INTERNATIONAL TRADE IN TROPICAL TIMBER

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INTERNATIONAL TRADE IN TROPICAL TIMBER

• Why is there trade in timber? Dont we have lots
  of it right here?

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(No Transcript)
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THE STATE OF THE WORLDS FORESTS
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The horrors of deforestation, like population
growth, seem a bit overwrought

• Still forests are disappearing except in Europe
• Notice the regional differences in forest
  treatment
• But the big action is in Southeast Asia and to a
  lesser extent parts of Africa.
• This is logging for the export of tropical
  hardwoods

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Lets look at commodity chains (product pathways)

• Approximately 75 of exports of tropical hardwood
  raw logs come from
• Malaysia
• Indonesia
• Philippines
• Of these exported logs, Japan purchases
  approximately 60 , followed by China, Korea,
  Singapore

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There is a smaller African market

• Here, the major exporters are
• The Ivory Coast
• Gabon
• Cameroon
• The major importers from Africa are France,
  Italy, Spain, and Germany

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Now, lets look at logs with a minimum of
processing (value added).

• These are called sawn logs and the dominant
  exporters are (with destination)
• Malaysia ? (Singapore, Netherlands, Germany,
  Thailand, Japan, U.K., Australia)
• Indonesia ? (Japan, Italy, Singapore, U.K.,
  China)
• Singapore ? (Saudi Arabia, Netherlands, China,
  Belgium)
• Philippines ? (Japan, U.K., France, U.S.)
• Brazil ? (U.S., U.K.)

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Now, lets look at even more value added (more
embodied labor and capital)this concerns the
export of hardwood plywood.

• Indonesia Malaysia ? (U.S., Singapore, U.K.,
  China)
• Singapore ? (entire world)
• Korea and China ? (U.S., Saudi Arabia)

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Notice that as a product entails more value added
it is economical to transport it further. A
better way to put it is the converseyou can only
ship things long distance if they have a higher
value per unit weight in order to offset the
necessary transportation costs.

• This principle helps us to understand why
  Wisconsin is the cheese state rather than the
  milk state.

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That is, we have an excess of cows in comparison
to the population able to consume milk. And why
are there so many cows in Wisconsin?

• Back to trade Wisconsin trades cheese, beer
  (why?), (and vealwhy?) with other states and we
  import winter vegetables, beef, chickens,
  watermelons and wine.
• It is more economical to convert our milk to
  cheese and ship the cheese (why?).

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So let us now focus on the questionwhy is there
international trade, in general, and in forest
products in particular?

• Consider the following
• A ton of bleached hardwood pulp for making paper
  has a manufacturing cost of
• 78 in Brazil
• 156 in Eastern Canada
• 199 in Sweden

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Why these differences in making the very same
product?

• Differential labor costs
• Differential energy costs
• Differential land costs
• Differential transportation costs

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This means that it is more economical to make
paper in a place where there may not be a
sufficient demand for the product.

• Indeed it is localized abundance that fuels trade
• That is, a region makes (or has) more of
  something than can be consumed locally.

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First lets consider the domestic market that
represents the import market for tropical timber.

• These imports could be for raw logs, for sawn
  timber, or for processed timber (plywood).

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DOMESTIC MARKET IMPORT DEMAND
PC P1 P2

S
MD
D
Q Q
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Notice that we DERIVE the demand curve for
imported timber from the excess demand for the
product in the domestic market.

• We do this by noticing that for all prices below
  the choke price (PC) there is excess demand.
• This excess demand at each price becomes the
  derived demand curve for imports.
• The derived demand curve for imports is labeled
  MD.

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Now lets consider the foreign market that
comprises the export side of international trade
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FOREIGN MARKET EXPORT SUPPLY

P2 P1 PC
S
XS
D
Q Q
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Notice that we DERIVE the supply curve for
exported timber from the excess supply of the
product in the domestic market.

• We do this by noticing that for all prices above
  the choke price (PC) there is excess supply.
• This excess supply at each price becomes the
  derived supply curve for exports.
• The derived supply curve for exports is labeled
  XS.

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We now combine the excess demand curve from the
importing country and the excess supply curve
from the exporting country.

• This will give us the equilibrium price and
  quantity traded in the international market.

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THE INTERNATIONAL TIMBER MARKET
PW
XS
MD
QW QUANTITY
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The world price for timber will be less than the
old choke price in the domestic market, and
greater than the old choke price in the foreign
market.

• Hence, trade helps consumers in the importing
  country and it helps producers in the exporting
  country.

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But we have not considered the cost of
transportation to get the product from the
exporting country to the importing country.

• This inclusion of transportation costs will alter
  slightly the trade equilibrium
• Assume that the exporters pay the transportation
  costs (T)

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THE INTERNATIONAL TIMBER MARKET
PWT PW
XST
XS
T
MD
QWT QW QUANTITY