A response to Graham Jones MP on competition between the biomass and furniture industries

In a recent blogpost, Graham Jones, the MP for Haslingdon and Hyndburn, voices concerns on behalf of his constituents who work in the furniture industry. These concerns centre on the argument that biomass, which uses wood fibres (among other fuel sources) to produce energy, is in competition with the furniture sector for forestry produce. Subsidies for biomass, says Mr Jones, are responsible for raising the price of wood. In fact, the evidence indicates that the opposite is true.

 

Wood prices have fallen significantly over the last 20 years

Although standing timber prices have risen over the past five years (see below for why), prices are still around half the price paid in real terms 20 years ago[1]. Even in cash terms (i.e. excluding inflation) the price paid in 2011 was around 15% lower than in 1996[2]. The Coniferous Standing Sales Price Index for Great Britain was also 4.0% lower in real terms in the year to September 2012, compared with the previous year[3]. Looking ahead, projections from AEA suggest the global price of biofeed is likely to increase by no more than 10% between 2010 and 2020, after which they will level out and remain roughly unchanged in real terms.[4]

 

Wood prices are fixed by international market forces, not UK activity

Because wood is sourced and traded globally, prices are affected by a range of complex international factors. Exchange rate movements (including the falling value of the Pound against a basket of international currencies, the Euro in particular) have contributed significantly to recent price fluctuations. There is no evidence to suggest that UK Government policy to incentivize renewable energy from biomass has been the driver of any price fluctuations in this market.

At just 0.2% of the world primary demand in 2010, UK wood consumption isn’t big enough to influence prices to any significant degree. Current projections show this share at no higher than 0.6% by 2020, indicating the UK will remain a price taker (have no bargaining power) in the global market, not a price maker. This is supported by clear data demonstrating that the UK wood price closely mirrors international trends and price increases over the last 8 years[5].

 

Biomass goes hand-in-hand with other wood uses such as furniture – the biomass industry cannot afford to compete with them

Biomass suppliers do not compete with furniture supply chains to buy high-quality wood because it would not be financially viable. Biomass works with other forest-product industries, not against them. Forest landowners efficiently select and separate wood materials based on quality and type, and send them to appropriate markets to achieve the best prices and maximum economic value for the forest. For example, the best quality sawlogs go to construction and joinery for the highest prices. Poorer quality wood might go to make pallets and particleboard. The biomass industry tends to be bottom of the list, taking the cheapest materials with few or no other markets. This includes residues (e.g. bark and sawdust), forest thinnings and very low-grade sawlogs.

 

This is not a ‘zero sum’ game: there is significant spare woodland capacity within the UK and internationally

48% of forests in England are unmanaged, because there is currently no demand for their products. Demand from the biomass industry for forest by-products makes it more economically efficient for landowners to manage their forests sustainably rather than leaving it fallow or, in worst cases, selling it for development. The knock on effect that more woodland is brought under active management, and the economic value and environmental profile of UK forests improves.

The Government believes the biomass industry can play a key part in making it economic to manage these forests, and also that biomass supply chains have huge potential to increase overall supplies of wood[6]. Wood supplies actually rose by 7% between 2007 and 2010[7]. According to DECC’s Bioenergy Strategy, evidence suggests this was the result of rising demand for wood fuel being met by the development of woodfuel supply chains,  rather than a reduction in the demand for wood from sawmill or wood panels.  Not only is this positive environmentally, it also benefits other forest-product industries too.

We welcome the chance to meet with Mr Jones – or anyone else who would like more information on the biomass sector – to discuss how, far from damaging UK trade and industry, biomass forms a vital part of the UK’s future energy mix and green economy.