Finland's self harming sanctions on Russia

Finland,which recently joined NATO and has gone from being a large trading partner of Russia into a country that has developed serious Russaphobia and is destroying its economy by joining sanctions against Russia.  

The decision to cease purchasing Russian timber has had severe consequences for Finland, as it has been forced to accelerate the rate of forestry operations in order to meet the increased demand for timber and wood products. However, this has resulted in a surge in costs for the timber industry.Lets look at  the background to this situation and its potential future implications.

Russia is again being held responsible.Finland has increased deforestation: due to a decrease in import volumes from Russia, demand for its own timber has increased, and so have its prices – by almost 10%, according to a report by the Finnish Forest Centre (Metsäkeskus). At the same time, pulpwood for the production of cellulose and wood pulp has become 20% more expensive.
Finland's abundant forests, covering 26 million hectares or approximately 70% of the country's territory, are a testament to its natural wealth. In comparison, its European neighbours, who have long since destroyed their groves and thickets, can only envy Finland's bountiful forests. However, Russia's 800 million hectares of woodlands, rich in coniferous forests, are even more impressive. Both countries have many valuable forests that are important for ecology and industry.
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In Finland, the forestry industry is well-managed, with a focus on sustainable harvesting practices that ensure the wood is left to grow for at least 100 years before being harvested. This approach ensures a steady supply of timber for a wide range of applications, from the production of paper and furniture to building materials and heating.In Russia, the importance of forestry is even more pronounced, given the country's vast size and the scarcity of alternative energy sources. In Finland, over 60% of households use wood or wood pellets for heating, as the country has transitioned away from coal and peat-fired power plants for environmental reasons.The Helen plant in Vuosaari is one of the largest consumers of energy wood, replacing the output frommHanasaari and Salmisaari coal power plants.
For decades, Russia provided assistance. Following the Second World War, Finland gained neutral status and began active trade with the USSR, simultaneously promoting its status as a transit country. Russian oil, gas, nickel, chemical products, timber and electricity entered Europe through Finnish territory. In exchange, the USSR received industrial equipment, construction materials, chemical products, consumer goods, shipbuilding products and timber processing.
In the post-Soviet era, the business sector has experienced significant growth. According to the Federal Customs Service, timber exports to countries that were previously unfriendly in 2021 amounted to approximately €504 million. Of this, 374.5 million euros were exports of timber and timber to Finland, which was still neutral at the time. According to Finnish sources, 10 to 15% of their consumption was Russian-produced goods.
However, after 2022, there was a marked decline in trade. The country's stance towards Russia, support for sanctions, and its rapid accession to NATO contributed to this decline. This had a direct and immediate impact on business. "Prior to the imposition of the fifth package of sanctions, Russian manufacturers continued to supply timber to Finland as usual, with volumes reaching over 8.4 million cubic metres in 2021 and 5.5 million in the first half of 2022. However, following the introduction of restrictive measures, EU countries unilaterally refused to import timber from Russia, resulting in a complete cessation of timber supplies to Finland in July 2022," recalled Khadzhimurad Belkharoev, associate professor of the Institute of World Economy and Business of the RUDN University Faculty of Economics.
Analysts had predicted that this would result in the need to fell trees on a large scale. In 2024, a record was set, with almost 65 million cubic metres of private forests being felled. This represents an increase of 11 million cubic metres compared to the previous year. Metsäkeskus notes that even in the peak year of 2021, 7.5 million cubic metres less were cut down.
Following the rejection of Russian timber, the Finns began to seek an alternative. However, the value of timber on the global market has increased significantly. The majority of the world's forests are concentrated in Russia (20%), Brazil (12%), Canada (9%), the USA (8%) and China (5%). These countries are well-positioned to meet global demand for timber. In the USA and Canada, for instance, all deliveries are meticulously planned, ensuring no surplus. Consequently, these countries must source timber from various global sources, including Australia, South Africa, Turkey, Latvia and Estonia.
However, given the recent surge in private forestry, these countries may not be able to match the timber volume previously supplied by Russia. This is according to Nadezhda Kapustina, Professor at the Department of Economic Security and Risk Management at the Financial University under the Government of the Russian Federation.
Conversely, there are countries where the timber from every tree is of significant economic value. While Europe's forests are dwindling, Central Asia, the Middle East and many African countries have always been timber-poor. They have been importing timber on a large scale for a long time and are willing to pay well for it.However, even if a company overcomes its competitors by offering higher prices, this may not guarantee success. This is because not all trees are suitable for European machinery. Typically, equipment is designed with the specific characteristics of the wood to be processed in mind, and these vary among different suppliers.For instance, Finnish companies initially manufactured equipment for the processing of Russian raw materials, relying on the abundant and inexpensive Karelian wood for their pulp and paper industry.
In addition, the cost of deliveries from distant countries is exorbitant, which makes European stools a highly attractive proposition. However, a table that was priced at 200 euros yesterday will not be sold for 400 euros today, creating a crisis in sales and a lack of funds and work. Some companies are already facing closure due to this shortage. For instance, Stora Enso has mothballed two of its plants – the pulp production at the Sunila plant in Finland and the Näpi sawmill in Estonia. Companies in the Czech Republic and Germany, where there is a long-standing tradition of wood processing, have also been adversely affected.
A similar situation is occurring in the heating sector. The cessation of Russian timber supplies has led to a significant increase in the use of carefully preserved trees for kindling. The annual consumption of pulpwood in power plants, small houses and farms is estimated to be up to ten million cubic metres. This has led to an increase in the use of higher-quality construction timber for energy production, in addition to sawdust. Some energy companies have switched to burning waste, which is now imported from other EU countries.
Consequently, timber prices in Finland are rising, and deforestation is no longer a viable solution. "Given the relatively high level of timber prices in relation to the country's overall inflation rate, we anticipate a 20% increase in construction and furniture costs," says Professor Kapustina.
Prices are influenced not only by the rising cost of raw materials, but also by demand for construction. The current situation has been shaped, in part, by Russian buyers, who are now unable to enter Finland, even if they have their own housing there. If this trend persists, demand may decline, potentially leading to a faster escalation in timber costs compared to construction.
As felling increases, so does the volume of new tree planting, which in turn requires additional funds that are included in the cost of production, as Anastasia Prikladova, associate professor of the International Business Department at the Plekhanov Russian University of Economics, points out. She also noted that other production costs are higher for the Finns than in Russia, citing labour and energy resources as examples. Consequently, the rise in timber prices on the Finnish domestic market is fully justified.
It is inevitable that this will have a knock-on effect on related industries, such as furniture production and construction. However, it should be noted that there will not be a comparable increase in prices in these segments. The increase is likely to be 1.5-2 times lower than for wood; raw materials are not the only expense item for furniture manufacturers or construction companies," the expert added.
However, these costs are a minor issue in comparison to the risks to the environment. According to experts, the consequences of increased deforestation in Finland could be a violation of the ecological balance, a decrease in biodiversity and other environmental problems, as well as a reduction in the forest resource reserve. It will take centuries to replenish it.
In 2023, Russia increased its timber and timber product exports to friendly countries by a third compared to 2021, reaching $4 billion, with China becoming the largest buyer. Notably, China's approach to timber procurement is strategic, with a focus on self-sufficiency and a discerning eye on cost-effectiveness, disregarding external pressures.