Evolution of Colombia’s market for manufactured products of the wood industry

Oscar G. Martínez-Cortés, a,b* Shashi Kant a,b

a: Institute for Management and Innovation, University of Toronto, Mississauga, ON, Canada.
b: Graduate Department of Forestry, University of Toronto, Toronto, ON, Canada.
*Corresponding author: E-mail: o.matinezcortes@mail.utoronto.ca

Citation: Martínez-Cortés OG, Kant S. 2024. Evolution of Colombia’s market for manufactured products of the wood industry. J.For.Bus.Res. 3(1): 34-59. https://doi.org/10.62320/jfbr.v3i1.46

Received:  14 January 2024 / Accepted:  22 February 2024 / Published: 4 March 2024

Copyright: © 2024 by the authors


ABSTRACT

A detailed exploration of the development of Colombia's market for manufactured products of the wood industry since its early days, with an analytical focus on the period 1970-2021, is presented. The examination of early days draws upon historical information, wood industry-specific statistics derived from Colombia’s Annual Manufacturing Survey and industrial census, and data from the National Accounts of Colombia (NAC), which offers insightful understanding of the market dynamics up to the end of the 1960s. For 1970 to 2021 comprehensive consolidated data derived from the Supply and Use Tables of the NAC and other sources provides the base for an in-depth examining of the market aspects such as quantities of supply (national production), demand, and the components of demand – including domestic consumption, exports, and imports. The exploration reveals a significant shift in the manufactured products of the wood industry market’s dynamics, transitioning from a primarily domestic consuming and export-driven one to a market increasingly reliant on imports to satisfy domestic consumption. Critical factors contributing to this shift are identified, highlighting Colombian forest resource depletion and inadequate nation’s wood industry development. The paper synthesizes historical data to articulate the interplay between economic policies and market outcomes, culminating in a discernible need for strategic industry modernization. Furthermore, it offers comprehensive and detailed information, facilitating a thorough understanding of all market aspects without necessitating consultation of additional sources.

Keywords: Colombia, consumption, demand, exports, forest sector history, imports, market clearing, prices, sawnwood, supply, wood-based panels, wood industry


INTRODUCTION

The Colombian market for manufactured products of the wood industry (w market), an essential part of Colombia's forest sector, has undergone significant transformations throughout its history. Originally focused on the sawnwood, both produced and consumed in Colombia (US Tariff Commission 1945; Contraloría General de la República de Colombia 1947; Van Bottenburg 1952), the w market's scope has since expanded. It now encompasses a wide range of products manufactured by several industries collectively known as the wood industry, which includes items that are domestically produced, imported, consumed within the nation, and exported. Particular categories within the w market, as per DANE (2023a), now comprise sawnwood, veneers, wood-based panels, both preserved and non-preserved rounded-wood, as well as value-added sawnwood derivatives, including builders' joinery, carpentry, and packaging materials such as cases, boxes, and pallets, with a deliberate exclusion of furniture and its components. A thorough evolution of the products making up the w market since 1970, year in which DANE (Colombia’s Statistical Authority) assumed the administration of the National Accounts of Colombia (NAC), is presented in Appendix A.

As the product range in the w market expanded, its economic performance also evolved significantly. By 1970, Supply (National Production) of manufactured products of the wood industry (henceforth w) reached 569 billion 2015 Colombian pesos (2015COP) equivalents to USD 215 million. [1] Concurrently, the demand components for w, namely Consumption, Exports, and Imports, measured in the same monetary units, totaled 491 billion (USD 179 million), 15 billion (USD 5.5 million), and 6 billion (USD 2.2 million), respectively.

In that year, the combined value of Consumption and Exports of w accounted for 14,4%, 12.8%, and 99.8% of the corresponding market value of Colombia’s manufactured wood forest products (manufactured WFP), wood forest products (total WFP), and forest products, respectively. The category manufactured WFP not only includes w but also products manufactured by the pulp and paper industry (z - pulp is called zellstoff in German) and the furniture industry (f). The total WFP encompasses w, z, and f, as well as unprocessed wood for firewood (FWrw) and for the manufactured wood products industry and final consumption other than firewood (MWrw). Finally, the category of forest products comprises the five groups of products of the total WFP, as well as the non-wood forest products and the forest ecosystem services. For an in-depth understanding of the markets for forest products, refer to Martínez-Cortés et al. (2024).[2]

By 2021, according to the latest data from DANE (2023b), Colombia’s production of w was 3,396 billion (USD 1,239 million). In the same year, the consumption, exports, and imports of w were recorded at 4,563 billion (USD 1,664 million), 99 billion (USD 36 million), and 1,346 billion (USD 491 million), respectively. The aggregate of consumption and exports of w now represents 17%, 16%, and 85% of the corresponding Colombia’s market value for manufactured WFP, total WFP, and forest products, respectively. Interestingly, the forest products market contributed to 5.4% of the value of all products and services consumed and exported in Colombia in 2021. A detailed breakdown of Colombia's national production of w, as outlined in Box 1, provides a comprehensive insight into the contemporary landscape of the w market.

Box 1. Landscape of the w market in 2021.

General division of products included in the w market

Subdivision according to the National Accounts of Colombia

Products included

Consumption

National Production

Exports

Imports

Value (2015COP billion)

Share (%)

Value (2015COP billion)

Share (%)

Value (2015COP billion)

Share (%)

Value (2015COP billion)

Share (%)

Sawnwood

Group 1

Wood sawn or sliced lengthwise, sliced or debarked, more than 6 mm thick, and wooden sleepers for railways or tramways, not impregnated

1,004

22

951

28

27

27

77

5.7

Group 2

Wood with continuous profiling along any of its edges or faces; wood wool; wood flour; wood in chips or particles; raw wood, including those treated with paint, stains, creosote or other preservatives; and treated wooden sleepers for railway or tramways

821

18

849

25

23

23

4

0.3

Subtotal

1,825

40

1,800

53

50

50

81

6

wood-based panels

Group 3:

Boards and panels; veneer sheets of wood; plywood sheets; densified wood

1,597

35

611

18

18

18

1,131

84

value-added sawnwood derivatives

Group 4

Carpentry works and construction parts (such as cellular wood panels, jointed panels for parquet floors, clapboards, and shakes)

639

14

611

18

16

16

54

4

Group 5

Wooden containers like drawers, boxes, crates, and pallets; wooden reels for cables; cooperage products like barrels and vats and their parts; and other wooden items such as handles, kitchenware, and marquetry

502

11

374

11

16

16

81

6

Subtotal

1,141

25

985

29

32

32

135

10

Total

4,563

100

3,396

100

99

100

1,346

100

Based on data from DANE (2023b).

Amidst this backdrop of diversification and growth, the current state of the w market presents a distinct picture, marked by a dynamic interplay of domestic production and increasing reliance on imports. This shift in the market dynamics, from a primarily inward-looking focus before 1950, and a combination of it and, in some sense, export-oriented emphasis between 1950-1970 (DNP et al. 2020) to a more import-dependent structure, necessitates a comprehensive understanding of the forces shaping the market today. It is within this context that the present paper seeks to explore and elucidate the factors driving the evolution of the w market. The aim of this paper is to dissect the multifaceted layers of the w market's development, examining its response to both internal economic shifts and external global influences. To this end, the paper offers comprehensive and detailed information about the w market, designed to equip the reader with a thorough understanding of all aspects of the market without the need to consult additional sources of information.

In a broader regional context, our paper is a response to urgent need for more specific and in-depth research into the Latin American forest industries and markets made by Hyde et al. (2022) and Olmos (2022). By delving into the complex dynamics of the w market and the Colombian wood industry, we aim to contribute to a greater understanding of how individual countries within Latin America are navigating the challenges and opportunities of the forest sector. This paper, therefore, not only offers a comprehensive overview of the historical and current state of Colombia's market for manufactured products of the wood industry and the national industry catering to this market, but also serves as an integral part of the wider discourse on forest business, policy, and economics in the Latin American region.

The paper, incorporating substantial content from the first author's doctoral thesis, is organized into four distinct sections beyond this introduction. Section 2 details the research methodology. Section 3, presenting the findings and discussion, is subdivided into three parts: an overview of the w market prior to 1970, its evolution from 1970 up to 2018, a year before the onset of the COVID-19 pandemic, and its developments during the pandemic from 2019 to 2021. Section 4 offers a comprehensive summary of the w market 's evolution. The paper ends with Section 5, which offers conclusions, discusses limitations, and proposes areas for future research.

METHODS AND DATA

In this paper, a multidisciplinary methodology integrating both quantitative and qualitative techniques was employed. The research entailed the thorough collection, consolidation, and analysis of data and information from national accounts, economic reports, and industry documents, some dating back to the late 19th century. To further enrich the analysis, structured interviews with experts from the Colombian forest industry were conducted in 2016 and 2021 (Martínez-Cortés 2016; 2021), yielding valuable insights and perspectives.

In the analysis of the w market for 1970-2021, the paper utilizes consolidated data for Supply (S) and Demand (D). Supply is defined as National Production, while Demand comprises Domestic Consumption (C) plus Imports (M) minus Exports (X), diverging from traditional national accounts definitions. This approach aligns with the Colombian forest sector model (CFSM), for which the dataset for the w market used in our paper was initially prepared (Martínez-Cortés 2023a; Martínez-Cortés et al. 2024). Within this model, Supply is treated as an independent variable explained by labor, capital, and prices. Consumption aggregates intermediate and final consumption. The paper conducts an analysis of Supply Price of w (PSw) but excludes analysis on prices of Consumption (PC), Exports (PX), and Imports (PM), which are available with the rest of data used in this paper by request to the corresponding author. All monetary quantities for S, D, C, X and M are reported in 2015 Colombian pesos (2015COP) at purchaser’s prices, with PSw, PCw, PXw, and PMw detailed as deflators, using 2015 as the base year. Expressing the S, D, C, X and M purchaser’s prices was key to allow for market clearing condition computations.

Raw data for the monetary quantities of S, C, X, and M were sourced from the Supply and Use Tables (SUT) of the NAC for the bases 1975, 1994, 2005, and 2015 (DANE no dated1; no dated2; 2013; 2018a; 2018b; 2023b; 2023d). Physical figures for those aggregated were sourced from FAOstat (FAO 2022; 2023). Statistics specific to the wood industry in Colombia were primarily derived from Colombia’s Manufacturing Annual Survey (DANE 1971 – 1979; 1976; 1980-1989; 1990-1999; 2000-2021).

To compile the consolidated data for the w market from 1970 to 2021, estimations and transformations were essential. For 1970 to 1974, the figures for S, C, X, and M of w were extrapolated by applying the proportion of w in the aggregated value for 1975 to the combined figures for w and f from the SUT of those earlier years. This was feasible as 1975 was the first year when separate data for w and f were available. Additionally, estimates for the 1970 – 2021 quantities of S and M at purchaser’s prices were necessary. This involved adjusting these figures from basic prices, as presented in the SUT, to purchaser’s prices. The process began by isolating the commercialization and transportation margins for both S and M, which were aggregated in the SUT. To separate these margins, the total value was distributed based on the proportion of each aggregate within their combined sum. Subsequently, the values of the quantities of S and M at purchaser’s prices were determined by summing the basic prices with respective taxes and separated margins for each variable. Lastly, the series from 1970-2018 for PSw, PCw, PXw, and PMw were estimated using their deflators. This involved dividing the current monetary values of S, C, X, and M by their constant monetary values, as per Kant et al. (1996).

Data transformation processes were implemented to integrate the data from the four bases corresponding to the years when SUT were available: 1975, 1994, 2005, and 2015. To link these time series in current values, a method of geometric interpolation in reverse was used. This technique ensures the base year values remain unchanged, serving as reference points. It proportionally distributes the difference between the nominal value for the new base year and that of the preceding base year, applying this adjustment specifically to the year when the new base is introduced (DANE 2013; 2020). For linking the time series of the aforementioned bases in constant values, the variation rate method was utilized. This approach preserves the temporal characteristics of the original data (DANE 2013). Graphical analyses were conducted to verify the consistency of the results obtained from these methods.

In this paper, we delineate clearly between the terms "market" and "industry". Here, the first is exclusively used to denote the manufactured products of the wood industry market, referred to as the w market, which encompasses the dynamics of Supply and Demand of w. Conversely, "industry" pertains to the collective of plants or establishments engaged in producing the products referred to as w.

Our paper uses annual growth rates (AGR) to explain the evolution of the market under analysis. Average AGR per decade and for period 1970-2018 were calculated as the average of the AGRs for the years of a decade (e.g. average AGR for the 1980s was computed as the average of the AGR for each year from 1980 to 1989) and the average of the AGRs for each year from 1971 to 2018, respectively.

Finally, we aimed to benchmark our findings against existing literature. However, this paper represents the inaugural analytical exploration of the Colombian forest markets, leaving us without prior studies for direct comparison.

RESULTS AND DISCUSSION

The w market before 1970

The evolution of the w market before 1970 was characterized by an expansion primarily driven by the needs of domestic consumption of these products, accompanied by their limited international trade, with a focus on exports of sawnwood. Historical records indicate that by the late 1800s, Colombia was already commercializing articles manufactured by the wood industry (w), such as sawnwood and its value-added derivatives (United States Government 1892), suggesting a robust domestic w market. They also show that by 1937, the country had begun exporting sawnwood for the construction industry (lumber) (US Tariff Commission 1945). However, despite this progress, the national wood industry, serving the w market, continued to be labeled as part of Colombia’s “backward manufacturing industry” during the latter half of the 1930s.

By the end of the 1930s and during the 1940s, the w market saw significant expansion, particularly in the domestic supply and consumption of sawnwood. This era of growth, underscored by the domestic concentration, was detailed in Colombia’s first industrial census of 1945 (Contraloría General de la República de Colombia 1947), as well as by the international trade data for w in 1948 (FAO 1949). The census reported a total of 821 establishments within the combined industries of wood and furniture, with their development chronicled as follows: two establishments were founded in 1880, seven between 1881-1900, eight from 1901-1910, 28 during 1911-1920, 89 in the 1920s, 272 throughout the 1930s, and 415 from 1940 to mid-1945. Among these, 147 specialized establishments focused on sawmilling, re-sawmilling and wood preservation, contributing to 43% of the total production value of both industries. As for the year 1948, trade of w was exclusively in lumber, with imports recorded at 4,000 m³ (USD 193 thousand) and exports at less than 500 m³ (USD 9 thousand). This period also highlighted the absence of manufacturing plants for wood-based panels, a notable gap in the national wood industry's development (FAO 1949; Van Bottenburg 1952).

During the 1950s and 1960s, the w market experienced a period of substantial growth and diversification, marked by increases in domestic supply and consumption of both sawnwood and wood-based panels, alongside a significant rise in the exports of the former. This market expansion was driven by the additional growth of Colombia's sawmilling industry and the establishment and evolution of the national wood-based panels industry. The Pacific Region of Western Colombia, renowned for its vast natural forests, saw a surge in sawmill operations, reaching a total of 92 mechanized sawmills by 1962, with a notable 54% of these located in the Nariño Departmento (Diot 1975). The initiation of Colombia’s wood-based panels industry was marked by the establishment of a plywood manufacturing facility, Pizano, in Barranquilla in 1954, utilizing cativo wood (Prioria copaifera) (Pizano 2016). This was soon complemented by the creation of fiberboard production by Láminas del Caribe in Barranquilla, using mangle wood (Rizophora spp.), and the inception of particle board production by Codemaco in Cali, employing virola wood (Dialyanthera gracilipes). The expansion continued into the 1960s with the establishment of four more plants, diversifying the industry’s product range to include particle boards (Okal in Bogotá), veneers (Chapas de Colombia in Buenaventura), plywood (Triplex Santander in Bucaramanga), and decorative veneers (Acemar in Bogotá), thereby significantly enhancing the w market's mix of products (Tecniforest 1999, cited by DNP et al. 2020). Alongside these developments, the exports for sawnwood also escalated from 819 m³ (USD 0.54 thousand) in 1953 to 59,200 m³ (USD 2.8 million) in 1968, with a peak in 1964 at 82,100 m³ (USD 3.1 million) (Diot 1975), indicating a robust expansion of the international aggregates of the w market. The geographical locations of the manufacturing facilities mentioned can be seen in Figure 1.

Figure 1. Location for selected Colombia´s wood industry plants. Note: In capital letters Colombia´s Departamentos. Brown dots: Departamento´s capital cities. In green, capital cities and municipalities where a plant of the wood industry cited in this paper has been deployed. The pacific Region comprises lands in Departamentos of Chocó, Valle del Cauca, Cauca, y Nariño, limiting with the Pacific Ocean.

The expansion of the w market during the 1950s and 1960s is vividly reflected in the figures from the second industrial census of Colombia in 1954, the Manufacturing Annual Survey (MAS) of 1960, and the third industrial census of 1970 (DANE 1956; 1961; 1976). Capturing the growth, the 1954 census detailed 472 wood industry establishments with production valued at COP 41,4 million and a workforce of 4,251, contributing 4.2% to the total industrial establishments and 1.1% to manufacturing production, alongside 2.1% to employment within Colombia’s industrial sector. By 1960, the landscape slightly shifted to 430 establishments, yet saw a surge in employment to 5,909. In that year, wood industry gross production amounted to COP 317,8 million. The trend of consolidation continued into 1970, with the industry narrowing down to 347 establishments, segmented into 249 sawmills and related mills, 32 in wooden and cane container manufacturing, and 66 in other wood product manufacturing, collectively employing 7,912 people and generating gross production of COP 606 million. This period marked the national wood industry's increased specialization and productivity, with this industry representing in that year 4.7% of all industrial establishments, 1.0% of the gross production, and 2.3% of the industrial employment in Colombia.

In the development and diversification of the w market until 1970, numerous factors closely tied to Colombia's economic performance and industrialization efforts, as documented by Berry and Thoumi (1975), were instrumental. Between 1900 and 1930, the w market reflected Colombia's broader economic landscape, predominantly satisfying local needs through "cottage shop production" establishments, which usually employed fewer than five workers. The noticeable surge in both consumption and domestic production of w between 1930 and 1945 aligned with the overall growth of the national economy and the expansion of the Colombian manufacturing industry that spurred by the events of the 1920s. The years of the 1920s are well known in Colombia by an unprecedented economic expansion of the country’s economy — the highest in its history, according to Meisel-Roca et al. (2016) —, marked by a substantial shift towards modern, large-scale manufacturing, a preference for protectionism, expansion of the railroad system, a rapid increase in coffee exports, and significant capital inflow. During the 1930-1945, the sawmilling industry, along with other Colombian industries, also benefited from national protective measures in response to the global depression initiated in the US in 1929 and the impacts of World War II. The subsequent expansion and diversification of the w market in the 1950s and 1960s — closely associated with the rise of the national wood-based panel industry and the growth of the existing Colombian sawmilling industry— was largely due to Colombia's strategic shift towards import-substitution industrialization, supported by import restrictions, governmental aid through bodies such as the Institute for Industrial Development (Instituto de Fomento Industrial, IFI, in Spanish)  ̶  which provided financial and technical support to companies, movement into more sophisticated and capital-intensive industries, a significant rise in foreign direct investment, export tax incentives, and the 1960s- second half “shifting towards a more balanced and even pro-export pattern”.

The w market between 1970 and 2018

The period from 1970 to 2018 in the w market was defined by significant shifts in the demand and supply interplay. The market continued to expand, fueled by increases in domestic consumption of articles manufactured by the wood industry (w), accompanied by their active international trade, particularly in wood-based panels.

Demand and supply dynamics

Over the nearly five decades from 1970 to 2018, the market for w achieved a significant milestone, reaching a market value of 100,514 billion (USD 37 billion). This aggregate value comprised 108,703 billion (USD 40 billion) in consumption, 2,286 billion (USD 0.83 billion) in exports, and 10,443 billion (USD 4 billion) in imports. Concurrently, the supply of w totaled 112,896 billion (USD 41 billion), highlighting the market's robust economic activity.

This period marked a considerable expansion in both demand and supply for w, as illustrated in Figure 2. The demand for w (Dw) experienced an average annual growth rate (AGR) of 4.2%, culminating in a six-fold increase to 3,082 billion by 2018. This growth in Dw was detailed across its components: consumption (Cw) at 4,099 billion, exports (Xw) at 119 billion, and imports (Mw) at 1,136 billion. Remarkably, Cw and Xw saw an eight-fold increase, while Mw surged by 183 times, with average AGRs of 4.8%, 14%, and 18.2%, respectively. The supply of w (Sw) paralleled this growth trajectory, registering a five-fold increase with an AGR of 3.9% over the 49 years, reaching 3,112 billion in 2018.

This substantive growth between 1970 and 2018 can be predominantly ascribed to the surge in the consumption of the manufactured products of the wood industry, reflecting Colombia's economic progress during this era. Significantly, Colombia's GDP per capita rose from USD 2,410 in 1970 to USD 6,321 in 2018, with values adjusted to 2010 dollars (2010USD) (World Bank 2023), illustrating the broader economic context underpinning these market dynamics.

Diving deeper into the decade-specific average annual growth rates (AGRs) provides an insightful understanding of the market's evolution. Dw, Sw, and Cw displayed similar growth patterns, with average AGRs fluctuating between -1.7% and 8.3%. In contrast, the growth rates for Xw and Mw were notably higher, ranging between 2.6% and 36.1%, as depicted in Figure 2 (panels b, d, f, h, j). The 1970s and 1990s saw Xw's growth marginally surpassing Mw's. However, the 1980s and 2000s witnessed Mw's AGR exceeding Xw's by about 10 percentage points (pp), with the 2010s showing a slight reduction in this gap to 7.5 pp. The subsequent subsections will delve into the complex interplay between Sw and Dw's components (Mw, Xw, and Cw) across these decades, offering comprehensive insights in monetary (for all aggregates) and physical (for Xw and Mw) metrics, thereby smoothly transitioning from a broad overview to detailed analyses of each component's role in shaping the market landscape.