b u t e d t o n e t exports (or imports).

The price s t a t i s t i c s adopted in Table 3 refer t o coniferous sawnwood only.

However, we have adjusted t h e q u a n t i t i e s of logs in Table 6 t o include nonconiferous as w e l l as coniferous logs. The s a m e applies t o quantities of pulpwood.

Pulpwood p r o d u c t i o n in Table 6 includes roundwood production only.

However, c o n s u m p t i o n includes both r o u n d pulpwood a n d r e s i d u a l s from mechanical wood processing. The total q u a n t i t y of s u c h residuals con- s u m e d in 1980 is given by (430.9 - 341.3) mill. m3

=

89.6 mill. m 3 ; i.e., 1 1 p e r c e n t of log c o n s u m p t i o n worldwide.

We a s s u m e for modeling purposes t h a t roundwood production r e s u l t s f r o m h a r v e s t i n g two size classes of t r e e s . Large t r e e s yield on t h e average a s h a r e of pi of logs p e r m3 of roundwood p r o d u c e d in region i. The s h a r e of pulpwood i s (1 - p i ) . For t h e o t h e r size class, s m a l l t r e e s , the s h a r e of logs is zero; i.e., harvesting of small t r e e s yields only pulpwood. Let q i be t h e average s h a r e in region i of h a r v e s t e d round- wood which e n t e r s t h e f o r e s t industries a s raw m a t e r i a l . The s h a r e (1 - r l i ) a c c o u n t s for losses, fuelwood, a n d o t h e r n o n i n d u s t r i a l u s e s of roundwood. Our t e n t a t i v e values for qi (UNIDO 1983) a n d pi a r e presented in Table 7.

Table 6. Annual production a n d consumption of sawlogs a n d pulpwood (mill, m 3 ) in 1980, based on FA0 (1982a).

Sawlogs Pulpwood

Region Production Consumption P r o d u c t i o n Consumption

Northern Europe 50.9 51.1 48.3 62.4

Western Europe 61.8 70.8 35.7 49.8

USA

185.2 171.1 109.4 164.0

Canada 115.6 116.5 38.9 72.9

Japan 21.0 57.6 9.6 3 1.3

Rest of t h e World 406.9 374.3 99.4 50.5

Total 841.4 841.4 341.3 430.9

Table 7 . Fraction of industrial roundwood recovered

( v i )

from t r e e s harvested and fraction of roundwood recovered a s logs (pi) from large t r e e s harvested i n region i.

i

7

i pi

N o r t h e r n Europe .835 .85

Western Europe ,825 .85

USA .861 .85

Canada .861 .85

Japan .869 .85

Rest of t h e World .531 .85

The reference value for harvesting large t r e e s is determined by pro- duction in Table 6 divided by t h e factor piqi. Similarly, t h e reference value for harvesting small trees is obtained by subtracting first from the pulpwood production (in Table 6) t h e production resulting from large t r e e harvesting (i.e., subtracting (1 - pi)qi times large t r e e harvesting), and d v i d i n g t h e reminder by q i . The resulting resulting reference quan- titie:: for 1980 are shown in Table 8.

The mill prices for logs and pulpwood, denoted by

IT:^

^{and n;,}

respectively, were assumed (based partly on FA0 statistics, partly on sub- jective e s t i m a t e s ) to be as shown in Table 9 for 1980.

Table 8. Estimated volume (mill. ms) of timber harvested in 1980.

Region Large t r e e s Small t r e e s Total

Northern Europe Western Europe USA

Canada Japan

Rest of t h e World

Total 1500.7 246.2 1746.9

Table 9. Reference prices in 1980 for logs and pulpwood (8/m3), and supply parameters a and

8 .

Price P a r a m e t e r a P a r a m e t e r

B

Logs Pulpwood Large Small Large Small

Region

t r e e s t r e e s t r e e s t r e e s Northern

Europe ⁵⁵

Western Europe

USA 40 2 0 .04 2.86 1.20 0.40

Canada 3 0 24 15.07 15.23 0.10 0.10

Japan 100 5 8 15.27 41.67 0.50 0.10

Rest of t h e World

In order t o d e t e r m i n e t h e p a r a m e t e r s a a n d for t h e marginal cost curve Q

=

a y p (by t r e e size and by region), we calculate first t h e prices

rl1

^{a n d}

.rrlz

for large a n d small t r e e s , respectively, a s follows:

r

^{0 0}

^l

=

^{'li (Pinil} + ( 1 - ~ i ) % 2 ] (22)

We shall r e q u i r e t h a t t h e s e prices result from t h e regional cost functions a t t h e r e f e r e n c e h a r v e s t volumes, y *, a s given in Table 8. In addition, we shall require t h a t t h e average stumpage price, calculated as t h e average difference between wood price .rr* a n d marginal cost, corresponds t o t h e e s t i m a t e d stumpage price in 1980. The m a r inal c o s t associated with

I

t h e r e f e r e n c e harvest volume y is -n*

=

a ( y * )

.

Since t h e marginal c o s t associated with a n arbitrary harvest volume y is .rr

=

ayp, t h i s c a n also be written as .rr

=

x * ( y / y *)p. Then t h e average difference between wood price a n d marginal cost (i.e., t h e stumpage price, s *) is given by

Given o u r e s t i m a t e s for s

'

a n d y

*,

the resulting p a r a m e t e r values a. a n d a r e given in Table 9. Figure 3 shows typical shapes of t h e wood supply curves.

3. Wood supply functions T / T * = (y / y *)@ for 8=.5 _{and /I=} 1.5.

4.3 Industrial Processing

FA0 statistics for industrial production in 1980 (FAO 1982a) yield t h e reference values s u m m a r i z e d in Table 10. Pulp includes bleached sul- phite and bleached sulphate pulps, a n d packaging paper includes paper board.

For sawnwood and panels two technologies a r e considered for e a c h , one referring t o e s t i m a t e d capacity in 1980, denoted by T I , and a n o t h e r t o new capacity, denoted by T3, resulting from investments. The l a t t e r is endogenous in o u r model. For all o t h e r products, production technolo- gies a r e handled similarly except t h a t the 1980 capacity is split i n t o two efficiency categories. We denote t h e c u r r e n t modern capacity by T I , a n d t h e c u r r e n t inefficient capacity by T2. Again, technology T g r e f e r s t o new investments.

Within e a c h region, consumption of wood for sawnwood a n d panel production was assumed t o be independent of technology; t h u s , t h e only difference between T 1 a n d T3 for mechanical wood products is in t h e pro- cessing cost. Log and pulpwood i n p u t in m3 per m 3 of o u t p u t is given in Table 11. Negative coefficients r e f e r t o n e t output of pulpwood residuals.

For pulp and paper, pulpwood consumption p e r ton accounting for fiber i n p u t s other t h a n bleached pulp i s given in Table 12. The bleached pulp consumption p e r ton of paper is given in Table 13 a n d t h e i n p u t of recycled paper in Table 14. In e a c h case, t h e input coefficients for t e c h - nologies T I and T3 a r e a s s u m e d equal; i.e., raw m a t e r i a l u s e by plants representing new i n v e s t m e n t s corresponds t o raw m a t e r i a l use by c u r r e n t modern technology.

Table 10. Annual production (mill. rn3, mill. ton) in 1980 (FA0 1982a).

Region Sawn-

P a n e l s Pulp News- Printing Packaging

wood print p a p e r Paper

Northern

Europe ^{23.9 4.6 6.8 3.7 3.5 5.4}

Western

Europe ^{39.6 20.9 3.5 2.3 10.4 11.6}

USA 75.3 26.2 18.6 4.1 13.7 35.4

Canada 41.9 4.8 8.3 8.6 1.5 2.7

Japan 37.1 10.3 4.3 2.7 4.1 9.5

Rest of t h e 210.6

World ^{34.4 8.3 5.0}

-

Total 428.4 101.2 _-- 49.8 26.4 4-2.4

-- 75.5

Table ^11. Log a n d pulpwood c o n s u m p t i o n (production) per m 3 of sawnwood a n d

3 3

panels (n / m ).

Sawnwood P a n e l s

Region Logs Pulpwood Logs Pulpwood

- - - -

Northern Europe 2.06 -0.37 0.46 0.54

Western Europe 1.69 -0.26 0.18 0.82

USA 1.78 -0.67 1.32 -0.32

Canada 2.60 -0.80 1.59 -0.59

J a p a n 1.20 -0.20 1.28 -0.28

Rest of t h e World 1.60 0.00 1.08 -0.08

Table 12. Pulpwood i n p u t coefficients (m 3 / t o n ) .

P u l p P r i n t i n g Packaging

Newsprint

Paper Paper

Region T 1 # T 3 T2 T 1 ' T 3 T 2 T 1 . T 3 T2 T 1 9 T 3 T2 Northern

Europe ^{4.9 5.4 2.1 2.0 1.10 0.70 2.90 2.80}

Western Europe

USA 4-.2 4.5 1.55 2.0 0.35 0.25 2.04 2.15

Canada 5.5 5.9 2.2 2.2 0.75 0.55 2.55 2.00

Japan 4..0 4.7 1.5 1.5 0.50 0.0 1.60 1.10

Rest of t h e 4.7 5.2 2.2

World ^{2.2 0.50 0.15 1.35 1.35}

Table 13. Bleached p d p i n p u t coefficients ( t o n l t o n ) .

Newsprint

Region T I - T ~ T~

Northern Europe .15 .20 Western Europe .15 .23

USA .2 1 .20

Canada .19 .20

Japan .20 .19

Rest of t h e World .19 -21

Printing paper Packaging paper

Table 14. Input coefficients of recycled paper (ton/ton).

Newsprint Region T ~ J ' 3 T 2

Northern Europe .04 .04 Western Europe .21 .27

USA .19 .04

Canada .O .O

Japan .21 .24

Rest of t h e World .O .O

Printing paper Packaging paper

Production costs as summarized in Table 15 (other than wood cost) a r e assumed t o be proportional t o t h e quantity produced. For existing capacity (technologies T1 and T2) we shall account for variable produc- tion costs only (such as o t h e r material inputs, energy, and nonfixed labor costs). For new capacity (technology T3), all costs, s u c h as capital costs, a r e included.

Production capacities a r e given in Table 16 by region, product a n d technology. For new investments an upper bound is s e t roughly to 20% of existing capacity. Waste paper recycling rates (based on ECE 1976) were applied t o 1980 paper consumption to calculate availability of recycled paper.

Table 15. Production costs ($/m3, S/ton) in 1980. Wood and fiber costs are ex- cluded and only variable costs are included for technologies T I and T2.

Northern Western Rest of t h e

Europe Europe USA Canada Japan World

Sawnwood Tl 65 7 0 6 0 45 6 0 6 0

T3 130 140 120 90 120 120

Panels T, 250 250 250 250 250 250

T3 320 320 320 320 320 320

Pulp T, 14'7 175 185 166 175 180

T2 256 290 270 267 280 280

T3 260 300 275 268 290 290

Newsprint Ti 270 266 204 172 237 240

T2 335 350 254 20 1 294 290

T j 351 354 280 245 3 14 3 15

Printing Ti 326 395 286 222 330 330

Paper Tz 405 475 330 281 410 420

T3 410 483 348 284 415 425

Packaging T, 262 318 205 213 298 300

Paper Tz 335 376 250 245 33 1 330

T, 342 386 268 273 343 345

Recycled paper 155 135 80 110 145 140

Table 16. Production capacities (n /year, mill, ton/year), a n d recycled paper 3 availability (mill. ton/year) in 1980.

Northern Western R e s t of t h e

Europe Europe USA Canada Japan World

Sawnwood T , 23.9 39.6 75.3 41.9 37.1 210.6

3 4.7 5.7 11.7 8.1 6.1 28.1

Panels Tl 4.6 21.3 27.7 4.8 10.3 34.4

T3 0.9 4.3 5.5 1.0 2.0 6.7

- - - - - -

Pulp Ti 5.5 1.0 12.3 5.9 3.0 3.3

T2 1.5 2.5 6.3 2.4 1.3 4.7

T3 1.4 0.7 3.5 4.0 0.8 1.6

Newsprint T 2.9 1.1 3.3 4.9 1.5 2.3

T2 0.8 1.2 0.8 3.9 1.2 2.7

T g 0.7 0.4 0.8 1.8 0.5 0.9

Printing T 1 2.2 4.2 6.6 0.7 1.7 2.5

Paper T2 1.4 6.5 7.6 0.9 2.6 6.7

T3 0.7 2.1 2.8 0.3 0.9 1.6

Packaging Ti 2.9 6.6 27.6 1.9 3.4 5.2

Paper T2 3.5 10.8 11.3 1.4 7.3 29.7

T3 1.3 3.5 7.8 0.7 2.1 7.0

Recycled paper 1.0 12.8 14.4 1.3 8.0 16.5

4.4 Transportation Costs

E s t i m a t e d transportation c o s t s for logs, sawnwood, pulp, a n d different paper g r a d e s a r e given i n Table 17. For pulpwood t h e transpor- t a t i o n c o s t is a s s u m e d t o be equal t o t h a t of logs. Similarly, t r a n s p o r t a - tion c o s t s for sawnwood a n d panels were a s s u m e d t o be approximately equal. The cost of transporting recycled paper is a s s u m e d t o be 80% of t h a t of t r a n s p o r t i n g pulp. In general, t h e s e e s t i m a t e s m u s t b e con- sidered highly preliminary. Transportation costs, particularly with r e s p e c t t o s u c h c h a r g e s a s port handling fees, a r e e x t r e m e l y variable a n d location-specific. Our e s t i m a t e s a r e based on d a t a r e p o r t e d for t h e USA by Hassan a n d Wisdom (1982) a n d Sedjo (1983), with subjective a d j u s t m e n t s for o t h e r regions of origin.

Table 17. Transportation costs ( 8 / m 3 , $ / t o n ) between regions. (Regions: 1 = Northern Europe, 2 = Western Europe, 3 = USA, 4 = Canada, 5 = J a p a n , 6 = Rest of t h e World).

Logs a n d Pulpwood Importing region Exporting 1 2 3 4 5

region

Sawnwood a n d Panels

- -

Importing region 6 . Exporting

region ^{1 2 3 4 5}

Pulp Newsprint

Importing region Exporting

region ^{1 2 3 4 5 6}

Importing region Exporting

region ^{1 2 3 4 5 6}

P r i n t i n g paper Packaging paper

Importing region Importing region

Exporting

1 2 3 4 5 6 Exporting

region region ^{1 2 3 4 5 6}

5.

O W E

OF DEMONSI'RATION RUNS

To t e s t t h e preliminary model's ability to r e p r e s e n t t h e economic s t r u c t u r e of t h e global forest sector and t o provide a demonstration of i t s capabilities with respect t o sensitivity analysis, we made a series of r u n s under a variety of scenario assumption. Figure 4 outlines t h e s t r u c t u r e of these demonstration r u n s .

Two s e t s of r u n s were made, with one set representing t h e situation in 1980 and t h e o t h e r s e t simulating the situation around t h e year 2000.

Detailed explanations of t h e assmptions used in formulating t h e s e scenarios a r e given in Section 6 (1980) and Section 7 (2000).

Scenario 1 is considered t h e Base Scenario for 1980 and was made t o t e s t the overall validity of the model as compared t o t h e reference data for t h a t year ( ~ a b l e s 4-6 and 8-10). Scenarios 2 and 3 t e s t t h e sensitivity of t h e model t o variations in price elasticities. Scenario 4 considers t h e effect on t h e global forest sector of a major increase in the value of t h e dollar as m e a s u r e d against o t h e r currencies.

Scenario 5 is t h e Base Scenario for 2000, based loosely on projec- tions from United Nations agencies (ECE 1976 and 1981, FA0 198Zb) plus information from Project collaborators. Scenario 6 considers t h e possi- ble effects of a very large shift in demand between 1980 and 2000, while Scenario 7 simulates t h e forest sector in 2000 under a no-growth assumption with r e s p e c t t o demand. Scenario 8 t e s t s t h e outcome of t h e imposition of import tariffs on forest products by two regions. Finally, Scenario 9 is i n t e n d e d to t e s t the effects on t h e global forest economy of a large increase i n t i m b e r supply in t h e United States.

Minimization

1

.

Base 1980

3. Doubled Price Elanicies

6. High Demand

u

4 . Dollar Revalued

Updated:

-Demand

-Technologies 9. US Timber

*Timber Supoly Resources

F'igure 4. Outline of the nine scenarios considered in t h e demonstration runs made w i t h the preliminary version of t h e GTM.

6. SCENARIOS F'OR 1980

6.1 Scenario 1: Base Scenario 1980

For t h e Base Scenario we adopted t h e d a t a described in Section 4.

I n v e s t m e n t s were r e s t r i c t e d to a m a x i m u m of approximately 20% of existing capacity. Upper bounds on t r a d e flows were s e t a t t h e level of o n e t o two t i m e s t h e flow in 1980 according to FA0 statistics. If t h e flow was n o n e x i s t e n t o r s m a l l in 1980, upper bound was s e t t o 1 million m 3 o r 1 million tons. Lower bounds were s e t t o approximately 80% of t h e a c t u a l 1980 t r a d e flow.

The r e s u l t i n g consumption for sawnwood, panels a n d t h e various paper g r a d e s is r e p o r t e d t o g e t h e r with t h e r e f e r e n c e values of Table 4 i n Table 18. The e x t r e m e l y good fit is partially explained by t h e relatively low price e l a s t i c i t i e s , a c h a r a c t e r i s t i c for t h i s g r o u p of forest products.

The prices r e s u l t i n g from t h e Base Scenario a n d t h e i r r e f e r e n c e values of Table 3 a r e given in Table 19. Two-thirds of t h e prices c o m p u t e d by t h e model a r e within 5% of t h e r e f e r e n c e values. Some of t h e l a r g e r differences (e.g., printing p a p e r for Western Europe a n d for Japan) c a n be explained by a v e r a g e quality differences which influence r e f e r e n c e prices. Such quality differences will be t a k e n i n t o a c c o u n t i n t h e full- scale model given t h a t a v e r a e quality differences between regions c a n be m e a s u r e d in t e r m s of $/m ($/ton).

8

Table 18. Consumption in the Base Scecario 1980 (above) and their reference values in 1980 (below) (mill. m 3 /year, mill. ton/year).

Sawn- News- P r i n t i n g Packaging

Region P a n e l s

wood p r i n t paper Paper

Northern Europe 11.4 3.5 0.7

11.4 3.5 0.7

Western Europe 62.8 23.9 5.1 11.4

62.6 24.0 5.0 11.3

USA Canada Japan

Rest of t h e World Total

Table 19. Prices ($/rn3, $ / t o n ) i n the Base Scenario 1980 (above) and reference values of Table 3 in 1980 (below),

Region

Northern Europe Western Europe USA

Canada Japan Rest of t h e World

Sawn- goods 235 230

News- P r i n t i n g Packaging Panels

print paper Paper

352 493 749 538

37 5 510 BOO 520

293 438 713 460

3 15 425 700 450

Production, consumption a n d n e t t r a d e values a s well a s t h e i r refer- e n c e values in 1980 a r e given i n Table 20 for i n t e r m e d i a t e products (roundwood, pulp, a n d r e c y l e d paper). Trade in recycled paper is negligi- ble i n t h e Base Scenario, a n d t h e r e f o r e not reported.

The prices for logs, pulpwood, pulp a n d recycled paper a r e given in Table 21. We n o t e t h a t t h e r e f e r e n c e price for pulp does n o t e n t e r t h e model a t all (since pulp is n o t a final p r o d u c t b u t is c o n s u m e d within t h e forest industry). This m a y explain partially some m a j o r differences in pulp price as c o m p a r e d t o t h e r e f e r e n c e values. The prices for recycled paper a r e intended t o c o v e r all collection a n d processing costs. There- fore, t h e y m a y appear high c o m p a r e d with existing d a t a on recycled paper prices.

Forest industrial production is given i n Table 22 by region, product, a n d technology. Recall t h a t technology T I refers t o existing m o d e r n technology,

T2

t o existing inefficient technology, a n d T3 t o capacity resulting from new i n v e s t m e n t s (which a r e endogeneous i n t h e model).

Marginal values for capacity a r e r e p o r t e d in Table 23. For existing capacity rn in region i a positive n u m b e r indicates t h a t capacity is fully employed. In this case t h e marginal value is t h e i n c r e m e n t in profit t h a t could be achieved in region i if a n e x t r a u n i t of similar capacity m were m a d e available. For example, for pulp production ( T I ) in t h e USA t h e m a r g i n a l value is $ 9 l / ( t o n / y e a r ) . In o r d e r for an i n v e s t m e n t in s u c h capacity t o be profit.able, t h e e x t r a a n n u a l cost (e.g., capital c o s t ) result- ing f r o m new i n v e s t m e n t should n o t exceed t h i s value.

Table 20. Base Scenario 1980 r e s u l t s (above) for t i m b e r harvesting; roundwood and pulp production, n e t import, a n d consumption;

a n d recycled paper consumption. Reference values for 1980 (below) based on F A 0 (1982a) a n d UNIDO (1983) a r e given below entries.

Reference values for roundwood production a n d consumption, a n d f o r pulp production a r e t h e s a m e a s t h e s e reported in Section 4.

Region Large

1 ~ r e e . s harvested ( m i l l . m 3 )

S m a l l

I

^{produc- Import} Consump- Produc- Consump-

tion tion

I

^tion t i o n t

Logs ( m i l l . rn3)

Produc- Import C o n s u m p

tion t i o n

( m i l l . ton) Pulpwood

( m i l l . m3)

Northern Europe

Western 89.5

Europe

1

^88.1

Pulp ( m i l l . ton)

USA

1

^252.7

1

253.0

Recycled Paper

Canada ^166.0

158.0 Japan

I _I

^{22.3 28.4}

Rest of t h e

/

^908.6

World ( 901.5

Total

/

^{1512.7 232.4}

/

^{847.7 0.0 847.7}

1 ^:23::

^{0.0 419.2}

1

^{43:: 0.0}

11500.7 246.2

1

^{841.4 0.0 841.4 0.0 430.9 0.1 46.0}

t Pulpwood consumption is not equal to production plus n e t import because production is limited to roundwood; consumption and t r a d e include residues produced during sawnwood a n d panel production.

Table 21. Base Scenario prices (above) and t h e i r reference values in 1980 (below) based on FA0 (1982a arid 1982c) for i n t e r m e d i a t e products (8/rn3, $ / t o n ) . The r e f e r e n c e prices of logs a n d pulpwood a r e also given in Table 9 above.

Region Logs Pulpwood Pulp Recycled paper

Northern Europe Western Europe USA

Canada Japan

Rest of t h e World

If capacity is partially employed, t h e n t h e marginal value is equal to zero. For example, panel production ( T I ) in Japan is 8.0 mill. m 3 whereas capacity is 10.3 mill. m9/year.

A

negative value refers to unemployed capacity. The marginal value then indicates t h e a m o u n t by which pro- duction would have t o be subsidized in order t o make i t profitable. For example, for t h e inefficient capacity (T2) of pulp mills in Western Europe, the marginal value is -40$/(ton/year). A subsidy of $40/ton would thus be required t o make this capacity competitive.

For newT capacity (T3), zero marginal value means t h a t investment is marginally profitable, and a negative n u m b e r in&cates the a m o u n t by which production costs, including capital recovery costs on t h e new investment, would have to be reduced in order t o make t h e investment profitable. A positive number corresponds to t h e i n c r e m e n t in profits t h a t could be achieved (per u n i t increase in capacity) if our upper limit on new investments (20% of existing capacity) were relaxed. For instance, investment in Canada in printing paper production would yield annually $89 per ton above all production costs, including fixed costs and capital recovery on t h e investment costs.

The t r a d e flow results for t h e Base Scenario are summarized in Tables 24 (a)-(i). Rilateral flows in physical units a r e given as well as marginal costs on trade flow restrictions. A negative margina.1 value m e a n s t h a t the t r a d e flow is a t its lower bound. A positive marginal value m e a n s t h a t t h e upper bound on t h e trade flow is binding. If a flow is strictly between i t s bounds, t h e marginal value is zero.

Table 22. Base Scenario 1980 final-product prodciction (mill. m3, mill. ton), w i t h reference values of Table 10 for 1980 based on FAD (1982a).

North. West.

USA Canada Japan Rest of Totals

Europe Europe World

T, 23.9 39.6 75.3 41.9 37.1 210.6

Sawn- T3 1.0 .O .O .9 .O 3.1

wood Total 24.9 39.6 75.3 42.8 37.1 213.7 433.4

Ref. 23.9 39.6 75.3 41.9 37.1 210.6 428.4

T 1 4.4 21.3 27.7 4.8 8.0 33.8

T3

.o

.O .O

.o

.O

.o

Panels

Total 4.4 21.3 27.7 4.8 8.0 33.8 100.0

Ref. 4.6 20.9 26.2 4.8 10.3 34.4 101.2

T2 Pulp T g Total

Ref.

T 1

News- T2 print T3 Tot a1

Ref.

T 1

Print- T 2

ing T3

paper Total Ref.

T l Pack- T2 aging T3 paper Total

Ref.

Table 23. Marginal values for capacity in t h e Base Scenario 1980 ($/(m /year). 3

$ / ( t o n / y e a r ) ) .

Northern Western Rest of t h e

Europe Europe USA Canada Japan World

Saw- T~ 6 5 67 4 3 45 44 6 0

mills ^T3 0 -3 -17 0 -16 0

Panel T~ 0 46 14 3 7 0 0

production T3 -70 -24 -70 -33 -70 -70

Pulp T1 113 88 9 1 102 48 11 1

mills T~ -16 -40 0 -8 -89 0

T3 0 -37 2 0 -67 1

New T1 5 7 101 7 6 7 7 77 7 5

p r i n t T2 -27 -19 5 1 45 2 0 17

production T3 -24 13 0 5 0 0

Printing T1 160 82 62 151 100 118

Paper T2 38 0 11 114 0 0

production T3 7 6 -6 0 89 15 23

Packaging T1 6 3 5 8 48 3 7 2 2 30

Paper T2 0 0 14 0 0 0

production T3 -17 -10 -15 -23 -23 -15

Table 24. Annual bilateral t r a d e flows (mill. m3, mill. ton) a n d marginal costs f o r t r a d e inertia c o n s t r a i n t s (8/m3, $ / t o n ) in t h e Base Scenario. Total exports and i m p o r t s a r e given in comparison with t h e FA0 values for 1980. (Regions: 1 = Northern Europe, 2 = Western Europe, 3 = USA, 4 = Canada, 5 = Japan, 6 = Rest of t h e World).

Trade Flows Marginal c o s t s

1 2 3 4 5 6 Total

exports FA0

1.0 - 3 1.3 1.2 1

2.4 8.2 - 3 1.0 38.3 1.4 imports

Trade Flows Marginal c o s t s

Total

1 2 3 4 5 6

e m o r t s FA0 1 2 3 4 5 6

imports FA0

5.9 3.8 1.2 .3 15.7 .4 27.3 39.4 8.1 10.1 2.1 .7 13.6 4.8 ( 39.4 !

Trade Flows Marginal costs

1 2 3 4 5 8 Tot' F A 0

exports 1 2 3 4 5 6

(d) Panels imports

Trade Flows Marginal costs

2.2 24.1 17.7 .1 8.4 8.81 61.3 66.0

I

1

^{2 2.8 1.0 6 2.7}

imports

1 2 3 4 5 6 To'a1 F A 0

exports .9 1.9

1 .2 .5 .2

Trade Flows Marginal costs

Total imports

1 2 3 4 5 8 Total FA0

exports

(f) Newsprint

Trade Flows Marginal costs

1 2 3 4 5 8 FA0

exports 1 2 3 4 5 6

Totd

imports 1.0 3.5 6.8 .O .O 1.9 13.2 12.5

Total impori

(I?) Printing paper

Trade Flows Marginal c o s t s

Total

1 2 3 4 5 6 FA0 1 2 3 4 5 6

e w o r t s

Trade Flows Marginal c c s t s

I 2 3 4 5 6 Total

exports FA0

imports 1.2 4.6

.O

.9 .8 4.9 12.4 10.9