Sustainable market-based forestry and the financial benefits of forest management in Estonia : a local-level case study

(1) Is the current level of harvests a concern for meeting environmental objectives? (2) What amount of income is generated from harvests, and how is this income divided among various stages/groups in forestry (i.e., government, harvesting, processing, and exporting)? As a first step in a national-level analysis, the paper focuses on the forest districts that overlap four local government units in Voru and Valga counties in Southern Estonia. This region was chosen because of the importance of forestry for the local economy and because it includes Estonia"s second national park, the Karula. Sections 2 and 3 of the report present basic information on harvest levels in the study region, while Section 4 reports on auction prices for harvesting rights (final felling and thinning) in the region. Based on these data and additional best estimates of uses and production costs, Section 5 analyzes the overall financial benefits being generated from forestry in the region and estimates their distribution among the various participants in forestry activities. Section 6 provides suggestions for further policy analysis of the forest sector. The data show that harvest levels are small relative to the amount of standing volume, past harvest levels, and management specifications for the region. The current level of harvests, or even substantially higher harvests, are very consistent with meeting Estonian forest management objectives of supplying non-consumptive use benefits to the economy. Estonian forest prices are integrated into world market prices, and the relatively competitive pricing policy has generated an additional benefit for Estonia. The rising price for harvesting rights for sawlogs has made it less profitable to export unprocessed material and more profitable to process products locally. As a result, more domestic Estonian value-added is being generated. It is estimated that forestry generates about EEK 58 million (a little over $US 4.8 million) in the case study region, with the government receiving 14% of this total directly through stumpage sales and other taxes. Of the remainder, 54% is generated by harvesting and processing, with export of sawn materials and pulpwood accounting for 30% of total income. (Author abstract, modified)