Forest Service 

Northeastern Forest 

Experiment Station 

Research 

Paper N E-538 

An Analysis 

for Oak Lumber 

William G. Luppold 
The Author 

William G. Luppold attended 

the University of Florida, where he 

received his BSA and MSA in Food 

and Resource Economics in 1974 

and 1977, respectively. After receiving a PhD in Agricultural Economics 

from Virginia Polytechnic Institute 

in 1981, he joined the Northeastern 

Forest Experiment Station's Forestry Sciences Laboratory at Princeton, West Virginia, He is currently 

conducting economic research concerning the hardwood lumber market. 

Manuscript received for 

publication 26 May 1983 

Abstract 

Exports of oak lumber from the 

United States to the Netherlands, 

Belgium, Germany, and France were 

analyzed using ordinary least 

squares estimation procedures. The 

analyses indicated that the large increases in European demand for 

U.S. oak during the 1970's were 

caused by a combination of the dollar's depreciation against currencies 

of major European demanders, increases in prices of European oaks, 

increases in output prices in 

Europe, and furniture style changes. 
Introduction 

The surge in hardwood lumber 

exports during the last decade signaled an increasing foreign demand 

for lumber produced in the United 

States. In 1971, exports of hardwood 

lumber were only 110 million board 

feet, or 1.6 percent of domestic production. Of this, only 10 million 

were shipped to European countries. However, exports began to increase after 1971 so that by 1980 total exports reached 350 million 

board feet and exports to Europe increased to 157 million board feet. 

But by far the most significant aspect of the change in exports was 

that 102 million board feet, or nearly 

30 percent of the total, were oak 

shipments to four countries-the 

Netherlands, Belgium, Germany, 

and France. Shipments to these 

countries increased by 1,600 to 

3,000 percent in a period of just 8 

years (Table 1). 

The domestic effects of the 

dramatic increase of oak exports to 

Europe are somewhat mixed. 

European buyers have been willing 

to pay a premium for high-grade 

plain and quartered-cut oak lumber, 

causing the price of Firsts and 

Seconds (FAS) oak to increase tremendously. Many producers and 

wholesalers of hardwood lumber 

have benefited from the premium 

prices being paid for high-grade oak 

and have changed their marketing 

practices to accommodate 

European buyers. But many domestic demanders are complaining 

about the increases in lumber price, 

while other domestic demanders 

claim that the large profits being 

made by suppliers of the higher 

grades make domestic supplies of 

No. 1 and No. 2 Common lumber 

available at a lower price. 

ln order to understand why 

European demand for domestically 

produced oak has increased so dramatically and judge whether it will 

continue to increase in the future, 

the demands for oak lumber by major importing countries must be 

quantified. Then the factors that 

have caused the change can be isolated and measured. Such information can be used by domestic demanders and suppliers to anticipate 

changes in European demands in 

the future, and thus to make better 

production and usage decisions. 

Forest resource planners and other 

government officials also can use 

the information to develop export 

marketing programs. 

Literature pertaining to international trade in forest-related commodities is available, but literature 

pertaining to international demands 

for hardwood lumber is scarce. Although Chou and Buongiorno (1984) 

have estimated demands for hardwood lumber by European countries 

and Camous (1980) has studied the 

effects of exports on French oak 

price, no study has addressed export demand for hardwood lumber 

of a specific species to a specific 

country. 

Table 1.-Volumes of oak lumber exported to major European demanders 

and percentage changes in exports for the years 1973 through 1980, 

in thousand board feet (Mbf) 

Percentage change 

Country 1973 1976 1977 1978 1979 1 980 1973- 1980 

Norway 

Denmark 

United Kingdom 

Ireland 

The Netherlands 

Belgium 

Germany 

France 

Spain 

Italy 

SOURCE: U.S. Department of Commerce, Bureau of the Census, U.S. Exports Schedule B. Commodity by Country. Report 410, 

Washington, DC. 
Mode! Development and 

Data Base 

Economic theory stipulates that 

the demand for a productive input is 

a function of the price of the input, 

prices of other inputs, and price of 

the output. Export demand relationships developed by Leamer and 

Stern (1970) and others follow the 

general form stipulated by theory 

except for the substitution of industrial production or economic activity 

level for the price of output. Since 

information on levels of economic 

activity is more easily found than 

output price information, the substitution of economic activity level for 

price of output is probably made for 

convenience. The current study attempts to formulate the demand 

relationships in the form that is stipulated by economic theory, within 

the bounds of data availability. 

The data base used for equation estimation consists of observations made quarterly from 1973 

through 1979. This period was 

chosen because it is representative 

of the current international 

monetary market structure, which 

underwent a structural change in 

1973. Information on the quantities 

exported was obtained from U.S. Exports Schedule B. Commodity by 

Country (Report FT410), compiled by 

the U.S. Department of Commerce, 

Bureau of the Census. 

The price of the input in the demand relationships for the various 

countries was the price of American 

FAS red oak lumber plus whole carlot premium as reported in the Hardwood Market Report (Lemsky 1970, 

1980). Hardwood Market Report 

prices were used instead of unit 

prices derived from export statistics 

because unit prices are affected by 

merchandising costs such as sorting, drying, and stacking. These 

have changed over time as American exporters have learned more 

about their customers, making unit 

prices an inconsistent measure of 

the price being paid for the actual 

lumber. The price of FAS lumber 

was used because Europeans tend 

to purchase high-grade "clear" lumber. The premiums were added to 

the FAS price because shipments of 

lumber bound for export are usually 

composed mostly of high-grade lumber. Red oak price was used rather 

than a combination of red and white 

oak prices because the reported 

prices of these species were nearly 

the same between 1973 and 1979. 

The price of French oak was included in the demand relationship 

to represent the price of substitute 

species. Although French and U.S. 

oaks are not perfect substitutes for 

one another, many European furniture and cabinetmakers can use 

either species after a short adjustment period. The French oak price 

series used was released by the 

French office, National des Forets, 

Department Commerical, in a publication by Christian Camous entitled 

"La Formation du Prix du Chene en 

France, Une Etude Econometrique" 

(1 980). 

An important consideration in 

the price of an imported input is the 

exchange rate between countries. 

The exchange rate can be considered a separate variable in model 

specification, or it can be used to 

adjust price from one currency to 

another. Theoretically, it is more 

sound to adjust price with exchange 

rate because the adjusted price is 

the one that foreign demanders face 

in the marketplace. Since countries 

like Belgium import oak from both 

France and the United States, the 

prices of these commodities must 

be based on the currency of the importing country. Exchange rates and 

indexes were obtained from the 

Monthly Bulletin of Statistics, published by the United Nations. 

The selection of an output 

price variable was complicated by 

the facts that furniture prices in the 

individual countries were unobtainable and reported price indexes for 

general commodity groups were inconsistent across countries. Given 

these difficulties, the most appropriate available price indexes were selected for each country. The indexes 

for finished goods were used in the 

German and Dutch demand relationships, while the indexes for domestic goods prices were used in the 

Belgian and French equations. All 

indexes were obtained from the 

Monthly Bulletin of Statistics. 

Since past levels of lumber 

price, interest and wage rates, and 

output prices were found to affect 

aggregate demand for hardwood 

lumber in the United States, (buppold 19821, past levels of U.S. oak 

price, French oak price, and output 

price may affect current export demand. If the European demanders 

react li ke their American counterparts, a lag specification of 1 to 3 

years and polynomial in form should 

be tested. The polynomial, or "inverse Up', lag structure indicates a 

situation where a change in price 

exerts an increasing, then decreasing influence on demand over time. 

One additional variable that has 

influenced the quantity of oak lumber exported to Europe is the 

change in furniture styles throughout the continent. Prior to 1975, oak 

lumber was used in traditional furniture, while mahogany and teak were 

used in fashionable furniture; but in 

the mid 1970's, a quick change to 

oak in the fashionable furniture market occurred, creating a larger demand for oak (Ascherman 1983). To 

account for this change, a dummy 

variable was included in the model 

with the dummy equaling 1 for 

dates after 1975 and zero otherwise. 
Model Estimation 

The estimated demand equations for the Netherlands, Belgium, 

Germany, and France are presented 

in Table 2. All the equations fitted 

the data well, as indicated by the 

"t'9tatistics and the R2's. All nonintercept variables were of the expected sign and were significant at 

the 0.05 level or better. The DurbinWatson (D-W) statistic for the Belgian equation indicated no autocorrelation, while the D-W values of 

the other equations fell in the inconclusive range. 

The length and appropriate type 

of lag structure used in the individual price variables in each equation 

were empirically determined. The 

demand equations for the Netherlands, Belgium, and Germany had 

identical specifications of polynomial lagged price variables. The 

French equation was composed of 

moving averages that were 3 quarters in length. 

Table 2.-Statistically estimated U.S. oak export demand relationships for the 

Netherlands, Belgium, Germany, and France 

- 

Country Variable Coefficient t statistic Nature of lag - - - - - - - 

The Netherlands lntercept 

U.S. oak price 

French oak price 

Price finished goods 

1976 dummy 

Belgium 

Germany 

France 

lntercept 

U.S. oak price 

French oak price 

Price domestic goods 

1976 dummy 

lntercept 

U.S. oak price 

French oak price 

Price finished goods 

1976 dummy 

lntercept 

U.S. oak price 

French oak price 

Price domestic goods 

1976 dummy 

1.56 

2.91 * * 

- 2.29* 

- 2.44* 

3.50* * 

R2 = .833 

D-W = 1.18 

4.34* * 

7.31 * * 

- 8.32* * 

- 4.43* * 

1.79* 

R2 = .877 

D-W = 1.81 

2.29* 

5.71 * * 

- 3.48** 

- 3.47* * 

5.33* * 

R2 = .922 

D-W = 1.49 

1.21 

- 4-83" * 

2.97* * 

3.79* * 

4.00* * 

R2 = ,864 

D-W =L: 1.47 

- Polynomial t-2 through t-6 

Polynomial t-1 through t-4 

Polynomial t-1 through t-4 

- 

- Polynomial t-2 through t-6 

Polynomial t-1 through t-4 

Polynomial t-1 through t-4 

- 

- Polynomial t-2 through t-6 

Polynomial t-1 through t-4 

Polynomial t-1 through t-4 - 

- 

Moving average t-1, t-2, t-3b 

Moving average t-1, t-2, t-3 

Moving average t-I, t-2, t-3 - 

a The coefficients associated with the polynomial lags are the opposite signs of the resulting elasticities because 

negative weights were used in their calculation (See Maddala 1977). 

Moving averages representing an even lag distribution performed better than polynomial lag structures in the 

French equation. 

* * Significant at a = 0.01. 

*Significant at a = 0.05. 
Analyses 

Demand elasticities for U.S. oak 

price, French oak price, and output 

price for the Netherlands, Belgium, 

Germany, and France are shown in 

Table 3. The elasticities are cumulative, or long-term, elasticities 

which reflect the total impact of a 

change in an explanatory variable 

after a period of up to 18 months. 

The elasticities presented are at 

1980 prices and quantities to be 

most reflective of current market activity. 

As should be expected, the 

long-term price elasticities of U.S. 

oak are relatively high, ranging from 

3.8 for the Netherlands to 5.4 for 

Belgium. Such high long-term price 

elasticities are not unusual for a 

high-value, limited-use imported 

item. The high elasticities indicate 

that a change in oak price in the 

United States or a change in exchange rates has a rather large impact on the demand for U.S. oak. 

This change did not begin instantly, 

rather the effect was spread over 2 

to 6 quarters in the Netherlands, 

Belgium, and Germany, and 1 to 3 

quarters in France. 

The dummy variable which was 

included to account for the style 

change in European furniture was 

statistically significant in all the demand equations. The level of the 

change in millions of board feet can 

be determined directly from the coefficient associated with the dummy 

variable. The style change affected 

German and Belgian demand to a 

much greater degree than it affected the demands of France and 

the Netherlands. 

The elasticities in Table 3 show 

the relative influence of a 1-percent 

change in the various prices on 

quantities exported. However, in 

order to analyze why the quantities 

exported changed so dramatically 

during the 19701s, the percentage 

changes in U.S. and French oak 

prices (adjusted for exchange rates) 

and changes in output prices must 

be considered. These changes are 

shown in Table 4. 

Although the price of U.S. oak 

increased by more than 100 percent 

in U.S. dollars between 1973 and 

1979, the price of US. oak in the 

Netherlands, Belgium, and Germany 

rose only 11 to 32 percent because 

of the large depreciation of the U.S. 

dollar against European currencies 

during the 1970's (Table 5). The 

price of U.S. oak in France increased by 65 percent because the 

U.S. dollar did a little better against 

the French franc than against the 

Dutch guilder, the Belgian franc, or 

the German mark. Of course, any 

price increase would discourage demand for U.S. oak; but a small price 

increase in U.S. oak would be more 

easily offset by an increase in 

French oak price or output price. 

French oak price increased by 

414 percent between 1973 and 1979 

(Table 4), but the increases in 

French oak price in the Netherlands, 

Belgium, and Germany were considerably less because of the weakness of the French franc. Still, price 

increases of 248 percent in Germany, 297 percent in Belgium, and 

283 percent in the Netherlands more 

than offset the increase of U.S. oak 

price, even considering the differences in price elasticities. Ironically, 

the large increase in French oak 

price has been attributed to exports 

of French oak (Camous 1980). According to this theory, an increased 

demand for French oak caused the 

price of French oak to rise, which, 

in turn, caused the demand for and 

price of U.S. oak to increase. The 

initial increase in French oak demand was probably caused by the 

decreased availability of Japanese 

oak and the decreasing availability 

of tropical species from Africa and 

Asia. 
Table 3.-Cumulative elastScities of demand for 

U.S. oak in the Netherlands, Belgf urn, Germany, and France with respect to price of U.S. oak, 

price of French oak, and price of output 

at 1980 levels 

Price of Price of Price of 

Country U.S. oak French oak output - - 

The Netherlands - 3.80 0.99 2.43 

Belgium - 5.41 2.13 2.98 

Germany - 4.05 1 .OO 2.62 

France - 4.66 1.73 3.35 

Table 4.-Percentage changes in U.S. oak price, French 

oak price, and output price for the Netherlands, 

Belgium, Germany, and France, 1973-1979 

Price of Price of Price of 

Country U.S. oaka French oakb output 

The Netherlands 23 283 57 

Belgium 32 297 45 

Germany 11 248 52 

France 65 41 3 118 

a Adjusted for exchange rates between the U.S. and the demanding country. Adjusted for exchange rates between France and the demanding country. 

Table 5.- Percentaee changes in the U.S. dollar and the French 

franc agalnst the currencies of the Netherlands, 

Belgium, Germany, and France, 1973-1979 

Change in the value Change in the value 

Against the. . . of the U.S. dollar of the French franc 

Dutch guilder 

Belgian franc 

German mark 

French franc 
Output prices also increased in 

Europe during the 1970's. These increases more than offset the increase in U.S. oak price, after accounting for the differences in their 

relative elasticities. The root of the 

price increases was the rapid and 

stable economic growth of the 

European economies during the 

1970's. The rather high increase in 

French price of output corresponds 

to the inflation France experienced 

relative to the other countries under 

study. This difference in inflation 

rates is reflected in the depreciation 

of the French franc against the 

other currencies (Table 5). 

One result of the continuing 

high level of exports to Europe is a 

better organized and larger export 

marketing system. When the initial 

surge in export demand occurred, 

few American suppliers of hardwood lumber were used to the buying customs of European demanders. The continual export demand has forced American suppliers to understand the wants and 

needs of European buyers better in 

order to get a piece of the market. 

This is evident in the resorting and 

regrading of lumber that is now 

termed "export" grade. It probably 

means that the U.S. exports will not 

revert to pre-1973 levels. 

The trade in any commodity between any two countries or regions 

is an economic phenomenon and is 

dependent on economic variables. 

The relative levels of these variables 

dictate the level and direction of 

trade. In 1982, there was a slight decrease in exports of oak to Europe, 

linked to the increasing strength of 

the dollar over European currencies 

and a decreasing rate of growth in 

European economies. The weakening of the French franc against 

other European currencies also curtailed increases in French oak price. 

Recent developments that will 

contribute to better marketing of 

American lumber include the stationing in Europe of representatives 

from U.S. lumber associations, the 

development of a section of the Foreign Agricultural Service concerned 

with forest products, tax advantages 

for firms whose primary purpose is 

to export, and the proposed development of export trading companies. These are only a start. 

One major obstacle to the exportation of hardwood products is 

the lack of concrete market information. Although lack of easily obtainable information gives market insiders an advantage, it hinders entrance into the market, which can 

only hurt the economic efficiency of 

the market and may jeopardize 

further growth of the American 

share of the European market. More 

accurate and timely reporting of 

prices and quantities on a speciesby-species basis is needed. Transportation costs would atso be of interest to potential and current suppliers. 

The United States could be one 

of the biggest hardwood lumber exporters in the world. This potential 

can be realized by lower cost production and a marketing system sophisticated enough to operate on an 

international scale. Future research 

efforts and planning resources 

should be aimed at providing the 

needed ingredients for long-term development of our export market potential. 
Literature Cited 

Ascherman, Herb. What's ahead on 

hardwood exports. ImportlExport 

Purch. News 9(5):1, 14-16; 1983. 

Camous, Christian, La formation du 

prix du chene en France: Une 

etude econometrique. Paris: National des Forets, Department 

Commercial; 1980. 43 p. 

Chou, Jieh; Buongiorno, Joseph. Demand functions for United States 

forest product exports to the 

European economic community. 

Wood & Fiber Sci. 16(2); 1984. 

Leamer, Edward; Stern, Robert. 

Quantitative international economics. Boston: Allyn and Bacon; 

1970. 209 p. 

Lemsky, Abs, ed. Hardwood market 

report. Memphis: Abe Lemsky; 

1970, 1980. 

Luppold, William G. An econometric 

model of the hardwood lumber 

market. Res. Pap. NE-512. Broomall, PA: U.S. Department of Agriculture, F~rest Service, Northeastern Forest Experiment Station; 

1982. 15 p. 

Maddala, G. S. Econometrics. New 

Vork: McGraw-Hill; 1977. 516 p. 

United Nations. Monthly bulletin of 

statistics. New York: Secretariat 

Statistical Office; 1973-1979. 

U.S. Department of Commerce, Bureau of the Census. U.S. exports 

schedule b. commodity by coun= 

try. Rep. FT410. Washington, 

DC: U.S. Department of Commerce, Bureau of the Census; 

1973- 1980. 
Luppold, William G. An analysis of European demand for oak 

lumber. Res. Pap. NE-538. Broomall, PA: U.S. Department of 

Agriculture, Forest Service, Northeastern Forest Experiment 

Station; 1984.7 p. 

Exports of oak lumber produced in the United States to major 

European demanders were analyzed using ordinary least 

squares estimation procedures. 

ODC 722.4 

Keywords: Economics; exports; hardwoods 

'CI U.S. GOVERNMENT PRINTING OFFICE: 1984-705-029:26 
Headquarters of the Northemtern Forest Experiment Station are in 

Broomall, Pa. Field lahratories are maintained at: 

Amherst, Massachusetts, in cooperation with the University of 

M~ackusetts. 

@ Berea, Kentucky, in cooperation with Berea College* 

@ Burlington, Vermont, in cooperation with the University of 

Vermont, 

@ Delaware, Ohio. 

@ Durham, New Hampshire, in cooperation with the University of 

New Hapfire. 

@ Hmden, Connaticut, h cooperation with Yale University. 

@ Margantown, West Virginia, in cooperation with West Virginia 

University, Morgantown. 

@ Orono, Maine, in cooperation with the University of Maine, 

Orono. 

@ Parscorns, West Virginia. 

@ Prhceton, West Virginia. 

Q Syracuse, New York, in cooperation with the State University of 

New York College of Environmental Sciences and Forestry at 

Syracuse University, Syracw. 

@ University Park, Penmylvania, in cooperation with the 

Pennsylvania State University. 

@ Warsen, Pennsylvlmia.