Metsä Group introduced pricing based on stem volume in all its supply districts in November last year. It now aims to establish the model as a normal part of wood trade. “We’re a long way to achieving this goal.”
According to Metsä Group, pricing based on stem volume appears to be developing into an important alternative pricing method for wood trade. It does not divide trunks into log and pulpwood grades. Instead, pricing is based on whole trunks.
The final price based on stem volume is determined after harvesting according to the average volume of the felled trees. Offers are based on a stem price matrix that indicates the estimated average stem volume for the felling site and the corresponding stem price per cubic metre.
If the volume of the felled trees differs from the estimate, the price per cubic metre also changes. The price may move in either direction. If the average stem volume is larger than estimated, the price paid for the wood is higher, and if the volume is smaller, the price is lower.
Forest owners who have tested the pricing model have given positive feedback on it. “They feel that pricing based on stem volume is a fair and clear pricing model.”
Feedback continues to be collected
Metsä Group began piloting pricing based on stem volume in four supply districts in the summer of 2021. The pilot stage was preceded by a one-year development stage, during which the pricing matrix was devised, for example. “Much of the work was carried out in the company, but of course, relevant research results were used for support.” The company continues to collect feedback on the pricing model. The customer feedback survey conducted after wood trade is one way to do so.
Pricing based on stem volume is suitable for all kinds of thinning stands. It is optimal for well-managed forests that grow well and have reached the age for thinning, and where preliminary clearing has been carried out meticulously. In such forests, the predominant species have no small-diameter trees growing beneath them which might lower the average stem volume.
If a wood trade includes stands of significantly different ages, the offer is prepared using a different stem price and stem price matrix for the stands. Pricing based on stem volume is not used for first thinning sites or for sites with trees affected by nutrient imbalances, for example.
According to Tahvanainen, pricing based on stem volume is a fair method for both the buyer and seller. After felling, the forest owner no longer needs to oversee which pile the trees end up in. In turn, the wood buyer can cut the trees optimally considering the prevailing market situation at the time of harvesting.
Metsä Group has tested the new method throughout the supply chain. According to Tahvanainen, each link in the chain, from the offer to mill delivery, has worked as expected.
Read more about pricing based on stem volume here.
This article was published in issue 2/2022 of Metsä Group’s Viesti magazine. Text: Maria Latokartano