Case study:
REIRAS OY
Inno-Forest
Final report
Pauli Lämsä
15.6.2007
Oulu University of applied sciences –
School of Renewable Natural resources
Innovation analysis
INNO-FOREST
Table of contents
1 Introduction 3
2 History 3
3 Present 3
4 Future 4
5 Forestry in Finland 4
5.1 Forest Management associations 5
5.2 Future of silviculture in Finland 5
6 Analysis of business idea 6
7 Market analysis 6
7.1 Own forest is the main employer 6
7.2 Services offered outside 7
8 SWOT 7
8.1 A’WOT 9
9 Matters to improve in Reiras 9
9.1 Matters to improve In Finland 10
10 Conclusion 10
REFERENCES
1 Introduction
Reiras OY (limited liability company LLC) is one-man owned forestry enterprise. Company is located in Vaala at North Finland. It´s services range from silvicultural consulting and planning to harvesting and selling firewood. Company is owned by Mr. Reijo Rasinkangas. He also owns 450 hectares of forest and 22 hectares of arable land which is rent to a local farmer. In addition he also rents a cottage. His main goal is to take care of his own forest.
2 History
Mr. Rasinkangas has been working as an entrepreneur for 40 years with a constant touch to forest – more or less. Mr. Rasinkangas signed in to Finnish Business information system at 1978 as a private entrepreneuer. In 1985 he changed company form to limited company, name was now Maansiirto Rasinkangas Oy and main focus was at earthworks. At 90´s he took part to a Further Qualification for Forestry Entrepreneurs –program. That gave him an official qualification to conduct a silvicultural planning. At 2004 he decided to focus mainly in forest business; he sold his earth working machinery, and changed the company’s name to Reiras Oy. Nowadays he owns a medium size harvester, a forest tractor and a summer cottage at Lake Oulu which he is renting.
3 Present
Presently his company offers forest planning services, such as designing drainage lines and harvestings. He also sells firewood from his own forest (logwood and woodchips). Company’s customers consist mainly from the nearby forest owners and firewood is sold directly to local people. Most of the time he is employed by his own forest.
4 Future
Future seems bright for forest sector; wood prices are rising in Finland and also globally. Prices of paper wood in Finland for example have risen over 30% in this year. Finland´s forest holds a possibility to safely increase annual harvesting rate. During the few past years annual growth has been 80- 90 million cubic meters annually while the removal has been under 70 million cubic meters annually (includes also natural wastage). Trend has been same for the last 40 years. (Metla)
Future brings also new challenges. Biggest question concerning Reiras is governments attempting to tighten qualifications for consulting licence. If this renovation takes place at turn of the year, as suggested, it would exclude Mr. Rasinkangas and hundreds of others out of business. It wouldn´t be a fatal for the company because own forest has been most important source of income for a long time, “but of course it´s a drawback” says Mr. Rasinkangas.
Considering wider scale all forest machine entrepreneurs’ are suffering from rising oil prices and varying winters. If global warming keeps progressing there becomes a need for lighter forest machines, and some places become inaccessible for machines. That would increase the demand of lumberjacks.
On the other hand warming increases annual growth of the forests. It would also raise the timber line to north and because all three of our main tree species meet their surviving limits here, they would also spread wider. Even some new trees would survive in here. Warming has also side effects; forest damages would become more common and some pests would also spread further to north.
(Finland’s environmental administration)
5 Forestry in Finland
86% of Finland´s land area is covered by forest. Forest is mainly owned by private persons, approximately 60% of total area, and about 80% of domestic wood is annually coming from private forests. Although an average forest owner in Finland at these days is a city-living person. 72% of Finland’s land area is covered by forests and approximately 10% of total area is under protection.
(Metla)
Although forestry is mechanized greatly during few past years (over 90% of wood is cut by machine) forests are still growing more than there is cut annually. State finances consulting and partly some of the forestry activities.
5.1 Forest Management associations
In Finland forest consulting services are traditionally organised and dealed by Forest Management Associations (FMA). 90-80% of all activities related to timber production and 70% of planning timber sales are carried out by FMA. It is a state-owned association and it has 154 offices all around the country. Every Finnish forest owner is a member of the FMA. Annual membership fee is 140€. In exchange of that state offers some free consulting services and supports some forest improving acts. Planning aid can be also paid to a private person if he has a required education. Nowadays competition is increasing and more and more private persons have begun to offer same kind of services. At the moment required education is secondary level schooling (Forestry Entrepreneur). There has been some public debate considering of this qualification and some experts suggest that the requirement level should tightened.
(MHY)
5.2 Future of silviculture in Finland
Currently wood prices are rising. Past two winters have been warmer than usually, so that winter harvesting season has been shorter than usually. Some types of soil (swamp land especially) needs snow and cold in order to carry heavy harvesters. Specially demand of paperwood is larger than current supply on the market. Wood prices are likely to stay high in future; mainly because of Russian´s attempting to increase customs of raw wood.
6 Analysis of business idea
In my opinion innovation in this case is combining usually apart kept sectors. Company has combined four sectors; private forest ownership, firewood business, forest planning and mechanised harvesting. All together in same company! There is also income from renting cottage and farmland but that is not the real innovation in this case. There are plenty of different variations from these four sectors but having all in the same company is quite a unique combination for some reason. Having an own harvester is not so rare for larger forest owners but most of them are not allowed to carry out forest planning. Usually harvesters are owned by contractors or companies and they usually employ more than one person.
7 Market analysis
Company’s services and offerings are firewood and wood chips, consulting in forest business, selling pulpwood and log wood, renting farmland and summer cottage. Harvester is only used to cut down own forest.
7.1 Own forest is the main employer
Firewood and woodchips are made from his own wood. Those are sold directly to a nearby people. There is lot of potential customers around because company is located near Lake Oulu which shores are filled with hundreds of summer cottages. Risen raw material prices have been somehow moved on to final product.
Bio-energy is raising trend and wood based heating systems are becoming more popular, also rising electricity and oil prices are making wood even more competitive option in heating systems.
Annual cutting amount varies; usually it is around thousand cubic metres. Smaller wood is harvested as a whole wood with a harvester. Whole wood is further processed to a wood chips. Larger log wood and pulp wood is cut down by hand with chain saw. Most of the wood is sold to the forest companies and smaller wood is made to firewood. He used to take care of all the tasks in his forest from soil preparation, planting and digging drainage lines to final felling but since he sold his excavator he had to leave all the earth working to a contractor.
At the moment wood markets are running so high that current harvester population isn´t able to cut everything. That is prevailing situation around the country. This year seems to be forming out to a one of the busiest years to the harvester contractors. There would be also lot of work to do for Mr.Rasinkangas and his harvester but he has decided to stay out of that business. Mainly because he doesn´t have enough time for that and his current harvester aren’t no contractor-size-machine.
7.2 Services offered outside
Consulting services offered outside are mainly designing drainage lines and harvesting plans. Those services are mainly offered to a few local forest owners. There would be even more request for his services but there is not enough time to wide up his circle of customer.
Renting cottage and farmland are mainly additional source of income. Nevertheless both are quite wanted and it´s likely to stay so. Especially farmland is getting more and more valuable.
8 SWOT
SWOT analysis concerning Reiras main sectors (forestry related business):
Strengths
- Strong demand of wood
- Not much local competition
- Incomes from different sources
- 40 years as an entrepreneuer
- Education
- Financially sound
Weakness
- Expensive machines
- One “employee” on the company
- Lack of qualified employees
Opportunities
- Lot of work to do in forests (especially in young forests)
- Salary for harvester contractors has improved
- Growth potential on every sector
- Bio energy boom
Threats
- Excessive nature protection (over half of the northen – Finlands forests are protected)
- Global warming (winters become warmer àheavy harvesters - cannot enter in swamp forests if soft soil is not frozen)
- Rising oil prices
- Logwood and pulpwood markets are sensitive to global economical fluctuations
- New law proposal (that would exclude Mr. Rasinkangas out of consulting business)
Currently Finland is suffering shortage of labour in forest sector and market situation for wood and its products is better than long time. Mr. Rasinkangas is running his company by himself and he has no hired personnel. That sets strict limits for company. Currently there is lot of work to do in Finlands forests but in future there might be coming a shortage of larger wood in some areas and in that case excessive local forest protection may cause local problems.
(www.ymparisto.fi)
8.1 A’Wot
Weights given for the specific SWOT factors.
A’WOT confirms also that the company is doing fine and the bases are good and solid; strength and opportunity factors are dominant related to threats and weakneses.
9 Matters to improve in Reiras
Forestry machines are expensive. Payback time gets shorter if the usage level of the machine rises. So to get all out of the machine it would require 2 more drivers so that the machine would be on the move around the clock in three shifts. One the other hand increased usage level also wears out machines faster.
There is not so much of a request for planning services as there is for actors in forest. So it would be a powerful combination if it would be possible to combine these harvesting and planning services on larger scale.
Overall current concept is good. There are lot of open doors and directions to go. Reiras contains a chance of developing to a larger company that would employ few more people. There would be local order for these kind of services Reiras is currently offering but one persons resources are limited. One the other hand company is doing fine currently so there is no real forcing need of growing up the company.
9.1 Matters to improve In Finland
Most of all there would be a need for people willing and being capable of harvesting by chain saw. There is plenty of young thick forests needing a thinning cut. Those 4-6 metres tall forests are quite problematic – they won´t produce practically any wood to sell at all so it costs money for forest owners. One option would be to collect an energy wood from this kind of forests. Currently price has been so low that it´s not really profitable. On the other hand first thinning is very important and it has a so significant effect to a forming logwood quality that it should be done by any cost.
Main reason why young people are not interested from lumberjacks career is that payment is not so good and the work is physically challenging. It´s also problematic that lumberjacks cannot work at all during the winter time for two to four months due to snow and cold.
Acquiring competence to forest consulting would be also one way for lumberjacks to get more profit from their work. It would also bring some variation to otherwise so one-sided work.
10 Conclusion
When seeking extra price for own wood (and extra work) this is very competitive option thus it requires pretty much forest area specially if contracting to outside is not practised. Mr. Rasinkangas decision to sell his excavator and to concentrate mainly to forest sector was good; there is very tough competition in earth working business and prices have become very low. Same threat is also upon forest sector and cover has already come down. Rising wood prices have fixed the situation for a little but question is how long this boom continues? Broad based companies like Reiras are not so cyclically sensitive like for example solely contracting based forest machine entrepreneurs.
References
Forest Management association http://www.mhy.fi/mhy/ red27.6.2007
Metla www.metla.fi red 6.8.2007
Finland’s environmental administration www.ymparisto.fi red 6.8.2007
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