Spatial equilibrium analysis of conifer timber markets in southern Brazil and in the other Mercosur countries

With an estimated 242 million people in 2000 and an aggregate GDP of US{dollar} 1.7 trillion in 1999 (CIA, 2000), Mercosur has become an important economic bloc in the Southern Hemisphere. Its forest products market has gained growing importance from large investments in plantations and industrial facilities notably in Brazil, Chile and Argentina. In particular, the conifer sawlog and lumber markets face increasing demand, limited supply of plantation industrial roundwood, and trade liberalization.; The purpose of this study was to investigate the market equilibrium for conifer sawlogs and lumber in Mercosur, focusing on Southern Brazil. The mathematical framework was based on Samuelson (1952), extended by Takayama and Judge (1964a, 1964b and 1971). Multiple regression analysis and price endogenous linear programming system for economic modeling (PELPS III - Zhang, Buongiorno and Ince, 1993) were used to create a regional spatial equilibrium model. Price elasticities were mostly estimated through systems of simultaneous equations.; A spatial equilibrium model was developed, which simulates the optimal trade pattern, consumption, production, and capacity that satisfy the price and the supply/demand quantity relationship. The study demonstrated that the Southern Cone countries have increased their pattern of production, consumption and trade under more economic efficiency. Limited production of pine sawlogs and lumber in Brazil and relative expansion of the lumber market in Chile and Argentina are indicated. In addition, limited trade within the bloc and significant trade with partners outside the bloc are also predicted. The sensitivity analyses indicated the possible changes in the outcomes as a result of changing one key variable at a time, including changes in the availability of pine sawlogs in Brazil, change in the growth of GDP in Brazil and change in the price elasticity of demand for sawnwood in both Brazil and Chile. The future pattern of production, consumption and trade of conifer lumber in Southern Brazil is likely to be highly influenced by the magnitude of changes in the availability of pine sawlogs from plantations. Southern Brazil could face a significant reduction in its pine lumber production and consequent exports, even becoming a net importer, if a drastic decrease in the availability of pine sawlogs occurs. Such a scenario, however, will be positively or negatively influenced by the interaction with other major macroeconomic variables and the expansion of the resource base, both in Brazil and in some of the other Mercosur countries. The model is useful as a policy instrument to analyze strategies for further forest sector development in individual countries.