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take place in the digital environment. At the moment, the most important Latvijas Finieris focuses factor in the company is balance at all levels, both in the segments of on bioeconomics foreign customers and all links of the supply chain, from the forest to the purchaser of products, which means JSC (AS) Latvijas Finieris, one of the largest birch plywood the ability to adjust to the changing producers in , has taken a course towards bioeconomics situation quickly and flexibly. In by replacing the fossil phenol used for plywood gluing cooperation with forest managers, with biological lignin; furthermore, construction of the we are looking for solutions to avoid industrial level experimental birch bark recycling laboratory a shortage of raw materials such as intended for the production of betulin is in progress. veneer logs. Solutions offered by JSC (AS) Latvijas valsts meži and the Estonian state forest manager RMK by MĀRIS ĶIRSONS time reduce the risk of infection with to provide the stability of supply of Covid-19. The most complicated veneer logs are worth recognition, matter concerned the health of the his was told in the interview company’s employees to reduce risks with Baltic Business Quarterly, of illness. For example, we limited Latvijas Finieris tby Mr Mārtiņš Lācis, Executive Board the contact of our employees with Sector: development, production Member and Head of Marketing, the transporters — truck drivers. and sale of birch plywood products Sales, Purchasing and Logistics Sector Production units of Latvijas Finieris Export: 95% (to more than 60 countries overall) of JSC (AS) Latvijas Finieris. He are located in four countries — the Net turnover: 228.9 admits that the Covid-19 pandemic production units in and million euros (2019) and restrictions imposed in an effort produce veneer, while Employees: 2,545 (on to limit its spread have changed many plywood and its products are average in 2019) previously common processes. The produced in Latvia and . Production: • In Latvia: JSC (AS) Latvijas planning has also changed, since only Initially, we were concerned regarding Finieris, factory Furniers; factory short-time operation for the duration possible stricter measures imposed Lignums, factory Hapaks and of a few weeks may be planned at in Lithuania, which would affect the LLC (SIA) Troja (), LLC the moment, while previously this production of veneer in Likmere, but (SIA) Verems in the Rēzekne term was many times longer. this turned out not to be a problem. Special Economic Zone • In Estonia: OU Kohila Vineer Reactions of Baltic countries and • In Lithuania: UAB Likmere How have the measures Finland aimed at the restriction of the • In Finland: Riga Wood Finland Oy imposed to restrict the spread of spread of the coronavirus pandemic Forestry: coronavirus pandemic changed were similar. There were no problems • JSC (AS) Ludzas MRS the company’s operation? related to the supply of products – • LLC (SIA) Latvijas Finieris mežs Sales: Of course, the situation, which logistics, apart from the decision of • Riga Wood GmbH (Germany) emerged in 2020 is an unprecedented Poland to close down the borders • Riga Wood Holland BV one, and it affected everything and a similar case on the border of (the Netherlands) — production, logistics, foreign Turkey. Besides, the imposed travel • Riga Wood Finland Oy (Finland) purchasers and consumers of our restrictions forced us to very rapidly • Riga Wood Sweden AB (Sweden) • Riga Wood Ltd (Great Britain) products, as well as suppliers of introduce various solutions for • Riga Wood France veneer logs and other materials remote gatherings and meetings with S.A.R.L. (France) necessary for plywood production. customers, especially with those who • Riga Wood Iberica S.L.U (Spain) In fact, everybody was forced to find had planned to attend the company’s • Riga Wood Italia S.r.l (Italy) a way to work under such unclear production units. Even the annual • Riga Wood Orman Urunleri San.Tic. Ltd. Sti (Turkey) circumstances, where the highest gatherings and meetings of work • Riga Wood Japan (Japan) priority was and is human health. groups organised by the European • Riga Wood North This is why an internal regulation Panel Federation, which previously America Inc. (USA) was developed within the company took place on-site only and were • Riga Wood Baltic AS (Latvia) to improve safety and at the same unthinkable of in remote format, now INTERVIEW | 31

Mārtiņš Lācis, Executive Board Member of the JSC (AS) Latvijas Finieris: “Plywood products of Latvijas Finieris will become “greener” and significantly reduce the carbon footprint, thus causing competitive advantages and reducing climate change.”

but his company was closed down Photo: Matīss Markovskis since at that moment nobody knew because nobody knew what was going due to the coronavirus; therefore, the potential production volumes, to happen, what kinds of restrictions products were delivered to a logistics because the predictions were only were to be imposed and for how long; warehouse, where the customer possible for the duration of 2–3 however, we had assurance that the picked up the order as soon as he was weeks, while any further predictions situation would change at some point. able to. April saw an explicit drop in were equal to looking into a crystal Due to the aforementioned reasons, deliveries of plywood products mainly ball. My prediction is that it will we initially built a rather pessimistic to Southern European countries, but take a stabilisation period of 6–12 scene, where sales in April and May it was compensated by the growing months to understand the long-term shrank comparatively quickly, at the demand in the German, Polish impact of the Covid-19 pandemic. same time focusing on the ability and Baltic markets. The fact that Namely, the impact caused by these to quickly adjust to the situation — restrictions in a large market such as consequences on the demand of the wishes of our customers. This Great Britain were imposed later than customers and cooperation partners was the correct decision, since in the rest of Europe, thus enabling for the products of Latvijas Finieris volumes of orders changed rapidly us to smooth out the production and also any other producer. For in all countries in April and May process, also played its role. Besides, example, Latvijas Finieris supplies compared to January; a few countries we have to take into account the fact its products to a trailer manufacturer showed huge drops, while other that so far British purchasers have in Germany, which, in turn, sells its countries showed huge increases. always maintained larger inventories products across the globe. This time in warehouses than in continental is not easy for European producers. For example, purchasers of plywood Europe. Whereas, in May and June, products from Spain, France and following the lifting of the restrictions What changes were caused by Italy, where the restriction measures in Southern European countries, the pandemic in the behaviour of the pandemic imposed by the customers from these countries of purchasers of birch plywood? countries were very strict, postponed rapidly renewed their orders. In Latvijas Finieris sells plywood deadlines for the deliveries of orders essence, the market diversification products in more than 60 countries, with the assurance that they will implemented by the company a while and each of these countries has need the products at a later date. Of ago allowed us to successfully a specific situation with certain course, we also faced some cases, overcome this complicated period. nuances. First of all, the huge when customers cancelled their Thus, in general, volumes of uncertainty related both to the initial orders. There was also a case, plywood production during this foreign customers of Latvijas Finieris where the cargo of products was complicated period were maintained and their cooperation partners, on the way to a Spanish customer, within the conditional frames. 32 | INTERVIEW

the research of new end consumer WHAT IS LIGNIN? products (where birch plywood can be Lignin is a recyclable and ecologically friendly product, used). Trans-continental trade is very abundantly available in the entire world in trees and plants. sensitive to situations such as that Therefore, it has recently become important subject to active research, to develop new and more sophisticated uses for it. This which was caused by this pandemic. rising technological wave with most promising results belongs American purchasers maintain larger today to the World’s Megatrends. RIGA ECOlogical is one of them. inventories than purchasers working in Great Britain or, moreover, in continental Europe, because they take all kinds of possible risks into Latvijas Finieris faced its first What about the situation in account. At the same time, during this experience with Covid-19 back the German market, where aggravation of Covid-19, interest in in February this year. Last year, Latvijas Finieris is among the innovative birch plywood products our company commenced good largest suppliers of industrial grew in America; however, the cooperation with plywood purchasers products from Latvia? materialisation thereof takes a longer in China, but, at the beginning The German market is the largest time, because on-site meetings are of February, deliveries to the plywood market in continental not possible due to the cessation purchasers of this Asian country Europe, where we sell 16% to 20% of of travel. Although we have not were put on hold; however, 1.5–2 the plywood products produced by attracted new purchasers of plywood months later, when all the European Latvijas Finieris annually. Latvijas products at the moment, a customer, countries commenced imposing Finieris has more than 60 customers which had not purchased anything their restrictions, deliveries to in Germany, from traders to industrial from Latvijas Finieris for several China resumed. This fact caused consumers of birch plywood, with years, placed an order this spring. the feeling that economic activities the annual business volume of would also renew in Europe. In the largest customer reaching What is the situation in relation contrast to the massive restrictions approximately 5 million euros, and to the previously planned imposed in China, there were no the smallest one – approximately investment projects? such restrictions in Japan and Korea. 1,000 euros. Successful cooperation Under the circumstances of huge Moreover, cooperation partners with such a broad circle of customers uncertainty, the further direction of from Korea and Japan even wanted with different interests is provided several development projects, which to receive the goods sooner than by the trade company of Latvijas were at the stage of planning, has initially expected, since they Finieris (with seven employees) been slowed down, but not stopped. were afraid of possible restricting Riga Wood GmbH, located in Dresden. At the moment, Latvijas Finieris measures aimed at the restriction As I mentioned before, during the concentrates on the more efficient of spread and combatting of the pandemic, Latvijas Finieris was even use of the existing assets, more coronavirus in Latvia, which could able to increase sales in the German efficient use of heat and electric make plywood production and market. Such a result was achieved energy – energy efficiency. All deliveries thereof difficult. However, due to the elaboration forerunners technical repairs and maintenance uncertainty is still here. Customers of previous years combined with the of equipment take place according want to receive their orders within ability of Latvijas Finieris to respond to the schedule. Coronavirus has not a very short time, which means a very to the wishes and needs of each short time span between the receipt particular customer very quickly and of the order, production and delivery. operatively. Share of sales of Latvijas WHAT IS BETULIN? Turkey is another market for the Finieris in the purchase portfolios of Betulin is a naturally occurring products of Latvijas Finieris, which these customers has even increased. triterpene. It is commonly helped to compensate for the drop isolated from the bark of birch in volumes of orders in Southern Did you work on new potential trees. The compound in the bark European countries. This Middle markets and new customers gives the tree its white color. In numerous scientific studies, Eastern country has recovered during that time? the natural active ingredient after the economic recession faced Work towards this direction has not betulin has been found to have in 2019, therefore construction stopped, even during the pandemic. anti-inflammatory, anti-bacterial volumes have increased, and so has For example, in the American market, and regenerating properties. the demand for plywood products. Latvijas Finieris has focused on INTERVIEW | 33

“My prediction is that it will take a decrease share of phenol in our glue, stabilisation period of 6–12 months to replacing it with lignin over time. understand the long-term impact of the Covid-19 pandemic,” Mārtiņš Lācis, Executive Board Member of the JSC (AS) Latvijas Finieris What is the current stage of the intent of betulin production? We have considered the rational, economically beneficial use of wood by-products in plywood production for using lignin-based glue. Customers many years, and, as far as birch bark is in other countries are also waiting concerned, its recycling into biological for such offer. In RIGA ECOlogical betulin, which could be a raw material glue bio-based renewable lignin for cosmetics and pharmaceuticals, currently replaces almost a half of was admitted to be a good approach. traditionally used fossil materials, In cooperation with the Forest Sector thus offering to all our customers Competence Centre, the experimental a significant competitive advantage industrial betulin production unit is in in the increasingly green business the process of creation – a laboratory environment. Customers like such with the aim to find a way to obtain replacement of phenol by lignin, but high purity betulin using birch bark, affected the sector of service and they also want tangible benefits – which is generated as a by-product product development. Emphasis results. At the moment, Latvijas of plywood production. Opening of is on making plywood products Finieris, together with scientists, this production unit is planned at the greener — fosil products are being performs and tests plywood products, end of 2020. This means that Latvijas gradually replaced by sustainably the glue of which contains phenol Finieris has “stepped out” from wood generated materials of organic and lignin. When this work is processing and commenced its activity origin. A good example of this is the finished, we will be able to compare in the area of wood chemistry, the new lignin-based glue of Latvijas the environmental impact caused by potential consumers of the products Finieris, used for the production both glues containing phenol and of which include the cosmetics of plywood with the trade mark lignin. Whereas, the physical and manufacturing industry and pharmacy, RIGA ECOlogical. This glue has been chemical properties of the product which set different criteria compared developed within the framework do not change depending on the use to the sectors we have worked with of a three-year project in close of phenol or lignin in its content. thus far. At the moment, betulin is cooperation with the Finnish group of In Scandinavia and Great Britain, globally produced using birch bark companies Stora Enso. Whereas, the during the building of houses, their in experimental small volumes, but second direction is wood resources environmental impact is already this area has great future potential, — birch bark, which we want to being taken into account and is to especially in the context of the circular use to make a product with high be later used in tax policy, most economy and Green Deal. The great added value – betulin. Both of the frequently for the calculation of potential is confirmed by the following aforementioned directions form the property tax. I predict that, as soon example – one company (operating contribution of Latvijas Finieris to as the relevant documentation is in the pharmacy industry) from the reduction of climate change. ready, demand for plywood products Germany purchases decontaminated with the RIGA ECOlogical brand and sorted birch bark from Latvijas What is the current stage of the will also grow, because lignin Finieris, in order to produce betulin. project related to gluing plywood reduces the carbon footprint of From a long-term perspective, this using lignin-based glue? plywood production. It is planned German company could become We already started offering plywood that initially such a solution – a good cooperation partner in the products glued with such glue to our to use only RIGA ECOlogical betulin segment. At the same time, it customers last year, and this year glue – will be fully adopted by might take many years, certificates the volume is increasing. There the factory Furniers; however, it and convincing of potential consumers are many customers in France, the requires additional investments. of the quality and properties of the Netherlands and also in Latvia, which Regarding further substitution of product before we can speak about are already receiving the entire range fossil resources, our intention is commercial betulin production using of products of Latvijas Finieris glued to proceed the direction where we birch bark in industrial volumes.