Canadian Forest Service Publications
Elasticity of import demand for wood pellets by the European Union. 2017. Sun, L.; Niquidet, K. Forest Policy and Economics, Vol 81, pp 83-87.
Available from: Pacific Forestry Centre
Catalog ID: 38883
CFS Availability: PDF (request by e-mail)
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Import demand for wood pellets by the European Union (EU) was investigated using a source-differentiated non-linear Almost Ideal Demand System (AIDS) model with monthly data from 2009 to 2015. Our research provides the first complete set of expenditure, price and cross-price elasticities for this rapidly expanding forest product market. Expenditure elasticities reveal that wood pellets from the United States have the most to gain from an expansion in EU expenditures, followed by Canada, while Russia has the least to gain. We attribute this result to differences in the quality, reliability and sustainability of wood pellet supply between the countries. The degree of substitution among the major suppliers was also assessed through cross-price elasticities.
Plain Language Summary
Import demand for wood pellets in the European Union (EU) has grown substantially over the past decade. Our research provides the first complete set of demand parameters for this rapidly expanding forest product market. Analysis revealed that US wood pellets are likely to gain an increasing market share of the EU market as expenditure grows. However, much of the gain in market share will come at the expense of Russia, as Canada is expected to hold its market share over time. Nonetheless, this finding for Canada is heavily dependent on pricing as import demand is price sensitive (elastic) and wood pellets from the US and Russia act as close substitutes.
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