Does it take prices to make volumes move? A comparison of timber market functioning in Finland and Lithuania

Forest ownership structure is known to have implications for forest management and the production of forest products and services. The ownership structure, as well as the degree of state regulation of forestry, could thus be expected to affect the functioning of timber markets. Hence, in the presence of strict prescriptions for forest management, the self-regulating mechanisms of timber markets—governed by the economic principle of supply and demand—could be inhibited. Using Finland and Lithuania as contrasting cases, we found empirical evidence for the existence of such a self-regulating mechanism in timber markets that are liberal in terms of state regulation of forest management, but not in those under strict state regulation. The results highlight how price increases (reductions) generally anticipate high (low) sales volumes or at least volume increases (reductions) in the Finnish case, suggesting that timber markets here self-regulate towards the equilibrium. Such patterns were not found in the Lithuanian case. The inability to respond to—and take advantage of—price signals could hamper the economic viability of forest ownership in timber markets constrained by regulation, and thus also impede efforts to mobilize wood to satisfy a foreseen increased demand.JRC.H.3-Forest Resources and Climat