Kristaps Klauss: Is the Bank of Latvia becoming an unsafe source of information?

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There were certain groups of residents who vehemently opposed the fact that the owners of forests in Latvia will also be able to use trees of a similar size in logging operations, as is done, for example, by our neighbors in Estonia. One of the arguments that Jānis Balodis, the organizer of the picket, presented to journalists was that, as new forests form in Latvia, the proportion of old trees in them will decrease. This, in turn, can affect the population of woodpeckers, because these birds nest in the hollows of old trees. The alarming message “went to the nations” (1), despite the fact that woodpeckers do not nest in tree hollows, but on the ground.

Similarly, when trying to convince others of the correctness of some of their views, sometimes the feet of representatives of professional organizations also slip. In this case it should be mentioned Banks of Latvia representative Edward Kushner, who in a government meeting, deciding on the potential of forestry in increasing the availability of fuel wood chips, mentioned that the net export of wood chips was 1.5 million tons.

The point is that there are different types of wood chips – to put it simply, one quality is basically suitable for fuel, while the highest quality, called pulp wood chips, which is also usually more expensive, is intended for the production of other wood products, such as boards, pellets or pulp. And the net export of wood chips (excess of export over import) is not 1.5 million, but almost eight times less – in 2020 they were 0.18 million tons.

Even finding markets or administrative tools that will make it impossible to export wood chips will not solve the rapid increase in domestic demand already in the next year. After Ministry of Economy and according to my own calculations, within the next year, when the centralized heat supply switches from natural gas to wood fuel, the demand for fuel wood chips in Latvian boiler houses will increase, most likely by about 1TWh or 1.2 million cubic meters. Even the most modest estimates show that the amendments to the rules will increase availability by 288 thousand cubic meters of fuel wood chips, which will cover about a quarter of the increase in demand.

It is certainly not the same as “pouring a bucket into a pond”, as Mr. Kushner blurted out during the hearing. Recent market trends show that both imports and exports of all quality chips are decreasing. In addition, export volumes are decreasing faster than imports. This trend is very important because our import opportunities have decreased significantly since Russia, including Belarus, has started a brutal war in Ukraine. In previous years, Belarusian wood chips played an important role in Latvian energy.

In one of the last interviews of E. Kushner, we can observe that he has either developed prejudices against the Latvian forest industry and the wood industry in general, or that his communication skills need to be significantly improved, because the journalists probably misunderstood what he said. (2)

Thus, for example, the tendentious statement about the wood industry as “a small industry that produces an average of 5.5% of the gross domestic product per year, but consumes nearly 60% of the energy consumption of all production” caused widespread confusion among industry workers and experts. It is true that the wood industry is an energy-intensive industry, because a lot of heat is needed to dry the material, and the technological processes also require electricity. However, why should this energy intensity be characterized, to put it mildly, in such a manipulative way, misleading the readers and presenting the timber industry as an extremely inefficient industry? It is correct to compare indicators of one scale, that is, if there is a desire to compare the contribution of the wood industry to GDP, then it would be correct to compare it with its share in the total energy resource consumption, which is not 60%, but five times less – approximately 12%. On the other hand, if there is a desire to emphasize that the wood industry’s energy consumption of the processing industry is approximately 60% in 2020, then it is really strange to ignore the fact that the wood industry also makes up a quarter of the GDP of Latvia’s processing industry.

However, it seems to me that this was not a mistake, but a deliberate manipulation on the part of Mr. E. Kushner, because the full quote from the interview is “[…] a small sector – the wood industry, which produces 5.5% of the gross domestic product on average per year, but consumes nearly 60% of the energy consumption of all production. It’s a huge proportion, and it’s manufacturing with low added value, 40 thousand workers in the middle income trap.”

First of all, wage levels are determined by the overall national labor market and, according to the data of the State Revenue Service, 45 out of 80 industries in Latvia, i.e. see in public administration, have lower average salaries. Secondly, only from the positions of Riga it can be said that the forest industry or wood industry is a small industry. For example, in Vidzeme, almost every fifth job in the private sector was in the forest sector. Thirdly, about the low added value – yes, we still do not have it at the level of Sweden or Austria, but according to the data of the Bank of Latvia itself, the added value per employee in the wood industry in Estonia was only 3% higher than in Latvia, while we are ahead of Lithuania by 31%.

The Latvian forest industry – forestry, wood industry and furniture production – still has significant growth potential. It can also be argued from the opposite point of view – if the forest industry does not learn to grow fast enough and increase added value, it has very high risks of losing both international competitiveness and attractiveness in the local labor market. The forest industry is aware of this and continuously invests in both modernization and expansion of the product basket. However, E. Kushner’s thesis is also absurd: “The possibilities to increase the added value and, therefore, to reduce the energy consumption, by going to chemical processing, is a huge unused potential.” Undeniably, many wood chemistry products have a higher added value than mechanical processing, but why mislead that wood chemistry is less energy-intensive than sawing, slab or furniture production? For example, “Latvijas finieris” produces betulin from birch bark and can explain that the amount of energy consumed in production per physical volume of raw material is ten times higher than in plywood production. In the Swedish pulp and paper industry, electricity consumption per cubic meter of raw material is at least four times higher than in Latvian mechanical processing. Wood chemistry is very energy intensive! And the cost of electricity in Latvia in recent decades has slowed down companies to look in the direction of wood chemistry.

It is possible that Mr. E. Kushner meant something else in all cases and was misunderstood. However, these communication errors not only mislead the audience and belittle the Latvian forest industry, but also damage the reputation of the Bank of Latvia. If the messages of the Bank of Latvia can no longer be considered reliable and they must always be checked, it will be a great loss for a qualitative discussion. I’m not calling on the Bank of Latvia to stroke its feathers and I don’t want to start a public fight, but please don’t become “yellow” and communicate the data correctly!

1. https://www.tvnet.lv/7557837/foto-pie-ministru-kabineta-notiek-protests-pret-valdibas-lemumu-laut-cirst-jaunakus-kokus
2. https://lvportals.lv/viedokli/342924-energetikas-politika-butu-svarigi-neimitet-parmainas-2022

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