USDA GAIN report highlights Latvian pellet expansion

By Katie Fletcher | December 26, 2016

The USDA Foreign Agricultural Service’s Global Agricultural Information Network published a report this month on the wood sector in Latvia, reporting that pellet production will continue moderate expansion in 2015-2016 as two, new large-scale pellet mills will start operating during the next year.

In 2014, Latvia reported 1.28 million metric tons of wood pellet production, the estimate for 2015 increased to 1.5 million metric tons and 2016 production is forecast just slightly more at 1.55 million metric tons of wood pellets.

Latvia follows Finland, Sweden and Slovenia, as the fourth most forested country in Europe, with 3.35 million hectares (8 million acres) of forest coverage, 52 percent of the country’s territory. Deciduous trees make up over half of all trees in Latvian forests, and they dominate the amount of stock volume. Forty-nine percent of the forests are state-owned, and local governments own 1 percent of forest land. The rest of forested land is privately owned by 133,000 landowners. The average forest property area amounts to 10.6 hectares, and 92 percent of private owners hold less than 20 hectares. In 2014, the total volume of timber harvested remained at the level of the previous year, amounting to 11.7 million meters cubed.

According to the GAIN report, Latvia’s wood and wood products sector has been recovering since the economic recession experienced before 2010 due to competitiveness improvements and export opportunities.

For export markets, the report identified that a positive trend is the pellet production segment. With the two, new large-scale plants coming online in the next 12 months, pellet production is expanding. Latvian exports of goods grew at a growth rate exceeding 20 percent a year from 2010 to 2012. During this time, wood and wood products dominated export growth. According to the Ministry of Economics in Latvia, during 2012 to 2013, the weaker economic growth in the EU affected Latvian wood exports due to a significant reduction in external demand. Export growth was mainly driven by an increase in competitiveness these years, as a result of decreased labor costs. At the same time, the increase in the exports of goods in 2014 to 2015 was mainly driven by external demand while the role of competitiveness in export growth became less significant.

According to the Latvia Ministry of Agriculture, the country is a net exporter of forestry industry products, and, in 2015, exported $1.9 billion worth of timber and timber products, and $2.23 billion worth of forest industry products. The GAIN reported cited the EU as the Latvian wood sector’s main trading partner, with an almost 90 percent share of the total Latvian wood export volume. Traditionally, Latvia’s largest forestry export markets are the U.K., Germany and Sweden. In 2015, 18.9 percent of total exports went to the U.K., 10.5 percent to Germany and 9.5 percent to Sweden. According to the GAIN report, forestry industry exports to the U.K. have demonstrated the highest dynamic growth, increasing 17.2 percent from 2014 to $422 million.

Latvia imported $771.79 million worth of forestry products in 2015, an increase of 4.3 percent from 2014. Latvia sourced 17.6 percent of total forestry industry imports, worth $135.45 million, from Lithuania in 2015, which is traditionally the main supplier of forestry industry products. Imported forestry products from Estonia amounted to $98.2 million, 12.8 percent of total forestry sector imports, and Poland also made up 12.8 percent of imports valued at $98.5 million.

The total forestry products trade between Latvia and the U.S. has been growing for the last few years, reaching $15.4 million in 2015, the report stated. According to Eurostat statistics, wood sawn or chipped (code 4407), followed by wood continuously shaped (4409) are the main wood products exported from the U.S. to Latvia. The U.S. is the sixth supplier of these products for Latvia, following Ukraine, Russia, Germany, Estonia and Belarus.

According to the European Economic Commission of the Organization of United Nations, the Latvian local market for forest products is influenced by a significant increase of solid wood biomass consumption in wood energy production and consumption sectors. In 2014, wood biomass demand was one of the main forest product market drivers and continued to increase in 2015. Also in 2014, large-scale heating and new cogeneration combined-heat-and-power (CHP) plants increased wood consumption. Beginning in 2016, a similar rapid wood consumption increase implemented in Lithuania, increased solid wood biomass consumption across all Baltic countries. Wood biomass products production also is impacting the forest industry strongly, according to the report, increasing demand for premium and industrial pellets in EU increases pellet production activities in Latvia.

The report concluded with a policy section. In Latvia, the Ministry of Agriculture supervises the forestry sector, and together with stakeholders it drafts forest policy and development strategy on the use of forest resources, hunting and environmental protection. The Latvian State Forests manages all forests and is certified in accordance with FSC principles and criteria and the PEFC scheme.