TRANSILVANIA UNIVERSITY OF BRAȘOV

FACULTY OF SILVICULTURE AND FOREST ENGINEERING

MARCEL KRUK JAGNOW

Competitiveness of Brazilian Softwood Lumber in the Middle East and North Africa
(MENA).

BRAȘOV

2022
 MARCEL KRUK JAGNOW

Competitiveness of Brazilian Softwood Lumber in the Middle East and North Africa
(MENA).

A dissertation submitted to the Faculty of

Silviculture and Forest Engineering at the
Transilvania University of Brasov in partial
fulfillment of the requirements for the
degree of Master of Science in European
Forestry.

Supervisor: Prof. Dr. Eng. Bogdan Popa

BRAȘOV

2022
 ABSTRACT

Competitiveness has become a great concern for companies due to the effects of
globalization and the intensified trade relations between countries. The objective of this
study was to investigate the performance of Brazilian softwood lumber exports to the MENA
region during the period 2006-2020. To this end, Brazilian export dynamics were examined
using descriptive statistics, growth rates, the Regional Orientation Index (IOR), and
identification of the main players, while the competitiveness of Brazilian exports was
measured using indicators of international trade, namely the Revealed Comparative
Advantage Index (RCAI), the Market Share (MS), and the Constant Market Share Model (CMS).
The analysis was based on secondary data on trade statistics for softwood lumber (imports
and exports) from the United Nations Commodity Trade Statistics (UN Comtrade) repository.
The results show that Brazil has increasingly directed its exports of the product to MENA,
particularly Saudi Arabia, the United Arab Emirates, Morocco, Kuwait, and Qatar. Export value
and volume increased over the period analyzed, as has Brazil's market share in the region,
which has been positively impacted mainly by increased competitiveness.

Keywords: Competitiveness; Softwood; Lumber; Brazil; MENA

 TABLE OF CONTENTS

1. INTRODUCTION ................................................................................................................................ 7

1.1. Objectives .......................................................................................................................................... 9

2. THEORETICAL FRAMEWORK ..................................................................................................... 10

2.1. Standard classification systems for merchandise trade..................................................... 10

2.1.1. Standard International Trade Classification (SITC) ............................................................... 10

2.1.2. The code 248.2 ............................................................................................................................... 11

2.2. Competitiveness ............................................................................................................................ 12

2.2.1. Concepts .......................................................................................................................................... 12

2.2.2. Determining factors ...................................................................................................................... 15

2.2.3. Measuring competitiveness ....................................................................................................... 18

3. METHODOLOGY .............................................................................................................................20

3.1. Materials ..........................................................................................................................................20

3.1.1. Data sourcing ..................................................................................................................................20

3.1.2. Data handling ..................................................................................................................................20

3.1.3. Price...................................................................................................................................................22

3.2. Methods ...........................................................................................................................................23

3.2.1. Trade dynamics ..............................................................................................................................23

3.2.1.1. Percentage changes in variables ...............................................................................................23

3.2.1.2. Growth rate .....................................................................................................................................23

3.2.1.3. Regional Orientation Index..........................................................................................................24

3.2.1.4. Main players ....................................................................................................................................25

3.2.2. Competitiveness ............................................................................................................................25

3.2.2.1. Revealed Comparative Advantage Index (RCAI) ....................................................................25

3.2.2.2. Market Share (MS) .........................................................................................................................26

3.2.2.3. Constant Market Share (CMS) ....................................................................................................27

4. RESULTS ..........................................................................................................................................30

4.1. Trade dynamics ..............................................................................................................................30

4.1.1. Value, volume, and prices. ...........................................................................................................30

4.1.1. Regional Orientation Index (ROI) ...............................................................................................36

4.1.2. Main players ....................................................................................................................................38

4.2. Competitiveness ............................................................................................................................ 41

4.2.1. Revealed Comparative Advantage Index (RCAI) .................................................................... 41

4.2.2. Market Share (MS) .........................................................................................................................44

4.2.3. Constant Market Share (CMS) ....................................................................................................46

5. CONCLUSION ..................................................................................................................................49

6. REFERENCE LIST ...........................................................................................................................52

 LIST OF TABLES

Table 1 – Brazilian softwood lumber exports to MENA (2006-2020). ........................................... 31

Table 2 – ROI of Brazilian softwood lumber exports to MENA (2006-2020) ...............................36

Table 3 – Top importers of softwood lumber in MENA between (2006-2020). ..........................39

Table 4 – Brazil's top partners (2006-2020). ........................................................................................40

Table 5 – Revealed Comparative Advantage Index (2006-2020). ...................................................42

Table 6 – Growth rate and sources of growth of Brazilian softwood lumber exports. ..............46
 LIST OF FIGURES

Figure 1 – Indexed changes of Brazilian softwood lumber exports to MENA (2006 = 100)

(2006-2020)....................................................................................................................................................32

Figure 2 – Brazilian Real to U.S. Dollar Exchange Rate (2006-2020) .............................................33

Figure 3 – Value (US$) and quantity (m³) of Brazilian softwood lumber exports to MENA

(2006-2020)....................................................................................................................................................34

Figure 4 – Average price (US$/m³) of Brazilian softwood lumber exports to MENA and

worldwide (2006-2020). .............................................................................................................................35

Figure 5 – ROI of Brazilian softwood lumber exports to MENA (2006-2020). ............................37

Figure 6 – RCAI of Brazilian softwood lumber exports to MENA (2006-2020) ...........................43

Figure 7 – Brazil's market share in softwood lumber exports to MENA (2006-2020). .............45

Figure 8 – Global softwood lumber imports (2006-2020). ...............................................................47

 7

1. INTRODUCTION

Trade between countries makes it possible to acquire products, goods, or services

abroad whose production at home would be inefficient, impracticable, or even impossible.

The increasing globalization of economies has intensified trade relations between countries,

bringing with it, among other things, opportunities and threats. This phenomenon exposes

countries' economies to the rules of the international market, which increases the complexity

of business operations and intensifies competition (Noce et al., 2005; Parapinski, 2012).

Given this scenario of globalization and the intensification of trade relations between

countries, competitiveness has become an issue of great interest to companies due to its

influence on the performance of companies in a sector. High competitiveness not only

prevents the loss of market share in the domestic market, but it also helps to increase profits

in the foreign market. On the other hand, low or no competitiveness can lead to the

disappearance of a company or sector, affecting the welfare of all citizens of a nation

(Almeida, 2010; Costa, 2013).

In addition to the exogenous and endogenous factors that affect competitiveness, it is

crucial that companies understand the markets in which they operate, the regulations that

guide them, and the elements that influence them. By understanding these relationships,

companies are able to gain competitive advantages that help them beat the competition, gain

market share, satisfy customers, and generate profits (Costa, 2013; Valerius, 2016).

Softwood (coniferous) lumber, also known as sawn wood or sawn timber, has been an

internationally traded commodity for centuries, with production and trade intensifying in the
 8

21st century (Abimci, 2019). Historically, lumber from coniferous species has been used for a

variety of purposes, which Bumgardner et al. (2013) divided into two broad categories:

structural and non-structural. The former consists of lumber used for construction in a

variety of dimensions and techniques. Equally valuable, non-structural uses refer to

softwood lumber utilized for frames, doors, windows, fences, furniture, and packaging

(Bumgardner et al., 2013).

The Middle East and North Africa (MENA) regions have abundant human and natural

resources, notably oil and natural gas. However, the region suffers from a harsh climate,

limited groundwater and rainfall, and scarce arable land (El-Erian et al., 1996). When it comes

to forest products, the lack of natural forests or favorable conditions for growing forest

plantations makes the region dependent on imports of products such as lumber from other

regions to meet local demand.

MENA countries contribute a good share of global imports of softwood lumber, some

of which come from Brazil. From 2006 to 2020, softwood lumber imports from MENA

countries totaled US$36,335,088,818, accounting for 9.26% of total global imports of this

product (US$392,445,241,551). Brazilian exports to the region totaled US$689,513,287

during the same period, representing 14.10% of the country's total export value, but only

1.90% of the region's import value (UN Comtrade, 2022).

Considering the importance of studies on competitiveness and the region's share in

global imports of the product, this study had the main objective of evaluating the dynamics

and competitiveness of Brazilian exports of softwood lumber to MENA from 2006 to 2020.
 9

Studies such as this can support the development of trade strategies that contribute

to the sector's orientation in the search for appropriate actions to improve the insertion of

companies in the market in question, make the trade of the forest sector in the country more

diverse and improve the balance of trade.

1.1. Objectives

This work has the general objective of analyzing Brazilian exports of softwood lumber

to the MENA region, in order to evaluate the dynamics and competitiveness of these exports

in the period 2006-2020. To this end, the following specific objectives were determined:

• Characterize the dynamics of the value, volume, and price of Brazilian softwood

lumber exports to MENA;

• Assess the degree of orientation of Brazilian softwood lumber exports to the

region;

• Name the main importing countries and Brazil's main trading partners for

softwood lumber exports to MENA; and

• Measure the competitiveness of Brazil's softwood lumber exports in the region

from a performance perspective.

This paper is divided into four sections in addition to this introduction. Section 2

presents the theoretical framework; Section 3 presents the data source and the

methodological procedures; Section 4 analyzes and discusses the results obtained; and

finally, Section 5 presents some conclusions about the study.

 10

2. THEORETICAL FRAMEWORK

2.1. Standard classification systems for merchandise trade

International trade has intensified over the years and has become increasingly

complex. However, different denominations of the same product led to difficulties in

computerization and comparison of data, causing inaccuracies and uncertainties in tariff

negotiations. To address this problem, countries began to organize themselves in the form of

committees, councils, and organizations whose goal was to develop methods to improve

these trade relations (Lima et al., 2016).

Standard classification systems were developed to standardize the content, format,

and structure of information related to international trade. The method involves assigning

numerical identifiers to items based on predetermined pre-established numerical codes. Such

systems facilitated the compilation of comparable international trade statistics and simplified

customs procedures (Lima et al., 2016).

2.1.1. Standard International Trade Classification (SITC)

Before starting a study, it is important to determine which classification system to

use. This study uses as a reference the Standard International Trade Classification (SITC),

which evolved from the "Minimum List of Commodities for International Trade Statistics"

idealized by the League of Nations in 1938 (Lima et al., 2016).

According to Lima et al. (2016), the SITC commodity categories are more appropriate

for economic analysis because they classify commodities according to their stage of
 11

production. The SITC commodity groups reflect (a) the materials used in production, (b) the

stage of processing, (c) market practices and uses of products, (d) the importance of

commodities in world trade, and (e) technological changes.

The hierarchical structure of the classification comprises:

• Sections (one-digit code);

• Divisions (two-digit codes);

• Groups (three-digit codes);

• Subgroups (four-digit codes); and,

• Items (five-digit codes).

Since its inception in 1950, the SITC has maintained its basic structure and

classification criteria. However, due to market changes over the years, the system has been

revised to reflect a larger volume of business, new products, and new geographic patterns

(United Nations Statistics Division, 2006). The latest revision (SITC Rev. 4) came into force in

2006 and includes 9 sections, 67 divisions, 262 groups, 1,203 subgroups, and 2,970 basic

headings (United Nations Statistics Division, 2006).

2.1.2. The code 248.2

The merchandise object of study of this work is identified under the SITC code 248.2,

with the following designation: Wood of coniferous species, sawn or chipped lengthwise,

sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6

mm.

Breaking down that code into its numerical components, we have (United Nations

Statistics Division, 2006):

 12

• Section 2 – Crude materials, inedible, except fuels

• Division 24 – Cork and wood

• Group 248 – Wood, simply worked, and railway sleepers of wood

• Subgroup 248.2 – Wood of coniferous species, sawn or chipped lengthwise,

sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness

exceeding 6 mm.

2.2. Competitiveness

2.2.1. Concepts

The globalization process witnessed in recent decades has brought together the

societies and nations of the world socially, culturally, politically, and economically. Concerns

about the ability of the production systems to maintain or expand their competitive positions

in the world market have become more common.

Despite being widespread both in economic analysis and policy debates, there are

different approaches, scopes, and concerns with which the concept of competitiveness is

sought to be associated (Kupfer, 1991). Despite being inherently good, the lack of a definitive

consensus among authors about the concept hinders a complete understanding of

competitiveness and, at the same time, makes it difficult to establish a comprehensive and

effective definition.

Initially, the term competitiveness seemed to be associated with a microeconomic

perspective, i.e., the ability of firms to compete in the national or international market. Adam

Smith (1776) and David Ricardo (1817), based on the theories of absolute advantage and
 13

comparative advantage, respectively, understood competition as a force of equilibrium and

organization in a world of free trade. This perspective primarily considers two factors that can

most directly affect competitiveness: Prices and Costs (Krugman et al., 2015; Souza, 2013).

Heckscher-Ohlin's theory builds on two factors to explain competitiveness: the

resources available in each nation and the intensity with which they are utilized. It is

considered an improvement of the theory of comparative advantage and introduced other

factors of production such as capital and natural resources, including land (Aguiar, 2014;

Krugman et al., 2015). Salvatore (2000) describes this theory as a trade model in which

countries export goods that utilize their relatively inexpensive and abundant factors of

production and import goods that use their relatively scarce factors of production.

Despite their importance, international trade theories have not been sufficient to

explain the current functioning of international trade, and over the years several authors have

introduced new components to the discussion. Aguiar (2014) highlighted factors such as

corporate strategies, product differentiation, government incentives, and country

macroeconomic policies, among others, which are now part of the definition of

competitiveness.

Many studies have addressed the concept of competitiveness and the appropriate

methods to measure it. In general, most works approach competitiveness as a measure that

can assume two natures: Performance and Efficiency. The first expresses the idea of

participation in a market (market share). The second attempts to translate competitiveness

through the input-output relationship observed in an industry (Ferraz et al., 1995).

 14

Performance-based competitiveness is an ex-post concept measured through its

impact on foreign trade. It is a broad and easy-to-measure concept that covers, in addition to

production conditions, factors such as exchange rate appreciation, distribution channel

efficiency, and international agreements. According to this concept, for an industry to be

considered competitive it must increase its share of the international supply of the product in

question (Haguenauer, 1989).

As for competitiveness based on the concept of efficiency, Haguenauer (1989) defines

the growth of exports as a consequence of competitiveness and not its manifestation.

Competitiveness is thus understood from a structural point of view, where one industry can

produce a particular good with fewer inputs or greater efficiency than another. In this

approach, competitiveness is seen as something potential (ex-ante), and differences in price

and quality of products, the technology used, and productivity are often observed.

Both approaches have been criticized. As Ferraz et al. (1995) argue, their static nature

limits the performance and efficiency approaches. In other words, their analyzes are limited

to indicators and lack a clear understanding of the causal relationships between the future

evolution of the industry and competitiveness. In addition to examining prices, costs, wages,

and exchange rates, the authors suggest analyzing the industry from the perspectives of

management, innovation, production, and human resources.

Kupfer (1991) asserts that analyzes of competitiveness are intertemporal in nature.

Therefore, any correlation of competitiveness with ex-ante (concept of efficiency) or ex-post

(concept of performance) characteristics is unrealistic. The author argues that market

performance observed today is indicative of competitiveness at some point in the past. The

challenge, then, is to encourage the development of a dynamic approach to competitiveness.

 15

The complexity of the term competitiveness is such that there is divergence even in its

application. Dieter & Englert (2007) assume that competitiveness is neither a characteristic of

a sector nor of a country's economy, but of each company on its own. Moreover, some

authors claim that there is no such thing as a country's competitiveness because companies

compete in the international market, not nations (Krugman, 1994).

The competitiveness of a company, a segment, a region, or a country is defined by

Almeida (2010) as the ability to attain its objectives in relation to its competitors, satisfy its

customers, and achieve its objectives in relation to the market and the welfare of its citizens.

In addition, the author claims that the applicability and empirical verification of a concept are

fundamental. If these conditions are not met, a concept is unlikely to be widely accepted.

2.2.2. Determining factors

The determinants of competitiveness are numerous and can be analyzed from

different perspectives. Historically, approaches range from Adam Smith's focus on

specialization and the division of labor to neoclassical economists' emphasis on investment in

physical capital and infrastructure (Souza, 2013). More recently, there has been increased

interest in other mechanisms such as education and training, technological progress,

macroeconomic stability, good governance, sophistication, and market efficiency (WEF,

2012). In practice, all these factors can be critical to competitiveness, as they are not mutually

exclusive (Almeida, 2010).

Porter (1999) takes a different view and disagrees with theories that claim

competitiveness is the result of macroeconomic factors, cheap and abundant labor, the
 16

abundance of natural resources, government policies, or different management practices.

The author cites cases of countries that do not have these conditions and yet have prospered.

In the author's view, none of these factors alone explains a country's competitiveness

or lack thereof. For Porter, the only factor that explains competitiveness at the national level

is the productivity of labor and capital. He explains that a country's standard of living depends

on its firms achieving high levels of productivity, which requires that the economy "improve

itself" (Porter, 1999).

Coutinho & Ferraz (1995) argue that the competitive performance of a firm, industry,

or nation depends on a variety of factors. The authors divide these factors into three

categories: those inherent to the firm, factors related to sectors and industry complexes

(structural factors), and factors of a systemic nature.

Internal factors are those that are under the control of the company and through

which it tries to distinguish itself from its competitors. These factors include technical and

productive training, the quality and quantity of human resources, market knowledge and

adaptability, the quality and scope of customer service, and privileged business relationships

with customers and suppliers (Coutinho & Ferraz, 1995).

Structural factors, on the other hand, although not completely under the control of the

firm, are partially subject to its influence and directly affect its competitive environment.

These factors refer to the characteristics of the consumer market, the structure of the

industry in which the firm operates, and the rules that govern business structures and

conduct (Coutinho & Ferraz, 1995).

 17

According to Coutinho and Ferraz (1995), the systemic factors of competitiveness

represent external factors to which the company is sensitive but over which it has little

control. These include macroeconomic factors (exchange rate, credit supply, and interest

rates), political-institutional factors (tax and tariff policies), regulatory factors (industrial

property protection, environmental protection, and consumer protection policies),

infrastructure (availability, quality, and cost of energy and transportation), social factors

(labor qualification and education policies), and factors related to the regional and

international environment (world trade trends, international capital flows, risk and technology

investments, and foreign trade policies).

Sala-I-Martim et al. (2011) apud Costa (2013) point out that public and private

institutions play an important role in a country's competitiveness. For example, excessive

bureaucracy, overregulation, corruption, lack of transparency and trust, dishonesty in public

procurement, and political dependence on the judiciary, according to the authors, slow down

economic development and impose significant economic costs on businesses.

Fajnzylber (1988) apud Almeida (2010) points out the distinction between spurious

and authentic competitiveness. The former refers to what might be called false

competitiveness. That is, competitiveness is artificially created through low wages, exchange

rate manipulation, export subsidies, and high rates of profitability. While this may improve

external performance, it ultimately threatens social cohesion within the country. According to

the author, competitiveness requires an increase in productivity, which can only be achieved

by incorporating technological progress.

 18

2.2.3. Measuring competitiveness

As Almeida (2010) has pointed out, because of the inherent difficulty of measuring

competitiveness, various combination of indicators have been developed, all with their

strengths and weaknesses. Horta (1983) suggested that the most appropriate measure of

competitiveness depends mainly on the type of markets to which the country's exports

belong and on the country's participation in international trade.

Gries & Hentschel (1994) apud Dieter & Englert (2007) classified the myriad indicators

into two groups:

• Result-oriented indicators: From an ex-post perspective, they depict the

realized competitive environment of the sector or country. Examples of

results-oriented indicators include terms of trade, revealed comparative

advantage (RCA), constant market shares, relative unit values, and presence in

high-technology segments.

• Determinant-oriented indicators: these are based on the idea that there is a

correlation between determinants and competitive conditions. Prognoses of

the development of the determinants allow ex-ante estimation of the

evolution of the competitive landscape. Some examples are the legal and

institutional framework, infrastructure, social security-related cost

components, research and development spending, and factor endowments.

Pinheiro & Horta (1992) mention the difficulty of specifying the elements that explain

competitiveness as one of the main problems of performance indicators. Moreover, the

authors claim that variables related to foreign trade performance but not necessarily to
 19

competitiveness can lead to misinterpretation. For example, a slowdown in the domestic

market may lead to an increase in exports that is not associated with greater

competitiveness.

As for efficiency indicators, critics point to the limitations of assigning competitiveness

factors unrelated to the concept itself. In addition, the difficulty of harmonizing the measures

makes comparison difficult. According to Almeida (2010), they are limited to the business

sector and do not include all factors that influence competitiveness.

 20

3. METHODOLOGY

3.1. Materials

This study is based on quantitative secondary data. The use of secondary data is

justified by the fact that large data sets can be accessed in a timely and cost-effective

manner. However, it is important to consider the validity, reliability, and accuracy of the

information.

3.1.1. Data sourcing

International merchandise trade statistics were obtained from the United Nations

Commodity Trade Statistics (UN Comtrade) repository, which is maintained by the United

Nations Statistics Division. The UN Comtrade repository is considered the most

comprehensive trade database available to the general public. Data are provided by national

statistical authorities and standardized by the UN Statistics Division (UN Comtrade, 2022).

For this study, annual time series of export and import values and quantities were

collected for Standard International Trade Classification (SITC) subsection 248.2 for the

period 2006-2020.

Monetary figures expressed in U.S. dollars (US$) were deflated using the Consumer

Price Index (CPI) obtained from the U.S. Bureau of Labor Statistics website.

3.1.2. Data handling

This study relied on the Microsoft Excel software program for compiling, organizing,

and formatting trade data downloaded from UN Comtrade. Despite its limitations compared
 21

to other software programs, it provided the necessary tools for this study and was readily

available.

Any analysis of monetary values over time must take into account the effect of

inflation. Therefore, to allow comparison of traded figures, nominal values were deflated

using the method proposed by Mendes & Padilha Junior (2007) for price deflation of

agricultural products (Equation 1). Similar studies using the same methodology were

conducted by Parapinski (2012), Aguiar (2014), and Valerius (2016).

𝐴𝑉𝑡 = 𝑁𝑉𝑡 ∗ (𝐶𝑃𝐼2021 ÷ 𝐶𝑃𝐼𝑡 ) (1)

Where:

CPI = consumer price index;

AV = actual value (US$);

NV = nominal value (US$); and

t = year t.

Despite its extensive coverage and completeness, the UN Comtrade dataset has its

limitations, such as missing data, undetailed traded figures, bilateral asymmetries, and the

use of outdated versions of classification systems by reporting countries. For this reason,

descriptive statistics and visual analysis of tables, charts, and graphs were employed to

identify data that might affect the results of the analysis (e.g., data gaps and outliers).

Data gaps were the most common problem, occurring in both export and import data

reports. Usually, data gaps are filled with estimated values that can be generated by various

mathematical solutions such as interpolation or equations formulated by regression tools.

However, in this study, gaps were not artificially filled for three main reasons.
 22

First, the gaps were numerous, scattered, and irregular, making it difficult to establish

criteria for whether and how the gap should be filled. Second, some gaps occurred in so many

consecutive years that filling them all would do more harm than good to the analysis. Third,

the competitiveness analysis will look at the MENA region as a whole rather than individual

countries, which will reduce the impact of existing gaps in a country's report.

3.1.3. Price

In addition to examining the annual historical evolution of exported and imported

volumes and values as reported by countries, this study also examined the price-related

dynamics of Brazilian exports of the product under study. However, such information is rarely

reported by companies and is difficult to obtain. Therefore, a proxy for the unit price was

calculated by dividing the deflated monetary value by the volume traded in that year

(Equation 2). This methodology was also used by Almeida et al. (2009), Parapinski (2012), and

Valerius (2016).

𝑃 =𝑉 ÷𝑄 (2)

Where:

P = price (US$/m³);

V = exported/imported value (US$); and

Q = total volume exported/imported (m³).

 23

3.2. Methods

The analysis methodology was designed to (1) provide a detailed assessment of the

trade dynamics of Brazilian exports of softwood lumber to MENA and (2) measure the

competitiveness of Brazilian exports in this market from a performance perspective.

3.2.1. Trade dynamics

3.2.1.1. Percentage changes in variables

Annual percentage changes in variables (e.g., import or export value, volume, and

price) were calculated to show the increases and decreases in softwood lumber trade

between Brazil and the MENA region during the period studied (Equation 3).

(𝑉1 − 𝑉0 )
∆𝑉 = ∗ 100 (3)
𝑉0

Where:

∆𝑉 = percentage change of the variable;

𝑉1 = value of the variable in period 1; and

𝑉0 = value of the variable in period 0.

3.2.1.2. Growth rate

To support the analysis of the evolution of Brazilian exports of softwood lumber to the

Middle East and the North, the growth rates of exported value, exported quantity, and

average export price practiced by Brazil in the region were also calculated. For this purpose,

the composite growth rate method described by Gujarati (2003) was used to calculate

growth rates of Brazilian softwood lumber exports to MENA during the period analyzed.
 24

This method, based on compound interest calculations, assumes a log-linear model.

This means that only the regressand is in logarithmic form. Models such as this can be used

to calculate the instantaneous growth rate at a particular time t. To obtain the growth rate

with compound interest, it is necessary to take the antilogarithm of the angular coefficient

β1, as shown in Equation 4 (Gujarati, 2003). The same approach was used by Parapinski

(2012) and Costa (2013) to calculate the growth rate with compound interest.

𝑟 = [(𝑎𝑛𝑡𝑖𝑙𝑜𝑔 𝛽1 − 1) ∗ 100] (4)

3.2.1.3. Regional Orientation Index

To assess the degree to which Brazilian softwood lumber exports were oriented to

MENA during the period 2006-2020, this study applied the Regional Orientation Index

proposed by Yeast (1998), showed in Equation 5. According to the author, the index ranges

from zero to infinity; unity indicates that the target country has the same tendency to export

goods to the target market and other markets. Accordingly, values above 1 indicate a

stronger tendency to export to the target market.

𝑉𝑖𝑓 𝑉𝑖𝑜
𝑅𝑂𝐼 = ( )⁄( ) (5)
𝑉𝑡𝑓 𝑉𝑡𝑜

Where:

𝑉𝑖𝑓 = value of Brazilian softwood lumber exports to MENA (US$);

𝑉𝑡𝑓 = total value Brazilian exports to MENA (US$);

𝑉𝑖𝑜 = value of Brazilian softwood lumber exports to other markets (US$); and

𝑉𝑡𝑜 = total value of Brazilian exports to other markets (US$).

 25

3.2.1.4. Main players

The definition of the MENA region used was that of the World Bank, which includes 21

countries. These are: Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait,

Lebanon, Libya, Malta, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab

Emirates, West Bank and Gaza, and Yemen (The World Bank, 2022).

Identifying the key players in the softwood lumber market in the MENA region will

help characterize trade dynamics. In this study, the main players considered are (1) the 5

main importers of the region and (2) the 5 main destination countries for Brazilian exports of

the product. The criterion for selecting the main actors was the total value of trade during the

study period. Thus, the 5 countries with the highest import value and the 5 countries to which

Brazil exported the highest values during the period 2006-2020 were considered as main

actors.

3.2.2. Competitiveness

3.2.2.1. Revealed Comparative Advantage Index (RCAI)

Although formally intended as an indicator of sectoral specialization, the RCAI has

often been used as an indicator of competitiveness, as in Almeida (2010) and Silva Junior

(2020). The assumption is that nations naturally direct their exports to the most competitive

products (Balassa, 1965). In this study, the RCAI was calculated for each year in the period

2006-2020 to evaluate the historical representativeness of the softwood lumber segment in

the Brazilian export agenda (Equation 6).

𝑉𝑖𝑏 𝑉𝑖𝑤
𝑅𝐶𝐴𝐼 = ( )⁄( ) (6)
𝑉𝑏 𝑉𝑤
 26

Where:

𝑉𝑖𝑏 = Value of Brazilian exports of product i;

𝑉𝑏 = Total value of Brazilian exports;

𝑉𝑖𝑤 = Total value of world exports of product i; and

𝑉𝑤 = Total value of world exports.

If the RCAI is greater than 1, the analyzed country has comparative advantages and is

considered competitive in the export of softwood lumber. If the RCAI is equal to 1, the

country is as competitive as the prevailing average in the international market. If the RCAI is

between 0 and 1, the country is defined as having a comparative disadvantage for the

analyzed product and is therefore not competitive.

3.2.2.2. Market Share (MS)

Market share, i.e., the percentage share of a given company in a market, is an indicator

of its competitiveness. This means that an increase in market share indicates higher

competitiveness, while a decrease in market share indicates lower competitiveness. In

addition, it allows monitoring signs of change in the competitive landscape and provides an

indication of whether a firm is gaining market share by keeping pace with market growth or

by capturing share from its competitors (Farris et al., 2010).

In this study, the market share of Brazilian exports was examined relative to the total

volume of exports of all countries to MENA based on the values of exports to the world

reported by all countries (Equation 7). The same methodology was used by Aguiar (2014) and

Valerius (2016).

𝑀𝑆 = (𝑉𝑖𝑏 ⁄𝑉𝑖𝑤 ) ∗ 100 (7)

 27

Where:

MS = market share;

V = value of exports (US$);

i = softwood lumber;

b = Brazil; and

w = World.

3.2.2.3. Constant Market Share (CMS)

The CMS model measures competitiveness by tracking the evolution of a country's

market share. It assumes that competitive countries gain market share in foreign markets, or

at least do not lose it above the world average. In practice, changes in market share are

explained by four effects: (1) world growth, (2) commodity composition, (3) market

distribution, and (4) competitiveness (Leamer & Stern, 1970; Richardson, 1971).

The CMS indicator was calculated to find out whether the evolution of Brazilian

exports of softwood lumber to the Middle East and North Africa was due to changes in

competitiveness. The time series was divided into three sub-periods (2006-2010, 2011-

2015, and 2016-2020), arbitrarily defined so that they were homogeneous in size. Almeida

(2010) noted that the definition of the temporal scope, i.e., the years and periods to be

analyzed by applying the CMS model, has been based on different criteria in the different

studies.

∑(𝑉 1 − 𝑉 0 ) = 𝑟𝑉 0 + ∑ (𝑟𝑖 − 𝑟)𝑉𝑖0 + ∑ ∑ (𝑟𝑖𝑗 − 𝑟𝑖 )𝑉𝑖𝑗0 + ∑ ∑ (𝑉𝑖𝑗1 − 𝑉𝑖𝑗0 − 𝑟𝑖𝑗 𝑉𝑖𝑗0 ) (8)
𝑖 𝑖 𝑗 𝑖 𝑗

(1) (2) (3) (4)

 28

Where:

𝑉 0 = total value exported by Brazil over the period 0;

𝑉 1 = total value exported by Brazil over the period 1;

r = percentage growth rate in the value of world exports between the periods 0 and 1;

i = coniferous sawn wood); and

j = export destination country.

The (1) world growth effect attributes fluctuations in the country's export performance

to those of the world market, rather than to factors endogenous to the country. In other

words, the effect is positive if the country's exports have grown at the same rate as world

trade.

The (2) commodity composition effect relates export performance to concentration on

goods with higher demand growth. In other words, the commodity composition effect is

positive when exports are concentrated in commodities whose market growth rate is higher

than the world average. Since this study will not analyze the entire export agenda, but only

one product, namely softwood lumber, the effect of commodity composition is zero.

The (3) market distribution effect relates export performance to the dynamics of

target markets. That is, fluctuations in export numbers would be related to market

diversification policies rather than firm competitiveness. The effect is positive when exports

are concentrated in markets that are more dynamic and negative when they are concentrated

in stagnant regions.
 29

The (4) competitiveness effect is a residual effect. This means that market share gains

or losses that cannot be explained by any of the other three effects are attributed to

increased or decreased competitiveness.

 30

4. RESULTS

This chapter first explains the historical evolution of the value, volume, and average

price of Brazilian softwood lumber exports to MENA countries in terms of annual change,

cumulative change, and growth rates. Then, the results of the Regional Orientation Index are

presented and the main players in the region are revealed. Finally, the results of the

competitiveness indicators applied to the export data are presented, including the Revealed

Comparative Advantage Index (RCAI), the Market Share (MS), and the Constant Market Share

(CMS).

4.1. Trade dynamics

4.1.1. Value, volume, and prices.

The Middle East and North Africa accounted for a significant share of Brazil's

softwood lumber exports in terms of both value and volume during the period investigated.

From 2006 to 2020, exports to MENA accounted for 14.10% of the total value and 12.38% of

the total volume of Brazilian exports. Such relevance, however, varied over the years. In

terms of value, it ranged from 4.78% in 2006 to 20.16% in 2014, averaging 14.69%. In terms of

volume, it ranged from 5.02% in 2020 to 21.78% in 2014 and averaged 15.40%.

Table 1 summarizes the value, volume, and average prices of Brazilian softwood

lumber exports to the Middle East and North Africa from 2006 to 2020, based on information

from the UN Comtrade database.

 31

Table 1 – Brazilian softwood lumber exports to MENA (2006-2020).

Value Quantity Price

Year
(US$) (m³) (US$/m³)
2006 16,893,322 76,304 221
2007 31,939,026 135,930 235
2008 43,219,279 181,403 238
2009 25,004,413 125,612 199
2010 30,699,504 127,784 240
2011 32,731,658 133,233 246
2012 34,074,468 140,022 243
2013 29,178,285 121,229 241
2014 50,973,059 208,642 244
2015 52,757,359 239,118 221
2016 47,500,531 253,121 188
2017 59,790,465 298,477 200
2018 95,451,426 400,517 238
2019 75,819,905 642,320 118
2020 63,480,586 389,859 163
Total 689,513,287 3,473,571
Source: own elaboration based on UN Comtrade database (2022).

All three variables - value, volume, and price - were subject to both positive and

negative accentuated annual fluctuations during the period studied. The value of exports

increased by 89.06% in 2007 and decreased by 42.15% in 2009, the quantity exported

increased by 78.14% in 2007 and decreased by 39.30% in 2020, and the average price

decreased by 50.47% in 2019 just before rising by 37.94% in 2020. Even though most

variations are favorable, such large fluctuations indicate an agitated, if not unstable, market.

Although the three variables showed pronounced fluctuations, the evolution of the

price diverged from the value and quantity of exports. On a comparative basis, the value and

quantity of exports increased while the average price decreased. Compared to 2006, the

value and volume of Brazilian exports at the end of the series were 275.77% and 410.93%
 32

higher, respectively, while the average price was 26.45% lower (Figure 1). According to the

calculated growth rates, the price decreased by 2.54% per year, while the value and volume of

exports increased by 9.17% and 12.02%, respectively.

Figure 1 – Indexed changes of Brazilian softwood lumber exports to MENA

(2006 = 100) (2006-2020).

Source: own elaboration based on UN Comtrade database (2022).

These dynamics may be related to the exchange rate between the Brazilian real and

the U.S. dollar. Figure 2 shows a significant depreciation of the Brazilian currency that started

in 2011 and intensified in 2014 when export volumes boomed despite the lack of price

improvement. The appreciation of the U.S. dollar against the Brazilian currency increased the

profit from these trade transactions (Abimci, 2019). As Almeida et al. (2009) pointed out, the

competitiveness of softwood lumber in Brazil has always depended on the exchange rate.

However, such monetary policy and price level may not be sustainable in the long run,

especially in a scenario with inflation.

 33

Figure 2 – Brazilian Real to U.S. Dollar Exchange Rate (2006-2020)

Source: own elaboration based on the IPEA database (2022).

The changes in Brazilian softwood lumber exports to MENA could also be related to

internal factors. Although a significant portion is destined for the foreign market, Brazilian

production of softwood lumber has traditionally been concentrated in the domestic

construction, packaging, and furniture sectors. These sectors, as well as the economy as a

whole, felt the impact of the economic slowdown since 2014, due to a troubled political

climate and a drop in agricultural commodity prices (Abimci, 2019). The expansion of sales in

the international market may have spilled over to MENA and led to an increase in exports to

that region.

The largest declines in the value and volume of exports were observed at the

beginning and end of the period studied (Figure 3). In 2009, the value of Brazilian exports to

the MENA region decreased by 42.15%, while the quantity decreased by 30.76%. This may

have been a consequence of the global financial crisis that began in 2007-2008. The global

financial crisis, triggered in part by the collapse of the North American construction sector,
 34

which also affected the European market, had a direct impact on the decline and

disappearance of the main international consumer markets, explaining this trend in product

exports (Abimci, 2013).

Later, from 2018 to 2020, the upward trend was interrupted by another decline. This

time, however, the decline in export value was not exactly mirrored by changes in quantity.

This movement could be associated with an unplanned supply boom caused by bark beetle

infestations in Europe. Veen (2020) noted that measures to control the spread of the

infestation led to increased logging, which lowered prices for softwood logs and lumber

products in Europe, contributing to downward price pressure.

Figure 3 – Value (US$) and quantity (m³) of Brazilian softwood lumber exports to

MENA (2006-2020).

Source: own elaboration based on UN Comtrade database (2022).

In contrast to the growing value and volume, the average price of Brazilian softwood

lumber exports to MENA has been trending downward. Moreover, the analysis showed that
 35

the prices of Brazilian exports to MENA were mostly lower than the average of Brazilian

world exports (Figure 4). Between 2006 and 2020, the average price of a cubic meter

exported to MENA was US$198.50, while the average price of all Brazilian exports was

US$228.27.

At least two assumptions can be made regarding the price difference. First, code

248.2 covers products with and without planing, sanding, and end-joints. Therefore, products

exported to MENA may have lower value added. Second, it is possible that Brazil's

competitors in MENA are more numerous or have lower prices than in other markets, causing

fiercer competition.

Figure 4 – Average price (US$/m³) of Brazilian softwood lumber exports to MENA and

worldwide (2006-2020).

Source: own elaboration based on UN Comtrade database (2022).

Such behavior of average prices raises the question of the proximity between the

selling price and the cost of production. Moreover, this price decline, combined with the
 36

increase in exported volume, calls into question both the company's profitability and its

response to periods when the domestic market is attractive. Even in a hypothetical scenario

of significant productivity gains based on technology and economies of scale, there was no

price increase to compensate for changes in production costs or demand conditions.

4.1.1. Regional Orientation Index (ROI)

The Regional Orientation Index (ROI) aims to assess the degree to which exports from

one bloc or country are oriented toward another bloc or country over time (Yeast, 1998). In

this study, the ROI was calculated to show whether exports of softwood lumber from Brazil

to MENA are greater than exports to other destination countries. The results are presented in

Table 2:

Table 2 – ROI of Brazilian softwood lumber exports to MENA (2006-2020)

Year ROI
2006 0.8
2007 1.8
2008 3.6
2009 2.3
2010 2.5
2011 2.7
2012 3.1
2013 2.5
2014 3.4
2015 2.5
2016 1.7
2017 1.7
2018 3.2
2019 2.5
2020 2.0
Source: own elaboration based on UN Comtrade database (2022).
 37

The linear trendline drawn up in Figure 5 reveals a slight upward trend, suggesting

that Brazilian exports became increasingly more directed to MENA over the period analyzed.

However, although Brazil has quite intensive trade relations with the countries of the Middle

East and North Africa, no information was found on agreements or trade arrangements

intended to promote wood product exports to this region.

Figure 5 – ROI of Brazilian softwood lumber exports to MENA (2006-2020).

Source: Own elaboration based on UN Comtrade database (2022).

The calculated indexes indicated that Brazilian exports of the product were directed to

the region under consideration, except for 2006. The highest values of ROI were found in

2008 (3.6), 2014 (3.4), and 2018 (3.2), while the lowest values were found in 2006 (0.8), 2016

(1.7), and 2017 (1.7). However, the relevance of this theoretical orientation needs to be

carefully examined. For example, Silva Junior (2020) found indexes as high as 40.39 and as

low as 0.6 for Brazilian exports of chemical wood pulp, from soda or sulphate, other than

dissolving grades to China in 2018 and to Germany in 2015, respectively.

 38

Another point that attracts attention is the evolution of the index in the years starting

from 2015. In 2016 and 2017, despite the growth of exports to the region, ROI declined and

reached values lower than those of 2007. Even in 2018, the year with the highest export

value in the series, the ROI was below the 2008 value. In other words, the region has become

less important. This behavior of the index suggests that the targeting of the region may have

been circumstantial and not part of a strategic plan, as it did not follow the overall growth of

Brazilian exports.

Due to the relative nature of the index, a strong regional orientation may, however, be

of little economic significance. Moreover, as pointed out by Yeast (1998) percentage changes

do not indicate the changes in demand for products in other markets. Nevertheless,

assumptions can be made by looking at ROI along with other data. For example, the highest

ROI occurred at the dawn of a global economic crisis that most severely affected the biggest

importer of Brazilian softwood lumber, the United States. This may have led exporters to

focus on alternative markets such as the MENA countries.

4.1.2. Main players

The identification of the main players for softwood lumber in MENA should support

the characterization of the market. To this end, this study identified (1) the top five importers

of the product and (2) the top five destinations for Brazilian softwood lumber exports to the

region from 2006 to 2020.

Based on the total value of imports during the period analyzed, Egypt, Algeria,

Morocco, Saudi Arabia, and the United Arab Emirates were ranked as the top five importers of
 39

softwood lumber in the MENA region. Table 3 shows the total import value as well as the

leading importers' share of the region's total imports:

Table 3 – Top importers of softwood lumber in MENA between (2006-2020).

Country Value of imports (US$) Share of MENA's imports (%)

Egypt 13,292,363,681 36.58
Algeria 5,924,112,838 16.30
Morocco 4,399,090,523 12.11
Saudi Arabia 3,065,758,515 8.44
United Arab Emirates 2,116,856,525 5.83
Rest of MENA 7,536,906,737 20.74
Total 36,335,088,818 100
Source: Own elaboration based on UN Comtrade database (2022).

Two of the top importers (Algeria and the United Arab Emirates) had gaps in their

reports. In the case of Algeria, there were no import data from 2017 to 2020, and in the case

of the United Arab Emirates, the gaps were found in 2006, 2009, 2010, and 2011. Had these

gaps been filled, the order in the list would likely have changed, with the United Arab

Emirates being the fourth-largest importer. It was assumed that countries chose not to

report their imports for these years.

Based on the total value of Brazilian exports to each country during the analyzed

period, Saudi Arabia, the United Arab Emirates, Morocco, Kuwait, and Qatar were considered

Brazil's top five trading partners for softwood lumber in the region. Table 4 shows the total

amount as well as the share of each leading partner in Brazil's total exports of the product to

MENA:
 40

Table 4 – Brazil's top partners (2006-2020).

Country Value of imports (US$) Share of Brazilian exports (%)

Saudi Arabia 339,300,592 49.21
United Arab Emirates 137,721,056 19.97
Morocco 133,786,518 19.40
Kuwait 25,994,412 3.77
Qatar 20,474,557 2.97
Rest of MENA 32,236,152 4.68
Total 689,513,287 100
Source: Own elaboration based on UN Comtrade database (2022).

Brazilian softwood lumber exports to Saudi Arabia registered significant growth over

the period under consideration, going from zero in 2006 to US$34,867,898 in 2020. Despite

the overall growth trend, the data showed negative fluctuations in export value in 2009,

2014, 2019, and 2020, with the highest value exported to the Kingdom during the period

under study achieved in 2018 (US$56,835,601.79).

Exports to the United Arab Emirates occurred every year of the series. Featuring a

little more fluctuation than those to Saudi Arabia, the value of exports to the country

increased significantly after 2013. Negative fluctuations were noted in 2009, 2011, 2013,

2016, and 2019. The highest exported amount was also registered in 2018

(US$22,047,704.29).

In the first four years of the series, Morocco was the main destination of Brazilian

exports to MENA. However, the global economic crisis of 2008 led to a massive drop in the

value of Brazilian exports to the country, which reached 95.93% in 2013. In 2006 and 2007,

not a single cubic meter was exported to Qatar and Kuwait. Their share in the total is still

much lower compared to the other main partners, but numbers have been slowly increasing,

especially after 2013.

 41

This analysis showed a low diversification of Brazilian softwood lumber exports in

terms of destination. The main partners together accounted for 95.32% of the total value of

Brazilian exports to MENA countries from 2006 to 2020. Of the 21 nations comprising the

MENA region, no export records for softwood lumber were found for only two of them:

Djibouti and Iran. Thus, the remaining 4.68% was exported to 12 different countries. On

average, Brazil exported to 10 (9.87) different countries per year. The number of buyers

ranged from 4 in 2016 to 13 in 2013.

Another aspect worth mentioning is the mismatch between Brazil's main partners and

the main importers in the MENA region. According to the UN Comtrade database, exports to

Algeria and Egypt represented only 0.3% of Brazil's total exports to the region between 2006

and 2020. There are several factors that can prevent countries from doing business with each

other, including trade barriers, logistics, or even the product itself. However, in this case, no

justification could be found, leaving room for further investigation.

In addition, Saudi Arabia and the United Arab Emirates are known to be heavily

dependent on their petrochemical industries. Not surprisingly, much of the softwood lumber

exported to these countries for pallet production is destined to supply these industries

(Daniel, 2015). This is a concern in the sense that Brazilian exports are concentrated in a few

countries with little economic diversification. This makes the evolution of exports to MENA

countries vulnerable to the dynamics of two countries and a single economic sector.

4.2. Competitiveness

4.2.1. Revealed Comparative Advantage Index (RCAI)

 42

The Revealed Comparative Advantage Index can be used to give a general indication

and a first approximation of a country's competitive export strengths based on the concept of

specialization. In this study, the RCAI was calculated for the Brazilian softwood lumber sector

from 2006 to 2020 based on international trade data.

Based on export data, the RCAI indicated that Brazil was competitive in the softwood

lumber sector in 7 of the 15 years considered in this study. As presented in Table 5, the

country had a comparative disadvantage in trade of the product in question from 2007 to

2014. From 2015 to 2020, the country had a revealed comparative advantage in the

softwood lumber sector.

Table 5 – Revealed Comparative Advantage Index (2006-2020).

Year RCAI
2006 0.99
2007 0.82
2008 0.73
2009 0.65
2010 0.53
2011 0.51
2012 0.51
2013 0.51
2014 0.70
2015 1.06
2016 1.27
2017 2.04
2018 1.54
2019 1.57
2020 1.58
Source: Own elaboration based on UN Comtrade database (2022).
 43

As noted by Benedictis & Tamberi (2001), the RCAI yields different results depending

on the sectoral aggregation and benchmark of the analysis. In this study, the share of the

softwood lumber industry in Brazil's total exports was measured relative to the industry's

share in world trade totals. Comparatively, in a study of the competitiveness of Brazilian

cellulose exports from 2007 to 2018, Silva Junior (2020) found an average RCAI of 13.26.

Thus, as Almeida (2010) noted, more pessimistic RCAI results may be partially justified by the

strong competitiveness of the country's commodity segment.

The RCAI calculation considers all other segments of the economy. Thus, if one

segment increases its exports at a higher rate than the rest of the economy, that segment

has comparative advantages (Almeida, 2010). Export data showed that the share of softwood

lumber exports in Brazil's total exports became increasingly higher after 2014, consistent

with the RCAI increase (Figure 6). In addition, the share of softwood lumber in total Brazilian

exports varied at a more favorable ratio than the sector's share of total world trade.

Figure 6 – RCAI of Brazilian softwood lumber exports to MENA (2006-2020)

Source: Own elaboration based on UN Comtrade database (2022).

 44

Continued specialization in the softwood lumber sector might be constrained by the

availability of raw materials. The growth of the area planted with Pine trees in Brazil has been

slow and unsteady, the productivity of Pine plantations is stagnant at about 30 cubic meters

per hectare per year, and most of the industrial roundwood is destined for the more

representative pulp and paper industry (Ibá, 2021). Therefore, it will be an arduous task to

maintain the upward trend line indicated in the graph.

4.2.2. Market Share (MS)

Market share analysis makes it possible to measure changes in competitiveness over

time by looking at changes in a country's or organization's share of a market. In this study,

the competitiveness of Brazilian softwood lumber exports was assessed based on their share

of global exports to MENA from 2006 to 2020.

The analyses revealed that Brazil not only maintained its share in the MENA market

but even increased it during the period analyzed. In addition, as illustrated in Figure 7, the

dynamics of Brazil's market share are similar to those of export value and volume previously

presented. In total, the sum of global exports of softwood lumber to the region from 2006 to

2020 amounts to US$43,426,053,655, of which US$689,513,287 or 1.59% was exported

from Brazil.
 45

Figure 7 – Brazil's market share in softwood lumber exports to MENA (2006-2020).

Source: Own elaboration based on UN Comtrade database (2022).

Between 2006 and 2008, the country increased its market share from 0.86% to 1.37%.

As global exports to MENA increased during this period, the results show that Brazilian

exports grew faster than total exports to the region before the global economic crisis. Most of

the growth in this period can be attributed to exports to Morocco and Israel, and to a lesser

extent to Saudi Arabia and the United Arab Emirates.

In 2009, the crisis hit Brazilian exports to MENA harder, reducing the country's market

share to 0.85%. From then until 2013, Brazil kept up with the dynamics of global exports to

MENA, maintaining its market share despite some fluctuations. While exports to Morocco

and Israel fell sharply during this period, the trend was sustained by an expansion in Saudi

Arabia, as well as new businesses in Qatar, Kuwait, and other countries.

From 2014 to 2018, the Brazilian market share grew uninterruptedly, reaching 3.67%,

the best value in the series. This expansion was due to both an increase in the country's
 46

exports (mainly to Saudi Arabia, the United Arab Emirates, and Morocco) and a decrease in

global exports to MENA. Then, the country's market share decreased in 2019 (3.39%), and

2020 (3.37%), which can be associated with the decrease in exports mainly to Saudi Arabia.

4.2.3. Constant Market Share (CMS)

Constant Market Share (CMS) analysis decomposes changes in market share into four

distinct components, including competitiveness. In this study, the role of each effect on

changes in the market share of Brazilian exports in MENA's softwood lumber market was

measured with respect to three subperiods: 2006-2010, 2011-2015, 2016-2020. The results

of the analysis are presented in Table 6:

Table 6 – Growth rate and sources of growth of Brazilian softwood lumber exports.

2006-2010 2011-2015 2016-2020

Growth rate in the period
Brazilian exports to MENA 9.96 14.54 8.52
Source of growth US$ % US$ % US$ %
Effective change 13,806,182 100 20,025,701 100 15,980,055 100
World growth -3,573,338 -25.88 -93,967 -0.47 586,353 3.67
Market distribution 13,553,329 98.17 4,153,105 20.74 -27,563,156 -172.48
Competitiveness 3,826,191 27.71 15,966,563 79.73 42,956,858 268.82
Source: Own elaboration based on UN Comtrade database (2022).

The effect of world growth was positive only in the last subperiod (2016-2020). That

is, despite the positive effective changes, Brazilian exports did not benefit from a growing

world market for softwood lumber in the first and second subperiods. In the wake of the

2008 financial crisis, world trade was severely affected. Some markets took many years to

recover to their pre-crisis levels, and others have not yet fully recovered. Reordering the

subperiods would likely change the results of the analysis. However, as Figure 8 shows,
 47

global softwood lumber imports have alternated between periods of growth and contraction.

Therefore, given the trends in global imports and the timeframe of the analysis, the results

are consistent with expectations.

Figure 8 – Global softwood lumber imports (2006-2020).

Source: Own elaboration based on UN Comtrade database (2022).

The market distribution effect was positive in the first and second subperiods. A

positive result, in this case, indicates that Brazilian exports benefited from the dynamics of

the MENA market in these years. In other words, despite the global economic crisis and the

resulting decline in world trade, the MENA region as a whole registered higher growth rates

than the world average. In the last subperiod (2016-2020), Brazilian exports to the region

increased, but total imports of the product to the region decreased. This corroborates the

results of the previous analysis, which showed that those were the years in which Brazil

experienced major gains in market share.

 48

The competitiveness effect had an increasingly positive contribution in all three

subperiods. That is, the dynamics of Brazilian exports relative to the world average were such

that the country was able to increase its market share in the region. As Leamer & Stern

(1970) noted, the competitiveness effect is influenced by other factors besides relative prices,

such as technological changes, incentive measures, increased marketing efforts, and an

improvement in financing and credit mechanisms. In addition to the exchange rate mentioned

earlier, the improvement in competitiveness also appears to be related to the actions taken

by firms. The movement of the national softwood lumber industry to increase its exports in

2014 led to a new organization of the sector, led by some companies, with investments in

innovative technologies and quality standards to meet the demands of the international

market (Ibá, 2019).

It is important to emphasize that the CMS is a rather simplified analysis, consisting of

export structure and a residual effect attributed to competitiveness. It does not examine

factor availability, technology, government policy, or changes in the supply side. Finally, the

interpretation of the effect of competitiveness is further complicated by the arbitrary

selection of the time period, aggregation, market groups, and reference region against which

the country's export performance is assessed (Richardson, 1971).

 49

5. CONCLUSION

The analysis of export dynamics proved the importance of the MENA region for

Brazilian softwood lumber exports. The export figures showed an increasing trend in value

and quantity, accompanied by a decrease in average price. At the same time, the accentuated

changes in value and exported volume showed an unstable behavior. The increase in exports

to the region could be related to the decrease in other markets abroad, a favorable exchange

rate policy, and a decrease in consumption in Brazil's domestic market.

In most years, Brazil directed its exports of the product to the Middle East and North

Africa. The results of ROI showed an upward trend but fluctuated significantly and did not

show more than three consecutive positive changes. In addition, the ROI calculated for

softwood lumber exports to MENA was not particularly high compared to similar studies on

forest products.

The study of the main players in the region revealed a mismatch between Brazil's

main partners and the main importers of the product in the region. At the beginning of the

series, Brazilian exports were concentrated in a single destination country, Morocco. After the

2008 financial crisis, the partners changed, but the concentration remained, this time on

Saudi Arabia and the United Arab Emirates.

The RCAI results show that Brazil increased its competitiveness over the analyzed

period. However, it only became more competitive than the international market average

after 2015, and only by a small margin.

 50

From the analysis of market shares, it can be concluded that Brazil gained

competitiveness throughout the period and increased its share of global exports to MENA.

Larger gains occurred after 2014 when Brazilian exports increased and global exports to the

region declined overall. However, given the size of the market, the Brazilian share did not

reach significant levels.

Through CMS analysis, an increasingly positive effect attributed to competitiveness

was observed. The growth of the world market also improved from one period to another, but

only had a positive effect on the performance of Brazilian exports in the 2016-2020

subperiod. Finally, despite the positive effect in the first two subperiods, the effect attributed

to the dynamics of the target market deteriorated over the time series and had a negative

impact in the 2016-2020 subperiod.

There are several structural, bureaucratic, and economic hardships that affect the

competitiveness and efficiency of the Brazilian industry. Despite the favorable edaphoclimatic

conditions, the high production costs, high tax burden, precarious infrastructure, and

bureaucratic procedures hinder the development of the national forestry sector.

The main limitations of this study are related to the methodology used, namely the

evaluation of competitiveness through the concept of export performance and the use of

market share models. These methodologies, concepts, and techniques based on the ex-post

performance approach do not allow to clarify the causal relationships between the

development of the sector and competitiveness.

These conclusions open the way for some proposals for future work. For example, it

seems interesting to study the reasons that prevent Brazil from gaining a larger share in
 51

markets such as Egypt and Algeria. In addition, one could investigate what structural factors

have contributed to the increase in competitiveness of Brazilian softwood lumber exports

after 2014. Or even, to understand the factors that influence softwood lumber trade flow

with MENA.
 52

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