New Forest Business Frontiers in the Baltic Rim Transition Countries: Interview with Arne Rørå of NORSKOG.
In advance of the International Forest Business Conference on December 7-8, 2020, we interviewed a few of the event sponsors and partners to hear their perspectives on why this conference is needed and what are their expectations regarding future forest sector development, especially after post COVID era. For the first interview in our series, we sat down with Arne Rørå, CEO for NORSKOG.
Can you tell us a little about NORSKOG and how your organization fit into the forest business?
Briefly speaking, NORSKOG is a member organization of forest owners founded in 1950, representing more than 1.2 million hectares of forestland in Norway. Our strength is in the ability to act on behalf of the forest owners in Norway that benefits all, but with the very large efficiencies that a collective can provide. In addition to the activities around advocacy, advice and information, we support forest owners with forest investments, day-to-day forest management and planning, certification, or wood trade. In 1998, we decided to outsource our wood trade activities to our subsidiary – NORTØMMER that is trading wood in Scandinavia, and in Central and Eastern Europe. Currently, NORTØMMER is the third-largest round wood trader in Norway, totalling a volume of 1.9 million m3 in 2019 with a market share of approx. 18 % nationwide. In 2019 the total turnover of our company exceeds EUR 140 million.
Fifteen years ago, we established an international forest consulting department in NORSKOG, where we are working on the independent forest valuations and due diligence (DD) work for forest acquisitions.
Finally, we are a member of a non-profit network company – Norwegian Forestry Group, where we are very active in international research and development projects in Eastern Europe, Africa, Asia and Latin America.
It seems that the company is growing very fast. What is the main driver behind your success?
Yes, indeed. I can say that for instance in last 5 years, we were very successful within our consultancy department, and we valued over one million hectares worldwide for institutional investors, Timber Investment Management Organizations (TIMOs) and corporate forest owners. I would say that the success of NORSKOG as a group is related to two things.
First, due to our versatile activities within wood-based supply and value chains (forest management, investments, wood trade, R&D projects), we understand the forest sector very well what is greatly appreciated by our Norwegian and international clients.
Second, I think that NORSKOG’s corporate structure is unique and gives us a significant competitive advantage over other consultancy or wood trading firms. In other words, our consultancy department is not the only source of our income, thus we can offer our clients very good rates for their annual valuations or due diligence services.
NORSKOG is a platinum sponsor of the International Forest Business Conference 2020, thank you for helping us make this event a reality. The conference will bring together stakeholders from across the forest sector value chain to focus on megatrends that shape forest and wood industry sectors, highlight the transformation of forest-related businesses towards a low-carbon bioeconomy, discuss tensions between sustainability and cost competitiveness, and call attention to new green innovations. Why is this important to NORSKOG, and why do you think all of the other supply chain participants should attend?
In NORSKOG we are fully aware that forests will significantly contribute to climate change mitigation efforts. Scientists estimate that 80% of the potential of Natural Climate Solutions, which are necessary to mitigate climate change, depends on forest management and the use of wood-based products. However, the action of single groups is and will not work unless the whole forest sector takes action to fight climate change together. It is a huge responsibility, but also an opportunity, and we should remember that the forest sector is very complex and includes many various stakeholders across the value chain.
Thus, having such a conference like IFBC provides a great opportunity for people with different backgrounds, coming from forestry, wood industry, academia or governments to discuss current and upcoming challenges that the whole sector is and will be facing in coming decades. I believe that during the conference many new partnerships and cooperation platforms will be established, what will only strengthen the role of the forest sector in climate mitigation efforts.
Let’s move to the forest and wood industry in the Baltic countries. Could you tell us a bit more about forest investments in this region? Should institutional investors be interested to invest in this part of the world?
The short answer to your last question is YES. Institutional investors should be and are very interested in timberland investments in this part of the world. Baltic Sea Region is the best functioning wood market in Europe with roughly 53 million hectares of European forest and one of the worlds most developed forest industries. According to NORSKOG research, more than one billion euros will be invested within the Baltic Sea Region in coming 5 to 10 years, mostly in Finland, Estonia and Latvia due to their liberal policies on foreign investments and relatively low operational, biological and political risk. Naturally, returns expectations in these countries are lower than in other parts of the world (e.g. Latin America). However, you take into account risk-adjusted returns, then I would say that this region is very competitive and attractive for investors who want to use the key attributes of forest investments such as hedge against inflation, portfolio diversification and protection from financial crises.
Have you observed any significant impact of COVID pandemic on investment activities and wood trade in Scandinavia and Baltic Rim countries?
Although we noticed some reduction in timberland transactions in the last months, the interest from investors and our current clients is still very high. This interest is continuously stimulated by industrial market players that need to secure their wood supply chains in the Baltic Sea Region. Reduction in the number of transaction deals was strongly related to travel restrictions; however, we overcame this barrier together with our subsidiary in Latvia that helped us to carry on timberland investments and due diligence processes for our clients.
I think that many institutional and private investors found that timberland is a very attractive asset class as its returns are driven by different economic fundamentals than are stocks and bonds. For instance, biological growth that affects yield is completely independent of financial markets. And wood prices, like other commodity prices, are a result of wood supply and demand interaction. During last ten year’s industrial investments in the Baltic Sea Region have been increasing roughly 15 million m3 annually, and it is expected that this number will increase to 20 Mm3 in coming future due to a Bioeconomy & European Green Deal which recognize forests and wood as a key player in the climate change mitigation efforts. However, the wood supply situation is still tight, and it will further tighten up after the bark beetle wood in Central Europe is over.
Regarding the wood trade, we currently have a very unbalanced market with a high demand for sawlogs and low demand for pulpwood. This is the consequence of Covid-19 that has caused a fundamental shift in our lifestyles. For instance, working and schooling from home, restricted travel and recreational options boosted needs for expanded and reconfigured living space. In many countries, the pandemic caused many people to migrate from high-cost urban areas to more affordable suburban and rural locations. In consequence, this created additional demand for furniture and building materials used in the home’s revitalization process.
On the other hand, concerning pulp and paper industry, I can tell that companies producing sanitary and hygienic products (e.g. toilet paper, wipes), or cardboard products (e.g. milk packaging, postal boxes) or new wood products produced in biorefineries (e.g. bioethanol, microfiber, bio-vanillin) as a result of increased demand for these products during the crisis, still operate at their full capacity. The challenge was at the beginning with the workforce and employees who had to stay at home taking care of their immediate events as a result of closed kindergartens, nursing homes, etc. However, these challenges were so far well resolved, but the second wave of virus infections may change the current state. The situation is different among producers of, for example, coated paper (colour press, magazines, catalogues) or newspaper, who, due to the limited demand and constraints in the economy (e.g., closed stores) had to decrease their processing capacity or even close their paper mills.
Arne, we want to thank you and NORSKOG again for helping us with the forest business conference. Is there anything else that you would like to mention about the development of your company?
During the last 15 years, we built significant expertise in global timberland investments. Outside the Baltic Sea Countries, we worked in Latin America, Africa and Asia and we hope that we can further expand our services related to annual valuations, due diligence and market research insights in these regions as well.
I am looking forward to the International Forest Business Conference, as I am sure it will help us to gain inspiration and new ideas, discover new opportunities in the forest sector, grow our connections and strengthen NORSKOG’s role as the leading provider of professional forestry consultancy services.
Thanks again for taking the time to talk with us; we are looking forward to continuing to work with you. Also, we can’t wait for your presentation on Forestry as an Investment Asset – Trends and Drivers in the Baltic Rim Region at the International Forest Business Conference 2020 (registration still open).
Mr Arne Rørå is Managing Director of the NORSKOG Group. He has more than 25 years of experience as a forester and manager. He was responsible for the national forest inventory of Norway and has represented Norway in several international programs related to forest inventory and monitoring of effects on the forest from airborne pollution. Mr Rørå has during the last 20 years worked with organizational development and industrial policy in Norway as well as internationally. Mr Rørå is involved in several companies as a member of the board of directors in the forest sector. As chairman of the board for a Norwegian owned forest company, he has been responsible for building up one of the largest privately-owned forest companies in the Baltic States. The task of the company is to buy, develop, and manage forest land. He is also a member of the board for NORTEAK, a company who establish and manage teak plantations in Nicaragua. Mr Rørå is chairman of the board for The Norwegian Timber Trade Company, which annually trade about 1,7 million m3 of timber between forest owners in Norway and industry in Norway and internationally. He has been working as a consultant within timber trade and development of systems for timber trading.