Blog Posts Annika Kangas Economy, Forestry

With a new web service, completely digital timber trade is now possible in Finland. The trade is based on stand-level forest resources information available on Metsää, a web service for forest owners. Digital timber trade sets heavy quality requirements to the data used, and errors in the data introduce risk of losses either to the forest owners or the bidding companies.

The stand-level forest resources information in the Metsää system is based on laser scanning, and the stand borders are obtained with (semi-)automatic delineation. The most obvious quality requirement for the forest resources information is that the stand borders are exact. It is important to ensure harvest is carried out in a correct stand and – even more crucial – in the correct forest estate. In addition, the stand borders should be practical. In automatic delineation the resulting stand borders are typically more complicated than borders delineated by a forest professional.

The data quality is important in choosing the best bid

In Finland, timber bids are made by tree species and timber assortment so that companies give a bid for each assortment likely to be found in the stand. The actual payment depends on realized volume of each timber assortment, and accurate volume measures are obtained straight from the harvester. Thus, neither the forest owner nor the forest company risk losing money due to possible errors in the volume estimates of the system. If the timber trade were based on the estimated total volume, like what has been the custom in the United States, the errors in total volume would pose a risk.

Estimates of main tree species and volumes of timber assortments have uncertainties.

There are, however, risks that arise due to other kinds of errors in the Finnish system. The laser scanning data is accurate with respect to the total volume, but the estimates of main tree species and volumes of timber assortments have more uncertainty. The risk comes from the bidding: if company A offers 60 euros for spruce saw logs and 50 euros for pine saw logs, and company B offers 50 for spruce and 60 euros for pine, it is impossible to select the best bid unless the forest owners knows for sure which is the main species in the stand she or he is selling.

Similar risks come from the volume estimates of different assortments. For the bidding company, there is a risk of the competing companies getting the best quality stands and them being left with the poorest quality stands, if they bid assuming an average quality stand.

Changes of pricing system changes also the risks

There has been a discussion about changing the pricing system so that the companies would bid for the whole trunks, not the realized timber assortments. That kind of pricing introduces further challenges for digital timber trade. The laser scanning data does not yet provide information on the quality of sawlogs.

Both the forest owner and the bidding company would benefit from good quality information.

Then, if a company gives an average bid on the trunks, and they turn out to have poorer quality than expected, for instance due to root rot or branchiness, the company loses money and the owner wins. And vice versa, if the sawlogs turn out to have a very high quality, the company wins money and the owner loses.

To avoid the risks in the timber trade, both the forest owner and the bidding company would benefit from good quality information on all the factors that affect the bidding. Digital timber trade is coming, but the information available digitally does not fully support it yet. Fulfilling the data requirements requires a new step in the methodological development.

Annika Kangas, Research Professor
Tuula Packalen, Research Professor

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