Sale dynamics for commercial timber in Ukraine during military state

Abstract

Introduction

The war launched by Russia on February 24, 2022 against Ukraine led to the collapse of its economy, including damage to the environment and the forestry industry. In addition to direct losses caused by the destruction and damage of production facilities, infrastructure, and products, and the death of people, the forestry economy of Ukraine has also suffered indirect losses associated with a decrease in its production potential and financial stability. Forestry does not receive income due to restrictions on land use due to non-logging (cost of forest products and rent) and impossibility of secondary use (in particular, harvesting of birch sap, berries, and mushrooms). Furthermore, the decline of Ukraine’s economy leads to a decrease in domestic demand for business round timber products. Thus, in 2022, the decline in wood processing in Ukraine made from 35 to 55% depending on the type of wood, and the export of wood products from Ukraine to EU countries in many cases lost profitability. The aim of the study was to investigate the short-term (in 2022) dynamics in physical volumes of sales and prices for commercial round timber products of the main tree species in Ukraine during hostilities as the main factors of the state of the domestic wood market and of the financial stability of the forestry industry.

Materials and Methods

The main research method is a horizontal economic analysis of previously selected indicators from the electronic database of the State Enterprise “Forestry Innovation and Analytical Centre” of the State Forest Resources Agency of Ukraine. The methods of statistical grouping, graphical and tabular modeling, generalization, and synthesis were also used. Due to the legal prohibition of the publication of official statistics in Ukraine during the period of martial law, we analyzed data on the enterprises subordinate to the State Forest Resources Agency. That is, we used a selective method of economic analysis.

Results

In the first quarter of 2022, at the beginning of the hostilities, there was a collapse in the volume of sales of pine and oak round timber (by 61–79%); it fell to the level of the fourth quarter of the previous year. From the second to fourth quarters of 2022, the situation stabilized in most regions, with the exception of the regions where the hostilities took place in 2022 (Chernihiv, Sumy, Kharkiv, Donetsk, and Luhansk regions). Prices for the sale of round timber assortments in Ukraine were highly variable both by regions at the same time and over time. For example, in the fourth quarter of 2021, the maximum difference in the average selling prices of assortments of class A round timber with a diameter of 30–34 cm across the regional offices of the State Forest Resources Agency of Ukraine made 44.1% for pine and 35.4% for oak on the terms of delivery of the free from lower landing, and 61.4% for pine on the terms of delivery of free from forest and 14.0% for oak on the terms of delivery of free from skidding. The dynamics of the average sales prices of the analyzed pine and oak round timber assortments in the fourth quarter of 2022 to the fourth quarter of 2021 had the opposite direction. Pine assortments mostly became cheaper while oak assortments, on the contrary, became more expensive.

Conclusions

The military actions which started on February 24, 2022, have resulted in the destabilization of the domestic Ukrainian timber market. Throughout 2022, especially in the first quarter, there was a decrease in the physical volumes of sales of the analyzed pine and oak round timber assortments (diameter 30–34 cm, the terms of delivery – free from lower landing and free from forest), by enterprises subordinate to State Forest Resources Agency of Ukraine. Also, there were significant price fluctuations for these assortments due to force majeure factors. The main factor for the decreased demand for commercial round timber in Ukraine in 2022 and, accordingly, the volume of its sale, was a decrease of 40–50% in the number of domestic wood processing enterprises. The demand for pine and oak round timber in 2022 in Ukraine increased only for assortments of relatively lower quality and price (class D). Further research is needed to study the state and forecast the wood sale dynamics in the state that suffered greatly as a result of military operations.

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