yesterday at 12:29
,Germany
The government's decision to adjust AS “Latvijas valsts meži” (LVM) long-term contract prices for three years is explained as an attempt to stabilize the timber industry after a sharp market decline, but it has simultaneously triggered political and legal disputes: the Prosecutor General's Office has initiated a review of the decision's legality.
From January 1, 2024, some long-term contracts no longer apply the high prices previously set at auctions, but instead use “average weighted” prices. In practice, this means that the contract price is aligned with the current market situation, rather than remaining “stuck” at a level fixed during a time when the market was overheated. The difference is significant: auction prices reflect competition for resources at a specific moment, while indexed contract prices and average weighted prices provide a more stable, balanced approach over a period. The decision directly affects long-term contracts, as during a crisis they can maintain higher prices than the market, thus rapidly worsening processors' production costs.
From the fourth quarter of 2022, the timber products market experienced a significant decline: construction volumes decreased, demand and prices for sawn timber dropped, and the industry’s dynamics became unpredictable. For companies, this meant pressure on production, employment, and profitability; the situation was reflected both in the Ministry of Agriculture's informational reports and in companies' annual reports.
The industry describes 2023 as one of the toughest periods for the softwood sawn timber sector since 2008, noting that a large number of companies operated with significant losses in their core activities, although the extent of these losses is not always easily discernible from a single indicator in reports.
Against this backdrop, timber processors called on the government to find a mechanism to ensure raw material prices aligned with the market situation. From the industry's perspective, long-term contracts during a crisis can become “stuck” above market levels, and without adjustments, companies would have to continue operating at a loss in the next period.
Timber processors emphasize that the Cabinet of Ministers' decision should not be considered state aid: it provides for price adjustments to market levels, not subsidies or discounts. According to the industry’s arguments, the publicly mentioned sums represent the difference between market prices and the previously applied indexed contract prices, with the goal of preventing a situation where the industry would have to continue operating at a loss for another year. Expected benefits include maintaining export capacity, continuing investments, tax revenues, and regional jobs, as well as the opportunity to recover production volumes in 2024 and 2025, modernize processes, and improve wages.
However, the decision also faces strong counterarguments. In the media, it has been evaluated in light of the record profits the industry earned in previous years. Internal government objections have also been raised: that the timber processors’ problems were essentially concentrated in a single year, while previous years were particularly lucrative, as well as concerns about targeting—whether the benefits primarily apply to major market players rather than the entire industry. The core of the criticism relates to the duration of the decision, its fairness, potential distortion of competition, and the boundary between market correction and indirect support.
LVM had previously publicly warned that revising prices would reduce the company’s revenue by millions of euros, could be seen as a waste of state funds, and posed a risk that the measure might be interpreted as competition-distorting state aid. As the decision took effect, its financial impact also became evident: LVM’s profit decreased by 7.54 million euros in one quarter, while the estimate mentioned by the program “Nekā personīga” suggests that the government’s decision cost LVM more than 30 million euros.
The legal dimension became particularly visible after an appeal to the Prosecutor General's Office regarding support for timber processors—the prosecution was asked to evaluate the legality of the decision, and an investigation has been initiated.
At the same time, the issue has also escalated to a personal level: in October, LVM Board Chairman Pēters Putniņš resigned, with public speculation suggesting possible political pressure related to his refusal to revise prices earlier, arguing it posed a risk of wasting state funds.
Future answers will be decisive in several directions: whether the decision will be deemed legal, whether it truly stabilized the industry at a critical moment, whether the beneficiaries were the entire industry or primarily the largest players, and what the long-term impact will be on LVM’s revenues, the state budget, and competition.
