Elena Feditchkina Tracy, Alexey Lankin Analysis of Timber Exports from the Russian Far East in 2015 WWF-Russia

Elena Feditchkina Tracy, Alexey Lankin Analysis of Timber Exports from the Russian Far East in 2015

Vladivostok 2016 Feditchkina Tracy, Elena Analysis of Timber Exports from the Russian Far East in 2015. / E. Feditchkina Tracy, A. Lankin. — Vladivostok: WWF-Russia, 2016. — 44 p., color illustrations

This work offers an analysis of timber and wood product exports from the Russian Far East for the year 2015. It examines the basic parameters of timber exports, export destinations, major export patterns, and target markets. The analysis also includes ranking the leading wood product importers in the Far East, investigates the export structure and quality of timber processing and considers the possibility of expanding product variety. Particular attention is given to the Chinese market, the largest market for timber from the Russian Far East.

© WWF Russia, 2016

The publication is supported by WWF-IKEA Forest Partnership

This publication is not for sale and is distributed free of charge Table of Contents

1. Background...... 4

2. Methodology...... 6

3. Results...... 8 Timber origin...... 9 Export routes...... 9 Leading importers of wood products from the Russian Far East...... 10 Wood product exports...... 17

4. Target markets...... 22 China’s timber market...... 22 Japan’s timber market...... 27 South Korea’s timber market...... 28

5. Export of high value timber...... 29 High value lumber producers...... 33 Export of linden...... 36

6. Exports of FSC-certified timber...... 39

7. Conclusion...... 43

Table of Contents 3 1. INTRODUCTION

his work builds on earlier research, published in 2015, on timber exports Tfrom the Russian Far East between 2004 and 20141. Current conditions in the Russian Far East forestry sector are largely determined by its strong export orientation: insignificant domestic demand encourages the export of virtually all forestry industry output to neighboring countries in East Asia. This paper covers the basic timber export parameters as of 2015 as follows: export destinations, major export patterns, and target markets. Particular attention is given to the Chinese market, the largest market for timber products from the Russian Far East. It includes ranking of leading wood product importers in the Far East and lists their market shares and pricing policies. In addition, it investigates the Russian Far East timber export structure and issues related to the quality of timber processing while suggesting the possibility of expanding timber product variety. The latter could ultimately promote more responsible forest management and reduce logging pressures in Russian Far East forests. Similar to previous research, exports of valuable woods, such as Manchurian ash (Fraxinus mandshurica), Mongolian oak (Quercus mongolica) and Amur, Manchurian and Take linden (Tilia amurensis, T. mandshurica and T. taquetii), are analyzed separately, due to their high environmental and social value. In 2015, Mongolian oak supply chains from the Russian Far East attracted the attention of experts because of the penalty imposed by the U.S. legislature on Lumber Liquidators, the largest U.S. flooring provider, for importing illegal timber from the Russian Far East via China. The penalty totaled US $13 million in fines — the largest penalty ever charged for violating US timber export regulations. Lack of transparency in the supply chains and persistent problems with illegal logging of valuable tree species elevated the risks for European and U.S. importers who work under increasingly stringent legislation demanding evidence of legal timber origin (the Lacey Act in the U.S., the European Union Timber Regulation (EUTR), etc.). Today, the lion’s share of products made of high value timber of Russian Far East origin (99%) are supplied to China, where they are processed and occasionally forwarded to target markets. The research shows that less than 1% of Mongolian oak logged in the Russian Far East is harvested by companies certified by the Forest Stewardship Council (FSC), which creates additional barriers for diligent western importers. Due to the lack of certification and insufficient transparency in the supply chains, products made of high value timber harvested in the Russian Far East will remain too risky and hence be less competitive beyond China. The demand for legality and environmental compliance in China is not very high, although the growing purchasing power of Chinese consumers may eventually increase their willingness to pay for products produced under higher environmental standards. In addition, logging rates of linden trees continue to increase each year in the south of the Russian Far East, causing serious concerns. Calculation of the roundwood equivalent of linden timber export volumes clearly shows a steep

1 Timber exports from the Russian Far East in 2004-2014 / B.D. Milakovsky, E.A. Fedichkina. — Vladivostok: World Wildlife Fund (WWF), 2015. — 36 p.

4 Analysis of Timber Exports from the Russian Far East in 2015 increase in linden harvest volumes to levels well above those officially permitted. The overwhelming majority of linden exports — 99% — go to China. The share of FSC-certified timber is shown separately in the analysis. In 2015, approximately 28—31% of timber exported from the Russian Far East was harvested in forest concessions certified by a forest management certificate of the Forest Stewardship Council (FSC FM). FSC-certified forests cover 17% of the total forest area in the Far Eastern region, a volume largely accounted for by the two largest logging companies, RFP Group Holding and the Terneyles Group. The latter is the region’s leading company in value-added wood product exports and perhaps the most competitive company of the Russian Far East in international timber markets. However, the overall the quality of timber products exported from the Russian Far East generally remains relatively low and requires further processing to the end-use stage. In fact, the current export pattern represents an attempt by regional timber businesses to comply with unprocessed timber export restrictions. Further development of the value-added wood processing industry in the Russian Far East can be encouraged not only through government policies and public investment but also through the promotion of Russian timber products in overseas markets by making these products more competitive. Building a positive image in international trade and capital markets while ensuring the transparency of supply chains is a prerequisite for the sustainable development of the export-oriented forestry economy of the Russian Far East.

Introduction 5 2. METHODOLOGY

he analysis of wood product exports from the Russian Far East is based on Tthe product codes used in 2015 customs statistics (Table 1).

Table 1: Timber product codes used in customs statistics

FEACN Description (Customs Commodity Code) 4401 Fuel wood, wood chip 44032 Coniferous roundwood 44039 Deciduous roundwood 44071 Coniferous sawnwood 44079 Deciduous sawnwood 4408 Veneer 4412 Plywood

Customs data from the Russian Far Eastern Customs Service were used in the analysis. Because the primary task of the analysis was to explore the impact of exports on the logging volumes of various tree species in the Russian Far Eastern forests rather than an evaluation of export revenues, physical (cubic meters) rather than monetary indicators were used. To make the results comparable with those of the earlier analysis (Milakovsky and Fedichkina, 2015), a similar methodology of data classification by groups (types) of tree species (1) and by degree of wood processing (2) was used as follows: (1) Coniferous (larch, fir, spruce, pine) (2) Valuable hardwoods and valuable deciduous softwood (ash, oak, linden, and elm) (3) Ordinary deciduous softwood and other unidentified species (birch, poplar and aspen) (4) Fuel wood and wood chips. The new analysis contains a new category of products, “4.1, fuel wood and wood chip,” which represents promising timber export products based on a more comprehensive use of all forest benefits and addressing the challenge of utilizing full harvest volumes, the residual of processing and low-value small- diameter wood. The second classification is based on the degree of processing on a scale of 1 to 3, where: (1) unprocessed wood (FEACN code 4403) (2) sawn wood (FEACN code 4407) (3) processed wood products, such as plywood, veneer, wood particle board and oriented strand board. Particular attention is given to exports of Far East linden from Primorsky Krai, which have shown steep growth in recent years, despite the limited permitted harvest of linden, which are the major nectar-bearing plants.

6 Analysis of Timber Exports from the Russian Far East in 2015 Table 2. Classification of product types by tree species and degree of processing

Tree species Unprocessed wood Lumber Processed wood Coniferous 1.1 1.2 1.3 Valuable hardwoods 2.1 2.2 2.3 Valuable softwood 3.1 3.2 3.3 Wood chips 4.1 4.2 4.3

Roundwood equivalents of timber export volumes were calculated to further compare obtained data with the harvest allotments. Average yield factors used to calculate the roundwood equivalents were the same as in the earlier research: 0.56 for sawn wood, 0.7 for plywood. Additionally, 1.13 was used as a bark adjustment factor, as bark is not included in the estimated roundwood volume of exports.

Methodology 7 3. RESULTS

n physical terms, the total volume of wood product exports from the Russian IFar East has declined by approximately 3% compared with the previous year: from 8,294 thousand m3 to 8,064 thousand m3 (Table 3).

Table 3. Wood product exports from the Russian Far East by product categories, m3

Category 2013 2014 2015 1.1 Coniferous roundwood 4,554,837 4,899,966 4,627,843 1.2 Coniferous sawnwood 1,158,365 1,010,761 1,095,729 1.3 Coniferous plywood and veneer 302,303 228,554 271,478 2.1 Valuable roundwood 321,641 388,183 288,038 2.2 Valuable sawnwood 458,518 444,472 533,954 2.3 Valuable plywood and veneer 9,841 11,742 16,824 3.1 Softwood roundwood 661,282 881,059 982,946 3.2 Softwood sawnwood 15,355 15,181 14,612 3.3 Softwood plywood and veneer 4,295 11,677 23,656 4.1 Fuel wood and wood chip 232,294 402,601 209,356 Total 7,718,731 8,294,196 8,064,436

The 2015 decline largely resulted from a drop in unprocessed timber — the largest category of exports. In 2014, the export of unprocessed coniferous sawn wood declined by 5%, while that of unprocessed valuable hardwoods declined by 26%. At the same time, exports of unprocessed timber produced from softwood deciduous species grew by 12%. In 2015, the structure of timber exports did not show any substantial change. Unprocessed timber continued to account for nearly 3/4, or 73%, of exports (Table 4).

Table 4. Wood product exports from the Russian Far East by product category, %

Category 2013 2014 2015 1.1 Coniferous roundwood 59,0 59,1 57,4 1.2 Coniferous sawnwood 15,0 12,2 13,6 1.3 Coniferous plywood and veneer 3,9 2,8 3,4 2.1 Valuable hardwood 4,2 4,7 3,6 and softwood roundwood 2.2 Valuable sawnwood 5,9 5,4 6,6 2.3 Valuable plywood and veneer 0,1 0,1 0,2 3.1 Softwood deciduous roundwood 8,6 10,6 12,2 3.2 Softwood deciduous sawnwood 0,2 0,2 0,2 3.3 Softwood deciduous plywood 0,1 0,1 0,3 and veneer 4.1 Fuel wood and wood chip 3,0 4,9 2,6 Total 100 100 100

8 Analysis of Timber Exports from the Russian Far East in 2015 At the same time, the shares of coniferous sawnwood, coniferous plywood and veneer, and valuable hardwoods in total exports slightly increased relative to 2014. Since 2013, the export volumes of plywood and veneer made of valuable woods, softwood deciduous roundwood, and softwood deciduous plywood and veneer have increased every year, demonstrating stable demand for these products. A negative trend over the last three years has characterized exports of softwood deciduous lumber, although the decline is insignificant in volume. The increasing share of wood products in exports, primarily of sawnwood produced from top-quality roundwood, not accompanied by a corresponding increase in exports of wood processing residuals (wood chips), likely signifies an increase in the inefficient removal of timber from the Russian Far East forests (Table 5).

Table 5. Roundwood and ыфцтwood exports from the Russian Far East in terms of equivalent amounts of raw wood, m3

2013 2014 2015 m3 increase, % m3 increase, % m3 increase, % 8,906,021 100 9,161,641 2,9 9,283,338 1,3

Origin of timber More than 99% of wood products exported from the Russian Far East (the exceptions being some deciduous wood products) are harvested and produced in three Far Eastern provinces — Khabarovsky Krai, Primorsky Krai, and Amurskaya Oblast (Table 6). Distribution of wood product exports by region of the Russian Far East basically corresponds to the geographical distribution of forest types and tree species in this territory. Khabarovsky Krai, which is covered by larch forests, dark coniferous (spruce and fir) forests, and — in the south — deciduous and mixed Korean pine-broadleaf forests, provides more than 80% of exported coniferous roundwood, over 73% of coniferous sawnwood, and 26% of coniferous plywood. Primorsky Krai has most of its stock in dark coniferous and mixed Korean pine- broadleaf forests, contributing more than 81% of high value roundwood exports, 88% of high value sawnwood exports, 48% of high value plywood, and 61% of softwood deciduous roundwood exports. Available felling-area resources in Amurskaya Oblast include both coniferous and deciduous forests. Evreyskaya Autonomous Oblast, rich in secondary deciduous forests, exports deciduous softwood timber and lumber. Virtually no timber exports come from other regions of the Russian Far East. Thus, by the mid-2000s, Sakhalinskaya Oblast, a large exporter in the past, had completely stopped exporting its wood products.

Export routes In 2015, more than half of all timber exports (except for coniferous plywood and fuel wood) were delivered via land through terrestrial checkpoints on the Russian-Chinese border (Table 7). Maritime transportation played a more important role in the past: in 1998, 85% of timber exported from the Russian Far East was delivered by boat, as the majority of timber was sold to Japan. With the dramatic increase in the share of the Chinese market, export routes changed accordingly in favor of railroad and other inland modes of delivery. Export shipments of wood products were mostly conducted via Primorye seaports (Vladivostok, Vostochny, Plastun, and Olga) and the Khabarovsky seaports of Vanino, Sovetskaya Gavan, De-Kastri, and Nikolayevsk-na-Amure. Results 9 Major final destinations included the seaports of Japan, South Korea, and the southern regions of continental China. Prices of wood products shipped by sea are higher than of those transported by land for all types of large-scale exports. The price difference amounts to 6% for coniferous roundwood, 32% for coniferous sawnwood, 112% for high value roundwood, 65% for high value sawnwood, 50% for high value plywood, 34% for softwood deciduous sawnwood, and 85% for softwood deciduous plywood and fuel wood. Two exceptions to this rule were observed in 2015, for coniferous plywood and softwood deciduous roundwood. The first exception, however, can be ignored, as that was a one-time-only trial delivery of 88.7 m3. The second exception can be explained by the fact that softwood deciduous roundwood from the Russian Far East is of much poorer quality than deciduous wood from Canada, the U.S. and tropical countries and thus cannot compete with the latter in the above markets. Higher prices per cubic meter in the case of maritime transportation are explained by target markets willing to pay higher prices for more valuable commodities — Japan, South Korea, and Southern China — as well as by the more diversified geography of deliveries due to the possibility of direct supply to customers in a larger variety of countries. Meanwhile, lower purchasing prices are typical for the limited and well-established pool of large Chinese importers at the Northeast China-Russia border pursuing coordinated trading and pricing policies and hence using their monopoly power to bring prices down. The factors that hinder further development of maritime exports primarily include logistical problems: a lack of special timber terminals, double transfers of cargo whenever timber is to be delivered to a seaport by railroad or if logging areas are at a substantial distance from the sea (with only road transport available), a lack of river-sea navigation vessels, and competition with other types of export cargoes, for example, coal, particularly in the seaports of Khabarovsky Krai.

Leading importers The following review of the largest importers is broken down by various variables as follows: types of importers (resellers or processing companies), location, of wood products purchase volumes, market shares, prices, and other. The country of a company’s from the Russian official registration is shown in brackets after the company name; however, Far East this does not necessarily reflect the real geographical direction of exports. For example, J & J WOOD CO., LTD, a leading importer of coniferous roundwood, is located in Hong Kong, but in the customs declarations it appears as an importer to China and South Korea, obviously acting as a reseller. SUMITOMO CORPORATION (Japan) is an importer to both Japan and China. Names of importers to the inland regions of continental China traditionally start with the geographical name of the company’s headquarters location. The name further indicates the company’s basic activity: for example, trade, imports and exports; economic and trade; forest; wood; etc. With respect to type of ownership, all Chinese firms are privately owned (joint-stock companies), occasionally with the involvement of local or regional administrations. They are set up either to replace national foreign trade/international business associations that operated during the period of state foreign trade monopoly (i.e., through the late 1990s), as is the case with wood import businesses, or to replace national (provincial, district) integrated logging and lumber enterprises that were later privatized and incorporated, as is the case with forest management and timber processing businesses. Therefore, the names of Chinese import businesses are in some degree indicative of Russian Far East timber flow distribution to China. Approximately 3/4 of coniferous roundwood and 2/3 of hardwood deciduous roundwood delivered through overland checkpoints on the Russian-Chinese

10 Analysis of Timber Exports from the Russian Far East in 2015 3 23 43 43 $/m 0 0 100 45,32 54,68 % 100 1,16 4.1 F uel wood 4.1 F uel wood 98,84 3 171 317 221 $/m 100 7,67 veneer veneer 13,69 39,19 39,45 deciduous deciduous % plywood and plywood and 100 3.3 S oftwood 3.3 S oftwood 65,57 34,43 3 191 143 149 $/m 100 1,43 8,12 49,57 40,88 deciduous deciduous sawnwood sawnwood % 3.2 S oftwood 3.2 S oftwood 100 12,31 87,69 3 61 85 83 $/m 100 0,38 10,74 28,23 60,66 deciduous % roundwood deciduous roundwood 100 3.1 S oftwood 9,96 3.1 S oftwood 90,04 3 255 253 378 $/m 0 100 veneer 19,71 veneer 47,78 32,52 % plywood and 100 1,80 plywood and 2.3 H igh value 98,20 2.3 H igh value 3 219 210 345 $/m 0 100 0,60 10,75 88,65 sawnwood % sawnwood 2.2 H igh value 100 6,24 93,76 2.2 H igh value 3 412 194 199 $/m 0 0 100 81,50 18,50 % roundwood 100 2,28 2.1 H igh value round-wood 97,72 2.1 H igh value 3 215 215 227 $/m 0 0 veneer 100 veneer 25,72 74,28 % plywood and 100 0,47 1.3 Coniferous plywood and 99,53 1.3 Coniferous 3 118 156 130 $/m 100 2,95 4,82 73,37 sawnwood 18,86 % 1.2 Coniferous 100 sawnwood 31,6 68,3 1.2 Coniferous 3 71 75 73 $/m 5,11 100 0,83 13,44 % roundwood 80,62 100 53,1 46,8 1.1 Coniferous roundwood 1.1 Coniferous Wood products exporting regions in the Russian Far East 2015 by product categories, % Timber export customs clearance in the Russian Far East by product categories, % Customs R egion Khabarovsky Krai Primorsky Krai Exports over land Amurskaya Oblast Exports by sea Total Evreyskaya Autonomous Oblast Total Table 6. Table 7.

Results 11 border are sold through timber exchanges and then processed by lumber enterprises in two border provinces of Northeast China: Heilongjiang and Jilin. The remaining timber imports from Russia travel beyond these regions. The large share of local consumption arises from the fact that the forests in the Russian Far East and the north of Northeast China are very close in forest type and forest stand species composition. Therefore, it was easy for local Chinese processing industries to re-orient to timber from the Russian Far East after Chinese northeastern provinces introduced a logging ban in their natural forests. Nearly all timber exports from Russia’s southern regions bordering China were initially shipped by railroad through the Pogranichny/Suifenhe checkpoint on the Russian-Chinese border. These border districts contain trading and forest management companies that form the pool of Chinese importers/resellers. These companies monopolize access to Russian Far East timber and make it difficult for companies representing other Chinese regions to enter these trade exchanges. By concentrating in their hands all railroad deliveries of Russian timber through several checkpoints on the Russian-Chinese border, the northeastern companies can coordinate pricing policies and determine demand for certain tree species or wood products supplied from the Russian Far East. Russian exporters may seek to evade the monopoly power of the near-border resellers by re-orienting the delivery of their products from land to sea routes, to the coastal regions of China or, if they directly contact customers, from other Chinese regions. Table 8 shows a ranking of coniferous wood product importers. For coniferous unprocessed lumber from the Russian Far East, the largest market segment, the market is substantially consolidated: 10 leading importers are responsible for 42% of total imports. All of these are either located in China or are intermediaries that import to China. Because nearly half of these products are delivered by sea (Table 6), the ranking includes importers from the coastal and inland regions of China (J & J WOOD CO., LTD (Hong Kong), HIGH HOPE INTERNATIONAL GROUP JIANGSU CHAMPION HOLDINGS LTD (Jiangsu province), and SUZHOU SENYANG INTERNATIONAL TRADING CO., LTD (Jiangsu province). The remaining near-border resellers include representatives of Northeast China and ALIS INTERNATIONAL PTY LTD (offshore). The price range is not large: between 10—15%. The coniferous sawnwood market is more consolidated (10 leading importers are responsible for 64% of the market) and more diverse in terms of destinations. Importers include KAIMAR LTD., a Czech trading company that delivers wood products to a number of countries, including European states, and a Japanese firm, SUMITOMO CORPORATION. The other 7 importers are near-border resellers, and one is from Jiangsu province. Prices offered by Chinese importers are much lower than those of KAIMAR LTD. or SUMITOMO CORPORATION. In 2015, three Japanese companies imported virtually the entire volume of coniferous plywood from the Russian Far East (97% of the market). Importers from the Chinese-Russian border regions have an absolute lead in high value roundwood imports (Table 9). All these market segments are substantially consolidated, except for unprocessed elm timber. Prices vary in the range of 10—15%. The leading importers also include timber companies and wood processing plants: HUANAN HEXIN FOREST INDUSTRY CO., LTD; SUIFENHE ZHONGXIN MEILAI INTERNATIONAL WOOD INDUSTRY CO., LTD; SUIFENHE JUXIN WOOD INDUSTRIAL CO., LTD (oak); SUIFENHE JUXIN WOOD INDUSTRIAL CO., LTD (ash); SUIFENHE YUANDONG WANDA WOOD INDUSTRY CO., LTD; SUIFENHE DEBANG WOOD INDUSTRY CO., LTD; and SUIFENHE TONGMING WOOD CO., LTD (elm).

12 Analysis of Timber Exports from the Russian Far East in 2015 Table 8. Leading importers of coniferous wood products from the Russian Far East in 2015

No. Name Thou. m3 % $/m3 Thou. US$ 1.1. Coniferous roundwood 1 J & J WOOD CO., LTD (Hong Kong) 316 6,83 76 24084 2 SUIFENHE SANXIA ECONOMIC AND TRADE CO., LTD (China) 278 6,02 77 21483 HIGH HOPE INTERNATIONAL GROUP JIANGSU CHAMPION 3 268 5,79 73 19544 HOLDINGS LTD (offshore/China) 4 RAOHE MAOSEN INTERNATIONAL TRADE CO., LTD (China) 232 5,01 68 15701 5 RAOHE FENGTAI IMPORT EXPORT TRADE CO., LTD (China) 205 4,43 70 14295 SUZHOU SENYANG INTERNATIONAL TRADING CO., LTD 6 173 3,73 75 12910 (China) 7 SUIFENHE QUMEI WOOD CO., LTD (China) 135 2,93 73 9854 8 ALIS INTERNATIONAL PTY LTD (offshore) 133 2,88 80 10622 9 SUIFENHE DAFU EXPORT IMPORT TRADE CO., LTD (China) 114 2,47 68 7754 10 TONGJIANG ZHONGMAI TRADE CO., LTD (China) 91 1,97 86 78353 Total for the ten importers 1946 42,06 74 144083 Total 4627 100,00 1.2. Coniferous lumber SUIFENHE SHENGTAI IMPORT EXPORT TRADE CO., LTD 1 164 15,03 96 15786 (China) 2 KAIMAR, LTD. (the Czech Republic) 123 11,24 148 18267 SUIFENHE PENGRUI ECONOMIC AND TRADE CO., LTD 3 115 10,54 96 11063 (China) 4 SUMITOMO CORPORATION (Japan) 75 6,83 155 11576 SUIFENHE HONGHAO IMPORT EXPORT TRADE CO., LTD 5 55 5,00 109 5951 (China) 6 FUJIN YONGAN SUIBIN CO., LTD (China) 42 3,87 127 5383 SUIFENHE LONGJIANGSHANGLIAN IMPORT EXPORT CO., 7 38 3,46 114 4307 LTD (China) 8 SUIFENHE GUANLIN IMPORT EXPORT TRADE CO., LTD (China) 33 3,03 99 3291 SUZHOU SENYANG INTERNATIONAL TRADING CO., LTD 9 31 2,82 121 3717 (China) 10 RAOHE FENGTAI IMPORT EXPORT TRADE CO., LTD (China) 26 2,38 146 3797 Total for the ten importers 703 64,19 118 83137 Total 1095 1.3. Coniferous plywood 1 SUMITOMO CORPORATION (Japan) 198 73,12 209 41416 2 SOJITZ CORPORATION (Japan) 58 21,30 248 14332 3 ITOCHU KENZAI CORP (Japan) 7 2,53 198 1358 Total for the three importers 263 96,95 210 57106 Total 271

Results 13 Table 9. Leading importers of high value roundwood

Thou. 3 Thou. № Name m3 % $/m US$ Oak 1 SUIFENHE XINGLILAI TRADE CO., LTD (China) 21 12,00 183 3931 2 SUIFENHE SENLINZHIXING TRADE CO., LTD (China) 18 10,12 197 3582 3 SUIFENHE BAILIDA ECONOMIC AND TRADE CO., LTD (China) 17 9,44 177 2995 4 HUANAN HEXIN FOREST INDUSTRY CO., LTD (China) 16 8,90 184 2935 5 SUIFENHE ZIFA TRADE CO., LTD (China) 14 7,67 177 2429 6 SUIFENHE BAOSEN TRADE AND ECONOMIC CO., LTD (China) 13 7,21 194 2511 7 SUIFENHE SANXIA ECONOMIC AND TRADE CO., LTD (China) 12 6,61 194 2302 SUIFENHE ZHONGXIN MEILAI INTERNATIONAL WOOD 8 8 4,86 176 1532 INDUSTRY CO., LTD (China) 9 SUIFENHE ZHONGHUI IMPORT EXPORT CO., LTD (КНР) 7 4,21 171 1291 10 SUIFENHE JUXIN WOOD INDUSTRIAL CO., LTD (КНР) 5 2,77 195 966 Total for the ten importers 132 73,80 184 24473 Total 179 Ash 1 SUIFENHE XINGLILAI TRADE CO., LTD (China) 21 20,05 183 3960 SUIFENHE BAOSEN TRADE AND ECONOMIC` CO., LTD 2 12 11,73 201 2547 (China) 3 SUIFENHE SANXIA ECONOMIC AND TRADE CO., LTD (China) 7 7,09 244 1872 4 SUIFENHE BAILIDA ECONOMIC AND TRADE CO., LTD (China) 6 6,23 206 1390 5 SUIFENHE SENLINZHIXING TRADE CO., LTD (China) 4 4,42 193 923 6 SUIFENHE XUANYUAN TRADE CO., LTD (China) 3,6 3,41 181 668 7 SUIFENHE JIUSHUN TRADE CO., LTD (China) 3,4 3,16 198 676 8 SUIFENHE JUXIN WOOD INDUSTRIAL CO., LTD (China) 3,4 3,16 213 728 SUIFENHE HAIMING ECONOMIC AND TRADE CO., LTD 9 3,2 3,03 191 625 (China) SUIFENHE AIERGELIN ECONOMIC AND TRADE CO., LTD 10 3 2,75 245 732 (China) Total for the ten importers 70,3 65,02 Total 108,2 215 23281 Linden SUIFENHE LONGJIANGSHANGLIAN IMPORT EXPORT CO., 1 0.15 35,89 186 24 LTD (China) SUIFENHE ZHONGXIN MEILAI INTERNATIONAL WOOD 2 0,14 40,47 187 27 INDUSTRY CO., LTD (China) 3 INTERACT LTD (Japan) 0,04 11,04 346 14 Total for the three importers 0,3 87,41 207 65 Total 0,36

14 Analysis of Timber Exports from the Russian Far East in 2015 Continuation of Table 9

Elm 1 DONGNING JIUYUAN TRADING CO., LTD (China) 11 9,89 131 1483 2 SUIFENHE SANXIA ECONOMIC AND TRADE CO., LTD (China) 9,2 8,10 109 1012 3 SUIFENHE SENLINZHIXING TRADE CO., LTD (China) 8,5 7,48 121 1039 SUIFENHE YUANDONG WANDA WOOD INDUSTRY CO., LTD 4 5 4,47 146 746 (China) 5 SUIFENHE DEBANG WOOD INDUSTRY CO., LTD (China) 4 3,66 176 736 6 SUIFENHE HAOHAI ECONOMIC AND TRADE CO., LTD (China) 3,8 3,34 137 524 7 SUIFENHE XINGJIA TRADE CO., LTD (China) 3,7 3,29 177 668 8 SUIFENHE TONGMING WOOD CO., LTD (China) 3,6 3,22 281 1037 9 HULIN YUANHUA TRADING CO., LTD (China) 3,6 3,18 100 364 10 SUIFENHE XINGLILAI TRADE CO., LTD (China) 3,3 2,92 162 541 Total for the ten importers 56 49,54 144 8150 Total 114

One the leading importers of oak, ash, and elm is SUIFENHE XINGLILAI TRADE CO., LTD, part of the Xinzia group, known for its involvement in the Lumber Liquidators case. The US flooring retailer was convicted, under the US Lacey Act, of illegal importation of hardwood timber into the US market. The retailer had to pay $13 million in fines, the largest Lacey Act penalty ever, for purchasing illegally logged timber imported by Chinese suppliers from the Russian Far East, where it was illegally harvested in the forest homes of Amur tigers and Amur leopards2. Leading importers of high value sawnwood include resellers and wood processing plants from Northeast China (Table 10). Demand for sawnwood products is smaller than that for unprocessed timber. Therefore, consolidation of these market segments is generally not significant, with the exception of linden exports, for which the share of wood processing plants is substantial (5 plants of 10 leading importers). The price range is not wide, with the exception, again, of linden, for which it may reach 30%. The substantial dispersion in linden plywood prices results from a large product quality range . For softwood deciduous species, only unprocessed timber imports are well-established, whereas other market segments are insignificant, although deciduous softwood could be among the most promising exports, given the area covered by secondary forests in the Russian Far East as well as the volumes of these species in total forest area (Table 12). Five importers are responsible for more than 98% of fuel wood, wood chip and wood brick imports (Table 13). In 2015, more than half of these products were exported to South Korea, 40% to Japan, and the rest to China. KAIMAR LTD., a Czech trading company (Prague), resold fuel wood pellets produced by the joint venture, ARKAIM LTD. (Khabarovsky province), to South Korea via the Vanino municipality. SUMITOMO CORPORATION (Japan) and KWANGWON LUMBER CO., LTD (South Korea) purchased 100% of wood chips produced by TERNEYLES. NOOWON CO., LTD (South Korea) imported wood bricks made by VOSTOK-VB LTD. (Primorsky Krai).

2 See the US Department of Justice, “Lumber Liquidators Inc. Sentenced for Illegal Importation of Hardwood and Related Environmental Crimes,” August 11, 2016. Available at https://www.justice.gov/opa/pr/lumber-liquidators-inc-sentenced-illegal- importation-hardwood-and-related-environmental

Results 15 Table 10. Leading importers of high value sawnwood

Thou. 3 Thou. № Name m3 % $/m US$ Oak 1 SUIFENHE BAOSEN TRADE AND ECONOMIC CO., LTD (China) 16,5 9,726 261 4324 2 SUIFENHE SANXIA ECONOMIC AND TRADE CO., LTD (China) 15,5 9,148 300 4664 SUIFENHE ZHONGXIN MEILAI INTERNATIONAL WOOD 3 10,6 6,257 262 2792 INDUSTRY CO., LTD (China) MULING CITY GUANGCHENG WOOD PRODUCT CO., LTD 4 8,3 4,918 288 2412 (China) 5 DALIAN JINDA WOOD PRODUCTS CO., LTD (China) 7,6 4,509 285 2189 6 NINGAN SHENGCHANG WOOD INDUSTRY CO., LTD (China) 6,5 3,838 280 1830 DONGNING SUIYANG WOODLAND YUANTONG WOOD CO., 7 6 3,574 277 1686 LTD (China) 8 SUIFENHE BAILIDA ECONOMIC AND TRADE CO., LTD (China) 5,9 3,51 296 1770 9 JIAMUSI HEWANG ECONOMIC AND TRADE CO., LTD (China) 5,3 3,161 288 1552 10 FUSONG JINQIU WOODEN PRODUCT CO. , LTD (China) 4,8 2,862 295 1434 Total for the ten importers 87 51,5 281 24652 Total 170 Ash 1 SUIFENHE XINGLILAI TRADE CO., LTD (China) 20,5 19,59 286 5880 2 SUIFENHE BAOSEN TRADE AND ECONOMIC CO., LTD (China) 10 9,60 286 2881 SUIFENHE YUANDONG WANDA WOOD INDUSTRY CO., LTD 3 6 5,81 283 1726 (China) 4 SUIFENHE BAILIDA ECONOMIC AND TRADE CO., LTD (China) 5,5 5,27 298 1646 5 HULIN YUANHUA TRADING CO., LTD (China) 4,5 4,36 280 1280 6 DALIAN JINDA WOOD PRODUCTS CO., LTD (China) 4,1 3,91 282 1157 7 SUIFENHE SENLINZHIXING TRADE CO., LTD (China) 3,7 3,53 283 1046 8 SUIFENHE HAOHAI ECONOMIC AND TRADE CO., LTD (China) 2,9 2,78 289 843 9 SUIFENHE JIUSHUN TRADE CO., LTD (China) 2,8 2,76 289 836 SUIFENHE LONGJIANGSHANGLIAN IMPORT AND EXPORT 10 2,6 2,49 283 741 CO., LTD (China) Total for the ten importers 63 60,10 Total 104 Linden 1 SUIFENHE HAOHAI ECONOMIC AND TRADE CO., LTD (China) 24,5 16,99 125 3074 2 JILIN FOREST INDUSTRY YUNLONG WOOD CO., LTD (China) 16,5 11,50 133 2199 SHANGZHI CITY LIANGZHU WRITING INSTRUMENT CO., LTD 3 14,4 10,04 107 1553 (China) 4 SUIFENHE XINGLILAI TRADE CO., LTD (China) 12,7 8,85 153 1958 5 SUIFENHE BAOSEN ECONOMIC AND TRADE CO., LTD (China) 11,7 8,17 124 1466 6 DONGNING GUANGYUAN TRADING CO., LTD (China) 10,3 9,07 150 1550 7 SUIFENHE CITY SENLINZHIXING TRADE CO., LTD (China) 9,4 6,56 135 1272

16 Analysis of Timber Exports from the Russian Far East in 2015 Continuation of Table 10

8 SHANGZHI WEIMING WOOD CO., LTD (China) 6 4,18 111 671 9 DALIAN JINDA WOOD PRODUCTS CO., LTD (China) 4,2 3,74 136 583 10 HAERBIN HONGQI WOODEN STATIONGERY CO., LTD (China) 3,9 2,73 146 571 Total for the ten importers 114 79,09 130 14896 Total for linden 44,079 144 Total for linden 44,079 (China) 143 79,52

Table 11. Leading importers of high value plywood

3 3 Thou. № п Ten foreign importers m % $/m US$ Oak 1 FUSONG JINLONG WOODEN GROUP CO., LTD (China) 857 47,43 299 256 2 FUSONG JINQIU WOODEN PRODUCT CO., LTD (China) 485 26,83 300 146 3 FUSONG QIANQIU WOODEN PRODUCT CO., LTD (China) 399 22,11 300 120 Total for the three importers 1,742 96,37 299 522 Total 1,808 Lined 1 HAILIN XINGCHENG FOREST CO., LTD (China) 4,201 27,98 294 1234 2 DUNHUA CITY FUSHAN TIMBER INDUSTRY CO., LTD (China) 3,155 21,01 121 382 3 DALIAN XINGJIA WOOD INDUSTRY CO., LTD (China) 2,089 13,92 217 453 4 DUNHUA XINGYUAN WOOD INDUSTRY CO., LTD (China) 2,031 13,53 450 914 5 DUNHUA SHENGHE WOOD INDUSTRY CO., LTD (China) 1,839 12,25 164 301 6 SUIFENHE XINGLILAI TRADE CO., LTD (China) 497 3,31 246 122 7 MUDANJIANG DAHE WOOD INDUSTRY CO., LTD (China) 272 1,81 237 64 Total for leading importers 14,087 93,81 246 3470 Total 15,015

Wood product exports In 2007, the government of Russia increased customs duties for roundwood timber to create new incentives for establishing timber processing factories in Russia and to further develop domestic manufacturing of high-value products. In parallel, the government introduced so-called priority investment projects in forest development. During 2007—2013, the level of overall investment in wood processing amounted to 18.2 billion rubles in Khabarovsky province and nearly 10 billion rubles in Primorsky province. In Khabarovsky province, five investment projects are currently at various stages of implementation. These projects include building a dry lumber plant by Amur Forest Ltd. in Berezovy, Solnechny district (commissioned in 2009); a dry lumber and particle board plant by Arkaim Joint Venture (phase 1, commissioned in 2009); a medium density fiberboard plant by the Rimbunan Hijau group in Khor, Laso district (production launched in 2011 but suspended in 2012, due to high raw materials costs and poor product quality); a center for enhanced wood processing by the Dallesprom company (part of the RFP Group in Amursk, a plywood production holding company launched in 2013); and a shaved and curved lumber production facility by Asia Les Ltd., Berezovy, Solnechny district.

Results 17 In Primorsky Krai, the following three projects have been implemented: a triple-layer ready-to-use parquet production facility by CJSC Les Export, Dalnerechensk; sawmills in Terneysky and Olginsky districts; a laminated veneer lumber plant by Primorsklesprom Ltd. in Chuguevsky district (commissioned in 2014); and a plywood and lumber plant by Terneyles company in Terneysky district (capacity commissioned in 2009)3.

Table 12. Leading importers of softwood deciduous timber from the Russian Far East in 2015

3 3 Thou. № Name m % $/m US$ 3.1. Softwood deciduous roundwood 1 SUIFENHE SANXIA ECONOMIC AND TRADE CO., LTD (China) 144,645 14,72 82 11859 2 SUIFENHE BAOSEN TRADE AND ECONOMIC CO., LTD (China) 66,598 6,78 86 5725 3 SUIFENHE XINGLILAI TRADE CO., LTD (China) 59,854 6,09 90 5364 SUIFENHE SHUNSHENG ECONOMIC AND TRADE CO., LTD 4 48,403 4,92 99 4801 (China) SUIFENHE HONGHAO ECONOMIC AND TRADE CO., LTD 5 34,270 3,49 62 2124 (China) SUIFENHE LONGJIANGSHANGLIAN IMPORT EXPORT CO., 6 31,099 3,16 62 1909 LTD (China) 7 SUIFENHE BAILIDA ECONOMIC AND TRADE CO., LTD (China) 28,504 2,90 89 2527 8 SUIFENHE HANHUA WOOD CO.,LTD (China) 25,877 2,63 66 1701 9 SUMITOMO CORP0RATION (Japan) 25,713 2,62 60 1551 10 SUZHOU SENYANG INTERNATIONAL TRADING CO., LTD (China) 25,686 2,61 59 1520 Total for the ten importers 490,655 49,92 80 39080 Total 982,946 3.2. Softwood deciduous lumber 1 JIAYIN WANGTONGXIANG FOREST CO.,LTD (China) 4,796 32,83 150 720 2 JIAYIN BAISHENGDE WOOD CO., LTD (China) 1,266 8,67 132 167 3 SUIFENHE TONGMING WOOD CO., LTD (China) 1,046 7,16 238 249 4 SUIFENHE HAIXI ECONOMIC AND TRADE CO., LTD (China) 994 6,81 66 66 SUIFENHE XINHENGYUAN GROUP ECONOMIC TRADE CO., 5 986 6,75 112 111 LTD (China) 6 HARBIN BEST INTERNATIONAL TRADING CO., LTD (China) 866 5,93 235 204 Total for the ten importers 9,956 68,14 152 1516 Total 14,611 3.3. Softwood deciduous plywood 1 XIANGHAI CO., LTD (China) 7,370 31,16 171 1263 2 SUMITOMO CORPORATION (Japan) 7,273 30,75 280 2036

3 LesPromInform Journal, No. 3 (109), 2015, http://www.lesprominform.ru/jarchive/articles/itemshow/4030

18 Analysis of Timber Exports from the Russian Far East in 2015 Continuation of Table 12

TONGJIANG XIAOLUN ECONOMIC AND TRADE CO., LTD 3 1,719 7,27 190 326 (China) 4 HUNCHUN LANBAOSHI WOOD INDUSTRY CO., LTD (China) 1,158 4,90 100 116 HUNCHUN SENYUAN INDUSTRY AND TRADE CO., LTD 5 845 3,57 98 83 (China) Total for the ten importers 18,367 77,64 208 3824 Total 23,656

Table 13. Leading importers of fuel wood and wood chips

Name m3 % $/m3 Thou. US$ 1 KAIMAR LTD (the Czech Republic) 94,135 45,0 65 6111 2 SUMITOMO CORPORATION (Japan) 84,729 40,5 23 1974 3 KWANGWON LUMBER CO., LTD (South Korea) 21,759 10,4 20 443 4 NOOWON CO., LTD (South Korea) 3,723 1,8 59 219 5 LACORICH CO., LTD (South Korea) 1,759 0,8 88 154 Total for the ten importers 206,107 98,4 43 8902 Total 209,355 100

RF Government Regulation No. 1319 of December 2014 was another government support measure targeting the wood processing industry. This regulation stipulated that, from 2014 onwards, subsidies were to be provided from out of the federal funds to wood processing plants in the Far East Federal District for priority investments in forest development and wood processing enhancement projects. The plan was to annually provide more than 1.5 billion rubles in subsidies annually. At the same time, such relatively large investments in wood processing in the Far East Federal District and the eventual commissioning of the above wood processing capacities do not appear to correlate with the rate of growth of processed products in timber exports. The share of sawn wood in 2015 exports is larger than in 2014 yet is smaller than in 2013, indicating a lack of a stable growth trend. In broad terms, the current share of sawn wood and processed products in total wood exports remains stable, at around one quarter of overall exports (Table 14).

Table 14. Wood product exports from the Russian Far East by degree of processing (in physical terms, m3)

Year Roundwood Lumber Veneer, plywood Total In physical terms 2013 5,537,760 (74,0%) 1,632,238 (21,8%) 316,439 (4,2%) 7,486,437 (100%) 2014 6,169,208 (78,2%) 1,470,414 (18,6%) 251,973 (3,2%) 7,891,595 (100%) 2015 5,898,827 (75,1%) 1,644,295 (20,9%) 311,958 (4,0%) 7,855,080 (100%)

Results 19 Processed wood products exported from the Russian Far East consist of sawnwood, plywood, and insignificant volumes of veneer, trim, and laminated veneer lumber. Nearly 82% of coniferous lumber exported from the Russian Far East in 2015 was manufactured by 12 leading companies in Khabarovsky Krai and Primorsky Krai and one company in Evreyskaya Authonomous Oblast (Table 15). A large share of exported lumber is of poor quality and mostly consists of rough-sawn timber that is neither dried nor shaved or sanded. It also lacks appropriate packaging. This can be contrasted with top-quality coniferous lumber exported from Siberia to Japan via Russian Far East seaports.

Table 15. Russian Far East: leading producers of coniferous sawnwood exported in 2015

№ Name m3 % 1 OJSC FLORA (Khabarovsky Krai) 211,658 19,32 2 OJSC TERNEYLES (Primorsky Krai) 141,016 12,87 3 AMUR FOREST LTD (Khabarovsky Krai) 133,203 12,16 4 Joint venture ARKAIM LTD (Khabarovsky Krai) 123,130 11,24 5 DV-MAXIMUM LTD (Khabarovsky Krai) 75,266 6,87 6 SIN’-CHUN’ LES LTD (Evreyskaya Autonomous Oblast) 39,817 3,63 7 PJSC KOMSOMOLSKY LPKh (Khabarovsky Krai) 31,450 2,87 8 OJSC DALLESSTROY (Khabarovsky Krai) 30,744 2,81 9 OJSC GORNORUDNAYA KOMPANIYA AIR (Primorsky Krai) 23,931 2,18 10 OJSC DALLESPROM (Khabarovsky Krai) 23,378 2,13 11 ELITDV LTD (Khabarovsky Krai) 21,954 2,00 12 RIMBUNAN HIJAU DV+MDF LTD (Khabarovsky Krai) 19,676 1,80 13 LESTRANSKOM-DV LTD (Khabarovsky Krai) 17,539 1,60 Total for the 13 leading producers 892,765 81,48 Total exports 1,095,729 100,00

Sawnwood production requires high-quality sawlogs exported at competitive prices. By comparing average export prices of sawlogs and rough lumber, one can see that the difference is very small compared with the volume of sawlogs needed to produce this lumber; and when it comes to coniferous lumber overland exports or high value sawnwood overland and maritime exports, prices of raw materials are higher than for lumber produced therefrom (Table 16).

Table 16. Comparison of average prices for of exported roundwood and sawnwood in terms of the equivalent amount of raw wood

Average price, $/m3 Export Coniferous High value Deciduous direction round- Coniferous Equivalent round High value Equivalent round- Deciduous Equivalent wood sawnwood raw wood wood sawnwood raw wood wood sawnwood raw wood Over land 71 118 127 194 210 346 85 143 152 By sea 75 156 134 412 345 736 61 191 109 On 73 130 130 199 219 355 83 149 148 average

20 Analysis of Timber Exports from the Russian Far East in 2015 Current exports of poor quality sawnwood, which require further processing in China, are not cost-effective compared with roundwood exports. It is exported in an attempt by regional timber businesses to comply with new government tariffs and restrictions on the export of roundwood timber. Other low-grade wood products in the export mix include wood chips (OJSC Terneyles), biofuel pellets (Joint Venture Arkaim Ltd.) and wood bricks (Vostok-VB Ltd.). Higher-grade export products include coniferous plywood (Table 17).

Table 17. Leading producers of coniferous plywood exported from the Russian Far East in 2015

№ Name m3 % 1 OJSC TERNEYLES 201,650 74,3 2 AMURSKAYA LK LTD. 69,820 25,7 Total for the two leading producers 271,471 100,0 Total exports 271,477 100

The development of high value-added wood processing in the Russian Far East can be fostered not only through government support and corresponding tariff policies but also through the promotion of Russian timber products in target foreign timber markets. The latter is only possible through joint investments in timber harvesting and value-added wood processing by forestry companies of the Russian Far East and their partners in East Asian countries. One success story in the Russian Far East is the cooperation between the Terneyles group of companies (Primorsky province) and the Sumitomo Corporation (Japan). Currently, OJSC Terneyles is the region’s leading company in terms of high- grade wood products output and mix.

Results 21 4. TARGET MARKETS

n 2015, more than 99% of wood products (in m3) manufactured in the Russian IFar East for export purposes were delivered to three neighboring countries: China, Japan, and South Korea (Table 18). China dominates wood exports in seven of ten wood product categories included in the analysis, particularly in the largest-scale market segments. China’s share exceeds 80—90%, illustrating the nearly complete reorientation of Russian Far East exports from Japan and South Korea to the Chinese markets. This reorientation reflects various factors, principally that Russian Far East forestry companies have lost out to competitors from other Russian regions (East Siberia) or other countries (Canada, New Zealand, USA) in the Japanese and South Korean markets, mainly because of the poor quality of their wood products. Other exports from the Russian Far East to 19 countries in Europe and the Asian-Pacific are traditionally irregular and insignificant in volume, cumulatively amounting to no more than 2—3% of output in individual categories (including coniferous sawnwood, coniferous and softwood deciduous plywood). The major reason for this is that the large geographical distance between these target markets and the timber harvest areas of the Russian Far East makes it difficult to inform potential buyers, over-complicates the logistics and makes delivery too costly. In terms of end-use product quality, Russian Far East suppliers are behind their competitors from other countries in global timber markets. Although they are competitive in raw wood (unprocessed timber) and pre-fabricated materials (sawnwood, plywood), they have to ensure large-scale and stable supply or to become integrated into foreign production chains should they want to be more successful. Either option is unattractive for Russian Far East companies as long as China is prepared to purchase the whole range of wood products from the Russian Far East, albeit in a lower price category.

China’s timber Since 2001, continental China has been the leading global net-importer of market unprocessed timber, and since 2005, it has also been the world’s largest net- exporter of wood products and furniture. Thus, China appears to be in effect a gigantic wood processing and furniture making hub. Chinese roundwood imports grew dramatically in the late 1990s—early 2000s because of a significant scarcity of raw wood for sawmills, veneer factories and other enterprises, resulting from industrial felling restrictions introduced by the country against a background of fast economic growth and increased timber demand. High timber consumption growth rates in China are associated with fast economic growth, improved livelihoods and growing urbanization. These factors foster the development of plants that manufacture end-use wood products, including furniture and building and finishing materials. Medium- and high-density fiberboard and particle board production capacities have been increasing particularly rapidly. Oriented stand board (OSB) has been in great demand in the recent years (this board is mostly used as a high-quality finishing material instead of veneer and other glued materials), as have materials used in door, furniture, and flooring production. In paper and cardboard production, China is second to the US. Moreover, China’s share in the world market as an exporter of high value-added wood products, primarily of furniture and board materials, has increased annually.

22 Analysis of Timber Exports from the Russian Far East in 2015 0 0 0 0 100 1,03 58,49 40,48 4.1 F uel wood 0 100 0,17 1,20 0,43 2,08 veneer 65,24 30,88 deciduous plywood and 3.3 S oftwood 0 0 0 0 100 1,21 1,88 96,90 deciduous sawnwood 3.2 S oftwood 0 0 0 100 1,03 0,10 0,00 98,86 deciduous roundwood 3.1 S oftwood 0 0 0 0 100 0,47 0,76 veneer 98,77 plywood and 2.3 H igh value 0 0 0 100 0,15 0,66 0,08 99,11 sawnwood 2.2 H igh value 0 0 0 0 100 0,27 2,09 97,64 roundwood 2.1 H igh value 0 100 2,32 0,34 0,07 veneer 12,36 10,94 73,96 plywood and 1.3 Coniferous 0 0 100 3,67 2,98 0,07 78,91 14,34 sawnwood 1.2 Coniferous 0 0 0 100 0,57 2,54 3,04 93,86 roundwood 1.1 Coniferous Wood product exports from the Russian Far East by main directions and categories, % M ain directions NEA neighboring countries China Japan South Korea North Korea Europe Southeast Asia Other Asian Pacific Total Table 18.

Target markets 23 Further development of the wood processing industry and the load of all production facilities in China will depend on the availability of raw wood fiber (Fig. 1).

Figure 1. Wood product exports to China, m3

Roundwood coniferous Roundwood Mongolian oak

Roundwood deciduous

Sawnwood coniferous Sawnwood Mongolian oak

Sawnwood deciduous

During the last five years, China has been continuously increasing its imports in all wood product categories except coniferous roundwood (a 9% drop in 2015). Since 2013, China’s timber imports (in physical terms) have been growing, while in monetary terms, they show decline driven by falling world timber prices (Fig. 2).

Figure 2. Wood product exports to China: summary of price evolution, $/m3

Roundwood coniferous Roundwood Mongolian oak

Roundwood deciduous

Sawnwood coniferous Sawnwood Mongolian oak

Sawnwood deciduous

Therefore, China’s reduced imports of coniferous roundwood may generally suggest that the global coniferous timber yield is exhausted at current price levels and production/transportation costs. In 20154, according to Chinese customs statistics, total roundwood imports were 44.57 million m3 . Geographically, the largest suppliers of unprocessed timber to China are as follows: New Zealand (24.2%), Russia (23.8%), USA (9.2%), Papua New Guinea (7.1%), Australia (6.4%), Canada (5.3%), and Solomon Islands (5.0%), summing to 81%, and the remaining 35 countries-suppliers are responsible for less than 19%. Table 19 shows the shares of countries that supply wood products to China as of 2015 by category.

4 LesPromInform Journal, No. 3 (109), 2015, http://www.lesprominform.ru/jarchive/articles/itemshow/4030

24 Analysis of Timber Exports from the Russian Far East in 2015 Таблица 19. Leading wood product exporters in the Chinese market in 2015

Product category Country share, % 440320 Coniferous New Russia USA Australia Canada Ukraine roundwood Zealand 35.0 30.2 11.9 8.3 7.9 2.8 440391 Oak France USA Russia Belgium Ukraine Germany roundwood 38.9 18.0 17.6 7.5 6.1 4.3 440399 Other Russia Latvia Estonia USA Lithuania Ukraine deciduous roundwood (excl. tropical) 70.0 16.4 2.7 2.4 1.6 1.1 440710 Coniferous Russia Canada Chili Finland USA Sweden lumber 48.1 31.9 3.9 3.5 3.4 3.0 440791 Oak lumber USA Russia France Canada Ukraine Germany 77.3 14.0 2.6 2.5 1.4 0.9 440799 Other Russia USA Latvia Lithuania Estonia Finland deciduous lumber 84.0 5.7 4.4 1.8 1.6 0.5

Source: UN Statistics Division /comtrade.un.org/

Since 2007, Russia’s share in total global roundwood exports to China has Figure 2. Wood product exports to China: summary of price evolution, $/m3 dropped nearly three-fold (from 68.4% to 23.8%), taking a backseat to New Zealand. Nevertheless, in 2015, Russia was still a leading exporter of larch roundwood (98.7%), ash (99.8%) and other deciduous non-tropical timber (70.0%) to China. It also maintained its leadership in exports of coniferous sawnwood (48.1%) and other deciduous non-tropical lumber (84.0%) to the Chinese market. Russia’s main competitors in the Chinese sawnwood market are Canada (21.2%), Thailand (11.5%), and the US (10.3%). In broad terms, Russia remains a leader in timber exports to China in monetary terms (product code 44), albeit its share has dropped (Table 20).

Table 20. Timber, wood products, and charcoal imports (product code 44)

Country Million US$ % Change compared to 2014, % Russian Federation 3,126 16,8 -1,1 USA 2,219 11,9 -22,6 Canada 1,497 8 -29,3 New Zealand 1,344 7,2 -26,1 Thailand 1,261 6,8 2,6 Indonesia 983 5,3 -8,2 Vietnam 864 4,7 -18,3 Laos 479 2,6 -54 Papua New Guinea 678 3,6 -16,7 Australia 840 4,5 73,4 Other countries 5,331 28,6 -21,8 Total 18,627 100 -18

Target markets 25 If we examine the evolution of Russia’s wood product exports to China, we observe that following a noticeable drop in unprocessed timber exports after 2007, slight growth has occurred in recent years in coniferous and deciduous sawnwood (Fig. 3).

Figure 3. Russian wood product exports to China: volume dynamics, m3

Roundwood coniferous

Roundwood Mongolian oak

Roundwood deciduous

Sawnwood coniferous Sawnwood Mongolian oak

Sawnwood deciduous

Since 2011, in monetary terms, Russian wood product exports (except oak timber) to China have been declining (Fig. 4).

Figure 4. Russian wood product exports to China: volume dynamics, m3

Roundwood coniferous

Roundwood Mongolian oak

Roundwood deciduous

Sawnwood coniferous Sawnwood Mongolian oak

Sawnwood deciduous

A concern here is the situation of Russian oak sawnwood in the Chinese market. The oak lumber price has been rising since 2013 (Fig. 4), while the export volume has been shrinking (Fig. 3), a situation that will inevitably stimulate oak harvesting in the Russian Far East, the main region of oak exports to China. With this in mind, one should expect growth in illegal oak harvesting in Russia.

26 Analysis of Timber Exports from the Russian Far East in 2015 The Chinese market also shows strong prospects for Russian wood products, including those from the Russian Far East. For example, in 2015, China’s wood product imports exceeded its exports by nearly two orders of magnitude (26,624,932 m3 versus 268,799 m3), indicating substantially unmet wood product demand5. China is a very large veneer and plywood producer and the world’s second largest consumer of these wood products. Russia is the second largest plywood exporter to China (7.8%) after Vietnam (87.8%). Russia also provides 15.4% of Chinese total veneer imports. In 2015, the share of the Russian Far East in Russia’s total wood product exports to China was 48.3% of coniferous roundwood, 77% of deciduous roundwood, 13.1% of coniferous sawnwood, and 51.4% of deciduous wood products. High value (oak and ash) roundwood exports are almost entirely accounted for by the southern regions of the Russian Far East, as are oak and ash lumber exports (97.5% and 82.3%, respectively).

Japan’s timber market Until 2001, Japan was the largest importer of timber from the Russian Far East but since then lost out to China, where the market for Russian timber appeared to be characterized by higher price and quality elasticities. Since 1989, Japan has been decreasing roundwood imports while also increasing sawnwood imports. Today, Japan imports more lumber than sawlogs, calculated in roundwood equivalent (i.e., the roundwood needed to produce a corresponding amount of lumber). Wooden house construction is Japan’s primary timber consumption sector. In recent decades, Japan has reduced traditional house construction, with obvious effects on the demand for timber import. Japan’s most preferred timber import is coniferous wood. In 2015, Russia exported to this country 142 thousand m3 of coniferous roundwood, which equaled 4.5% of Japan’s total coniferous roundwood imports. Russia is fourth in these imports, after the US (56%), Canada (26%), and New Zealand (13%). In 2015, Russia came third in terms of coniferous sawnwood supply with its 771,029 m3 (13%) after Canada (34%) and Finland (14%). The Russian Far East’s share in Russia’s coniferous sawnwood exports is 83% but only 5% in sawnwood because of its poor quality and packaging inferior to that produced in Siberia, including by Russian-Japanese joint ventures, primarily TM Baikal and Igirma Tairiku in Irkutskaya Oblast. Compared to the US and tropical countries, Russia’s share in Japan’s deciduous roundwood imports is not large: 3,292 m3, or 3.5% (fifth largest); in deciduous sawnwood, 3,078 m3, or 2.6% (sixth largest); in oak roundwood, 2,264 m3, or 14%; in oak sawnwood, 1,134 m3, or 4% (fifth largest). However, there is some discrepancy between Russian and Japanese oak supply statistics: the Russian side shows 2,424 m3 in oak roundwood and 1,314 m3 in oak sawnwood supplied from the Russian Far East to Japan (Table 22), whereas the Japanese data indicate that Russia delivered 7% less and 16% less, respectively, of these products. A certain discrepancy is also observed in deciduous sawnwood imports. According to the Russian Far East customs, 3,595.3 m3 in ash and linden roundwood and 25.2 m3 in other deciduous (birch and maple) roundwood were exported to Japan, summing to 3,620.5 m3, whereas according to the Japanese statistics, the value is 3,292 m3, i.e., 10% less. The Russian Far East’s deciduous sawnwood allocation was 81%, of which high value species (ash and linden) amounted to 88%. The discrepancies may be explained by different methods used in roundwood equivalent calculation and/or shrinkage allowance (for sawnwood).

5 UN Comtrade Statistics 2015

Target markets 27 South Korea’s timber In relation to Russian Far East timber exports, South Korea’s market is very similar to that of Japan, except that it is smaller and less meticulous about the quality and market grades of imported timber. This can be explained by the fact that wooden house construction is not as popular in South Korea as in Japan, and so timber is mostly processed for diverse industrial and other uses. South Korea’s 2015 timber import data are not available, so we will instead use the 2014 data in the analysis. In 2014, Russia supplied 162,339 m3 of coniferous sawlogs to South Korea, i.e., 2.5% of the market volume and was the sixth largest supplier after New Zealand (52%), Canada (21%), the US (17%), Australia (4.4%), and Japan (2.6%). In coniferous sawnwood supply, Russia comes second, after Chile (24%), having exported 226,902 m3 (13.2%).

28 Analysis of Timber Exports from the Russian Far East in 2015 5. EXPORT OF HIGH VALUE TIMBER

igh value timber exports from the Russian Far East are discussed separately Hfor the high environmental, economic and social value of these tree species, which primarily include Mongolian oak (Quercus mongolica) and Manchurian ash (Fraxinus mandshurica) as well as Amur, Manchurian, and Take linden (Tilia Amurensis, T. Mandshurica, and T. Taquetii). The fruit of Mongolian oak and Korean pine (Pinus koraiensis) are a source of fodder for many animals and form the basis of the Ussuri taiga food chain, playing an important role in Amur tiger conservation. Much of the ash stand is located in floodplain forests, which provide a habitat for many rare and endangered species. Finally, the three above linden species are the major nectar-bearing plants of the Russian Far East and a significant (sometimes even the most important) source of income for the population of taiga settlements. China is nearly the only importer of Mongolian oak from the Russian Far East; this timber is used in China for furniture and flooring production. A small amount of oak and ash timber is exported to Japan (1—3%). As discussed in the section describing Chinese importers, similarities in forest types and tree species composition between the South of the Russian Far East and Northeast China helped Chinese wood processing companies from the border regions rapidly adjust to the raw wood supplied by Russia. In the case of softwood species (birch, aspen, etc.), which have never been harvested or processed in the Russian Far East but used as firewood at best, growing demand by Chinese companies has put substantial pressure on these forest resources. Given a difficult social and economic situation in taiga settlements and in the south of the Russian Far East in the late 1990s and early 2000s, uncontrolled felling of these tree species has been rather common. In China, Mongolian oak harvesting stopped in 2014 after logging was prohibited in natural forests in the Northeast provinces. There is good reason to assume that the south of the Russian Far East remains the main (and practically the only) Mongolian oak harvest area, and during recent decades, uncontrolled illegal logging has done considerable damage to this tree species. According to WWF estimates of illegal logging (2013) between 1/2 and 2/3 of total Mongolian oak exports were of illegal origin. At the same time, demand for oak products (for example, flooring) is widely dispersed geographically, to also include environmentally sensitive markets, such as those in the US and EU. To preserve the resource base of this high value species, the Russian government included, in 2014, Mongolian oak and Manchurian ash in CITES (Convention on International Trade in Endangered Species of wild fauna and flora), Annex III. This inclusion does not entail harvest restrictions as such. However, it requires exporters to provide evidence of the legal origin of timber to ensure transparency. Additionally, several regulations were implemented to combat the illegal timber trade: Federal Act No. 415-FZ on the timber trade and its regional equivalent in Primorsky Krai — Law No. 332-KZ of December 13, 2013, “On the regulation of interactions in the timber turnover”. After these new regulations were enforced, high value timber exports somewhat declined – to 315 thousand m3 for oak (compared with 359 thousand m3 exported in 2014) and to 231 thousand m3 for ash (compared with 235 thousand m3 in 2014).

Export of high value timber 29 Nevertheless, if calculated in the roundwood equivalent, current oak and ash exports reveal harvesting volumes a way in excess over permitted harvest amounts, which implies continuous illegal logging of Mongolian oak and Manchurian ash. In other words, inclusion of these tree species in CITES has not resolved the illegal logging problem. Rosprirodnadzor, a government agency responsible for CITES compliance, is currently developing measures to improve the effectiveness of this instrument, including filling gaps in current requirements to document evidence of the legal origin of timber needed to obtain export permits. Not all sellers are happy with the new requirements on oak and ash exports designed to improve the transparency of supply chains. Some try to find ways to hide the illegality of harvested timber and sell it to Chinese customers as if it were from legal sources. Sanitary and selective logging remains another problem for Korean pine- broadleaf forests. These methods camouflage creaming of the best commercial trees otherwise prohibited by forest legislation to harvest. Sanitary logging legalizes logging through a veil of official documents. Yet, the best and most valuable trees are felled instead of low quality timber while reporting documentation is deceptive. In addition, CITES compliance is currently difficult, as the government body with the control function (Rosprirodnadzor) is not authorized to control forestry relationships in forest areas, which instead is the responsibility of the forest management departments of the Primorsky Krai and Khabarovsky Krai governments and of the prosecution service. As long as there is no interaction between these agencies and no effective primary accounting of timber (Unified State Automated Information System), CITES will remain ineffective in preventing illegal harvesting of high value tree species in the Russian Far East.

Figure 5. Mongolian oak habitat in the Russian Far East

Age groups

>240 years 121—240 years 10—120 years

30 Analysis of Timber Exports from the Russian Far East in 2015 - 3 13 127 3,315 5,470 6,229 15,015 15,015 14,874 (linden plywood) 4408909509 - - 0 0 65 (oak 1,742 1,808 1,808 1,808 plywood) 4408909505 - - 0 98 (elm 8,994 114,534 114,534 114,436 105,540 lumber) 4407999808 - 13 779 2,692 10,788 (linden 143,562 144,354 144,354 130,873 lumber) 4407999808 - 117 149 (ash 2,198 81,804 22,989 104,912 104,912 102,564 lumber) 4407959900 Customs Commodity Code - 199 402 (oak 1,313 14,348 170,152 170,152 155,401 168,639 lumber) 4407919000 - 0 0 85 0,6 276 362 362 362 (linden sawlog) 4403999509 - 0 783 3,510 27,722 80,496 108,218 108,218 103,924 (ash sawlog) 4403999501 - - 0 2,424 25,426 179,457 179,457 177,033 154,030 4403911000 (oak sawlog) (oak High value timber exports from the Russian Far East in 2015 by importing countries and regions of wood products origin, m R egion I mporting country Primorsky Krai Evreyskaya Autonomous Oblast Total China Khabarovsky Krai Japan South Korea Vietnam Total Table 21.

Export of high value timber 31 - 0,85 0,09 41,49 36,43 99,06 22,08 100,00 100,00 (linden plywood) 4408909509 - - 3,63 (oak 0,00 0,00 96,37 100,00 100,00 100,00 plywood) 4408909505 - - 7,85 (elm 0,09 0,00 92,15 99,91 100,00 100,00 lumber) 4407999808 - 1,87 7,47 0,54 0,00 99,45 90,66 100,00 100,00 (linden lumber) 4407999808 - 0,11 2,10 0,14 (ash 21,91 77,97 97,76 100,00 100,00 lumber) 4407959900 Customs Commodity Code - 0,12 0,77 (oak 8,43 0,24 99,11 91,33 100,00 100,00 lumber) 4407919000 - 0,17 0,00 0,00 76,37 23,47 100,00 100,00 100,00 (linden sawlog) 4403999509 - 0,72 3,24 0,00 25,62 74,38 96,03 100,00 100,00 (ash sawlog) 4403999501 - - 1,35 0,00 14,17 98,65 85,83 100,00 100,00 4403911000 (oak sawlog) (oak High value timber exports from the Russian Far East in 2015 by importing countries and regions of wood products origin, % R egion I mporting country South Korea Vietnam Japan China Total Khabarovsky Krai Primorsky Krai Evreyskaya Autonomous Oblast Total Table 22.

32 Analysis of Timber Exports from the Russian Far East in 2015 Figure 6. Oak, ash, and Korean pine exports, 2004–2015 (m3)

Korean pine Manchurian ash Mongolian oak

High value lumber In describing high value timber supply chains, it would be appropriate to show the ranking of the leading producers in the Russian Far East as shown in the customs producers clearance documents (Tables 23—25).

Table 23. Leading producers of oak timber producs exported from the Russian Far East in 2015

№ Name m3 % Leading producers of exported oak roundwood 1 PRIMORSKY LES LTD. (Primorsky Krai) 18,750 10,45 2 FOREST-STAR LTD. (Primorsky Krai) 13,244 7,38 3 KOREKS LTD. (Primorsky Krai) 10,424 5,81 4 STROYENERGOSERVIS LTD. (Primorsky Krai) 7,881 4,39 5 SOLE PROPRIETOR CHUPRYAKOV S.G. (Primorsky Krai) 6,533 3,64 6 CJSC LES EXPORT (Primorsky Krai) 5,266 2,93 7 VYMPEL-PROF LTD. (Khabarovsky Krai) 5,161 2,88 8 PRIMLESINVEST LTD. (Primorsky Krai) 4,457 2,48 9 SOLE PROPRIETOR KOZHEMYAKO T.V. (Primorsky Krai) 3,089 1,72 10 MITEKS LTD. (Primorsky Krai) 3,067 1,71 Producer unknown 12,280 6,84 Total for the ten0 leading producers 77,876 43,40 Total 179,457 100

Export of high value timber 33 Continuation of Table 23

Leading producers of exported oak sawnwood 1 STROYENERGOSERVIS LTD. (Primorsky Krai) 21,135 12,42 2 PRIMORSKY LES LTD. (Primorsky Krai) 11,667 6,86 3 SOLE PROPRIETOR KURMANOV A.A. (Primorsky Krai) 8,915 5,24 4 LIMONNIKI LTD. (Primorsky Krai) 6,073 3,57 5 KHOR-SERVIS LTD. (Khabarovsky Krai) 4,855 2,85 6 TORS LTD. (Primorsky Krai) 4,080 2,40 7 TANDEM DV (Primorsky Krai) 3,678 2,16 8 LESOZAVODSKY LPK LTD. (Primorsky Krai) 3,407 2,00 9 TRANS ASIA LTD. (Primorsky Krai) 3,333 1,96 10 ARS-DV LTD. (Primorsky Krai) 3,179 1,87 Total for the ten leading producers 70,325 41,33 Other 82,408 48,43 Producer unknown 17,418 10,24 Total 170,152 100 Leading producers of exported oak plywood 1 ARS-DV LTD. (Primorsky Krai) 485 26,83 2 EVEREST LTD. (Primorsky Krai) 352 19,5 3 IMPULSE LTD. (Primorsky Krai) 204 11,33 4 TSENTR EKOLOGICHESKOGO TURISMA LTD. (Primorsky Krai) 180 9,97 5 TENDEMSTROY LTD. (Primorsky Krai) 139 7,70 Total for the five leading producers 1,361 75,32 Other 158 8,79 Producer unknown 287 15,90 Total 1,808 100

Table 24. Leading producers of ash timber products exported from the Russian Far East in 2015

№ Name m3 % Leading producers of exported ash roundwood 1 KOREKS LTD. (Primorsky Krai) 5,257 4,86 2 PRIMLESINVEST LTD. (Primorsky Krai) 5,157 4,77 3 CJSC LES EXPORT (Primorsky Krai) 5,122 4,73 4 FOREST-STAR LTD. (Primorsky Krai) 4,778 4,42 5 PRIMORSKY LES LTD. (Primorsky Krai) 4,526 4,18 6 LESOZAVODSKY LPK LTD. (Primorsky Krai) 4,088 3,78 7 AMBER WOOD LTD. (Primorsky Krai) 4,071 3,76 8 CJSC ARTEL STARATELEI TERNEYLESSTROY (Primorsky Krai) 3,791 3,50 9 VYMPEL-PROF LTD. (Khabarovsky Krai) 3,709 3,43 10 PUZL LTD. (Khabarovsky Krai) 3,327 3,08

34 Analysis of Timber Exports from the Russian Far East in 2015 Continuation of Table 24

Total for the ten leading producers 43,829 40,50 Other 57,318 52,97 Producer unknown 7,069 6,53 Total 108,218 100 Leading producers of exported ash sawnwood 1 PRIMORSKY LES LTD. (Primorsky Krai) 11,422 10,89 2 DALNERECHENSKLES LTD. (Primorsky Krai) 6,723 6,41 3 KOREKS LTD. (Primorsky Krai) 6,555 6,25 4 CJSC LES EXPORT (Primorsky Krai) 4,030 3,84 5 VITYAZ LTD. (Primorsky Krai) 3,981 3,79 6 VYMPEL-PROF LTD. (Khabarovsky Krai) 3,769 3,59 7 CJSC PTS HARDWOOD (Primorsky Krai) 3,595 3,43 8 OLYMP PLUS LTD. (Primorsky Krai) 3,528 3,36 9 LESOZAVODSKY LPK LTD. (Primorsky Krai) 2,899 2,76 10 LIMONNIKI LTD. (Primorsky Krai) 2,548 2,43 Total for the ten leading producers 49,055 46,8 Other 48,716 46,44 Producer unknown 7,140 6,81 Total 104,912 100

Table 25. Leading producers of elm sawnwood exported from the Russian Far East in 2015

№ Name m3 % 1 PRIMTRUST LTD. (Primorsky Krai) 18,333 16,01 2 SORENTA LTD. (Primorsky Krai) 16,260 14,20 3 OLYMP PLUS LTD. (Primorsky Krai) 10,530 9,19 4 FOREST-STAR LTD. (Primorsky Krai) 4,515 3,94 5 REGIONLES LTD. (Khabarovsky Krai) 3,766 3,29 6 ALTERNATIVA LTD. (Primorsky Krai) 3,650 3,19 7 VECTOR LTD. (Primorsky Krai) 3,594 3,14 8 ONYX PLUS LTD. (Primorsky Krai) 3,569 3,12 9 OJSC ROSHCHINSKY KLPH (Primorsky Krai) 3,458 3,02 10 KOREKS LTD. (Primorsky Krai) 2,679 2,34 Total for the ten producers 70,357 61,42 Other 38,412 33,54 Producer unknown 5,765 5,03 Total 114,534 100

Export of high value timber 35 Linden timber exports As primary nectar-bearing plants, linden trees play important social, economic, and environmental roles, and therefore, the linden harvest is restricted in Primorsky Krai, Evreyskaya Autonomous Oblast, and the south of Khabarovsky Krai. Far East linden varieties, such as Amur linden, Manchurian linden and Taquetii linden, are of paramount importance in beekeeping. According to the State Forestry Department, in Primorsky Krai, there are nearly 400 thousand hectares of stand dominated by linden, accounting for approximately 3% of the total forested area in Primorye. Until 2007, commercial logging of linden was prohibited throughout Primorsky Krai and in most of Khabarovsky Krai, as required by “The logging rules in the Russian Far East forests” (1993). An additional linden logging ban was formulated directly by Primorsky Krai through its regional law of 05.12.1999 No. 69-KZ “On valuable and rare, not fellable tree, bush, and liana species in the territory of Primorsky Krai”. However, after the new Russia’s Forestry Code was enacted in 2007, these regulations became void, and linden lost its conservation status. Year after year, linden timber exports grew rapidly. In 2015, 137,466 m3 of linden sawnwood were exported from Primorsky Krai, amounting to 86% of total linden exports from the Russian Far East, or 87%, if calculated as raw wood (Table 26). That said, the roundwood equivalent of the exported amount, i.e., the total timber harvest volume needed to sustain current exports, was 355 thousand m3 in 2014 and 434 thousand m3 in 20156. By contrast, the total linden harvest in Primorye in 2014 was 162 thousand m3, as reported by the Primorsky Krai Forestry Department, which is much less than the 355,386 m3 actually harvested for export. Most likely, the difference between the official harvest data and actual harvest volumes, calculated based on linden exports from Primorye, indicates substantial overcutting, i.e., cutting above the allotted amounts.

Table 26. Linden exports from Primorsky Krai calculated as roundwood equivalent of export volume, 2015

Equivalent harvest 3 Roundwood Equivalent harvest Product category Export, m Bark coefficient volume conversion 3 recovery factor factor volume, m Roundwood 316 1,13 1,00 0,56 499 Lumber 130,874 1 0,56 0,56 417,328 Plywood 6,230 1 0,7 0,56 15,893 Total 137,466 433,720

6 The following lumber recovery factors were used to estimate the liquid equivalents: 0.56 for lumber and 0.7 for plywood. Because the customs include bark in the total export volume, albeit it is missing from the liquid volume shown in the forest use reports, the calculations integrate the average share of bark in linden roundwood (1.13). For more detail on the calculation method, see Milakovsky and Fedichkina (2015), WWF Russia, Vladivostok.

36 Analysis of Timber Exports from the Russian Far East in 2015 Figure 7. Roundwood equivalent of linden timber exported from Primorsky Krai, m3

roundwood

lumber

plywood

total roundwood equivalent

An analysis of linden exports from Primorsky Krai shows stable growth in sawnwood exports (by 30—35% per year) accompanied by a decline in linden roundwood exports. Calculations of roundwood equivalent of export volumes reveal steep growth in the linden harvest from 2009 onwards. Several factors fostering abrupt growth in these high value timber exports can be identified. The first is the elimination of logging restrictions after the new Forestry Code was enforced; another is high demand in China for linden timber and a relatively high export price; and a third factor is a relatively easy harvest of these species (for their large stem sizes) and the availability of forest tracks (linden stands are located in areas where other tree species had previously been logged). In addition, all this occurs against a background of inefficient forest management and weak government control. Today, the scale of linden removal from the forests of the Russian Far East both for export and domestic demand (it is used for cottage and steam bath construction) is so large that a possible complete prohibition of the linden harvest and exports has been considered in Primorsky Krai. Of all linden exporters, only Roshchinsky KLPH holds an FM FSC-certificate. Its share is less than 1% (2,422 m3) of total linden lumber exports. Geographically, linden exports are vast and primarily include the northeast provinces of China, Japan, and Vietnam. In addition to resellers, Chinese importers of linden lumber from Primorsky Krai include wood processing factories that produce wooden construction materials, stationery, pencils and other utensils.

Export of high value timber 37 Table 27. Leading producers of linden timber exported from the Russian Far East in 2015

Name m3 % Linden roundwood 1 CJSC LES EXPORT (Primorsky Krai) 146 40,47 2 LPO POZHARSKY LTD. (Primorsky Krai) 130 35,89 3 LESOZAVODSKY LPK LTD. (Primorsky Krai) 80 22,28 Total for the 3 producers 357 98,65 Total roundwood 362 100 Linden sawnwood 1 PRIMTRUST LTD. (Primorsky Krai) 25,390 17,59 2 OLYMP PLUS LTD. (Primorsky Krai) 22,043 15,27 3 SORENTA LTD. (Primorsky Krai) 18,106 12,54 4 PRIMORSKY LES LTD. (Primorsky Krai) 4,827 3,344 5 DALNIY LTD. (Primorsky Krai) 4,644 3,217 6 ONYX PLUS LTD. (Primorsky Krai) 4,337 3,005 7 TANDEM DV LTD. (Primorsky Krai) 4,229 2,93 8 LESPROM DV LTD. (Khabarovsky Krai) 3,738 2,59 9 OJSC ROSHCHINSKY KLPH (Primorsky Krai) 2,422 1,678 10 OJSC CHUGUEVSKAYA LPK (Primorsky Krai) 2,219 1,537 Total for the 10 producers 91,959 63,7 Other 41,839 28,98 Producer unknown 10,555 7,312 Total linden lumber 144,354 100 Linden plywood 1 NAI LI LES LTD. (Evreyskaya Autonomous Oblast) 4,407 29,35 2 VYMPEL-PROF LTD. (Khabarovsky Krai) 1,758 11,71 3 GLORIA LTD. (Primorsky Krai) 1,541 10,26 4 CJSC LESOZAVODSKY SHPON (Primorsky Krai) 899 5,99 5 REGION LTD. (Khabarovsky Krai) 893 5,95 6 TRANSEXPORT DV LTD. (Khabarovsky Krai) 862 5,75 7 PRIMTORGINVEST LTD. (Primorsky Krai) 703 4,69 8 SOLE PROPRIETOR KEPTENE (Primorsky Krai) 439 2,93 ZAVOD STROITELNYKH IZDELIY PRIAMURSKY LTD. (Evreyskaya 9 361 2,41 Autonomous Oblast) 10 SORENTA LTD. (Primorsky Krai) 308 2,05 Total for the 10 leading producers 12,174 81,08 Other 2,840 18,92 Total for linden plywood 15,015 100

38 Analysis of Timber Exports from the Russian Far East in 2015 6. EXPORT OF FSC-CERTIFIED TIMBER

ince the 1990s, new market instruments to ensure sustainable forestry Shave been developed globally, including voluntary forest certifications. In Russia, a marked increase in forest certification by the FSC (Forest Stewardship Council), an independent agency whose mission is to promote responsible forest management, has been observed. The FSC promotes management of forests in ways that are environmentally sound, socially beneficial, and economically prosperous. Forest certification is most efficient where customer demand for certified products is high, and this, in turn, depends on purchasing power and customers’ willingness to pay for products that come from responsible sources. In Russia, domestic demand for FSC-certified products remains too low to impact the logging companies. Therefore, the main factor driving FSC- certification in the Russian forestry sector is exposure to international trade and capital markets, primarily the EU, the US, Canada, Japan, Australia, and New Zealand. China is not yet an environmentally sensitive market. A low purchase price and stable timber supply remain the major drivers of wood product imports in this country. Nearly 100% reliance on the Chinese market creates even weaker conditions for the forest certification development in the Russian Far East compared with other Russian forest regions located closer to the European markets. To compare with, in 2015 the share of FSC-certified forests in total commercial forests in the Russian Far East was 17% (or 5.4 mln ha), whereas in the Russia’s Barentz ecoregion, which exports its products to the European Union, this share amounted to 41% (Fig. 8).

Figure 8. Comparison of FSC-certification in Russia’s Western and Eastern regions

FSC-certified Forests Share of Barents Ecoregion’s Commercial Forests

41 % 59 %

FSC non-FSC

Export of FSC-certified timber 39 FSC-certified Forests Share of Amur Ecoregion’s Commercial Forests

17 %

83 %

FSC non-FSC

Source: FSC Russia, «Certificates holders as of March 24, 2016»

Among the largest harvesting and wood processing companies in the Russian Far East, the following two companies are FSC-certified: the Terneyles Group and RFP Group Holding. The Terneyles Group holds three ‘combined’ FM/ CoC certificates (forest management and supply chains) covering a territory of 2,828,849 ha (concessions of OJSC Terneyles, OJSC Amgu, OJSC Roshchinsky KLPH) and four supply chain (CoC) certificates (for OJSC Terneyles, OJSC Roshchinsky KLPH, CJSC STS Technowood, CJSC PTS Hardwood). Yet, not all of the concessions of the RFP Group are FSC-certified. Some of the companies that are part of RFP Group Holding (OJSC Flora, OJSC Dallesprom, Kenny Ltd., Vostoklesinvest Ltd.) have their own ‘combined’ forest management certificates, covering 2,576,957,83 ha. In addition, the RFP Trading House holds a supply chain certificate (FSC CoC) and is responsible for the centralized sale of wood products supplied by harvesting and wood processing companies of RFP Group Holding. In all, eight forest management certificates have been issued to the following Russian Far East companies: OJSC Terneyles, OJSC Amgu, OJSC Roshchinsky KLPH, OJSC Flora, OJSC Dallesprom, Kenny Ltd., and Vostokinvest Ltd. (Table 28). FM (forest management) certificates are issued to companies that have successfully obtained their forest management certification in accordance with FSC principles and criteria: compliance with the law, social responsibility, respect for the rights of personnel, and compliance with environmental requirements including conservation of high value forests (HCVF). In the context of the Russian Far East, the latter implies conservation of intact forest landscapes (IFL) defined as intact natural ecosystems nearly free of human impact and with territories sufficient to sustain biodiversity. Largely due to their impressive territories, IFL forests help conserve not only individual flora and fauna species but also entire forest ecosystems, ecosystem complexes, and key ecosystem functions. In the south of the Russian Far East intact forest landscapes are largely composed of Korean pine-broadleaf forests. These forests contain high value CITES-protected tree species, the Mongolian oak and Manchurian ash, providing habitat for the endangered Amur tiger and the Amur leopard. Pressure from the industry on these forests has always been more severe than on boreal forests in the north less accessible for logging. In many Russian FSC-certified companies that work in regions where the share of IFL forests in commercial woods is high (eg., Siberia and the Russian Far East), protection of IFL does not generate much enthusiasm. On average, only 20% of IFL forests located in the territories of Russian FSC-certified logging

40 Analysis of Timber Exports from the Russian Far East in 2015 companies have special status as protected areas. Therefore, FSC-certified companies will soon likely have to increase the share of protected old-growth forests if they wish to retain their certificates. In the Russian Far East, Terneyles concessions have the largest share of protected IFL forests. In 2013, WWF and Terneyles signed an agreement on the protection of nearly 600 thousand ha of high conservation value forests, including IFL forests7. This problem will be the most pressing issue for companies of the RFP Group, operating in large territories covered by IFL forests and woodlands. In the territory of Dallesprom alone (which contributes 8% to total timber exports from the Russian Far East), up to 700 thousand ha of intact forests are not protected. At the same time, FSC-certified Russian Far East logging companies highlight that it is not possible to entirely exclude vast intact forest landscapes from commercial use without seriously impairing the bottom line of the Russian Far East forestry sector. Therefore, logging companies suggest reaching a compromise by identifying and protecting, above all, top-priority (most valuable in terms of biodiversity) IFL forests. In 2015—2016, in an effort to develop a new national FSC standard in the Russian Far East, an regional commission was set up to develop a special methodology for IFL forests zoning in this region. At the time that this paper was written, the commission members (Terneyles, RFP Group, WWF-Russia and FSC representatives) were testing this methodology on Terneyles concessions. Overall, the share of timber harvested in FSC-certified forest areas in total timber exports from the Russian Far East is not greater than 30% (varying between 2.1 and 2.5 mln m3, as estimated based on Tables 28 and 29). That said, the shares of Mongolian oak, Manchurian ash, and linden harvested in FSC- certified areas in total exports of these woods are not greater than 1% for oak and linden and approximately 2% for ash (Table 30). Most FSC-certified timber exports are larch, spruce, birch, aspen, and other coniferous and softwood deciduous species.

7 http://www.wwf.ru/resources/news/article/11489

Export of FSC-certified timber 41 Table 28. FSC-certified logging companies (FM/CoC – forest management and supply chains)

Share in total timber 3 exports from the Name Certified area, ha Export volume, mln m Russian Far East, (8,064,436 m3), % Terneyles (Primorsky Krai) 1,990,011.00 0,7 9 Dallesprom (Khabarovsky Krai) — (RFP) 1,681,768.83 0,65 8 Flora (Khabarovsky Krai — (RFP) 476,405.00 0,547 7 Roshchinsky KLPH (Primorsky Krai) 473,251.00 0,08 1 Amgu (Primorsky Krai) 365,587.00 0,05 0.6 Kenny (Amurskaya Oblast) — (RFP) 176,167.00 0,16 2 Vostoklesinvest (Amurskaya Oblast) — (RFP) 139,625.00 0,16 n/a Total certified area 5,405,806.83 2,3 28

Table 29. FSC-certified logging companies (СоС – Supply chains)

Name Supply volume, mln m3 Share in exports, % Torgovy dom RFP Ltd. 1,7 21 OJSC Terneyles (Primorsky Krai) 0,7 8 OJSC Roshchinsky KLPH (Primorsky Krai) 0,08 1 PTS Hardwood 0,007 <1 Technoles 0,001 <1 Amurskaya lesopromyshlennaya kompaniya 0,07 1 Total FSC-certified supply 2,5 31 % Total exports 8,064,436 100

Source: WWF Russia, 2015

Table 30. FSC-certified exports of high value species

Producer Volume, m3 Share in total exports of this tree species Exports of oak produced by FSC-certified companies Roshchinsky KLPH (FM-CоC) 1,071 <1 % Hardwood (CоC) 2,379 <1 % Exports of ash produced by FSC-certified companies Hardwood 3,595 1.7 % Roshchinsky KLPH 1,067 <1 % Exports of linden produced by FSC-certified companies Roshchinsky KLPH (FM-СоС) 2,422 <1 % RFP (CоC) 187 <1 %

42 Analysis of Timber Exports from the Russian Far East in 2015 7. CONCLUSION

n 2015, wood product exports from the Russian Far East consisted primarily Iof unprocessed timber. The share of end-use products remained negligible. The share of sawnwood was also rather insignificant amounting to only 1/5 of total timber exports. Chinese markets received more than 90% of timber exported from the Russian Far East, which may pose some economic risks for the export-oriented region. Given that China itself has a very diversified market of timber suppliers it has more leverage over Russia than vice versa in terms of shaping timber purchasing/sale prices. This reliance on one purchasing market, in combination with the underdeveloped value-added processing sector, supports Russia’s current unsustainable forest management practices based on the removal of high value export-quality grades from natural forests, including from high conservation value forests. In the absence of a transition to more sustainable forest management patterns, which would imply more diversified trade markets, an increased share of value-added wood products, reforestation, and forest plantation for export purposes, the Russian Far East will very soon experience the depletion of its high conservation value forests and the eventual degradation of intact forest landscapes. A pressing concern is the annual increase of logging of high value timber species in the south of the region. Thus the calculations of linden exports into roundwood equivalent reveal a steep growth of linden harvest well in excess of the allotted amounts. There is enough evidence in the discussed export statistics to suggest that the current logging rates of linden, oak and ash species go well above the approved volumes, which in turn leads to the degradation of the forests crucial for sustaining biodiversity and economic sustainability of these ecosystems. Illegal logging of linden forests remains a serious concern for many residents living in remote forest communities in Primorsky and Khabarovsky provinces dependent for their livelihood of bee-keeping and making linden honey. The share of FSC-certified timber in high value timber exports (oak, ash and linden) remains very low constituting less than 1% for oak and linden, and 2% for ash; whereas the overall share of FSC-certified timber in the total timber exports from the region is between 28% and 31%. The FSC share will grow if export markets are eventually diversified, and if more timber is sold to Japan where consumer demands for certified timber products is highest in East Asia. Perhaps it is good time to tackle the lack of special timber sea terminals in the Russian Far East. Timber cargo delivered by maritime routes presents a more cost effective option as compared to terrestrial routes. In addition, shipping timber by sea routes implies more diverse destinations enabling, in turn, a diversification in the current product mix (more demand of the end-use products) and an increased access to final consumer markets, thus bypassing resellers in the Northeast China border regions.

Conclusion 43 Elena Feditchkina Tracy WWF-Russia Alexey Lankin, Pacific Institute of Geography, the Russian Academy of Science

Analysis of Timber Exports from the Russian Far East in 2015

Picture on the cover — A. Khitrov Layout — Yu. Fomenko

This publication is not for sale and is distributed free of charge Intact forest landscapes (IFL) within FSC-certified forest leases World Wildlife Fund (WWF), Amur Branch 690003, Vladivostok, Verkhneportovaya Str., 18 А, tel./fax: +7(423) 241-48-68, [email protected]