Roundwood pricing mechanisms and their performance in Scots pine roundwood markets

Abstract

Roundwood is a heterogeneous raw material, which means that different species, qualities and dimensions have different value potential for different end-uses. As a result, the value of bought roundwood raw material is dependent on the properties of the raw material as well as the selected end-use. These timber assortments are categorised as forest products and the payment is based more or less on timber assortment volumes with the prices negotiated between the seller and the buyer. The optimal pricing mechanism is related to sale type (standing sales, roadside sales or delivered sales) and measurement of raw material, but in general, the optimal pricing mechanism should include the following aspects: It should not restrict value optimization of raw material, it should be transparent and easy to understand and it should offer incentives to grow higher quality raw material. In this paper, five pricing mechanisms for clear-cutting stands were tested: timber assortment pricing, weighted timber assortment pricing, stem pricing, fractional stem pricing and price list pricing. Stem pricing and fractional stem pricing offers freedom to cut stems as wanted and, thus, optimise the raw material according to the existing market demand and the use of these pricing mechanisms in clear-cutting standing sales has advantages. In delivery sales, price list pricing has clear advantages. It gives the seller an indication of what kind of timber is valuable, and if the price list is correct the outcome of bucking should meet the needs of the buyer.