Wood processors are awaiting serious investments that they will not be able to carry out without European money

The domestic wood processing sector can no longer base its competitiveness solely on the availability of quality raw materials and cheap labor, but must turn to modernizing production, digitalization, and robotization, as well as improving design and international branding, states the Croatian Chamber of Economy. All of this requires serious investments that will not be possible to realize without utilizing European funds – this is the message from the industry presented during the results of the research ‘Analysis of the State and Perspectives in the Wood Processing and Furniture Production Sector in Croatia’ organized by the Croatian Chamber of Economy.

– This is a very potent industrial branch, but it has a number of developmental problems that we must address in the upcoming period. We need to work on branding and raising quality, which requires a lot of investment, in which EU grants will play a crucial role – emphasized the president of the Association of Wood Processing Industry of the Croatian Chamber of Economy Igor Leščić, while the Minister of Regional Development and European Union Funds Nataša Tramišak explained how much European money the sector can count on.

– As part of the new cohesion policy, through two specific goals – smart and green Croatia, around one billion euros will be available for regional development, and one of the most significant industrial sectors in this story will be wood processing. It opens great opportunities for the development of the Pannonian region, Lika, and the north of Croatia – stated Tramišak.

Minister of Agriculture Marija Vučković said that the sector’s exports in the first three months of 2021 increased by 315 million euros compared to the same period last year.

– We cannot be satisfied with the figures when we talk about furniture exports; however, we do have a growth of 7 percent, which is similar to the growth of imports. This shows that the foreign trade balance in this category has not worsened, and we will work together with all stakeholders in the sector on future development – said Vučković.

The Vice President of the Croatian Chamber of Economy for Agriculture and Tourism Dragan Kovačević emphasized that we can no longer base the development of the wood processing sector on the availability of quality raw materials.

– We have insufficient capacities for high value-added products. If we look at foreign trade exchange from 2016 to today, we have had a continuous increase in imports, while our surplus has decreased by 170 million euros. The structure of that exchange is also problematic, where furniture imports exceed 50 percent, while exports consist of products with the lowest degree of processing at 45 percent. Therefore, it is clear that the state needs to draw a line, make a balance, and determine priorities related to the new strategy – believes Kovačević.

The head of the Committee for EU Funds and Policies at the Association of Wood Processing Industry HGK Ivić Pašalić presented the state of the sector, emphasizing that the wood processing industry employs 25,000 workers, which is almost 11 percent of the total employed in the manufacturing industry. The sector consists of over 2,000 companies, of which 95 percent fall into micro and small firms, and the average salary in the industry in 2020 was 672 euros (an increase of 5 percent compared to 2019).

The sector generates revenues of 1.86 billion euros annually, exports over one billion euros, and achieves a trade surplus of 376 million euros. Pašalić pointed out that the structure of exports is unsatisfactory because almost 790 million euros of total exports in the sector consists of wood products, while only 265 million pertains to furniture exports. He sees low profitability and labor productivity, poor capitalization and liquidity, an average low level of technological development, investment, and innovation, and weak international recognition as weaknesses of the sector. On the other hand, he considers the long-standing tradition of the domestic wood industry, high potential for development, export orientation, and the fact that most companies are located in rural areas as positives.

Most wood processors invest in the procurement of equipment and machinery and working capital, while digitalization and development are lagging behind. A quarter of companies have received non-repayable funds from the EU in the past three years, although over half believe that European funds are not sufficiently accessible.

Entrepreneurs themselves cite rising labor costs, excessive taxation, small margins, and a lack of qualified personnel as the main limiting factors for growth.

– There is a serious lag of domestic companies behind the trends of Industry 4.0 in terms of automation, robotization, and digitalization of production processes, and consequently, decreasing competitiveness in the global market. Therefore, our goals are to restructure and technologically upgrade the wood processing industry, encourage higher levels of completion of technological and design products, i.e., products with the identity of the company and country of origin – concluded Pašalić.

The research was conducted by the Association of Wood Processing Industry HGK, in collaboration with the consulting firm Pricewaterhousecoopers Consulting, to serve as guidelines for the relevant institutions in the preparation of the National Development Plan for Wood Processing and Furniture Production of the Republic of Croatia for the period from 2022 to 2030 based on the developmental and investment needs of the wood industry.

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