Čtvrtek 28. března 2024, svátek má Soňa
130 let

Lidovky.cz

Soon the Czechs can give up forestry entirely

Evropa

  12:31

The Czech Republic’s flawed wood-price model means it is digging a grave for a profession that otherwise would have robust prospects

Návrh prosazovaný ministrem Ivanem Fuksou by vedl ke klání harvestorových kolosů s gigantickými lesními spekulanty. foto: ČTKČeská pozice

If local agricultural or forestry production seeks to become competitive within the EU framework, then the prices of the respective products must be competitive compared to other countries. Sadly, this tends not to be the case for most commodities, including in agriculture or forestry.

Price differences in agriculture result from grant distribution conditions, differing levels of bureaucracy and differences in the effectiveness of individual operators. In forestry, the key administrative factor is a system that the Czech Republic has voluntarily chosen — without EU intervention. Thus, the country is digging its own grave in this field. In comparison with other EU countries, the Czech Republic has relatively significant wood supplies and large reserves for its future logging, meaning it would otherwise have strong prospects in this arena. 

Czech forestry is riddled with elements that cannot be found elsewhere in Europe. This is partly why it is almost impossible to compare this country’s situation with that found in any other. The dominant share of the state-owned forestry firm Lesy České republiky (LČR) in terms of the overall market of timber owners and sellers is a fundamentally unique aspect of Czech forestry. But it isn’t the only issue. Another is that during the 1990s, LČR totally privatized most activities related to forestry work, meaning that the company is now perpetually forced to hire private contractors.

Czech forestry is riddled with elements that cannot be found elsewhere in Europe.

Another issue is the (im)possibility of channeling part of LČR’s profits into the state purse. The role of the Czech Environmental Inspectorate (ČIZP) is also unusual, as are several forestry law provisions and the regulations. The relationship of the lay public to forests is also unique, generally arising from a past when everything was everyone’s — and anyone could take what they wished from the woods. Perhaps this is the root of today’s timber thefts that everyone talks about, without ever actually specifying just how severe a problem really exists.   

It could be worse

The most original issue is the system of public tenders that LČR uses to contract out forestry work. The system contains numerous mechanisms that, simply put, administratively deform the market and practically discriminate in favor of domestic companies, regardless of their size, against potential foreign competition.   

But it could be even worse. Few realize that the so far, almost exclusively domestic companies — although possibly owned through foreign capital — have participated in the tender process. However, according to even-handed EU regulations, and primarily in cases when the tender is offered by a state-owned company, foreign companies should and must be able to participate in the bidding process. But perhaps such companies are reluctant to do so after analyzing the data and discovering just what kind of unfavorable working conditions to expect here — for example, the principle of indexation of timber prices.      

One issue relates to a regular study of timber prices by the Czech Statistics Office (ČSÚ). Contracted partners must then pay this price to LČR for extracted timber. Because a quarterly price study has so far been used to determine this sum — with approximately one more month added for ČSÚ to process the data — for a total of four months, loggers have no idea how much they will have to pay LČR for the timber they extract.

This is preposterous, particularly in situations when new tenders are essentially being announced every year.

This is preposterous, particularly in situations when new tenders are essentially being announced every year, meaning that each year participants are back at square one without being able to create any kind of reserves in order to buffer against market price fluctuations. But these are far from the only issues.

Thanks to the delays in the current indexing system, when the contractors discover the prices that they must pay to LČR, timber prices on the market are entirely different than the administratively determined index price. And these are far from the only issues.

The ČSÚ has so far calculated prices from data, 70 percent of which is provided by LČR. In practice, this means that the body, that is the dominant instrument for setting timber prices that it will seek from its contract partners, is also the issuer of contracts binding logging companies to pay a particular price. In other words, LČR is essentially determining its own prices. This could have its roots in logic were these sums to actually reflect market prices.

What about eliminating indexation?

Such a situation is not on the short-term horizon. Timber prices required by LČR on the basis of indexation for logging companies are approximately 5 percent higher than true market value. At first glance, 5 percent may not seem like a huge amount. But in part due to pressure from LČR and notable competition in the Czech market, logging companies are now operating with profits of a mere few percent — thus 5 percent one way or the other can make a huge difference in terms of profit or loss. 

The logical thing to do would be to entirely abolish the index principle. In the past, LČR and its partners haggled over prices based on a contractual provision that gave both sides the right to call for renegotiations in the event that prices rose or fell beyond a predetermined range. But this process ceased from the time that LČR began to announce tenders on the basis of a new law on public contracts that in essence contained a mandate for the sponsor to define fixed prices for these commissions. Yet all prices fluctuate, and that it why there must be some mechanism to react to such developments — hence indexation.

The current situation is comparable to farmers setting their own wheat prices, but millers and bakers having to work with a different price scale.

The problem is the flawed way indexing is designed. For one, it stems from the dominant position of LČR and essentially gives it the opportunity to mold prices to fit its own interests. Apart from this, the ČSÚ has not set the index via a weighted average, but rather via a basic aggregation and the division of this sum by the number of respondents. This means that one cubic meter of sold timber ends up carrying the same weight in the metaphorical price basket as, say, 100,000 cubic meters.

Apart from this, the ČSÚ sets the index based on a sample of “proprietors,” which is primarily LČR, even though timber prices on the market are formed by processors, or in statistical terminology by “nonproprietors.” The current situation is comparable to farmers setting their own wheat prices, but millers and bakers having to work with a different price scale. While the ČSÚ registered a quarterly 0.6 percent price rise among those that form timber prices on the market, the growth of the index of raw timber – namely spruce logs – grew by 6.4 percent over the same time period.  

Whom to blame?

It is important to note that LČR is more on the not guilty side in all of this. All things being proper, the Ministry of Agriculture would set the methodology for calculating the timber index. The ČSÚ has stated that it is capable of collecting and processing necessary data in a manner that objectively reflects timber price developments in the market. But for this it requires the appropriate methodology. The EU makes no demands on the Czech Republic for indexing timber prices. Therefore, we are able to truly do so ourselves in a manner that is entirely objective. What is required is a more complex index, which is able to operatively react to developments in market prices. 

But the phrase “the devil is in the details” is heard more and more in our country. In the case of the LČR tender process, however, that hell is rather large but less noticeable because with respect to the specific possibilities available in the Czech Republic, the basic framework is formulated in a relatively correct manner in the proposed “semi-conceptual” so-called “Wooden Book” (or Dřevěná kniha). It is issued by the Agriculture Ministry, and is set to guide Czech forestry in the future.

But it is actually a kind of schizophrenia — contractors, or at least the vast majority of them, support this very controversial framework but are critical of its core principles. And because the conception has also been criticized by environmental groups and small businesses representatives, it appears that actually nothing at all is in order with LČR’s public commissions.  

The end of orthodox foresters

Disagreements over tenders damage the entire forestry and timber extraction field, as well as create unwelcome levels of uncertainty over business conditions — as a result, they will continue to cause economic hardship for businesses, with direct social impacts on rural employment. It is important to realize that timber extraction tends to be focused in the poorest regions, thus correctly formulated terms from LČR in the public contracting process have a direct impact on the social needs of the countryside. 

It is important to realize that timber extraction tends to be focused in the poorest regions.

But the main issue is not the discrimination against smaller businesses in favor of preferred larger companies, as this problem is often characterized. Concrete, predictable and universally nondiscriminatory conditions irrespective of the size of the companies involved are at issue. It is also about the need for the state to not needlessly create worse conditions for its own businesses than those experienced by foreign competition.

Otherwise, we may as well pack in forestry entirely for a period of time — so long as we are talking about businesses operating in our country. Not that work is not taking place in our forests — the emerging business related to wood-based biomass will certainly continue to attract those who fully and energetically seize the opportunities available in the forests in time. But as things currently stand, these will likely not be orthodox foresters.

Autor:

Šárka Hamrusová: Díky laktační poradkyni jsem si přestala myslet, že je chyba ve mně
Šárka Hamrusová: Díky laktační poradkyni jsem si přestala myslet, že je chyba ve mně

Šárka chtěla kojit. Chvíli to ale vypadalo, že se jí to nepodaří. Díky správně zvolené laktační poradkyni nakonec dosáhla úspěchu. Poslechněte si...