Executive Summary
This study quantifies the magnitude of the forestry sector's contribution to the Scottish economy. By confining the analysis purely to the links arising from production and processing and ignoring the other benefits provided by Scottish woodlands (such as recreation, biodiversity, tourism and enhanced landscapes), the study is limited in scope. However, it focuses on an important component of the sectorís overall contribution to the Scottish economy, and one which is essential to a more comprehensive assessment of the value of Scottish forestry.
Aims of the study
The specific aims of the study were:
- to investigate, through multiplier analysis, the backward and forward linkage effects of a number of different generic forest types in Scotland;
- to improve understanding of the contribution of the sector at a sub-national level, ideally identifying the impact on both local areas and regions of a change in forestry activity;
- to investigate a number of alternative forestry-based scenarios including the total removal of the sector from the Scottish economy, the doubling of timber harvesting levels, import substitution by downstream processing firms, the effects of removing grant-aid to the sector, and finally changes in labour productivity.
Methodological approach
Given the aims of the study, an input-output approach to the analysis was adopted. However, certain methodological issues arising from the nature of the forestry industry had to be taken into account in analysis. These included the length of the production cycle, the particular patterns of trade in timber, the extent of self-employment and labour mobility, and finally the rapid rate of technological change within the sector over the last few decades. Whilst some of these were accommodated through adjustments in the modelling framework, others were less easy to reconcile with the underlying technical assumptions of the input-output model and thus need to be borne in mind when interpreting the empirical findings.
On the basis that different types of woodlands have different management and input requirements as well as different patterns of output distribution, four different generic forest types were distinguished in the analysis: Existing Native Woodlands; New-planted Native Woodlands; Commercial Conifer Plantations; and Farm Woodlands. A well defined "multi-benefit" forest might contain a combination of these forest types but they were separated in this exercise for analytical purposes. The split between the planting and maintenance, and harvesting stages of the production cycle used in the Scottish input-output tables was retained resulting in a total of eight forestry-related activities in the input output analysis.
Further, based on the hypothesis that multiplier effects are regionally differentiated, four region-specific forestry input-output models were developed in addition to the Scottish-level model. The choice of regions - Southern Scotland, Tayside, Grampian, and Highlands - was based on a combination of factors including peripherality, population density and forest type.
To complement the findings of the multiplier analysis, the first and second-round flows upstream and downstream from forestry were spatially "tracked" through Scotland to establish whether the income and employment effects associated with forestry activity are retained locally, within rural areas, or leaked further afield.
A survey-based approach to the construction of the input-output table
A disaggregated input-output table emphasising forestry was constructed using the findings from an extensive survey of private woodland owners and managers and forest enterprise managers during winter 1998/99. A total of 81 face-to-face interviews were carried out with analysis based on the returns relating to a representative sample of 78 woodlands across Scotland. The total area of woodland covered by the sample was 350,633 ha, or 28% of the total forested area of Scotland in the base year of the study, 1995. The main forestry survey was followed up by a survey of upstream input suppliers to forestry and downstream timber processors to verify and supplement analysis relating to the spatial distribution of forestry related expenditures.
The results of the survey indicated significant differences in the patterns and levels of expenditures of different woodland types. Returns to scale for certain of the input costs were very evident from the survey returns, as was a large variability in some of the costs due to site-specific factors. Farm woodlands were found to have the highest average input costs per hectare, existing native woodlands the lowest. The use of contractors and subcontractors was widespread in all stages of the woodland production cycle.
Conifer plantations dominate the sector in terms of area, input expenditures and timber output. Apart from conifer plantations, the proportion of woodlands that were being managed for commercial timber reasons was low. Instead many interviewees cited environmental or recreational reasons for the establishment and maintenance of the woodlands, supported by the availability of grant income.
Having generated average costs per hectare and returns from each woodland type, the next step in constructing the input-output table involved reclassifying these flows onto an input-output basis and aggregating the survey results up to the industry level. Data from the National Inventory of Woodlands and Trees were used to aggregate the survey findings to sector level, and standard input-output techniques were used to generate the final balanced input-output table.
Key findings from the multiplier analysis
Multiplier analysis at the Scottish level indicated that the different woodland types generate very different levels of output, income and employment effects in the Scottish economy per unit change in demand. The output multipliers presented in Table 1 show the total increase in gross output in Scotland arising from a unit increase in demand for output from each of the sectors. The employment effects show the impact on the number of FTE jobs in the economy associated with the new level of economic activity, whilst the income effects show the estimated impact on the level of gross income in the Scottish economy.
As indicated in Table 1, the results suggest that in terms of planting and maintenance, a unit increase in the value of output from commercial conifer plantations appears to offer the greatest potential benefits for the Scottish economy. In particular, a £1m increase in final demand for output from conifer plantations is estimated to generate a total increase of £2.18m in the value of Scottish output, just under 45 additional FTE jobs and an increase in Scottish income of £878,000. The benefits associated with establishment and maintenance of new native woodlands are also shown to be significant.
In terms of harvesting, the table indicates that commercial conifer plantations are associated with the largest total output and income multiplier effects in the economy but that additional harvesting of native woodlands gives rise to greatest employment effects per unit of additional demand. This arises from the survey finding that harvesting in existing native woodlands tends to be more labour intensive per unit output harvested than conifer plantations, thus the direct employment effects of native harvesting are large. In contrast, conifer plantations have higher direct requirements for material inputs and thus generate greater indirect effects in the economy.
The results presented in Table 1 include the induced effects (effects arising from the expenditure of employees) as well as the direct and indirect effects associated with the sector. Allowing for induced effects within the analysis was found to significantly increase the magnitude of all forestry multipliers due to the labour intensity of the planting and harvesting stages of the production cycle.
Table 1 Summary of demand-driven (backward linkage) forestry multipliers
Woodland types Type II
Output multiplier
Employment effect per £1m increase in demand (FTE)
Income effect per £1m increase in demand (£m)
Type II employment multiplier
Type II income multiplier
Existing native woodland planting/maint. 1.585
15.078
0.282
2.088
1.941
New native woodland planting & maint. 2.037
23.445
0.450
2.559
2.442
Commercial conifer plant/ maint. 2.183
44.918
0.878
1.584
1.539
Farm woodland planting and maint. 1.708
15.454
0.297
2.789
2.669
All Scottish forestry Planting/maint. 1.928
29.061
0.564
1.805
1.744
Existing native woodland harvesting 1.683
40.639
0.424
1.319
1.809
Commercial conifer harvesting 2.056
33.521
0.440
1.860
3.211
All Scottish forestry Harvesting 2.015
34.304
0.438
1.766
2.966
Forward linkage multiplier analysis again indicated significant differences between woodland types. In this case, native woodland harvesting was found to generate slightly higher benefits for the wider Scottish economy per unit of additional activity than conifer harvesting. This is due to the fact that a higher proportion of output from coniferous plantations is exported than output from native woodlands and thus generates no indirect effects for other sectors in the economy. The forward linkage multipliers associated with forest planting and maintenance were lower than anticipated. This was traced to the way in which "output" from this sector is accommodated within input-output accounting procedures.
Results from the impact analysis
Removal of the sector
Analysis suggested that the total removal of the forestry sector in Scotland would result in a total drop of £442m gross output, and a loss of 6,906 FTE jobs. Only 47% of the total fall in gross output was due to the removal of forestry itself, the remaining 53% coming about as a result of effects on other sectors in the economy. One of the characteristics of the forestry industry is that certain timber-using sectors are totally dependent on output from domestic forestry since, for either economic, technical or locational reasons they are unable to use imported timber within their production processes. Allowing for critical supply dependence showed that the total removal of the forestry sector in Scotland would result in a fall in gross output estimated at £811m and a total loss of 12,130 FTE jobs.
These results, like those of all the simulations are based on the usual input-output assumptions of fixed relative prices and fixed technology. In reality, factor and output prices would adjust to create new output and employment opportunities in the economy.
Doubling of timber harvesting and import substitution by downstream processors
As a consequence of a surge in afforestation during the 1980s, the volume of coniferous timber ready for harvesting from Scottish plantations is set to increase dramatically in the near future. Using an appropriately modified version of the input-output model, the economy-wide effects of doubling the volume of timber harvested from commercial conifer plantations were investigated assuming prices remain constant.
The additional timber output, valued at £98.8m, was shown to result in a total increase of £203m in the value of gross output in Scotland from backward linkage effects, £192m from forward linkage effects. The respective estimates of the employment generated from the increased timber harvesting are 3,310 FTE jobs from backward linkages and 3,210 jobs through forward linkage effects in the economy. 1,780 of these additional jobs are in the coniferous harvesting sector itself, the remaining 1,530 (backward) and 1,430 (forward) jobs are created in other sectors of the economy. A sectoral breakdown of the impact indicates that, excluding the increase in the value of timber itself, the vast proportion of benefits through demand-driven effects accrue to the construction and transport sectors whilst the main beneficiary from supply-driven effects is, as anticipated, the timber and wood product sectors that use coniferous roundwood.
Additional analysis was carried out to estimate the potential magnitude of economy-wide benefits if, in the light of increased domestic supplies, downstream firms were to source a higher proportion of their timber purchases from Scotland woodlands as opposed to the rest of the world. Allowing for import substitution was found to substantially increase the level of forward linkage effects in the economy without significantly effecting the backward (demand-driven) multiplier effects. In particular, a doubling of timber harvesting and associated import substitution by downstream processors could lead to a total of 3,343 FTEs jobs being created in Scotland through backward linkage effects, 3,992FTEs jobs through forward linkages although both estimates may be affected by increased labour productivity (see below). Thus, whilst less than estimates from other recent studies, the results suggest substantial potential benefits for the Scottish economy as a result of additional forestry related activity in the next two decades.
The effect of removing of grant aid
The vast majority of new planting of woodlands in Scotland currently receives grant-aid support. The effects of this can be assessed by using the model to test what would happen if grants were withdrawn. The removal of grant aid is thus likely to reduce new planting and, through links between forestry and the wider economy, have negative repercussions for other sectors in the economy.
Under the assumption that the removal of grant-aid would reduce the area of planting and maintenance by 90%, the magnitude of effects following the removal of grant were estimated. The results suggest that, in terms of demand-driven effects, the removal of grant aid could lead to a fall of £182.5m in the value of Scottish gross output and a loss of 2,526 FTE jobs. 1,451 if these jobs would be lost from the planting and maintenance sector itself, the remaining 1,075 from other sectors of the economy. The economy-wide supply-driven effects of grant removal were minimal as might be anticipated given that there are no close links with other sectors downstream from forest planting and maintenance.
Increased labour productivity
There have been dramatic increases in labour productivity in the forestry industry over the last few decades which have reduced the number of people employed in the industry. The effects of simulating further increases in labour productivity within forestry were shown to decrease the linkages between forestry and the wider economy through a reduction in the magnitude of induced multiplier effects. Taking just one example, the employment effects associated with additional conifer harvesting would fall by 7% and the economy-wide income effects by 9%. This implies that if historic rates of increases in productivity are maintained, the economy-wide benefits from increased forestry activity will be more limited than intimated in the other simulations.
Regional multiplier analysis
Multiplier analysis at the regional level indicated that the relative importance of the sector is closely related to the economic structure of a regional economy and, in particular, the extent to which the forestry sector is more or less "contained" within the region.
In terms of new planting, Southern Scotland appears to offer the greatest potential economic benefits with a £1m increase in demand for output from the planting and maintenance sector generating a total increase of £1.943m gross output, 30 FTE jobs and £567,000 income in the region. In contrast, marginal increases in demand for output from the harvesting sectors is estimated to generate the largest impacts in the Grampian and Highlands regions. For example, in the case of the Highlands, a £1m increase in demand is estimated to increase gross output in the Highlands by £1.96m, create 27 new jobs and add a total of £424,000 to income in the region.
The forward linkage effects relating to forestry were found to be low across all regions. Indeed, contrary to expectations, the timber and wood products sectors were found to have higher forward linkage effects than the harvesting sectors in all regions. This suggests that there is a greater percentage of raw timber exported from a region than the percentage of first-stage processed timber.
The spatial distribution of input and output flows from forestry
Whilst input-output multiplier analysis provides an indication of the links between forestry and the wider Scottish economy, it does not reveal whether the income and employment multiplier effects associated with the sector are retained within the locality of the woodland giving rise to the effects, or, alternatively, leaked to other areas. Likewise, the analysis does not reveal whether the benefits from increased forestry activity would accrue to rural or urban areas.
Thus, using data collected as part of the main survey of woodland owners and managers, road distances between a woodland and its source (destination) of inputs (outputs) were calculated. Thus the flows of income and employment associated with forestry activity were spatially "tracked" through the Scottish economy and, in some cases, into other areas of the UK. In addition, GIS methods were used to assess whether the source and destination of each transaction was based in a rural or non-rural area and whether flows were contained within regions or across regional boundaries.
The results indicated considerable variability in the distances over which inputs were sourced depending on both the type of woodland and the type of input being purchased. Of all inputs, fencing materials were typically sourced from firms closest to a woodland, on average 87 km from the woodland. Plants, another significant expenditure, tended to be bought from further afield with an average 147km between the source of plants and the woodland in which they are used. In terms of woodland types, farm woodland owners/managers are more likely to source their inputs from local suppliers than native or commercial conifer woodland owners/managers: 57% of all farm woodland related input expenditures were sourced from suppliers living within 100 km of the woodland, almost 20% being based within 20 km of the woodland. However, whilst commercial conifer plantations have a lower proportion of transactions with firms within 100 km, these same transactions account for a far higher proportion of total input expenditure than in the case of farm woodlands.
The nature of the product and associated transportation costs ensure that, on average, output flows from forestry are over much smaller distances than input flows. 75% of the value of timber from woodlands covered by the survey was processed within 100 km of the source of the timber. Taking into account the labour-intensive nature of first-stage timber processing and information on the residence of employees, a large proportion of the value downstream multiplier effects from forestry would appear to be contained within a relatively small geographical area. In contrast, analysis suggested that the upstream multiplier effects are less well contained.
Firms and businesses based in rural Scotland were shown to receive 61% of the value of all direct input expenditure, 60% of the value of all timber output, and 98% of the value of all contract-related flows. Whilst the majority of flows from forestry are to businesses located in rural areas, a relatively high percentage of value appears to "leak" from the rural economy to urban areas of Scotland. Some 17% of money associated with downstream output transactions leaked from the Scottish economy into the rest of the UK.
Finally, to supplement the findings from the regional multiplier analysis, regional differences in the source and destination of forest-related flows were investigated. Even allowing for flows into the rest of the UK, forest-related flows in the Highland region were found to take place, on average, over significantly longer distances than flows in the Southern region of Scotland. They were also more likely to be "cross-border", that is with firms or companies based in other regions of Scotland.
The results from the tracking analysis provide new insights into the spatial pattern of forestry-related flows, complementing information provided from the multiplier analysis of the sector, and thereby proving a fuller understanding of the role of forestry in the rural and wider Scottish economy.
Research carried out for the Forestry Commission by :
Macaulay Land Use Research Institute with John Clegg & Co. and The University Of Aberdeen May 1999
Copies of the full report can be requested from Jackie Harper (jackie.harper@forestry.gsi.gov.uk)
Queries on the studies should be directed to Alastair Johnson (alastair.johnson@forestry.gsi.gov.uk)
